Part I The General Part, 2 Comparative and Theoretical Perspectives
- Construction of contract — Formation of contract — Interpretation of contract
Civil law jurisdictions and international instruments
2.01 A useful point of contrast is to consider briefly civil law jurisdictions and various international legal instruments and their approach to the construction of contracts, focusing on the objective/subjective debate and the admissible evidence.1(p. 113) Reference will be made principally to French law2 and German law.
Restatements of contract law
2.03 The first is the most important in practice. The CISG is an international treaty, and the work of the United Nations Commission on International Trade Law (‘UNCITRAL’),3 which governs contracts for the international sale of goods in most of the world’s principal commercial jurisdictions including most Member States of the European Union, the United States, Australia, New Zealand, China, Japan, and Singapore. It is a legal reality for those jurisdictions in respect of the export and import transactions to which it applies. The United Kingdom has not, to date, implemented the CISG.4 In the light of the UK’s withdrawal from the European Union the question whether it should nevertheless accede to this long-standing measure aimed at fostering international trade should be reconsidered, but that question is beyond the scope of this work.
2.04 The PECL and the PICC are sometimes described as international restatements of contract law.5 They reflect academic work on the common principles (p. 114) of contract law. The former were drawn up by the Commission on European Contract Law, a non-governmental body, chaired by Professor Ole Lando.6 It has proved influential on the contractual topics in the DCFR. The latter is the work of UNIDROIT,7 and are intended to be used in international commercial arbitration where the parties prefer not use a particular domestic legal system.
2.05 The DCFR was published in 2009.8 The DCFR is seen by some as a draft European Civil Code, and was prepared with the support of the European Commission. The project evolved in 2011 into the proposed regulation for a Common European Sales Law (‘CESL’),9 which was quietly abandoned in December 2014, but may be revisited in the light of the departure of the UK from the EU. The project can be traced back at least to the 2001 European Commission Communication on European Contract Law,10 which outlined four options: (a) no further EU action on contract law; (b) the promotion of the development of common principles of contract law and the convergence of national laws; (c) the improvement in the quality of existing EU legislation; and (d) the adoption of new comprehensive legislation at EU level. It is a matter of debate whether the EU has the competence to undertake a contract, or a more general civil, codification exercise. In 2003 an Action Plan proposed a Common Frame of Reference (CFR) to aid in the improvement in the quality of existing EU legislation.11 In 2004 the European Commission issued a further Communication on European Contract Law.12 A Study Group on a European Civil Code was set up under the chairmanship of Professor Christian von Bar to produce an ‘academic’ DCFR, which could be used as the basis for a ‘political’ CFR. An Interim outline edition was published in early 2008, with the final text of the DCFR following in early 2009. The (p. 115) CESL project followed in 2011 but was abandoned in late 2014. Subsequently the UK voted to leave the EU in May 2016 so that any further steps in this field are likely to be confined to the remaining Member States. It is not proposed to discuss the wisdom, competence, or benefits (or otherwise) of the EU having undertaking this project, but rather merely to draw upon the DCFR as the fruits of a comparative law text based on the legal systems of EU Member States.13
Objective and subjective
2.06 The approach to the interpretation of instruments is ‘on the surface of things, one of the fault lines between civilian systems and systems heavily influenced by English law’.14 According to the leading text on comparative law by Zweigert and Kotz:
Construction may start from either of two opposed premisses, neither of which is found in the pure form in practice today. On one view, it is the intention of the promisor which counts; this is justified by the principle of personal autonomy which treats the free will of legal persons as the source and measure of legal consequences …
On the other view, priority is given to the external phenomenon of expression on the ground that the legal order is concerned with protecting commercial intercourse: the internal will of the promisor is treated as significant only in so far as it coincides with the normal objective meaning that the reasonable man would attribute to its expression.15
2.07 The story of Roman law appears to represent a journey from the expression theory to the intention theory.16 Not all common lawyers would agree with the perspective of distinguished civilian and comparatist, Professor Zimmermann: ‘Archaic legal systems are usually dominated by a very literal, word-oriented (ie objective) approach, and it is only with increasing refinement of legal culture that subjective elements begin to be taken into consideration.’17 However, Zimmermann continues, having identified the move towards subjectivity as a progressive development: ‘When a certain stage in this process is reached, however, progress ceases (p. 116) and decline begins. Sole emphasis on subjective criteria will seriously affect or even undermine certainty of law and the security of commerce.’18 That makes it clear that policy factors, arising from commercial convenience, tend to constrict subjective inclinations. Civil law countries such as France tend to incline to the subjective or intention theory as the starting point,19 but commercial convenience may point to a more objective approach.20 Similarly German law appears at first glance to be concerned with the real intention of the parties, but there is also a tendency to give effect to the view of the reasonable man in order to protect the reliance of the recipient of the communication.21 Again to quote Zweigert and Kotz:
The intention theory may have been sound enough in times gone by when contracts were made between neighbourly farmers and amicable merchants who knew each other’s personal circumstances, but in the present day of impersonal mass transactions only the expression theory can provide the right solution.22
2.08 Whether nineteenth-century (or earlier) trade is truly reflected in that bucolic idyll may be a matter of debate. Nevertheless this overview demonstrates that, whatever the starting point, all European and other legal systems have felt the imperatives of commerce pointing the way towards a more objective reading of contracts. In contrast to the civil law systems, Anglo-American law has always—despite some contrary indications in the nineteenth century—had an orientation which is based on the objective approach or ‘expression theory’.23 Common law judges have on occasion noted the fundamental difference in orientation.24
Restatements of contract law
2.09 The principal international restatements of contract law are, at least prima facie, committed to a subjective theory of contract, as is found in civil law countries. However, despite these roots, the resulting principles demonstrate that the objective approach will commonly be adopted in many commercial transactions.
(1) For the purposes of this Convention statements made by and other conduct of a party are to be interpreted according to his intent where the other party knew or could not have been unaware what that intent was.
(2) If the preceding paragraph is not applicable, statements made by and other conduct of a party are to be interpreted according to the understanding that a reasonable person of the same kind as the other party would have had in the same circumstances.25
Intention of the Parties
(1) A contract shall be interpreted according to the common intention of the parties.
(2) If such an intention cannot be established, the contract shall be interpreted according to the meaning that reasonable persons of the same kind as the parties would give to it in the same circumstances.
Interpretation of Statements and Other Conduct
(1) The statements and other conduct of a party shall be interpreted according to that party’s intention if the other party knew or could not have been unaware of that intention.
(2) If the preceding paragraph is not applicable, such statements and other conduct shall be interpreted according to the meaning that a reasonable person of the same kind as the other party would give to it in the same circumstances.
(1) A contract is to be interpreted according to the common intention of the parties even if this differs from the literal meaning of the words.
(p. 118) (2) If one party intended the contract, or a term or expression used in it, to have a particular meaning, and at the time of the conclusion of the contract the other party was aware, or could reasonably be expected to have been aware, of the first party’s intention, the contract is to be interpreted in the way intended by the first party.
(a) if an intention cannot be established under the preceding paragraphs; or
(b) if the question arises with a person, not being a party to the contract or a person who by law has no better rights than such a party, who has reasonably and in good faith relied on the contract’s apparent meaning.26
Whilst commencing with a subjectivist perspective, each of these restatements of international commercial law is often likely to achieve objective results in practice.
Context, prior negotiations, and subsequent conduct
2.13 A more permissive approach to background, including both prior negotiations and subsequent conduct, is apparent in the international restatements of contract law. It should be noted that these codes are, at least prima facie, committed to a subjective theory of contract, such as is found in civil law countries.
Vienna Convention on the International Sale of Goods 1980 (‘CISG’)
In determining the intent of a party or the understanding a reasonable person would have had, due consideration is to be given to all the relevant circumstances of the case including the negotiations, any practices which the parties have established between themselves, usages and any subsequent conduct of the parties.27
Note that in the CISG extrinsic evidence is admissible whether the approach is subjective or objective. The liberal rule in the CISG has been relied on in New Zealand, where the CISG has been adopted28 in support of the admissibility of subsequent conduct in the decision of the Court of Appeal in Attorney-General v Dreux Holdings Ltd.29 Similarly it was relied upon in support of the admission of prior negotiations in Thomas J’s judgment in Yoshimoto v Canterbury Golf International Ltd.30
… regard shall be had to all the circumstances, including
(a) preliminary negotiations between the parties;
(b) practices which the parties have established between themselves;
(c) the conduct of the parties subsequent to the conclusion of the contract;
(d) the nature and purpose of the contract;
(e) the meaning commonly given to terms and expressions in the trade concerned;
The PICL were relied upon in support of the admissibility of subsequent conduct in Thomas J’s bold judgments in the New Zealand Court of Appeal in Attorney-General v Dreux Holdings Ltd32 and Yoshimoto v Canterbury Golf International Ltd.33
Principles of European Contract Law (‘PECL’)
102: Relevant Circumstances
In interpreting the contract, regard shall be had, in particular, to:
(1) the circumstances in which it was concluded, including the preliminary negotiations;
(2) the conduct of the parties, even subsequent to the conclusion of the contract …34
(c) the interpretation which has already been given by the parties to terms or expressions which are the same as, or similar to, those used in the contract and the practices they have established between themselves;
(g) good faith and fair dealing.35
These international harmonizing measures suggest that the English restrictive approach to such extrinsic evidence is an increasingly isolated one. Were the United Kingdom to ratify the CISG, alongside most members of the European Union, the United States, China, Japan, Singapore, Australia, and New Zealand, that is, the vast majority of its trading partners, the current position would be even more difficult to sustain.36
A domestic perspective
English law is respected by the commercial community—our common law of contract is now a world-wide commodity. It has become so because it is a system that people like. In ever more complex, sophisticated and inter-related markets, English commercial law provides predictability of outcome, legal certainty, and fairness. It is clear and built upon well-founded principles, such as (p. 121) the ability to require exact performance and the absence of any general duty of good faith.37
In consequence, Lord Falconer concluded: ‘harmonisation across the EU of contract law, or any other sphere of law, will not work.’ Some may applaud these sentiments. Others may find them somewhat chauvinistic. At present there is a tendency to celebrate English exceptionalism, with the restrictive approach to aids of construction and the absence of any direct recourse to a principle of good faith being trumpeted.38
Language and law
2.19 We now turn to consider from a more theoretical perspective the topic of contractual interpretation, and to introduce the relevant literature.39 Such wider perspectives have been a source of recent developments, and may continue to be the source of future developments, in this field. Until comparatively recently, there had been little theoretical scrutiny of interpretation and related doctrines. In the 1960s Professor Patrick Atiyah, one of England’s greatest contract law scholars, remarked: ‘too little attention has hitherto been paid to what is involved in the technique of construction, a technique which has absorbed almost as much of the law of contract, as negligence has absorbed of the law of torts.’40 Note the characterization of construction as a judicial technique. He continued:
it hardly seems to be open to doubt that construction has become by far the most popular technique for the solution of practically all problems in the law of contract which do not depend on unyielding rules of positive law, such as incapacity, illegality, and the requirements of consideration.41
(p. 122) 2.20 Traditionally there was little in the way of academic analysis of the process of construction in English law.42 There was a longer tradition of scholarly writing in North America on the topic.43 Until comparatively recently in England the topic was dominated by extra-judicial papers.44 Over the last two decades, in the wake of Investors Compensation Scheme Ltd v West Bromwich Building Society,45 a body of scholarly writing has emerged.46 In this section we will examine the two principal features of modern construction from these perspectives: the objective principle and the contextual dimension.
Wider developments in language studies
2.21 Lawyers are often parodied for their abuses of language: ‘Dexterity with words is an essential characteristic of the legal mind. The popular view is that lawyers carry their verbal skill to unreasonable extremes.’47 However lawyers, (p. 123) for all their alleged linguistic faults, are not necessarily immune to wider developments in the world of language. The twentieth century was a time of rapid development in the understanding of language as the principal mode of human communication. In the wider intellectual environment there were major developments in the various fields of language studies:48 the philosophy of language;49 the rise of semantics;50 the birth of cognitive science and its implications, in particular, for modern linguistics;51 and the development of literary theory.52 It may rightly be questioned as to whether such developments have any impact on the discrete topic of the interpretation of private law texts. However it is clear that some of the insights of two intellectual giants of the twentieth century, Ludwig Wittgenstein and Noam Chomsky, from the respective fields of philosophy and linguistics, have to some extent percolated through to legal thinking. The rise of commercial construction of contracts has been influenced, as observed by the Hon J J Spigelman, the Chief Justice of New South Wales, by these trends: ‘Such convergence in approach also reflects changes in the broader intellectual milieu.’53
The later Wittgenstein
2.22 The writings of the later Wittgenstein54 and other modern texts on the philosophy of language have clearly proved influential with two of the architects of the modern principles of construction, Lords Steyn and Hoffmann, as demonstrated by their extra-judicial writings.55 The later Wittgenstein emphasized the customary (p. 124) or conventional nature of language through his concept of ‘language games’. Much of his work is tentative, but Wittgenstein did suggest that generally ‘the meaning of a word is its use in the language’.56 This insight underlies much of Lord Hoffmann’s musings on the subject, and in particular his critique of nineteenth-century contorted rules for excluding evidence, and subtle distinctions between different categories of ambiguity, in Mannai Investments Co Ltd v Eagle Star Life Assurance Co Ltd.57 Rejecting the exclusionary rule, Lord Hoffmann stated:
I think that the rule is not merely capricious but also, for reasons which I need not develop at length, incoherent. It is based upon an ancient fallacy which assumes that descriptions and proper names can somehow inherently refer to people or things. In fact, of course, words do not in themselves refer to anything; it is people who use words to refer to things.58
Wittgenstein’s famous example, from the posthumous text Philosophical Investigations, of a person asking another to teach some children a game, is cited by Lord Steyn:59
Someone says to me, ‘Show the children a game. I teach them gaming with dice, and the other says, ‘I didn’t mean that sort of game’. Must the exclusion of the game with dice have come before his mind before he gave the order?60
Wittgenstein’s negative answer to this question is suggestive that too literal an approach to express language does not reflect the reality of human communication. Critically it rejects any reductionist view that intentions can only be discerned from express intentions or linked to a state of mind at the precise point of the utterance. Accordingly it is suggestive of a large role for gap-filling, whether through interpretation or the implication of terms. The example further suggests that all utterances are controlled by context. Indeed we even have to read Wittgenstein through the filter of perceiving a higher moral tone in the party responsible for the children’s welfare than we might commonly expect today.
Donald Davidson and Mrs Malaprop
2.23 The provocative American philosopher of language Donald Davidson61 has been influential on Lord Hoffmann. The immediate source of the appearance of Mrs Malaprop in a number of leading cases, is Davidson, not the playwright, (p. 125) Sheridan.62 So in Mannai Investments Co Ltd v Eagle Star Life Assurance Co Ltd 63 Mrs Malaprop is pressed into service to explain how interpretation can winnow out obvious mistakes in everyday communication:
I propose to begin by examining the way we interpret utterances in everyday life. It is a matter of constant experience that people can convey their meaning unambiguously although they have used the wrong words. We start with an assumption that people will use words and grammar in a conventional way but quite often it becomes obvious that, for one reason or another, they are not doing so and we adjust our interpretation of what they are saying accordingly. We do so in order to make sense of their utterance: so that the different parts of the sentence fit together in a coherent way and also to enable the sentence to fit the background of facts which plays an indispensable part in the way we interpret what anyone is saying. No one, for example, has any difficulty in understanding Mrs. Malaprop. When she says ‘She is as obstinate as an allegory on the banks of the Nile,’ we reject the conventional or literal meaning of allegory as making nonsense of the sentence and substitute ‘alligator’ by using our background knowledge of the things likely to be found on the banks of the Nile and choosing one which sounds rather like allegory.
Mrs. Malaprop’s problem was an imperfect understanding of the conventional meanings of English words. But the reason for the mistake does not really matter. We use the same process of adjustment when people have made mistakes about names or descriptions or days or times because they have forgotten or become mixed up. If one meets an acquaintance and he says ‘And how is Mary?’ it may be obvious that he is referring to one’s wife, even if she is in fact called Jane. One may even, to avoid embarrassment, answer ‘Very well, thank you’ without drawing attention to his mistake. The message has been unambiguously received and understood. …
The word ‘allegory’ does not mean a large scaly creature or anything like it, but it is absurd to conclude, as judges sometimes do, that this is not an ‘available meaning’ of the word in the interpretation of what someone has said. This is simply a confusion of two different concepts; as we have seen, a person can use the word ‘allegory,’ successfully and unambiguously, to refer to such a creature.64
Similarly in Investors Compensation Scheme Ltd v West Bromwich Building Society65 Lord Hoffmann took issue with the over-used metaphor of ‘doing violence’ to the natural meaning of the words:
This is an over-energetic way to describe the process of interpretation. Many people, including politicians, celebrities and Mrs. Malaprop, mangle meanings and syntax but nevertheless communicate tolerably clearly what they are using the (p. 126) words to mean. If anyone is doing violence to natural meanings, it is they rather than their listeners.66
Chomsky and modern linguistics
2.24 The insights of Noam Chomsky,67 and those who have followed in his wake, have been rendered more accessible to the general reader by Professor Steven Pinker in his 1994 volume The Language Instinct.68 The approach of Chomsky, and others working in the fields of linguistics and cognitive science, has been applied to legal discourse by American scholar Lawrence Solan (whose training spans linguistics and law) in his 1993 work, The Language of Judges.69 The discovery of innate or universal grammar is of little or no direct relevance to the interpretation of legal texts. One important insight from modern linguistics nevertheless stands out: the importance of the surrounding circumstances to the process of parsing undertaken by the human brain. Intelligibility of most utterances depends crucially on shared background knowledge, and an understanding of the context in which the utterance occurred. In other words, ‘contextual’ or ‘commonsense’ interpretation is not just a desirable improvement on traditional formalistic methods of interpretation which seek to delimit the admissibility of the surrounding circumstances. Rather the contextual approach reflects an unavoidable feature of the process of interpretation undertaken by the human brain. Furthermore, Solan’s work makes it clear that traditional canons of construction may be rehabilitated as prima facie rules about the use of language, rather than strict legal doctrine.70
The limits of interdisciplinary insights
2.25 However there are limits on the lessons which can be drawn from other fields of human endeavour. Professor Farnsworth, one of America’s great scholars, expressed scepticism about the possible fruits of an interdisciplinary approach to the problems posed by contractual interpretation:
The word meaning has … been the subject of controversy. Philosophers and semanticists have debated at length its proper use, if any. It is tempting to look to these discussions for help in dealing with contract language. However, most of them are wide of the mark because they concentrate on language as it is used in science to describe experience. The concern of the philosopher or semanticist is with the truth of such language … The language of a contract is directed not at describing (p. 127) experience but at controlling human behavior, ordinarily the behavior of the contracting parties. The concern of the court is not with the truth of this language but with the expectations that it aroused in the parties. It is therefore to these expectations, rather than to the concern of the philosopher or semanticist, that we must turn in the search for the meaning of contract language.71
2.26 This is clearly right. The principal concerns of twentieth-century philosophy of language—the theories of meaning, sense, and reference—have little light to shed on the more humdrum task of ascertaining the meaning and effect of contractual documentation.72 For Farnsworth the prescriptive, rather than descriptive, role played by legal language is significant. He stressed the triumph of the objective principle as demonstrating the importance of justifiable expectations.73
2.27 However there are lessons to be learned from these other fields. One insight stands out: in ascertaining the meaning of an utterance, the context in which it is made is indispensable. It follows that any legal rule which purports to cut down or delimit the contextual scene in which a contract is made is presumptively unsound. However there may remain autonomous reasons of legal policy which can support the rule. The focus should shift to identifying and delimiting these distinctively legal policies.
Objective and subjective
2.28 One aspect of the Anglo-American approach to contractual interpretation which does not appear to be controversial (at least in those jurisdictions) is the insistence that the courts adopt an objective approach to the construction of contract. It is submitted that this is at bottom a question of legal policy. The underlying rationale of this is that commercial parties should be free to act upon the expressed intentions of other parties, without having to worry about any subjective intentions or secret reservations. The courts are not concerned with finding a common subjective view of what the parties meant, but rather with what reasonable people in their shoes would have meant by the language deployed. This contrasts with the approach of neighbouring jurisdictions in the European Union that belong to the civil law tradition which, at least as a starting point, seek to ascertain the subjective intentions of contracting parties.74 Indeed the objective approach is a distinguishing hallmark of the Anglo-American private law tradition.
(p. 128) 2.29 An early defence of the Anglo-American objective approach was essayed by Oliver Wendell Holmes. He favoured the objective or external approach on the basis that a court should be for upholding apparent contracts, rather than predisposed to invalidating them. What was necessary was to identify the whole purpose of interpretation. This led Holmes to a famous statement of his objective approach to language:
Thereupon we ask, not what this man meant, but what those words would mean in the mouth of a normal speaker of English, using them in the circumstances in which they were used.75
For each party to a contract has notice that the other will understand his words according to the usage of the normal speaker of English under the circumstances, and therefore cannot complain if his words are taken in that sense.76
2.31 Two of the leading proponents of the modern approach to the construction of contract have sought, in extra-judicial writings, to justify the objective approach of English transactional law. Lord Steyn has argued:
Our law is generally based on an objective theory of contract … The commercial advantage of the English approach is that it promotes certainty and predictability in the resolution of contractual disputes. And, as a matter of principle, it is not unfair to impute to contractual parties the intention that in the event of a dispute a neutral judge should decide the case applying an objective standard of reasonableness.77
… the interpretation of a legal text must aim to assign to the text … a meaning derived from its nature and contents. It cannot aim to discover what the parties to a contract … subjectively intended. Such a subjective enquiry cannot be expected to yield realistic results. Moreover, the idea of such an enquiry is logically incoherent: it is excluded by the very concept of interpretation which involves the ascertainment of the objective meaning of a text.
In the context of contracts the subjective desires of the parties will be divergent. Yet they choose a text to govern their relationship and to be the ground upon which disputes are to be resolved. When a dispute as to the interpretation of a contract arises the matter in contention will usually be a risk unforeseen by the parties. How the matter should be resolved depends on the allocation of risks in the contract, the application of default rules, or rarely, the incidence of rules of (p. 129) defeasibility. All these impinge in interpretation. But, leaving aside rectification and estoppel by convention, the subjective views of the parties are irrelevant. The emphasis must be on what the parties, circumstanced as they were, must reasonably have been taken by their chosen contractual text to have said to one another.78
Note that Lord Steyn characterizes both rectification and estoppel by convention as subjective safety valves on the English objective approach.
2.33 Lord Hoffmann has suggested extra-judicially that the objective theory on interpretation can be justified as the only tenable approach, especially where the utterance is a collective one, with more than one person subscribing to it.79 Lord Hoffmann sets out an agenda for revisiting interpretation not only of contracts but also of statutes and wills, in the light of modern theories about language. It favours jettisoning time-honoured rules where they conflict with modern insights, unless they can be justified by some compelling rule of legal policy. A central premise is that interpretation in law should be as close in practice as is possible to interpretation in everyday life.
2.34 There is a distinction between a word’s ‘dictionary’ meaning and the meaning of the speaker of an utterance or the author of a document. Meaning in the latter case depends upon the background beliefs of the listener or reader. One of the problems posed for legal interpretation is the fact that its subject matter is not like a conversation: ‘Of course in ordinary life one can usually ask the speaker what he or she means, but there are problems when the author is dead or the speaker a fictional person and, as we shall see, in legal interpretation the speaker is often to a greater or lesser extent fictional.’80
2.35 In Lord Hoffmann’s view the objective approach to interpretation in law and life generally is inescapable, not because of any scepticism about the existence of subjective intention, but because all efforts at construction are conditioned by the listener’s background knowledge. In contractual interpretation the author of an utterance is a fictional, impersonal construct of the law. The parties whose apparent intentions the law seeks to ascertain are ‘imaginary in the sense that the law removes their personal quirks and assumes them both, probably quite contrary to the facts, to be reasonable men’.81 This impersonal approach is inescapable where there is more than one author of an utterance. Accordingly background knowledge available to only one author must be eliminated from exercise of interpretation. Furthermore, the nature of particular legal institutions and facilities imposes further restrictions:
A written contract is a document which binds the parties according to the interpretation it would be given by a reasonable person possessed of the legally admissible background knowledge. That is the substantive nature of a contract, a legal institution designed to create enforceable promises with the necessary degree of reliability and precision.82
Context, purpose, and pragmatics
2.36 The traditional approach to contractual interpretation is posited on two oft-repeated core principles. First, interpretation is an exercise in ascertaining the ‘intentions of the parties’. Secondly, these common intentions are to be discerned from the ‘natural and ordinary meaning’ of the language which they have employed. Both these core beliefs have been questioned. Indeed as we have seen there is scepticism (at least outside the legal context) whether it is meaningful to speak of the ‘natural’ meaning of words.83 The approach of the courts is said to have shifted over recent decades from a formalistic insistence on adhering to the strict letter of the language of the contract to an approach which is more commercial or contextual in its attitude.
Deprecating ‘detailed semantic and syntactical analysis’
2.37 The classic statement of this modern emphasis is in The Antaios84 where Lord Diplock famously observed:
While deprecating the extension of the use of the expression ‘purposive construction’ from the interpretation of statutes to the interpretation of private contracts … I take this opportunity of re-stating that if detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business commonsense, it [presumably the meaning of the contract] must be made to yield to business commonsense.
2.38 Although Lord Diplock there expressly rejected the label of purposive construction, this dictum is consistently cited in support of arguments favouring greater regard to the commercial object of a contract or particular provision rather than a strict adherence to the letter of the agreement. Moreover Lord Diplock’s terse dismissal of ‘detailed semantic and syntactical analysis’ may be as interesting for what it does not explicitly say, as for what it does.
Syntax, semantics, and pragmatics
2.39 Linguists and philosophers of language usually distinguish not just two, but three main areas of the study of language. First, syntax: the study of the structure of sentences and the rules governing the permissible grammatical arrangements (p. 131) of words. In this area the twentieth century saw remarkable breakthroughs in our understanding of the language faculty and the innate nature of grammar.85 Secondly, semantics: the study of the meaning of words and sentences. The pursuit of a theory of meaning, often associated with the concepts of sense and reference, has been a major preoccupation of philosophers of language.86 Thirdly, pragmatics: the study of what speakers do with language. Speakers do not simply talk. In or by speaking, they promise, marry, swear, forgive, apologize, insult, and enrage, among many other things. Further, what is communicated is not wholly conveyed by what is said; much is implied.87
2.40 We should perhaps infer that for lawyers the pragmatics of language use may be a more fruitful source of inquiry than grammatical nit-picking. Business transactions are a fruitful source of what the Lancastrian philosopher J L Austin labelled ‘speech acts’88 or ‘doing things with words’,89 although more usually construction is focused on documentary rather than oral utterances. Pragmatics suggests that we should look more widely at the context in which documents and utterances are made.
Modern linguistic theory
2.41 As has been suggested, modern linguistics yields one major insight for legal interpretation: the importance of the surrounding circumstances to the process of parsing undertaken by the human brain. Intelligibility of most utterances depends crucially on shared background knowledge and an understanding of the context in which the utterance occurred.90 Ordinary conversation depends on a certain expectation of mutual cooperation, which, as hardly needs pointing out, is not perfectly reproduced in the adversarial positions adopted by two negotiating parties, nor indeed by two litigating parties.91 Professor Steven Pinker in The Language Instinct recounts:
The study of how sentences are woven into a discourse and interpreted in context (sometimes called ‘pragmatics’) has made an interesting discovery … the act of communicating relies on a mutual expectation of cooperation between speaker and listener. The speaker, having made a claim on the precious ear of the listener, implicitly guarantees that the information to be conveyed is relevant: that it is not already known, and that it can be sufficiently connected to what the listener is thinking that he or she can make new inferences to new conclusions with little extra mental effort … These expectations help to winnow out the inappropriate readings of an ambiguous sentence, to piece together fractured utterances, to excuse slips of the tongue, to guess the referents of pronouns and descriptions, and to fill the missing steps of an argument. (When a receiver of a message is not cooperative but adversarial, all of this missing information must be stated explicitly, which is why we have the tortuous language of legal contracts with their ‘party of the first part’ … ).92
2.42 It is submitted that the appeal to commercial purpose or business common sense in modern cases is a reflection of this recognition of the role of pragmatics in our approach to construing language. Background not only assists in dispelling vagueness and resolving ambiguity, but may often preclude a pedantic insistence on a strict reading of a mistakenly expressed provision or phrase. The concept of the ‘reasonable person’ displaces the advantage-taking, uncooperative reader, and allows many linguistic glitches to be eradicated through interpretation. This approach was entrenched in Investors Compensation Scheme Ltd v West Bromwich Building Society93 where two leading judges debated the true construction of a passage in Lewis Carroll’s classic children’s fable:
Leggatt L.J. said that the judge’s construction was not an ‘available meaning’ of the words. If this means that judges cannot, short of rectification, decide that the parties must have made mistakes of meaning or syntax, I respectfully think he was wrong. The proposition is not, I would suggest, borne out by his citation from Through the Looking-Glass. Alice and Humpty-Dumpty were agreed that the word ‘glory’ did not mean ‘a nice knock-down argument.’ Anyone with a dictionary could see that. Humpty-Dumpty’s point was that ‘a nice knock-down argument’ was what he meant by using the word ‘glory.’ He very fairly acknowledged that Alice, as a reasonable young woman, could not have realised this until he told her, but once he had told her, or if, without being expressly told, she could have inferred it from the background, she would have had no difficulty in understanding what he meant.94
Unlike in literary criticism, the opinion of the higher tribunal must prevail.
2.43 Perhaps the more significant development in the twentieth century of the English approach to contractual interpretation was the adoption of a broad approach to the contextual factors which the judges take into account when interpreting a contract. (p. 133) Even nineteenth-century judges paid regard to the ‘surrounding circumstances’. This never sat entirely happily with another aspect of the traditional approach which required the judge not to look outside the four corners of the document being construed in order to supplement, vary, or contradict the written terms—a restrictive approach known as the ‘parol evidence rule’. However, the supposed rule became so encrusted with exceptions that by the end of the twentieth century it had become discredited and largely disregarded in practice.
2.44 In the 1970s, seminal speeches of Lord Wilberforce popularized the phrase ‘factual matrix’95 as shorthand for a broad approach to the context in which a transaction took place. The most recent authorities are concerned with just how far context can modify the apparent meaning of contractual language. The background may now include both legal and factual matters. Where contracts are entered into by sophisticated commercial players assisted by skilled lawyers it would seem absurd to disregard the legal and regulatory background to that transaction and the document embodying it.
2.45 The revolution in construction techniques observed by Lord Hoffmann has in his view almost completely assimilated interpretation of contractual language to the interpretation of everyday language.96 However, there remain in English law two exclusionary rules of evidence which prevent complete free rein being given to the commercial approach. First, prior negotiations and declarations of subjective intent are inadmissible. Secondly, subsequent conduct is not a guide to interpretation. The former restriction is accepted as a practical reality by Lord Hoffmann,97 subject to the escape route of an action for rectification. The latter restriction is also subject to the other well-known escape route of estoppel by convention.98 Lord Hoffmann cites two reasons of legal policy for excluding evidence such as prior negotiations. First, examining all the negotiations would add to the cost and length of litigation. Secondly, the interpretation of a contract can affect third parties, such as assignees, transferees of negotiable instruments, and, nowadays, third party beneficiaries. These are all questions of practical policy. In his last judicial speech, in Chartbrook Ltd v Persimmon Homes Ltd,99 Lord (p. 134) Hoffmann confirmed the exclusionary rule by reference to considerations of policy, and not principle.
2.46 In contrast, in his extra-judical writings, Lord Steyn considered that the restrictions on prior negotiations and subsequent conduct were principled and proceeded from ‘the philosophical starting point of English law’,100 that is the objective principle of construction. Whilst noting the ready admission of subsequent conduct in the United States under the soubriquet ‘practical construction’, Lord Steyn went so far as to suggest that prior negotiations and evidence of conduct ‘could only become admissible as an aid to construction if the objective theory to the interpretation of contracts was abandoned’.101 It is submitted that there is no necessary link between the objective principle and restrictive rules on evidence. This was accepted in Chartbrook Ltd v Persimmon Homes Ltd 102 by Lord Hoffmann.103 The objective principle simply precludes a party from relying on secret intentions, that is intentions which do not cross the line between the parties and other evidence which is not reasonably available to both parties.
1 See generally: K Zweigert and H Kotz, An Introduction to Comparative Law (3rd edn, 1998; trans by T Weir), 400–9; B Nicholas, The French Law of Contract (2nd edn, 1992), 47–58; R Zimmermann, The Law of Obligations—Roman Foundations of the Civilian Tradition (1990; paperback edn, 1996), 583–7, 622–34; S Vogenauer, ‘Interpretation of Contracts: Concluding Comparative Observations’ in A Burrows and E Peel (eds), Contract Terms (2007), 123; C-W Canaris and H C Grigoleit, ‘Interpretation of Contracts’ in A Hartkamp et al (eds), Towards a European Civil Code (3rd edn, 2004), 445; N Kornet, Contract Interpretation and Gap Filling: Comparative and Theoretical Perspectives (2006); C Valcke, ‘Contract Interpretation at Common Law and Civil Law: An Exercise in Comparative Law Rhetoric’ in J Neyers, R Bronaugh, and S Pitel, Exploring Contract Law (2009), 77; and H C Grigoleit and G McMeel, ‘Interpretation of Contracts’ in G Dannemann and S Vogenauer (eds), The Common European Sales Law in Context [-] Interactions with English and German Law (2013), 341.
2 A revised Code Civil came into force in France on 1 October 2016, and earlier literature must be considered in the light of this. For an official English translation (by J Cartwright, B Fauvarque-Cosson, and S Whittaker) see <http://www.textes.justice.gouv.fr/art_pix/THE-LAW-OF-CONTRACT-2-5-16.pdf>. The main section is in Title III Chapter III, articles 1188 ff. Article 1188 provides: ‘Art. 1188. – A contract is to be interpreted according to the common intention of the parties rather than stopping at the literal meaning of its terms. Where this intention cannot be discerned, a contract is to be interpreted in the sense which a reasonable person placed in the same situation would give to it.’
4 For discussion from an English law perspective see M Bridge, The International Sale of Goods— Law and Practice (2nd edn, 2007), chaps 11 and 12; B Nicholas, ‘The Vienna Convention on International Sales Law’ (1989) 105 LQR 201; and M Bridge, ‘The Bifocal World of International Sales: Vienna and Non-Vienna’ in R Cranston (ed), Making Commercial Law (1997) 277.
5 For discussion see R Goode, ‘International Restatements and National Law’ in W Swadling and G Jones (eds), The Search for Principle—Essays in Honour of Lord Goff of Chieveley (2000), 45–58; and M Bonell, ‘The UNIDROIT Principles of International Commercial Contracts and the Principles of European Contract Law: a Comparison’ in R Cranston (ed), Making Commercial Law—Essays in Honour of Roy Goode (1997), 91–101.
7 For the UNIDROIT website see <http://www.unidroit.org>.
8 C von Bar and E Clive (eds), Principles, Definitions and Model Rules of European Private Law— Draft Common Frame of Reference (DCFR) (2009) (six volumes). For discussion see S Whittaker, ‘A Framework of Principle for European Contract Law’ (2009) 125 LQR 616; H Beale (ed), Chitty on Contracts (32nd edn, 2015), para 1-012.
9 The DCFR and the proposed CESL spawned an enormous literature in a comparatively short period of time. For an overview see: G McMeel, ‘The Proposal for a Common European Law: Next Stop a European Contract Code?’ (2012) 27 Butterworth’s Journal of International Banking and Finance Law 3 and H Beale (ed), Chitty on Contracts (32nd edn, 2015), paras 1-012–1-013. See also Law Commission and Scottish Law Commission, Advice to the UK Government [-] A Optional Common European Sales Law: Advantages and Problems (November 2011); and the various essays in G Dannemann and S Vogenauer (eds), The Common European Sales Law in Context [-] Interactions with English and German Law (2013).
13 It is proposed to use the more general and detailed (and longer in the gestation) DCFR in this work for the purposes of comparison, rather than the now abandoned CESL (or the intermediate Feasibility Study). For discussion of contractual construction in respect of both the DCFR and the proposed CESL see H C Grigoleit and G McMeel, ‘Interpretation of Contracts’ in G Dannemann and S Vogenauer (eds), The Common European Sales Law in Context [-] Interactions with English and German Law (2013), 341.
14 Scottish Law Commission, Report on Interpretation in Private Law (Scot Law Com No 160, October 1997), para 1.15. See now Scottish Law Commission, Review of Contract Law Discussion Paper on Interpretation of Contract (No 147, 2011).
17 Ibid, 621.
18 Ibid, 621–2.
19 B Nicholas, The French Law of Contract (2nd edn, 1992), 48: ‘From the point of view of the Common Lawyer the most noticeable feature of the French approach to the interpretation of contracts is its greater subjectivity.’ See generally, 47–58. This is still the case under the new version of the Code: see n 2.
21 Ibid, 403–4.
22 Ibid, 404.
24 See in the New Zealand Supreme Court, Gibbons Holdings Ltd v Wholesale Distributors Ltd  NZSC 37,  1 NZLR 277, para , where Thomas J utilizes this insight to essay a rebalancing of objective and subjective elements of interpretation for the law of New Zealand.
25 See, from a Canadian perspective, J Ziegel, Report to the Uniform Law Conference of Canada on Convention for the International Sale of Goods (1981), Comment on Article 8: ‘Prima facie therefore, art. 8(1) and (2) would appear to be compatible with common law doctrine’ (para 2). Professor Ziegel also commented: ‘It seems clear from the language of art. 8 that it applies to the interpretation of the contract as well as its formational phase’ (para 3).
37 Lord Falconer of Thoroton, Constitutional Affairs Secretary and Lord Chancellor, The Commercial Bar Association Lecture (18 October 2005); see, to like effect, the speech quoted in C Mitchell, Interpretation of Contracts (2007), 60.
38 See further on good faith paras 11.01–11.20.
39 An important article is A Kramer, ‘Common Sense Principles of Contract Interpretation (and how we’ve been using them all along)’ (2003) 23 OJLS 173. See also S Smith, Contract Theory (2004), chap 8 and G McMeel, ‘Language and the Law Revisited—An Intellectual History of Contractual Interpretation’ (2006) 34 CLWR 256. For theoretical discussion in the context of wills see R Kerridge and J Rivers, ‘The Construction of Wills’ (2000) 116 LQR 287.
41 Atiyah, Essays on Contract, 267. But Atiyah cautioned that ‘even with these rules which appear to be the most unyielding of all, the construction technique is continuously making inroads’. He cited Archbolds (Freightage) v Spanglett  1 QB 374, 391–2 in the context of illegality. Compare more recently the importance of the objectively ascertained intention of the parties to the approach to the doctrine of consideration in the judgments of the Court of Appeal in Williams v Roffey Bros & Nicholls (Contractors)  1 QB 1, CA.
42 A significant exception is to be found within the five-part sequence of articles by Glanville Williams, ‘Language and the Law’ (1945) 61 LQR 71, 179, 293, 384, (1946) 62 LQR 387. The discussion of interpretation is at (1945) 61 LQR 384–406. Williams was influenced by both the Vienna Circle of Logical Positivists and the early work by fellow Cambridge academics, C K Ogden (a philosopher) and I A Richards (a poet and literary critic), The Meaning of Meaning—A Study of the Influence of Language on Thought and of the Science of Symbolism (first published in the UK, 1923, 2nd (American) edn, 1927).
43 The starting point was Oliver Wendell Holmes, ‘The Theory of Legal Interpretation’ (1899) 12 Harv LR 417. Important articles include: Z Chafee, ‘The Disorderly Conduct of Words’ (1941) 41 Col LR 381; J P MacBaine, ‘The Rule Against Disturbing Plain Meaning of Writings’ (1943) 31 Cal L Rev 145; R Pound, ‘The Role of Will in Law’ (1954) 68 Harv L Rev 1; E Patterson, ‘The Interpretation and Construction of Contracts’ (1964) 64 Col L Rev 833; E A Farnsworth, ‘ “Meaning” in the Law of Contract’ (1967) 76 Yale LJ 939. C K Ogden and I A Richards, The Meaning of Meaning—A Study of the Influence of Language on Thought and of the Science of Symbolism (first published in the UK, 1923; 2nd (American) edn, 1927) also proved influential on both Chafee and Farnsworth.
44 Principally: Sir Robert Goff, ‘Commercial contracts and the Commercial Court’  LMCLQ 382; Sir Johan Steyn, ‘Written Contracts: To What Extent May Evidence Control Language?’  CLP 23; Sir Christopher Staughton, ‘Interpretation of Maritime Contracts’ (1995) 26 Journal of Maritime Law and Commerce 259; Lord Hoffmann, ‘The Intolerable Wrestle with Words and Meaning’ (1998) 56 SALJ 656; Sir Christopher Staughton, ‘How Do the Courts Interpret Commercial Contracts?’  CLJ 303; Lord Steyn, ‘Interpretation: Legal Texts and their Landscape’ in B S Markesinis (ed), The Clifford Chance Millennium Lectures (2000), 79; Lord Steyn, ‘The Intractable Problem of the Interpretation of Legal Texts’ in S Worthington (ed), Commercial Law and Commercial Practice (2003), 123; Lord Bingham, ‘A New Thing Under the Sun? The Interpretation of Contracts and the ICS Decision’ (2008) 12 Edinburgh LR 374, also in in T Bingham, Lives of the Law [-] Selected Essays and Speeches 2000–2010 (2011), 283; Sir Richard Buxton, ‘ “Construction” and Rectification after Chartbrook’  CLJ 253; and Sir George Leggatt, ‘Making Sense of Contracts: the Rational Choice Theory’ (2015) 131 LQR 454. The last decade has seen a flurry of extra-judicial papers on the related topic of rectification: see Chap 17 and the papers at n 70.
46 See for example A Kramer, ‘Common Sense Principles of Contract Interpretation (and how we’ve been using them all along)’ (2003) 23 OJLS 173; and several of the essays in S Worthington (ed), Commercial Law and Commercial Practice (2003) and D Campbell, H Collins, and J Wightman (eds), Implicit Dimensions of Contract—Discrete, Relational and Network Contracts (2003).
48 For a short history of language and language studies see S R Fischer, A History of Language (1999). For the leading modern history of the English language see D Crystal, The Stories of English (2004), esp 151–3, 232–5, 311–13, for legal language (and the origin of ‘legal lexical doublets’). For shorter, popular histories see Bill Bryson, Mother Tongue—The English Language (1990) and Melvyn (Lord) Bragg, The Adventure of English—The Biography of a Language (2003).
49 For representative samples of the literature see the following collections of essays: A Martinich (ed), The Philosophy of Language (4th edn, 2001); M Baghramian, Modern Philosophy of Language (1998); and B Hale and C Wright (eds), A Companion to the Philosophy of Language (1997, paperback edn, 1999).
50 An early legal survey of the role of semantics in law was Glanville Williams’s ‘Language and the Law’ 61 LQR 71, 72. On the rise of semantic studies Williams wrote: ‘Its birth as a distinct science may be attributed to CK Ogden and IA Richards’s work, The Meaning of Meaning, first published in 1923, now in its sixth edition, and already a classic’.
51 S Pinker, The Language Instinct—The New Science of Language and Mind (1994), 17: ‘Some thirty-five years ago a new science was born. Now called “cognitive science,” it combines tools from psychology, computer science, linguistics, philosophy, and neurobiology to explain the workings of human intelligence. The science of language, in particular, has seen spectacular advances in the years since.’
55 Sir Johan Steyn, ‘Written Contracts: To What Extent May Evidence Control Language?’  CLP 23 and Lord Hoffmann, ‘The Intolerable Wrestle with Words and Meaning’ (1998) 56 SALJ 656, 657, n 2.
56 L Wittgenstein, Philosophical Investigations (1st edn, 1953; 3rd edn, 2001; trans by G E M Anscombe), s 43. For a biographical introduction to the work of Wittgenstein see Ray Monk, Ludwig Wittgenstein—The Duty of Genius (1990).
61 D Davidson, ‘A Nice Derangement of Epitaphs’ reproduced in A Martinich (ed), The Philosophy of Language (4th edn, 2001), 473–83. Davidson’s stark conclusion is that ‘there is no such thing as a language, not if a language is anything like what many philosophers and linguists have supposed’.
64 Ibid, 774, 778. In Sheridan’s The Rivals (1775), he uses ‘headstrong’ for ‘obstinate’. Mrs Malaprop’s confusion was both as to semantics and zoology. Crocodiles, rather than alligators, are natives of the Nile Delta. See also Lord Hoffmann, ‘The Intolerable Wrestle with Words and Meaning’ (1998) 56 SALJ 656.
68 S Pinker, The Language Instinct—The New Science of Language and Mind (1994), 183–8, 214–17, 222–30. See also S Pinker, The Stuff of Thought—Language as a Window into Human Nature (2007), esp 1–2, 204–8, 228–33, 293, 323–6, 377–8 on the relationship of law and language.
73 Nevertheless in his writings, and in particular E Farnsworth, ‘ “Meaning” in the Law of Contracts’ (1967) 76 Yale LJ 939, Professor Farnsworth deployed some insights from semantics and the philosophy of language.
80 Ibid, 660.
81 Ibid, 662.
82 Ibid, 664. See now for the view that the current theory is insufficiently objective: Sir George Leggatt, ‘Making Sense of Contracts: the Rational Choice Theory’ (2015) 131 LQR 454. See further para 3.57.
83 See G Williams, ‘Language and the Law’ (in five parts) (1945) 61 LQR 384; quoted in 1.66.
86 See generally A Martinich (ed), The Philosophy of Language (4th edn, 2001); M Baghramian, Modern Philosophy of Language (1998); and B Hale and C Wright (eds), A Companion to the Philosophy of Language (1997; paperback edn, 1999).
87 A Martinich (ed), The Philosophy of Language (4th edn, 2001), 3, ‘Introduction’. See also L Wittgenstein, Philosophical Investigations (1st edn, 1953; 3rd edn, 2001; trans by G E M Anscombe), §25: ‘Commanding, questioning, recounting, chatting, are as much a part of our natural history as walking, eating, drinking, playing.’
88 The seminal account is by J L Austin, How to do things with words (1962), published posthumously; with later work by J R Searle, Speech Acts: An Essay on the Philosophy of Language (1969). Austin was extremely influential on leading twentieth-century philosopher of law H L A Hart, and his seminal text The Concept of Law (1961), which has its roots in the pre-occupation of 1950s Oxford philosophers with ordinary language. For a recent account see Nicola Lacey, A Life of H L A Hart—The Nightmare and the Noble Dream (2004), 133–48.
89 For a passing reference to speech act theory in the legal context see Lord Hoffmann in Amoco (UK) Exploration Co v Teesside Gas Transportation Ltd  UKHL 18,  1 All ER (Comm) 865, para .
95 Etymologically ‘matrix’ may allude to a Latin word for womb (compare: mater—mother): metaphorically the place from which the contract springs to life. However this may be a post-classical usage. In classical Latin it may have been more commonly used for a breeding animal. Given that Lord Wilberforce was a keen mathematician, and popularized the word in this legal context, it is possible that a mathematical analogy was intended—an array or row of numbers.