BH Australia Constructions Pty Ltd v Kapeller [2019] NSWSC 1086 – the use that may be made of post-contractual conduct to construe a contract

In Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153 at [26], Heydon JA stated that:

post-contractual conduct is not admissible on the question of what a contract means as distinct from the question of whether it was formed.

To similar effect, in Agricultural and Rural Finance Pty Ltd v Gardiner (2008) 238 CLR 570, Gummow, Hayne and Kiefel JJ stated at [35] (citing Whitworth Street Estates Ltd v Miller [1970] AC 583 at 603, in turn cited by Gibbs J in Administration of Papua and New Guinea v Daera Guba (1973) 130 CLR 353 at 446 (as to which decision, see Hide & Skin Trading Pty Ltd v Oceanic Meat Traders Ltd (1990) 20 NSWLR 310 at 326–328)):

it is not legitimate to use as an aid in the construction of [a] contract anything which the parties said or did after it was made.

Some complexity lies behind these statements of principle. Sitting at first instance, Leeming JA has published an interesting judgment, BH Australia Constructions Pty Ltd v Kapeller [2019] NSWSC 1086, which addresses some of this complexity in the context of a dispute about the identity of contracting parties.

In Kapeller, his Honour held:

1. There is a ‘world of difference’ between the task of construing a wholly written contract, and the task of construing a contract which is not wholly in writing (citing, in particular, the judgment of Campbell JA (with whom Sackar J and Basten JA relevantly agreed) in Lym International Pty Ltd v Marcolongo [2011] NSWCA 303; 15 BPR 29,465, at [141]-[143]).  In the latter case, his Honour noted, regard may be had to the whole of the circumstances, including those taking place after the contract was formed, to determine what the parties have agreed (at [68]-[69]).  

2. Consistently with this, in the context of an unwritten contract, post-contractual conduct may be used to identify the parties to an unwritten contract (at [81], following Damien v JKAM Investments Pty Ltd [2015] NSWCA 368, [28] (Tobias AJA, with whom Gleeson and Simpson JJA agreed)).

3. The position is different in the case of a written contract – there post-contractual conduct is not admissible to determine the identity of the contracting parties, because the written contract will disclose the names of the contracting parties, and making use of post-contractual conduct would be inconsistent with the objective theory of contract which fixes the parties’ identity once the contract has been formed (at [93], [99]).

4. Authority does not stand in the way of this conclusion – any statements to the contrary by the Victorian Court of Appeal in Lederberger v Mediterranean Olives Financial Pty Ltd (2012) 38 VR 509; [2012] VSCA 262 (at [31]-[33]), by Robb J in Harold R Finger & Co Pty Ltd v Karellas Investments Pty Ltd [2015] NSWSC 354 (at [103]), and (possibly) by Parker J in Wickham Hill Investment Pty Ltd v Ding [2019] NSWSC 631 are dicta, which did not address the key distinction between oral and written contracts (at [100]).

5. That being said, there are at least two classes of case where evidence may be used to establish the identity of a contracting party where the contract is wholly written.

a. First, evidence may be adduced of mutually known facts to identify the meaning of a descriptive term (at [94]-[95]).
b. Second, evidence may be adduced to establish the existence of a mistake in the name of a party – that is, a misnomer (at [96]). 

6. And further, post-contractual conduct may be used consistently with the objective theory of contract to establish some relevant aspect of purpose, context or surrounding circumstances (at [101]). 

Kapeller concerned a written residential building contract where the contract named (as a builder) a company (‘Developments’) which was neither licensed under the Home Building Act 1989 (NSW) or insured.  An NCAT appeal panel held that the contracting party was in fact another company (‘Constructions’) which was licensed and insured.  Leeming JA dismissed an appeal.  His Honour did not have regard to post-contractual conduct to do so. 

Leeming JA’s judgment in Kapeller is a useful reminder of the care to be taken in preparing evidence in contractual cases.  The Court of Appeal has said that in such cases, to determine whether a piece of evidence is relevant, it is necessary to know, ‘with some precision, what the disputed questions of construction are’:Cherry v Steele Park (2017) 96 NSWLR 548, [90].  Kapeller reminds us that, as a corollary of this, it is also important to pay attention to whether the contract in question is wholly written.

Published by Dominic Delany, Barrister at Alinea Chambers
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