The New South Wales Court of Appeal decision in Ryledar Pty Ltd v Euphoric Pty Ltd (2007) 69 NSWLR 603 provides a detailed examination of the current law on the equitable remedies of rectification and estoppel by convention.

Background

Euphoric Pty Ltd (Euphoric) contracted to supply Ryledar Pty Ltd (Ryledar) with various gasoline and oil products. Ryledar was to receive a contractual rebate on those gasoline and oil products at a rate of 6.2 cents per litre for all of its Sydney Metropolitan stores and 6.0 cents per litre for all stores outside the Sydney Metropolitan area (the Agreement).

Over time, Ryledar began opening more stores in the state of New South Wales and the Agreement was amended to reflect that the 6.0 cents per litre rebate was now to be applied to Wollongong, Central Coast and Newcastle locations as well as any town on or east of a straight line connecting Newcastle, Bilpin, Katoomba, Bowral and Wollongong (the Amended Agreement). Notwithstanding the recorded terms of the Amended Agreement, Euphoric adopted a practice of extending the 6.0 cents per litre rebate to each new store that was opened by Ryledar, regardless of the store's location.

When Euphoric had a change of management, it notified Ryledar that it intended to return to the terms of the Amended Agreement and cease applying the rebate to locations outside of the area described. Ryledar refused to pay for the gasoline and oil products and continued to withhold payment of the outstanding amounts as a result of Euphoric's refusal to extend the 6.0 cents per litre rebate to each new store. Euphoric commenced legal proceedings for recovery of the amounts.

Ryledar advanced two primary arguments:

  • that it was the common intention of both parties that the rebate would apply to all stores in New South Wales and that the Amended Agreement should be rectified to reflect that common intention, and
  • that Euphoric should be estopped from denying that the rebate applied across all stores.

Judgment

The New South Wales Court of Appeal rejected both of Ryledar's primary arguments.

The Court held that, to obtain rectification, Ryledar must be able to show that "the common intention for which it contends must be established by clear and convincing proof".

The Court found that the language that was used in the Amended Agreement and the definition of the geographic areas were clear and unambiguous so that the Court could not find a reason to believe that the parties intended the rebate to apply to a wider area than the strictly defined area within the terms of the Amended Agreement. The Court found that the parties had "purposely used the words which are now sought to be rectified" and, in fact, it was Ryledar who had proposed the particular amendments to the Amended Agreement which Ryledar was now seeking to resile from. Therefore, in the circumstances, the Court was not convinced that the parties were in complete agreement as to Ryledar's alleged "common intention".

Ryledar, in the alternative, sought to argue that there existed an estoppel by convention based on Euphoric's continued conduct in not enforcing the terms of the Amended Agreement. The Court also rejected this argument. The Court found that, for the same reasons as outlined above, there was no evidence of an assumed state of affairs by the parties which they would be estopped from denying. It was clear from the evidence that Euphoric had continued to extend the rebate to Ryledar purely on a "commercial basis" and Ryledar could not establish that there was an intention for the rebate to apply to the whole of New South Wales.

Implications

The decision provides a helpful dissection of the equitable remedies of rectification and estoppel by convention. On a very practical note however, the following are a few tips that can be taken from the decision:

  1. Record all important terms of an agreement in writing – the task of establishing a right based on the conduct or representations of another party is difficult. Ideally, this right should be confirmed in writing by embodiment within the terms of the agreement. If this is not possible, commercially speaking, it should be kept in mind that the practice may cease to be available at some time in the future and the relevant commercial implications should be factored into financial and other policies.
  2. Intentions should be clearly expressed - if there is a current practice of providing services or benefits to contractual parties beyond the obligations contained within the relevant written agreements, ensure that intentions are clearly communicated and that the other party is not left with the mistaken impression that the intention is to provide those services indefinitely or is to be a permanent change to the parties' contractual obligations.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.