HCA: Codelfa Constructions remains binding authority

Western Export Services Inc v Jireh International Pty Ltd [2011] HCA 45 (28 October 2011)

In this Special Leave application, which was refused, the High Court made very clear their disapproval in having to remind intermediary courts of the binding authority of Codelfa Construction Pty Ltd v State Rail Authority of NSW [1982] HCA 24; (1982) 149 CLR 337 at 352; [1982] HCA 24 in the construction of contracts:


GUMMOW, HEYDON AND BELL JJ. This is an application for special leave to appeal from a decision of the New South Wales Court of Appeal[1], in which Macfarlan JA gave the leading judgment. The dispute concerned the construction of cl 3 of a “Letter of Agreement” concerning the franchising in Australia of Gloria Jean’s Gourmet Coffee Stores. In the passage[2] in which he found error in principle in the reasons of the primary judge, his Honour said:

“A court is not justified in disregarding unambiguous language simply because the contract would have a more commercial and businesslike operation if an interpretation different to that dictated by the language were adopted.”

His Honour added[3] that the primary judge appeared:

 “to have acted on the basis that the provision would make more sense from a commercial point of view”

if it were construed as the primary judge did construe that provision. These statements by Macfarlan JA since have been applied by the New South Wales Court of Appeal in Miwa Pty Ltd v Siantan Properties Pte Ltd[4].


The primary judge had referred to what he described as “the summary of principles” in Franklins Pty Ltd v Metcash Trading Ltd[5]. The applicant in this Court refers to that decision and to MBF Investments Pty Ltd v Nolan[6] as authority rejecting the requirement that it is essential to identify ambiguity in the language of the contract before the court may have regard to the surrounding circumstances and object of the transaction. The applicant also refers to statements in England said to be to the same effect, including that by Lord Steyn in R (Westminster City Council) v National Asylum Support Service[7].


Acceptance of the applicant’s submission, clearly would require reconsideration by this Court of what was said in Codelfa Construction Pty Ltd v State Rail Authority of NSW[8] by Mason J, with the concurrence of Stephen J and Wilson J, to be the “true rule” as to the admission of evidence of surrounding circumstances. Until this Court embarks upon that exercise and disapproves or revises what was said in Codelfa, intermediate appellate courts are bound to follow that precedent. The same is true of primary judges, notwithstanding what may appear to have been said by intermediate appellate courts.


The position of Codelfa, as a binding authority, was made clear in the joint reasons of five Justices in Royal Botanic Gardens and Domain Trust v South Sydney City Council[9] and it should not have been necessary to reiterate the point here.


We do not read anything said in this Court in Pacific Carriers Ltd v BNP Paribas[10]; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd[11]; Wilkie v Gordian Runoff Ltd[12] and International Air Transport Association v Ansett Australia Holdings Ltd[13] as operating inconsistently with what was said by Mason J in the passage in Codelfa to which we have referred.


However, the result reached by the Court of Appeal in this case was correct. Further, even if, as the applicant contends, cl 3 in the Letter of Agreement should be construed as understood by a reasonable person in the position of the parties, with knowledge of the surrounding circumstances and the object of the transaction, the result would have been no different. Accordingly, special leave is refused with costs.

 Brisbane Barrister – David Cormack





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