CASE IN BRIEF Interpreting written contracts - the Victorian Supreme Court's view on the 'true rule' By Lucy Na Siemens Gamesa Renewable Energy Pty Ltd v Bulgana Wind Farm Pty Ltd [2020] VSC 126
The Victorian Supreme Court has confirmed the so-called true rule of contract construction, confirming that there needs to be ambiguity in a contract before evidence of surrounding circumstances can be used to construe the contractual terms. Background Bulgana Wind Farm Pty Limited (Bulgana) engaged Siemens Gamesa Renewable Energy Pty Limited (Siemens) to design and construct a large wind farm in Western Victoria. The parties entered into an Engineering, Construction and Procurement Contract (the ECP Contract). The ECP Contract required practical completion of the works by 16 August 2019, and provided that Siemens would pay delay liquidated damages (DLDs) at the agreed rate until practical completion was achieved. The ECP Contract further provided that Bulgana could recover the amount of the DLDs by deducting the amount from any certified progress claim or by calling on the two unconditional bank guarantees that Siemens had provided as security. Siemens failed to meet this date and was thereby liable to pay DLDs. As payment, Bulgana asserted its right to draw on the bank guarantees and subsequently the parties fell into a dispute. On 30 September 2019, Siemens and Bulgana entered into an agreement where Bulgana would not make a demand under the Performance Securities and would instead offset the claim for DLDs against monthly payment claims (the Second Agreement). The Second Agreement was finalised by a three-paragraph letter that included this sentence: [Bulgana] will accordingly not exercise its rights to draw on the Performance Securities in its possession in relation to this matter. Despite the Second Agreement, Bulgana informed Siemens that it intended to call on the bank guarantees. The matter came before Justice Riordan of the Victorian Supreme Court. The true law of contractual construction The issue in disagreement was what the phrase in relation to this matter meant: Was Bulgana prohibited from calling on the bank guarantees in relation to the August DLDs only, or all future DLDs as well? Bulgana said that the agreement related to the August DLDs only, and asked the Court to look at the surrounding circumstances to support its construction of the Second Agreement. Justice Riordan determined that the key issue was whether any ambiguity existed in the meaning of the