Australia: Interpretation Of Contract Documents: The Search For Meaning

Last Updated: 12 October 2009
Article by Sandy Donaldson

Most contracts are in writing, whether a formal deed or agreement, or a less formal memorandum or heads of agreement, or correspondence. Whatever form the record of the contract may take, it is common for parties later to disagree on what words in the contract mean.

Language, or more particularly words as they are used in language, may not have precise meanings. Words can have many meanings, or shades of meanings (this is the linguistic concept of polysemy). The meaning of a single word or phrase in a contract can be very significant, and have substantial consequences, whether beneficial or detrimental, for a party.

An example was given by Steven Pinker at the commencement of his recent book The Stuff of Thought (Steven Pinker is now a Professor in the Department of Psychology at Harvard University, and previously taught in the Department of Brain & Cognitive Sciences at MIT).

He has written widely on the use, development and significance of language. The example that Steven Pinker uses to demonstrate the importance of language is an instance of construction of a legal contract. Following the destruction of the World Trade Centre properties in the 9/11 terrorist attack, the lessee claimed on the building insurance policy on the building. There was one policy of insurance, but two building towers, which were each destroyed by the impact of a separate aircraft. The cover under the policy was limited to $3.5 billion (US) for any one "occurrence". The issue was whether there was one "occurrence", so that the difference, potentially, between construing the events which occurred as one "occurrence" or two "occurrences" was potentially $3.5 billion (US). The result, with a number of insurers involved, seems to have fallen somewhere between the two extremes.


Just as language, and the meaning of words, may not be precise, there are no precise legal rules which can be used to determine the meaning of words in a contract.

A contract is an agreement between the parties to the contract. The first and best evidence of that agreement is, generally, the written agreement or document that is intended to contain the terms of the agreement. In some circumstances, evidence of other things may be used to vary, explain or add to the words of the agreement, as they are recorded in the document.

There are no Acts relating to the interpretation, or principles of interpretation to be applied, to contracts, as there are for statutes (the Acts Interpretation Acts of the Commonwealth and the States).


To the extent that there is a main, or perhaps an initial, rule or principle for the interpretation of words in contracts, it is that the words, if they have a plain, ordinary, appropriate meaning, will be assigned that meaning, unless there is some good reason to depart from this.

It is, however, obvious from the number of disputes which arise as to the meaning of words in contracts, that there are many occasions when there is not an obvious plain, ordinary and appropriate meaning.


If the words of a contract are plain and unambiguous, there is no scope for "interpretation". Where, however, more than one meaning is possible for a word, interpretation may be necessary to determine the scope of the meaning of the word.


It is possible that a Court may be called on to add to or vary words appearing in a contract document, rather than interpreting words in the document.

If the words in a contract document do not record the agreement that was in fact reached by the parties (if this can be proven), the contract document may be "rectified" to include the correct form of words.

If the written record of a contract is silent on a matter, it is possible that a Court may determine that words should be included in the contract as an implied term, to give business efficacy to the contract.

The rectification of a contract document, or the implication of term into a contract, may not be a matter of "interpretation", but these issues often arise for determination together with questions of interpretation or meaning.


The primary principle that words in a written document are to be given their plain and ordinary meaning would exclude use of evidence of other matters, if strictly applied. In the High Court of Australia, Mason J in the action Codelfa Construction Pty Ltd v State Rail Authority of NSW ([1982] HCA 24; (1982) 1949 CLR 337) referred to the theory in English legal thinking that words in a contract are generally to be given their plain and ordinary meaning, and went on to say:

"On the other hand, it has frequently been acknowledged that there is more to the construction of the words of a written instrument than merely assigning to them their plain and ordinary meaning...This has led to a recognition that evidence of surrounding circumstances is admissible in aid of the construction of a contract." [paragraph 12]

Accordingly, evidence can be admitted to show the object or aim of a transaction. As an example (although not from any particular case), in a contract for supply of goods or services to a railway, use of the word "carriage" would probably be taken to mean a railway carriage, rather than the general meaning of that word which includes all forms of wheeled conveyances (and also has other meanings).


Mason J in the Codelfa case noted that:

"...where words in a contract are susceptible of more than one meaning extrinsic evidence is admissible to show the facts which the negotiating parties had in their mind". [paragraph 16].

His Honour refers to a number of English decisions, including MacDonald v Longbottom (1859) 1 E&E 977, 120 ER 117. In that case, the defendant contracted to buy "your wool" from the plaintiffs. The dispute was whether this included not only wool which the plaintiffs had on their own farms, but wool which they had bought from other farms. Evidence was admitted to show that one of the plaintiffs had stated in a conversation before the contract was concluded with the defendant's agent that he also had wool from the other farms, so that this wool was included. As Lord Campbell said in the MacDonald case, the evidence which was admitted:

"...neither alters nor adds to the written contract, but merely enables us to ascertain what was the subject matter referred to therein".


It is not, however, possible to admit evidence unless it is necessary to explain or interpret the words of a contract (although it may be possible to adduce evidence to show that there is an ambiguity or requirement for clarification). In Codelfa, Mason J said that:

"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." [paragraph 22]

His Honour notes that a difficulty often arises with respect to prior negotiations between the parties, and as to whether or not evidence may be given of the negotiations. He indicates that, to the extent that evidence of prior negotiations will tend to establish an objective background of facts known to both parties, the evidence may be admitted, but not to simply show intention of the parties. His Honour says:

"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 insofar 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...". [paragraph 24]

Isaacs J, in another decision of the High Court of Australia, in Cohen and Co v Ockerby and Co Ltd [1917] HCA 58; (1917) 24 CLR 288, explained the concept that a contract which is unclear or ambiguous is to be construed so as to give effect to the object of the parties as follows:

"That does not, of course, mean you are to stretch its terms in favour of one party against the other; but, reading the two cases cited together, it means that the expressions, and particularly any elliptical expressions, in a mercantile contract are to be read in no narrow spirit of construction, but as the Court would suppose two honest businessmen would understand the words they have actually used with reference to their subject matter and the surrounding circumstances".


There are a number of syntactical or grammatical principles or presumptions, which are often expressed as Latin maxims, which have been used for construction of statutes. These are sometimes endeavoured to be applied to disputes as to the meaning of words in contract documents. If the Latin expression is known, it can sound impressive, but there are no binding rules that are applicable, and the rules can all be reduced to an application of the general principle that, where there is an ambiguity, and the words are not plain, the parties' intentions must be ascertained from the words they have used, having regard to the surrounding circumstances.

Some of the maxims are really just commonsense, and sometimes they are contradictory. Very briefly, some of the main maxims are:

noscitur a sociis: the meaning of a word or phrase is derived from its context. This is simply an affirmation of the general principles noted above.

ejusdem generis: general words are limited by specific words. An example of this given in Pearce & Geddes Statutory Interpretation in Australia is:

So in specifying the animals that may be carried on a ferry, the drafter may refer to "horses, cows, sheep and other animals". It would be regarded as an improper reading of the Act if it were suggested that a tiger fell within the words "other animals".

The point is made by Pearce & Geddes that "it is another way of saying that the words derive meaning from the context in which they appear".

expressio unius est exclusio alterius: an express reference to one matter indicates that other matters are excluded.

expressum facit cessare tacitum: this is usually taken to be to a similar effect to expressio unius est exclusio alterius.

generalia specialibus non derogant: specific words will prevail where there is a conflict with general words. This is sometimes stated in the reverse as generalibus specialia derogant.

reddendo singula singulis: if two or more subjects are qualified by two or more words or matters, the qualifi cations attach to the subjects in order in which they appear. An example of this appearing in Pearce and Geddes Statutory Interpretation in Australia is:

If the statement is made 'paint or varnish may be dissolved by turpentine or kerosene', does this mean that both solvents work on both subjects? Or is it that paint may be dissolved by turpentine and varnish by kerosene? The reddendo approach indicates the latter interpretation.


A complex body of cases, and principles, applies in relation to some particular kinds of contracts or clauses in contracts, particularly:

  • Standard form contracts;
  • Exclusion or limitation clauses in contracts.

Another Latin tag "contra proferentum" may apply in these cases: In the Australian Encyclopaedia of Forms and Precedents, the editors describe this as:

"If all else fails, interpret the provision to the detriment of the party who proposed it."


Because of the scope and vagaries of words and language, it is likely that many contract documents will be far from perfect in expressing the intentions and precise meanings of parties.

It is a counsel of perfection to suggest that all contracts should be carefully prepared and considered in commercial dealings. Often contracts will be brought into existence quickly, and without the time for detailed consideration. However, particularly for matters of substance, the wording of contracts should be given careful and timely consideration and, where appropriate, should, ideally, be drawn by, or with advice from, lawyers with expertise in the area. However, as will be seen from the brief comments above, it may be impossible to guarantee that even a carefully prepared contract document does not contain some ambiguity which may require interpretation.

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions