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How do Courts Interpret Commercial Contracts
Published online by Cambridge University Press: 01 July 1999
Abstract
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Christopher Staughton, a former Lord Justice of Appeal, writes of the four principal rules for the interpretation of written contracts. First, there is the exclusion of negotiations and subjective evidence of intention. Secondly he considers what material can qualify as background evidence, or as some would say matrix. Thirdly, there is the rule that a meaning which is less obvious =N but still consistent with the words used =N may be preferred. Fourthly, he deals with the very limited extent to which evidence of market practice is admissible.
The article contrasts recent observations of Lord Hoffmann in two cases in the House of Lords with other authority, both ancient and modern.
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Footnotes
The present paper was delivered to an undergraduate audience at Cambridge in January 1999.
1 Cf. Torbelt v. Faulkener [1952] 2 T.L.R. 659 (oral contract) and Pioneer S.S. Co. Ltd. v. B.T.P. Tioxide Ltd. [1982] A.C. 724. See further Lewison, The Interpretation of Contracts, 2nd ed., 1997 pp. 67–68.
2 Ruxley Electronics & Constructions Ltd. v. Forsyth [1996] 1 A.C. 344.
3 But see Lewison, The Interpretation of Contracts, 2nd ed., 1997.
4 At p. 31.
5 (1995) 26 J.Mar.L. & Com. 259.
6 [1992] 2 Lloyd's Rep. 127.
7 [1996] 5 Re. L.R. 103.
8 (1997) L.R.L.R. 24 and [1996] C.L.C. 1728.
9 “The Path of the Law” (1897) 10 Harvard L. Rev. 457.
10 [1998] 2 Lloyd's Rep. 209, 223.
11 (1999) 115 L.Q.R. 11.
12 Northern Securities Company v. United States (1904) 193 U.S. 197.
13 [1971] 1 W.L.R. 1381, 1385.
14 [1998] 1 W.L.R. 896, 913.
15 [1914] A.C. 71.
16 [1998] 1 W.L.R. 896, 912.
17 9 July 1997, unreported.
18 1998 S.C. 657, 1998 S.C.L.R. 531.
19 18 November 1997, 94(47) L.S.G. 30, 141 S.J.L.B. 246, The Times, 2 December 1997.
20 [1997] A.C. 779.
21 [1992] 2 Lloyd's Rep. 127, 133.
22 1998 S.C. 657, 670; 1998 S.C.L.R. 531, 544.
23 [1998] 1 Lloyd's Rep. 423.
24 [1974] A.C. 235, 251.
25 [1998] 2 Lloyd's Rep. 209, 223; see n.10 above.
26 [1997] A.C. 749, 779.
27 [1977] 2 Lloyd's Rep. 343.
28 [1997] A.C. 313.
29 [1991] 2 A.C. 1.
30 [1997] A.C. 313, 388. Cf. Lord Bridge in A/S Awilco of Oslo v. Fulvia S.p.A. di Nav. of Cagliari (The Chikuma) [1981] 1 W.L.R. 314, and the recent decision in Kuwait Airways Corporation v. Kuwait Insurance Company (11 March 1999), where Lord Hobhouse of Woodborough said: “But it must in any event be stressed that it is not for the courts to tell the parties what contract they should have made nor, after the event, to evaluate the merits and demerits of their bargain. If, as here, the parties have used plain language to express their intention, that should be an end of it: the courts should enforce the contract in accordance with its terms.”
31 Chitty on Contracts, 27th ed. (1994) para. 12-114.
32 Ibid. See also General Reinsurance Corporation v. Forsakringsaktiebolaget Fennia Patria [1983] Q.B. 856, 874.
33 [1985] 1 Lloyd's Rep. 437.
34 [1989] 1 Lloyd's Rep. 96, 100.
35 [1998] 1 Lloyd's Rep. 423, 429.
36 British Insurance Law Journal, May 1998, no. 97 p. 5.
37 Touche Ross & Co v. Baker [1992] 2 Lloyd's Rep. 207, 210.
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