Source: https://www.ashurst.com/en/news-and-insights/legal-updates/interpretation-of-contracts-under-english-law/
Timestamp: 2019-04-26 10:17:16+00:00

Document:
This guide summarises the general approach taken by the English Courts to contractual interpretation.
The facts and circumstances known or assumed by the parties at the time the contract was executed.
The court will not take into account any subjective evidence of either party's intentions.
What about special or technical meanings?
The English court sometimes employs certain "canons of construction" or "rules of thumb" in an attempt to do justice between the parties. However, these principles are just pointers and the court will only resort to applying them if the meaning cannot be found using the general rules of interpretation outlined above.
Can the court look beyond the contract?
If, having regard to the express words of the agreement, it is still not possible to ascertain the meaning, the court may be willing to imply certain terms.21 However, courts are reluctant to depart from the express wording, particularly if the contract is detailed and appears comprehensive. In practice the situations in which courts are prepared to imply a term into a contract are limited.
In particular kinds of contract, for example employment, consumer and landlord and tenant agreements, certain standard terms are implied by legislation and/or common law. In appropriate cases the court will recognise standard practice in particular trades or areas of industry and is willing to imply terms into an agreement to reflect this practice, provided the wording of the contract is not inconsistent with the implication. Finally, if it can be shown that the parties have consistently and clearly dealt with each other on a particular basis the court may be prepared to imply terms to reflect this, again provided the actual wording of the contract does not contradict this.
"(1) it must be reasonable and equitable; (2) it must be necessary to give "business efficacy" to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that 'it goes without saying'; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract."
Further clarification has since been given by the Supreme Court in Marks and Spencer plc -v- BNP Paribas Securities Services Trust Company (Jersey) Ltd and another.23 This decision clarified that a term will be implied if a reasonable reader of the contract, knowing all its provisions and the surrounding circumstances at the time the contract was made, would consider the term to be so obvious as to go without saying or to be necessary for business efficacy.
The flowchart below gives a broad overview of the general way in which the English courts tend to approach the task of construing disputed or ambiguous wording. Ultimately, however, the "rules" of construction are no more than guidance tools and the particular facts and circumstances of the case determine how they are applied. In practice it is open to judges to select from these tools at their discretion in order to make the contract work, give effect to the parties' (presumed) intentions and to try to achieve reasonable justice between them.
1 It is worth noting that the approach applies equally to deeds as to agreements under hand.
2 Investors Compensation Scheme –v- West Bromwich Building Society  1 WLR 896 (ICS).
3 Lord Hoffman in Chartbrook Ltd v Persimmon Homes Ltd  UKHL 38, para 14.
4 Arnold -v- Britton  UKSC 36, (Arnold), Lord Neuberger, para 15.
5 BCCI -v- Ali (No.1)  1 AC 251; "This is not necessarily the dictionary meaning of the word, but that which is generally understood". But the court will not "attribute to the parties an intention which they plainly could not have had" and will not rewrite the contract (The Antaios Compania Naviera SA -v- Salen Rederierna AB  1 AC 191 and Co-Operative Wholesale Society Limited -v- National Westminster Bank PLC  1 EGLR 97).
6 Lord Hoffman in ICS, at 913.
7 Lord Neuberger in Arnold, para 18.
8 Legal dictionaries such as Stroud's Judicial Dictionary of Words and Phrases by Daniel Greenberg or Words and Phrases Legally Defined by David Hay, which collate the enormous body of case law on judicial interpretation, are useful sources of reference for the meaning of common terms and phrases.
9 Chitty on Contracts (32nd ed. 2015), chapter 13.
10 Lord Neuberger in Arnold, paras 17-20.
11 Rainy Sky SA and Others –v- Kookmin Bank  UKSC 50; Andrew Wood –v- Sureterm Direct Ltd  EWHR 3240 (Comm),  (Clarke LJ).
12 E.g. the right of set-off in WRM Group Ltd -v- Wood  CLC 189.
13 In Persimmon Homes -v- Ove Arup  EWCA Civ 373, the Court of Appeal confirmed that the contra proferentem rule had a very limited role to play in relation to commercial contracts negotiated between parties of equal bargaining strength. However, it is still applied (see Lexi Holdings Plc -v- Stainforth  EWCA Civ 988 and Pratt –v- Aigaion Insurance Company  EWCA Civ 1314).
14 Saner -v- Bilton (1878) 7 Ch D 815; Manchester Bonded Warehouse Co. -v- Carr (1880) 5 CPD.
15 Although this long-established rule has been criticised it has been firmly upheld by the House of Lords in Chartbrook Ltd -v- Persimmon Homes Ltd  UKHL 38 and by the Supreme Court in Arnold.
16 ICS  1 WLR 896. The court cannot consider subsequent conduct except where a contract is part oral and part written in order to determine the parties' original intentions. See Brian Maggs -v- Guy Marsh  EWCA Civ 1058.
17 If, instead of construing the contract, the court is being asked to rectify it, extrinsic evidence is admissible. For a summary of the law relating to rectification see the Ashurst Quickguide Rectification of Contracts.
18 Rugby Group Ltd -v- ProForce Recruit Ltd  EWCA Civ 69.
19 Per Lady Justice Arden, paragraph 55.
20 Lord Neuberger, Arnold, para 22.
21 See the Privy Council decision in Attorney General of Belize -v- Belize Telecom Limited  UKPC 10. The case concerned the construction of a company's articles of association but the Privy Council affirmed that the relevant principles apply more widely.
22 (1978) 52 ALJR 20.
24 Shell UK Ltd -v- Lostock Garage Ltd  1 WLR 1187 - see the judgment of Lord Denning.

References: UKHL 
 UKSC 
 UKSC 
 EWCA 
 EWCA 
 EWCA 
 UKHL 
 EWCA 
 EWCA 
 UKPC