The Continuing Confusion and Uncertainty over the Relevance of Actual Mutual Intention in Contract Interpretation

David McLauchlan
(2021) 37 Journal of Contract Law 25

David McLauchlan, ‘The Continuing Confusion and Uncertainty over the Relevance of Actual Mutual Intention in Contract Interpretation’ (2021) 37 Journal of Contract Law 25

Abstract

This article discusses the relevance and admissibility in a contract interpretation dispute of evidence that the parties, prior to entry into the contract, shared an actual intention as to the meaning of the language that a court is called upon to interpret. It argues that, despite numerous ritual incantations of a rule that such evidence is inadmissible, the reality is that the law is by no means so clear. There are two main reasons for this. The first is that there are several exceptions or qualifications to the rule that can be, and often are, invoked by counsel and the courts to avoid giving a meaning to contractual terms that is inconsistent with the actual mutual intention of the parties. The second is that these exceptions and qualifications are not always recognised and this can lead to either unsatisfactory outcomes or divisions of opinion between judges based on reasoning that is difficult to comprehend. This will be illustrated through an analysis of the judgments of the New South Wales Court of Appeal in Cherry v Steele-Park, and the New Zealand Court of Appeal in Bathurst Resources Ltd v L & M Coal Holdings Ltd. The author’s conclusion is that where the evidence clearly demonstrates that, as a result of communications between the parties prior to their contract, they reached an agreement or formed a common understanding concerning the meaning of the language in question, there is no sound basis for refusing to give effect to that agreement or understanding as a matter of interpretation.