5.1 Origins of the interpretation of contracts within the United Kingdom
English law has taken a purposive and constructive approach when dealing with disputes relating to the interpretation and construction of a contract.116 Judges were involved in the drafting and passing of the legislation and were said to be acquainted with the policy behind the drafting of the said legislation in parliament.117 The judges would in turn interpret the disputed contract in terms of the policy relating to the implementation of the legislation rather in terms of the contents and text contained in the contract.118 As a result of this approach that has been used by the English judges, English law developed more rigid rules as opposed to Roman-Dutch law.119
When taking into account the development of contract law within the United Kingdom for the past 50 years, parliament has only played a subsidiary role.120 The changes being brought about in contract law has been at the work of the bench.121 The courts have historically adopted a “literal approach” to the interpretation of contracts.122 This approach would entail the courts simply interpreting the disputed contracts on the basis that the written agreement,
“as contained in the four corners”, was the true intentions of the parties.123
When interpreting a contract in terms of English law the court’s objective is to look at the outwards expressions of the contract rather than the inner intentions of the parties.124 The intention of the document is seen more as a question of law and the interpretation of the words classified as a question of fact.125 The meaning of the word is interpreted irrespective of the ordinary or specialised meaning of the disputed word which may result in disputing the
116 Ashurst https://www.ashurst.com/doc.aspx?id_Resource=4634 (11-11-2016).
117 Cornelius (n 10) 9.
118 Ibid.
119 Ibid.
120 Gutteridge “Contract and commercial law” 1935 LQ Rev 91 92.
121 Ibid.
122 Ahmed “The interpretation of commercial contracts: Time for reform” 2012 Nottingham LJ 26 27.
123 Ibid.
124 Mitchell Interpretation of Contracts (2007) 13.
125 Louw (n 1) 66.
37 contract as a whole.126 English law has also viewed the interpretation of a disputed contract to be the duty and role of the court and not of the parties to the agreement.127
With the role which the English court play with the interpretation of contracts the parties to the dispute would be able to have a relatively quick decision from the courts with regard to the disputed contract as the courts would never need to look further than the document itself for its decision.128 The external evidence, matters leading up to the contracts and other circumstances were not considered by the courts resulting in a quick litigation process with regard to a court decision.129
The approach to the interpretation of contracts was reformed by the decision of Lord Hoffmann in the matter of Investor Compensation Scheme Ltd v West Bromwich Building Society.130 The courts moved to a more modern view of the interpretation of contracts in that, unless the words in dispute had a more technical meaning the words are to be interpreted in their natural and ordinary meaning as per the context of the contract as a whole.131 The effects of the decision in the aforementioned case on maxims will be more fully discussed below.
5.2 Approach to maxims within the United Kingdom
Maxims or canons of construction as they are referred to in English law were part of the specific rules of interpretation the courts would utilise together with general principles and exclusionary rules for the interpretation of contracts.The definition of a maxims in terms of English law is a “traditional legal principle that has been frozen into a concise expression.”132
Maxims were given the position of guiding legal principles of a legal argument and had to be utilised as such.133 The maxims had deep roots in Latin, Norman French and old English and due to the wording of the maxims it would result in the reader and legal authors having the
126 Louw (n 1) 66.
127 Mitchell (n 124) 31.
128 Ahmed (n 122) 28.
129 Ibid 28.
130 Investor Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WCR 896.
131 Mitchell (n 124) 37.
132 Davenport Legal Maxims and Adjudication (2010) 2.
133 McQuade (n 5) 2.
38 maxims remain in their memory due to the way the word would “musically roll of the tongue and capture the attention and respect of the hearers.”134
Maxims have not always been favoured in English law of interpretation of contracts and Lord Hoffmann has stated his dissatisfaction with the traditional approach to the interpretation of contracts and therefore put forward a new approach to interpretation.135 The reason for the dismissal of maxims by Lord Hoffmann was due to the change in thought with regards to the interpretation of contracts. The intention boiled down to the facts of the true intention of the parties and the actual meaning of the words used in the agreement.136
An example of Lord Hoffmann dislike for maxims was the maxim of contra proferentem which formed part of the “intellectual baggage” that Lord Hoffman was eager to discard of in his new approach.137 However, contra proferentem is described in the case of Sinochem International Oil v Mobil Sales Supply138 as the rule of last resort and has had particular effect prior to the inception of the Unfair Contract Terms Act 1977 on including the limiting terms contained in contracts.139
The incorporation of the maxims within English law as a point of last resort for the interpretation of contracts makes more sense on the basis of the objective approach utilised by the courts for contractual interpretation.140 However, if the courts are to revert to the subjective approach, the utility of traditional rules or maxims would have no connection and should be excluded from the principles of interpretation of contracts.141
5.3 English case law 5.3.1 Introduction
English legal scholars are of the opinion that case law may have limited influence with regard to the application of maxims on the interpretation of contracts. When dealing with a dispute
134 McQuade (n 5) 108.
135 Hogg “Fundamental issues for reform of the law of contractual interpretation” 2011 Edin LR 3 406.
136 Mitchell (n 124) 37.
137 Ibid.
138 Sinochem International Oil v Mobil Sales Supply [2000] 1 Lloyd’s Rep 670.
139 Mitchell (n 124) 37.
140 Hogg (n 135) 6.
141 Ibid.
39 with regard to the content of a written agreement, the interpretation of each set of facts can be unique which may result in legal precedents having limited role in the interpretation of contracts.142 The courts as a result have a certain amount of leeway in their decisions on the interpretation of the contracts allowing them to seek a result which is ultimately commercially sensible.143
5.3.2 Lexi Holdings PLC v Stainforth144
5.3.2.1 Facts
The matter involves the appellant’s appeal against the decision with regards to the respondent’s liability towards a loan in terms of a written sale agreement between the parties.
The respondent was experiencing difficulty in financing the loan for the residential property to be purchased from the appellant. The appellant found a property investor who was able to assist the respondent with the purchase of the property. However, the sale never came into being. The appellant then attempted to rescind the agreement and served a demand for payment. The respondent argued, which argument was accepted by the lower courts, that his liability had been extinguished in return for his “relinquishing all rights” to the property.
5.3.2.2 Discussion
The above matter is said to be the courts’ current position on the applicability of the maxim of contra proferentem.145 The appeal by the appellant was dismissed on the basis that the lower court’s interpretation of the agreement was correct. The respondent was required, in terms of clause 4 and the wording “relinquishing all rights,” to transfer all benefits in the property which in turn resulted in his liability also being discharged at the same time.146 The terms of the agreement were ruled to be “inadequate and ambiguous” and therefore construed against the appellant in accordance with the rule of contra proferentem.147
142 Mitchell (n 124) 31.
143 Ibid 32.
144 Lexi Holdings PLC v Stainforth (2006) EWCA Civ 988.
145 Mitchell (n 124) 37.
146 BD Online An Exclusive Deal (2006) http://www.bdonline.co.uk/an-exclusive-deal/3072670.article (11-11-2016).
147 Ibid.
40 5.3.3 Credential Bath Street Ltd v Venture Investment Placement Ltd148
5.3.3.1 Facts
In the event of the non-performance of the tenant, the guarantor would be liable for the obligation under the lease agreement. The guarantee was only for a specified period and after the expiration of the specified time the guarantor would not be liable under the guarantee except to “any antecedent breach of the guarantee”.149
5.3.3.2 Discussion
The court held that the expression regarding the antecedent breach meant what it had said and the literal approach to the interpretation of the contract and words had to prevail.150 The court further pointed out that the canons of constructions such as the rule of contra proferentem might need to be reconsidered in light of the new approach to the interpretation of contracts.151
Legal authors, however, are of the view that the rule of contra proferentem may still have its place in a subsidiary role where there is doubt as to the meaning of the contract term which has not been “individually negotiated”.152
148 Credential Bath Street Ltd v Venture Investment Placement Ltd [2007] CSOH 208.
149 Clive “Interpretation, implied terms and interference with conditions” 2008 Edin LR 283.
150 Ibid 284.
151 Credential Bath Street Ltd v Venture Investment Placement Ltd (n 148).
152 Steven (n 149) 285.
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