Principles of Contractual Interpretation
Principle 1: 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?
Principle 2: Where the contract is in writing, it is the writing which is the primary source of the parties’ objective intention.
Principle 3: Contracts are read as a whole.
Principle 4: 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.
Principle 5: Words are nearly always given their ordinary meaning in their context.
Principle 6: If words are ambiguous in their context, they are given the meaning the parties are most likely objectively to have intended.
Principle 7: 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.
Principle 8: Words are implied into a contract if the parties must objectively have intended them. This will be the case either if they are so obvious that there was no need to express them, or if they are necessary to make the contract work in a business context.
Principle 9: If a written contract does not record the parties’ common intention at the time it was entered into, it will be amended to reflect that intention.
Principle 10: 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.