Ambiguity of a Written Contract in Australia

Ambiguity of a Written Contract in AustraliaDo you think that a written contract must be suspicious before an Australian court may hear environ spate assure?In order to answer the question, I think it fit to talk about the principles for interpreting written commercial contracts.Principles of InterpretationInterpretation of a written contract involves establishing the parties bargain. This involves an understanding of express and unexpressed terms in contracts and is of the utmost vastness as these interpretations will impact a partys legal rights and obligations.An objective approach must of all time be utilize in the interpretation of a commercial contract and the heart of terms determined by what a reasonable businessperson would have understood those terms to mean if it was in the position of the parties at the time the contract was made.1The process of interpretation may require an investigation of the text, the place setting and the advise of the exertion in order to establish the bargain surrounded by parties.2 In the event that a contract is unambiguous, the process of interpretation may be concluded by an investigation of the text alone however, this is non always possible or indeed the case, and the process of interpretation requires an understanding of the context, commercial purpose and object of the transaction.3As to the question of text, the exact meaning of the words used and their legal effect on the parties must be established. The contract must be given its natural and ordinary meaning unless that meaning would create an silliness or inconsistency4. The interpretation of text may involve a review of the contract itself, the speech used, including definitions and grammar, and maxims or cannons of interpretation which, amongst others, include interpreting the contract put down as a whole, giving effect to all parts of the contract, and precedence of special and terms and conditions over general provisions.An investigation of t he context of a transaction has been described as the matrix of fact5 and it requires an understanding of the transactions genesis, background facts and ultimate purpose.I will discuss below the admissibility of evidence of surrounding circumstances outdoor(a) to the contract.The Debate and UncertaintyThere has been considerable debate in Australian courts regarding the extent to which recourse may be had to evidence of surrounding circumstances in construing contracts, in light of Mason Js true rule in Codelfa.Much controversy exists in Australian courts in relation to the decision in Codelfa reflection Pty Ltd v give tongue to Rail strength of innovative South Wales (Codelfa)6 and recent Australian broad(prenominal) Court decisions, namely Electricity Generation bay window v Woodside skill (Woodside)7 and dupe Bruce Mining Pty Ltd v Wright Prospecting (Mount Bruce)8 in respect of the extent to which a court may hear evidence of surrounding circumstances evidence without t here being equivocalness.Perhaps as a consequence of the conflict raised in respect of Mason Js judgement in Codelfa, it is also moot whether the astuteness advocates a literal (the text being dominant) or contextual (requires background against which words are used) approach to contract interpretation.Codelfa Construction Pty Ltd v maintain Rail control of New South Wales Is evidence of surrounding circumstances admissible in the interpretation of a contract without there being every equivocalness in the language of the contract?A logical starting point for any inquiry as to the above question and the role of ambiguity as a possible threshold or gateway should start with that said by Mason J in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (Codelfa)9The true rule is that evidence of surrounding circumstances is admissible to assist in the interpretation of the contract if the language is ambiguous or susceptible of more than one meaning. But it is non a dmissible to contradict the language of the contract when it has a plain meaning.At freshman glance, Mason Js true rule appears to affirm a common view and often cited reason by the judiciary that any use of evidence of surrounding circumstances to assist in the interpretation of a contract is strictly banned unless ambiguity can be shown in the language of the contract. This view supports the bid of an ambiguity gateway10, that gateway existing to condition the admissibility of evidence of surrounding circumstances where there is ambiguity.Codelfa an alternative interpretationAn alternative interpretation lies in the suggestion that what in fact Mason J tell as the true rule at page 352 of Codelfa is in fact in unison with the rest of his analysis.A careful review of Mason Js judgement (with whom Stephen and Wilson JJ agreed), specifically at pages 347 to 352 reveals that in the preceding paragraphs to the deliberation of the true rule, Mason J endorses and accepts the admissib ility of evidence of surrounding circumstances to aid in the proper construction of a contract, as words are rarely ever isolated from the context in which they were set.11 Mason J quotes from various passages of previous judgments, repeatedly emphasising the admissibility of whilst confirming that evidence of surrounding circumstances cannot be used for ascertaining a partys subjective intentions.The true rule could therefore be interpreted as simply confirming Mason Js view that evidence of surrounding circumstances can in fact be admitted toIdentify the meaning of a descriptive term12Clarify the genesis and purpose of the transaction13 andAid in clarifying ambiguous language in the contract14so vast as the surrounding circumstances are not used to contradict and change the plain meaning of the contract language used.In summary and establish on the above, the true rule is better interpreted as meaning that evidence of surrounding circumstances is admissible when the language is a mbiguous.Electricity Generation company v Woodside Energy LtdThe case involved an obligation by one of the parties to use reasonable endeavours and the High Court confirmed that reasonable endeavours are not absolute or unconditional in nature and stated that some contracts expressing an obligation to use reasonable endeavours contain their own internal standard of what is reasonable, by some express reference pertinent to the business interests15 This meant that Woodside recognized the fluid nature of reasonable endeavours which would inherently require an investigation of all background facts and thereby allowing or even requiring the inclusion of evidence of surrounding circumstances.Whilst the High Court did not directly address the controversy surrounding the true rule it has recognised the objective approach to contract interpretation and affirmed the mandatory16 nature of the requirement to consider the text used and the surrounding information, as well as the context and genesis of the transaction, including the market conditions in which the parties are operating.17Construing a commercial contract so as to avoid it making commercial nonsense andintended for the contract to get to a commercial result.18 I interpret this statement as confirming that all relevant information is admissible, will require consideration and therefore does not rule out evidence of surrounding circumstances to either resolve or establish an ambiguity.Mount Bruce Mining Pty Ltd v Wright Prospecting Pty LtdThe most recent laterality of the High Court dealing with admissibility of evidence, delivered in 2015. It was common ground that the contract was ambiguous and the judgment did not directly tackle or resolve the ambiguity gateway question.19 Instead, it reiterated previously agreed contract interpretation approaches that include reference to objective background information, setting and context in order to interpret a commercial contract so as to avoid it making commerci al nonsense or working commercial inconvenience.20Judgments made confirm that the commercial purpose of a transaction is a primary consideration of contract interpretation. It reveals that whilst, the ambiguity gateway question was not directly resolved, it nevertheless reaffirms that resolution of ambiguity may be achieved by reference to all background surrounding circumstances.The judges affirmed that nothing in their deliberation was intended to state any divergence from the law as set out in Codelfa and Woodside.21ConclusionCodelfa made an authoritative statement which, properly construed, illustrates a contextual interpretation of contracts in which, beyond the simple grammatical interpretation of words devoid of context, the interpretation of the contract is informed by evidence of surrounding circumstances and an interrogation of the context and relevant background to find the objective purpose of the transaction.I regard Woodside and Mount Bruce decisions as being consiste nt with Mason Js true rule and overall judgment in Codelfa (with whom Stephen and Wilson JJ agreed) as well as Brennan Js views and judgment22 in the same case. The supposed requirement in Codelfa which prevents the admission of evidence of surrounding circumstances unless there is ambiguity, the so called ambiguity gateway has not been confirmed by the High Court.An alternative interpretation of Codelfa also reconciles with the decisions in Woodside and Mount Bruce.Mason Ls comments in Codelfa where he stated that a distinction between reliance on surrounding circumstances to raise or resolve an ambiguity is perhaps more apparent than real23 may shed light in respect of where Australian law is or should be heading in respect of admission of evidence of surrounding circumstances.Finally, until the High Court affirms its position it will no doubt lead to continuing controversy.Word count 15201 Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640 at 352 Ibid3 Mo unt Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd 2015 HCA 37 at 474 Sir Kim Lewison David Hughes, The Interpretation of Contracts in Australia, Thomson Reuters, 2012, 55 See Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd 2015 HCA 37 at 108 and Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 at 3516 Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 3377 Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 6408 Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd 2015 HCA 379 Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 at 35210 Daniel Reynolds, Construction of Contracts after Mount Bruce Mining v Wright Prospecting (2016) 90 Australian Law Journal 19011 Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 at 347-35212 Ibid at 35113 Ibid14 Ibid 352 refer to Mason Js true rule statement15 El ectricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640 at 41-4316 See mandatory requirement it will require consideration in Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640 at 3517 Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640 at 3518 Ibid19 See Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd 2015 HCA 37, at 52, 113 and 11820 Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd 2015 HCA 37 at 50-5121 Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd 2015 HCA 37 at 5222 Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 at 40123 Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 at 350