Carbone v Mills [2018] NSWSC 496
This case is a classic illustration of a “He said She said” case. It serves as a warning on how to run a case which is heavily reliant on evidence of historical verbal conversations.
The Court (Darke J) was faced with interpreting a call option in a land agreement. In particular, when the call option expired and whether it had been validly exercised. The Court found for the Defendant and determined that the call option had not been validly exercised prior to its expiry.
The decision is interesting on multiple fronts. It applies the legal test for contractual construction (for commercial contracts) and witness reliability in circumstances where much of the Plaintiffs’ case relied on alleged oral terms and evidence of verbal conversations.
Principles of Contractual Interpretation
At the heart of the dispute was a contractual dispute about the proper interpretation of a call option and when it had expired. The Court applied the “reasonable businessperson” test for interpreting the terms of the commercial contract, referring to recent High Court authority.
Electricity Generation Corporation v Woodside Energy Limited (2014) 251 CLR 640; [2014] HCA 7 (at [35]):
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…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”.
Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd [2017] HCA 12 (at [16]):
It is well established that the terms of a commercial contract are to be understood objectively, by what a reasonable businessperson would have understood them to mean, rather than by reference to the subjectively stated intentions of the parties to the contract.
In applying the legal test, the Court considered the language of the agreement in conjunction with the surrounding circumstances known to the parties and the commercial purposes or objects to be secured by the contract.
Surrounding circumstances
The “surrounding circumstances” relied on by the Plaintiffs was evidence of the content of the parties’ negotiations. The Court found that this was an impermissible attempt to use evidence of negotiations to establish the contractual intentions of the parties, and then rely on those intentions on the question of construction. The Court referred to the test set out in Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 at 352 per Mason J):
…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.
Evidence of Conversations
The Plaintiffs’ case relied on evidence of verbal discussions between the parties prior to the agreement being formed. They were alleged to have taken place more than five and a half years ago. None of the accounts was said to be based on any notes taken of the conversations. The content of the discussions was the subject of detailed cross examination.
The Plaintiffs maintained they had actual recollection of certain specific conversations during discussions in August 2012. They said they remembered very clearly saying certain words at that time.
On the contrary, the Defendant accepted that his recollection of the conversations in August 2012 was not clear, those conversations having occurred almost 6 years ago.
The Court was “favourably impressed” with the Defendant as a witness. It considered his evidence to be reasonably reliable.
He appeared to be doing his best to truthfully answer the questions asked of him, even if that meant making concessions that might be unfavourable to his case.
The Court concluded that that it was difficult to have much confidence in the accuracy of the testimony given by the Plaintiffs and treated it with caution, bearing in mind the litigious context in which the conversations were sought to be recalled, and referring to the oft cited statement in Watson v Foxman (1995) 49 NSWLR 315 at 318-9 per McLelland CJ in Eq:
‘…human memory of what was said in a conversation is fallible for a variety of reasons, and ordinarily the degree of fallibility increases with the passage of time, particularly where disputes or litigation intervene, and the processes of memory are overlaid, often subconsciously, by perceptions or self-interest as well as conscious consideration of what should have been said or could have been said.’
Take home
The case serves as a helpful reminder as to how a Court is likely to approach witness reliability and credit where conversations are alleged to have been had several years prior to the litigation.