As summarised by the High Court with respect to the interpretation of contracts in Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7 (“Electricity Generation Corporation”), at [35] per French CJ, Hayne, Crennan and Kiefel JJ:

“…The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean. That approach is not unfamiliar. As reaffirmed, it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose or objects is facilitated by an understanding “of the genesis of the transaction, the background, the context…”. As Arden LJ observed in Re Golden Key Ltd, unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption “that the parties… intended to produce a commercial result”. A commercial contract is to be construed so as to avoid it “making commercial nonsense or working commercial inconvenience.”

The above principles espoused in Electricity Generation Corporation were adopted in the NSW Court of Appeal decision of Cherry v Steele-Park (2017) 96 NSWLR 54; [2017] NSWCA 295 (“Cherry”). In Cherry, Leeming JA (with whom Gleeson and White JJA agreed) confirmed that there was no requirement to first identify any ambiguity in a contract before considering evidence of surrounding circumstances.

His Honour Leeming JA commented on two recent decisions of the High Court of Australia that strengthened the proposition that “ambiguity” is a conclusion and not a precondition to considering evidence of surrounding circumstances. The first decision referred to was Victoria v Tatts Group Ltd [2016] HCA 5. This case considered the legal meaning of the term a “new gaming operator’s licence” noting that “Gaming Operator’s Licence” was defined by referring to a licence issued under the Gaming Machine Control Act 1991 (Vic).

In this instance, the Court had regard to the context, including new legislation governing gambling to consider whether the undefined term was ambiguous or whether it bore a plain meaning. The High Court looked at the text, purpose and context to determine that the terms were narrower than that which had been held by the Victorian Court of Appeal.

The second case referred to is Simic v New South Wales Land and Housing Corporation [2016] HCA 47where Gageler, Nettle and Gordon JJ stated at [78] that:

“The proper construction of each Undertaking is to be determined objectively by reference to its text, context and purpose.”

French CJ observed at [18] that construction of a contract:

“Involves determination of the meaning of the words of the contract defined by reference to its text, context and purpose. Resort to extrinsic circumstances and things external to the contract may be necessary to identify its purpose and in determining the proper construction where there is a constructional choice.”

It has been seen time and time again that there is no need for ambiguity before objective matters, external to a contract, are considered by the Courts, and the above judgments are a reminder of this.


**Assisted by; Nina Vasiljevic**