Transcript Chapter 8
Chapter 8 Construction of Contracts GRIFFITH COLLEGE PROFESSIONAL LAW SCHOOL • Lewinson, The Interpretation of Contracts, (3rd ed) (London, Sweet & Maxwell, 1997)) starts with an extract from one such case (Investors Compensation Scheme v West Bromwich Building Society (1998)) and remarks “the lazy reader may stop here”. • Indeed, the Investors Compensation Scheme v West Bromwich Building Society (1998) is generally taken as setting out the basic principles and has, in fact, been approved as a statement of the law in Analog Devices v. Zurich Insurance (2005) by Geoghegan J and used continuously since then including by Clarke J in BNY Trust Company (Ireland) Ltd & Ark Life Assurance v Treasury Holdings (2007) GRIFFITH COLLEGE PROFESSIONAL LAW SCHOOL The Overall Aim of Contract Interpretation • Reardon Smith Line Ltd v. Young Hansen-Tangen (1976) • Lord Wilberforce said the following: – When one speaks of the intention of the parties to the contract, one is speaking objectively - the parties cannot themselves give direct evidence of what their intention was - and what must be ascertained is what is to be taken as the intention which reasonable people would have had if placed in the situation of the parties. Similarly, when one is speaking of the aim, or objective, or commercial purpose, one is speaking objectively of what reasonable persons would have had in mind in the situation of the parties GRIFFITH COLLEGE PROFESSIONAL LAW SCHOOL • Overall aim is to decide what the intention of the parties is but this is gathered from objective sources, rather than from the parties own evidence as to what their intention was. • Lord Wright in Inland Revenue Commissioners v Raphael (1935) in a passage cited by Murphy J in the Irish case of Igote Ltd v Badsey (2001): – “It must be remembered at the outset that the court, while it seeks to give effect to the intention of the parties, must give effect to that intention as expressed, that is, it must ascertain the meaning of the words actually used GRIFFITH COLLEGE PROFESSIONAL LAW SCHOOL The Factual Matrix of the Parties • Prenn .v. Simmonds (1971) Lord Wilberforce said:• “The time has long passed when agreements, even those under seal, were isolated from the matrix of facts in which they were set and interpreted purely on internal linguistic considerations .... We must ... inquire beyond the language and see what the circumstances were with reference to which the words were used, and the object appearing from those circumstances, which the person using them had in view.” GRIFFITH COLLEGE PROFESSIONAL LAW SCHOOL • Investors Compensation Scheme v West Bromwich Building Society (1998) (approved, as noted above) by several Irish courts:– 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. GRIFFITH COLLEGE PROFESSIONAL LAW SCHOOL 1. Caution in Using the Factual Matrix • Plumb Brothers .v. Dolmac (Agriculture) Ltd (1984)[ – There is the danger, if one stresses reference to the “factual matrix” that one may be influenced by what is in truth a finding of the subjective intention of the parties at the relevant time, instead of carrying out what I understand to be the correct exercise, namely, determining objectively the intent of the parties from the words of the documents themselves in the light of the circumstances surrounding the transaction. – The contract between the parties is what they said in the relevant document. It is not for this or any court to make a contract for the parties different from the words that the documents actually use merely because it may be that the parties intended something different.” GRIFFITH COLLEGE PROFESSIONAL LAW SCHOOL 2. Time Limits • It seems clear that no matter what can be adduced as part of the factual matrix, it must be something done or said before or at the time the contact was made, not after it. Keane J said as much in LAC Minerals v Chevron GRIFFITH COLLEGE PROFESSIONAL LAW SCHOOL Literal Words Get Literal Meanings • Literal words get their literal meaning (to a point) In LAC Minerals v Chevron Keane J pointed out that if a term of a contract is unambiguous and can only have one meaning, the Court cannot go beyond that unambiguous meaning so as to seek to interpret the intention of the parties. GRIFFITH COLLEGE PROFESSIONAL LAW SCHOOL • The fifth principle from Investors Compensation Scheme v West Bromwich Building Society (1998) is as follows:– 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. GRIFFITH COLLEGE PROFESSIONAL LAW SCHOOL • Antaios Compania Naviera SA v. Salen Rederierna AB (1985) where Lord Diplock stated the following:– "(I)f detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business common sense, it must yield to business common sense". GRIFFITH COLLEGE PROFESSIONAL LAW SCHOOL G. Previous Negotiations • One cannot adduce evidence of past negotiations to explain the present meaning of contractual terms. • Bula v Tara (1999) – Keane J expressed the rule as being that oral evidence is admissible to show the factual matrix in which an agreement has been reached but this cannot be pushed so far as to mean that evidence of negotiations and of parties subjective intentions is admissible. Rather “what is permissible is evidence of the factual context in which the parties came to terms”. GRIFFITH COLLEGE PROFESSIONAL LAW SCHOOL • BNY Trust Company (Ireland) Ltd & Ark Life Assurance v Treasury Holdings (2007) – Clarke J was invited to follow authority from New Zealand which suggested that evidence of past negotiations could be admissible in certain cases – Clarke J still held that it was impermissible in Ireland GRIFFITH COLLEGE PROFESSIONAL LAW SCHOOL H. Where Clauses are Inconsistent With One Another • In LAC Minerals v Chevron Keane J adopted the following from Chitty on Contract:– “Where the different parts of an instrument are inconsistent, effect must be given to that part which is calculated to carry into effect the real intention of the parties as gathered from the instrument as a whole, and that part which would defeat it must be rejected. The old rule was, in such a case, the earlier clause was to be received and the latter rejected, but this rule was a mere rule of thumb, totally unscientific, and out of keeping with the modern construction of documents. To be inconsistent, a term must contradict another term or be in conflict with it, such that effect cannot fairly be given to both clauses. A term may also be rejected if it is repugnant to the intention of the parties as it appears from the document. However, an effort should be made to give effect to every clause in the agreement and not to reject a clause unless it is manifestly inconsistent with or repugnant to the rest of the agreement”. GRIFFITH COLLEGE PROFESSIONAL LAW SCHOOL I. Overall Commercial Purpose • In the recent English case of LT & R Vowles (Parent) Ltd v Aston (2005) Patten J. suggested that ambiguous clauses in contracts should be interpreted to given them such meaning as best suits the commercial purpose of the transaction insofar as that purpose can be gathered from the background facts. GRIFFITH COLLEGE PROFESSIONAL LAW SCHOOL