#17245 - Construction And Interpretation - GDL Contract Law

Lord Napier and Ettrick v Kershaw [1999] – Lord Steyn set out several key principles:

• Loyalty to the text of a commercial contract, instrument, or document read in its commercial setting is the paramount principle of interpretation.

• Words ought therefore to be interpreted in the way in which a reasonable commercial person would interpret them.

  • This is more likely to give effect to the intention of the parties.

• McKendrick questions if this is fair given many commercial people consult lawyers.

Four Corners Rule:

• Lovell & Christmas v Wall (1911) - plaintiff sought an injunction to prevent the defendant, its former director, from carrying on business in Liverpool as a manufacturer of margarine. Turned on interpretation of ‘provision merchant.’

  • Held it is irrelevant and improper to ask what the parties, prior to the execution of the instrument, intended or understood.

  • Lord Cozens-Hardy MR explained that “construe the document according to the ordinary grammatical meaning of the words used therein”.

  • Everything that could properly be taken from a document would appear from its words alone, provided only that they were properly interpreted

The Rule has Gradually been Erroded

• Prenn v Simmonds [1971] - Lord Wilberforce disclaimed the idea that agreements could be wholly isolated from the “matrix of fact” in which they were set. “No contracts are made in a vacuum”

  • This can still be objective: the intention which reasonable people would have if placed in the situation of the parties.

• Investors’ Compensation Scheme v West Bromwich Building Society [1998] – Lord Hoffman summarised principles

  • 1) 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

  • 2) Matrix of fact includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man.

  • 3) Excluding previous negotiations and declarations of subjective intent

  • 4) Meaning of a document may be different from the meaning of words.

  • 5) ‘natural and ordinary meaning’ rule can be broken if it attributes to the parties an intention which they plainly could not have had.

• Lord Hoffman’s restatement suggests old baggage has been abandoned.

  • E.g. Contra Proferentem Rule: Ambiguity was constructed against the proferens (person relying on the clause).

    • In Mitchell v Finney Lock Seeds [1983] Denning tells us that thanks to UCTA 1977 no longer necessary to go through “all kinds of gymnastic contortions” due to UCTA test of reasonableness.

• Lord Hoffman has been criticised for overextending the matrix of fact by including “absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man”.

  • BCCI v Ali [2002] – Mr Naeem signed release of all claims he might have against the bank. In 1998 HoL introduced concept of stigma damages.

    • Held the waiver did not...