Over time there has been some judicial confusion as to when objective surrounding circumstances may be taken into account to assist in the construction of terms. The nature of the objective approach has meant that on occasion, courts have shown a reluctance to look outside the four corners of the contract unless it is absolutely necessary to do so due to a textual ambiguity. The question is whether this reluctance is actually a necessary precondition to examining surrounding circumstances.
The paper addresses the question of whether – or more accurately, ‘to what extent’ – evidence of surrounding circumstances is admissible as an aid to the construction or interpretation of contracts.
The paper commences with an analysis of the true rule enunciated by Mason J in Codelfa Construction v State Rail Authority (1982) 149 CLR 337. The paper then demonstrates that by 2011, a series of construction contract appeal decisions had been handed down by the High Court that had not mentioned any need to satisfy the ‘true rule’.
The paper provides an analysis of how over time, most intermediate Australian appellate courts had assumed that it was no longer necessary to demonstrate ambiguity so as to provide a basis to admit evidence of surrounding circumstances at trial in order to assist the interpretation of the contract. Case such as Franklins Pty Ltd v Metcash Trading Ltd (2009) 76 NSWLR 603 and MBF Investments Pty Ltd v Nolan  VSCA 114 will be examined to show that although the matter appeared settled, the divergence of Australian judgments ignited the debate once again and disagreement boiled over.
Recent case law and the High Court’s response is examined to show that although the High Court has retained the ambiguity gateway, its breadth is wide. The paper also argues for a further widening of the ambiguity gateway so as not to present an operative barrier to consideration of extrinsic material.
Written contracts govern all aspects of commercial life, yet differ greatly. Some contracts have emanated after various drafts that have had the painstaking attention of highly sophisticated solicitors. Some are drawn by non-lawyers. Some are short, consisting of few words, while others are lengthy, consisting of hundreds of pages. Some are in a standard form and with which the concept of ‘surrounding circumstances known to both contracting parties’ is uncertain.
ordinarily, construing or interpreting contracts is possible by reference to the contract alone. However, depending on the circumstances of the case, resort to events, facts and matters external to the contract is permissible and necessary.
Since the 19th century, English courts have accepted that extrinsic evidence was admissible to identify the meaning of contracts where ambiguity exists. From the 1970s, the English courts have applied a more liberal approach, thereby permitting recourse to surrounding circumstances without any requirement of first establishing ambiguity.  This remains their position today.
In Australia, however, there has been some divergence of views as to when objective surrounding circumstances may be taken into account to assist in the construction of terms. The nature of the objective approach has resulted at times in courts showing a reluctance to examine material outside the contract unless it is absolutely necessary to do so due to an ambiguity in the text. This then leads to the question of whether this reluctance is actually a necessary precondition to examining surrounding circumstances.
This article will commence with an examination of the ‘true rule’ enunciated by Sir Anthony Mason in Codelfa Construction v State Rail Authority (1982) 149 CLR 337 and will analyse the way in which the true rule has been applied in subsequent decisions of the High Court. The article will also consider the inconsistencies between intermediate appellant courts in the application of the ambiguity gateway, followed by a discussion of the implications such divergent views have had on interpretation of commercial contracts in Australia.
ii The Starting Position
The current Australian jurisprudence is torn between the more liberal approach adopted by the English courts and the less liberal approach of having to first identify ambiguity in the text of a contract before extrinsic evidence can be admitted into evidence. on one view, the latter approach is reflected in the leading judgment of Sir Anthony Mason in Codelfa Construction v State Rail Authority.3 However, recent decisions of intermediate appellate courts have taken a broader view of Mason J’s expression of principle more in line with the modem English approach. This will be addressed further on in the paper.
 Investors Compensation Scheme Ltd v West Bromwich Building Society  1 All ER 98 at 114-115; Reardon Smith Line Ltd v Sanko Steamship Co  1 WLR 989 at 997; Prenn v Simmonds  1 WLR 1381 at 1383-4. These authorities support the wider trend known as “commercial construction” of contracts: see eg. John Carter, ‘Commercial Construction and Contracts Doctrine’ (2009) 25 Journal of Contract Law 83.
 Rainy Sky SA v Kookmin Bank  UKSC 50.