Reported Decision: (2007) Aust Contract Reports 90-254 Appeal Outcome: Special leave refused with costs by the High Court - 16 November 2007 New South Wales Court of Appeal CITATION: Ryledar Pty Ltd & Anor v Euphoric Pty Ltd [2007] NSWCA 65 This decision has been amended. Please see the end of the judgment for a list of the amendments. HEARING DATE(S): 13 February 2007 JUDGMENT DATE: 20 April 2007 JUDGMENT OF: Mason P at 1; Tobias JA at 2; Campbell JA at 257 DECISION: Appeal dismissed with costs. CATCHWORDS: CONTRACTS – General contractual principles – Construction and interpretation of contracts - EQUITY – Rectification – Mistake as to the effect of the deliberately chosen words – Requirement of clear and convincing proof of a common intention inconsistent with the words deliberately employed – Whether objective evidence of common intention renders evidence of subjective intention irrelevant - ESTOPPEL – Estoppel by convention - ESTOPPEL – General principles – Whether an estoppel continues if the contract is renewed - CONTRACTS – General contractual principles – Options to renew – Whether the exercise of an option is conditionally valid but subject to defeasance if a party goes into breach of a condition precedent to the option after the exercise of the option but before the end of the original term Fair Trading Act 1987 LEGISLATION CITED: Supreme Court Rules 1970 Trade Practices Act 1974 (Cth) Air Great Lakes Pty Limited v K S Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309 Amalgamated Investment & Property Co Ltd v Texas Commercial International Bank Ltd (in liq) [1982] QB 84 Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 Australian Co-operative Foods Ltd v Norco Co-operative Ltd (1999) 46 NSWLR 267 Australian Hardwoods Pty Ltd v Commissioner for Railways [1961] 1 All ER 737 [1961] 1 WLR 425 Baker v Paine (1750) 1 Ves Sen 456 Ball v Storie (1823) 1 Sim & St 210 57 ER 84 Bishopsgate Insurance Australia Ltd v Commonwealth Engineering (NSW) Pty Ltd [1981] 1 NSWLR 429 Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153 Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd (2001) 117 FCR 424 Calverley v Williams (1790) 1 Ves Jr 210 30 ER 306 Club Cape Schanck Resort Co Ltd v Cape Country Club Pty Ltd (2001) 3 VR 526 Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 Commissioner of Stamp Duties (NSW) v Carlenka Pty Ltd (1995) 41 NSWLR 329 Commonwealth v Verwayen (1990) 170 CLR 394 Con-Stan Industries of Australia Pty Ltd v Norrich Winterthur Insurance (Australia) Ltd (1986) 160 CLR 226 Crane v Hegeman-Harris Co Inc [1971] 1 WLR 1390 Earl v Hector Whaling Ltd [1961] 1 Lloyd's Rep 459 Elders Trustees & Executor Co Ltd v E G Reeves Pty Ltd (1987) 78 ALR 193 Equus Corp Pty Ltd v Glengallan Investments Pty Ltd [2006] QCA 194 Farrow Mortgage Services Pty Ltd (in liquidation) v Slade and Nelson (1996) 38 NSWLR 636 Fowler v Fowler (1859) 4 De G & J 250 45 ER 97 Frederick E Rose (London) Ltd v William H Pim Jnr & Co Ltd [1053] 2 QB 450 Gilbert J McCaul (Aust) Pty Ltd v Pitt Club Ltd (1959) 59 SR (NSW) 122 Green v AMP Life [2005] NSWSC 370 (2005) 13 ANZ Ins Cas 90-124 CASES CITED: Grundt v Great Boulder Pty Gold Mines Ltd (1937) 59 CLR 641 Hooker Town Developments Pty Ltd and Another v The Director of War Service Homes (1973) 47 ALJR 320 The Indian Grace (No. 2) [1998] AC 878 In Re Butlin's Settlement Trusts [1976] Ch 251 Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 Joscelyne v Nissen [1970] 2 QB 86 Johnson Matthey Ltd v A C Rochester Overseas Corporation (1990) 23 NSWLR 190 Lion Nathan Australia Pty Ltd v Coopers Brewery Ltd (2005) 223 ALR 560 Mander v Clements (2005) 30 WAR 46 Maralinga Pty Ltd v Major Enterprises Pty Ltd (1973) 128 CLR 336 Magill v National Australia Bank [2001] NSWCA 221 MK & JA Roche Pty Ltd v Metro Edgely Pty Ltd [2005] NSWCA 39 Moratic Pty Ltd v Gordon [2007] NSWSC 5 Mortimer v Shortall (1842) 2 Dr & War 363 NSW Medical Defence Union Ltd v Transport Industries Insurance Co Ltd (1986) 6 NSWLR 740 Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 Prenn v Simmonds [1971] 1 WLR 1381 Pukallus v Cameron (1982) 180 CLR 447 River Wear Commissioners v Adamson (1877) 2 App Cas 743 Simpson v Vaughan (1739) 2 Atk 31 26 ER 415 Slee v Warke (1949) 86 CLR 271 State Rail Authority of NSW v Heath Outdoor Pty Ltd (1986) 7 NSWLR 170 Taylor v Johnson (1983) 151 CLR 422 Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 Tonitto v Basral (1992) 28 NSWLR 564 Transport Industries Insurance Co Ltd & Ors v NSW Medical Defence Union Ltd (1986) 4 ANZ Ins Cas 60-736 Trawl Industries of Australia Pty Ltd v Effem Foods Pty Ltd (1992) 27 NSWLR 326 The Vistafjord [1988] 2 Lloyds Reports 343 Walterman v Gerling Australia Insurance Co Pty Ltd (2005) 65 NSWLR 300 Westland Savings Bank v Hancock [1987] 2 NZLR 21 Whittet v State Bank of New South Wales (1991) 24 NSWLR 146 Ryledar Pty Limited t/as Volume Plus PARTIES: Azir Magar Sidhom Euphoric Pty Ltd t/as Clay & Michel FILE NUMBER(S): CA 40067/06; 40068/06 COUNSEL: A: B. W. Rayment QC / M Sahade R: B. Coles QC / M Ashhurst / S Docker SOLICITORS: A: Mallesons Stephen Jaques (Sydney) R: Cowley Hearne Lawyers (Sydney) LOWER COURT JURISDICTION: Supreme Court - Equity Division LOWER COURT FILE NUMBER(S): SC 50070/01; SC 50071/01 LOWER COURT JUDICIAL OFFICER: Palmer J 6/6/05 LOWER COURT DATE OF DECISION: 10/10/05 11/10/05 30/1/06 LOWER COURT MEDIUM NEUTRAL CITATION: Euphoric Pty Ltd v Ryledar Pty Ltd [2006] NSWSC 2 IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40067/06 CA 40068/06 SC 50070/01 SC 50071/01 MASON P TOBIAS JA CAMPBELL JA Friday 20 April 2007 RYLEDAR PTY LTD t/as VOLUME PLUS & ANOR v EUPHORIC PTY LTD RYLEDAR PTY LTD t/as VOLUME PLUS v EUPHORIC PTY LTD Headnote FACTS The parties entered into a two year supply agreement under which Euphoric, a distributor of Mobil petroleum products, would supply petroleum products to Ryledar's service stations. In the Supply Agreement, Euphoric contracted to supply a "contractual rebate" of 6.2 cents per litre "for Sydney Metro locations" and 6.0c per litre "for Wollongong, Central Coast and Newcastle Locations". This meant that the rebate applied to all of Ryledar's locations at the time the Supply Agreement was entered into. The qualification as to the locations for the 6.0c per litre rebate was added late in the drafting process (previously it had referred simply to "Outside Sydney Metro locations"), as had a provision regarding the calculation of freight, which said "Deliveries outside areas defined under the Contractual Rebate will be charged freight as per Mobil's Price Book less the freight applicable to Newcastle." Subsequently, Ryledar opened a large number of new locations and Euphoric applied a 6.0 cents per litre rebate to all of those, even though many of them were not in Wollongong, Central Coast or Newcastle. There were ongoing disputes about the method of calculating the final price of the products, the calculation of freight, the fact that Ryledar was consistently and considerably in arrears and other matters. In 1999 the parties entered into a Variation to the Supply Agreement which, among other changes and in terms suggested by Ryledar, varied the 6.0 cents per litre rebate area to "Wollongong, Central Coast and Newcastle locations and any town on or east of a straight line connecting Newcastle-Bilpin-Katoomba-Bowral-Wollongong but exluding the Sydney Metro locations." Euphoric continued to apply the rebate to locations outside of the newly defined area. The variation also extended the term of the Supply Agreement until 17 November 2000. On 6 July 2000, after a change of General Manager, Euphoric notified Ryledar that it intended to return to the letter of the Supply Agreement and the 1999 Variation and cease applying the rebate to locations outside of the area described. Ryledar objected to this and claimed that the agreement had always been that the rebate applied to all New South Wales locations outside the Sydney Metro area. Ryledar refused to repay the full amounts invoiced, instead withholding the equivalent of 6.0 cents per litre. The disputes involving price calculations, freight, credit and other matters continued. On 21 August 2000 Ryledar purported to exercise an option to renew the Supply Agreement, which was due to expire on 17 November 2000. Euphoric claimed that the option was not validly exercised as Ryledar had not "…at all times during the Term duly observed and fulfilled its obligations under this Agreement and all other agreements with Euphoric", as required by the clause of the Supply Agreement which created the option. Ryledar disputed that they were in breach and alleged that the refusal to grant the option amounted to an anticipatory breach. An interim agreement was entered into when the original term expired but the relationship was eventually terminated on 24 May 2001. Pimarily, the dispute before the Court turned on whether or not Ryledar was entitled to the 6.0 cents per litre rebate to all locations in NSW outside the Sydney Metro area. This appeal raised a number of issues: 1. whether, on its true construction and read as a whole, the terms of the Supply Agreement were that the 6.0 cents per litre rebate should apply to all locations in NSW outside Sydney Metro locations; 2. if the answer to 1 was no, whether the Supply Agreement should be rectified because it did not reflect the common intention of the parties at the time it was made, 3. in the alternative, whether Euphoric was estopped by convention from denying Ryledar's entitlement to the rebate to all locations in NSW outside the Sydney Metro locations, 4. whether Euphoric had made misleading representations to Ryledar that the 6.0 cents per litre rebate applied to all locations outside Sydney Metro, entitling Ryledar to damages under s 87 of the Trade Practices Act 1974 (Cth) and s 72 of the Fair Trading Act 1987 (NSW), 5. whether the terms of the Option to Renew in the Supply Agreement meant that the option was not validly exercised if Ryledar breached its obligations under the Supply Agreement after exercising the option by serving notice but before the expiry of the original term, 6. appropriation, and 7. whether Ryledar was entitled to equitable set-off for Euphoric's alleged anticipatory breach in refusing to accept as valid Ryledar's exercise of the option HELD, dismissing the appeal on all grounds (1) (Tobias JA, Mason P and Campbell JA agreeing) The words of the 1999 Variation to the Supply Agreement where clear, unambiguous and not inconsistent with the purpose and object of the transaction and there was no evidence capable of justifying the construction contended for by Ryledar which would involve nothing less than a re-writing of the parties' contract. (2) (Campbell JA, Mason P and Tobias JA agreeing) The common intention that is required for a grant of rectification is subjective. Proof of the subjective intention of the parties to the contract is fundamental to the grant of rectification. (3) (Tobias JA, Mason P and Campbell JA agreeing) For rectification to be granted where the parties have purposely and deliberately chosen the words of their contract, there must be clear and convincing proof that the parties held a common intention which is contrary to those words and that those words were chosen by mistake. It is less likely that the parties were mistaken as to the meaning of the words where they are clear and unambiguous, or where they had a common intention which was fundamentally inconsistent with the words they had deliberately employed. (4) (Tobias JA, Mason P and Campbell JA agreeing) The Court cannot simply ignore the parties' true intention and rely solely upon the relevant common intention being established by correspondence and/or conduct. The whole of the objective and subjective evidence must be considered for the purpose of determining whether the party claiming rectification has established the actual and true common intention of the parties by clear and convincing proof. (5) (Tobias JA, Mason P and Campbell JA agreeing) It is a requirement for conventional estoppel that departure from the relevant mutually held assumption will occasion detriment to the party asserting it. No such detriment can exist if, in fact, that party is found not to have any belief that any such assumption exists. (6) (Tobias JA obiter, Mason P and Campbell JA agreeing) There is much to be said for the view that even if there is a conventional estoppel it did not, without more, extend to any renewal of the Supply Agreement through the exercise of an option. (7) (Tobias JA, Mason P and Campbell JA agreeing) There was no evidence which would give rise to the orders sought under the Trade Practices Act 1974 (Cth) or Fair Trading Act1987 (NSW). (8) (Tobias JA, Mason P and Campbell JA agreeing) It was unnecessary to consider the issue of appropriation in the present case, where Ryledar conceded that if it was found that it was not entitled to the rebate then it was not in a position to establish that it was not in beach of its obligations. (9) (Tobias and Campbell JJA, Mason P agreeing) Where an option to renew has as a condition that a party "at all times during the Term duly observed and fulfilled its obligations under this Agreement" then any breach of that condition by the party before the expiration of the term invalidates any exercise of the option, irregardless of whether the breach occurred after notice of exercise of the option had been given. (10) (Tobias JA, Mason P and Campbell JA agreeing) As there was no anticipatory breach by Euphoric, the question of equitable set-off did not need to be considered. IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40067/06 CA 40068/06 SC 50070/01 SC 50071/01 MASON P TOBIAS JA CAMPBELL JA 20 April 2007 RYLEDAR PTY LTD t/as VOLUME PLUS & ANOR v EUPHORIC PTY LTD RYLEDAR PTY LTD t/as VOLUME PLUS v EUPHORIC PTY LTD Judgment 1 MASON P: I agree with Tobias JA and with the additional reasons of Campbell JA. 2 TOBIAS JA: The first appellant (Ryledar) at the relevant times carried on business as a reseller of petroleum products under the name "Volume Plus" at service station sites owned or occupied by it or by its licensees. The respondent (Euphoric) distributed Mobil petroleum products in New South Wales. 3 On 18 May 1998 the parties entered into a Supply Agreement (the 1998 Agreement) whereby Euphoric agreed to supply Mobil petroleum products to Ryledar. The 1998 Agreement was varied on 31 March 1999 (the 1999 Variation). 4 Relevantly to the issues in the appeal Euphoric pursuant to both the 1998 Agreement and the 1999 Variation, supplied petrol (or gasoline) and automotive distillate to service station sites (the sites) operated by Ryledar or an associated company (whose name does not matter for present purposes) from 18 May 1998 until the termination of their relationship on 24 May 2001. 5 The initial term of the 1998 Agreement was two years expiring on 18 May 2000. It was extended for a further six months by the 1999 Variation so that expired on 17 November 2000. However, the 1998 Agreement contained an option for three "Renewal Periods" of one year each. 6 The primary dispute between the parties relevant to the appeal revolved around two issues. The first was whether Ryledar was entitled to a rebate of 6¢/litre for gasoline and automotive distillate supplied to its sites located outside what were referred to in the 1998 Agreement and the 1999 Variation as the "Sydney Metro locations". The second was whether Euphoric breached the 1998 Agreement by denying Ryledar's entitlement to exercise the option for the first renewal period. The primary judge, Palmer J, determined each of those issues in favour of Euphoric. The nature of the proceedings 7 The primary judge had two sets of proceedings before him, both instituted by Euphoric. The first, SC 50070/01 (CA 40067/06) were proceedings against Ryledar and Azir Magar (Mr Magar) (a director of Ryledar who gave guarantees and indemnities in respect of Ryledar's obligations under the 1998 Agreement) in which it sought a declaration that Ryledar was indebted to Euphoric in the sum of $9,812,941.37 in respect of goods sold and delivered under the 1998 Agreement (including the 1999 Variation). An order for the payment of that sum was also sought. Ryledar filed a cross-claim which raised the issues debated on the appeal. I shall detail them below. 8 A number of the issues in those proceedings were referred to a referee for determination under Pt 72 of the Supreme Court Rules 1970. The ultimate question to be answered by the referee was what total sum, if any, was overdue for payment by Ryledar to Euphoric as at 17 November 2000 for goods supplied by Euphoric to Ryledar in accordance with the 1998 Agreement as varied by the 1999 Variation. 9 The determination of that question was relevant to whether Ryledar was entitled to exercise the option to renew the 1998 Agreement for the first renewal period. Euphoric filed a notice of motion seeking the adoption of the referee's report whereas Ryledar filed a notice of motion seeking its rejection. 10 The issue which relevantly arose on the hearing of those notices of motion related to whether or not Ryledar had, on or prior to 17 November 2000, appropriated payments made by it to Euphoric in the sum of $1.6 million in respect of certain specific invoices referred to in the proceedings as the "NAM invoices". The referee determined in his report dated 31 March 2005 that those payments had been so appropriated and in an ex tempore judgment delivered on 6 June 2005 the primary judge accepted the referee's findings and adopted his report. Ryledar appeals against that decision contending in Ground 19 of its Amended Grounds of Appeal that in adopting the referee's report his Honour erred in treating the relevant payments made by Ryledar to Euphoric as appropriated to the NAM invoices rather than as payments applicable to the earliest unpaid invoices of a running trading account between the parties. If that contention is correct, then Ryledar was not in breach of the pre-condition (or condition subsequent) to the valid exercise by it of the option. 11 In the second set of proceedings No. SC50071/01 (CA40068/06) Euphoric sought a declaration that pursuant to the terms of the 1999 Variation, a 6¢/litre Contractual Rebate (as defined) applied only to the supply by Euphoric of Relevant Mobil Petroleum Products (as defined) to only those of Ryledar's retail service station facilities located in Wollongong, Central Coast, Newcastle and any town on or east of a straight line connecting Newcastle, Bilpin, Katoomba, Bowral and Wollongong (the Rebate Area). It sought a further declaration that Ryledar derived a benefit and had been unjustly enriched at the expense of Euphoric in the amount of $1,872,024 and for an order for the payment of that sum. That amount represented the total of a 6¢/litre rebate which Euphoric had in fact allowed Ryledar in respect of the supply of gasoline and automotive distillate to its service station sites located outside the Rebate Area. 12 In his judgment delivered in respect of both proceedings on 30 January 2006, the primary judge made the first declaration sought by Euphoric in proceedings SC50071/06 but refused the second upon the basis ultimately conceded by it during the course of the hearing, that the discount had been intentionally allowed as a consequence whereof no question of unjust enrichment arose. 13 In proceedings SC50070/01 (CA40067/06) the primary judge entered judgment for Euphoric against Ryledar and Mr Magar in the amount of $9,033,567.17 together with interest and costs. In so doing he dismissed Ryledar's amended cross-claim with costs. Relevantly, in its defence and amended cross-claim, Ryledar had contended that: (a) On the true construction of the 1999 Variation it was entitled to a 6¢/litre rebate on all petroleum products sold by Euphoric and delivered to Ryledar's service station sites located outside the area defined in Item 4 of the Reference Schedule to the 1999 Variation being the area referred to in the declaration granted by his Honour in proceedings SC50071/01: that is, the Rebate Area; (b) If the 1999 Variation could not be so construed, then Item 4 of the Reference Schedule should be rectified so as to entitle Ryledar to the 6¢/litre rebate in respect of all locations in New South Wales outside the Sydney Metropolitan area; (c) If rectification was refused, then the 1999 Variation should be amended pursuant to s 87 of the Trade Practices Act 1974 (Cth) and s 72 of the Fair Trading Act 1987 (NSW) upon the basis that from mid-August 1998 until 29 June 2000, Euphoric represented to Ryledar in correspondence and by conduct that the 6¢/litre rebate applied to petroleum products delivered to all of Ryledar country locations; (d) If the last-mentioned contention failed, then Euphoric was estopped by convention from asserting that Ryledar was not entitled to a 6¢/litre rebate in respect of gasoline and automotive distillate supplied to all of its service station sites in New South Wales. 14 As the primary judge rejected each of these contentions, they formed the primary issues on the appeal. In this respect, of the 20 grounds of appeal all but two related in one form or another to these issues. The history of the 1998 Agreement and the 1999 Variation 15 Although Ryledar relied on the negotiations between the parties both written and oral prior to the execution of the 1998 Agreement on 18 May 1998 and of the 1999 Variation on 31 March 1999 in support of its contention referred to in [13(a)] above, Euphoric was not called upon to respond to Ryledar's submissions with respect to the construction of Item 4 of the Reference Schedule either to the 1998 Agreement or the 1999 Variation. For reasons to which I shall later refer, the construction adopted by the primary judge was correct and as a result the 6¢/litre rebate did not apply outside the Rebate Area. 16 However, as much reliance was placed by Ryledar upon the documentary material which preceded 18 May 1998 and 31 March 1999 respectively, as well as Euphoric's conduct with respect to applying the 6¢/litre rebate to petroleum products supplied to locations outside the Rebate Area up to 6 July 2000, it is convenient at this point to set out the history leading up to the making of both the 1998 Agreement and the 1999 Variation as well as the relevant provisions of each. 17 At all material times negotiations on behalf of Ryledar were conducted by Mr Magar Sidhom (Mr Magar). From May 1997 to January 1998 Mr Rosenberg, as General Manager of Euphoric, conducted negotiations on behalf of Euphoric. After January 1998 those negotiations were conducted by Mr Rosenberg's successor, Mr Hobbs. Both Messrs. Magar and Hobbs gave evidence but Mr Rosenberg did not. 18 According to Mr Magar's evidence, Ryledar commenced purchasing petroleum products from Mobil from 1997 onwards. Negotiations for a supply agreement appear to have commenced in early 1997. As at 18 May 1998 when the 1998 Agreement was executed, Ryledar relevantly operated some 19 service station sites of which all but two would appear to have been located in the Sydney metropolitan area. Of those two, one which was located in Port Kembla (regarded as part of Wollongong) and the other at The Entrance (on the Central Coast). 19 Between May 1998 and 31 March 1999 (when the 1999 Variation came into effect), a further seven service station sites were opened by Ryledar of which five were located outside the Sydney metropolitan area at Wandandian (a town on the South Coast between Nowra and Ulladulla), Port Macquarie, Tuncurry, Wellington and Belmont (the last-mentioned being within the Newcastle area). Between 31 March 1999 and 6 July 2000 a further 31 sites were opened in country locations outside the Rebate Area. A total of 33 country sites outside the Rebate Area were opened between 6 July 2000 and January 2003 of which seven were opened between 6 July 2000 and 17 November 2000 (being the date upon which the term of the 1999 Variation expired) and five were opened between 17 November 2000 and 24 May 2001 when Euphoric ceased to supply petroleum products to Ryledar. 20 According to Mr Magar he first met with Mr Rosenberg in early May 1997. His written evidence as to that first conversation was as follows: "In the first meeting with Mr Doug Rosenberg, I asked ' Can I have an agreement to supply New South Wales? ' or words to that effect. Mr Doug Rosenberg then said to me words to the effect that ' We will give you an agreement for long term supply Australia wide '. I then said ' No I just need New South Wales ' or words to that effect." 21 It would appear that further conversations took place between him and Mr Rosenberg in which the latter offered an incentive rebate of 5.5¢/litre off the invoice price of certain of Mobil's petroleum products, rising to 5.8¢/litre on certain conditions. Mr Magar's evidence was that at that time Ryledar's business consisted largely of sales in metropolitan Sydney although it had plans to expand the Volume Plus branded network into country New South Wales. In late 1997 Mobil was providing a rebate to Ryledar of 6.5¢/litre for supplies to its sites in the Sydney area. 22 In May 1997 Mobil's Brisbane solicitors on behalf of Euphoric prepared and forwarded a draft supply agreement to Ryledar's solicitors. Relevantly for present purposes, it is the content of Item 4 of the Reference Schedule to that draft upon which Ryledar relies. However, in order to put that item of the Reference Schedule into context, it is convenient at this point of the narrative to set out the relevant provisions of the 1998 Agreement as executed on 18 May 1998 in which Ryledar is referred to as the "Customer". It commenced with the following recitals: "A. Customer carries on (or proposes to carry on) business as a reseller of petroleum products at the Sites. B. Customer wishes to purchase Mobil Petroleum Products from Euphoric for that purpose. C. Euphoric has agreed to supply and Customer has agreed to purchase Mobil Petroleum Products on the terms and conditions set out in this Agreement." 23 The word "Sites" was defined in cl 1.1 of the 1998 Agreement to mean: "… the petrol retailing facilities, the names and locations of which are set out in Item 8 of the Reference Schedule. If during the Term Customer acquires or licences any additional petrol retailing facilities, then such facilities shall be included in this definition at Euphoric's discretion. If additional retailing facilities are not included in this definition Euphoric must provide just cause." 24 Item 8 of the Reference Schedule was as follows: "Sites: All Sites in New South Wales owned and/or leased by Customer and/or operated as 'Volume Plus' Sites under licence from Customer." 25 The expression "Mobil Petroleum Products" was also defined in cl 1.1 to mean: "… petroleum products marketed by Mobil and distributed by Euphoric as a Distributor of Mobil and supplied to Customer under this Agreement and includes Relevant Mobil Petroleum Products." 26 The expression "Relevant Mobil Petroleum Products" was in turn defined in cl 1.1 to mean: "… petrol and automotive distillate purchased (and paid for) by Customer pursuant to the terms of this Agreement which attract the Contractual Rebate, being the products set out in Item 4 of the Reference Schedule." 27 Of particular relevance is the expression "Contractual Rebate" which was defined to mean: "…the rebate described as such in Item 4 of the Reference Schedule expressed in a cents per litre amount off Mobil's List Price for Relevant Mobil Petroleum Products." 28 The expression "Mobil's List Price" was relevant defined to mean: "…Mobil's Price Book Price plus any applicable freight …" 29 Finally, the expression "Mobil's Price Book Price" was defined to mean: "… the price stipulated in Mobil's standard price book as the price to be charged for that product to resellers at the time and place for delivery …" 30 The relevant operative provisions of the 1998 Agreement were as follows: "2.1 Sale and Purchase of Mobil Petroleum Products . Subject to this Agreement, Euphoric shall sell to Customer and Customer shall purchase from Euphoric during each month of the Term: (a) Not less than the Minimum Quantity and not more than the Maximum Quantity of Customer's requirements of petrol and automotive distillate for resale at or from the Sites; and … 2.2 Price . The price payable by Customer for Mobil Petroleum Products shall be Mobil's List Price applying at the commencement of the day of delivery." 31 Relevant to the issue concerning whether Ryledar had validly exercised the option to renew the 1998 Agreement for the renewal periods were the following provisions: " 3. PERIOD OF AGREEMENT 3.1 Commencement and Duration . This Agreement shall commence on the Commencement Date and shall have full force and effect for the Term unless sooner terminated in accordance with the provisions of this Agreement. 3.2 Options for Renewal . Euphoric grants to Customer an option to renew this Agreement for the Renewal Period(s). If Item 8 of the Reference Schedule has not been completed then there is no option to renew this Agreement. 3.3 Exercise of Options . Customer shall only be entitled to exercise the options to renew for the Renewal Periods contained in clause 3.2 in the event that (a) Customer has, at all times during the Term duly observed and fulfilled its obligations under this Agreement and all other agreements with Euphoric; (b) Customer has given written notice to Euphoric exercising the opinion not more than 120 days nor less than 60 days before the expiration of the Term. 3.4 Provisions of Supply Agreement for Renewal Periods . If customer exercises any of the options to renew this Agreement contained in clause 3.2, then the provisions of the Agreement for the relevant Renewal Period shall be identical to the provisions of this Agreement, except clause 3.2 shall be deleted from the Supply Agreement for the last Renewal Period." 32 The expression "Commencement Date" was defined in cl 1.1 to mean the date described as such in Item 1 of the Reference Schedule which was 18 May 1998 and the expression "Term" was defined to mean the period specified as such in Item 3 of that Schedule, namely, two years later increased in the 1999 Variation to two and a half years. 33 Of particular significance to Ryledar's entitlement to the Contractual Rebate described in Item 4 of the Reference Schedule was cl 4.1 of the 1998 Agreement which provided as follows: " 4.1 Contractual Rebate . Subject to this Agreement for the Term, Euphoric shall allow the Contractual Rebate as a deduction in the price of Mobil Petroleum Products to which it refers on the face of the invoice, provided that Euphoric shall have no obligation to pay the Contractual Rebate to Customer during any period that an Event of Default specified in a Notice served by Euphoric on Customer pursuant to clause 3.6 remains unremedied." 34 It is at this point that the history of Item 4 of the Reference Schedule is of particular significance. I have already referred to Mobil's Brisbane solicitors preparing a first draft of the 1998 Agreement in May 1997. Item 4 of the Reference Schedule to that draft provided as follows: " Contractual Rebate: Gasoline – 5.5 cents per litre Automotive Distillate – 5.5 cents per litre" 35 In a further draft dated 24 July 1997 Item 4 of the Reference Schedule was in the same terms as the first draft. The same observation is made with respect to a further draft dated 22 October 1997. 36 The first change to the wording of Item 4 appears in a draft dated 11 February 1998 in which Item 4 of the Reference Schedule reads as follows: " Contractual Rebate Gasoline: 6.2 cents per litre for Sydney Metro locations 6.0 cents per litre for outside Sydney Metro locations Automotive Distillate: 6.2 cents per litre for Sydney Metro locations 6.0 cents per litre for outside Sydney Metro locations" 37 According to Mr Magar's evidence, he had a meeting with Mr Rosenberg after receiving the draft dated 22 October 1997 in which he said words to the effect: "I would like the rebate in Sydney to be larger". Mr Rosenberg then said words to the effect: "What about 6.2¢/litre in Sydney Metro and 6¢/litre for areas outside the Sydney Metro?". Mr Magar replied: "I agree, please put that in the 1998 Agreement". Hence the change to Item 4 contained in the 11 February 1998 draft. 38 According to Mr Hobbs, who had by late February 1998 taken over from Mr Rosenberg, Euphoric did not at that time supply any sites outside Sydney except for a few sites in and near Wollongong. Other Mobil distributors supplied sites outside Sydney and Wollongong and Euphoric had no depots outside Sydney and Wollongong. According to Mr Hobbs' oral evidence he did not interpret Item 4 of the Reference Schedule at that time as entitling Ryledar to a 6¢/litre rebate everywhere else in New South Wales notwithstanding the plain wording of Item 4. When asked what it was about the words of Item 4 which caused him to think that they did not mean what they appeared to mean, Mr Hobbs responded: "Euphoric Pty Ltd traded in a certain market area. The State was split up into distributors and they supplied certain areas and market areas. It was highly abnormal to be trading outside that area. So when I looked at this in the 1998 Agreement, it would have seemed highly abnormal to provide a rebate on the whole of NSW which was outside Euphoric's trading area." 39 However, he conceded that he did not mention that fact to Mr Magar, nor did he discuss with him his interpretation of Item 4 as it was then drafted. 40 In a further draft dated 24 April 1998, Item 4 of the Reference Schedule provided as follows: " Contractual Rebate: Gasoline: 6.2 cents per litre for Sydney Metro locations 6.0 cents per litre for Wollongong, Central Coast and Newcastle locations Automotive Distillate: 6.2 cents per litre for Sydney Metro locations 6.0 cents per litre for Wollongong, Central Coast and Newcastle locations." Item 4 in those terms was then carried forward into a further draft dated 11 May 1998 and into the 1998 Agreement as executed on 18 May 1998. 41 In the meantime, an issue arose between the parties with respect to freight charges which ultimately resulted in the insertion in the Reference Schedule draft dated 24 April 1998 of a new Item 5 in the following terms: " Freight Deliveries outside areas defined under the Contractual Rebate will be charged freight as per Mobil's Price Book less the freight applicable to Newcastle." 42 This item was carried through into the 1998 Agreement as executed. However, no amendment was made to the operative provisions of the 1998 Agreement to give effect to that item. In one sense it was inconsistent with cl 2.2 of the 1998 Agreement which I have set out in [30] above, as the expression "Mobil's List Price" was relevantly defined in the 1998 Agreement and in the earlier drafts thereof as being Mobil's Price Book Price (in turn defined to mean the price stipulated in Mobil's standard price book as the price to be charged for that product to resellers at the time and place for delivery) "plus any applicable freight". 43 As at 24 April 1998 Ryledar only operated two sites outside the Sydney metropolitan area, namely, one in Wollongong and one at Tumbi Umbi on the Central Coast. Mr Magar was cross-examined with respect to the change in wording in Item 4 which in the 24 April 1998 draft deleted the reference in the earlier drafts to a Contractual Rebate of 6¢/litre for outside Sydney Metro locations and replaced it with 6¢/litre for Wollongong, Central Coast and Newcastle locations. 44 When taxed with respect to that change, Mr Magar agreed that the reference to Wollongong, Central Coast and Newcastle locations was inserted in Item 4 at his request but said it was only "to make sure that the price of fuel delivered there did not include any freight to these areas." 45 Mr Magar maintained the position that the only purpose of changing the wording with respect to the 6¢/litre rebate in Item 4 and inserting Item 5 with respect to "Freight" was to achieve a result whereby deliveries to Wollongong, Central Coast and Newcastle locations would be freight-free, whereas deliveries to areas outside Wollongong, Central Coast and Newcastle would be charged freight as per Item 5. He denied that there was any intention in the changing of the wording of Item 4 to depart from his agreement with Mr Rosenberg, reflected in the terms of Item 4 in the earlier drafts, that the contractual rebate of 6¢/litre was to apply to all locations in New South Wales outside the Sydney Metro sites. 46 In this respect, Mr Magar asserted that Items 4 and 5 were to be read together for the purpose of dealing with the freight issue and that they did not relate to separate topics. Accordingly, when cross-examined further on this issue, Mr Magar maintained, in effect, that notwithstanding the plain words of Item 4, his understanding at all times was that the 6¢/litre rebate applied to the whole of New South Wales outside the Sydney Metro locations. 47 The difficulty with Mr Magar's evidence and which I have already noted in [42] above, is that cl 2.2 of the 1998 Agreement, as well as the same clause in the two previous drafts, provided that the price payable by Ryledar for Mobil Petroleum Products (as defined) was to be the Mobil List Price which was relevantly defined to be Mobil's Price Brook Price plus "any applicable freight". Prima facie therefore, gasoline and automotive distillate delivered to Wollongong, Central Coast and Newcastle locations would attract "any applicable freight" over and above Mobil's Price Book Price whereas deliveries outside those areas would be charged freight as per Mobil's Price Book but with a rebate of the freight applicable to Newcastle deliveries. 48 On the other hand, according to Mr Magar, the only purpose of inserting in Item 4 the reference to Wollongong, Central Coast and Newcastle was that those locations were "meant to be as a free delivery area" and he wished to make sure when adding Item 5 that those areas "did not include any freight". 49 To Mr Magar therefore, these changes concerned only the question of freight and were never intended to confine the Contractual Rebate for deliveries outside Sydney Metro locations to Wollongong, Central Coast and Newcastle locations rather than the whole of New South Wales. As he said on numerous occasions, it was always his "understanding" that the Contractual Rebate was not so confined. 50 The following exchange took place: "Q. And apart from most matters, you were of the opinion yourself that this agreement recorded exactly what you wanted in the supply arrangements with Euphoric; is that right? A. Yes, of the understanding between us and Euphoric." 51 Mr Magar agreed that so far as Item 5 of the Reference Schedule was concerned, he intended to pay freight as per Mobil's Price Book less the freight applicable to Newcastle. Later on the same page he seemed to recant from that answer, asserting that he did not understand the reference in Item 5 to the freight applicable to Newcastle to be that listed in the Mobil Price Book. He was asked a number of questions to each of which he gave the non-responsive answer "No, I just wanted the freight to Newcastle". 52 Ultimately, the following exchange with Mr Magar occurred: "Q. I am suggesting to you the only clear statement in the agreement as to the locations to which the contractual rebate of 6 cents per litre is applicable is the statement contained in item 4 of that reference schedule? A. If you ask me that question now, I will tell you yes, but at the time, at the time when we signed this agreement, the understanding was and it was so clear, the freight wasn't to the rest of the state and the only reason that came into here [sic­ – was] to determine the free delivery area. Q. And there was, as you understood it at the time you signed that agreement, no mechanism in that agreement to adjust the contractual rebate for deliveries outside Sydney, Wollongong and the Central Coast and Newcastle; was there? A. No, there was a mechanism because item 4 and item 5 were altogether. Q. Neither of those items talk about adjusting the contractual rebate area; do they? A. Because at the time the understanding was so clear. Q. Wasn't it your intention to record the true understanding in the agreement? A. Sorry, can you say that again? Q. I want to suggest to you the understanding was very clear indeed and it was made so by the terms of the written document; do you agree with that? A. No, the understanding is so clear about the rebates were to apply (sic), okay, which is how much, 6.2 in Sydney metro and 6 cents outside Sydney Metro." Further cross-examination on the same topic asserting that the 1998 Agreement clearly stated the mechanism in Item 4 with respect to when the Contractual Rebate was payable was denied by Mr Magar upon the basis that " there was an understanding " that it applied throughout New South Wales. 53 In his written evidence, Mr Magar asserted in pars 199-200 that he informed Mr Hobbs that his agreement with Mr Rosenberg was for a rebate of 6.2¢/litre in Sydney Metro and 6¢/litre everywhere else in New South Wales. Mr Hobbs denied any such conversation. When he asked Mr Magar about his understanding with Mr Rosenberg, the former replied: "That if we own or lease a site anywhere in New South Wales that Clay & Michel will supply. We had lot of conversations with Mr Rosenberg to that effect." 54 Mr Hobbs' evidence as recorded by his Honour (at [42]) was that when he read the words "6¢/litre for outside Sydney Metro locations" in Item 4 of the Reference Schedule to the earlier drafts of the 1998 Agreement, he interpreted them as applying only to Ryledar's then existing location outside Sydney, namely, Wollongong, and that if additional sites were acquired by Ryledar within the Sydney Metropolitan Area and Wollongong, the Contractual Rebate would not apply to those sites. 55 At [43] his Honour recorded that in later negotiations Mr Magar requested that Newcastle and sites between Sydney and Newcastle be added as rebate locations to which he agreed. It was for that reason that Mr Hobbs changed Item 4 as it appeared in the draft agreement which he inherited from Mr Rosenberg and inserted the wording which appeared in the 1998 Agreement as executed on 18 May 1998. 56 The primary judge accepted Mr Hobbs' evidence and rejected that of Mr Magar for the reasons he set out in [46]-[51] of his judgment. He concluded (at [54]) that: "Mr Hobbs intended that the [1998] Agreement should reflect what he himself understood to be the agreement reached by the parties. If Mr Hobbs mistakenly thought that his intention was the same as Mr Rosenberg's intention, that is beside the point. If Mr Magar 's evidence of his own understanding of what was agreed and intended by Item 4 is accepted, then his understanding did not coincide with Mr Hobbs' understanding at the time that the Supply Agreement was executed." 57 Between 18 May 1998 and 31 March 1999 Ryledar opened four service station sites in locations outside the Rebate Area, namely at Wandandian (opened 28 July 1998), Port Macquarie (opened 12 February 1999), Tuncurry (opened 23 February 1999) and Wellington (opened 27 February 1999). It was common ground that the 6¢/litre rebate was applied to gasoline and automotive distillate delivered to those locations. 58 Mr Hobbs was aware from the monthly volume reports that the rebate was being applied to each new site added by Ryledar, his evidence being that he assumed that the rebate was applicable and did not go back to the 1998 Agreement to check whether the Contractual Rebate applied or not. 59 Mr Hobbs was cross-examined with respect to the changes he made to Item 4 and the insertion of Item 5 to the Reference Schedule. When asked why he inserted a reference to the Central Coast, he responded that his "recollection of the discussions were that he [Mr Magar] was looking at sites in the Newcastle area and between Sydney and Newcastle, so it made sense to define it as Central Coast and Newcastle. My experience in previous jobs was that often Newcastle got spoken about and the Central Coast was left out and it created confusion." 60 The following exchange then occurred: "Q. When you took those words out [that is, the words 'outside Sydney' in Item 4], you didn't intend for a moment, did you, to reduce the area to which the rebates were applicable, to an area that was less than that which was indicated by the words you took out? A. It was not my intent to change the original agreement just to define – further define where it was applicable. Q. It was plain to you when you stared at those words, as you must have done when you took them out, that is the words 'For outside Sydney Metro locations', it was plain to you that the agreement to that point was, when you looked at those words, that the 6 cent discount would apply outside Sydney Metro locations? A. As I stated earlier, when I looked at it at the time my interpretation was it applied to where they had existing sites." 61 In answer to a question from the primary judge, Mr Hobbs agreed that at the date of the revised draft changing the wording of Item 4, he understood that Ryledar would be expanding its operations outside the Sydney Metropolitan area not just confined to Wollongong but also to Newcastle and the Central Coast. The following exchange then took place with senior counsel for Ryledar: "Q. You did not intend, in any redraft that you did, to subtract from whatever had been agreed between Mr Rosenberg and Mr Magar? A. No. Q. You are agreeing with me? A. Yes." 62 However, Mr Hobbs gave the following evidence: "Q. …Was it your intention when you redrafted item 4, is this your evidence, that that rebate should only apply to the areas of Wollongong, Newcastle and the Central Coast which were referred to in it? A. As I stated earlier, the aim was to further define the area in which it applied. So yes. … Q. Is this your evidence Mr Hobbs, that when the May agreement was executed that it was your intention that the rebate should only apply to the Wollongong, Newcastle and Central Coast locations? A. At the time it was not something that I consciously thought about, outside areas. I was defining the areas to be the areas in the contractual rebate, as defined in the contractual rebate. Q. Is this your evidence Mr Hobbs, that your understanding and intention in this agreement when you executed it was that if there was a delivery, say for example to a town south of Wollongong, that the rebate would not be attracted? A. At the time it was not something that I turned my mind to. HIS HONOUR: Q. I think Mr Biscoe has been asking virtually the same question on a number of occasions. I do not know whether you have understood it correctly, but can I give you this example. Assume the day after you had signed this agreement with Mr Magar , Mr Magar had come to you and said 'We would like to open a site at Ulladulla' for example, 'Can we have the rebate for the petrol delivered to Ulladulla?'. What would you have said? A. At the time? Q. Yes? A. I would have probably applied the rebate. Q. You would not have said 'Well, our contract says you don't get it for Ulladulla, you only get it for Wollongong". A. No. Q. Why would you have applied the rebate to Ulladulla? A. Well, there are examples of where sites were picked up outside the area and I applied the rebate. It was not something I put my mind to. It was good business for us and if it was one or two sites outside that trading area I would not have been very concerned about giving that rebate away. So if he came and said he would have one site and it would be at Ulladulla, would I have applied the rebate at the time? Yes, I would have applied the rebate at the time. Q. Despite the fact that the agreement did not provide for it? A. Yes. … Q Is this your evidence, that you weren't concerned about one or two sites that were reasonably not too far past Wollongong, Newcastle or the Central Coast? A. I wasn't concerned about sites in those trading areas, and I probably would not have been concerned if there were one or two sites a long way outside those areas at that time. Q. You never suggested at any time whilst you were general manager of the company that the expansion of this company to sites well outside these areas did not attract the rebate, did you? A. No. Q. In fact quite the opposite, didn't you? A. Correct. Q. And that was because you well understood that that was the contractual intention of both you and Mr Magar when you entered into the agreement? A. No, I didn't refer back to the agreement. There were a few sites at the time outside that area and I didn't have a problem providing the rebate to those sites at that time. Q. Because you understood that that was what you both intended when you entered the agreement? A. As I said, I didn't refer back to the agreement. I took it on face value that there was a customer and I provided the rebate at the time. I didn't refer to what was written down or had been agreed at the time, I was happy to provide that rebate." 63 The primary judge accepted Mr Hobbs' evidence concluding (at [55]) that in allowing the rebate Mr Hobbs was not intending either to implement or vary the terms of the 1998 Agreement: rather, his decision was made without regard to the terms of the Agreement and was concerned solely with fostering the commercial relationship with Ryledar as a customer of Euphoric. 64 I return now to the chronological narrative upon which Ryledar places particular significance as providing objective evidence of a common intention on the part of both parties that the 6¢/litre Contractual Rebate was applicable to all Ryledar sites both within and outside the Rebate Area. 65 On 9 July 1998 a meeting was held at which Mr Magar, Mr Beckwith (a consultant to Ryledar) and Mr Hobbs were present. When dealing with the issue of freight, Mr Hobbs in a file note relating to that meeting observed that the relationship between the parties seemed to have changed since Mr Beckwith had become involved. He referred to Euphoric's willingness to use Nowra freight rates for deliveries to Wandandian saving Ryledar 0.7¢/litre off the contract price. He also referred to Euphoric's extending credit to Ryledar until a bank guarantee was put in place when the latter increased its trading balance. 66 In response to Mr Beckwith observing that "the 1998 Agreement is clear", Mr Hobbs' file note recorded the following statement by him: "Let's forget the 1998 Agreement for a moment and I'll make you an offer to think about in the spirit of compromise. When the supply agreement was negotiated Eddie [Magar] had sites in Sydney and Wollongong. The 6.0 discount was then a reference to Wollongong. If you agree I am willing to use Wollongong freight as the applicable freight instead of Newcastle. With Wollongong freight being .9 CPL." It would seem to me that this note accorded with Mr Hobbs' evidence which I have set out in [62] above. 67 By letter dated 11 August 1998, Ryledar wrote to Euphoric referring to two matters that it asserted required immediate attention. The letter then proceeded in these terms: "Separate to these matters, we need your cooperation on a number of retail business opportunities in areas covered by Item 4 & 5 of the Reference Schedule in our Agreement. As you are aware, the Agreement states clearly the mechanism to adjust the Contractual Rebate for deliveries in areas outside Sydney, Wollongong, Central Coast and Newcastle . A typical example for Coffs Harbour is as follows: Cents per litre Contractual Rebate to Newcastle 6.0 less Actual Freight to Newcastle 1.5 plus Actual freight to Coffs harbour (3.0) equals Contractual Rebate to Coffs Harbour 4.5" (Emphasis added) 68 Mr Beckwith drafted this letter although it was signed by Mr Magar. Mr Beckwith was cross-examined on the letter. When taxed with the proposition that that part of the quote from the letter which I have emphasised did not accord with Item 4 of the Reference Schedule, he agreed that he had not paid particular attention to the words of Item 4 but had just had regard to the commercial logic and business sense of how he thought the system should operate. He was then referred to the words "[a]s you are aware the Agreement states clearly". The following exchange took place: "Q. You were not intending to suggest by that statement anything other than the clear expressed words of the contract supported your position, that is what you intended? A. No, what it was was my interpretation of how the contract applied. …. Q. What you were attempting to portray by those words I suggest to you was that the agreement itself clearly stated that the mechanism to adjust the contractual rebate was as you set out, that is what you were attempting to convey, weren't you? A. The way I have set that out is, there was a contractual rebate with an adjustment for at that stage freight cost, so the answer is yes. Q. You knew at the time you did this example that Coffs harbour was outside of Wollongong, Central Coast and Newcastle didn't you? A. Yes. Q. And you knew it was outside of that area defined in item 4 of the contractual rebate? A. Yes. Q. You understood at the time you wrote this document that in accordance with item 4 of the contractual rebate you would not be receiving – Ryledar would not receive the rebate for such a site, didn't you? A. No because the contract said six cents plus the incremental freight. Q. Mr Beckwith, where in the contract does it expressly say that Ryledar was to get six cents per litre for every site in New South Wales outside of those sites designated in item 4? A. Where in the contract? Q. Yes? A. It is the interpretation of the word – you have to marry items 4 and 5 together. Q. Which words in items 4 and 5 do you rely upon to say that the agreement expressly states that you are to get a six cent rebate in every site in New South Wales? A. Its basically there, its assumed to be an incremental freight cost from Wollongong, Central Coast and Newcastle because it refers to 'applicable to Newcastle' and so really the interpretation is, deliveries outside will be charged, the contractual rebate will be charged for freight as per Mobil less freight applicable to Newcastle. There is no misunderstanding from my point of view that is how the industry worked on incremental freight costs." 69 The primary judge dealt with this evidence at [62]-[64] of his judgment, concluding that it was "very unsatisfactory". In particular, he found that Mr Beckwith conceded that he did not pay any particular attention to the words of the 1998 Agreement or of Item 4 in particular when he drafted the letter but rather set out how he thought the pricing system should operate; he "assumed" that the Contractual Rebate would apply to sales to all sites in country New South Wales notwithstanding that, clearly, Item 4 did not support such an assumption. 70 By letter dated 14 August 1998 Mr Hobbs responded to Mr Beckwith's letter in the following terms: "The pricing mechanism for areas outside the Metropolitan, Wollongong, Central coast and Newcastle is also clear. Freight will be charged as per Mobil's Price Book less the freight applicable to Newcastle. This calculation mechanism is based on Mobil's Price Book, hence the reference. An example for Gasoline: Contractual Rebate to Newcastle 6.0 CPL Plus Coffs harbour Book Freight 3.0 CPL Less Newcastle Book Freight 0.6 CPL Equals Coffs Harbour Rebate off Sydney List 3.6 CPL Over the last few months we have been discussing the applicable rebate for your new site at Wandandian the applicable Freight at this location is 2.5 CPL. We agreed, as a gesture of good faith to use Nowra Freight as the benchmark, which is 1 CPL lower than Wandandian. We also agreed to use Wollongong as the reference point rather than Newcastle, saving a .3 CPL for Gasoline and .5 CPL for Diesel. All up the saving to you versus the letter of the Supply Agreement is 1.3 CPL for gasoline." 71 At [66] his Honour found that in this letter Mr Hobbs was concerned with the calculation of freight charges which was then a contentious issue between the parties as was demonstrated by the correspondence which then ensued. Ryledar relied heavily on the fact that in this and other pricing examples in the correspondence which followed, Euphoric had without exception applied the 6¢/litre rebate to sites outside the Rebate Area. 72 By letter dated 26 August 1998 Mr Magar relevantly responded to Mr Hobbs' letter of 14 August in the following terms: "3) Contrary to your letter of the 14th August, no final agreement had been reached between ourselves on the contractual rebate for Wandandian. Your advice is not consistent with our supply agreement. The Agreement states clearly the freight applicable to Newcastle from Sydney is to be used as the reference freight for all areas outside the designated areas in New South Wales. We would not have included this matter in our letter of the 11th August if this matter had been resolved." 73 It is noteworthy that although the letter asserts that the 1998 Agreement states clearly that the freight applicable from Sydney to Newcastle is to be used as the reference for all areas outside the designated areas in New South Wales, it is not asserted that the 1998 Agreement stated clearly that those areas were contractually entitled to the 6¢/litre rebate. 74 By letter dated 6 October 1998 to Euphoric, Mr Magar wrote: "7) Mobil and Ryledar agree that the reference actual freight applicable to Newcastle is 1.4 cents per litre for determining the Contractual Rebate for deliveries to service stations in areas outside Sydney, Wollongong, Central Coast and Newcastle. Ryledar notes that in your letter dated 14th August 1998 Mobil have already acknowledged the reference is Sydney to Newcastle and have verbally advised Ryledar that the freight applicable from Sydney to Newcastle is 0.9 cents per litre to a service station. Ryledar considers this to be 1.4 cents per litre and has proposed to Mobil to seek three independent quotations on freight deliveries from Sydney to a service station in Newcastle and average the quotations." 75 The part of the 6 October 1998 letter recorded above should be considered in the context of the following letter to Euphoric dated 2 November 1998 where Mr Magar wrote: "Re: Option for two retail site locations Volume Plus has the option to finalise an agreement on two new service stations in the Sydney area. These are located at Vineyard and Katoomba. We have assumed the delivered prices for these site will receive a contractual rebate of 6.2 and 6.0 cents per litre respectively. Please confirm the above by Wednesday 4th November 1998 so that we can finalise negotiations. …" 76 Given the assertion that the two sites at Vineyard and Katoomba were said to be in the Sydney area, it is odd that Mr Magar requested Euphoric to confirm an assumption that those two sites would receive the Contractual Rebate, particularly with regard to Katoomba, which was clearly outside the Rebate Area referred to in Item 4. Had Mr Magar held the firm belief that the 1998 Agreement contained a contractual right to a rebate of 6¢/litre for any location in New South Wales outside the Sydney Metro area, such a request for the confirmation of his assumption would have been unnecessary. I mention this matter at this point because it is telling evidence that Mr Magar and, therefore, Ryledar did not believe that the Contractual Rebate of 6¢/litre applied as a matter of contractual right to Katoomba or any other location outside the Rebate Area. 77 Nevertheless, it should be observed that by letter dated 4 November 1998 Euphoric confirmed that the rebate of 6¢/litre for Katoomba was "as per our Agreement". However, this letter was signed by Mr Gilbert Braid, Reseller Marketing Manager of Euphoric and not by Mr Hobbs. 78 There followed further correspondence between the parties relating to the dispute with respect to freight reduction and, in particular, whether it should be based on book freight (being the freight nominated in Mobile's Price Book) or actual freight costs. One thing should be noted and that is a comparison of the notes of meetings between the parties on the one hand and then letters from Ryledar to Euphoric purporting to confirm the contents of those meetings on the other. Without going into detail, it is apparent from the comparison of the notes of a meeting to a letter of alleged confirmation that in the latter, Ryledar was always pushing the boundaries of what had been agreed according to the notes. One example will suffice. 79 In Mr Hobbs' minutes of a meeting held on 22 September 1998 Mr Narsey (of Mobil) responded to a suggestion by Mr Beckwith that Ryledar be provided with the ACCC intervention price each day and that it review prices annually, to which Mr Beckwith agreed. And yet in his letter of 12 November 1998 drafted by Mr Beckwith but signed by Mr Magar, the following appears: "In respect to pricing/invoicing of daily purchases, we prefer the three month reconciliation period over the twelve month period. At a meeting on 22 September we had understood that three months was acceptable for both parties." This clearly was not so. Mr Hobbs confirmed that Euphoric had made an offer to Ryledar that included an annual (and not a three monthly) reconciliation of pricing in his letter to Mr Magar of 2 December 1998. 80 By letter dated 2 December 1998 Mr Hobbs wrote to Mr Magar in terms which included the following: "Throughout our correspondence you have referenced your frustration at 'losing' many retail opportunities in NSW due to the freight dispute. I can not accept this comment as you have only once raised the issue of supplying a site outside the area designated in the Supply Agreement with Euphoric Pty Ltd. At the site in question, Wandandian, Euphoric Pty Ltd has provided a delivered price better than any price specified in your correspondence." 81 It is noteworthy that Euphoric applied a 6¢/litre rebate to Wandandian notwithstanding that there is no suggestion in the paragraph of the letter set out above that it was bound by the 1998 Agreement so to do. If anything, one would interpret the last sentence of that paragraph as an indication that the delivered price (which included a 6¢/litre rebate) was as a matter of grace rather than legal entitlement. 82 On 13 January 1999 Mr Magar sent a fax to Mr Hobbs drafted by Mr Beckwith in the following terms: "Further to our meeting on 21/12/98, we have reviewed the three zone proposal to resolve the 'freight issue'. The proposal (refer attachment) put is done on a without prejudice basis. We consider this counter proposal is a fair compromise. As discussed, the 1998 Agreement signed on 18 May 1998 remains unchanged until the parties are in full agreement on any proposed changes. Our commercial plans still remain frustrated until these matters are resolved." 83 The reference to the 1998 Agreement remaining unchanged until the parties had fully agreed on any proposed changes was to cl 15.1 which provided as follows: "No variation of this Agreement nor consent to a departure by a party from a provision, shall be of effect unless it is in writing, signed by the parties or (in the case of a waiver) by the party giving it. Any such variation or consent shall be effective only to the extent to or for which it may be made or given." 84 Paragraph numbered (1) of the attachment to the fax described three freight zones (north, west and south) by reference to specified major highways. Paragraph number (2) was as follows: 2) 6CPL CONTRACTUAL REBATE AREAS NORTH WEST SOUTH All towns between Newcastle, Lithgow and Sydney Metro All towns between Lithgow, Moss Vale and Sydney Metro All towns between Moss Vale, Wollongong and Sydney Metro 85 Paragraph numbered (3) referred to the reference location for each zone being towns outside "above areas and Sydney Metro" and comprised Newcastle in the north zone, Moss Vale in the west zone and Wollongong in the south zone. 86 Mr Hobbs by letter dated 13 January 1999 responded to this proposal regarding the "freight issue". After referring to the fact that the proposal had a number of anomalies, the letter then set out a counter-offer on a without prejudice basis. The main difference between the counter-offer and the original proposal was that the three zones contained different descriptions and that the reference location for each zone and the freight applicable to each such location were changed. Relevantly, there was no reference in the counter-offer to paragraph numbered (2) of the proposal being the 6¢/litre Contractual Rebate areas. 87 His Honour (at [72]) concluded from the foregoing that it was: "…unmistakably clear from Ryledar's proposed definition of three zones with a 6¢ Contractual Rebate that Ryledar did not believe, at that time, that it was entitled to a Contractual Rebate for sales to country sites throughout the whole of New South Wales." 88 The proposal for three specified zones which would qualify for the 6¢/litre Contractual Rebate, clearly acknowledged that sales to sites outside those specified zones would not be entitled to the rebate. According to his Honour (at [73]) this was confirmed by Mr Hobbs' letter of 13 January 1999 which proposed certain changes to the specified zones for freight charges but said nothing about the proposed zones attracting the 6¢ Contractual Rebate. 89 On 9 February 1999 Mr Magar, in a fax drafted by Mr Beckwith, stated: "Further to your fax dated 13/1/99 and subsequent telephone calls, we confirm our agreement on the 'freight issue'." The fax described and defined the three proposed freight zones and then continued: "The 6CPL contractual rebate area on a delivered basis becomes Newcastle, Central Coast, Wollongong and any town east of a straight line connecting Newcastle to Bilpin to Katoomba to Bowral to Wollongong excluding the Sydney Metro Area. The contractual rebate for the Sydney Metro area remains unchanged at 6.2CPL." I shall refer to this redefinition of the Rebate Area as the New Rebate Area. 90 The fax then set out what was referred to as the "typical delivered prices for each zone" as at 8 February 1999. It was in these terms: ZONES: WEST SOUTH NORTH Typical Town Wagga Queanbeyan Coffs Harbour ACCC Price 66.00 66.00 66.00 LESS Contractual Rebate to Katoomba/Wollongong/ Newcastle (6.0) (6.0) (6.0) LESS Freight applicable to Katoomba/Wollongong/ Newcastle (1.0) (0.9) (1.2) ……Freight 3.0 1.6 3.0 LESS Zone allowance NIL NIL (3.26) Delivered Price 62.0 60.7 58.54 It is to be noted that in each of these examples, a 6¢/litre rebate was applied although each of the towns in question was outside the New Rebate Area. 91 On 16 February 199 Mr Hobbs wrote to Mr Magar a letter which commenced as follows: "As per clause 15.1 of the Supply Agreement between Euphoric Pty Ltd and Ryledar Pty Ltd I can confirm the following variations to the Supply Agreement" Then followed changes to Items 3, 6 and 7(a) of the Reference Schedule together with a new Item 5 headed " Reference Schedule Item 5 Freight ". 92 What was then reproduced were the changes sought by Ryledar in its fax of 9 February 1999 except there was no reference to the variation to the Rebate Area in Item 4 which Ryledar had sought. 93 However, in a filenote of a conversation with Mr Hobbs, Mr Beckwith recorded the following: "(1) Mobil has excluded 6 CPL area defined in our fax 9/2. Nigel said he agreed in principle with what we had but was not able to word it appropriately. I said I would draft again consistent with style of contract." 94 On 24 February 1999 Mr Hobbs forwarded a letter to Mr Magar referring to discussions with Mr Beckwith in which two issues had been raised of which the second was "a request …to demonstrate how the 'country' pricing would apply." 95 Mr Hobbs then proceeded to give "an example only" taking an "example town" in each of the north, south and west zones being Forster, Wandandian and Forbes respectively. In respect of each he applied a 6¢/litre rebate notwithstanding that each of those towns was outside the New Rebate Area. 96 In [77] of his judgment, his Honour after referring to this letter, set out Mr Hobbs' evidence as to what he intended when he worked out those examples. When asked whether he intended to communicate that Forster, Wandandian and Forbes would attract a rebate of 6¢/litre his reply was: "My focus was on the freight calculation. I made an assumption that 6¢ was applying. I didn't consider the agreement, I assumed it would apply, and didn't give it a whole lot of thought at the time. I was focussing on the freight component." His evidence continued: "His Honour: Q: When you said you didn't think about the agreement, do I understand you to say that it wasn't that you actually mistakenly believed that the rebate provisions of the contract actually included these towns, you believed that the rebate would be applied regardless of what the contract said, is that the effect of your evidence.? A: No. At the time I was applying the rebate to towns that come on board. So, as I said yesterday, I wasn't – from a commercial point of view I was happy to provide the rebate to the small amount of sites that were added to the supply agreement. The questions and discussions I had were around the freight issue, and I was trying to resolve that. As an example, I left the 6 cents in because that was consistent with the price we were applying to Volume Plus at that time. Q: I understand what you are saying, that the freight issue is always the major issue for discussion and negotiation? A: Mmm. Q: As far as the contract rebate rate is concerned, your view was that as a matter of commercial good business, as and when towns or sites were acquired Volume, if it was good business, you would be happy to apply the contract rate to those towns, despite the fact that the agreement didn't provide it? A: That's correct. Q: Was that the attitude that you had at all times while you were general manager? A: While I was general manager, yes." 97 By letter dated 15 March 1999 (a letter again drafted by Mr Beckwith but signed by Mr Magar) reference was made to Euphoric's letter of 16 February 1999 observing that that letter had been reworded so as to be consistent with Ryledar's fax of 9 February 1999. Relevantly, the following was added to form part of the variations to the 1998 Agreement: Reference Schedule Item 4 Contractual Rebate Gasoline: 6.2 cents per litre for Sydney Metro locations 6.0 cents per litre for Wollongong, Central Coast and Newcastle locations and any town on or east of a straight line connecting Newcastle-Bilpin-Katoomba-Bowral-Wollongong but excluding the Sydney Metro locations Automotive Distillate: 6.2 cents per litre for Sydney Metro locations 6.0 cents per litre for Wollongong, Central Coast and Newcastle locations and any town on or east of a straight line connecting Newcastle-Bilpin-Katoomba-Bowral-Wollongong but excluding the Sydney Metro locations." 98 After then setting out the content of Reference Schedule Item 5 Freight and before setting out changes to Item 6 and a new Item 7(a) of the Reference Schedule, Mr Magar set out what he referred to as "Typical examples of Ryledar's delivered prices for each Zone". Again, the west, south and north zones were referred to utilising the towns of Wagga, Queanbeyan and Coffs Harbour respectively in each of those zones. Again the examples included the Contractual Rebate of 6¢/litre in respect of each town. 99 There followed a formal letter dated 31 March 1999 from Mr Hobbs to Ryledar marked to Mr Magar's attention which stated that as per cl 15.1 of the 1998 Agreement, the following variations thereto were confirmed. There followed, relevantly, a repetition of the changes to the Reference Schedule set out in Ryledar's letter of 15 March 1999 with the exclusion of any "typical examples" of how its delivered prices for each zone would be calculated. 100 Not to be deterred by the exclusion of those examples from Euphoric's letter of 31 March 1999, Mr Magar forwarded a fax to Mr Hobbs on 13 April 1999 in which he noted that Euphoric's variation letter of 31 March 1999 had not been received until 12 April 1999. The fax continued in these terms: "Please confirm the examples of Ryledar's delivered prices for each zone are correct as demonstrated in our letter dated 15/3/99." 101 Mr Hobbs responded to this request by re-faxing to Ryledar his letter of 24 February 1999 (to which I have referred in [94] and [95] above) (It would not appear that there was any response to this letter, at least in writing). Nevertheless it was common ground that between 13 April 1999 and 6 July 2000 Euphoric applied the 6¢/litre Contractual Rebate to sales of petrol and automotive distillate to all of Ryledar's country sites which opened during that time – whether those sites appeared within the New Rebate Area or not. Although, according to his Honour (at [83]) Mr Hobbs said that if he had been aware that Euphoric was allowing the rebate contrary to the terms of the 1999 Variation he would have reviewed the practice, in cross-examination he conceded that he probably would have continued the practice of allowing the rebate to all of Ryledar's country locations for commercial reasons. 102 On 6 July 2000 Mr Hobbs' successor as General Manager of Euphoric, Mr Rodgers, confirmed to Ryledar that from then on Euphoric would not allow the 6¢/litre rebate for sales outside the New Rebate Area as defined in Item 4 of the Reference Schedule under the 1999 Variation. It then invoiced Ryledar accordingly. Nevertheless from then until Euphoric terminated its relationship with Ryledar on 24 May 2001, the latter continued to deduct the 6¢/litre rebate from the invoiced prices in respect of gasoline and automotive distillate supplied to sites located outside the New Rebate Area. Was Ryledar entitled as a matter of construction of Items 4 and 5 of the Reference Schedule to the 1999 Variation to a 6¢/litre contractual rebate in respect of all locations in New South Wales outside the Sydney Metro Locations? 103 The primary judge answered this question in the negative. His Honour rejected a submission that the words of Item 4 were ambiguous when considered in the light of the communications between the parties prior to 31 March 1999. 104 In its submissions Ryledar accepted that the decision of this Court in Magill v National Australia Bank [2001] NSWCA 221 established, at least for this Court, that post-contract correspondence and conduct of the parties was not admissible for the purpose of construing the contract. Nevertheless, reliance was place upon the following passage from the joint judgment of the High Court in Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at 461-462 [22]: "The case provides a good example of the reason why the meaning of commercial documents is determined objectively: it was only the documents that spoke to Pacific. The construction of the letters of indemnity is to be determined by what a reasonable person in the position of Pacific would have understood them to mean. That requires consideration, not only of the text of the documents but also of the surrounding circumstances known to Pacific and BNP and the purpose and object of the transaction." 105 Again, in Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 at 179 [40] the Court in a joint judgment said: "This Court, in Pacific Carriers Ltd v BNP Paribas , has recently reaffirmed the principle of objectivity by which the rights and liabilities of the parties to a contract are determined. It is not the subjective beliefs or understandings of the parties but their rights and liabilities that govern their contractual relations. What matters is what each party by words and conduct would have led a reasonable person in the position of the other party to believe. References to the common intention of the parties to a contract are to be understood as referring to what a reasonable person would understand by the language in which the parties have expressed their agreement. The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of a transaction." 106 Ryledar also relied on the following principles of construction set out in the speech of Lord Hoffman, with whom Lord Goff of Chieveley, Lord Hope of Craighead and Lord Clyde agreed, in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 at 912-913 where, relevantly, his Lordship summarised the relevant principles in the following terms: "(1) Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract. (2) The background was famously referred to by Lord Wilberforce as the "matrix of fact," but this phrase is, if anything, an understated description of what the background may include. Subject to the requirement that it should have been reasonably available to the parties and to the exception to be mentioned next, it includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man. (3) The law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent. They are admissible only in an action for rectification. The law makes this distinction for reasons of practical policy and, in this respect only, legal interpretation differs from the way we would interpret utterances in ordinary life. The boundaries of this exception are in some respects unclear. But this is not the occasion on which to explore them. (4) The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean. The background may not merely enable the reasonable man to choose between the possible meanings of words which are ambiguous but even (as occasionally happens in ordinary life) to conclude that the parties must, for whatever reason, have used the wrong words or syntax. (see Mannai Investments Co. Ltd. v. Eagle Star Life Assurance Co. Ltd. ) (5) The "rule" that words should be given their "natural and ordinary meaning" reflects the common sense proposition that we do not easily accept that people have made linguistic mistakes, particularly in formal documents. On the other hand, if one would nevertheless conclude from the background that something must have gone wrong with the language, the law does not require judges to attribute to the parties an intention which they plainly could not have had. Lord Diplock made this point more vigorously when he said in The Antaios Compania Neviera S.A. v. Salen Rederierna A.B. 19851 A.C. 191, 201: '. . . if detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business commonsense, it must be made to yield to business commonsense.' " 107 The primary judge accepted (at [30]) that it was not necessary for him to find that the language of a contract was ambiguous before considering its meaning as may be revealed in the context and purpose of the transaction commonly known to its parties: Lion Nathan Australia Pty Ltd v Coopers Brewery Ltd (2005) 223 ALR 560 at 573-574 [78]. 108 His Honour then continued: "31. However, that does not mean that when the Court begins the task of construction it puts the words of the document aside and endeavours first to ascertain the commonly known factual context and purpose of the transaction, often only by resolving a strenuous contest between the parties. The Court does not, once it has found the commonly known factual context and purpose, then look at the words of the contract and, if they do not readily accommodate the context and purpose so found, force them to do so by a process of interpretation. 32. When the Court is construing a commercial contract, it begins with the words of the document: there it often finds expressed the factual context known to both parties and the common purpose and object of the transaction. But the court is alive to the possibility that what seems clear by reference only to the words on the printed page may not be so clear when one takes into account as well what was known to both parties but does not appear in the document. When that is taken into account, the words in the contract may legitimately have one or more of a number of possible meanings. It is then the Court's task to identify which of the possible meanings represents the parties' contractual intention. 33. However, when a party to a contract argues that the known context and common purpose of the transaction gives the words of the contract a meaning which, by no stretch of language or syntax they will bear then, in truth, one has a rectification suit, not a construction suit. 34. That is the case here. …" 109 In my opinion his Honour's approach articulated in the foregoing paragraphs of his judgment is unexceptionable. He considered the words of the 1999 Variation to be clear and so do I. They do not admit of any ambiguity let alone any inconsistency with the purpose and object of the transaction. Clause 4.1 of the 1998 Agreement required Euphoric to allow the Contractual Rebate. That expression was defined to mean the rebate as such in Item 4 of the Reference Schedule expressed in a cents/litre amount off Mobil's List Price for Relevant Mobil Petroleum Products. The last-mentioned expression was defined to mean petrol and automotive distillate purchased pursuant to the terms of the 1998 Agreement "which attract the Contractual Rebate". That definition clearly contemplated the possibility that not all petrol and automotive distillate purchased pursuant to the terms of the 1998 Agreement would attract the rebate. 110 When one turns to the provisions of Item 4 of the Reference Schedule of the 1999 Variation, its terms are plain. A contractual rebate of 6¢/litre is payable for Wollongong, Central Coast, Newcastle and any town on or east of a straight line connection Newcastle, Bilpin, Katoomba, Bowral and Wollongong but excluding the Sydney Metro locations. Nothing could be clearer. No possible basis exists for conflating or reading Items 4 and 5 together, as contended by Ryledar, for the purpose of teasing out of the words intentionally adopted by the parties and, in fact, proffered by Ryledar itself, that the Contractual Rebate of 6¢/litre was to apply not only to the area defined in Item 4 of the Reference Schedule but to all towns in New South Wales outside that area and, relevantly, north, south and west of the line connecting the nominated towns. 111 Like the primary judge, in my opinion there is nothing in the correspondence leading up to the letter of variation of 31 March 1999 that is capable of justifying a construction of what otherwise are clear and precise words in a manner which, if accepted, would involve nothing less than a re-writing of the parties' contract. I would therefore reject Ryledar's submission that his Honour erred in his construction of Items 4 and 5 of the Reference Schedule to the 1999 Variation. As a matter of construction, the 6¢/litre Contractual Rebate did not apply to locations outside the New Rebate Area. Should the 1999 Variation be rectified so as to give effect to the common intention of the parties that the contractual rebate referred to in Item 4 of the Reference Schedule was to apply to all locations in New South Wales both inside and outside the New Rebate Area? (a) The primary judge's decision 112 Again, the primary judge answered this question in the negative. He rejected Ryledar's contentions that a consideration of the correspondence between the parties commencing with the first draft agreement and ending with the variation of 31 March 1999 provided convincing evidence of the common intention of the parties that Ryledar was entitled as a matter of contractual right to a 6¢/litre rebate in respect of gasoline and automotive distillate supplied by Euphoric to sites owned or operated by Ryledar at all locations within New South Wales outside Sydney Metro locations. 113 Ryledar submitted before his Honour that the correspondence to which reference has already been made, in particular that between May 1998 and March 1999, coupled with the fact that over that period Euphoric allowed a rebate of 6¢/litre in respect of the relevant products supplied to all of Ryledar's country sites, evidenced a common intention of both parties that the Contractual Rebate of 6¢/litre, as set forth in Item 4 of the Reference Schedule, was to apply to all sites outside the Sydney Metro locations. The result was that the provisions of Item 4 of the Reference Schedule to the 1999 Valuation were inconsistent with that common intention justifying an order to rectification. 114 As I have already indicated, the primary judge regarded both Mr Magar's and Mr Beckwith's evidence as lacking credibility but accepted Mr Hobbs' evidence. In these circumstances his Honour's was not satisfied that as at the time of the parties' execution of the 31 March 1999 variation letter, they had the common intention for which Ryledar contended. He therefore rejected its claim for rectification (at [100]). Essentially his reasons for doing so were as follows: "98. In order to succeed in its defence of the rectification claim, Euphoric does not have to prove that Ryledar set out to trick it by seeking its confirmation of pricing examples which included rebates not allowable under the Supply Agreement. Euphoric will succeed in its defence if Ryledar cannot provide convincing proof, i.e. proof to a high degree of satisfaction, that notwithstanding the clear and unambiguous language of Item 4 of the Supply Agreement, as amended by the March variation letter, and as drafted by sophisticated commercial parties highly experienced in the industry, both parties actually intended the opposite of what they had said. 99. I am far from convinced that Ryledar has proved its rectification claim. I regard as improbable the suggestion that Ryledar itself put forward wording for the amended Item 4 which was directly contrary to what it believed to be the actual agreement of the parties. I regard the pricing examples used in the correspondence between the parties prior to March 1999 as confused and confusing in so far as they bear upon the parties' intention as to Ryledar's entitlement to the 6¢ rebate to all locations after 13 April 1999 to be unequivocal evidence of a common intention as at that date of that that (sic) entitlement be a term of the Supply Agreement rather than a commercial inducement or bonus which Euphoric, through Mr Hobbs, was prepared to proffer to keep Ryledar, as a substantial customer, happy." (b) The relief sought 115 Before turning to the relevant principles applicable to the equitable remedy of rectification and the parties' submissions with respect thereto, it is instructive to set out the particular common intention asserted by Ryledar as well as the nature of the rectification sought by it with respect to both the 1998 Agreement and the 1999 Variation. 116 In its Amended Cross-Claim filed on 24 December 2003, Ryledar alleged in par C5B that at the time of entering into the 1998 Agreement: "the continuing common intention of the parties was that a contractual rebate of 6¢/litre off Mobil's List Price as defined in the [1998 Agreement] for relevant Mobil Petroleum Products, would apply to petroleum products delivered to Wollongong, Central Coast and Newcastle locations as well as to locations outside metropolitan Sydney, Wollongong, Central Coast and Newcastle." 117 Accordingly, in par C5D it sought the rectification of the 1998 Agreement to give effect to that common intention by inserting in Item 4 of the Reference Schedule the words "6.0 cents per litre for all other locations in New South Wales" in lieu of the words "6.0 cents per litre for Wollongong, Central Coast and Newcastle locations" and by deleting from Item 5 the words "areas defined under the Contractual Rebate" and substituting the words "Sydney Metro, Wollongong, Central Coast and Newcastle locations". 118 With respect to the 1999 Variation, par C12B of the Amended Cross-Claim alleged that at the time of the 1999 Variation the continuing common intention of the parties was that the Contractual Rebate was to be applied by Euphoric to sales of petroleum products by it to Ryledar and delivered to country areas. Paragraph C12D therefore sought the rectification of the 1999 Variation by amending the text of the letter of 31 March 1999 by deleting the whole of Item 4 and substituting the following: "Gasoline: 6.2 cents per litre for Sydney Metro locations 6.0 cents per litre for all other locations in New South Wales Automotive Distillate: 6.2 cents per litre for Sydney Metro locations 6.0 cents per litre for all other locations in New South Wales" 119 Further, Ryledar sought the rectification of Item 5 by deleting the words "Deliveries outside areas defined under the Contractual Rebate" and substituting the words "Deliveries outside the area east of the line connecting Newcastle, Bilpin, Katoomba, Bowral and Wollongong …". 120 Two points may be noted from the foregoing. The first is that the common intention alleged by Ryledar was one whereby the Contractual Rebate of 6¢/litre was to apply as a matter of right to sales of gasoline and automotive distillate for all locations in New South Wales other than within the Sydney Metro area. The second is that it was the common intention of the parties that deliveries of Relevant Mobil Petroleum Products to locations within metropolitan Sydney, Wollongong, Central Coast and Newcastle and, under the 1999 Variation, to locations east of the line connecting Newcastle, Bilpin, Katoomba, Bowral and Wollongong were to be freight-free. 121 As will become apparent, it was thus necessary if Rydledar was to succeed in its claim for rectification, that it establish a common intention of both parties that the Contractual Rebate of 6¢/litre would apply to all locations in New South Wales outside Sydney Metro locations and, in this respect, apply as a matter of legal entitlement. Further, it was required to establish that it was the common intention of the parties that freight charges would only apply under the 1998 Agreement to deliveries outside Sydney Metro, Wollongong, Central Coast and Newcastle locations and, under the 1999 Variation, to deliveries outside the area east of the line connecting Newcastle, Bilpin, Katoomba, Bowral and Wollongong. (c) The relevant legal principles 122 As is observed in Meagher Gummow & Lehane Equity, Doctrines & Remedies 4th ed at 886 [26-010], it is of the upmost importance for a proper appreciation of the basis of the equitable doctrine of rectification to realise that the court, by its orders, merely reforms the instrument in which the parties have mistakenly expressed their agreement. The learned authors then cite the following passage from the judgment of Denning LJ in Frederick E Rose (London) Ltd v William H Pim Jnr & Co Ltd [1053] 2 QB 450 at 461: "In order to get rectification it is necessary to show that the parties were in complete agreement on the terms of their contract but by an error wrote them down wrongly …" 123 The authors then observed that the need for rectification will thus arrive when the court can discern from the document itself and the surrounding evidence that "something must have gone wrong" which cannot be cured by the process of construction: Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 at 913 D-E. The relevant passage in which these words occur in Lord Hoffman's speech is set out in [106] above. Of course, the present case is not concerned with what might be regarded as a mere linguistic mistake in a formal document but, according to Ryledar, a complete misunderstanding with respect to what are otherwise the clear words of the relevant written document as embodying an intention of the parties which, so it is submitted, they plainly did not have. 124 In Maralinga Pty Ltd v Major Enterprises Pty Ltd (1973) 128 CLR 336, Mason J (at 349) noted the "more recent desire" in the authorities to "emphasise that the remedy [of rectification] is designed to relieve against the mistaken expression of the true agreement of the parties." At 350 his Honour further observed: "What is of importance is that the purpose of the remedy is to make the instrument conform to the true agreement of the parties where the writing by common mistake fails to express that agreement accurately. And there has been a firm insistence on the requirement that the mistake as to the writing must be common to the parties and not merely unilateral …" 125 This Court referred to the relevant principles in Commissioner of Stamp Duties (NSW) v Carlenka Pty Ltd (1995) 41 NSWLR 329. In agreeing with the leading judgment of Sheller JA, Mahoney A-P relevantly observed (at 331): "In my opinion, the principle upon which rectification is granted involves two things: that …the parties (in the case of a transaction between parties) had at all relevant times an intention which was to be given effect by the document to be rectified; and that that document does not give effect to that transaction." 126 After noting that the courts in Australia had reiterated the necessity to establish the parties' intention as to the written document's failure to give effect to that intention, the Acting President directed himself to the meaning of the term "intention" stating (at 332) that in the context of rectification "it refers to what was subjectively seen as to be brought about and the consequence of it. It refers to that which is subjectively foreseen and intended to be effected by the document." 127 In his judgment Sheller JA (at 336) noted that the "central issue was whether the Court will rectify a formal document which contains words the parties or party executing it have purposely used under the mistaken belief that the words had a different legal effect." 128 To adopt the language of Mason J in Maralinga to which I have referred in [124] above, his Honour noted that in that case the written instrument was not executed as the result of a mistaken belief as to what it contained as the words had been purposely chosen. But the mistake was as to the effect of the words used in the instrument rather than as to its contents. 129 In the present case the parties have purposely used the words which are now sought to be rectified and, in particular it was Ryledar that proposed the contents of Item 4 of the Reference Schedule to the 1999 Variation. Accordingly, it seems to me that in order to succeed in rectifying Items 4 and 5 of the Reference Schedule in the manner proposed by Ryledar as set out in [118] above, it is required to establish by convincing evidence that both it and Euphoric were mistaken as to the effect of the deliberately chosen words in that, notwithstanding the unambiguous language which they employed, nevertheless were mistaken as to the effect of those words in that they intended that the 6¢/litre contractual rebate was not to apply to the limited locations which they had deliberately identified in accordance with the words they had adopted but, rather, that Ryledar was to be allowed the rebate with respect to its sites in to all locations in New South Wales outside Sydney Metro locations as a matter of legal right. 130 In Carlenka at 341, Sheller JA referred to passages in Dr Spry's book, The Principles of Equitable Remedies, 4th ed (1990). I cite the same passage from the 6th ed (2001) where the learned author was dealing with the case where the parties are aware of the precise terms of the relevant part of the document but allegedly misapprehended their effect. In distinguishing between two positions, he said (at 611-612): "…the first position occurs where the concurrent intention, that is, the intention that the document is designed to effectuate, remains the dominant and governing intention. In this event it should not matter that the precise terms of the document have been seen by the parties, and rectification, if otherwise appropriate, should be ordered." 131 The learned author then referred to the judgment of Brightman J in In Re Butlin's Settlement Trusts [1976] Ch 251 at 260 where his Lordship observed that rectification was also available where the words of the document were purposely used but it was mistakenly considered that they bore a different meaning from their correct meaning as a matter of true construction and then continued: "The second position arises where the parties, whatever their previous intention may have been, have ceased to retain that intention as their governing intention and have formed instead an intention to be bound by the precise terms of the document in question, regardless of possible discrepancies between its provisions and prior or other intentions on their part. In this event rectification is not appropriate." 132 Sheller JA also referred to the decision of Clarke J in NSW Medical Defence Union Ltd v Transport Industries Insurance Co Ltd (1986) 6 NSWLR 740 where (at 747) his Honour said that there was a line of authority which satisfied him that rectification was available in circumstances where the parties have used words which, when properly construed, did not express their true intention. Clarke J then quoted the following passage from Hallsbury's Laws of England 4th ed Vol 32 [51] at 30: "…Rectification is also available where words were purposely used or omitted but in the mistaken belief that they bore a different meaning from their correct meaning as a matter of construction." 133 Ryledar relied in particular upon Sheller JA's reference to Clarke J's decision in the Medical Defence Union case. In other words, it accepted, as it clearly was required to do, that the words contained in Item 4 of the Reference Schedule to both the 1998 Agreement and the 1999 Variation were purposely used but submitted that the common intention of the parties was that they should bear a different meaning or effect from their correct meaning as a matter of construction. 134 Finally, McLelland A-JA added the following further observation to his agreement with Sheller JA's judgment: "In general, the remedy of rectification of an instrument is available where it is established by clear and convincing proof that at the time of execution of the instrument the relevant party or parties as the case may be had an actual intention (if more than one party, a common intention) as to the effect which the instrument would have which was inconsistent with the effect which the instrument as executed did have in some clearly identified way, in this context 'effect' means the legal and factual operation of the instrument according to its true construction, but does not include legal or factual consequences of the operation of the instrument of a more remote, or collateral, kind …" 135 In the present case the foregoing proposition articulated by McLelland A-JA translated into the submission by Ryledar that there was clear and convincing proof that at the time of the execution of both the 1998 Agreement and the 1999 Variation, the parties had an actual common intention as to the legal effect of Item 4 of the Reference Schedule with respect to the locations to which the 6¢/litre contractual rebate was to apply and which was inconsistent with the effect (as a matter of their true construction) of the words of Item 4 which the parties had deliberately chosen. That mistake was, as I understand Ryledar's submissions, that when Items 4 and 5 were read together as the parties intended, it was the clear actual common intention of the parties that the contractual rebate of 6¢/litre was to apply to all locations in New South Wales outside Sydney Metro locations. 136 Carlenka was referred to by the Supreme Court of Victoria in Club Cape Schanck Resort Co Ltd v Cape Country Club Pty Ltd (2001) 3 VR 526. Relevantly, Tadgell JA noted (at 528 [5]) that the head note of the report of Carlenka, which he did not regard as an inaccurate summary of the judgment, stood for the proposition that "the court may order rectification of a document which contains words used purposely, but mistakenly as to their effect, so as to give effect to the true intention of the parties." 137 His Honour (at 530 [10]) observed that in Carlenka the mistake or misapprehension in that case was: "… such as to produce a fundamental inconsistency between what the words used in the deed, when properly interpreted, were apt to achieve and what the maker of the deed had antecedently determined to achieve by using them." 138 His Honour concluded (at 531 [14]) in these terms: "… rectification will be ordered only to give effect to the common intention [positively] shown. So, since the equitable doctrine of rectification exists for the purpose, in effect, of ordering actually or notionally the textual amendment of the document, it will not be available to achieve the amendment of a particular document just because the document is shown not to conform with a common intention of the parties to it. It must be shown further that words or expressions or other text inserted into or deleted from the document would give effect to the common intention." 139 Phillips JA, after referring (at 538 [34]) to the proposition that rectification is possible only where the written word fails to give effect to the parties' common intention, summarised the relevant principles in the following passage (at 540 [39]): "…I venture to suggest that the principle upon which rectification depends always remains the same; it depends in every case upon a want of correspondence between the form of the document (that is, in the words actually used) and the common intention of the parties at the time when the document is executed. Where the disconformity is the product of a common mistake, that mistake may be as to what words have been employed in the document or the meaning or effect of such words as appear. But whatever the common mistake, the lack of correspondence must be between the form of the document and the common intention, if rectification is to be available. In Rose v Pim the parties were mistaken as to the effect of their words, but there was no disconformity between the words employed and what was held to be their common intention – so rectification was not available. In Carlenka , there was a lack of correspondence between form and intention so rectification was available. Of course, whatever the nature or source of the underlying mistake of the parties, the common intention of the parties at the time of the execution of the document remains a matter of fact, which accounts, I believe for such variations as occur in result. The result in any given case will depend upon whether in the particular circumstances of that case there is (as a matter of fact) the requisite disconformity between the document as executed and the common intention of the parties. It is not enough that the parties have made a mistake about their document (whether the mistake be about the words used, their meaning or their effect); that mistake may serve to explain such disconformity (if any) as is seen to exist, but it can be a substitute for it." 140 Chernov JA agreed with the judgments of Tadgell and Phillips JJA observing that unlike the situation in Carlenka, the document in the present case on its true construction, did not wrongly state the parties' intention as a consequence whereof there was no basis on which the Court could properly order rectification. 141 More recently, in Mander v Clements (2005) 30 WAR 46, McKechnie J stated the relevant legal principle in terms of what Denning LJ had said in Frederick E Rose (London) Ltd v William H Pim Junior & Co Ltd [1953] 2 QB 450 at 461, namely, that in order to get rectification it was necessary to show that the parties were in complete agreement on the terms of their contract, but by an error wrote them down wrongly. 142 After referring to the passage from the judgment of Phillips JA, with whom Tadgell and Chernov JJA agreed, in Club Cape Schanck Resort Co Ltd which I have set out in [139], his Honour (at [54]) noted that the authorities established that there was no need for communication of the common intention but that there must be convincing proof that the parties in fact held the common intention so that the document sought to be rectified did not reflect that matching intention but would do so if rectified in the manner requested. His Honour acknowledged that an intention to use the actual words in a document is not necessarily fatal to a claim for rectification although, obviously, it is of some relevance when determining whether those words in fact reflected their intention. 143 McLure J agreed with McKechnie J in terms of the result of the appeal but stated her own reasons. Relevantly, she stated the principles as follows (omitting citations): "85. Rectification is available where the disconformity between the common intention and the instrument occurs as a result of an operative mistake in the formal step of reducing the common intention to writing, but not where the mistake arises in the formation of the common continuing intention. 86. A more restrictive statement of principle is that rectification is not available if the words used in the instrument are definitively chosen. This principle is applied by the trial judge and reflects the traditional approach: Meagher Gummow and Lehane's Equity Doctrines & Remedies 4th ed, 26-065. 87. Applying the traditional approach, rectification would not be available where the parties are mistaken as to the meaning or effect of words deliberately chosen. However, it has been repeatedly held by single judges of this Court that rectification is available where the parties are mistaken as to the meaning or effect of words deliberately chosen. … These authorities are, however, consistent with the broader statement of principle to which I have referred because the operative mistake occurs in the formal step of reducing the common intention to writing." (d) The submissions on the appeal 144 Ryledar's submissions on the appeal concentrated on the 1999 Variation although reliance was placed not only upon the correspondence and conduct of the parties between May 1998 and March 1999 but also upon the negotiations between the parties prior to the execution of the 1998 Agreement. The essence of its submissions was that the objective documentary evidence provided convincing proof that it was the common intention of the parties that it was entitled to the 6¢/litre Contractual Rebate in respect of deliveries of gasoline and automotive distillate to any location within New South Wales outside the Sydney Metro locations of its sites. Notwithstanding that the parties had deliberately chosen the words of Item 4 of the Reference Schedule both in the 1998 Agreement and the 1999 Variation, those words failed to give legal effect to the common intention of the parties and, therefore, should be rectified in the manner proposed by Ryledar in its Amended Cross-claim. 145 In other words, it was contended that there was a disconformity between the common intention of the parties and the contents of Item 4 of the Reference Schedule resulting from an operative mistake on the part of Ryledar and Euphoric in the formal step of reducing their common intention to writing in terms of the wording of Item 4 of the Reference Schedule in both the 1998 Agreement and the 1999 Variation. In fact it was submitted that Item 4 of the so-called Contractual Rebate areas were intended to be no more than freight free zones. 146 It was further submitted that the relevant continuing common intention was established by the words "or conduct" employed by the parties prior to the 1999 Variation which was an outward expression of the accord which the letter of 31 March 1999 failed to express. Although according to Carter on Contract at [22]-[460], the balance of authority now supports the view that external manifestation is not required provided the party seeking rectification has proved that it and the other party to the contract have the necessary common intention, in the present case, so it was submitted, the correspondence between the parties and Euphoric's conduct in issuing invoices containing the 6¢/litre rebate in respect of Mobil products delivered to locations which would not otherwise qualify for the rebate on the true construction of Item 4 of the Reference Schedule, constituted an external manifestation of the parties' intention in any event. In other words, their accord found outward expression in their correspondence and conduct. 147 It was further submitted that even if the primary judge was correct in rejecting Mr Magar's evidence that he believed as a consequence of his discussions with firstly, Mr Rosenberg and then his successor, Mr Hobbs, that the 6¢/litre rebate was to apply to all Ryledar's existing and future sites in New South Wales outside its Sydney Metro locations, nevertheless the fact that his Honour rejected Mr Magar's subjective intention did not detract from the objective evidence of that intention manifested by the correspondence between the parties relied upon. This was so, so it was submitted, notwithstanding that the relevant wording of Item 4 and, for that matter, Item 5 of the Reference Schedule as set out in the 1999 Variation was deliberately propounded by Mr Magar himself and which, according to his Honour (at [88]) was "quite clear in its meaning". (e) Ryledar's claim for rectification should be rejected 148 If one is to ignore Mr Magar's evidence on this issue in terms of his subjective state of mind, then it is also necessary to ignore Mr Hobbs' evidence upon which Ryledar relied including his evidence that he did not intend in his redraft of Item 4 of the Reference Schedule in 1998 to subtract from whatever had been previously agreed between Mr Magar and Mr Rosenberg. Of course, the exchange which resulted in that evidence (see [62] above) is itself ambiguous as it did not in terms identify Mr Hobbs' understanding as to what in fact had been agreed between Mr Rosenberg and Mr Magar. 149 In any event, what is apparent from the objective evidence is that although during Mr Rosenberg's tenure the draft 1998 Agreement prepared by Mobil's Brisbane solicitors provided in Item 4 of the Reference Schedule for a Contractual Rebate of 6¢/litre "for outside Sydney Metro locations", the redraft by Mr Hobbs accepted by Mr Magar, was that that rebate was "for Wollongong, Central Coast and Newcastle locations" of Ryledar's sites. 150 Essentially Ryledar relies on the documentary evidence to which I refer below together with my comments thereon where appropriate: (a) Ryledar's letter to Mobil Oil Australia Ltd dated 11 August 1998 in which Mr Magar stated that Ryledar needed Euphoric's co-operation on a number of retail business opportunities in areas covered by Items 4 and 5 of the Reference Schedule stating that " the Agreement states clearly the mechanism to adjust the Contractual Rebate for deliveries in areas out Sydney, Wollongong, Central Coast and Newcastle ". An example with respect to Coffs Harbour is then given which includes the rebate of 6¢/litre. It is convenient to note that this letter was drafted by Mr Beckwith and that the italicised words constituted his interpretation, by the marrying together of Items 4 and 5, of how the agreement should operate notwithstanding that he knew at the time that the example with respect to Coffs Harbour was outside Wollongong, the Central Coast and Newcastle and also outside the area defined in Item 4 of the 1999 Variation as the area of the Contractual Rebate. His Honour (at [62]-[64]) considered Mr Beckwith's evidence to be "very unsatisfactory", a point to which I shall return. (b) Euphoric's letter to Ryledar dated 14 August 1998 in which Mr Hobbs stated that "the pricing mechanism for areas outside the Metropolitan, Wollongong, Central Coast and Newcastle is also clear." He then referred to the manner in which freight would be charged and gave what he referred to as a " calculation mechanism " which included the contractual rebate of 6¢/litre. (c) Ryledar's letter to Euphoric dated 26 August 1998 in which Mr Magar (the letter having been drafted by Mr Beckwith) stated that contrary to Euphoric's letter of 14 August 1998, no final agreement had been reached on the contractual rebate for Wandandian. The relevant part of the letter was confined to the issue of freight and the calculation of freight for all areas outside " the designated areas in New South Wales ". (d) Ryledar's letter to Euphoric dated 6 October 1998 in which Mr Magar referred to an agreement as to the actual freight applicable to Newcastle of 1.4¢/litre being used to determine the Contractual Rebate for deliveries to service stations in areas outside Sydney, Wollongong, Central Coast and Newcastle. (e) Ryledar's letter to Euphoric dated 2 November 1998 relating to two new service stations one of which was to be located at Katoomba, the letter stating that Ryledar had assumed that the delivered prices for that site would receive a contractual rebate of 6¢/litre and asking for confirmation of that assumption, which was forthcoming in a letter from Mr Braid of Euphoric to Mr Magar dated 4 November 1998. I have already referred to the fact that the seeking by Mr Magar of confirmation that the rebate would apply would seem to be inconsistent with Mr Magar's belief that Ryledar was entitled to the rebate as a matter of contractual right. (f) Euphoric's letter to Ryledar dated 4 November 1998 suggesting that freight to Wollongong rather than Newcastle should be utilised in freight calculations. (g) Euphoric's letter to Ryledar dated 2 December 1998 in which Mr Hobbs referred to Mr Magar 's alleged frustration at " losing " many retail opportunities in New South Wales due to the freight dispute. Mr Hobbs noted that Mr Magar had only once raised the issue of supplying a site outside the area designated in the 1998 Agreement with Euphoric, being Wandandian, in respect of which Euphoric had provided a delivered price " better than any price specified in previous correspondence ". (g) Two letters from Ryledar to Euphoric dated 14 December 1998 in which the " freight dispute " was referred to as being one of a number of commercial issues and in which Mr Magar noted his reluctance to divulge his company's commercial plans to Mobil as it was a competitor in the market place. Neither letter contained any reference to the Contractual Rebate. (i) I insert here a reference to the letter from Euphoric to Ryledar of 13 January 1999 (not relied upon by Ryledar in its submissions) in which a counter offer on a without prejudice basis in respect of a variation to the 1998 Agreement to deal with the " freight issue " was proposed in terms which made no reference to Item 4 of the Reference Schedule dealing with the Contractual Rebate. (j) Mr Magar's facsimile to Mr Hobbs dated 9 February 1999 confirming Ryledar's agreement to the " freight issue " and stating that the 6¢/litre Contractual Rebate area on a delivered basis was to become Newcastle, Central Coast, Wollongong and any town east of a straight line connecting Newcastle to Bilpin to Katoomba to Bowral to Wollongong, excluding the Sydney Metro area. There then followed what was referred to as " typical delivered prices for each zone " in which the delivered price was calculated for three towns (Wagga, Queanbeyan and Coffs Harbour) which were outside the New Rebate Area on the basis of the allowance of a contractual rebate to Katoomba/Wollongong/Newcastle of 6¢/litre less the appropriate freight charges. (k) Euphoric's letter to Ryledar dated 24 February 1999 responding to a request from Mr Beckwith to " demonstrate how the 'country' pricing would apply " and providing an example for each of the three zones, the example towns being Forster, Wandandian and Forbes, all of which were outside the New Rebate Area and which calculated the delivered price to each of those towns upon the basis of the application of the rebate. (l) Ryledar's letter to Euphoric dated 15 March 1999 confirming, pursuant to cl 15.1 of the 1998 Agreement, a variation thereto asserted to be a re-wording of Euphoric's letter to Ryledar of 16 February 1999 which omitted any redraft of Item 4 of the Reference Schedule. In the letter of 15 March 1999 Mr Magar set out a new Item 4 of the Reference Schedule in the terms of that ultimately adopted in the 1999 Variation and further included what was referred to as typical examples of Ryledar's " delivered prices for each Zone " being the towns of Wagga, Queanbeyan and Coffs Harbour and determining a delivered price which assumed a " Rebate " of 6¢/litre. 151 The question which arises for determination is whether the foregoing documentation, combined with the undoubted fact that a 6¢/litre rebate was allowed by Euphoric in respect of deliveries to the limited number of sites outside the Rebate Area opened by Ryledar between May 1998 and March 1999, amounted to clear and convincing proof of a common intention on the part of both Ryledar and Euphoric that Ryledar would be contractually entitled under the 1999 Variation as a matter of enduring legal right to a rebate with respect to each and every site then existing or in the future to be opened by Ryledar in New South Wales outside its Sydney Metro locations. Further this intention was required of the 1998 Agreement to extend not only to the balance of the term of the 1999 Agreement but also to any Renewal Periods the subject of the exercise by Ryledar of the option in cl 3.2. 152 In essence, Ryledar's primary reliance in support of such a finding was the various examples referred to in the correspondence as "typical examples of Ryledar's delivered prices for each of zone" being the zones in respect of which differential freight charges would be applied. 153 The towns the subject of the various examples in the correspondence and which were located outside both the Rebate Area and the New Rebate Area, were confined to Coffs Harbour, Wandandian, Wagga, Queanbeyan, Forbes and Forster. In fact, the evidence established that between May 1998 and March 1999 the only service station sites opened by Ryledar located outside either Rebate Area were at Wandandian, Port Macquarie, Tuncurry and Wellington although service stations were opened at Kempsey, Coffs Harbour and Woolgoolga in April and early May 1999. 154 At one point during the argument, it was submitted by Ryledar that it was perfectly understandable why Euphoric would have intended to apply the Contractual Rebate to all sites located in New South Wales outside Sydney Metro locations as it had a discretion whether to include additional petrol retailing facilities acquired or licensed by Ryledar during the Term of the Agreement. However, this submission involves a misinterpretation of the definition of "Sites" which, for convenience I repeat: "… the petrol retailing facilities, the names and locations of which are set out in Item 8 of the reference schedule. If during the Term Customer acquires or licenses any additional petrol retailing facilities, then such facilities shall be included in this definition at Euphoric's discretion. If additional retailing facilities are not included in this definition, Euphoric must provide just cause." 155 However, when one turns to Item 8 of the Reference Schedule it refers under the heading "Sites" to: "All Sites in the State of New South Wales owned and/or leased by Customer and/or operated as 'Volume Plus' branded Sites under licence from Customer." 156 It was not suggested by Ryledar that the reference in Item 8 to "[a]ll sites in the State of New South Wales" was confined to those sites which Ryledar owned, leased or operated as at the date of the 1998 Agreement. This being so, the opening of new sites within New South Wales by Ryledar during the term of the Agreement did not require the exercise of Euphoric's discretion whether or not to include those sites within the definition. They automatically qualified. 157 Accordingly, the consequence of the asserted common intention of the parties advanced by Ryledar was that the 6¢/litre rebate would apply to each and every site irrespective of how many were opened by Ryledar anywhere in New South Wales outside the Sydney Metro locations either during the term of the 1998 Agreement or any renewal thereof pursuant to the exercise by Ryledar of its options to renew. It is that common intention which Ryledar seeks to attribute to itself and Euphoric as at 31 March 1999 on the basis of the limited number of examples of locations outside the New Rebate Area and the very limited number of actual petrol retailing sites to which Euphoric had allowed a 6¢/litre rebate in the period up to that date. As I have noted, Ryledar went so far as to submit that it was the common intention of the parties that the Rebate Area under the 1998 Agreement and the New Rebate Area under the 1999 Variation were to operate only as freight-free zones and not to govern, let alone confine, the areas to which the 6¢/litre rebate was to apply. 158 But even if it was the parties' common intention that the Rebate Area and the New Rebate Area were to be freight-free zones, it does not necessarily follow that it was also their common intention that those clearly defined areas were not to set the area limits for Ryledar's legal entitlement to a 6¢/litre rebate for Relevant Petroleum Products supplied to its sites with those areas. 159 The difficulty facing Ryledar is that first, the 11 February 1998 draft of the 1998 Agreement provided in Item 4 of the Reference Schedule that the contractual Rebate of 6¢/litre was to apply to all locations outside the Sydney Metro locations; second, Mr Hobbs changed Item 4 to Wollongong, Central Coast and Newcastle; third, Mr Magar did not object to that change and the 1998 Agreement was entered into accordingly; fourth, Ryledar propounded changes to Item 4 in the 1999 Variation which were accepted by Mr Hobbs which expanded the area to which the 6¢/litre Contractual Rebate was to apply but did not suggest that it be changed to all locations in New South Wales outside the Sydney Metro locations; fifth, Ryledar contends that the reason Item 4 was not changed to all of country New South Wales was that the parties intended that Item 4, although headed "Contractual Rebate", was unrelated to that subject matter and was concerned only with marking out the freight-free areas and zones. 160 The primary judge rejected this reasoning and in my view he was correct to do so. Given the experience in the petroleum industry of these parties and, in particular, that of Mr Beckwith who was a consultant to Ryledar and drafted the letters which Mr Magar signed, I would, with respect, regard the submission as fanciful. 161 Given the requirement, accepted by Ryledar, that the common intention for which it contends must be established by clear and convincing proof, in my opinion that onus is not discharged by the correspondence to which I have referred either alone or in combination with the invoicing practice of Euphoric during the period in question. Furthermore, as the primary judge also observed, such an asserted common intention would be completely at odds with the clear wording of Items 4 and 5 of the Reference Schedule both as contained in the 1998 Agreement as well as in the 1999 Variation. 162 Applying the principles which I have set out in [122]-[143] above, although it was never established that rectification is available in an appropriate area even where the words the parties have employed were purposely and deliberately used, the fact that those words convey a clear, unambiguous and unmistakeable meaning or legal effect renders it less likely that the parties were mistaken as to that meaning or effect. It further renders it less likely that they had a common intention which was fundamentally inconsistent with the words they had deliberately employed. To paraphrase the statement of Denning LJ referred to in [122] above, in the circumstances postulated it makes it difficult to accept that the parties were in complete agreement that as a term of their contract the 6¢/litre rebate would apply as a matter of contractual right to all of Ryledar's existing and future country sites, but by an error they wrote that term down wrongly when they agreed on the contents of Item 4 of the Reference Schedule both in the 1998 Agreement and the 1999 Variation. 163 Furthermore, I agree with the primary judge that it is simply impossible, given the very correspondence upon which Ryledar relies as constituting the clear and convincing proof of the common intention for which it contends, that given the opportunity in the 1999 Variation to make clear that intention, it failed to proffer wording for Item 4 to give effect to that intention. In other words, it is difficult accept that the correspondence upon which Ryledar relies evinced an intention on the part of both parties to provide Ryledar with a contractual right to a 6¢/litre rebate of the width of that contended for and then failed to implement that intention by the appropriate wording of Item 4 of the Reference Schedule. A fortiori as Ryledar was the party who proffered the detailed wording of Item 4 of the Reference Schedule as contained in the letter of 31 March 1999. 164 In my opinion the documentary evidence relied upon by Ryledar did not establish by clear and convincing proof that at the time of execution of the 1999 Variation both parties had an actual intention as to the legal meaning and effect of Items 4 and 5 of the Reference Schedule which was fundamentally inconsistent with the meaning and effect which the wording adopted by the parties clearly conveyed. 165 It therefore follows that even leaving aside the rejection by the primary judge of Mr Beckwith and Mr Magar's evidence as to their belief with respect to the effect of Items 4 and 5 of the Reference Schedule to the 1999 Variation, in my opinion neither the documentary evidence nor the conduct of issuing invoices which included the 6¢/litre rebate to a limited number of locations outside the Rebate Area and the New Rebate Area, whether taken jointly or severally, satisfies the onus on Ryledar to establish by clear and convincing proof the necessary common intention which the parties' written words failed to implement. I would therefore reject Ryledar's claim for rectification of either the 1998 Agreement or the 1999 Variation. 166 In the foregoing circumstances it is unnecessary to deal with Ryledar's submissions with respect to his Honour' rejection of Messrs. Beckwith and Magar's evidence as to their subjective state of mind with respect to their understanding of the effect of Items 4 and 5 in the Reference Schedule, whether as originally drafted or as varied. Nevertheless, I shall deal with the issue shortly. 167 Ryledar submitted first, that his Honour's credibility findings could not stand as they were inconsistent with the documentary evidence which, so it was submitted, made plain that both Ryledar and Euphoric had the common intention that the 6¢/litre rebate should apply "across the board". My rejection of the submission that the documentary evidence plainly evinced such an intention undermines that submission. 168 Second, it was submitted that those findings should be rejected upon the basis of a number of interventions by his Honour during the course of Mr Hobbs and Mr Magar's evidence. The bottom line to Ryledar's submission with respect to this issue was that the effect of his Honour's interventions was that there was no opportunity for senior counsel then representing Ryledar to cross-examine Mr Hobbs upon his evidence. It was submitted that his Honour had asked Mr Hobbs a number of leading questions as a consequence of which his evidence with respect to Euphoric's performance of the 1998 Agreement was "effectively neutralised". In these circumstances, his Honour ought not to have accepted Mr Hobbs' evidence over that of Mr Magar. 169 In my opinion there is no substance in these submissions. In any event, during the course of the hearing of the appeal, senior counsel for Ryledar was informed that unless and until he formulated an appropriate ground of appeal such as a denial of procedural fairness or some other basis which had some foundation in principle including the manner in which it deflected then senior counsel from pursuing his cross-examination of Mr Hobbs or his re-examination of Mr Magar, the Court would not entertain the excessive intervention argument. 170 As no amendment to Ryledar's grounds of appeal was proffered and no further submissions were made with respect to this issue, it follows that the Court's then view as to the validity of the intervention argument should be confirmed and Ryledar's submissions with respect to it rejected. 171 It follows that his Honour's credibility findings with respect to Mr Hobbs on the one hand and Messrs. Beckwith and Magar on the other are unimpeachable. The effect of his Honour' findings with respect to the credibility of those witnesses is his conclusion (at [72]) that Ryledar did not believe, as at 31 March 1999, that it was entitled as a matter of contractual right to a rebate of 6¢/litre on sales to country sites throughout the whole of New South Wales. Furthermore, his Honour found (at [51]) that Mr Magar had no genuine explanation as to how he could have misunderstood the plain meaning of the words in Item 4 of the Reference Schedule of both the 1998 Agreement and the 1999 Variation. 172 Furthermore, at [54] his Honour concluded that Mr Hobbs' intention with respect to what the 1999 Agreement should have reflected did not coincide with Mr Magar's evidence of his own understanding of what was agreed and intended by Item 4, even assuming that that evidence was accepted. There being no coincidence of intention between Mr Hobbs and Mr Magar, it followed that there was no basis for Ryledar's claim for rectification based on a common intention which had not been established to anywhere near the required standard of proof. 173 Finally, his Honour's conclusion at [99] bears repetition: "I am far from convinced that Ryledar has proved its rectification claim. I regard as improbable the suggestion that Ryledar itself put forward wording for the amended Item 4 which was directly contrary to what it believed to be the actual agreement of the parties. I regard the pricing examples used in the correspondence between the parties prior to March 1999 as confused and confusing in so far as they bear upon the parties' intention as to Ryledar's entitlement to the 6¢ rebate to all locations after 13 April 1999 to be unequivocal evidence of a common intention as to that date that that entitlement be a term of the Supply Agreement rather than a commercial inducement or bonus which Euphoric, through Mr Hobbs, was prepared to proffer the keep Ryledar, as a substantial customer, happy." 174 It is apparent from that conclusion that the primary judge, in my view correctly, was not satisfied that Ryledar and Euphoric (and whether based on the documentary evidence or on the oral testimony of the relevant witnesses) had a common intention with respect to Ryledar's right under the 1998 Agreement and/or the 1999 Variation to a 6¢/litre rebate for all locations throughout New South Wales excluding the Sydney Metro area and that to the extent to which Ryledar held any such intention (which his Honour considered it did not), no such intention could be attributed to Euphoric. 175 It follows that based upon the documentary evidence and conduct of the parties with respect to invoicing, Ryledar has failed to establish some outward expression of a common accord of the parties which Items 4 and 5 of the Reference Schedule failed to express. The position is a fortiori with respect to the subjective state of mind of the parties as determined by his Honour in the light of the oral evidence and his credibility findings with respect thereto. (d) A further legal issue 176 There is one legal issue which arises out of the foregoing which it is unnecessary to decide, but upon which I would make the following observations. The issue in question is whether, as Ryledar submitted, when dealing with a claim for rectification the Court was entitled to determine the common intention of the parties objectively by confining itself to the correspondence between them including any relevant conduct and ignoring as irrelevant any inconsistent evidence which established that, subjectively speaking, no such common intention was held. 177 According to Carter on Contracts at [22]-[460], it is sufficient for proving a continuing common intention to establish some manifestation or disclosure by words, conduct or outward expression of the accord which the subsequent instrument fails to express. Such an external (or objective) manifestation of intention although sufficient, is not necessary provided that the party seeking rectification has proved that both parties had the necessary common intention. However, the learned author suggests that in view of the requirement that the party seeking rectification to adduce clear and convincing evidence of the required common intention, lack of any outward manifestation of it may well signify that the party seeking rectification will not be able to discharge the relevant onus of proof. 178 The proposition that there is a requirement for an outward expression of intention was rejected by Bromley QC in his article "Rectification in Equity" in (1971) 87 LQR 532. Bromley's thesis was that although the presence or absence of an outward expression of accord may well go to whether the burden of proof can be discharged, it was not per se a requirement of rectification: rather, because the actual correction of instruments by rectification was only one of the ways in which the Court of Chancery acted in matters of conscience, what was required to be ascertained was the parties' subjective or real or true intention. 179 Thus in The Principles of Equity, 2nd ed. (2003) edited by Professor Parkinson, Mr David Wright in his chapter on rectification refers at 977 with approval to Bromley's suggestion that there is no need for an outward (or objective) expression of intention and that the relevant consideration is the subjective intention of the parties given that the ancient equitable remedy of rectification is an application of the maxim that "equity looks to the intent, rather than to the form". The lack of any need to establish some outward expression of accord was confirmed by Clarke J in the Medical Defence Union case and by Gummow J in Elders Trustees & Executor Co Ltd v E G Reeves Pty Ltd (1987) 78 ALR 193 at 253-254; Spry, Equitable Remedies, 6th ed. (2001) at 611. Therefore, it is the need to establish the subjective common intention of the parties which is critical, especially where the parties' dealings prior to the execution of the instrument sought to be rectified are inconclusive. 180 In any event, no basis exists in any of the authorities to which I have referred which suggests that the subjective intention of the parties is irrelevant, as Ryledar submitted. In Carlenka, Mahoney A-P stated (see [126] above) that in the context of rectification the term "intention" referred to that which was subjectively seen and intended to be effected by the relevant document. Such an approach is consistent, as Bromley notes (at 587-588), with the following observation of Pearce LJ in Earl v Hector Whaling Ltd [1961] 1 Lloyd's Rep 459 at 468: "It is a question of fact and degree what weight of evidence is needed to overcome the inherent probability that the parties meant what they wrote and to establish that contrary to it the parties did not mean what they wrote." 181 That statement is of particular relevance to the present case where the parties, and in particular Ryledar as the party seeking rectification, deliberately proffered the wording of Items 4 and 5 of the Reference Schedule contained in the 1999 Variation. In my view it would be wrong in principle to simply rely on the prior correspondence of the parties and their objective conduct where the evidence otherwise positively establishes that that correspondence and conduct did not coincide with any subjective intention on the part of either party which was capable of overcoming the "inherent probability" that the parties intended the clear and unambiguous terms of Item 4 of the Reference Schedule to mean exactly what they said. The more so where, as here, Mr Hobbs explained and his Honour accepted (at [55]) that Euphoric's conduct in allowing Ryledar the 6¢/litre rebate was prompted only by commercial considerations: (see [62]-[63] above). 182 It follows from the foregoing that first, the common intention which must be established by clear and convincing proof to justify rectification must be the actual or true common intention of the parties. Second, evidence of that intention may be ascertained not only from the external or outward expressions of the parties manifested by their objective words or conduct but also from evidence of their subjective states of mind. 183 Third, where, for instance, the correspondence between and/or conduct of the parties establishes a positive lack of an "objective" common intention, then that evidence must be taken in conjunction with the evidence (if any) of their subjective states of mind to determine whether the necessary common intention has been established. In the example posited, that would be highly unlikely. 184 Fourth, in Westland Savings Bank v Hancock [1987] 2 NZLR 21 at 31 it was held by Tipping J that a party subsequently acting as if the instrument stood in the form into which it is sought to be rectified was strong evidence of that party's intention at the time to execute the instrument in its rectified form. Such conduct is obviously of significance but, depending on other evidence, if any, is not necessarily conclusive although in the absence of any such evidence it may be. 185 Fifth, it follows that where the correspondence and/or conduct positively establishes the necessary common intention, then assertions by the party opposing rectification of his or her subjective state of mind which is inconsistent with that party's outward manifestation of his or her intention, being unexpressed and uncommunicated, is unlikely to trump his or her expressed intention. But this is because that party is unlikely to be believed. 186 Sixth, where as in the present case, the outward expression of the parties' common intention is at best inconclusive, then establishing that the subjective states of mind of the parties evinces the relevant common intention becomes critical if the necessary standard of proof to support an order for rectification is to be achieved. 187 I would therefore reject Ryledar's submission that rectification in the present case must be ordered where an outward expression of the parties' common intention is said to be established by their correspondence and conduct notwithstanding the primary judge's finding that that intention was not in fact held by one or both parties in terms of their respective subjective states of mind. Given that equity acts on the conscience of the party denying the relevant common intention, it must follow that if Mr Magar, as the controlling mind of the party propounding the common intention is disbelieved when he asserts that intention in reliance upon the correspondence and Euphorics conduct, then it would be contrary to principle for Ryledar to suggest that the Court can simply ignore his true intention and rely solely upon the relevant common intention having been established by the objective correspondence between the parties and/or their conduct. The whole of the objective and subjective evidence must be considered for the purpose of determining whether the party claiming rectification has established the actual and true common intention of the parties by clear and convincing proof. 188 This is of particular resonance in the present case where the primary judge not only rejected the proposition that the parties actually intended the opposite of what they had said in Item 4 of the Reference Schedule to both the 1998 Agreement and the 1999 Variation, but also indicated (at [95]) that he could not dismiss as a real possibility that Ryledar had deliberately set out to engineer, by giving pricing examples in its correspondence, a state of confusion, at the least, in which it could argue later that Euphoric had agreed to allow the 6¢/litre for sales to its sites in country New South Wales wherever located notwithstanding the clear words of Item 4 of the Reference Schedule. I would accept the submission that his Honour has made no positive finding that Ryledar deliberately set out to engineer the deception referred to, but his misgivings do at least confirm his rejection of Messrs Beckwith and Magar's evidence that the pricing examples provided in the correspondence were in fact manifestations of their respective beliefs that it was common ground between Ryledar and Euphoric that notwithstanding the plain and unambiguous terminology of Item 4 which they had adopted, nonetheless their common intention was that the 6¢/litre should apply as a matter of contractual right to the whole of New South Wales outside the Sydney Metro locations. 189 Since writing this judgment, I have had the benefit of reading in draft the very learned and penetrating discourse by Campbell JA on the topic of "Rectification and Intention". I gratefully adopt his Honour's reasoning and conclusions on this issue so that [176] to [187] above should be read in conjunction with and subject to that part of Campbell JA's judgment. Ryledar's claim for a conventional estoppel (a) The nature of Ryledar's claim 190 In both proceedings Ryledar in its Amended Cross-claim alleged in par C10B the following: "At all material times on and from 18 May 1998 [Ryledar and Euphoric] proceeded on the assumption that the agreement between the parties was a Contractual Rebate of 6¢/litre off Mobil's listed price as defined in the [1998 Agreement] for Relevant Mobil Petroleum Products (the rebate), would apply to all petroleum products delivered to Wollongong, Central Coast and Newcastle locations as well as to locations outside metropolitan Sydney, Wollongong, Central Coast and Newcastle (country locations)." 191 It was further alleged that pursuant to that assumption, Euphoric supplied petroleum products and charged for those products on the basis of the rebate being allowed; that Ryledar established either directly or through an associate company, a number of country sites on the basis that the rebate would be allowed in respect of petroleum products delivered to those sites and did not obtain an alternative supplier of petroleum products which would have provided a contractual rebate of around 6¢/litre off the list price for those products delivered to Ryledar's country locations. It therefore alleged that Euphoric was estopped from denying that the 1998 Agreement between the parties was that the rebate would apply to country locations and more particularly, was estopped from seeking repayment of the monies claimed in proceedings No. 50071/01 as well as the payment of certain of the monies claimed in proceedings No. 50070/01. 192 The monies claimed in the former proceedings was the sum of $1,872,024 being the amount of the rebate alleged by Euphoric to have been mistakenly applied between 18 May 1998 and 4 July 2000 to Ryledar's sites located outside the rebate Area as per the 1998 Agreement and the New Rebate Area as per the 1999 Variation. As I have already noted, that claim was abandoned upon the basis that the rebate during that period was deliberately (and not mistakenly) applied, although not upon the basis of the assumption alleged by Ryledar in par C10B of its Amended Cross-claims. (b) The relevant principles 193 Ryledar relied upon the same documentary evidence which came into existence between August 1998 and March 1999 for the purpose of establishing the assumption referred to in its pleading as it did to establish the necessary common intention with respect to its claim for rectification. There is, however, a difference between the common intention as alleged and the assumption necessary to establish a conventional estoppel. In the case of rectification, it was necessary for Ryledar to establish that the correspondence and conduct of Euphoric evidenced a common intention of the parties that it would be contractually entitled to the 6¢/litre rebate in respect of locations to which the relevant petroleum products were delivered by Euphoric outside metro Sydney but that that intention was not implemented in the wording of Item 4 of the Reference Schedule. 194 On the other hand estoppel by convention is a form of estoppel founded upon an assumed state of affairs by the parties whether as to a matter of fact or a matter of legal effect which both will be estopped from denying: Con-Stan Industries of Australia Pty Ltd v Norrich Winterthur Insurance (Australia) Ltd (1986) 160 CLR 226 at 244-245. That assumed state of affairs takes as a given the terms of the contract as known to and understood by the parties but from which the parties have departed for the purpose of their furtherance of their relationship under the contract. 195 As Dixon J therefore observed in Grundt v Great Boulder Pty Gold Mines Ltd (1937) 59 CLR 641 at 676, belief in the correctness of the facts or state of affairs assumed is not always necessary. Parties may adopt as the conventional basis of a transaction between them an assumption which they know to be contrary to the actual state of affairs. 196 In his recent book Estoppel by Conduct and Election, Handley described estoppel by convention in the following terms (at par 8-001): "When parties make a statement of fact or of mixed fact and law the conventional basis of their transaction … both are estopped from questioning its truth for the purpose of that transaction. Estoppels by convention can be created ad hoc, expressly, by a course of dealing, or by other acts and declarations. In such a case 'there must be some mutually manifest conduct by the parties' with the intention of effecting their legal relationship." 197 In Amalgamated Investment & Property Co Ltd v Texas Commercial International Bank Ltd (in liq) [1982] QB 84, Lord Denning MR observed (at 121): "To use the phrase of Latham CJ and Dixon J in [ Grundt ] … the parties by their course of dealing adopted a 'conventional basis' for the governance of the relations between them … They are bound by the 'conventional basis' in which they conducted their affairs. The reason is because it would be altogether unjust to allow either party to insist on the strict interpretation of the original terms of the contract – when it would be inequitable to do so having regard to dealings which have taken place between the parties." His Lordship also observed that: "[t]here is no need to enquire whether their particular interpretation is correct or not – or whether they were mistaken or not – or whether they had in mind the original terms or not. Suffice it that they have, by their course of dealing, put their own interpretation on their contract, and cannot be allowed to go back on it." 198 The principles were restated by Lord Steyn in delivering the principal speech in The Indian Grace (No. 2) [1998] AC 878 at 913 where his Lordship said: "… an estoppel by convention may arise where parties to a transaction act on an assumed state of facts or law, the assumption being either shared … or made by one and acquiesced in by the other. The effect of an estoppel by convention is to preclude a party from denying the assumed facts or law if it would be unjust to allow him to go back on the assumption." 199 Recently the principles were restated by Brereton J in Moratic Pty Ltd v Gordon [2007] NSWSC 5, where his Honour observed (at [30]) that the doctrine of conventional estoppel precluded either party to a contract from denying an assumption which has formed the conventional basis of the relationship between them. Accordingly, it is necessary to determine whether the parties have in fact adopted such an assumption as the conventional basis of their relationship. 200 His Honour then stated the matters necessary to establish conventional estoppel (at [32]) as being that: (a) the plaintiff has adopted an assumption as to the terms of its legal relationship with the defendant; (b) the defendant has adopted the same assumption; (c) both parties have conducted their relationship on the basis of that mutual assumption; (d) each party knew or intended that the other act on that basis; and (e) departure from the assumption will occasion detriment to the plaintiff. 201 In noting the differences between promissory estoppel and conventional estoppel his Honour then observed with respect to the latter (at [33]) that it: "is focussed on the consensual basis of the parties' relationship: it operates when both parties have adopted the same assumption as the basis of their relationship, often without appreciating that any departure from the strict legal position is involved so as to hold both parties to their common understanding." 202 Before dealing with the factual material, two other legal aspects of conventional estoppel need to be noted. The first is whether the parol evidence rule operates to exclude evidence of an alleged estoppel by convention arising from pre-contract negotiations. This is relevant in the present case given that Ryledar relies upon the correspondence between the parties containing their negotiations which led up to the 1999 Variation. The second concerns whether it is necessary for Ryledar to establish reliance and detriment before it can establish the relevant estoppel. This question has been answered by this Court in the affirmative in MK & JA Roche Pty Ltd v Metro Edgely Pty Ltd [2005] NSWCA 39 where Hodgson JA, with whom Beazley and Ipp JJA agreed, held (at [72]) that reliance and detriment were essential for the existence of conventional estoppel. 203 Hodgson JA referred to the statement of Dixon J in Grundt (at 674), that the relevant principle was that "the law should not permit an unjust departure by a party from an assumption of fact which he has caused another party to adopt or accept for the purpose of their legal relations". That principle, he continued, involved actions such that the party relying on the estoppel would suffer a detriment if the other party were afterwards allowed to set up rights inconsistent with that assumption. After citing the Commonwealth v Verwayen (1990) 170 CLR 394 at 444, his Honour concluded that conventional estoppel required that the party relying thereon must have "placed himself in a position of significant disadvantage if departure from the assumption be permitted". 204 So far as the parol evidence rule is concerned, in Johnson Matthey Ltd v A C Rochester Overseas Corporation (1990) 23 NSWLR 190, McLelland J, after referring to the remarks of Mason J in Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 at 352 as to the unrewarding and time consuming exercise in investigating pre-contract negotiations and the similar remarks of Kirby P in State Rail Authority of NSW v Heath Outdoor Pty Ltd (1986) 7 NSWLR 170 at 177, stated his conclusion in the following terms (at [195]-[196]): "In my view, reasons of principle and policy combine to exclude evidence of alleged estoppels by convention or any other agreements or understandings arising in the course of pre-contract negotiations which culminate in a written contract, except in proceedings for the rectification of the written contract, when the established requirement, as a condition of obtaining relief, of clear and convincing proof of a common intention of the parties not reflected in the written document provide the necessary degree of security of the written contract. I would therefore exclude on general principles the evidence of pre-contract negotiations for the purpose of proving an alleged estoppel by convention." 205 In Australian Co-operative Foods Ltd v Norco Co-operative Ltd (1999) 46 NSWLR 267 at 279 [52], Bryson J, as his Honour then was, followed and applied the views of McLelland in Johnson Matthey as being well founded on the principle of giving effect: "to the formal, final and considered expression of the parties' contractual intention; the fact that they chose writing to express that intention shows the relative weight they attributed to earlier arrangements and understandings." 206 Byrson J in so holding declined to follow the decision to the contrary of Rolfe J in Whittet v State Bank of New South Wales (1991) 24 NSWLR 146 where his Honour declined to follow Johnson Matthey and held that matters arising out of pre-contractual negotiations, which could be proved to the extent necessary to justify rectification, namely, by clear and convincing proof, may be relied upon to found an estoppel by convention. In so doing, his Honour referred to the decision of this Court in State Rail Authority noting that McHugh JA expressly found that regard could be had to pre-contractual negotiations and that neither Kirby P nor Glass JA suggested that this was incorrect. Rolfe J acknowledged the significance to be accorded to written contracts but considered that the relevant protection for maintaining the integrity of a written instrument was the requirement of clear and convincing proof. 207 In Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd (2001) 117 FCR 424, Allsop J, with whom Drummond and Mansfield JJ agreed, at 543-544 [444]-[446] reviewed the Australian authorities which both permitted reliance upon pre-contractual negotiations to set up an estoppel by convention notwithstanding that those negotiations culminated in a written contract as well as those authorities to the opposite effect. 208 Relevantly, his Honour observed (at 543-544 [446]): "Though not specifically directed to equitable estoppel arising out of pre-contractual communications, McPherson JA in MacDonald v Shinko Australia Pty Ltd [1999] 2 Qd R 152 at 154-156 in dealing with the equitable remedy of rectification arising from pre-contractual communications saw little merit in the argument that the parol evidence rule or an entire agreement clause impeded that remedy in the face of material calling it in aid to remedy a mistake. If that be correct, as I think that it plainly is, it is difficult to see why another remedy of equity based on unconscionability and equally arising out of pre-contractual communications should be defeated by a common law rule about the construction of documents." Ultimately, however, his Honour found it unnecessary to decide this question (at 544 [447]). 209 In Walterman v Gerling Australia Insurance Co Pty Ltd (2005) 65 NSWLR 300, Brereton J at 321-323 referred to the line of authority which held that parol evidence of pre-contractual negotiations which culminated in a written contract might not be relied upon to set up an alleged estoppel by convention. However, in that case it was argued that where there was a written contract, parol evidence of post-contractual as well as pre-contractual matters should not be permitted to set up such an estoppel. His Honour rejected that submission with respect to post contractual matters. This was because the policy considerations which informed the decision of McLelland J in Johnson Matthey did not have the same force when it came to post-contractual conduct because (at 323) "in the latter context what is set up is not an argument that the terms of the parties' arrangements when made are to be found in the oral negotiations and not the written agreement, but rather that since the contract was made, the parties have acted on an assumed state of affairs which is inconsistent with the contractual position and has arisen as a result of conduct after the contract was made." (Emphasis in the original) 210 In Equus Corp Pty Ltd v Glengallan Investments Pty Ltd [2006] QCA 194, MacPherson JA, when referring to a conventional estoppel pleaded by the defendants in that case, observed (at [30]) that they could not assert "a 'common assumption' falling short of a contract that is at odds with the express contract to which they agreed and into which they afterwards entered in the knowledge of its terms. That conclusion is supported by the decision of McLelland J in Johnson Matthey …" 211 Nevertheless his Honour recognised (at [31]) that a statement that a right under "an existing contractual relationship" would not be enforced was capable under certain conditions of constituting an estoppel – although it would appear that he was referring here to the doctrine of promissory estoppel. 212 In her judgment in Equus Corp, Holmes J referred to the judgments of Kirby P and McHugh JA in State Rail Authority of NSW v Heath Outdoor Pty Ltd and to the judgments of McLelland J and Bryson J in Johnson Matthey and Australian Co-operative Foods respectively. Her Honour also referred to the contrary views of Rolfe J in Whittet. However, her Honour did not find it necessary to choose between the competing lines of authority with respect to the permissibility of relying upon pre-contract negotiations to found a conventional estoppel. 213 The foregoing notwithstanding, Holmes J (at [116]) determined the case before her upon the assumption that it was permissible to find an estoppel made out on the strength of an understanding reached in negotiations prior to contract. As pleaded in that case, the common assumption was to the effect that liability under a loan agreement would be limited to certain specified payments and partnership income. The difficulty, as her Honour saw it, was that any such common assumption was displaced by the written agreement's content. She considered that it could not stand in the face of clear evidence of one of the parties that he had read the loan agreement and knew it contained no term to the effect of that encompassed in the alleged common assumption. 214 Finally, the two lines of authority were referred to by Handley in Estoppel by Conduct and Election at par 8-012. Acknowledging that in Australia there were conflicting decisions as to the effect of the parol evidence rule on evidence of a pre-contract convention, the learned author observed in effect that those authorities which decided that a pre-contract convention could not support an estoppel were contrary to both principle and authority. However, as will appear, Like Holmes J in Equus Corp, I find it unnecessary to reject or adopt Handley's view notwithstanding the respect to which it is entitled. (c) The primary judge's findings and Ryledar's submissions 215 I turn now to the factual findings of the primary judge which are the subject of challenge. For the purpose of doing so I shall assume that pre-contract negotiations may be relied upon for the purposes of establishing a conventional estoppel. 216 As I have already noted in [193] above, Ryledar relied upon the same documentary evidence between August 1998 and March 1999 for the purpose of establishing conventional estoppel as it had with respect to its claim for rectification. In this respect it is to be observed that in respect of the latter, Ryledar pleaded a continuing common intention of the parties that a Contractual Rebate within the meaning of the 1998 Agreement and the 1999 Variation of 6¢/litre off Mobil's List Price (as defined) for relevant Mobil Petroleum Products (as defined), would apply to those products delivered to Wollongong, Central Coast and Newcastle locations, as well as to locations outside Sydney Metro, Wollongong, Central Coast and Newcastle. 217 In par C10B of its Amended Cross-Claim, Ryledar pleaded an assumption on the part of itself and Euphoric in precisely the same terms. As I have rejected Ryledar's submission that the correspondence upon which it relied established such a common intention, it follows that I would also reject its submission that that correspondence gave rise to an assumption by the parties in the same terms. 218 In one sense the pleading in par C5B of Ryledar's Amended Cross-claim is deficient unless it is construed as asserting a common intention that the rebate of 6¢/litre was to apply "across the board" as a matter of legal or contractual right. I have already expressed the view that the evidence does not establish a common intention in those terms. However, conventional estoppel does not necessarily require a mutual or common assumption by the parties as to their actual contractual rights and obligations. 219 Thus as Euphoric submitted, in the case of a conventional estoppel there is already in existence a contract between the parties establishing those rights and obligations. The parties then adopt as the conventional basis of their relationship an assumption which they may know to be contrary to the actual state of affairs. In other words, notwithstanding their appreciation of the strict legal position as set out in their contract, they conduct themselves upon the assumption of a different state of affairs as the conventional basis of their relationship. 220 As was pointed out by Brereton J in Moretic, that post-contract conduct may occur even though the parties do not appreciate that they are departing from their strict contractual legal rights and obligations. 221 However, the position is somewhat different when reliance is placed upon pre-contract conduct of the nature of that relied upon by Ryledar in the present case. The whole basis of Ryledar's submissions with respect to the pre-contract correspondence (that is, the pre-1999 Variation correspondence) was that it evidenced a common intention that Ryledar would be contractually entitled to the rebate with respect to Relevant Mobil Petroleum Products supplied to its sites outside its Sydney Metro locations. 222 Once any such common intention is rejected, it follows that the contract between the parties (in this case the 1999 Variation) relevantly speaks for itself, namely, that Ryledar well knew as at 31 March 1999 that its contractual right to the 6¢/litre rebate was confined to the New Rebate Area. In these circumstances, as at that date, Ryledar could not have assumed that it would thereafter be entitled to receive the 6¢/litre rebate "across the board" not only for the balance of the Term but also in respect of the three renewal periods. 223 It was for that reason that his Honour (at [110]) held that the wording of Ryledar's proposal set forth in its letter to Euphoric of 15 March 1999 was totally inconsistent with any belief on its part at that time that either the 1998 Agreement already entitled it to the 6¢/litre rebate throughout New South Wales or that the proposed variation would confer that entitlement. That finding was reiterated by his Honour in [119] in rejecting Ryledar's submission with respect to its claim for a conventional estoppel that it believed (or assumed) that the 1998 Agreement or 1999 Variation conferred an entitlement to the 6¢/litre rebate for which it contended. (d) Ryledar's claim to a conventional estoppel should be rejected 224 Although Ryledar submitted that it was irrelevant that his Honour rejected Messrs Beckwith and Magar's evidence that they held such a belief or, in effect, made such an assumption, in my opinion, given that it is a requirement for conventional estoppel that departure from the mutually held assumption will occasion detriment to the party asserting it, no such detriment can exist if, in fact, that party is found not to have the belief that any such assumption exists. 225 As I have indicated, Ryledar's submission notwithstanding, the manner in which the common assumption was pleaded was that the parties conducted themselves upon the assumption that the 6¢/litre rebate was one to which Ryledar was entitled as a matter of right and not as a matter of grace. In this respect his Honour accepted Mr Hobbs' evidence that he was prepared to allow the 6¢/litre rebate as a commercial inducement or bonus to keep Ryledar, as a substantial customer, happy. In its submissions, Ryledar advanced its case on the basis that both the pre and post-1999 Variation evidence established by clear and convincing proof that the parties proceeded to conduct their relations upon the conventional basis that Ryledar was entitled to the rebate as a matter of right. I have rejected that submission with respect to the pre-31 March 1999 documentary evidence and I would reject it with respect to Euphoric's post-March 1999 conduct. 226 In my opinion, the mere fact that both before and after 31 March 1999 and up to 6 July 2000, Ryledar allowed the 6¢/litre rebate in relation to the very limited number of sites operated by Ryledar outside the New Rebate Area provides neither clear nor convincing proof on the balance of probabilities, that either Ryledar or, in particular, Euphoric, had adopted as the conventional basis of the future contractual relationship between the parties that, notwithstanding the clear an unequivocal terms of Item 4 of the Reference Schedule in the 1999 Variation, nonetheless Ryledar was entitled as a matter of right for the whole of the Term as well as any renewal thereof to a 6¢/litre rebate in respect of all or any sites that it might open at any time in the future outside its Sydney Metro locations. His Honour rejected such a proposition and, in my opinion, he was correct to do so. 227 Given the foregoing findings it is therefore unnecessary to express a concluded view as to whether pre-contract negotiations may be relied upon for the purpose of establishing a conventional estoppel where subsequently a contract is entered into between the parties which unambiguously sets out their rights and obligations in terms which are completely inconsistent with the common assumption which is alleged to be the conventional basis of their relations post-contract. 228 The present case is not dissimilar in this respect to that before the Queensland Court of Appeal in Equus Corp where Holmes J, assuming that it was permissible to find an estoppel made out on the strength of an understanding reached in pre-contract negotiations, held that a common assumption as to the effect of the contract the subject of those negotiations, was displaced by the terms of the contract entered into where the evidence was that the party asserting the estoppel had read and understood the contract as being inconsistent with the alleged assumption. 229 In the same case MacPherson JA (at [30]) observed that the defendants could not assert a "common assumption" falling short of a contract that was at odds with the express contract to which they agreed and into which they afterwards entered in the knowledge of its terms. His Honour considered that that conclusion was supported by the decision of McLelland J in Johnson Matthey relied upon by Holmes J who came to a similar conclusion. 230 For the foregoing reasons, therefore, I would reject Ryledar's claim for a conventional estoppel whether based upon the correspondence between the parties from May 1998 to March 1999 or their conduct subsequent to the 1999 Variation. (e) A further submission 231 Euphoric submitted during the course of its oral argument that its post-1999 Variation conduct could, at most, have estopped it from seeking to recover the rebate which it allowed Ryledar from March 1999 to 4 July 2000 when it terminated whatever convention may have previously existed. 232 In this respect, as was pointed out in Handley op cit at par 8-015, the estoppel only applies for the purposes of the transaction or relationship in which the convention is adopted. In this respect there is much to be said for the view, although it is unnecessary to express a final conclusion on the point, that even if there was a conventional estoppel, it did not, without more, extend to any renewal of the 1998 Agreement (as varied by the 1999 Variation) upon the exercise of any of the options. Furthermore, as Handley notes in the paragraph referred to, in The Vistafjord [1988] 2 Lloyds Reports 343 (approved by the House of Lords in The Indian Grace (No 2) at 913), Bingham LJ adopted the view of Peter Gibson J in an unreported case that an estoppel by convention applied "for the period of time and to the extent required … Once [a common] assumption is revealed to be erroneous the estoppel would not apply to future dealings between the parties." 233 The learned author points out, however, that ad hoc conventions are not necessarily terminated on discovery of the truth although that depends on whether discovery of the mistake which led to the assumption and the remittal of the parties to their true legal position was too late in that, for instance, a limitation period to commence proceedings for a breach of contract had been allowed to expire. However, such is not the present case. 234 It is true that Ryledar pleaded and submitted that it sustained detriment by establishing a number of country sites on the basis that the rebate would be allowed and for that reason did not obtain an alternative supplier. The primary judge made no findings in this respect but at the very least it may be doubted that any such detriment was proved given the number of country sites which were opened by Ryledar after it was informed on 4 July 2000 that the rebate would be discontinued as it was not entitled thereto. Did Ryledar validly exercise its option to renew the 1998 Agreement as varied by the 1999 Variation? 235 I repeat the relevant provisions of the 1998 Agreement relating to the option for renewal: " 3. PERIOD OF AGREEMENT 3.1 Commencement and Duration . This Agreement shall commence on the Commencement Date and shall full force and effect for the Term unless sooner terminated in accordance with the provisions of this Agreement. 3.2 Options for Renewal . Euphoric grants to Customer an option to renew this Agreement for the Renewal Period(s). If Item 9 of the Reference Schedule has not been completed then there is no option to renew this Agreement. 3.3 Exercise of Options. Customer shall only be entitled to exercise the options to renew for the Renewal Periods contained in clause 3.2 in the event that: (a) Customer has, at all times during the Term duly observed and fulfilled its obligations under this Agreement and all other agreements with Euphoric; (b) Customer has given written notice to Euphoric exercising the option not more than 120 days nor less than 60 days before the expiration of the Term. 3.4 Provision of Supply Agreement for Renewal Period . If Customer exercises any of the options to renew this Agreement contained in clause 3.2, then the provisions of the Agreement for the relevant Renewal Period shall be identical to the provisions of this Agreement, except clause 3.2 shall be deleted from the Supply Agreement for the last Renewal Period." 236 Ryledar submitted before the primary judge and repeated before this Court that it had validly exercised the option in accordance with cl 3.3 in that, first, it had given the written notice referred to in cl 3.3(b) and, second, that as at the date of exercise of the option, it had duly observed and fulfilled its obligations under the 1998 Agreement within the meaning of cl 3.3(a). There was no issue with respect to Ryledar's compliance with cl 3.3(b). However, Euphoric submitted that cl 3.3(a) required it to have duly observed and fulfilled its obligations under the 1998 Agreement at all times up to the end of the "Term" which expired on 17 November 2000, and that as at that date Ryledar was in breach. 237 On the other hand, Ryledar submitted that it complied with cl 3.3(a) if it was not in breach of the 1998 Agreement as at the date of exercise of the option which, in the present case, was on 21 August 2000. 238 The primary judge upheld Euphoric's submissions that cl 3.3(a) and, in particular, the words "at all times during the Term" must be given a clear and literal meaning so that there was no valid exercise of the option if, after notice was given in accordance with cl 3.3(b), Ryledar nevertheless breached its obligations between the date of the giving of the notice and the expiration of the Term on 17 November 2000. 239 Euphoric submitted that on the giving of the cl 3.3(b) notice and assuming that Ryledar had not previously been in breach of its obligations under the 1998 Agreement, then the exercise of the option was conditionally valid but subject to defeasance if Ryledar committed a breach on or before 17 November 2000. 240 The primary judge upheld this submission and held that the relevant date for determination of the question of whether Ryledar was in breach of cl 2.6 of the 1998 Agreement for the purpose of cl 3.3(a) was 17 November 2000. His reasons for so holding were as follows (at [181]): "The purpose of Clause 3.3(a) is, clearly enough, to protect Euphoric from having to enter into a renewed Supply Agreement with a party which breaches its contractual promises, whether those breaches occur before or after giving notice of exercise of the option. There is no reason to read down or qualify the literal and plain meaning of the words ' at all times during the Term '." 241 Ryledar submitted that the critical part of cl 3.3 were the words "be entitled to exercise" as set out in its chapeau. Those words governed the options for renewal and provided an entitlement to exercise the options subject only to compliance with sub-paragraphs (a) and (b). Once a notice is given in accordance with sub-paragraph (b) and provided at the time of the giving of the notice there has been no breach of its contractual obligations, then the option is validly exercised and cannot be defeated. In particular, the right to the grant of a Renewal Period cannot be defeated by reason of any subsequent event such as a breach by Ryledar of its obligations under the 1998 Agreement between the date of exercise of the option and the expiry of the Term. 242 Euphoric submitted that it mattered not for the purpose of cl 3.3(a) once a notice had been given pursuant to cl 3.3(b) and where there had been no breaches at the date of the giving of that notice, whether continued compliance with sub-paragraph (a) to the end of the Term was a condition precedent or a condition subsequent with respect to the validity of the exercise of the option. 243 What was made clear by the terms of sub-paragraph (a) was that Ryledar was required "at all times during the Term" to duly observe and fulfil its obligations under the 1998 Agreement. It would not make commercial sense, so it was submitted, for a notice to be given 119 days before the expiration of the Term and at a time when there was no breach by Ryledar of its obligations so that its right to the grant of a Renewal Period became unconditional, and yet with impunity it could breach its obligations for the next 119 days. 244 Ryledar responded to this submission by contending that if such a breach occurred after the notice referred to in cl 3.3(b) had been given, then Euphoric's remedy would be to terminate the agreement pursuant to cl 3.6. That clause provided that if Ryledar failed to remedy an Event of Default within seven days after receipt of a notice from Euphoric, then the latter would be entitled to terminate the agreement by notice. 245 The difficulty with this submission is first, that it would not enable Euphoric to terminate the agreement for breach where that breach took place within seven days of the expiry of the Term on 17 November 2000. Second, in relation to an Event of Default, Euphoric was required to give a notice requiring the remedying of the breach within seven days. Accordingly, it would be open to Ryledar to breach the agreement, await the giving of a notice to remedy the Event of Default, remedy the default within seven days and then default again the following day and so on, up until the expiry of the Term. 246 Such a situation would be commercially untenable from Euphoric's point of view. The clear intent of cl 3.3(a) is that Ryledar was only entitled to exercise the option to renew the 1998 Agreement for a Renewal Period where "at all times during the Term" it had "duly observed and fulfilled its obligations under" the 1998 Agreement as varied. It was accepted by Ryledar that such a provision was a condition precedent to the valid exercise of the option which must be strictly adhered to: Gilbert J McCaul (Aust) Pty Ltd v Pitt Club Ltd (1959) 59 SR (NSW) 122 at 123-124; Tonitto v Basral (1992) 28 NSWLR 564 at 574 per Sheller JA with whom Handley JA and Hope AJA agreed. It follows that any breach by Ryledar of its obligations under the 1998 Agreement disqualified it from any entitlement to renew the agreement by the giving of notice of the exercise of the option: no question of the giving of a notice to remedy the breach could therefore arise. Once cl 3.3(b) is complied with, both parties are on notice that subject to compliance with cl 3.3(a) the agreement would be renewed for the first Renewal Period. From Euphoric's point of view, its interest are only protected if there is no breach of cl 3.3(a) between the time of the giving of the notice under cl 3.3(b) and the expiry of the Term. Ryledar's position is protected as it has total control over whether or not it breaches it obligations under the agreement before the expiry of the Term. 247 Accordingly, in my opinion his Honour was correct in his construction of cl 3.3(a) so that in the event that Ryledar was in breach of its obligations under the agreement as at 17 November 2000, it was disentitled to any renewal of the 1998 Agreement for any of the Renewal Periods. 248 The issue with respect to whether Ryledar was in breach of the agreement on 17 November 2000 so as to invalidate its exercise of the option was also debated before his Honour and this Court. However, in its written submissions on the appeal, Ryledar conceded that if the primary judge was correct in his rejection of its submissions with respect to the true construction of Items 4 and 5 of the Reference Schedule, its claim for rectification and for a conventional estoppel so that it was not entitled to a 6¢/litre rebate with respect to the supply of Relevant Mobil Petroleum Products to its Sites outside its Sydney Metro locations, then it was unnecessary to determine what was referred to as the "Appropriation Issue" which governed the question of whether Ryledar was in breach of its obligations under the 1998 Agreement as at 17 November 2000. 249 This concession was repeated during the course of oral argument where (at T99) Ryledar's senior counsel stated that absent its entitlement to the 6¢/litre rebate, it did not, in effect, wish to pursue its option to renew. In fact at T100 of the transcript of the oral argument, senior counsel conceded that if Ryledar was not entitled to the 6¢/litre rebate then it was not in a position to establish that it was not in breach of its obligations under the 1998 Agreement as at 17 November 2000. He said: "If we lose the [construction, rectification and conventional estoppel arguments] then we also lose the question whether we are in breach on the last day of the term." 250 Accordingly, it is unnecessary to pursue the Appropriation Issue. The remaining issues 251 It remains to mention two further issues. Before the primary judge Ryledar sought orders under s 87 of the Trade Practices Act 1974 (Cth) and s 72 of the Fair Trading Act 1987 (NSW) that the 1998 Agreement as varied by the 1999 Variation be varied ab initio so as to entitle Ryledar to the 6¢/litre rebate for sales to all its country locations in New South Wales. The basis of that claim was an allegation in its Amended Cross-claims that from mid-August 1998 until about 29 June 2000 Euphoric represented to Ryledar in correspondence and by conduct "that the rebate applied to petroleum products delivered to all country locations". 252 Ryledar's misrepresentation case was rejected by the primary judge for the reasons set out in [107]-[115] of his judgment. 253 Ryledar's submissions on the appeal were based on the same evidentiary material upon which it relied for its claim for rectification as well as upon a document sent by an officer of Euphoric to Ryledar in September 1999 with respect to the freight issue relating to Wandandian and in which the 6¢/litre "discount" was allowed. However, this document in my opinion takes the matter no further than the other documentation upon which Ryledar relied. 254 In my view there is nothing in the evidence relied upon which amounts to a representation of the nature of that contended for anymore than it amounts to evidence of a common intention to the same effect. Accordingly, in my view, his Honour was correct to reject this part of Ryledar's case. 255 Finally, Ryledar raised a question of equitable set-off which, however, was founded upon Euphoric being found guilty of an anticipatory breach of contract on 4 October 2000 when it refused to accept as valid Ryledar's exercise of its option. Given that in my opinion there was no such breach by Euphoric, it follows that the issue of equitable set-off becomes academic. Conclusion 256 For the foregoing reasons Ryledar has failed to establish any of its grounds of appeal. Accordingly, I would propose that its appeal be dismissed with costs. 257 CAMPBELL JA: I agree with the orders proposed by Tobias JA, and with his reasons. However, there are two topics concerning which I wish to add some additional remarks. Rectification and Intention 258 The first of them is Mr Rayment's submission that it is possible, for the purpose of deciding whether to grant rectification, to determine the common intention of the parties objectively, and ignore any inconsistent evidence which established that, subjectively speaking, no such common intention was held. That submission runs counter to fundamental principle about the basis on which rectification of contracts is granted. 259 It is now clearly established that what is necessary for rectification of a document is a common intention of the parties that continues to the time of execution of the document in question, but that an antecedent concluded contract is not needed: Slee v Warke (1949) 86 CLR 271 at 280-281 per Rich, Dixon and Williams JJ; Maralinga Pty Ltd v Major Enterprises Pty Ltd (1973) 128 CLR 336 at 350 per Mason J; Pukallus v Cameron (1982) 180 CLR 447 at 452 per Wilson J (with whom Gibbs CJ agreed), 456 per Brennan J; Commissioner of Stamp Duties (NSW) v Carlenka Pty Ltd (1995) 41 NSWLR 329 at 336, 339 per Sheller JA (with whom Mahoney A-P and McLelland A-JA agreed). It is not sufficient to show that a written instrument does not represent the common intention of the parties – as well, it must be shown what their common intention was: Slee v Warke (1949) 86 CLR 271 at 281. 260 As well, it is commonplace that the task of the court in deciding whether a contract has been entered, and in construction of contracts, is to ascertain the common intention of the parties. 261 Thus, both for the purpose of deciding whether a contract has been entered and construing it, and for the purpose of deciding whether to grant rectification of a contract already entered, a court seeks to ascertain the common intention of the parties to the contract. However, the use of the single expression "common intention" masks two quite different concepts – what counts as a "common intention" for one of these purposes is significantly different to what counts as a "common intention" for the other of these purposes. The Type of Intention Relevant to Contract Formation and Construction 262 For the purpose of deciding whether a contract has been entered, or what construction it bears, the common intention that the court seeks to ascertain is what is sometimes called the "objective intention" of the parties. That is the intention that a reasonable person, with the knowledge of the words and actions of the parties communicated to each other, and the knowledge that the parties had of the surrounding circumstances, would conclude that the parties had, concerning the subject matter of the alleged contract: Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at 461-462, [22]; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 at 179, [40]; Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 All ER 98 at 114-115; 1 WLR 896 at 912-913; Taylor v Johnson (1983) 151 CLR 422 at 429; Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 at 549–550. 263 There is also authoritative recognition that a factor to be taken into account in deciding whether a contract has been entered and if so what are its terms is "the purpose and object of the transaction": Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at 462, [22]; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 at 179, [40]. In Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at 462, [22] the joint judgment of Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ recognised the appropriateness of taking into account the purpose and object of the transaction, and continued: "In Codelfa Constructions Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 at 350, Mason J set out with evident approval the statement by Lord Wilberforce in Reardon Smith Line Ltd v Hansen-Tangen [1976] 1 WLR 989 at 995-996; [1976] 3 All ER 570 at 574: "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." 264 But the purpose and object of the transaction is itself ascertained objectively – it is ascertained by considering what a reasonable observer, in the situation of the parties, would conclude was the purpose and object of the transaction. In Prenn v Simmonds [1971] 1 WLR 1381 at 1384 Lord Wilberforce noted that Lord Blackburn's judgment in River Wear Commissioners v Adamson (1877) 2 App Cas 743 at 763 had said that the task involved in construction required one to: "… inquire beyond the language and see what the circumstances were with reference to which the words were used, and the object, appearing from those circumstances , which the person using them had in view." (Emphasis added) 265 Lord Wilberforce also said, at 1385: "the commercial, or business object, of the transaction, objectively ascertained , may be a surrounding fact." (emphasis added), and, "… evidence of negotiations, or of the parties' intentions … ought not to be received, and evidence should be restricted to evidence of the factual background known to the parties at or before the date of the contract, including evidence of the "genesis" and objectively the "aim" of the transaction." (emphasis added). 266 There are some statements to the effect that there can be some exceptional cases where the subjective intention of the parties can be taken into account in deciding whether a contract has been entered or not, in situations where the parties were playacting, or "joking, or doing or saying anything that was intended to be taken other than at face value" (per Gleeson CJ, Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 at 550; Air Great Lakes Pty Limited v K S Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309 at 330–331). These are not, it seems to me, a real exception to the objective theory of contract. Rather, a subjective intention not to enter a contract comes to be taken into account, in situations like those of playacting or joking, because there is some form of communication between the parties, or context, such that a reasonable person would realise that the words were not intended to be taken at face value. Similarly, a subjective intention to use words with some meaning other than the meaning that an ordinary hearer of the words would put on them, if the hearer were not in the specific context in which the words were spoken, comes to be taken into account, in deciding what are the terms of the contract, only because there is some form of communication between the parties, or context, such that a reasonable person would realise that the more usual meaning of the words was not intended. But a subjective intention to use words with some meaning other than their usual meaning, not communicated in any way to the person with whom one is dealing, and not ascertainable from the context within which one is speaking or acting, is not sufficient to stop a contract being entered in which the terms are accorded the meaning that a reasonable observer would take them to have. Similarly, a subjective intention not to contract, not communicated in any way to the person with whom one is dealing, and not ascertainable from the context within which one is speaking or acting, is not sufficient to stop a contract being entered. Thus, the only reason why it can be said that the subjective intention of the person who is playacting or joking is taken into account is because a reasonable person, in the context in which the words in question are communicated, would realise that they were not to be taken at face value. This is, it seems to me, an application of the objective theory of contract, not an exception to it. The Type of Intention Relevant to Rectification 267 By contrast, the type of intention that is relevant to rectification of a contract is the subjective intention – sometimes called the actual intention – of the parties. 268 In Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 at 346 Mason J said: "The implication of a term is to be compared, and at the same time contrasted, with rectification of the contract. In each case the problem is caused by a deficiency in the expression of the consensual agreement. A term which should have been included has been omitted. The difference is that with rectification the term which has been omitted and should have been included was actually agreed upon ; with implication the term is one which it is presumed that the parties would have agreed upon had they turned their minds to it – it is not a term that they have actually agreed upon. Thus, in the case of the implied term the deficiency in the expression of the consensual agreement is caused by the failure of the parties to direct their minds to a particular eventuality and to make explicit provision for it. Rectification ensures that the contract gives effect to the parties' actual intention ; the implication of a term is designed to give effect to the parties' presumed intention." (Emphasis added) Parol Evidence Admissible 269 One way in which it can be seen that it is subjective intention that matters for rectification, concerns the evidence admissible in a rectification suit. Notwithstanding that the contract that it is sought to rectify is in writing, and notwithstanding the common law rule that parol evidence is not admissible to contradict a written agreement, parol evidence is receivable, in an action seeking rectification, to establish what was the intention of each of the parties to the contract: Ball v Storie (1823) 1 Sim & St 210 at 219; 57 ER 84 at 88; NSW Medical Defence Union Ltd v Transport Industries Insurance Co Ltd (1986) 6 NSWLR 740 at 751, 752; Farrow Mortgage Services Pty Ltd (in liquidation) v Slade and Nelson (1996) 38 NSWLR 636 at 642; Commissioner of Stamp Duties (NSW) v Carlenka Pty Ltd (1995) 41 NSWLR 329 at 332 per Mahoney A-P; Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153 at 164, [27]; Green v AMP Life [2005] NSWSC 370; (2005) 13 ANZ Ins Cas 90-124 at [172]. 270 It is also possible to have evidence from the draftsperson of the document stating what his or her instructions were, and that particular words were included in the document by mistake: Mortimer v Shortall (1842) 2 Dr & War 363 at 370 per Sir Edward Sugden. 271 Lord Hardwicke explained why parol evidence was admissible in this way in Baker v Paine (1750)1 Ves Sen, 456 at 457; 27 ER 1140 at 1141: "How can a mistake in an agreement, be proved but by parol evidence? It is not read to contradict the face of the agreement which the court would not allow, but to prove a mistake therein, which cannot otherwise be proved ..." 272 Not only is parol evidence from the parties admissible to prove their intention, it is of considerable importance. In Fowler v Fowler (1859) 4 De G & J 250; 45 ER 97 Lord Chelmsford LC said, at 273 of De G & J, 106-107 of ER: "Upon the question of rectifying a deed, the denial of one of the parties, that it is contrary to his intention, ought to have considerable weight. Lord Thurlow, in Irnham v Child (1 Bro C C 93) says, "The difficulty of proving that there has been a mistake in a deed is so great, that there is no instance of its prevailing against a party insisting that there was no mistake." And Lord Eldon, in Marquis of Townshend v Stangroom (6 Ves 334), after observing that Lord Thurlow seems to say that the proof must satisfy the Court what was the concurrent intention of all the parties, adds, "And it must never be forgotten to what extent the Defendant, one of the parties, admits or denies the intention."" Outward Expression of Accord 273 There is ongoing debate about whether it is necessary for there to be an "outward expression of accord" before rectification can be granted. That debate is noted (but not resolved – "it may not be necessary to show that the accord found outward expression…") in Pukallus v Cameron (1982) 180 CLR 447 at 452 per Wilson J (with whom Gibbs CJ agreed). 274 That debate stems from the decision of the English Court of Appeal in Joscelyne v Nissen [1970] 2 QB 86. Russell LJ, speaking for the Court, said at 99 that an outward expression of accord was a requirement for rectification. In Joscelyne, the parties had made their intentions clear to each other before signing the document in question, and the sole point at issue was whether it was necessary for there to be an antecedent concluded contract before rectification could be granted, so those remarks were obiter. The only explanation for them contained in the judgment is that closely similar language was used, at 97, to explain the decision in Frederick E Rose (London) Ltd v William H Pim Jnr & Co Ltd [1953] 2 QB 450. Rose was a case where parties had to all outward appearances entered an oral contract for the sale and purchase of horsebeans, then had accurately recorded that oral contract in writing. Each thought that "horsebeans" was the same as "feveroles", because a representative of the defendant had misinformed a representative of the plaintiff that that was the case. In fact "feveroles" were a particular type of horsebeans, more valuable than the type of horsebeans that were delivered in purported performance of the contract. It was held that no rectification was available in those circumstances. Joscelyne v Nissen at 97 described Rose as "… a case in which there was nothing that could be described as an outward expression between the parties of an accord on what was to be involved in a term of the proposed agreement… The decision … does not assert or reinstate the view that an antecedent complete concluded contract is required for rectification: it only shows that prior accord on a term or the meaning of a phrase to be used must have been outwardly expressed or communicated between the parties." 275 That explanation of Rose is puzzling – in Rose there had been communication between the negotiating parties of the incorrect information that feveroles were the same as horsebeans. 276 Be that as it may, soon after Joscelyne v Nissen was decided, Leonard Bromley, "Rectification in Equity" (1971) 87 LQR 532 challenged the statement that "some outward expression of accord" was needed before rectification could be granted. Bromley's thesis (at 532) was that rectification requires, "… the establishment of the subjective intention of the party or of the parties to the instrument (in the latter case an identical intention). Intercommunication, however necessary to the common law of contract, properly plays no part either in theory or in the practice of this equitable doctrine …" 277 The structure of Bromley's argument is, roughly, as follows: 1. Equity, in many of its doctrines, looks at the actual, subjective intention of the person concerned, and gives effect to it. This is consistent with the importance attributed by equity, since the 15th century, to conscience. 2. The correction of instruments by rectification was one of the ways in which Chancery acted in matters of conscience. 3. There are many examples, from the 17th century onwards, of equity judges granting rectification of a contract and stating that the reason for granting the remedy was because the contract as written was contrary to "the intention" (or sometimes "the concurrent intention", or "the real intention" , or "the common intention" ) of the parties. 4. Commentators and textbooks also support the notion that rectification is granted when the instrument as written does not accurately state the intention of the parties. 5. There is no reference in the cases to an outward expression of accord being necessary before rectification is granted. That is hardly likely to have been the situation, over the centuries in which courts have stated when rectification is granted, if indeed a necessary requirement for rectification was that there be an outward expression of accord. 6. While the presence or absence of an outward expression of accord might go to whether the burden of proof can be discharged, it is not in itself a requirement for rectification. 278 The first step in this argument is clearly correct – there are many circumstances in which equity enforces the actual, subjective intention with which dealings were entered. But equity does not enforce every passing intention that a person has – it enforces intentions concerning certain subject matters, formed in certain circumstances, that come to be enforced in certain other circumstances. 279 Bromley is also clearly correct in saying that it is the actual intention of a person who has entered a contract that comes to be enforced by the law of rectification. But that is not the whole picture of the circumstances in which the law of rectification operates. Before rectification of a contract is granted, that actual intention needs to exist in circumstances where it can be seen that there is a common intention of all those entering the contract. Bromley presents no argument or authority about the circumstances in which a subjective intention must be shared, or paralleled, by the various negotiators of the contract in question, before it can be said that a common intention to that effect exists. Without such an account, he is not justified in taking the step of concluding that "intercommunication … properly plays no part either in theory or in practice of this equitable doctrine …". 280 Caution is needed in evaluating the case law relating to whether or not an outward expression of accord is needed. That is because it is not clear how much (or how little) is involved in an assertion, or denial, of the need for an "outward expression of accord". It is not clear just what the phrase means. One possibility is that the parties have said "we agree", or something similar, or performed an act like shaking hands or opening a bottle of champagne that is commonly recognised as an indication of a consensus having been reached. Another possibility is that each of the parties has in some fashion stated (though not to each other) his or her belief that an accord has been reached. Another is that the expression should be taken as performing the work that, in its context in Joscelyne v Nissen, it was designed to perform, namely of indicating that identical subjective intentions, of parties involved in a contractual negotiation, to use a word with a meaning different to its actual meaning is not enough to give rise to rectification unless those subjective intentions of the negotiators have not only become known to each other, but as well they have in some way stated that they propose to use the word with a meaning different to its actual meaning. There is no point in multiplying examples. 281 In my view, when the fundamental requirement for granting rectification is a continuing common intention of the parties, it is of more assistance to concentrate on what is needed before an intention of the parties to a negotiation counts as a common intention. In my view, when that intention relates to the terms upon which they will contract with each other, it is still necessary for them to know enough of each other's intentions for it to be said that there is a common intention. They might come to know of each other's intentions in this way through those intentions being directly stated, or they might come to know of them through the various other means by which one person's intention can become known to another person. Those means can sometimes involve a process of conscious and deliberate inference. Those means can sometimes involve simply perceiving a gestalt in a series of events. Those means can depend to some extent on the people involved sharing a common understanding of how particular bodies of knowledge or markets or social institutions they are operating in work – the experienced surgeon, or the experienced chess player, can sometimes see what another surgeon, or chess player, is seeking to do, in a way that an inexperienced person cannot. What matters for present purposes is that for a negotiating party to perform actions or say words from which the other party can gather his or her intention is itself a form of communication. Negotiation of any contract takes place in a context in which various facts are known or assumed by the negotiating parties. Sometimes, for example, if a contract is negotiated in a context where there are well understood business practices and conventions, and nothing is said about those practices and conventions not applying, it can be legitimate to conclude that both parties to the contract intended to act in accordance with those practices and conventions, even if they did not expressly communicate to each other that they intended to act in accordance with those practices and conventions. This view of what is needed before an intention is a common intention, accords, it seems to me, with the Australian case law since Joscelyne. 282 Street J, in Australasian Performing Right Association Ltd v Austarama Television Pty Ltd [1972] 2 NSWLR 467 at 473 said: "… the true principle involves finding an identical corresponding contractual intention on each side, manifested by some act or conduct from which one can see that the contractual intention of each party met and satisfied that of the other. On such facts there can be seen to exist objectively a consensual relationship between the parties." 283 That passage was adopted by Menzies J in the original jurisdiction of the High Court in Hooker Town Developments Pty Ltd and Another v The Director of War Service Homes (1973) 47 ALJR 320 at 323-4, who added, at 324: "The consensual relationship there referred to is, I think, the common intention with which the document was executed." 284 The passage I have cited from Street J was also applied by Yeldham J in Bishopsgate Insurance Australia Ltd v Commonwealth Engineering (NSW) Pty Ltd [1981] 1 NSWLR 429 at 430-431, who added, at 431: "What many of the cases do make clear, however, is that the firm accord or common intention which must be established as a basis for rectification must be one that has been manifested in the words or conduct of the parties and not merely one which remained undisclosed in the course of the negotiations. But this is a different thing from a requirement that the respective intentions must be communicated … " 285 From the distinction that Yeldham J here draws between an intention being "disclosed" and being "communicated", it appears that he is restricting "communicated" to communicated by express statement. 286 The passage from Street J was also adopted by Tipping J in Westland Savings Bank v Hancock [1987] 2 NZLR 21 at 30, who regarded it as supporting the conclusion that he drew, that "… while there need be no formal communication of the common intention by each party to the other or outward expression of accord, it must be objectively apparent from the words or actions of each party that each party held and continued to hold an intention on the point in question corresponding with the same intention held by each party." 287 I note that the way in which Tipping J put it leaves open the question of to whom "it must be objectively apparent" – the other party or parties to the negotiation, or the court at the time of the hearing? In my view is clear that Street J intended the former meaning, because, as his Honour expressly stated at 473, what he saw himself as doing was reconciling two apparently different lines of authority, one of which required an antecedent concluded agreement, and the other of which did not. Further, mere proof that the subjective intentions of contracting parties were identical, if each contracting party had kept his or her intention completely to himself or herself, would not amount to showing a consensual relationship between the parties – which is what Street J says needs to be shown. Further, the passage I have quoted from Menzies J in Hooker shows that Menzies J understood Street J's "true principle" in the same way I understand it. 288 In Elders Trustee and Executor Co Ltd v E G Reeves Pty Ltd and Others (1987) 78 ALR 193 at 253-254 Gummow J approved the approach taken by Yeldham J in Bishopsgate. 289 In Maralinga Pty Ltd v Major Enterprises Pty Ltd (1973) 128 CLR 336 Mason J (with whom Menzies J agreed) said at 349-350: "As Buckley LJ said in Lovell & Christmas Ltd v Wall (1911) 104 LT 85, at p. 93: "For rectification it is not enough to set about to find what one or even both of the parties to the contract intended. What you have to find out is what intention was communicated by one side to the other, and with what common intention and common agreement they made their bargain." What is of importance is that the purpose of the remedy is to make the instrument conform to the true agreement of the parties where the writing by common mistake fails to express that agreement accurately." 290 While that passage is clearly using the word "agreement" in a sense that does not require the agreement to amount to a contract, it still emphasises the consensual nature of the common intention. 291 In Trawl Industries of Australia Pty Ltd v Effem Foods Pty Ltd (1992) 27 NSWLR 326 at 341 Samuels JA referred to the passages I have quoted from Maralinga, Austarama and Hooker. His Honour referred to them as authority for concluding that rejection of a particular part of the evidence of a particular witness about what was said at a negotiating meeting "would be fatal to any finding of a prior common intention of the parties (inconsistent with the instrument) upon which the doctrine of rectification depends". That process of reasoning makes sense only if what was said at the negotiating meeting (and thus communicated to the other side in the negotiation) was important for finding out whether there was a common intention. 292 Meagher, Gummow and Lehane's, Equity Doctrines and Remedies, 4th edition para [26-030] says: "No outward expression of accord is necessary, but whatever intentions the parties had cannot remain undisclosed." 293 In Commissioner of Stamp Duties (NSW) v Carlenka Pty Ltd (1995) 41 NSWLR 329 at 332 Mahoney A-P said that the difficulty in reconciling the effect of certain decided cases "… derives at least in part from two things: from the failure to direct attention to what, by their consensus or common agreement , the parties intended should be done; and [another factor]" (emphasis added). That passage underlines the need for the common intention to be a consensual one. 294 In NSW Medical Defence Union Ltd v Transport Industries Insurance Co Ltd (NSW Supreme Court, 27 October 1986, reported in part at (1986) 6 NSWLR 740) Clarke J concluded that an outward expression of accord was not necessary before rectification could be granted. The case provides a useful example of how there can be a common intention on a particular subject matter, without an outward statement of agreement on the subject matter of that common intention. Because some matters that are relevant to this aspect of the case appear only in the typescript of the judgment, not in the edited version published in NSWLR, I shall mention them in fuller detail than I ordinarily would concerning a reported case. 295 An insurer that wrote professional indemnity insurance for medical practitioners obtained reinsurance of its obligations "in respect of claims notified" during the 1981 calendar year (p 6 typescript). A claim was made during the 1981 calendar year against an insured medical practitioner on behalf of a child, arising from alleged mistreatment of the child. The medical practitioner in turn made a claim on his insurer. In the 1984 calendar year the parents of the child instituted proceedings claiming damages for nervous shock they alleged they had suffered in consequence of the injury to their child. The reinsurer denied liability to indemnify concerning the latter claim. The Court of Appeal, in previous litigation (Transport Industries Insurance Co Ltd & Ors v NSW Medical Defence Union Ltd (1986) 4 ANZ Ins Cas ¶ 60-736) had construed the policy of reinsurance. The Court of Appeal held that the obligation to indemnify in respect of "claims notified" in the policy of reinsurance did not extend to an obligation to indemnify in respect of circumstances that could give rise to a claim, where those circumstances were notified to the insurer by an insured during the 1981 calendar year but where no claim was made upon the insured until after the end of the 1981 calendar year. The insurer then sought, and obtained, rectification of the policy of reinsurance, so that the indemnity extended to occurrences notified during the relevant calendar year that resulted in claims, even if such a claim was made only after the end of the calendar year. 296 The reinsurance policy in question was negotiated between a broker, Mr Lacey, and an underwriter for the reinsurer, Mr Brown. 297 The insurer called evidence from an experienced broker (Mr Lacey), and an experienced underwriter (Mr Walker) concerning "usages, practices and the availability of markets in the insurance industry", which Clarke J summarised as follows (typescript page 19): "The effect of Lacey's evidence, shortly stated, was that professional indemnity policies were known as "claims made" policies, that they invariably included a provision the effect of which was to equate occurrences notified during the year with claims made during the year, that the word "claim" had a special meaning in such policies the effect of which was to include "occurrences notified" and that there was in the 1979, 1980 and 1981 years no available market in which insurance or reinsurance could be obtained to cover liability in respect of incidents which occurred and were notified before the inception of the policy, notwithstanding that they did not mature into claims until after its commencement. Lacey also deposed to the fact that after Brown had agreed to accept the risk and the premium offered he sent to Lacey an executed form of policy which was, as its heading suggests, the normal form used by Brown." 298 That form of policy contained a "deeming clause" that deemed claims arising after the year of insurance, out of conduct or circumstances notified during the year of insurance, to be made during the year of insurance. That form of policy was not eventually used to write the policy, but the proffer of the "deeming clause" indicated the intention that Brown had. 299 Walker's evidence (typescript 21) was to the effect that "… the phrase "claim made" in professional indemnity policies was understood to extend to the notification of circumstances which might give rise to a claim notwithstanding that an actual claim was not made during the period of insurance. … there was no available market in which one could obtain reinsurance in respect of known occurrences which might mature into claims in the period during which the policy then under negotiation was in existence. What occurred, according to Walker, was that when a proponent for professional indemnity insurance, or reinsurance, approached an underwriter he would be required to disclose any notification of circumstances which might be the subject, at a later date, of a claim. Upon disclosure of the notification there would be an express exclusion of that occurrence in the policy. … a professional indemnity policy which did not cover an insured in respect of occurrences notified to the insurer, but which did not mature into an actual claim during the year of the policy, was unknown in the industry." 300 There was no contrary expert evidence called by the reinsurer. Clarke J rejected, however, a submission that there was a notorious meaning of "claims made" in the insurance industry – he reasoned that if there was such a notorious meaning, there would be no need for clauses like the deeming clause that Brown had proffered. 301 As well, there was evidence of how the reinsurer had paid some claims under the reinsurance policy that it would have been liable to pay only if it had a liability concerning claims that were eventually made arising from occurrences notified during the year of insurance. One of those claims arose from the death of a Mrs Thompson. 302 It was in that context that Clarke J made findings, at 745-746 of the NSWLR report: The facts which demonstrate the common intention are as follows: Lacey offered Brown a contract in which the first defendants would indemnify the plaintiff in respect of 50 per cent of the plaintiff's liability for all claims in excess of $50,000 under the plaintiff's professional indemnity insurance policy; at the same time he handed Brown a bordereau which referred to claims made and occurrences notified and which made it quite plain that many of the occurrences notified had not crystallised into claims; he told Brown that the policy was a standard malpractice or professional indemnity policy; all, or at least the vast majority, of professional indemnity insurances written in the market in Sydney provided cover in respect of claims made or occurrences notified within the year of insurance; there was no available market in which an insurer could obtain reinsurance for occurrences notified prior to the year of insurance but which might crystallise into claims in the year of insurance; Brown was an experienced underwriter who had written annually about 2,000 reinsurance contracts for Lacey; therefore Brown must be taken to have known that no market existed in which insurance could be obtained for known occurrences which had not crystallised into claims and must have known that the policy was intended to conform with the standard policy and provide cover for occurrences notified in the relevant year. To these facts should be added Brown's forwarding of a policy, after the negotiation of the appropriate premium, which included the deeming clause to which I have made reference and the administration by Brown of the policy in accordance with that view of the meaning of the contract. Finally, counsel submitted that although it may be correct to say that there was no trade meaning of the word "claims", the evidence demonstrated that expressions such as "claims made" or "claims notified" in professional indemnity policies invariably were understood in the industry to refer to "claims actually made and occurrences notified". These factors, according to Mr Rayment, all lead to the irresistible conclusion that both parties intended this policy to provide reinsurance cover in respect of both claims and occurrences (which later matured into claims), notified in a year of insurance. Brown was not called to contradict the evidence as to the practice and markets in the industry nor was he called to establish that his intention was contrary to that suggested by the plaintiff's evidence. Reference to the material concerning the manner in which the claims were administered suggests that it would have been difficult for him to contend that he was binding the first defendants to the policy with the limited protection which, properly construed, it accords the plaintiff. Such material as is tendered which contains statements by Brown (I have in mind his letter of 29 May 1984 concerning Mrs Thompson's case to which I have referred) instils confidence that his intention coincided with Lacey's. My conclusion is that the plaintiff has established with the requisite degree of persuasion (see, for instance, Australia Hotel Co Ltd v Moore (1899) 20 LR (NSW) Eq 155; 16 WN 132) that each of the parties concluding this agreement intended that the first defendants provide the cover for which the plaintiff contends." 303 Clarke J also expressly held, at 750 of NSWLR "… there does not seem to me to have been any outward expression of accord as to the meaning of "claims made" by the parties at the time of negotiation of the contract. The plaintiff's counsel has argued that Lacey expressed his intention by, for instance, handing over a bordereau referring to claims and occurrences and that Brown did likewise by returning a form of contract which included the deeming clause. I am not satisfied that these actions, or any of the actions of the contracting persons, established an outward expression of accord. In point of fact I am asked to infer that both Brown and Lacey had a common intention by reference to the usages in the insurance industry and their conduct prior to and after the negotiation of the contract." 304 In Transport Industries, it can be seen that both parties had identical intentions about the coverage of the reinsurance policy, and that those intentions had been disclosed sufficiently, one to the other, for it to be concluded that they had reached a consensus, or a common intention. Assistance from the Rationale for Rectification 305 That the common intention must be in some manner disclosed is also consistent with the rationale on which rectification is granted. 306 In Simpson v Vaughan (1739) 2 Atk 31; 26 ER 415 Lord Hardwicke saw the justification for granting rectification as lying in mistake. He rectified a bond binding two people, that had not been stated to bind them severally, saying at 2 Ark 33; 26 ER 416: "Now here is a reasonable presumption that this bond was either through fraud, or for want of skill, made a joint, instead of a joint and several bond; for Baker, one of the obligors who filled it up, is only a tradesman, and intirely unacquainted with the common form of bonds, where money is lent to two persons; but I do not think it was a fraud in Baker, but merely a mistake, and this is a head of equity on which the Court always relieves." 307 Simonds J in Crane v Hegeman-Harris Co Inc, a decision given in 1939, but reported in full at [1971] 1 WLR 1390, also identified the rationale of rectification as lying in mistake, saying at 1391: "… in order that this Court may exercise its jurisdiction to rectify a written instrument it is not necessary to find a concluded and binding contract between the parties antecedent to the agreement which it is sought to rectify … it is sufficient if you find a common continuing intention in regard to a particular provision or aspect of the agreement. If you find that in regard to a particular point the parties were in agreement up to the moment when they executed their formal instrument, and the formal instrument does not conform with that common agreement, then this court has jurisdiction to rectify although it may be that there was, until the formal instrument was executed, no concluded and binding contract between the parties. … if it were not so, it would be a strange thing, for the result would be that two parties binding themselves by a mistake to which each had equally contributed, by an instrument which did not express their real intentions, would yet be bound by it." 308 The judgment of Simonds J in that case was endorsed by the Court of Appeal in England (Crane v Hegeman-Harris Co Inc [1939] 4 All ER 68), and part of the passage that I have just quoted (from "if it were not so" onwards) was quoted by Rich, Dixon and Williams JJ in Slee v Warke (1952) 86 CLR 271, at 280-281. While Simonds J's account is correct as far as it goes, it points to only one aspect of the problem that rectification aims to remedy. It does not go on to identify why it is that mistake ought result in a court administering equitable jurisdiction ordering rectification, and does not explain why granting rectification of the contract, rather than some other remedy such as rescission is the appropriate response to the problem. 309 A fuller account of the rationale for the granting of a remedy of rectification is given in Story, Commentaries on Equity Jurisprudence as Administered in England and America (13th edition 1886) at 168-169, [154]-[155]. The author started by considering how the principles upon which equity granted rectification compared with the principle of the common law under which parol evidence was not admissible to vary or add to written contracts, and continued: "The same principle lies at the foundation of each class of decisions, that is to say, the desire to suppress frauds and promote general good faith and confidence in the formation of contracts. The danger of setting aside the solemn engagements of parties when reduced to writing, by the introduction of parol evidence substituting other material terms and stipulations, is sufficiently obvious. But what shall be said where those terms and stipulations are suppressed or omitted by fraud or imposition? Shall the guilty party be allowed to avail himself of such a triumph over innocence and credulity to accomplish his own base designs? That would be to allow a rule introduced to suppress fraud to be the most effectual promotion and encouragement of it. And hence Courts of Equity have not hesitated to entertain jurisdiction to reform all contracts where a fraudulent suppression, omission, or insertion of a material stipulation exists, notwithstanding to some extent it breaks in upon the uniformity of the rule as to the exclusion of parol evidence to vary or control contracts; wisely deeming such cases to be a proper exception to the rule, and proving its general soundness. It is upon the same ground that equity interferes in cases of written agreements where there has been an innocent omission or insertion of a material stipulation contrary to the intention of both parties and under the mutual mistake. To allow it to prevail in such a case would be to work a surprise, or fraud, upon both parties; and it certainly upon the one who is the sufferer. As much injustice would to the full be done under such circumstances as would be done by a positive fraud or an inevitable accident. A Court of Equity would be of little value if it could suppress only positive frauds, and leave mutual mistakes, innocently made, to work intolerable mischiefs contrary to the intention of parties. It would be to allow an act originating in innocence to operate ultimately as a fraud, by enabling the party who receives the benefit of the mistake to resist the claims of justice under the shelter of a rule framed to promote it. In a practical view there would be as much mischief done by refusing relief in such cases as there would be introduced by allowing parol evidence in all cases to vary written contracts." 310 In other words, the type of unconscientiousness that is prevented by the availability of the equity to rectify a written contract is that that would occur if a party to the contract sought the benefit of those legal rights he would have if the document contained the agreement that the parties had made, when the document does not accurately state the common intention that the parties had. 311 Spry, Equitable Remedies (6th edition 2001), at 608, also sees the basis of rectification as lying in the prevention of unconscionable conduct: "It may be added generally of the remedy of rectification that in many contexts it has been shown to be salutary in preventing unconscionable reliance upon documents executed or continuing in existence in an objectionable form." That statement would now need minor alterations, to take account of the joint judgment of Gleeson CJ, McHugh, Gummow, Hayne and Heydon JJ in Tanwar Enterprises Pty Ltd v Cauchi (2003) 217 CLR 315 at [20]-[22], 324-325, which held that "unconscientious" is a more accurate term than "unconscionable" to describe the basis for equitable intervention. 312 Calverley v Williams (1790) 1 Ves Jr 210; 30 ER 306 was in essence an application to rectify a contract of sale, and conveyance of land made pursuant to that contract. The dispute related to whether a particular parcel of land had been intended to be part of the land sold. Lord Thurlow LC said at 211 of Ves Jr, 306 of ER: "No doubt, if one party thought, he had purchased bona fide , and the other party thought he had not sold, that is a ground to set aside the contract, that neither party may be damaged; as it is impossible to say, one shall be forced to give that price for part only, which he intended to give for the whole, or that the other shall be obliged to sell the whole, for what he intended to be the price of part only. Upon the other hand, if both understood, the whole was to be conveyed, it must be conveyed. But again, if neither understood so, if the buyer did not imagine he was buying, any more than the seller imagined he was selling, this part, then this pretence to have the whole conveyed is as contrary to good faith upon his side, as the refusal to sell would be in the other case. The question is, does it appear to have been the common purpose of both to have conveyed this part." 313 This rationale of using rectification to give effect to the common purpose in a way that preserves good faith is but the obverse of using rectification to avoid unconscientious insistence on the terms of the written document. 314 It is because the avoidance of unconscientious taking advantage of the common mistake is the rationale of the remedy that it does not matter that the mistaken drafting of the agreement was carried out by the plaintiff, or that the plaintiff is a legal practitioner: Ball v Storie (1823) 1 Sim & St 210 at 219; 57 ER 84 at 88. 315 That the rationale for granting rectification is to avoid unconscientious departure from the common intention assists in deciding what is required for there to be a "common intention". If two negotiating parties each had a particular intention about the agreement they would enter, and their intentions were identical, but that intention was disclosed by neither of them, and they later entered a document that did not accord with that intention, what would be the injustice or unconscientiousness in either of them enforcing the document according to its terms? Conclusion 316 For the reasons I have given, the common intention that is required to grant rectification is subjective. Even though there is a requirement for the intention to be disclosed before it can count as a common intention, that disclosure need not be by words that say in substance "this is my intention". The need for disclosure fills the role of being a limitation on the types of subjective intention that can be enforced through the remedy of rectification, or a limitation on the circumstances in which a subjective intention must exist before it can be enforced through the remedy of rectification. It still remains that proof of the subjective intention of the parties to the contract is fundamental to the grant of rectification. Hence it is not possible to ignore a factual finding by the trial judge, to the effect that he was not satisfied that the plaintiff intended the rebate to apply in relation to deliveries to any location within New South Wales outside the Sydney Metro locations, and look only to the correspondence for the purpose of finding a "common intention". Exercise of Option 317 The other topic on which I wish to make some remarks is whether Ryledar validly exercised its option to renew the 1998 Agreement as varied by the 1999 Variation. The text of the option is set out in the judgment of Tobias JA at para [235]. 318 There is a frequently recurring problem in the construction of options concerning what counts as the "exercise" of the option. Concerning the option in question in Australian Hardwoods Pty Ltd v Commissioner for Railways [1961] 1 All ER 737; [1961] 1 WLR 425 Lord Radcliffe said, at All ER 740, WLR 430: "It might be the giving of the option notice, or, possibly, the expiration of the time limited by the notice: on the other hand, it might be that, though a notice of the required length has to be given, no rights are created unless and until the purchase price is tendered at the date when the prescribed time has run out." 319 The option under consideration in that case did not make exercise of the option conditional upon observance of the covenants in the agreement that created the option. 320 Another possibility that the language of "exercise" leaves open in the present case is that the option is not exercised unless all of the preconditions for its exercise have been met. On that construction, the "exercise" of the option amounts to having done everything that is necessary to have a legal right to renew the agreement – the "exercise of the option" is the actual use and enjoyment of the right to renew the agreement. When that meaning is comfortably open on the language of the clause, and there are no other aids to construction that are sought to be relied upon, the decisive factor, it seems to me, is that the clause should not be construed in a way that makes it operate in an uncommercial and impractical way. For the reasons given by Tobias JA, any construction other than one that requires compliance with Ryledar's obligations for the entirety of the Term would make the agreement operate in an uncommercial and impractical way. Orders 321 As earlier indicated, I agree with the orders proposed by Tobias JA. ********* 05/03/2008 - Missing pages due to software glitch - Paragraph(s) [1]-[302] 05/03/2008 - Software glitch on publication - Paragraph(s) [1]-[302] 07/05/2008 - Removal of internal cross-referencing. - Paragraph(s) Various 09/03/2009 - Incorrect spelling in case reference - Paragraph(s) Coversheet, [104] 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.