Ambiguities within a contract serve as gateways to myriad interpretations that could potentially sway the Court's decisions in or against your favour. This point is exemplified in the case of Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd (2017) 343 ALR 58. In this case, the appellant contended that the interpretation of a clause in a lease contract obliged the lessee, not the lessor, to shoulder all rates, taxes, assessments, and outgoings tied to the leased lands. The majority in the High Court of Australia delivered a detailed explanation of interpreting the clause and the broader principles of interpreting commercial contract terms.
Case Summary ( Contract Dispute)
The lease was entered into by the original lessor and lessee in 1988 for the value of $70,000 payable upfront at the commencement of the lease and a term of 99 years. In the present case, the lessee is the respondent and the lessor is the appellant. In order to avoid the risk of operating under a standard form contract, both parties amended the lease contract from its prior ‘farm lease’ form before execution.
The question of construction was on clause 4 that provided that the tenant was to pay all external rates, taxes, assessments, and outgoings, as the rent had already been paid for. In the amendments, the phrase ‘Landlord or’ was struck out to decide that it was the tenant that was to pay these external costs.
Judgment
The majority in a joint judgment between Kiefel, Bell, and Gordon JJ declared that where a commercial contract is concerned, the terms are to be understood objectively by what a reasonable businessperson would have understood them to mean, rather than the subjective intentions of the parties, and considers the overall commercial purpose of the contract. The majority considered that the construction of clause 4 was to be interpreted as making commercial sense if the lessee was to incur the uncertain payments that may change based on the effect that the lessee has on the land. This was taken to assume that the commercial aim of the parties was that the lessee was to assume the position of an owner with an owner’s liabilities.
However, as the clause was ambiguous, Nettle J’s dissent alternatively considered that the striking out of certain parts of the clause aids in the construction of the present clause and that poor drafting should not be reason to differ from the intention of the parties ascertained from the language.
The ambiguity contained in the terms of this contract created a contentious debate over what the clause meant for each party. It not only caused inconvenience for the lessor who was seeking the payment to be made for the external costs but also for the Court to determine what otherwise could have been a straightforward clause.
Securing Clarity in Contracts
Contract interpretation is central to establishing each of the parties’ obligations and is important to consider if either party defaults on these obligations. This case has demonstrated the importance of clarifying each term in a contract, instead of leaving these open to the interpretation of the Court, which objectively could lean towards either party’s interest.
If you require legal advice, assistance in drafting precise contractual terms, or support in addressing contentious, ambiguous terms, our experienced team at Arida Lawyers offers extensive expertise in handling and asserting ambiguous contractual terms in contract dispute resolution. Contact us at 1300 146 390 for your initial consultation or email us your inquiry at info@aridalawyers.com.
This article provides general information relevant to our expert services. It is not legal advice and should not be relied upon as such. If you are seeking legal advice, you should contact us for a free initial consultation.
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