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
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
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