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| Question | Answer |
| Investors - Lord Hoffman | Courts ought to look for the meaning the document would convey to a reasonable person. |
| Freedom of contract | First vital underlying principle. Law tries to take a hands-off approach. |
| Good faith | No general duty of good faith, but may contract for. Contract law is to enforce what the parties agreed, not how they should behave towards one and other. |
| Good faith | Second vital underlying principle. No general duty of it, but may contract for. Contract law is to impose what the parties have agreed, not how they should behave towards each other. |
| AG Belize - Lord Hoffman | The courts have no power to improve upon the instrument. Hands off approach. Cannot introduce terms to make it more reasonable or fairer. (future cases will prove contrary) |
| Contextual method | What method of interpretation the courts currently use. Historically, used literal meaning of interpretation. (now a popular argument) |
| Prenn - Lord Wilberforce | Have to look at the factual matrix - what set of circumstances had given rise to this particular contract, purposes of the agreement and the contracting relationship history. Contract don't exist in a vacuum isolated from the relationship and the context. |
| Investors Compensation Scheme - Lord Hoffman | 5 Principles (first 2 most important) - Ascertainment of a meaning that would be conveyed to a reasonable person - (concerning "vacuum") matrix of fact is an understated description of what the background might include. It includes everything which would affected the way in which the language of the document would have been understood by a reasonable person. |
| "reasonable person" | In reality, this person is the judge |
| Reasons why literal method might be coming back and arguments against contextual approach | it allows judge to look at all kinds of evidence – history purposes etc. Some commercial lawyers have argued that this is a very expensive way of resolving interpretation disputes and one of the benefits of literal method is that it is cheap. All you have to do is look at the words. |
| BCCI v Ali - Lord Hoffman | (license to interfere with agreements) There is no conceptual limit of what could be regarded as background - anything that the reasonable person would find relevant. |
| Mannai | Correction was made in a formal documents so they achieve their intended effect. - Wanted to get out of a release. Got 1 day wrong on the notice. Literally, could not get out. HL said that with all the background a reasonable landlord would understand that the tenant is trying to terminate the lease. |
| Re Spectrum Plus | Concerned a 'fixed' and 'floating' charge. NW had a fixed charge over Spectrum's booked debts. Allowed overdraft to £250k. When devts were paid spectrum had to put the money into that account but could then use that money the way they wanted. When went into insolvency, NW called priority over debts because of fixed charge. Court held that even though the term 'fixed charge' was used, in reality, it was not operating so, so did not have priority. |
| BCCI v Ali - Lord Hoffman | Courts can change the legal significance of the terms in the contract. (license to interfere with agreements) Employee made redundant signed release contract and agreed to give up all claims that exist or may exist in exchange for payment. Argued that they should still have right to bring stigma claim. Courts said that they could not have wanted to give up all possible future claims, would be unreasonable and absurd, so only applied to the claims that they were aware of at the signing of the contract. Lord Hoffman: this is rather an equitable construction, how can this be interpreted through the terms? |
| Rainy Sky - Patten LJ (CA): not up to us to question the balance of advantage. | if ambiguous, courts should use the most commercially sensible approach. (altering obligations to make fair) Concerned the ship builder and 2 contracts. In the second contract between the Builder and bank about repayment bond. The contract did not include the wording 'insolvency'. SC nevertheless imposed the bank to pay. They said that the whole circumstance was ambiguous that one contract includes ambiguity and the other does not. |
| African Minerals Finance - Aikens LJ | Terms mean what they say, even if the outcome appears to be unreasonable. Buttt... Concerned a 146 page long contract. Looked at the context? Facts saying that can't leave anything to chance? |
| Kudos BCCI v Ali Flexibility of context. | Narrow: interpreted an exclusion clause in a very limited way because of its location on the contract. Broad: controversial bank case BCCI |
| Achilleas | Courts can Gap Fill. Issue of remoteness of damage, returned the ship late, as a result, affected subsequent deal. Courts used the understanding within the industry that D is only responsible for the period of delay. |
| Yam Seng | Courts seem to slowly move away from the concept that the contracting process is adversarial, self interested and each party is out for all he can get. Said that if understanding within articular industry are corporation and flexibility, courts may interpret the contract in such way. |
| Lloyds | Had to pay fixed percentage from annual profits to Lloyds Foundation. There was a 1 billion profit through the acquiring HBoss. Foundation claimed entitlement fro that profit. SC said that contract should not apply in these changed circumstances. Should be interpreted in a "legal" and "accounting" context. Is this really a contextual interpretation of a contract? Courts implied a term as the parties did not deal with such unforeseeable issues. |
| Multi-link leisure department | Council sold land to commercial developer. If sold at a profit had to share with council. Sold under value to his "mate". Profit related only to gross sale proceeds, did not say that had to be open market value. Court said that Gross sale proceeds were at arms length with open market's value. So could't do so. (is this interpretation of context or interpretation of judicial values and policy??) Decided on the basis of bad faith. Protect Council? Courts disagreed and said that this was contextual interpretation. Courts trying to disguise decisions they have based around fairness, reasonableness and policy? - MOSTLIKELY |
| Future possibilities | -freedom of contract is very important: more of the default rules are being subjected to contextual interpretation -wants to present itself in freedom of contract (has its own market and community) = attractive - seen that trying to interpret in the light of default rules but ends up being weird and judges are timid in agreeing that factors discussed already do influence decisions. -they need to decide which path they take and stop making law through the back door. -should parties be left to interpret the way they want even if absurd? -or maybe it depends on the type of contract involved? -Courts are not transparent |
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