Lloyd's Maritime and Commercial Law Quarterly
THE LINGERING CONFUSION AND UNCERTAINTY IN THE LAW OF CONTRACT INTERPRETATION
David McLauchlan*
The judgments of English courts regularly state that the principles governing contract interpretation are well established. On the surface this seems correct, particularly in view of the frequent endorsement of Lord Hoffmann’s restatement of the fundamental principles of interpretation in the Investors Compensation case. However, this article argues that closer scrutiny reveals a different picture. The principles are now being questioned, or not applied as Lord Hoffmann intended, and in other respects the law is uncertain. Recent developments suggest that what Lord Steyn once described as the “shift towards commercial interpretation” has been halted, or at least curtailed. In other words, they are indicative of a desire to return to a more conservative approach to contract interpretation under which disputes should be resolved primarily on the basis of textual analysis with limited resort to external context, including considerations of commercial common sense. The author concludes by suggesting a principled way out of some of the current confusion and uncertainty that does not entail abandoning Lord Hoffmann’s principles and turning the clock back to a plain meaning rule under which ordinarily the only escape from a finding that the language of the contract is unambiguous is a ruling that absurd consequences will result.
1. Introduction
Contract interpretation disputes continue to take up more judicial time than all other areas of the law of contract put together. A perusal every few weeks of the main English, Australian and New Zealand databases will reveal scores of new cases. Of course, they are mostly decisions on their own facts with no new law involved. In addition, the facts are usually so complex or extremely dry that attempting to read and master them all would require one to expend, often unproductively, considerable time and mental energy. However, I am encouraged to persevere, albeit with a degree of selectivity, when it is discovered that on many occasions the outcome of a dispute involving very large sums of money1 will hinge on the finest of points that might reasonably be resolved either way and that do in fact give rise to divided judicial opinions. Sometimes these disputes even seem to border on the unjusticiable. Little wonder, therefore, that questions of interpretation are often described as “matters of impression” or intuition2 and that disagreements arise over such elementary questions as whether particular words have an “ordinary” or “plain” meaning or which
* Professor of Law, Victoria University of Wellington; Professorial Fellow, The University of Melbourne; Honorary Professor, The University of Queensland. Thanks to Richard Calnan for his helpful comments on a draft of this article.
1. See, eg, Blueco Ltd v BWAT Retail Nominee (1) Ltd [2014] EWCA Civ 154 (£120 million).
Lingering confusion in contract interpretation
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