Principles
35 The meaning of a commercial document and of a contract is determined objectively: Toll (FGCT) Pty Limited v Alphapharm Pty Limited (2004) 219 CLR 165 at 178-180 [38]-[41] per Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ; Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at 461-462 [22] per Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ. The construction of such a document or contract must be determined by what a reasonable person in the position of the parties would have understood its terms to mean. That process involves consideration not only of the text of the documents, but also of the surrounding circumstances known to all the parties, as well as the purpose and object of the transaction. As Lord Wilberforce explained, in a frequently cited passage from his speech in Reardon Smith Line Ltd v Hansen-Tangen [1976] 1 WLR 989 at 995-996 (that was approved in Pacific Carriers 218 CLR at 462 [22] and Royal Botanic Gardens and Domain Trust v South Sydney City Council (2002) 240 CLR 45 at 52-53 [10] per Gleeson CJ, Gaudron, McHugh, Gummow and Hayne JJ):
"In a commercial contract it is certainly right that the court should know the commercial purpose of the contract and this, in turn, presupposes knowledge of the genesis of the transaction, the background, the context, the market in which the parties are operating."
36 The objective theory of contract must also apply to ascertaining who were the parties to the contract. Additionally, the contract must be construed as a whole with a view to reconciling and harmonising, if possible, apparent inconsistencies in expression. If words or expressions are used that are repugnant or have been transposed or omitted, the Court can construe the contract to give it the effect that, objectively, can be seen as what the parties intended: Fitzgerald v Masters (1956) 95 CLR 420 at 436-438 per McTiernan, Webb and Taylor JJ. Dixon CJ and Fullagar J expressed the principle there with typical lucidity there by rejecting a construction that (95 CLR at 427):
"… the parties did not intend to contract otherwise than by reference to the terms of a document which they mistakenly believed to exist. … It seems indeed almost absurd to say that the parties, having agreed on everything essential, intended that the agreement should be nullified if effect could not be given to cl. 8."
37 Employment relationships are not purely contractual and can be affected by statutory provisions and the incidents of a fiduciary relationship: Concut Pty Ltd v Worrell (2000) 176 ALR 693 at 697-698 [17] per Gleeson CJ, Gaudron and Gummow JJ. In that case, an employment relationship had existed over a lengthy period. Initially, the employee had worked for a related company of the employer. However, in 1980 he began working for the employer with which he signed a service agreement in 1986 that was the subject of the dispute. The High Court held that the service agreement was not properly characterised as a new and discrete contract that had replaced and terminated the earlier oral agreement. Gleeson CJ, Gaudron and Gummow JJ said (176 ALR at 698 [19]):
"The relevant principles are well settled. In FCT v Sara Lee Household & Body Care (Aust) Pty Ltd [(2000) 172 ALR 346 at 350-1 [22]; 74 ALJR 1094 at 1098], Gleeson CJ, Gaudron, McHugh and Hayne JJ said:
When the parties to an existing contract enter into a further contract by which they vary the original contract, then, by hypothesis, they have made two contracts. For one reason or another, it may be material to determine whether the effect of the second contract is to bring an end to the first contract and replace it with the second, or whether the effect is to leave the first contract standing, subject to the alteration. For example, something may turn upon the place, or the time, or the form, of the contract, and it may therefore be necessary to decide whether the original contract subsists.
Their Honours went on [(2000) 172 ALR 346 at 351 [23]; 74 ALJR 1094 at 1098. See also (2000) 172 ALR 346 at 360 [81], 362 [95], 363 [100]; 74 ALJR 1094 at 1105, 1106,, 1107 per Callinan J.] to refer to the judgment of Taylor J in Tallerman & Co Pty Ltd v Nathan's Merchandise (Victoria) Pty Ltd [(1957) 98 CLR 93 at 143-4]. Taylor J had rejected submissions that (a) "it is impossible by a subsequent agreement, merely, to vary or modify an existing contract" and (b) "[an] agreement which purports to vary an existing contract operates … first of all to abrogate entirely the existing contractual relationship and, then, to reinstate the terms of the old contract as varied or modified by the new agreement" [cf Meek v Port of London Authority [1918] 2 Ch 96]. His Honour, to the contrary, accepted the propositions that (a) the earlier contract might be rescinded altogether, the determining factor being the intention of the parties disclosed by the later agreement; (b) partial rescission is a variation, not the destruction, of the contractual relationship between the parties; and (c) the earlier contract may be varied by way of (i) partial rescission with or without the substitution of new terms for those rescinded and (ii) the addition of new terms with or without any partial rescission at all [(1957) 98 CLR 93 at 144]. In Tallerman, Kitto J [(1957 98 CLR 93 at 135. See also at 122-3 per Williams J.] spoke in terms which involved acceptance of propositions (a) and (b) as identified above, adding that while "in strict logic" a variation may be a new contract, "the discharge of an old contract is a matter of intention"." (emphasis added)
38 In applying those principles, their Honours concluded that the service agreement did not entirely supplant the earlier agreement, but, rather, supplemented it, finding (176 ALR at 699 [20], [22]):
"… the text of the service agreement itself, as well as the surrounding circumstances, indicate that such a conclusion would not be in accord with the manifest intention of the parties."