Notionally, the interpretation of a contract involves the ascertainment of the parties’ intentions. However, the party’s private subjective intentions are irrelevant. The Courts interpret the terms of the agreement as they objectively manifest themselves. They interpret the agreement in light of the circumstances and what the parties have said and done. A party may be bound by a particular interpretation of an agreement, notwithstanding that he did not intend such meaning, if a reasonable observer, would so interpret it.
The courts focus on the terms and conditions of the contract, as they find them to be. Where there is a written agreement, the document is interpreted. Where the agreement is verbal, part verbal or has not been reduced to a single written agreement, the process has two stages. The court must find or deduce the terms of the agreements, and the interpret them, as required for the purpose of resolution of the dispute.
Where the terms of the agreement are clear and unambiguous, direct effect may be given to them. Where this is not so, a number of approaches to interpretation may be employed by the courts. The background, context and the conduct of the parties are often relevant to explaining the meaning of the contract terms. The court focuses on the objectives of the parties at the time of the agreement.
General Approach I
Once a court has ascertained the terms of the contract, or it is self-evident or agreed in a document, questions of interpretation will arise in applying it to the circumstances before the Court. An objective approach is taken
A contract is interpreted in the light of the words which have been spoken or written by the parties, rather than what they subjectively meant. A person can be bound to something he did not intend if a reasonable person would believe that he was assenting to it. The court ascertains the intention of the parties from the language they use at the time of the agreement.
The meaning of words is a question of interpretation of facts. The effect of the words is a question of law. Interpretation is a matter of finding the meaning of the parties by their words s they are conveyed to a reasonable person having the relevant background knowledge, which is reasonably available to the parties. The contract must be looked at as a whole, in order to interpret it.
General Approach II
Words are given their natural and ordinary meaning. If the meaning of words is clear, external circumstances cannot be looked at, to give a different meaning.
If the words are not clear and definite, the surrounding circumstances may be looked at. This traditional rule has been modified to some extent under the “factual matrix” approach, adopted by the UK and Irish courts over the last twenty years.
Where specialist technical language is used, experts may give assistance
Evidence about what the parties said to each other prior to the contract is generally irrelevant. Declarations of subjective intent are not considered. Subsequent conduct may be relevant to ascertaining what the intention was at the time, but generally, conduct after the contract is made is irrelevant.
Intention of Parties
The key rule of construction is that the intention of the parties must prevail. This is the intention of the parties to the contract, speaking objectively. A court is not entitled to speculate as to what the parties intended to say. The court must ascertain what is the true meaning and intention of the words used by the draftsman.
Intention is to be looked for on the face of the agreement, including any documents incorporated therewith, in the words in which the parties have themselves chosen to express their meaning.
The law excludes from the admissible background declarations of subjective intent. They are admissible only in an action for rectification. The parties cannot themselves give direct evidence of what their intention was.
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
Discovering Intention I
Intention is discerned by identifying the meaning of the relevant words: in the light of: the natural and ordinary meaning of those words, the overall purpose of the document, any other provisions of the document, the facts known or assumed by the parties at the time that the document was executed, and common sense. The law does not require judges to attribute to the parties an intention which they plainly could not have had.
Words bear natural and ordinary meaning.. Words that are not terms of art will be construed in the first instance in accordance with their natural and ordinary meaning. The ‘rule’ that words be given their natural and ordinary meaning reflects the common-sense proposition that people do not easily accept that people make linguistic mistakes, particularly in formal documents/
Meaning is to be gleaned from the plain words of an agreement. Where there is no doubt as to the meaning of a clause, then it should be given that meaning. The court’s task is to discover what the parties meant from what they have said. To force upon the words a meaning which they cannot fairly bear is to substitute for the bargain actually made one which the court believes better. This is an illegitimate role for a court.
Discovering Intention II
Particularly in the field of commerce, where the parties need to know what they must do and what they can insist on not doing, it is essential for them to be confident that they can rely on the court to enforce their contract according to its terms.
The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean.
Where words reasonably bear more than one meaning then consideration as to how the agreement is to sensibly operate may allow one construction over another.
Prior Negotiation Usually Irrelevant
What the parties have said in the prior negotiations remains generally inadmissible in the process of interpretation. Non-contractually binding Heads of Terms are mere steps in the pre-contractual negotiations and, as such, excluded. The law excludes from the admissible background the previous negotiations of the parties.
Some courts have left open the possibility of examining the prior negotiations, to interpret the meaning of ambiguous terms and conditions. Generally, this evidence is rejected for policy reasons as it would complicate litigation by bringing in multitudes of earlier documents and conversations. This is so, notwithstanding that they may be logically relevant to the final agreement as they represent views and perspective of each party.
Post Contract Position Usually Irrelevant
The general principle is that what happens after the contract is irrelevant to its interpretation. The meaning of a contract is effective at the time it is entered. It cannot change retrospectively.
Later acts and events can be relevant in informing what was originally agreed. However, for the most part, the courts will not admit any such evidence as it is irrelevant to the terms of the original contract. Evidence of subsequent action event may be relevant to findings of collateral contracts variations.
The courts have always interpreted contracts against the interests of the stronger, often, the “business” party dealing with a consumer. If an exempting provision is ambiguous and capable of more than one interpretation, the courts will read the clause against the relying party
In the context of consumer contracts, there has been a significant amount of legislation in the last 40 years, which has strengthened the position of the consumer.
Maxims Principles of Interpretation I
The courts sometimes use so called “maxims” of construction. These are principles of interpretation. Such rules are rules of interpretation rather than legal rules. The purpose is to give effect to the intention of the parties as it would appear to a reasonable third person. However, the court cannot substitute the actual contract for one that the court believes could better have been made.
The courts will endeavour to give commercial sense and prevent an unreasonable result. If it is possible to interpret the contract in a coherent way without contradictions, this will be preferred. If possible, a contract should be interpreted to give effect all of its clauses.
Evidence of market practice or custom may be allowed to explain, but not to vary the contract. Documents which form part of the same transaction are to be interpreted together. There must be sufficient cross-referenced so as to incorporate the document concerned.
Maxims /Principles of Interpretation II
There is a principle that when there are general terms and conditions and also special tailor-made clauses, the latter are presumed to prevail over the general conditions. Typewritten or handwritten clauses are presumed to have been considered more than general terms and may accordingly be interpreted as overriding them.
The court should not look at alterations or deletions. They are irrelevant. However, where a printed form has specific words, the written words added may be given greater effect than that attributed to the printed words. Labels given to particular terms will not prevail over the contents
Maxims / Principles of Interpretation III
Where a contract term provides a list of specific words, followed by general words, there is a rule of interpretation that the general words are to be limited to refer to the matters referred to by the specific words.
There is a principle of interpretation that where several matters are specified and other matters of the same type are not specified, the latter are not intended to be covered.
There is a presumption that where a contract seeks to reduce the rights remedies of a party, which he would otherwise enjoy, that this must be very clearly expressed.
The general presumption is where there is a reference to time, that it is not a strict.
It is a presumption that a contract should be interpreted so as to be lawful.
References and Sources
Irish Textbooks and Casebooks
Clark, R. Contract Law in Ireland 8th Ed. (2016) Ch 5
Friel, R. The Law of Contract 2nd Ed, (2000)
McDermott, P. Contract Law (2001) 2nd Ed (2017) Ch 9
Enright, M. Principles of Irish Contract Law (2007)
Clark and Clarke Contract Cases and Materials 4th Ed (2008)
English Textbooks and Casebooks
Poole, J. Casebook on contract law. (2014) 12th edition
Stone and Devenney, The Modern Law of Contract 10th Ed (2015)
McKendrick, Contract Law 10th Ed (2013)
Chen-Wishart, Contract Law 5th Ed (2015)
Anson, Reynell, Beatson, J., Burrows, Cartwright, Anson’s law of contract. 29th Ed (2010)
Atiyah and Smith, Atiyah’s introduction to the law of contract. 6th Ed.
Chen-Wishart, M. (2015) Contract law. 5th Ed.
Cheshire, Fifoot and Furmstons, Furmstons and Fifoot Cheshire, Fifoot and Furmston’s law of contract. OUP.
Duxbury, Robert (2011) Contract law. 2nd Ed.
Halson, Roger (2012) Contract law. 2nd Ed.
Koffman & Macdonald’s Law of Contract. 8th Ed. (2014)
O’Sullivan, Hilliard, The law of contract. 6th Ed. (2014)
Peel, and Treitel, The law of contract. 13th Ed. (2011).
Poole, J.Casebook on contract law. 12th Ed. (2014).
Poole, J. Textbook on contract law. 12th Ed. (2014)
Richards, P Law of contract. 10th Ed. (2011)
Stone, R. The Modern law of Contract. 10th Ed. (2013)
Treitel, G. H. An outline of the law of contract. 6th Ed (2014).
Turner, C Unlocking contract law. 4th Ed. (2014).
Upex, R. V., Bennett, G Chuah, J, Davies, F. R. Davies on contract. 10th Ed. (2008).
Stone,Devenney, Text, Cases and Materials on Contract Law 3rd Ed (2014)
McKendrick, Contract Law Text, Cases and Materials 6th Ed (2014)
Stone, R, Devenney, J Cunnington, R Text, cases and materials on contract law. 3rd Ed (2014)
Burrows, A. S. A Casebook on Contract. 4th Ed.
Beale, H. G., Bishop, W. D. and Furmston, M. P. Contract: cases and materials. 5th ed. (2008)
Blackstone’s Statutes on Contract, Tort & Restitution 2017 (Blackstone’s Statute Series)
UK Practitioners Texts
Chitty on Contracts 32nd Edition, 2 Volumes & Supplement (2016)
The above are not necessarily the latest edition.