PRINCIPLES OF CI
- OBJECTIVE INTENTION OF PARTIES
- Writing = primary source
- read contract as a whole
- background facts
- give words ordinary meaning
- if words ambiguous, give words most likely objective intended meaning
- if clear parties did not objectively intend words to have ordinary meaning –> give words the meaning the parties must have objectively intended
- words can be implied into a contract
- doctrine of rectification
- estoppel by convention
The Didymi (1888)
Courts interpreted the clause in the way they thought was what the parties agreed
North Eastern Properties v Coleman [2010]
“if the parties agreed 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” (Longmore LJ)
Re Sigma Finance [2010]
SC: broad effect of 1 clause in a contract can be impliedly limited by reference to the rest of the contract
- clauses must be placed in context of the scheme of the contract as a whole
Thorney Park Golf v Myers Catering [2015]
Contracts must be read as a whole
FI (read in isolation):
- s.6 has a specific basis for termination
- parties had a functionally similar term to cl.6 in previous contracts (so it must have consistent meaning)
- both parties benefit from the clause
CA (read contract as a whole):
- harmonious interpretation (interpret provisions so that all provisions of the contract have work to do)
- commercial sense (parties expressly said themselves that it wouldn’t make commercial sense to terminate contract before 3 years, so cl.4 outweighs cl.6)
- cl.4 wasn’t stolen from previous contract it was new so it must be important (level of significance)
Belmont Park Investments v BNY Corporate Trustee Services [2012]
EXCEPTION: court didn’t read contract as a whole
- they were interpreting a Clause they disapproved
- “this does not favour the coherence and certainty of the law”
ICS v West Bromwich [1998]
principle 4
Hoffman summarised principles of interpretation
- INTERPRETATION - meaning of doc to reasonable person with knowledge of background facts at time of contract
- BACKGROUND is “absolutely everything” that affects interpretation of the document (words are contextual and cannot be read in isolation)
- LAW EXCLUDES PREVIOUS NEGOTIATIONS AND DECLARATIONS OF SUBJECTIVE INTENT though (practical policy)
- just look at what parties signed, other stuff is irrelevant
BACKGROUND FACTS - what is excluded?
PRIOR negotiations - Chartbrook v Persimmon (but might be used to establish a relevant background known to parties)
SUBSEQUENT conduct - Schüler v Wickman
The Aragon [1977]
Classic example of giving words their natural and ordinary meaning in the context
- in context, words cannot have normal geographical meaning
- because Panama Canal is a way of going through
- in context, contract was a charter party involving ship sailing from Europe to North America, so it is obvious what they really meant
Fitzhugh v Fitzhugh [2012]
FI (non-literal meaning):
- absurd result if literal meaning (stultify clause application)
- argument that you can remove one licensor is too convoluted
- general equity maxim: can’t benefit from your own wrong
CA (literal meaning):
- opening words are clear to include A as a licensor (and contract was drafted by solicitors)
- reading clause doesn’t stultify its application (can get rid of the licensor, not efficient but possible)
- courts shouldn’t alter terms to make them more efficient and reasonable, they should interpret what parties have agreed
William Hare v Shepherd Construction [2010]
Clause defined insolvency to include “making of an administrative order” but did not include a case where person goes into administration by filing documents with the court instead (person filed documents with the court)
DEFINITION MUST BE GIVEN ITS NATURAL MEANING
- no insolvency if it is through court because clause required administrative order (even though most of the time administrations are entered into through court order)
Y.E.S. v Soup Restaurant [2015]
PRINICPLE 6: if words ambiguous give meaning parties are most likely to have objectively intended
- BACKGROUND FACTS considered
YES must have envisaged agreement will continue past the ‘lease’ they had at the time
- they were sister companies
- kitchen was expensive to build
Napier Park v Harbourmaster [2014]
PRINICPLE 6: if words ambiguous give meaning parties are most likely to have objectively intended
- USE COMMON SENSE
FI (it had been downgraded):
- proper grammatical constructions means clause means past event
- it had been downgraded so reinvestment criteria not met
- Lord Chancellor said we should be giving effect to unambiguous nature of the language rather than commercial considerations (only consider that if language is ambiguous)
CA (it had not been downgraded):
- clause is present perfect, - it referred to a past event with continuing event (since this has now been upgraded, downgrade doesn’t have continuing effect)
- also no need for clause to be ambiguous before commercial context is considered (no ambiguity gateway)
- referring to commercial context, current rating is far more relevant
Rainy Sky v Kookmin Bank [2011]
RINICPLE 6: if words ambiguous give meaning parties are most likely to have objectively intended
- USE COMMERCIAL SENSE
- ambiguity ALWAYS has to be resolved
- resolution depends on what parties must have objectively intended
- this can be determined by commercial sense
Static Control Components v Egan [2004]
ODD CASE where CA increased liability of guarantor beyond the face of the guarantee (usually they limit liability of guarantor)
- face of words = future goods only
- background facts = clear parties intended guarantor to be liable for all goods (past and future)
Charter Re v Fagan [1997]
Traditional – give effect to words of parties
L. Mustill: “To force upon the words a meaning which they cannot fairly bear is to substitute for the bargain actually made one which the court believes could better have been made.”
ICS v West Bromwich [1998] (principle 7)
Lord Hoffman sets out principles pf interpretation (the first three principles are set out under Principle4)
- WHAT PARTIES WROTE IS NOT NECESSARILY WHAT THEY MEAN
- consider the background which might show parties used the wrong words (courts can correct) - USUALLY we do not accept people made linguistic mistakes esp. in formal documents BUT if background shows that words are not what parties meant, law does not require a judge to attribute to parties an intention they never had
TO CHANGE WORDS:
ONE - parties must have made a mistake
TWO - it must be clear what they actually objectively intended
Rice v Grate Yarmouth Borough Council [2002]
Held (CA):
“in any breach” must mean “repudiatory breach”
CA implied the term repudiatory into the clause (changing its meaning) because parties cannot have intended the clause
PROBLEM: if that’s what parties meant, why did they even have this clause (that is just the underlying law!)
BCCI v ALI
employee claim based on harm caused by the fact he worked for fraudulent bank NOT covered by previous settlement
- releases must be interpreted strictly (here, parties didn’t know they had this claim and at the time the cause of action was not invented yet, “all” cannot extend to entirely unknown eventuality)
- parties cannot have meant “all” claims because it doesn’t include claims against bank for money in their bank account
- since “all” cannot have been what they meant, courts can reinterpret that to what parties must have actually intended
- courts decided they must have actually intended all claims relating to TERMINATION OF EMPLOYMENT
COURT TWISTED MEANING OF WORDS
ICS v West Bromwich (actual case)
Court basically changed the words
- to limit scope of clause
Chartbrook v Persimmon Homes [2009]
Court said DO NOT take literal meaning it makes no commercial sense
- changed words to reflect the “real” intention
Arnold v Britton [2015]
JUDGES DRAWING A LINE
MAJORITY: give effect to “natural and ordinary meaning” of the words even if it leads to unfair result
MINORITY (Carnwell): give effect to “real” intention
Marks and Spencer v BNP Paribas [2016]
SC held a term would not be implied
- more traditional approach returned to (Lord Neuberger also gave leading speech in this as well as Arnold)
ONE - weigh up things (yes, rent is paid as consideration for possession and no possession here, but equally, it was a 70 page document with lots of provisions and if parties intended this, then why isn’t it in the lease?
TWO (killer argument) - can’t imply a term because the background facts say parties can’t have objectively intended that
- there was an understanding in commercial property market that there is no right to repayment of rent unless there is an express clause
Associated Japanese Bank v Credit du Nord [1989] 1 WLR 255
hard to imply terms in financial contracts because they are elaborately drafted BUT NOT POSSIBLE (e.g. this case)
IMPLIED condition precedent to guarantor’s liability that goods actually existed
- so obvious that it went without saying even if not in the contract
- document forgot to deal with issues so fundamental no one thought of it
