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This chapter discusses the way in which the principles of contractual interpretation impinge upon the way in which contracts should be drafted. It also considers the principles of drafting in a broader context.

This chapter explains that the purpose of contractual interpretation is to establish the intention of the parties to the contract. This is done objectively: what would a reasonable person understand their common intention to be from what they have written, said, and done? The chapter discusses what we mean when we talk about the intention of the parties. It explains how the objective approach to interpretation works, and why it is preferred to the subjective approach. Interpretation is important in practice because of the breath of the principle of freedom of contract. The chapter discusses this and its limits, including the penalty doctrine.

This chapter considers the circumstances in which one party to a contract can be prevented from relying on the words of the contract. If the parties to a contract have dealt with each other on the basis of a common understanding about the meaning or effect of the contract, that interpretation will bind them if it would be unjust to go back on it. The chapter discusses the principles concerned, and the test for the application of estoppel by convention. It also gives examples.

This chapter explains that, where the contract is in writing, it is the writing which the primary source of the parties’ objective intention. It discusses what we mean when we talk about ‘the contract’ and, in doing so, considers the parol evidence rule and entire agreement clauses. It also considers categorization and shams.

This chapter explains that contracts are read as a whole. Words and expressions in a contract cannot be seen insolation. They get their colour from the rest of the contract and, if the contract is part of a wider transaction, from the other transaction documents. It also considers the principle that a person interpreting a contract should strive to give effect to each part of the contract. It explains how these issues are dealt with in practice. It also discusses those limited types of case in which contracts are not read as a whole.

This chapter explains that contracts are read in the context of their background facts. These are the facts reasonably available to the parties which are relevant to establishing how a reasonable person would understand what the parties intended by the contract when it was entered into. It discusses the different approaches to context. Some judges are keen to use the context fully. Others would rather limit the extent to which external factors can influence the words of the contract. This is an important practical issue on which there are divergent views, and the chapter discusses the issues concerned and suggests a way forward. It discusses the limitations on the use of context, including the use of prior negotiations and subsequent conduct in interpreting contracts. It also discusses the effect on third parties of a contextual reading of contracts.

This chapter is concerned with what words mean. It states the basic principle that words are nearly always given their ordinary meaning in their context. It discusses the controversy about whether words do have an ordinary meaning, and looks at what is meant by reading words in their context. It discusses the basic principle that, once it has been decided what the ordinary meaning of words is in their context, then they are given effect however odd the result. It considers definition clauses, technical terms, common expressions and standard form contracts. It discusses the canons of construction such as ejusdem generis. It also discusses how to distinguish the interpretation of contracts from their categorization.

This chapter considers how ambiguous phrases are interpreted. It discusses the basic principle that, if words are ambiguous in their context, they are given the meaning the parties are most likely objectively to have intended. The chapter considers what we mean by ‘ambiguity’, and discusses how it is resolved. It contains examples of the way in which these issues have been dealt with in practice. It also discusses the contra proferentem rule.

This chapter discusses the circumstances in which the courts do not give words their natural meaning. Very occasionally, it is clear that the parties cannot objectively have intended words they have used to have their ordinary meaning. If so, they are given the meaning which the parties must objectively have intended. The more unreasonable the result, the more unlikely it is that the parties can have intended it. This is a very controversial principle and different judges take a more—or less—expansive view of it. The chapter discusses the different views, and why they are held. It analyses the recent cases to establish where the law is at the moment. It looks at particular types of case where the courts have been more willing to twist the meaning of words. These include exclusion and limitation clauses, clauses limiting liability for negligence, and termination for minor breach. It discusses recent cases in which the courts have twisted the meaning of words in contracts, and also those where the courts have declined to do so.