Interpretation Of Terms And Construction - Contract

INTERPRETATION OF TERMS AND CONSTRUCTION * Construction and Interpretation of a contract o Construction is the process by which a court determines the: SS? Meaning and SS? Legal effect of the terms of the contract 3 step process 1) when did the contract come into being 2) identify the terms of the contract * what is in and what is out 3) figure out what they mean and how they operate When did the Identify the terms of the contract - contract come into what is in and what is out being? * Something was said * Is the statement in writing? or written before o Yes: is there a signature SS? Yes: signature rule applies, or during (whatever you sign is part of the negotiations - is it contract) a term of the O? THE STATEMENT IS A TERM OF THE contract? CONTRACT * Identify when the SS? No: reasonable notice doctrine contract came into applies being O? THE STATEMENT IS A TERM OF THE * ANYTHING AFTER CONTRACT IS NOT PART OF o No: Are the statements puffery, THE CONTRACT representations or terms? * * * * What do the terms mean and how do they operate Key principles: Objective perspective Holistic interpretation Natural meaning -- parol evidence rule O? IF THE STATEMENT IS A TERM, IT IS A TERM OF THE CONTRACT Objective Approach: * Basic Rule: o A contract is to be given the meaning intended by the parties * How do we work out the intention of the parties? o Objectively SS? As viewed by a reasonable person put into the position of the parties * Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd * Maggbury Pty Ltd v Hafele Australia Pty Ltd o What is the meaning of what the parties have said, not what did they mean to say PAGE 87 Natural and Ordinary Meaning: * Words are to be given their natural and ordinary meaning o Codelfa Construction P/L v State Rail Authority of NSW o Darlington Futures v Delco Australia * The court just gives effect to the words in their natural and ordinary meaning * Where the language is not clear, the court must determine the intended obligation * Where a clause is open to two meanings, the court will prefer an interpretation that avoids unreasonable consequences o MOST REASONABLE INTERPRETATION SS? Drew, Robinson & Co v Shearer and Anor * Where there is ambiguity the court will adopt a reasonable interpretation o Australian Broadcasting Commission v Australasian Performing Right Association Ltd * Contra preferentum o Ambiguity is interpreted AGAINST the party relying on the clause o Proferens is the person relying on the clause SS? Darlington Futures v Delco Australia Hollistic Approach: * The contract is considered in context and as a whole o Codelfa Construction P/L v State Rail Authority of NSW * Natural and ordinary meaning in the context of which the clause appears in the contract as a whole o Darlington Futures v Delco Australia * Words are not read in isolation * Consider the factual matrix: o Background of contract o Commercial purpose of transaction o Context o Market in which the parties are operating * The meaning of the text will consider surrounding circumstances known to both parties o Pacific Carriers Ltd v BNP Paribas * Commercial contract: court must be aware of the commercial purpose which means the court needs to know: o the genesis of the transaction o the background, o the context o the market in which the parties are operating SS? Codelfa Construction Pty Ltd v State Rail Authority of NSW PAGE 88 Parol Evidence Rule How it works when identifying terms: * Question the completeness of the written document o Contract partly written partly oral o Rectification SS? A term has been omitted in error o Collateral contract SS? A separate contract o Formation issues SS? Who are the parties SS? What is the subject How it works when interpreting terms: * Extrinsic evidence is usually inadmissible in construing a contract in writing, if the contract is held to be complete o DTR Nominees Pty Ltd v Mona Homes Pty Ltd and Anor * We can consider extrinsic evidence if we are trying to work out if a complete and comprehensive contract exists * Ambiguity o Patent and Latent SS? Subject matter * White v Australian & NZ Theatres SS? Identity of parties * Edwards v Edwards SS? Consideration made * Yaroomba Beach Development Co Types of Terms: * Promissory Clauses o Three types SS? Conditions * A term essential to the contract * The promise is of such importance to the promisee that they would not have entered the contract unless they had been assured of strict or substantial performance of the promise o Associated Newspapers Ltd v Bancks * Breach of condition = right to automatic termination SS? Warranties * A term that is subsidiary to the main purpose of the contract o Ellul v Oakes * Breach of warranty = right to claim damages (no right to terminate) PAGE 89 Innominate/Intermediate Term * A term that is somewhere in between a condition and a warranty o Hong Kong Fir Shipping Co Ltd v Kawasaki Kissen Kaisha Ltd * Breach of term = depends on severity of case Contingencies o Where the existence or the operation of the contract is conditional upon the occurrence or non occurrence of an event SS? Condition precedent * An event must occur before a contract comes into existence * If the event does not occur, there is no contract SS? Condition subsequent * An event that may give rise to a right of termination of further performance of the contract SS? Generally the right to terminate lies with the party who was to receive the benefits Exclusion clauses o A term which excludes the liability of a party which would otherwise arise SS? Multiple purposes * Exclude one party's liability - EXCLUSION CLAUSE o Davis v Pearce Parking Station PL * To limit the extent of liability to a maximum amount LIMITATION CLAUSE o Alderslade v Hendon Laundry Ltd * To make liability subject to certain preconditions SS? * * Interpreting Exclusion Clauses: * Signature o Is there a contractual agreement? o Is it in writing? o If yes, are there signatures? SS? Yes: Signature doctrine SS? No: Reasonable notice doctrine o If no, it is an oral contract * General approach o The exclusion clause is given its natural and ordinary meaning o Read in light of the contract as a whole o Gives weight to the contexts SS? Darlington Futures v Delco Australia PAGE 90 * * Contra proferentem o Where the meaning of the exclusion clause is ambiguous o Interpreted against the party relying on the clause SS? Least favourable meaning for the proferens Four corners rule o Exclusion clause will only operate to exclude liability within the "four walls" of the contract o Will not operate where proferens has acted in a way that is alien to the contract SS? Thomas National Transport (Melbourne) Pty Ltd v May & Baker (Australia) Pty Ltd o Parties acting outside the four corners of the contract wont be protected by the exclusion clause corners SS? Sydney City Council v West o FOUR CORNERS RULE IS A GROUNDS FOR DENYING EXEMPTION TO A PERSON RELYING ON THE CLAUSE BECAUSE THAT PERSON, WHO IS RELYING ON THE CLAUSE, HAS ACTED OUTSIDE THE CONTRACT Negligence Clauses * Excluding negligence o Will be relevant when: SS? One party alleges that the other has negligently performed contractual obligations SS? When one party alleges that the other has breached a term (express or implied) to take reasonable care in their performance of contractual obligations SS? One party claims in negligence rather than in contract * Lister v Romford Ice * Follow the Darlington approach o Natural and ordinary meaning o Resolve issue against clause o If ambiguous, interpret against the inserting party * Must a clause specifically refer to negligence? o Canada SS Lines Ltd v R o Clause must refer to negligence specifically PAGE 91