Contract is King – Where the intentions of the parties are overruled by the terms of the contract

Date: October 28, 2020
Author: Malcolm Liu
Posted in: Insights

Upon general contract principles, the express terms and construction of a contract that has already been signed may be amended where it can clearly be shown that the contract was drafted or entered into incorrectly on the basis that some of the terms of the contract are inconsistent with the actual intentions of the parties. This principle is most often used when there has been a grammatical or otherwise mistake in the specifics of a term of the contract.

However, the threshold for proving and activating the above principle has historically been a high one. Common law and the courts give weight to the general principles of contracts, in which two parties agree to be bound by the words on the document, and rely on the standard assumptions that parties entering into a contract (in understanding the importance and consequences of doing so) will take every reasonable measure to ensure themselves as to the sufficiency of the contract, and thus would pick up on such inconsistencies or mistakes. That is to say, courts are generally more inclined to give meaning to the express terms of the contract than the intentions of the parties.

For the construction industry, the case of Gemcan Constructions Pty Ltd v Westbourne Grammar School [2020] VSC 429 reiterates the general approach that courts will prefer to give effect to the clear and unambiguous meaning of a clause unless there is a clear intention evinced by the parties to negate its effect. In this case, a standard AS4000-1997 contract was used, and in the particulars of the contract, it was stated that the arbitration clauses were “not applicable”. It was argued that since this was the case, there was no binding agreement for the parties to comply with the arbitration procedures under the contract.

Despite the above, the court held that there was a valid and binding agreement for arbitration under the contract. The court found so for the following reasons:

  1. That the terms of the contract were express, clear and unambiguous;
  2. That the words ‘not applicable’ were insufficient to evince an intention to negate the substantial arbitration clauses; and
  3. That Annexure Part B to the contract, which specifically dealt with any amendments to the contract, did not mention anything regarding the inapplicability of the arbitration clauses.

Key Contract Takeaways

Based on the above, it can be seen that where a contract is inconsistent in that parts of the contract support one intention and parts of the contract support a differing intention, courts are likely to give effect to the express terms of the contract. Where parties wish to amend a standard contract subject to prior discussions or intentions, it is important to show that that is the unequivocal intention by:

  1. Ensuring that a clause is drafted into the contract that expressly stipulates that certain standard clauses are not applicable (and not just simply applying a simple tag like “not applicable”); and
  2. Ensuring that the contract is free of inconsistencies in any subsequent clauses, annexures and/or documentation that would evince two different intentions.

Contact us for all your contract queries.

Tweet Share Email