Valuable Bailed Goods Not ‘White Elephants’ in Re-supply Settlement Deed

In Sanmik Food Pty Ltd v Alfa Laval Australia Pty Ltd [2025] NSWCA 7 (10 February 2025), the New South Wales Court of Appeal addressed the proper construction of a release clause in a settlement deed in relation to the status of certain equipment.  The initial contract between the vendor and the purchaser concerned the sale of two coconut milk production plants, comprising various components, including the subject homogeniser and aseptic filler equipment.  The vendor shipped the equipment to the purchaser in Sri Lanka, but no further components were shipped.  Initial proceedings were settled, under a settlement deed, which provided for “a new supply [of two plants] that is independent of the previous contract”, and released the purchaser “from all Claims and actions arising from or in connection with the Settled Matters”.  The settlement documents were silent on what was to be made of the equipment already delivered.  The purchaser then commenced a proceeding alleging that on the proper construction of the settlement deed, the vendor was not entitled to use the equipment previously supplied to discharge any part of its obligation to supply two plants under the deed.  The primary judge dismissed the purchaser’s claim, and an appeal (Adamson JA dissenting) was dismissed.  McHugh JA, and Griffiths AJA, wrote:

[108]  The parties chose to settle litigation about their Initial Contract for the supply of two plants, which contract they agreed had been terminated, by entering into a new contract for the supply of two plants. The parties failed to make express provision in the Settlement Documents for the fact that, prior to termination of the Initial Contract, the vendor (a) had delivered to the purchaser a homogeniser and filler that would meet the specification for the same components of the plant required to be supplied under the new contract, but (b) retained title to those components. That failure made it, as Adamson JA points out, almost inevitable that the Settlement Documents would require judicial interpretation.

[109]  Having had the considerable benefit of reading Adamson JA’s reasons for judgment in draft, and gratefully adopting her Honour’s abbreviations, I can express my reasons for concluding that the appeal should be dismissed relatively shortly. Although I am in general agreement with Griffiths AJA, I would add the following.

[110]  Neither party suggested that the fact that the homogeniser and filler were physically located in Sri Lanka had any bearing on the applicable principles; they proceeded on the footing that the general law of Australia applied.

Title to the homogeniser and filler at the time of the settlement

[111]  It was common ground at first instance and on appeal that the vendor retained title to the homogeniser and filler immediately prior to entry into the Settlement Deed, and that there had been no dispute about the vendor’s ownership of the homogeniser and filler at the time. The primary judge made an unchallenged finding that the parties knew at the time that the homogeniser and filler were still owned by the vendor, and that they precisely met the specifications for the corresponding components to be supplied under the new contract: Sanmik Food Pvt Ltd v Alfa Laval Australia Pty Ltd [2024] NSWSC 698 at [42].

[112]  The common ground that title had not passed at the time of the settlement is undoubtedly correct. Unless the Initial Contract operated to effect a transfer of title from the vendor to the purchaser, nothing else in the parties’ dealings prior to entry into the Settlement Deed could have had that effect. The Initial Contract contained the following retention of title clause:

Reservation of Ownership / Insurance

Ownership of the equipment/module to be delivered shall pass to the Purchaser only upon receipt of the full purchase price by the Seller. Moreover, until that date, the Purchaser will keep the equipment/module insured against all risks, in particular fire for an amount at least corresponding to the agreed purchase price.

[113]  Because the full amount of the purchase price was never paid, the effect of this clause was that title did not pass under the Initial Contract prior to its termination.

[114]  That it was uncontroversial that the vendor had not parted with title to the homogeniser and filler at the time of the settlement is central to each of the issues raised in the appeal.

Ground 1(a): clause 3.2(a)

[115]  Ground 1(a) is to the effect that by reason of cl 3.2(a), the vendor “no longer had any claim to title to the Homogeniser and Filler”. As this ground was argued, it extended not only to the question whether the vendor retained title in the sense of property in the homogeniser and filler, but also to the question whether the vendor was entitled to assert against the purchaser any claim of right that had flowed from its title, including the right of a bailor to have goods re-delivered to it.

[116]  “A bailment comes into existence upon a delivery of goods of one person, the bailor, into the possession of another person, the bailee, upon a promise, express or implied, that they will be re-delivered to the bailor or dealt with in a stipulated way”: Hobbs v Petersham Transport Co Pty Ltd (1971) 124 CLR 220 at 238; [1971] HCA 26 per Windeyer J.

[117]  The homogeniser and filler were originally delivered to the purchaser in the following circumstances: (1) the vendor gave the purchaser the right of exclusive possession; (2) the purchaser took possession voluntarily; (3) either as a matter of the proper construction of the Initial Contract (including the retention of title clause) or by necessary implication, the purchaser assumed a responsibility to keep the homogeniser and filler safe pending payment of the full purchase price; and (4), by implication in all the circumstances, the purchaser undertook an obligation to re-deliver the homogeniser and filler to the vendor in the event that the purchaser failed to pay the full purchase price. It follows (and it does not appear to be in dispute) that upon delivery the purchaser held the homogeniser and filler as bailee.

[118]  What the purchaser disputes is the legal character of the bailment, and how long it continued. The purchaser sought to subsume the bailment wholly within the Initial Contract, such that when the contract was terminated, so too was the bailment. Thus, Senior Counsel for the purchaser submitted at the hearing of the appeal: “The way it was pleaded … was that it was a bailment under the contract.” (Tcpt, 9 December 2024, p 45/32; emphasis supplied.) This was a reference to [14]–[21] of the vendor’s Further Amended Commercial List Cross-Claim Statement. It is true that the vendor alleged at [14] that it had delivered the homogeniser and filler to the purchaser “pursuant to” the Initial Contract. But the vendor also alleged that ownership of the homogeniser and filler had remained with the vendor, that the vendor had terminated the Initial Contract by letter dated 24 August 2022, and, at [21], that following the termination of the Initial Contract (and also following entry into the Settlement Documents), either the bailment remained in effect or a new bailment came into effect. That was, clearly enough, a pleading that the bailment existed independently of the Initial Contract. That allegation was well-founded.

[119]  It is true that, prior to its termination, the Initial Contract had in some respects regulated the terms of the bailment. That explains, for example, the vendor’s allegation at [20] that “[b]y reason of” the matters earlier alleged, including the delivery pursuant to the Initial Contract, the purchaser was “to hold the Homogenizer and Filler as bailee for the [vendor] until the full purchase price under the Contract was paid.” But the bailment relation that came into existence upon delivery of the homogeniser and filler to the purchaser was itself conceptually and legally distinct from the Initial Contract, and the vendor’s allegation at [20] was not inconsistent with that proposition. From the outset, the bailment arose under the general law, as an incident of the separation of ownership and possession and the circumstances in which that occurred. The fact that the delivery of the homogeniser and filler into the purchaser’s possession occurred pursuant to the Initial Contract does not undermine the distinct legal character of the bailment; it was simply one of the circumstances which gave rise to the bailment.

[120]  That was the position immediately prior to termination of the Initial Contract.

[121]  By cl 3.2(a) of the Settlement Deed, “On and from the execution of this deed,” the vendor agreed that the Initial Contract “has been terminated and that the parties have no further obligations in respect of the Contract”. The parties had been litigating the vendor’s assertion that it had terminated the Initial Contract for the purchaser’s breach and/or repudiation. This clause resolved the existing dispute about the validity of the termination. For present purposes it does not matter whether the date of the agreed termination is taken to be the date of the vendor’s letter of termination (24 August 2022) or the date of the Settlement Deed (22 March 2023). The important point is that the clause should be read as recording the parties’ agreement about two matters. First, that the termination had already happened (“has been terminated”). Secondly, that the ordinary legal consequence of such a termination followed, namely, that the parties were discharged from further performance of the Initial Contract. Although the whole of cl 3 is headed “Release”, cl 3.2(a) thus operated very differently from the express release in cl 3.2(b).

[122]  As to the first of the matters agreed in cl 3.2(a), once the Initial Contract was terminated, it no longer regulated the bailment. But the purchaser’s submission that the termination of the Initial Contract also necessarily determined the bailment should be rejected. As noted above, even prior to termination of the contract, the bailment relation between the vendor and purchaser was distinct from the contract. It would be a mistake to treat the purchaser’s obligations under the bailment here as though they were in effect mere implied terms of the Initial Contract which came to an end with the contract. Nor was the subsistence of any contract a necessary element of the bailment relation; the relationship of bailor and bailee of a chattel can arise and exist independently of contract: Hobbs at 239 per Windeyer J.

[123]  Although the termination of the Initial Contract meant the parties were discharged from future performance of it, that did not undo what had already occurred in fact (whether pursuant to the contract or otherwise); nor did the termination undo the legal effect of what had occurred. In particular, the purchaser’s responsibility to re-deliver the homogeniser and filler to the vendor in the event that the purchaser failed to pay the full purchase price was not discharged by the termination of the Initial Contract. To the contrary, termination of that contract was likely to be a circumstance in which the purchaser would have failed to pay the full purchase price and therefore be obliged to re-deliver the goods.

[124]  As to the second of the matters agreed in cl 3.2(a), the vendor’s agreement that “the parties ha[d] no further obligations in respect of the Contract” does not assist the purchaser. Clause 3.2(a) said nothing about the vendor’s ownership of the goods; nor about the distinct bailment relation between the parties. The vendor’s title to the homogeniser and filler existed independently of the Initial Contract. The vendor’s title was not (a) an obligation (b) of the purchaser (c) in respect of that contract. So too, for the reasons given above, the bailment, and the purchaser’s obligations under it, were distinct from the contract. The vendor’s right to have the homogeniser and filler re-delivered to it pursuant to the bailment was not an “obligation” of the purchaser in respect of the contract.

[125]  The position upon termination of the Initial Contract was thus as follows: title to the homogeniser and filler remained with the vendor; the purchaser remained in physical possession of those goods; the parties had no further obligations to perform under the Initial Contract; but the purchaser continued to hold the homogeniser and filler as bailee. The vendor thus continued to enjoy its right as bailor to have the homogeniser and filler re-delivered to it.

[126]  Ground 1(a) fails.

Ground 1(b): clause 3.2(b)

[127]  The fact that at the time of the settlement there was no dispute between the parties either as to the vendor’s title to the homogeniser and filler, or as to the vendor’s right to have those goods re-delivered pursuant to the bailment, is important context for the construction of the release in cl 3.2(b). While it is true that cl 1.3 of the Heads of Agreement annexed to the draft deed of settlement had been deleted in the course of negotiations between the parties, that draft clause had been directed to a different subject matter: “The Parties agree that part of the plant for Plant 1 has already been delivered being 1 filler and 1 homogeniser.” The fact that the purchaser may have been unwilling to include in the Settlement Documents a provision acknowledging in terms that the new contract had already been performed in part is a long way from constituting a dispute, still less a dispute about the vendor’s title or right to have those goods re-delivered.

[128]  Clause 3.2(b) is expressed as a release of “all Claims and actions arising from or in connection with the Settled Matters”. The clause thus invokes two defined terms: “Claim” and “Settled Matters”.

[129]  “Claim” is defined inclusively as “any claim, action or liability of any kind (including one which is prospective or contingent and one the amount of which is not ascertained) and costs …” The vendor submitted that the word “claim” could mean either a claim in the sense of a demand, or a claim in the sense of a right. In the context of a deed of settlement the first of those two meanings is the more natural reading. As will be seen, that construction is strengthened once the definition is read in the context of the substantive clause, including the term “Settled Matters”.

[130]  The term “Settled Matters” is effectively defined in recital H. This records that “the parties have agreed to settle all claims and disputes between them which were the subject of, or in any way related to: …” various subjects, which include at (c) the Initial Contract and at (d) “the supply of the First UHT Plant and the Second UHT Plant”. The “claims and disputes” about those subjects are then described as the “Settled Matters”. It is important to bear in mind that the Settled Matters were not the subjects listed in recital H; the Settled Matters were “all claims and disputes between [the parties]” which related to those subjects.

[131]  Just as the adjective “all” is most naturally read as describing both “claims and disputes”, so too are the words “between them” most naturally read as qualifying both “claims and disputes”, as part of what should be understood as a composite phrase. That these were claims or disputes “between” the parties suggests that a “claim” means an asserted demand, rather than a right. The choice of the verb “settle” in recital H also suggests that “claim” means an asserted demand. So too does the use of the past tense (“which were the subject of, or in any way related to”). The Settled Matters should thus be read as confined to demands that had actually been asserted prior to the time of the settlement.

[132]  To construe “claim” in the definition of “Settled Matters” as meaning a demand that had actually been asserted is consistent with the longstanding approach to construing releases at law. Thus, as Leeming JA (Bell CJ agreeing) said in Reid v Commonwealth Bank of Australia (2022) 109 NSWLR 149; [2022] NSWCA 134 at [33], at law:

releases are to be construed narrowly, with general words confined to those things which were ‘specially in the contemplation of the parties at the time when the release was given’: Directors &c of the London and South Western Railway Company v Blackmore (1870) LR 4 at 623. Lord Westbury added (at 623–64) that ‘a dispute that had not emerged, or a question which had not at all arisen, cannot be considered as bound and concluded by the anticipatory words of a general release.’

[133]  Defined terms must ultimately be interpreted in the context of the substantive provision in which they are used. Given the inclusive definition of “Claim” and the syntactically complex way in which the “Settled Matters” are defined, it is not straightforward to read the two defined terms into cl 3.2(b). Upon doing so, the substantive provision is to the effect that the vendor “releases and forever discharges [the purchaser] from all Claims [ie, any claim (in the sense of a demand), action or liability] and actions arising from or in connection with the Settled Matters [ie, arising from or in connection with any claims (in the sense of demands that had been asserted) and disputes between the parties which were the subject of, or in any way related to, the subjects listed in recital H]”. In light of recital G (which refers to the commencement of the proceedings in the Supreme Court of New South Wales) and recital H, cl 3.2(b) should be read as releasing only matters which had actually been in dispute prior to the settlement.

[134]  The purchaser’s basic difficulty is that neither the vendor’s title to the homogeniser and filler, nor the vendor’s right to re-delivery of those goods pursuant to the bailment, meets the description of a claim (in the sense of a demand), action or liability arising from or in connection with the Settled Matters as defined. That is so for several reasons.

[135]  First, as noted above, the Settled Matters were not the subjects listed in recital H (such as “the supply of the First UHT Plant and the Second UHT Plant”); the Settled Matters were the extant “claims and disputes between” the parties which related to those subjects. At the time of the settlement, there had been no claim (in the sense of a demand) or dispute between the parties about either the vendor’s title to the homogeniser or filler, or the vendor’s right to re-delivery of those goods under the bailment. Nor did the vendor’s title to the homogeniser and filler, or its right to have them re-delivered under the bailment, “arise from or in connection with” any such extant demand or dispute at the time of settlement. The vendor’s title, and its right to re-delivery, arose independently of any such claims or demands. If the vendor’s title to the homogeniser and filler is to be seen as “arising from or in connection with” the Settled Matters, so too must the vendor’s title to any other equipment it purchased for the purposes of the Initial Contract. That would be a surprising outcome.

[136]  Secondly, what cl 3.2(b) releases are “Claims”. As defined, these are demands rather than rights. But the vendor’s title to its goods is not a mere demand against the purchaser; it is a right of property good against the whole world.

[137]  Thirdly, even if, contrary to the above, the word “claim” should be read here as extending to a mere right as opposed to an asserted demand, and even if the vendor’s hitherto undisputed title to the homogeniser and filler is thus to be understood as a “claim”, it makes little sense to say the vendor “releases and forever discharges” the purchaser from the vendor’s title to those goods. If those words were to be construed as effecting a transfer of title from the vendor to the purchaser, this was strange language for that purpose, particularly when such a transfer was not otherwise contemplated by the parties. But it would be stranger still if the effect of cl 3.2(b) was that the vendor retained title to (ie, ownership of) the homogeniser and filler, but surrendered its (also hitherto undisputed) right to re-delivery of those goods under the bailment.

[138]  As a matter of construction of the Settlement Deed at law, there was no transfer of title to the homogeniser or filler, no “release” of the vendor’s claim to title to those goods, and no release of the vendor’s right as bailor to the return of the goods. Ground 1(b) fails.

[139]  There is accordingly no occasion to consider the scope of any equitable doctrine.

Ground 2: did the vendor agree not to use the homogeniser and filler in performance of the new contract?

[140]  Under the settlement the vendor assumed a new and distinct obligation to supply two plants. That obligation is rooted in clause 2.1(a) of the Settlement Deed, which is a promise to enter into the Commercial Terms and Supply Terms “for a new supply that is independent of the previous Contract in the form annexed to this deed”.

[141]  The vendor was required to perform its obligation by supplying plants which met the specifications in the Supply Terms. In respect of the first plant, the obligation was not simply to deliver the homogeniser and filler; it was to supply a complete plant. That involved not only the delivery of component parts but the commissioning of the complete plant, of which the homogeniser and filler were important components. Subject to the terms of the parties’ agreement, the vendor was entitled to discharge its obligation to perform the new contract by using any equipment available to it. Since title to the homogeniser and filler remained with the vendor, and since the vendor had not released its right to re-delivery of the goods under the bailment, subject to the terms of the parties’ agreement, that equipment would include the homogeniser and filler already on site in Sri Lanka.

[142]  The Settlement Documents must be construed against that background. It would be somewhat surprising if the vendor retained title to the homogeniser and filler, and had the right under the bailment to re-take possession of them, and those components perfectly matched the specifications required under the new contract, but the parties nevertheless agreed that the vendor was prohibited from using the homogeniser and filler to perform its contractual obligation to supply a plant. The parties could of course agree to that outcome if they so chose; but there was no express term to that effect. There were provisions in the Settlement Documents, identified by Adamson JA and Griffiths AJA, which would be consistent with either position. Viewed as a whole, they are insufficient to found the implication the purchaser requires. For the reasons given by Griffiths AJA, I am not persuaded that Ground 2 is made out.

[143]  The appeal should be dismissed with costs.

Griffiths AJA.

[144]  I have had the considerable advantage of reviewing Adamson JA’s reasons for judgment in draft. The issues of construction raised by the appeal are strongly contestable. Their resolution is not straightforward. For the following reasons, however, I respectfully disagree with the orders proposed by her Honour. I consider that the appeal should be dismissed, with costs.

[145]  There is no need for me to repeat the terms of the relevant documentation, describe the relevant events or summarise the legal principles and the parties’ submissions. With one exception, the material matters are comprehensively set out by Adamson JA (I will also gratefully adopt her Honour’s abbreviations).

[146]  In my view, that exception relates to the significance as an aid to construction (once it is apparent that the relevant clauses in the Settlement Documents do not have a plain meaning) of the Customs Invoice dated 17 July 2019. This Customs declaration was made by the vendor and copied to the purchaser. It describes the proposed entry into Sri Lanka of the filler and the homogenizer, being the two items at the heart of the dispute. I consider it significant that the nominated total value of the two items was the substantial sum of AUD$588,000 (comprised of amounts of $428,500 and $159,500 for the filler and homogenizer respectively). Thus the declared total value was approximately $200,000 more than the money paid by the purchaser under the terms of the Initial Contract (being $387,600).

[147]  The substantial value of the two items, as declared to Sri Lankan Customs, was known to both parties. Indeed, it is one of the seven matters which the purchaser identified below in a document dated 17 May 2024 and headed “Critical surrounding circumstances known to both parties”. Moreover, in closing address below, the purchaser’s then senior counsel acknowledged that both parties knew of the declared value of $588,000; and, in oral address on the appeal, the purchaser’s replacement senior counsel described the homogenizer, filler and tank as “the three main components of the plant”.

[148]  The invoice forms part of the surrounding circumstances relevant to the issues of construction once it becomes clear that the contractual provisions do not have a plain meaning. In particular, I consider that it lends support to a construction which favours the view that the releases did not apply to the vendor’s undisputed title to the two items.

[149]  Objectively viewed, it is unlikely that the parties intended that the two items would simply become “White Elephants” and not be employed as part of the equipment to be supplied under the new Supply Contract. That is all the more so in circumstances where the declared value of the items was not only considerable; they were also brand new (having apparently been stored by the purchaser in its warehouse from the time of their delivery until some time after the Settlement Documents were executed). Moreover, and notably:

(a) the two items were customised and met the specifications for those particular components to be supplied under the new Supply Contract (see at [3] of the vendor’s document below headed “Surrounding circumstances”);

(b) it was common ground that Sanmik considered that the two components were unable to be used without the remainder of the Plant (see [6] of the “Critical surrounding circumstances known to both parties” document); and

(c) when the Settlement Documents were executed, there was no dispute or contest that the vendor retained title to the filler and homogenizer, having regard to the terms of the Initial Contract and the purchaser’s failure at that time to pay the full purchase price.

[150]  These surrounding circumstances all point to the likelihood, objectively viewed, of the parties agreeing in the Settlement Documents to the two items being utilised in the new supply contract rather than effectively being rendered redundant and “replaced” by two new identical customised items of equipment.

[151]  The objective logic of these matters leans against a construction of the documentation which would result in the vendor having to transport and ship two identical items for the purposes of the new supply contract, leaving the other two items idle unless the vendor was able to sell them for spare parts (presumably at a discount and possibly having to have them refabricated or redesigned given that they were customised) or incur what might reasonably be expected to be significant transport costs in shipping them elsewhere.

[152]  I consider that these particular surrounding circumstances, which were known to both parties, are relevant aids to the construction of the Settlement Documents, having regard to what was said by French CJ, Nettle and Gordon JJ in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37 at [46] –[49] (footnotes omitted):

[46] The rights and liabilities of parties under a provision of a contract are determined objectively, by reference to its text, context (the entire text of the contract as well as any contract, document or statutory provision referred to in the text of the contract) and purpose.

[47] In determining the meaning of the terms of a commercial contract, it is necessary to ask what a reasonable businessperson would have understood those terms to mean. That inquiry will require consideration of the language used by the parties in the contract, the circumstances addressed by the contract and the commercial purpose or objects to be secured by the contract.

[48] Ordinarily, this process of construction is possible by reference to the contract alone. Indeed, if an expression in a contract is unambiguous or susceptible of only one meaning, evidence of surrounding circumstances (events, circumstances and things external to the contract) cannot be adduced to contradict its plain meaning.

[49] However, sometimes, recourse to events, circumstances and things external to the contract is necessary. It may be necessary in identifying the commercial purpose or objects of the contract where that task is facilitated by an understanding “of the genesis of the transaction, the background, the context [and] the market in which the parties are operating”. It may be necessary in determining the proper construction where there is a constructional choice. The question whether events, circumstances and things external to the contract may be resorted to, in order to identify the existence of a constructional choice, does not arise in these appeals.

[153]  As is evident from Adamson JA’s detailed analysis, the relevant provisions of the Settlement Documents are not unambiguous or susceptible of only one meaning. If they were, there would be no warrant to have recourse to any relevant surrounding circumstances.

[154]  And, as stated by P Herzfeld and T Prince in Interpretation (3rd ed, 2024, Lawbook Co) at [19.70]:

The true position is that it is not possible to describe in a single statement the varied circumstances in which a court may consider extrinsic evidence to interpret a private legal document. What can be said is that the reasonable person seeking to interpret the document is attributed with knowledge of the relevant facts established by material that is admissible for the purpose of interpretation.

[155]  It is also well recognised that there are important limits to the notion that a court must give a contractual provision “a commercial and business-like operation”. For example, in Jireh International Pty Ltd t/as Gloria Jean’s Coffee v Western Exports Services Inc [2011] NSWCA 137 at [55], Macfarlan JA (with whom Young JA and Tobias AJA agreed) said:

…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.

[156]  I respectfully agree with Adamson JA that the evidence concerning the parties’ negotiations preceding the execution of the Settlement Documents, including the unexplained deletion of cll 1.3 and 3.5 from the earlier drafts, is not relevant to the task of construction at law. Nor for that purpose should the Court seek to determine the parties’ individual subjective motives in negotiating and ultimately agreeing the terms of the Settlement Documents.

[157]  I turn now to explain more fully why I would reject both grounds of the notice of appeal filed 10 September 2024.

Appeal ground 1(a) Clause 3.2(a)

[158]  The first limb of ground 1 relates to the construction of the release in cl 3.2(a) of the Settlement Deed (the terms of which are set out by Adamson JA at [29] above). The purchaser contends that the primary judge erred at J[101]–[113] in finding that the releases in cl 3 generally did not release the vendor’s claim to title of the filler and homogenizer. It contends that cl 3.2(a) should be construed such that, upon entry into the Settlement Deed, the parties agreed that neither of them had any further obligations under the Initial Contract. Accordingly, it contends the vendor no longer had any claim to title of the filler and homogenizer.

[159]  As Adamson JA has pointed out, the primary judge did not address cl 3.2(a). This is understandable, having regard to the way in which the purchaser conducted its case below. Its commercial list statement filed 17 April 2024 contained multiple references to various clauses in the Settlement Deed, including cl 3.2. The terms of cl 3.2(a) were summarised in [8(h)] of that document.

[160]  Reference was also made to cll 3.2(a), (b) and (d) of the Settlement Deed in the purchaser’s outline of written submissions below. It submitted that the releases captured any former rights or obligations concerning retention of title provisions in the Initial Contract.

[161]  In closing oral address, senior counsel for the purchaser referred to the releases in cl 3.2 generally. However, the focus of the exchanges with the primary judge was on cl 3.2(b). The primary judge observed that cl 3.2(a) was “wide enough to release [the purchaser] from any obligation in relation to the homogenizer and the filler”. Senior counsel for the purchaser agreed with the primary judge’s proposition that “on one view they are releasing you in this clause, taken alone, from any obligation to return [the homogenizer and filler]”.

[162]  When the primary judge added that, looking at the subclauses in cl 3.2, his preliminary impression was that the purchaser “would say well the parties have agreed to let the chips lie where they fall”, senior counsel for the purchaser agreed. Nothing further was said about cl 3.2(a) in the purchaser’s closing address.

[163]  It is scarcely surprising, therefore, that in his reasons for judgment the primary judge did not address this subclause and merely noted at J[65] and [97] that the focus of both parties’ submissions was on cl 3.2(b). Senior counsel for the purchaser on the appeal fairly and appropriately acknowledged that no criticism should be levelled at the primary judge on this matter because cl 3.2(a) did not feature “heavily in closing or at all, perhaps”.

[164]  I turn now to address cl 3.2(a) and whether it should be construed as releasing any claim by the vendor concerning its ownership of the relevant components of Plant 1.

[165]  When the Settlement Documents were executed, the parties were in dispute as to whether the Initial Contract had been validly terminated. This dispute was reflected in the terms of the vendor’s further amended commercial list statement below (at [52]) and the purchaser’s denial in its response that there had been a valid termination (at [19A] of its further amended commercial list response).

[166]  I accept the vendor’s submission that the release in cl 3.2(a) should be read against that background. The reference in that subclause to the purchaser agreeing that the Initial Contract “has been terminated” constituted an agreement between the parties on the contested issue of whether or not the Initial Contract had been validly terminated. The following words in the subclause (ie, “and that the parties have no further obligations in respect of the Contract…”) should be viewed as an acknowledgment of the conventional consequences of such a termination, being that the parties are discharged from future obligations of performance arising under the Initial Contract.

[167]  I do not accept the purchaser’s contention that the subclause operated to release the purchaser’s obligation to hold the items as bailee until the full purchase price was paid, which obligation was said to arise from the terms of the Initial Contract. It was further said that this was supported by [20] of the vendor’s further amended commercial list cross-claim statement. There, the vendor pleaded that, by reason of the matters pleaded earlier at [14] and [15], the purchaser was to hold the homogenizer and filler “as bailee” for the vendor until the full purchase price was paid under the Initial Contract. Paragraphs [14] and [15] were addressed to ownership of the homogenizer and filler. The vendor pleaded that it had delivered the homogenizer and filler pursuant to the Initial Contract and that it was a term of that contract that ownership would only pass to the purchaser upon receipt of the full purchase price.

[168]  I do not accept the purchaser’s submission that these pleadings confirm that the bailment was an obligation sourced in the Initial Contract (and not in law) and therefore was covered by the release in cl 3.2(a). Rather, I consider that the relevant pleadings in the further amended commercial list cross-claim statement claimed that there was a bailment as a matter of law because, although the purchaser was in possession of the two components, no title had passed from the vendor. The bailment did not arise under the Initial Contract; rather, it arose because ownership of the two components was never transferred to the purchaser.

[169]  Clause 3.2(a) also needs to be read against the background of the recitals (which are set out at [26] above). Relevantly, Recital H states that the parties “have agreed to settle all claims and disputes between them which were the subject of, or in any way related to” a list of six matters, which include the Proceedings (par (a)); the Initial Contract (par (c)); and the supply of the First UHT Plant (par (d)).

[170]  I consider that the primary judge was correct to accept the vendor’s submission that the expression “claims and disputes between them” should be read distributively. This construction means that the release does not capture ownership of the homogenizer and filler. That is because there was simply no dispute “between” the parties about that ownership, nor was there any relevant “claim” in the sense of a demand concerning their ownership — the items were unquestionably owned by the vendor as at the date of the execution of the Settlement Documents.

[171]  I do not consider that there is any “circularity” in this construction. The criticism that this construction is based on a presupposition that the two items already delivered can be used to discharge the vendor’s obligations under the new supply contract could be applied equally to the purchaser’s competing construction, which is based on the opposite presupposition.

[172]  As noted above, the purchaser conceded that the vendor retained title to the two items when the Settlement Documents were executed (presumably by reference to the retention of title clause in the Initial Contract). The Settlement Documents included a fresh retention of title clause, but that is a different matter. It provided that ownership of the equipment/module to be delivered “shall pass to the Purchaser only upon receipt of the full purchase price by the Seller”. This clause would apply to the two already delivered items, not unlike the retention of title clause in the Initial Contract prior to execution of the Settlement Documents.

[173]  For these reasons, I consider that ground 1(a) should be rejected.

(b) Clause 3.2(b)

[174]  The proper construction of the release in this subclause is raised by ground 1(b) of the notice of appeal. The terms of cl 3.2(b) are set out by Adamson JA at [29] above.

[175]  This issue turns on whether the definition of “Settled Matters” is sufficiently broad to include the vendor’s title to, or ownership of, the two relevant items. Adamson JA has summarised the parties’ respective submissions on the issue at [77]–[86] above.

[176]  In my view, the word “claim” (which is incorporated in both the definition of “Claim” in cl 1.2(b) and in the chapeau to Recital H of the Settlement Deed) refers to a dispute or contest between the parties and not to an undisputed claim of right, such as that applying to the vendor’s undisputed ownership of the two components. This interpretation is supported by the juxtaposition of the word “claim” with “any action or liability” in the definition of “Claim” and also its juxtaposition with “disputes between them” in relation to the Settled Matters as described in the chapeau to Recital H. As at the date of execution of the Settlement Documents, there was simply no claim or dispute (in the sense of a controversy or contest) between the vendor and the purchaser regarding ownership of the two components.

[177]  Nor do I accept the purchaser’s separate contention that the vendor’s ownership is a claim about a “Settled Matter” because there is a claim about “the supply of the First UHT Plant” within par (d) of Recital H or a claim relating to “payment for the supply of the First UHT Plant” within par (e). In my view, the reference in both those paragraphs to the “supply of the First UHT Plant” is a reference to the entirety of that supply, and not merely the supply (or delivery) of the two component parts.

[178]  Furthermore, I cannot accept that the question of ownership constitutes a claim or dispute which was the subject of, or in any way related to, the Initial Contract, in circumstances where it was common ground that there was no such claim or dispute about that subject. Thus the question was not left “unresolved”, nor were the parties at “cross purposes”. Rather, at all relevant times, they were ad idem on the question of ownership of the two items.

[179]  Having regard to what I consider to be the proper construction at law of the releases in cll 3.2(a) and (b), there is no need to address the possible application of equitable principles as set out in Grant v John Grant & Sons Pty Ltd (1954) 91 CLR 112; [1954] HCA 23.

[180]  For these reasons, I would reject ground 1(b) of the appeal.

Appeal ground 2

[181]  This ground challenges the primary judge’s findings at J[120], [132] and [133], which, respectively, were to the following effect:

(a) Clause 2.1(a) of the Settlement Deed (which is set out at [28] above), which provided that the parties would immediately enter into the Commercial Terms and Supply Terms for a “new supply that is independent” of the Initial Contract, was neutral as to the proper construction of the Settlement Documents.

(b) By holding that the phrase “to be delivered” in the definitions of Plant 1 and Plant 2 was directed to the question of where the individual components of those Plants were to be delivered, rather than a future supply.

(c) By finding that the definitions of Plant 1 and Plant 2 did not require those Plants to meet the specifications in the Supply Terms at the time of delivery.

[182]  As Adamson JA has noted at [94], if the purchaser succeeded only on ground 2 and failed on ground 1, the matter would need to be remitted for determination of the vendor’s claim in conversion.

[183]  The primary judge explained at J[120] why he did not accept the purchaser’s contention that, by stating in cl 2.1(a) of the Settlement Deed that the parties agreed to enter into the Commercial Terms and the Supply Terms for a “new supply” that was to be “independent” of the Initial Contract, this necessarily precluded using the already delivered items which were the subject of the Old Supply. His Honour described those matters as “neutral” because the sale agreement was a “new” sale agreement and a “new” supply, and there was also a sale which was independent of the Initial Contract. I respectfully agree.

[184]  In oral address on the appeal, senior counsel for the purchaser asked rhetorically: “how can something be independent of the previous contract if the supply had occurred under the previous contract”. With respect, senior counsel’s question is misdirected. The Initial Contract contemplated the supply of an entire plant, but this never occurred because only two of the components were delivered (or supplied). Accordingly, there was no “supply” under the Initial Contract and title never passed to the purchaser even though it had taken physical possession of two components of the plant.

[185]  As to the significance of the phrase “to be delivered” in cl 1.1 of the Commercial Terms, with reference to Plant 1 being delivered to the Sri Lanka site and Plant 2 being delivered to the Philippines site, I respectfully agree with the primary judge’s reasoning at J[132] that these phrases appear to be directed to the question of where the components of Plant 1 and Plant 2 were “to be delivered”, rather than focusing on whether all the constituent parts of Plant 1 or Plant 2 had then been delivered. As McHugh JA said in an exchange with the purchaser’s senior counsel on the appeal, the phrase “to be delivered” is “simply identifying that there’s one going to Sri Lanka and one going to the Philippines, but the timing is governed by what’s in the clause … in 3.1 and 3.2 as to when they’re to be delivered”.

[186]  On the appeal, the vendor’s counsel properly acknowledged (as did the purchaser’s senior counsel) that there was “some infelicity in the language used”, but the primary judge’s construction is supported by the uncontested fact that, while two significant components of Plant 1 had already been delivered to the Sri Lanka Site, the entire Plant was still to be delivered to that Site. The definitions of Plant 1 and Plant 2 in cl 1.1 of the Commercial Terms (see at [38] above) plainly refer to the entirety of the plant. Although the Settlement Deed refers to the “First UHT Plant and Second UHT Plant” respectively, those expressions are not defined in that document. It may be inferred that the related definitions in the Commercial Terms applied.

[187]  For all these reasons, I reject ground 2. In these circumstances, it is not necessary to address the correctness of the primary judge’s finding that the Equipment Warranty did not relate to the termination of the Initial Contract, but rather applied to give the purchaser the benefit of any third-party warranties as a result of the vendor sourcing goods from those third parties.

…

(emphasis added)

A link to the full decision may be found here.