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Principles of Contractual Interpretation, 2nd Edition by Calnan, Richard (2nd March 2017)

Preface to the Second Edition

From: Principles of Contractual Interpretation (2nd Edition)

Richard Calnan

From: Oxford Legal Research Library (http://olrl.ouplaw.com). (c) Oxford University Press, 2015. All Rights Reserved. Subscriber: null; date: 17 September 2019

When I was writing the first edition of this book, the climate for purposive contractual interpretation was positively balmy. In a series of cases, the House of Lords, led by Lord Hoffmann, had stressed the contextual nature of the interpretative process, warned that words do not have a natural meaning except in context, and sanctioned the use of background facts to mould the meaning of the words of the contract. We were basking in the warmth of the prevailing sou’westerlies and anticipating a barbeque summer.

Four years on, the weather patterns have changed. There is a distinct chill in the air. An east wind is blowing off the North Sea of the kind you get during the Boxing Day swim in Aldeburgh. The Supreme Court, under the influence of Lord Neuberger, has stressed that the main focus should be on the natural meaning of the words the parties have used, and that twisting the meaning of those words to reflect commercial common sense should be a minority sport.

This change in approach should come as no surprise. Trends in contractual interpretation go in cycles. It is an art—not a science—and it is very much dependent on the approach of the interpreter. If you ask three lawyers the answer to a question of property law, or of tort law, you are likely to get three similar answers if they have the time to do their research. But if you ask the same three lawyers to interpret some words in a contract, you will be lucky to get away with fewer than three answers. That is the nature of contractual interpretation.

And who would be prepared to forecast where we will be in five—or fifteen—years’ time? It takes courage to emulate Michael Fish. Who knows what hurricanes are around the corner?

The second edition takes account of the important new cases and articles that have appeared over the last four years. The most important cases have been the decisions of the Supreme Court in Arnold v Britton and Marks and Spencer v BNP Paribas in 2015. They both go to the root of how contracts are interpreted in practice and they have required substantial changes to Chapters 7 and 8.

The other seminal case is the decision of the Supreme Court in Cavendish v Makdessi, also in 2015, which has rewritten the penalty doctrine. Interpreting contracts is concerned with giving effect to what the parties have agreed. Anything which impinges on freedom of contract is relevant to that process, and the penalty doctrine is (p. viii) the main practical limitation on freedom of contract in commercial cases. The way in which the law has changed is discussed in Chapter 1.

There has been little important case law on rectification, but there has been an explosion of articles on the subject—many of them by judges—which must affect the way in which we think about rectification. These developments have been reflected in Chapter 9, but the law is still in a state of flux.

The other area of uncertainty is the extent to which background facts must be taken into account when interpreting contracts. There has been some new case law in this area, and it has been taken into account in Chapter 4. But the law is far from being settled and, if there is one area of the law in which we need guidance from the Supreme Court, it is here. There is no doubt that interpretation is contextual and that the document must be read against its background facts. But we still do not really know what is meant by ‘background facts’ in this context. It needs to be defined—and limited—in order to balance the need for contextual interpretation against the requirement for certainty and the interests of third parties.

I would like to thank two people in particular. One is David McLauchlan, Professor of Law at Victoria University of Wellington in New Zealand, who has been a constant source of inspiration and encouragement. I can do no better than to echo what Justice Thomas said of David in the Supreme Court of New Zealand in Gibbons v Wholesale Distributors [2008] 1 NZLR 277 at [113]: ‘His work to bring some logic and cohesion into the task of contractual interpretation has been as outstanding as it has been tireless.’ The other is my secretary Jan Ball, who has kept my nose to the grindstone and turned my thoughts into prose.

Richard Calnan

September 2016