Seeking to understand the meaning of commercial contracts is central to a vast number of contractual disputes before the courts. The construction of contracts is of fundamental importance and yet is an area which is difficult to subject to any structured analysis or explanation. The issue of construction does not have a traditional analytical structure and, for example, it is difficult to look up a construction point in the index of a contract law text. Some issues are easier to isolate, and Carter's The Construction of Commercial Contracts contains a detailed and clear analysis of the exclusionary rules, and the construction of exclusion and limitation clauses, for example. But much more importantly and impressively, whilst this book cannot give answers to all the specific questions which might arise in a construction dispute, it gives the reader a much better understanding of what questions of construction really mean.

The central idea in the book is that there are essentially three stages in construction. First, the preliminary stage is to identify the context (and terms). Next is the meaning stage, determining the meaning (and legal effect). Finally is the application stage, where the contract is applied to the factual circumstances which have arisen. Carter considers these three stages through an analysis of both English and Australian authorities. In summary, the notion of “commercial construction”, Carter says, describes both the characteristics of the construction process and the desired result of that process. Both take effect, not through a set of rules or “doctrine,” but rather through “incidents of commercial construction” and, in particular, the use of context which is the principal means by which the commercial approach has been achieved.

The book is divided into a number of parts. Part II explores ideas of construction, intention and implication. These ideas are fundamental but difficult to pin down. Indeed Carter makes the point that, “[b]ecause commercial construction is the principal means by which intention is determined and given effect to in relation to contracts, the book as whole is about “intention””. However, this Part gives some structure by focussing on the differences between actual, expressed and inferred intention and the relationship between those concepts in the construction of contracts. Another way in which Carter attempts to bring some order to the ideas is through the use of Articles to encapsulate key ideas and definitions. In an area which is essentially case based this approach successfully anchors an interesting discussion of some of the key ideas behind the construction of contracts. For example, Article 2.2 defines “actual intention” as the subjective intention of the parties to a contract. “Expressed intention”, according to Article 2.3, refers to the stated intention of the parties. The link between the two (which is really another way of describing how the objective approach to interpretation marginalises the role of actual subjective intentions in the process of construction) is that expressed intentions are presumed to be actual intentions. “Inferred intentions” (Article 2.4) refers to the parties' intention in relation to matters on which they have expressed no intention. Once an intention is inferred it is again presumed to be actual. Having addressed the issue of “which” intention is relevant, the next question Carter addresses is “whose “intention. In relation to a contract, intention, whether actual, expressed or inferred, is the common intention of the parties. Carter's analysis is a useful way of re-evaluating and describing the fact that the whole law of the law of contract revolves around the objective theory of intention.

Chapter 3 deals with the interrelationship between construction and implication. Carter helpfully draws on some of his key themes identified in chapter 2. For example, Article 3.2 notes that where it is necessary to do so, effect may be given to the inferred intention of the parties by the implication of a term. In distinguishing between terms implied in law and those implied in fact, he adopts this neat distinction: “In the case of a term implied in fact, the presumption is that the contract is complete without the term. … Because implication at law is systematic, the presumption is usually the other way in relation to terms implied by law.” Later in the chapter he goes on to note that in many areas what could be seen as terms implied by law are now recognised as the implication of a legal duty without formal expression as an implied term. In such cases, given that a particular default rule is present, the construction question is whether the contract provides to the contrary. Much of this chapter (for example, the sub-heading at [3.22] “Construction and rules for implied terms”) immediately brings to mind Lord Hoffmann's proposition in Attorney General of Belize v Belize Telecom Ltd [2009] 1 W.L.R. 1988, at 1993 that “the implication of a term is an exercise in … construction of the instrument as whole” or what might be broadly (and perhaps controversially described) as his reconceptualisation of the process of implication of terms as simply an aspect of construction. Whilst Carter deals with this case relatively briefly ( at [3.27]) I was left wanting to know more about the author's views on this debate and how it might impact on all of the issues discussed in this chapter.

Part II of the book deals with “rules and principles having general application”. Carter notes that some rules of construction are too “big” to be helpful: he gives the example of the rule that contracts must be construed objectively which informs everything in construction. Nonetheless, he goes on to list a number of “rules” which, to an extent, summarise and provide an overview of issues which arise in various parts of the book. For example, Article 4.5 recognises that a contract must be placed in its context – which is essentially what chapters 6 and 7 deal with in detail. Chapter 5 discusses in detail the case of Investors Compensation Ltd v West Bromwich Building Society [1988] 1 W.L.R. 896. First, Carter persuasively critiques the “assimilation” conclusion i.e. that principles about construction have been assimilated to the “principles by which any serious utterance would be interpreted in real life”. In particular, he concludes that communicated meaning may differ from intended meaning, but that in real life both are subjective. The second part of this chapter outlines the ICS principles and helpfully shows how they are located within the rest of the book and how they relate to the book's underlying thesis. Chapters 6 and 7 examine the role of context. Drawing on issues raised earlier, this chapter fleshes out the idea that context is crucial to commercial construction and that evidence of context is not extrinsic evidence for the purposes of the exclusionary rule. Carter notes that context may be internal or external: the former being the contractual document itself, the latter the circumstances in which the document was brought into existence. In both cases, the purpose of taking context into account is to enable a court construing a contract to place itself in the same position as the parties at the time.

Part IV deals with the exclusionary rule. In some ways this part of the book offers a more traditional black letter analysis; but Carter continues also to consider the theoretical underpinning as he does throughout the book. Extrinsic evidence is analysed as including three categories: direct evidence of the intention of the parties; evidence of parties' negotiations and evidence of parties' subsequent conduct. Such evidence is not “admissible to prove the terms of the contract to the extent that the bargain is integrated in writing (the “parole evidence rule”) or more generally as a direct aid to construction”. However, even these categories of evidence can be used for other purposes: such as to provide evidence of misrepresentation, duress, or in the context of mistake or rectification. These cases do not constitute an exception but simply fall outside the scope of the exclusionary rule. Chapter 10 offers an interesting analysis of the parole evidence rule through the prism of “integration” i.e. the question of whether a document adopted by the parties is in fact a complete statement of the bargain or part of the bargain including a consideration of issues such as entire agreements clauses.

Part VI deals with the meaning of the contract. Carter starts by noting that dealing with “meaning” is the fundamental concern of commercial construction but that very little has been done by way of theoretical analysis and for good reason, because this is essentially a practical issue. However, he attempts to explain how the use of principles of commercial construction to determine the meaning of a contract can provide some analytical tools. In particular, meaning must be the communicated meaning under the “perspective rule” i.e. the meaning that a reasonable person in the position of the person to whom the words were addressed would place on the words. This, as a matter of law, is presumed to be the meaning actually intended. Chapter 12 deals with standards of interpretation, outlining three possibilities: most common is the standard of the general community (and the relationship between this and the plain meaning rule is explored). But exceptionally the standard of a defined class or a standard specific to the parties might be applied. The following two chapters then consider which meaning within that standard should be applied and identify five applications of the rule that the contract must be construed as a whole: dealing with mistakes, reasonable results, giving effect to commercial purposes, resolving ambiguity and resolving inconsistency. Chapter 14 revisits the exclusionary rule in this context, in particular, evidence of usages and party specific meanings including the private dictionary principle.

Part VII deals with the third and final stage in construction, namely, the application of the contract. It outlines three possibilities, starting with commercial application which has become the default rule. Literal application applies to conditions precedent, notice requirements and documentary credits. Thirdly, “strict application” (which includes a “reading down process”) applies to contracts of guarantee and contracts of indemnity. Commercial application is then dealt with in detail in chapter 16. This chapter describes the objective of arriving at a commercially sensible result in the construction of contracts, in other words, what might be considered to be a core element of the book. It examines in detail how this commercial application occurs by analysing the process as a series of preferences; most importantly to achieve a reasonable result. Chapter 18 considers what evidence can be used in this application stage.

Carter's outstanding work is a valuable addition which more than holds its own in a field of notable publications – Lewison's and McMeel's works are both excellent. Carter's book is accordingly a welcome new entrant in a difficult and most important area.