Read the full paper - The subject of the CPD concerns the extent to which evidence of surrounding circumstances can be used to aid the construction of contracts, and whether “ambiguity” must be found to exist before such evidence can be considered.
Much has been written about whether language, in general, has an objective meaning. Wittgenstein wrote that the meaning of a word is its use in the language. However, when the definition of a word turns on the commonly understood parlance between contracting parties, such evidence has traditionally been excluded by courts.
This approach is justified principally on the basis of the objective approach that the law takes to questions of construction. Mason J in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 stated that the “true rule” is that evidence of surrounding circumstances is not admissible to assist in the interpretation of a contract unless the language is ambiguous.
A question now arises as to whether this “true rule” creates a rubric through which all questions of admissibility must be determined, or whether ambiguity is (or should be) a conclusion to be reached after considering evidence of surrounding circumstances. From a normative perspective, there are strong grounds to contend that the existence of ambiguity can often only be determined upon a consideration of the extrinsic evidence.
Intermediate Courts had started to move away from the “true rule” on the basis that Codelfa had been impliedly overruled by subsequent cases such as Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451. Unburdened by the constraints inherent in the “true rule”, intermediate courts then began to consider that the written language of contracts, as understood against a background of surrounding circumstances, permitted a constructional choice to be made between different legal meanings: eg Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407; (2009) 76 NSWLR 603.
The High Court then attempted to re-assert the authority of the Codelfa doctrine in Western Export Services Inc v Jireh International Pty Ltd [2011] HCA 45; (2011) 282 ALR 604. However, this decision only introduced an additional level of complexity, namely whether it was binding on intermediate courts given the Court had issued its reasons in the course of rejecting an application for special leave to appeal.
As it stands, there remains a divergence of opinion on this issue amongst intermediate courts (eg, Cherry v Steele-Park [2017] NSWCA 295 from [71]) and a lack of guidance from the High Court (Electricity Generation Corp v Woodside Energy Ltd [2014] HCA 7; (2014) 251 CLR 640).
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