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It is common for the terms of a contract to be uncertain in some respect. There may be terms that contradict each other, a term may be ambiguous or it may be very difficult to decide what a particular term means. A possible consequence of an uncertain term or terms is that the terms are severed from the contract or else the whole contract is void. Hence uncertainty may be a way of getting out of a contract.

The law's approach to interpretation

To avoid this result so far as possible, the law's approach to this common problem is, firstly, to try to give the uncertain clause or clauses a sensible meaning. This is done by applying an objective test: what would a reasonable person consider the problem clause or clauses to mean? This should be a guide to resolving a dispute over the contract's meaning. The objective test is a common sense test. The courts will go a long way to finding a sensible meaning because the alternative is that the contract may be void.

The consequences of uncertainty

If a term is so uncertain that it cannot be given a sensible or any meaning, the term is either severed from the contract or else, if that is not possible, the whole contract is declared to be void which means that it never existed (despite the parties' assumptions and actions).

Severance means that the problem clause or clauses are ‘blue pencilled’ from the contract and the rest of the contract operates without the severed clauses. Whether a term or terms can be severed from the contract depends on whether the contract can operate without the clauses. If the essential purpose and expected outcome of the contract can still be achieved without the problem clauses, then they will be severed.

If severance is not possible, then, as already stated, the contract is declared to have never existed. This does not quite leave the parties in a legal vacuum because the law of restitution provides that goods or services already provided must be paid for at a reasonable market price.

Unfair Contract Terms

Under the Australian Consumer Law it is possible for an individual consumer (as defined) to challenge a term or terms of a standard form contract on the basis that the term or terms are unfair. If the challenge is successful the term is void.

Exclusion of Responsibility Terms

It is possible to have a term in the contract which excludes one of the parties from responsibility for something that may go wrong in the performance of the contract or limits that responsibility. It is called an exclusion clause, an exemption clause or limitation of liability clause. For example, an exclusion from liability for damage done to a lawn by a builder's backhoe might be included in a contract between the builder and a home owner who is having an extension built to their home.

The courts have generally taken the view that exclusion clauses are unfair and have tried to limit their application. Courts will generally interpret an exclusion clause against the party trying to rely on it and, at the least, interpret it narrowly so long as it is capable of being read down. Where a contract is a document signed by the parties, they will generally be bound by the exclusion clause in it.

Where a contract is an unsigned document, the court will look at what a reasonable person would assume the document to contain. Only where a reasonable person would assume the terms to include an exclusion clause will the exclusion clause in the document be able to be relied on. It must also be shown that the exclusion clause was brought to the notice of the other party. For example, if an automatic ticket machine in a car park had printed on it ‘issued subject to the conditions displayed in car park’ and these conditions, or exclusion clauses, were on a pillar opposite the ticket machine, then this could potentially be held to be unreasonable notice of the exclusion clause. The driver may then be entitled to sue despite the exclusion clause in the conditions.

For consumer contracts, the Australian Consumer Law and other consumer protection legislation may imply conditions that cannot be excluded.

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