This week's TGIF considers the decision in Mount Bruce
Mining Pty Ltd v Wright Prospecting Pty Ltd  HCA 37,
which emphasises how important it is for parties entering into a
contract to keep in mind not just the words of the contract, but
also its background, context and the market in which the parties
A fundamental issue that arises when interpreting contracts is
ascertaining what information a Court can consider in deciding what
the contractual terms mean.
In Codelfa Construction Pty Ltd v State Rail Authority of
New South Wales (1982) 149 CLR 337, Mason J set down the
'true rule' in this respect, finding that a Court can only
consider the circumstances surrounding the inclusion of a term into
a contract where the term that the Court is interpreting is
ambiguous. If it is not, then the Court can only use the contract
itself and the purpose for the contract to interpret the term in
Since 1982, however, intermediate appellate courts have moved
away from an ambiguity requirement, and considered the surrounding
circumstances without ambiguity.
In 2011, the
High Court emphasised that ambiguity was still required while
refusing to hear an appeal. Since then, the approach of the Courts
around the country has remained mixed, with some maintaining a
requirement for ambiguity while others are considering surrounding
circumstances by default.
It was hoped that the High Court would provide some clarity on
the proper approach in MBM v Wright.
That case dealt with the interpretation of an agreement entered
into in 1970 between Mount Bruce Mining Pty Ltd
(MBM), Wright Prospecting Pty Ltd
(Wright), Hancock Prospecting Pty Limited
(Hancock) and Hammersley Iron Pty Limited
(1970 Agreement) under which MBM was to pay
Hancock and Wright royalties in relation to "ore won by MBM
from the MBM area". The Court was asked to consider whether
areas known as "Eastern Range" and "Channar"
formed part of the MBM area under the 1970 Agreement, and found
that the proper interpretation of MBM Area included the Eastern
Range and Channar areas.
In coming to that decision, each of the judgments noted that the
question of whether ambiguity was required did not arise directly
in this matter. Chief Justice French, together with Justices Nettle
and Gordon provided some guidance though, holding that:
recourse to 'events, circumstances and things' external
to the contract may be necessary to ascertain the commercial
purpose or objectives of the contract, or where a choice between
different interpretations is available; and
those things could include the history of the contract, its
background, context and the market in which the parties were
operating, but not parties' statements and actions reflecting
their actual intentions.
While on one view this issue is just another quirk of contract
law, it has real significance to the banking and finance industry
because it demonstrates that Courts are trending towards broadening
the information that they will consider when interpreting the
contracts we use every day.
What this means is that when negotiating those contracts
(whether they are financing agreements or supply or settlement
agreements during a formal appointment), you need to keep in mind
that a Court might look past the contract itself and into events
and circumstances surrounding the contact in order to decide what
You may also want to consider including a purpose clause, which
could limit the need for a Court to go outside of the contract if
you end up in a dispute about what it means.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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