If everything isn’t black and white, I say, “Why the hell not?” – John Wayne
Can two people read the same sentence, but take away different meanings? The answer to that question, depending on the people, is ‘Yes’. But what is the legal consequence, and how can a contract be enforced, should that occur?
That was the question asked of the ACT Magistrates Court in a recent action* brought by the Italo-Australian Club (ACT) Ltd (“the Italian Club”) against Italo Financing Pty Ltd (“Italo Financing”) – an entity, in essence, established to finance the Italian Club’s relocation to, and ultimately establishment at, a new club premises. The court’s judgment is not ground breaking law. The answer is that a contract must be read objectively. Unless there is ambiguity in its terms, what a party intended the contract to mean is irrelevant. The Italian Club’s tale does, however, provide a cautionary reminder that whilst life consists of all shades of grey, the binding nature of a contract should be black and white.
From 1968 to 2016, the Italian Club operated from its clubhouse in Forrest. As a club, it relies on the support of its members. In this context, Italo Financing (comprising of members of the Club) set about purchasing the Club’s land, with a view of then on-selling it for a profit. From those profits, the intention was for Italo Financing to build a new clubhouse on a smaller, more sustainable, block.
When Italo Financing took ownership of the Forrest block, the Club remained in its clubhouse under a lease with Italo Financing. Within the lease was a relocation clause which provided, amongst other things, that Italo Financing would cover the costs of the Club’s relocation to its new premises, or to temporary accommodation if the new clubhouse was not ready when the lease was terminated.
The controversy lay in what was meant by Italo Financing’s obligation to pay the Italian Club’s ‘relocation costs’. The difficulty arose when the block earmarked for the site of the new clubhouse became unavailable due to ongoing red tape issues. With the Italian Club needing other accommodation whilst either the said red tape was untangled, or a new site located, the Club relocated to temporary premises in Narrabundah. As it had to, Italo Financing paid for the Italian Club’s physical move to its new home.
The dispute then arose when the Italian Club forwarded to Italo Financing its rental invoices for its Narrabundah home. In short, Italo Financing refused to pay the rent – preferring to save its money for a new clubhouse. The Italian Club, meanwhile, argued that until the new clubhouse is ready, its rent was a ‘relocation cost’ liable to be paid by Italo Financing.
What did the court say?
Whilst the Club was working on a different understanding to Italo Financing as to what it had bargained for, the court did not take into account the subjective intentions of the parties in entering the contract. The court held that it was not necessary to do so in order to make sense of the relocation clause. Had the clause spoken of costs for the relocation at, as opposed to relocation to, things may have been different – though as the clause was written, the court could not read Italo Financing’s obligations in any other way as having ended when the relocation from A to B was complete.
Whilst you may consider your intentions in entering a contract are obvious, make sure you carefully consider the actual words used in the written document. Contracts are black and white, and should be read all over.
[*BAL Lawyers acted for Italo Financing in this case].
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