Colleagues,

 

Yesterday it was the Full Court of the Federal Court; today it is the Court of Appeal in Western Australia. In TECHNOMIN AUSTRALIA PTY LTD -v- XSTRATA NICKEL AUSTRALASIA OPERATIONS PTY LTD [2014] WASCA 164 McClure P (Newnes JA agreeing) said:

 

 Principles of construction

33 As trial courts around this country have always been, and still are, required on a regular basis to resolve contractual disputes, it may come as a surprise that there continues to be uncertainty as to the common law in Australia relating to the principles of contractual construction.

34 The story so far. After careful consideration of multiple High Court decisions on the subject, a number of intermediate appellate courts in this country came to the view that evidence of surrounding circumstances was always admissible to assist in the construction of a contract, whether or not the contractual language was ambiguous or susceptible of more than one meaning.

35 However, in dismissing the special leave application in Western Export Services Inc v Jireh International Pty Ltd [2011] HCA 45; (2011) 282 ALR 604, three members of the High Court (Gummow, Heydon & Bell JJ) said that conclusion was inconsistent with binding authority. After referring to what was said by Mason J in Codelfa to be the 'true rule' as to the admission of evidence of surrounding circumstances, Gummow, Heydon and Bell JJ said:

The position of Codelfa, as a binding authority, was made clear in the joint reasons of five justices in Royal Botanic Gardens and Domain Trust v South Sydney City Council and it should not have been necessary to reiterate the point here [4].

36 The passage in Codelfa to which reference is made in Western Export Services is as follows:

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 (352).

37 This court has taken the view that the guidance in Western Export Services should be followed until further direction from the High Court: McCourt v Cranston [2012] WASCA 60; MacKinlay v Derry Dew Pty Ltd [2014] WASCA 24; Hancock Prospecting Pty Ltd v Wright Prospecting Pty Ltd [2012] WASCA 216; (2012) 45 WAR 29.

38 The controversy has raised its head again. The appellant contends that the 'true rule' in Codelfa is the law and, as the meaning of the language of the GPR Deed is unambiguously clear, evidence of surrounding circumstances is (subject to limited exceptions) inadmissible for construction purposes.

39 The respondents contend that the recent High Court decision in Electricity Generation Corporation t/as Verve Energy v Woodside Energy Ltd [2014] HCA 7 (EGC), has vindicated the pre-Western Export Services position adopted by those intermediate appellate courts that had abandoned the gateway requirement that the language of a contract had to be ambiguous or susceptible of more than one meaning before regard could be had to evidence of surrounding circumstances to assist in the construction of a contract. The construction issue was not raised by the EGC parties in this court.

40 Gummow and Heydon JJ had retired before the hearing of EGC and Bell J did not sit. Western Export Services and the response of intermediate appellate courts thereto were not directly addressed by the High Court in EGC. However, the respondent points to the approach taken in the majority judgment.

41 There can be no doubt that the majority in EGC took into account surrounding circumstances known to both parties in the construction of the gas supply agreement: [35], [48]. However, there is no express consideration by the majority of whether, or finding that, the language of the gas supply agreement was ambiguous or susceptible of more than one meaning.

42 The respondent also drew this court's attention to the reliance by the majority in EGC on [14] of the English decision in Rainy Sky SA v Kookmin Bank [2011] UKSC 50; [2011] 1 WLR 2900, 2906 - 2907. That paragraph cites with approval Lord Hoffman's first principle in Investors Compensation Scheme Ltd v West Bromwich Building Society (No 1) [1997] UKHL 28; [1998] 1 WLR 896 which is in terms that:

Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract (912).

43 Lord Hoffman's first principle is not consistent with the gateway requirement in Mason J's 'true rule' in Codelfa.

44 However, the appellant contends that the High Court would not impliedly repudiate the express repudiation in Western Export Services of the abandonment of the gateway requirement by some intermediate appellate courts.

45 The aridity of this debate at the intermediate appellate court level is manifest. Until the High Court expressly states its position on the subject, I propose to continue to apply the 'true rule' as explained in Hancock Prospecting at [9], [74] - [81]. In that case this court concluded that the true rule permits regard to be had to some surrounding circumstances for construction purposes without having to satisfy the gateway requirement [81]. See also Chemeq Ltd v Shepherd Investments International Ltd [2007] WASCA 117 [154].

 

At the end of a long discussion of the cases Murphy JA said:

 

215 Also, the following observations might be made about the law post-Codelfa. First, the passage in Codelfa (352) does not appear to have been subject of express consideration in the High Court since Royal Botanic [39]. Secondly, it might be thought that the authorities up to the time of Electricity Generation are not necessarily inconsistent with a requirement of ambiguity. Thirdly, a case as significant as Codelfa in the operation of the commercial law in Australia for over 30 years is unlikely to have been impliedly overruled. Fourthly, in Electricity Generation, French CJ, Hayne, Crennan and Kiefel JJ 'reaffirmed' the High Court's earlier decisions. Electricity Generation does not appear to provide a departure from them. Fifthly, the question of whether evidence of surrounding circumstances is inadmissible in the absence of ambiguity does not appear to have been canvassed in argument in Electricity Generation, nor isolated for determination.

Enjoy!

 

Peter Radan

--
Professor Peter Radan
Macquarie Law School
Faculty of Arts
Macquarie University   NSW   2109
AUSTRALIA

Tel:     +61 (0)2 9850-7091
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Email: peter.radan@mq.edu.au