Commercial/Contract Law – The Effect of Deletions from Written Contracts
THE EFFECT OF DELETIONS FROM WRITTEN CONTRACTS
Business people are aware that courts always carefully consider the actual language used by parties to a contract. However, when construing a contract, can courts also have regard to the words crossed out or deleted from earlier drafts? Should these words be ignored? Or should they be used to interpret what the contract means by acting as an indicator of what the parties meant to exclude?
These issues apply to all types off contracts including the sales of businesses and land, leases, wills and trusts documents.
A contract may have words crossed out in the course of negotiations leading to the conclusion of the final version. Alternatively, words might be intended by the parties to be abandoned.
In what circumstances can the crossed out words or deleted words be used to indicate what the parties did not mean to include?
An example might be where the words “rates, taxes” are crossed out in a standard lease leaving only the word “charges”. Does this mean that the tenant would only be liable for non-rates and taxes? A lay person might think so but a lawyer might not because, generally, courts will not allow extrinsic material to construe a written contract. This general rule was set out by the High Court of Australia in Codelfa Construction Pty Ltd v. State Rail Authority of NSW case in 1982.
Subsequently, the High Court allowed extrinsic material to construe a written agreement only in the case of ambiguity. However, in a 2015 decision, the High Court in Mount Bruce Mining Pty Ltd v. Wright Prospecting Pty Ltd reiterated that if a contractual expression is unambiguous or susceptible of only one meaning, evidence of surrounding circumstances (such as deletions) cannot be adduced to contradict its plain meaning.
However, very recently, some courts have started to weaken the strictness of the position set out by the High Court.
In a 2016 decision of the Victorian Supreme Court Court of Appeal in Geedee Nominees Pty Ltd v. Ecosse Property Holdings Pty Ltd, the Court of Appeal had to interpret a long-term farming lease where the lessee had to pay all taxes, assessments and outgoings excepting land tax payable by the landlord or the tenant. In the final version of the lease, the words “excepting land tax” and “landlord or” were crossed out providing, therefore, that the lessee would pay all taxes, assessments and outgoings whatsoever payable by the tenant. The majority of the Court of Appeal decided that regard could be had to the deleted words. The Victorian Supreme Court Court of Appeal drew a distinction between the ability to use evidence relating to negotiations leading to the making of a contract on the one hand and crossed out words on the other hand. The Court of Appeal has decided that whereas evidence relating to the former is inadmissible. Evidence relating to the latter can be used to construe contractual language if it is capable of more than one meaning.
This article is intended only to provide a summary of the subject matter covered. It does not purport to be comprehensive or to render legal advice. No reader should act on the basis of any matter contained in this article without first obtaining specific professional advice.
For any further information concerning this article, please contact Michael Pickering, Managing Principal, De Marco Lawyers. His contact details are as follows: