Most businessmen would agree with Jean-Paul Satre when he said, “words are loaded pistols”. However, ascertaining the meaning of these ‘loaded pistols’ may be problematic; as Lord Hoffmann pointed out, “the meaning of words is so sensitive to syntax and context, the natural meaning of words in one sentence may be quite unnatural in another”. In English law, as in other common law jurisdictions, the purpose of contractual interpretation is sometimes explained as an investigation of the common intention of the parties, with the aim of the court being to assess the objective meaning that those words would convey to a reasonable man.

But this seemingly immutable approach to contractual interpretation overlooks competing judicial perspectives on the issue. Even the most experienced businessmen can be wrongfooted if there are different rules for the interpretation of contracts in different countries and if rules within one country change without warning. The result, which is at best unsatisfactory, is that different meanings may be given to contract terms in different countries and at different times in the same country.

In England, the rules with respect to interpreting contracts went through a 30-year period which some described as the period of ‘enlightenment’ and common sense, where, when interpreting contracts, the courts took into account the “surrounding circumstances” and applied “commercial common sense” when deciding what the words of a contract really meant. The starting point for this ‘enlightened’ approach dates back to 1974, when Lord Wilberforce in Prenn v Simmonds said that a court ought to put itself in the position in which the parties stood at the time a contract was made, with all the knowledge that they had at the time about the origin and purpose of the transaction and the circumstances in which it would fall to be performed.

Jul-Sep 2017 issue