Supreme Court New South Wales Medium Neutral Citation: Visy Paper Pty Ltd v Glass Granulates Pty Ltd [2014] NSWSC 1387 Hearing dates: 18, 19 September 2014 Decision date: 10 October 2014 Jurisdiction: Equity Division - Expedition List Before: Sackar J Decision: See paragraph [118] Catchwords: EQUITY - where supply agreement between parties - proper construction of terms of contract - where contract provides definition of rubbish - where party refused to accept supply and contended it contained asbestos contaminated material - whether definition includes asbestos contaminated material - application of ejusdem generis principle - whether contract void for illegality Legislation Cited: Protection of the Environment Operation Act 1997 Protection of the Environment Operations (Waste) Regulation 2005 Cases Cited: Apollo Shower Screens Pty Ltd v Building and Constructions Industry Long Service Payments Corp (1985) 1 NSWLR 561 Blatch v Archer (1774) 1 Cowp 63 Brighton v Australia and New Zealand Banking Group [2011] NSWCA 152 Chandris v Isbrandtsen-Moller Co Inc [1951] 1 KB 240 Chief Commissioner of State Revenue v Tasty Chicks Pty Ltd [2012] NSWCA 181 Codelfa Construction Pty Limited v State Rail Authority of NSW (1982) 149 CLR 337 Cody v J H Nelson Pty Ltd (1947) 74 CLR 629 Commercial Union Assurance Company of Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389 Cordon Investments Pty Ltd v Lesdor Properties Pty Ltd [2012] NSWCA 184 De Vries v Rapid Metal Developments (Australia) Pty Ltd [2011] NSWCA 100 Deputy Commissioner of Taxation v Clark (2003) 57 NSWLR 113 Dunavant Enterprises v Olympia Spinning and Weaving Mills [2011] EWHC 2028 Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7 Equuscorp Pty Ltd v Haxton (2012) 246 CLR 498 Franklins Pty Ltd v Metcash Trading Ltd (2009) 76 NSWLR 603 Frauenfelder v Reid (1963) 109 CLR 42 Gardiner v Agricultural and Rural Finance Pty Ltd [2007] NSWCA 235 Global Network Services Pty Ltd v Legion Telecall Pty Ltd [2001] NSWCA 279 Harnett v Yielding [1803-1813] All ER Rep 704 Huntlee Pty Ltd v Sweetwater Action Group Inc; Minister for Planning and Infrastructure v Sweetwater Action Group Inc [2011] NSWCA 378 Jireh International Pty Ltd t/as Gloria Jeans Coffee v Western Exports Services Inc [2011] NSWCA 137 Jones v Dunkel (1959) 101 CLR 298 Jones v Sutherland Shire Council [1979] 2 NSWLR 206 Langley v Foster (1906) 4 CLR 167 Lend Lease Real Estate Investments Ltd v GPT RE Ltd [2006] NSWCA 207 Mainteck Services Pty Ltd v Stein Heurtey SA and Anor (2014) 310 ALR 113; [2014] NSWCA 184 Miller v Miller (2011) 242 CLR 446 Newey v Westpac Banking Corporation [2014] NSWCA 319 R v Regos and Martin (1947) 74 CLR 613 Re Golden Key [2009] EWCA Civ 636 Robertson v Admans (1922) 31 CLR 250 Stewart v Lizars [1965] VR 210 Tandrin Aviation Holdings Limited v Aero Toy Store and Insured Aircraft Title Service [2010] EWHC 40 Wilkie v Gordian Runoff Ltd (2005) 221 CLR 522 Vetter v Lake Macquarie City Council (2001) 202 CLR 439 Yango Pastoral Company Pty Ltd v First Chicago Australia Limited (1978) 139 CLR 410 Texts Cited: Chitty on Contracts (Sweet and Maxwell, 30th edition, 2008) J W Carter, The Construction of Commercial Contracts (Hart Publishing, 2013) Lewison and Hughes, The Interpretation of Contracts in Australia (Lawbook Co, 2012) Meagher Gummow and Lehane's Equity: Doctrines and Remedies (LexisNexis Butterworths, 4th edition, 2002) Category: Principal judgment Parties: Visy Paper Pty Ltd trading as Visy Recycling (in its capacity as trustee of the Southern Paper Converters Trust) - plaintiff Glass Granulates Pty Ltd - defendant Representation: Counsel: J Robson SC with R White - plaintiff T Hale SC with D Mitchell - defendant Solicitors: Arnold Bloch Leibler - plaintiff Minter Ellison - defendant File Number(s): 2014/201449 Publication restriction: n/a Judgment Proceedings 1By its statement of claim filed 8 July 2014, the plaintiff Visy Paper Pty Ltd trading as Visy Recycling (in its capacity as trustee of the Southern Paper Converters Trust) (Visy) seeks a declaration that Glass Granulates Pty Ltd (Granulates) has breached the terms of a supply agreement between them dated 30 September 2011. Visy seeks an order for specific performance, and damages in lieu of or in addition to such an order. 2Granulates filed a defence dated 21 July 2014, and amended that defence on 19 August 2014 to assert that if it was in breach of the agreement, although denied, the plaintiff had suffered no damage and would not suffer damage in the event that the Court declined to grant an order for specific performance. On the first day of the hearing, the defendant sought leave to rely upon a further amended defence which asserted the agreement was void for illegality, and suggested that they were entitled to refuse to accept loads that contained, in addition or in the alternative to asbestos as previously pleaded, fibro (being a material that contains or in the alternative is likely to contain asbestos). That was not opposed by the plaintiff and I granted leave to do so. Background facts 3Visy is part of the Visy group of companies, which is an integrated packaging company with substantial manufacturing operations in Australia. Visy is a recycling business which collects, receives and recycles materials disposed of by residents in their yellow kerbside bins (co-mingled recyclables). That material is collected by contractors from residents in 27 councils in Sydney and delivered to Visy's Materials Recovery Facility at Smithfield (the Smithfield MRF). The facility also contains paper mills and a corrugated box plant. 4The Smithfield MRF processes over 230,000 tonnes of co-mingled recyclables every year. The material is sorted, initially by hand, and then various technologies are used to separate the material. 5Cardboard and paper (approximately 50.4% on average of the material received) is used as feedstock in the manufacture of packaging by Visy, while plastic (6%), steel (2%) and aluminium (0.6%) are on-sold to downstream businesses. The material received at the Smithfield MRF also comprises glass (approximately 33%) and waste (8%). 6It is contended and not challenged that waste material is incorrectly placed in kerbside bins by residents and includes from time to time dialysis bags, bricks, car oil, gas bottles, dead animals, syringes, food, fibrous cement (which may include asbestos), shot guns and hand grenades (affidavit of Karl Schroder dated 30 July 2014 at [18]). 7The operation of the Smithfield MRF has not materially changed since 2008. 8At no relevant time did the plaintiff itself have a glass manufacturing business. From about 2004 to 2011, the glass material was supplied to the defendant, which at that time was a joint venture company set up by the plaintiff and Maron Investments Pty Ltd (Maron). The relationship between the plaintiff and Maron was governed by a shareholders agreement dated 4 October 2004. Granulates received the glass material at a site at Moorebank, sorted it and then crushed the glass to produce a sand substitute which is sold to third parties. 9In 2011 the plaintiff's shares in Granulates were sold to Benedict Industries Pty Ltd. At certain points this is described as a related entity of Maron, and at other points it is described as being the same entity. No ASIC materials were before me in evidence. However, the effect is the same in that the plaintiff no longer had a shareholding interest in the defendant. 10On or about 30 September 2011, the plaintiff and the defendant entered into an agreement (the supply agreement). That agreement relevantly provides as follows: RECITAL (a)Granulates produces the Product at the Site using the Glass Fines; (b)Visy operates resource recovery and recycling of waste streams business throughout Australia; (c)Visy agrees to supply the Glass Fines to Granulates and Granulates agrees to accept them on the terms and conditions set out in this Agreement. OPERATIVE PROVISIONS 1. DEFINITION AND INTERPRETATION 1.1 Definition ... Gate Fee means the gate fee payable per tonne of Glass Fines determined in accordance clause 4 and Schedule 1 [sic]. Glass Fines means the glass waste by-product from Visy's recycling operations and Material Recovery Facilities ("MRFs") in New South Wales. ... Product means a resaleable sand substitute and other by-products produced from the Glass Fines. ... Rubbish means paper, plastic, cardboard and other contaminants in the Glass Fines, which are not recoverable by Granulates and must be disposed of at a licensed waste facility. [emphasis added] ... Site means Benedict's waste management centre located at 146 Newbridge Road, Moorebank, NSW or any other suitable site(s) in the Sydney metropolitan area as agreed between Benedict and Granulates and notified to Visy from time to time. ... 2. TERM (a) This Agreement shall commence on the Commencement Date and shall continue for five years, unless sooner terminated in accordance with this Agreement ("Initial Term"). ... 3. SUPPLY (a) Visy agrees to supply Glass Fines produced by it in New South Wales to Granulates and Granulates agrees to accept them on the terms and conditions set out in this Agreement. (b) During the Initial Term, Visy will supply, and Granulates will take, a minimum of 200,000 tonnes of Glass Fines. This clause will not apply if Visy is unable to supply sufficient Glass Fines produced by it in New South Wales to meet the minimum tonne requirement due to the introduction in New South Wales of a container deposit scheme. (c) Visy shall deliver the Glass Fines to the Site at its own cost. Title and risk will pass to Granulates on delivery. ... (h) On average, the Glass Fines delivered each month must not have more than 7% Rubbish content. Upon receipt and inspection of any load, Granulates must notify Visy if it believes that the Rubbish content in that load exceeds 7% and allow Visy to attend the Site and inspect the load. Visy may elect to either remove the load (and may sell the Glass Fines to a third party) or allow Granulates to accept the load. (i) Where in any month the average Rubbish content exceeds 7% (as determined in accordance with subclause (j)), the Gate Fee for that month will increase by $1.50 per tonne for each 1% above the 7% threshold to cover the increased costs of disposal. Granulates will not be entitled to charge the increased Gate Fee unless it has provided reasonable opportunity for Visy to attend the Site and inspect loads of Glass Fines as required by subclause (h). (j) Granulates must provide Visy with production statistics in relation to the Glass Fines supplied by Visy including total tonnes received, stock movement and total Rubbish sent to landfill. The production statistics will be used to determine the average Rubbish content of the Glass Fines in that month. 4. PAYMENT (a) Visy agrees to pay Granulates the Gate Fee in respect of all or any deliveries of Glass Fines under clause 3. (b) The Gate Fee will be reviewed by the parties in accordance in with Schedule 1. ... SCHEDULE 1 GATE FEE Gate Fee The Gate Fee at the Commencement Date is $32.00 per tonne (GST exclusive). Gate Fee Review The Gate Fee will be fixed for the first three Years of the Agreement, except for an allowance to cover the increased costs of Rubbish disposal to landfill. This will be calculated in accordance with the following formula... [a formula for the first three years, and then a separate formula for the following years is then set out] ... 11As can be seen, the supply agreement is not one where the supplier sells their product to a purchaser, but rather one in which the defendant charges the plaintiff to receive Glass Fines. 12Essentially, the proceedings turn upon the proper construction of the supply agreement and, in particular, whether Granulates is obliged to accept loads of Glass Fines that are said to contain asbestos or fibro (the latter being a material that either contains or is likely to contain asbestos). The defendant does not dispute, as is clear from the structure of the supply agreement, that Glass Fines can contain Rubbish. It does dispute that asbestos and fibro fall within the definition of Rubbish. 13On or about 28 May 2014, the plaintiff attempted to supply a load to the defendant at the Moorebank site. The defendant refused to accept that load. The plaintiff asserts that the load was a supply of Glass Fines, but the defendant asserts it contained fibro and/or asbestos and therefore it was not a load of Glass Fines within the meaning of the supply agreement and it was not obliged to accept it. 14It does not appear to be disputed that the 7% threshold that is referred to in clauses 3(h) and 3(i) above was not exceeded at any relevant point in time. In any event, that threshold allows Visy the option to not supply that particular load and avoid incurring additional charges, rather than permitting Granulates to reject it. 15The plaintiff does not dispute that some asbestos may have been present in the loads delivered to Granulates from time to time. However it asserts the amount was at all relevant times negligible. 16The plaintiff sets out a number of occasions when it attempted to supply loads to the defendant which were rejected on the same basis. It appears from the statement of claim to have occurred almost every day since 28 May 2014, and the plaintiff asserts that there continues to be an ongoing breach of clause 3(a) of the supply agreement. 17The plaintiff in addition sets out its loss and damage by reason of having to deliver and dispose of the majority of its Glass Fines to landfill. In written submissions, counsel for Visy approximates that as at 10 September 2014 its losses will amount to approximately $1,160,787.00. 18Evidence for the plaintiff was provided by Mr Anthony Kane (General Manager of the plaintiff), Mr Karl Schroder (Operations Manager NSW), Mr Jon Ward (Group Manager of Safety and Environment) and Mr Luke Krstanovski (Western Area Operations Manager, which involves managing the Smithfield MRF). Only Mr Kane and Mr Schroder were required for cross-examination. 19For the defendant, Mr Ernest Dupere swore an affidavit dated 18 August 2014 in these proceedings. He has been a director of the defendant since 2004. Evidence was also provided by Messrs Marko Zdrilic (employed as an Assistant Operations Manager), Michael Franks (Facility Manager) and Brian Nolan (employed until 5 June as manager of the Moorebank recycling plant). All were cross-examined apart from Mr Nolan. Legal principles 20These proceedings cover a number of issues, namely the proper construction of the supply agreement and whether the contract is void for illegality or whether specific performance should be ordered. It is convenient to set out the legal principles before dealing with the disposition of the matter. Contractual construction 21The principles to be followed in relation to the proper construction of a written contract were summarised in Cordon Investments Pty Ltd v Lesdor Properties Pty Ltd [2012] NSWCA 184, in which Bathurst CJ (with whom Macfarlan and Meagher JJA agreed) said at [52]: [52] The principles underlying the construction of written contracts are well established and it is not necessary to deal with them at length. A contract is to be construed by reference to what a reasonable person would understand by the language in which the parties have expressed their agreement having regard to the context in which the words appear and the purpose and object of the transaction: Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at [22]; Toll (FGCT) Pty Limited v Alphafarm Pty Limited [2004] HCA 52; (2004) 219 CLR 165 at [40]; International Air Transport Association v Ansett Australia Holdings Ltd [2008] HCA 3; (2008) 234 CLR 151 at [53]. At least in the case of ambiguity, resort can be had to the surrounding circumstances known to the parties in interpreting the particular provision: Codelfa Construction Pty Limited v State Rail Authority of NSW [1982] HCA 24; (1982) 149 CLR 337 at 352; Western Export Services Inc v Jireh International Pty Limited [2011] HCA 45; (2011) 282 ALR 604. 22More recently the High Court has reaffirmed the principles to be applied in Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7. The majority observed: [35] Both Verve and the Sellers recognised that this Court has reaffirmed the objective approach to be adopted in determining the rights and liabilities of parties to a contract. The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean. That approach is not unfamiliar. As reaffirmed, it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose or objects is facilitated by an understanding "of the genesis of the transaction, the background, the context [and] the market in which the parties are operating". As Arden LJ observed in Re Golden Key Ltd, unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption "that the parties ... intended to produce a commercial result". A commercial contract is to be construed so as to avoid it "making commercial nonsense or working commercial inconvenience". 23Having been referred to with approval by the High Court, it is worthwhile setting out the relevant portion of Arden LJ's judgment in Re Golden Key [2009] EWCA Civ 636 at : Approach to interpretation [25] It goes almost without saying that what the court has to do in this case is find the true interpretation of the contractual documents and that the court is not entitled to rewrite the contractual documents, or more precisely to write some provision into the contractual documents, to reflect some provision that the court considers that it would have been reasonable for the parties to have agreed or to reflect some provision that the court considers would have made more commercial sense. But that leads to the question as to the weight to be given to the commerciality of a particular interpretation. [26] In his skeleton argument, Mr Zacaroli submits: "Recourse to the 'commercial expectations of the parties' is meaningless, since there is no evidence as to the expectations of the parties other than the contents of the documents under consideration." (para. 58). It is well-known that the court is not concerned with the subjective intentions of the parties: see Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 ("the ICS case"). I thus read the reference in Mr Zacaroli's submission to commercial expectations of the parties as a reference to what objectively was their commercial aim. This submission raises the very question that I identified in the preceding paragraph. [27] In his famous speech in the ICS case, Lord Hoffmann set out the modern approach to the interpretation of documents. The first principle is that "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 a situation in which they were at the time of the contract." (page 912). Lord Hoffmann does not explicitly refer to the need to have regard to what objectively is the aim of the transaction, but he approved the speech of Lord Wilberforce of the House of Lords in Prenn v Simmonds [1971] 1 WLR 1381. In his speech in that case, with which the other members of the House agreed, Lord Wilberforce makes it clear that, if it can be shown that a particular interpretation would further the parties' intention, the court should take that into account. Accordingly, this court must have regard to the parties' aim, objectively ascertained, as part of the process of interpretation, if that aim can be ascertained. [28] In my judgment, this must be the case even if (as here) there is little evidence as to the circumstances surrounding the parties' agreement to the transaction other than the terms of the transaction itself. Even in that event, the court must consider whether the objective aim can be ascertained from the documentation. (Moreover, when the issue of interpretation arises as to documentation to which, as here, parties adhere at different points in time, the commercial aims as shown by the documentation are for obvious reasons of practicality of particular significance.) To that end, unless the contrary appears, the court must assume that the parties to a commercial document intended to produce a commercial result, and the court must thus take into account the commerciality of the rival constructions, if that commerciality can be identified. The commerciality of a particular construction may be a crystallising factor in its favour where it is implausible that parties would have intended any other result. [29] The line between giving weight to the commerciality of a provision and writing a provision into an agreement can become a fine one when the court finds that there are deficiencies in the drafting of the contractual documents. There are cases where the documentation simply leaves the parties' intentions as to what should happen in a foreseeable set of circumstances quite unclear. This is particularly liable to happen in what might be called multi-dimensional documentation because of the sheer number of permutations that those who negotiate and draft the documents have to take into account. The court can spend a great deal of time immersed in the detail of lengthy contractual documents searching for clues. That task has to be carried out but if, despite a thorough search, the position is still unclear, and more than one meaning is properly available, the right approach is surely to give greater weight to the presumption that the parties must have intended some commercial result than to the textual clues if the latter yields an uncommercial result. I make these observations, because the judge may have been adopting a different approach at the end of paragraph 98 of his judgment, which I have set out above. 24A comprehensive discussion of the principles in relation to contractual interpretation is also to be found in the judgment of Leeming JA (Ward and Emmett JJA agreeing) in Mainteck Services Pty Ltd v Stein Heurtey SA and Anor (2014) 310 ALR 113; [2014] NSWCA 184 at [72]-[86]. 25More recently, in Newey v Westpac Banking Corporation [2014] NSWCA 319, Gleeson JA observed (Basten and Meagher JJA agreeing): [89] As subsequently observed by Leeming JA (Ward and Emmett JJA agreeing) in Mainteck Services Pty Ltd v Stein Heurtey SA (Mainteck) [2014] NSWCA 184 at [71], Woodside endorses and requires a contextual approach to the construction of commercial contracts and "ambiguity" is to be evaluated having regard to surrounding circumstances and commercial purposes or objects. To the extent that what was said in the reasons of three members of the High Court when refusing special leave in Western Export Services Inc v Jireh International Pty Ltd (Jireh) [2011] HCA 45; 86 ALJR 1 supports the contrary proposition, Jireh should be regarded as inconsistent with what was said in Woodside at [35], for the reasons explained in Mainteck at [72]-[86]. See also Stratton Finance Pty Ltd v Webb (Stratton Finance) [2014] FCAFC 110 at [41] where the Full Court of the Federal Court of Australia (Allsop CJ, Siopis and Flick JJ) agreed with the conclusion in Mainteck and with the reasons given there in elaboration at [72]-[86]. [90] Nonetheless it is also important to bear in mind the extent to which context and legitimate surrounding circumstances can be used as an aid in the construction of a written agreement. In McGrath v Sturesteps; Sturesteps v HIH Overseas Holdings Ltd (in liq) [2011] NSWCA 315; 81 NSWLR 690 at [17]-[18] Bathurst CJ (Macfarlan JA and Sackville AJA agreeing) said: "[17] ... Whilst it is correct in my opinion that context and the surrounding circumstances known to both parties can be taken into account (see Codelfa Construction Pty Ltd v State Rail Authority of New South Wales at 350, 352) even in cases where there is an absence of apparent ambiguity (Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd at [40]; International Air Transport Association v Ansett Australia Holdings Ltd [2008] HCA 3; (2008) 234 CLR 151 at [8]; Park v Brothers [2005] HCA 73; (2005) 80 ALJR 317 at [39]; Franklins Pty Ltd v Metcash Trading Ltd at [14], [63], [305]) that does not permit the Court to depart from the ordinary meaning of the words used by the parties merely because it regards the result as inconvenient or unjust: Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99 at 109. [18] This does not mean that there are not exceptional cases where, to use the words of Lord Hoffmann, something has clearly gone wrong with the language so as to interpret it in accordance with the ordinary rules of syntax makes no commercial sense: see Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38; [2009] 1 AC 1101 at [15]-[16]; Jireh International Pty Ltd v Western Exports Services Inc [2011] NSWCA 137 at [55], [60]. In such a case, in my opinion, a court is entitled to depart from the ordinary meaning to give effect to what objectively speaking the parties intended ..." [91] The reference in McGrath v Sturesteps at [17] to the well-known observation of Gibbs J in Australian Broadcasting Commission v Australasian Performing Right Association Ltd at 109, is a strong reminder that there is no licence for "judicial rewriting" of an agreement: Kooee Communications Pty Ltd v Primus Telecommunications Pty Ltd [2008] NSWCA 5 at [27] (Basten JA; Giles and Tobias JJA agreeing); Franklins at [23] (Allsop P). The ability of courts to give commercial agreements a commercial and business-like interpretation is constrained by the language used by the parties. If, after considering the contract as a whole and the background circumstances known to both parties, a court concludes that the language of a contract is unambiguous, the Court must give effect to that language unless to do so would give the contract an absurd operation: Jireh International Pty Ltd v Western Exports Services Inc at [55] (Macfarlan JA; Young JA and Tobias AJA agreeing). 26A commercial agreement should of course be given a businesslike or commercially sensible construction. However, generally speaking, if the language used is unambiguous a Court must give effect to that language unless to do so would give the contract an absurd operation. As Macfarlan JA said in Jireh International Pty Ltd t/as Gloria Jeans Coffee v Western Exports Services Inc [2011] NSWCA 137 at [55]: [55] In my view the primary judge erred in taking this approach. So far as they are able, courts must of course give commercial agreements a commercial and business-like interpretation. However, their ability to do so is constrained by the language used by the parties. If after considering the contract as a whole and the background circumstances known to both parties, a court concludes that the language of a contract is unambiguous, the court must give effect to that language unless to do so would give the contract an absurd operation. In the case of absurdity, a court is able to conclude that the parties must have made a mistake in the language that they used and to correct that mistake. A court is not justified in disregarding unambiguous language simply because the contract would have a more commercial and businesslike operation if an interpretation different to that dictated by the language were adopted. 27The Court should have regard to the agreement as a whole to ensure the congruent operation of the various components (Wilkie v Gordian Runoff Ltd (2005) 221 CLR 522 at [16] per Gleeson CJ and McHugh, Gummow and Kirby JJ). 28The Court can resort to surrounding circumstances and certainly where there is an ambiguity or in circumstances where the words are susceptible of more than one meaning (Codelfa Construction Pty Limited v State Rail Authority of NSW (1982) 149 CLR 337 at 352). However, there are strict limitations on the sort of materials that can be used for the purposes of detecting the objective intention of the parties. In Franklins Pty Ltd v Metcash Trading Ltd (2009) 76 NSWLR 603 each of the judges expressed their respective views on the type of materials that would fall within the notion of surrounding circumstances. The judges were unanimous in rejecting subsequent conduct as admissible on the question of construction. 29On surrounding circumstances Allsop P expressed the following view at [24]: [24] The High Court authorities to which I have referred and in particular Pacific Carriers v BNP Paribas and Toll (FGCT) v Alphapharm, and the recognition of the significance of the objective theory assist in appreciating the scope of the evidence that is admissible. The evidence, to be admissible, must be relevant to a fact in issue, probative of the surrounding circumstances known to the parties or of the purpose or object of the transaction, including its genesis, background, context and market in which the parties are operating. What is impermissible is evidence, whether of negotiations, drafts or otherwise, which is probative of, or led so as to understand, the actual intentions of the parties. Such evidence might be legitimate, however, if directed to one of the legitimate aspects of surrounding circumstances. The distinction can be subtle in any particular case. As Macfarlan JA and I said in Kimberley Securities Ltd v Esber [2008] NSWCA 301 at [5]; (2008) 14 BPR 26,121: "[5] The possible subtlety of the distinction can be seen in Lord Wilberforce's reasons in Prenn v Simmonds at 1384-1485, and the recognition that the objective commercial aim may, possibly, be ascertained from some aspect of what has passed between the parties. The distinction can also be seen in what Mason J said in Codelfa at 352 about prior negotiations and their legitimate use 'to establish objective background facts which were known to both parties and the subject matter of the contract', and their inadmissibility 'in so far as they consist of statements and actions of the parties which are reflective of their actual intentions or expectations'." 30Giles JA said at [51]-[53]: [51] Regard can not be had to evidence of "the antecedent oral negotiations and expectations of the parties" in order to construe the contract: Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596 at 606, taken up by Mason J in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (at 352). His Honour there said, in part of a passage cited by Campbell JA: "...Obviously the prior negotiations will tend to establish objective background facts which were known to both parties and the subject matter of the contract. To the extent to which they have this tendency they are admissible. But in so far as they consist of statements and actions of the parties which are reflective of their actual intentions and expectations they are not receivable. The point is that such statements and actions reveal the terms of the contract which the parties intended or hoped to make. They are superseded by, and merged in, the contract itself. The object of the parol evidence rule is to exclude them, the prior oral agreement of the parties being inadmissible in aid of construction, though admissible in an action for rectification. Consequently when the issue is which of two or more possible meanings is to be given to a contractual provision we look, not to the actual intentions, aspirations or expectations of the parties before or at the time of the contract, except in so far as they are expressed in the contract, but to the objective framework of facts within which the contract came into existence, and to the parties' presumed intention in this setting. We do not take into account the actual intentions of the parties and for the very good reason that an investigation of those matters would not only be time consuming but it would also be unrewarding as it would tend to give too much weight to these factors at the expense of the actual language of the written contract." [52] This was preceded by his Honour's observation that evidence of surrounding circumstances is not admissible to contradict the language of a contract when it has a plain meaning. Although ambiguity need not be found before going to context and purpose in the construction of the contract, I do not think that what his Honour said in the words extracted above has been displaced. [53] Consistently with this, if there is an ordinary grammatical meaning of the words used in a written contract, that meaning must be given significant force although read with the admissible evidence of surrounding circumstances. Words are ordinarily used in a conventional and grammatical way, and a formal written contract prepared over a period, with drafts exchanged, referred for instructions and varied as in the present case, has considerable claim to adherence to the ordinary grammatical meaning. It comes down to a determination in each case whether the words are to be understood otherwise in the light of the context and purpose revealed by the admissible evidence, including whether they are intractable and do not admit of departure from the conventional and grammatical use. I take the adjective from the judgment of Mason J and Wilson J in Cooper Brookes (Wollongong) Pty Ltd v Federal Commissioner of Taxation (1981) 147 CLR 297 at 320, a case of statutory construction in which their Honours described the rules of construction as rules of common sense designed to ascertain the legislative intention by reference to the language of the instrument viewed as a whole but postulated that the language may be "intractable". 31Campbell JA said at [337]: [337] The sort of surrounding circumstances that can be taken into account are ones that enable the meaning of the words used in the document in question to be ascertained as that meaning would appear to a reasonable person who knew the facts concerning those circumstances. Statements by contracting parties about their subjective intentions in entering the agreement do not assist in ascertaining the meaning of the words. Ejusdem generis - an aid to interpretation 32Counsel for the defendant relies upon this principle and makes reference to a number of authorities. 33In Cody v J H Nelson Pty Ltd (1947) 74 CLR 629, Starke J observed at 639: The contention is that acts or omissions which the Governor-General may declare to be black marketing should be construed according to the rule or canon of construction called "ejusdem generis" or "noscitur a sociis." It is not a rule of law. But where there are general words following particular or specific words the general words should be confined to things of the same kind as those specified. This "rule of construction is subordinate to the real intention of the parties, and does not control it; that is to say, that the canon of construction is but the instrument for getting at the meaning of the parties, and that the parties, if they use language intimating such intention, may exclude the operation of this or, I suppose, any other canon of construction" (Thorman v. Dowgate Steamship Co. Ltd. [(1910) 1 KB 410 at 419). And Hamilton J. in that case also said that he saw "no reason why either the nature of the instrument or the language used might not cause the general words to be referred to the specific words either collectively or in groups or individually according to the intention of the parties" [at 422]. 34In the same case, Dixon J observed at 647-648: The three canons of construction are relied upon: Lord Bacon's verba generalia restringuntur ad habilitatem rei vel personae, to which in the passage just quoted there is a reference; Lord Hale's noscitur a sociis, and that which allows the court to give to general expressions following an enumeration of more particular things or matters an application no larger than to things and matters ejusdem generis. But standing as a caution against a too ready use of these counsels there is yet another Latin canon, generalia verba sunt generaliter intelligenda, which is as much as to say words although general should be understood in their primary and natural signification unless there are sufficient indications of some other meaning. This last maxim or brocard is not to be understood in opposition to the three first mentioned. They relate to the context and subject matter in which indications of a narrower meaning may be seen. The precept allowing of the restraint of a general expression to a class of things ejusdem generis with particular expressions preceding it may be regarded as a subordinate rule forming part of the larger principle stated by Sir Benson Maxwell. In Larsen v. Sylvester & Co., Lord Robertson spoke of the soundness of what is called the ejusdem-generis rule of construction because, as he said, it seemed to him that both in law and also as a matter of literary criticism it is perfectly sound. But, according to Asquith L.J., "the tendency of the more modern authorities is to attenuate the application of the ejusdem generis rule" (Allen v. Emmerson). If this be so, it is but the result of the greater freedom with which courts now use all rules and admonitions as to the interpretation of written instruments. In the modern search for a real intention covering each particular situation litigated, however much help and guidance may be obtained from the principles and rules of construction, their controlling force in determining the conclusion is likely to be confined to cases where the real meaning is undiscoverable or where the court of construction, sceptical of the foresight of the draftsman or of his appreciation of the situation presented, is better content to supply the meaning by a legal presumption than subjectively. It may be for some such reason that in Thorman v. Dowgate Steamship Co. Ltd, Lord Sumner left unanswered the question "whether the presumption of law is that general words are general until they can be shown to be particular, or whether general words are ejusdem generis with the particular words until they can be shown to be general without any limitation". 35In Lend Lease Real Estate Investments Ltd v GPT RE Ltd [2006] NSWCA 207, Spigelman CJ observed (McColl and Basten JJA agreeing) at [30]-[31]: [30] The general principle of the law of interpretation that the meaning of a word can be gathered from its associated words - noscitur a sociis - has a number of specific sub-principles with respect to the immediate textual context. The most frequently cited such sub-principle is the ejusdem generis rule. The relevant sub-principle for the present case is the maxim propounded by Lord Bacon: copulatio verborum indicat acceptationem in eodem sensu - the linking of words indicates that they should be understood in the same sense. As Lord Kenyon CJ once put it, where a word "stands with" other words it "must mean something analogous to them". (Evans v Stevens (1791) 4 TR 224; 100 ER 986 at 987. See also W J Byrne (ed) Broomes Legal Maxim (9th ed) Sweet and Maxwell, London (1924) pp373-374.) [31] However, as Lord Diplock put it in Letang v Cooper [1965] 1 QB 232 at 247: "The maxim noscitur a sociis is always a treacherous one unless you know the sosietas to which the socii belong." 36In Deputy Commissioner of Taxation v Clark (2003) 57 NSWLR 113, Spigelman CJ also said at 143 that it is essential for the application of the ejusdem generis rule that some common characteristic described as a genus is to be identified and that at least two different species are required to determine a relevant genus. 37In Brighton v Australia and New Zealand Banking Group [2011] NSWCA 152, Campbell JA observed (Giles and Hodgson JJA agreeing): [96] Sometimes, if general words are accompanied by a list of examples which all fall within some genus that is narrower than the general words, that can provide a reason for restricting the general words. This approach to construction is well enough known, and old enough, to have Latin labels - the ejusdem generis rule is a subcategory of the noscitur a sociis rule. But there are well-recognised limitations on the use of such an aid to construction (eg Deputy Commissioner of Taxation v Dick [2007] NSWCA 190; (2007) 242 ALR 152; (2007) 64 ACSR 61 at [12]-[14]; National Roads and Motorists' Association v Whitlam [2007] NSWCA 81 at [63]-[64] and cases there cited). In particular, it is necessary to be able to identify some more limited category in the examples before the general words are limited. It is not possible to identify a limited category of the general words of the chapeau, in the list of examples in Clause 4. [97] As well, as the ejusdem generis rule is only an aid to construction, it is possible for the parties to a contract to agree that that aid will not apply. The parties in the present case have so agreed... 38The ejusdem generis rule is merely of course an aid to interpretation or canon of construction: see Lewison and Hughes, The Interpretation of Contracts in Australia at [7.12]. It is however not infrequently referred or resorted to: see, for example, Huntlee Pty Ltd v Sweetwater Action Group Inc; Minister for Planning and Infrastructure v Sweetwater Action Group Inc [2011] NSWCA 378 at [126]-[129] per Sackville AJA (Beazley JA and Tobias AJA agreeing); De Vries v Rapid Metal Developments (Australia) Pty Ltd [2011] NSWCA 100 at [77]-[78]. 39Although not raised by the parties, it has been said that the ejusdem generis rule may have less force in commercial contracts. Specifically, J W Carter in The Construction of Commercial Contracts makes the following comment at [4-49]: It is rarely used today in the construction of commercial contracts... In Chandris v Isbrandtsen-Moller Co Inc, Devlin J considered it no different in principle from the main object rule applied in cases such as Glynn v Marggetson & Co. As he also pointed out, since the rule assumes an absence of surplusage, it ought to be regarded as inapplicable to commercial documents. 40There are a number of authorities which deserve attention. For various reasons, none is entirely satisfactory to support such a broad statement, leaving aside the difficulty of drawing a bright line between commercial and non-commercial documents. 41In Chandris v Isbrandtsen-Moller Co Inc [1951] 1 KB 240, Devlin J considered a charterparty which stipulated that the cargo was to consist of lawful general merchandise, excluding acids, explosives, arms, ammunition or other dangerous cargo. The question was whether turpentine was dangerous cargo within the meaning of the relevant clause. It should be noted that this was an appeal by way of a special case stated by an arbitrator, who had determined that turpentine was a dangerous cargo: at 242. Devlin J stated at 243 that "the question is whether "other dangerous cargo" is to be construed ejusdem generis with what goes before". 42His Honour observed at 245-246: Moreover, the main argument of construction which justifies the application of the rule does not apply in commercial documents. It is that if the general words have an unrestricted meaning the enumerated items are surplusage. The presumption against surplusage is of little value in ascertaining the intention of the parties to commercial documents, as many commercial judges have recognised. ... The charterparty in the present case refers, for example, to "a full and complete cargo of wheat and/or maize and/or other lawful merchandise". Nobody has ever, I think, suggested that by such a charterparty the merchandise has to be similar to wheat or maize; although the first question which would occur to a lawyer would be to ask himself why the parties bothered to refer to wheat or maize if they meant the cargo might be anything from chalk to cheese, including turpentine. I apply the principle laid down in Anderson v Anderson and so inquire whether there is anything in the text of this charterparty or in the circumstances in which it was made which would lead me to suppose that the parties intended "other dangerous cargo" to have some limited meaning. I can find no such indication. It seems to me that the only reason why the owner is objecting to acids, explosives, arms or ammunition is because they are dangerous; and that being so he may be presumed to have the same objection to all other dangerous cargo. 43A careful consideration of these comments tends to suggest somewhat inconsistent reasoning. For example, there is some tension between, on the one hand, the assertion that surplusage is to be expected in commercial documents and therefore the rule may have limited application and, on the other hand, the legitimate question that may be posed about why the parties included wheat and maize if they meant any lawful merchandise. 44Although Devlin J could not find any indication that the parties intended other dangerous cargo to have some limited meaning, it could equally be interpreted from the final sentence quoted above that His Lordship had found a genus covering acids, explosives, arms or ammunition which was as broad as the general words, being dangerous cargo. It is not unusual for there to be cases in which the general provision indicates the genus to which the identified matters belong: see Spigelman CJ in Gardiner v Agricultural and Rural Finance Pty Ltd [2007] NSWCA 235 at [56]. 45Tandrin Aviation Holdings Limited v Aero Toy Store and Insured Aircraft Title Service [2010] EWHC 40 is given as a comparison by Carter to the proposition that the rule is rarely used in the construction of commercial contracts. Hamblen J noted that although it is well established that a change in economic or market circumstances is not regarded as being a force majeure event, the principle still had some application. Hamblen J observed at [44]: The phrase "any other cause beyond the Seller's reasonable control" should be read in the context of the entire clause. The specific instances of force majeure in the preceding words are as follows: "act of God or the public enemy; war; insurrection or riots; fires; governmental actions; strikes or labour disputes; inability to obtain the aircraft materials, accessories, equipment or parts from the vendors". Whilst there is no requirement to construe the phrase "any other cause beyond the Seller's reasonable control" ejusdem generis with those earlier specific examples, it is telling that there is nothing in any of those specific examples of force majeure in cl.7.17 which is even remotely connected with economic downturn, market circumstances or the financing of the deal. 46In Dunavant Enterprises v Olympia Spinning and Weaving Mills [2011] EWHC 2028, Burton J observed at [10]: For that reason, it is consequently agreed that, if such issue arises, it falls to be construed contra proferentem, with the Claimant as proferens. It is also common ground that the standard application of the eiusdem generis construction (by reference to the Claimant's reliance on the words "or other causes beyond our control"), does not apply in commercial contracts: see per Devlin J in Chandris v Isbrandtsen-Moller Co Inc. [1951] 1 KB 240 at 244-245 and Chitty on Contracts (30th Ed) at para 14-138. 47When one examines the relevant passage in Chitty on Contracts, which is under the heading of force majeure clauses and seemingly so confined, the following appears: Frequently a number of events are specified and then followed by the words "or any other causes beyond our control". Such general words in a commercial document are prima facie to be construed as having their natural and larger meaning and are not limited to events ejusdem generis with those previously enumerated. 48It seems to me, having considered the cases above, that the proposition that the principle may have less force in its application to commercial contracts is far too broad. In my view, the only compelling proposition is that, as Devlin J put it in Chandris at 244, "a rule of construction cannot be more than a guide to enable the court to arrive at the true meaning of the parties... to apply the rule automatically in that way would be to make it the master and not the servant of the purpose for which it was designed - namely, to ascertain the meaning of the parties from the words they have used". 49The use of the principle as one of a number of guides to interpretation was also referred to in Chief Commissioner of State Revenue v Tasty Chicks Pty Ltd [2012] NSWCA 181, where Meagher JA observed (Barrett JA and Sackville AJA agreeing) at [54]: The ejusdem generis rule is one of a number of guides which may be used in the process of interpreting a statutory provision. That process directs attention to the provisions being construed and its context as well as the scope and purpose of the statute: Project Blue Sky v Australian Broadcasting Authority [1998] HCA 28; 194 CLR 355 at [69], [70], [78]. The rule provides a grammatical justification for reading general words down so as to limit their operation. For its application it requires that there be an enumeration of things of a particular kind or class so that the general words might then be read as applying only to things of the same kind or class as those enumerated: Cody v JH Nelson Pty Ltd [1947] HCA 17; 74 CLR 629 at 648-649; Deputy Commissioner of Taxation v Clark [2003] NSWCA 91; 57 NSWLR 113 at [125]-[130]. Illegality 50The defendant submits that the supply agreement should be construed so as to be lawful. The defendant points to the careful regulation of the movement and use of asbestos in New South Wales, and sets out the various legislative provisions. 51In particular, reference is made to the Protection of the Environment Operation Act 1997 (PEO Act) and Protection of the Environment Operations (Waste) Regulation 2005 (Regulation). 52Section 48 of the PEO Act provides: 48 Licensing requirement-scheduled activities (premises-based) (1) Application of section This section applies to scheduled activities where Schedule 1 indicates that a licence is required for premises at which the activity is carried on. (2) Offence A person who is the occupier of any premises at which any such scheduled activity is carried on is guilty of an offence, unless the person is, at the time that activity is carried on, the holder of a licence that authorises that activity to be carried on at those premises. Maximum penalty: (a) in the case of a corporation-$1,000,000 and, in the case of a continuing offence, a further penalty of $120,000 for each day the offence continues, or (b) in the case of an individual-$250,000 and, in the case of a continuing offence, a further penalty of $60,000 for each day the offence continues. Note : An offence against subsection (2) committed by a corporation is an executive liability offence attracting executive liability for a director or other person involved in the management of the corporation - see section 169A. 53Section 143 of the PEO Act provides: 143 Unlawful transporting or depositing of waste (1) Offence If a person transports waste to a place that cannot lawfully be used as a waste facility for that waste, or causes or permits waste to be so transported: (a) the person, and (b) if the person is not the owner of the waste, the owner, are each guilty of an offence. Maximum penalty: (a) in the case of a corporation-$1,000,000, or (b) in the case of an individual-$250,000. Note: An offence against subsection (1) committed by a corporation is an offence attracting special executive liability for a director or other person involved in the management of the corporation-see section 169. 54Under the PEO Act, schedule 1, the following clauses provide: 1 Application of Part (1) For the purposes of section 48, any activity that is declared by this Part to be a scheduled activity is taken to be an activity for which a licence is required for the premises at which it is carried out (the activity is "premises-based" ). ... 39 Waste disposal (application to land) (1) This clause applies to "waste disposal by application to land" , meaning the application to land of waste received from off site, including (but not limited to) application by any of the following methods: (a) spraying, spreading or depositing on the land, (b) ploughing, injecting or mixing into the land, (c) filling, raising, reclaiming or contouring the land. (2) However, this clause does not apply to an activity that involves any of the following: (a) sites inside the regulated area that, over any period of time, receive from off site a total of no more than 200 tonnes of the following waste (and no other waste): (i) building and demolition waste only, (ii) building and demolition waste mixed with virgin excavated natural material, (b) sites outside the regulated area that, over any period of time, receive from off site a total of no more than 200 tonnes of the following waste (and no other waste): (i) building and demolition waste only, (ii) building and demolition waste mixed with virgin excavated natural material, being waste generated inside the regulated area, (c) sites outside the regulated area that, over any period of time, receive from off site a total of no more than 20,000 tonnes of the following waste (and no other waste): (i) building and demolition waste only, (ii) building and demolition waste mixed with virgin excavated natural material, being waste generated outside the regulated area, (d) sites that receive from off site no more than 100 tonnes of waste tyres per year or 10,000 waste tyres in total over any period (and no other waste), (e) sites where only virgin excavated natural material is received from off site and applied to land, (f) sites that: (i) are outside the regulated area, and (ii) are owned and operated by or on behalf of a local council, and (iii) were in existence immediately before 28 April 2008, and (iv) were not required to be licensed before 28 April 2008, and (v) had, before 28 April 2008, provided the details required under clause 47 of the Protection of the Environment Operations (Waste) Regulation 2005 , and (vi) receive from off site less than 5,000 tonnes per year of general solid waste (putrescible), general solid waste (non-putrescible), clinical and related waste, asbestos waste, grease trap waste or waste tyres (or any combination of them), but only if the waste has been generated outside the regulated area. (3) The activity to which this clause applies is declared to be a scheduled activity. (4) For the purposes of this clause, 1 litre of waste is taken to weigh 1 kilogram. 55Clause 50(1) defines asbestos waste means any waste that contains asbestos. Asbestos means the fibrous form of those mineral silicates that belong to the serpentine or amphibole groups of rock-forming minerals, including actinolite, amosite (brown asbestos), anthophyllite, chrysotile (white asbestos), crocidolite (blue asbestos) and tremolite. 56Under the Regulation, clause 42 provides: 42 Special requirements relating to asbestos waste (1) This clause applies to any activity that involves the transportation, disposal, re-use or recycling of any type of asbestos waste, regardless of whether the activity is required to be licensed. (2) A person who carries on an activity to which this clause applies must comply with the requirements specified in this clause in relation to the activity concerned. Maximum penalty: 400 penalty units in the case of a corporation, 200 penalty units in the case of an individual. (3) The requirements relating to the transportation of asbestos waste are as follows: (a) bonded asbestos material must be securely packaged at all times, (b) friable asbestos material must be kept in a sealed container, (c) asbestos-contaminated soils must be wetted down, (d) all asbestos waste must be transported in a covered, leak-proof vehicle. (4) The requirements relating to the off site disposal of asbestos waste are as follows: (a) asbestos waste in any form must be disposed of only at a landfill site that may lawfully receive the waste, (b) when asbestos waste is delivered to a landfill site, the occupier of the landfill site must be informed by the person delivering the waste that the waste contains asbestos, (c) when unloading and disposing of asbestos waste at a landfill site, the waste must be unloaded and disposed of in such a manner as to prevent the generation of dust or the stirring up of dust, (d) asbestos waste disposed of at a landfill site must be covered with virgin excavated natural material or other material as approved in the facility's environment protection licence: (i) initially (at the time of disposal), to a depth of at least 0.15 metre, and (ii) at the end of each day's operation, to a depth of at least 0.5 metre, and (iii) finally, to a depth of at least 1 metre (in the case of bonded asbestos waste or asbestos-contaminated soils) or 3 metres (in the case of friable asbestos material) beneath the final land surface of the landfill site. (5) A person must not cause or permit asbestos waste in any form to be re-used or recycled. (6) In this clause: bonded asbestos material means any material (other than friable asbestos material) that contains asbestos. friable asbestos material means any material that contains asbestos and is in the form of a powder or can be crumbled, pulverised or reduced to powder by hand pressure when dry. 57The issue of whether a contract should be construed so as to be lawful is well settled. In Langley v Foster (1906) 4 CLR 167, Griffith CJ observed at 181 that: If, therefore, these words can be construed in a sense agreeable to the law, they ought to be so construed. Moreover, it must, I think, be taken to have been in the contemplation of the parties that the timber could not be removed without a licence, and it must also be taken that it was the intention of the parties that it should be obtained. 58Barton J observed at 187 that "the contract must be read as being intended to be executed with due regard to the law", while O'Connor J observed at 192-193: Now, the law with regard to the enforcement of illegal contracts is very plain and has been illustrated over and over again, particularly by the cases referred to during the course of the argument. It is this: if a contract can be carried out in one way only, and that way necessitates the doing of something prohibited by law, the Courts will not enforce it; but if the contract may be carried out in a legal manner, and also in an illegal manner, before a party can object to the enforcement of the contract by the Court, he must satisfy the Court that it was the intention of the parties to carry it out in an illegal manner. That was laid down in Sewell v. Royal Exchange Assurance Co. and Haines v. Busk . Those were cases in which the voyages undertaken would be illegal if certain licences were not obtained, and the Court would not allow it to be assumed that the licences were not intended to be obtained, and, therefore, as the contracts could be carried out in a legal manner, the Court would not assume that it was the intention of the parties to carry it out in an illegal manner. 59In Global Network Services Pty Ltd v Legion Telecall Pty Ltd [2001] NSWCA 279, Mason P observed at [102] (although in dissent as to whether there was ambiguity): ... The absolute construction contended for by Global involves the parties to the Contract promising in effect that one will act in a grossly uncommercial way that would involve unlawful activity on Legion's part and complicity on Global's part. Unless driven to such an outcome by intractable language, such a construction should be rejected having regard to the principle that, where the words of a contract are capable of two meanings, one lawful and the other unlawful, the former construction should be preferred (Lewison, The Interpretation of Contracts 2nd ed §6.09). 60In the event that the defendant is contractually obliged to accept loads containing asbestos, the defendant asserts the supply agreement is void for illegality or that the Court would decline to order specific performance. 61In Yango Pastoral Company Pty Ltd v First Chicago Australia Limited (1978) 139 CLR 410, Gibbs ACJ at 413-414 set out the four main ways in which the enforceability of a contract may be affected by a statutory provision which renders particular conduct unlawful; namely, the contract may be to do something which the statute forbids; the contract may be one which the statute expressly or impliedly prohibits; the contract, although lawful on its face, may be made in order to effect a purpose which the statute renders unlawful; or the contract may be performed in a manner which the statute prohibits. 62In Miller v Miller (2011) 242 CLR 446 at [24]-[27], a majority of the High Court (French CJ, Gummow, Hayne, Crennan, Kiefel and Bell JJ; Heydon J dissenting) considered not only express or implied statutory prohibitions on the making or performance of a contract, but also those arising from a "public policy" standpoint. 63In Equuscorp Pty Ltd v Haxton (2012) 246 CLR 498, French CJ, Crennan and Kiefel JJ observed at [23]: The effect of the prescribed interest provisions on agreements associated with the issue of such interests in contravention of the Code was primarily a matter of statutory construction, but also involved the application of the common law. As appears from the joint judgment in this Court in Miller v Miller, and the decisions of this Court cited in that judgment, an agreement may be unenforceable for statutory illegality where: (i) the making of the agreement or the doing of an act essential to its formation is expressly prohibited absolutely or conditionally by the statute; (ii) the making of the agreement is impliedly prohibited by statute. A particular case of an implied prohibition arises where the agreement is to do an act the doing of which is prohibited by the statute; (iii) the agreement is not expressly or impliedly prohibited by a statute but is treated by the courts as unenforceable because it is a "contract associated with or in the furtherance of illegal purposes". In the third category of case, the court acts to uphold the policy of the law, which may make the agreement unenforceable. That policy does not impose the sanction of unenforceability on every agreement associated with or made in furtherance of illegal purposes. The court must discern from the scope and purpose of the relevant statute "whether the legislative purpose will be fulfilled without regarding the contract or the trust as void and unenforceable". As in the case when a plaintiff sues another for damages sustained in the course of or as a result of illegal conduct of the plaintiff, "the central policy consideration at stake is the coherence of the law". 64The defendant also cites a number of authorities in support of their proposition that a Court would decline to order specific performance because to do so would compel the parties to commit illegal acts: Harnett v Yielding [1803-1813] All ER Rep 704 at 705; Langley v Foster (1906) 4 CLR 167 at 193 (per O'Connor J); Robertson v Admans (1922) 31 CLR 250 at 262 (per Starke J); see further Meagher Gummow and Lehane's Equity: Doctrines and Remedies (4th edition) at [20-035]. Discussion The facts 65The presence of asbestos was in issue in the case, with challenges made to the ability of the defendant's witnesses to provide evidence on this matter. Visy conducted the case on the basis that either there was no cogent evidence that individual loads definitely contained asbestos or that, in the event they did, it was negligible. 66One difficulty with this approach is that the Operations Manager NSW for the plaintiff, Mr Karl Schroder, indicated in his affidavit of 30 July 2014 at [21]-[24] that he decided to have some of the pieces of fibrous product found in the rejected loans tested. The results are described in the affidavit but are more fully set out in the report of the Sydney Environment and Soil Laboratory (SESL) (CB1/185). It is clear from the report that asbestos, either of the chrysotile or amosite type or both, was found in 28 of the 49 samples provided. 67In addition, I am satisfied from the evidence of a number of witnesses called by the defendant (Mr Marko Zdrilic and Mr Michael Franks) that material which was more probably than not asbestos was observed on a number of occasions. That is, fibrous material was observed in various loads and it seems to me I can infer some of that material would likely have contained asbestos. 68The plaintiff also took a number of samples of fibrous material from various loads over and above those already referred to. It seems those samples were never analysed, but the plaintiff never communicated to the defendant whether those samples did or did not contain asbestos. It certainly never asserted they contained no asbestos. 69Even though the defendant bears the onus of proving the presence of asbestos, the plaintiff took samples from each rejected load in circumstances where the defendant was clearly rejecting loads on the basis that it believed they contained asbestos. The plaintiff retained the samples in their possession and did not communicate or adduce any evidence disputing that the loads were legitimately rejected because of asbestos. Clearly it would be in the plaintiff's interest to communicate, if it indeed could, to the defendant or relevantly to the Court that there was no asbestos found. However, Mr Schroder conceded that no testing had been undertaken of those samples, other than the results I have already referred to (T34). He attempted to suggest there was no need to test the samples, but I found that evidence unconvincing, especially when the plaintiff took the trouble to take samples. It seems to me that the plaintiff did not want to know what the results of any such testing would be. 70Exhibit D1, an inspections register from 12 June 2014 onwards created by the plaintiff and provided to the defendants in answer to a notice to produce, shows the frequency with which fibrous product was found, sometimes immediately as it were. There is seemingly no practical difficulty in removing fibrous product from loads. 71Finally, and arguably most importantly, Mr Schroder agreed that the rejected loads had subsequently been put into landfill "on the assumption that it contained asbestos", or at the very least traces of asbestos (T34/41). 72As a result of this evidence, I am of the view that it is reasonable to infer that asbestos was present from time to time, although it is true there is no clear evidence as to precisely what extent it was in each and every load rejected by the defendant. It is likely however that the extent of it varied from load to load. In taking that view, I am conscious that distinguishing between a permissible inference and speculation is often a difficult task: Jones v Sutherland Shire Council [1979] 2 NSWLR 206 at 222-229 per Mahoney JA. 73In Commercial Union Assurance Company of Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389 at 418-9, Handley JA held that inferences favourable to a party on certain matters should not be drawn "when no attempt was made to prove them by direct evidence and in particular when no relevant questions were asked" and that it was appropriate to apply the principles in Jones v Dunkel (1959) 101 CLR 298. 74As Lord Mansfield said long ago in Blatch v Archer (1774) 1 Cowp 63 at 65, "all evidence is to be weighed according to the proof which it was in the power of one side to have produced, and in the power of the other side to have contradicted". See also Apollo Shower Screens Pty Ltd v Building and Constructions Industry Long Service Payments Corp (1985) 1 NSWLR 561 at 565 and Vetter v Lake Macquarie City Council (2001) 202 CLR 439 at [36]. 75As a result of the totality of the evidence I consider it is reasonable to infer that there was some asbestos more probably than not in each of the relevant loads rejected. 76A related issue is the suggestion by the defendant that they were entitled to refuse to accept loads that contained, in addition or in the alternative to asbestos as previously pleaded, fibro (being a material that contains or in the alternative is likely to contain asbestos). In my view, that extension is somewhat ambitious. Whilst it may be as a matter of practical reality that the presence of fibro will very often point to the presence of asbestos, the defendant accepts that not all fibro contains asbestos (final submissions of the defendant at [7]). That is clearly borne out by the SESL results to which I have already referred. 77It seems to me that the extension to include fibro in the pleaded case is to confuse what the agreement may or not include (being asbestos contaminated material) with the somewhat crude method by which such material might be detected or suspected in the first instance. It was not challenged that certain characteristics of the fibro, such as its age, colour and whether it was "dimpled", were an often accurate indicator that the material contained asbestos, without giving any particular level of certainty. As I have already said, I am satisfied in any event that it is open to find each relevant load contained asbestos contaminated material. The construction issue 78However, the real issue in dispute is whether the definition of rubbish, and in particular the word contaminant, includes asbestos contaminated material. It should be noted that no claim of estoppel or variation of the supply agreement is made, and therefore it is merely a claim of breach of contract which requires construction of the supply agreement. Much of the material relied upon by either party was not of great utility as it could not be utilised to identify the objective intention of the parties. I shall however return to the issue of surrounding circumstances in due course. 79In the Macquarie Dictionary (Revised Third Edition), contaminate is defined to mean "1. To render impure by contact or mixture. 2. To render harmful or render unusable by adding radioactive material to". In the Oxford Dictionary of English (Second Edition), contaminate is defined to mean "make (something) impure by exposure to or addition of a poisonous or polluting substance". Both definitions suggest that the word contaminant, taken in isolation, may well be read to include hazardous material such as asbestos contaminated material. Nevertheless, the word in the supply agreement definition does not appear in isolation and must be read in context. In that respect, it is convenient to deal with the submissions of the defendant first, as the submissions of the plaintiff are largely responsive to them. 80The defendant relies upon cases such as Electricity Generation Corporation v Woodside Energy [2014] HCA 7 and the natural and ordinary meaning of the words when considered in the contract as a whole. 81It points to the application of the ejusdem generis principle and asserts that the words "other contaminants" in the definition of rubbish should be read, along with "paper, plastic, cardboard", as meaning a benign, harmless or non-hazardous substance that would readily be expected to be found in recycled glass. The defendant also submits that the agreement should be construed, in light of the legislative provisions relating to asbestos, so as to be lawful so as not to require Granulates to receive loads containing asbestos. 82The defendant submits that even if it is contractually obliged to receive glass fines that contain asbestos, which it does not admit, then the supply agreement is void for illegality or the court should decline to order specific performance because to do so would be to compel the parties to commit illegal acts. 83The plaintiff however submits that both the documentary context (being the other provisions of the supply agreement) and the factual and commercial context need to be taken into account. 84The plaintiff confronts the issue associated with the definition of rubbish head on. It asserts that the reference to contaminants includes not only asbestos but also any form of hazardous waste. It asserts that the preceding words "paper, plastic, cardboard" do not possess some common or dominant feature and therefore no relevant genus can be identified: R v Regos and Martin (1947) 74 CLR 613; Stewart v Lizars [1965] VR 210. It submits that the ejusdem generis principle has no application in this context. 85The plaintiff also points to the requirement that contaminants are to be "disposed of" at a licenced waste facility, and submits that the inclusion of that phrase indicates that the definition of rubbish includes contaminants which cannot be recycled or recovered but must be disposed of appropriately. It is submitted that this would include a contaminant such as asbestos or other forms of hazardous waste. 86In addition, the plaintiff points to the threshold of 7% and submits that contaminants are acceptable provided they are present only in relatively small quantities, and that no exception is made for particular types of contaminant. 87The plaintiff turns to the factual surrounding circumstances and commercial context, and asserts there has been no material change in the parties' operations (although the nature of the relationship between the parties has obviously changed) since 2004, and there has always been the potential for small amounts of contaminants (including asbestos) to be present in the glass fines supplied to Granulates. It points to the experience and awareness of Granulates and its directors in relation to the recycling of waste, and the existing policies relating to the safe handling of asbestos which were in place at the Moorebank site. 88The first aspect said to be a relevant surrounding circumstance is that the process and therefore materials provided to the defendant has not changed over many years prior to and after the supply agreement was executed in 2011. Even assuming this is an appropriate surrounding circumstance I have difficulty determining precisely how it assists me in the proper construction of the definition of rubbish under the supply agreement. 89There was a suggestion that the defendant was aware of the presence of asbestos in earlier years. Under cross-examination, Mr Dupere agreed that the stream of material had not substantially changed. It is necessary to set out that portion of the transcript at T50/7: Q. And nothing has changed, apart from the relationship between the parties in terms of the contractual relationship has changed, but the actual process of receiving and dealing, what you do, has not changed, has it? A. We say that we have made - that's not correct. Q. I suggest to you that it is substantially the same as when you started 14 years ago? A. The purpose is the same. How we do it has modified in the last 12 months, yes. Q. I'm sorry. Okay, leaving aside the last 12 months, the 14 years beforehand you'd agree with me that the stream as it goes across has stayed the same? A. I couldn't say. It appears at a distance to be the same. I couldn't comment as to whether there is - that asbestos was there previously. Q. I'm sorry. Finish, Mr Dupere. I'm sorry, I interrupted you. A. What I'm saying is it's not clear to us whether the asbestos that we are now receiving was always entrained [sic] or whether that has changed. Q. What I'm suggesting to you, this stream at which you have been intimately involved for 14 years - when I say the stream, I'm saying receiving the material from Smithfield and dealing with it at Moorebank, and the way you deal with it has not changed apart from the last 12 months for 14 years, do you agree with that or not? A. I do agree, other than we do take it from other Visy sites. Did I answer your question or? [emphasis added] 90Mr Dupere later agreed that from 2008 to 2012, he was aware "that there was a possibility that there could be the odd piece of fibro - sorry, of ACM" (T55/28). 91Mr Zdrilic gave evidence to the following effect (T79/20): Q. Now, you were asked about fibro and the presence of fibro. Prior to the changes to the plant in the beginning of this year, with what regularity or at all did you see fibro or asbestos? A. The only fibro that I ever saw was in our landfill bay which was a plus 65 type of size material. Q. How often? A. It would be lucky to be once a month, once every two months. It would be pretty rare. 92Again, whether or not Granulates was aware that the Glass Fines that were received prior to this year contained asbestos contaminated material does not provide any assistance as to how the definition of rubbish in the supply agreement should be properly construed. As I have noted, there is no claim of estoppel or a variation to the contract through, for example, a course of conduct by Granulates of accepting loads which they knew to contain asbestos. 93The second aspect said to be a relevant surrounding circumstance is the existence of a protocol for dealing with asbestos which was put in place by the defendant. Copies of the protocol dated March 2008 (CB2/374) and February 2014 (CB1/80) were provided. Again, I fail to see how a protocol, especially in relation to a waste disposal facility, is any more than a necessary prophylaxis in any modern industrial setting. 94The third aspect is the previous relationship between the parties as evidenced by the earlier shareholders agreement dated 4 October 2004 (CB1/35), where the parties entered into a joint venture. There is no definition of rubbish in that shareholders agreement. The commercial arrangements at that point were very different and therefore the shareholders agreement has a very different purpose and character to the subsequent supply agreement of September 2011. There is no reference in the supply agreement to the shareholders agreement, or any indication that it should be read subject to the earlier document in any event. 95I should note in passing that neither party relied on the entire agreement clause in the supply agreement, being clause 11.7 which provides that any previous agreements, understandings or negotiations regarding the subject matter do not have any effect. It is therefore not necessary to express any view on whether this would preclude resort to, for example, the shareholders agreement or other surrounding circumstances. 96Nevertheless, whether one resorts to surrounding circumstances or not, in any event I do not find much if any assistance from the submissions of the plaintiff in this regard. 97The plaintiff submits that, if it was not lawful for Granulates to accept a load or Visy to supply it by reason on the presence of asbestos no matter how small, such an interpretation would impart to the legislation an absurd or unreasonable consequence. It submits that Granulates' interpretation of the relevant legislation would render the entire recycling industry unlawful, and defeat the objectives of the legislation to encourage recycling and minimise material sent to landfill, and is therefore absurd. 98In any event, even if there was a requirement for a licence, counsel for Visy submits that Granulates should have obtained one because of its warranty under clause 5 that "it is able to perform its obligations under this Agreement". I can see force in this submission. 99More importantly perhaps, as I have already said, the plaintiff submits that the relevant words of the definition are not and cannot be indicative of a genus. It is submitted that they merely point to materials most commonly encountered in the particular process and are not intended to restrict or constrain the full amplitude of the word "contaminants". For various reasons I do not consider this to be correct. 100When the agreement is considered as a whole, it seems to me, had the parties chosen to do so the definition of rubbish could have been drafted so that it meant any contaminant whatsoever. The parties could have simply chosen to use "contaminant" or "any contaminant" to define rubbish leaving the definition entirely catholic. In that event, it would have been strongly arguable that the word contaminant should be given a full and unrestricted meaning to include both benign and hazardous impurities. However, they did not take this course. 101As Windeyer J said when considering the phrase "threshing, chaff cutting, ploughing, or other agricultural work" in a statute in Frauenfelder v Reid (1963) 109 CLR 42 at 53: ... if the phrase 'agricultural work' stood alone, it would not necessarily be read as excluding the work of tending and managing flocks and herds. But it does not stand alone. And it is the context in which it stands that narrows its meaning. 'Threshing, chaff cutting, ploughing or other agricultural work' - surely other agricultural work is here noscitur a sociis? It comprehends, it seems to me, any work that is agricultural in the sense that ploughing, threshing, chaff cutting are - that is to say any of the ordinary operations of tilling the soil, sowing, harvesting and the treatment on the farm of the crops. [emphasis added] 102The parties instead chose to insert "paper, plastic, cardboard" as explicit examples. Those examples it seems to me naturally constrain the ambit of the natural and ordinary meaning of the word contaminant. Otherwise, if it is to be unconfined, then the inclusion of "paper, plastic, cardboard" is otiose. It is not sufficient in my view to say that those three materials may well be the most likely to be present in the glass fines delivered to Granulates. Such an observation is not a stable foundation upon which to base a proper construction of the meaning of contractual terms. 103The plaintiff was repeatedly at pains to point out that the process at Moorebank had not changed since 2008. That is, the same types of materials have been processed and the method of delivery and processing has not substantially changed. If that is correct, and there is no evidence to the contrary, the parties as a matter of experience would have always as it were known the preponderance of such materials and it is unlikely they were merely noting something notorious. There would be no commercial purpose one might think in stating the obvious or something so well known, without stating that was its very purpose. 104In addition, if the choice of those words was to signal or promise the preponderance of those materials in rubbish, it is difficult to see what possible utility the specific identification of those materials would serve in the light of clauses 3(h) and 3(i). Those clauses simply provide for machinery if the "rubbish content" were to exceed 7%, whatever that rubbish comprised. The 7% figure bears no relationship to what, if the plaintiff is correct, the defendant should expect because its composition does not affect whether the 7% figure is reached or not. 105The Court must give force to the clear words chosen by the parties and hence the purpose behind that choice. If the word contaminant was to be unrestricted so as to contain anything other than glass fines, it seems to me there is no utility in using "paper, plastic, cardboard" at all. 106In my view the plaintiff had no effective answer as to why the parties chose to use the words "paper, plastic, cardboard" other than expected frequency. For the reasons already advanced I am not persuaded that expected frequency played any part in forming the intentions of the parties. 107Furthermore, this is not a case in which the general word contaminant describes the common genus of the specific examples of paper, plastic and cardboard. Instead, the genus of those examples is clearly benign or non-hazardous materials and the word contaminant should be read accordingly. 108Therefore, in my opinion I consider the parties were objectively intending to restrict the meaning of contaminants to those which are non-hazardous. I do not consider the alternative proposition advanced by the plaintiff to be tenable. If the words "other contaminants" are not to have a qualified meaning from a commercial point of view it would make no sense it seems to me to introduce the relevant words at all. 109Definitions will often serve an important purpose in commercial contracts. They will frequently limit or delimit the rights and obligations of the parties, especially when as here the relevant definition is of central importance in the operation of the contract. There was in my view a significant commercial purpose in the choice of words employed by the parties in the definition of rubbish. It was to restrict the kind of material the defendant was obliged to receive, not just an early warning of what was most likely to be received. 110The parties are both experienced in recycling businesses and sophisticated commercial entities. It can be expected that they used the words to reflect the particular kind of recycling to be done. Visy is a general recycler who receives material, via contractors, directly from residents. It undertakes a complex sorting process using both hand sorting and various technologies. However, Granulates is a specialised entity which has a particular interest in glass fines and not recycling generally. 111In my opinion, the better view is that Granulates is not obliged to receive any load of Glass Fines which contains material which is other than benign or non-hazardous. That genus is clearly identified by the examples given of "paper, plastic, cardboard" and might also include material such as metal or timber, however likely or unlikely that material might be. 112The mere fact that Granulates has an obligation to dispose of rubbish at a licensed waste facility does not detract from this construction. The calculation of the Gate Fee, dealing as it does with the disposal to landfill, while it may not account for the disposal of all rubbish militates against the meaning of other contaminants as anything other than benign materials. 113Neither, in my view, does the previous knowledge of Mr Dupere that he was aware of the possibility of asbestos contaminated material from 2008 to 2012 (T55/18-T55/48) contribute anything to the proper construction of the definition of rubbish. 114Having come to the conclusion that Granulates was not obliged to accept the relevant loads, it is not necessary to further consider the issue of illegality. However, I will do so in the event that my construction of the meaning of rubbish is not correct. Illegality 115The defendant suggests that, if the definition of rubbish does include asbestos contaminated material, then the contract is void for illegality. 116It seems to me that on proper analysis, the issue of illegality does not arise. The supply agreement is clearly not void for any public policy considerations. The parties clearly would have reasonably contemplated that whatever was required by the law, whether in the nature of licences or consents, would have been obtained in the event that asbestos was included. 117In my view, the contract carries with it an implicit obligation on the part of both Visy and Granulates that each party will equip itself to fulfil its contractual obligations according to the law and by consulting, if necessary, with the relevant environmental authorities. Indeed, such an obligation forms part of the explicit warranty under clause 5 that each party will be "able to perform its obligations under this Agreement". Conclusion 118For the reasons I have expressed above, the plaintiff must fail on its statement of claim filed 8 July 2014. It is not entitled to a declaration that the defendant has breached the terms of the supply agreement, nor an order by way of specific performance or damages in lieu thereof. 119I invite the parties to prepare short minutes to give effect to my reasons, and to relist the matter if necessary so that the question of costs may be determined. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 10 October 2014