THE ADMISSIBILITY OF Building cases often require judges,
arbitrators and tribunal members to Royal Botanic Gardens & Domain
EVIDENCE OF
interpret the meaning and
SURROUNDING operation of particular terms of
CIRCUMSTANCES IN THE written contracts. The parties will
INTERPRETATION OF often seek to adduce evidence of
CONTRACTS pre-contract discussions and/or
documents in support of their
Francis Tiernan contended interpretation. The
purpose of this article is two-fold,
Barrister
firstly to examine the circumstances
Melbourne
underwhich it is permissible to look
beyond the four corners of the
written contract, and secondly, to
examine the nature and scope of
such admissible evidence.
INTRODUCTION
Legal proceedings involving the
interpretation of wording contained
in written contracts often raise the
two issues of whether evidence of
surrounding circumstances [factual
matrix) is admissible in aid of
interpretation, and if so the nature
and scope of such evidence.
Th is article exa mines these issues
in the context of the relevant
Australian and English cases.
The law in Australia as to the
admissibility of evidence of
circumstances surrounding entry
into the contract is enshrined in the
statement by Mason J in the case of
Codelfa Construction Pty Ltd v State
Rail Authority of New South Wales: 1
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. Generally speaking facts
existing when the contract was
made will not be receivable as part
of the surrounding circumstances
as an aid to construction, unless
they were known to both parties,
although, as we have seen, if the
facts are notorious knowledge of
them will be presumed.
14 AUSTRALIAN CONSTRUCTION LAW NEWSLETTER #92 SEPTEMBER/OCTOBER 2003
The High Court in the recent case of
Trust v South Sydney City Councif2
has confirmed that Mason J's
statement in Codelfa represents the
law in Australia.
The law in England as to the
circumstances underwhich
evidence of surrounding
circumstances is admissible, differs
from the position in Australia in that
such evidence, is admissible in all
cases as an aid to interpretation of
the contract. It is not a necessary
precondition to admissibility to
establish that there exists an
ambiguity under the contract. 3 Lord
Hoffman in Mannai Investment Co
Limited v Eagle Star Life Assurance
Co Limitedsaid: 4
In the case of commercial
contracts, the restriction on the use
of background has been quietly
dropped. There are certain special
kinds of evidence, such as previous
negotiations and express
declarations of intent, which for
practical reasons which it is
unnecessary to analyse, are
inadmissible in aid of construction.
They can be used only in action for
rectification. But apart from these
exceptions, commercial contracts
are construed in the light of all the
background which could
reasonably have been expected to
have been available to the parties
in order to ascertain what would
objectively have been understood to
be their intention: Prenn Simmonds
[79777 7 WLR 7387, 7383.
WHEN IS THE LANGUAGE
IN A CONTRACT
AMBIGUOUS?
The word 'ambiguity' is defined in
the Macquarie Dictionary [2nd
revised edition 1987) to include the
following meanings:
Open to various interpretations;
having a double meaning;
equivocal: of doubtful or uncertain
nature; difficult to comprehend,
distinguish or classify; lacking
 clearness or definiteness; obscure;
indistinct.
In the New Shorter Oxford English
Oictionary(1993) it is defined as
follows:
Hesitation, doubt, uncertainty as to
one's course; ability to be
understood more than one way,
ambiguousness; an uncertainty, an
instance of double meaning; an
expression having more than one
meanIng.
The above definitions encompass
concepts of both double meaning
and uncertainty of meaning.
Philip McNamara in his article 'The
Parol Evidence Rule and the
Substantive Law of Contract' ,5 made
the point that etymologically the
word 'ambiguity' is restricted to
equivocation between two, and two
only, subjects, but that in common
usage 'ambiguity' and 'uncertainty'
are tending to be used
synonymously:
Clearly in common usage,
'ambiguity' and 'uncertainty' are
tending to become synonyms.
Etymologically, 'ambiguity' derives
from the Latin noun 'ambiguum':
'that which can be interpreted in two
different ways ... ' The word strictly
speaking denotes an equivocation
between two and only two subjects,
not an equivocation between an
unlimited range ofsubjects. As a
matter of etymology, 'ambiguity'
has never been equivalent to
'uncertainty'.
It is clear from Mason J's judgment
in Codelfa, and from other relevant
cases that in order to open the door
to the admission of evidence of
surrounding circumstances, both
uncertainty of meaning of the words
themselves and uncertainty of the
words arising from the context in
which they appear in the contract
suffice. When understood in this
way, the requirement of
establishing ambiguity in order that
evidence of surrounding
circumstances be admissible is not
as demanding as would be the case
if one were limited to It is clear from Mason J's
demonstrating double meaning. judgment in Codelfa, and
Obviously, much depends upon the
from other relevant cases
wording under consideration and
the context in which the wording
that in order to open the door
appears in the contract. to the admission of evidence
of surrounding
In a number of instances Australian
courts have adopted what, on any circumstances, both
view, is an unusually wide definition uncertainty of meaning of the
of 'ambiguity'.6lt is not words themselves and
unreasonable to conclude that they uncertainty of the words
have done so as a means of
arising from the context in
satisfying the pre-condition to the
admission of evidence of
which they appear in the
surrounding circumstances in cases contract suffice.
where the particular court is
uncertain whetherthe plain
meaning of the wording in the
contract truly reflects the intention
of the parties to the contract, and it
would be assisted in the task of
construction by receiving evidence
of surrounding circumstances.
In Trawl Industries ofAustralia Pty
Ltd v Effem Foods PtyLtd,7Clarke
JA, after referring to Mason J's
statement in Codelfasaid:
However, it is, I think, true to say
that in many, if not most, cases in
which the court is seeking to
construe a particular term or terms
ofa contract there will be sufficient
uncertainty as to the meaning of the
relevant term as to enable the
admission of evidence of
surrounding circumstances. This
was recognised by McHugh JA, as
he then was, in Manufacturers
Mutual Insurance Limited v Withers
(7988) 5ANZ Insurance Cases 60
853 at 75,343. There His Honour
said:
... few, ifany, English words
are unambiguous or not
susceptible of more than
one meaning or have a
plain meaning. Until a
word, phrase or sentence
is understood in the light of
the surrounding
circumstances, it is rarely
possible to know what it
means. In my view
evidence ofsurrounding
circumstances will
AUSTRALIAN CONSTRUCTION LAW NEWSLETTER #92 SEPTEMBER/OCTOBER 2003 15
 generaUy be admissible if
it is known to both parties
or sufficiently notorious to
be presumed to be within
their knowledge.
In other cases 8 courts have
adopted, the more traditional
approach to interpretation by
confining their enquiries to the four
corners of the document, having
concluded that the wording used
was not ambiguous or susceptible
of more than one meaning.
An examination of the cases below
demonstrates that the question of
whether the language used is
ambiguous, is subjective and very
much dependent upon whether the
particular judge adopts the type of
approach enunciated by McHugh
JA, as he then was in
Manufacturers Mutual Insurance
Limited v Withers,9 as to what
constitutes an ambiguity, or applies
a narrower approach in this regard.
In Burns Philp Hardware Pty Ltd v
Howard Chia Pty Ltd O the court was
presented with two differing
constructions of a rent review
clause. The review clause provided
for the adoption as rent under the
lease of, 'the then current annual
market rent of premises', at the
date on which the review was to be
undertaken. The plaintiff contended
that the rent was to be assessed
upon the basis of the use of the
premises as a hardware
department store and to such other
existing use or uses of the premises
as were current at the review date
by reference to which the rent was
to be determined. The members of
the Court of Appeal in New South
Wales held that the term 'current
annual market rent' was not
ambiguous and that accordingly
extrinsic evidence was not
admissible. PriestleyJAsaid: 11
What I have said so far is based on
the assumption that the words
'current annual market rent' in
clause 2 were ambiguous. Young J
thought they were not and I agree
with him. What I mean by 'not
16 AUSTRALIAN CONSTRUCTION LAW NEWSLETTER #92 SEPTEMBER/OCTOBER 2003
ambiguous' for present purposes is
not having two or more plausible
meanings when the context of the
words in the document is taken into
account in light of the knowledge
any ordinarily inteUigent reader of
the document would bring to the
reading of it.
Along similar lines Mahoney JA
said: 12
In my opinion the term 'current
annual market rent' and similar
terms in the lease are not
ambiguous in the relevant sense.
They are, perhaps inherently,
ambiguous standing alone. But, as
used in the present lease, the
context in which the terms are used
makes it clear that the rent in
question is the rent payable for a
lease on the terms and for the term
of the subject lease in the sense to
which I have referred. So
understood, there is no ambiguity.
The issue of ambiguitywas
considered by the New South Wales
Court of Appeal in the case of Trawl
Industries ofAustralia Pty Ltd v
Effem Foods Pty Ltd. 13 An issue
dealt with in this case was the
meaning of the word 'cost' in a
pricing formula contained in an
agreement between a commercial
fishing company and supplier (Trawl
Industries-'TIA'), and a pet food
operator (Uncle Ben's-'UBA'l.
Under the agreement TIA was to
supply jack mackerel to UBA. The
agreement contained the following
pricing clause:
The parties 'shall confer and shall
establish applicable prices for the
immediately following calendar
year using the following formula:
price to UBA = cost to TIA +
percentage profit margin'.
Two members of the court dealt
with the question whetherthe
expression 'cost' was ambiguous so
as to allow recourse to extrinsic
evidence. Samuels JA held there
was no ambiguity:14
It seems to me that this formula is
quite clear and leaves nothing to be
determined by reaching outside the
confines of the agreement. But TIA,
accepting that conclusion, so far as
uncertainty and incompleteness are
concerned, contended that the
words were ambiguous because it
was impossible to know without the
use of extrinsic evidence, what the
parties meant by 'cost to TIA' and
'percentage profit margin'.
I see no difficulty in determining
that by 'percentage profit margin'
they meant no more and no less
than what had been said earlier in
clause 2[3}, that is to say, a
reasonable commercial profit to
TIA. So far as the earlier phrase is
concerned, I can see no basis upon
which it can be persuasively argued
that the element of 'cost' was to
include the cost of so much of TIA's
operation as was not attributable to
the subject matter of the contract,
that is to say, the catching and
processing ofjack mackerel. On the
contrary, it seems to me that, once
one considers the pricing formula in
context, there is an overwhelming
argument in favour of confining it to
the costs attributable to what I
might caU the jack mackerel
operation. Clause 2[4} refers only to
dealing with jack mackerel or its
'associated by-products' ('product'};
and clause 3 defines 'product' to be,
and only to be, jack mackerel
bodies without certain internal and
external components which are
themselves then defined as part of
the product'.
Clarke JA on the other hand, came
to the opposite conclusion: 15
Although it can be confidently
stated that in the context of the
contract as a whole the word 'cost'
refers to the cost of catching and
processing jack mackerel that does
not require the conclusion, in my
opinion, that the meaning of the
word 'cost' is clear. Where, as in the
present case, the catching and
processing ofjack mackerel
constitutes a part, albeit a major
one, of the operations of the
company there is, in my opinion,
sufficient uncertaintyabout the
meaning of the expression 'cost' as
to enable recourse to extrinsic
evidence.
It seems to me that the expression
'cost' may indicate one ofseveral
different things. What it means in
the context will depend upon which
it is intended to convey in relation
to, forexample, the overhead
expenses of which account is to be
taken in determining costs.
The case of B&B Constructions
fAust} Pty Ltd v Brian A Cheeseman
& Associates Pty LtcJ1 6 was a further
case in which the Court of Appeal in
New South Wales considered the
issue of ambiguity. The relevant
facts were as follows: B&B
Constructions [the contractor)
engaged Cheeseman [the
subcontractor) to perform certain
landscape works on a major
project. The subcontract was in the
form of standard form SC JCCA
1985 underwhich 'variations' was a
defined term. The subcontractor
Cheeseman encountered financial
difficulties, and B&B Constructions
entered into an agreement with
Cheeseman to pay some of
Cheeseman's suppliers direct, and
also to pay monies to Cheeseman
so that Cheeseman could pay its
employees. These payments were
described as 'back charges' and
totalled the sum of $385,221.41. A
documentwas signed by the parties
specifying a new subcontract sum
which was expressed as 'including
all variations to date'.
Subsequently, a dispute arose
concerning the meaning of this
phrase. Cheeseman contended that
the term included the 'back
charges' payments made by B&B
Constructions and that accordingly
the $385,221.41 sum was no longer
owed. On the other hand, B&B
Constructions argued that these
payments did not come within the
term 'variations to date', because
they were in the nature of an
advance in respect of which
Cheeseman remained liable for This decision is of particular
repayment. significance in relation to its
This decision is of particular discussion of the means by
significance in relation to its which an ambiguity is
discussion of the means bywhich an
established. The question
ambiguity is established. The
raised by the decision is
question raised by the decision is
whether, if the wording in the whether, if the wording in
contract, when interpreted by the contract, when
reference to the four corners of the interpreted by reference to
document, has a plain meaning free the four corners of the
from ambiguity, evidence of
document, has a plain
surrounding circumstances is
meaning free from
admissible to demonstrate that the
ambiguity, evidence of
parties had intended a different
meaning. On a strict reading of the surrounding circumstances
following statement by Mason J in is admissible to demonstrate
Codelfa the answer would appear that the parties had intended
to be no:
a different meaning.
[Elvidence ofsurrounding
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.
However, in the B&B Constructions
case the court clearly resorted to
extrinsic evidence of surrounding
circumstances as the means
through which it reached the
conclusion that 'variations', as it
appeared in a supplementary
agreement supplemental to the
original SC JCCA subcontract was
ambiguous. It should be noted that
'variations' was a defined term
under the subcontract and that the
supplementary agreement on its
face did nothing to alter that
definition. Furthermore, both the
trialjudge and the members of the
Court of Appeal expressed the view
that they would not themselves
have thought of the payments which
the parties called back charges, as
variations. 1? Notwithstanding this
the members of the court took into
account evidence of surrounding
circumstances, in concluding that
'variations' was ambiguous, and did
so in circumstances where itwas
strongly arguable that the word was
AUSTRALIAN CONSTRUCTION LAW NEWSLETTER #92 SEPTEMBER/OCTOBER 2003 17
The court observed that the
relevance and admissibility
of surrounding
circumstances was no
different whether the court
was considering implication
of a term or construction of
an agreement.
18 AUSTRALIAN CONSTRUCTION LAW NEWSLETTER #92 SEPTEMBER/OCTOBER 2003
of plain meaning when construed
within the four corners of the
document.
Kirby P was clearly aware of the
issue at hand:
If a word or phrase is 'ambiguous'
extrinsic evidence is admissible to
resolve the ambiguity. But what is
the case if the ambiguity would not
be perceived without reference to
that extrinsic evidence. 78
Later in the judgment he returned to
this issue: 19
Extrinsic evidence will not be
received to show that a parties
meant something different from
what they have said in their
agreement. Yet, sometimes an
ordinary meaning of a word will,
understood in the light of external
evidence, not be the meaning which
the parties chose when they used
the word in a written text ...
If the surrounding circumstances of
... the written document show that
the parties intended to use a word
not in its primary or strict sense but
in some secondary meaning, the
court may construe it according to
those circumstances and intention
of the parties. The intention is, of
course, that which is objectively
derived and not the unknowable
subject of ruminations of those
involved.
The above statements appear to be
at odds with the more recent
statements made by Kirby J in
Royal Botanic Gardens & Domain
Trust v South Sydney City Council: 20
The starting point must be the
contract. Only later, if need be, may
the decision maker have resort to
contextual materials and
supplementary or extrinsic evidence
in elaboration of the written text.
The question of ambiguity did not
arise in relation to the issues before
the court in Codelfa Construction
Pty Ltd v State Rail Authority of New
South Wales. 21 The court there was
concerned with whether a term
should be implied into a contract.
The court observed that the
relevance and admissibility of
surrounding circumstances was no
different whether the court was
considering implication of a term or
construction of an agreement. 22
In the case of Murray Goulburn
Co-operative Co Limited v Cobram
Laundry Service Pty Ltcf2 3 the
Victorian Court of Appeal was
called upon to decide whetherthe
appellant's termination of an
agreement with the respondent
was valid. The respondent had
provided laundry and associated
services to the appellant's dairy
processing facility since
approximately 1990. Under clause
6 of the Agreement dated 6
November 1996 the period of the
agreement was from 4 November
1996 to 3 November 1999. That
agreement was amended by
document dated 26 March 1998.
Under the amendment agreement
clause 6 was altered to read '4
November 1996 to 3 November
2002'. The amendment agreement
concluded with the words 'all other
terms and conditions remain the
same'. Clause 7 of the agreement,
(which clause continued under the
amended agreement), provided
that the contract was for an initial
period of three years from the date
the items were first supplied and
would continue thereafter until
three months afterwritten notice of
termination had been given by
either party. The appellant sought
to terminate the agreement in April
2000. It did so on the basis that
under clause 7 the initial term
ended on 3 November 1999 and
that the agreement could then be
terminated upon three months'
written notice. The respondent, on
the other hand, argued that the
1998 amendment extended the
period of the 1996 agreement to 3
November 2002 and that the 'initial
period' in clause 7 was extended to
that date by necessary inference.
Chernov JA, with whom the other
members agreed, said the issue of
construction could be decided
within the four corners of the
amendment agreement, without
need to resort to evidence of
surrounding circumstances: 24
The intention of the parties is to be
ascertained from the words they
have used in the document and the
court is confined in its search for
that intention to the four corners of
the document except where resort
may be had to evidence of
circumstances surrounding the
making of it. Restricting myself to
the four corners of the 7996
agreement, I have come to the
conclusion that, on its proper
construction, it is clause 6 and not 7
that marks out the contract period
for the purposes of the agreement.
The case of Acorn Consolidated Pty
Ltd v Hawkslade Investments Pty
Ltcf2 5 concerned a contract for the
sale of land underwhich the
purchase price of $625,000.00 was
to be paid by a cash deposit of
$75,000.00, and the balance of
$550,000.00 by the transfer of
shares in Cobra Resources NL by
the pu rchaser to the vendor: The
dispute between the parties arose
in relation to clause 4( 1)(d), the
relevant parts of which were as
follows:
(d) $550,000.00 by transfer by the
purchasertothevendoronthe
settlement date of 1,223,000.00
tradeable ordinary shares in Cobra
Resources NL at an agreed value
of 45¢ each ('the shares'). In the
event that the market value of the
shares on the settlement date is
less than 45¢ per share then the
purchaser '" shall pay to the vendor
the difference between the 45¢ per
share and the value of the Cobra
Resources NL Shares as at the date
of this contract(emphasis added).
The purchaser contended that
underclause4(1) (d), ifat
settlement date (14 May 1999) the
value of the shares was less than
45¢ per share it was obliged to pay
a sum equal to the difference
between 45¢ and the price which
the shares were trading at the date
of the contract (i.e. 17 October
1998). The value of the shares at
the date of contract was 26¢. The
value of the shares at the date of
settlement (i.e. 14 May 1999) had
dropped to 12¢ per share.
The purchaser's contention was that
under clause 4(1 )(d) its obligation
was to pay:
(a) 1,223,000 shares-which at the
date of settlement were valued at
12¢ = $146,760.00; and
(b) $232,000 with respect to the
shortfall-calculated by multiplying
1,223,000 x 19¢, being the
difference between the agreed
value of the shares at the date of
contract (45¢), and the trading value
of the shares at the date of contract.
Such calculation would have meant
that in cash terms the purchasers
were liable to pay $379,130.00 of
the $550,000.00 provided for under
clause 4(1 )(d).
The vendor on the other hand
contended that the purchaser's
obligation was to pay:
(a) 1,223,000 shares-:...which at the
date of settlement were valued at
12¢ = $146,760.00; and
(b) $403,590.00 with respect to the
shortfall-calculated by multiplying
1,223,000 x 33¢, being the
difference between the agreed
value of the shares at the date of
contract (45¢) and the trading value
of the shares at the date of
settlement (12¢).
Such calculation would have meant
that in cash terms the purchasers
were liable to pay $550,350.00 with
respect to the $550,000.00 provided
for under clause 4( 1)(d).
Owen J commenced his judgment
with a consideration of the
principles governing interpretation
of contracts. He made reference to
what he described as the
paramount cannon of
construction :26
AUSTRALIAN CONSTRUCTION LAW NEWSLETTER #92 SEPTEMBER/OCTOBER 2003 19
CodeLfa continues to
represent the law in
Australia regarding the
circumstances under which
evidence of surrounding
circumstances will be
admissible in the
interpretation of contracts,
namely that such evidence
will not be admissible in the
interpretation of the contract
unless the language is
ambiguous or susceptible of
more than one meaning.
20 AUSTRALIAN CONSTRUCTION LAW NEWSLETTER #92 SEPTEMBER/OCTOBER 2003
[T}he search is for the intention of
the parties as embodied in the
words which they have used. The
court will not rewrite the contract
for the parties. In other words, the
court stays within the four corners
of the document except to the
limited extent to which resort can
be had to extrinsic evidence. In that
respect, extrinsic evidence is
largely that of the surrounding
circumstances in which the contract
came into being. The time honoured
dictum of Mason J in Codelfa [at
352) is apposite.
After making substantial reference
to several judgments of Lord
Hoffmann and a number of the
Australian authorities,28 he
concluded :29
I think the proper approach is to
look first to the instrument itself to
see whether there is some
reasonable basis for the
apprehension that the wording of
the contract might not necessarily
reflect the presumed intention of
the parties.
The English language, being what it
is, such a reasonable apprehension
will generally be apparent 'in many,
if not most cases': see Trawl
Industries [at 358), per Clarke JA. It
may come from a patent and
obvious confusion in the words
themselves. But it may also come
from a reading of the instrument as
a whole. The law has long
recognised that ambiguity can be
latent, as well as patent: see e.g.
Bacchus Marsh Concentrated Milk
Co Limited [In Liq.) vJoseph Nathan
& Co Limited (7979) 26 CLR 470 at
457-52. Once the door is open, so
to speak, extrinsic evidence is
admissible to assist in identifying
and resolving the ambiguity by
introducing material that puts the
court in the position of reasonable
persons circumscribed as parties
were, so as to appreciate what they
have had in mind.
The case of Harrison v Inala Plaza
Pty Ltcf3° concerned a lease of shop
premises within a shopping centre
underwhich the permitted use was
'medical centre'. The lessee sought
to sub-let part of the premises for
use as a pharmacy. The question
before the court was whether the
sub-letting of part of the premises
as a pharmacy fell within the
permitted use as a medical centre.
Mullins J said that the term
'medical centre' was not a term of
art or one to which a specific
technical meaning applies. 31 He
also said it was not a defined term
under the lease.
In relation to the question whether
the court could have regard to
objective background facts in
construing the term 'medical
centre' the judge quoted the
statement of Mason J in Codelfa. 32
He then concluded that there was
an 'element of ambiguity'
concerning the term which justified
recourse to objective background
facts: 33
In view of the lack of precision
about the expression 'medical
centre', which was highlighted by
the competing arguments put
forward by the applicant and the
first respondent as to the meaning
which it should be given, there is an
element of ambiguity about the
expression which justifies recourse
to objective background facts.
The High Court decision in Royal
Botanic Gardens & Domain Trust v
South Sydney City Counci[34also
involved the construction of a lease.
Within the area of the demised land
the council had constructed an
underground car park which it
operated and maintained. The
lease was for a period of 50 years
and had commenced in 1958 [albeit
that a deed of lease was not
executed until May 1976).
Clause 1 of the lease fixed a yearly
rental of $2,000.00 peryear for the
first three years of the lease, and
provided that the rent for each of
the subsequent 15 three-year
periods, togetherwith the final two-
year period, 'shall be determined by
the trustees in respect of each and
every such period as hereinafter in
clause 4[b) provided'.
The litigation turned upon the
correct construction of clause
4[b)[iv) which provided that:
[iv) in making any such
determination the trustees may
have regard to additional costs and
expenses which they may incur in
regard to the surface of the Domain
above or in vici nity of the pa rki ng
station and the footway and which
arise out of the construction
operation and maintenance of the
parking station by the lessee.
The lessee argued that in
determining any increase in the
yearly rent for the following three
year period, the trustees were
constrained by clause 4(b) only to
do so by reference to the matters
set out in sub-clause 4[b)[ivL
namely, having regard to additional
cost and expenses which they may
incur in regard to the surface of the
Domain above or in the vicinity of
the parking station and the footway
and which arise out of the
construction, operation and
maintenance of the parking station
by the lessee.
The lessor argued that the trustees
were not restricted to the matters
identified in clause 4 [b)[iv) in fixing
the yearly rental.
The background to the litigation
was that during the early years of
the lease a trifling rental in the
order of $2,000.00 peryearwas
paid. However, in more recent years
the trustees demanded a
commercial rent ranging from
$175,000.00 per annum during
1988-91 and $500,000.00 per
annum during 1992-94. The lessee
sought declaratory relief regarding
the construction of clause 4[b). The
majority was in no doubt that this
was a case in which there was an
ambiguity, permitting evidence of
surrounding circumstances to be
admitted in aid of interpretation: 35
In the present case, the difficulty
concerns the phrase in para (iv) of
clause 4(b} 'that trustees may have
regard to additional costs and
expenses'. Does this mean that the
trustees, in making a determination,
cannot have regard to matters
other than those additional costs
and expenses? If the trustees may
have regard to other matters, what
are they? In a context such as
clause 4(b}, to specify a particular
matter to which a party may have
regard without expressly stating
either that it is the only such matter
or to the contrary, that the
specification does not limit the
generality of the matters to which
regard may be had, is likely to
result in ambiguity. It does so in the
present case. The resolution of the
ambiguity requires the application
ofsettled principles of construction.
Kirby J, the sole dissentient decided
that there was no ambiguity under
the lease and therefore no basis for
the admission of extrinsic
evidence: 36
Where parties reduce their
agreement to writing, the orthodox
approach to contractual
construction obliges the
decisionmaker to address attention
primarily to the document in which
the rights of the parties are stated.
In this case, that document was the
deed of lease.
On the face of things, therefore, the
present contextual circumstances
suggest that aU of the provisions in
respect of a material term (such as
rent) in a lease finally executed in
the form of a deed of lease of May
7976, would be found within the
four corners of the written
agreement.
I simply make the point that in the
circumstances of this case, one
would normally have expected that
the answer to the provision
concerning rent would be found in
the deed of lease itself
AUSTRALIAN CONSTRUCTION LAW NEWSLETTER #92 SEPTEMBER/OCTOBER 2003 21
Having examined some of the
Australian decisions dealing with
the question of ambiguity, what
conclusions or observations are to
be drawn from them?
Firstly, it is clear from the High
Court's decision in the Royal
Botanicdecision that Mason J's
statement (at page 352) in Codelfa
continues to represent the law in
Australia regarding the
circumstances underwhich
evidence of surrounding
circumstances will be admissible in
the interpretation of contracts,
namely that such evidence will not
be admissible in the interpretation
of the contract unless the language
is ambiguous or susceptible of
more than one meaning.
Secondly, ambiguity may arise from
a patent and obvious confusion of
the words used. It may also arise
from the context in which the
wording appears in the contract.
But querywhether it is permissible
to establish that the language is
ambiguous or susceptible of more
than one meaning by reference to
su rrou nd ing ci rcu msta nces.
Certainly on the basis of Mason J's
statement in Codelfa [at page 352)
the answer must be no. The
remarks by Kirby J in the Royal
Botanic case endorse that position
in strong terms: 37
[T}he court has made it plain that, if
the language of the statute is clear,
no amount of extrinsic material-
whether ministerial speeches,
explanatory memoranda, law
reform reports, legislative history
or otherwise-authorises a refusal
to give the clear words their legal
effect. That was said most clearly in
Re Bolton; ex parte Beane. I regard
the present appeal as the occasion
to make it plain that the same rule
governs the obligations of courts
when construing a contested
provision in a written contract or
otherprivate instrument giving rise
to rights inter partes.
In a sense, such cases present even
stronger reasons for adhering to a
text upon which the parties have
agreed. In the case ofprivate
documents, unlike statute, there is
no legislation requiring or
encouraging a court to have regard
to extrinsic materials.
Thirdly, notwithstanding the rigidity
of the above statements of principle
it is evident from certain decisions
that cou rts do look at evidence of
surrounding circumstances in
arriving at a conclusion that
language, which is otherwise of
plain meaning, is ambiguous. 38 An
alternative method adopted by
co urts is to apply a ve ry wi de
definition of the word 'ambiguity',
along the lines of the statement by
McHugh JA, as he then was, in
Manufacturers Mutual Insurance
Limited v Withers. 39 If as McH ug h JA
said, 'few if any English words are
unambiguous or not susceptible of
more than one meaning or have a
plain meaning', then the
precondition to the admission of
evidence of surrounding
circumstances is easily
su rmou nted.
Fourthly, the Australian decisions
examined above demonstrate a
substantial divergence in views as
to whether the language under
consideration was ambiguous or
susceptible of more than one
meaning. Obviously each case was
dependentuponthelanguageused
and the contract within which it
appeared. However, itwould be
difficult to predict on the basis of
those decisions whether a cou rt
would adopt a narrow or broad
approach to the issue of ambiguity
in a future case. The decision as to
whetherthe language is ambiguous
is, to a large extent, a subjective
one.
Fifthly, in many of the cases
considered above, the relief sought
included claims for rectification 40 or
estoppel41 as alternatives to relief
based upon the correct
interpretation of the contract.
Evidence of subjective intentions,
prior negotiations and discussions
22 AUSTRALIAN CONSTRUCTION LAW NEWSLETTER #92 SEPTEMBER/OCTOBER 2003
are admissible in support of such
claims. Accordinglywhilst the
courts were deciding the issue of
the correct interpretation of the
contract, they were also deciding
claims for rectification or estoppel.
One cannot help but think that in
many instances the courts were
influenced in their decision as to
whetherthe language was
ambiguous (thus permitting
evidence of surrounding
circumstances) after hearing the
evidence admissible in relation to
rectification or estoppel claims. This
point was not lost on Kirby P as he
then was, in B&B Constructions v
Brian A Cheeseman: 42
(7) Care must be taken in
approaching the task of
construction of a written agreement
to avoid the use of evidence which
has been tendered to the Court as
relevant to an alternative claim,
such as one for rectification. The
danger ofallowing the judicial mind
to be diverted by knowledge of the
negotiations and dealings between
the parties, as it approaches the
task of construction, has been
remarked in many cases. Thus in
Arrale v Constain Civil Engineering
Limited [7 9761 7Lloyd's Rep 98 at
707, Lord Denning MR observed:
When a party finds himself
in difficulty on the strict
construction of contract, he
often claims that it be
rectified so as to give effect
to what he says was the
common intention of the
parties. On that issue
evidence is admitted of all
the negotiations and
discussions between the
parties. As often as not,
when it comes to giving
judgment, the court
decides the point of
construction in favour of
the party seeking
rectification, thus making it
unnecessary to consider
the evidence on the claim
for rectification. This is
what happened in Shipley
Urban District Council v
Bradford Corporation
[79361 Ch 379, 399 ...
Prenn v Simonds [79771 7
WLR 7387. I sometimes
wonder if the court has not
been unconsciously
influenced by the evidence:
but, nevertheless, in point
ofprinciple, the
construction must be
decided without regard to
it.
Doubtless it is legitimate forensic
technique to present alternative
claims under which a much broader
range of evidence may be provided
than would be admissible on a pure
question of construction Judges
may assert a dichotomy of the mind
and a faithful disregard for
evidence admissible for the task of
construction. Psychologists may
doubt that this is possible, in fact. In
the present case, the controversy
need not detain us. It was agreed
that Bryson J, substantially if not
wholly, confined his consideration
to that of the task of construction
and of limited evidence, extrinsic to
the written documents, which he
took to be permitted by the rules
governing construction of written
agreements containing ambiguous
language;
Sixthly, whilst adherence to the
requirement of establishing an
ambiguity as a prerequisite to going
beyond the four corners of the
contract is founded upon the
paramount cannon of construction
that the intention of the parties is
embodied in the words they have
used, the examination of the cases
considered above, in myview,
demonstrates that a strict
application of such principle may
well result in constructions which
do not in fact accord with the
intentions of the parties. In myview
the approach in the English cases,43
whereby evidence of surrounding
circumstances is always admissible,
is preferable to the position under
the Australian cases.
In the case of Reardon Smith Line
Limited v Hansen- Tangen4 4 Lord
Wilberforce said:
No contracts are made in a
vacuum: there is always a setting in
which they have to be placed. The
nature of what is legitimate to have
regard to is usually described as
'the surrounding circumstances' but
this phrase is imprecise: it can be
illustrated but hardly defined. In a
commercial contract it is certainly
right that the court should know the
commercial purpose of the contract
and this in turn presupposed
knowledge of the genesis of the
transaction, the background, the
context, the market in which the
parties are operating.
In Investors Compensation Scheme
Limited v West Bromwich Building
Society5 Lord Hoffman said:
The principles may be summarised
as follows.
[7} 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.
[2} The background was famously
referred to by Lord Wilberforce as
the 'matrix of fact', but this phrase
is, ifanything, an understated
description of what the background
may include. Subject to the
requirement that it should have
been reasonably available to the
parties and to the exception to be
mentioned next, it includes
absolutely anything which would
have affected the way in which the
language of the document would
have been understood by a
reasonable man.
[3} The law excludes from the
admissible background the
previous negotiations of the parties
and their declarations ofsubjective
intent. They are admissible only in
an action for rectification. The law
makes this distinction for reasons of
practical policy and, in this respect
only, legal interpretation differs
from the way we would interpret
utterances in ordinary life. The
boundaries of this exception are in
some respects unclear. But this is
not the occasion on which to
explore them.
[4} The meaning which a document
[or any other utterance} would
convey to a reasonable man is not
the same thing as the meaning of its
words. The meaning of words is a
matter of dictionaries and
grammars; the meaning of the
document is what the parties using
those words against the relevant
background would reasonably have
been understood to mean. The
background may not merely enable
the reasonable man to choose
between the possible meanings of
words which are ambiguous but
even [as occasionally happens in
ordinary life} to conclude that the
parties must, for whatever reason,
have used the wrong words or
syntax: see Mannai Investments Co
Limited v Eagle Star Life Assurance
Co Limited [79977 AC 749.
[5} The 'rule' that words should be
given their 'natural and ordinary
meaning' reflects the common
sense proposition that we do not
easily accept that people have
made linguistic mistakes,
particularly in formal documents.
On the other hand, if one would
nevertheless conclude from the
background that something must
have gone wrong with the
language, the law does not require
judges to attribute to the parties an
intention which they plainly could
not have had. Lord Diplock made
this point more vigorously when he
said in Antaios Compania Naviera
SA v Salen Rederierna AB [79851
AC 797,207:
if detailed semantic
and syntactical
AUSTRALIAN CONSTRUCTION LAW NEWSLETTER #92 SEPTEMBER/OCTOBER 2003 23
The High Court in RoyaL analysis of words in a
commercial contract
Botanic Gardens & Domain
is going to lead to a
Trust vSouth Sydney City
conclusion that flouts
CounciL confirmed Codelfa business common
as laying down the extent to sense, it must be
which evidence of made to yield to
surrounding circumstances business common
is admissible. sense.
To the extent that this passage from
the speech of Lord Hoffman
represents the position in England
as to admissible evidence of
surrounding circumstances, it is
clearly broaderthan the position in
Australia under Codelfa. However,
surprisingly, the majority in Royal
Botanic4 6 were not quite so sure of
this:
Particular reference was made to
passages in the speeches of Lord
Hoffman in Investors Compensation
Scheme Limited v West Bromwich
Building Society and of Lord
Bingham of Cornhill and Lord
Hoffman in Bank of Credit &
Commerce International SA v Ali, in
which the principles of contractual
construction are discussed. It is
unnecessary to determine whether
their Lordships there took a
broader view of the admissible
'background' than was taken in
Codelfa or, if so, whether those
views should be preferred to those
of this court. Until that
determination is made by this court,
otherAustralian courts, if they
discern any inconsistency with
Codelfa, should continue to follow
Codelfa.
WHAT EVIDENCE IS
ADMISSIBLE BY WAY OF
SURROUNDING
CIRCUMSTANCES?
As observed above, the ambit of the
evidence admissible byway of
surrounding circumstance under
English law is wide. Although it
excludes the previous negotiations
of the parties and the declarations
of subjective intent, it includes
anything reasonably available to
the parties which would have
24 AUSTRALIAN CONSTRUCTION LAW NEWSLETTER #92 SEPTEMBER/OCTOBER 2003
affected the way in which the
language of the document would
have been understood by a
reasonable man.
The scope and nature of evidence of
surrounding circumstances
admissible in Australia is as laid
down by Mason J in Codelfa
Construction Pty Ltd v State Rail
Authority of New South Wales. 47 By
way of summary, the evidence
allowed is as follows:
(1) facts existing when the contract
was made if they were known to
both parties or are so notorious that
knowledge of them will be
presumed;
(2) evidence of prior negotiations,
but only to the extent which they
established the objective
background facts which were
known to both parties orthe subject
matter of the contract. Evidence of
prior negotiations which consists of
statements and actions of the
parties which are reflective of their
actual intentions and expectations
is not admissible; and
(3) there is one situation in which
evidence of actual intention is
admissible, namely, evidence of a
mutual intention amounting to
concurrence of the parties not to
include in the contract a provision
which would otherwise have been
inferred from the surrounding
circumstances to have been in
accordance with their presumed
intention.
The High Court in Royal Botanic
Gardens & Domain Trust v South
Sydney City Council48 confi rmed
Codelfa as laying down the extent
to which evidence of surrounding
circumstances is admissible. 49
The issue as to whether the nature
and scope of evidence of
surrounding circumstances
admissible under Codelfa is
narrower than under the English
decisions has been addressed in
some of the Australian decisions. As
noted above the majority in the
Royal Botaniccase 5o said it was
unnecessary to determine the
question and that until it was
determined by the High Court, other
courts in Australia, if they discerned
any inconsistency with Codelfa,
should continue to follow Codelfa.
In the earlierVictorian Court of
Appeal decision of Murray Goulburn
Co-operative Co Limited v Cobram
Laundry Service Pty Ltcf5 1 the court
said in passing that the statement of
Lord Hoffman in the Investors
Compensation Scheme case, was,
'arguably a more liberal view of the
extent to which regard can be had
to extrinsic evidence', but that it was
unnecessary to decide the point for
the purposes of the appeal before
it.
What evidence then is admissible by
way of surrounding circumstances?
Commencing with Codelfa's case,52
it involved a contract between
Codelfa and the State Rail Authority
to perform excavations for the
construction of an underground
railway. Considerable noise was
caused during the performance of
the works and certain third parties
sought and obtained injunctions
against Codelfa preventing it from
working between the hours of 10.00
pm and 6.00 am. Codelfa claimed
from the Authority an amount in
addition to the contract price in
respect of additional costs incurred,
and profit lost, resulting from the
change in working hours. One of the
legal bases upon which such claim
was made was the implication of a
term into the contract that if it was
restrained by injunction from
carrying out the work by shifts it had
planned, the Authoritywould
indemnify Codelfa against
additional costs incurred.
Mason J undertook a detailed
examination of the admissibility of
evidence of surrounding
circumstances in the construction of
contracts. After completing that
examination he then approached
the issue of the terms sought to be
implied by Codelfa. He stated that
the relevance and admissibility of
evidence of surrounding
circumstances was the same in
relation to implied terms as it was
in relation to the construction of
contracts.
He referred to the evidence of
surrounding circumstances which
the arbitrator had permitted :53
The implication of the term found by
the Court ofAppeal rests on the
findings ma e by the arbitrator
based on ci0 umstances
surroundin the making of the
contract, in luding evidence of the
discussions between the parties
which preceded entry into the
contract. Th s the arbitrator found
that there ~ s a common
understandIng {described as a
'belief} by t e Court ofAppeal} that
the works w uld be carried out on a
three shift c ntinuous basis six days
per week an without restriction as
to Sundays. e also found that the
authority ha represented to
Codelfa, an that it had accepted,
that no injunction would be granted
in relation t~ noise or other
nuisance. Hf further found that the
works couldlnot be carried out in
accordance ith methods and
programs a reed between the
parties unle s Codelfa worked
three shifts day six days a week.
Mason J hel that it was legitimate
for the arbit ator to have looked at
the surrounc ing circumstances on
the issue of i plication of a term :54
The first que tion is whether, in light
of the princi les as I have explained
them, it was legitimate to look to
this materia on the issue of
implication fa term. I think it was.
The discussi ns which generated
these findin s were not negotiations
about the te ms of the contract. The
terms of the on tract documents
had been de ermined in advance by
the Authorit . By lodging its tender
Codelfa acc pted the Authority's
contract documents. The relevant
discussions ere therefore directed
to the questi n ofprice. Their object
was to enab e Codelfa to inform
itself of wha was involved in the
i
AU~TRALIAN CONSTRUCTION LAW NEWSLETTER #92 SEPTEMBER/OCTOBER 2003
work and to cost it so as to arrive at
a price for inclusion in its tender.
The consequence is that the
discussions did not have the
character of negotiations in the
course of which the parties
gradually evolved the terms of a
bargain ultimately embodied in
written form. Had the discussions
been of that kind then, as we have
seen, recourse to them would have
been prohibited for the purpose of
interpreting the contract by
reference to the parties' actual
intentions as expressed before
entering into the contract. As it was,
the relevant discussions reflect
neither the preliminary consensus
that merged into the written
contract, nor statements made
during the course of negotiations
indicative of the unilateral
intentions of each party. Instead the
evidence revealed a matter which
was in the common contemplation
of the parties yet was not a
contractual provision actually
agreed upon for the simple reason
that it was a matter of common
assumption.
In B&B Constructions {Aust} Pty Ltd
v Brian A Cheeseman,55 the facts of
which are set out earlier, the court
was concerned with the question
whether 'variations' in a
supplementary agreement included
'back charges'. This was the term
used by the parties to describe
payments made by the contractor,
B&B Constructions, to the
subcontractor, Cheeseman, to
enable it to pay its employees and
suppliers during a period of
financial difficulty.
The evidence of surrounding
circumstances which the court
permitted, being the, 'objective facts
providing the context of which the
supplementarywritten agreement
came into existence', were as
follows: 56
(1) evidence of an agreement
(March 1990) between the parties
made two months prior to the
supplementary agreement under
25
which the contractor agreed to
make payments to the
subcontractors employees and
suppliers in a way that such
payments would be deducted from
the total 'subcontract sum';
(2) various other documents
including variation amendment
advices showing that the back
charges were coupled with other
va riations by way of deletion from
the contract price;
(3) a financial summary of the
contract prepared by the contractor
and sent to the subcontractor
approximately a week prior to the
date of the supplementary
agreement. The document
contained a list of variations and
included within the list was an item
'back charges';
(4) details of a meeting shortly prior
to the signing of the supplementary
agreement, and evidence that at the
meeting a document was produced
showing the back charges were
included as variations; and
(5) a handwritten document
produced at a meeting held just
priorto the signing of the
supplementary agreement which
showed that the back charges were
included in the variations sought to
be resolved by the discussions.
Kirby P, as he then was,
summarised howthe evidence of
surrounding circumstances was
utilised in reaching the conclusion
that 'variations' in the
supplementary agreement included
the 'back charges' .57
The final document produced is the
supplementary written agreement
containing the words 'variations' in
clause 2. The obvious purpose of
that supplementary agreement was
to give effect to the settlement of
the various claims and
counterclaims made between Civic
and Cheeseman. In that context,
seen against the background of the
documentation referred to, it does
appear that the word 'variations'
was to be understood as having a
26 AUSTRALIAN CONSTRUCTION LAW NEWSLETTER #92 SEPTEMBER/OCTOBER 2003
meaning broader than mere
variations of works. It was to
include variations of the original
liabilities of the parties under the
initial written agreement. That
included back charges.
In Acorn Consolidated Pty Ltd v
Hawkslade Investments Pty Ltd,58
the facts of which were detailed
earlier, the court had regard to a
number of surrounding
circumstances. The court held that
the cash shortfall amount should be
calculated by reference to the
share price at the settlement date
ratherthan the date of contract.
Owen J's decision was based
predominantly upon interpreting
the subject clause within the context
of the four corners of the contract.
However, he did have regard to the
following surrounding
circumstances in arriving at his
decision :59
The next step is to add in other
surrounding circumstances. First,
the share price then was well below
the estimated price. Secondly,
Acorn had previously offered the
asking price for an adjoining lot
(which the defendant had accepted,
although on a deferred settlement).
Thirdly, the stipulated purchase
price for lot 437 was less than, but
relatively close to, the defendant's
asking price. Finally, lot 437 had
been on the market for a relatively
short period of time and there were
other prospective purchasers
interested in it.
When all that is taken into account,
I believe a reasonable person
would be slow to say that the
parties intended a result that might
result in one of them, being the one
with no association with the entity
which was critical to the
ascertainment of the final value
figure to be given at settlement,
receiving value that was not much
more than half of the value of the
assets specified by the parties.
In Murray Goulburn Co-operative
Co Limited v Cobram Laundry
Service Pty Ltd,60 although the court
was of the view that there was no
ambiguity under the agreement and
therefore no need to go beyond the
four corners of the agreement in
reaching a decision as to the correct
interpretation thereof, it said that if
there were an ambiguity, the
admissible relevant surrounding
circumstances would have
included 61 the history of the parties'
dealings with one another in the
form of their pre-1996 agreement,
i.e. the 1990 and 1993 agreements.
This would include looking at the
terms of those earlier agreements
and comparing the relevant
provisions with the provisions of the
1996 agreement.
In Royal Botanic Gardens &
Domain Trust v South Sydney City
Council62 the High Court accepted
the surrounding circumstances as
identified by Fitzgerald J in the
Court of Appeal: 63
{a} the parties to the transaction
were two public authorities;
{b} the primary purpose of the
transaction was to provide a public
facility, not a profit;
{c} the lessee was responsible for
the substantial cost of construction
of the facility;
{d} the facility was to be constructed
under the lessor's land and would
not interfere with the continued
public enjoyment of that land for its
primary object, recreation;
{e} the parties' concern was to
protect the lessor from financial
disadvantage from the transaction;
and
if} the only financial disadvantage
to the lessor which the parties
identified related to additional
expense which it would or might
incur immediately or in the future.
In addition the court had regard to a
number of statutes relating to the
legislative antecedents of the
parties to the litigation, and to the
dedication of the subject land to
public recreational purposes. This
involved the court looking at various
statutes including enactments of In addition the court had
1842, 1850, 1879, 1902, 1932, 1948 regard to a number of
and 1998 relating to the South
statutes relating to the
Sydney City Council and its
antecedents. 64 The court also
legislative antecedents of the
looked at the legislative path parties to the litigation, and
concerning the Royal Botanic to the dedication of the
Trust. 65 The court also had regard to subject land to public
substantial material regarding the recreational purposes. This
dealings and negotiations between
involved the court looking at
the antecedents of the parties to the
litigation, both at the time of various statutes including
construction of the car park in 1955 enactments of 1842, 1850,
and at the time of entry into the 1879, 1902, 1932, 1948 and
lease in 1976 (which lease was 1998 relating to the South
backdated to 1958). This included Sydney City Council and its
looking at relevant minutes, letters
antecedents.
and proposed terms and conditions
of the agreement for lease and the
lease. 66
The court also had regard to the
legislative dedication of the land to
public recreational purposes. 67
The majoritywas heavily influenced
by the evidence of surrounding
circumstances in reaching a
conclusion that clause 4(b) of the
lease contained the totality of the
matters to be taken into account in
fixi ng successive rent
determinations: 68
Consideration of the antecedent
materials and circumstances
respecting the dealings between
the predecessors of the present
parties before entering into the
deed in 7976 indicates various
relevant matters: the parties to the
transaction were two public
authorities, in one of which there
had been vested land long
dedicated for public recreation; the
purpose of their transaction was the
provision of further public facility, in
the form of the parking station and
the footway, but without disturbing
the availability of the surface for
continued public recreation and
without providing for the obtaining
by one public authority of
commercial profit at the expense of
the other; it was the lessee who was
responsible for the substantial cost
of construction of the new facility
and the concern of the parties had
AUSTRALIAN CONSTRUCTION LAW NEWSLETTER #92 SEPTEMBER/OCTOBER 2003 27
been to protect the lessor from
financial disadvantage suffered
from the transaction, namely
additional expense which the lessor
would or might incur immediately
or in the future.
The majority also took into account
provisions within the deed of lease
which supported the construction it
determined was correct. 69
The examination of the surrounding
circumstances admitted into
evidence in the above cases shows
a willingness by the courts to take a
fairly wide approach to what, on a
literal reading of the words of
Mason J in Codelfa,7° appears to be
a very limited scope for the
admission of evidence of
surrounding circumstances. Of
particular significance in this regard
is the majority's decision in the
Royal Botaniccase. The majority
resorted to extensive evidence of
the history (both legislative and
factual] concerning the parties and
their antecedents. It also looked at
the history of the legislative
dedication of the subject land to
public recreational purposes. Most
significantly it resorted to important
evidence of the dealings and
negotiations between the parties
and their antecedents relating to
the agreement to lease and the
construction of the car park the
subject of the lease. 71
The validity of the reception of such
evidence, based upon what Mason J
sa id in Codelfa, must at least be
open to question. There he said: 72
Prior negotiations will tend to
establish objective background
facts which were known to both
parties and the subject matterof
the contract. To the extent to which
they have this tendency they are
admissible. But insofar as they
consist ofstatements and actions of
the parties which are reflective of
their actual intentions and
expectations they are not
receivable.
28 AUSTRALIAN CONSTRUCTION LAW NEWSLETTER #92 SEPTEMBER/OCTOBER 2003
Upon a reading of the majority's
decision regarding the reception of
the evidence about the negotiations
and dealings priorto and at the
time of the construction of the car
park (1955-58) and the entry into
the agreement to lease (1957), it is
open to conclude that such
evidence was relied upon to assist
in determining the actual intentions
and expectations of the parties at
the time they entered into the
agreement to lease, as opposed to
merely establishing objective
background facts.
CONCLUSION
Evidence of surrounding
circumstances will, and in my
opinion should, play an important
role in the interpretation of
contracts. There are certainly many
cases where the correct
interpretation is clearwithout resort
to surrounding circumstances. But,
as the cases examined in this article
demonstrate, there are instances
where, but forthe admission of
evidence of surrounding
circumstances, the court would not
be in a position to knowwhatwas
the intention of the parties under
the agreement.
Although the Australian courts 73
remain firm in theirviewthat Mason
J's statement in Codelfa represents
the law, there does not, in myview,
appear to be sufficient justification
for limiting access to evidence of
surrounding circumstances only to
those cases when an ambiguity
exists in the language. There is
much to be said in favour of the
views expressed by Lord Hoffman
in the passage from his speech in
Investors Compensation Scheme: 74
The meaning of words is a matter of
dictionaries and grammars; the
meaning of the document is what
the parties using those words
against the relevant background
would reasonably have been
understood to mean. The
background may not merely enable
the reasonable man to choose
between the possible meanings of
words which are ambiguous but
even (as occasionally happens in
ordinary life) to conclude that the
parties must for whatever reason,
have used the wrong words or
syntax.
REFERENCES
1. Mason J in Codelfa Construction
Pty Ltd v State Rail Authority of
New South Wales (1982) 149 CLR
337 at 352.
2. Royal Botanic Gardens & Domain
Trust v South Sydney City Council
(2002) 186 ALR 289 at paras 39 &
104.
3. Refer in particular Prenn v
Simmonds[1971] 1 WLR 1381 at
1383H; Reardon Smith Line Limited
v Hansen- Tangen [1976] 1 WLR
989; Mannai Investment Co Limited
v Eagle Star Life Assurance Co
Limited[1997] AC 749 at 779F;
Investors Compensation Scheme
Limited v West Bromwich Building
Society[1998] 1 WLR 896 at 912F-
913E; Bank of Credit & Commerce
International SA (In Liq.J vAli
[2001] 1 All ER 961 at 965 g-h &
975 d-f.
4. [1997] AC 749 at 779E.
5. (1986) 2ABR 137 at 150.
6. Manufacturers Mutual Insurance
Limited v Withers (1988) 5 ANZ
Insurance Cases 60-855 at 75, 343;
Trawl Industries ofAustralia Pty Ltd
v Effem Foods Pty Ltd (1992) 27
NSWLR 326 at 358G; B&B
Constructions (Aust) Pty Ltd v Brian
A Cheeseman &Associates Pty Ltd
(1994) 35 NSWLR 227 at 235;
Acorn Consolidated Pty Ltd v
Hawkslade Investments Pty Ltd
(1999) 21 WAR 425 at para 41.
7. (1992) 27 NSWLR 326 at 358G.
8. Burns Philp Hardware v Howard
Chia Pty Ltd (1987) 8 NSWLR 642;
Murray Goulburn Co-operative Co
Limited v Cobram Laundry Service
Pty Ltd [2001] VSCA 57.
9. (1988) 5ANZ Insurance Cases
60-855.
10. (1987) 8 NSWLR 642.
11. Burns Philp Hardware v Howard
Chia Pty Ltd Note 10 at 657E.
12. Burns Philp Hardware v Howard
Chia Pty Ltd Note 10 at 646B.
13. (1992) 27 NSWLR 326.
14. Trawl Industries ofAustralia Pty
Ltd v Effem Foods Pty Ltd Note 13
at 343G.
15. Trawl Industries ofAustralia Pty
Ltd v Effem Foods Pty Ltd Note 13
at 3590.
16. (1994) 35 NSWLR 227.
17. B&B Constructions fAust) Pty
Ltd v Brian A Cheeseman &
Associates Pty Ltd Note 16 at 237C.
18. B&B Constructions fAust) Pty
Ltd v Brian A Cheeseman
&Associates Pty Ltd Note 16 at
234G.
19. B&B Constructions fAust} Pty
Ltd v Brian A Cheeseman &
Associates Pty Ltd Note 16 at
236B-C.
20. (2002) 186 ALR 289 at 71 & 73.
21. [1981-82) 149 CLR 337.
22. Codelfa Construction Pty Ltd v
State Rail Authority of New South
Wales Note 21 at 353.
23. [2001] VSCA 57.
24. Murray Goulburn Co-operative
Co Limited v Cobram Laundry
Service Pty Ltd Note 23 at para 13.
25. [1999] 21 WAR 425.
26. Acorn Consolidated Pty Ltd v
Hawkslade Investments Pty Ltd
Note 25 at para 31.
27. Charter Reinsurance Co Limited
vFagan[1997]AC313; Mannai
Investment Co Limited v Eagle Star
Life Assurance Co Limited [1997]
AC 749; Investors Compensation
Scheme Limited v West Bromwich
Building Society[1998] 1WLR 896.
28. Acorn Consolidated Pty Ltd v
Hawkslade Investments Pty Ltd
Note 25 at paras 41 & 42 .
29. Acorn Consolidated Pty Ltd v
Hawkslade Investments Pty Ltd
Note 25 at paras 43 & 44 .
30. [2002] QSC 293.
31. Harrison v Inala Plaza Pty Ltd
Note 30 at para 27.
32. Harrison v Inala Plaza Pty Ltd
Note 30 at para 28.
33. Harrison v Inala Plaza Pty Ltd
Note 30 at para 29.
34. (2002) 186 ALR 289.
35. Royal Botanic Gardens &
Domain Trust vSouth Sydney City
Council Note 34 at para 9. Refer
also Callinan J's judgment at para
147.
36. Royal Botanic Gardens &
Domain Trust vSouth Sydney City
Council Note 34 at paras 69 & 73.
37. Royal Botanic Gardens &
Domain Trust v South Sydney City
Council Note 34 at paras 102 &
103.
38. Probably the best example of
this is B&B Constructions v Brian A
Cheeseman (1994) 35 NSWLR
227-in particular the judgment of
Kirby P, as he then was, where he
made statements which appearto
contradict what he said in Royal
Botanic-refer notes 18 & 19
above. Refer also Acorn
Consolidated Pty Ltd v Hawkslade
Investments Pty Ltd(1999) 21 WAR
425.
39. (1988) 5ANZ Insurance Cases
60-853 at 75, 343-refer note 7
above.
40. Refer Trawl Industries of
Australia Pty Ltd v Effem Foods Pty
Ltd (1992) 27 NSWLR 326; B&B
Constructions v Brian A Cheeseman
(1994) 35 NSWLR 227; Acorn
Consolidated Pty Ltd v Hawkslade
Investments Pty Ltd (1999) 21 WAR
425; Royal Botanic Gardens &
Domain Trust v South Sydney City
Council (2002) 186 ALR 289.
41. Refer Harrison v Inala Plaza Pty
Ltd[2002] QSC 293.
42. (1994) 35 NSWLR 227 at 233.
AUSTRALIAN CONSTRUCTION LAW NEWSLETTER #92 SEPTEMBER/OCTOBER 2003 29
43. Refer in particular Prenn v
Simmonds[1971] 1WLR 1381;
Reardon Smith Line Limited v
Hansen- Tangen [1976] 1WLR 989;
Mannai Investment Co Limited v
Eagle Star Life Assurance Co
Limited [1997] AC 749; Investors
Compensation Scheme Limited v
West Bromwich Building Society
[1998] 1WLR 896; Bank of Credit &
Commerce vAli[2001] 1All ER
961.
44. [1976] 1WLR 989, at 995.
45. [1998] 1 WLR 896 at 912H-
913E. Note that with respect to
principle (2) set out by Lord
Hoffman, that in Bank of Credit &
Commerce v Ali at 975 cf he
qualified his statement as follows-
'I said that the admissible
background included absolutely
anything which would have affected
the way in which the language of
the document would have been
understood by a reasonable man, I
did not think it necessary to
emphasize that I meant anything
which a reasonable man would
have regarded as relevant.'
46. Note 34 above at para 39.
47. (1981-82) 149 CLR 337 at 352-
3.
48. (2002) 186 ALR 289 at paras 39
& 104.
49. Refer also Court of Appeal
decision in Murray Goulburn Co-
operative Co Limited v Cobram
Laundry Service Pty Ltd[2001]
VSCA 57 at para 29, to the same
effect.
50. Refer Note 34 at para 39.
51. [2001] VSCA 57 at paras 31 &
33.
52. (1981-82) 149 CLR 337.
53. Refer Note 52 at 353.
54. Refer Note 52 at 354.
55. (1994) 35 NSWLR 227.
56. B&B Constructions fAust} Pty
Ltd v Brian A Cheeseman
&Associates Pty LtdNote 55 per
30 AUSTRALIAN CONSTRUCTION LAW NEWSLETTER #92 SEPTEMBER/OCTOBER 2003
Kirby P at 238B-F and Mahoney JA
at 2470-E. Francis Tiernan's article was
previously published in the Building
57. B&B Constructions fAust) Pty
Dispute Practitioners' Society Inc.
Ltd v Brian A Cheeseman
Newsletter(lssue 13-July 2003).
&Associates Pty Ltd Note 55 at
Reprinted with permission.
238E.
58. (1999) 21 WAR 425.
59. Acorn Consolidated Pty Ltd v
Hawkslade Investments Pty Ltd
Note 58 at para 72.
60. [2001] VSCA 57.
61. Murray Goulburn Co-operative
Co Limited v Cobram Laundry
Service Pty Ltd Note 60 at paras 19
& 20.
62. [2002] 186 ALR 289.
63. Royal Botanic Gardens &
Domain Trust v South Sydney City
Council at para 11.
64. Royal Botanic Gardens &
Domain Trust vSouth Sydney City
Council at paras 13 & 14.
65. Royal Botanic Gardens &
Domain Trust vSouth Sydney City
Council at paras 15-17.
66. Royal Botanic Gardens &
Domain Trust v South Sydney City
Counc~atparas18-29.
67. Royal Botanic Gardens &
Domain TrustvSouthSydneyCity
Council at para 18.
68. Royal Botanic Gardens &
Domain Trust vSouth Sydney City
Council at para 30.
69. Royal Botanic Gardens &
Domain TrustvSouthSydneyCity
Council at paras 31-35.
70. (1981-82) 149 CLR 337 at 352.
71. Royal Botanic Gardens &
Domain Trust vSouth Sydney City
Council Note 62 at paras 18-29 .
72. Codelfa Note 70 at 352.
73. Royal Botanic Gardens &
Domain Trust v South Sydney City
Council Note 62 at para 39; also
Murray Goulburn Co-operative Co
Limited v Cobram Laundry Service
Pty Ltd Note 60 at para 29.
74. [1998] 1 WLR 896 at 913B-0.