How does a Court interpret a contract?

Apr 20, 2023 | Publication

The interpretation or ‘construction’ of contracts is a sub-set of contract law.

In Australia, when interpreting a contract, Courts will attempt to give effect to what the parties intended.  What the parties intended is to be assessed objectively not subjectively.

What a commercial contract means is to be determined by what a reasonable business person would understand those terms to mean.

The starting point is the words actually used.  The Court will give express terms their plain and ordinary meaning unless doing so would result in manifest absurdity.  Australian dictionaries generally should be used rather than English dictionaries in determining the plain and ordinary meaning of words.

If a term of a contract is ambiguous or capable of more than one meaning, the court will attempt to give the contract a businesslike and commercial interpretation.

Some common words and phrases which commonly appear in contracts (e.g. “use all reasonable endeavours”) have been decided by the courts and have obtained a legally accepted meaning as a result.

The “parole evidence rule” means that evidence of prior negotiations is not admissible to the interpretation of contract terms unless it provides evidence of the surrounding circumstances.  Such evidence is admissible but not in aid of a subjective interpretation of the problem clause.

Latest Insights

New Coercive Control Laws in NSW as of 1 July 2024

From 1 July 2024, coercive control will be a crime in NSW when a person uses abusive behaviours towards a current or former intimate partner with the intention to coerce or control them. The Crimes Legislation Amendment (Coercive Control) Act 2022makes it an...

Key Rules on Discovery Procedures for Prospective Defendants

Rules 5.2 and 5.3 of the Uniform Civil Procedure Rules 2005 (UCPR) provide essential guidelines on discovery aimed at identifying or locating prospective defendants. These rules are instrumental in the pre-litigation process, ensuring that applicants can gather...

5 Ways A Director Can Be Sued

Directors can be sued for all sorts of reasons.  Here are 5 of them. Reason #1: Insolvent Trading A director can be sued if the company he or she is a director of trades whilst insolvent.  A director has a duty to prevent the company trading and incurring...

7 Ways to Enforce a Judgment

After a judgment is obtained for an amount of money, there are numerous options open to a judgment creditor in relation to how to enforce the judgment (i.e. how to obtain the money which is owed pursuant to the judgment). Option #1: Issue a Bankruptcy Notice If the...

Who Can Bring a Compensation to Relatives Claim?

In the unfortunate event of a loved one's passing due to negligence or wrongful act, the Compensation to Relatives Act 1897 in New South Wales outlines the parameters for pursuing compensation on behalf of the deceased. Understanding who has the legal standing to...

10 Myths of Being Sued

If you or your business are sued, there are many myths about how the legal process will pan out.  Here are 10 myths about the legal process – all are incorrect. Myth #1: The matter will definitely go to a hearing Most matters settle before a Judge decides...