The HCA has in October 2015, clarified the previously confused position as to the role of extrinsic facts in construing a commercial contract.  In Mount Bruce Mining Limited v Wright Prospecting Pty Ltd [2015] HCA 37 at [48] the plurality of the Court stated with respect to construing contracts (emphasis added):

“Ordinarily, this process of construction is possible by reference to the contract alone.  Indeed, if an expression in a contract is unambiguous or susceptible of only one meaning, evidence of surrounding circumstances (events, circumstances and things external to the contract) cannot be adduced to contradict its plain meaning”.

Further, the Court affirmed the continued application of the principles set out in Codelfa stating that its observations are not intended to state any departure from the law set out in that decision (at [52]).

A continued requirement of ‘ambiguity’ before facts external to a commercial contract become relevant carries with it two implications.

First, it requires the consideration and potential presentation before a court of two different cases of construction on the same document.  One applying if the terms in dispute are ‘unambiguous’, advancing arguments as to objective meaning by reference to the text and internal context of the document.

The second,  advancing arguments as to the meaning of terms by reference to text, internal context, and external context comprised of objective facts (mutually known) to the parties at the time of contract that bear upon the objective meaning of the words in the document.

Secondly, it requires trial courts to prepare judgments based upon the two alternative scenarios of either ‘ambiguity’ taking into account external facts or ‘no ambiguity’ without reference to such facts.

Failure to address both scenarios in judgment would in most cases expose a decision to appeal, given that the parties cannot agree upon the meaning of the terms in dispute in the first place.

In practical terms, that all adds up to more uncertain and expensive litigation in contract disputes and lengthier judgments.


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