The Chief Justice noted, in his speech at the CIArb Asia Pacific Conference (see Legal update, First CIArb Asia Pacific conference held in Australia), that in the mid 1970s the approach to contractual interpretation in common law jurisdictions was a simple matter of looking at the contract. The parol evidence rule excluded most extrinsic material.

In the mid 1970s Lord Wilberforce introduced the concept of the factual matrix to assist the court in identifying the aim of the agreement and its commercial context. The Chief Justice indicated that he believed that what Lord Wilberforce was considering, was a background of mutually understood facts of an undisputed character which should be taken into account when construing a contract.

Lord Hoffmann had since expanded on those principles in a series of decisions, including Investors Compensation Scheme Ltd v West Bromwich Building Society [1997] UKHL 28 and Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38.

The Chief Justice noted that this approach was being adopted in the face of technological developments that Lord Wilberforce would never had anticipated in the early to mid 1970s, that is, the enormous expansion in the volume of material. Technology has enabled all this material to now be recorded on a single external hard drive that assists in the carrying of the material, but does not aid in the comprehension of the material.

The parol evidence rule would, if it was applied, exclude much of the material. The consequences of this material now being available were that:

This approach was also occurring at a time when entire agreement clauses, or merger clauses, were in his view under attack in some jurisdictions and so were not given full force and effect.

The Chief Justice commented that other jurisdictions had found ways "around" the parol evidence rule in order to follow Lord Hoffmann's approach. As a result, the common law rules for contractual interpretation have developed in those jurisdictions so as to add another level of risk to contracting parties. The Chief Justice noted that one of the major tasks of any detailed written contract is to allocate the risks among the parties.

The Chief Justice considered that the uncertainty as to the way a contract might be interpreted may be treated as a new level of commercial risk and should be considered by the parties when drafting contracts. Specifically, parties could consider incorporating into their arbitration clauses a provision specifying the law of contractual interpretation to be applied to the construction of the arbitration clause and the contract. The Chief Justice's view was that if parties adopted the English, Hong Kong or Singaporean law of contractual interpretation, they may be opening a wider area of inquiry than they intended. That risk would be reduced if the parties agreed that Australian legal principles of contractual interpretation should apply.