Lecture 9-Construction Flashcards
Rules of Construction
Dispute about the meaning of the terms
Two approaches
1.Literal
2.Contextual
Literal
It was long thought that English law favoured relatively literal or straightforward readings of contracts. English courts generally treat certainty as being desirable. Parties to transactions, particularly commercial transactions, should know where they stand so that they can structure their actions accordingly.
Contextual
A contextual approach, in contrast, has the advantage of flexibility, in that it lets the court reach sensible results on the facts of a case. Unlike the literal approach, it does not insist that ‘body’ can only have one meaning unless the parties expressly redefine it.
Case Authorities
Marley v Rawlings [2014]
“[W]hen interpreting a contract, the court is concerned to find the intention of the party or parties, and it does this by identifying the meaning of the relevant words, (a) in the light of (i) the natural and ordinary meaning of those words, (ii) the overall purpose of the document, (iii) any other provisions of the document, (iv) the facts known or assumed by the parties at the time that the document was executed, and (v) common sense, but (b) ignoring subjective evidence of any party’s intentions.”
Investors Compensation Scheme Ltd v West Bromwich Building Society [1998]
1st Contextual Principle
Principle 1: Reasonable person
Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.
Principle 2
Background of the contract (permission to consider a wide range of materials beyond the contract)
The background was famously referred to by Lord Wilberforce as the “matrix of fact,” but this phrase is, if anything, an understated description of what the background may include. Subject to the requirement that it should have been reasonably available to the parties and to the exception to be mentioned next, it includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man.
Principle 3
Excludes subjective intent and pre-contractual negotiations (unpractical)
The law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent. They are admissible only in an action for rectification. The law makes this distinction for reasons of practical policy and, in this respect only, legal interpretation differs from the way we would interpret utterances in ordinary life. The boundaries of this exception are in some respects unclear. But this is not the occasion on which to explore them.
Principle 4
Meaning should be considered in the context of the agreement
The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean. The background may not merely enable the reasonable man to choose between the possible meanings of words which are ambiguous but even (as occasionally happens in ordinary life) to conclude that the parties must, for whatever reason, have used the wrong words or syntax.
Principle 5
The courts can rewrite a clause if it does not make sense (plainly did not intend that meaning)
The “rule” that words should be given their “natural and ordinary meaning” reflects the common sense proposition that we do not easily accept that people have made linguistic mistakes, particularly in formal documents. On the other hand, if one would nevertheless conclude from the background that something must have gone wrong with the language, the law does not require judges to attribute to the parties an intention which they plainly could not have had.
Literal Approach?
More recent cases place emphasis on the need for certainty and on giving words their natural and ordinary meaning. Resurgence of the literal rule.
Lord Neuberger observed in Arnold v Britton [2015] that a court should be “very slow to reject the natural meaning of a provision as correct simply because it appears to be a very imprudent term for one of the parties to have agreed.” [at 20]
Where the natural and ordinary meaning of the words is clear, the court should be slow to make use of considerations of commercial good sense in interpreting the meaning of a contract.
