Vic Court of Appeal on admissibility of pre-contractual and post-contractual conduct

By 16/11/2015Contract
contractual conduct

When should a Court have regard to pre and post contractual conduct?  This decision is helpful for the observations and statements of legal principle set out in the joint judgment of the Court of Appeal (Warren CJ, Kyrou and McLeish JJA).  The case is Regreen Asset Holdings Pty Ltd v Castricum Brothers Australia Pty Ltd [2015] VSCA 286 (27 October 2015).

The appeal concerned whether the trial judge erred in finding an implied term in a contract for the sale of certain equipment, that the sale was subject to settlement of a separate agreement for the sale of the land on which the equipment was located.  The appeal turned on its own facts.

Observations on inferred versus implied terms

1.     “An implied term [is to be] contrasted with an inferred term. The latter is a term which the parties actually intended to form part of their contract but did not reduce to writing or clearly articulate orally, thus requiring the Court to infer it from the parties’ communications and course of dealing.” (at [73])

2.     “As with rectification, the process of inferring a term gives effect to the parties’ actual intention rather than their presumed intention. (at [73])

3.     “While the line between inference and implication is not always easy to draw, it is well established that, where the parties have not reduced all the terms of their agreement to a complete written form, the court must first identify all the actual terms by inference before considering whether any additional terms are to be implied.” (at [73]) (emphasis added)

Legal principles relating to admissibility of pre-contractual conduct

4.     “As the process of inferring a term of a contract is informed by the parties’ communications and course of dealing, evidence of their pre‑contractual conduct is admissible on the question of whether a particular term is to be inferred. On the other hand, the admissibility of evidence of pre‑contractual conduct for the purpose of establishing that a term should be implied into a contract is more complicated.” (at [74])

5.     “… the principles relating to the admissibility of evidence of pre‑contractual conduct for the purposes of construing a formal written contract are potentially applicable to implying a term into a contract. These principles, insofar as they are relevant to the present case, may be briefly summarised as follows (at [77] to [78]):

(a)          “For the purposes of construing a contract, to the extent to which evidence of pre‑contractual negotiations has a tendency to establish objective background facts which were known to both parties and the subject matter of the contract, it is admissible.”

(b)          “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 and requires 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.”

(c)          “Insofar as evidence of pre‑contractual negotiations consists of statements and actions of the parties which are reflective of their actual intentions and expectations, it is not admissible.  Such evidence reveals the terms of the contract which the parties intended or hoped to make and which are superseded by, and merged in, the contract itself.  However, such evidence is admissible in an action for rectification

(d)          “In making the inquiry whether a term is to be implied into a contract, the court is no more confined than it is when it construes the contract.”

(e)          “In determining whether to imply a term into a contract, it is legitimate to look at evidence that reveals a matter which was in the common contemplation of the parties yet was not a contractual provision actually agreed upon because it was a matter of common assumption.”

(f)           “A contractual term implied as a matter of fact is specific to the contract in question, and derives from the court’s view of the intention of the parties.”

Legal principles relating to admissibility of post-contractual conduct

6.     “It is well established that evidence of the parties’ post-contractual conduct is not admissible for the purpose of construing the provisions of a formal written contract.” (at [133]

7.      “It is also well established that, where no formal written contract exists, such evidence is admissible for the purpose of determining whether a contract was formed, who the parties to the contract are and whether a particular term should be inferred.” (at [134])

8.      “Similarly, in the case of an oral contract, when the issue is not interpreting words but determining the subject matter of the contract as a fact, the court may have regard to post-contractual conduct.” (at [134])

9.     “However, the question of whether evidence of post-contractual conduct is admissible for the purpose of determining whether a term should be implied into a contract remains unsettled.” (at [135]). For a discussion of relevant authorities see [136] to [139]. In this case the Court of Appeal did not express any view (at [140]).