When contracting parties’ agree on what is writtenin the contract, however, disagree on the meaning, this is where interpretationmay be guided by two different approaches. As mentioned previously theobjective approach gives priority to the external facts of the words whereby thewill has been objectively expressed.1Onthe other hand, the subjective approach to interpretation gives precedence tothe ‘will of the parties.’ This consists of the principle of party autonomywhere legal obligations come from, and are justified by, the free will of theindividual.2The business efficacy and officious bystander tests are examples of subjectivetests whereby they do not require a ‘reasonable person’ but instead ask theparties themselves what they would have accepted. This would make the finalruling more accurate. It means the courts can give effect to the writtencontent of parties’ contracts instead of giving their own interpretation andmaking the contract for the parties’.
Many contract law regimes use bothsubjective and objective methods of interpretation. I would argue alongsideCatherine Valcke,3that contractual intention as objective intention is unstable and theoreticallyweaker than subjective intention. The conceptual looseness of objectiveintention can be seen to be the reason for the traditional prominence ofliteralism and the parol evidence rule in English contract law.4The literal approach keeps the Sanctity of contract and party autonomy which isgood to an extent. In the Principles of European Contract Law5there is a whole chapter (chapter 5) on interpretation however it is only asmall 7 sections long.6 Itillustrates my argument that it is difficult to achieve consistency in contractualinterpretation in commercial contracting due to such little guidance beingprovided to the courts, there is no rigid rules the courts can refer to inhelping them make a judgement even on a European scale.
The remains of literalism have now been pushed asideby a series of cases in the House of Lords which institutes the prevalence ofthe purposive approach.7 8 9 LordHoffmann stated “Almost all the old intellectual baggage of ‘legal’interpretation has been discarded.”10 Thepurposive approach is a modern version of the mischief rule.
Lord Hoffmann’sre-statement certainly promotes a more purposive approach to the interpretationof contracts.11The Supreme Court and court of appeal took different stances on Rainy Sky SA v Kookmin Bank.12It can be argued that the Supreme Court in this case does not take intoconsideration whether, in a system that supposedly champions freedom ofcontract, they should be the arbitrators of what is commercially reasonable orabsurd.13It can be argued that the Supreme Court was attempting to avoid an absurdresult by interpreting the case in a form that most accords with businesscommon sense. Alas, this is another example of the courts failing to give effectto the written content of parties’ contracts and have attempted to make thecontract for the parties through giving their own meaning in interpretation.The courts have failed to achieve consistency once again.It is submitted that by placing emphasis oncommercial common sense such as in Rainy sky14certainty is lost.
Arnold v Britton15is the Supreme Court’s most recent exploration of the issues raised by theinterpretation of contracts.16Lord Neuberger places a big emphasis, which I agree with, on the autonomy ofthe parties to the contract. When entering into a contract parties must be freeto accept the risks which lie in forming a contract with another party and musttake responsibility in balancing the risks with the benefits they gain. I wouldargue that Lord Neuberger is not attempting to make a big change in the courtsapproach to interpretation whereby his approach is very similar to that ofwhich was rejected by the Supreme Court in in the Court of Appealin Rainy Sky.17He argues that the courts should not be in a position of ‘searching for, letalone constructing’ or ‘departing from the natural meaning’ of a contract.18He rightfully argues that the courts cannot go looking for problems in acontract and re-write the contract to fix these issues; the issues found in acontract have no relevance to the issue of interpretation.
19It is clear that the better argument to achieve certainty and most importantly,consistency in approach, is through the courts respecting parties’ contractualautonomies by accepting the natural meaning of the words the parties placed inthe contract. Courts should only interpret contracts, not re-write them. The contextof a contract should not be important at all, only the wording itself should. Onlyin very rare cases should commercial common sense override the natural meaningof the words. As per Lord Neuberger it is not the function of the courtinterpreting a contract to relieve a party from the consequences of imprudenceor poor advice.20Overall the most decisive argument is made here by Lord Neuberger whereby ifthe courts take a more hands off approach and instead place emphasis on thefreedom of contracts then there will be a much better consistency in the courtsapproach to contractual interpretation.21 Theimpact this will have on businesses would be extremely positive whereby they wouldbetter understand the courts approach to interpretation thus implementing bettercontractual negotiations with other parties and ensuring the terms they accept arecorrect and beneficial for them.One of the strongest statements I have read in myresearch was made in US Bank Trustees Ltdv Titan Europe22whereby Mr Justice Snowden stated, If…the court concludes that the language used is unambiguous, then the court mustapply it, even though some other result might be thought more commercially reasonable,and even if it gives a result that is commercially disadvantageous to one ofthe parties.
The court’s function is to interpret the contract, not to rewriteit.23I believe this statement is the key to achievingconsistency. If it becomes the standard then the courts would avoid interferingin making the contract for those parties’, instead opting to respect the writtencontent of parties’ contracts. Understandably mistakes do happensuch as the instance in BNY Mellon CorporateTrustee Services Ltd v LBG Capital No1 plc,24in these instances I would argue that the courts should provide some form ofleniency however overall if there is more consistency in their approach thenbusinesses will understand the courts position on interpretation thereforeinvest more in forming their contracts correctly with clearer terms. The Courts”must seek to discern the commercial intention and the commercial consequencesfrom the terms of the contract itself.
“25 26 Interpretingis certainly not uncomplicated. When the commercial intentions are obvious,creating a contract may pose no problem, however given the task of interpretingthe contract and the problem of having to balance the meaning of the words tothe commerciality of the outcome can be difficult.27 LordNeuberger’s statements in the Arnold28case justify my argument that the courts should respect partyautonomy and should not interfere in making parties’ contracts; instead they oughtto only interpret what is stated thus overall increasing certainty Englishcontract law. This essay should have demonstrated the importance of clear andunambiguous drafting of the contract between parties and how the courts shouldgive effect to the written content of parties’ contracts and should refrainfrom making the contract for those parties’ to overall increase consistency intheir decisions.