Refresher On Interpretation Of Clauses

In Shepherds Producers Co-operative Limited v Lamont &

Ors [2009] NSWSC 294, Justice Einstein provided a

comprehensive overview of the interpretation of contractual

provisions with particular emphasis on releases.

On 17 December 2003, solicitors for the liquidator of the

plaintiff, Shepherds Producers Co-operative Limited (Shepherds)

notified the defendants (Lamont & Ors) of potential claims to

be made against them by Shepherd/the liquidator.

Proceedings were commenced and a settlement was reached at

mediation as follows:

Lamont & Ors to pay Shepherds AU$3.45 million, with such

agreement to be given effect by way of deed of release.

The proceedings to be dismissed with no order as to costs.

The release provided for the following:

'The plaintiffs hereby release the defendants from all

claims, actions, suits, demands arising from or in any way

connected with the Proceedings, the allegations contained in the

Statement of Claim and of the liquidation of the (company)

plaintiff.'

Shepherds commenced a second action against Lamont & Ors.

Lamont & Ors pleaded the release and the following question was

referred for separate decision:

'Whether (the release) operates to release the (defendants)

from the causes of action the subject of these

proceedings.'

Justice Einstein's decision is more informative for its

constructive analysis of contractual clauses and releases, as

opposed to his finding that the release did operate to protect

Lamont & Co in the second proceeding. Essentially, the finding

came down to whether the word 'and' was disjunctive or

conjunctive in the context of the release clause. His Honour found

that 'and' operated disjunctively in the context of the

release.

Construction of contracts

The following principles are relevant:

Where the language of an agreement is ambiguous or susceptible

to more than one meaning, the factual matrix, its aim, object or

commercial purpose may be taken into account in the construction of

an agreement: Reardon Smith Line Ltd v Hansen-Tangen

[1976] WLR 989 at 997, cited in Codelfa Construction Pty

Limited v State Rail Authority of NSW (1982) 149 CLR 337 per

Mason at 350 to 352.

Primacy is to be given to the actual words used in a written

contract. In Peppers v Hotel Capital [2004] NSWCA 114,

Justice McColl said:

'If the words...are unambiguous the Court must give effect

to them, notwithstanding that the result may appear capricious or

unreasonable, and notwithstanding that it may be guessed or

suspected that the parties intended something different. The Court

has no power to remake or amend a contract for the purposes of

avoiding a result which is considered to be inconvenient of

unjust.

...if the language is open to two constructions, that will be

preferred which will avoid consequences which appear to be

capricious, unreasonable, inconvenient or unjust....

...in construing written contracts it...