Contract Interpretation: Context

The primary duty of a court when interpreting contract clauses is to endeavour to discover the intention of the parties from the words used, considering the document as a whole. The meaning of any one part of a contract may be revealed by other parts. Where possible, the words of every clause should be construed to result in a harmonious document.

This rule was explained in Wilkie V Gordian Runoff Ltd (2005) 221 CLR 522 when considering an exclusion clause:

the intention of an exclusion clause is to be determined by construing the cause according to its natural and ordinary meaning, read in the light of the contract as a whole, thereby giving due weight to the context in which the clause appears including the nature and object of the contract, and, where appropriate, construing the clause contra proferentem in case of ambiguity.

This examination of a contract as a whole extends to any contract, document or statutory provision referred to in the text of the contract. Where you are reviewing a contract that cross references another contract, document or statutory provision you must ensure that you read all of the cross-referenced documents and consider the implications of them in terms of interpretation.

There are often words found in contracts that have a special meaning given by the subject matter in relation to which they are used. Rules of interpretation allow courts to correct meaning where ambiguity exists. Courts are permitted to depart from the ordinary meaning of words so far as necessary to avoid inconsistency between that provision and the rest of the document.

It is common to find words that appear to be unnecessary or redundant. Redundancy can be found, for example, where lawyers add clauses to a template document that repeat content already found within the template.  If possible, every word of a contract should be given effect, and no part of it should be treated as creating redundancy or unnecessary language.

Where a word is found more than once in a contract, its meaning will not change throughout the contract. This was described by Lord St Leonards where he said that it was a well-settled rule of construction to never “put a different construction on the same word, where it occurs twice or oftener in the same settlement, unless there appears a clear intention to the contrary.”

As an extension of the rule that contracts are to be construed as a whole, unless a contract provides otherwise, headings and side notes are to be taken into account in the interpretation of meaning.

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