Skip to content

Australian Courts won’t imply missing terms into contracts.

21/11/2011

The long standing approach of the Courts is not to imply additional words into a contract to lend it business efficacy unless it is ambiguous.

A clear example of this approach has been exemplified by the decision in Jireh International Pty Ltd v Western Export Services.  

Jireh contracted to pay to Western Export Services 5% of the value of sales made to Gloria Jeans.  On its face, the commission only applied to sales made by Jireh. To circumvent that arrangement, Jirah arranged for Gloria Jeans to buy product from a related entity, JIWD.  The agreement was expressed in a short letter which was not carefully drawn.

Western Export invited the Court of first instance to follow the reasoning of the House of Lords ICS Ltd v West Bromwich Building Society [1998] 1 WLR 896.  However, the trial judge was not inclined to  disregard unambiguous language simply because a different interpretation will give the contract a more commercial and businesslike operation.  He found that it was inconceivable that the parties intended that Jireh should be free to circumvent its arrangements so easily.  He preferred to read the contract in a in a way that gave the contract a “commercial and business-like operation”.

The New South Wales Court of Appeal acknowledged that the plain and unambiguous meaning of the contract gave it an “unbusinesslike operation”.  However, its effect was not altogether absurd.  In the absence of any ambiguity, an unbusinesslike contract should be literally enforced. ” So far as they are able, courts must of course give commercial agreements a commercial and business-like interpretation. However, their ability to do so is constrained by the language used by the parties. If after considering the contract as a whole and the background circumstances known to both parties, a court concludes that the language of a contract is unambiguous, the court must give effect to that language unless to do so would give the contract an absurd operation. In the case of absurdity, a court is able to conclude that the parties must have made a mistake in the language that they used and to correct that mistake. A court is not justified in disregarding unambiguous language simply because the contract would have a more commercial and businesslike operation if an interpretation different to that dictated by the language were adopted.”

The High Court declined to reconsider Codelfa Construction Pty Ltd v State Rail Authority of NSW in order to overturn the Court of Appeal’s decision.

Advertisements
No comments yet

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: