Rules for interpreting contracts?

Wood v Capita Insurance Services Limited [2017] CILL Supreme Court

Facts

Yet another complex contract dispute in which the parties advanced diametrically opposed interpretations of the contract wording, with a large amount of money depending upon the interpretation adopted by the Court.  The Supreme Court took the opportunity to issue some further guidance and clarification on principles of contractual interpretation.

Held

1. It is established that the primary approach of the Court in interpreting contracts is to ascertain the objective meaning of the language used by the parties. Where that approach does not provide a clear answer, then one applies the principle of business common sense to establish the common intention of the parties by reference to the factual background.
2. Ascertaining the objective meaning of language is not a “literalist exercise which is simply focused on the dictionary meaning of the wording.” Rather the Court will consider the contract as a whole and take into account the nature, the formality and the quality of the drafting used.  The Court will bear in mind that a party may have agreed to something which with hindsight he realises does not serve his interests.  That is not a justification for altering the interpretation adopted.
3. The process involves both considering the text (the words actually written down) and the context (the background circumstances including whether both sides were represented by skilled legal professionals, or whether they were relatively unsophisticated, using words less precisely).
4. Moving from verbal interpretation to considering business common sense is not necessarily a distinct 2-stage process. Sometimes putting a greater emphasis on the factual matrix than upon the dictionary meaning of words is the best approach.

Comment

This was a very technical judgment but full of good advice for commercial people who need to make sense of contracts on a daily basis.  One should not be put off by the language (for example “textualism and contextualism were held not to be conflicting paradigms in a battle for exclusive occupation of the field of contractual interpretation” etc).

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