As lawyers, when it comes time to closely examine the terms of a commercial contract, we often hear “Yes, that’s what the words say but what we really meant was…”. It is an uncertain and risky business practice to have commercial contracts in place in which the words do not reflect the intentions of the parties.
The High Court has recently restated the legal principles around determining the meaning of the terms of commercial contracts in the Mount Bruce Mining v Wright Prospecting case. The proper approach can be summarised as follows:
- Look at the text in disputes, the entire text of the contract, any contract, document or statute referred to in the contract, and look at the purpose of the contract.
- Look at those things objectively – what would the reasonable business person understand the terms to mean.
- Don’t look at the surrounding circumstances where the words of the contract are unambiguous or could have only one meaning.
- Only look outside the contract to identify the commercial purpose or objects of the contract, or to determine between a choice of construction of the words in the contracts.
- Again, do that objectively without recourse to evidence of the parties’ actual intentions and expectations.
So, most of the time what the parties actually meant will not even be considered and the parties will be held to the words they have used in the contract. The key is to be clear with the words in the contract and to ensure that they reflect your intentions for the deal.
At Everingham Solomons, we work with you to ensure the words in your contract reflect your intentions because Helping You is Our Business.
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