In this case, the NSW Supreme Court considered the fundamental principles of contract interpretation, including the ejusdem generis principle, which provides that where specific words have some common characteristic which constitutes them as a class or “genus” then general words which follow them should be confined to things of that same class.
The Court’s decision affirmed the well-established objective approach to interpreting contracts:
- commercial agreements should be given a businesslike or commercially sensible construction, however courts must give effect to the plain meaning of unambiguous language unless to do so would have an absurd result; and
- courts can resort to surrounding circumstances where there is an ambiguity in drafting but they may not have regard to the subsequent conduct of the parties when considering the construction of a contract.
On the use of ejusdem generis as a principle of interpretation, the Court concluded:
- ejusdem generis is only an aid to interpretation, it is not a rule of law;
- it applies equally to the interpretation of both commercial and non-commercial agreements; and
- as an interpretive aid, it remains subordinate to the aim of construing an agreement in accordance with the real intention of the parties – as with any interpretive aid, it may be displaced or excluded by the intention of parties as discerned from the broader context of the terms of the agreement.
In this case, however, looking at the agreement as a whole, the court accepted that the specific words the parties had chosen to include in the relevant definition did constitute a discrete class which narrowed the meaning of the more general defined term, and ultimately justified the rejection of the relevant goods by the purchasing party, Glass Granulates.
Visy Paper Pty Ltd (Visy) alleged Glass Granulates Pty Ltd (Glass Granulates) had breached a supply agreement between the parties (supply agreement) by failing to accept loads of “glass fines” (essentially glass waste by-product of Visy’s recycling operations) delivered by Visy to Glass Granulates for recycling by Glass Granulates. Glass Granulates asserted that it rejected the loads because they contained fibrous asbestos-containing materials.
The supply agreement provided that Glass Granulates was obliged to accept delivery of glass fines from Visy. The supply agreement also provided that the glass fines delivered by Visy should not have a Rubbish content in excess of 7% on average. In the agreement, “Rubbish” was defined as “paper, plastic, cardboard and other contaminants” in the glass fines, and indicated that they should be disposed of at a licensed waste facility. Unlike Visy, Glass Granulates is only in the business of recycling glass fine waste, not other waste material such as paper, plastic or cardboard.
Glass Granulates submitted, relying on the principle of ejusdem generis, that “paper, plastic, cardboard” tempered the scope of “other contaminants” to only mean benign or non-hazardous contaminants. It also submitted, as an alternative submission, that if the supply agreement did require it to accept loads of glass fines which contained asbestos, the supply agreement was illegal because it was not licensed to process or dispose of asbestos.
Visy argued that paper, plastic and cardboard did not possess any common feature that could be taken to require “other contaminants” to be construed more narrowly. Visy submitted that the reference to paper, plastic and cardboard was simply a reference to the kinds of contaminants most commonly found in the glass fines. Visy also submitted that the requirement in the supply agreement that contaminants be disposed of at a “licensed waste facility” indicated the term “other contaminants” was intended to have a broader meaning and could cover both hazardous as well as non-hazardous contaminants.
The Court preferred the position put by Glass Granulates and said that if the parties had intended for “Rubbish” to include any contaminant, they could have drafted the definition of “Rubbish” to provide just that without including any reference to paper, plastic or cardboard. The Court explained that if those additional words were not intended to have a qualified meaning from a commercial perspective it made no sense to introduce them into the definition. The Court also drew on the circumstances of the parties – Visy being a recycler of a variety of wastes and Glass Granulates a specialised recycler of only glass fines – to conclude that they intended those words to reflect the particular recycling they carried out. In essence the Court concluded that the definition of Rubbish and the 7% threshold was clearly intended to address the risk that Visy’s glass fines might contain an excessive proportion of other waste which Glass Granulates was not properly equipped to remove or dispose of.
On this basis, the Court concluded that although the glass fines were permitted to contain “Rubbish”, this was intended to be limited to benign impurities and did not extend to hazardous contaminants such as asbestos. For this reason, Glass Granulates was not required to accept loads of asbestos-contaminated glass fines.
To see the full judgment in this case, please click here.