Contractual Interpretation Flashcards
The Didymi
Found EA, rather than A2A
Interpreting clause to avoid rule and give effect to parties’ intention
What are the 10 rules?
1: Objective Intention
2: If in writing, that is primary source of intention
3: Read as a whole
4: Read in context of BG facts
5: Almost always give words ordinary meaning in their context
6: If words ambiguous, give meaning parties most likely to have intended
7: If ordinary meaning of words cannot have been intended, give them the meaning the parties objectively must have intended
8: Words impied into contract if parties must objectively have intended them
9: If contract doesn’t reflect common intention at time made, can be amended
10: If parties dealt on basis of common understanding of meaning or effect of contract, will be bound by that if it woud be unjust to go back on it
Why objective intention?
More pragmatic (difficult to determine subjective intention)
More certain
Protects third parties
What counts as part of the contract?
Not just one piece of paper, can be broader emails and letters between them deciding terms
This makes for a very time-consuming process of determining what counts as part of the contract
What are Entire Agreement Clauses?
Stipulate that this one document contains the entire contract, avoids problem of contract being over many documents.
Longmore LJ in Northe Easter Properties v Coleman (2010): “if the parties agree that the written contract is to be the entire contract, it is no business of the courts to tell them that they do not mean what they have said”
Can you have no variation clauses as well as EACs to be conclusive of what happens in future
This would slow down commerical process
But would also put a handle on the change
FOC would allow you to bind yourself
But would also mean you can’t be prevented from agreeing in future
Like ParSov
So doesn’t do anything, just promotes good conduct
Re Sigma Finance
E.g. of usual effect of Rule 3: Words expressed generally are limited by reference to rest of contract
Provision of trust deed not expressly limited, but implieddly limited by reference to rest of con.
Reading of whole contract show parties did not inted broad literal inrepretation of clause as it would conflict w scheme of con as a whole
Belmont Park Investments v BNY Corporate Trustee Services
Court sometimes refuses to read clause as part of the whole contract, particularly when interpreting a clause they disapprove of
Not good for coherency and certainty of the law…
Thorney Park Golf v Myers Catering
Clause 4: For the contract to be reasonable, initial term of 3 yeas must be agreed
Clause 6: Can terminate w/out given reason w 4 months notice
CA: Clause 4 is more powerful, must read 6 in light of it
4 says must have 3 years to be reasonable, ergo 4 months notice in first 3 years = unreasonable
Lord Hoffman, in ICS v West Bromowich Building Society, on what = relevant BG facts
“absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man”
But don’t look at prior negotiations
So quite a narrow period where you can consider context
Chartbrook v Persimmon Homes
Prior negotiations are excluded
Except as evidence that another fact was known to the parties that can be relevant BG
Lord Hoffman
Bank of Scotland v Dunedin Property Investment Co
Used the exception to prior negotiation exclusion that Hoff mentioned in Chartbrook
Helped establish parties’ knowledge of cricumstances w reference to which they used words in the contract (that the company was aware the bank would borrow money to subcribe for the loan stock and inetended to hedge the transaction and if the loan stock wa rdeemed early there would be uncertain cost associated w the hedge)
Raises Q of wheher parties might use contract itself to expressly limit thte types of background info available in interpretation process
ICS v West Bromowich (1998), Lord Hoffman at 912:
Principels of interpretation may be summarised as follows:
(1) Interpretation = ascertainment of emaning the doc would coveey to reasonable person having all the background knowledge reasonably availbale to parties at time of contracting
(2) BG famously referred to by Lord WF as the “matrix of fact”. An understated description of what BG may include. Subject to reasonable availbility to parties, and exception next, includes absolutely anything which would have affected the way the language would be understood by reasonable man
(3) Law excludes previous negotiations and declarations of subjective intent from BG. Admissible only in action for rectification. Law makes this distinciton for practical policy, and in this respect only, legal interpretation differs from the wat we would interpret ordinary utternaces. Boundaries of this exception unclear
BG facts that are excluded as available evidence:
Chartbrook v Persimmon Homes, Hoff @ 42:
Prior negotiation cannot be used to draw inferences about what the con meant, but can be used to establish fact known to both parties
Schuler v Wickman Mchine Tools Sales (1974)
Subsequent conduct = excluded
William Hare v Shepherd Construction (2010)
Dispute about whether person was insolvent
Clause defined insolvency to include “the making of an administration order”, but didn’t prima facie include going into admin by filing doc w court
Parties cannot have intended that admin only count as insolvency if made admin order, would make no commercail sense
Nonetheless CA decided def should be given natural meaning
The Aragon (1977)
“East of Panama Canal” means can’t go through Panama Canal to Western Seaboard, does not exclude US Gulf even though technically West of the meridian of longitude on which PC stands
Giving the words their natural meaning in context, which parties would understand
Fitzhugh v Fitzhugh (2012)
“Licensor” must exclude Anthony bc he was the Licensee?
One party looking at perfectly clear words, the other saying it can’t mean that in context of agreement, would make no commercial sense, would be absurd result.
1st Instance finds for Harry, CA for Anthony 2-1
Could have gone either way, encapsulates recurring problem of what words say vs what they must reasonably mean
Canons of construciton
Contra proferentum (ambiguous terms should be interpreted aganst arty that propsed/drafted the contract/term) Eiusdem generis (the specific rule over-rides the general rule)
Rainy Sky v Kokmin Bank (2011)
Recent example of how ambiguity dealt with
Words were ambiguous and both interpretations of what bank is libale to provide were arguable
Court favoured bbuyer onbasis of “considerations of commercial common sense”
Arguably emphasised commercial common sense too much, not overall structure of contract enough
Shows that ambiguities need to eb resolved and resolution depends on trying to esblish what parties must objectively have intended
Y.E.S. v Soup (2015)
Agreement that Soup sublease to YES was to survive as long as Soup’s lease was not terminated
The specific lease that existed at time of sub-lease (which had ended) or the lease which Soup had from time to time of the unit?
YES wins
Context of the contract makes the seemingly unambiguous text of the contract seem questionable. Would lead to an absurd result, so must consider that it’s not so unambiguous
Can’t use context to rewrite contract or ignore plain wording, but can presume parties would not have intended absurd result, and thus infer a more reasonable interpretation as more likely
Napier Park v Harbourmaster (2014)
Had the Class A1 notes been downgraded, considering they had gone back up?
1st instance says they had, CA says they hadn’t
1st instance goes w natural meaning of words
CA goes w the more commercially reasonable result
ICS v West Brom Building Society
How was the contract rewritten?
“any claim (whether sounding for recission in undue influence or otherwise)” = “any claim sounding for recission (whether for undue influence or otherwise)”
Barclays Bank v HHY Luxembourg [2010]
CA interpreted reference to “disposal of all of the shares in the capital of an Obligor” as if it had referred to a disposal of the shares of a subsidiary of an Obligor
Lord Mustill in Charter Re v Fagan (1997)
I would hesitate long before giving words any meaning other than their ordinary meaning in the ocntext of their document just bc the result would be extraordinary
Lord Reid saying that a construciton leading to a very unreasonable result must be a relevant consideration regfeclts a metod of constructing contracts and the common experince of how language is understood
But the ppractical rule of thumb ahs limits, and the court should remind itself that the task is to discover what the parties meant from what they said, not to substitute fro the bargain actually made one which the court believes could better have been amde
Lord Hoffman in ICS v West Brom (1998)
The meaning which a document would convey to a reasonable man is not the same thing as the meaning of its words.
the meaning of the document is hat the parties using those words against the relevant background would reasonably have understood them to mean. Bacground may enable a reasonable man not just to choose between possible meanings of ambiguous words, but even to conlcude parties must have used the wrong words or syntax
Rule that words should be ven their natural and ordinary emaning reflects common sense position that we do not easily accept that people have made liguistic mistakes,
OTOH, if we would neverthless conslude from background that something must have gone wrong w the language, th law does not require judges to attribute to the parities an intention which they plainly oculd nothave had
Lord Diplock qute deployed by Hoff in ICS
“if detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business commonsense, it must be made to yield to business common sense.”
Rice v Great Yarmouth (2002)
Contract says that “If the Contractor commits a breach of any of its obligations under the contract…” The council may terminate
Council seeks to terminate for minor breach
Words cannot mean what they say, this is a four year contract, would be absurd to terminate for minor errors in mowing the lawn
CA agreed, said it must have meant “repudiatory breach”
But you can already teminate for a repudiatory breach, why even include the clause if that what they meant? heavily criticised case
BCCI v Ali (2002)
Contract said employees release all calims but those under the pension scheme, so cant recover for damage to their employment prospects having worked for fraudulent BCCI
HL said no
This is a release - which are interpreted strictly. Parties could not have intended to release a claim of which they were not aware
But counter-argument that settlements are supposed to cover every eventuality
Alternative argument offered that what clause purports to do is settle all claims of a certain nature. Employees made deposits w bank, couldnt exclude this claim eg.
Could restrict clause to mean all claim rising out of employment relationship.
Or restrict even further to claims arising out of termination of employment contract
Can then cover claim of unemployability as result of fraud
Court is twisting meaning of words, but are enabled to do so because the literal contstruction of the words cannot ahve been meant. But this allows court to change eaning to whatever
Chartbrook v Persimmon Homes (2009)
Additional resideintial payment was expressed to be: “23.4% of the price achieved for each residential unit in excess of the minimum guaranteed residential unit value less the costs and incentives.”
Chartbrook interptes as: ARP = 23.4% x (PA – (MGRUV + C & I))
Persimmon interprets as: ARP = (23.4% x (PA – C & I)) - MGRUV
What parties receive is reasonably clear though not very well drafted
Persimmon argues different meaning, different from actual words used (whcih couldn’t be meant, running the figures shows it makes no commercial sense)
HL agreed.
Can substantially change the words to better reflect parties’ intentions
Arnold v Britton (2015)
Chalets w annual service charge, some increasing by 10% every 3 years, some every year. Words can’t mean what they say, difference amounts to £282 v £2700.
Proportionate part of variable expense will never be the same as a fixed sum of money.
So two provisions in the clause which are incompatible.
Lessees argue that the 10% increase is maximum cap to obligation to pay proportionate part of expenses.
Words don’t says that but its what they msut mean
Lord Carnwrath agrees
But majority led by Lord N said no, have to give natural meaning to words, if you dont like them shouldn’t have signed, doesnn’t matter that it produces odd result. Closer to Mustill’s attitude
So pricniple 7 likley to arise scarcely, but occasionally, from now on
What are the two tests for Principle 8?
Business efficacy test
Oh of course test
AG of Belize v Belize Telecom (2009)
Hoff makes clear that implication of terms into a contact is part of interpreting contract as a whole
Associated Japanese Bank v Credit du Nord (1989)
Generally diifficult to imply etermins into elaborately drafted financial contracts, but not impossible bc that happens here
One bank guaranteed to another bank the obligaitons of 3P re certain goods
Goods didnt exist
Guarantor still liable?
Steyn J says no, implied condition precedent to guarantor’s liability that the goods existed
Not expressed bc goes w/out saying
Even elaborately drafted commercial documetns can fail to deal w issues so fundamental that no thought is given to them
Marks and Spencer v BNP Paribas (2016)
Tenant wants repayment of rent relating to period after lease is terminated, says that should be implied term.
Court says no
Two interesting bits of reasoning
Argument that rent is paid as consideration for possession, and T didn’t have possession, so fair and reasonable to require LL to pay. But this is a 70 page doc w many contractual provisions, if parties intended this why isnt it in the lease?
Two (killer argument) it can’t be an implied term because there is an understanding in the commercial property market that unless there was a right of express appointment of rules into the lease, T has no right of repayment of rent. Can’t imply a term contrary to understanding of parties. Links w principle 4, as most important background fact is the market the parties are operating under
What does pricnipel 9 mean?
If we’ve been negotiating for past 3 omonthhs re sale purchase agreement for a company, and have signed lots of docs w lots of clauses, then notice something we agreed to go in the contract isn’t in there, we can get this rectified by the court if we can show a common agreement that this clause would be in there but isn’t
This is very hard to do, because starting point is “then why did you sign it fucko?”
How do you establish what it is that isn’t incuded for rule 9?
When interpreting a contract you cant use term sheets and prior negotiations and stuff
but can in contet of rectification
Other party might say we changed our minds, I have to say we didn’t, which is very difficult to show
Chartbrook v Persimmon Homes
re Principle 9
Court decided that the subjective intention of parties were irrelevnnat to reciitification
What was required was to establish that the parties’ common objecitve intention was not recorded in the contract
Davenntry District Council v Daventry & District Housing (2012)
Implications if ricniple 9 yet to be worked out in deatil, although CA started prcess in this case (apparently)
What is Principle 10 all about fam?
Estoppel by convention is about parties having dealt w each other on a particular basis, reaching a common understanding about something, and it being unfair to go back on that understanding
Amalgamated Investment v Texas Bank (1982)
Case concerned interpretation of guarantee given by parent company to bank
There was a change of plan, so loan made to assoiated company, Portsoken, rather than to ANPP
but guarantee not altered to take account of chaged circumstances
Group got into financial difficulties, is the guarantee still effective?
Robert Goff J saifd the guarantee was expresssed to cover money owing to bank by ANPP, not Portsoken, and therefore the guarantee could not be interpreted to cover loan made to Portsoken
nevertheless found in favour of bank on basis of estoppel by convention
Negations and subsequent transaction showed both believed the guarantee did cover the facility as actually made
Parties assumed truth of certain state of affairs and transaction took place on basis of that assumption
CA agreed w judge on basis of estoppel by convention
