I am not sure I am ready to give up on Mason yet David!

I understand that widening the 'gate' better reflects how we use language but I am not sure how this works in practice other than at the pointy end of litigation when you can investigate such evidence. Given the amount of contracts a lawyer is required to look at in a day it does not seem practical to go into evidence beyond the basic matrix of facts, unless, of course one is driven to it by the language throwing up some difficulty. Often a client will flick you a few clauses and ask what they mean, and get upset when you have to say 'No' I need to read it in context so I need to read the whole contract which will take me X hours at a cost of $X per hour. Today do we add, 'and by the way I will also need to see X whilst still maintaining an objective approach. And there is the fact that most commercial contracts operate in a chain or network of contracts where third parties rely on other contracts in the chain and only have, at most, access to the document. I know we have never applied the same construction rules to contracts that we have to things like negotiable instruments and company constitutions, where the rules of construction are designed to take account of the fact that third parties rely on them on their face. However, the 'old' rules of construction, and indeed the Mason approach in Codelfa appear to at least give some protection to third parties and interestingly were rules that were operable at a time when the doctrine of privity was perhaps at its highest; yet today when we recognise how interconnected commercial contracts are, are we doing less to protect such third parties?






GREG TOLHURST | Pro-Dean and Professor of Commercial Law

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-----Original Message-----
From: David McLauchlan [mailto:David.McLauchlan@vuw.ac.nz]
Sent: Friday, 4 November 2011 11:10 AM
To: Andrew Robertson; obligations@uwo.ca
Subject: RE: [ODG] Re: Contract Interpretation

Andrew has admirably summarised the background to why the HCA's observations and decision to refuse leave are so baffling.

Readers with a particular interest in this area may be interested to note that, as will be discussed in the forthcoming JCL article that I referred to, Sir Anthony Mason himself has said that he would not regard a retreat from the principles he espoused in Codelfa as a retrograde step. In his address to the 20th Anniversary JCLConference, Sir Anthony expressed his general support for Lord Hoffmann’s principles in ICS and then said:

"I am not persuaded by the criticisms thus far made of them and that is because I do not understand them to mean that courts will readily allow extrinsic materials to qualify the words of the contract when those words are sufficiently clear and strong and do not lead to unreasonable or unexpected consequences".

Earlier Sir Anthony, after referring to the "now favoured" approach as being that "ambiguity is unnecessary" so that "the extrinsic materials are receivable as an aid to construction, even if, as may well be the case, the extrinsic materials are not enough to displace the clear and strong words of the contract", had commented:

"It was that idea that I was endeavouring to express in Codelfa, albeit imperfectly, because I recognised that ambiguity may not be a sufficient gateway; the gateway should be wide enough to admit extrinsic material which is capable of influencing the meaning of the words of the contract. The modern point of criticism is that one should not have been thinking in terms of gateway. At the time, however, it was natural to do so because it stressed the importance of the natural and ordinary meaning of the words used by the parties in their written instrument and it respected the difference between interpretation and rectification."

David


David McLauchlan
Professor of Law
Victoria University of Wellington
________________________________________
From: Andrew Robertson [a.robertson@unimelb.edu.au]
Sent: Friday, November 04, 2011 12:27 PM
To: obligations@uwo.ca; David McLauchlan
Subject: [ODG] Re: Contract Interpretation

I agree with David that the question whether an ambiguity must be
identified before recourse can be had to extrinsic evidence in the
interpretation of a contractual document is an issue of enormous practical
importance, the answer to which remains woefully unclear in Australia. The
HCA has taken to issuing occasional terse injunctions to lower courts to
'follow Codelfa until we say otherwise', interspersed with statements in
other decisions which seem to contradict what Mason J described in that
case as the 'true rule'. One of the problems is that following what Mason
J said in Codelfa is no easy task. The judgment is rich and interesting
and great for teaching because it is open to different interpretations.
But this means that it is anything but a clear code on the use of
extrinsic evidence in interpretation.

Mason J said in Codelfa that:
"The 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 not
admissible to contradict the language of the contract when it has a plain
meaning."

But, as Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ pointed out in
Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451 at
[22], earlier in his judgment in Codelfa Mason J had "set out with evident
approval the statement by Lord Wilberforce in Reardon Smith Line Ltd v
Hansen-Tangen [1976] 1 WLR 989 at 995-996; [1976] 3 All ER 570 at 574 that:
ŒŒIn a commercial contract it is certainly right that the court should
know the commercial purpose of the contract and this in turn presupposes
knowledge of the genesis of the transaction, the background, the context,
the market in which the parties are operating.¹¹"

In a number of decisions in the last 10 years the HCA has appeared to
endorse a more relaxed approach to the admissibility of evidence relating
to the surrounding circumstances and object of a transaction. In Toll
(FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165 at
[40], for example, Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ said:
"The meaning of the terms of a contractual document is to be determined by
what a reasonable person would have understood them to mean. That,
normally, requires consideration not only of the text, but also of the
surrounding circumstances known to the parties, and the purpose and object
of the transaction: Pacific Carriers Ltd v BNP Paribas at [22]."

In Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407; (2009) 76
NSWLR 603, Allsop P at [14]-[18] and Campbell JA [239]-[305] reviewed both
the judicial history and substance of the point in painstaking detail and
came convincingly to the conclusion that it was not necessary to find
ambiguity before looking at surrounding circumstances in construing a
contract. Numerous other Australian intermediate appellate courts have
come to the same conclusion, and many first instance judges have followed
suit. This is an issue that, not surprisingly, comes up in case after case
and the controversy was widely thought to have been settled, so it is
baffling that Gummow, Heydon and Bell JJ would deal with the point in the
way they did. In the course of a very short judgment refusing special
leave to appeal, they insisted that intermediate appellate courts are
bound to follow the 'true rule' and that 'it should not have been
necessary to reiterate the point here.' There are 70 paragraphs in
Franklins v Metcash explaining clearly and convincingly why reiterating
the point simply will not do.


Regards to all,
Andrew

_____________________
Andrew Robertson
Professor of Law
Melbourne Law School
University of Melbourne
Parkville, Victoria
3010
Australia

T: +61 3 8344 0379




On 3/11/11 7:45 PM, "David McLauchlan" <David.McLauchlan@vuw.ac.nz> wrote:

>Neil
>
>
>
>As a non-Australian, not surprisingly I am unaware of similar instances.
>What is particularly alarming to me is that the High Court has refused to
>take an ideal opportunity to clarify the most practically important area
>of contract and commercial law. In a nutshell, the lower courts have
>simply been instructed yet again - the same message was delivered a few
>months earlier in Byrnes v Kendle [2011] HCA 26 - to follow Codelfa until
>they are told otherwise. And, contrary to what is said in the leave
>judgment, the appeal had considerable merit. Indeed, in my not
>particularly respectful view, a substantial miscarriage of justice has
>been done. I am not alone in this view. When I covered the NSWCA decision
>in an LLM class in Sydney earlier this year, the students were shaking
>their heads in astonishment. Not that everything is rosy with the more
>enlightened UK ICS principles. There are signs in some recent English
>cases of a retreat from those principles to an approach not all that
>different from Codelfa! But that is another story. So too is the much
>more liberal view of the NZ courts, particularly to receiving evidence of
>prior negotiations and subsequent conduct. On the surface at least, the
>law relating to the mundane task of contract interpretation is
>substantially different in each of NZ, Australia and the UK. It should
>not be so hard.
>
>
>
>Regards
>
>
>
>David
>
>
>
>
>David McLauchlan
>Professor of Law
>Victoria University of Wellington
>________________________________
>From: Neil Foster [Neil.Foster@newcastle.edu.au]
>Sent: Thursday, November 03, 2011 6:11 PM
>To: David McLauchlan
>Cc: Jason Neyers; obligations@uwo.ca
>Subject: Re: Contract Interpretation
>
>Dear Colleagues;
>I must say that the approach of the UKSC does seem to commend itself
>above the approach summarised as still being binding in Australia by the
>High Court. But I speak of that whereof I do not know, not being across
>contract law.
>What does puzzle me is probably trivial but seems odd- I have not before
>seen a High Court of Australia decision refusing special leave to appeal
>with its "own" medium neutral citation reference. In most cases a
>decision of this sort would have appeared in the HCATrans series- indeed,
>now that I look I see this one does as well: Western Export Services Inc
>& Ors v Jireh International Pty Ltd [2011] HCATrans 297 (28 October
>2011). So we have the somewhat odd situation that there are two separate
>electronic references to the same decision. (The HCATrans one contains
>the comments of the court on argument, so one can see what was concerning
>their Honours, one part of which seems to have been the suggestion that
>inferior courts in Australia should follow decisions in the UK which were
>arguable contrary to Codelfa.) It seems that the three members of this
>special leave bench decided that this trend to "loose" reading of
>contractual terms was such a potential problem that their decision here
>needed to be brought to the professions' attention more clearly than an
>"ordinary" refusal of special leave. Is anyone aware of other such
>examples of special leave decisions being highlighted in this way?
>From a precedential point of view, a special leave decision seems fairly
>clearly not binding (even one that has been "elevated" in this way.) But
>from a pragmatic perspective I suppose this means that anyone wanting to
>argue that a more "commercially oriented" view of interpretation should
>be adopted knows they will have some strong resistance from at least some
>members of the High Court.
>Regards
>Neil
>
>On 03/11/2011, at 7:42 AM, David McLauchlan wrote:
>
>And for an interesting contrast in approaches, see the High Court of
>Australia's refusal to grant leave to appeal from the appalling decision
>of the NSWCA in Jireh International Pty Ltd v Western Export Services Inc
>[2011] NSWCA 137: http://www.austlii.edu.au/au/cases/cth/HCA/2011/45.html
>
>
>
>The traditional "plain meaning" approach is alive and well in Australia.
>The High Court has ruled that the NSWCA was correct when it held that a
>court must give effect to "unambiguous" language "unless to do so would
>give the contract an absurd operation". It is not enough that the
>contract has an uncommercial or unbusinesslike operation. An article
>discussing the NSWCA's decision and other recent developments in
>Australia will shortly appear in the Journal of Contract Law.
>
>
>
>David
>
>
>
>
>David McLauchlan
>Professor of Law
>Victoria University of Wellington