Monday, 1 July 2013

[Contract] Interpreting Contracts

1.0 Departing from general rule

Codelfa provides the historical general rule which states that words are to be construed according to their plan and oridnary or natural meaning.

But recently the High Court's decision in Pacific Carriers v BNP Paribas [2004] HC and Toll v Alphapharm indicates a departure from the general rule. The rule states that the meaning of the terms of the contractual document is to be determined by what a reasonable person would have understood them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstan ces known to the parties, and the purpose and object of the transaction.

2.0 Finding Intention

Pacific Carriers v BNP Paribas [2004]

"It is not the subjective beliefs or understandings of the parties about their rights and liabilities that govern their contractual relations. What matters is what each party by words and conduct would have led a reasonable person in the position of the other party to believe. References to the common intention of the parties to a contract are to be understood as referring to what a reasonable person would understand by the language in which the parties have expressed their agreement."[22]

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