In relation to the interpretation of contractual terms it is not necessary to first identify ambiguity in the language of the contract before a court may have regard to the surrounding circumstances and object of the transaction.
To what extent is this statement an accurate reflection of the law in Australia and the United Kingdom?
General Comments to help:
key areas to look at for Q2 is representation and the Parol Evidence Rule. I haven’t done all the reading yet to know what else I’ll be discussing.
Check construction of contractual terms chapter… There is a discussion (theories) between lord Hoffmann (English) and Mason J (Australian)…
The cases are: Investors Compensation Scheme Ltd v West Bromwich Building Society and Codelfa Construction Pty Limited v State Rail Authority of New South Wales.
The statement was on the case Chartbrook v Persimmon Homes
Contractual terms refers to a topic in English law that is concerned with terms that are incorporated into the contract; how they are interpreted; what they imply and what controls are placed on unfair terms. The terms are essential in the contract and specify what the contract will do (Mulcahy, 2008). Even though a person is obliged to consider the words of the contract, a person ought to do more than this. This has been illustrated by various cases in both UK and Australia.
It has been argued that recent development in the contracts scholarships has greatly influenced the rational contract theory. It is argued that contracts are rooted in larger relationships and cannot be understood apart from those relationships. According to relational contract theory every transaction is rooted in a complex relation and that combined contextual analysis of relations and transactions produces a more complete and accurate analytical product (Mulcahy, 2008). Even though context is often hard to discern, judges have increasingly embraced the idea of contextual based interpretation of contractual terms. Lord Hoffmann argued that English judges are prepared to consider the background circumstances to the formation of a contract in the interpretation of contractual terms. This shift was referred to as a shift from text to context. Although this shift has been argued to be controversial, judges continue doing so. A recent software license case in UK illustrated the fact that the interpretation of contractual terms is not necessary to first identify ambiguity in the language of the contract before a court may have regard to the surrounding circumstances and object of the transaction (Solicitors, 2011). In this case, the interpretation of the terms, perpetual license went beyond strict definition that limits them to a never ending license provision. Instead, a broader factual matrix was considered in determination of the ultimate meaning that wads given to the words in the contract.
Another illustration of a case in which contextual situation was utilized in the interpretation of contractual terms is the B.C.C.I verses Ali an employee s release of any or all claims against his employer was intended to be qualified such that it did not apply those claims that were unforeseeable at the time of contracting (House of Lords, 1997). In yet another case between Equitable Life Assurance Society verses Hyman a pension company s general discretion was held to be intended to include an implied restriction that prevented its exercise to deprive the guarantees of annual rate of any value.
In the case involving Malik verses BCCI an employment contract was held to be intended to entail a promise by the employer not to engage in conduct that was likely to undermine the confidence and trust needed if the employment contract implicitly envisages. Consequently, an employer was held to intend to promise to take reasonable care when writing an employee s reference (Mulcahy, 2008). This case also illustrates that contractual terms can be interpreted based on the context rather than on the text basis. Although the implied meaning is considered, the judges also considered the context in which the contract was formed when they were interpreting the terms in that contract.
Another illustration of this is often witnessed in Australian cases (Solicitors, 2011). Even though these cases emphasize that sensible interpretation and commonsense be used instead of unnecessary clouding of the contractual words, extrinsic evidence is permitted during interpretation of contract areas which entail ambiguity. For instance in the case of B and B Constructions (Australia) Pty verses Brian A Cheesemen and Associates Pty Ltd, Justice Kirby said that evidence extrinsic to the terms of the contract could be used in the clearing up of a patent ambiguity (Solicitors, 2011). He further stated that evidence relating to the circumstances surrounding a Contract could be admissible to show that a term is not clear in its meaning although that ambiguity is unclear on the face of the contract.
Although the language definition and commonsense is applied in the interpretation of contractual terms, in most cases judges consider the context in which the contract is formed when interpreting this terms (Mulcahy, 2008). Even though it has been argued that it is often difficult to discern the implied meaning of such terms, the Australian judges and UK judges have increasingly embraced the need to interpret contractual terms in terms of context instead of textual form. Thus in relation to the interpretation of contractual terms it is not necessary to first identify ambiguity in the language of the contract before a court may have regard to the surrounding circumstances and object of the transaction.
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