The 'objective theory' of contract has been given a recent workout in New South Wales by Courts interpreting leases. While the results were contradictory, they do underline the need for business to be practiced honestly.
The New South Wales Administrative Decisions Tribunal decision of Toga Pty Ltd v Perpetual Nominees Limited and Ord (link here http://www.caselaw.nsw.gov.au/action/PJUDG?jgmtid=158232) was extraordinary in ordering that one party consents to vary the contract so as to uphold the 'fidelity of the bargain' and disregard the part where is said "rent free" in an option lease. What would have been the bargain of the century was undone by the Tribunal asserting that the lessee was obliged to respect the underlying spirit of the agreement despite the glaring part of the document which said "rent free".
In contrast, shortly after this decision the Supreme Court Equity Division decision of Casquash Pty Ltd v NSW Squash Limited (No 2) (link here http://www.caselaw.nsw.gov.au/action/PJUDG?jgmtid=158632) took a different approach by stating that "the hopes, aspirations, mistakes and misconceptions that a party might have about the meaning or effect of the contract are irrelevant."
Casquash involved a lessee's sole director and shareholder and her brother (a solicitor) who amended a lease to remove the lessee's obligation to pay outgoings, explaining to the lessor that it was a typo when they knew "full well that they were not typographical errors but deliberate changes."
Pembroke J likened the Lessees to being "like Brer Rabbit, they were lying low and saying nothing" and described their knowing deception as "not merely sharp, it was dishonest." The result being that the Court ordered that the lease be rectified to amend the offending clauses.
Despite Pembroke J's criticism of going beyond the intention of the contract to find the true meaning of the agreement (as was the case in Toga), he did see a need to tear down the effect of the written agreement in cases of fraud and dishonesty.
Accordingly, the emphasis placed on the 'fidelity of the bargain' in Toga was short lived in the wake of Casquash which was decided in a higher Court and therefore should be the preferred interpretation. What is clear is that the law will not place the meaning of the plain written words in a contract above the importance of dealing in negotiations and contracting in good faith.
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