Case: Codelfa Construction Proprietary Limited v State Rail Authority of New South Wales [1982] HCA 24 ; (1982) 149 CLR 337
Outcome: cited
Where the language of a contract has a plain meaning evidence of surrounding circumstances is not admissible to assist in the interpretation of the contract (per Mason J in Codelfa Construction Proprietary Limited v State Rail Authority of New South Wales ('Codelfa') [1982] HCA 24 ; (1982) 149 CLR 337 at 352). 55 The relevant principle in relation to resort being had on matters of construction to extrinsic evidence is to be found in the judgment of Mason J, as his Honour then was, in Codelfa at 352 as follows: 'The true rule is that evidence of surrounding circumstances is admissible to assist in the interpretation of the contract if the language is ambiguous or susceptible of more than one meaning. But it is not admissible to contradict the language of the contract when it has a plain meaning. Generally speaking facts existing when the contract was made will not be receivable as part of the surrounding circumstances as an aid to construction, unless they were known to both parties, although, as we have seen, if the facts are notorious knowledge of them will be presumed. It is here that a difficulty arises with respect to the evidence of prior negotiations. Obviously the prior negotiations will tend to establish objective background facts which were known to both parties and the subject matter of the contract. To the extent to which they have this tendency they are admissible. But in so far as they consist of statements and actions of the parties which are reflective of their actual intentions and expectations they are not receivable. The point is that such statements and actions reveal the terms of the contract which the parties intended or hoped to make. They are superseded by, and merged in, the contract itself. The object of the parol evidence rule is to exclude them, the prior oral agreement of the parties being inadmissible in aid of construction, though admissible in an action for rectification. Consequently when the issue is which of two or more possible meanings is to be given to a contractual provision we look, not to the actual intentions, aspirations or expectations of the parties before or at the time of the contract, except in so far as they are expressed in the contract, but to the objective framework of facts within which the contract came into existence, and to the parties' presumed intention in this setting. We do not take into account the actual intentions of the parties and for the very good reason that an investigation of those matters would not only be time consuming but it would also be unrewarding as it would tend to give too much weight to these factors at the expense of the actual language of the written contract.' 56 Terms may be implied in one of four ways (per Heydon JA, as his Honour then was, in Brambles Holdings Ltd v Bathurst City Council [2001] NSWCA 61 ; (2001) 53 NSWLR 153 at 164 [28] ). These were summarised by Hodgson J in Carlton &amp; United Breweries Ltd v Tooth &amp; Co Ltd (unreported, Supreme Court of New South Wales, 11 June 1985) as follows: '(i) Implications contained in the express words of the contract: see Marcus Clarke (Vic) Ltd v Brown [1928] HCA 12 ; (1928) 40 CLR 540 at 553-4. (ii) Implications from the "nature of the contract itself" as expressed in the words of the contract: see Liverpool City Council v Irwin [1976] UKHL 1 ; [1977] AC 239. (iii) Implications from usage (for example, mercantile contracts). (iv) Implications from considerations of business efficacy: see BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 52 ALJR 20 at 26; Codelfa Construction Pty Ltd v State Rail Authority of NSW [1982] HCA 24 ; (1982) 149 CLR 337.' 57 In relation to the fourth mentioned type of implied term the classic test is identified in the advice of Lord Simon of Glaisdale, Viscount Dilhorne and Lord Keith of Kinkel in B.P. Refinery (Westernport) Pty. Limited v President, Councillors and Ratepayers of the Shire of Hastings [1977] HCA 40 ; (1977) 180 CLR 266 at 283 as follows: '... for a term to be implied, the following conditions (which may overlap) must be satisfied: (1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that "it goes without saying"; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract .' The test promulgated by the Privy Council was approved by Mason J in Codelfa .