Contractual interpretation

The basic principles of contract →Go uptown Formation: capacity and authority · representation · misrepresentation · offer · acceptance · consideration · intention to create legal relations · agreement to agree · privity of contract oral vs written contract · principal · agent Interpretation and change: governing law · mistake · implied term · amendment · assignment · novation Performance: force majeure · promise · waiver · warranty · covenant · sovereign immunity · illegality · severability · good faith · commercially reasonable manner · commercial imperative · indemnity · guarantee Breach: breach · repudiation · causation · remoteness of damage · direct loss · consequential loss · foreseeability · damages · contractual negligence · process agent Remedies: damages · adequacy of damages ·equitable remedies · injunction · specific performance · limited recourse · rescission · estoppel · concurrent liability Not contracts: Restitution — quasi-contract — quasi-agency Index: Click ᐅ to expand: Contract Tort Restitution Tell me more Sign up for our newsletter — or just get in touch: for ½ a weekly 🍺 you get to consult JC. Ask about it here.

When the young legal is confronted with an instrument, whether statutory or contractual, she must bring with her some keys, codexes, tools and techniques. She will need these to extract from a morass of impenetrable verbiage an optimal course of action for her client. These we now call the canons of interpretation. They originated in the parsing of statutes, but they were so useful even commercial lawyers desirous of getting out the door before closing time soon glommed on to the fact that the same rules of engagement ought to apply to private as well as public charters of action.

So they were born.

Ejusdem generis

The ejusdem generis rule of statutory interpretation — which we contract hacks like when it suits us to extend by analogy into contractual interpretation — says wherever general words follow specific words, the general words should be read to include only objects similar in nature to those specific words.

So, “any uprising, riot, looting, organised disobedience or other civil commotion” would not include “ironic flash-mob performances of songs from The Sound of Music, however tiresome or poorly organised”, as long as not specifically violent in aspect (of course, there is every chance that passers-by would become spontaneously violent upon being confronted by an ironic flash mob).

Noscitur a sociis

“We are known by the company we keep”: as true of our words as it is of our confederates, the canon of interpretation “noscitur a sociis” counsels that, in case of ambiguity one should not break glass but be guided by the surrounding context when assigning meanings to sentences. Proof, if anyone needed it, that legal eagles don’t need post-structuralist French philosophers to tell them how to play hermeneutical games.

Context is everything: if you are writing about pickles, conserves and chutneys, do not think you can slip in an oblique reference to lunar exploration and expect it to be understood.

Generalia specialibus non derogant

A Latinism that dates back at least to 1884, if not necessarily all the way to Ovid, Caesar and Virgil, the canon of interpretation “generalia specialibus non derogant” holds that a later, but more general, statutory provision does not override an earlier, more specific one, unless the later one goes out of its way to say so. The Earl of Selbourne LC, in Seward v The Vera Cruz (1884) 10AC 59 put it this way:

“Now if anything be certain it is this, that where there are general words in a later Act capable of reasonable and sensible application without extending them to subjects specially dealt with by earlier legislation, you are not to hold that earlier legislation indirectly repealed, altered, or derogated from merely by force of such general words, without any evidence of a particular intention to do so.”

Lawmakers — and contractual counterparties updating relationship contracts — should be explicit if they intend to squish an earlier agreement.

Investors Compensation Scheme Ltd v. West Bromwich Building Society

Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 summed it up this way:

“But I think I should preface my explanation of my reasons with some general remarks about the principles by which contractual documents are nowadays construed. I do not think that the fundamental change which has overtaken this branch of the law, particularly as a result of the speeches of Lord Wilberforce in Prenn v Simmonds [1971] 1 W.L.R. 1381, 1384-1386 and Reardon Smith Line Ltd. v Yngvar Hansen-Tangen [1976] 1 W.L.R. 989, is always sufficiently appreciated. The result has been, subject to one important exception, to assimilate the way in which such documents are interpreted by judges to the common sense principles by which any serious utterance would be interpreted in ordinary life. Almost all the old intellectual baggage of "legal" interpretation has been discarded. The principles may be summarised as follows:

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 in the situation in which they were at the time of the contract.
2. 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.
3. 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.
4. 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. (see Mannai Investments Co. Ltd. v Eagle Star Life Assurance Co. Ltd. [1997] 2 W.L.R. 945
5. 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. Lord Diplock made this point more vigorously when he said in The Antaios Compania Neviera S.A. v Salen Rederierna A.B. [1985] 1 A.C. 191, 201:

   “. . . 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 commonsense.”

If one applies these principles, it seems to me that the judge must be right and, as we are dealing with one badly drafted clause which is happily no longer in use, there is little advantage in my repeating his reasons at greater length. The only remark of his which I would respectfully question is when he said that he was “doing violence” to the natural meaning of the words. This is an over-energetic way to describe the process of interpretation. Many people, including politicians, celebrities and Mrs. Malaprop, mangle meanings and syntax but nevertheless communicate tolerably clearly what they are using the words to mean. If anyone is doing violence to natural meanings, it is they rather than their listeners.”

See also

• Statutory interpretation
• Contractual interpretation
• Ejusdem generis
• Noscitur a sociis
• Generalia specialibus non derogant
• Fair, large and liberal
• And the JC’s own short-hand to the lot of them: non mentula esse