The Construction of Commercial Contracts (PDFDrive) PDF

The
Construction of
Commercial Contracts
The Construction of
Commercial Contracts
J W Carter
BA, LLB (Syd), Ph D (Cantab), FAAL
Professor of Commercial Law, University of Sydney
Consultant, Herbert Smith Freehills
General Editor, Journal of Contract Law
Oxford and Portland, Oregon

2013
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© 2012 by Ironhans Pty Limited, under licence to Hart Publishing Ltd J W
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Contents Preface
Table of Cases
Table of Statutes
Abbreviations
PART I — INTRODUCTION
1. What Is Construction?
PART II — CONSTRUCTION, INTENTION AND IMPLICATION
2. Construction and Intention
3. Construction and Implication
PART III — RULES AND PRINCIPLES HAVING GENERAL APPLICATION
4. General and Specific Construction Rules
5. The ICS Principles
PART IV — CONTEXT OF THE CONTRACT
6. Role of Context
7. Scope of Context
PART V — THE EXCLUSIONARY RULE
8. Categories of Extrinsic Evidence
9. Scope of the Exclusionary Rule
10. Contracts Integrated in Documents
PART VI — MEANING OF THE CONTRACT
11. Meaning and Legal Effect
12. Standards of Interpretation
13. Choice of Meaning
14. Evidence in Aid of Construction
PART VII — APPLICATION OF THE CONTRACT
15. Standards for Applying Contracts
16. Commercial Application
17. Exclusion and Limitation Clauses
18. Evidence in Application

Bibliography
Index
Preface
This book is an attempt to explain as a coherent whole the principles which
regulate the construction of commercial contracts. It is therefore also a book
about ‘principles of commercial construction’. The underlying thesis is
explained in Chapter 1. The central idea is that, potentially, there are three stages
in the construction of a contract, corresponding to identification of context (and
terms), determining the meaning (and legal effect) of a contract and the
application of the contract to the factual circumstances which have arisen.
Within this structure, the book seeks to unravel the various specific issues that
arise in construction.
The structure also makes explicit that there is much more to contract
construction than a search for meaning. It is necessary to distinguish between
analysis of principles of commercial construction and analysis of contract
doctrine applied by construction. What a contract means is conceptually distinct
from its effect as a matter of law. Although the legal effect of a contract is a
matter of intention which is often determined by construction, the main role of
construction is to apply contract doctrine. It is unnecessary — and inappropriate
— for a work on construction to seek to explain the details of contract doctrine.
It seemed to me no more sensible to have a chapter on the classification of
contractual terms as conditions, warranties or intermediate terms than it would
be to have a chapter on the doctrine of frustration; or, for that matter, the
categorisation of communications as offers or misrepresentations. At a more
pragmatic level, that decision is important in trying to cope with the enormous
number of reported cases dealing with construction issues of one sort or another.
A recurring point in the book is that construction is a specialised process.
Indeed, it seems important to acknowledge that the construction of any contract
(or communication in connection with a contract or proposed contract) is
affected by legal rules. There is no reason to expect the construction process to
be supported by any particular theory of language or communication. Equally,
there seems little doubt that some of the problems in construction as a legal
subject stem from adherence to outdated notions about language and
communication. An obvious example is the fascination of the law with ‘plain
meaning’. Issues of definition and characterisation frequently arise. These
cannot be explained solely by analysis of what words mean as a matter of
English. One reason for devoting a separate part of the book to ‘application’ is to
emphasise the difference between the meaning of a contract and its intended
scope of application. It seems unhelpful to speak in terms of what an exclusion
clause or force majeure clause ‘means’ if the issue in construction is the scope of
application of the clause. Indeed, it is fundamental to the concept of commercial
construction that the intended application of a contract in a particular factual
situation cannot be determined solely by reference to linguistic sense.
Because construction disputes deal with a wide variety of issues, it is also
necessary to break down the construction process. And because construction is a
specialised process, it relies on specialised rules and employs specialised
concepts. Two key concepts reflect standards in construction. Since under the
objective approach of contract law the meaning of a contract usually depends on
the views of a reasonable person in the position of the person to whom the words
at issue were addressed (‘perspective rule’), account must be taken of the usages
of the class of persons of which the addressee is a member. Those usages are
determined by the relevant ‘standard of interpretation’. In relation to the
application of contracts, it is implicit in the frequent reference to ‘commercial
construction’, ‘strict construction’ and ‘literal construction’ that there may be
more than one standard for applying a contract to a given set of facts. There is, in
other words, a concept of ‘standard of application’ which mediates between what
a contract means as a matter of English and how it is intended to be applied to
those facts.
‘Construction’ is the most important ingredient of the common law of
contract. Since the objective theory binds all common law jurisdictions, the basic
attitude towards construction is highly uniform. It is therefore appropriate to
refer to sources other than English decisions. In particular, except where it is
necessary to do so, I have not distinguished between the use of English and
Australian authorities to support the views expressed in the book. Frequent
reference is also made to the American Law Institute’s Restatement of the Law
Second, Contracts 2d. And given the internationalisation of commercial law in
recent times, the UNIDROIT Principles of International Commercial Contracts
2010 are also relevant.
This book has had a long gestation period. That is largely due to the difficulty
which must confront anyone who seeks to explain as a coherent body of law the
diverse and eminently practical decisions which are made in the name of
‘construction’. But it has not helped that English law has evolved considerably
in recent years. The goalposts have been moved more than once! Because it has
taken such a long time to write, there are many people to thank. I started the
book during a period of sabbatical leave in Oxford. Guenter Treitel gave me
invaluable advice on the scope of the work, and I profited greatly from
discussions on the mysteries of the parol evidence rule with Brian Davenport at
the Law Commission. An early draft of the book was read by Johan Steyn, and I
am very grateful for his comments, which emphasised the importance of
distinguishing between third party standard forms and negotiated documents.
The initial research into the case law was done by Greg Tolhurst. More
recently, Tess Mierendorff, Lizzie Fuller and Ryan Catterwell have answered
calls to delve into specific issues. In addition, Ryan very generously prepared a
first draft of the index with an amazing attention to detail. There is an
acknowledgment in Chapter 5 that a substantial part of that chapter derives from
work done with Michael Furmston. Several chapters reflect work done with
Elisabeth Peden and Greg Tolhurst, and they have both been a constant source of
support. Many people have provided comments on draft chapters. Wayne
Courtney read the whole manuscript in draft, and made innumerable valuable
suggestions. In addition, I should thank Alison Williams and John Ren not only
for helpful comments on particular chapters but also for general encouragement.
Colleagues at Herbert Smith Freehills have also been kind. Since working as
a consultant has provided many insights into the construction of commercial
contracts, it is invidious to single out anyone for specific mention. But Kristin
Stammer, Melanie Bouton, Donald Robertson, David Cooper, Luke Hastings,
Peter Paradise and Alan Peckham have also taken a particular interest in the
book. And my assistants, Caterina Parison and Melissa Smith, have done a
wonderful job managing the proofs and various pieces of research.
The manuscript was edited with meticulous care by Rosemary Peers.
I am very grateful to Richard Hart for his faith in the work — not to mention
his patience — and to the team at Hart Publishing for their support, and for
preparing the tables.
It goes without saying that the book would never have been written without
the unstinting support of my wife Helen, which support included the checking of
the proofs with me.
The law is generally stated on the basis of reported cases available to me on 1
August 2012.
J W Carter
November 2012
Table of Cases References are to paragraph numbers
A Turtle (The) see A Turtle Offshore SA v Superior Trading Inc A Turtle
Offshore SA v Superior Trading Inc (The A Turtle) [2009] 1 Lloyd’s Rep
177; [2008] EWHC 3034 (Admlty) .... [15-22], [17-33], [17-36]
A/S Awilco of Oslo v Fulvia SpA di Navigazione of Cagliari (The Chikuma)
[1981] 1 WLR 314 .... [1-30]
Aberfoyle Plantations v Cheng [1960] AC 115 .... [16-30]
Abqaiq (The) see National Shipping Co of Saudi Arabia v BP Oil Supply Co
Absalom v TCRU Ltd [2005] 2 Lloyd’s Rep 735; [2005] EWHC 1090
(Comm) (affirmed [2006] 2 Lloyd’s Rep 129; [2005] EWCA Civ 1586) ....
[7-05], [7-21]
Absalom v TCRU Ltd [2006] 2 Lloyd’s Rep 129; [2005] EWCA Civ 1586 .... [7-
18], [12-10]
Academy of Health and Fitness Pty Ltd v Power [1973] VR 254 .... [18-08]
Achilleas (The) see Transfield Shipping Inc v Mercator Shipping Inc Ackland v
Wigmore (1910) 12 WAR 48 .... [3-09]
Acron Pacific Ltd v Offshore Oil NL (1985) 157 CLR 514 .... [2-28]
Actionstrength Ltd v International Glass Engineering IN.GL.EN Spa [2003] 2
AC 541; [2003] UKHL 17 .... [2-21], [8-10], [9-18], [15-36]
Adam v Newbigging (1888) 13 App Cas 308 .... [2-31], [18-33]
Adamastos Shipping Co Ltd v Anglo-Saxon Petroleum Co Ltd [1959] AC 133
.... [4-50], [7-14], [13-39]
Adams v Richardson & Starling Ltd [1969] 1 WLR 1645 .... [11-15], [16-20],
[17-09]
Addax Ltd v Arcadia Petrolem Ltd [2000] 1 Lloyd’s Rep 493 .... [17-24]
Adelfa (The) see Adelfamar SA v Silos E Mangimi Martini SpA Adelfamar SA
v Silos E Mangimi Martini SpA (The Adelfa) [1988] 2 Lloyd’s Rep 466 ....
[4-18]
Administration of the Territory of Papua and New Guinea v Daera Guba (1973)
130 CLR 353 .... [8-35], [12-10], [14-29]
Administrative and Clerical Officers Association v The Commonwealth (1979)
26 ALR 497 .... [3-15]
Aegean Dolphin (The) see Dolphin Hellas Shipping SA v Itemslot Ltd Afovos
Shipping Co SA v Pagnan [1983] 1 WLR 195 .... [1-34]
Afrapearl (The) see Portolana Compania Naviera Ltd v Vitol SA Inc AG
Securities v Vaughan [1990] 1 AC 417 .... [2-30], [2-31], [18-33]
AGC (Advances) Ltd v West (1984) 5 NSWLR 590 (affirmed sub nom West v
AGC (Advances) Ltd (1986) 5 NSWLR 610) .... [9-56]
Agip SpA v Navigazione Alta Italia SpA (The Nai Genova) [1984] 1 Lloyd’s
Rep 353 .... [9-43], [9-44]
Agnew v Commissioner of Inland Revenue [2001] 2 AC 710; [2001] UKPC 28
.... [11-05]
Agricultural and Rural Finance Pty Ltd v Gardiner (2008) 238 CLR 570; [2008]
HCA 57 .... [8-34], [12-29]
Agrokor AG v Tradigrain SA [2000] 1 Lloyd’s Rep 497 .... [4-37]
AIB Group (UK) Ltd v Martin [2002] 1 WLR 94; [2001] UKHL 63 .... [1-37],
[2-11], [2-14], [4-41], [4-51], [7-40], [13-13], [13-39], [13-40], [14-35],
[15-15]
AIC Ltd v ITS Testing Services (UK) Ltd (The Kriti Palm) [2007] 1 Lloyd’s Rep
555; [2006] EWCA Civ 1601 .... [11-29]
Ailsa Craig Fishing Co Ltd v Malvern Fishing Co Ltd [1983] 1 WLR 964 ....
[11-21], [17-11], [17-13], [17-15], [17-16], [17-17], [17-21], [17-26]
Air Great Lakes Pty Ltd v K S Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309
.... [2-20], [2-21], [6-13], [6-31], [7-26], [8-25], [9-22], [9-24], [9-27], [10-
14], [10-44], [11-25]
Air Tahiti Nui Pty Ltd v McKenzie (2009) 264 ALR 709; [2009] NSWCA 429
.... [9-51]
Air Transworld Ltd v Bombardier Inc [2012] 1 Lloyd’s Rep 349; [2012] EWHC
243 (Comm) .... [17-23]
Akici v L R Butlin Ltd [2006] 1 WLR 201; [2005] EWCA Civ 1296 .... [13-21],
[15-30], [15-35]
Akot Pty Ltd v Rathmines Pty Ltd [1984] 1 Qd R 302 .... [8-16], [9-53], [18-30]
Aktieselskabet de Danske Sukkerfabrikker v Bajamar Compania Naviera SA
(The Torenia) [1983] 2 Lloyd’s Rep 210 .... [17-20]
Aktor (The) see PT Berlian Laju Tanker TBK v Nuse Shipping Ltd Alan (W J)
& Co Ltd v El Nasr Export and Import Co [1972] 2 QB 189 .... [3-35]
Alchemy Estates Ltd v Astor [2009] 1 WLR 940; [2008] EWHC 2675 (Ch) ....
[4-52]
Alderslade v Hendon Laundry Ltd [1945] 1 KB 189 .... [17-17], [17-25], [17-
29], [17-30]
Alec Lobb (Garages) Ltd v Total Oil (Great Britain) Ltd [1985] 1 WLR 173 ....
[3-13]
Alex Kay Pty Ltd v General Motors Acceptance Corp [1963] VR 458 .... [4-46]
Alexander v Rayson [1936] 1 KB 169 .... [2-27], [9-17]
Alexandros T (The) see Starlight Shipping Co v Allianz Marine & Aviation
Versicherungs AG
Alfred C Toepfer International Gmbh v Itex Itagrani Export SA [1993] 1 Lloyd’s
Rep 360 .... [4-18]
Alfred McAlpine Plc v BAI (Run-Off) Ltd [2000] 1 Lloyd’s Rep 437 .... [16-33],
[16-34]
Alghussein Establishment v Eton College [1988] 1 WLR 587 .... [16-20], [16-
42]
Allied Marine Transport Ltd v Vale do Rio Doce Navegacao SA (The Leonidas
D) [1985] 1 WLR 925 .... [9-23]
Allnutt v Wilding [2007] EWCA Civ 412 .... [9-47]
Almatrans SA v Steamship Mutual Underwriting Association (Bermuda) Ltd
(The Tutova) [2007] 1 Lloyd’s Rep 104; [2006] EWHC 2223 (Comm) ....
[9-49]
Ama Ulgen (The) see Galaxy Energy International Ltd v Bayoil SA
Amalgamated Investment & Property Co Ltd v Texas Commerce
International Bank Ltd [1982] 1 QB 84 .... [6-10], [8-39], [14-20], [18-17],
[18-18]
Amann Aviation Pty Ltd v The Commonwealth (1990) 92 ALR 601 (affirmed
sub nom Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64)
.... [3-10], [15-23], [16-25], [16-39]
Amazonia (The) see Furness Withy (Australia) Pty Ltd v Metal Distributors
(UK) Ltd Amcor Ltd v Construction Forestry Mining and Energy Union
(2005) 222 CLR 241; [2005] HCA 10 .... [6-28]
Amec Civil Engineering Ltd v Secretary of State for Transport [2005] 1 WLR
2339; [2005] EWCA Civ 291 .... [15-29], [18-32]
Amherst v James Walker Goldsmith & Silversmith Ltd [1983] Ch 305 .... [4-29]
Amin Rasheed Shipping Corp v Kuwait Insurance Co [1983] 1 WLR 228
(affirmed [1984] AC 50) .... [8-34]
Amiri Flight Authority v BAE Systems Plc [2003] 2 Lloyd’s Rep 767; [2003]
EWCA Civ 1447 .... [10-08], [13-44], [17-14]
Anangel Atlas Compania Naviera SA v Ishikawajima-Harima Heavy Industries
Co Ltd (No 2) [1990] 2 Lloyd’s Rep 526 .... [7-24], [8-28], [10-13], [11-19],
[14-23], [18-28]
Andar Transport Pty Ltd v Brambles Ltd (2004) 217 CLR 424; [2004] HCA 28
.... [15-38], [15-39], [15-45], [17-21], [17-25]
André et Compagnie SA v Marine Transocean Ltd (The Splendid Sun) [1981]
QB 694 .... [18-12]
Andrew & Son v Barker (1891) 17 VLR 514 .... [13-43]
Andrews Brothers (Bournemouth) Ltd v Singer and Co Ltd [1934] 1 KB 17 ....
[3-23]
Anemone (The) see Clipper Maritime Ltd v Shirlstar Container Transport Ltd
Angelakis (G & N) Shipping Co SA v Compagnie National Algérienne de
Navigation (The Attika Hope) [1988] 1 Lloyd’s Rep 439 .... [7-31], [15-28]
Angelia (The) see Trade and Transport Inc v Iino Kaiun Kaisha Ltd Anglomar
Shipping Co Ltd v Swan Hunter Shipbuilders Ltd (The London Lion)
[1980] 2 Lloyd’s Rep 456 .... [6-14], [7-19], [11-12], [13-19], [15-45], [16-
15]
Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR
549 .... [2-42], [2-43], [3-35], [6-13], [8-26], [13-51], [15-38], [15-39], [15-
40], [15-42], [16-32], [16-33]
Ansett Transport Industries (Operations) Pty Ltd v Commonwealth of Australia
(1977) 139 CLR 54 .... [3-25], [10-15]
Antaios (The) see Antaios Compania Naviera SA v Salen Rederierna AB
Antaios Compania Naviera SA v Salen Rederierna AB (The Antaios) [1985] AC
191 .... [1-54], [3-10], [4-40], [5-23], [13-46], [15-04], [15-20], [15-23],
[15-24], [16-17], [16-25]
Antares (The) see Kenya Railways v Antares Co Pte Ltd Antclizo (The) see
Food Corp of India v Antclizo Shipping Corp Anthracite Rated Investments
(Jersey) Ltd v Lehman Brothers Finance SA (in liq) [2011] 2 Lloyd’s Rep
538; [2011] EWHC 1822 (Ch) .... [11-32], [12-03], [13-12]
Antiparos (The) see Antiparos ENE v SK Shipping Co Ltd Antiparos ENE v SK
Shipping Co Ltd (The Antiparos) [2008] 2 Lloyd’s Rep 237; [2008] EWHC
1139 (Comm) .... [15-45]
Antwerpen (The) see Glebe Island Terminals Pty Ltd v Continental Seagram Pty
Ltd Aotearoa International Ltd v Scancarriers A/S [1985] 1 NZLR 513 ....
[3-24]
Apostolis (The) see Meredith Jones (A) & Co Ltd v Vangemar Shipping Co Ltd
Appleby v Pursell [1973] 2 NSWLR 879 .... [6-24], [14-12]
Arash Shipping Enterprises Co Ltd v Groupama Transport [2011] 2 Lloyd’s Rep
607; [2011] EWCA Civ 620 .... [13-29], [16-22]
Archbolds (Freightage) Ltd v S Spanglett Ltd [1961] 1 QB 374 .... [2-14]
Arcos Ltd v E A Ronaasen & Son [1933] AC 470 .... [1-31], [15-24]
Armour v Thyssen Edelstahlwerke AG [1991] 2 AC 339 .... [2-30]
Arrale v Costain Civil Engineering Ltd [1976] 1 Lloyd’s Rep 98 .... [4-45], [4-
49], [6-24], [8-22], [9-14], [10-42], [14-35]
Arthur White (Contractors) Ltd v Tarmac Civil Engineering Ltd [1967] 3 All ER
586 .... [17-06], [17-25]
AS Klaveness Chartering v Pioneer Freight Futures Co Ltd [2010] 2 Lloyd’s Rep
613; [2009] EWHC 3386 (Comm) .... [10-12]
Ashby v Tolhurst [1937] 2 KB 242 .... [17-06]
Ashington Piggeries Ltd v Christopher Hill Ltd [1972] AC 441 .... [1-26], [2-16],
[11-22], [11-24], [11-25], [17-23]
Ashville Investments Ltd v Elmer Contractors Ltd [1989] QB 488 .... [13-14],
[13-47], [13-48], [15-11]
Ashworth Frazer Ltd v Gloucester City Council [2001] 1 WLR 2180; [2001]
UKHL 59 .... [4-46], [13-29]
Associated Alloys Pty Ltd v ACN 001 452 106 Pty Ltd (in liq) (2000) 202 CLR
588; [2000] HCA 25 .... [11-15], [13-36], [14-26], [16-20]
Associated British Ports v Ferryways NV [2008] 2 Lloyd’s Rep 353; [2008]
EWHC 1265 (Comm) (affirmed [2009] 1 Lloyd’s Rep 595; [2009] EWCA
Civ 189) .... [2-30], [15-40]
Associated British Ports v Ferryways NV [2009] 1 Lloyd’s Rep 595; [2009]
EWCA Civ 189) .... [15-45], [17-24]
Associated Japanese Bank (International) Ltd v Credit du Nord SA [1989] 1
WLR 255 .... [2-14], [2-22], [3-26], [6-32], [9-37], [15-44]
Associated Newspapers Ltd v Bancks (1951) 83 CLR 322 .... [2-43], [2-45], [8-
31], [13-51]
Association of British Travel Agents Ltd v British Airways Plc [2000] 2 Lloyd’s
Rep 209 .... [4-45], [4-47], [6-17], [7-11], [7-13]
Astilleros Espanoles SA v Bank of America National Trust and Savings
Association [1995] 2 Lloyd’s Rep 352 .... [9-56]
Astley Industrial Trust Ltd v Grimley [1963] 1 WLR 584 .... [16-29]
Astra Trust Ltd v Adams [1969] 1 Lloyd’s Rep 81 .... [16-30]
Asty Maritime Co Ltd v Rocco Guiseppe & Figli SNC (The Astyanax) [1985] 2
Lloyd’s Rep 109 .... [2-27]
Astyanax (The) see Asty Maritime Co Ltd v Rocco Guiseppe & Figli SNC
Atco Controls Pty Ltd (in liq) v Newtronics Pty Ltd (Receivers and Managers
Appointed) (in liq) (2009) 25 VR 411; [2009] VSCA 238 .... [9-19], [9-26]
Athinoula (The) see Bravo Maritime (Chartering) Est v Alsayed Abdullah
Mohamed Baroom Athos (The) see Telfair Shipping Corp v Athos Shipping
Co SA Atisa SA v Aztec AG [1983] 2 Lloyd’s Rep 579 .... [4-18]
Atlantic Lines & Navigation Co Inc v Hallam Ltd (The Lucy) [1983] 1 Lloyd’s
Rep 188 .... [4-43], [10-30], [10-47], [14-20], [18-17]
Atlantic Shipping and Trading Co Ltd v Louis Dreyfus and Co [1922] 2 AC 250
.... [16-07]
Atlas Navios-Navegaçao LDA v Navigators Insurance Co Ltd (The B Atlantic)
[2012] 1 Lloyd’s Rep 629; [2012] EWHC 802 (Comm) .... [15-45], [16-08],
[17-33]
Attaleia Marine Co Ltd v Bimeh Iran (Iran Insurance Co) (The Zeus) [1993] 2
Lloyd’s Rep 497 .... [13-34], [17-14]
Attica Sea Carriers Corp v Ferrostaal Poseidon Bulk Reederei GmbH [1976] 1
Lloyd’s Rep 250 .... [16-14]
Attika Hope (The) see Angelakis (G & N) Shipping Co SA v Compagnie
National Algérienne de Navigation Attorney General v Guardian
Newspapers Ltd (No 2) [1990] 1 AC 109 .... [16-42]
Attorney General of Belize v Belize Telecom Ltd [2009] 1 WLR 1988; [2009]
UKPC 10 .... [3-21], [3-23], [3-27], [4-36], [7-16], [7-31], [7-41], [10-53],
[11-22], [11-26], [16-17]
Attwood v Lamont [1920] 3 KB 571 .... [3-13]
August Leonhardt (The) see Lokumal (K) & Sons (London) Ltd v Lotte
Shipping Co Pte Ltd Australasian Medical Insurance Ltd v CGU Insurance
Ltd (2010) 271 ALR 142; [2010] QCA 189 .... [7-19], [14-19]
Australia and New Zealand Banking Group Ltd v Beneficial Finance Corp Ltd
(1982) 57 ALJR 352 .... [2-43]
Australia and New Zealand Banking Group Ltd v Compagnie d’Assurances
Maritimes Aériennes et Terrestres [1996] 1 VR 561 .... [7-26]
Australia and New Zealand Banking Group Ltd v Coutts (2003) 201 ALR 728
.... [2-30]
Australian and New Zealand Banking Group Ltd v Frost Holdings Pty Ltd
[1989] VR 695 .... [3-24]
Australian Broadcasting Commission v Australasian Performing Right
Association Ltd (1973) 129 CLR 99 .... [1-04], [4-20], [13-29], [16-12],
[16-16], [16-17]
Australian Broadcasting Corp v XIVth Commonwealth Games Ltd (1988) 18
NSWLR 540 .... [1-47], [9-33], [11-22]
Australian Casualty Co Ltd v Federico (1986) 160 CLR 513 .... [4-20], [4-33],
[13-10], [13-20], [16-14]
Australian Coarse Grains Pool Pty Ltd v Barley Marketing Board [1989] 1 Qd R
499 .... [3-21], [3-24]
Australian Energy Ltd v Lennard Oil NL [1986] 2 Qd R 216 .... [6-28], [9-29],
[18-11]
Australian European Finance Corp Ltd v Sheahan (1993) 60 SASR 187 .... [9-
30]
Australian Football League v Carlton Football Club Ltd [1998] 2 VR 546 ....
[14-26]
Australian Guarantee Corp Ltd v Balding (1930) 43 CLR 140 .... [2-30], [4-53]
Australian Guarantee Corp Ltd v Ross [1983] 2 VR 319 .... [17-19]
Australian Joint Stock Bank Ltd v Bailey [1899] AC 396 .... [12-29], [13-37],
[15-37], [15-41]
Australian Medic-Care Co Ltd v Hamilton Pharmaceutical Pty Ltd (2009) 261
ALR 501; [2009] FCA 1220 .... [15-22]
Australian Mutual Provident Society v Chaplin (1978) 18 ALR 385 .... [2-31],
[8-34], [9-16], [18-11], [18-34]
Australis Media Holdings Pty Ltd v Telstra Corp Ltd (1998) 43 NSWLR 104 ....
[3-21], [7-11]
AXA Reinsurance (UK) Plc v Field [1996] 1 WLR 1026 .... [11-17]
AXA Sun Life Services Plc v Campbell Martin Ltd [2011] 2 Lloyd’s Rep 1;
[2011] EWCA Civ 133 .... [10-21], [10-22], [10-23], [10-27], [10-28], [10-
29], [10-32], [10-33]
Azimut-Benetti SpA v Healey [2011] 1 Lloyd’s Rep 473; [2010] EWHC 2234
(Comm) .... [14-03]
Azur Gaz (The) see SHV Gas Supply & Trading SAS v Naftomar Shipping &
Trading Co Ltd Inc B & B Constructions (Aust) Pty Ltd v Brian A
Cheeseman & Associates Pty Ltd (1994) 35 NSWLR 227 .... [1-05], [1-19],
[1-54], [6-14], [8-23], [8-32], [11-11], [11-16], [14-25], [14-33], [14-35],
[18-30]
B & S Contracts and Design Ltd v Victor Green Publications Ltd [1984] ICR
419 .... [16-07]
B Atlantic (The) see Atlas Navios-Navegaçao LDA v Navigators Insurance Co
Ltd Babanaft International Co SA v Avant Petroleum Inc (The Oltenia)
[1982] 1 Lloyd’s Rep 448 (affirmed [1982] 1 WLR 871; [1982] 3 All ER
244) .... [16-08]
Babanaft International Co SA v Avant Petroleum Inc (The Oltenia) [1982] 1
WLR 871; [1982] 3 All ER 244 .... [17-17]
Bacchus Marsh Concentrated Milk Co Ltd v Joseph Nathan & Co Ltd (1919) 26
CLR 410 .... [4-24], [6-13], [8-22], [8-23], [9-47], [14-03], [14-28], [18-22]
Bacon v Chesney (1816) 1 Stark 192; 171 ER 443 .... [15-38]
Bacon v Purcell (1916) 22 CLR 307 .... [7-16]
Badagry (The) see Terkol Rederierne v Petroleo Brasileiro SA Bahr v Nicolay
[No 2] (1988) 164 CLR 604 .... [3-27], [6-13], [6-31], [8-28], [9-14], [10-
46], [10-47]
Baker v Black Sea & Baltic General Insurance Co Ltd [1998] 1 WLR 974 ....
[12-38]
Bakri Navigation Co Ltd v Owners of Ship ‘Golden Glory’ Glorious Shipping
SA (1991) 217 ALR 152 .... [12-33], [16-30]
Baldry v Marshall [1925] 1 KB 260 .... [17-23]
Ballenita (The) and BP Energy see ERG Petroli SpA v Vitol SA Banco Nacional
Ultramino v First Nat Bank of Boston, 289 F 169 (D Mass, 1923) .... [15-
33]
Bank Leumi (UK) Plc v Wachner [2011] EWHC 656 (Comm) .... [10-29]
Bank Line Ltd v Arthur Capel & Co [1919] AC 435 .... [2-34]
Bank of Australasia v Palmer [1897] AC 540 .... [8-13], [8-16], [10-17], [10-38]
Bank of Credit and Commerce International SA v Ali [2002] 1 AC 251; [2001]
UKHL 8 .... [1-04], [2-10], [4-20], [4-22], [4-25], [4-30], [4-33], [5-05], [5-
23], [6-10], [6-29], [6-30], [6-32], [7-06], [8-24], [9-46], [11-13], [11-15],
[11-21], [13-17], [13-20], [15-11], [15-23], [16-28], [16-38], [17-12], [17-
14]
Bank of India v Trans Continental Commodity Merchants Ltd [1982] 1 Lloyd’s
Rep 506 (affirmed [1983] 2 Lloyd’s Rep 298) .... [8-07], [12-38], [15-40]
Bank of New Zealand v Simpson [1900] AC 182 .... [6-15], [7-15], [11-11], [18-
04], [18-22]
Bank of Scotland v Euclidian (No 1) Ltd [2008] Lloyd’s Rep IR 182; [2007]
EWHC 1732 (Comm) .... [15-45]
Bankers Trust Co v State Bank of India [1991] 2 Lloyd’s Rep 443 .... [7-25]
Bankrupt Estate of Murphy, Re; Donnelly v Commonwealth Bank of Australia
Ltd (1996) 140 ALR 46 .... [4-31]
Bankway Properties Ltd v Pensfold-Dunsford [2001] 1 WLR 1369; [2001]
EWCA Civ 528 .... [2-30], [2-31], [9-27], [16-11], [18-33]
Banque Brussels Lambert SA v Australian National Industries Ltd (1989) 21
NSWLR 502 .... [9-26], [9-30]
Banque de l’Indochine et de Suez SA v J H Rayner (Mincing Lane) Ltd [1983]
QB 711 .... [15-33]
Banque Financière de la Cité SA v Westgate Insurance Co Ltd [1991] 2 AC 249
.... [3-30]
Barba v Gas & Fuel Corp of Victoria (1976) 136 CLR 120 .... [10-42]
Barclays Bank Plc v Bee [2002] 1 WLR 332; [2001] EWCA Civ 1126 .... [15-
30]
Barclays Bank Plc v Kingston [2006] 2 Lloyd’s Rep 59; [2006] EWHC 533
(QB) .... [15-39], [15-40]
Barclays Bank Plc v Nylon Capital LLP [2012] Bus LR 542; [2011] EWCA Civ
826 .... [16-13]
Barclays Bank Plc v Weeks Legg & Dean (a firm) [1999] QB 309 .... [4-22],
[13-19], [16-20]
Barlee Marine Corp v Mountain (The Leegas) [1987] 1 Lloyd’s Rep 471 .... [7-
10], [7-25], [8-34], [18-26]
Barrier Wharfs Ltd v W Scott Fell & Co Ltd (1908) 5 CLR 647 .... [7-28], [9-
29], [9-32]
Barro Group Pty Ltd v Fraser [1985] VR 577 .... [3-24]
Barrow Lane & Ballard Ltd v Phillip Phillips & Co Ltd [1929] 1 KB 574 .... [9-
36]
Barton v Fitzgerald (1812) 15 East 530; 104 ER 944 .... [13-37]
Bass Holdings Ltd v Morton Music Ltd [1988] Ch 493 .... [15-28]
Bastin v Bidwell (1881) 18 Ch D 238 .... [15-28]
Batey v Gifford (1997) 42 NSWLR 710 .... [17-20]
Bayerische Vereinsbank AG v National Bank of Pakistan [1997] 1 Lloyd’s Rep
59 .... [15-27], [15-30]
Beaufort Developments (NI) Ltd v Gilbert-Ash NI Ltd [1999] 1 AC 266 .... [4-
43], [4-48], [7-39], [13-29], [16-02], [16-04], [16-37]
Becker Gray and Co v London Assurance Corp [1918] 1 AC 101 .... [3-04], [13-
21], [15-45]
Beckett v Nurse [1948] 1 KB 535 .... [8-10]
Beckingham v The Port Jackson and Manly Steamship Co (1956) 57 SR (NSW)
403 .... [2-31]
Beesly v Hallwood Estates Ltd [1960] 1 WLR 549 (affirmed [1961] 1 Ch 105)
.... [9-37]
Behn v Burness (1863) 3 B & S 751; 122 ER 281 .... [1-31], [2-21], [4-12], [6-
11], [6-23], [8-34], [9-30], [18-08]
Behzadi v Shaftesbury Hotels Ltd [1992] Ch 1 .... [4-26]
Belgravia Navigation Co SA v Cannor Shipping Ltd (The Troll Park) [1988] 2
Lloyd’s Rep 423 .... [11-04]
Bell v Lever Bros Ltd [1932] AC 161 .... [9-36], [9-37], [9-39], [9-41]
Bell v Scott (1922) 30 CLR 387 .... [4-26]
Bem Dis a Turk Ticaret S/A TR v International Agri Trade Co Ltd (The Selda)
[1999] 1 Lloyd’s Rep 729 .... [16-36], [16-37]
Ben Shipping Co (Pte) Ltd v An-Board Bainne (The C Joyce) [1986] 2 Lloyd’s
Rep 285; [1986] 2 All ER 177 .... [14-31]
Bensaude v Thames and Mersey Marine Insurance Co Ltd [1897] AC 609 ....
[11-21]
Bentsen v Taylor Sons & Co (No 2) [1893] 2 QB 274 .... [2-43], [2-44], [2-45],
[6-11], [8-26]
Berge Sund (The) see Sig Bergesen DY & Co v Mobil Shipping and
Transportation Co Bernhard Schulte GmbH & Co KG v Nile Holdings Ltd
[15-26]
Berry v Mahony [1933] VLR 314 .... [13-19]
Best Buy Co Inc v Worldwide Sales Corp España SL [2011] Bus LR 1166;
[2011] EWCA Civ 618 .... [9-10], [11-33]
Bettini v Gye (1876) 1 QBD 183 .... [2-43], [4-20], [4-29], [15-24]
BHP Petroleum Ltd v British Steel Plc [2000] 2 Lloyd’s Rep 277 .... [4-45], [4-
46], [9-13], [13-27], [14-31], [16-37], [17-16], [17-24], [17-29]
BHP Petroleum (Timor Sea) Pty Ltd v Minister for Resources (1994) 121 ALR
280 .... [3-08]
Billyack v Leyland Construction Co Ltd [1968] 1 WLR 471; [1968] 1 All ER
783 .... [4-45]
Biotechnology Australia Pty Ltd v Pace (1988) 15 NSWLR 130 .... [11-26], [18-
37]
Birrell v Dryer (1884) 9 App Cas 345 .... [4-45], [6-17], [6-23], [7-11], [7-23],
[12-36], [12-38], [14-07], [14-19], [18-28]
Black Falcon (The) see Shipping Corp of India Ltd v NSB Niederelbe
Schiffahrtsgesellschaft mbH & Co Blackpool and Fylde Aero Club Ltd v
Blackpool Borough Council [1990] 1 WLR 1195 .... [11-06]
Blue Anchor Line Ltd v Alfred C Toepfer International GmbH (The Union
Amsterdam) [1982] 2 Lloyd’s Rep 432 .... [17-06]
Bofinger v Kingsway Group Ltd (2009) 239 CLR 269; [2009] HCA 44 .... [15-
45]
Bominflot Bunkergesellschaft für Mineraloele mbH & Co KG v Petroplus
Marketing AG (The Mercini Lady) [2011] 1 Lloyd’s Rep 442; [2010]
EWCA Civ 1145 .... [3-27], [17-23], [17-36]
Bond v Hongkong Bank of Australia Ltd (1991) 25 NSWLR 286 .... [15-40]
Bond Worth Ltd, Re [1980] Ch 228 .... [2-30], [10-13], [11-16]
Bonde (The) see Richco International Ltd v Alfred C Toepfer International
Gmbh Bonnie Smithwick (The) see Eitzen Bulk A/S v TTMI SARL
Booker Industries Pty Ltd v Wilson Parking (Qld) Pty Ltd (1982) 149 CLR 600
.... [3-04], [14-24]
Boral Resources (Qld) Pty Ltd v Donnelly [1988] 1 Qd R 506 .... [6-06], [8-07],
[9-56], [13-38]
Borys v Canadian Pacific Railway Co [1953] AC 216 .... [3-23], [12-36]
Botany Fork & Crane Hire Pty Ltd v New Zealand Insurance Co Ltd (1993) 116
ALR 473 .... [12-11]
Boucaut Bay Co Ltd v The Commonwealth (1927) 40 CLR 98 .... [2-28]
Bowden Bros & Co Ltd v Little (1907) 4 CLR 1364 .... [6-11], [7-12]
Bowes v Chaleyer (1923) 32 CLR 159 .... [3-10], [4-28], [13-23], [15-14], [15-
24]
Bowes v Shand (1877) 2 App Cas 455 .... [4-12], [4-28], [11-21], [12-24], [12-
38], [14-09], [14-10], [14-12], [15-14]
Bowler v Hilda Pty Ltd (in liq) (2001) 183 ALR 81 .... [4-20], [13-27]
BP Australia Ltd v Nabalco Pty Ltd (1977) 16 ALR 207; 52 ALJR 412 .... [13-
34], [13-41], [13-49]
BP Australia Pty Ltd (formerly BP Australia Ltd) v Nyran Pty Ltd (2003) 198
ALR 442; [2003] FCA 442 .... [6-13], [8-07], [8-23], [14-30]
BP Exploration Operating Co Ltd v Dolphin Drilling Ltd (The Byford Dolphin)
[2010] 2 Lloyd’s Rep 192; [2009] EWHC 3119 (Comm) .... [15-13]
BP Exploration Operating Co Ltd v Kvaerner Oilfield Products Ltd [2005] 1
Lloyd’s Rep 307; [2004] EWHC 999 (Comm) .... [12-29], [12-33], [13-28],
[13-43], [13-46]
BP Plc v GE Frankona Reinsurance Ltd [2003] 1 Lloyd’s Rep 537; [2003]
EWHC 344 (Comm) .... [7-12], [7-13], [7-21], [16-22]
BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 ....
[3-25], [3-26], [3-27], [6-13]
Bradford v Williams (1872) LR 7 Ex 259 .... [13-09], [13-10]
Bradley v H Newsom Sons & Co [1919] AC 16 .... [13-20]
Braes of Doune Wind Farm (Scotland) Ltd v Alfred McAlpine Business Services
Ltd [2008] 1 Lloyd’s Rep 608; [2008] EWHC 426 (TCC) .... [4-03]
Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153 .... [3-
23], [6-13], [6-25], [7-18], [8-34]
Brambles Ltd v Wail (2002) 5 VR 169 (reversed sub nom Andar Transport Pty
Ltd v Brambles Ltd (2004) 217 CLR 424; [2004] HCA 28) .... [17-15]
Branca v Cobarro [1947] 1 KB 854 .... [10-37]
Brandt (H O) & Co v H N Morris & Co Ltd [1917] 2 KB 784 .... [9-54], [13-41]
Brauer & Co (Great Britain) Ltd v James Clark (Brush Materials) Ltd [1952] 2
All ER 497 .... [11-20], [16-07], [16-30], [17-08]
Bravo Maritime (Chartering) Est v Alsayed Abdullah Mohamed Baroom (The
Athinoula) [1980] 2 Lloyd’s Rep 481 .... [4-52]
Breakspear v Ackland [2009] 1 Ch 32; [2008] EWHC 220 (Ch) .... [7-31]
Breen v Williams (1996) 186 CLR 71 .... [3-17], [3-18], [3-21]
Bremer Handelsgesellschaft mbH v Finagrain Compangie Commercial Agricole
et Financière SA [1981] 2 Lloyd’s Rep 259 .... [13-14]
Bremer Handelsgesellschaft mbH v Mackprang [1979] 1 Lloyd’s Rep 221 ....
[17-08]
Bremer Handelsgesellschaft mbH v Toepfer [1980] 2 Lloyd’s Rep 43 .... [4-18],
[7-13], [14-10]
Bremer Handelsgesellschaft mbH v Vanden Avenne-Izegem PVBA [1978] 2
Lloyd’s Rep 109 .... [2-44], [4-20], [4-41], [13-14], [15-31], [16-33], [16-
34]
Brennan v Bolt Burdon (a firm) [2005] QB 303; [2004] EWCA Civ 1017 .... [16-
38]
Breusch v Watts Development Division Pty Ltd (1987) 10 NSWLR 311 .... [13-
34], [13-37], [13-44], [16-27], [18-23]
Brewarrina Shire Council v Beckhaus Civil Pty Ltd (2003) 56 NSWLR 576;
[2003] NSWCA 4 .... [13-23], [13-40], [16-33]
Bridge v Campbell Discount Co Ltd [1962] AC 600 .... [2-26], [2-28]
Bridgestone Maru (The) see Navigas International Ltd v Trans-Offshore Inc
Brien v Dwyer (1978) 141 CLR 378 .... [11-12]
Bright v Sampson & Duncan Enterprises Pty Ltd (1985) 1 NSWLR 346 .... [17-
09], [17-29], [17-35]
British and Beningtons Ltd v North Western Cachar Tea Co Ltd [1923] AC 48
.... [10-37], [18-15]
British Bank for Foreign Trade Ltd v Novinex [1949] 1 KB 623 .... [18-28]
British Electrical and Associated Industries (Cardiff) Ltd v Patley Pressings Ltd
[1953] 1 WLR 280 .... [3-12]
British Imex Industries Ltd v Midland Bank Ltd [1958] 1 QB 542 .... [15-33]
British Movietonews Ltd v London and District Cinemas Ltd [1952] AC 166 ....
[6-11]
British Steel Corp v Cleveland Bridge and Engineering Co Ltd (1981) [1984] 1
All ER 504 .... [18-36]
British Sugar Plc v NEI Power Projects Ltd (1997) 87 BLR 45 .... [17-24]
Brogden v Metropolitan Railway Co (1877) 2 App Cas 666 .... [2-16], [2-20], [2-
21], [10-13]
Brooks v Burns Philp Trustee Co Ltd (1969) 121 CLR 432 .... [3-12], [3-13], [5-
13]
Brough (G & S) Ltd v Salvage Wharf Ltd [2010] 1 Ch 11; [2009] EWCA Civ 21
.... [13-45]
Brown v Byrne (1854) 3 E & B 703; 118 ER 1304 .... [12-02], [14-08], [14-13]
Brown v Petranker (1991) 22 NSWLR 717 .... [17-21], [17-27]
Bruce v Tyley (1916) 21 CLR 277 .... [9-37]
Bruton v London & Quadrant Housing Trust [2000] 1 AC 406 .... [2-30], [4-33],
[6-06]
Brutus v Cozens [1973] AC 854 .... [11-04]
BSkyB Ltd v HP Enterprise Services UK Ltd [2010] EWHC 86 (TCC) .... [10-
29]
Buana Dua (The) see PT Buana Samudra Pratama v Maritime Mutual Insurance
Association (NZ) Ltd Buche v Box Pty Ltd (1993) 31 NSWLR 368 .... [6-
25], [12-10], [12-11]
Buckland v Farmar [1979] 1 WLR 221 .... [11-16], [13-19]
Bucknell v Commercial Banking Co of Sydney Ltd (1937) 58 CLR 155 .... [3-
23]
Building and Engineering Constructions (Aust) Ltd v Property Securities No 1
Pty Ltd [1960] VR 673 .... [4-52], [14-31]
Bull v Gaul [1950] VLR 377 .... [8-15]
Bunge Corp v Vegetable Vitamin Foods (Pte) Ltd [1985] 1 Lloyd’s Rep 613 ....
[15-33]
Bunge Corp New York v Tradax Export SA Panama [1981] 1 WLR 711 .... [2-
43], [3-15], [4-20], [4-28], [8-26], [13-14], [13-30], [13-51], [15-31], [16-
32], [16-34]
Bunge SA v Compagnie Européene de Céréales [1982] 1 Lloyd’s Rep 306 ....
[13-31], [13-46]
Bunge SA v Deutsche Conti Handelsgesellschaft mbH [1979] 2 Lloyd’s Rep 435
.... [17-06]
Bunge SA v Kruse [1977] 1 Lloyd’s Rep 492 .... [4-18], [6-24], [7-21], [15-19]
Bunge SA v Kruse [No 2] [1980] 2 Lloyd’s Rep 142 .... [13-14]
Bunge Y Born Limitada Sociedad Anonima Commercial Financiera Y Industrial
of Buenos Aires v H A Brightman and Co [1925] AC 799 .... [16-07]
Burger King Corp v Hungry Jack’s Pty Ltd (2001) 69 NSWLR 558; [2001]
NSWCA 187 .... [14-30], [14-32]
Burke v State Bank of New South Wales (1994) 37 NSWLR 53 .... [11-18], [15-
11], [15-13], [15-38], [16-20]
Burns Philp Hardware Ltd v Howard Chia Pty Ltd (1987) 8 NSWLR 642 .... [4-
33], [18-30]
Burton & Co v English & Co (1883) 12 QBD 218 .... [4-45], [16-07]
Bush v National Australia Bank Ltd (1992) 35 NSWLR 390 .... [9-47]
Butlin’s Settlement Trusts, Re; Butlin v Butlin [1976] Ch 251 .... [9-43], [9-44]
Butt v M’Donald (1896) 7 QLJ 68 .... [3-30]
Butts v O’Dwyer (1952) 87 CLR 267 .... [3-21]
Byford Dolphin (The) see BP Exploration Operating Co Ltd v Dolphin Drilling
Ltd Byrne v Australian Airlines Ltd (1995) 185 CLR 410 .... [3-18], [3-21],
[3-26], [3-27], [3-29], [3-35], [12-38]
Byrne & Co v Leon Van Tienhoven & Co (1880) 5 CPD 344 .... [2-16]
Byrnes v Kendle (2011) 243 CLR 253; 279 ALR 212; [2011] HCA 26 .... [1-54],
[2-11], [2-22], [6-13], [9-14], [9-17], [9-19], [9-23], [9-27], [11-26]
C v D [2012] 1 WLR 1962; [2011] EWCA Civ 646 .... [11-32], [12-26], [13-07],
[16-11], [16-26], [16-27]
C Joyce (The) see Ben Shipping Co (Pte) Ltd v An-Board Bainne Cadbury Pty
Ltd v Mercer Investment Nominees Ltd [2011] NSWSC 622 .... [11-12]
Caledonia North Sea Ltd v British Telecommunications Plc [2002] 1 Lloyd’s
Rep 553; [2002] UKHL 4 .... [17-24]
Caltex Oil (Australia) Pty Ltd v Alderton [1964–65] NSWR 456 .... [3-07]
Cameron (R W) & Co v L Slutzkin Pty Ltd (1923) 32 CLR 81 .... [6-13], [8-04],
[8-13], [8-19], [11-11], [14-17], [14-27], [18-22]
Cameron, Ex parte (1890) 11 LR (NSW) L 422 .... [4-53]
Cammell Laird & Co Ltd v Manganese Bronze and Brass Co Ltd [1934] AC 402
.... [17-23]
Campbell v Jones (1796) 6 TR 570; 101 ER 708 .... [1-24]
Campbell v Kitchen & Sons Ltd (1910) 12 CLR 515 .... [8-34], [8-35], [14-28]
Canada SS Lines Ltd v R [1952] AC 192 .... [11-12], [15-45], [17-11], [17-13],
[17-16], [17-17], [17-19], [17-21], [17-22], [17-25], [17-26], [17-27], [17-
28], [17-29], [17-30], [17-31]
Canmer International Inc v UK Mutual Steamship Assurance Association
(Bermuda) Ltd (The Rays) [2005] 2 Lloyd’s Rep 479; [2005] EWHC 1694
(Comm) .... [6-19], [7-31], [13-41]
Canning v Temby (1905) 3 CLR 419 .... [3-24], [4-26]
Capes (Hatherden) Ltd v Western Arable Services Ltd [2010] 1 Lloyd’s Rep
477; [2009] EWHC 3065 (QB) .... [10-56]
Captain Gregos (The) see Compania Portorafti Commerciale SA v Ultramar
Panama Inc Care Shipping Corp v Latin American Shipping Corp (The
Cebu) [1983] QB 1005 .... [13-21]
Carey Group Plc v AIB Group (UK) Plc [2012] 2 WLR 564; [2011] EWHC 567
(Ch) .... [16-25]
Cargill International SA v Bangladesh Sugar and Food Industries Corp [1998] 1
WLR 461 .... [6-19], [16-22]
Cargill International SA v Peabody Australia Mining Ltd (2010) 78 NSWLR
533; [2010] NSWSC 887 .... [13-21]
Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256 .... [2-16], [5-12], [11-06],
[11-15]
Carlton SS Co Ltd v The Castle Mail Packets Co Ltd [1898] AC 486 .... [3-24],
[18-25]
Carmichael v National Power Plc [1999] 1 WLR 2042 .... [2-41], [4-13], [4-15],
[8-15], [8-20], [9-19], [9-32], [10-04], [10-15], [10-16], [11-04], [16-29],
[18-11]
Carney v Herbert [1985] AC 301 .... [3-13]
Carpentaria Investments Pty Ltd v Airs [1972] Qd R 436 .... [13-23], [16-42]
Carr v J A Berriman Pty Ltd (1953) 89 CLR 327 .... [11-21], [16-25]
Carr v McDonald’s Australia Ltd (1994) 63 FCR 358 .... [4-44]
Carter v Scargill (1875) LR 10 CP 564 .... [18-08]
Casey’s Patents, Re; Stewart v Casey [1892] 1 Ch 104 .... [3-24], [10-42], [16-
27]
Cassa di Risparmio della Repubblica di San Marino SpA v Barclays Bank Ltd
[2011] 1 CLC 701; [2011] EWHC 484 (Comm) .... [10-29], [10-33]
Castlemaine Tooheys Ltd v Carlton & United Breweries Ltd (1987) 10 NSWLR
468 .... [3-21], [12-11], [13-33]
Cattles Plc v Welcome Financial Services Ltd [2010] 2 Lloyd’s Rep 514; [2010]
EWCA Civ 599 .... [4-46], [15-36], [15-39]
Cavallari v Premier Refrigeration Co Pty Ltd (1952) 85 CLR 20 .... [4-16]
C E Heath Underwriting & Insurance (Australia) Pty Ltd v Edwards Dunlop &
Co Ltd (1993) 176 CLR 535 .... [4-47], [15-45]
Cebu (The) see Care Shipping Corp v Latin American Shipping Corp Cehave
NV v Bremer Handelsgesellschaft mbH (The Hansa Nord) [1976] QB 44 ....
[1-36], [2-42], [4-18], [4-33], [16-32], [16-34]
CEL Group Ltd v Nedlloyd Lines UK Ltd [2004] 1 Lloyd’s Rep 381; [2003]
EWCA Civ 1716 .... [3-24], [11-15], [13-46]
Centrepoint Custodians Pty Ltd v Lidgerwood Investments Pty Ltd [1990] VR
411 .... [14-31], [14-32]
Cero Navigation Corp v Jean Lion & Cie (The Solon) [2000] 1 Lloyd’s Rep 292;
[2000] 1 All ER (Comm) 214 .... [12-02], [13-14]
Ceval Alimentos SA v Agrimpex Trading Co Ltd (The Northern Progress) (No
2) [1996] 2 Lloyd’s Rep 319 .... [15-17], [15-23]
CGU Insurance Ltd v Porthouse (2008) 235 CLR 103; [2008] HCA 30 .... [15-
45]
CGU Workers Compensation (NSW) Ltd v Garcia (2007) 69 NSWLR 680;
[2007] NSWCA 193 .... [15-44]
Chamber Colliery Co Ltd v Twyerould (1893) [1915] 1 Ch 268n .... [4-43]
Chan v Cresdon Pty Ltd (1989) 168 CLR 242 .... [15-38]
Chandris v Isbrandtsen-Moller Co Inc [1951] 1 KB 240 .... [4-40], [4-49], [18-
08]
Channel Island Ferries Ltd v Sealink UK Ltd [1987] 1 Lloyd’s Rep 559
(affirmed [1988] 1 Lloyd’s Rep 323) .... [14-31], [14-32]
Channel Island Ferries Ltd v Sealink UK Ltd [1988] 1 Lloyd’s Rep 323 .... [16-
07]
Chanter v Hopkins (1838) 4 M & W 399; 150 ER 1484 .... [8-22]
Chapman v Bluck (1838) 4 Bing NC 187; 132 ER 760 .... [18-34]
Chapman v Chapman [1983] 2 NSWLR 420 .... [6-13]
Chappuis v Filo (1990) 19 NSWLR 490 .... [7-19], [9-27]
Charles M Willie & Co (Shipping) Ltd v Ocean Laser Shipping Ltd (The Smaro)
[1999] 1 Lloyd’s Rep 225 .... [5-16], [14-35]
Charrington & Co Ltd v Wooder [1914] AC 71 .... [1-09], [6-11], [6-12], [6-18],
[7-18], [8-09], [11-11], [18-22], [18-23]
Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC 1101; [2009] UKHL 38
.... [1-51], [2-13], [3-05], [3-06], [3-09], [3-11], [4-18], [5-02], [5-21], [5-
23], [6-09], [6-14], [6-27], [7-06], [7-16], [7-26], [7-41], [8-03], [8-04], [8-
06], [8-16], [8-22], [8-28], [8-29], [8-30], [8-32], [8-33], [9-12], [9-19], [9-
43], [9-44], [9-45], [9-46], [9-47], [11-18], [11-26], [11-32], [11-33], [13-
45], [14-02], [14-14], [14-18], [14-19], [14-20], [14-23], [14-34], [14-35],
[15-30], [18-06]
Charter Reinsurance Co Ltd v Fagan [1997] AC 313 .... [1-04], [1-46], [1-54],
[3-09], [4-33], [5-06], [5-15], [5-23], [11-19], [12-29], [12-35], [12-36],
[13-07], [13-45], [16-15], [16-20]
Charterhouse Credit Ltd v Tolly [1963] 2 QB 683 .... [17-21]
Chatenay v Brazilian Submarine Telegraph Co Ltd [1891] 1 QB 79 .... [1-05],
[11-04]
Cheall v Association of Professional Executive Clerical and Computer Staff
[1983] 2 AC 180 .... [16-42]
Chikuma (The) see A/S Awilco of Oslo v Fulvia SpA di Navigazione of Cagliari
Chillingworth v Esche [1924] 1 Ch 97 .... [16-31]
China Ocean Shipping Co Ltd v P S Chellaram & Co Ltd (1990) 28 NSWLR
354; [1991] 1 Lloyd’s Rep 493 (sub nom P S Chellaram & Co v China
Ocean Shipping Co (The Zhijiang Kou)) (affirmed (1992) 176 CLR 695) ....
[1-30]
Chinnock v Hocaoglu [2009] 1 WLR 765; [2008] EWCA Civ 1175 .... [9-44]
Chiswell Shipping Ltd v National Iranian Tanker Co (The World Symphony and
World Renown) [1992] 2 Lloyd’s Rep 115 .... [13-13], [13-46]
Choko Star (The) see Industrie Chimiche Italia Centrale v Alexander G Tsavliris
& Sons Maritime Co Christie v Robinson (1907) 4 CLR 1338 .... [4-43]
Ciciwill Pty Ltd v Consumer Claims Tribunal (1997) 41 NSWLR 737 .... [10-35]
Circle Freight International Ltd v Medeast Gulf Exports Ltd [1988] 2 Lloyd’s
Rep 427 .... [10-12], [10-13], [17-37]
Circuit Systems Ltd (in liq) v Zuken-Redac (UK) Ltd [1997] 1 WLR 721 .... [9-
27]
Citicorp Australia Ltd v Hendry (1985) 4 NSWLR 1 .... [2-28]
City and Westminster Properties (1934) Ltd v Mudd [1959] Ch 129 .... [8-30],
[10-47], [14-31], [14-32]
Clarence House Ltd v National Westminster Bank Plc [2010] 1 WLR 1216;
[2009] EWCA Civ 1311 .... [4-42], [5-17], [13-19], [13-21], [15-35]
Clarion Ltd v National Provident Institution [2000] 1 WLR 1888 .... [3-26], [3-
29]
Clark v Refeld (1979) 25 SASR 246 .... [17-33]
Classic Maritime Inc v Lion Diversified Holdings Berhad [2010] 1 Lloyd’s Rep
59; [2009] EWHC 1142 (Comm) .... [10-41], [10-42], [10-43]
Clifton v Coffey (1924) 34 CLR 434 .... [6-18]
Clifton v Palumbo [1944] 2 All ER 497 .... [2-17]
Clipper Maritime Ltd v Shirlstar Container Transport Ltd (The Anemone) [1987]
1 Lloyd’s Rep 546 .... [15-44]
Clough Engineering Ltd v Oil and Natural Gas Corp Ltd (2008) 249 ALR 458;
[2008] FCAFC 136 .... [6-30]
Clough Mill Ltd v Martin [1985] 1 WLR 111 .... [2-30]
Clydebank Engineering and Shipbuilding Co Ltd v Don Jose Ramos Yzquierdo
y Castaneda [1905] AC 6 .... [2-28]
Coal Cliff Collieries Pty Ltd v Sijehama Pty Ltd (1991) 24 NSWLR 1 .... [9-31]
Coastal (Bermuda) Petroleum Ltd v VTT Vulcan Petroleum SA (No 2) (The
Marine Star) [1996] 2 Lloyd’s Rep 383 .... [13-27], [17-08]
Coates v Sarich [1964] WAR 2 .... [2-29], [3-32]
Coca-Cola Financial Corp v Finsat International Ltd [1998] QB 43 .... [3-26]
Cocks v Maddern [1939] SASR 321 .... [18-26], [18-34]
Coddington v Paleologo (1867) LR 2 Ex 193 .... [2-26], [4-43], [12-12], [15-18],
[16-20] Codelfa Construction Pty Ltd v State Rail Authority of New South
Wales (1982) 149 CLR 337 .... [2-34], [3-21], [3-26], [3-29], [3-34], [4-17],
[4-18], [4-19], [6-08], [6-13], [6-18], [6-25], [6-26], [6-27], [6-32], [7-10],
[7-15], [7-16], [7-17], [7-18], [7-20], [7-22], [7-26], [7-27], [7-40], [8-13],
[8-16], [8-23], [8-28], [8-34], [10-14], [10-46], [10-48], [10-50], [10-53],
[12-09], [12-28], [13-07], [14-25], [14-32], [18-09], [18-22], [18-23], [18-
29]
Cody v J H Nelson Pty Ltd (1947) 74 CLR 629 .... [2-26], [4-40], [4-41]
Coghlan v S H Lock (Australia) Ltd (1987) 8 NSWLR 88; 61 ALJR 289 .... [6-
13], [10-42], [15-38]
Cohen & Co v Ockerby & Co Ltd (1917) 24 CLR 288 .... [1-25], [12-28], [15-
19]
Collector of Customs v Agfa-Gevaert Ltd (1996) 186 CLR 389 .... [1-05], [11-
04]
Collin v Duke of Westminster [1985] QB 581 .... [9-23], [10-06]
Colquhoun v Brooks (1887) 19 QBD 400 (affirmed (1888) 21 QBD 52; (1889)
14 App Cas 493) .... [4-40], [4-48]
Comandate Marine Corp v Pan Australia Shipping Pty Ltd (2006) 238 ALR 457;
[2008] 1 Lloyd’s Rep 119; [2006] FCAFC 192 .... [13-13]
Commercial Banking Co of Sydney Ltd v Jalsard Pty Ltd [1973] AC 279 .... [15-
33]
Commercial Banking Co of Sydney Ltd v R H Brown & Co (1972) 126 CLR
337 .... [10-33]
Commercial Union Assurance Co Plc v Sun Alliance Insurance Group Plc
[1992] 1 Lloyd’s Rep 475 .... [12-33], [12-36], [13-46], [14-20], [18-17]
Commission for the New Towns v Cooper (Great Britain) Ltd [1995] Ch 259 ....
[4-44], [9-43], [10-08], [16-31]
Commissioner for Railways (New South Wales) v Quinn (1946) 72 CLR 345 ....
[17-16], [17-20], [17-29]
Commissioner of Public Works v Hills [1906] AC 368 .... [2-28]
Commissioner of Stamp Duties (NSW) v Carlenka Pty Ltd (1995) 41 NSWLR
329 .... [9-47]
Commissioners of Inland Revenue v Duke of Westminster [1936] AC 1 .... [2-
30], [6-11]
Commonwealth Bank of Australia v TLI Management Pty Ltd [1990] VR 510
.... [9-26]
Commonwealth of Australia v Antonio Giorio Pty Ltd (1986) 67 ALR 244 ....
[15-28]
Commonwealth Smelting Ltd v Guardian Royal Exchange Assurance Ltd [1986]
1 Lloyd’s Rep 121 .... [11-04], [12-12], [12-29], [15-45]
Commonwealth Trading Bank of Australia v Sydney Wide Stores Pty Ltd (1981)
148 CLR 304 .... [3-30]
Community Care North East (a partnership) v Durham County Council [2012] 1
WLR 338; [2010] EWHC 959 (QB) .... [11-32]
Compagnie Commerciale Sucres et Denrées v C Czarnikow Ltd (The Naxos)
[1990] 1 WLR 1337 .... [4-18], [13-49]
Compania Naviera SA v National Westminster Finance Ltd (The Lena) [1981] 1
Lloyd’s Rep 68 .... [15-33]
Compania Portorafti Commerciale SA v Ultramar Panama Inc (The Captain
Gregos) [1990] 1 Lloyd’s Rep 310 .... [17-37]
Comptoir Commercial Anversois and Power Son and Co, Re [1920] 1 KB 868
.... [3-26], [4-12], [4-14], [6-11], [12-38]
Comptoir d’Achat et de Vente du Boerenbond Belge SA v Luis de Ridder
Limitada (The Julia) [1949] AC 293 .... [2-30]
Concord Trust v Law Debenture Trust Corp Plc [2005] 1 WLR 1591; [2005]
UKHL 27 .... [3-26], [4-36]
Concut Pty Ltd v Worrell (2000) 176 ALR 693 .... [10-37], [16-37], [16-39]
Condogianis v Guardian Assurance Co Ltd [1921] 2 AC 125 .... [3-10]
Connaught Restaurants Ltd v Indoor Leisure Ltd [1994] 1 WLR 501 .... [16-38]
Consolidated Neon (Phillips System) Pty Ltd v Tooheys Ltd (1942) 42 SR
(NSW) 152 .... [4-14], [10-52], [10-54]
Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance
(Australia) Ltd (1986) 160 CLR 226 .... [2-11], [3-20], [3-21], [10-55], [12-
38]
Continental Grain Export Corp v STM Grain Ltd [1979] 2 Lloyd’s Rep 460 ....
[13-14]
Continental Illinois National Bank & Trust Co of Chicago v Papanicolaou (The
Fedora) [1986] 2 Lloyd’s Rep 441 .... [6-33], [17-26]
Cook v Financial Insurance Co Ltd [1998] 1 WLR 1765 .... [4-22], [13-36], [17-
14]
Corumo Holdings Pty Ltd v C Itoh Ltd (1991) 24 NSWLR 370 .... [15-38], [18-
17]
Cosco Bulk Carrier Co Ltd v Team-Up Owning Co Ltd (The Saldanha) [2011] 1
Lloyd’s Rep 187; [2010] EWHC 1340 (Comm) .... [13-13]
Couchman v Hill [1947] KB 554 .... [2-37], [2-39], [2-40], [10-10], [10-27], [14-
19], [15-27]
Council of the Upper Hunter County District v Australian Chilling and Freezing
Co Ltd (1968) 118 CLR 429 .... [1-26], [11-15], [14-26], [18-36]
Country and Metropolitan Homes Surrey Ltd v Topclaim Ltd [1996] Ch 307 ....
[16-39]
County and District Properties Ltd v C Jenner & Son Ltd [1976] 2 Lloyd’s Rep
728 .... [15-45]
Couturier v Hastie (1856) 5 HLC 673; 10 ER 1065 .... [9-39]
Covington Marine Corp v Xiamen Shipbuilding Industry Co Ltd [2006] 1
Cowen v Truefitt Ltd [1899] 2 Ch 309 .... [4-50]
CPC Consolidated Pool Carriers GmbH v CTM Cia Mediterranea SA (The CPC
Gallia) [1994] 1 Lloyd’s Rep 68 .... [16-31]
CPC Gallia (The) see CPC Consolidated Pool Carriers GmbH v CTM Cia
Mediterranea SA Credit Agricole Indosuez v Muslim Commercial Bank
Ltd [2000] 1 Lloyd’s Rep 275; [2000] 1 All ER (Comm) 172 .... [15-33]
Crema v Cenkos Securities Plc [2011] 1 WLR 2066; [2010] EWCA Civ 1444 ....
[3-23], [3-27], [7-13], [7-16]
Criss v Alexander (1928) 28 SR (NSW) 297 .... [10-54]
Cromer v Harry Rickards’ Tivoli Theatres Ltd [1921] SASR 325 .... [3-23]
Crosse v Gardner (1689) Carth 90; 90 ER 656 .... [2-37]
Crouch v Crouch [1912] 1 KB 378 .... [8-07], [13-37]
Crouch v Jeeves (1938) Pty Ltd (1946) 46 SR (NSW) 242 .... [13-10], [16-11],
[16-28]
Croudace Construction Ltd v Cawoods Concrete Products Ltd [1978] 2 Lloyd’s
Rep 55 (affirmed [1978] 2 Lloyd’s Rep 55) .... [11-21], [17-24]
Cundy v Lindsay (1878) 3 App Cas 459 .... [5-14], [9-41]
Curtis v Chemical Cleaning and Dyeing Co [1951] 1 KB 805 .... [10-08], [10-32]
Cutts v Head [1984] Ch 290 .... [12-26]
Daewoo Heavy Industries Ltd v Klipriver Shipping Ltd (The Kapitan Petko
Voivoda) [2003] 2 Lloyd’s Rep 1; [2003] EWCA Civ 451 .... [10-19], [13-
13], [16-11], [17-21]
Dahl v Nelson Donkin & Co (1881) 6 App Cas 38 .... [2-34]
Dairy Containers Ltd v Tasman Orient Line CV [2005] 1 WLR 215 .... [7-10],
[7-16], [7-20], [7-23], [7-41], [11-32], [12-02], [13-27], [17-14]
Dalgety Australia Ltd v Harris [1977] 1 NSWLR 324 .... [4-32]
Dalgety Wine Estates Pty Ltd v Rizzon (1979) 141 CLR 552 .... [3-30]
Dalkia Utilities Services Plc v Celtech International Ltd [2006] 1 Lloyd’s Rep
599; [2006] EWHC 63 (Comm) .... [3-06], [3-08], [9-44], [16-39], [16-40]
Damodar General T J Park (The) see Mosvolds Rederi A/S v Food Corp of India
Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500 ....
[4-20], [6-13], [11-21], [16-37], [17-03], [17-09], [17-14], [17-15], [17-16],
[17-21], [17-32], [17-37]
Darter Pty Ltd v Malloy [1993] 2 Qd R 615 .... [18-34]
Datec Electronics Holdings Ltd v United Parcels Service Ltd [2007] 1 WLR
1325; [2007] UKHL 23 .... [17-22]
Daval Aciers d’Usinor et de Sacilor v Armare Srl (The Nerano) [1996] 1 Lloyd’s
Rep 1 .... [4-20], [4-33], [15-23]
Davenport v R (1877) 3 App Cas 115 .... [16-42]
Daventry DC v Daventry and District Housing Ltd [2012] Bus LR 485; [2011]
EWCA Civ 1153 .... [9-06], [9-43], [9-44], [9-46]
Davies v Elsby Brother Ltd [1960] 3 All ER 672 .... [11-33]
Davis v Commissioner for Main Roads (1968) 117 CLR 529 .... [15-45], [17-29]
Davis v Federal Commissioner of Taxation (1989) 86 ALR 195 .... [6-13]
Davis v Pearce Parking Station Pty Ltd (1954) 91 CLR 642 .... [13-27], [17-25],
[17-29]
Davis Contractors Ltd v Fareham UDC [1956] AC 696 .... [2-15], [2-34], [3-16],
[3-34], [4-17], [6-11], [13-03]
Davy Offshore Ltd v Emerald Field Contracting Ltd [1992] 2 Lloyd’s Rep 142
.... [16-11], [17-33]
De Lassalle v Guildford [1901] 2 KB 215 .... [2-38], [10-46]
Dean v Gibson [1958] VR 563 .... [10-35] Decro-Wall International SA v
Practitioners in Marketing Ltd [1971] 1 WLR 361; [1971] 2 All ER 216 ....
[3-24], [18-32]
Deeny v Gooda Walker Ltd (in liq) [1996] 1 WLR 426 .... [13-09], [13-10]
Deepak Fertilisers and Petrochemicals Corp v ICI Chemicals & Polymers Ltd
[1999] 1 Lloyd’s Rep 387 .... [10-27], [17-24], [17-26], [17-27]
Delaney v Pickett [2012] 1 WLR 2149; [2011] EWCA Civ 1532 .... [16-36]
Delaney v Staples (t/a De Montfort Recruitment) [1992] 1 AC 687 .... [13-20]
Delos (The) [2001] 1 Lloyd’s Rep 703; [2001] 1 All ER (Comm) 763 .... [15-17]
Delta Vale Properties Ltd v Mills [1990] 1 WLR 445 .... [11-33]
Denny Mott & Dickson Ltd v James B Fraser & Co Ltd [1944] AC 265 .... [4-
17], [6-11], [18-09]
Derbyshire Building Co Pty Ltd v Becker (1962) 107 CLR 633 .... [4-14]
Deutsche Genossenschaftsbank v Burnhope [1995] 1 WLR 1580 .... [1-04], [2-
11], [6-16], [13-20], [13-24], [15-20], [15-45]
Devonald v Rosser & Sons [1906] 2 KB 728 .... [12-38]
Di Dio Nominees Pty Ltd v Brian Mark Real Estate Pty Ltd [1992] 2 VR 732 ....
[11-26]
Diab v Regent Insurance Co Ltd [2007] 1 WLR 797; [2006] UKPC 29 .... [15-
28]
Dibbs v Newcastle Coal and Copper Co (1862) 1 SCR (NSW) L 248 .... [4-24]
Dick Bentley Productions Ltd v Harold Smith (Motors) Ltd [1965] 1 WLR 623
.... [2-38], [11-26]
Didymi (The) see Didymi Corp v Atlantic Lines and Navigation Co Inc Didymi
Corp v Atlantic Lines and Navigation Co Inc (The Didymi) [1988] 2
Lloyd’s Rep 108 .... [18-37]
Diestal v Stevenson [1906] 2 KB 345 .... [2-28]
Dimech v Corlett (1858) 12 Moo PC 199; 14 ER 887 .... [2-28], [18-08]
Direct Acceptance Finance Ltd v Cumberland Furnishing Pty Ltd [1965] NSWR
1504 .... [2-30]
DJE Constructions Pty Ltd v Maddocks [1982] 1 NSWLR 5 .... [3-13]
Dobbs v National Bank of Australasia Ltd (1935) 53 CLR 643 .... [9-25], [10-47]
Dodson v Peter H Dodson Insurance Services [2001] 1 WLR 1012; [2001] 3 All
ER 75 .... [4-45], [6-19], [13-13], [13-34]
Dolphin Hellas Shipping SA v Itemslot Ltd (The Aegean Dolphin) [1992] 2
Lloyd’s Rep 178 .... [4-17]
Dolphin Tanker SrL v Westport Petroleum Inc (The Savina Caylyn) [2011] 1
Dome Resources NL v Silver (2008) 72 NSWLR 693; [2008] NSWCA 322 ....
[4-36]
Dominion Coal Co Ltd v Dominion Iron and Steel Co Ltd [1909] AC 293 ....
[16-20]
Donegal International Ltd v Zambia [2007] 1 Lloyd’s Rep 397; [2007] EWHC
197 (Comm) .... [4-45]
Dorset County Council v Southern Felt Roofing Co Ltd (1989) 48 Build LR 96
.... [17-21]
Double Happiness (The) see Front Carriers Ltd v Atlantic and Orient Shipping
Corp Douglas v Baynes [1908] AC 477 .... [14-09]
Dovuro Pty Ltd v Wilkins (2000) 182 ALR 481 (reversed (2003) 215 CLR 317;
[2003] HCA 139) .... [13-29]
Dowling v Rae (1927) 39 CLR 363 .... [18-13]
Dresser UK Ltd v Falcongate Freight Management Ltd [1992] QB 502 .... [17-
25]
Drexel Burnham Lambert International NV v El Nasr [1986] 1 Lloyd’s Rep 356
.... [12-38]
DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423 .... [6-24],
[6-26], [7-16], [7-25], [8-25], [13-50]
Duffen v Frabo SpA [2000] 1 Lloyd’s Rep 180 .... [16-39]
Dumford Trading AG v OAO Atlantrybflot [2005] 1 Lloyd’s Rep 289; [2005]
EWCA Civ 24 .... [4-50], [9-49]
Dunavant Enterprises Inc v Olympia Spinning & Weaving Mills Ltd [2011] 2
Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd [1915] AC 79
.... [2-28]
Durham v BAI (Run off) Ltd (in scheme of arrangement) [2012] 1 WLR 867;
[2012] UKSC 14 .... [12-10], [12-29], [13-13], [13-49], [15-03]
Durham Tees Valley Airport Ltd v bmibaby Ltd [2011] 1 Lloyd’s Rep 68; [2010]
EWCA Civ 485 .... [3-24], [12-05], [14-09], [18-35], [18-36]
Earl of Beauchamp v Winn (1873) LR 6 HL 223 .... [14-28]
Ease Faith Ltd v Leonis Marine Management Ltd [2006] 1 Lloyd’s Rep 673;
[2006] EWHC 232 (Comm) .... [17-13], [17-24]
East v Pantiles (Plant Hire) Ltd (1981) 263 EG 61 .... [3-06]
Eastwood v Ashton [1915] AC 900 .... [4-50]
Eccles v Bryant [1948] Ch 93 .... [10-08]
Eccles v Mills [1898] 1 AC 360 .... [10-28]
Edlington Properties Ltd v J H Fenner & Co Ltd [2006] 1 WLR 1583; [2006]
EWCA Civ 403 .... [11-21], [16-04], [16-38]
Edmonds v Lawson [2000] QB 501 .... [9-20], [9-25]
Edward Owen Engineering Ltd v Barclays Bank International Ltd [1978] 1 QB
159 .... [15-32]
Edwards v Skyways Ltd [1964] 1 All ER 494 .... [9-26]
EE Caledonia Ltd v Orbit Valve Co Europe [1994] 1 WLR 1515; [1995] 1 All
ER 174 .... [13-41], [15-45], [17-16], [17-25], [17-26], [17-27], [17-28],
[17-31]
Eggleston v Marley Engineers Pty Ltd (1979) 21 SASR 51 .... [10-13]
Eitzen Bulk A/S v TTMI SARL (The Bonnie Smithwick) [2012] 1 Lloyd’s Rep
407; [2012] EWHC 202 (Comm) .... [14-09], [14-31]
Ekha (The) see Seadrill Management Services Ltd v OAO Gazprom Elderslie SS
Co Ltd v Borthwick [1905] AC 93 .... [4-43], [16-07]
Electronic Industries Ltd v David Jones Ltd (1954) 91 CLR 288 .... [18-13]
Electrosteel Castings Ltd v Scan-Trans Shipping & Chartering Sdn Bhd [2003] 1
Lloyd’s Rep 190; [2002] EWHC 1993 (Comm) .... [10-13], [13-34]
Ellen v Topp (1851) 6 Ex 424; 155 ER 609 .... [18-08]
Elli (The) and The Frixos see Golden Fleece Maritime Inc v ST Shipping &
Transport Inc Ellis Shipping Corp v Voest Alpine Intertrading (The
Lefthero) [1992] 2 Lloyd’s Rep 109 .... [13-14], [16-07], [17-26]
Ellul v Oakes (1972) 3 SASR 377 .... [2-37], [2-41]
Elpis (The) [1999] 1 Lloyd’s Rep 606 .... [6-24]
Elpis Maritime Co Ltd v Marti Chartering Co Inc (The Maria D) [1992] 1 AC 21
.... [9-55], [10-37]
Emeraldian Ltd Partnership v Wellmix Shipping Ltd (The Vine) [2011] 1 Lloyd’s
Rep 301; [2010] EWHC 1411 (Comm) .... [4-43], [12-03], [17-08]
Emmanuel (The) see Industrie Chimiche Italia Centrale SpA v NEA Ninemia
Shipping Co SA Emmott v Michael Wilson and Partners Ltd [2008] Bus LR
1361; [2008] EWCA Civ 184 .... [3-24]
Empresa Exportadora de Azucar v Industria Azucarera Nacional SA (The Playa
Larga and Marble Islands) [1983] 2 Lloyd’s Rep 171 .... [3-24], [3-25], [3-
32], [16-36]
ENE Kos 1 Ltd v Petroleo Brasileiro SA (The Kos) (No 2) [2012] 2 WLR 976;
[2012] UKSC 17 .... [13-27], [15-04], [15-16], [15-45]
Enterprise Oil Ltd v Strand Insurance Co Ltd [2006] 1 Lloyd’s Rep 500; [2006]
EWHC 58 (Comm) .... [5-04], [7-06], [7-16]
Enviroco Ltd v Farstad Supply A/S [2011] 1 WLR 921; [2011] UKSC 16 .... [13-
39]
Environmental Systems Pty Ltd v Peerless Holdings Pty Ltd (2008) 19 VR 358;
[2008] VSCA 26 .... [11-20], [11-21], [17-24]
Equitable Life Assurance Society v Hyman [2002] 1 AC 408 .... [3-17], [3-18],
[3-21], [3-27], [13-47]
Equitable Trust Co of New York v Dawson Partners Ltd (1927) 27 Ll L Rep 49
.... [15-33]
Equuscorp Pty Ltd v Glengallan Investments Pty Ltd (2004) 218 CLR 471;
[2004] HCA 55 .... [2-27], [10-10], [10-32], [10-37]
ERG Petroli SpA v Vitol SA (The Ballenita and BP Energy) [1992] 2 Lloyd’s
Rep 455 .... [13-46], [13-48]
Eridania SpA v Oetker (The Fjord Wind) [2000] 2 Lloyd’s Rep 191; [2000] 2 All
ER (Comm) 108 .... [7-14], [7-31]
Eriksson v Whalley [1971] 1 NSWLR 397 .... [15-30]
Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95;
[2002] HCA 8 .... [2-16], [9-25], [9-28]
Ermoupolis (The) see Ulysses Compania Naviera SA v Huntingdon Petroleum
Services Ernest Beck & Co v K Szymanowski & Co [1924] AC 43 .... [17-
10], [17-17]
Ertel Bieber and Co v Rio Tinto Co Ltd [1918] AC 260 .... [16-28], [16-31]
Esanda Ltd v Burgess [1984] 2 NSWLR 139 .... [11-26]
Esso Australia Ltd v Australian Petroleum Agents’ & Distributors’ Association
(1993) [1999] 3 VR 642 .... [4-36], [14-32]
Esso Australia Resources Ltd v Plowman (1995) 183 CLR 10 .... [3-29]
Esso Petroleum Ltd v Commissioners of Customs and Excise [1976] 1 All ER
117 .... [9-25]
Estates Gazette Ltd v Benjamin Restaurants Ltd [1994] 1 WLR 1528 .... [15-39]
Estée Lauder Pty Ltd v Federal Commissioner of Taxation (1989) 86 ALR 415
.... [8-39]
Esteve Trading Corp v Agropec International (The Golden Rio) [1990] 2 Lloyd’s
Rep 273 .... [16-42]
Eternity (The) see Petroleum Oil and Gas Corp of South Africa (Pty) Ltd v FR8
Singapore Pte Ltd Etna v Arif [1999] 2 VR 353 .... [3-23], [10-05], [10-24],
[10-28], [11-12]
Ets Chainbaux SARL v Harbormaster Ltd [1955] 1 Lloyd’s Rep 303 .... [18-32]
Ets Georges et Paul Levy v Adderley Navigation Co Panama SA (The Olympic
Pride) [1980] 2 Lloyd’s Rep 67 .... [9-43]
Ets Soules & Cie v International Trade Development Co Ltd [1979] 2 Lloyd’s
Rep 131 (reversed [1980] 1 Lloyd’s Rep 129) .... [13-28]
Ettridge v Vermin Board of the District of Murat Bay [1930] SASR 210 .... [18-
22]
Euro Cellular (Distribution) Plc v Danzas Ltd t/a Danzas AEI Continental [2004]
1 Lloyd’s Rep 521; [2003] EWHC 3161 (Comm) .... [17-06]
Euro-Diam Ltd v Bathurst [1990] 1 QB 1 .... [3-25]
European Bank Ltd v Evans (2010) 240 CLR 432; [2010] HCA 6 .... [7-35]
Eurus (The) see Total Transport Corp v Arcadia Petroleum Ltd Evans v Bartlam
[1937] AC 473 .... [4-37]
Evans (J) & Son (Portsmouth) Ltd v Andrea Merzario Ltd [1976] 2 All ER 930
.... [8-20], [10-04], [10-10], [10-19], [10-20], [10-32], [10-45], [10-46]
Evia (The) see Kodros Shipping Corp v Empresa Cubana de Fletes Excess
Insurance Co Ltd v Mander [1997] 2 Lloyd’s Rep 119 .... [2-09], [13-21]
Eximenco Handels AG v Partredereit Oro Chief (The Oro Chief) [1983] 2
Lloyd’s Rep 509 .... [4-52], [7-19]
Exxonmobil Sales and Supply Corp v Texaco Ltd (The Helene Knutsen) [2003]
2 Lloyd’s Rep 686; [2003] EWHC Comm 1964 .... [10-22], [10-28], [17-
24]
F & D Normoyle Pty Ltd v Transfield Pty Ltd t/a Transfield Bouygues Joint
Venture (2005) 63 NSWLR 502; [2005] NSWCA 193 .... [15-34]
FAI General Insurance Co Ltd v Maracorp Financial Services Ltd [1994] 1 VR
455 .... [6-17], [13-30]
FAI Traders Insurance Co Ltd v Savoy Plaza Pty Ltd [1993] 2 VR 343 .... [4-12],
[4-51], [8-34], [9-19], [18-26]
Fal Bunkering of Sharjah v Grecale Inc of Panama [1990] 1 Lloyd’s Rep 369 ....
[10-56]
Falck v Williams [1900] AC 176 .... [2-16], [2-22], [9-39], [12-18], [12-34], [14-
16], [14-24]
Fanti (The) see Firma C-Trade SA v Newcastle Protection and Indemnity
Association Far Service (The) see Farstad Supply AS v Enviroco Ltd
Farmer v Honan (1919) 26 CLR 183 .... [2-11], [6-11], [8-24], [8-25], [8-
35], [14-28]
Farnworth Finance Facilities Ltd v Attryde [1970] 1 WLR 1053 .... [16-29], [17-
19]
Farrow Mortgage Services Pty Ltd v Hogg (1995) 64 SASR 450 .... [18-17]
Farrow Mortgage Services Pty Ltd (in liq) v Slade (1996) 38 NSWLR 636 ....
[15-40]
Farstad Supply AS v Enviroco Ltd (The Far Service) [2010] Bus LR 1087;
[2010] UKSC 18 .... [15-44], [17-28]
Fauzi Elias v George Sahely & Co (Barbados) Ltd [1983] 1 AC 646 .... [18-15]
Fawcett Properties Ltd v Buckingham County Council [1961] 1 AC 636 .... [14-
26], [15-35]
Fayrouz I-IV (The) see Macedonia Maritime Co v Austin & Pickersgill Ltd
Federal Bulk Carriers Inc v C Itoh & Co Ltd (The Federal Bulker) [1989] 1
Lloyd’s Rep 103 .... [15-17]
Federal Bulker (The) see Federal Bulk Carriers Inc v C Itoh & Co Ltd Federal
Commerce and Navigation Co Ltd v Molena Alpha Inc [1979] AC 757 ....
[13-49], [16-34]
Fedora (The) see Continental Illinois National Bank & Trust Co of Chicago v
Papanicolaou Fenwick (J) & Co Pty Ltd v Federal Steam Navigation Co
Ltd (1943) 44 SR (NSW) 1 .... [4-39], [4-45], [4-46]
Ferguson v Inland Revenue Commissioners [1970] AC 442 .... [1-04], [13-21],
[16-27]
Ferguson v John Dawson & Partners (Contractors) Ltd [1976] 1 WLR 1213;
[1976] 3 All ER 817 .... [2-31], [18-39]
Fernandez v McDonald [2004] 1 WLR 1027; [2003] EWCA 1219 .... [15-30]
Ferryways NV v Associated British Ports [2008] 1 Lloyd’s Rep 639; [2008]
EWHC 225 (Comm) .... [17-24]
Fightvision Pty Ltd v Onisforou (1999) 47 NSWLR 473 .... [18-12]
Film Finance Inc v Royal Bank of Scotland [2007] 1 Lloyd’s Rep 382; [2007]
EWHC 195 (Comm) .... [13-33], [13-43]
Fina Samco (The) see International Fina Services AG v Katrina Shipping Ltd
Finucane v New South Wales Egg Corp (1988) 80 ALR 486 .... [10-19]
Fiona (The) see Mediterranean Freight Services Ltd v BP Oil International Ltd
Fiona Trust and Holding Corp v Privalov [2007] Bus LR 1719; [2007]
UKHL 40 .... [1-22], [6-31], [16-13]
Firestone Tyre and Rubber Co Ltd v Vokins & Co Ltd [1951] 1 Lloyd’s Rep 32
.... [16-29]
Firma C-Trade SA v Newcastle Protection and Indemnity Association (The
Fanti) [1991] 2 AC 1 .... [3-35], [4-24], [15-44]
First Energy (UK) Ltd v Hungarian International Bank Ltd [1993] 2 Lloyd’s Rep
194 .... [3-39], [6-27], [7-32], [11-33]
First Sport Ltd v Barclays Bank Plc [1993] 1 WLR 1229 .... [4-12]
Fisher (E T) & Co Pty Ltd v English Scottish and Australian Bank Ltd (1940) 64
CLR 84 .... [8-35]
Fitzgerald v Masters (1956) 95 CLR 420 .... [3-05], [3-07], [3-08], [3-11], [3-
12], [13-27]
Fitzwood Pty Ltd v Unique Coal Pty Ltd (in liq) (2001) 188 ALR 566 .... [6-13],
[7-26]
Fjord Wind (The) see Eridania SpA v Oetker Flight v Booth (1834) 1 Bing (NC)
370; 131 ER 1160 .... [17-19], [17-20]
Flying Colours Film Co Ltd v Assicurazioni Generali SpA [1993] 2 Lloyd’s Rep
184 .... [4-43]
Foley v Classique Coaches Ltd [1934] 2 KB 1 .... [3-24], [4-42], [16-27], [18-36]
Food Corp of India v Antclizo Shipping Corp (The Antclizo) [1987] 2 Lloyd’s
Rep 130 (affirmed [1988] 1 WLR 603) .... [9-23]
FoodCo UK LLP (t/a Muffin Break) v Henry Boot Developments Ltd [2010]
EWHC 358 (Ch) .... [10-22], [10-29]
Forbes v Git [1922] 1 AC 256 .... [4-53]
Foreman v Great Western Railway Co (1878) 38 LT 851 .... [2-11], [10-12]
Forestal Mimosa Ltd v Oriental Credit Ltd [1986] 1 WLR 631 .... [15-33]
Forrest v Glasser [2006] 2 Lloyd’s Rep 392; [2006] EWCA Civ 1086 .... [7-32],
[11-33], [13-29], [14-03], [15-13], [16-33]
Forsikringsaktieselskapet Vesta v Butcher [1989] AC 852 .... [6-10], [12-05],
[12-11]
Fortis Bank SA/NV v Indian Overseas Bank [2010] Bus LR 835; [2010] EWHC
84 (Comm) .... [3-27], [7-13], [13-13], [15-20]
Fortis Bank SA/NV v Indian Overseas Bank [2011] 2 Lloyd’s Rep 33; [2011]
EWCA Civ 58 .... [13-13], [15-33]
Forum Craftsman (The) see Islamic Republic of Iran Shipping Lines v Ierax
Shipping Co of Panama Francis v Lyon (1907) 4 CLR 1023 .... [2-43], [4-
14], [7-17]
Franklins Pty Ltd v Metcash Trading Ltd (2009) 76 NSWLR 603; [2009]
NSWCA 407 .... [5-10], [6-13], [8-07], [8-34], [9-33], [9-43], [9-44], [10-
30], [13-07], [13-37], [13-46]
Frans Maas (UK) Ltd v Samsung Electronics (UK) Ltd [2004] 2 Lloyd’s Rep
251; [2004] EWHC 1502 (Comm) .... [17-37]
Fraser v B N Furman (Productions) Ltd [1967] 1 WLR 898; [1967] 3 All ER 57
.... [16-11], [17-33], [17-37]
Frederick E Rose (London) Ltd v William H Pim Junior & Co Ltd [1953] 2 QB
450 .... [9-43], [9-47]
Freedom v AHR Constructions Pty Ltd [1987] 1 Qd R 59 .... [2-29]
Freeguard v Rogers [1999] 1 WLR 375 .... [4-50], [18-23], [18-30]
Friedlander v Bank of Australasia (1909) 8 CLR 85 .... [2-43]
Friends Provident Life & Pensions Ltd v Sirius International Insurance [2005] 2
Lloyd’s Rep 517; [2005] EWCA Civ 601 .... [16-33], [16-34]
Friends’ Provident Life Office v Hillier Parker May & Rowden (A Firm) [1997]
QB 85 .... [4-17]
Frith v Frith [1906] AC 254 .... [10-43]
Front Carriers Ltd v Atlantic and Orient Shipping Corp (The Double Happiness)
[2007] 2 Lloyd’s Rep 131; [2007] EWHC 421 (Comm) .... [9-48], [9-49]
Frost Express (The) see Seatrade Groningen BV v Geest Industries Ltd Furness
Withy (Australia) Pty Ltd v Metal Distributors (UK) Ltd (The Amazonia)
[1990] 1 Lloyd’s Rep 236 .... [9-35], [9-37], [12-05]
Gaisberg v Storr [1950] 1 KB 107 .... [14-28]
Galaxy Energy International Ltd v Bayoil SA (The Ama Ulgen) [2001] 1 Lloyd’s
Rep 512; [2001] 1 All ER (Comm) 289 .... [3-10]
Gange v Sullivan (1966) 166 CLR 418 .... [16-30], [16-42]
Garnac Grain Co Inc v H M F Faure & Fairclough Ltd [1968] AC 1130n .... [2-
31], [18-33]
Gascoyne v Customs and Excise Commissioners [2005] Ch 215; [2004] EWCA
Civ 1162 .... [7-32], [11-33]
Gastronome (UK) Ltd v Anglo Dutch Meats (UK) Ltd [2006] 2 Lloyd’s Rep
587; [2006] EWCA Civ 1233 .... [6-24], [7-19], [9-56], [15-39]
Gatoil International Inc v Tradax Petroleum Ltd (The Rio Sun) [1985] 1 Lloyd’s
Rep 350 .... [3-24]
Gator Shipping Corp v Trans-Asiatic Oil Ltd SA (The Odenfeld) [1978] 2
Lloyd’s Rep 357 .... [6-22]
Gaz Energy (The) see Hyundai Merchant Marine Co Ltd v Trafigura Beheer BV
Geelong Building Society (in liq) v Encel (1994) [1996] 1 VR 594 .... [15-40]
Gelling v Crespin (1917) 23 CLR 443 .... [8-16], [8-28], [10-16], [10-20], [10-
38]
Gemmell Power Farming Co Ltd v Nies (1935) 35 SR (NSW) 469 .... [10-56],
[17-23]
General Reinsurance Corp v Forsakringsaktiebolaget Fennia Patria [1983] QB
856 .... [12-15], [12-38]
General Trading Company (Holdings) Ltd v Richmond Corp Ltd [2008] 2
[15-34]
Genius Star 1 (The) see MH Progress Lines SA v Orient Shipping Rotterdam BV
George D Emery Co v Wells [1906] AC 515 .... [4-14]
George Mitchell (Chesterhall) Ltd v Finney Lock Seeds Ltd [1983] QB 284
(affirmed [1983] 2 AC 803) .... [11-15], [16-29], [17-35]
George Mitchell (Chesterhall) Ltd v Finney Lock Seeds Ltd [1983] 2 AC 803 ....
[17-10], [17-13], [17-16]
George v Roach (1942) 67 CLR 253 .... [16-30]
Geraghty v Minter (1979) 142 CLR 177 .... [16-24]
Geraghty v Queensland National Bank Ltd [1933] St R Qd 13 .... [4-52]
GFT Australia Pty Ltd v Collector of Customs (NSW) (1995) 126 ALR 219 ....
[10-16]
Gibaud v Great Eastern Railway Co [1921] 2 KB 426 .... [17-19]
Gilbert J McCaul (Aust) Pty Ltd v Pitt Club Ltd (1957) 59 SR (NSW) 122 ....
[15-28]
Gilbert-Ash (Northern) Ltd v Modern Engineering (Bristol) Ltd [1974] AC 689
.... [16-37]
Giliberto v Kenny (1983) 48 ALR 620 .... [6-13], [9-48], [9-55]
Gill & Duffus SA v Rionda Futures Ltd [1994] 2 Lloyd’s Rep 67 .... [15-40]
Gillespie Bros & Co v Cheney Eggar & Co [1896] 2 QB 59 .... [8-19], [10-54]
Gillespie Bros & Co Ltd v Roy Bowles Transport Ltd [1973] QB 400 .... [16-
12], [16-14], [17-25], [17-27], [17-28], [17-30], [17-35]
Gisborne v Burton [1989] QB 390 .... [2-27] Gissing v Gissing [1971] AC 886
.... [2-09], [11-22]
Glaholm v Hays (1841) 2 Man & G 257; 133 ER 743 .... [6-11]
Glatzer v Bradston Ltd (The Ocean Enterprise) [1997] 1 Lloyd’s Rep 449 .... [9-
27]
Glebe Island Terminals Pty Ltd v Continental Seagram Pty Ltd (The Antwerpen)
(1993) 40 NSWLR 206; [1994] 1 Lloyd’s Rep 213 .... [3-11], [17-21], [17-
37]
Glencore Energy (UK) Ltd v Sonol Israel Ltd (The Team Anmaj) [2011] 2
Glencore International AG v Bank of China [1996] 1 Lloyd’s Rep 135 .... [13-
13]
Global 5000 Ltd v Wadhawan [2012] 1 Lloyd’s Rep 239; [2012] EWCA Civ 13
.... [6-24]
Gloucestershire County Council v Richardson [1969] 1 AC 480 .... [3-21], [3-28]
Glynn v Margetson & Co [1893] AC 351 .... [3-11], [4-20], [4-49], [4-52], [7-
36], [7-37], [16-11], [16-12], [17-19], [17-33]
Golar Gas Transport Inc v The Liquefied Gas Shipping Co Ltd (The Hilli)
[1979] 1 Lloyd’s Rep 153 .... [7-24], [16-03], [16-21]
Golden Fleece Maritime Inc v ST Shipping & Transport Inc (The Elli and The
Frixos) [2008] 2 Lloyd’s Rep 119; [2008] EWCA Civ 584 .... [1-44], [4-41],
[4-42], [7-04], [7-36], [7-37], [7-40], [13-12]
Golden Leader (The) see Mineralimportexport v Eastern Mediterranean
Maritime Ltd Golden Rio (The) see Esteve Trading Corp v Agropec
International Goldsbrough Mort & Co Ltd v Carter (1914) 19 CLR 429 ....
[7-17], [7-20], [9-23], [9-30]
Goldsbrough Mort & Co Ltd v Quinn (1910) 10 CLR 674 .... [10-13], [18-06]
Goldsmith (F) (Sicklesmere) Ltd v Baxter [1970] Ch 85 .... [9-49], [9-51]
Gollin & Co Ltd v Karenlee Nominees Pty Ltd (1983) 153 CLR 455 .... [13-46],
[16-12]
Good Helmsman (The) see Harmony Shipping Co SA v Saudi-Europe Line Ltd
Gordon v Macgregor (1909) 8 CLR 316 .... [8-10], [8-13], [8-16], [8-18],
[8-19], [8-28], [8-29], [8-32], [10-07], [10-14], [10-17], [10-37], [10-38]
Gordon-Cumming v Houldsworth [1910] AC 537 .... [6-11], [8-13], [8-16], [9-
38], [9-39], [9-53], [10-16], [18-19], [18-20], [18-21], [18-22]
Goss v Chilcott [1996] AC 788 .... [10-35]
Goss v Lord Nugent (1833) 5 B & Ad 58; 110 ER 713 .... [8-10], [8-13], [8-16],
[10-16]
Government of Newfoundland v Newfoundland Railway Co (1887) 13 App Cas
199 .... [13-29]
Government of Swaziland Central Transport Administration v Leila Maritime
Co Ltd (The Leila) [1985] 2 Lloyd’s Rep 172 .... [9-18], [18-16], [18-17]
Government of Zanzibar v British Aerospace (Lancaster House) Ltd [2000] 1
WLR 2333 .... [10-29], [10-33]
Gozzard v McKell (1931) 32 SR (NSW) 39 .... [10-41]
GR Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40
NSWLR 631 .... [7-17], [9-51], [9-53], [18-23]
Graham v Pitkin [1993] 1 WLR 403 .... [16-30]
Graham v The Royal National Agricultural and Industrial Association of
Queensland [1989] 1 Qd R 624 .... [17-21]
Grant v John Grant & Sons Pty Ltd (1954) 91 CLR 112 .... [4-25], [4-30], [16-
38]
Granville Oil & Chemicals Ltd v Davis Turner & Co Ltd [2003] 2 Lloyd’s Rep
356 .... [16-28]
Graves v Legg (1854) 9 Ex 709; 156 ER 304 .... [18-08]
Gray dec’d, Re [2005] 1 WLR 815; [2004] EWHC 1538 (Ch) .... [15-28]
Gray v Carr (1871) LR 6 QB 522 .... [15-23]
Gray v Taylor [1998] 1 WLR 1093 .... [2-30]
Great Eastern Shipping Co Ltd v Far East Chartering Ltd (The Jag Ravi) [2011]
2 Lloyd’s Rep 309; [2011] EWHC 1372 (Comm) (affirmed [2012] 1
Lloyd’s Rep 637; [2012] EWCA Civ 180) .... [15-45]
Great North East Railway Ltd v Avon Insurance Plc [2001] 2 Lloyd’s Rep 649;
[2001] EWCA Civ 780 .... [7-19], [9-32], [17-36]
Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd [2003] QB 679;
[2002] EWCA Civ 1407 .... [3-34], [9-37], [9-39]
Great Western Railway v Bristol Corporation (1918) 87 LJ Ch 414 .... [2-11], [5-
24], [6-11], [6-12], [6-13], [6-14], [6-15], [8-13], [10-14], [11-11], [14-02],
[14-25], [18-22], [18-27], [18-29]
Greaves & Co (Contractors) Ltd v Baynham Meikle & Partners [1975] 1 WLR
1095; [1975] 3 All ER 99 .... [3-21], [3-25], [3-31], [9-19]
Gregory v MAB Pty Ltd (1989) 1 WAR 1 .... [11-16], [15-11], [16-30]
Greig v Insole [1978] 3 All ER 449 .... [3-23], [8-34]
Greville v Parker [1910] AC 335 .... [16-33]
Grisbrook v MGN Ltd [2011] Bus LR 599; [2010] EWCA Civ 1399 .... [3-27]
Grundt v Great Boulder Pty Gold Mines Ltd (1937) 59 CLR 641 .... [18-18]
Guardian Ocean Cargoes Ltd v Banco do Brasil SA (Nos 1 and 3) [1991] 2
Lloyd’s Rep 68 (affirmed [1994] 2 Lloyd’s Rep 152) .... [9-09], [9-10], [10-
16]
Gulf Agri Trade FZCO v Aston Agro Industrial AG [2008] 2 Lloyd’s Rep 376;
[2008] EWHC 1252 (Comm) .... [4-18], [7-32], [11-33]
Gumland Property Holdings Pty Ltd v Duffy Bros Fruit Market (Campbelltown)
Pty Ltd (2008) 234 CLR 237; [2008] HCA 10 .... [2-30]
Gyllenhammar & Partners International Ltd v Sour Brodogradevna Industria
[1989] 2 Lloyd’s Rep 403 .... [13-41], [16-42]
Hadley v Baxendale (1854) 9 Ex 341; 156 ER 145 .... [7-35], [9-15], [17-24]
Hain SS Co Ltd v Tate & Lyle Ltd (1936) 41 Com Cas 350; [1936] 2 All ER 597
.... [10-06], [17-19], [17-20]
Hall v Busst (1960) 104 CLR 206 .... [3-24]
Hamed el Chiaty & Co (t/a Travco Nile Cruise Lines) v Thomas Cook Group
Ltd (The Nile Rhapsody) [1992] 2 Lloyd’s Rep 399 (affirmed [1994] 1
Lloyd’s Rep 382) .... [9-44], [10-47]
Hamel-Smith v Pycroft & Jetsave Ltd (1987) unreported, 5 February .... [18-17]
Hamzeh Malas & Sons v British Imex Industries Ltd [1958] 2 QB 127 .... [15-
32]
Hancock v B W Brazier (Anerley) Ltd [1966] 1 WLR 1317 .... [10-35], [16-37]
Handbury v Nolan (1977) 13 ALR 339 .... [10-10], [11-04]
Hanoman v Southwark London Borough Council (No 2) [2009] 1 WLR 374;
[2008] EWCA Civ 624 (affirmed [2009] 1 WLR 1367; [2009] UKHL 29)
.... [2-37], [9-20], [10-46], [10-47]
Hansa Nord (The) see Cehave NV v Bremer Handelsgesellschaft mbH
Harbutt’s ‘Plasticine’ Ltd v Wayne Tank and Pump Co Ltd [1970] 1 QB 447 ....
[17-21]
Hardwick Game Farm v Suffolk Agricultural and Poultry Producers Association
Ltd [1966] 1 WLR 287; [1966] 1 All ER 309 (affirmed sub nom Henry
Kendall & Sons v William Lillico & Sons Ltd [1969] 2 AC 31) .... [2-09],
[8-10], [8-18], [10-12], [10-13], [10-16], [12-11], [14-07], [16-29]
Hare v Nicoll [1966] 2 QB 130 .... [15-28]
Harling v Eddy [1951] 2 KB 739 .... [17-23]
Harmony Shipping Co SA v Saudi-Europe Line Ltd (The Good Helmsman)
[1981] 1 Lloyd’s Rep 377 .... [9-32]
Harmsworth Pension Funds Trustees Ltd v Charringtons Industrial Holdings Ltd
(1985) 49 P & CR 297 .... [16-42]
Harnor v Groves (1855) 15 CB 667; 139 ER 587 .... [8-10], [8-16], [10-16], [10-
37]
Harpur v Levy (2007) 16 VR 587; [2007] VSCA 128 .... [13-37]
Harriette N (The) see Statoil ASA v Louis Dreyfus Energy Services LP
Harrington v Browne (1917) 23 CLR 297 .... [4-24], [6-11], [7-17]
Harris v Rickett (1859) 4 H & N 1; 157 ER 734 .... [10-16]
Hart v MacDonald (1910) CLR 417 .... [3-23], [10-23], [10-28]
Hartog v Colin & Shields [1939] 3 All ER 566 .... [9-35]
Harvela Investments Ltd v Royal Trust Co of Canada (CI) Ltd [1986] 1 AC 207
.... [2-16], [2-20], [9-37], [11-06], [13-46]
Haugland Tankers AS v RMK Marine Gemi Yapin Sanayii ve Deniz
Tasimaciligi Isletmesi AS [2005] 1 Lloyd’s Rep 573; [2005] EWHC 321
(Comm) .... [15-26], [15-28]
Hawker Pacific Pty Ltd v Helicopter Charter Pty Ltd (1991) 22 NSWLR 298 ....
[18-07]
Hawkins v Clayton (1988) 164 CLR 539 .... [2-09], [3-21], [3-26]
Hayne v Cummings (1864) 16 CBNS 421; 143 ER 1191 .... [2-11], [4-43]
Head v Kelk (1963) 63 SR (NSW) 340; [1962] NSWR 1363 .... [18-36]
Heffield v Meadows (1869) LR 4 CP 595 .... [7-31], [8-10], [15-38], [18-22],
[18-23]
Heilbut Symons & Co v Buckleton [1913] AC 30 .... [2-37], [2-38], [10-10], [10-
46], [10-47]
Heimann v The Commonwealth (1938) 38 SR (NSW) 691 .... [3-20], [4-14]
Heinrich Hirdes & GmbH v Edmund [1991] 2 Lloyd’s Rep 546 .... [9-19], [15-
24]
Heisler v Anglo-Dal Ltd [1954] 1 WLR 1273; [1954] 2 All ER 770 .... [2-30],
[8-30], [15-37]
Helene Knutsen (The) see Exxonmobil Sales and Supply Corp v Texaco Ltd
Helicopter Sales (Australia) Pty Ltd v Rotor-Work Pty Ltd (1974) 132 CLR
1 .... [3-28], [10-54]
Helou v P D Mulligan Pty Ltd (2003) 57 NSWLR 74 .... [16-29]
Henderson v Merrett Syndicates Ltd [1995] 2 AC 145 .... [13-34], [16-29], [17-
25]
Henderson-Smart v Quality Blow Moulders Pty Ltd (2010) 25 VR 724; [2010]
VSCA 14 .... [6-14], [15-38]
Henry Boot Construction Ltd v Alstom Combined Cycles Ltd [2005] 1 WLR
3850; [2005] EWCA Civ 814 .... [7-39]
Henry Kendall & Sons v William Lillico & Sons Ltd [1969] 2 AC 31 .... [10-13],
[17-23]
Herbert Clayton and Jack Waller Ltd v Oliver [1930] AC 209 .... [3-23], [4-25],
[11-15], [18-26]
Heron II (The) see Koufos v C Czarnikow Ltd Hick v Raymond [1893] AC 22
.... [3-24]
Hickman v Haynes (1875) LR 10 CP 598 .... [18-15]
Hide & Skin Trading Pty Ltd v Oceanic Meat Traders Ltd (1990) 20 NSWLR
310 .... [7-28], [8-34], [13-46], [16-12], [18-26]
HIH Casualty and General Insurance Ltd v Chase Manhattan Bank [2003] 2
Lloyd’s Rep 61; [2003] UKHL 6 .... [16-28], [16-31], [17-17], [17-25], [17-
27], [17-29], [17-31], [17-34], [17-37]
HIH Casualty and General Insurance Ltd v New Hampshire Insurance Co [2001]
2 Lloyd’s Rep 161; [2001] EWCA 735 .... [6-19], [7-19], [8-22], [15-45],
[16-03]
Hill (D J) & Co Pty Ltd v Walter H Wright Pty Ltd [1971] VR 749 .... [10-13]
Hillas & Co Ltd v Arcos Ltd (1932) 43 L1 L Rep 359; 147 LT 503 .... [3-24],
[13-46], [14-26], [16-26], [16-27], [18-26], [18-37]
Hilli (The) see Golar Gas Transport Inc v The Liquefied Gas Shipping Co Ltd
Hilmi & Associates Ltd v 20 Pembridge Villas Freehold Ltd [2010] 1 WLR
2750; [2010] EWCA Civ 314 .... [11-12], [15-30]
Hirsch v The Zinc Corp Ltd (1917) 24 CLR 34 .... [16-28]
Hissett v Reading Roofing Co Ltd [1970] 1 WLR 1757; [1970] 1 All ER 122 ....
[10-35]
HLB Kidsons (a firm) v Lloyd’s Underwriters [2009] 1 Lloyd’s Rep 8; [2008]
EWCA Civ 1206 .... [2-10], [2-17], [15-28]
Hoad v Swan (1920) 28 CLR 258 .... [4-37], [9-19]
Hochster v De la Tour (1853) 2 E & B 678; 118 ER 922 .... [3-34]
Hodgson v Morella Pastoral Co Pty Ltd (1975) 13 SASR 51 .... [12-38]
Hoechong Products Co Ltd v Cargill Hong Kong Ltd [1995] 1 WLR 404; [1995]
1 Lloyd’s Rep 584 .... [17-08]
Hoenig v Isaacs [1952] 2 All ER 176 .... [16-34]
Hogg v Snaith (1808) 1 Taunt 347; 127 ER 867 .... [8-23]
Holland v Wiltshire (1954) 90 CLR 409 .... [4-16], [4-28]
Hollier v Rambler Motors (AMC) Ltd [1972] 2 QB 71 .... [17-05], [17-27], [17-
29], [17-30]
Holme v Brunskill (1877) 3 QBD 495 .... [15-40]
Holt & Co v Collyer (1881) 16 Ch D 718 .... [11-11], [11-16], [12-28]
Holwell Securities Ltd v Hughes [1974] 1 WLR 155; [1974] 1 All ER 161 ....
[15-28]
Homburg Houtimport BV v Agrosin Private Ltd (The Starsin) [2004] 1 AC 715;
[2003] UKHL 12 .... [1-04], [1-30], [3-07], [4-22], [4-33], [4-35], [4-41],
[4-43], [4-52], [7-13], [7-36], [7-41], [9-26], [9-51], [9-53], [10-43], [11-
15], [11-18], [11-32], [12-02], [13-15], [13-27], [13-29], [16-29], [17-13],
[17-14], [17-17]
Home and Overseas Insurance Co Ltd v Mentor Insurance Co (UK) Ltd [1990] 1
WLR 153 .... [4-18], [7-20], [13-05], [13-47], [15-15], [15-20], [16-25],
[18-36]
Home Counties Dairies Ltd v Skilton [1970] 1 WLR 526; [1970] 1 All ER 1227
.... [16-24]
Home Insurance Co v Administratia Asigurarilor de Stat [1983] 2 Lloyd’s Rep
674 .... [9-26]
Homestake Australia Ltd v Metana Minerals NL (1991) 11 WAR 435 .... [6-13],
[7-17], [11-21], [12-38], [14-11], [18-23]
Hong Guan & Co Ltd v R Jumabhoy & Sons Ltd [1960] AC 684 .... [16-14],
[16-29], [17-08]
Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26
.... [2-43], [3-15], [3-34], [6-30], [15-20], [16-12], [16-24], [16-32], [16-34],
[16-42]
Hood v Anchor Line (Henderson Bros) Ltd [1918] AC 837 .... [10-12]
Hope v RCA Photophone of Australia Pty Ltd (1937) 59 CLR 348 .... [3-25], [6-
11], [8-09], [8-20], [8-22], [10-23], [10-28], [11-13], [11-14], [11-15], [15-
21], [18-22], [18-27], [18-28], [18-29], [18-30]
Horton v Jones (1934) SR (NSW) 359 .... [8-35]
Hospital Products Ltd v United States Surgical Corp (1984) 156 CLR 41 .... [2-
31], [2-37], [2-40], [3-26], [11-26]
Hotel Services Ltd v Hilton International Hotels (UK) Ltd [2000] 1 All ER
(Comm) 750; [2000] EWCA Civ 74 .... [17-24]
Hotham v The East India Co (1779) 1 Doug 272; 99 ER 178 .... [4-12], [4-24],
[15-19]
Hotham v The East India Co (1787) 1 TR 638; 99 ER 1295 .... [1-24]
Houghton v Trafalgar Insurance Co Ltd [1954] 1 QB 247 .... [4-45]
Hounslow London Borough Council v Twickenham Garden Developments Ltd
[1971] 1 Ch 233 .... [3-23]
Housing Guarantee Fund Ltd v Dore (2003) 7 VR 257; [2003] VSCA 126 ....
[17-33]
Howard Smith & Co Ltd v Varawa (1907) 5 CLR 68 .... [9-33]
Howe v Smith (1884) 27 Ch D 89 .... [3-32], [4-27], [16-42]
Howe Richardson Scale Co Ltd v Polimex-Cekop [1978] 1 Lloyd’s Rep 161 ....
[15-32]
Hoyt’s Pty Ltd v Spencer (1919) 27 CLR 133 .... [8-13], [8-15], [10-07], [10-17],
[10-46], [10-47]
Hume Steel Ltd v Attorney-General (Victoria) (1927) 39 CLR 455 .... [4-45], [4-
52], [4-53]
Hunter Engineering Co Inc v Syncrude Canada Ltd [1989] 1 SCR 426 .... [16-
16]
Hutton v Watling [1948] Ch 398 .... [10-37], [10-38], [11-15], [11-22], [11-25],
[13-41]
Hvalfangerselskapet Polaris Aktieselskap v Unilever Ltd (1933) 39 Com Cas 1
.... [2-16], [4-53], [6-11], [7-13], [7-19], [7-40], [8-23], [11-15], [11-16],
[11-21], [12-20], [14-09], [14-18], [14-21], [14-28], [18-22], [18-28]
Hyde Management Services Pty Ltd v FAI Insurance Ltd (1979) 144 CLR 541
.... [13-12], [13-21], [13-43]
Hyundai Heavy Industries Co Ltd v Papadopoulos [1980] 1 WLR 1129 .... [16-
40]
Hyundai Merchant Marine Co Ltd v Trafigura Beheer BV (The Gaz Energy)
[18-10]
Hyundai Shipbuilding & Heavy Industries Co Ltd v Pournaras [1978] 2 Lloyd’s
Rep 502 .... [15-37], [15-39]
Ian Delbridge Pty Ltd v Warrandyte High School Council [1991] 2 VR 545 ....
[3-12]
ICT Pty Ltd v Sea Containers Ltd (1995) 39 NSWLR 640 .... [2-27], [9-27]
IIG Capital LLC v Van Der Merwe [2008] 2 Lloyd’s Rep 187; [2008] EWCA
Civ 542 .... [2-30], [15-40]
Independiente Ltd v Music Trading On-Line (HK) Ltd [2008] 1 WLR 608;
[2007] EWCA Civ 111 .... [13-30]
Indian Grace (The) see Republic of India v India Steamship Co Ltd Industrie
Chimiche Italia Centrale v Alexander G Tsavliris & Sons Maritime Co (The
Choko Star) [1990] 1 Lloyd’s Rep 516 .... [3-21]
Industrie Chimiche Italia Centrale SpA v NEA Ninemia Shipping Co SA (The
Emmanuel C) [1983] 1 Lloyd’s Rep 310; [1983] 1 All ER 686 .... [2-09],
[17-05], [17-26], [17-31]
Ines (The) see MB Pyramid Sound NV v Briese Schiffahrts GmbH and Co KG
MS ‘Sina’
ING Bank NV v Ros Roca SA [2012] 1 WLR 472; [2011] EWCA Civ 353 .... [2-
06], [3-09], [3-10], [7-13], [13-46]
ING Lease (UK) Ltd v Harwood [2008] Bus LR 762; [2007] EWHC 2292 (QB)
.... [7-26], [13-34], [13-38], [15-39]
Inglis v John Buttery & Co (1878) 3 App Cas 552 .... [6-11], [7-15], [7-26], [8-
07], [8-16], [8-22], [8-23], [8-28], [8-32], [8-34], [8-38], [10-14], [13-43],
[14-30], [14-32]
Inntrepreneur Pub Co (GL) v East Crown Ltd [2000] 2 Lloyd’s Rep 611 .... [2-
38], [10-05], [10-21], [10-22], [10-23], [10-27]
Insight Vacations Pty Ltd v Young (2011) 243 CLR 149; [2011] HCA 16 .... [17-
10]
Insurance Co of Africa v Scor (UK) Reinsurance Co Ltd [1985] 1 Lloyd’s Rep
312 .... [13-49]
Insurance Co of the State of Pennsylvania v Grand Union Insurance Co [1989] 2
HKLR 574; [1990] 1 Lloyd’s Rep 208 .... [14-09], [14-13]
Insurance Commission of Western Australia v Container Handlers Pty Ltd
(2004) 218 CLR 89; [2004] HCA 24 .... [1-58], [4-39]
Inta Navigation Ltd v Ranch Investments Ltd [2010] 1 Lloyd’s Rep 74; [2009]
EWHC 1216 (Comm) .... [7-13], [13-46]
Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd
(1988) 5 BPR 11,110 .... [18-37]
Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd [1989] QB 433
.... [3-35], [10-12]
Intergraph Best (Vic) Pty Ltd v QBE Insurance Ltd (2005) 11 VR 548; [2005]
VSCA 180 .... [13-29], [13-37]
International Air Transport Association v Ansett Australia Holdings Ltd (2008)
234 CLR 151; [2008] HCA 3 .... [4-22], [6-10], [6-22], [6-25], [7-39]
International Fina Services AG v Katrina Shipping Ltd (The Fina Samco) [1995]
2 Lloyd’s Rep 344 .... [15-03], [15-04], [15-11], [15-20], [16-15]
International Leasing Corp (Vic) Ltd v Aiken [1967] 2 NSWR 427 .... [4-45],
[13-34], [15-37], [15-39], [16-42]
International Minerals & Chemical Corp v Karl O Helm AG [1986] 1 Lloyd’s
Rep 81 .... [4-39], [4-47], [6-23], [7-22]
International Sea Tankers Inc v Hemisphere Shipping Co Ltd (The Wenjiang)
[1982] 1 Lloyd’s Rep 128 .... [4-18]
Internet Broadcasting Corp Ltd v MAR LLC [2009] 2 Lloyd’s Rep 295; [2009]
EWHC 844 (Ch) .... [17-15], [17-33], [17-35], [17-37]
Investors Compensation Scheme Ltd v West Bromwich Building Society [1998]
1 WLR 896 .... [1-09], [1-22], [1-43], [1-46], [2-13], [3-27], [4-01], [4-18],
[4-21], [4-22], [4-39], [5-01], [5-02], [5-03], [5-04], [5-05], [5-06], [5-07],
[5-08], [5-09], [5-11], [5-13], [5-14], [5-15], [5-16], [5-17], [5-18], [5-19],
[5-20], [5-21], [5-22], [5-23], [5-24], [6-02], [6-09], [6-10], [6-14], [7-06],
[7-16], [7-39], [8-32], [11-18], [11-19], [12-02], [12-03], [12-12], [12-28],
[12-36], [13-17], [13-45], [15-39]
IPC v Norwich Union (1986) 3 Const LJ 203 .... [10-35]
Irbenskiy Proliv (The) see Mitsubishi Corp v Eastwind Transport Ltd Islamic
Republic of Iran Shipping Lines v Ierax Shipping Co of Panama (The
Forum Craftsman) [1991] 1 Lloyd’s Rep 81 .... [7-35], [16-07]
Itex Shipping Pte Ltd v China Ocean Shipping Co (The Jing Hong Hai) [1989] 2
Lloyd’s Rep 522 .... [3-26]
Itoh (C) & Co Ltd v Companhia de Navegacao Lloyd Brasileiro (No 2) (The Rio
Assu) [1999] 1 Lloyd’s Rep 115 .... [3-27], [13-30]
J I MacWilliam Co Inc v Mediterranean Shipping Co SA [2005] 2 AC 423;
[2005] UKHL 11 .... [2-30], [13-41]
Jackson v Union Marine Insurance Co Ltd (1874) LR 10 CP 125 .... [17-08]
Jacob & Youngs Inc v Kent, 230 NY 239; 129 NE 889 (CA, 1921) .... [1-30]
Jadranska Slobodna Plovidba v Gulf Shipping Line Ltd (The Matija Gubec)
[1983] 1 Lloyd’s Rep 24 .... [16-07]
Jag Ravi (The) see Great Eastern Shipping Co Ltd v Far East Chartering Ltd
Jaks (UK) Ltd v Cera Investment Bank SA [1998] 2 Lloyd’s Rep 89 .... [7-
32], [13-31]
Jalagouri (The) see Nippon Yusen Kaisha Ltd v Scindia Steam Navigation Co
Ltd James Miller & Partners Ltd v Whitworth Street Estates (Manchester)
Ltd [1970] AC 583 .... [2-09], [3-34], [8-34], [8-35], [8-38], [9-19], [18-11]
Jameson v Central Electricity Generating Board [2000] 1 AC 455 .... [3-29]
Jascon 5 (The) see Talbot Underwriting Ltd v Nausch Hogan & Murray Inc
Jennings v Credit Corp Australia Pty Ltd (as assignee from Citicorp Person
to Person Financial Services Pty Ltd) (2000) 48 NSWLR 709 .... [4-36]
Jindal Iron and Steel Co Ltd v Islamic Solidarity Shipping Co Jordan Inc [2005]
1 WLR 1363; [2004] UKHL 49 .... [1-30]
Jing Hong Hai (The) see Itex Shipping Pte Ltd v China Ocean Shipping Co Jireh
International Pty Ltd t/a Gloria Jean’s Coffee v Western Exports Services
Inc [2011] NSWCA 137 (SLR sub nom Western Export Services Inc v Jireh
International Pty Ltd (2011) 282 ALR 604; [2011] HCA 45) .... [16-15]
Johanna Oldendorff (The) see Oldendorff & Co GmbH v Tradax Export SA John
McGrath Motors (Canberra) Pty Ltd v Applebee (1964) 110 CLR 656 ....
[11-29]
Johnson v American Home Assurance Co (1998) 192 CLR 266 .... [12-28], [15-
45], [16-17]
Johnson Matthey Ltd v AC Rochester Overseas Corp (1990) 23 NSWLR 190 ....
[7-10], [10-22], [10-25], [10-28], [10-30]
Johnstone v Holdway [1963] 1 QB 601 .... [6-18], [7-05], [7-31]
Johs Stove (The) see Sametiet M/T Johs Stove v Istanbul Petrol Rafinerisi A/S
Jones v Aircrafts Pty Ltd [1949] St R Qd 196 .... [10-08]
Jones v Barkley (1781) 2 Doug 684; 99 ER 434 .... [1-24], [2-20]
Jones v Mason (1892) 8 NSWR (L) 157 .... [15-38]
Jones v Padavatton [1969] 1 WLR 328; [1969] 2 All ER 616 .... [9-28]
Jones v Walton [1966] WAR 139 .... [6-13]
Jorden v Money (1854) 5 HLC 180; 10 ER 868 .... [9-18]
Joscelyne v Nissen [1970] 2 QB 86 .... [9-43]
Joseph Constantine SS Line Ltd v Imperial Smelting Corp Ltd [1942] AC 154
.... [2-34], [15-16], [16-42]
Josselson v Borst [1937] 1 KB 723 .... [16-27]
Julia (The) see Comptoir d’Achat et de Vente du Boerenbond Belge SA v Luis
de Ridder Limitada Junior K (The) see Star Steamship Society v
Beogradska Plovidba K/S Victoria Street v House of Fraser (Stores
Management) Ltd [2012] 2 WLR 470; [2011] EWCA Civ 904 .... [4-45], [4-
47]
Kallang (The) see Kallang Shipping SA Panama v AXA Assurances Senegal
Kallang Shipping SA Panama v AXA Assurances Senegal (The Kallang)
(No 2) [2009] 1 Lloyd’s Rep 124; [2008] EWHC 2761 (Comm) .... [3-30],
[16-42]
Kalliopi A (The) see Marc Rich & Co Ltd v Tourloti Compania Naviera SA
Kamil Export (Aust) Pty Ltd v NPL (Australia) Pty Ltd (1993) [1996] 1 VR
538 .... [17-21], [17-33], [17-37] Kanematsu (F) & Co Ltd v The Ship
’Shahzada’ (1956) 96 CLR 477 .... [17-19]
Kapitan Petko Voivoda (The) see Daewoo Heavy Industries Ltd v Klipriver
Shipping Ltd Karen Oltmann (The) see Partenreederei MS Karen Oltmann
v Scarsdale Shipping Co Ltd Kargotich v Mustica [1973] WAR 167 .... [10-
10]
Karsales (Harrow) Ltd v Wallis [1956] 1 WLR 936 .... [17-06], [17-19]
Kennedy v Panama New Zealand and Australian Royal Mail Co Ltd (1867) LR
2 QB 580 .... [9-37], [9-38]
Kenya Railways v Antares Co Pte Ltd (The Antares) (Nos 1 & 2) [1987] 1
Lloyd’s Rep 424 .... [17-21]
Khan v Khan [2008] Bus LR Digest 73; [2007] EWCA Civ 399 .... [4-32], [5-
09], [6-07], [6-14], [9-06]
Khoury v Government Insurance Office of New South Wales (1984) 165 CLR
622 .... [3-21], [3-30]
Killick v Second Covent Garden Property Co Ltd [1973] 1 WLR 658; [1973] 2
All ER 337 .... [4-46]
King v Brandywine Reinsurance Co (UK) Ltd [2005] 1 Lloyd’s Rep 655; [2005]
EWCA Civ 235 .... [12-05], [12-12]
Kingston v Preston (1773) 2 Doug 689; 99 ER 437 .... [1-24], [2-20]
Kitchen & Sons Ltd v The Brisbane Soap Co Ltd [1910] St R Qd 801 .... [8-34]
Kitchen (J) & Sons Pty Ltd v Stewart’s Cash & Carry Stores (1942) 66 CLR 116
.... [3-24], [16-12], [16-15], [16-20]
KJRR Pty Ltd v Commissioner of State Revenue [1999] 2 VR 174 .... [2-30],
[13-34]
Kleinwort Benson Ltd v Malaysia Mining Corp Berhad [1989] 1 WLR 379 ....
[2-37], [6-24], [7-11], [9-25], [9-26], [9-30], [14-14]
Kleovoulos of Rhodes (The) see Sunport Shipping Ltd v Tryg-baltica
International (UK) Ltd Knight Sugar Co Ltd v The Alberta Railway &
Irrigation Co [1938] 1 All ER 266 .... [10-35]
Kodros Shipping Corp v Empresa Cubana de Fletes (The Evia) (No 2) [1983] 1
AC 736 .... [4-18], [13-14], [17-08]
Kok Hoong v Leong Cheong Kweng Mines Ltd [1964] AC 993 .... [2-30], [9-18]
Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd (2007) 233 CLR
115; [2007] HCA 61 .... [2-16], [6-10], [6-30]
Kos (The) see ENE Kos 1 Ltd v Petroleo Brasileiro SA Koufos v C Czarnikow
Ltd (The Heron II) [1969] 1 AC 350 .... [7-35]
KPMG LLP v Network Rail Infrastructure Ltd [2007] Bus LR 1336; [2007]
EWCA Civ 363 .... [3-06], [3-07], [3-09], [4-44], [7-19], [7-42]
Krakowski v Eurolynx Properties Ltd (1995) 183 CLR 563 .... [11-29]
Krell v Henry [1903] 2 KB 740 .... [6-31], [6-32], [7-10], [7-13], [7-14], [18-09]
Kriti Akti (The) see Petroleo Brasileiro SA v Kriti Akti Shipping Co SA Kriti
Palm (The) see AIC Ltd v ITS Testing Services (UK) Ltd L and M Electrics
Pty Ltd v State Government Insurance Office (Queensland) [1985] 2 Qd R
370 .... [6-13]
L’Estrange v F Graucob Ltd [1934] 2 KB 394 .... [10-08], [10-14], [10-22], [10-
24], [10-28], [10-32], [10-33], [10-38]
LAC Minerals Ltd v International Corona Resources Ltd (1989) 61 DLR (4th)
14 .... [12-38]
Lady Rutland’s Case (1605) 5 Co Rep 256; 77 ER 89 .... [8-13] Lamont v Heron
(1970) 126 CLR 239 .... [10-37]
Lamport & Holt Lines Ltd v Coubro & Scrutton (M & I) Ltd (The Raphael)
[1982] 2 Lloyd’s Rep 42 .... [17-13], [17-27], [17-28], [17-30], [17-31]
Lancashire County Council v Municipal Mutual Insurance Ltd [1997] QB 897
.... [4-39], [4-43], [4-44], [4-47], [15-23], [15-45], [16-19], [16-27], [16-28],
[18-11]
Langley v Foster (1906) 4 CLR 167 .... [3-32], [6-28], [16-27]
Larissa (The) see Showa Oil Tanker Co Ltd of Japan v Maravan SA of Caracas
Larratt v Bankers and Traders Insurance Co Ltd (1941) 41 SR (NSW) 215
.... [4-37]
Laura Prima (The) see Nereide SpA di Navigazione v Bulk Oil International
Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166
CLR 623 .... [11-33]
Lauritzen (J) AS v Wijsmuller BV (The Super Servant Two) [1990] 1 Lloyd’s
Rep 1 .... [16-42], [17-08], [17-27], [17-31]
Lawrence v Cassel [1930] 2 KB 83 .... [10-35]
Le Mans Grand Prix Circuits Pty Ltd v Iliadis [1998] 4 VR 661 .... [10-08]
Leaf v International Galleries [1950] 2 KB 86 .... [11-26]
Lee v Showmen’s Guild of Great Britain [1952] 2 QB 329 .... [4-15]
Leegas (The) see Barlee Marine Corp v Mountain Lee-Parker v Izzet (No 2)
[1972] 1 WLR 775 .... [16-30]
Lefthero (The) see Ellis Shipping Corp v Voest Alpine Intertrading Legal &
General Insurance Australia Ltd v Eather (1986) 6 NSWLR 390 .... [16-08],
[17-37]
Leggott v Barrett (1880) 15 Ch D 306 .... [8-07], [10-35], [10-36], [13-37]
Leila (The) see Government of Swaziland Central Transport Administration v
Leila Maritime Co Ltd Leipner v McLean (1909) 8 CLR 306 .... [10-46],
[10-47]
Lena (The) see Compania Naviera SA v National Westminster Finance Ltd
Lennon v Scarlett & Co (1921) 29 CLR 499 .... [9-33], [11-19]
Leonidas D (The) see Allied Marine Transport Ltd v Vale do Rio Doce
Navegacao SA Leonie’s Travel Pty Ltd v Qantas Airways Ltd (2010) 265
ALR 727; [2010] FCAFC 37 .... [7-40]
Letovsky Bros Ltd v Kremnizer (1969) 90 WN (NSW) 126 .... [12-38]
Levison v Patent Steam Carpet Cleaning Co Ltd [1978] QB 69 .... [16-16], [17-
06], [17-35]
Lewes Nominees Pty Ltd v Strang (1983) 49 ALR 328; 57 ALJR 823 .... [15-28]
Lewis v Averay [1972] 1 QB 198 .... [9-40], [11-26]
Li Hai (The) see Western Bulk Carriers K/S v Li Hai Maritime Inc Libyan Arab
Foreign Bank v Bankers Trust Co [1989] QB 728 .... [10-46], [12-38]
Life Insurance Co of Australia Ltd v Phillips (1925) 36 CLR 60 .... [1-05], [2-
11], [3-13], [4-10], [4-12], [8-19], [8-24], [9-14], [9-39], [10-33], [10-49],
[11-04], [13-05], [14-02], [18-27], [18-28]
Life Savers (Australasia) Ltd v Frigmobile Pty Ltd [1983] 1 NSWLR 431 ....
[17-35]
Lilley v Midland Brick Co Pty Ltd (1992) 9 WAR 339 .... [10-42]
Limnos (The) see Serena Navigation Ltd v Dera Commercial Establishment
Lindsay (WN) & Co Ltd v European Grain & Shipping Agency Ltd [1963]
1 Lloyd’s Rep 437 .... [11-18], [13-18]
Lintel Pines Pty Ltd v Nixon [1991] 1 VR 287 .... [15-30]
Lion Mutual Marine Insurance Association Ltd v Tucker (1883) 12 QBD 176 ....
[12-29], [16-02]
Lion Nathan Australia Pty Ltd v Coopers Brewery Ltd (2006) 236 ALR 561;
[2006] FCAFC 144 .... [6-13], [13-30]
Lisciandro v Official Trustee in Bankruptcy (1996) 139 ALR 689 .... [3-08], [15-
37], [15-38]
Lister v Romford Ice and Cold Storage Co Ltd [1957] AC 555 .... [3-18], [3-29]
Littlewoods Organisation Ltd v Harris [1978] 1 All ER 1026 .... [16-24]
Liverpool City Council v Irwin [1977] AC 239 .... [3-18], [3-25], [3-29], [18-29]
Liversidge v Anderson [1942] 1 AC 206 .... [5-13]
Lock v Bell [1931] 1 Ch 35 .... [4-26]
Lokumal (K) & Sons (London) Ltd v Lotte Shipping Co Pte Ltd (The August
Leonhardt) [1985] 2 Lloyd’s Rep 28 .... [18-17]
Lombank Ltd v Excell [1964] 1 QB 415 .... [2-28]
Lombard North Central Plc v GATX Corp [2012] 1 Lloyd’s Rep 662; [2012]
EWHC 1067 (Comm) .... [16-13]
London and Lancashire Fire Insurance Co Ltd v Bolands Ltd [1924] AC 836 ....
[4-45], [4-46], [13-20], [13-48], [17-14]
London and North Western Railway Co v Neilson [1922] 2 AC 263 .... [17-19],
[17-20]
London County Council v Henry Boot & Sons Ltd [1959] 1 WLR 1069 .... [13-
20], [15-18]
London Joint Stock Bank Ltd v Macmillan [1918] AC 777 .... [3-30]
London Lion (The) see Anglomar Shipping Co Ltd v Swan Hunter Shipbuilders
Ltd Long Island Rail Road Co v Northville Industries Corp, 41 NY 2d 455;
362 NE 2d 558 (1977) .... [3-23]
Loraine v Thomlinson (1781) 2 Doug 585; 99 ER 369 .... [8-23]
Lordsvale Finance Plc v Bank of Zambia [1996] QB 752 .... [2-28]
Louinder v Leis (1982) 149 CLR 509 .... [4-27]
Love and Stewart Ltd v S Instone and Co Ltd (1917) 33 TLR 475 .... [3-12]
Lucy (The) see Atlantic Lines & Navigation Co Inc v Hallam Ltd Luna Park
(NSW) Ltd v Tramways Advertising Pty Ltd (1938) 61 CLR 286 .... [3-10],
[7-26]
Lusograin Comercio Internacional de Cereas Ltda v Bunge AG [1986] 2 Lloyd’s
Rep 654 .... [13-14]
Luxor (Eastbourne) Ltd v Cooper [1941] AC 108 .... [3-20], [3-21], [3-24], [13-
17]
Lyford v Commonwealth Bank of Australia (1995) 130 ALR 267 .... [8-23]
M & J Polymers Ltd v Imerys Minerals Ltd [2008] 1 Lloyd’s Rep 541; [2008]
EWHC 344 (Comm) .... [13-41], [14-03]
M/S Aswan Engineering Establishment Co Ltd v Iron Trades Mutual Insurance
Co Ltd [1989] 1 Lloyd’s Rep 289 .... [12-29], [13-41], [15-45]
M’Cowan v Baine [1891] AC 401 .... [1-25], [11-16], [13-20], [15-18], [17-17]
Macdonald v Longbottom (1859) 1 E & E 977; 120 ER 1177 (affirmed (1860) 1
E & E 987; 120 ER 1181) .... [6-09], [18-23]
Macdonald v Longbottom (1860) 1 E & E 987; 120 ER 1181 .... [18-20], [18-
29], [18-30]
Macdonald v Shinko Australia Pty Ltd [1999] 2 Qd R 152 .... [8-18], [9-45], [10-
25], [10-27], [10-32], [18-22]
Macedonia Maritime Co v Austin & Pickersgill Ltd (The Fayrouz I–IV) [1989] 2
Lloyd’s Rep 73 .... [12-26], [16-12]
Mackay v Dick (1881) 6 App Cas 251 .... [3-30], [4-12]
Mackay v Wilson (1947) 47 SR (NSW) 315 .... [6-12], [8-23], [13-11]
MacRobertson Miller Airline Services v Commissioner of State Taxation (WA)
(1975) 133 CLR 125 .... [10-13], [16-29]
Maddestra v Penfolds Wines Pty Ltd (1993) 44 FCR 303 .... [7-10], [9-56]
Magee v Lavell (1874) LR 9 CP 107 .... [18-22]
Magee v Pennine Insurance Co Ltd [1969] 2 QB 507 .... [9-40]
Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 210 CLR 181; [2001] HCA
70 .... [4-22], [6-11], [6-13], [7-06], [13-46], [15-23]
Mahkutai (The) [1996] AC 650 .... [13-48]
Mahmoud and Ispahani, Re [1921] 2 KB 716 .... [2-14]
Maile v Jennings [1956] VLR 45 .... [4-53]
Mailman (G R) & Associates Pty Ltd v Wormald (Aust) Pty Ltd (1991) 24
NSWLR 80 .... [4-29], [15-31], [16-33]
Maine v Lyons (1913) 15 CLR 672 .... [7-05], [7-14]
Majeau Carrying Co Pty Ltd v Coastal Rutile Ltd (1973) 129 CLR 48 .... [12-38]
Major v Bretherton (1928) 41 CLR 62 .... [8-15], [8-18], [11-29]
Malik v Bank of Credit and Commerce International SA [1998] AC 20 .... [7-
35], [16-38]
Mallinson v The Scottish Australian Investment Co Ltd (1920) 28 CLR 66 ....
[9-48]
Mamidoil-Jetoil Creek Petroleum Co SA v Okta Crude Refinery AD [2001] 2
Lloyd’s Rep 76 .... [3-24], [18-10], [18-36]
Mamidoil-Jetoil Creek Petroleum Co SA v Okta Crude Refinery AD (No 2)
[2003] 1 Lloyd’s Rep 1; [2002] EWHC 2210 (Comm) (affirmed [2003] 2
Lloyd’s Rep 635; [2003] EWCA Civ 1031) .... [15-31]
Mammoth Pine (The) see Netherlands Insurance Co Est 1845 Ltd v Karl
Ljungberg & Co AB
Manbre Saccharine Co Ltd v Corn Products Co Ltd [1919] 1 KB 198 .... [12-33]
Mancorp Pty Ltd v Baulderstone Pty Ltd (t/a Baulderstone Hornibrook) (No 2)
(1992) 60 SASR 120 .... [16-37]
Mangistaumunaigaz Oil Production Association v United World Trade Inc
[1995] 1 Lloyd’s Rep 617 .... [3-07], [4-43], [13-27]
Manifest Shipping Co Ltd v Uni-Polaris Shipping Co Ltd (The Star Sea) [2003]
1 AC 469; [2001] UKHL 1 .... [3-30], [3-35]
Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749
.... [1-22], [1-26], [1-44], [1-54], [2-14], [2-21], [4-22], [5-13], [5-14], [5-
15], [5-22], [6-10], [6-16], [7-07], [7-32], [7-41], [9-10], [9-46], [9-51], [11-
33], [12-03], [13-17], [15-20], [15-22], [15-28], [15-29], [15-30], [15-31]
Manzo v 555/255 Pitt Street Sydney Pty Ltd (1990) 21 NSWLR 1 .... [9-56]
Maple Leaf Macro Volatility Master Fund v Rouvroy [2009] 1 Lloyd’s Rep 475;
[2009] EWHC 257 (Comm) .... [7-13], [9-23], [9-35], [18-36]
Maralinga Pty Ltd v Major Enterprises Pty Ltd (1973) 128 CLR 336 .... [9-43],
[9-45]
Marbe v George Edwardes (Daly’s Theatre) Ltd [1928] 1 KB 269 .... [3-23], [18-
26]
Marc Rich & Co Ltd v Tourloti Compania Naviera SA (The Kalliopi A) [1988] 2
Lloyd’s Rep 101 .... [12-02], [13-13], [13-14]
Marcus Clark (Victoria) Ltd v Brown (1928) 40 CLR 540 .... [2-30], [11-22],
[11-25]
Maredelanto Compania Naviera SA v Bergbau-Handel GmbH (The Mihalis
Angelos) [1971] 1 QB 164 .... [9-30], [13-50], [16-39]
Marek v Australasian Conference Association Pty Ltd (1990) [1994] 2 Qd R 521
.... [9-29]
Maria D (The) see Elpis Maritime Co Ltd v Marti Chartering Co Inc Marine Star
(The) see Coastal (Bermuda) Petroleum Ltd v VTT Vulcan Petroleum SA
(No 2) Marion White Ltd v Francis [1972] 3 All ER 857 .... [16-24]
Maritime Transport Operators GmbH v Louis Dreyfus et Cie (The Tropwave)
[1981] 2 Lloyd’s Rep 159 .... [16-20]
Maritime Winner (The) see Thai-Europe Tapioca Service Ltd v Seine Navigation
Co Inc Martin v Hogan (1917) 24 CLR 234 .... [4-12] Marubeni Hong
Kong and South China Ltd v Mongolian Government [2005] 1 WLR 2497;
[2005] EWCA Civ 395 .... [13-18], [15-40], [15-45]
Masters v Cameron (1954) 91 CLR 353 .... [10-36], [16-30], [16-31]
Masterson v Sine, 68 Cal 2d 222; 436 P 2d 561 (1968) .... [10-18]
Masterton Homes Pty Ltd v Palm Assets Pty Ltd (2009) 261 ALR 382; [2009]
NSWCA 234 .... [6-13], [8-18], [8-19], [10-04], [10-16]
Mathraki (The) see Vitol SA v Phibro Energy AG
Matija Gubec (The) see Jadranska Slobodna Plovidba v Gulf Shipping Line Ltd
Matthews v Smallwood [1910] 1 Ch 777 .... [8-07], [13-35], [14-23]
Max Cooper & Sons Pty Ltd v Sydney City Council (1980) 29 ALR 77; 54
ALJR 234 .... [11-04], [12-03], [12-35], [13-27], [13-48], [14-09], [14-10]
Maybury v Atlantic Union Oil Co Ltd (1953) 89 CLR 507 .... [10-47]
Maye v Colonial Mutual Life Assurance Society Ltd (1924) 35 CLR 14 .... [4-
40], [4-42], [4-45], [4-46], [13-36]
Maynard v Goode (1926) 37 CLR 529 .... [4-24], [6-28], [7-05], [8-34], [16-33],
[18-32]
MB Pyramid Sound NV v Briese Schiffahrts GmbH and Co KG MS ‘Sina’ (The
Ines) [1995] 2 Lloyd’s Rep 144 .... [9-51]
McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579; [2000]
HCA 65 .... [4-33], [4-47], [15-45]
McCarrick v Liverpool Corporation [1947] AC 219 .... [3-23], [3-30], [13-19]
McCausland v Duncan Lawrie Ltd [1997] 1 WLR 38 .... [18-11], [18-13], [18-
15]
McConnel v Murphy (1873) LR 5 PC 203 .... [4-10], [4-46], [7-11], [11-15], [13-
46]
McCutcheon v David MacBrayne Ltd [1964] 1 WLR 125 .... [9-50], [10-12],
[10-13]
McDermott v Black (1940) 63 CLR 161 .... [14-26]
McEntire v Crossley Bros Ltd [1895] 1 AC 457 .... [2-30], [11-16]
McFarlane v Daniell (1938) 38 SR (NSW) 337 .... [3-13]
McGuinness v Norwich and Peterborough Building Society [2012] 2 All ER
(Comm) 265; [2011] EWCA Civ 1286 .... [15-44]
McHugh Holdings Pty Ltd v Newtown Colonial Hotel Pty Ltd (2008) 73
NSWLR 53; [2008] NSWSC 542 .... [3-08]
McMahon v National Foods Milk Ltd (2009) 25 VR 251; [2009] VSCA 153 ....
[10-23], [10-27], [15-40]
McMahon’s (Transport) Pty Ltd v Ebbage (1996) [1999] 1 Qd R 185 .... [2-10]
McRae v Commonwealth Disposals Commission (1951) 84 CLR 377 .... [2-34],
[6-11], [9-36], [9-37], [9-39], [11-26], [17-23]
McVeigh (trustee of the bankrupt estate of Piccolo) v National Australia Bank
Ltd (2000) 278 ALR 429; [2000] FCA 187 .... [13-29], [13-34]
Mears v Safecar Security Ltd [1983] QB 54 .... [3-28], [18-39]
Measures Bros Ltd v Measures [1910] 2 Ch 248 .... [3-24], [3-32]
Mechanical Horse (Australasia) Pty Ltd v Council of the City of Broken Hill
(1941) 41 SR (NSW) 135 .... [3-23], [7-19], [10-27], [10-28], [16-08]
Medcalf v Hall (1782) 3 Doug 113; 99 ER 566 .... [1-30]
Medina v Stoughton (1699) 1 Salk 210; 91 ER 188 .... [2-37]
Mediterranean Freight Services Ltd v BP Oil International Ltd (The Fiona)
[1994] 2 Lloyd’s Rep 506 .... [17-25], [17-29]
Mediterranean Salvage & Towage Ltd v Seamar Trading & Commerce Inc (The
Reborn) [2009] 2 Lloyd’s Rep 639; [2009] EWCA Civ 531 .... [3-27], [14-
30]
Meehan v Jones (1982) 149 CLR 571 .... [3-21], [10-51], [14-26], [16-14], [16-
27], [16-42], [18-36]
Mehmet v Benson (1965) 113 CLR 295 .... [4-37]
Mendl & Co v Ropner & Co [1912] 1 KB 27 .... [16-02]
Merak (The) see Varverakis v Compagnia de Navegacion Artico SA Mercantile
Bank of Sydney v Taylor [1893] AC 317 .... [8-13], [8-23], [8-28], [8-29],
[10-14], [10-16]
Mercini Lady (The) see Bominflot Bunkergesellschaft für Mineraloele mbH &
Co KG v Petroplus Marketing AG
Meredith Jones (A) & Co Ltd v Vangemar Shipping Co Ltd (The Apostolis) (No
2) [1999] 2 Lloyd’s Rep 292 .... [3-29]
Meres v Ansell (1799) 3 Wils 275; 95 ER 1053 .... [4-30], [8-22], [18-28]
Meritz Fire and Marine Insurance Co Ltd v Jan de Nul NV [2011] 2 Lloyd’s Rep
379; [2011] EWCA Civ 827 .... [15-33]
Merritt Cairns Constructions Pty Ltd v Wulguru Heights Pty Ltd [1995] 2 Qd R
521 .... [13-13]
Metaalhandel J A Magnus BV v Ardfields Transport Ltd [1988] 1 Lloyd’s Rep
197 .... [10-13]
Metcalf v Permanent Building Society (in liq) (1993) 10 WAR 145 .... [6-13]
Metro Meat Ltd v Fares Rural Co Pty Ltd [1985] 2 Lloyd’s Rep 13 .... [10-16],
[10-20], [10-48]
Metrolands Investments Ltd v J H Dewhurst Ltd [1986] 3 All ER 659 .... [2-09],
[13-51]
Metropolitan Electric Supply Co Ltd v Ginder [1901] 2 Ch 799 .... [3-15], [15-
03]
Metropolitan Gas Co v Federated Gas Employees’ Industrial Union (1925) 35
CLR 449 .... [4-42]
MH Progress Lines SA v Orient Shipping Rotterdam BV (The Genius Star 1)
[2012] 1 Lloyd’s Rep 222; [2011] EWHC 3083 (Comm) .... [4-42], [13-33]
Michael Gerson (Leasing) Ltd v Greatsunny Ltd [2010] 1 Ch 558; [2010]
EWHC 1887 (Ch) .... [3-24], [15-22], [16-03], [18-05]
Micklefield v SAC Technology Ltd [1990] 1 WLR 1002 .... [16-42]
Mihalis Angelos (The) see Maredelanto Compania Naviera SA v Bergbau-
Handel GmbH
Mihaljevic v Eiffel Tower Motors Pty Ltd [1973] VR 545 .... [2-35], [11-29]
Millbourn v Lyons [1914] 2 Ch 231 .... [8-28], [10-35], [10-36]
Milles v Fletcher (1779) 1 Doug 231; 99 ER 151 .... [1-30]
Millichamp v Jones [1982] 1 WLR 1422 .... [15-28]
Mills v Dunham [1891] 1 Ch 576 .... [16-24], [16-27]
Milne v Municipal Council of Sydney (1912) 14 CLR 54 .... [3-27], [4-09], [13-
32], [13-37]
Minchillo v Ford Motor Co of Australia Ltd [1995] 2 VR 594 .... [4-46]
Mineralimportexport v Eastern Mediterranean Maritime Ltd (The Golden
Leader) [1980] 2 Lloyd’s Rep 573 .... [10-22], [14-30], [14-31], [17-27],
[17-28]
Minion v Graystone Pty Ltd [1990] 1 Qd R 157 .... [13-20]
Minister for Supply and Development v Servicemen’s Cooperative Joinery
Manufacturers Ltd (1951) 82 CLR 621 .... [8-34], [12-28]
Mint Security v Blair Thomas R Miller & Son (Home) Ltd [1982] 1 Lloyd’s Rep
188 .... [13-20]
Miramar Maritime Corp v Holborn Trading Ltd [1984] 1 AC 676 .... [4-50], [15-
23], [16-13]
Mitsubishi Corp v Eastwind Transport Ltd (The Irbenskiy Proliv) [2005] 1
Lloyd’s Rep 383; [2004] EWHC 2924 (Comm) .... [15-06], [15-22], [17-
29], [17-33]
Mitsui Construction Co Ltd v Attorney General (Hong Kong) [1986] LRC
(Comm) 245 .... [4-19], [13-09], [13-44]
Mobil Oil Australia Ltd v Kosta (1969) 14 FLR 343 .... [14-30]
Monarch Airlines Ltd v London Luton Airport Ltd [1998] 1 Lloyd’s Rep 403 ....
[17-28], [17-29]
Moorcock (The) (1889) 14 PD 64 .... [3-18], [3-26]
Moore v Security Trust & Life Ins Co, 168 F 496 (CA, 8th Cir, 1909) .... [11-15]
Moore & Co Ltd and Landauer & Co, Re [1921] 2 KB 519 .... [1-31]
Mopani Copper Mines Plc v Millennium Underwriting Ltd [2008] 2 All ER
(Comm) 976; [2008] EWHC 1331 .... [7-19], [14-30], [14-31], [14-32]
Mora Shipping Inc v AXA Corporate Solutions Assurance SA [2005] 2 Lloyd’s
Rep 769; [2005] EWCA Civ 1069 .... [7-18], [11-20], [11-32], [13-30], [15-
22]
More OG Romsdal Fylkesbatar AS v Demise Charterers of the Ship ’Jotunheim’
[16-42]
Morgan v Pooley [2010] EWHC 2447 (QB) .... [10-29]
Morley v United Friendly Insurance Plc [1993] 1 WLR 996 .... [17-37]
Morris v Baron & Co [1918] AC 1 .... [8-10], [10-37], [18-12], [18-13], [18-15]
Morton v Elgin-Stuczynski (2008) 19 VR 294; [2008] VSCA 25 .... [13-09], [13-
10]
Moschi v Lep Air Services Ltd [1973] AC 331 .... [3-37], [15-40], [15-44]
Mosvolds Rederi A/S v Food Corp of India (The Damodar General T J Park)
[1986] 2 Lloyd’s Rep 68 .... [3-26], [4-14]
Motis Exports Ltd v Dampskibsselskabet AF 1912 Aktieselskabet [2000] 1
Lloyd’s Rep 211 .... [17-22], [17-33]
Mount I (The) see Raiffeisen Zentralbank Österreich AG v Five Star Trading
LLC
Movie Network Channels Pty Ltd v Optus Vision Pty Ltd [2010] NSWCA 111
.... [7-24]
MSC Amsterdam (The) see Trafigura Beheer BV v Mediterranean Shipping Co
SA Mulcaire v News Group Newspapers Ltd [2012] 2 WLR 831; [2011]
EWHC 3469 (Ch) .... [7-19], [13-19]
Multi-Link Leisure Developments Ltd v North Lanarkshire Council [2011] 1 All
ER 175; [2010] UKSC 47 .... [3-07], [6-23], [7-14], [11-18], [13-07], [13-
17], [13-27], [13-29], [13-44], [13-45], [13-46], [13-47], [13-49]
Multiplex Constructions Pty Ltd v Abgarus Pty Ltd (1992) 33 NSWLR 504 ....
[14-03]
Mulvay v Henry Berry & Co Pty Ltd (1938) 38 SR (NSW) 389 .... [10-28]
Mussen v Van Diemen’s Land Co [1938] Ch 253 .... [13-19]
Myers v Sarl (1860) 3 El & El 306; 121 ER 457 .... [12-14], [14-09], [14-13],
[14-14]
Myers (G H) & Co v Brent Cross Service Co [1934] 1 KB 46 .... [3-28]
Nai Genova (The) see Agip SpA v Navigazione Alta Italia SpA Narich Pty Ltd v
Commissioner of Pay-Roll Tax [1983] 2 NSWLR 597; (1983) 50 ALR 417
.... [2-27], [2-31], [8-34], [9-16], [18-11]
National Australia Bank Ltd v Budget Stationery Supplies Pty Ltd (1997) 217
ALR 365 .... [9-46], [14-24], [18-29]
National Bank Nigeria Ltd v Awolesi [1964] 1 WLR 1311 .... [13-38], [15-36],
[15-40]
National Bank of Australasia Ltd v J Falkingham & Sons [1902] AC 585 .... [8-
23], [8-28], [8-30]
National Bank of Greece SA v Pinios Shipping Co No 1 [1990] 1 AC 637
(reversed [1990] 1 AC 637) .... [3-29]
National Carriers Ltd v Panalpina (Northern) Ltd [1981] AC 675 .... [2-34], [4-
14]
National Coal Board v National Union of Mineworkers [1986] ICR 736 .... [13-
07]
National Oil Co of Zimbabwe (Private) Ltd v Sturge [1991] 2 Lloyd’s Rep 281
.... [13-20]
National Shipping Co of Saudi Arabia v BP Oil Supply Co (The Abqaiq) [2012]
1 Lloyd’s Rep 18; [2011] EWCA Civ 1127 .... [15-29], [16-08], [17-17]
National Westminister Bank Ltd v Halesowen Presswork & Assemblies Ltd
[1972] AC 785 .... [8-13], [8-16]
National Westminster Bank Plc v Riley [1986] FLR 213 .... [15-42]
Navigas International Ltd v Trans-Offshore Inc (The Bridgestone Maru) (No 3)
[1985] 2 Lloyd’s Rep 62 .... [3-25]
Navrom v Callitsis Ship Management SA (The Radauti) [1987] 2 Lloyd’s Rep
276 (affirmed [1988] 2 Lloyd’s Rep 416) .... [4-49], [4-52], [13-10], [13-
16], [13-21], [13-41]
Naxos (The) see Compagnie Commerciale Sucres et Denrées v C Czarnikow Ltd
Naylor Benzon & Co Ltd v Krainische Industrie Gesellschaft [1918] 1 KB
331 .... [16-02], [16-28]
NBTY Europe Ltd (formerly Holland & Barrett Europe Ltd) v Nutricia
International BV [2005] 2 Lloyd’s Rep 350; [2005] EWHC 734 (Comm) ....
[7-19], [9-38], [18-31]
Nelson v Dahl (1879) 12 Ch D 568 (affirmed sub nom Dahl v Nelson Donkin &
Co (1881) 6 App Cas 38) .... [12-38]
Nemeth v Bayswater Road Pty Ltd [1988] 2 Qd R 406 .... [2-38], [8-04], [8-18],
[8-19], [10-04], [10-14]
Nerano (The) see Daval Aciers d’Usinor et de Sacilor v Armare Srl Nereide SpA
di Navigazione v Bulk Oil International (The Laura Prima) [1981] 3 All ER
737; [1982] 1 Lloyd’s Rep 1 .... [13-13], [13-27]
Netherlands Insurance Co Est 1845 Ltd v Karl Ljungberg & Co AB (The
Mammoth Pine) [1986] 2 Lloyd’s Rep 19; [1986] 3 All ER 767 .... [13-30]
New Prosper (The) see Richco International Ltd v Bunge & Co Ltd New South
Wales Cancer Council v Sarfaty (1992) 28 NSWLR 68 .... [14-19], [14-32]
New South Wales Sports Club Ltd v Solomon (1914) SR (NSW) 340 .... [4-45]
New York Star (The) see Port Jackson Stevedoring Pty Ltd v Salmond &
Spraggon (Australia) Pty Ltd New Zealand Shipping Co Ltd v Société des
Ateliers et Chantiers de France [1919] AC 1 .... [16-42]
Newbon v City Mutual Life Assurance Society Ltd (1935) 52 CLR 723 .... [16-
42]
Newcombe v Newcombe (1934) 34 SR (NSW) 446 .... [6-13]
Nicolazzo v Harb (2009) 22 VR 220; [2009] VSCA 79 .... [9-24], [10-04]
Nicolene Ltd v Simmonds [1953] 1 QB 543 .... [3-11], [3-12]
Nile Co for the Export of Agricultural Crops v H & J M Bennett (Commodities)
Ltd [1986] 1 Lloyd’s Rep 555 .... [6-14], [7-14], [10-47], [14-24], [16-38]
Nile Rhapsody (The) see Hamed el Chiaty & Co (t/a Travco Nile Cruise Lines) v
Thomas Cook Group Ltd Ninae (The) see Petroplus Marketing AG v Shell
Trading International Ltd Niobe (The) see Niobe Maritime Corp v Tradax
Ocean Transportation SA Niobe Maritime Corp v Tradax Ocean
Transportation SA (The Niobe) [1995] 1 Lloyd’s Rep 579 .... [4-18], [16-
20]
Nippon Yusen Kaisha Ltd v Scindia Steam Navigation Co Ltd (The Jalagouri)
[2000] 1 Lloyd’s Rep 515 .... [12-10]
Nissho Iwai Australia Ltd v Malaysian International Shipping Corp Berhad
(1989) 167 CLR 219 .... [15-04], [17-15], [17-21]
Nissho Iwai Petroleum Co Inc v Cargill International SA [1993] 1 Lloyd’s Rep
80 .... [3-24], [11-21]
Nissos Samos (The) see Samos Shipping Enterprises Ltd v Eckhardt & Co KG
Nittan (UK) v Solent Steel Fabrication Ltd [1981] 1 Lloyd’s Rep 633 .... [9-49]
Noble v Ward (1867) LR 1 Ex 117; (1867) LR 2 Ex 135 .... [8-10]
Norman; Re Forest Enterprises Ltd v FEA Plantation Ltd (2011) 280 ALR 470;
[2011] FCAFC 99 .... [7-14], [9-26], [15-45], [16-38]
North Eastern Properties Ltd v Coleman [2010] 1 WLR 2715; [2010] EWCA
Civ 277 .... [10-27]
North Eastern Railway Co v Lord Hastings [1900] AC 260 .... [4-20], [4-31], [8-
34], [11-15], [11-19], [12-28], [14-28], [14-29], [15-18]
North Shore Ventures Ltd v Anstead Holdings Inc [2011] 3 WLR 628; [2011]
EWCA Civ 230 .... [15-40]
Northern Progress (The) see Ceval Alimentos SA v Agrimpex Trading Co Ltd
Norwegian American Cruises A/S v Paul Mundy Ltd (The Vistafjord)
[1988] 2 Lloyd’s Rep 343 .... [9-18], [13-41], [18-17]
Norwest Beef Industries Ltd v Peninsula and Oriental Steam Navigation Co
(1987) 8 NSWLR 568 .... [8-20]
Notos (The) see Société Anonyme Marocaine de l’Industrie du Raffinage v
Notos Maritime Corp NSW Medical Defence Union Ltd v Transport
Industries Insurance Co Ltd (1986) 6 NSWLR 740 .... [9-43], [9-47]
NT Power Generation Pty Ltd v Power and Water Authority (2001) 184 ALR
481 .... [10-28]
Nudgee Bakery Pty Ltd’s Agreement, Re [1971] Qd R 24 .... [12-38]
Nund v McWaters [1982] VR 575 .... [15-30]
NZI Capital Corp Pty Ltd v Child (1991) 23 NSWLR 481 .... [14-31], [14-32]
O’Brien v Dawson (1941) 41 SR (NSW) 295 (affirmed (1942) 66 CLR 18) ....
[4-16]
O’Dea v Allstates Leasing System (WA) Pty Ltd (1983) 152 CLR 359 .... [2-28]
O’Sullivan v O’Leary [1955] VLR 52 .... [4-25]
Ocean Chemical Transport Inc v Exnor Craggs Ltd [2000] 1 Lloyd’s Rep 446 ....
[17-17]
Ocean Enterprise (The) see Glatzer v Bradston Ltd Oceanbulk Shipping and
Trading SA v TMT Asia Ltd [2011] 1 AC 662; [2010] UKSC 44 .... [5-24],
[6-14], [7-26], [7-31], [8-32], [9-12], [9-44], [11-15], [11-26], [13-07]
Oceanic Sun Line Special Shipping Co Inc v Fay (1988) 165 CLR 197 .... [10-
12], [16-29]
Odenfeld (The) see Gator Shipping Corp v Trans-Asiatic Oil Ltd SA Offshore
International SA v Banco Central SA [1976] 3 All ER 749; [1976] 2
Lloyd’s Rep 402 .... [6-24]
Ogdens Ltd v Nelson [1905] AC 109 .... [13-10], [16-29]
Ogilvie v Foljambe (1817) 3 Mer 53; 36 ER 21 .... [18-22]
Ogle v Earle Vane (1867) LR 2 QB 275; (1868) LR 3 QB 272 .... [18-13]
Oglebay Norton Co v Armco Inc, 52 Ohio St 3d 232; 556 NE 2d 515 (1990) ....
[3-04]
Oldendorff & Co GmbH v Tradax Export SA (The Johanna Oldendorff) [1974]
AC 479 .... [3-17]
Olley v Marlborough Court Ltd [1949] 1 KB 532 .... [17-05]
Oltenia (The) see Babanaft International Co SA v Avant Petroleum Inc Olympic
Pride (The) see Ets Georges et Paul Levy v Adderley Navigation Co
Panama SA Onego Shipping & Chartering BV v JSC Arcadia Shipping
[17-27], [17-28], [17-29], [17-30]
Orient Centre Investments Ltd v Société Générale [2007] 3 SLR(R) 566; [2007]
SGCA 24 .... [10-22]
Orient Prince (The) see P & O Oil Trading Ltd v Scanoil AB
Orion Insurance Co Plc v Sphere Drake Insurance Plc [1992] 1 Lloyd’s Rep 239
.... [9-25], [9-26], [10-38]
Orleans Investments Pty Ltd v Mindshare Communications Ltd (2009) 254 ALR
81; [2009] NSWCA 40 .... [13-33]
Oro Chief (The) see Eximenco Handels AG v Partredereit Oro Chief Oscar
Chess Ltd v Williams [1957] 1 WLR 370 .... [2-37], [2-38], [2-39], [2-40],
[9-37], [11-26]
P & O Oil Trading Ltd v Scanoil AB (The Orient Prince) [1985] 1 Lloyd’s Rep
389 .... [13-05], [13-46]
Paal Wilson & Co A/S v Partenreederei Hannah Blumenthal [1983] 1 AC 854 ....
[2-16], [2-20], [5-16], [9-23], [18-12]
Pacific Basin IHX Ltd v Bulkhandling Handymax AS (The Triton Lark) [2012]
1 Lloyd’s Rep 15; [2011] EWHC 2862 (Comm) .... [7-39], [11-18], [11-19]
Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451; [2004] HCA 35 .... [4-
22], [6-10], [6-13], [6-25], [7-22], [9-51], [11-22], [11-26], [15-45], [16-20]
Pacific Colocotronis (The) see Shell Tankers (UK) Ltd v Astro Comino
Armadora SA Pacific Gas & Electric Co v G W Thomas Drayage &
Rigging Co, 69 Cal 2d 33; 442 P 2d 641 (1968) .... [2-09], [6-11], [11-11],
[12-29], [12-32]
Pagnan SpA v Feed Products Ltd [1987] 2 Lloyd’s Rep 601 .... [14-24]
Pagnan SpA v Tradax Ocean Transportation SA [1987] 1 All ER 81; [1986] 2
Lloyd’s Rep 646 (affirmed [1987] 3 All ER 565; [1987] 2 Lloyd’s Rep 342)
.... [1-38], [11-20]
Pagnan SpA v Tradax Ocean Transportation SA [1987] 3 All ER 565; [1987] 2
Lloyd’s Rep 342 .... [7-14], [11-20], [13-49]
Palgrave Brown and Son Ltd v Owners of SS Turid [1922] 1 AC 397 .... [12-38],
[14-10], [14-11], [14-13]
Pallos v Munro (1970) 72 SR (NSW) 507 .... [10-35]
Palmdale Insurance Ltd, Re [1982] VR 921 .... [12-38]
Palmer v Johnson (1884) 13 QBD 351 .... [10-35]
Palmer v Temple (1839) 9 Ad & E 508; 112 ER 1304 .... [2-29]
Pan Foods Co Importers & Distributors Pty Ltd v Australia and New Zealand
Banking Group Ltd (2000) 170 ALR 579; [2000] HCA 20 .... [15-28], [15-
39]
Panoutsos v Raymond Hadley Corp of New York [1917] 2 KB 473 .... [18-07]
Pao On v Lau Yiu Long [1980] AC 614 .... [9-17], [10-41], [10-43], [14-27]
Parker v Clark [1960] 1 WLR 286; [1960] 1 All ER 93 .... [9-28]
Parker v Rankin (1991) [1993] 2 Qd R 282 .... [13-10]
Parker v South Eastern Railway Co (1877) 2 CPD 416 .... [10-07], [10-08], [10-
12], [10-13]
Parkin v Thorold (1852) 16 Beav 59; 51 ER 698 .... [4-24], [4-26]
Partenreederei MS Karen Oltmann v Scarsdale Shipping Co Ltd (The Karen
Oltmann) [1976] 2 Lloyd’s Rep 708 .... [3-08], [8-22], [11-12], [13-48],
[14-14], [14-19], [14-20], [1-26]
Pascon Pty Ltd v San Marco in Lamis Cooperative Social Club Ltd [1991] 2 VR
227 .... [10-35]
Pasley v Freeman (1789) 3 TR 51; 100 ER 450 .... [2-37]
Patching v Dubbins (1853) Kay 1; 69 ER 1 .... [4-43], [4-45]
Peachdart Ltd, Re [1984] Ch 131 .... [2-30]
Pearl of Jebel Ali (The) and The Pride of Al Salam 95 [2009] 2 Lloyd’s Rep 484;
[2009] EWHC 1365 (Admlty) .... [15-30]
Pearson (S) & Son Ltd v Dublin Corporation [1907] AC 351 .... [10-33], [16-
28], [16-31]
PEC Ltd v Thai Maparn Trading Co Ltd [2012] 1 Lloyd’s Rep 295; [2011]
EWHC 3306 (Comm) .... [11-33], [13-46]
Peekay Intermark Ltd v Australia and New Zealand Banking Group Ltd [2006] 2
Lloyd’s Rep 511; [2006] EWCA Civ 286 .... [10-29], [10-32]
Pegler Ltd v Wang (UK) Ltd [2000] BLR 218; (2000) 70 Con LR 68 .... [17-24]
Pendal Nominees Pty Ltd v Lednez Industries (Australia) Ltd (1996) 40
NSWLR 282 .... [15-45]
Pera (The) see Pera Shipping Corp v Petroship SA Pera Shipping Corp v
Petroship SA (The Pera) [1985] 2 Lloyd’s Rep 103 .... [4-43], [4-45], [4-
46], [16-04]
Percy (G) Trentham Ltd v Archital Luxfer Ltd [1993] 1 Lloyd’s Rep 25 .... [9-
35], [10-14], [18-26], [18-36], [18-38]
Perpetual Executors and Trustees Association of Australia Ltd v Russell (1931)
45 CLR 146 .... [8-10]
Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537 .... [3-24], [4-16],
[4-26], [16-30], [18-32]
Perrin v Morgan [1943] AC 399 .... [13-19], [13-20]
Perry v Suffields Ltd [1916] 2 Ch 187 .... [9-32]
Perrylease Ltd v Imecar AG [1988] 1 WLR 463; [1987] 2 All ER 373 .... [3-08],
[6-06], [7-31], [8-10], [9-49], [15-37]
Petelin v Cullen (1975) 132 CLR 355 .... [9-40]
Petrofina (The) see Tankexpress A/S v Compagnie Financière Belge des Petroles
SA Petroleo Brasileiro SA v Kriti Akti Shipping Co SA (The Kriti Akti)
[2004] 1 Lloyd’s Rep 712; [2004] EWCA Civ 116 .... [13-13]
Petroleum Oil and Gas Corp of South Africa (Pty) Ltd v FR8 Singapore Pte Ltd
(The Eternity) [2009] 1 Lloyd’s Rep 107; [2008] EWHC 2480 (Comm) ....
[13-17], [15-29]
Petroplus Marketing AG v Shell Trading International Ltd (The Ninae) [2009] 2
Philips Hong Kong Ltd v Attorney General (Hong Kong) (1993) 61 BLR 49;
[1993] 2 CLJ 272 .... [2-28]
Phillips v Dorintal Insurance Ltd [1987] 1 Lloyd’s Rep 482 .... [12-03], [14-13]
Phillips v Ellinson Bros Pty Ltd (1941) 65 CLR 221 .... [18-15]
Phillips Products Ltd v Hyland (1984) [1987] 1 WLR 659; [1987] 2 All ER 620
.... [17-07]
Phillipson v Indus Realty Pty Ltd (2004) 8 VR 446 .... [11-20]
Photo Production Ltd v Securicor Transport Ltd [1980] AC 827 .... [1-09], [4-
20], [16-16], [16-29], [16-37], [17-03], [17-06], [17-09], [17-11], [17-13],
[17-15], [17-16], [17-17], [17-18], [17-21], [17-32], [17-34], [17-35], [17-
37]
Pink Floyd Music Ltd v EMI Records Ltd [2011] 1 WLR 770n; [2010] EWCA
Civ 1429 .... [3-06], [3-09], [5-09], [7-11], [7-12], [7-31], [9-44], [13-45]
Pioneer Shipping Ltd v BTP Tioxide Ltd [1982] AC 724 .... [2-21], [2-34], [4-
12], [4-14], [4-15], [4-18], [11-22], [13-09], [13-10], [13-13], [13-15]
Plant v Bourne [1897] 2 Ch 281 .... [18-22]
Platform Funding Ltd v Bank of Scotland Plc (formerly Halifax Plc) [2009] 1
QB 426; [2008] EWCA Civ 930 .... [3-31]
Playa Larga (The) see Empresa Exportadora de Azucar v Industria Azucarera
Nacional SA Plevins v Downing (1876) 1 CPD 220 .... [18-15]
Poets Chase Freehold Co Ltd v Sinclair Gardens Investments (Kensington) Ltd
[2008] 1 WLR 768; [2007] EWHC 1776 (Ch) .... [15-30]
Pollock (W & S) & Co v Macrae 1922 SC (HL) 192 .... [17-19]
Pordage v Cole (1669) 1 Wms Saund 319; 85 ER 449 .... [1-24]
Port Jackson Stevedoring Pty Ltd v Salmond & Spraggon (Australia) Pty Ltd
(The New York Star) (1980) 144 CLR 300; [1981] 1 WLR 138 .... [16-21],
[17-16], [17-17], [17-21], [17-29]
Port of Tilbury (London) Ltd v Stora Enso Transport and Distribution Ltd [2009]
1 Lloyd’s Rep 391; [2009] EWCA Civ 16 .... [13-49]
Port Sudan Cotton Co v Govindaswamy Chettiar & Sons [1977] 2 Lloyd’s Rep 5
.... [8-39], [9-19]
Porteus v Wasney (1878) 3 QBD 534 .... [15-23]
Portolana Compania Naviera Ltd v Vitol SA Inc (The Afrapearl) [2004] 1 WLR
3111; [2004] EWCA Civ 864 .... [4-45], [15-03], [16-07], [17-08], [17-17]
Posgold (Big Bell) Pty Ltd v Placer (Western Australia) Pty Ltd (1999) 21 WAR
350; [1999] WASCA 217 .... [8-34]
Post Office v British World Airlines Ltd [2000] 1 Lloyd’s Rep 378; [2000] 1 All
ER (Comm) 532 .... [7-05], [7-20], [15-20], [17-33]
Postle v Sengstock [1994] 2 Qd R 290 .... [14-30]
Postlethwaite v Freeland (1880) 5 App Cas 599 .... [4-16], [18-32]
Pratt v Aigaion Insurance Co SA (The Resolute) [2009] 1 Lloyd’s Rep 225;
[2008] EWCA Civ 1314 .... [15-45]
Prenn v Simmonds [1971] 1 WLR 1381; [1971] 3 All ER 237 .... [1-09], [1-26],
[2-16], [4-19], [4-31], [5-24], [6-09], [6-10], [6-11], [6-19], [6-22], [6-23],
[6-24], [6-25], [6-26], [6-29], [6-31], [6-33], [7-05], [7-16], [7-17], [7-26],
[7-28], [8-24], [8-25], [8-28], [8-30], [8-32], [11-12], [11-19], [13-39], [13-
48], [14-35], [15-14], [15-37], [16-15], [18-23]
Price v Parsons (1935) 54 CLR 332 .... [2-30]
Price v William-Wynn [2006] EWHC 788 (Ch) .... [9-47]
Pritchard v Briggs [1980] Ch 338 .... [9-46]
Produce Brokers Co Ltd v Olympia Oil and Cake Co Ltd [1916] AC 314 .... [14-
11]
Progress Property Co Ltd v Moore [2011] 1 WLR 1; [2010] UKSC 55 .... [2-26],
[2-27], [2-30], [9-27]
Promet Engineering (Singapore) Pte Ltd v Sturge (The Nukila) [1997] 2 Lloyd’s
Rep 146 .... [13-16], [15-03]
Property and Bloodstock Ltd v Emmerton [1968] 1 Ch 94 .... [16-30]
Provincial Insurance Australia Pty Ltd v Consolidated Wood Products Pty Ltd
(1991) 25 NSWLR 541 .... [12-11], [12-12], [12-28], [13-48]
Pryke v Gibbs Hartley Cooper Co Ltd [1991] 1 Lloyd’s Rep 602 .... [12-38]
PT Berlian Laju Tanker TBK v Nuse Shipping Ltd (The Aktor) [2008] 2 Lloyd’s
Rep 246; [2008] EWHC 1330 (Comm) .... [9-46]
PT Buana Samudra Pratama v Maritime Mutual Insurance Association (NZ) Ltd
(The Buana Dua) [2011] 2 Lloyd’s Rep 655; [2011] EWHC 2413 (Comm)
.... [15-45]
Pukallus v Cameron (1982) 180 CLR 447 .... [9-43], [9-47]
Punjab National Bank v de Boinville [1992] 1 WLR 1138 .... [9-54], [14-32]
Purcell v Bacon (1914) 19 CLR 241 (reversed sub nom Bacon v Purcell (1916)
22 CLR 307) .... [6-13], [14-08]
PW & Co v Milton Gate Investments Ltd [2004] Ch 142; [2003] EWHC 1994
(Ch) .... [2-30], [8-30], [13-37]
Pym v Campbell (1856) 6 E & B 370; 119 ER 903 .... [8-13], [8-18], [9-07], [9-
14], [10-07], [10-49], [10-50]
Qantas Airways Ltd v Gubbins (1992) 28 NSWLR 26 .... [16-38]
Queensland Cooperative Milling Association v Pamag Pty Ltd (1973) 133 CLR
260 .... [3-15]
Quesnel Forks Gold Mining Co Ltd v Ward [1920] AC 222 .... [16-42]
R v Brown [1996] AC 543 .... [5-07]
R v Clarke (1927) 40 CLR 227 .... [2-20], [4-32]
R v Levine; Ex parte de Jong [1981] VR 131 .... [10-35]
R v Spens [1991] 1 WLR 624 .... [1-05], [4-13]
R (Westminster City Council) v National Asylum Support Service [2002] 1
WLR 2956; [2002] UKHL 38 .... [6-06], [6-12], [6-14]
Rabin v Gerson Berger Association Ltd [1986] 1 WLR 526; [1986] 1 All ER 374
.... [6-20], [6-27], [8-22], [8-25], [18-22]
Radauti (The) see Navrom v Callitsis Ship Management SA Raffles v
Wichelhaus (1864) 2 H & C 906; 159 ER 375 .... [9-39], [18-29], [18-31]
Raftland Pty Ltd as Trustee of the Raftland Trust v Commissioner of Taxation
(2008) 238 CLR 516; [2008] HCA 21 .... [2-27], [9-27]
Raiffeisen Zentralbank Österreich AG v Five Star Trading LLC (The Mount I)
[2001] QB 825; [2001] EWCA 68 .... [15-44]
Raiffeisen Zentralbank Österreich AG v Royal Bank of Scotland Plc [2011] 1
Lloyd’s Rep 123; [2010] EWHC 1392 (Comm) .... [10-29], [10-33], [11-
29], [17-03]
Raineri v Miles [1981] AC 1050 .... [4-26]
Rainy Sky SA v Kookmin Bank [2011] 1 WLR 2900; [2011] UKSC 50 .... [1-
42], [2-09], [3-37], [4-18], [7-16], [11-09], [11-18], [13-07], [13-46], [13-
47], [15-03], [16-12], [16-13], [16-15], [16-23]
Rank Enterprises Ltd v Gerard [2000] 1 Lloyd’s Rep 403 .... [7-06], [15-45]
Rann v Hughes (1778) 7 TR 350n; 101 ER 1014n .... [10-06]
Raphael (The) see Lamport & Holt Lines Ltd v Coubro & Scrutton (M & I) Ltd
Rasomen Pty Ltd v Shell Co of Australia Ltd (1996) 142 ALR 135 .... [8-
25]
Ravennavi SpA v New Century Shipbuilding Co Ltd [2007] 2 Lloyd’s Rep 24;
[2007] EWCA Civ 58 .... [7-19], [7-22], [10-05], [13-29], [13-42]
Ray v Davies (1909) 9 CLR 160 .... [3-30]
Rays (The) see Canmer International Inc v UK Mutual Steamship Assurance
Association (Bermuda) Ltd RDC Concrete Pte Ltd v Sato Kogyo (S) Pte
Ltd [2007] 4 SLR 413; [2007] SGCA 39 .... [16-07], [17-08]
Readhead v Midland Railway Co (1869) LR 4 QB 379 .... [3-21]
Reardon Smith Line Ltd v Sanko Steamship Co Ltd (The Sanko Honour) [1985]
1 Lloyd’s Rep 418 .... [7-19], [11-18], [13-10], [13-47]
Reardon Smith Line Ltd v Yngvar Hansen-Tangen [1976] 1 WLR 989; [1976] 3
All ER 570 .... [1-09], [1-11], [1-26], [1-36], [4-19], [4-33], [5-24], [6-10],
[6-11], [6-12], [6-14], [6-18], [6-19], [6-20], [6-22], [6-23], [6-25], [6-26],
[7-05], [7-10], [7-13], [7-15], [7-21], [7-22], [7-24], [7-30], [7-34], [8-24],
[8-31], [11-26], [15-27], [15-37], [16-34], [18-23], [18-25]
Reborn (The) see Mediterranean Salvage & Towage Ltd v Seamar Trading &
Commerce Inc Record v Bell [1991] 1 WLR 853 .... [10-46]
Rede v Farr (1817) 6 M & S 121; 105 ER 1188 .... [16-42]
Reg Glass Pty Ltd v Rivers Locking Systems Pty Ltd (1968) 120 CLR 516 ....
[3-28]
Reid v Zoanetti [1943] SASR 92 .... [9-25]
Reigate v Union Manufacturing Co (Ramsbottom) Ltd [1918] 1 KB 592 .... [3-
26]
Reilly v Finlay (1900) 21 LR (NSW) L 100 .... [9-30]
Reilly v R [1934] AC 176 .... [4-48]
Reliance Marine Insurance Co v Duder [1913] 1 KB 265 .... [9-14], [9-37]
Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26
NSWLR 234 .... [3-21]
Renton (G H) & Co Ltd v Palmyra Trading Corp of Panama [1957] AC 149 ....
[17-33]
Republic of India v India Steamship Co Ltd (The Indian Grace) (No 2) [1998]
AC 878 .... [18-17]
Resolute (The) see Pratt v Aigaion Insurance Co SA RG Grain Trade LLP v
Feed Factors International Ltd [2011] 2 Lloyd’s Rep 432 .... [12-33]
Rhodian River (The) and Rhodian Sailor see Rhodian River Shipping Co SA v
Halla Maritime Corp Rhodian River Shipping Co SA v Halla Maritime
Corp (The Rhodian River and Rhodian Sailor) [1984] 1 Lloyd’s Rep 373 ....
[9-44]
Rialto (The) see Yukong Line Ltd of Korea v Rendsburg Investments Corp of
Liberia Richco International Ltd v Alfred C Toepfer International Gmbh
(The Bonde) [1991] 1 Lloyd’s Rep 136 .... [3-32], [16-42]
Richco International Ltd v Bunge & Co Ltd (The New Prosper) [1991] 2 Lloyd’s
Rep 93 .... [13-46]
Riches v Hogben [1985] 2 Qd R 292 (affirmed [1986] 1 Qd R 315) .... [9-20], [9-
28]
Rick Cobby Haulage Pty Ltd v Simsmetal Pty Ltd (1986) 43 SASR 533 .... [17-
11]
Ringrow Pty Ltd v BP Australia Pty Ltd (2005) 224 CLR 656; [2005] HCA 71
.... [2-28]
Ringstad v Gollin & Co Pty Ltd (1924) 35 CLR 303 .... [16-02], [16-16]
Rio Assu (The) see Itoh (C) & Co Ltd v Companhia de Navegacao Lloyd
Brasileiro Rio Sun (The) see Gatoil International Inc v Tradax Petroleum
Ltd Ritchie v Atkinson (1808) 10 East 295; 103 ER 787 .... [1-24]
River Wear Commissioners v Adamson (1877) 2 App Cas 743 .... [1-04], [1-54],
[2-03], [6-11], [6-12], [6-14], [6-31], [7-15]
Riverside Housing Association Ltd v White [2007] 4 All ER 97; [2007] UKHL
20 .... [4-20], [4-28], [16-02]
Roach v Bickle (1915) 20 CLR 663 .... [7-14], [16-28], [16-31]
Robert A Munro & Co Ltd v Meyer [1930] 2 KB 312 .... [17-35]
Roberts v Berry (1853) 3 D M & G 284; 43 ER 112 .... [4-26]
Robertson v French (1803) 4 East 130; 102 ER 779 .... [4-52], [12-28], [13-13]
Robertson (J S) (Aust) Pty Ltd v Martin (1956) 94 CLR 30 .... [9-54]
Robinson v Mollett (1875) LR 7 HL 802 .... [12-38], [15-40]
Robinson v P E Jones (Contractors) Ltd [2011] 3 WLR 815; [2011] EWCA Civ 9
.... [17-29]
Robophone Facilities Ltd v Blank [1966] 1 WLR 1428 .... [9-15]
Rodger v Comptoir d’Escompte de Paris (1869) LR 2 PC 393 .... [4-40], [16-27]
Ronim Pty Ltd, Re [1999] 2 Qd R 172; [1998] QCA 44 .... [15-24]
Rose and Frank Co v J R Crompton and Bros Ltd [1923] 2 KB 261 (reversed
[1925] AC 445) .... [9-25], [9-26]
Rose and Frank Co v J R Crompton and Bros Ltd [1925] AC 445 .... [4-53], [16-
11]
Rosenhain v Commonwealth Bank of Australia (1922) 31 CLR 46 .... [12-28],
[12-38], [15-14]
Rosenthal & Sons Ltd v Esmail [1965] 1 WLR 1117 .... [12-33]
Ross v Allis-Chalmers Australia Pty Ltd (1980) 55 ALJR 8; 32 ALR 561 .... [2-
38], [2-40]
Rosseel NV v Oriental Commercial & Shipping Co (UK) Ltd [1991] 2 Lloyd’s
Rep 625 .... [8-21], [10-14], [14-34]
Rossiter v Miller (1878) 3 App Cas 1124 .... [16-31]
Routledge v McKay [1954] 1 WLR 615 .... [2-40]
Rowella Pty Ltd v Hoult [1988] 2 Qd R 80 .... [2-31]
Royal Bank of Scotland Plc v Chandra [2010] 1 Lloyd’s Rep 677; [2010] EWHC
105 (Ch) .... [2-27], [15-40]
Royal Botanic Gardens and Domain Trust v South Sydney City Council (2002)
240 CLR 45; [2002] HCA 5 .... [1-54], [6-08], [6-13], [7-27], [8-30], [14-
25]
Royal Insurance Australia Ltd v Government Insurance Office of NSW [1994] 1
VR 123 .... [14-09]
Royal Society for the Prevention of Cruelty to Animals v Sharp [2011] 1 WLR
980; [2010] EWCA Civ 1474 .... [11-32], [13-45]
Royal Trust Co v Attorney General for Alberta [1930] 1 AC 144 .... [10-06]
RTS Flexible Systems Ltd v Molkerei Alois Müller GmbH & Co KG (UK
Production) [2010] 1 WLR 753; [2010] UKSC 14 .... [9-25], [9-31], [9-32],
[9-33], [9-35], [13-39], [18-34]
Rudi’s Enterprises Pty Ltd v Jay (1987) 10 NSWLR 568 .... [4-16]
Rutter v Palmer [1922] 2 KB 87 .... [17-29]
Ryan v Fergerson (1909) 8 CLR 731 .... [4-52]
Ryan v Textile Clothing & Footwear Union of Australia [1996] 2 VR 235 .... [8-
34], [11-22]
Ryledar Pty Ltd v Euphoric Pty Ltd (2007) 69 NSWLR 603; [2007] NSWCA 65
.... [2-16], [6-13], [9-43], [9-44], [9-46], [11-26]
Sabah Flour and Feedmills Sdn Bhd v Comfez Ltd [1988] 2 Lloyd’s Rep 18 ....
[4-39], [4-42]
Sabah Shipyard (Pakistan) Ltd v Government of Pakistan [2008] 1 Lloyd’s Rep
210; [2007] EWHC 2602 (Comm) .... [15-36]
Sabrewing (The) see Waterfront Shipping Co Ltd v Trafigura AG
Sagar v H Ridehalgh and Son Ltd [1931] 1 Ch 310 .... [12-38]
Said v Butt [1920] 3 KB 497 .... [9-41]
Saldanha (The) see Cosco Bulk Carrier Co Ltd v Team-Up Owning Co Ltd
Salter and Rolls’ Contract, Re (1917) 13 Tas LR 24 .... [8-13], [8-16]
Samarenko v Dawn Hill House Ltd [2012] 2 All ER 476; [2011] EWCA Civ
1445 .... [15-28]
Sametiet M/T Johs Stove v Istanbul Petrol Rafinerisi A/S (The Johs Stove)
[1984] 1 Lloyd’s Rep 38 .... [16-07]
Samos Shipping Enterprises Ltd v Eckhardt & Co KG (The Nissos Samos)
[1985] 1 Lloyd’s Rep 378 .... [14-10], [16-31]
Sandra Investments Pty Ltd v Booth (1983) 153 CLR 153 .... [16-31]
Sandtara Pty Ltd v Abigroup (1996) 42 NSWLR 491 .... [15-38]
Sanko Honour (The) see Reardon Smith Line Ltd v Sanko Steamship Co Ltd
Sargeant v Reece [2007] EWHC 2663 (Ch) .... [9-43]
Sarma Navigation SA v Sidermar SpA (The Sea Pioneer) [1982] 1 Lloyd’s Rep
13 .... [13-34]
Satyam Computer Services Ltd v Upaid Systems Ltd [2008] 2 All ER (Comm)
465; [2008] EWCA Civ 487 .... [10-22], [16-38]
Saunders v Anglia Building Society [1971] AC 1004 .... [9-40]
Savage (J J) & Sons Pty Ltd v Blakney (1970) 119 CLR 435 .... [2-37], [2-38],
[10-46]
Savill Bros Ltd v Bethell [1902] 2 Ch 523 .... [4-45]
Savina Caylyn (The) see Dolphin Tanker SrL v Westport Petroleum Inc Scally v
Southern Health and Social Services Board [1992] 1 AC 294 .... [3-29]
Scammell (G) & Nephew Ltd v Ouston [1941] AC 251 .... [3-12], [12-33], [14-
24], [14-26], [14-27], [18-23], [18-35], [18-36], [18-37]
Scanlan’s New Neon Ltd v Tooheys Ltd (1943) 67 CLR 169 .... [4-14], [10-52],
[18-09]
Schenker & Co (Aust) Pty Ltd v Maplas Equipment and Services Pty Ltd [1990]
VR 834 .... [4-51], [6-13], [7-25], [11-25], [17-21]
Schuler (L) AG v Wickman Machine Tool Sales Ltd [1974] AC 235 .... [1-26],
[2-11], [2-16], [2-43], [3-07], [4-19], [4-20], [4-31], [6-10], [6-12], [8-22],
[8-24], [8-28], [8-31], [8-34], [8-35], [8-37], [8-38], [8-39], [11-06], [11-
15], [11-16], [11-17], [12-09], [12-26], [12-34], [13-10], [13-19], [13-46],
[13-50], [14-04], [14-07], [14-26], [14-27], [14-28], [14-29], [16-12], [16-
15], [16-20], [16-24], [16-39], [18-21], [18-23], [18-27], [18-28], [18-29],
[18-37]
Scott v Commissioner of Taxation of the Commonwealth (No 2) (1966) 40
ALJR 265 .... [9-27]
Scott v Liverpool Corporation (1858) 3 De G & J 334; 44 ER 1297 .... [4-24]
Scott v Martin [1987] 2 All ER 813 .... [2-05], [7-09]
Scottish Power Plc v Britoil (Exploration) Ltd (1997) unreported, CA 18
November .... [4-42], [7-06]
Scriven Bros & Co v Hindley & Co [1913] 3 KB 564 .... [9-35], [9-39]
Sea Pioneer (The) see Sarma Navigation SA v Sidermar SpA Seadrill
Management Services Ltd v OAO Gazprom (The Ekha) [2010] 1 Lloyd’s
Rep 543; [2009] EWHC 1530 (Comm) .... [11-33]
Seagate Shipping Ltd v Glencore International AG (The Silver Constellation)
[2008] 2 Lloyd’s Rep 440; [2008] EWHC 1904 (Comm) .... [18-20]
Sealion Shipping Ltd v Valiant Insurance Co (The Toisa Pisces) [2012] 1 Lloyd’s
Rep 252; [2012] EWHC 50 (Comm) .... [17-08]
Seatrade Groningen BV v Geest Industries Ltd (The Frost Express) [1996] 2
Lloyd’s Rep 375 .... [8-12], [9-55], [9-56], [18-23]
Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd
(1979) 144 CLR 596 .... [3-26], [3-30], [6-24], [6-25], [6-27], [7-26], [8-
28], [8-29], [10-16]
Selda (The) see Bem Dis a Turk Ticaret S/A TR v International Agri Trade Co
Ltd Selected Seeds Pty Ltd v QBEMM Pty Ltd (2010) 242 CLR 336;
[2010] HCA 37 .... [13-33]
Seppelt (B) & Sons Ltd v Commissioner for Main Roads (1975) 1 BPR 9147 ....
[2-15], [2-17], [9-33]
Serena Navigation Ltd v Dera Commercial Establishment (The Limnos) [2008]
2 Lloyd’s Rep 166; [2008] EWHC 1036 (Comm) .... [4-40], [13-13], [13-
46], [15-04]
Service Station Association Ltd v Berg Bennett & Associates Pty Ltd (1993) 117
ALR 393 .... [3-23]
Sethia (KC) (1944) Ltd v Partabmull Rameshwar [1950] 1 All ER 51 (affirmed
sub nom Partabmull Rameshwar v K C Sethia (1944) Ltd [1951] 2 All ER
352n; [1951] 2 Lloyd’s Rep 89) .... [11-20]
Sethia Liners Ltd v State Trading Corp of India Ltd [1985] 1 WLR 1398 .... [4-
18] Seven Cable Television Pty Ltd v Telstra Corp Ltd (2000) 171 ALR 89
(affirmed sub nom Foxtel Management Pty Ltd v Seven Cable Television
Pty Ltd (2000) 175 ALR 433) .... [2-31]
Seven Network (Operations) Ltd v TCN Channel 9 Pty Ltd (2005) 222 ALR
569; [2005] FCAFC 144 .... [15-20]
Shadforth v Higgin (1813) 3 Camp 385; 170 ER 1419 .... [15-19]
Shah v Shah [2002] QB 35; [2001] EWCA Civ 527 .... [9-18]
Shakibaee v Chan (2001) 24 WAR 97; [2001] WASC 60 .... [2-44], [18-32]
Shalson v Russo [2005] Ch 281; [2003] EWHC 1637 (Ch) .... [2-27], [9-27]
Shamil Bank of Bahrain EC v Beximco Pharmaceuticals Ltd [2004] 1 WLR
1784; [2004] EWCA Civ 19 .... [6-25], [7-14], [9-35], [13-46], [13-49]
Shannon (The) Ltd v Venner Ltd [1965] 1 Ch 682 .... [6-11], [8-24]
Sharp v Thomson (1915) 20 CLR 137 .... [2-22], [9-38], [9-39], [18-22]
Shell Chemicals UK Ltd v P & O Roadtanks Ltd [1995] 1 Lloyd’s Rep 297 ....
[17-10], [17-31]
Shell Egypt West Manzala GmbH v Dana Gas Egypt Ltd [2010] 1 Lloyd’s Rep
109; [2009] EWHC 2097 (Comm) .... [16-36]
Shell International Petroleum Co Ltd v Gibbs [1983] 2 AC 375 .... [13-13]
Shell Tankers (UK) Ltd v Astro Comino Armadora SA (The Pacific
Colocotronis) [1981] 2 Lloyd’s Rep 40 .... [13-37], [18-22]
Shell UK Ltd v Lostock Garage Ltd [1976] 1 WLR 1187; [1977] 1 All ER 481
.... [3-17], [3-31], [14-03]
Shepherd v Felt and Textiles of Australia Ltd (1931) 45 CLR 359 .... [3-18], [3-
32]
Shepherd (F C) & Co Ltd v Jerrom [1987] QB 301 .... [3-16], [4-14], [4-17]
Shepperd v Ryde Corporation (1952) 85 CLR 1 .... [18-22]
Sherry, Re (1884) 25 Ch D 692 .... [15-36], [15-40]
Shindler v Northern Raincoat Co Ltd [1960] 1 WLR 1038 .... [3-30]
Shipping Corp of India Ltd v NSB Niederelbe Schiffahrtsgesellschaft mbH & Co
(The Black Falcon) [1991] 1 Lloyd’s Rep 77 .... [4-39], [13-06], [13-46]
Shirlaw v Southern Foundries (1926) Ltd [1939] 2 KB 206 .... [3-26]
Shogun Finance Ltd v Hudson [2004] 1 AC 919; [2003] UKHL 62 .... [2-09], [2-
20], [2-22], [8-03], [8-12], [8-16], [8-18], [9-07], [9-21], [9-23], [9-24], [9-
35], [9-40], [9-41], [9-51], [9-52], [9-53], [9-55], [11-26], [14-24], [18-22]
Shore v Wilson (1842) 9 Cl & F 355; 8 ER 450 .... [1-09], [1-30], [2-11], [4-09],
[8-25], [8-27], [11-16], [12-10], [12-18], [12-28], [12-34], [14-07], [14-09],
[14-12], [14-25], [14-29], [15-13], [18-21], [18-28]
Showa Oil Tanker Co Ltd of Japan v Maravan SA of Caracas (The Larissa)
[1983] 2 Lloyd’s Rep 325 .... [9-30], [11-04], [13-46]
SHV Gas Supply & Trading SAS v Naftomar Shipping & Trading Co Ltd Inc
(The Azur Gaz) [2006] 1 Lloyd’s Rep 163; [2005] EWHC Comm 2528 ....
[17-08]
SIAT di dal Ferro v Tradax Overseas SA [1980] 1 Lloyd’s Rep 53 .... [15-33]
Sibohelle (The) see TTMI SARL v Statoil ASA Siebe Gorman & Co v Barclays
Bank Ltd [1979] 2 Lloyd’s Rep 142 .... [6-26]
Siemon (W) & Sons Ltd v Samuel Allen & Sons Ltd [1925] St R Qd 269 .... [12-
38]
Sig Bergesen DY & Co v Mobil Shipping and Transportation Co (The Berge
Sund) [1993] 2 Lloyd’s Rep 453 .... [4-47], [17-08]
Sigma Finance Corp (in administrative receivership) [2010] 1 All ER 571;
[2009] UKSC 2 .... [6-23], [7-36], [11-18], [11-26], [13-45], [13-46], [13-
47]
Silver Constellation (The) see Seagate Shipping Ltd v Glencore International
AG
Sinason-Teicher Inter-American Grain Corp v Oilcakes and Oilseeds Trading Co
Ltd [1954] 1 WLR 935 (affirmed [1954] 1 WLR 1394) .... [18-32]
Sinclair v Judge [1930] St R Qd 220 .... [16-28]
Sinclair Scott & Co Ltd v Naughton (1929) 43 CLR 310 .... [6-11], [10-37], [14-
28], [15-19]
Sindel v Georgiou (1984) 154 CLR 661 .... [2-26], [10-08]
Sinochem International Oil (London) Co Ltd v Mobil Sales and Supply Corp
[2000] 1 Lloyd’s Rep 339 .... [4-47]
Sirius International Insurance Co (Publ) v FAI General Insurance Ltd [2004] 1
WLR 3251; [2004] UKHL 54 .... [3-23], [4-12], [4-22], [6-33], [11-12], [11-
32], [13-28], [15-20], [16-22]
Skips A/S Nordheim v Syrian Petroleum Co Ltd (The Varenna) [1984] QB 599
.... [11-15]
Skipton Building Society v Stott [2001] QB 261 .... [15-40]
Slater v Finning Ltd [1997] AC 473 .... [10-54]
Slee v Warke (1949) 86 CLR 271 .... [9-43]
Smallman v Smallman [1972] Fam 25 .... [16-30]
Smaro (The) see Charles M Willie & Co (Shipping) Ltd v Ocean Laser Shipping
Ltd Smeaton Hanscomb & Co Ltd v Sassoon I Setty Son & Co (No 1)
[1953] 1 WLR 1468 .... [17-19]
Smit Tak Offshore Services v Youell [1991] 2 Lloyd’s Rep 420 (affirmed [1992]
1 Lloyd’s Rep 154) .... [13-20]
Smith v Bush [1990] 1 AC 831 .... [10-33], [17-07]
Smith v Hartshorn (1959) 60 SR (NSW) 391 .... [8-10]
Smith v Hughes (1871) LR 6 QB 597 .... [2-10], [2-22], [9-23], [9-39], [9-42],
[11-26], [11-30]
Smith v South Wales Switchgear Co Ltd [1978] 1 WLR 165; [1978] 1 All ER 18
.... [15-45], [17-25], [17-27], [17-28], [17-29]
Smith v Wilson (1832) 3 B & Ad 728; 110 ER 266 .... [14-12], [14-13]
Smith (KA & C) Pty Ltd v Ward (1998) 45 NSWLR 702 .... [8-35]
Smyth v Jessep [1956] VLR 230 .... [2-29]
Snarski & Snarski v Barbarich [1969] WAR 46 .... [16-31]
Snook v London and West Riding Investments Ltd [1967] 2 QB 786 .... [2-27],
[9-22], [9-27]
Société Anonyme Maritime et Commerciale of Geneva v Anglo-Iranian Oil Co
Ltd [1954] 1 WLR 492 .... [12-09]
Société Anonyme Marocaine de l’Industrie du Raffinage v Notos Maritime Corp
(The Notos) [1987] 1 Lloyd’s Rep 503 .... [16-17]
Society of Lloyd’s v Robinson [1999] 1 WLR 756 .... [1-26], [3-37], [4-36], [11-
18]
Socimer International Bank Ltd v Standard Bank London Ltd [2008] Bus LR
1304; [2008] EWCA Civ 116 .... [3-27], [3-39], [16-25]
Solle v Butcher [1950] KB 671 .... [2-22], [9-40], [11-26]
Solon (The) see Cero Navigation Corp v Jean Lion & Cie Sonat Offshore SA v
Amerada Hess Development Ltd [1988] 1 Lloyd’s Rep 145 .... [17-26]
Sonicare International Ltd v East Anglia Freight Terminal Ltd [1997] 2 Lloyd’s
Rep 48 .... [14-12]
Soon Hua Seng Co Ltd v Glencore Grain Ltd [1996] 1 Lloyd’s Rep 398 .... [15-
33]
Soules CAF v PT Transap of Indonesia [1999] 1 Lloyd’s Rep 917 .... [12-38]
Sounion (The) see Summit Investment Inc v British Steel Corp South Australia
Asset Management Corp v York Montague Ltd [1997] AC 191 .... [7-35],
[13-36]
South Sydney District Rugby League Football Club Ltd v News Ltd (2000) 177
ALR 611 (reversed (2001) 181 ALR 188 (affirmed sub nom News Ltd v
South Sydney District Rugby League Football Club Ltd (2003) 215 CLR
563; [2003] HCA 45)) .... [2-31]
Southern Cross Assurance Co Ltd v Australian Provincial Assurance
Association Ltd (1939) 39 SR (NSW) 174 .... [10-07], [10-14], [10-37]
Southern Foundries (1926) Ltd v Shirlaw [1940] AC 701 .... [3-30]
Southern Surety Co v MacMillan Co, 58 F 2d 541 (CA, 10th Cir, 1932) .... [16-
33]
Southland Frozen Meat and Produce Export Co Ltd v Nelson Bros Ltd [1898]
AC 442 .... [1-25], [15-04], [16-02]
Span Terza (The) see Stellar Chartering & Brokerage Inc v Efibanca-Ente
Finanziario Interbancario SpA Spectra Pty Ltd v Pindari Pty Ltd [1974] 2
NSWLR 617 .... [3-07], [15-28]
Speedway Safety Products Pty Ltd v Hazell & Moore Industries Pty Ltd [1982]
1 NSWLR 255 .... [6-17]
Splendid Sun (The) see André et Compagnie SA v Marine Transocean Ltd
Sportsvision Australia Pty Ltd v Tallglen Pty Ltd (1998) 44 NSWLR 103
.... [18-26]
Sprague v Booth [1909] AC 576 .... [3-30]
Spriggs v Sotheby Parke Bernet & Co [1986] 1 Lloyd’s Rep 487 .... [4-53], [17-
05], [17-13], [17-28], [17-33]
Springwell Navigation Corp v JP Morgan Chase Bank [2010] 2 CLC 705; [2010]
EWCA 1221 .... [10-22], [10-29], [10-33]
Spunwill Pty Ltd v BAB Pty Ltd (1994) 36 NSWLR 290 .... [3-08], [4-34], [8-
39], [10-50], [12-11], [14-19], [16-12]
Spurling (J) Ltd v Bradshaw [1956] 1 WLR 461 .... [17-28]
SS Knutsford Ltd v Tillmanns & Co [1908] AC 406 .... [15-34]
SST Consulting Services Pty Ltd v Rieson (2006) 225 CLR 516; [2006] HCA 31
.... [3-13]
St John Shipping Corp v Joseph Rank Ltd [1957] 1 QB 267 .... [1-58]
ST Microelectronics NV v Condor Insurance Ltd [2006] 2 Lloyd’s Rep 525;
[2006] EWHC 977 (Comm) .... [15-38], [15-40], [15-41]
Stack v Dowden [2007] 2 AC 432; [2007] UKHL 17 .... [2-09]
Staffordshire Area Health Authority v South Staffordshire Waterworks Co
[1978] 1 WLR 1387; [1978] 3 All ER 769 .... [1-26], [3-24], [12-10], [15-
13]
Stag Line Ltd v Foscolo Mango and Co Ltd [1932] AC 328 .... [13-13], [17-19]
Standard Chartered Bank Aust Ltd v Bank of China (1991) 23 NSWLR 164 ....
[9-18]
Stanton v Richardson (1872) LR 7 CP 421 (affirmed (1874) LR 9 CP 390;
(1875) 45 LJCP 78).... [17-23]
Stanton v Richardson (1875) 45 LJCP 78 .... [4-12]
Star Sea (The) see Manifest Shipping Co Ltd v Uni-Polaris Shipping Co Ltd Star
Shipping AS v China National Foreign Trade Transportation Corp (The Star
Texas) [1993] 2 Lloyd’s Rep 445 .... [3-29], [16-18]
Star Steamship Society v Beogradska Plovidba (The Junior K) [1988] 2 Lloyd’s
Rep 583 .... [7-13], [7-40], [12-13], [14-10], [16-31]
Star Texas (The) see Star Shipping AS v China National Foreign Trade
Transportation Corp Starlight Shipping Co v Allianz Marine & Aviation
Versicherungs AG (The Alexandros T) [2012] 1 Lloyd’s Rep 162; [2011]
EWHC 3381 (Comm) .... [13-16], [15-23]
Starmark Enterprises Ltd v CPL Distribution Ltd [2002] Ch 306 .... [15-31]
Starsin (The) see Homburg Houtimport BV v Agrosin Private Ltd State Rail
Authority of New South Wales v Heath Outdoor Pty Ltd (1986) 7 NSWLR
170 .... [8-19], [8-21], [8-22], [10-04]
State Trading Corp of India Ltd v M Golodetz Ltd [1989] 2 Lloyd’s Rep 277 ....
[2-44], [4-18], [13-51], [16-32], [17-20], [17-21]
Static Control Components (Europe) Ltd v Egan [2004] 2 Lloyd’s Rep 429;
[2004] EWCA Civ 392 .... [4-33], [6-10], [6-14], [6-19], [15-37], [15-39],
[15-40]
Statoil ASA v Louis Dreyfus Energy Services LP (The Harriette N) [2008] 2
[9-42], [12-33]
Stellar Chartering & Brokerage Inc v Efibanca-Ente Finanziario Interbancario
SpA (The Span Terza) (No 2) [1984] 1 WLR 27 .... [16-03]
Stenhouse Australia Ltd v Phillips [1974] AC 391 .... [3-13]
Stephens v Junior Army and Navy Stores Ltd [1914] Ch 516 .... [3-25]
Stephens Travel Service International Pty Ltd v Qantas Airways Ltd (1988) 13
NSWLR 331 .... [2-30]
Stewardson Stubbs & Collett Pty Ltd [1965] NSWR 1671 .... [15-30]
Stewart Gill Ltd v Horatio Myer & Co Ltd [1992] QB 600 .... [17-07]
Stickney v Keeble [1915] AC 386 .... [4-26], [4-28]
Stillwell (B S) & Co Pty Ltd v Budget Rent-A-Car System Pty Ltd [1990] VR
589 .... [15-28]
Stirling v Maitland (1864) 5 B & S 841; 122 ER 1043 .... [3-30]
Stockloser v Johnson [1954] 1 QB 476 .... [2-29]
Stockport Ragged Industrial and Reformatory Schools, Re [1898] 2 Ch 687 ....
[4-40]
Stockton Coal Co v McIlwraith McEacharn & Co (1899) 20 NSWR (L) 292 ....
[14-12]
Stocznia Gdanska SA v Latvian Shipping Co [1998] 1 WLR 574 .... [16-37],
[16-40]
Stocznia Gdynia SA v Gearbulk Holdings Ltd [2010] QB 27; [2009] EWCA Civ
75 .... [13-19], [16-21], [16-37], [16-39], [16-40]
Stoddart Tiles Pty Ltd v Cafoots (Townsville) Pty Ltd (1983) unreported, 27
June, SC (Qld) No 5059 of 1982 .... [10-14], [10-19]
Stokes v Whicher [1920] 1 Ch 411 .... [9-51] Stott (Baltic) Steamers Ltd v
Marten [1916] 1 AC 304 .... [15-34]
Street v Mountford [1985] AC 809 .... [2-30]
Suburban Homes Pty Ltd v Topper (1929) 35 ALR 294 .... [16-31]
Sudbrook Trading Estate Ltd v Eggleton [1983] 1 AC 444 .... [3-04]
Suisse Atlantique Société d’Armement Maritime SA v NV Rotterdamsche Kolen
Centrale [1967] 1 AC 361 .... [16-29], [17-19], [17-21], [17-33]
Sul América Cia Nacional de Seguros SA v Enesa Engenharia SA [2012] 1
Lloyd’s Rep 275; [2012] EWHC 42 (Comm) (affirmed [2012] 1 Lloyd’s
Rep 671; [2012] EWCA Civ 638) .... [16-13], [18-38]
Sullivan v Glennon (1986) 61 ALJR 63; 68 ALR 399 .... [11-33]
Summers v The Commonwealth (1918) 25 CLR 144 (affirmed (1919) 26 CLR
180) .... [3-25], [12-38], [13-46], [15-30]
Summit Investment Inc v British Steel Corp (The Sounion) [1987] 1 Lloyd’s Rep
230 .... [15-20]
Sun Alliance Pensions Life & Investments Services Ltd v RJL [1991] 2 Lloyd’s
Rep 410 .... [11-25], [13-31]
Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245 .... [15-36], [15-38]
Suncorp Metway Insurance Ltd v Landridge Pty Ltd (t/a L J Hooker Hampton
Park) (2005) 12 VR 290; [2005] VSCA 223 .... [15-45]
Sunport Shipping Ltd v Tryg-baltica International (UK) Ltd (The Kleovoulos of
Rhodes) [2003] 1 Lloyd’s Rep 138; [2003] EWCA Civ 12 .... [11-21], [13-
06], [13-13], [13-16], [13-20], [13-21]
Sunrock Aircraft Corp Ltd v Scandinavian Airlines System Denmark-Norway-
Sweden [2007] 2 Lloyd’s Rep 612; [2007] EWCA Civ 882 .... [7-10], [7-
13], [14-09]
Super Servant Two (The) see Lauritzen (J) AS v Wijsmuller BV
Superhulls Cover Case see Youell v Bland Welch & Co Ltd (No 2) Surgicraft
Ltd v Paradigm Biodevices Inc [2010] EWHC 1291 (Ch) .... [9-45]
Sussex Caravan Parks Ltd v Richardson [1961] 1 WLR 561 .... [8-35]
Suttor v Gundowda Pty Ltd (1950) 81 CLR 418 .... [16-42]
Svanosio v McNamara (1956) 96 CLR 186 .... [2-22], [9-37], [9-39], [10-35],
[11-26], [18-06]
Swan v Rawsthorne (1908) 5 CLR 765 .... [4-43], [6-13]
Sweet & Maxwell Ltd v Universal News Services Ltd [1964] 2 QB 699 .... [3-
12], [11-18]
Swiss Bank Corp v Brink’s-MAT Ltd [1986] 2 Lloyd’s Rep 79 .... [16-29], [17-
37]
Sydney Corporation v West (1965) 114 CLR 481 .... [17-06], [17-11], [17-19],
[17-21]
Symes v Laurie [1985] 2 Qd R 547 .... [4-44], [4-46]
Sze Hai Tong Bank Ltd v Rambler Cycle Co Ltd [1959] AC 576 .... [17-33], [17-
37]
Tai Hing Cotton Mill Ltd v Liu Chong Hing Bank Ltd [1986] AC 80 .... [3-29]
Talbot Underwriting Ltd v Nausch Hogan & Murray Inc (The Jascon 5) [2006] 2
Lloyd’s Rep 195; [2006] EWCA Civ 889 .... [3-07], [7-09], [7-38]
Tallerman & Co Pty Ltd v Nathan’s Merchandise (Victoria) Pty Ltd (1957) 98
CLR 93 .... [10-37], [18-15]
Tamil Nadu Electricity Board v ST-CMS Electric Co Pte Ltd [2008] 1 Lloyd’s
Rep 93; [2007] EWHC 1713 (Comm) .... [18-18]
Tamplin v James (1880) 15 Ch D 215 .... [2-16], [18-06]
Tamplin (FA) SS Co Ltd v Anglo-Mexican Petroleum Products Co Ltd [1916] 2
AC 397 .... [3-28]
Tandrin Aviation Holdings Ltd v Aero Toy Store LLC [2010] 2 Lloyd’s Rep 668;
[2010] EWHC 40 (Comm) .... [4-49], [11-21]
Tankexpress A/S v Compagnie Financière Belge des Petroles SA (The Petrofina)
[1949] AC 76 .... [3-35], [9-18], [18-04], [18-14], [18-36], [18-38]
Taylor v Caldwell (1863) 3 B & S 826; 122 ER 309 .... [3-16]
Taylor v Johnson (1983) 151 CLR 422 .... [2-22], [9-14], [9-23], [9-40], [9-42],
[11-26]
Taylor v Liverpool and Great Western Steam Co (1874) LR 9 QB 546 .... [4-45]
TCN Channel 9 Pty Ltd v Hayden Enterprises Pty Ltd (1989) 16 NSWLR 130
.... [16-12]
Team Anmaj (The) see Glencore Energy (UK) Ltd v Sonol Israel Ltd Tekdata
Interconnections Ltd v Amphenol Ltd [2010] 1 Lloyd’s Rep 357; [2009]
EWCA Civ 1209 .... [9-32]
Television Broadcasters Ltd v Ashton’s Nominees Pty Ltd (No 1) (1979) 22
SASR 552 .... [3-23]
Telfair Shipping Corp v Athos Shipping Co SA (The Athos) [1983] 1 Lloyd’s
Rep 127 .... [16-15]
Tennants (Lancashire) Ltd v C S Wilson & Co Ltd [1917] AC 495 .... [7-11],
[11-18]
Terkol Rederierne v Petroleo Brasileiro SA (The Badagry) [1985] 1 Lloyd’s Rep
395 .... [4-52]
Tern Minerals NL v Kalbara Mining NL (1990) 3 WAR 486 .... [16-12]
Terrex Resources NL v Magnet Petroleum Pty Ltd [1988] 1 WAR 144 .... [9-32]
Terry and White’s Contract, Re (1886) 32 Ch D 14 .... [4-24], [4-30]
Thai-Europe Tapioca Service Ltd v Seine Navigation Co Inc (The Maritime
Winner) [1989] 2 Lloyd’s Rep 506 .... [9-23]
Thames and Mersey Marine Insurance Co Ltd v Hamilton Fraser & Co (1887)
12 App Cas 484 .... [13-21], [15-34]
Thames Valley Power Ltd v Total Gas & Power Ltd [2006] 1 Lloyd’s Rep 441;
[2005] EWHC 2208 (Comm) .... [7-09], [13-29], [16-40], [17-35] Thomas
National Transport (Melbourne) Pty Ltd v May & Baker (Australia) Pty Ltd
(1966) 115 CLR 353 .... [4-20], [4-31], [17-06], [17-09], [17-20], [17-21]
Thompson v ASDA-MFI Group Plc [1988] Ch 241 .... [3-30], [16-42]
Thompson v Palmer (1933) 49 CLR 507 .... [14-20], [18-18]
Thompson v T Lohan (Plant Hire) Ltd [1987] 1 WLR 649; [1987] 2 All ER 631
.... [13-13], [17-06], [17-31]
Thor Navigation Inc v Ingosstrakh Insurance Co Ltd [2005] 1 Lloyd’s Rep 547;
[2005] EWHC 19 (Comm) .... [2-16], [7-06], [7-13], [9-43], [12-36], [14-
13]
Thoresen & Co (Bangkok) Ltd v Fathom Marine Co Ltd [2004] 1 Lloyd’s Rep
622; [2004] EWHC 167 (Comm) .... [12-33], [13-29], [16-31]
Thoresen Car Ferries Ltd v Weymouth Portland Borough Council [1977] 2
Lloyd’s Rep 614 .... [6-19]
Thorne (L G) & Co Pty Ltd v Thomas Borthwick & Sons (A/Asia) Ltd (1955) 56
SR (NSW) 81 .... [8-13], [8-16], [8-19], [8-20], [8-21], [10-10], [10-14],
[10-15], [10-17], [10-19], [10-46], [14-17]
Thorner v Major [2009] 1 WLR 776; [2009] UKHL 18 .... [2-21], [4-12], [4-13],
[4-15], [4-32], [9-06], [11-04]
Thornley v Tilley (1925) 36 CLR 1 .... [11-15], [11-16], [11-19], [12-38], [14-
12], [16-07], [18-37]
Thornton v Shoe Lane Parking Ltd [1971] 2 QB 163 .... [10-12]
Tilley v Thomas (1867) LR 3 Ch App 61 .... [4-26]
Tillmanns & Co v SS Knutsford Ltd [1908] 2 KB 385 (affirmed sub nom SS
Knutsford Ltd v Tillmanns & Co [1908] AC 406) .... [4-49]
Timber Shipping Co SA v London & Overseas Freighters Ltd [1972] AC 1 ....
[14-31]
Titan Steel Wheels Ltd v Royal Bank of Scotland Plc [2010] 2 Lloyd’s Rep 92;
[2010] EWHC 211 (Comm) .... [10-22], [17-07]
Todd v Nichol [1957] SASR 72 .... [9-28]
Toisa Pisces (The) see Sealion Shipping Ltd v Valiant Insurance Co Toll (FGCT)
Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165; [2004] HCA 52 .... [2-
16], [2-22], [4-22], [9-25], [9-40], [9-50], [10-08], [10-24], [10-32], [10-
38], [11-22], [11-26]
Toomey v Eagle Star Insurance Co Ltd [1994] 1 Lloyd’s Rep 516 .... [2-30], [6-
10], [6-30], [7-11], [7-13], [13-16], [14-12], [14-35], [17-31]
Tor Line AB v Alltrans Group of Canada Ltd (The TFL Prosperity) [1984] 1
WLR 48; [1984] 1 All ER 103 .... [11-18], [16-29], [17-33], [17-36]
Torenia (The) see Aktieselskabet de Danske Sukkerfabrikker v Bajamar
Compania Naviera SA Torr v Harpur (1940) 40 SR (NSW) 585 .... [17-21]
Total Gas Marketing Ltd v Arco British Ltd [1998] 2 Lloyd’s Rep 209 .... [4-09],
[10-51], [11-06], [16-30]
Total Transport Corp v Arcadia Petroleum Ltd (The Eurus) [1998] 1 Lloyd’s Rep
351 .... [4-24], [4-31], [4-43]
Touche Ross & Co v Baker [1992] 2 Lloyd’s Rep 207 .... [11-12], [13-45]
Tower Australia Ltd v Farkas (2005) 64 NSWLR 253; [2005] NSWCA 363 ....
[15-45]
Tradax Internacional SA v Goldschmidt SA [1977] 2 Lloyd’s Rep 604 .... [4-18]
Trade and Transport Inc v Iino Kaiun Kaisha Ltd (The Angelia) [1973] 1 WLR
210 .... [4-18]
Trafalgar House Construction (Regions) Ltd v General Surety & Guarantee Co
Ltd [1996] AC 199 .... [11-18], [15-40], [16-04], [16-07]
Trafigura Beheer BV v Mediterranean Shipping Co SA (The MSC Amsterdam)
[2007] 2 Lloyd’s Rep 622; [2007] EWCA Civ 794 .... [17-37]
Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) 38 SR (NSW)
632 (reversed sub nom Luna Park (NSW) Ltd v Tramways Advertising Pty
Ltd (1938) 61 CLR 286).... [2-43], [2-45], [4-12], [8-31]
Transcontinental Underwriting Agency SRL v Grand Union Insurance Co Ltd
[1987] 2 Lloyd’s Rep 409 .... [9-54]
Transfield Shipping Inc v Mercator Shipping Inc (The Achilleas) [2009] 1 AC
61; [2008] UKHL 48 .... [3-27], [7-35]
Transpetrol Ltd v Transol Olieprodukten BV [1989] 1 Lloyd’s Rep 309 .... [16-
20]
Transport Commission (Tasmania) v Neale Edwards Pty Ltd (1954) 92 CLR 214
.... [17-37]
Trawl Industries of Australia Pty Ltd v Effem Foods Pty Ltd Trading as ‘Uncle
Bens of Australia’ (1992) 27 NSWLR 326 .... [6-14], [8-28], [14-14]
Trazray Pty Ltd v Russell Foundries Pty Ltd (1988) NSW Conv R ¶ 55-393 ....
[8-19]
Tricontinental Corp Ltd v HDFI Ltd (1990) 21 NSWLR 689 .... [15-43]
Trident Turboprop (Dublin) Ltd v First Flight Couriers Ltd [2009] 1 All ER
(Comm) 16; [2008] EWHC 1686 (Comm) (affirmed [2010] QB 86; [2009]
EWCA Civ 290) .... [10-33], [17-29]
Trident Turboprop (Dublin) Ltd v First Flight Couriers Ltd [2010] QB 86;
[2009] EWCA Civ 290 .... [17-07]
Triodosbank NV v Dobbs [2005] 2 Lloyd’s Rep 588; [2005] EWCA Civ 630 ....
[15-40]
Triton Lark (The) see Pacific Basin IHX Ltd v Bulkhandling Handymax AS
Troll Park (The) see Belgravia Navigation Co SA v Cannor Shipping Ltd
Trollope & Colls Ltd v North West Metropolitan Regional Hospital Board
[1973] 1 WLR 601 .... [3-18], [3-27], [8-34], [18-10]
Tropical Traders Ltd v Goonan (No 2) [1965] WAR 174 .... [2-29]
Tropwave (The) see Maritime Transport Operators GmbH v Louis Dreyfus et
Cie Tropwind (The) see Tropwood AG of Zug v Jade Enterprises Ltd
Tropwood AG of Zug v Jade Enterprises Ltd (The Tropwind) [1982] 1
Lloyd’s Rep 232 .... [3-06], [3-07], [3-11], [11-04], [12-13], [13-46]
Tsakiroglou & Co Ltd v Noblee Thorl GmbH [1962] AC 93 .... [1-26], [2-06],
[4-14], [4-17], [4-18], [12-33], [12-38]
Tsang Chi Ming v Uvanna Pty Ltd (1996) 140 ALR 273 .... [4-44]
Tsang Chuen v Li Po Kwai [1932] AC 715 .... [1-30], [9-09]
TTMI SARL v Statoil ASA (The Sibohelle) [2011] 2 Lloyd’s Rep 220; [2011]
EWHC 1150 (Comm) .... [9-49], [9-51], [18-36]
Tucker v Linger (1883) 8 App Cas 508 .... [12-38], [14-11]
Tuckey v Lawfield Pty Ltd [1990] QCA 16 .... [14-30]
Turner v Bladin (1951) 82 CLR 463 .... [18-37]
Turner v Manx Line Ltd [1990] 1 Lloyd’s Rep 137 .... [12-29], [13-10], [15-45]
Turner Kempson & Co Pty Ltd v Camm [1922] VLR 498 .... [11-15]
Tutova (The) see Almatrans SA v Steamship Mutual Underwriting Association
(Bermuda) Ltd Tychy (No 2) (The) [2001] 2 Lloyd’s Rep 403; [2001]
EWCA Civ 1198 .... [4-39], [5-16], [6-06], [9-31], [14-35], [18-11], [18-12],
[18-18]
UBS AG v HSH Nordbank AG [2008] 2 Lloyd’s Rep 500; [2008] EWHC 1529
(Comm) (affirmed [2009] 2 Lloyd’s Rep 272; [2009] EWCA Civ 585) ....
[13-34], [16-13]
UGS Finance Ltd v National Mortgage Bank of Greece [1964] 1 Lloyd’s Rep
446 .... [17-19]
Ulysses Compania Naviera SA v Huntingdon Petroleum Services (The
Ermoupolis) [1990] 1 Lloyd’s Rep 160 .... [13-46]
Union Amsterdam (The) see Blue Anchor Line Ltd v Alfred C Toepfer
International GmbH
Union Eagle Ltd v Golden Achievement Ltd [1997] AC 514 .... [1-24], [2-29]
United City Merchants (Investments) Ltd v Royal Bank of Canada [1983] 1 AC
168 .... [15-32], [15-33]
United Dominions Corp (Jamaica) Ltd v Shoucair [1969] 1 AC 340 .... [18-15]
United Dominions Corp Ltd v Brian Pty Ltd (1985) 157 CLR 1 .... [2-31]
United Dominions Trust (Commercial) Ltd v Eagle Aircraft Services Ltd [1968]
1 WLR 74; [1968] 1 All ER 104 .... [15-11], [15-28], [15-43], [16-33]
United Scientific Holdings Ltd v Burnley BC [1978] AC 904 .... [4-28], [15-28],
[16-33], [16-34]
Universal Bulk Carriers Ltd v André et Cie [2001] 2 Lloyd’s Rep 65; [2001]
EWCA Civ 588 .... [13-51], [16-33]
Universal Cargo Carriers Corp v Citati [1957] 2 QB 401 .... [4-14], [4-16], [4-
17]
Update Constructions Pty Ltd v Rozelle Child Care Centre Ltd (1990) 20
NSWLR 251 .... [3-11]
Upton-On-Severn RDC v Powell [1942] 1 All ER 220 .... [18-36]
Utica City Nat Bank v Gunn, 222 NY 204; 118 NE 607 (CA, 1918) .... [11-16],
[13-20], [15-37]
Vallejo v Wheeler (1774) 1 Cowp 143; 98 ER 1012 .... [1-30]
Van den Esschert v Chappell [1960] WAR 114 .... [2-38]
Van Der Sterren (H & E) v Cibernetics (Holdings) Pty Ltd (1970) 44 ALJR 157
.... [16-20], [17-10], [17-17], [17-21], [17-33], [17-37]
Van Diemen’s Land Co v Marine Board of Table Cape [1906] AC 92 .... [12-28],
[14-28]
Varenna (The) see Skips A/S Nordheim v Syrian Petroleum Co Ltd Varverakis v
Compagnia de Navegacion Artico SA (The Merak) [1976] 2 Lloyd’s Rep
250 .... [16-30]
Vaswani v Italian Motors (Sales and Services) Ltd [1996] 1 WLR 270 .... [13-29]
Vigers Bros v Sanderson Bros [1901] 1 KB 608 .... [13-46]
Vine (The) see Emeraldian Ltd Partnership v Wellmix Shipping Ltd Vistafjord
(The) see Norwegian American Cruises A/S v Paul Mundy Ltd Vitol SA v
Phibro Energy AG (The Mathraki) [1990] 2 Lloyd’s Rep 84 .... [12-15],
[14-12]
Voest Alpine Intertrading GmbH v Chevron Internation Oil Co Ltd [1987] 2
Lloyd’s Rep 547 .... [3-24]
VOS of Moscow v Temple SS Co Ltd (1945) 62 TLR 43 .... [11-18]
Vroon BV v Foster’s Brewing Group Ltd [1994] 2 VR 32 .... [3-24], [18-37]
W & J Investments Ltd v Commissioner of Taxation (1987) 16 FCR 314 .... [3-
24]
Wace v Pan Atlantic Group Inc [1981] 2 Lloyd’s Rep 339 .... [6-24], [14-09]
Wake v Harrop (1861) 30 LJ Ex 273; 6 H & N 768; 158 ER 317 (affirmed
(1862) 1 H & C 202; 158 ER 859) .... [8-19], [9-54], [10-07]
Waldron v Tsimiklis (1975) 12 SASR 481 .... [18-36]
Walford v Miles [1992] 2 AC 128 .... [3-35], [14-24]
Walker v Boyle [1982] 1 WLR 495; [1982] 1 All ER 634 .... [4-24]
Wallis v Pratt [1910] 2 KB 1003 (reversed [1911] AC 394) .... [11-16]
Wallis v Pratt [1911] AC 394 .... [8-34], [17-23], [18-08]
Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 .... [9-18], [10-47]
Ward v Ellerton [1927] VLR 494 .... [2-29]
Wardens and Commonalty of the Mystery of Mercers of the City of London v
New Hampshire Insurance Co [1992] 2 Lloyd’s Rep 365 .... [4-45], [11-18],
[13-44], [15-38], [15-39], [15-42]
Watcham v Attorney General (East Africa Protectorate) [1919] AC 533 .... [6-
12], [8-35], [14-28], [14-29], [18-27], [18-30], [18-34]
Waterfront Shipping Co Ltd v Trafigura AG (The Sabrewing) [2008] 1 Lloyd’s
Rep 286; [2007] EWHC 2482 .... [15-29]
Watford Electronics Ltd v Sanderson CFL Ltd [2001] 1 All ER (Comm) 696;
[2001] EWCA Civ 317 .... [10-22], [10-23], [10-28], [10-29], [10-33], [17-
24]
Wathes (Western) Ltd v Austins (Menswear) Ltd [1976] 1 Lloyd’s Rep 14 ....
[17-21]
Watkins (T J) Ltd v Cairns Meat Export Co Pty Ltd [1963] Qd R 21 .... [14-31]
Watson v Haggitt [1928] AC 127 .... [11-12]
Way v Latilla [1937] 3 All ER 759 .... [18-36]
Webster v Higgin [1948] 2 All ER 127 .... [10-27]
Weiner v Harris [1910] 1 KB 285 .... [2-30]
Weller v Akehurst [1981] 3 All ER 411 .... [13-46]
Wenjiang (The) see International Sea Tankers Inc v Hemisphere Shipping Co
Ltd Western Australian Bank v Royal Insurance Co (1908) 5 CLR 533 ....
[4-45], [4-47]
Western Bulk Carriers K/S v Li Hai Maritime Inc (The Li Hai) [2005] 2 Lloyd’s
Rep 389; [2005] EWHC 735 (Comm) .... [7-32], [15-30]
Western Export Services Inc v Jireh International Pty Ltd (2011) 282 ALR 604;
[2011] HCA 45 .... [6-13], [16-15]
Westerngeco Ltd v ATP Oil & Gas (UK) Ltd [2006] 2 Lloyd’s Rep 535; [2006]
EWHC 1164 (Comm) .... [13-33]
Westfield Management Ltd v Perpetual Trustees Co Ltd (2007) 233 CLR 528;
[2007] HCA 45 .... [7-41]
Westminster Properties Pty Ltd v Comco Constructions Pty Ltd (1991) 5 WAR
191 .... [16-35]
Weston v Downes (1778) 1 Doug 23; 99 ER 19 .... [10-06]
Westpac Banking Corp v South Carolina National Bank [1986] 1 Lloyd’s Rep
311 .... [15-33]
Westralian Farmers Ltd v Commonwealth Agricultural Service Engineers Ltd
(1936) 54 CLR 361 .... [16-42]
White v Australian and New Zealand Theatres Ltd (1943) 67 CLR 266 .... [1-
09], [3-23], [6-13], [8-23], [18-22], [18-26]
White v John Warwick & Co Ltd [1953] 1 WLR 1285; [1953] 2 All ER 1021
(sub nom White v John Warrick & Co Ltd) .... [17-29], [17-30]
White v Shortall (2006) 68 NSWLR 650; [2006] NSWSC 1379 .... [2-22]
White v White [2001] 1 WLR 481 .... [6-10]
White Trucks Pty Ltd v Riley (1948) 66 WN (NSW) 101 .... [10-13]
Whitecap Leisure Ltd v John H Rundle Ltd [2008] 2 Lloyd’s Rep 216; [2008]
EWCA Civ 429 .... [4-46], [4-52], [13-41], [17-14], [17-15], [17-16]
Whitfords Beach Pty Ltd v Gadsdon (1992) 6 WAR 537 .... [13-48]
Whitlock v Brew (1968) 118 CLR 445 .... [3-13], [14-24], [18-36]
Whittam v W J Daniel & Co Ltd [1962] 1 QB 271 .... [11-33]
Wickman Machine Tool Sales Ltd v L Schuler AG [1972] 1 WLR 840; [1972] 2
All ER 1173 (affirmed sub nom L Schuler AG v Wickman Machine Tool
Sales Ltd [1974] AC 235) .... [8-35], [11-15]
Wigginton & Milner Ltd v Winster Engineering Ltd [1978] 1 WLR 1462; [1978]
3 All ER 436 .... [14-29]
Wight v Foran (1987) 11 NSWLR 470 (reversed sub nom Foran v Wight (1989)
168 CLR 385) .... [3-34]
Wilcox v Richardson (1997) 43 NSWLR 4 .... [6-06], [7-25], [18-22]
Wild v Civil Aviation Authority (1987) unreported, CA No 85/NJ/4250 25
September .... [8-21]
Wilkie v Gordian Runoff Ltd (2005) 221 CLR 522; [2005] HCA 17 .... [4-39],
[13-49], [15-45]
Wilkinson v Clements (1872) LR 8 Ch App 96 .... [4-24]
William Sindall Plc v Cambridgeshire County Council [1994] 1 WLR 1016 ....
[9-37]
Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991] 1 QB 1 .... [16-26]
Williams Bros v Ed T Agius Ltd [1914] AC 510 .... [10-37]
Williamson v Caledonian Insurance Co (1898) 24 VLR 600 .... [4-47]
Williamson (J C) Ltd v Lukey (1931) 45 CLR 282 .... [3-23], [18-15]
Willis Management (Isle of Man) Ltd v Cable and Wireless Plc [2005] 2 Lloyd’s
Rep 597; [2005] EWCA Civ 806 .... [18-37]
Wills v Sir Roger Gibbs [2007] EWHC 3361 (Ch) .... [9-44]
Wilson v Anderson (2002) 213 CLR 401; [2002] HCA 29 .... [4-22], [7-41], [15-
13]
Wilson v Maynard Shipbuilding Consultants AB [1978] QB 665 .... [18-39]
Wingadee Shire Council v Willis (1910) 11 CLR 123 .... [11-33]
Winks v W H Heck & Sons Pty Ltd [1986] 1 Qd R 226 .... [9-19], [9-47]
Wood Hall Ltd v The Pipeline Authority (1979) 141 CLR 443 .... [10-53], [15-
32], [15-40]
Woodhouse AC Israel Cocoa Ltd SA v Nigerian Produce Marketing Co Ltd
[1972] AC 741 .... [4-37], [11-04], [11-15], [11-33]
Woods v WM Car Services (Peterborough) Ltd [1982] ICR 693 .... [4-18]
Woodside Offshore Petroleum Pty Ltd v Attwood Oceanics Inc [1986] WAR 253
.... [6-25]
Workers Trust & Merchant Bank Ltd v Dojap Investments Ltd [1993] AC 573
.... [2-29], [3-32]
World Symphony (The) and World Renown see Chiswell Shipping Ltd v
National Iranian Tanker Co Wren v Mahony (1972) 126 CLR 212 .... [15-
44]
Wright v TNT Management Pty Ltd (1989) 15 NSWLR 679; 85 ALR 442 .... [3-
29]
WX Investments Ltd v Begg (Fraser, Part 20 Defendant) [2002] 1 WLR 2849 ....
[3-26]
X v Y [2011] 1 Lloyd’s Rep 694; [2011] EWHC 152 (Comm) .... [3-06], [4-44],
[13-13], [17-17]
Yango Pastoral Co Pty Ltd v First Chicago Australia Ltd (1978) 139 CLR 410 ....
[1-58]
Yani Haryanto v ED & F Man (Sugar) Ltd [1986] 2 Lloyd’s Rep 44 .... [2-27],
[9-24], [9-27], [10-46], [14-34]
Yaroomba Beach Development Co Pty Ltd v Coeur de Lion Investments Pty Ltd
(1989) 18 NSWLR 398 .... [9-17], [10-42], [10-43], [13-49]
Yeoman Credit Ltd v Apps [1962] 2 QB 508 .... [17-19], [17-21]
Yeoman Credit Ltd v Latter [1961] 1 WLR 828 .... [2-30], [15-44], [15-45]
York Air Conditioning & Refrigeration (A’sia) Pty Ltd v The Commonwealth
(1949) 80 CLR 11 .... [18-35], [18-37]
Yorkshire Insurance Co Ltd v Campbell [1917] AC 218 .... [4-12], [4-45], [6-
23], [13-28]
Yorkshire Water Services Ltd v Sun Alliance & London Insurance Plc [1997] 2
Lloyd’s Rep 21 .... [15-45], [16-14], [16-20]
Youell v Bland Welch & Co Ltd (The Superhulls Cover Case) (No 2) [1990] 2
Lloyd’s Rep 431 .... [14-26]
Youell v Bland Welch & Co Ltd [1992] 2 Lloyd’s Rep 127 .... [4-45], [4-46], [7-
19], [7-20], [8-15], [8-21], [8-22], [8-23], [14-14], [17-14]
Young v Schuler (1883) 11 QBD 651 .... [9-55]
Young & Marten Ltd v McManus Childs Ltd [1969] 1 AC 454 .... [3-28]
YP Barley Producers Ltd v E C Robertson Pty Ltd [1927] VLR 194 .... [18-37]
Yukong Line Ltd of Korea v Rendsburg Investments Corp of Liberia (The
Rialto) (No 2) [1998] 1 WLR 294; [1998] 1 Lloyd’s Rep 322 .... [2-27],
[11-33], [13-31]
Zambia Steel & Building Supplies Ltd v James Clark & Eaton Ltd [1986] 2
Lloyd’s Rep 225 .... [10-12], [10-13]
Zeus (The) see Attaleia Marine Co Ltd v Bimeh Iran (Iran Insurance Co) Zeus
Tradition Ltd v Bell (The Zeus V) [2000] 2 Lloyd’s Rep 587 .... [4-18], [15-
45], [16-33]
Zeus V (The) see Zeus Tradition Ltd v Bell Zhu v Treasurer of New South Wales
(2004) 218 CLR 530; [2004] HCA 56 .... [6-22], [6-24], [13-34], [13-46],
[16-12]
Zuhal K (The) and The Selin [1987] 1 Lloyd’s Rep 151 .... [13-19]
Table of Statutes References are to paragraph numbers
UNITED KINGDOM
Bills of Exchange Act 1882
s 3(1) .... [10-07]
s 9(2) .... [13-22]
Carriage of Goods by Sea Act 1971 Hague-Visby Rules .... [1-54]
Fertilisers and Feeding Stuffs Act 1926 .... [12-11]
Infants’ Relief Act .... [2-30]
Judicature Act 1873 see Supreme Court of Judicature Act 1873
Law of Property Act 1925
s 41 .... [4-26], [4-28], [4-29]
s 61 .... [13-22], [13-40]
(a) .... [13-23]
(b) .... [13-24]
(c) .... [13-25]
(d) .... [13-26]
s 146 .... [15-30]
Law of Property (Miscellaneous Provisions) Act 1989 .... [16-31]
s 2 .... [9-08], [10-07], [10-46]
Marine Insurance Act 1906 sch 1 .... [13-22]
Misrepresentation Act 1967 .... [2-37], [10-03], [17-07]
s 3 .... [10-33]
Sale of Goods Act 1893 .... [3-18], [10-28], [17-23]
s 4 .... [18-15]
Sale of Goods Act 1979 .... [12-19], [17-23]
s 6 .... [9-37]
s 10(1) .... [1-57]
(2) .... [1-56]
(3) .... [13-23]
s 11(3) .... [2-30], [2-42]
s 17 .... [18-05]
s 28 .... [1-57]
s 29(3) .... [1-57]
Statute of Frauds 1677 .... [8-11]
s 4 .... [1-58], [2-30], [7-31], [8-10], [9-08], [10-07], [10-37], [10-46], [15-
44], [18-15]
s 17 .... [1-58], [8-10], [10-07], [10-37], [18-15]
Supply of Goods and Services Act 1982
s 4 .... [3-28]
s 13 .... [3-28]
Supreme Court of Judicature Act 1873
s 25(7) .... [4-26], [4-27], [4-29]
Unfair Contract Terms Act 1977 .... [1-58]
s 2(1) .... [17-07] (2) .... [17-07]
s 3 .... [17-07] (2)(b) .... [17-07]
s 4(1) .... [17-07]
s 5 .... [10-33], [17-07]
s 6 .... [17-07]
(1) .... [10-33], [17-07]
(2) .... [10-33], [17-07]
(3) .... [17-07]
s 7(2) .... [10-33], [17-07]
(3) .... [17-07]
(3A) .... [17-07]
(4) .... [17-07]
s 11(1) .... [10-33]
s 13(1)(b) .... [17-07]
s 21 .... [10-33]
s 26(1) .... [17-07]
AUSTRALIA
National Scheme Laws
Australian Consumer Law (Competition and Consumer Act s 18 .... [2-37],
2010 (Cth), Sch 2) .... [1-58] [10-33]
s 64 .... [10-
33], [17-07]
s 64A .... [10-
33]
Commonwealth of Australia
Bills of Exchange Act Carriage of Goods by Sea Act 1991 Hague-Visby Rules
1909 .... [1-54]
s 8(1) .... [10-07] Marine Insurance Act 1909 sch 2 .... [13-22]
s 14(2) .... [13-22]
Australian Capital Territory
Civil Law (Property) Act 2006 Sale of Goods Act 1954
s 501 .... [4-26] s 11 .... [9-37]
Civil Law (Wrongs) Act 2002 Ch 13 .... [2- s 15(2) .... [1-56], [1-57], [13-
37] 23]
s 176 .... [10-33] s 16(2) .... [2-30], [2-42]
s 32 .... [1-57]
s 33 .... [1-57]
New South Wales
Conveyancing Act 1919 s 15(1) .... [1-56], [1-57] (2) .... [13-23]
s 13 .... [4-26] s 16(2) .... [2-30], [2-42]
s 181 .... [13-22] s 31 .... [1-57]
Sale of Goods Act 1923 s 32 .... [1-57]
s 11 .... [9-37]
Northern Territory
Law of Property Act 2000 s 15(2) .... [1-56], [1-57], [13-23]
s 50 .... [13-22] s 16(2) .... [2-30], [2-47]
s 65 .... [4-26] s 31 .... [1-57]
s 10 .... [9-37]
Queensland
Property Law Act 1974 s 13(1) .... [1-56], [1-57] (2) .... [13-23]
s 48 .... [13-22] s 14(2) .... [2-30], [2-42]
s 62 .... [4-26] s 30 .... [1-57]
s 9 .... [9-37]
South Australia
Law of Property Act 1936 s 6 .... [9-37]
s 16 .... [4-26] s 10(1) .... [1-56], [1-57] (2) .... [13-
Misrepresentation Act 1972 .... [2- 23]
37] s 11(2) .... [2-30], [2-42]
s 8 .... [10-33] s 28 .... [1-57]
Tasmania
s 11 .... [9-37] Supreme Court Civil Procedure Act 1932
s 15 .... [1-56], [1-57], [13-23] s 11(7) .... [4-26]
s 16(2) .... [2-30], [2-42]
s 33 .... [1-57]
Victoria
Goods Act 1958 s 11 .... [9-37] s 36 .... [1-57]
s 15 .... [1-56], [1-57], [13-23] Property Law Act 1958
s 16(2) .... [2-30], [2-42] s 41 .... [4-26]
s 35 .... [1-57] s 61 .... [13-22]
Western Australia
Property Law Act 1969 s 10(1) .... [1-56], [1-57] (2) .... [13-23]
s 8 .... [13-22] s 11(2) .... [2-30], [2-42]
s 21 .... [4-26] s 28 .... [1-57]
s 6 .... [9-37]
NEW ZEALAND
Contractual Mistakes Act 1977 .... [9-34] s 4 .... [10-33]
Contractual Remedies Act 1979 s 6(1) .... [2-37]
UNITED STATES
Uniform Commercial Code .... [1-55] s 2-202 .... [8-19], [10-16]
s 1-203 .... [3-36] s 2-208 .... [8-39]
s 1-205 .... [12-38]
UNITED NATIONS CONVENTIONS
UN Convention on Contracts for the International Sale (2) .... [2-10]
of Goods 1980 (CISG) .... [1-55] art 8 .... [11-30] (3) .... [8-33], [8-
39], [12-38]
art 9(1) .... [12-38],
[14-21] (2) .... [12-
38]
AMERICAN LAW INSTITUTE, RESTATEMENTS
Restatement of the Law Second, Contracts 2d (Contracts Restatement 2d (1979))
.... [1-55]
chap 9 introductory note .... [15-03]
s 200 .... [1-05]
s 201 .... [2-10], [7-16], [11-30], [12-23] (3) .... [12-23]
s 202 .... [6-10], [6-18], [7-21]
(1) .... [6-25]
(2) .... [4-20], [13-27]
(3)(a) .... [12-28]
(b) .... [12-36]
(4) .... [8-39]
(5) .... [8-39]
s 203 .... [16-09]
(a) .... [13-29], [16-14], [16-28]
(d) .... [4-52]
s 204 .... [3-04]
s 205 .... [3-38]
s 206 .... [4-46]
s 207 .... [16-41]
s 209 .... [10-31]
(1) .... [10-14]
(2) .... [10-19]
(3) .... [8-19]
s 210(1) .... [10-16] (2) .... [10-17]
s 211 .... [10-16] (2) .... [7-37]
s 212 .... [6-10], [6-18], [14-18] (1) .... [7-31]
s 213 .... [8-04], [10-37], [10-38], [14-34] (3) .... [9-07]
s 214 .... [10-20]
(c) .... [8-33]
(d) .... [9-14]
(e) .... [9-13]
s 215 .... [7-19]
s 216 .... [10-46]
s 217 .... [10-49]
s 218(2) .... [10-42]
s 219 .... [12-15]
s 220(1) .... [12-38] (2) .... [12-38]
s 222(1) .... [12-38]
(2) .... [14-12]
(3) .... [14-13]
s 223(1) .... [14-21] (2) .... [14-21]
s 224 .... [11-16]
s 227(2) .... [16-33], [16-35]
UNIDROIT PRINCIPLES
UNIDROIT Principles of International Commercial (2) .... [2-10], [4-
Contracts 2010 (UNIDROIT Principles) .... [1-32], 22], [11-30]
[1-55], [12-38] art 4.2 .... [11-30]
art 1.7 .... [3-36] (1) .... [9-23]
art 1.9(1) .... [12-38] (2) .... [12-38] (2) .... [4-22], [11-
art 2.1.17 .... [10-31] 30]
art 4.1 .... [11-30] (1) .... [2-16], [9-23] art 4.3 .... [8-33], [8-
39]
art 4.4 .... [4-20], [13-
31]
art 4.5 .... [4-43]
art 4.6 .... [4-44], [4-
45]
art 5.1.5 .... [11-20]
Abbreviations Books that are frequently referred to have abbreviated
titles and their publication details are provided in the list below. All other
books are referred to by author surname and book title. The publication
details for all works referred to appear in the bibliography at the end of
this book.
BOOKS AND LOOSELEAF SERVICES
Carter’s Breach of Contract — Carter, J W, Carter’s Breach of Contract (Hart
Edition), Hart Publishing, Oxford, 2012
Carter on Contract — Carter, J W, Carter on Contract, LexisNexis
Butterworths, Sydney, 2002– Corbin on Contracts — Corbin, A L, Corbin on
Contracts, West Publishing Co, St Paul, 12 vols, 1951–64
Lewison — Lewison, Sir Kim, The Interpretation of Contracts, 5th ed, Sweet &
Maxwell, London, 2011
Lyons — Lyons, John, Semantics, 2 vols, Cambridge University Press,
Cambridge, 1977
Norton on Deeds — Morrison, R J A, and Goolden, H J, eds, Norton on Deeds,
2nd ed, Sweet & Maxwell, London, 1928
Wigmore on Evidence — Wigmore, J H, Evidence in Trials at Common Law, rev
ed, 10 vols, Chadbourn, J H, Little Brown & Co, Boston, and Little Brown &
Co (Canada) Ltd, Boston and Toronto, 1981
LAW REFORM REPORTS
Parol Evidence Rule Report — Law Commission for England and Wales, Law of
Contract: The Parol Evidence Rule, Cmnd 9700, Law Com No 154, HMSO,
London, 1986
Parol Evidence Rule Working Paper — Law Commission for England and
Wales, Law of Contract: The Parol Evidence Rule, Working Paper No 70,
HMSO, London, 1976
OTHER ABBREVIATIONS
Australian Consumer Law — Competition and Consumer Act 2010 (Cth), Sch 2
CISG — United Nations Convention on Contracts for the International Sale of
Goods 1980, Final Act of the United Nations Conference on Contracts for the
International Sale of Goods, United Nations Doc A/CONF 97/18, April 10,
1980, Annex I Contracts Restatement 2d (1979) — American Law Institute,
Restatement of the Law Second, Contracts 2d, as adopted and promulgated in
May 1979, American Law Institute Publishers, St Paul, 1981
UNIDROIT Principles — UNIDROIT Principles of International Commercial
Contracts 2010
Uniform Commercial Code (US) — American Law Institute and National
Conference of Commissioners on Uniform State Laws, Uniform Commercial
Code, 1990 Official Text
PART I
Introduction
1
What Is Construction?
General [1-02]
Stages in Construction [1-08]
General [1-08]
Preliminary Stage [1-11]
Meaning Stage [1-13]
Application Stage [1-16]
Legal Effect [1-18]
Raw Material [1-20]
Commercial Construction [1-22]
Introduction [1-22]
Evolution [1-24]
Policy, Certainty and Predictability [1-27]
Introduction [1-27]
Certainty and Predictability [1-30]
Uniformity and Neutrality [1-35]
Problems and Fallacies in Construction [1-39]
Problems with Construction [1-39]
Construction Fallacies [1-49]
Construction and Statute [1-53]
[1-01] Objects. The objects of this chapter are to explain the thesis and themes
of this book as a whole, and to describe briefly the concept of construction and
how construction issues are resolved. This includes a description of the concept
‘commercial construction’.
This chapter also explains some of the problems of contract construction and
certain fallacies about construction.
GENERAL
[1-02] Purpose of this book. Since ‘construction’ is the process by which the
intention of the parties in relation to a contract is determined and given effect to,
construction is the most important component of contract law. The significant
role of construction reflects the fact that freedom of contract still occupies a
central place in modern contract law. In addition, documents, words and conduct
have to be interpreted, so that principles of construction are applied not just to
contracts but also to communications between parties negotiating contracts, as
well as to their subsequent communications.
Although the process is well understood, it can be extremely complex. Any
theory of construction must explain three things: (1) the concept of
‘construction’;
(2) the legal rules which are applied in the construction of contracts, including
to define the raw material which can be used to construe a contract; and (3)
the role of construction in the resolution of the wide variety of issues
which are said to depend on ‘intention’.
As its title implies, this book seeks to explain the concept of commercial
construction as applied to commercial contracts. Since there is generally a
document to construe, this book is principally about how documents are
construed in the commercial context. This book is not concerned with the
interpretation of wills or statutes and proceeds on the basis the principles of
commercial construction are distinctive principles. The primary focus is on
documents which state or evidence contracts. However, the principles applied to
contracts are also applicable, directly or by way of close analogy, in relation to
documents brought into existence in connection with a contract, or contemplated
contract.
[1-03] Concept. ‘Construction’ describes the process by which the intention of
the parties to a contract is ‘constructed’, or ‘built up’, from legally available
material. That intention may be in relation to the meaning of a contract, its legal
effect or its scope of application.1 The process is an objective one carried out on
the basis that the document gives effect to a common intention. In determining
that intention the emphasis is on what has been communicated to the other party,
that is, what one person has led the other reasonably to believe.2
Although the mechanics will vary according to the extent to which the
contract is in writing (or evidenced by writing), the process is in all cases the
same.
[1-04] Definition.
Article 1.1 — ‘Construction’ defined.
‘Construction’ is the process by which the intention of the parties to a
contract is determined and given effect to.
Most general definitions of construction revolve around the idea that it has a
particular objective. That objective, as expressed by Lord Bingham in Homburg
Houtimport BV v Agrosin Private Ltd (The Starsin),3 is to ‘ascertain and give
effect to the intentions of the contracting parties’. Similar statements can be
found in many other cases.4 Effect is given to intention by applying the contract
to the facts. Although, temporally, that suggests a distinct process, that is not
always the case.
The definition is perhaps open to the objection that not all issues of intention
are resolved by construction. However, where a contract is in writing or
evidenced by writing, construction must always play a role. Subject to statute
and public policy, the contract is the source of the parties’ rights and obligations,
and those rights and obligations are, ultimately, determined by construction.
[1-05] ‘Interpretation’. Generally, no distinction is drawn between the
‘construction’ and ‘interpretation’ of contracts. The modern approach is to treat
the one as synonymous with the other. However, at times, courts have sought to
draw a distinction.5 Attempts to carve out a different sphere of concern for
‘construction’ on the one hand and ‘interpretation’ on the other, probably have
their origin in attempts to delineate the respective functions of judge and jury.
On that basis alone, they must lack utility today. However, the origin may help to
explain use of the distinction in the United States. Thus, §200 of the Contracts
Restatement 2d (1979) defines the ‘interpretation’ of a promise, agreement or
term as the ‘ascertainment of its meaning’. Under United States law the concept
of ‘construction’ is often taken as including matters of policy not overtly treated
as relevant to construction in English law.6
There is something to be said for distinguishing between the linguistic
meaning of a contract and its legal effect, as §200 of the Contracts Restatement
2d (1979) illustrates.7 The function of construction in relation to the former is
clearly interpretative. However, since legal effect is determined with the aid of
contract doctrine, construction is not purely interpretative. It is more dynamic
than that. From that perspective ‘construction’ involves the application of the
linguistic meaning as determined by interpretation. Although intention and
meaning may well be coincident for the layperson at the linguistic level, there is
usually a discontinuity for such a person at the level of legal effect. But since
even a decision on the linguistic meaning of words may determine the legal
rights of the parties, there seems little point in seeking to distinguish between a
process called ‘interpretation’ and one which is termed ‘construction’.8
[1-06] Construction as a tool. As a process, construction is not merely the way
in which the meaning of a contract is determined, it also describes the tool by
which, in many cases, contract doctrine is applied. To take two obvious
examples, whether a promissory term is a condition, warranty or an intermediate
term and whether a contract is frustrated are both resolved by construction.
That does, however, pose something of a problem in the exposition of
construction principles. Detailed analysis of the content of contract doctrine, in
relation to matters such as frustration and the classification of contractual terms,
is not the province of a book on the construction of contracts. Accordingly,
although issues such as those often provide useful contexts in which to analyse
the process of commercial construction, the analysis must be understood as
purely illustrative.
[1-07] Scope.
Article 1.2— What is determined by ‘construction’?
The intention of the parties, determined by construction, may relate to the
meaning of the contract, its legal effect or the scope of its application to a
given set of facts.
Conventionally, ‘construction’ is spoken of as the process by which the
‘meaning’ of a contract is determined. However, that is only part of the story.
Where a contract is construed, the construction of the contract may determine
the meaning of the contract, its legal effect or the scope of its application to a
given set of facts.
Therefore, a conception of construction in terms of a search for ‘meaning’ is
apt to lead to confusion between issues and conclusions in construction.
Construction is often also the process by which doctrine is applied, and the basis
on which the legal effect of a contract is determined. And it is also the process
by which contracts are applied to facts. It is well established that the meaning of
a contract must be distinguished from its effect in law. But the distinction
between the ‘meaning’ of words and the scope of their application is also
significant.
STAGES IN CONSTRUCTION
General
[1-08] Introduction. As a legal subject, ‘construction’ does not have an
established structure. There is therefore a contrast with the law of contract as a
whole, which has a traditional analytical structure, to which authors of general
texts tend to conform. It is relatively easy to use such books, because readers
come to the work with a perspective which is similar to that of the author. The
chief reason why it is difficult to formulate a theory of construction is that it does
not have a traditional analytical structure.9 That is due, primarily, to a variety of
purpose, and the fact that a large number of variables operate. This book
attempts to organise those variables by recourse to a theory based on the ‘stages
in construction’.
Although it is hardly ever necessary to come to terms with the details of a
theory of construction, an understanding of the stages in construction is vital to
an appreciation of how to deal with the general and specific issues which arise,
not only in the construction of contracts, but also in the construction of
documents in general. In order to undertake a systematic analysis of the law of
construction it is necessary to assume a paradigm case.
[1-09] Derivation and basis. The paradigm case is a contract to which
construction rules are employed in three stages: (1) the preliminary stage;
(2) the meaning stage; and
(3) the application stage.
The idea that there are, potentially, three stages in construction is a deduction
from the approach taken in all the recent cases. From that perspective, it can be
traced back to Reardon Smith Line Ltd v Yngvar Hansen-Tangen.10 Lord
Wilberforce drew attention11 to the important distinction between ascertaining
the meaning or legal effect of the words used (stage two) and how the words of a
contract apply to a factual situation (stage three). He was concerned to make this
distinction because of a difference between admissible (and relevant) evidence in
each of the two stages. The evidential inquiry is much narrower in resolving
meaning or legal effect than when applying the contract to the facts which
emerge in its performance. In stage three, the evidence is as broad as is
necessary to apply the contract. Lord Wilberforce also considered that, as a
preliminary12 to construction, the contract must be placed in its context (stage
one).
The distinction which Lord Wilberforce made was not a new one. He traced it
back to Charrington & Co Ltd v Wooder.13 The ultimate source is perhaps Parke
B’s opinion in Shore v Wilson,14 although the analysis was at that time motivated
by more technical concerns. And it was the emphasis given by Lord Wilberforce
to the role of context in construction that provided the catalyst for the
‘fundamental change’15 in construction law achieved in recent years. The change
is summed up in the expression ‘commercial construction’.
[1-10] Relevance and treatment. The fact that the actual circumstances of any
given construction dispute may not conform to the paradigm is beside the point.
In many cases it is unnecessary to consider all three stages in construction. For
example, the contract and its factual context may not be in dispute. Again, there
may be no dispute about meaning, and the parties may merely disagree on how
an agreed meaning is to be applied. And where a dispute does arise — at any
stage in the process — it may be necessary to break down the analysis. In that
respect, the statements above are descriptions of processes which can be
extremely complex.
The point is that each stage marks a point in a sequential process. As is clear
from the Table of Contents, the stages in construction play a key role in the
organisation of this book. Parts II and III discuss rules and principles relevant to
all stages. The ‘preliminary’ stage is discussed in Part IV, although the concept
of ‘context’ necessarily informs the whole book. The main discussion of the
‘meaning’ stage is in Part VI. Stage three — the ‘application’ stage — is
discussed in Part VII.
Each stage in construction represents a point of resolution. However, to
achieve each such resolution, certain other steps may need to be taken. In
particular, decisions may need to be made about what terms the contract
comprises, and the evidence which is available for use in that process and also in
determining the meaning and legal effect of the contract. The principles
applicable to those matters form the subject matter of Part V.16
The discussion below of the three stages of construction introduces some of
the terminology and concepts used in this book. Since formulating the correct
question is essential to getting the right answer, the discussion provides an
appropriate context in which to identify the principal questions in construction.
Preliminary Stage
[1-11] What is the context? Prior to construction, the contract must be placed in
context. The relevant question, simply expressed, is ‘What is the context?’.17 In
the older cases, ‘context’ was referred to as the ‘surrounding circumstances’.
Under the influence of cases such as Reardon Smith Line Ltd v Yngvar Hansen-
Tangen,18 the preferred terminology became the ‘factual matrix’. But it is now
more common to describe the surrounding circumstances or factual matrix as the
‘context’, ‘background’ or ‘setting’ of the contract. It is clear that each is an
equivalent expression, and also that context includes general legal background.
Although it might seem elementary that construction of a contract should not
commence without an understanding of the context in which the contract came
into existence, in relation to the construction of documents proper recognition of
the role of the concept has only occurred in recent times.19 There has always
been a tendency to confuse (or fuse) the various stages of construction. But, of
course, the whole point of identifying the relevant contextual material is its use
in the other stages of construction without the need for any further legal
justification. The questions with which the courts still grapple are the scope of
the concept, and how direct a role context plays in the construction processs.20
[1-12] What is the contract? Given that this book is about the construction of
contracts, it might be said that there is another preliminary question, namely, ‘Is
there a contract?’. But in most cases the contract is a given. In those cases where
the content of the contract is a matter of debate, working out what the contract
comprises is preliminary to construction of the ‘contract’. Principles of
construction then play an important role in answering the question ‘What is the
contract?’.
The law applicable to this question has been confounded by conflicting
analyses of the parol evidence rule.21 The proper application of that rule has
never been clear. But the thrust of the recent cases is that it is wrong to treat the
question whether a pre-contractual statement was intended to be a term of the
bargain as determined solely by the mere existence of a document in which, ex
hypothesi, the term does not appear.22 The current law therefore insists that
unless the parties have expressed an intention that the document is the bargain,
the evidence comes first. The parol evidence rule applies once the agreed terms
have been determined.
There are other aspects to the role of construction in the process of term
identification. First, documents such as letters and other communications which
are said to state or evidence terms of a contract must be construed. Each must be
placed in context.
Second, whether the contract includes implied as well as express terms is a
question of intention23 which is resolved by construction.24
Meaning Stage
[1-13] Introduction. Without meaning, words are merely symbols which count
for nothing. The search for meaning therefore occupies a central place in the law
of construction. That is true whether the issue relates to the words of a written or
oral contract, a notice or some other utterance. Indeed, meaning must be ascribed
as part of every instance of construction.25
What a contract ‘means’ is an issue of intention resolved by construction. The
rules used to determine meaning are, in the first instance, those which determine
intention in a linguistic sense. In most cases it involves no more than a reading
of the contract in the light of its context.26 The parties are governed by what they
have said rather than what they meant to say.27 The meaning stage is also the
point at which many issues of legal effect are resolved.28
This stage of construction is carried out with the aid of evidence of context
and any other evidence found to be admissible.29
[1-14] Whose meaning? Two questions may arise in the second stage of
construction. The first is expressed in terms of ‘Whose meaning?’.
The meaning of a contract is determined by applying the ‘perspective rule’.
Under that rule, ‘meaning’ is the conclusion assumed to be reached by a
reasonable person in the position of the person to whom the words are
addressed.30 The range of meanings which are relevant under the perspective rule
varies according to the applicable ‘standard of interpretation’. Choosing the
applicable standard of interpretation necessarily involves the application of
specialised rules and concepts.
Generally, the applicable standard is that of the community at large. However,
that is not always the position. In some cases, the standard is narrower, that is,
the members of a smaller community, for example, those in a particular trade.31
But even if some other standard is applicable to certain words or phrases, most
issues of meaning are determined under the standard of the community at large.
[1-15] Which meaning? Having decided on the standard of interpretation —
and resolved the ‘whose meaning’ question — it may be necessary to choose
between various meanings for a contract. Indeed, in any construction dispute
which has become the subject of formal resolution by arbitration or litigation, it
can be expected that there is a reasonable argument in favour of more than one
construction of the contract. The question, to be answered with reference to any
range of meanings available under the applicable standard of interpretation, is
‘Which meaning?’.32
Principles of construction provide guidance for choosing between competing
meanings. However, there is no single basis for making the choice other than the
intention of the parties, determined by construing the contract as a whole in light
of its context.
Application Stage
[1-16] Which standard? The third stage of construction is the application
stage.33 Application of the contract is, logically, something which can only occur
after the meaning of the contract has been determined. The court turns to the
factual circumstances and, armed with its decisions on meaning, resolves the
particular contract dispute by applying the contract to the facts.34
In practice, it is hardly ever possible (or appropriate) to determine meaning in
isolation from a consideration of the consequences of application of the contract.
How the contract would apply under a particular meaning is an invaluable aid to
choice of meaning in relation to a contract. It is also obvious that, in engaging in
construction, a court does not always determine the full scope of the words at
issue. All that is required is a solution to a particular problem or set of problems.
The only relevant purpose lies in resolving the particular dispute.35
At the same time, it seems clear that under the modern law the failure to
distinguish between the meaning of a contract and the scope of its application
has led to some confusion. The ‘meaning’ of a contract does not necessarily
determine the scope of its application. At the theoretical level, there are two
relevant questions. Just as various standards of interpretation may be considered
for their relevance to meaning, so also various standards may be relevant to the
application of the contract. References may be found to standards of application
expressed in words such as ‘commercial’, ‘literal’, ‘purposive’, ‘strict’ and so on.
The first question is therefore ‘Which standard?’.36
The default rule is, of course, a ‘commercial’ standard of application.
However, English law sometimes requires contracts to be applied strictly, and
literal application will often conform to ‘commercial application’. There are no
hard and fast rules. One reason for drawing attention to the concept is to explain
situations in which a ‘strict’ or ‘literal’ approach is required by precedent.37
[1-17] Which application? The relevant standard of application may not lead to
a single application of the contract. Particularly where the scope of a contract is
at issue, a contract may have more than one potential application. In other words,
a decision may need to be made on the intended scope of the contract when it is
applied to the facts. The second question in relation to application of a contract
is therefore ‘Which application?’.
If a choice must be made between competing applications, commercial
construction provides the principles under which that is done. An additional
reason for drawing attention to a third stage in construction is therefore to
explain the role of specific incidents of commercial construction in making
application decisions.38 These comprise various ‘construction preferences’ and
‘construction presumptions’. Although dignified by precedent, they are for the
most part applications of common sense and policy. The most important
construction preference — which also applies to choice of meaning — is the
preference in favour of reasonable results. Perhaps the most difficult issue
concerns the scope of application of exclusion and limitation clauses.39
It is also necessary to contemplate that application of the contract may be
inconclusive or impossible. In other words, application of the meaning arrived at
in the second stage may not work. In such cases, further analysis is necessarily
required, for example, to resolve latent ambiguity. It may be necessary to
introduce further evidence which would not ordinarily be admissible in
construction and revisit analysis of meaning.40
Legal Effect
[1-18] Introduction. Distinctions between the meaning of a contract and the
scope of its application, and between principles of construction and the use of
the construction process to apply contract doctrine, serve to emphasise a
distinction between what a contract means in a linguistic sense and its effect as a
matter of law.
The rights of the parties to a contract in writing or evidenced by writing are
never determined exhaustively merely by reading the document in context. Even
the most comprehensive contract may be silent on important matters. To a
considerable extent it is correct to say that the legal effect of a contract is always
resolved by the application of the substantive rules of contract law other than the
law of construction, that is, by recourse to precedent and statute, rather than by
reference to construction rules as such. ‘Construction’ is simply a description of
the process by which important components of contract doctrine are applied to
determine rights and remedies.
There are three important points to be made in a work on construction. First,
if construction is the process by which intention in relation to legal effect is
determined, construction rules generally determine the evidential raw material
which may be put before a court as an aid to construction.
Second, ‘intention’ is the ‘bridge’ between meaning and legal effect. It
follows that the principles of construction which give content and scope to the
concept of intention are equally relevant to issues of legal effect. In particular,
construction principles are important in explaining how intention is inferred in
situations where no intention has been expressed.41
Third, if the substantive effect of a contractual term is at issue, it is facile to
say that, because construction determines the intention of the parties, where a
document is at issue construction involves no more than reading the words used
in their context and giving them their ‘natural’ meaning.42 It is impossible to
ignore the role of precedent in relation to legal effect.
[1-19] Issues of legal effect. Unless the decision concerns the scope of a
principle of construction law, or the meaning of a term in a third party standard
form contract, cases concerned with linguistic meaning have no significance as
precedents.43 And very few cases concerned solely with the meaning of
contractual provisions are reported. More frequently, the focus of litigated
construction disputes which find their way into law reports is the legal effect of
words, rather than their meaning.
In relation to a contract, ‘legal effect’ relates to the effect of the bargain as a
matter of law.44 Indeed, every conclusion as to the ‘construction’ of a contract is
a conclusion of law which involves, or leads to, a decision about legal rights.
Many issues of legal effect are therefore resolved in the second stage of
construction. However, distinct issues of legal effect, such as whether a contract
states a condition precedent, must as a matter of logic be determined after the
meaning of the words used in the contract has been ascertained.45 That may
occur in the second or third stage of construction.
The legal effect of a particular decision on meaning is largely governed by
contract doctrine, rather than rules of construction.46 Principles of construction
operate in relation to legal effect in four main contexts, three of which relate to
characterisation issues. First, many aspects of contract doctrine, but particularly
the characterisation of terms as having a particular status, and application of the
doctrine of frustration, are carried out by construction. For example, whether or
not the meaning of the contract is at issue, the legal effect of a promise as a
condition, a warranty or an intermediate term is a distinct issue of construction.
Second, the parties’ expressed intention is not always determinative of the
effect of a contract as a matter of law. For example, although expressed to be a
contractual licence, a contract may operate as a lease.
Third, since most categories of contract have accepted incidents which are
based simply on a characterisation of the contract, construction is necessary to
determine whether, and the extent to which, those incidents apply and operate.
Common examples are contracts of guarantee and contracts of indemnity.
Fourth, to the extent that construction is the process by which contracts are
applied, it is impossible to divorce what the contract means from what rights it
confers. Choice between competing applications — made by construction of the
contract — will resolve legal rights. A common context is application of an
exclusion clause.47
Raw Material
[1-20] Introduction. Particularly for practitioners, a key question is what
material is available for use in construction. Therefore, in order to apply
principles of commercial construction in each of the stages identified above, an
issue of what ‘raw material’ is available in construction may arise.
This aspect of the law of construction is framed in terms of ‘admissibility’.
That is misleading. From the perspective of principles of commercial
construction, ‘admissibility’ is determined on the basis of a particular rule (or
rules) of contract law. In this book, that rule is termed the ‘exclusionary rule’.48
The operation of the rule determines what may be utilised as an aid to
construction. It includes (or is derived from) the parol evidence rule.49
[1-21] What is admissible? To ask what raw material may be used to construe a
contract raises a distinction between, on the one hand, evidence which is
necessarily admissible as an aid to construction and, on the other hand, evidence
which may or may not be used. The former includes evidence of context,50 and
the latter is regulated by the exclusionary rule. It is useful to use terminology
which reflects that distinction. In this book, evidence which is affected by the
exclusionary rule is termed ‘extrinsic evidence’.51 Any item of evidence may
need to be classified, according to whether it is contextual, other admissible
evidence or extrinsic evidence inadmissible except on an exceptional basis.
A very good reason for distinguishing the various stages in construction is
that the admissible raw material varies. Evidence which is inadmissible as an aid
to construction may be admissible in application of the contract. Expressed in
general terms, four points may be made. First, in the preliminary stage of
construction the admissible evidence depends on what is in issue. In so far as the
terms of the contract are at issue, the evidence is at large, and therefore includes
material which would be inadmissible in construction. However, once the
bargain has been determined, including by reference to an entire agreement
clause or analogous provision, the parol evidence rule applies.52
Second, again in the preliminary stage, so far as context is concerned, the
admissible raw material is limited to material which is necessary to put the
person carrying out the construction process in the same position as were the
parties when the contract came into being. That generally has the effect of
limiting the raw material to matters which were known, or capable of being
known, by the parties.53
Third, when determining the meaning of a contract, and also in relation to
issues of legal effect determined by construction, the impact of the exclusionary
rule is that direct evidence of intention, as well as evidence of the prior
negotiations of the parties and their subsequent conduct, are extrinsic evidence
not available as aids to construction.54
Fourth, since the application of the contract necessarily depends on the
factual circumstances in which the contract actually operates, the raw material is
more broadly based. Except to the extent that application of the contract raises
issues which must themselves be resolved by construction, there are no prima
facie rules.55
COMMERCIAL CONSTRUCTION
Introduction
[1-22] Overview. In Mannai Investment Co Ltd v Eagle Star Life Assurance Co
Ltd,56 Lord Steyn referred57 to the ‘shift towards commercial interpretation’
which has occurred in recent times. The expressions ‘commercial construction’
and ‘commercial interpretation’ describe both the characteristics of the
construction process and the desired result of that process.
So far as process is concerned, since contracts are entered into in order to
achieve a ‘rational commercial purpose’,58 primacy is given to commercial
purpose — objectively determined — rather than specific rules. That does not
mean there are no rules. But the emphasis on the role of context has led to a
diminished role for technical rules and marginalisation of the canons of
construction and at least some other aspects of ‘legal interpretation’.59 In relation
to desired result, construction is ‘commercial’ in the sense that the conclusions
reached seek to mirror the conclusions which the reasonable commercial person
would reach in relation to the contract at issue.60 The desired conclusion is
commercial in the sense that, as a matter of ideal, construction should produce a
commercially sensible result.61
Because the commercial approach is antipathetic to technical rules, principles
of commercial construction do not rely on a set of rules. It would be difficult to
speak of a ‘doctrine’ of commercial construction.62 Instead, the concern is with
the interaction between legal rules and what are described below63 as incidents of
the construction process. Therefore, although there are technical rules, guidelines
are also provided, for example, in the use of preferences and presumptions in
construction. In addition, of course, decisions on the content and scope of legal
rules are informed by the commercial objective. In particular, the scope of the
exclusionary rule is affected by commercial considerations. And although in the
commercial context construction is an eminently practical process, the use of
theoretical concepts such as ‘standard of interpretation’ and ‘standard of
application’ are important in breaking down issues. They assist in resolving the
tension between commercial construction and predictability of decision.
[1-23] Incidents of commercial construction. More specifically, the incidents
of commercial construction include:64
(1) assertion of a common sense approach under which lack of clarity may be
ignored for the purpose of achieving a commercially sensible construction;
(2) reliance on the nature and characteristics of the particular contract and
of the class of contracts to which it belongs; (3) recognising diversity,
including by taking into account differences between negotiated contracts
and standard form contracts prepared by third parties for use by members
of a class; (4) reduced reliance on ‘legal interpretation’, including rejection
of the canons of construction except where they have been assimilated
within the framework of commercial construction; (5) application of
construction rules in a manner which is consistent with commercial
objectives, even though that may involve limiting the raw material which
can be placed before a court in construction; (6) a preference to rationalise
conclusions by reference to the meaning and effect of the express terms of
the contract, without recourse to specific rules for the implication of terms;
(7) use of a standard of commercial application, in preference to literal or
strict application; (8) the use of specific preferences and presumptions in
construction, based on precedent and common sense; (9) where a choice
must be made between two or more possible constructions or applications
of a contract, employing a preference for a ‘reasonable’ construction over
an ‘unreasonable’ one; (10) recognition that construction conclusions
should reflect conclusions which would be reached by reasonable
commercial people; and (11) in relation to all issues of construction, taking
proper account of context.
These (and other) incidents also serve to promote or give effect to good faith
in contract and preserve contract validity. Although framed by reference to the
commercial context, they are not limited in their application to a class of
contracts termed ‘commercial contracts’. Rather, the concern for commercially
sensible results applies in the construction of all contracts and documents.
The paragraphs below explain, very briefly, the evolution in the process of
construction in the commercial context. Of course, it is necessary to speak in
generalised terms.
Evolution
[1-24] Rejection of formalism. The beginnings of the modern law of
construction can be found in cases decided towards the end of the 18th century
which rejected a formalistic approach to construction which was the product of
the forms of action, including the emphasis on the distinction between simple
contracts and deeds. Within the area of simple contracts, it was also, to some
extent at least, a movement away from the conception of such contracts as two
sets of unilateral promises, in favour of a conception emphasising the bargain
element. Examples may therefore be found in the context of the distinction
between dependent and independent promises.65
In Kingston v Preston,66 Lord Mansfield is reported67 as having said that the
dependence or independence of covenants was to be ‘collected from the evident
sense and meaning of the parties’ so that, ‘however transposed they might be in
the deed’, their construction depended ‘on the order of time in which the intent
of the transaction’ required their performance. Similarly, in Hotham v The East
India Co68 Ashhurst J said69 that dependency or independency was to be decided
on the basis of ‘the nature of the transaction’. Lord Kenyon CJ expressed the
same idea a decade later by saying that the issue depended ‘on the good sense of
the case’.70 Once the formalistic approach to construction had been rejected in
the context of deeds it was logical, indeed necessary, for the development to be
transferred to simple contracts, particularly mercantile transactions. Accordingly,
in Ritchie v Atkinson71 the question was said (in the context of a contract of
affreightment) to depend ‘not on any formal arrangement of the words, but on
the reason and sense of the thing’.
[1-25] Literalism. Throughout the 19th century and, indeed, for a good part of
the 20th century, literalism held sway. Considerations of certainty, a profound
commitment to the virtues of the ‘plain’ meaning of contracts and a belief that
the function of a court in construction is simply to ‘read the document’
dominated the approach to all contracts. The literal approach to construction was
policed by a much more rigid application of the parol evidence rule than is
present today. The canons of construction which passed for the ‘law’ of
construction were applied with alacrity, particularly in the Chancery cases.
Clearly, this was thought to be the proper commercial approach. Statements
emphasising ‘commercial’ construction were as common in this period as they
are today. It is therefore not difficult to find decisions of very respectable
antiquity in which commercial construction was stated as a goal. For example, in
Southland Frozen Meat and Produce Export Co Ltd v Nelson Bros Ltd,72 Lord
Herschell, giving the advice of the Privy Council, spoke73 of the need to construe
contracts in a ‘business fashion’. Similarly, in Cohen & Co v Ockerby & Co
Ltd74 Isaacs J said75 that in a mercantile contract expressions, particularly
elliptical expressions, are not to be read in a ‘narrow spirit of construction’.
Rather, they are to be read as honest business people may be presumed to have
understood them.
Some of the classic judgments in construction were written during this period.
It would, indeed, be a bold statement to suggest that the judgments of Lord
Blackburn, Lord Justice Scrutton and Dixon CJ espoused ‘uncommercial’
approaches to the construction of contracts. But they were necessarily products
of their time.
[1-26] The rise of commercial construction. The final stage of evolution of the
judicial approach to construction is the adoption of the concept of commercial
construction. Lord Reid said in Tsakiroglou & Co Ltd v Noblee Thorl GmbH,76
‘all commercial contracts ought to be interpreted in light of commercial
considerations’. In the same case, Lord Radcliffe spoke77 in terms of the need
‘first to ascertain what is the commercial nature or purpose of the adventure that
is the subject of the contract’. Similarly, in Ashington Piggeries Ltd v
Christopher Hill Ltd78 Lord Diplock said:79
I prefer to deal with each appeal by considering first the transaction
between the buyer and the seller in the light of common sense and good
faith in business, before examining the particular provisions of the code
[scil, the Sale of Goods Act 1893 (UK)] upon which the parties rely.
It was around this time that, in a trio of cases,80 Lord Wilberforce emphasised the
role of context in construction. The lead of Lord Wilberforce was taken up by
Lord Steyn and Lord Hoffmann, with the latter generally taken to be the
strongest advocate of the use of context as a guiding concept. That concept has
become the cornerstone of principles of commercial construction.81 Indeed, use
of context is the principal means by which the commercial approach has been
achieved.
Adoption of ‘commercial construction’ as a goal involves the rejection of the
view that the construction of contracts should generally be literal or strict. In
Staffordshire Area Health Authority v South Staffordshire Waterworks Co,82 Lord
Denning MR declared83 literal construction to be ‘quite out of date’. Instead, the
law ‘generally favours a commercially sensible construction’.84 The rationale
was summed up by Lord Steyn in Mannai Investment Co Ltd v Eagle Star Life
Assurance Co Ltd,85 in terms ‘that a commercial construction is more likely to
give effect to the intention of the parties’. He referred expressly86 to a ‘standard’
of ‘commercial construction’.
POLICY, CERTAINTY AND PREDICTABILITY
Introduction
[1-27] Policy functions. The specific policy objectives of construction generally
have a close affinity with doctrine. The policy concerns and goals of
construction law include: respect for the expressed intention of the parties;
achieving commercially sensible results; respect for freedom of contract;
promotion of certainty and predictability; promotion of coherent and
consistent application of contract doctrine; and promotion of good faith in
commerce.
Of course, these concerns may compete, either generally or in particular
cases.
[1-28] Intention. The objective of construction is to determine and give effect to
‘intention’. The primary concern is with expressed intention. But intention is a
very slippery concept. Principles of commercial construction necessarily
embody certain assumptions about intention. Those assumptions are important in
providing the basis for making choices between competing meanings and
between competing applications of a contract.
In any case where there is a choice between two tenable constructions (or
applications) it will be presumed that the parties intended the more reasonable
construction (or application). Since contract disputes which become the subject
of arbitration or litigation commonly require such choices to be made, the more
reasonable construction is chosen on the basis of inferences drawn from context.
Promotion of commercial solutions is not a basis for disregarding the parties’
expressed intention. However, in many cases, the appearance will be given that
the decision departs from the construction which would be placed on the contract
by a consideration of the document alone. The clear line that was once drawn
between expressed intention and inferred intention has become very blurred.87
Because principles of commercial construction emphasise the importance of
‘context’, and because every negotiated contract is unique, there is an obvious
tension between the concern for certainty and the need to resolve unique
disputes. Decisions based solely on ‘intention’ are then open to the criticism that
construction is no more than a device by which a policy goal — commercial
construction — is achieved in a particular factual context. To the extent that
‘discretion’ refers to a freedom to make a choice between competing
constructions, it must necessarily operate in the law of construction.88
[1-29] Intention and doctrine. Saying that the application of contract doctrine
depends on intention (construction) looks, to the layperson, to lead nowhere
since, almost by definition, the parties have not thought about the matter. It is
obvious that, as laypersons, contracting parties have little or no understanding of
legal concepts and doctrines such as mistake and frustration. Whether the
contract is verbal or written, an inference of intention in relation to the
application of doctrine is a matter of law not fact.89
Therefore, although the same objective approach is applied in cases of legal
effect as is applied in cases where linguistic meaning is at issue, there may be an
element of fiction in treating the reasonable person who construes the contract as
understanding the operation of the contract doctrines which define the concepts.
Accordingly, external considerations — in effect, matters of policy — are also
taken into account.90
Certainty and Predictability
[1-30] The need for certainty. For more than 200 years there has been a
persistent plea for certainty in commercial matters. In 1782 Lord Mansfield said
in Medcalf v Hall91 that nothing is ‘more mischievous than uncertainty in
mercantile law’. In 1842 Tindal CJ warned in Shore v Wilson92 that uncertainty
in construction would make it impossible for lawyers to advise clients. The pleas
have continued, particularly in the context of standard form contracts. For
example, in A/ S Awilco of Oslo v Fulvia SpA di Navigazione of Cagliari (The
Chikuma),93 Lord Bridge said94 that where parties: … embody in their contracts
common form clauses, it is … of overriding importance that their meaning and
legal effect should be certain and well understood. The ideal at which the courts
should aim, in construing such clauses, is to produce a result, such that in any
given situation both parties seeking legal advice as to their rights and obligations
can expect the same clear and confident answer from their advisers and neither
will be tempted to embark on long and expensive litigation in the belief that
victory depends on winning the sympathy of the court.
It is sometimes supposed that certainty must come at the expense of fairness.
For example, in his famous judgment for a majority of the New York Court of
Appeals in Jacob & Youngs Inc v Kent,95 Cardozo J said96 that the courts, having
balanced considerations of certainty against those of equity and fairness, had
‘found the latter to be the weightier’. This is, however, a false contrast. If the
application of contract doctrine — the principal source of certainty in English
law — does not produce decisions which are objectively ‘fair’ there is something
wrong with doctrine.
There is, of course, no need for the law to make any abstract choice between
certainty and predictability on the one hand and uncertainty (of result) and
flexibility (in application) on the other. Certainty has no role in contract law
except in connection with a policy objective. A policy of certainty in the abstract
has no place in the modern law. It belongs to former times when form was more
important than substance. It is not an end in itself. Nor is it something which will
impact on all construction issues. But it is a relevant consideration. Pragmatism
is not synonymous with certainty of decision. Since many contract decisions
influence future decisions and commercial practices, the commercial approach to
construction must necessarily balance the one against the other.
[1-31] Literalism and commercial construction. The ‘strict’ interpretation of
contracts, and literal application to factual situations, are more easily justified by
reference to a concern for certainty than commercial construction. Even today, in
some contexts literal application remains the norm. There is, for example, a long
series of cases on non-promissory conditions precedent in options and contracts
of guarantee where literal construction is, for some purposes at least, still
common.97 There is also a well-known and much criticised line of cases98 of
which Arcos Ltd v E A Ronaasen & Son99 is a famous example. Lord Atkin
said100 that if a ‘written contract specifies conditions of weight, measurement and
the like, those conditions must be complied with’.
But the view that literal construction of contracts leads to certainty is in effect
rejected by commercial construction. If it leads to an objectively unreasonable
result, literal construction will generally be uncommercial. If courts only ever
applied contracts literally, construction would become a charter for cheats. To
the extent that it encourages strategic behaviour, designed to exploit fortuitous
events such a market price fluctuations, the literal construction of contracts is
contrary to good faith. If contracting parties understand that courts construe
contracts in light of context, including the purpose of the contract, objectively
determined, they are less likely to risk litigation by insisting on the literal
construction. In short, they will resolve matters themselves, with the ‘give and
take’ process that the orderly, non-litigious resolution of commercial disputes
necessarily entails.
[1-32] Self-determination. Commercial construction achieves certainty not
because it leads to particular results but because it mimics processes undertaken
by commercial parties. That is not because contracts are construed in the same
way as utterances in ordinary life are interpreted.101 Rather, it is because the
concern to promote commercial — common sense — results is the same concern
which commercial people share in their commercial interactions. Litigation (like
arbitration) is a matter of last resort. But if the conclusion of a court (or
arbitrator) is likely to be the same as any commercial person acting in good faith,
there is no incentive to litigate or arbitrate. In that respect, it is no accident that
the rise of commercial construction as a legal concept matches the frequent use
of alternative dispute mechanisms such as mediation. The faith shown in
resolution by international arbitration based on the application of ‘soft law’, such
as the UNIDROIT Principles and the so-called lex mercatoria, is inconsistent
with the application in domestic law of mechanical rules masquerading as
construction ‘principles’.
Although courts must necessarily decide who is ‘right’ and who is ‘wrong’ in
construction matters, that is, provide ‘yes’ or ‘no’ answers, the proper
perspective on construction is as a body of law which reflects the concerns and
objectives of contracting parties. Ultimately, the view that certainty and
predictability are important can only be meaningful if contracting parties are
themselves in a position to know the effect of their contracts. This is out of the
question in relation to typical legal issues such as whether a party has breached a
condition or a warranty. Commercial people cannot be expected to determine the
legal effect of their contracts at that level. Although this suggests that the
concern for certainty and predictability espoused in the cases largely reflects a
concern for coherent doctrine, every complex legal issue has an underlying issue
of intention which can be expressed in commercial terms.102 Commercial
predictability is achieved if the results properly reflect the understandings of
commercial people.
[1-33] Application of contract doctrine. The emphasis on certainty and
predictability in construction is usually associated with contract doctrine. For
example, the need for certainty has been used as the main justification for readily
inferring that a time stipulation in a commercial contract is a condition even
though not expressed as such.103 To the extent that doctrine is applied by the
process of construing a contract, a concern for certainty of decision is an element
of construction law itself.
The concern for certainty in contract includes an affirmation of the need for
construction rules and principles to be stated and applied — like any other
contract rule or principle — in a coherent and practical way. This is important,
not only because decisions have to be evaluated, but also because — when made
in the context of an issue of legal effect — decisions make no contribution to
doctrine unless reasons are stated.
[1-34] Standard form contracts. It is perhaps no accident that most of the cases
in which judges have made the plea for certainty have concerned standard form
contracts such as GAFTA forms for the sale of commodities and well-known
charterparty standard forms. There is widespread use of third party standard
form documents prepared, for example, by a trade association for use by its
members. Decisions on such contracts affect a great many people. It is therefore
appropriate — from a commercial perspective — to distinguish construction of a
standard form contract from the construction of an individualised contract.104
Moreover, if it is felt that particular constructions of the standard form do not
match commercial understandings, the standard form can be amended.105
Uniformity and Neutrality
[1-35] Unitary theory. Construction has played a very significant role in
unifying contract law. One reason why a unitary theory of contract law still
exists, and has not been displaced by sets of rules peculiar to specific categories
of contracts, is that the applicable construction rules do not depend on the type
of contract at issue.106
This is another way of emphasising the central role of intention, but it needs
to be said that even where a particular class of contract has been taken out of the
main body of contract law, ‘construction’ is still vitally important, and it is
unusual for special construction rules to be created. Instead, the ‘special’ rules
applicable in relation to specific categories of contract take the form of
presumptions about intention. Even where statute intervenes, it is assumed that
construction issues are resolved by general principles. But policy considerations
may impact on the role of construction. For example, where a statute renders an
exclusion clause void, a particular interaction between construction law and
policy is obvious. The courts are aware that their approach to construction of the
contract — to determine whether there is an exclusion clause — will broaden or
narrow the scope of the legislative provision.107
[1-36] Rule uniformity. Construction principles are used to promote rule
uniformity in the application of contract doctrine to different kinds of contracts.
For example, in Cehave NV v Bremer Handelsgesellschaft mbH (The Hansa
Nord)108 Roskill LJ said109 that it is ‘desirable that the same legal principle should
apply to the law of contract as a whole and that different legal principles should
not apply to different branches of that law’. That statement was made in the
context of a particular construction issue, namely, the classification of a
promissory term as an intermediate term. But the same approach is taken in
many other contexts.
Specific illustrations include the formulation and application of uniform rules
or general principles: to ensure that ‘intention’ is determined objectively; to
determine from whose perspective a contract should be construed; to
determine the raw material which may be put before a court; and as
preferences and presumptions used to resolve construction disputes.
The overall objective is to achieve a degree of certainty and ‘system’ in the
process by which commercially sensible constructions are achieved.
[1-37] Objective approach. Perhaps the most uniform rule in construction is the
objective approach to construction. An objective approach is applied when
construing a contract.110 The law rejects a completely detached approach.111
Instead, intention is determined on the basis of what one person has led the other
reasonably to believe.
Although what is determined as the expressed or inferred intention of the
parties to a contract may or may not correspond to their actual intention, because
the intention of the parties to a contract is a common intention, actual intention is
necessarily a ‘construct’. The basis for applying the objective approach is
therefore a presumption that expressed intention conforms to actual intention. If
there is no expressed intention, it is the intention which is inferred by applying
the objective approach which is presumed to be the parties’ actual intention. At
least in relation to the construction of a document, the situations in which the
law permits such presumptions to be rebutted by proof of actual intention are
therefore very small in number. This means that, when enforcing a contract, the
court may not be giving effect to the parties’ actual intentions.112 However, that is
merely a consequence of the fact that the law applies objective rules to
determine intention.
[1-38] Neutrality. Primarily because of the use of objective criteria, the law
adopts a neutral approach to construction issues. The law is not influenced by
matters such as whether one party made a bad bargain or the uncommunicated
objectives of the individual parties. Particularly in the 19th century cases, the
emphasis on literal construction and the concern to apply construction rules
which enable the document to ‘speak for itself’, are obvious manifestations of
neutrality in construction.
The concern of the current law, particularly in the commercial context, is to
approach construction issues ‘without any pre-conception as to what the parties
intended’113 and arrive at commercially sensible results. However, it would be
naive to assume that a concern to protect certain parties never influences
construction decisions. Construction rules can be manipulated, and the law
countenances particular approaches to construction in the context of particular
types of contract. Illustrations include the construction of exclusion clauses to
preserve common law rights and remedies, and the protection of guarantors by
presumptions of intention.114
PROBLEMS AND FALLACIES IN CONSTRUCTION
Problems with Construction
[1-39] Theory. From a theoretical perspective, the role of ‘construction’ in
contract law has been badly neglected. Although the courts and scholars every
day describe issues as depending on the ‘construction’ of a contract, it is only in
very recent years that there has been real discussion of the role of construction
theory. Given the major challenges now made by the courts to traditional views
on construction, it is hardly surprising that the literature is very extensive.115 It
includes important contributions by judges and former judges.116
In so far as the courts have developed a theory of construction it has been
somewhat compartmentalised and disconnected. There are four main
components. The first is that all documents must be construed in context.
The second component is the general object of determining and giving effect
to the expressed intention of the parties. This is affected by the two remaining
components, which are principally designed to ensure that intention is
determined objectively.
The third comprises the rules which govern the raw material which the parties
to a contract may put before a court. In this context, theory has revolved around
the application of a much debated rule (or rules) described above as the
‘exclusionary rule’.
The fourth component is the application of what are conceived as specific
rules, canons of construction and presumptions of intention, to determine the
meaning of the particular words which the parties have used, their legal effect
and how contracts should be applied to factual circumstances.
In the more recent cases, significant steps have been made — chiefly in the
name of commercial construction — within the compartmentalised framework
described above. Nevertheless, traditional applications of each component gave
rise to a body of construction law suffering from a great many problems. One of
the objectives of commercial construction is to eliminate those problems. Some
of the problems are briefly discussed below.
[1-40] Terminology. All branches of contract law are bedevilled by confusing
terminology. Construction law is no exception. It is not just that different words
may be used to describe the same thing, or that the same words may be used to
describe different things, it is also that past usages of words do not always match
up with common usages today. Three examples may be given. First, many cases
treat ‘plain meaning’ and ‘natural meaning’ as referring to the same thing. Of
course, they may be so used. But ‘plain meaning’ seems more appropriate to
reflect the presence of general community meanings of a word, and ‘natural
meaning’ seems more appropriate to reflect perceptions as to the sense of a word
or expression in its circumstantial context.
Second, ‘extrinsic evidence’, which is often referred to in the cases as ‘parol
evidence’, is sometimes used to denote evidence of any matter which stands
outside the four corners of a document. But on other occasions, including in this
book, ‘extrinsic evidence’ is used to describe evidence which is not just outside
the four corners of a document but also within the scope of operation of the
exclusionary rule. The former usage — very prevalent until recently — treats
evidence of context as ‘extrinsic evidence’. That seems unhelpful.
Third, and most difficult of all, use of the concept of ‘meaning’. Particularly
when used in conjunction with adjectives such as ‘plain’, ‘natural’, ‘primary’,
‘true’ and so on, there is a risk of confusion between conclusions about different
construction issues, namely, linguistic sense, legal effect and the scope of
application of contracts.
[1-41] Intelligibility and accessibility. In practice, ‘construction’ is a process
carried out by contracting parties and legal advisers on a daily basis. Ideally, the
applicable rules of construction should be both intelligible and accessible. Until
quite recently, construction has been seen as something which courts do. At
times, ‘intention’ has been regarded as akin to a ‘dirty word’, on the basis that
contracts — invariably contract documents — exist as ‘things’, to be construed
independently of the will of the parties.117
The objective approach which must be taken to contract construction does not
dictate the development and application of rules which are unintelligible to
laypeople. Legal rules are necessary, but dressing up presumptions about
intention in maxims and rules expressed in Latin rather than English is no longer
appropriate. Perhaps the most surprising feature of construction to the uninitiated
is that taking the actual intention of contracting parties into account is not a
proper focus for construction rules. Lawyers can explain this, but the
justification for the approach taken by the courts must include an explanation of
how, as a general rule, decisions do in fact give effect to the parties’ intention. In
this respect, there is clearly a difference between process (the objective
approach) and purpose (giving effect to intention).
The courts sometimes take refuge in the presumptions of construction, or a
perceived need to apply a particular construction approach, such as ‘strict’
construction, perhaps at the expense of construction in accordance with good
faith and commercial common sense, but certainly without worrying too much
about the intentions of the parties. Again, principles of commercial construction
are playing a major role in eliminating this approach.
[1-42] Negative orientation. Contract is an institution designed to facilitate and
secure the movement of goods, services and land between members of the
community. Legal principles should (so far as possible) be positive in their
orientation. But the orientation of construction rules has often been negative.
The most obvious example is the exclusionary rule, which dictates what
evidence may not be used as a direct aid to construction.
Again, however, this is changing. Sometimes it is subtle. For example, the
traditional preference against construction conclusions which are unreasonable
has become a construction preference in favour of reasonable conclusions.118
More generally, since the whole purpose of commercial construction is to arrive
at a commercially sensible result, it has a clear positive orientation.
[1-43] Diversity of function. The overt focus of principles of construction is,
almost exclusively, on the obvious interpretative function. However,
construction is not exclusively about interpretation. Construction to determine
meaning differs from construction to determine the legal effect of a contract.
Both differ from the use of construction to apply the contract. There has been a
distinct neglect of this diversity of function, at least at the overt level.
This neglect of diversity continues, even under the ICS principles.119
[1-44] Diversity of document. Diversity has another aspect. An obvious
problem with construction as a concept is that it falls to be applied to an infinite
range of contracts. Every negotiated contract is unique. But the same
construction principles apply to standard form contracts.
The simple description ‘contractual document’ betrays the diversity of the
concept. For the purposes of construction, the concept includes not only a
‘contract in writing’ but also one which evidences all or part of the bargain.120
The document itself may be a standard form, or a document which is tailor-
made. The contract will in all cases include commercial terms. Although a
crucial element of the bargain, where a contract is made on a standard form, the
commercial terms may not even be included in the document which states the
‘terms’ of the contract.
The description ‘standard form’ is itself applicable to a wide variety of
documents. The basic distinction is between a document which expresses one
party’s terms of trade, and one which has been prepared by a third party such as
an industry body, trade association or professional body. The former can, of
course, be expected to reflect the interests of the issuer of the document.
However, the latter will generally be more evenly balanced. Under such a
document a party may swap sides from transaction to transaction — for
example, be a buyer or charterer one day and a seller or shipowner the next.121
Where a standard form is used, the negotiated terms may amount to no more
than a statement of the parties’ agreement on price and the time for performance
or duration of the contract.
The commercial approach to the construction of contracts includes the view
that the principles applied to construe contracts should, generally speaking, also
be applicable to any document which determines private rights, such as
assignments and trust deeds. They are illustrations of documents which are,
typically, unilateral in character. Such documents are also common in relation to
the administration of contracts, for example, a notice of termination. A unilateral
document such as a notice of termination is different from a bilateral document
stating the terms of a contract. But, again, since the modern law places emphasis
on the use of uniform rules, in Mannai Investment Co Ltd v Eagle Star Life
Assurance Co Ltd,122 Lord Hoffmann asked,123 rhetorically, ‘Why, therefore,
should the rules for the construction of notices be different from those for the
construction of contracts?’.
[1-45] Characterisation of issues. Because of the large variety of issues which
are resolved by construction, and because all the issues relate to the ‘intention’ of
the parties, there is a temptation to isolate particular issues of intention by the
application of specific legal rules. There is a vast body of case law on the
‘incidents’ of particular categories of contract. These incidents take effect as
presumptions of intention. Because they dispense with the need for the parties to
make express statements of intention, they serve an important and generally
positive role.
Although it is certainly useful to have particular rules to deal with particular
construction issues, because they embody pre-conceived notions they need to be
applied with caution. It is less easy to justify specific rules which depend on an
assumption that the parties intend their contract to be applied by reference to an
abstract standard. For example, a strict or literal construction approach is in
some contexts preferred over commercial construction as a matter of general
principle. As noted above, since such general approaches must have a policy
basis, their use depends on articulation of a rational basis.
Contract law is also littered with specific rules — some very specific —
based solely on the use of ‘magic words’. These may take on a life of their own.
For example, in the context of exclusion clauses,124 the courts have tended to
apply specific rules to determine intention, often without a proper explanation of
the relationship between these specific rules and construction law in general. In
particular, although it may be assumed as a starting point that the parties do not
intend to exclude liability for negligence, whether they have done so is an issue
of construction in the resolution of which any specific rules are servants not
masters.
[1-46] Presumptions of meaning. As noted above, specific issues of intention
can attract specific rules. But, at times, very general issues are sought to be
resolved on particular bases, as if they were governed by specific rules. The
classic example is the ‘plain meaning rule’125 and its cousin the ‘natural meaning
rule’.126 At least in relation to the former, the reference point appears to be to the
standard of interpretation of the community at large. However, the rule has
traditionally been applied on the basis that there can be only one ‘plain’
meaning. No doubt the meaning of many contracts is ‘plain’ to the reasonable
person who is taken to construe a contract. But it seems counter-intuitive to
suggest that the parties go to court or arbitration in relation to such contracts.
The rationale for the use of concepts such as plain and natural meaning is,
perhaps, that all cases of construction must have a starting point. However,
whereas in the past plain meaning was also the finishing point, and something
which could not be ‘contradicted’ by context, that is no longer the position today.
It is therefore hardly surprising that the utility of concepts such as plain meaning
and natural meaning is now openly doubted.127
[1-47] Independent legal rules and construction. One of the problems in
explaining the concept of commercial construction is the close interaction
between construction and contract doctrine. As noted above,128 construction is
often the process by which doctrine is applied. The rules which make up
particular doctrines of contract law are not the concern of a book on
construction. It must be obvious that although the classification of a promissory
term as a condition is something carried out by construction, the doctrine of
discharge for breach of a contractual term is not an element of the law of
construction.
It is, of course, rare for any issue of intention to be resolved without the aid of
construction. In many cases, the role is negative, in the sense that the question is
whether a particular presumption of intention derived from doctrine has been
addressed by the parties. But sometimes the process seems to go the other way,
with confusion between issues of intention which are resolved by construction
and those which are not. For example, the substantive rules of contract law
determine agreement. In relation to simple contracts there are only two
substantive requirements: an intention to be contractually bound by a promise
and consideration to support the promise. There is no third area of substantive
law known as ‘offer and acceptance’. Those concepts are simply tools of
analysis, applied by construction. A contract may be found even though there is
no offer and acceptance as such. The fact that the construction of documents
alleged to satisfy the requirements of offer and acceptance is determined as a
matter of law does not create a distinct contract doctrine. It is construction of the
communication alleged to be an acceptance which determines whether it can
legitimately be regarded as the acceptance of an offer.129 No independent
doctrine is at issue.130
[1-48] Default rules. As expressions of intention, contracts are always
incomplete. It would, indeed, be futile for the parties to any contract to try to
anticipate all the situations in which the contract may need to be applied. It
would be equally futile to try to express, exhaustively, the effect of the contract
as a matter of law. Contracts do regularly include provisions such as termination
clauses which are not required for the contract to be complete as a matter of law.
But there will always be gaps. Those gaps are filled by construction and
implication. In many cases, that will involve the application of default rules.
Except where mandated by public policy or statute, default rules are applied by
construction.
Students of contract law are often told, ‘If you are stuck for an answer to a
contract problem, say that it “depends on the intention of the parties”, you are
unlikely to be wrong’. Judges often adopt a not dissimilar approach in
rationalising substantive rules of contract doctrine by reference to ‘construction’.
Where contract doctrine is applied by construction many of the ‘construction
tests’ are simply reformulations of the question.131 It is not the function of
principles of construction to fill gaps in contract doctrine. However, because
contracts are inherently incomplete, certainty and predictability can be achieved
only by the use of default rules, that is, presumptions of intention.
To the extent that the rules applicable under doctrines such as discharge for
breach and frustration are open-ended statements of default rules, the task of
reaching commercially sensible results under contract doctrine falls to
construction law. As noted above,132 there is an element of fiction in applying
concepts such as discharge and frustration by recourse to the same reasonable
person who determines the meaning of a contract. Default rules are of immense
value. The problems for commercial construction lie in the application of those
default rules in a commercially meaningful way and in overcoming the fact that,
because they are supported by precedent, evolution in default rules will
necessarily lag behind developments in commercial contracting.133
Construction Fallacies
[1-49] Introduction. One particular problem in construction is a commitment to
rules or propositions which, at least when stated in dogmatic form, are
fallacious. Reference may therefore be made to illustrations of false assumptions
and certain fallacies in construction.
A ‘fallacy’ of construction is a rule or approach which is said to represent an
element of the law on construction, or to represent a conclusion to be drawn
from the body of law described as ‘construction’, when it does not in fact do
either. One impact of principles of commercial construction has been to expose
and remove several of these fallacies.
[1-50] Assumption that a contract exists. Most discussions of construction
assume the existence of a contract to be construed. This is logical enough.
However, it neglects three important features of construction law. First, the
construction process may be used not only to construe and apply a contract
which has been agreed, but also to determine whether or not there is a contract.
The position is self-evident in relation to the analysis of written negotiations by
reference to the concepts of offer and acceptance.
Second, in the construction of a document which is void or unenforceable, the
same rules of construction as are applied to fully effective contracts are generally
applicable. That includes rules about raw material which is available for use in
construction. However, of course, the function of commercial construction to
uphold contracts will in some cases result in the use of a wider range of raw
material.134
Third, the construction process is applicable to documents of all forms and
types. Thus, whether a document expresses or evidences a contract or relevant
conduct, such as conduct alleged to be repudiatory, the meaning and legal effect
of the document is necessarily a question of construction.
[1-51] Admissibility of evidence. Particularly in the past, courts frequently
referred to a single rule — termed the parol evidence rule — as determining the
scope of raw material available in a construction case. But the proposition that a
single rule, usually expressed in a single sentence, can be used to determine all
the evidence which may be used as a direct aid to construction needs only to be
stated to disclose an element of fallacy.135
The traditional fascination of the common law with the role of the
admissibility of evidence in relation to construction has certainly been one
reason for the lack of proper theoretical analysis which one would expect of a
rule of substantive law. In recent years, the exclusionary rule has been subjected
to very close scrutiny.136 Although the rule or rules which exclude extrinsic
evidence as an aid to contract construction remain extremely important, they are
applied today in a more discerning way than in the past.
[1-52] Fallacy in relation to meaning. The only relevant meaning of a contract
is that intended by the parties. Under the approach of the common law, the
parties’ intention is determined objectively. Even so, except in relation to
standard form contracts, it is necessarily a unique intention. As a matter of law, a
contract can have only one meaning in its application to a given set of facts.
However, that does not mean that words have single or absolute meanings
applicable on all occasions on which they are used.
At one time, as an ingredient of ‘legal interpretation’, courts regularly treated
the meaning of particular words as being determined once and for all. That is
less common today. But more generally, as noted above,137 ‘natural’ meaning,
‘proper’ meaning, ‘true’ meaning and so on suggest that words can have
predetermined referents.138 What is ‘plain’ or ‘natural’ to the adjudicator of a
construction dispute may not have been plain or natural to the parties. In other
words, the fallacy is either that words have some inherent meaning divorced
from context or that the parties are bound by what is plain or natural to the
adjudicator of a construction dispute. The parol evidence rule was formerly used
to underpin a belief in the absoluteness of meaning. The fact that a document is
clear on its face is a rationalisation for not having regard to context for fear that
the evidence might contradict the document’s clear meaning. Today, that
approach is not taken. The concern of construction is the contract — the bargain
— not the document. Thus, it is recognised that the whole point of taking
account of evidence of context is to enable decisions to be made on whether, in
fact, the meaning of the contract is clear.
CONSTRUCTION AND STATUTE
[1-53] Introduction. Obviously, the impact of statute on the construction of
contracts is considerable and diverse. But ‘construction’ remains the last bastion
of the common law of contract. Therefore, the impact of statute on the law of
construction is specific, not general.
The various ways in which statutes state, affect or regulate construction rules
include the following: the expression of specific rules of construction to be
applied in particular contexts; the expression of certain questions of law as
questions of construction or intention; and expressing rules or presumptions
on how particular provisions or contracts should be construed.
Although it is impossible to deal with all specific rules of construction in this
work, and unnecessary to identify them in the present context, the discussion
below indicates the main categories of intervention and areas of relevance.
[1-54] Contract and statutory interpretation. At one time it was common for
cases on the interpretation of statutes to be cited as authorities on the
construction of contracts. However, except at a very basic level, interpreting the
language of Parliament is a ‘somewhat different process from the interpretation
of a private contract’.139 The citation of cases on statutory interpretation can
perhaps be justified by saying that there are common elements in statutes and
documentary contracts. Both are instruments. Written contracts and statutes also
share the common feature of being expressions of intention.140 Thus, Lord
Blackburn said in River Wear Commissioners v Adamson141 that determining
intention is an object which is common to the construction of all written
instruments. Sometimes, legislative provisions are legitimately construed as
analogous to incorporated contract terms.142 But that is rare.
A concern for rule uniformity (perhaps ‘neatness’ would be a better
description) in relation to the topic ‘construction’ has sometimes prompted
suggestions that principles of contract construction and statutory interpretation
should be ‘harmonious’.143 Similarly, a desire for consistency of approach in the
interpretation of all instruments has sometimes been expressed.144 For example,
it has been suggested that statutory interpretation and contract construction are
governed by the same considerations in the refusal to resort to extrinsic evidence
where the language is clear.145
However, contracts have a negotiation history which is not even superficially
analogous to a legislative history, and statutes are intended to affect a large
number of people whereas many contracts only directly affect the immediate
parties. By comparison with statute, even contracts expressed in standard forms
affect a narrow class of people. The fundamental point, however, is that
contracts give effect to particular personal needs and private objectives, whereas
statutes generally give effect to community needs and public (policy) objectives.
Given those differences, and the existence of a substantial body of case law
(much of it recent) on the construction of contractual documents, the better view
is that the time has been reached where reliance on cases interpreting statutes is
rarely necessary or helpful when construing contracts.146
[1-55] General rules of construction. There are no examples under English law
of statutes which express rules of construction applicable to contracts in general.
The same is true under Australian law. Although specific provisions do exist in
the context of particular classes of contract, including under the sale of goods
legislation, there is generally no formulation of general rules of construction.
But the position is different under CISG, which applies to certain international
sale of goods contracts.147 There are also ‘soft law’ statements of principle in the
international context, including the UNIDROIT Principles.
The Uniform Commercial Code (US) contains provisions on how to construe
contracts, the application of the parol evidence rule and the raw material which
may be used as an aid to construction. Mention may also be made of the
Contracts Restatement 2d (1979). Although this does not have the force of law,
it represents an attempt to set out the general principles and specific rules of
contract law, including those governing the construction of contracts. It is
therefore helpful both from a comparative perspective and as an indication of
how rules on construction might be formulated in a statutory format.
[1-56] Expression of rules as questions of construction. Numerous examples
could be given of statutory provisions which state in propositional form that the
resolution of particular legal issues depends on the construction of the contract
or the intention of the parties to the contract. Two illustrations can be found in
the sale of goods legislation.
First, in relation to a stipulation as to time other than the time of payment, the
sale of goods legislation provides148 that whether or not time is of the essence of
the contract ‘depends on the terms of the contract’.
Second, more specifically, but to the same effect, the same legislation
provides149 that whether a term is a condition or a warranty ‘depends in each case
on the construction of the contract’.
In the absence of any indication to the contrary, such examples are no more
than statutory expressions of a common law rule in a particular context. They
must therefore be applied using the same principles of construction as apply to
contracts not regulated by the legislation. Thus, the provision in relation to
whether a term is a condition or a warranty states that a stipulation may be a
condition ‘though called a warranty in the contract’. Again, since the provisions
say nothing about the raw material which may be used to construe a term alleged
to be an essential time stipulation or condition, general construction rules must
be applied.
[1-57] Statutory construction rules. There are probably hundreds of specific
construction rules buried in statutes of different kinds and in various contexts.
Even though stated as rules, most generally function as presumptions of
intention.150
The sale of goods legislation is a useful source of specific illustrations. One
example of a statutory presumption is the provision151 that ‘stipulations as to
time of payment are not of the essence of a contract of sale’. Another,
reproducing a specific instance of a general presumption, is the statement that in
a contract of sale ‘month’ is presumed to mean a ‘calendar month’. A third
example, or group of similar examples, are those relating to delivery.152 In the
absence of contrary intention, payment and delivery are ‘concurrent conditions’,
the place of delivery is the seller’s place of business, and where ‘the seller is
bound to send the goods to the buyer, but no time for sending them is fixed, the
seller is bound to send them within a reasonable time’. Finally, there are the
specific rules on the passing of property which create presumptions as to the
parties’ intention.
Since these are merely statutory presumptions, the parties to a sale of goods
contract are free to depart from the construction rules expressed by the
legislation. In other words, the legislative provisions generally state default
rules. Sometimes this is admitted expressly. For example, the statements of the
rules on the essentiality of the time of payment and the passing of property in the
sale of goods legislation are expressly qualified by the words ‘unless a different
intention appears’.
[1-58] Statutory regulation of contracts. Statutory regulation of form in
relation to certain contracts has existed for over 300 years. Thus, ss 4 and 17 of
the Statute of Frauds 1677 required expressions of contractual intention in
relation to certain enumerated promises to be expressed in writing or evidenced
by writing. But the limits to the autonomy of contracting parties in stamping
their own meaning or legal effect on contract terms vary significantly.
Of more contemporary relevance are restrictions on the ability of parties to
exclude or qualify the terms implied by statute.153 Such provisions control
construction by denying to the parties the ability to exclude those implied terms,
or to give them a legal effect different from that provided for by the statute. In
the context of consumer contracts, and some commercial contracts, the general
scheme of freedom of contract of the sale of goods legislation no longer operates
in relation to terms implied by the legislation.
There are also more general restrictions on freedom of contract, where
contract construction may be affected by statutory interpretation. For example,
where it is alleged that a contract is illegal under statute,154 or the contract terms
are dictated by statute,155 both the contract and the statute must be construed to
determine whether the former conforms to the latter. Although the topic of
illegality has little relevance to a book on contract construction, the relevant
general principles of construction include rules and preferences which take
account of the interaction between intention in contract and public policy.156
1. See further [1-07].
2. See [4-22] (‘perspective rule’).
3. [2004] 1 AC 715 at 737; [2003] UKHL 12 at [9]. See also Bank of Credit
and Commerce International SA v Ali [2002] 1 AC 251 at 259; [2001]
UKHL 8 at [8] per Lord Bingham, with whom Lord Browne-Wilkinson
agreed (‘give effect to what the contracting parties intended’).
4. See also River Wear Commissioners v Adamson (1877) 2 App Cas 743 at
763 per Lord Blackburn (‘object is to see what is the intention expressed
by the words used’); Ferguson v Inland Revenue Commissioners [1970]
AC 442 at 464 per Lord Diplock (‘primary purpose’); Australian
Broadcasting Commission v Australasian Performing Right Association
Ltd (1973) 129 CLR 99 at 109 per Gibbs J (‘primary duty … to discover
the intention of the parties’); Deutsche Genossenschaftsbank v Burnhope
[1995] 1 WLR 1580 at 1587 per Lord Steyn (‘give effect to the intention
of the parties’). Cf Charter Reinsurance Co Ltd v Fagan [1997] AC 313 at
388.
5. See Life Insurance Co of Australia Ltd v Phillips (1925) 36 CLR 60 at 78;
R v Spens [1991] 1 WLR 624 at 630; B & B Constructions (Aust) Pty Ltd v
Brian A Cheeseman & Associates Pty Ltd (1994) 35 NSWLR 227 at 243–
4.
6. See Contracts Restatement 2d (1979), §200, com c (interpretation does not
determine legal effect). See, eg E W Patterson, ‘The Interpretation and
Construction of Contracts’ (1964) 64 Columbia LR 833.
7. But see Collector of Customs v Agfa-Gevaert Ltd (1996) 186 CLR 389 at
396–7 (criticising Life Insurance Co of Australia Ltd v Phillips (1925) 36
CLR 60 at 78).
8. Lindley LJ’s discussion in Chatenay v Brazilian Submarine Telegraph Co
Ltd [1891] 1 QB 79 at 85, shows that the contrast can be drawn without
any need for refined terminology.
9. Cf Johan Steyn, ‘The Intractable Problem of the Interpretation of Legal
Texts’ (2003) 25 Syd LR 5 at 6 (‘subject too elusive to be encapsulated in a
theory’).
10. [1976] 1 WLR 989; [1976] 3 All ER 570.
11. [1976] 1 WLR 989 at 995. See also Prenn v Simmonds [1971] 1 WLR 1381
at 1383; [1971] 3 All ER 237 at 239. See further [18-25].
12. See also Photo Production Ltd v Securicor Transport Ltd [1980] AC 827 at
846.
13. [1914] AC 71 at 80 (adopted White v Australian and New Zealand Theatres
Ltd (1943) 67 CLR 266 at 280).
14. (1842) 9 Cl & F 355; 8 ER 450.
15. Investors Compensation Scheme Ltd v West Bromwich Building Society
[1998] 1 WLR 896 at 912 per Lord Hoffmann. Lords Goff, Hope and Clyde
agreed.
16. Specific evidentiary issues are dealt with in Chapters 14 and 18.
17. See generally Part IV.
18. [1976] 1 WLR 989; [1976] 3 All ER 570.
19. See [1-26].
20. See generally Chapters 6 and 7.
21. See generally Chapter 8.
23. See generally on construction and intention Chapter 2.
24. See generally on construction and implication Chapter 3.
25. See generally Part VI.
26. For the role of context see Chapter 6.
27. See [2-11].
28. See [1-18]–[1-19].
29. See generally on evidence which may be used as an aid to construction
Chapter 14.
33. See generally Part VII.
34. The evidence which is available for use in application is discussed in
Chapter 18.
35. The role of precedent is discussed in Chapter 13.
38. See generally Chapter 16. See also [13-46]–[13-47].
43. The role of precedent is discussed in Chapter 13.
44. What Professor Corbin termed, perhaps a little elliptically, the ‘legal
operation of contract’. See Corbin on Contracts, vol 3A, 1951, §622.
45. See B & B Constructions (Aust) Pty Ltd v Brian A Cheeseman & Associates
Pty Ltd (1994) 35 NSWLR 227 at 245.
46. See further [1-29], [1-33].
47. See Chapter 17.
48. See generally Part V.
50. See Chapters 6 and 7.
51. See Chapter 8.
52. See Chapter 10.
53. See Chapter 7. On descriptive terms see Chapter 18.
55. See Chapter 18.
56. [1997] AC 749.
57. [1997] AC 749 at 770.
58. Fiona Trust and Holding Corp v Privalov [2007] Bus LR 1719 at 1723;
[2007] UKHL 40 at [5] per Lord Hoffmann. The other members of the
House of Lords agreed.
59. See Investors Compensation Scheme Ltd v West Bromwich Building Society
[1998] 1 WLR 896 at 912–13.
60. See Chapter 5.
61. See Sir Robert Goff, ‘Commercial Contracts and the Commercial Court’
[1984] LMCLQ 382 at 388 (‘commercial sense’).
62. See J W Carter, ‘Commercial Construction and Contract Doctrine’ (2009)
25 JCL 83.
63. See [1-23].
64. Compare the ‘ICS principles’ discussed in Chapter 5.
65. Contrast the formalistic approach of the notes to Pordage v Cole (1669) 1
Wms Saund 319; 85 ER 449. The English Reports reprint is of the 6th
edition of Saunders, edited by Sir Edward Vaughan Williams in 1845.
66. (1773) 2 Doug 689; 99 ER 437. See further [2-20].
67. (1773) 2 Doug 689; 99 ER 437 at 438. (The report is contained in the
argument of counsel in Jones v Barkley (1781) 2 Doug 684; 99 ER 434.)
68. (1787) 1 TR 638; 99 ER 1295.
69. (1787) 1 TR 638 at 645; 99 ER 1295 at 1298.
70. Campbell v Jones (1796) 6 TR 570 at 571–2; 101 ER 708 at 709–10.
71. (1808) 10 East 295 at 306; 103 ER 787 at 791 per Lord Ellenborough CJ.
72. [1898] AC 442.
73. [1898] AC 442 at 444. See also M’Cowan v Baine [1891] AC 401 at 403
per the Earl of Selborne (‘more reasonable’ construction).
74. (1917) 24 CLR 288.
75. (1917) 24 CLR 288 at 300.
76. [1962] AC 93 at 119. See also Council of the Upper Hunter County District
v Australian Chilling and Freezing Co Ltd (1968) 118 CLR 429 at 437 per
Barwick CJ (court should reject a ‘narrow or pedantic approach’ to
intention between parties to commercial agreements).
77. [1962] AC 93 at 122.
78. [1972] AC 441.
79. [1972] AC 441 at 502.
80. Prenn v Simmonds [1971] 1 WLR 1381; [1971] 3 All ER 237; L Schuler
AG v Wickman Machine Tool Sales Ltd [1974] AC 235; and Reardon Smith
Line Ltd v Yngvar Hansen-Tangen [1976] 1 WLR 989; [1976] 3 All ER
570.
81. The evolution of the use of context is traced in Chapter 6.
82. [1978] 1 WLR 1387; [1978] 3 All ER 769.
83. [1978] 1 WLR 1387 at 1395.
84. Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC
749 at 771 per Lord Steyn.
85. [1997] AC 749 at 771. He made the same comment in Society of Lloyd’s v
Robinson [1999] 1 WLR 756 at 763. The other members of the House of
Lords agreed.
86. [1997] AC 749 at 771.
87. See [2-13]–[2-14].
88. Cf G H Treitel, Doctrine and Discretion in the Law of Contract, Clarendon
Press, Oxford, 1981, p 12.
89. See [4-14].
90. See James Gordley, The Philosophical Origins of Modern Contract
Doctrine, Clarendon Press, Oxford, 1991, pp 242–4. Cf Charles Fried,
Contract as Promise, Harvard University Press, Cambridge Massachusetts,
1981, p 60.
91. (1782) 3 Doug 113 at 115; 99 ER 566 at 567. See also Vallejo v Wheeler
(1774) 1 Cowp 143 at 153; 98 ER 1012 at 1017 (approved Homburg
Houtimport BV v Agrosin Private Ltd (The Starsin) [2004] 1 AC 715 at
738; [2003] UKHL 12 at [13]; Jindal Iron and Steel Co Ltd v Islamic
Solidarity Shipping Co Jordan Inc [2005] 1 WLR 1363 at 1370; [2004]
UKHL 49 at [16]); Milles v Fletcher (1779) 1 Doug 231 at 232; 99 ER 151
at 152.
92. (1842) 9 Cl & F 355 at 566; 8 ER 450 at 532 (adopted Tsang Chuen v Li Po
Kwai [1932] AC 715 at 728).
93. [1981] 1 WLR 314.
94. [1981] 1 WLR 314 at 322. The other members of the House of Lords
agreed. Cf China Ocean Shipping Co Ltd v P S Chellaram & Co Ltd (1990)
28 NSWLR 354 at 386–7; [1991] 1 Lloyd’s Rep 493 at 514–15 (sub nom P
S Chellaram & Co v China Ocean Shipping Co (The Zhijiang Kou))
(affirmed (1992) 176 CLR 695). See also Lord Goff, ‘Opening Address’
(1992) 5 JCL 1; Lord Justice Staughton, ‘Interpretation of Maritime
Contracts’ (1995) 26 JMLC 259 at 268.
95. 230 NY 239; 129 NE 889 (CA, 1921).
96. 230 NY 239 at 243; 129 NE 889 at 891 (CA, 1921).
97. See Chapter 15.
98. Beginning with Behn v Burness (1863) 3 B & S 751; 122 ER 281.
99. [1933] AC 470. See also Re Moore & Co Ltd and Landauer & Co [1921] 2
KB 519.
100. [1933] AC 470 at 479.
101. See Chapter 5.
102. See, eg [2-42] (issue underlying classification of contractual terms).
103. See [2-44].
105. See, eg Afovos Shipping Co SA v Pagnan [1983] 1 WLR 195 (‘anti-
technicality’ clause in the New York Produce Exchange standard form for
time charterparty contracts).
106. See [4-33].
107. See [10-33].
108. [1976] QB 44.
109. [1976] QB 44 at 71 (approved Reardon Smith Line Ltd v Yngvar Hansen-
Tangen [1976] 1 WLR 989 at 998; [1976] 3 All ER 570).
110. See [4-07].
111. See Chapter 11.
112. Cf AIB Group (UK) Ltd v Martin [2002] 1 WLR 94 at 104; [2001] UKHL
63 at [44] (construction which may have neither been foreseen nor intended
was binding).
113. Pagnan SpA v Tradax Ocean Transportation SA [1987] 1 All ER 81 at 87;
[1986] 2 Lloyd’s Rep 646 at 652 per Steyn J (affirmed [1987] 3 All ER 565;
[1987] 2 Lloyd’s Rep 342). See also Hyundai Merchant Marine Co Ltd v
Trafigura Beheer BV (The Gaz Energy) [2012] 1 Lloyd’s Rep 211 at 215;
[2011] EWHC 3108 (Comm) at [11].
115. See, eg D W McLauchlan, ‘Objectivity in Contract’ (2005) 24 Univ Qld LJ
479; Lord Grabiner, ‘The Iterative Process of Contractual Interpretation’
(2012) 128 LQR 41; David McLauchlan, ‘The Contract that Neither Party
Intends’ (2012) 29 JCL 26. The tradition in the United States is more
longstanding. See, eg E W Patterson, ‘The Interpretation and Construction
of Contracts’ (1964) 64 Columbia LR 833.
116. See, eg Lewison; Donald Nicholls, ‘My Kingdom for a Horse: The Meaning
of Words’ (2005) 121 LQR 577.
117. See P S Atiyah, ‘Contracts, Promises and the Law of Obligations’ (1978) 94
LQR 193 at 197 (‘presupposition of the classical model of contract’).
118. See Rainy Sky SA v Kookmin Bank [2011] 1 WLR 2900 at 2908, 2916;
[2011] UKSC 50 at [21], [43]. See [16-14].
119. That is, Lord Hoffmann’s statement in Investors Compensation Scheme Ltd
v West Bromwich Building Society [1998] 1 WLR 896 at 912–13. See
Chapter 5.
120. For the distinction see [10-05].
121. See Golden Fleece Maritime Inc v ST Shipping & Transport Inc (The Elli
and The Frixos) [2008] 2 Lloyd’s Rep 119 at 124; [2008] EWCA Civ 584 at
[15].
122. [1997] AC 749.
123. [1997] AC 749 at 779. See also [1997] AC 749 at 768.
127. See Charter Reinsurance Co Ltd v Fagan [1997] AC 313 at 391; Investors
Compensation Scheme Ltd v West Bromwich Building Society [1998] 1
WLR 896 at 914.
128. See [1-07].
129. See, eg Australian Broadcasting Corp v XIVth Commonwealth Games Ltd
(1988) 18 NSWLR 540 at 550.
130. See generally, on the interaction between intention and construction,
Chapter 2.
132. See [1-29].
133. See C J Goetz and R E Scott, ‘The Limits of Expanded Choice: An
Analysis of the Interactions Between Express and Implied Contract Terms’
(1985) 73 Calif L Rev 261.
136. See Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC 1101; [2009]
UKHL 38.
137. See [1-46].
138. There is also a link with literalism in construction.
139. Charter Reinsurance Co Ltd v Fagan [1997] AC 313 at 355 per Staughton
LJ (dissenting judgment) (the majority’s decision was affirmed [1997] AC
313).
140. See also Byrnes v Kendle (2011) 243 CLR 253 at 284; [2011] HCA 26 at
[98] per Heydon and Crennan JJ (‘matched’ approaches).
141. (1877)2 App Cas 743 at 763.
142. See, eg the Hague-Visby Rules, applied under the Carriage of Goods by Sea
Act 1971 (UK) and Carriage of Goods by Sea Act 1991 (Cth).
143. B & B Constructions (Aust) Pty Ltd v Brian A Cheeseman & Associates Pty
Ltd (1994) 35 NSWLR 227 at 234 per Kirby P (referring to ambiguity). See
also Johan Steyn, ‘The Intractable Problem of the Interpretation of Legal
Texts’ (2003) 25 Syd LR 5.
144. Cf Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997]
AC 749 at 778–80 (wills).
145. See Royal Botanic Gardens and Domain Trust v South Sydney City Council
(2002) 240 CLR 45 at 80; [2002] HCA 5 at [103].
146. Cf Antaios Compania Naviera SA v Salen Rederierna AB (The Antaios)
[1985] AC 191 at 201.
147. The United Kingdom has not adopted the CISG. See Johan Steyn, ‘The
Vienna Convention: A Kind of Esperanto’, in P B H Birks, ed, The
Frontiers of Liability, OUP, Oxford, 1994, vol 2, p 12. For adoption in
Australia see Carter on Contract, §01-160.
148. See Sale of Goods Act 1979 (UK), s 10(2). See also ACT: Sale of Goods
Act 1954, s 15(2); NSW: Sale of Goods Act 1923, s 15(1); NT: Sale of
Goods Act 1972, s 15(2); Qld: Sale of Goods Act 1896, s 13(1); SA: Sale of
Goods Act 1895, s 10(1); Tas: Sale of Goods Act 1896, s 15; Vic: Goods
Act 1958, s 15; WA: Sale of Goods Act 1895, s 10(1).
149. See [2-42].
150. See [13-22] (presumptions stated by Law of Property Act 1925 (UK), s 61).
Goods Act 1895, s 10(1); Tas: Sale of Goods Act 1896, s 15; Vic: Goods Act
1958, s 15; WA: Sale of Goods Act 1895, s 10(1).
152. See Sale of Goods Act 1979 (UK), ss 28, 29(3). See also ACT: Sale of
Goods Act 1954, ss 32, 33; NSW: Sale of Goods Act 1923, ss 31, 32; NT:
Sale of Goods Act 1972, ss 31, 32; Qld: Sale of Goods Act 1896, ss 30, 31;
SA: Sale of Goods Act 1895, ss 28, 29; Tas: Sale of Goods Act 1896, ss 33,
34; Vic: Goods Act 1958, ss 35, 36; WA: Sale of Goods Act 1895, ss 28, 29.
153. See Unfair Contract Terms Act 1977 (UK). See also Australian Consumer
Law (‘consumer guarantees’).
154. See St John Shipping Corp v Joseph Rank Ltd [1957] 1 QB 267 at 286;
Yango Pastoral Co Pty Ltd v First Chicago Australia Ltd (1978) 139 CLR
410 at 414.
155. See Insurance Commission of Western Australia v Container Handlers Pty
Ltd (2004) 218 CLR 89; [2004] HCA 24 (construction of form of insurance
policy prescribed by statute).
156. See [9-17], [16-28].
PART II
Construction, Intention and Implication
2
Construction and Intention
General [2-03]
Introduction [2-03]
Relevance of Intention and Construction [2-07]
Classification of Intention [2-09]
Which Intention? [2-09]
Whose Intention? [2-16]
Objective Theory and Intention [2-18]
General [2-18]
Rejection of the ‘Will Theory’ [2-20]
Limits on Expressed Intention [2-23]
General [2-23]
Expressed Intention and Legal Effect [2-26]
Inferring Intention [2-32]
General [2-32]
Intention Inferred by Factorial Approach [2-35]
[2-01] Objects of Part II. Because commercial construction is the principal
means by which intention is determined and given effect to in relation to
contracts, the book as a whole is about ‘intention’. This part deals in particular
with the concept of intention and the relationship between construction, intention
and the implication of contractual terms.
‘Construction’ as a concept is always relevant to issues of intention. But not
all issues of intention are resolved as a matter of construction. Therefore,
distinctions must be drawn, and the relationship between ‘construction’ and
‘intention’ is important. The overall concern is the role of construction in relation
to matters of intention and techniques for inferring intention.
[2-02] Objects of this chapter. As a concept, intention is all pervasive in
contract law. All issues of contract construction depend on the intention of the
parties. Therefore, the general principle is that the meaning, legal effect, as well
as the application of a contract to a given set of facts, are all matters of
‘intention’.
However, as a legal concept, ‘intention’ has a wider significance in contract
law than contract construction. In this chapter the concern is with the interaction
between intention and construction, including the senses of intention in
construction. It therefore focuses principally on the differences between actual,
expressed and inferred intention and the relationships between those concepts in
the construction of contracts. Reference is also made to certain techniques used
to infer intention, including the use of construction ‘tests’.
GENERAL
Introduction
[2-03] Ambiguity of concept. Subject to public policy and statute, intention is a
controlling factor in relation to contracts. To appreciate how questions of
intention are resolved for the purpose of specific issues of contract law, it is not
necessary to devise a general theory of intention. Given the breadth of the
concept that would be a very complex task. But it is necessary to mark off some
boundaries.
Questions of intention necessarily arise not only in relation to contracts but
also issues and concepts which have no direct connection with contract law.
Some rules for determining intention must logically apply to virtually all
expressions of intention. In this connection it may be noted that Lord
Blackburn’s famous statement in River Wear Commissioners v Adamson,1 that
the fundamental object of construction of a document is to determine intention,
was made in the context of statutory interpretation.
However, some issues of intention, such as an intention to commit a wrong,
are governed by rules which differ markedly from those which are applied in
connection with contracts. Even in the construction of documents, there is room
for different rules. In this respect to say that, as documentary expressions of
intention, contracts are like statutes, wills and other instruments simply identifies
a common medium. The fact that contracts have the characteristic of being
bilateral (or multilateral) of itself sets them apart from unilateral instruments
such as statutes and wills. The contrast between a concept of common intention,
and one person or body’s intention, is fundamental to the construction of
contracts. There is also a contrast between private instruments such as contracts,
deeds poll and notices, and public statutes; but it is also logical to say that
principles that regulate the construction of deeds poll and notices will have more
in common with the principles which apply to contracts than those which govern
the interpretation of statutes.
At the same time, allowance must be made for diversity. A contract is
different from a deed poll, a standard form contract prepared by a third party is
different from a negotiated contract and a contract is different from a notice of
termination. In each context, there is room for refinement of construction
principles, reflecting different perspectives for intention. However, such
refinements are not a major focus in this chapter.
[2-04] Intention as a controlling factor. Since the essential object or function
of construing a contract is to determine and give effect to the intention of the
parties,2 construction necessarily resolves most issues of intention. That function
informs all aspects of construction, and indeed contract law as a whole.
Accordingly, if the application of a rule of contract law to a contract is said to
depend on ‘construction’, the rule of necessity raises an issue of intention. But it
is intention which controls the concept of construction.
Because intention controls construction it has a unifying role in relation to
both written and verbal expressions of intention. What unifies the resolution of
intention issues in both contexts is the objective theory of contract law.3 It is the
objective theory which justifies the application of many principles of
commercial construction to issues of intention which arise in relation to
documents which are not contracts.
[2-05] Scope. Issues of intention arise in a wide variety of contexts. This book is
concerned with issues of intention which are resolved by ‘construction’. But the
demarcation between issues of intention resolved by construction, and intention
issues resolved by other means is not always clear.4 The most basic contractual
perspective on ‘intention’ is the intention of a person to be bound by a promise
as a contract. The processes applicable to that issue differ from those applied in
the construction of documents, not only because the issue transcends form but
also because it is fundamental to the conception of contract.5 There are also
difficult issues in relation to matters such as mistake, where the extent to which
intention is determined by ‘construction’ is not always clear.6
Because this book focuses primarily on documentary expressions of intention,
construction is necessarily the principal basis for resolving issues of intention.
‘Intention’ is largely synonymous with ‘construction, in light of context, of the
document which states or evidences the intention’. However, in relation to
purely verbal utterances it does not make a great deal of sense to speak of
intention being determined by ‘construction’. In such situations, the bargain
must be ‘constructed’ before it can be ‘construed’. But the impact of the
objective theory of contract is that the process is at least analogous to
construction. For example, intention may be inferred from conduct.
[2-06] Commitment to the institution. As expressions of intention, contracts
are never exhaustive. In a factual sense, contracts are necessarily incomplete.
The point is obvious indeed in relation to informal contracts. But it is also true of
complex commercial contracts.7 However, a ‘contract’ cannot be incomplete as a
matter of law. Provided that the essential features are agreed, and provided there
is an intention to contract, the law supplies the rest. It follows that an intention to
contract signifies a commitment to the contract institution.8
A contract expressed in or evidenced by writing does not create a closed
system. Commitment to the institution includes a commitment to legal doctrine
under which the legal effect of contracts is determined. Parties hardly ever
express in detail the legal effect of the terms of their contract. That is explicable
on a number of bases, including lack of knowledge of the law, an inability to
foresee the particular difficulty which ultimately arises, and the sheer length
required to document exhaustively the rights and obligations of the parties. It
would in any event seem a futile exercise. Confidence in the institution’s ability
to provide commercially acceptable solutions is therefore important. As Lord
Radcliffe explained in Tsakiroglou & Co Ltd v Noblee Thorl GmbH:9
The corpus of commercial law has been built up largely by this process
of supplying from the common usage of the trade what is the
unexpressed intention of the parties.
To the extent that the parties to a contract have not expressed an intention,
through its various techniques and devices, the common law (and statute)
provides solutions for even the most complex issues with which the parties have
neglected to deal expressly. Those solutions are regarded as based on the parties’
intention. Broadly speaking, these solutions operate as presumptions of
intention, that is, default rules. The role of construction in relation to this aspect
of intention is to some extent a negative one, namely, to determine whether
construction of the contract indicates a different intention.10
Relevance of Intention and Construction
[2-07] Perspectives. Even if restricted to issues of construction in relation to
documents, the concept of ‘intention’ has various points of reference. First, there
is the question whether intention refers to actual, expressed or inferred
intention.11
Second, at least in relation to issues of linguistic meaning, there is the
question of whose intention is referred to. In the construction of a contract it is
usual to speak of ‘the parties’ intention’. The document is the parties’ expression
of intention and a ‘common’ or ‘mutual’ intention must be constructed from the
document by applying principles of construction. Although an objective
approach is almost invariably taken, application of that approach requires a
particular perspective for the inquiry.
Third, in relation to a unilateral utterance of intention, such as a notice served
under a contract, the relevant intention is that of the author of the document. An
objective approach is again generally taken, and a particular perspective for the
inquiry is again required.
Fourth, particularly in relation to a contract, intention may relate to meaning
or legal effect. Issues of intention in relation to legal effect typically arise under
specific doctrines of contract law which are applied by construction of the
contract. Precedent necessarily plays a greater role than in relation to intention in
the sense of ‘meaning’.
Fifth, an issue of intention may arise in relation to the application of a
contract to a specific fact situation. Although more than one perspective can be
taken on the role of construction in this context, it is clear that the role is an
important one.
[2-08] Analysis. To explain all the issues of intention identified above would
exhaust the whole book. It is therefore necessary to limit the treatment to four
matters. First, which of the various forms of intention governs the issue? The
choice is between actual, expressed and inferred intention. There is, in other
words, an issue of ‘Which intention?’.
Second, because the objective theory is crucial, it is appropriate to explain the
basic features of that theory. This is an issue of ‘Whose intention?’.
Third, some of the limits on the concept of ‘expressed intention’ need to be
explored.
Fourth, it is necessary to explain how intention is inferred.
Incidental treatment is given to other matters which are taken up in detail
elsewhere in the book.
CLASSIFICATION OF INTENTION
Which Intention?
[2-09] General.
Article 2.1 — ‘Intention’.
‘Intention’, in relation to a contract, may refer to: (a) actual intention;
(b) expressed intention; or
(c) inferred intention.
It is elementary that a reference to intention may be a reference to actual,
expressed or inferred intention. That is true of any utterance, including a
contract.
For the purposes of contract law, verbal and written expressions of intention
are generally interpreted objectively. Expressed intention is always the starting
point. The principal concern of this book is with the construction of
documentary expressions of intention. Particularly in that context, the objective
approach to intention ensures that, as a distinct category, actual intention has a
limited role. Actual intention is almost always determined as a matter of
presumption. If no intention is expressed, it must be inferred. But actual
intention is not irrelevant: the purpose of construction is to determine and give
effect to the intention of people, not documents.12 The law simply insists that
actual intention be determined indirectly.13 It is ‘constructed’, on the basis of
admissible raw material, and by applying rules and presumptions. When carried
out by a court, intention is a judicial construct. Whether it conforms to the actual
intention of either party is generally irrelevant because the concern is with
intention which is ‘common’ to the parties.
‘Inferred’ intention is sometimes referred to as ‘presumed’14 or ‘imputed’15
intention, and a contrast drawn between actual and imputed intention.16 But in
some cases presumed and imputed have been distinguished.17 A concept of
‘imputed intention’ might perhaps be appropriate to describe situations in which
the relevant intention — imputed as the necessary legal effect of a bargain —
contradicts what appears to be the parties’ expressed intention.18 Perhaps the
most frequent use of ‘presumed intention’ is to reflect the presumptive approach
taken in relation to actual intention. On that basis, the concept may refer either to
an expressed intention or to an inferred intention. Refinements in terminology
are generally unnecessary, and the expression ‘presumed intention’ seems
particularly uninformative.
[2-10] Actual intention.
Article 2.2 — Actual intention.
‘Actual intention’ in relation to a contract refers to the subjective
intention of the parties to the contract.
In relation to a contract, ‘actual’ intention is that which is subjectively held in
relation to the meaning or legal effect of a contract or the scope of its
application. Although the function of construction is to determine and give effect
to the parties’ intention, actual intention is usually arrived at as a matter of
presumption and not as a matter of fact. Thus, as noted above, it is commonly
said that the concern of construction is with the parties’ ‘presumed intention’.
In practice, therefore, the process of construction is at the overt level more
concerned with the other categories of intention. The concern of construction
principles is with expressed or inferred intention.19 Indeed, unilateral
declarations of intention are generally not admissible in construction issues. But
the reason for that approach is important. Because contracts are bilateral, when
determined by construction, even the actual (common) intention of the parties
can only ever be a construct.20
Nevertheless, there are situations in which intention is determined as a matter
of fact, and not solely governed by objective considerations. That may involve
recourse to evidence of one party’s intention. The presumption in favour of
objectively determined intention generally assumes that one party does not know
the other’s intention.21 However, as explained below,22 what the law almost
always refuses to take into account is one party’s uncommunicated actual
intention.23
[2-11] Expressed intention.
Article 2.3 — Expressed intention.
‘Expressed intention’, in relation to a contract, refers to the stated
intention of the parties. It is presumed to be their actual intention.
‘Expressed’ intention refers to the intention stated in the contract. The statement
may be verbal or written. Intention may be expressed in relation to meaning or
the legal effect of a contract or the application of the contract to a fact situation.
Once determined, it is presumed to be the parties’ actual intention.
Because intention is determined by an objective process, the starting point in
the construction of any contract is necessarily the parties’ expressed intention.
Indeed, it has been said that the ‘sovereign rule’24 of construction is that parties
are bound by their expressed intention. In relation to documentary expressions of
intention, the applicable ‘general principle of law’ was stated by Lord Simon in L
Schuler AG v Wickman Machine Tool Sales Ltd,25 by quoting the following
passage from Norton on Deeds:26
… the question to be answered always is, ‘What is the meaning of what
the parties have said?’ not, ‘What did the parties mean to say?’ … it
being a presumption juris de jure … that the parties intended to say that
which they have said.
The rule is a presumption that the parties’ expressed intention is their actual
intention.27 Although stated to apply to documents, an analogous rule applies to
verbal expressions of intention. In all cases, what intention has been expressed is
determined on the basis of the contract as a whole, with due regard to the context
of the contract. Indeed, the whole purpose of taking context into account is to
make the presumption in favour of expressed intention more realistic.28
Construction principles give effect to the presumption in favour of expressed
intention in various ways, including by denying the admissibility and relevance
of both undeclared and unilateral declarations of actual intention. The result is
that parties generally cannot contradict their expressed intention. This approach
is based on the need to ‘ensure certainty in legal affairs’.29 But it is also a
recognition of two other matters: evidence of one party’s intention is not relevant
to issues of common intention; and where extrinsic evidence such as prior
negotiations is admissible, the process of construction can, even in relation to
that evidence, only ever be objective.
[2-12] Rebuttal of the presumption. From one perspective, the presumption in
favour of expressed intention is as strong as it ever was. That is because the
situations in which evidence may be given to support actual intention are very
few. Certainly, in relation to a contract expressed in or evidenced by writing, it is
rare indeed for the presumption to be rebutted in that way.30 There appear to be
only three categories of case:31
(1) where the objective theory is displaced, for example, if the document is a
sham;32
(2) where public policy intervenes; and (3) under the doctrine of rectification.
At the time of the statement in Norton on Deeds quoted above, there seems
little doubt that the concept of ‘expressed intention’ was, in relation to a
document, equated with that expressed in the document itself. The approach to
context (‘surrounding circumstance’) meant that only rarely would the purely
documentary expression be qualified in light of context. Given the way that
context is now brought to bear in construction disputes resolved in formal
dispute resolution procedures, the position is sometimes different. What might
appear — on the basis of the document — to be an expressed intention is not
always the meaning of the contract. The question which then arises is whether
that is because courts apply a different conception of expressed intention, or
because inferred intention more often takes priority over an apparent expressed
intention.
[2-13] Construction of the contract as a whole. There are three main situations
in which what appears to be an expressed intention is contradicted in
construction. The first situation, which is discussed later in this chapter,33 is
where the legal effect of a contract differs from the intention apparently
expressed, as where a promise described as a ‘warranty’ is construed as a
promissory condition, or a contract described as a ‘licence’ construed as a lease.
The second and the third situations are explained in the next chapter.34 The
former involves obvious errors on the face of the document. These are corrected
in construction, including by changing, deleting or adding words. The latter
relates to cases where the parties’ expressed intention is reformulated in the
resolution of construction difficulties.
The first situation is not controversial as a matter of principle, even though
the impact is for inferred intention to displace expressed intention. The strength
of the presumption in favour of expressed intention has never been very strong
in relation to the legal effect of documents. The second situation is clearly
different because the logical conclusion is that the corrected words state the
parties’ expressed intention. It is the third situation which is problematic from
the perspective of the concept of expressed intention. There are two views.
One view is that what links each of the three situations is proof of ‘mistake’ in
expressed intention. In the first, the parties have attached the ‘wrong’ legal label;
and in the second situation there is a mistake on the face of the document. Cases
in which expressed intention is reformulated are much more difficult. In several
cases Lord Hoffmann explained one role of context as being to enable a court to
correct mistaken expressions of intention, that is, cases in which a document
does not mean what it says. That includes Investors Compensation Scheme Ltd v
West Bromwich Building Society,35 where ‘[a]ny claim (whether sounding in
rescission for undue influence or otherwise)’ was construed to mean ‘[a]ny claim
sounding in rescission (whether for undue influence or otherwise)’. The rationale
is that any mistake in the document which emerges from construction of the
contract as a whole can be ‘corrected’ by construction. This rationalisation has
provoked very strong criticism.36 The doctrine of rectification is intended to deal
— under stringent requirements of proof — with mistakes in expressed
intention. Therefore, the mistake rationale poses something of a dilemma. Within
a mistake framework, either inferred intention is being preferred over the parties’
expressed intention, or courts enjoy a power to indulge in de facto rectification
of the document whether or not the usual requirements for rectification are
satisfied, and on the basis of raw material which does not include evidence the
admission of which might defeat a claim for rectification.
The other view is that the modern conception of ‘expressed intention’ is
broader than allowed for by traditional expositions of the concept. What
intention is expressed can be determined only on the basis of construction of the
contract as a whole,37 read in light of context.38 The fact that it is necessary to
reformulate the words used in the document is explicable on the basis of a need
to state the construction of the contract. Therefore, the mistake rationale may be
misleading if put forward as a general explanation. Assuming that the meaning
of words is at issue, and also that the court can determine and give effect to the
meaning of the contract without implying a term, the meaning determined is the
parties’ expressed intention.39
[2-14] Scope of expressed intention. There is a difference between the meaning
of words and the scope of their application to a set of facts. In the latter context,
the courts have generally taken a narrow view as to what constitutes the
‘expressed intention’ of the parties. Generally, if a word or expression is capable
of being applied to more than one factual situation, there is no expressed
intention in relation to the application of that word or expression to all of the
facts or the things or persons to which it is capable of being applied as a matter
of language. For example, in the cases on exclusion clauses,40 it is well
established that an intention to exclude liability for ‘negligence’ can be regarded
as express only in cases where that word or a synonym is used.41 Under that
approach, a conclusion that liability for negligence is excluded even though the
word has not been used is usually based on inferred intention. However, it is not
based on a conclusion that the parties made a ‘mistake’.
Ultimately, the scope of words must be determined, as a commercial matter,
by consideration of the contract as a whole in light of context.42 Issues of
‘mistake’ have been raised in this context as well. In Mannai Investment Co Ltd
v Eagle Star Life Assurance Co Ltd,43 Lord Hoffmann suggested:44
The fact that the words are capable of a literal application is no obstacle
to evidence which demonstrates what a reasonable person with
knowledge of the background would have understood the parties to
mean, even if this compels one to say that they used the wrong words.
However, when determining whether or not the parties intend their contract to be
applied commercially, rather than literally, ‘mistake’ has not usually been
regarded as a necessary requirement.45
Even in cases where the parties do not choose to use a particular label, there
may be a difference between the meaning of words and their legal effect. For
example, if a contract says that a creditor must give notice of the principal
debtor’s default to a guarantor within a certain time, the expression of intention
is limited to a statement of what the creditor must do. No intention is expressed
as to whether timely notice of default is a condition precedent to the guarantor’s
liability under the contract.46 The legal effect of failure to provide a timely notice
is a different question of construction. But the example proves no more than that
even if the parties’ intention can be regarded as expressed in a linguistic sense,
their intention in relation to other matters may need to be inferred. It is not based
on the idea that their expressed intention is vitiated by mistake.
[2-15] Inferred intention.
Article 2.4 — Inferred intention.
Inferred intention’, in relation to a contract, refers to the parties’ intention
in relation to matters on which they have expressed no intention. In
relation to such matters, inferred intention is presumed to be the parties’
actual intention.
It is necessary to have recourse to inferred intention in any case where no
intention is expressed. The bases on which intention is inferred are not the sole
province of construction principles. However, when governed by construction,
the object is to infer the parties’ intention from the words used, applicable legal
rules and admissible evidence. Once inferred, that intention is presumed to be
the parties’ actual intention. If no intention can be inferred, an issue of contract
validity may arise.
The absence of an expressed intention in relation to a matter which contract
law requires to be resolved on the basis of intention does not displace the
objective theory. Nor is it in itself sufficient to legitimise reliance on evidence
other than context. In general, effect is given to inferred intention by the
implication of a term47 or by reference to presumptions of intention, including
under contract doctrine.48 In particular, if a specific legal incident is applicable to
a contract, the failure of the parties to address that incident leads to the inference
that they intend the incident to apply.49 For example, an intention that variation
to the principal contract discharges a guarantor is inferred if the parties have not
addressed the matter expressly.50
Whose Intention?
[2-16] Common intention.
Article 2.5 — Common intention.
In relation to a contract, ‘intention’, whether actual, expressed or
inferred, is the common intention of the parties.
By definition, contracts involve two or more parties. In the construction of
contracts, the law is only concerned with common intention.51 It is therefore
fundamental to the idea of contract construction that the intention which must be
‘constructed’52 by the adjudicator of a contract dispute is a common intention. It
follows that, in relation to contracts, references to ‘actual’, ‘expressed’ or
‘inferred’ intention are all references to common intention. The common
intention may be in relation to the meaning of a contract, its effect in law or its
application to a given set of facts. It is almost invariably constructed by reliance
on an objective process which does not take into account unilateral declarations
of intention.
Accordingly, where a document states or evidences the terms of the contract it
is not the sum of two unilateral utterances of intention.53 Whatever else may be
said about adoption of an objective approach to determining intention, it is clear
that one party’s uncommunicated subjective intention is not a relevant
consideration.54 For example, the proof of actual mistake in relation to the
subject matter or terms of a contract of sale is not per se a basis for refusing
specific performance.55 From the perspective of intention in relation to a
contract, there is no such thing as a ‘unilateral’ contract. References to such
contracts in the cases on agreement merely serve to distinguish contracts in
which the consideration for a promise is an executed consideration,56 from those
in which consideration for each promise is executory.57
[2-17] Unilateral utterances. There is no need to conceive of intention being
common or shared where only one party’s intention is in issue. Relevantly, a
unilateral perspective on an utterance of intention relates to unilateral
instruments which are not contracts, and to unilateral documents created in the
negotiation or performance of a contract.58 For example, where it is alleged that
one party has repudiated a contract, or made an offer, the question is not one of
shared intention.
Because intention is resolved from an objective standpoint, much of
construction law is nevertheless relevant to unilateral utterances, such as notices
served under contracts.59 Commercial construction principles that apply to
contracts also apply to unilateral utterances. The distinctions between actual,
expressed and inferred intention remain applicable even though it is not a
common intention which is ‘constructed’. For example, although the question
whether a statement operates as an offer, rather than an invitation to treat,
depends on the ‘intention’ of the author, the intention of the (alleged) offeror is
determined on the basis of the intention communicated to the offeree, as
reasonably understood by that person.60
OBJECTIVE THEORY AND INTENTION
General
[2-18] Intention determined objectively. The whole law of contract revolves
around the idea that, generally, intention must be determined objectively. As
noted above, intention in construction is determined objectively. The intention of
a person in relation to an utterance is determined from the perspective of a
reasonable person in the position of the addressee. The question is what the first
person has led the second reasonably to believe.61
An understanding of the objective theory of contract is therefore important to
construction principles in general. Given its importance, it is hardly surprising
that it has often been debated. What is surprising, however, is that
notwithstanding the frequent references to ‘intention’ as the key to construction
throughout the history of the common law of contract, there is very little
evidence to support the alleged struggle for supremacy during the 18th and 19th
centuries between the civilian will theory and the objective theory of the
common law. It really has been a non-issue in construction cases.
[2-19] Scope. All of the various issues which are dealt with as matters of
contract construction are resolved by application of the objective approach. The
principle that intention is determined objectively applies irrespective of whether
the utterance of intention is written or oral, and whether the issue is one of
linguistic meaning, legal effect or the application of a contract.
In each context, although the raw material on the basis of which intention is
determined may vary, the objective approach is universal. How the person who
made the utterance actually intended it to be understood is normally62 neither
admissible nor relevant. Similarly, how the addressee actually understood the
utterance is, generally, neither admissible nor relevant.
Rejection of the ‘Will Theory’
[2-20] Introduction. The current approach to intention in contract is sometimes
said to be based on, or to involve, the rejection of a former — subjective —
approach based on the (civilian) will theory alleged to have been applied by the
common law during the 18th and 19th centuries. Although the idea is traced to
the conception of a contract as being a ‘meeting of minds’ (consensus ad idem),
that conception is at worst an outdated metaphor. In any event, the law still
regards consensus ad idem as an essential element of contract formation.63
Although the approach to contract law in general is one of objectivity,
intention to contract may be put in issue. What the law does not generally allow
is the contradiction of an expressed intention to contract, reasonably understood
as such by the other party.64 Adoption of a subjective theory of intention would,
however, imply that a party could always give evidence of unilateral subjective
intention, whether communicated or not.65 The common law has never permitted
direct evidence of intention to be given in relation to the construction of a
contract, and never permitted the construction of a contract to be controlled by
uncommunicated expressions of intention.66
Statements which might be put forward — if only as a matter of historical
interest — as illustrating a subjective approach of a bygone era are, on closer
analysis, explicable in an objective sense. For example, in Kingston v Preston67
Lord Mansfield analysed the distinction between dependent and independent
covenants — used to determine the order of performance — by reference to
‘three kinds of covenants’. As to the process of determining whether a particular
covenant is dependent or independent, he is reported as having said:68
The dependence, or independance, of covenants, [is] to be collected from
the evident sense and meaning of the parties, and, … however transposed
they might be in the deed, their precedency must depend on the order of
time in which the intent of the transaction requires their performance ….
What did Lord Mansfield mean by ‘intent’? One view69 is that he meant ‘actual
intention’, so that his statement illustrates a subjective approach to construction.
However, Kingston v Preston must be placed in its historical context. Like so
many contract cases of the time, the proceedings were by way of demurrer. The
facts were undetermined. In addition, at the time of the decision, the courts were
in the process of reversing the former presumption of independency (under
which the order of performance was immaterial) in favour of the modern
presumption of dependency of obligation.70 Lord Mansfield was more concerned
with how, as a matter of construction, the order of performance in relation to
particular types of transaction should be determined. In modern terminology, he
was looking for a ‘default rule’. That is more or less confirmed by the fact that,
in Lord Mansfield’s time, ‘intendment’ was one sense of the word ‘intent’.
Although the meaning is now obsolete, ‘intendment’ referred to the meaning
attached by the common law.71 Far from advocating a subjective approach, in
emphasising that substance should prevail over form, Lord Mansfield was
concerned for the dependency of promises to be determined in accordance with
what the law would infer from the nature of the transaction. That is the very
antithesis of a subjective theory. Indeed, as might be expected from a judgment
of Lord Mansfield, it is closely aligned with the modern concept of commercial
construction.
[2-21] Reasons for doubting the ‘will theory’. If not a complete fairy story, for
several reasons the idea that, at any time, the common law applied a subjective
approach to intention is at least misleading.72 To begin with, ‘until 1843, persons
with an interest in the litigation were not even competent witnesses’.73 And it
was not until a few years later that the parties were permitted to give oral
evidence.74 It would, to say the least, be odd for courts to adopt a theory of
subjective intention when the parties could not give evidence of their intention.
Although the law is not always rational, one might expect that if their intentions
were crucial, the parties would at least have been allowed into the witness box.
Second, in relation to the construction of documents, the delineation of
responsibility between judge and jury also counts against the application of a
subjective approach. The construction of a document has always been an issue of
law and, when jury trials were in favour, a matter for the judge not the jury.75
From that perspective, the application today of the rule that construction of a
document is an issue of law is a ‘legacy of the system of trial by juries who
might not all be literate’.76 Clearly, the courts have never applied a general rule
to the effect that intention in relation to a contractual document is something to
be proved as a fact.
Third, and much more substantively, by the middle of the 19th century (and
no doubt much earlier) the parol evidence rule was an integral feature of the
landscape of the rules regulating contract construction.77 Under the rule, direct
evidence of intention simply cannot be used as an aid to construction of a
document.
[2-22] The mistake cases. Most of the discussion of the role of a subjective
theory of contractual intention — and explicit rejection of the will theory — has
occurred in the context of cases of alleged mistake. For example, if A contracts
with B, and B is in fact mistaken, for example, as to A’s identity or the terms of
the contract, the question has been discussed whether B’s mistake means that
there is no contract — because of an absence of consensus. Typically, the context
is an entirely verbal bargain, so that construction of a document is not at issue. In
that context, one might expect greater regard to be had to actual intention.78 In
Taylor v Johnson,79 one of the leading Australian cases on mistake (and which
concerned a written contract), Mason ACJ, Murphy and Deane JJ offered80 the
view that ‘[w]hile the sounds of conflict have not been completely stilled, the
clear trend in decided cases and academic writings has been to leave the
objective theory in command of the field’.
Reliance was placed by Mason ACJ, Murphy and Deane JJ on a much
debated passage in the judgment of Denning LJ in Solle v Butcher:81
… once a contract has been made, that is to say, once the parties,
whatever their inmost states of mind, have to all outward appearances
agreed with sufficient certainty in the same terms on the same subject
matter, then the contract is good unless and until it is set aside for failure
of some condition on which the existence of the contract depends, or for
fraud, or on some equitable ground. Neither party can rely on his own
mistake to say it was a nullity from the beginning, no matter that it was a
mistake which to his mind was fundamental, and no matter that the other
party knew that he was under a mistake.
The majority in Taylor v Johnson contrasted the judgments of Blackburn J and
Hannen J in Smith v Hughes,82 which were said83 to illustrate the ‘“subjective
theory” of the nature of the assent necessary to constitute a valid contract’.
Smith v Hughes concerned an oral contract. A buyer of oats by sample refused
to accept delivery on the ground that the goods tendered were ‘new’, whereas he
agreed to purchase ‘old’ oats. The case was conducted on the basis that the buyer
thought he was buying old oats. In none of the judgments is it remotely
suggested that this fact alone — the subjective and uncommunicated view of the
buyer — might be a basis for saying that the parties were not ‘ad idem’.84
Accordingly, the idea that the court applied a subjective theory seems to fail in
limine. The relevant question was whether the buyer could justify rejection of
the goods.85 The court recognised that one justification was a mistake by the
buyer — sufficient to ‘avoid the contract’ — as to the obligations which the
seller had undertaken.86
Hannen J said87 it is ‘essential to the creation of a contract that both parties
should agree to the same thing in the same sense’. He formulated88 the relevant
principle in terms that, in order to ‘relieve the defendant’, it was necessary for
the jury to find not merely that the ‘plaintiff believed the defendant to believe
that he was buying old oats’, but also that the plaintiff ‘believed the defendant to
believe that he, the plaintiff, was contracting to sell old oats’.
In a classic passage, Blackburn J explained:89
[I]f one of the parties intends to make a contract on one set of terms, and
the other intends to make a contract on another set of terms, or, as it is
sometimes expressed, if the parties are not ad idem, there is no contract,
unless the circumstances are such as to preclude one of the parties from
denying that he agreed to the terms of the other. … If, whatever a man’s
real intention may be, he so conducts himself that a reasonable man
would believe that he was assenting to the terms proposed by the other
party, and that other party upon that belief enters into the contract with
him, the man thus conducting himself would be equally bound as if he
had intended to agree to the other party’s terms.
Hannen J’s formulation does no more than express the view that if A purports
to contract with B knowing that B has no intention to contract on the terms
proposed by A, there is no contract. In relation to Lord Blackburn’s statement, in
Taylor v Johnson the High Court appears to have regarded the second sentence
quoted as a qualification (based on estoppel) to an otherwise subjective
approach.90
Of course, the perspective to which the High Court referred — ‘the nature of
the assent necessary to constitute a valid contract’ — is some distance from the
more relevant issue of how contracts are construed.91 Nevertheless, the criticism
of Lord Blackburn’s statement is difficult to understand.92 English courts have
rightly focused on the whole statement as an affirmation of an objective
approach to contract formation93 and the analysis in Smith v Hughes has never
been doubted.94 Nevertheless, in Shogun Finance Ltd v Hudson,95 Lord Phillips
acknowledged that:96
… the task of ascertaining whether the parties have reached agreement as
to the terms of a contract can involve quite a complex amalgam of the
objective and the subjective and involve the application of a principle
that bears close comparison with the doctrine of estoppel.
In other words, there is more scope for consideration of actual intention in
cases where the question is whether a contract was agreed than where the
construction of an established contract is at issue.97
LIMITS ON EXPRESSED INTENTION
General
[2-23] Introduction. Policy justifications inform contract law as a whole. The
law of construction is no exception. That policy is to uphold the parties’
intention. ‘Intention’ is the starting point for construction law because the
general principle of freedom of contract remains valid. However, statute, public
policy in general and specific policy concerns necessarily place limits on the
ability to give effect to expressed intention. This impacts on the construction
process.
Not all the limitations on expressed intention are based in public policy.
Because the process of construction determines the substantive effect of a
bargain, and because the policy objective of construction is to give effect to the
intention of the parties, conflicts between the expressed intention of the parties
and the legal (substantive) effect of their bargain must be resolved.
[2-24] Public policy restrictions. The most obvious contexts in which public
policy and statute may prevent effect being given to the expressed intention of
the parties are: (1) where a statute renders particular contracts or provisions
illegal, void or unenforceable; (2) where a statute confers a power on the court to
declare void, or to refuse to enforce, particular contracts or provisions; and (3)
where a rule of public policy renders particular contracts or provisions illegal,
void or unenforceable.
In each context, the intention of the parties is subordinate to the public good,
as expressed in the rules which prohibit the enforcement of illegal contracts and
other contracts contrary to public policy or statute. The fact that, when compared
with the position in the 19th century, in the modern law of contract freedom of
contract exists in an attenuated form, implies that restrictions on the ability to
give effect to intention are more significant than in the past. But the limits on
expressed intention do not derive solely from qualifications to the principle of
freedom of contract.
[2-25] Impact not limited to public policy. For the most part, the limitations
identified above are simply aspects of the general law of contract. They also
relate, principally, to issues of inherent validity. From that perspective, they have
little to do with the construction of expressed intention.98 The concern in
construction is both more limited and more general. It is more limited, in that the
construction process may be affected by public policy, as where an agreed
damages clause is alleged to be a penalty.99
It is more general because the expressed intention of the parties may be
contradicted by construction of the contract whether or not invalidity under
public policy or statute is at issue, as where a promise described as a ‘warranty’
is construed as a ‘condition’.100 In other words, statute and public policy do not
exhaust the situations in which an apparent expressed intention must be rejected
in construction.
The discussion below focuses on the interaction between expressed intention
and the legal effect of the contract.101
Expressed Intention and Legal Effect
[2-26] Introduction. The legal effect of any contract is ultimately a matter of
construction of the contract as a whole, in light of context and precedent. Putting
illegality to one side, a court is entitled to go behind, or read through, the
expressed intention of the parties where the legal effect of the contract differs
from the intention apparently expressed.
Most illustrations relate to characterisation errors,102 such as erroneous
description of a relationship or use of the wrong legal label. In each situation, the
intention apparently expressed is, in a sense, inaccurate. The relevant intention is
inferred, not as a matter of fact but as a matter of law, that is, on the basis of the
substantive effect of the contract. However, policy considerations may also be at
work, as in the liquidated damages context. Otherwise, it is the general policy of
the law of construction in giving effect to the ‘real intention’103 of the parties
which is crucial. It is only where the ‘sham’ principle applies that the law is
concerned with proof of actual intention.
[2-27] ‘Sham’ principle. Under the ‘sham’ principle, an apparent agreement
does not give rise to a contract because the parties had no such intention.104 A
‘sham’ agreement is therefore an agreement which — as expressed in a
document — is a contrivance or device masking the parties’ true intention. There
is no bargain, and the document is not intended to have a legal operation.105
Although the reason for going behind the sham document may be some form of
illegality,106 that is not the basis of the concept.
In the case of a sham, effect is given to the actual intention of the parties not
to create a contract. As expressed by Diplock LJ in Snook v London and West
Riding Investments Ltd:107
[F]or acts or documents to be a ‘sham’, with whatever legal
consequences follow from this, all the parties thereto must have a
common intention that the acts or documents are not to create the legal
rights and obligations which they give the appearance of creating.
The scope of the concept has never been clear, and various distinctions have
been drawn.108 The fact that the document does not contain all terms is not
indicative of a sham.109 Similarly, a sham agreement is different from a contract
which is entered into on particular terms which are an attempt to circumvent
obligations under an existing agreement, for example, in relation to a pre-
emptive right.110 And Lord Walker in Progress Property Co Ltd v Moore,111 drew
a distinction between sham and ‘false dressing’.
For present purposes, the important point is that an agreement which is a
sham is distinguishable from a contract which, although expressed to operate in
a particular way, and so to have a particular legal effect, has a different effect as
a matter of law.112 The difference is that, unlike a sham agreement, there is an
intention to be bound and therefore a commitment to the legal effect of the
contract even though that may differ from an express label or description. The
parties’ actual intention is determined by reference to the legal operation of the
contract.
[2-28] Liquidated damages. If a contract purports to quantify damages payable
on breach of contract, it is enforceable if the agreed damages clause is classified
as a liquidated damages provision, but invalid if it is a penalty. In the classic case
on the distinction, Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co
Ltd,113 Lord Dunedin said114 that the resolution of the question whether a
stipulated amount is a penalty or liquidated damages is a ‘question of
construction to be decided upon the terms and inherent circumstances of each
particular contract’.
If the classification of an agreed damages clause as a liquidated damages
provision or a penalty depended solely on construction, effect would be given to
the parties’ expressed intention, and the agreement of the parties would be
determinative. Although the weight attached to the description may vary from
case to case,115 the parties’ description of the amount as liquidated or agreed
damages is not conclusive.116 The use of either description simply creates a
presumption in favour of that classification.117 The ‘various tests’ which Lord
Dunedin set out in the Dunlop case for determining the effect of the clause are
not of the same ilk as those employed in orthodox issues of construction. That is
principally because the question is one of substance and legal operation rather
than form and expressed intention. But it is also because an agreement to pay a
money sum (or to confer a non-monetary benefit) on breach of the agreement is
not binding as a matter of public policy if the sum is penal. Therefore, even an
express agreement not to challenge the contractual description is not binding.
It follows that any clause alleged to be a penalty must be ‘construed’ on the
basis of the operation of the contract, public policy and precedent,118 to
determine whether the distinction applies to the clause and, if it does, to
determine whether, in light of the ‘tests’, the clause provides for a penalty.119
Therefore, a clause may be a penalty although termed ‘liquidated damages’, as in
Bridge v Campbell Discount Co Ltd,120 where a stipulation for the payment of
‘agreed compensation’ was construed as penal. Conversely, in Clydebank
Engineering and Shipbuilding Co Ltd v Don Jose Ramos Yzquierdo y
Castaneda,121 a ‘penalty’ for late delivery of goods was construed as a valid
provision for the payment of liquidated damages.
It is the public policy element which distinguishes the cases on agreed
damages clauses from other cases in which the legal effect of a contract is found
to differ from the intention apparently expressed by the parties, as where a term
is classified as a promissory condition even though described in the contract as a
‘warranty’. Unlike such cases, the expressed intention of the parties is
subordinated by a rule of public policy.122 The question is whether, having regard
to the legal rules, the court should enforce the promise, not the legal effect to
which the parties intended to commit themselves.
[2-29] Deposits. A deposit is liable to forfeiture, including if the contract goes
off by reason of the payer’s default. If not expressly conferred, a right to forfeit
the payment will be inferred if a payment is accurately described as a ‘deposit’.
Much the same considerations arise as in relation to agreed damages provisions.
That is, of course, not surprising.
Where a payment is made (or some other benefit is conferred) on entry into a
contract, and the payment is described as a ‘deposit’, it is a question of
‘construction’ whether the description is an accurate one. The issue is one of
substance and operation, not construction in the orthodox sense.123 Denning LJ
said in Stockloser v Johnson124 that a vendor cannot ‘forestall’ relief against the
forfeiture of a deposit by ‘describing an extravagant sum as a deposit, any more
than he can recover a penalty by calling it liquidated damages’. Therefore, the
expressed intention of the parties is not conclusive. For example, in Union Eagle
Ltd v Golden Achievement Ltd125 the fact that a deposit was described as
‘liquidated damages’ did not deprive it of its character as a deposit; and it was
liable to forfeiture on termination.
[2-30] Wrong label. Lawyers love labels, and contract lawyers are no exception.
The discussion above of agreed damages clauses illustrates that the description
of the clause as ‘liquidated damages’ does not prevent the promisor relying on
contract doctrine to establish that it is a penalty. Although that issue is directly
affected by a rule of public policy, in other cases where the wrong label is found
to have been used the only policy at issue is the policy of construction to
determine and give effect to intention. Thus, a promise described as a warranty
may, as a matter of construction, be a promissory condition.126 Similarly, not
every contract described as a ‘CIF’ contract will have the usual incidents of such
a transaction.127 And the parties’ description of a contract as a ‘reinsurance
contract’ may not be accurate.128
Characterisation issues arise in many contexts, for various reasons, including
formal requirements and the fact that certain rights and obligations flow from a
particular (legal) characterisation of a contract. Whether formal (and other)
requirements derived from statute must be complied with may depend on a
process of characterisation. The classic example is compliance with
requirements of writing. The parties’ expressed intention as to whether a contract
is, for example, one of indemnity, rather than a contract of guarantee within s 4
of the Statute of Frauds 1677, is not conclusive. Similarly, in Yeoman Credit Ltd
v Latter,129 the second defendant signed a document headed ‘Hire-purchase
indemnity and undertaking’ in connection with a contract by the plaintiffs to let a
motor car on hire-purchase terms to the first defendant. The contract with the
first defendant was void under the Infants’ Relief Act 1874 (UK). The second
defendant’s contract said he would ‘indemnify’ the plaintiffs ‘against any loss
resulting from or arising out of’ the hire-purchase contract. It was held that
whether the contract was purely one of guarantee was a matter of construction.
Because, as a matter of substance, the contract was one of indemnity, the
plaintiffs were entitled to succeed in their action against the second defendant.
Similarly, statute may need to be taken into account to determine the
substantive operation of the contract. For example, a statute may create a system
for the registration of documents which have a certain effect. Thus, registration
requirements are imposed on certain contracts conferring a property or security
interest. Registration of the interest or document creating the interest may be
required even though the parties’ expressed intention would suggest that they did
not intend the transaction to operate in a way which attracts the registration
requirement, that is, an express agreement that the contract does not have the
regulated effect. All that is necessary is for the substantive operation of the
transaction or document to bring it within the legislation.130 The labels used by
the parties to express their intention are not conclusive as to the legal effect of
the document.131
More generally, because the law often treats particular categories of
transaction as having specific incidents, whether a particular contract should be
so characterised is one of substance not form.132 For example, whether a contract
is one of guarantee or indemnity is a question of construction depending on the
substance of the transaction.133 The word ‘guarantee’ may be used to describe a
contract which is not a guarantee.134 Similarly, a contract may be one of sale
even though described as a contract of hire.135 Therefore, the linguistic meaning
of the contract — where the presumption in favour of expressed intention is
strong — is not at issue. Rather, it is the legal effect of the contract which needs
to be determined. The label applied by the parties must be taken into account,
and when stated in a mercantile document must be respected.136
The fact that a contract uses a particular word or description, even a ‘magic’
word such as ‘condition’, ‘guarantee’ or ‘indemnity’, can never be conclusive as
an expression of intention.137 A familiar illustration is an agreement that
occupancy of land is pursuant to a ‘licence’, rather than a ‘lease’. In Bruton v
London & Quadrant Housing Trust,138 Lord Jauncey said:139 ‘It is the legal
consequences of the agreement which is determinative rather than the label
which parties have chosen to attach to it.’
Equally, however, a court should not itself impose conceptual labels, such as
‘bailor’ and ‘bailee’ on the parties, and modify the contract to match those
labels.140
[2-31] Relationships. Contracts create or regulate relationships. Some of the
illustrations given above can be said to relate to whether a particular relationship
has been created. The parties’ expressed intention is always important in
determining the nature and effect of the relationship which is created or
regulated by the agreement. For example, a contract under which a distributor
agrees to devote its best efforts to distributing a company’s products may be
alleged to create a fiduciary relationship between the distributor and the
company.141 Construction of the contract is necessary, and effect will be given to
an intention that the contract is to create such a relationship.
Generally, parties are free to characterise their relationship as they think fit.
However, expressed intention cannot contradict the substantive effect of a
contract. For example, a distributorship agreement might contain a provision
stating that no agency or no fiduciary relationship is created by the contract.142 In
the same way that a contract described as a ‘licence’ may be found to be a lease,
effect will not be given to expressed intention if it is contrary to the legal
operation of the contract construed as a whole. Accordingly, if the contract
operates to create fiduciary duties, the relationship between the parties will be a
fiduciary one so far as those duties are concerned.143
This concern with substantive effect may be crucial in contexts where, if it
creates a particular relationship, the relationship is regulated by statute. For
example, statute may regulate a particular class of contracts, such as
employment contracts, or contracts which have a particular effect or character,
such as those conferring an interest in land. A contract expressly stated to be for
the provision of services by an independent contractor may as a matter of
construction be a contract of service.144 Similarly, irrespective of whether the
parties have agreed to become partners, the partnership legislation applies if the
contract, or what is done under it, creates that relationship.145 In such cases it is
the legal operation of the contract which must be determined, and the parties’
expressed intention is far from conclusive.146
The fact of misdescription of a relationship does not imply that the agreement
is a sham,147 since that would suggest not only that the parties actually
understood the legal effect of the agreement, but also that they had no intention
to be bound by their expressed intention.148 Instead, in most cases at least, it is
simply a matter of the parties’ expressed intention having to give way to the
operation of the contract as a matter of law.
INFERRING INTENTION
General
[2-32] Introduction. In relation to inferred intention, ‘construction’ embraces a
great many techniques and devices. Inferences of intention may be based on
particular rules of construction, the application of preferences in construction,
the failure of the parties to contract out of a common law default rule arising
under contract doctrine, and so on. In all cases the purpose is the same, namely,
to ‘construct’ the intention of the parties on an objective basis.
The role played by construction in the conventional sense of a search for
meaning varies considerably. The various bases used to infer intention cannot be
reduced to a single coherent set of construction principles, and the mere fact of
diversity is important. The main role for principles of commercial construction is
one of unification of purpose.
[2-33] Techniques available. The most important ‘technique’ for inferring
intention is, of course, construction of the contract as a whole in light of its
context. Specific techniques, which necessarily operate by or in conjunction with
construction, include: (1) use of a particular standard of application when
applying the contract; (2) use of a canon of construction; (3) use of a specific
construction preference; (4) application of a general default rule, that is, a
presumption of intention; (5) the implication of a term;
(6) application of a specific construction test or rule of contract doctrine; and
(7) application of a ‘factorial approach’, under which intention is inferred
on the basis of relevant factual circumstances (factors).
These bases for inferring intention range across a large number of
construction issues, and much of the general law of contract as well. Mainly
because it is applicable to both written and verbal contracts, the discussion
below focuses on what is described above as the ‘factorial approach’. That
context also provides the opportunity to explain why an approach based on
specific construction ‘tests’ tends to mask the true analysis in certain
construction questions.
The role of intention in the implication of terms is discussed in the next
chapter.149
[2-34] ‘Tests’ for intention. The fact that a great many issues in contract law are
solved by recourse to ‘intention’ is open to the criticism that the effect is to make
what are often complex legal issues depend on the will of the parties, even
though, as a matter of fact, they may have had no views at all on the issues, let
alone their proper resolution.150
Tests’ for intention are one way around this problem. By ‘test’ is meant the
criteria stated, as ingredients of contract doctrine, to resolve specific matters on
which there is no express statement of intention. In most cases, the tests are
simply aspects of a technique which relies on a ‘factorial’ or circumstantial
approach to construction, rather than the application of a definitive construction
test. An example is a conclusion on whether the contract has been frustrated. In
that situation, the concern is the scope of the contract.151 Unless the parties have
expressed their intention on whether the contract applies in the circumstances
created by the event (or events) alleged to frustrate the contract, the legal
concept of frustration is applicable.
The formulation by Lord Radcliffe in Davis Contractors Ltd v Fareham
UDC152 is the authoritative153 ‘test’. The question is whether the ‘circumstances
in which performance is called for would render it a thing radically different
from that which was undertaken by the contract’. The test is applied in reference
to the intention of the parties by construction of the contract. In that connection,
Lord Radcliffe referred to Dahl v Nelson Donkin & Co,154 where Lord Watson
said155 that ‘the meaning of the contract must be taken to be, not what the parties
did intend (for they had neither thought nor intention regarding it), but that
which the parties, as fair and reasonable men, would presumably have agreed
upon’. Lord Radcliffe then frankly observed:156
By this time it might seem that the parties themselves have become so far
disembodied spirits that their actual persons should be allowed to rest in
peace. In their place there rises the figure of the fair and reasonable man.
And the spokesman of the fair and reasonable man, who represents after
all no more than the anthropomorphic conception of justice, is and must
be the court itself.
Before he formulated his test, Lord Radcliffe acknowledged that the
conclusion on frustration is ultimately a legal one.157 In emphasising the role of
the court (as the ‘anthropomorphic conception of justice’) Lord Radcliffe was
stressing the objective nature of the inquiry. The conclusion is one of law, but
experience counts, and a commercial judgment as to what is ‘fair and reasonable’
— based on factual considerations — is extremely important.158 In short, the
application of the test is a matter of commercial construction.
Intention Inferred by Factorial Approach
General
[2-35] Concept. A ‘factorial approach’ to the inference of intention is one which
relies on the application of particular considerations (factors) as indicia of
intention. The factors are themselves factual. Their role is to provide a
systematic basis for a particular inference of intention in relation to a specific
legal issue.
The relevant factors are derived from authority, and therefore based on
experience. Even in the context of a written contract, or a contract evidenced by
writing, their application is largely a matter of commercial judgment.159
[2-36] Application. The approach is typically applied in relation to issues of
legal effect, rather than linguistic meaning. Its use is not always acknowledged.
Nor is the approach always used when it would be useful to do so, for example, a
court may prefer to approach the issue from an implied term perspective.160
Alternatively, the decision may be characterised as a conclusion as to the
‘natural’ meaning of the contract.161
Two illustrations are sufficient to show how the factorial approach works: (1)
classification of a pre-contractual statement to determine whether there is an
intention to warrant the truth of the statement; and (2) classification of a
promissory term as a condition, warranty or intermediate term.
In the context of commercial contracts, the overriding concern — as in the case
of frustration — is to reduce difficult issues of intention to matters of
commercial judgment.
Classification of pre-contractual statements
[2-37] Warranties. There is a well-established hierarchy in relation to
statements of fact made during the negotiation of a contract (‘pre-contractual
statements’). At one end of the hierarchy is puffery. At the other end is a
statement intended to take effect as a term of the contract (‘warranty’). In
between the two lies the concept of a ‘mere’ representation. Usually, the crucial
question is whether the truth of the statement has been ‘warranted’. In this
context the meaning of ‘warranty’ is more general than when used in
contradistinction to a ‘condition’. It refers to a statement of fact which is
contractually binding in the sense that the maker intended to warrant (guarantee)
the truth (or falsity) of the statement.162 Alternatively, the statement may be an
assumption of responsibility for the occurrence of a future event.163
A pre-contractual statement, relied on by the person to whom it was made,
may or may not take effect as a warranty. The basis for resolving the issue is, of
course, the intention of the parties.164 The idea dates back to Buller J’s statement
in Pasley v Freeman,165 that an affirmation at the time of a sale is a warranty,
provided it is so intended. In more conventional language, the question is what
the maker of the statement has led the recipient reasonably to believe.166 Clearly,
that issue of intention is not one of linguistic meaning.
That the statement was an inducement to contract may be obvious, and an
intention to induce will generally be a legitimate inference. But the existence of
an intention to warrant the truth (or falsity) of the statement is regarded as a
distinct question of intention. The issue, like the technique used to resolve it,
applies equally to pre-contractual statements which take effect as warranties and
to pre-contractual statements which take effect as ‘collateral contracts’.167
Although the importance of the issue in both contexts has been diminished
considerably by the Misrepresentation Act 1967 (UK),168 in terms of contractual
intention, the distinction between representation and warranty is still
significant.169
[2-38] No default rule. Lord Denning MR once put forward the view170 that if a
statement ‘is made in the course of dealings for a contract for the very purpose
of inducing the other party to act upon it, and actually induces him to act upon it,
by entering into the contract, that is prima facie ground for inferring that it was
intended’ to be a warranty. Application of that view would create a presumption
as to the intention of the maker of the statement.171 Such a presumptive approach
assumes that the law recognises a default rule, to the effect that a representation
of fact is a term of the contract unless the parties have agreed otherwise.
However, the cases proceed on the basis that there is no such rule.172
In terms of formulation of the relevant test, it may, from a technical
perspective, be impossible to do better than to ask what the maker of the
statement has led the other person reasonably to believe. However, application of
the test is another matter. It is obvious that no two fact situations can be exactly
the same. The basis on which one person should be regarded as having led
another to believe that the truth of the statement was warranted is unique to the
facts. But precedent plays a role.
[2-39] Role of precedent. Where a statement of fact is alleged to disclose an
intention to contract, the issue must be resolved on a factual basis. That seems
inevitable where the statement is verbal.173 However, technically, the conclusion
that one person has made a promise to another is one of law.174 It is the fact that
the conclusion is one of law which leads to the citation of authority. In that
respect, it might be said that there is little point in asking what a reasonable
person has been led to believe, unless the reasonable person is informed of the
law as well as the context.
However, the conclusion is a commercial judgment based on the particular
circumstances. Reliance on case law serves to inject an element of system into
the analysis. The cases identify relevant factors which may be relevant to the
situation at issue.
[2-40] Relevant factors. Because they are based on experience, relevant factors
permit intention to be inferred on a circumstantial basis. While not exactly an
exercise in probability, the conclusion is ultimately justifiable on the basis that,
as between the various possible intentions, the commercial judgment is a
conclusion as to what intention a reasonable person would be most likely to
infer. Such factors include: the significance of the statement to the contract as
a whole;175
the relative knowledge and expertise of the parties;176
the choice of words;177
the time when the statement was made;178 and whether the statement was
reduced to writing.179
The effect of this approach is a process under which factual indicia (as relied
on in earlier cases) are tested for relevance. The process is not an exercise in
discretion. However, since it is a matter of judgment, it is relatively easy, and
understandable, that the merits of the case should influence the decision.
[2-41] Statements in documents. The approach described above has been
applied generally, including to written communications such as letters which are
alleged to include contractually binding warranties.180 Accordingly, the fact that
the statement at issue is included in a document makes no difference to the
analysis, except that the material relevant to the inference of intention includes a
document which must be construed in context.181
In such cases, because the document merely evidences the intention of the
author of the statement, any warranty remains an oral one.182
Classification of promissory terms
[2-42] Introduction. The characterisation of a term as a condition, a warranty or
an intermediate term is typically something which the parties omit and which
lawyers supply. But the issue is one of intention. Therefore, as the sale of goods
legislation states,183 it is a question of construction. This illustrates a general rule,
applicable to all contracts.184 The position is the same in relation to time
stipulations, where the issue is conventionally framed in terms of whether the
parties intend time to be of the essence.185 Since the issue of intention concerns
the legal effect of the contract, rather than the meaning of the contract,
something more than a linguistic analysis is required. The conclusion is
necessarily one of law.
Whether the term is a condition depends on the conclusion of a reasonable
person in the position of the promisee. Framed in such terms, the criterion is not
particularly helpful — unless it is also postulated that the reasonable person is a
lawyer. In practice, intention is routinely inferred by the consideration of indicia
of intention, so that intention is determined on the basis of factors which have
been applied in prior cases. When framed by a lawyer, the issue is whether the
term at issue is a ‘condition’. More fully expressed, the question for the
reasonable person is ‘In what circumstances is it intended that the promisee
should be entitled to terminate the contract?’.186 Only if the reasonable person
would answer ‘every breach’, is the term a condition, or essential time
stipulation. However, the application of that approach is sometimes masked by
reliance on a legal test derived from one of the leading cases.
[2-43] Construction tests. If the parties have not expressly classified the term in
issue — and even the use of the word ‘condition’ or ‘warranty’ is far from
conclusive187 — their intention must be inferred. Bowen LJ said in Bentsen v
Taylor Sons & Co (No 2)188 that the choice depends on whether the ‘intention of
the parties … will best be carried out by treating the promise as a warranty
sounding only in damages, or as a condition precedent’. Although this has been
quoted and applied on countless occasions,189 it is merely one of a great many
tests put forward over a period which now exceeds 150 years.
Frequently cited illustrations of these other tests include:190
whether the term ‘goes to the root of the matter’;191
whether it ‘ought to have been apparent to the promisor’ that the promisee
would not have entered into the contract but for an implied assurance of a
‘strict and literal performance of the promise’;192 and whether every
breach must give rise to an event depriving the promisee of ‘substantially
the whole benefit’ which it was intended that the promisee would obtain
from performance of the contract.193
Although it might be argued that the choice of test depends on the particular
term, contract or type of term or contract at issue, the plain fact is that it is
impossible to align any of the tests in that way. The fact that a number of tests
are available, each apparently employing a different criterion to resolve a single
issue, itself suggests that the idea that any reliable test can be formulated is a
fallacious one.
[2-44] Inferring intention. The only universal test for determining whether a
term is a condition, warranty or intermediate term is the intention of the parties.
Bowen LJ said as much in Bentsen v Taylor Sons & Co (No 2).194 However, that
means that what he put forward as a ‘test’ is simply the statement of a truism —
a term is a condition if it is intended to be a condition — or a restatement of the
question, namely, ‘What did the parties intend?’.195
However, this does not mean that the construction tests should be abandoned.
Rather, they are statements of factors the application of which may be helpful
(sometimes determinative), when seeking to infer the intention of the parties.
The conclusion of the court is ultimately justifiable on the basis that, as between
the various possible intentions, the intention inferred is that which a reasonable
person would be most likely to infer.
On the basis of the various tests, and the case law, the factors which may be
relevant include:196
the form and structure of the term; whether entry into the contract was
motivated by an understanding on the part of the promisee that the term
would be strictly complied with; the relationship between the term and
the other terms of the contract; the likely effects of any breach of the
term; the extent to which the promisee would be adequately
compensated by an award of damages for breach of the term; whether
construing the term as a condition will achieve an unreasonable result;
the nature of the contract in which the term appears; the nature of the
subject matter of the contract; and the nature of the term and the
obligation which it creates.
As in relation to a pre-contractual statement, the essential role of the factors is
to convert the legal question into a matter of commercial judgment based on
various (circumstantial) matters. This was recognised by Lord Wilberforce in
Bremer Handelsgesellschaft mbH v Vanden Avenne-Izegem PVBA.197 In that
case, he referred198 to the relevance of ‘general considerations of law’, ‘the form
of the clause’ and the ‘relation of the clause to the contract as a whole’.
The frequency with which standard form contracts have come before the
English courts has led to considerable stress on the promotion of certainty. A
concern for certainty promotes the construction of promissory terms in
commercial contracts as conditions. In particular, in the context of time
stipulations in standard form commercial contracts, the need for certainty and
consistency is a crucial factor.199
[2-45] Applying the approach. The relevance of any particular factor must, of
course, depend on the circumstances. Thus, in Bentsen v Taylor Sons & Co (No
2),200 Bowen LJ went on to refer201 to the relevance of how far a breach of the
term was likely to affect the ‘substance’ and ‘foundation’ of the ‘adventure
which the contract is intended to carry out’. Clearly, these were the
considerations that Bowen LJ considered to be most relevant to an inference of
the parties’ intention in relation to the type of term in issue (a shipowner’s
statement that a vessel had sailed, or was about to sail, ‘from a pitch pine port to
the United Kingdom’) and the nature of the contract (a voyage charterparty). The
most relevant factor was therefore the likely effects of breach of the term. But it
was simply a circumstantial consideration.
Subject to precedent,202 under this approach any technical distinctions
between the construction of oral and written terms are largely ignored. The
judicial technique is to rely on practical justifications for an inference in relation
to the parties’ intention. Thus, in Bentsen v Taylor Sons & Co (No 2), Bowen LJ
acknowledged203 that his criterion ‘could only be applied after getting the jury to
say what the effect of a breach of such a condition would be’. His reference to
‘the effect likely to be produced … by any such breach’ preserves the objective
nature of the inquiry.204
As applied today, the impact is to ensure that the conclusion is essentially a
commercial judgment. Notwithstanding that the conclusion remains one of law,
it is this feature which, more than anything else, has come to be emphasised in
the modern cases.205
[2-46] Role of precedent. Whereas the approach to pre-contractual statements is
almost entirely circumstantial, the classification of promissory terms is more
heavily influenced by case law. There is, therefore, what might be described as a
‘historical’ element. Because of the volume of reported cases, certain types of
term have a history. Moreover, that history is (unlike the cases on pre-contractual
statements) the construction of documentary expressions of intention, typically
standard form contracts. It is, for example, much easier to establish that a term
descriptive of the subject matter of the contract is a condition than it is to
establish as a condition a promissory term relating to its quality.206 This
necessarily informs the commercial judgment which is made in construction.
Nevertheless, at least in relation to standard form contracts, if the particular
term has previously been classified, the parties are presumed to have adopted
that construction by their failure to agree expressly to the contrary.207 Even if the
court is not bound by the decision, a concern for certainty will lead to the
adoption of the same construction unless the judge is clearly convinced that the
prior decision was wrong.208
1. (1877) 2 App Cas 743 at 763. See [1-54].
2. See [1-04]. See also Sir Christopher Staughton, ‘How Do Courts Interpret
Commercial Contracts?’ [1999] CLJ 303 at 304.
3. See further [2-18]–[2-22].
4. See, eg Scott v Martin [1987] 2 All ER 813 at 817 (doubts about whether
onus of proof is a question of construction).
7. See ING Bank NV v Ros Roca SA [2012] 1 WLR 472 at 502; [2011] EWCA
Civ 353 at [110].
8. Cf Brian Coote, ‘The Essence of Contract’ (1988) 1 JCL 91 and (1989) 1
JCL 183.
9. [1962] AC 93 at 122.
10. Cf T D Rakoff, ‘The Implied Terms of Contracts: Of “Default Rules” and
“Situation Sense”’, in Jack Beatson and Daniel Friedmann, eds, Good Faith
and Fault in Contract Law, Clarendon Press, Oxford, 1995, p 191. See also
[3-36]–[3-39] (good faith).
11. See [2-09]–[2-17].
12. See, eg Shogun Finance Ltd v Hudson [2004] 1 AC 919 at 964; [2003]
UKHL 62 at [123] per Lord Phillips (‘object of the exercise is to determine
what each party intended, or must be deemed to have intended’); Rainy Sky
SA v Kookmin Bank [2011] 1 WLR 2900 at 2907; [2011] UKSC 50 at [14]
per Lord Clarke for the court (‘what the parties meant’). See also Pacific
Gas & Electric Co v G W Thomas Drayage & Rigging Co, 69 Cal 2d 33 at
38; 442 P 2d 641 at 644 (1968).
13. Cf O W Holmes, The Common Law, M De W Howe, ed, Little Brown &
Co, Boston, 1963, p 242 (‘law has nothing to do with the actual state of the
parties’ minds’); Byrnes v Kendle (2011) 243 CLR 253 at 285; [2011] HCA
26 at [101].
14. See, eg Hardwick Game Farm v Suffolk Agricultural and Poultry Producers
Association Ltd [1966] 1 WLR 287 at 341; [1966] 1 All ER 309 (affirmed
sub nom Henry Kendall & Sons v William Lillico & Sons Ltd [1969] 2 AC
31).
15. See, eg James Miller & Partners Ltd v Whitworth Street Estates
(Manchester) Ltd [1970] AC 583 at 615; Metrolands Investments Ltd v J H
Dewhurst Ltd [1986] 3 All ER 659 at 669.
16. See,eg Industrie Chimiche Italia Centrale SpA v NEA Ninemia Shipping Co
SA (The Emmanuel C) [1983] 1 Lloyd’s Rep 310 at 312; [1983] 1 All ER
686.
17. See Gissing v Gissing [1971] AC 886 at 897, 902; Stack v Dowden [2007] 2
AC 432 at 442ff, 472; [2007] UKHL 17 at [18]ff, [126]. See also Hawkins v
Clayton (1988) 164 CLR 539 at 570, where Deane J appears to draw a
distinction between inferred intention and presumed or imputed intention.
18. See, eg [2-30] (‘licence’ may take effect as lease). Cf Excess Insurance Co
Ltd v Mander [1997] 2 Lloyd’s Rep 119 at 124 (intention ‘imputed’ on basis
of case law).
19. See, eg Bank of Credit and Commerce International SA v Ali [2002] 1 AC
251 at 259; [2001] UKHL 8 at [8].
20. See [1-03].
21. See, eg Smith v Hughes (1871) LR 6 QB 597. See also CISG, art 8(2);
UNIDROIT Principles, art 4.1(2); Contracts Restatement 2d (1979),
§201(1). See further [9-23], [9-35], [11-30].
22. See [2-16], [2-20], [2-22].
23. See also McMahon’s (Transport) Pty Ltd v Ebbage (1996) [1999] 1 Qd R
185 at 195 (‘intention’ of a party negotiating a contract refers to that which
would be reasonably deduced by the other person, not subjective intention).
Cf HLB: Kidsons (a firm) v Lloyd’s Underwriters [2009] 1 Lloyd’s Rep 8 at
23; [2008] EWCA Civ 1206 at [64].
24. Hayne v Cummings (1864) 16 CBNS 421 at 427; 143 ER 1191 at 1194 per
Byles J.
25. [1974] AC 235 at 263. See also Foreman v Great Western Railway Co
(1878) 38 LT 851 at 853; Great Western Railway v Bristol Corporation
(1918) 87 LJ Ch 414 at 424; Farmer v Honan (1919) 26 CLR 183 at 195;
Life Insurance Co of Australia Ltd v Phillips (1925) 36 CLR 60 at 71;
Byrnes v Kendle (2011) 243 CLR 253 at 273, 284; [2011] HCA 26 at [53],
[98]. But see Great Western Railway v Bristol Corporation (1918) 87 LJ Ch
414 at 430; Sir Johan Steyn, ‘Written Contracts: To What Extent May
Evidence Control Language?’ [1988] CLP 23.
26. R F Norton, Norton on Deeds, Sweet & Maxwell, London, 1906, p 43. See
also Norton on Deeds, p 50.
27. Shore v Wilson (1842) 9 Cl & F 355 at 525, 556; 8 ER 450 at 518, 529. See
also Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur
Insurance (Australia) Ltd (1986) 160 CLR 226 at 237 per the High Court of
Australia (‘actual intention as embodied in the express terms of the
contract’). Cf Deutsche Genossenschaftsbank v Burnhope [1995] 1 WLR
1580 at 1587 per Lord Steyn (‘rather than’). But see Byrnes v Kendle (2011)
243 CLR 253 at 284; [2011] HCA 26 at [98].
(1985) 73 Calif L Rev 261 at 306–7.
29. AIB Group (UK) Ltd v Martin [2002] 1 WLR 94 at 96; [2001] UKHL 63 at
[4] per Lord Hutton (even though actual intention of the parties may be
‘defeated’).
30. But it might be noted that the suspension points in the quotation in [2-11]
from Norton on Deeds show the deletion by Lord Simon of the statement
‘to rebut which no evidence is allowed’ before ‘that the parties intended to
say that which they have said’.
31. See Chapter 9.
32. See [2-27].
33. See [2-28]–[2-31].
34. See [3-05]–[3-13].
35. [1998] 1 WLR 896 at 913, 914. See also Chartbrook Ltd v Persimmon
Homes Ltd [2009] 1 AC 1101 at 1112; [2009] UKHL 38 at [14]. See further
[3-09].
36. See Richard Buxton, ‘“Construction” and Rectification after Chartbrook’
[2010] CLJ 253.
38. Cf Richard Buxton, ‘“Construction” and Rectification after Chartbrook’
[2010] CLJ 253 at 256.
39. Cf Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC 1101 at 1113–14;
[2009] UKHL 38 at [21].
40. See Chapter 18.
41. See [17-28]. But that is not a view which is applied in all contexts. See Re
Mahmoud and Ispahani [1921] 2 KB 716 (contract was expressly
prohibited by statute which applied to buying or selling because a contract
of sale could neither be entered into nor performed without infringing the
statute). See also Archbolds (Freightage) Ltd v S Spanglett Ltd [1961] 1 QB
374 at 385.
42. That may include taking decisions about how an interpretation clause
should be applied. See AIB Group (UK) Ltd v Martin [2002] 1 WLR 94;
[2001] UKHL 63.
43. [1997] AC 749.
44. [1997] AC 749 at 779.
46. Cf Associated Japanese Bank (International) Ltd v Credit du Nord SA
[1989] 1 WLR 255 at 263.
48. See, eg Davis Contractors Ltd v Fareham UDC [1956] AC 696 at 727–8; B
Seppelt & Sons Ltd v Commissioner for Main Roads (1975) 1 BPR 9147 at
9151.
49. See, eg [16-06].
50. See [15-40].
51. See, eg Prenn v Simmonds [1971] 1 WLR 1381 at 1385; [1971] 3 All ER
237 at 240–1; Ashington Piggeries Ltd v Christopher Hill Ltd [1972] AC
441 at 502; L Schuler AG v Wickman Machine Tool Sales Ltd [1974] AC
235 at 263. See also Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219
CLR 165 at 179; [2004] HCA 52 at [40]; Koompahtoo Local Aboriginal
Land Council v Sanpine Pty Ltd (2007) 233 CLR 115 at 138; [2007] HCA
61 at [48]; Ryledar Pty Ltd v Euphoric Pty Ltd (2007) 69 NSWLR 603 at
655; [2007] NSWCA 65 at [262]. See David McLauchlan, ‘Common
Intention and Contract Interpretation’ [2011] LMCLQ 30. See also
UNIDROIT Principles, art 4.1(1).
52. See [1-03].
53. See, eg Thor Navigation Inc v Ingosstrakh Insurance Co Ltd [2005] 1
Lloyd’s Rep 547 at 560; [2005] EWHC 19 (Comm) at [53] (insurance
contract did not reflect subjective intention of insured).
54. See, eg Brogden v Metropolitan Railway Co (1877) 2 App Cas 666 at 688,
691, 697; Byrne & Co v Leon Van Tienhoven & Co (1880) 5 CPD 344 at
347; Hvalfangerselskapet Polaris Aktieselskap v Unilever Ltd (1933) 39
Com Cas 1 at 34; Paal Wilson & Co A/S v Partenreederei Hannah
Blumenthal [1983] 1 AC 854 at 915, 924; Ermogenous v Greek Orthodox
Community of SA Inc (2002) 209 CLR 95 at 105; [2002] HCA 8 at [25]. But
cf Falck v Williams [1900] AC 176 at 180.
55. Tamplin v James (1880) 15 Ch D 215 at 221, 222.
56. As in Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256.
57. Cf Harvela Investments Ltd v Royal Trust Co of Canada (CI) Ltd [1986] 1
AC 207 at 225.
58. Of course, acceptance of a written offer is an adoption of the document as a
statement of common intention.
59. Cf HLB Kidsons (a firm) v Lloyd’s Underwriters [2009] 1 Lloyd’s Rep 8 at
23; [2008] EWCA Civ 1206 at [64].
60. See Harvela Investments Ltd v Royal Trust Co of Canada (CI) Ltd [1986] 1
AC 207 at 225–6. See also Clifton v Palumbo [1944] 2 All ER 497 at 499;
B Seppelt & Sons Ltd v Commissioner for Main Roads (1975) 1 BPR 9147
at 9152–3.
61. See [4-22] (perspective rule).
62. But see [11-29], [12-23].
63. See, eg R v Clarke (1927) 40 CLR 227 at 239 (consensus ad idem
essential); Paal Wilson & Co A/S v Partenreederei Hannah Blumenthal
[1983] 1 AC 854 at 917 per Lord Diplock, with whom Lord Brightman
agreed (contrary suggestion a ‘novel heresy’); Air Great Lakes Pty Ltd v K
S Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309 at 336 per McHugh JA
(‘an intention to create a legally enforceable contract is a necessary element
in the formation of a contract’); Shogun Finance Ltd v Hudson [2004] 1 AC
919 at 947; [2003] UKHL 62 at [55] per Lord Hobhouse, with whom Lord
Walker agreed (consensus ad idem a ‘fundamental’ principle).
64. See D W McLauchlan, ‘Objectivity in Contract’ (2005) 24 Univ Qld LJ
479. Cf Harvela Investments Ltd v Royal Trust Co of Canada (CI) Ltd
[1986] 1 AC 207 at 226.
65. See Brogden v Metropolitan Railway Co (1877) 2 App Cas 666 at 688, 697
(rejection of view that ‘mental assent’ to an offer sufficient). See also R v
Clarke (1927) 40 CLR 227 at 240.
66. See [2-16], [2-22].
67. (1773) 2 Doug 689 at 690; 99 ER 437. The report of the case is contained in
the argument of counsel in Jones v Barkley (1781) 2 Doug 684; 99 ER 434.
68. (1773) 2 Doug 689 at 691; 99 ER 437 at 438.
69. See P S Atiyah, The Rise and Fall of Freedom of Contract, Clarendon
Press, Oxford, 1979, pp 213, 424.
70. See Carter’s Breach of Contract, §§1-21–1-22.
71. See Oxford English Dictionary, 2nd ed, OUP, Oxford, 1989, ‘intendment’.
72. See Brogden v Metropolitan Railway Co (1877) 2 App Cas 666 at 692,
where Lord Blackburn traces the point back to the Year Books. See also Air
Great Lakes Pty Ltd v K S Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309
at 335.
73. Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC
749 at 779 per Lord Hoffmann.
74. See Parol Evidence Rule Report, para 2.4; David Ibbetson, ‘Sixteenth
Century Contract Law: Slade’s Case in Context’ (1984) 4 OJLS 295 at 314.
See also Actionstrength Ltd v International Glass Engineering IN.GL.EN
Spa [2003] 2 AC 541 at 549; [2003] UKHL 17 at [19].
75. Behn v Burness (1863) 3 B & S 751 at 756; 122 ER 281 at 283. See further
[4-13], [4-39].
76. Pioneer Shipping Ltd v BTP Tioxide Ltd [1982] AC 724 at 736 per Lord
Diplock. The other members of the House of Lords agreed. See also
Thorner v Major [2009] 1 WLR 776 at 800-1; [2009] UKHL 18 at [83].
78. Cf Statoil ASA v Louis Dreyfus Energy Services LP (The Harriette N)
[2008] 2 Lloyd’s Rep 685 at 694; [2008] EWHC 2257 (Comm) at [87]–
[88].
79. (1983) 151 CLR 422.
80. (1983) 151 CLR 422 at 429. See also Svanosio v McNamara (1956) 96
CLR 186 at 195–6; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219
CLR 165 at 180; [2004] HCA 52 at [41]; Byrnes v Kendle (2011) 243 CLR
253 at 275; [2011] HCA 26 at [59].
81. [1950] 1 KB 671 at 691.
82. (1871) LR 6 QB 597 at 607, 609.
83. (1983) 151 CLR 422 at 428.
84. Cf Sharp v Thomson (1915) 20 CLR 137 at 141–2.
85. More precisely, the question for the court was whether the direction which
had been given to the jury was correct.
86. (1871) LR 6 QB 597 at 600 per Cockburn CJ.
87. (1871) LR 6 QB 597 at 609. Cf Statoil ASA v Louis Dreyfus Energy
Services LP (The Harriette N) [2008] 2 Lloyd’s Rep 685 at 694; [2008]
EWHC 2257 (Comm) at [87].
88. (1871) LR 6 QB 597 at 611. The statement reflects the second question put
to the jury.
89. (1871) LR 6 QB 597 at 607.
90. Cf Falck v Williams [1900] AC 176 at 180. But cf Associated Japanese
Bank (International) Ltd v Credit du Nord SA [1989] 1 WLR 255 at 264 per
Steyn J (‘will theory … cast in objective form’).
91. Cf White v Shortall (2006) 68 NSWLR 650 at 672; [2006] NSWSC 1379 at
[127].
92. See David McLauchlan, ‘The “Drastic” Remedy of Rectification for
Unilateral Mistake’ (2008) 124 LQR 608 at 612 (‘misconceived’).
93. Cf Anne De Moor, ‘Intention in the Law of Contract: Elusive or Illusory?’
(1990) 106 LQR 632 at 641.
94. See Statoil ASA v Louis Dreyfus Energy Services LP (The Harriette N)
[2008] 2 Lloyd’s Rep 685 at 694; [2008] EWHC 2257 (Comm) at [88].
95. [2004] 1 AC 919; [2003] UKHL 62.
96. [2004] 1 AC 919 at 964; [2003] UKHL 62 at [123].
97. See Chapter 9.
98. But see Chapter 16, where preferences in construction with a public policy
element are discussed as specific incidents of commercial construction.
99. See [2-28].
100. See [2-30].
101. In relation to meaning, see [2-13], [3-09] and generally Chapter 13. See
also Chapter 18 (application of the contract).
102. See Progress Property Co Ltd v Moore [2011] 1 WLR 1 at 10, 15; [2010]
UKSC 55 at [24], [42].
103. See Coddington v Paleologo (1867) LR 2 Ex 193 at 200 per Kelly CB;
Cody v J H Nelson Pty Ltd (1947) 74 CLR 629 at 647 per Dixon J; Bridge v
Campbell Discount Co Ltd [1962] AC 600 at 622 per Lord Radcliffe; Sindel
v Georgiou (1984) 154 CLR 661 at 667 per the High Court of Australia.
104. Snook v London and West Riding Investments Ltd [1967] 2 QB 786 at 802,
804; Equuscorp Pty Ltd v Glengallan Investments Pty Ltd (2004) 218 CLR
471 at 486; [2004] HCA 55 at [46]; Raftland Pty Ltd as Trustee of the
Raftland Trust v Commissioner of Taxation (2008) 238 CLR 516 at 562;
[2008] HCA 21 at [146]. See further [9-27].
105. See ICT Pty Ltd v Sea Containers Ltd (1995) 39 NSWLR 640 at 655.
106. As in Alexander v Rayson [1936] 1 KB 169.
107. [1967] 2 QB 786 at 802. See also Asty Maritime Co Ltd v Rocco Guiseppe
& Figli SNC (The Astyanax) [1985] 2 Lloyd’s Rep 109 at 114; Gisborne v
Burton [1989] QB 390 at 397–8; Yukong Line Ltd of Korea v Rendsburg
Investments Corp of Liberia (The Rialto) (No 2) [1998] 1 WLR 294 at 306–
7; [1998] 1 Lloyd’s Rep 322 at 330; Shalson v Russo [2005] Ch 281 at 341;
[2003] EWHC 1637 (Ch) at [187]; Raftland Pty Ltd as Trustee of the
Raftland Trust v Commissioner of Taxation (2008) 238 CLR 516 at 554;
[2008] HCA 21 at [115]; Royal Bank of Scotland Plc v Chandra [2010] 1
Lloyd’s Rep 677 at 691; [2010] EWHC 105 (Ch) at [80].
108. See Raftland Pty Ltd as Trustee of the Raftland Trust v Commissioner of
Taxation (2008) 238 CLR 516 at 531; [2008] HCA 21 at [35].
109. See Yani Haryanto v E D & F Man (Sugar) Ltd [1986] 2 Lloyd’s Rep 44 at
59.
110. Cf Yukong Line Ltd of Korea v Rendsburg Investments Corp of Liberia (The
Rialto) (No 2) [1998] 1 WLR 294 at 306; [1998] 1 Lloyd’s Rep 322 at 330.
111. [2011] 1 WLR 1 at 9; [2010] UKSC 55 at [22]. The other members of the
court agreed.
112. Narich Pty Ltd v Commissioner of Pay-Roll Tax [1983] 2 NSWLR 597 at
606; (1983) 50 ALR 417 at 427. But cf Gisborne v Burton [1989] QB 390
at 398.
113. [1915] AC 79.
114. [1915] AC 79 at 86–7. See also Philips Hong Kong Ltd v Attorney General
(Hong Kong) (1993) 61 BLR 49 at 56; [1993] 2 CLJ 272 at 277; Ringrow
Pty Ltd v BP Australia Pty Ltd (2005) 224 CLR 656 at 662–3; [2005] HCA
71 at [11]–[12].
115. See Philips Hong Kong Ltd v Attorney General (Hong Kong) (1993) 61
BLR 49 at 59; [1993] 2 CLJ 272 at 279 per Lord Woolf for the Privy
Council (‘strong inference to the contrary’ resulting from ‘agreement to
make the payments as liquidated damages’ and the fact that the sum
claimed was not alleged to be excessive in relation to the actual loss). Cf
Diestal v Stevenson [1906] 2 KB 345 at 351 (whether contract drafted by
lawyer).
116. See, eg Dimech v Corlett (1858) 12 Moo PC 199 at 229; 14 ER 887 at 898;
Commissioner of Public Works v Hills [1906] AC 368 at 375.
117. See Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd
[1915] AC 79 at 86; Boucaut Bay Co Ltd v The Commonwealth (1927) 40
CLR 98 at 107.
118. See Clydebank Engineering and Shipbuilding Co Ltd v Don Jose Ramos
Yzquierdo y Castaneda [1905] AC 6 at 15; Bridge v Campbell Discount Co
Ltd [1962] AC 600 at 624; Lombank Ltd v Excell [1964] 1 QB 415 at 425.
119. See also O’Dea v Allstates Leasing System (WA) Pty Ltd (1983) 152 CLR
359 at 368, 399, 400; Acron Pacific Ltd v Offshore Oil NL (1985) 157 CLR
514; Lordsvale Finance Plc v Bank of Zambia [1996] QB 752 at 762–3.
120. [1962] AC 600.
121. [1905] AC 6.
122. It is possible that equity still plays a role. See, eg Citicorp Australia Ltd v
Hendry (1985) 4 NSWLR 1 at 40. But that does not signify the operation of
a concept of ‘equitable construction’.
123. Palmer v Temple (1839) 9 Ad & E 508 at 520; 112 ER 1304 at 1309;
Workers Trust & Merchant Bank Ltd v Dojap Investments Ltd [1993] AC
573 at 579. See also Ward v Ellerton [1927] VLR 494 at 501; Smyth v
Jessep [1956] VLR 230 at 234; Coates v Sarich [1964] WAR 2 at 15.
124. [1954] 1 QB 476 at 491 (adopted Workers Trust & Merchant Bank Ltd v
Dojap Investments Ltd [1993] AC 573 at 579). See also Tropical Traders
Ltd v Goonan (No 2) [1965] WAR 174 at 176; Freedom v AHR
Constructions Pty Ltd [1987] 1 Qd R 59 at 65–6.
125. [1997] AC 514 at 518.
Goods Act 1895, s 11(2); Tas: Sale of Goods Act 1896, s 16(2); Vic: Goods
Act 1958, s 16(2); WA: Sale of Goods Act 1895, s 11(2).
127. Comptoir d’Achat et de Vente du Boerenbond Belge SA v Luis de Ridder
Limitada (The Julia) [1949] AC 293 at 309, 314, 321.
128. Toomey v Eagle Star Insurance Co Ltd [1994] 1 Lloyd’s Rep 516.
129. [1961] 1 WLR 828. See also Direct Acceptance Finance Ltd v Cumberland
Furnishing Pty Ltd [1965] NSWR 1504 at 1509.
130. See, eg Re Bond Worth Ltd [1980] Ch 228 at 248; Re Peachdart Ltd [1984]
Ch 131.
131. See, eg Armour v Thyssen Edelstahlwerke AG [1991] 2 AC 339 at 346. See
also Price v Parsons (1935) 54 CLR 332 (bills of sale legislation); Kok
Hoong v Leong Cheong Kweng Mines Ltd [1964] AC 993 at 1017
(moneylending legislation).
132. See, eg McEntire v Crossley Bros Ltd [1895] 1 AC 457 at 463 per Lord
Herschell LC, with whom the other members of the House of Lords agreed
(‘substantial effect’); Yeoman Credit Ltd v Latter [1961] 1 WLR 828 at 831
per Holroyd Pearce LJ (‘essential nature’); Bankway Properties Ltd v
Pensfold-Dunsford [2001] 1 WLR 1369 at 1380; [2001] EWCA Civ 528 at
[43] per Arden LJ (‘substance of the transaction’); Progress Property Co
Ltd v Moore [2011] 1 WLR 1 at 7; [2010] UKSC 55 at [16] (label not
decisive). See also Australian Guarantee Corp Ltd v Balding (1930) 43
CLR 140 at 150–1; Commissioners of Inland Revenue v Duke of
Westminster [1936] AC 1 at 20.
133. See, eg IIG Capital LLC v Van Der Merwe [2008] 2 Lloyd’s Rep 187 at
190; [2008] EWCA Civ 542 at [7]; Associated British Ports v Ferryways
NV [2008] 2 Lloyd’s Rep 353 at 362; [2008] EWHC 1265 (Comm) at [57]
(affirmed [2009] 1 Lloyd’s Rep 595; [2009] EWCA Civ 189).
134. See Heisler v Anglo-Dal Ltd [1954] 1 WLR 1273 at 1276, 1280; [1954] 2
All ER 770 (‘guarantee’ meant undertaking by seller). See also Australia
and New Zealand Banking Group Ltd v Coutts (2003) 201 ALR 728 at 738.
135. McEntire v Crossley Bros Ltd [1895] 1 AC 457 at 463. See also Marcus
Clark (Victoria) Ltd v Brown (1928) 40 CLR 540 at 547–8. Cf Weiner v
Harris [1910] 1 KB 285 (transaction between manufacturing jeweller and
agent where words ‘sale or return’ were construed as referring to a sale by
the agent rather than to the agent).
136. See J I MacWilliam Co Inc v Mediterranean Shipping Co SA [2005] 2 AC
423 at 444; [2005] UKHL 11 at [5].
137. See Progress Property Co Ltd v Moore [2011] 1 WLR 1 at 15; [2010]
UKSC 55 at [42].
138. [2000] 1 AC 406. See also Street v Mountford [1985] AC 809; AG
Securities v Vaughan [1990] 1 AC 417 at 463, 466; KJRR Pty Ltd v
Commissioner of State Revenue [1999] 2 VR 174 at 177, 183; PW & Co v
Milton Gate Investments Ltd [2004] Ch 142 at 179; [2003] EWHC 1994
(Ch) at [142]; Gumland Property Holdings Pty Ltd v Duffy Bros Fruit
Market (Campbelltown) Pty Ltd (2008) 234 CLR 237 at 255–6; [2008]
HCA 10 at [50].
139. [2000] 1 AC 406 at 411; see also [2000] 1 AC 406 at 413. See also Gray v
Taylor [1998] 1 WLR 1093 at 1097 per Sir John Vinelott, with whom the
other members of the Court of Appeal agreed (if an ‘agreement constitutes
a tenancy, the fact that it may be described as a licence is simply neither
here nor there’); KJRR Pty Ltd v Commissioner of State Revenue [1999] 2
VR 174 at 183 per Tadgell JA (‘commercial substance’).
140. See Clough Mill Ltd v Martin [1985] 1 WLR 111 at 116; Stephens Travel
Service International Pty Ltd v Qantas Airways Ltd (1988) 13 NSWLR 331
at 348–9.
141. See, eg Hospital Products Ltd v United States Surgical Corp (1984) 156
CLR 41.
142. See Garnac Grain Co Inc v H M F Faure & Fairclough Ltd [1968] AC
1130n at 1137. Cf Australian Mutual Provident Society v Chaplin (1978) 18
ALR 385 at 392 (label of ‘agent’ correct as a matter of construction).
143. See, eg United Dominions Corp Ltd v Brian Pty Ltd (1985) 157 CLR 1.
144. See, eg Australian Mutual Provident Society v Chaplin (1978) 18 ALR 385;
Narich Pty Ltd v Commissioner of Pay-Roll Tax [1983] 2 NSWLR 597 at
606; (1983) 50 ALR 417 at 427.
145. See, eg Adam v Newbigging (1888) 13 App Cas 308 at 315; Beckingham v
The Port Jackson and Manly Steamship Co (1956) 57 SR (NSW) 403 at
410.
146. See also Rowella Pty Ltd v Hoult [1988] 2 Qd R 80; Seven Cable Television
Pty Ltd v Telstra Corp Ltd (2000) 171 ALR 89 at 124–5 (affirmed without
reference to the point sub nom Foxtel Management Pty Ltd v Seven Cable
Television Pty Ltd (2000) 175 ALR 433).
147. See Ferguson v John Dawson & Partners (Contractors) Ltd [1976] 1 WLR
1213 at 1223; [1976] 3 All ER 817; AG Securities v Vaughan [1990] 1 AC
417 at 462–3. See also South Sydney District Rugby League Football Club
Ltd v News Ltd (2000) 177 ALR 611 at 646 (reversed on other grounds
(2001) 181 ALR 188 (affirmed without reference to the point sub nom
News Ltd v South Sydney District Rugby League Football Club Ltd (2003)
215 CLR 563; [2003] HCA 45)). Cf Bankway Properties Ltd v Pensfold-
Dunsford [2001] 1 WLR 1369 at 1380; [2001] EWCA Civ 528 at [43].
148. See [2-27].
149. See Chapter 3.
150. See [3-16]. See also L E Trakman, ‘Interpreting Contracts: A Common Law
Dilemma’ (1981) 59 Can B Rev 241 at 292.
151. See McRae v Commonwealth Disposals Commission (1951) 84 CLR 377 at
407–8.
152. [1956] AC 696 at 729.
153. See National Carriers Ltd v Panalpina (Northern) Ltd [1981] AC 675 at
688; Pioneer Shipping Ltd v BTP Tioxide Ltd [1982] AC 724 at 751. See
also Codelfa Construction Pty Ltd v State Rail Authority of New South
Wales (1982) 149 CLR 337.
154. (1881)6 App Cas 38.
155. (1881) 6 App Cas 38 at 59.
156. [1956] AC 696 at 728. See also Joseph Constantine SS Line Ltd v Imperial
Smelting Corp Ltd [1942] AC 154 at 185.
157. See [4-14].
158. If the parties have expressed some intention on the matter, a question of
construction may arise if the contract is alleged to deal sufficiently with the
event, as in cases such as Bank Line Ltd v Arthur Capel & Co [1919] AC
435.
159. See [4-18]. See also Mihaljevic v Eiffel Tower Motors Pty Ltd [1973] VR
545 at 555.
162. See Carter’s Breach of Contract, §4-17.
163. See, eg Oscar Chess Ltd v Williams [1957] 1 WLR 370 at 374; Hospital
Products Ltd v United States Surgical Corp (1984) 156 CLR 41 at 116.
164. See, eg Heilbut Symons & Co v Buckleton [1913] AC 30 at 50–1;
Couchman v Hill [1947] KB 554 at 558; Ellul v Oakes (1972) 3 SASR 377
at 387.
165. (1789) 3 TR 51 at 57; 100 ER 450 at 453 (explaining Crosse v Gardner
(1689) Carth 90; 90 ER 656 at 657; Medina v Stoughton (1699) 1 Salk 210;
91 ER 188). See also Kleinwort Benson Ltd v Malaysia Mining Corp
Berhad [1989] 1 WLR 379 at 390–1.
166. See, eg Hospital Products Ltd v United States Surgical Corp (1984) 156
CLR 41 at 61.
167. See, eg Heilbut Symons & Co v Buckleton [1913] AC 30 at 47, 50; JJ
Savage & Sons Pty Ltd v Blakney (1970) 119 CLR 435 at 442; Hanoman v
Southwark London Borough Council (No 2) [2009] 1 WLR 374 at 390–1;
[2008] EWCA Civ 624 at [47]–[48] (affirmed [2009] 1 WLR 1367; [2009]
UKHL 29).
168. See also ACT: Civil Law (Wrongs) Act 2002, Ch 13; SA: Misrepresentation
Act 1972.
169. Contrast Contractual Remedies Act 1979 (NZ), s 6(1). Cf Australian
Consumer Law, s 18.
170. Dick Bentley Productions Ltd v Harold Smith (Motors) Ltd [1965] 1 WLR
623 at 627.
171. Compare Denning LJ’s statement of the criterion in Oscar Chess Ltd v
Williams [1957] 1 WLR 370 at 375 (adopted Van den Esschert v Chappell
[1960] WAR 114 at 116), in terms of what an intelligent bystander would
reasonably infer.
172. See Heilbut Symons & Co v Buckleton [1913] AC 30 at 50 and J J Savage
& Sons Pty Ltd v Blakney (1970) 119 CLR 435 at 442 (explaining De
Lassalle v Guildford [1901] 2 KB 215 at 221, 222). Cf Inntrepreneur Pub
Co (GL) v East Crown Ltd [2000] 2 Lloyd’s Rep 611 at 615. See also Ross v
Allis-Chalmers Australia Pty Ltd (1980) 55 ALJR 8 at 10, 11; 32 ALR 561;
Nemeth v Bayswater Road Pty Ltd [1988] 2 Qd R 406 at 417.
173. Couchman v Hill [1947] KB 554 at 558.
174. See Oscar Chess Ltd v Williams [1957] 1 WLR 370 at 375 (position when
facts not in dispute).
175. See, eg Couchman v Hill [1947] KB 554.
176. See, eg Oscar Chess Ltd v Williams [1957] 1 WLR 370.
177. See, eg Ross v Allis-Chalmers Australia Pty Ltd (1980) 55 ALJR 8 at 10–
11; 32 ALR 561.
178. See, eg Routledge v McKay [1954] 1 WLR 615.
179. See, eg Oscar Chess Ltd v Williams [1957] 1 WLR 370 at 376; Hospital
Products Ltd v United States Surgical Corp (1984) 156 CLR 41 at 62.
180. See, eg Ellul v Oakes (1972) 3 SASR 377 (statement in certain advertising
material).
181. For classification of contract terms as representations or warranties see [9-
30].
182. See Carmichael v National Power Plc [1999] 1 WLR 2042 at 2049. For the
interaction with the parol evidence rule, see Chapter 10.
Goods Act 1895, s 11(2); Tas: Sale of Goods Act 1896, s 16(2); Vic: Goods
Act 1958, s 16(2); WA: Sale of Goods Act 1895, s 11(2).
184. See, eg Cehave NV v Bremer Handelsgesellschaft mbH (The Hansa Nord)
[1976] QB 44. See also Ankar Pty Ltd v National Westminster Finance
(Australia) Ltd (1987) 162 CLR 549. See Carter’s Breach of Contract, §4-
06.
185. See [4-26]–[4-29].
187. See L Schuler AG v Wickman Machine Tool Sales Ltd [1974] AC 235;
Australia and New Zealand Banking Group Ltd v Beneficial Finance Corp
Ltd (1982) 57 ALJR 352. See also [2-30] (promise described as a warranty
may be a condition).
188. [1893] 2 QB 274 at 281.
189. See, eg Francis v Lyon (1907) 4 CLR 1023 at 1034; Bunge Corp New York
v Tradax Export SA Panama [1981] 1 WLR 711 at 725; Ankar Pty Ltd v
National Westminster Finance (Australia) Ltd (1987) 162 CLR 549 at 556–
7.
191. Bettini v Gye (1876) 1 QBD 183 at 188 per Blackburn J for the court
(adopted Friedlander v Bank of Australasia (1909) 8 CLR 85 at 99–100).
192. Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) 38 SR
(NSW) 632 at 641–2 per Jordan CJ (reversed on other grounds sub nom
Luna Park (NSW) Ltd v Tramways Advertising Pty Ltd (1938) 61 CLR 286
and approved Associated Newspapers Ltd v Bancks (1951) 83 CLR 322).
193. Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB
26 at 69 per Diplock LJ (approved, but qualified as not being a necessary
requirement, in Bunge Corp New York v Tradax Export SA Panama [1981]
1 WLR 711).
194. [1893] 2 QB 274 at 281.
195. Cf State Trading Corp of India Ltd v M Golodetz Ltd [1989] 2 Lloyd’s Rep
277 at 283.
196. The list is taken from Carter’s Breach of Contract, §5-14.
197. [1978] 2 Lloyd’s Rep 109.
198. [1978] 2 Lloyd’s Rep 109 at 113. See also Shakibaee v Chan (2001) 24
WAR 97 at 108; [2001] WASC 60 at [54].
199. See [1-33].
200. [1893] 2 QB 274.
201. [1893] 2 QB 274 at 281.
202. See [2-46].
203. [1893] 2 QB 274 at 281.
204. Cf Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) 38 SR
(NSW) 632 at 641–2, reversed on other grounds sub nom Luna Park (NSW)
Ltd v Tramways Advertising Pty Ltd (1938) 61 CLR 286 and approved
Associated Newspapers Ltd v Bancks (1951) 83 CLR 322 (what ‘ought to
have been apparent to the promisor’).
205. See [4-18].
207. See [13-14].
208. See [4-18]. Cf Lord Devlin, ‘The Treatment of Breach of Contract’ [1966]
CLJ 192 at 196.
3
Construction and Implication
General [3-02]
Changing Words in Construction [3-05]
General [3-05]
Adding and Replacing Words [3-07]
Deleting Words [3-11]
Implication of Terms [3-14]
General [3-14]
Categories of Implication [3-18]
Intention and Implication [3-20]
Construction and Rules for Implied Terms [3-22]
General [3-22]
Terms Implied in Fact [3-26]
Terms Implied in Law [3-28]
Default Rules and Implied Terms [3-31]
Introduction [3-31]
Terms Implied in Law and Contract Doctrine [3-33]
Good Faith [3-36]
[3-01] Objects. The principal objective of this chapter is to explain the
relationship between construction of a contract and the implication of a term into
a contract. However, this is not a book on implied terms. The perspective for
consideration of term implication is the process of giving effect to intention.
It is also appropriate to consider two other matters. First, given that implied
terms are regarded as ‘gap fillers’, the means by which words may be added,
replaced or deleted in construction are relevant to the relationship between
construction and implication. Therefore, as a preliminary to considering the
implication of terms, what can be done in the name of ‘construction’ is explored.
Second, the relationship between ‘default’ rules, presumptions of intention
and implied terms is also relevant to how contracts are construed.
GENERAL
[3-02] Introduction. In construing a contract, the task is to determine and give
effect to the intention of the parties.1 Where the parties have expressed an
intention, effect will be given to that intention unless public policy or statute
dictates otherwise, or the expressed intention is inconsistent with the legal
operation of the contract.2 If no intention is expressed, the task is to determine
and give effect to the parties’ inferred intention.
In many cases where linguistic meaning is in issue, intention — whether
expressed or inferred — is determined by commercial construction of the
contract. It would, however, be far-fetched to suggest that in all cases where
there appears to be a gap in expressed intention, or some other problem such as
internal inconsistency, there is nothing more to the process. There must be limits
to what can be done by construction without the aid of extrinsic evidence. It
follows that recourse to other means is sometimes necessary.3 To compensate for
the absence of express words on the matter which ultimately becomes the crucial
issue, courts apply various techniques to infer intention. Historically, the chief
techniques have been the implication of terms and the use of preferences and
presumptions of intention.4
[3-03] Commercial construction. Solving construction problems by the
implication of terms is a familiar way of curing apparent uncertainty or
inconsistency, or coping with apparent gaps in expressed intention. But it is not
the ‘first port of call’. It is a mistake to say that apparent gaps, and other
problems, can only be resolved by term implication. Specific techniques,
including the implication of a term, are relevant only if construction of the
express terms does not resolve the problem which has arisen.
The concern for certainty in the law of contract is not merely result-
orientated, but also includes a strong preference for ‘neatness’, including the
ability to apply defined rules. Systematic solutions to problems of intention are
therefore preferred. Although in a great many cases the need to infer intention
will arise in a unique situation, so that the resolution of the construction problem
is on an individualised or ad hoc basis, the concern for certainty remains. As a
concept, ‘commercial construction’ cannot easily be defined,5 and to say that the
search is simply for a commercially sensible result does not look to provide
certainty. From that perspective, the appeal of solutions based on implied terms
is their association with specific categories, rules and requirements.
[3-04] Bases for inferring intention. Problems with expressed intention are a
very common phenomenon. The first step in construction is always to determine
the parties’ expressed intention, and to seek to solve problems, including
apparent gaps, by construction as a matter of inference. As explained in the
previous chapter,6 it is not always easy to distinguish between construction of
expressed intention and construction conclusions which give effect to an inferred
intention. But it is not the distinction which matters. Rather, it is the need to have
clear and coherent explanations and justifications for conclusions as to the
parties’ intention.
In addition, although in a factual sense an agreement may be incomplete as an
expression of intention, a conclusion that the agreement is a contract means that
it is not incomplete in a legal sense.7 The fact of agreement to a contract is itself
a commitment to the institution and means that the parties are taken to have
agreed to be bound by what the law ‘supplies’. Courts fill in apparent ‘gaps’ —
particularly in relation to the legal effect of a contract — on a routine basis.
Sometimes terms are implied, but that is not always the case.8 Similarly,
apparent problems of linguistic meaning — including ‘gaps’ — are resolved on a
commercial construction basis. But use of implied terms in that process is now
less common than in the past.
The reason why commercial construction has to some extent displaced the
technique of implying terms is a recognition that the rules regulating the
implication of terms are not so much bases for inferring intention as bases for
giving effect to the intention inferred by construction. There are, of course,
various reasons for implication: ‘implication of a term’ does not refer to a single
concept. Many cases in which terms have been implied have actually involved
the use of default rules, that is, presumptions of intention.
CHANGING WORDS IN CONSTRUCTION
General
[3-05] Introduction. Construction is not, as a legal process, limited to reading
words on a page.9 However, even without the benefit of context and construction
rules and presumptions, clerical errors and similar mistakes can be detected.
Once detected, these are corrected ‘in construction’.
It follows that courts regularly deal with mistakes in parties’ expressed
intention in contractual documents. Although it is clear that by this process
words may be supplied or omitted, without any formal process of rectification, it
does not exhaust the jurisdiction of a court in construction.10 In addition, terms
can be implied and provisions can be severed. In all cases, there are specific
legal requirements or ‘tests’ which are themselves applied by construction. Since
those legal requirements do not require the use of extrinsic evidence, this is all
achieved by construction of the contract as a whole in light of its context.
Broadly speaking, the distinction between, on the one hand, correction of
errors and, on the other, the implication of terms and severance, is that whereas
the former simply ‘corrects’ the expressed intention of the parties, the latter gives
effect to their inferred intention. However, it is at times difficult to distinguish
between construing expressed intention and giving effect to inferred intention.11
[3-06] Correcting errors.
Article 3.1 — Correcting errors in expressed intention.
If it is clear from the construction of a document in the light of context
both that an error has occurred in the parties’ statement of their expressed
intention and how the error should be dealt with, it may be corrected in
construction, by the addition, deletion or replacement of words.
Mistakes in the statement or formulation of the parties’ expressed intention are
common. If it is clear, from construction of the document in the light of context,
that the parties made an error and what the error is, the same considerations may
be used to make the correction. In other words, both the error and the basis on
which the error should be corrected must appear from construction of the
contract.12 The same approach is taken to other ‘obvious errors’,13 such as
punctuation errors.14
Whether this is the statement of a ‘rule’ can be doubted. It is something of a
truism to say that if it is clear what a document was intended to say, the contract
should be construed on that basis.15 But it is perhaps helpful to formulate the idea
as a rule. The process is uncontroversial when applied to errors of a formal or
clerical nature which appear on the face of the document. The discussion below
distinguishes application of the rule from three other matters: (1) making choices
between competing meanings; (2) making choices between competing
applications; and (3) the process of severance.
Of course, the implied term concept forms the principal basis on which terms
are supplied. That is dealt with separately.
Adding and Replacing Words
[3-07] Adding words to correct errors. In order for words to be added, it must
be ‘clear both that words have been omitted and what those omitted words
were’.16 Some cases are very easy. In L Schuler AG v Wickman Machine Tool
Sales Ltd17 cl 7 of a distributorship agreement stated: ‘It shall be condition of this
agreement that … .’ It was clear that ‘a’ needed to be inserted before ‘condition’.
Similarly, in Fitzgerald v Masters,18 where the contract purported to incorporate
certain ‘usual conditions of sale … so far as they are inconsistent herewith’, one
solution to the error was to insert the word ‘not’ before the word ‘inconsistent’,
so that the clause read ‘so far as they are not inconsistent herewith’.19 The fact
that the word ‘inconsistent’ could alternatively be replaced with ‘consistent’20
shows that even at this basic level there may be more than one way to correct an
error.21
More recently, in Mangistaumunaigaz Oil Production Association v United
World Trade Inc22 the expression ‘if any’, when used in an arbitration clause,
was to be read as an abbreviation for ‘if any dispute arises’. In Homburg
Houtimport BV v Agrosin Private Ltd (The Starsin),23 the parties intended to
copy a particular standard form bill of lading, but did so imperfectly. Words were
omitted as a result of ‘homoeoteleuton’.24 The omitted words were interpolated
in the bill of lading.
But not all apparent gaps on the face of a document are errors which need to
be filled in. The gap may be intentional. For example, in Caltex Oil (Australia)
Pty Ltd v Alderton,25 where a space for specifying monetary limit of a guarantee
was left blank, the gap was held to signify the intention of the parties that the
guarantee was unlimited in amount. The words of limitation were therefore
ignored.
[3-08] Replacing words to correct errors. A court may also replace words by
the construction process. In a sense, every case where words are added (or
deleted) is an example of replacing words. And replacing particular words may
be an alternative to adding words. For example, in Fitzgerald v Masters26 an
agreement for the sale of a one-half interest in a homestead farm contained the
following provision (cl 8): The usual conditions of sale in use or approved of by
the Real Estate Institute of New South Wales relating to sales by private
contracts of lands held under the Crown Lands Act shall so far as they are
inconsistent herewith be deemed to be embodied herein.
This clause was nonsense, due to what was obviously a clerical error. It could be
dealt with by replacing ‘inconsistent’ with ‘consistent’, so that the clause read
‘so far as they are consistent herewith’.27
It would be wrong to see every case in which words appear to have been
replaced in construction as examples of a process of correcting an error. Where a
word has more than one meaning, and construction is the process by which the
intended meaning is chosen,28 no replacement occurs. For example, in
Partenreederei MS Karen Oltmann v Scarsdale Shipping Co Ltd (The Karen
Oltmann),29 the words at issue were ‘after 12 months trading’. They were held to
mean ‘on the expiry of 12 months trading’. The decision did not involve
replacing words which had been chosen in error. Rather, Kerr J simply chose one
of the available meanings for ‘after’.
[3-09] Paraphrasing in construction. More generally, courts engage in a good
deal of paraphrastic construction, where the words which the parties used are
paraphrased in order for the intended linguistic meaning (sense) to be expressed
in what is (at least to the court) a more meaningful way. In other words, in
construing the contract as a whole in light of context, the words used may need
to be expressed in a different formulation. In some cases, the process seems to
involve no more than a choice of meaning, for example, a rejection of ‘plain’ or
‘natural’ meaning.
Several of the recent cases have been rationalised on the basis of ‘mistake’ in
expression or formulation,30 even though (as in the correction of clerical errors
by construction) rectification does not occur. Indeed, the House of Lords has
held that there are no limits to this jurisdiction. In Chartbrook Ltd v Persimmon
Homes Ltd,31 Lord Hoffmann said:32
What is clear … is that there is not, so to speak, a limit to the amount of
red ink or verbal rearrangement or correction which the court is allowed.
All that is required is that it should be clear that something has gone
wrong with the language and that it should be clear what a reasonable
person would have understood the parties to have meant.
The ultimate goal is simply a concern to state the meaning of what the parties
agreed.33 For example, in Charter Reinsurance Co Ltd v Fagan34 in a contract of
reinsurance, the words ‘actually paid’ were held to mean ‘in the event when
finally ascertained exposed to liability as a result of the loss insured’. The House
of Lords did not regard its decision as involving a process of deletion and
replacement to correct an error on the face of a document. On that basis, it seems
impossible to regard the process as being on a par with the correction of clerical
errors, and governed by the same legal requirements.35 Indeed, the idea that the
person adjudicating the construction dispute should be looking for mistake or
error in the expression of intention in one part of the contract in order to give a
particular meaning to the contract as a whole seems a limiting one.36
[3-10] Supplying words in application. The ability to insert words into a
contract by construction of the express terms is not limited to outright
inconsistencies and clerical errors. Many of these cases involve ‘construction in
application’, that is, an articulation of how the parties intend the contract to be
applied.37 For example, in Bowes v Chaleyer38 the word ‘substantially’ was
inserted so that a written clause expressed in terms ‘Goods to be shipped per
sailer/steamer. Half as soon as possible. Half two months later’ was applied on
the basis that it read ‘Goods to be shipped per sailer/steamer. Substantially half
as soon as possible. Substantially half two months later’. The decision was
applied in Luna Park (NSW) Ltd v Tramways Advertising Pty Ltd.39 In that case
an advertising contract stated: ‘We guarantee that these boards will be on the
tracks at least eight hours per day throughout your season.’ This was construed
on the basis that ‘eight hours per day’ meant ‘substantially eight hours per day’.
A more recent illustration is Antaios Compania Naviera SA v Salen
Rederierna AB (The Antaios).40 A clause in a time charterparty conferred a right
of withdrawal for failure to pay hire on time, ‘or on any breach of this Charter
Party’. The House of Lords held that in its application to breaches other than
failure to pay hire, a ‘repudiatory breach’ was required. In other words, the
intention of the parties was for ‘or on any breach’ to be applied on the basis that
it read ‘or on any repudiatory breach’. But there was no mistake by the parties,
as to the words used to express the meaning of the contract.41
Deleting Words
[3-11] Introduction. As might be expected, the processes by which constracts
are construed or applied as if certain words had been deleted are much the same
as those which apply to the addition or replacement of words. Therefore, words
may be deleted in construction where there is a purely clerical or other formal
error on the face of the document, such as an inadvertent ‘not’.42
A deletion to correct a formal error is construction of the contract, not
‘severance’. Severance is a formalised process. But because that process is,
essentially, one of construction, words which are meaningless in their application
may simply be ignored. For example, in Nicolene Ltd v Simmonds43 an
agreement for the sale of goods was not regarded as uncertain even though the
acceptance of the seller referred to ‘the usual conditions of acceptance’. Treating
the words as ‘meaningless’, the Court of Appeal said they could be ignored. The
reason why the case illustrates severance is that the assumption in the severance
cases is that the parties used the words they intended, but effect cannot be given
to expressed intention.44 Formal errors in the statement of expressed intention are
not corrected. Instead, the parties’ expressed intention gives way to an inference
of intention.
Severance is regarded as a systematic process, ostensibly based on ‘tests’.45
The process is distinguishable not only from the correction of formal errors in
expressed intention, but also from construction conclusions made in the
application of a contract to particular fact situations. It was in the latter context
that Lord Halsbury LC made his famous statement in Glynn v Margetson & Co,46
namely, that ‘one must reject words, indeed whole provisions, if they are
inconsistent with what one assumes to be the main purpose of the contract’.
[3-12] Deletion by severance. The concept of severance operates in various
contexts involving contract invalidity, on the basis of public policy, uncertainty
and incompleteness. In each case, the rationale is that effect cannot be given to
the parties’ expressed intention. Therefore, although for various reasons, the
parties’ intention must be inferred.47
But the inference is of a particular nature, namely, that the parties intend the
contract to be enforced without the ineffective words. If that inference cannot be
drawn, the contract will generally fail. Most of the cases concern uncertainty in
application. For example, in Fitzgerald v Masters,48 where cl 8 of the contract
purported to incorporate the ‘usual conditions of sale’ of the ‘Real Estate
Institute of New South Wales relating to sales by private contracts of lands held
under the Crown Lands Act’, the clause could not be applied because no such
terms existed. The question was whether the parties intended to contract even
though the terms of sale which they had (mistakenly) thought to exist did not
exist. It was held that the proper ‘inference’ was that they did so intend. Dixon
and Fullagar JJ said49 it was ‘putting the same thing in another way if we say that
the question is whether cl 8 is severable from the rest of the instrument’.
By contrast, in G Scammell & Nephew Ltd v Ouston50 severance was not
possible. The agreement was to take a motor vehicle ‘on hire-purchase terms’. A
variety of such terms were in use, and the House of Lords held that it was
impossible to infer by what terms the parties intended to be bound. Since
severance would have converted the arrangement to an agreement to sell, it was
held to be void. The application of that decision in British Electrical and
Associated Industries (Cardiff) Ltd v Patley Pressings Ltd51 seems doubtful. A
contract note alleged to constitute an agreement for the sale of goods provided,
in part: Conditions, prime quality bars to BSS 15 specification. Bundled in one
ton lots and subject to force majeure conditions that the government restricts the
export of the material at the time of delivery.
It was alleged that the words ‘subject to force majeure conditions’ were so
uncertain as to render the contract unenforceable. The first question for McNair J
was the meaning of the word ‘conditions’. He held52 that the word meant
‘clauses’ or ‘stipulations’ rather than ‘contingencies’ or ‘circumstances’. It was
then necessary to decide what force majeure conditions were referred to. Since
there was evidence of a variety of such clauses in the trade, McNair J felt
obliged to hold53 that there was no concluded contract: negotiations had not been
completed. However, the inference that agreement to ‘force majeure conditions’
was an essential ingredient of the contract seems today a doubtful one.54 Indeed,
albeit in a very clumsy way, the parties seem to have agreed simply that the sale
was ‘subject to government export restrictions at the time of delivery’.
[3-13] Tests for severance. Whether certain words or terms can be severed is a
question of intention. Various tests for severance have been put forward over the
years. For example, Knox CJ said in Life Insurance Co of Australia Ltd v
Phillips:55
When a contract contains a number of stipulations one of which is void
for uncertainty, the question whether the whole contract is void depends
on the intention of the parties to be gathered from the instrument as a
whole. If the contract be divisible, the part which is void may be
separated from the rest and does not affect its validity.
In Carney v Herbert56 Lord Brightman, speaking for the Privy Council,
approved the following test, stated by Jordan CJ in McFarlane v Daniell:57
When valid promises supported by legal consideration are associated
with, but separate in form from, invalid promises, the test of whether
they are severable is whether they are in substance so connected with the
others as to form an indivisible whole which cannot be taken to pieces
without altering its nature … .If the elimination of the invalid promises
changes the extent only but not the kind of the contract, the valid
promises are severable …. If the substantial promises were all illegal or
void, merely ancillary promises would be inseverable.
As Lord Brightman noted58 in Carney, ‘tests for deciding questions of
severability that have been formulated as useful in particular cases are not
always satisfactory for cases of other kinds’.
Tests for severance suffer from two related problems. The first is the one
which impairs all construction ‘tests’,59 namely, that they reformulate the
construction issue by reference to particular factors. The tests quoted above refer
to whether the contract is ‘divisible’. Other tests refer to whether promises are
‘dependent’ or ‘independent’,60 or whether the promise sought to be severed is
the ‘main consideration’.61 All are applied by construction of the contract on the
basis of ordinary principles, that is, without regard to extrinsic evidence.62 In the
context of uncertainty and incompleteness, the overriding concern is whether an
intention in favour of severance of the term in question can legitimately be
inferred. It is an issue of commercial construction which cannot be resolved by
mechanical application of a ‘test’.63
The second problem is the difficulty in applying tests used in cases of
uncertainty or incompleteness to cases of invalidity on public policy grounds.64
In the latter context, the parties’ intention is necessarily subordinate to policy
considerations.65 In addition, different considerations may arise according to
whether the issue relates to severance of one contract from another, severance of
a clause or severance of words in a single clause.
IMPLICATION OF TERMS
General
[3-14] Introduction. According to the authorities, the law recognises various
different bases for the implication of a term. Whether each represents a separate
category is now regarded as doubtful. Nevertheless, expressed in general terms,
terms are implied for two main purposes, which are generally regarded as
conceptually distinct. First, a term may be implied in fact as an ad hoc solution
in relation to a particular contract.
Second, terms may be implied in law into particular categories of contract on
a systematic basis, including under statute.
For the purposes of this chapter it is sufficient to focus on those two
categories. Other bases for implication are noted below, and dealt with later.66
[3-15] Why terms are implied. If the question is asked, ‘Why imply a term?’, it
is difficult to get a straight answer from the cases. It appears inadequate to say
that a term is implied whenever it is necessary to give effect to the intention of
the parties. That is done in various ways: implication of a term is simply one
basis for giving effect to inferred intention. For example, if a promisee seeks to
rely on the breach of an express term of the contract to justify termination, and
the allegation of the promisee is that the term is a condition, the classification of
the term is a question of construction.67 If there is no expressed intention, the
conclusion is a matter of inference. For example, in Bunge Corp New York v
Tradax Export SA Panama,68 cl 7 of GAFTA form 119 required buyers of goods
on FOB terms to give at least 15 days’ notice of the probable readiness of the
vessel which was to receive the goods, and the quantity to be loaded. Lord
Lowry said69 that cl 7 was a condition on the basis of ‘necessary implication’.
However, it can be assumed that he was not referring to the implication of a term
in any orthodox sense. Rather, he was referring to an inference, necessarily (or
properly) drawn, that the parties intended the term at issue to operate as a
condition. Thus, Lord Scarman70 referred to ‘necessary implication’ arising from
the contract’s ‘nature, purpose, and circumstances’.
Where a term is implied, the implication may be largely a matter of form,
thought necessary on a remedial basis. For example, if a contract with a service
provider does not state the degree of care required, a term stating a promise to
exercise reasonable care is implied so as to provide a distinct basis for a damages
claim. And where a negative obligation is implied from a positive obligation the
purpose may be to justify the issue of a prohibitory injunction.71 In other
situations, whether the rationalisation is ‘construction’ or an implied term seems
to depend on the preference of the court. That is the position, for example, in
relation to the requirement of co-operation in contract performance.72
Of course, the explanation for the diversity of approach is not so much that
the law is incoherent as that it is pragmatic. But the impact of commercial
construction is that the general rationalisation for much of the law is simply
construction of the contract.73 The unifying feature is a concern to give effect to
an inferred intention. Although it is possible to identify a wide variety of bases
for doing that, so far as implied terms are concerned, the law has traditionally
favoured a formalised (rule-based) approach.
[3-16] Implied terms and legal effect. Another reason for the variety of
rationalisations — including the variety of bases for implying terms — is the
distinction between the meaning of a contract and its legal effect. Some of the
most important concepts in contract law started life under an implied term
rationalisation. Formerly, an implied term analysis was the rationale for
important concepts such as mistake, frustration and discharge for breach.74 In
Davis Contractors Ltd v Fareham UDC75 Lord Radcliffe regarded76 the implied
term rationalisation for frustration77 as an illustration of ‘the tendency of English
courts to refer all the consequences of a contract to the will of those who made
it’.
The preference under the modern law is to dispense with the implied term. In
many cases, it is the application of default rules — the content of which is
determined by contract doctrine — rather than implied terms, which provides the
bases on which intention is inferred in relation to the legal effect of a contract.
[3-17] Evolution in implication. Because of the concern to promote a law of
contract, rather than a law of contracts, the type of transaction at issue is rarely
determinative in the process of construction. However, some categories of
relationship frequently come before the courts. It is on this basis that terms are
implied in law.78 Once there is a long and consistent course of decision in favour
of a particular implied obligation in relation to a particular relationship,
precedent becomes the basis for implication of the term.79
The familiar implied terms enshrined in the sale of goods legislation were
once common law implications, operating to qualify the caveat emptor rule.
These must have commenced life as ad hoc implications. But they became
systematic implications prior to the enactment of the legislation. As explained
below,80 most (if not all) illustrations of terms implied in law can be rationalised
on the simple basis that they are presumptions of intention which take effect as
default rules.81 The inclusion of the relevant term in the contract is a matter of
inference.82 Whether the default rule is displaced is therefore determined by
construction.
Categories of Implication
[3-18] Principal categories. The two principal categories of implied term are
terms implied in fact and terms implied in law. Terms implied in fact are
regarded as ‘ad hoc gap fillers’83 or ‘tacit’84 terms. Terms are implied in law by
reference to common law or statute. Usually, a term implied at common law is
simply a recognised incident85 of a contract falling within a particular category,86
such as a contract for the provision of services. All contract lawyers are familiar
with the terms implied by the sale of goods legislation operating in many
Commonwealth jurisdictions.87 The feature common to terms implied in law is
implication on a systematic basis.
Other categories are noted below. The dividing line between the various
categories of implied term is far from sharp. Glanville Williams88 drew attention,
many years ago, to the way in which the various classes of implied term ‘merge
imperceptibly into each other’. More recently, in Liverpool City Council v
Irwin89 Lord Wilberforce said90 that the various bases for implication are merely
shades ‘on a continuous spectrum’. This is true even of the two principal bases
for implication.91
In none of the various categories is it conceived that a particular term or type
of term might be implied into every contract. The fact that courts do refer to such
terms, for example, to the effect that neither party will prevent the other from
performing the contract, suggests the existence of presumptions of intention
operating on a generalised basis. They are therefore ‘default rules’.
[3-19] Other categories. There are at least four other bases for implication
which create more specific categories of implied term. First, a term may be
implied as a matter of trade usage. Thus, the parties may have contracted as
members of a trade where there is a usage to the effect that intention in relation
to a particular matter need not be expressed in the contract because it is implied.
Second, for much the same reasons, a term may be implied by custom. For
example, the parties may contract in a place where there is a custom binding the
parties to contracts dealing with the subject matter with which the particular
contract deals. The impact of the custom may be to imply a term into the
contract.
Third, a term may be implied by a course of dealing. Specific terms, or even a
complete set of standard terms, may be implied into an oral contract on the basis
of a consistent and sufficiently long course of dealing between particular parties.
There are also cases in which terms have been implied simply by construction
of the contract as a whole, apparently on the basis that construction is a distinct
ground for implication. This category is discussed further below. The other
categories are referred to later.92
Intention and Implication
[3-20] Intention in relation to implication.
Article 3.2 — Giving effect to intention by implication.
(1) Where it is necessary to do so, effect may be given to the inferred
intention of the parties by the implication of a term. The onus is on the
party who propounds the term to justify its implication in accordance
with the rules which regulate implication of the term.
(2) If the contract is of a kind into which a particular term is habitually
implied by law, it is inferred that the parties intend the contract to include
the term. The onus is on the party who contends that the term should not
be implied to displace the inference.
All bases for implication rely on legal rules and presumptions. In the case of a
term implied in fact, the presumption is that the contract is complete without the
term.93 The onus of showing that the term is necessary to give effect to the
inferred intention of the parties is on the party who propounds the term.94
Because implication at law is systematic, the presumption is usually the other
way in relation to terms implied in law. Therefore, the party who contends that
the term should not be implied bears the burden of rebutting the inference that
the contract includes the term.95 Exceptionally, a term implied in law must be
proved as a necessary term where it is sought to be implied in a situation where
there is no history of implication.
The implication of terms is regulated by specific legal requirements.
Therefore, the propositions stated above assume that the onus of proof will be
discharged by reference to those requirements. However, the precise role of
specific legal requirements has recently become unclear.
[3-21] Classification of intention in relation to implied terms. Unless statute
provides otherwise, terms can only ever be implied as a basis for giving effect to
the parties’ intention. The implied term must therefore be consistent with the
express terms. This requirement of consistency is applicable to all categories of
implied term.
However, the cases show no consistency in relation to the classification of
intention, that is, whether the basis for implication is ‘actual’, ‘inferred’ or
‘presumed’ intention. In Greaves & Co (Contractors) Ltd v Baynham,96 Lord
Denning MR suggested that ‘presumed’ intention is the basis for terms implied
in law, whereas ‘actual’ intention is the basis for factual implication.97 Other
cases suggest that the basis for the implication of terms on a factual basis is the
parties’ ‘presumed’98 or ‘imputed’99 intention, or that all implied terms depend on
presumed intention.100 Except to the extent that this disagreement may be
relevant to the type of evidence admissible, the classification of intention seems
to have no practical significance.
As a matter of law, an implied term is assumed to state the parties’ actual
intention.101 However, putting mandatory implication of a term under statute to
one side, because all implications are conventionally regarded as dealing with
gaps in expressed intention, the rationale for the implication of a term is that it is
necessary to give effect to an intention which is inferred. The balance of
authority therefore favours the view that implication is, ultimately, an objective
inference of intention.102
CONSTRUCTION AND RULES FOR IMPLIED TERMS
General
[3-22] Introduction. In every case in which it is alleged that a term should be
implied into a written contract, or a contract evidenced by writing, construction
is necessarily a crucial consideration. Except in the case of a mandatory statutory
term, a term cannot be implied if it is inconsistent with the parties’ expressed
intention.103
The orthodox approach to the implication of terms posits the existence of
specific legal requirements, satisfaction of which leads to the implication. Under
that approach, the process is regulated by contract doctrine. However, the recent
cases suggest that the whole process is one of construction.
[3-23] Construction as a distinct basis for implication. Even in the older
authorities, in certain situations construction was regarded as a distinct basis for
the implication of a term. There are in fact many cases in which terms have been
‘implied’ by construction, on the basis that implication is a direct inference from
the parties’ expressed intention.104 For example, where an employer engages a
theatrical performer or artiste under a contract which does not expressly oblige
the employer to provide work, the implication has commonly been made, on the
basis of construction, that the performer or artiste must be given an opportunity
to use their particular talents.105 Analogously, in Borys v Canadian Pacific
Railway Co106 it was held that, ‘inherently’,107 the reservation of a substance —
such as petroleum — without an express grant of the right to work, confers a
power to recover the substance, and a right of working, because the reservation
would be ‘useless’ without the right. A recurring illustration is the implication of
a negative obligation from a positive obligation. For example, the grant of an
exclusive licence to sell products generally implies that the grantor is subject to a
correlative negative obligation not to grant a licence to another seller within the
same territory.108 Positive obligations have sometimes been implied in the same
way.109
These cases make little or no use of the implication ‘tests’ referred to
below.110 Nor do they conform to the distinction between implication in fact and
at law. This may have important consequences when construing a term which
purports to integrate the contract in a document.111 For example, in Hart v
MacDonald112 a written contract for the supply of a dairy plant provided that
there was no ‘agreement or understanding’ between the parties which was not
‘embodied’ in the contractual document. This did not prevent the implication by
the High Court of Australia of a term to the effect that the purchaser would
commence business on the erection of plant, and would continue to carry on that
business so as to be able to pay for the plant. The term was implied by reference
to the expressed intention for payment to be made from the sale of butter
manufactured within the plant. The entire agreement clause was dealt with by
saying that the implied term was ‘embodied in the contract just as effectively as
if were written therein’,113 and arose on a ‘proper construction of the express
words’114 or on a ‘fair construction of the agreement itself’.115
In all these cases, the so-called ‘implied term’ is no more than a description of
the legal effect of the express terms.116 The implied term is ‘not an addition to the
instrument’.117 Accordingly, not only is no process at work other than
commercial construction, but it must also be true to say the process does not
create any additional term. As a sophisticated legal institution, contract law does
not need to indulge in implied term analysis to justify the construction
conclusion that an express promise to grant rights exclusively to X is a promise
not to grant the same rights to Y.118
[3-24] Constructions commonly formalised as implied terms. There are also
presumptions of intention which are regularly rationalised on an implied term
basis. Like the illustrations above, these implications are said to occur as a
matter of ‘construction’. They are not usually analysed by reference to implied
term ‘tests’; and in many cases they are too general to be rationalised as terms
implied in law. Because they illustrate the use of presumptions about how the
expressed intention should be construed, the implied term rationalisation seems
purely formal.
An obvious example is the implication of a reasonable time for performance.
If there is no express statement of the time for performance, and no basis for
concluding that the agreed time for performance is the occurrence or non-
occurrence of an uncertain event, it will be implied that performance must take
place within a reasonable time.119 That must be a construction conclusion in the
nature of an inference of intention based on a default rule.
A similar example is the implication of an obligation to pay a reasonable
price. If a contract is silent as to price, it might be argued that a term should
always be implied requiring a reasonable price to be paid. In relation to
executory contracts, the law does not go so far.120 Although mere consistency is
not sufficient, if the implication is consistent with the intention of the parties, it
will generally be made.121 A court has no power to make a contract for the
parties, and no power to imply a term to complete an incomplete agreement.122
The general principle is therefore that a term cannot be implied in relation to a
matter reserved by the parties for further negotiation.123 Accordingly, it is not
legitimate to infer an intention to be bound under a standard of reasonableness if
the parties were still negotiating the price.124 Therefore, although usually
rationalised on the basis of implication of a term,125 the ‘implication’ is merely
an inference made by construction.126 Other examples include the right to
terminate a contract of apparently indefinite duration by giving reasonable
notice,127 and the obligation not to prevent performance by the other party.128
In some cases, it has been recognised that the implied term analysis in such
cases is a matter of form,129 so that there is a ‘rule of substantive law
masquerading as [an] implied term’.130
[3-25] Consistency as a restriction on implication. One of the attractions in
seeing construction as the basis for term implication is that it treats construction
as having a positive role. The use of specific requirements for implication tends
to give construction a negative role. That role is expressed in the rule that,
whatever the basis for implication, except where mandated by statute, in order
for a term to be implied, the term must be consistent with the parties’ expressed
intention.131 There are two further points concerning the element of consistency.
First, in the case of a term implied in law, where the onus is on the party who
denies the implication, proof of inconsistency is one way to rebut the
presumption that the term should be implied.
Second, the requirement of consistency between the term sought to be
implied and the express terms of the contract is not limited to an absence of
outright contradiction. Clearly, it applies to any term which is as a matter of
construction inconsistent with the term sought to be implied. For example, a
term requiring the exercise of ‘reasonable care’ cannot be implied if the parties
have expressed an intention in favour of a different standard of duty.132 But it is
also applicable where the express terms deal sufficiently with the subject matter
of the implication.133
Terms Implied in Fact
[3-26] Requirements for implication as tests. Over the years, various tests
have been put forward as expressions of particular legal requirements for the
implication of a term on a factual basis. Paramountcy has always been given to
the ‘business efficacy’ test derived from Bowen LJ’s famous statement in The
Moorcock.134 But the ‘obviousness’ test, stated by Mackinnon LJ in Shirlaw v
Southern Foundries (1926) Ltd,135 namely, ‘that which in any contract is left to
be implied and need not be expressed is something so obvious that it goes
without saying’, has also been influential. It seems clear that the courts have
regarded ‘obviousness’ as a distinct basis for implication,136 distinguishable
from137 (and more flexible than)138 the ‘business efficacy’ test.
The high water mark of a conception that implication on a factual basis
depends on the satisfaction of specific requirements was expressed by the Privy
Council in BP Refinery (Westernport) Pty Ltd v Shire of Hastings.139 In that case,
the majority stated five (overlapping) requirements for the implication of a term
into an otherwise complete contract:140
(1) it must be reasonable and equitable; (2) it must be necessary to give
business efficacy to the contract so that no term will be implied if the
contract is effective without it; (3) it must be so obvious that ‘it goes
without saying’; (4) it must be capable of clear expression; (5) it must not
contradict any express term of the contract.
This uncompromising approach was adopted in Australia, initially as a ‘test’
applicable to all contracts. Subsequently, as a reaction against the formalistic
nature of the test, it was rejected141 as the applicable test in relation to informal
contracts, ‘where it is apparent that the parties have not attempted to spell out the
full terms of their contract’.142 In that context, such terms will be implied as are
‘necessary for the reasonable or effective operation of a contract of that
nature’.143
Since intention in relation to a contract in writing or evidenced by writing is a
matter of construction, any rules which regulate implication must be applied by
construction. For example, in Codelfa Construction Pty Ltd v State Rail
Authority of New South Wales144 Mason J said that ‘the implication of a term is
an illustration of the process of construction, though differing from the more
orthodox ascertainment of the meaning of a contractual provision’. Similarly, in
WX Investments Ltd v Begg (Fraser, Part 20 Defendant),145 Patten J suggested
that implication of a term is essentially a process of construction of the contract.
[3-27] Role of construction. The dogmatic approach of BP Refinery
(Westernport) Pty Ltd v Shire of Hastings146 draws no distinction between the
variety of contexts in which the need to imply a term may arise, and insists on
both necessity and obviousness in all cases. It has received little support in the
English cases,147 and further support seems unlikely following Attorney General
of Belize v Belize Telecom Ltd.148 Delivering the advice of the Privy Council,
Lord Hoffmann said:149
The Board considers that this list is best regarded, not as series of
independent tests which must each be surmounted, but rather as a
collection of different ways in which judges have tried to express the
central idea that the proposed implied term must spell out what the
contract actually means, or in which they have explained why they did
not think that it did so.
One perspective on Lord Hoffmann’s approach150 is that it aligns the tests for
implication of a term on a factual basis with other construction ‘tests’.151 The
various tests are statements of factors to be taken into account — when relevant
— in the process of construction.152 They are not formalised bases for inferring
intention. Whether the intention was to go further seems unclear.
In Attorney General of Belize v Belize Telecom Ltd, Lord Hoffmann said153
that the ‘proposition that the implication of a term is an exercise in …
construction of the instrument as a whole’, is ‘not only a matter of logic (since a
court has no power to alter what the instrument means) but also well supported
by authority’. After referring to Trollope & Colls Ltd v North West Metropolitan
Regional Hospital Board154 and Equitable Life Assurance Society v Hyman,155 he
said:156
It follows that in every case in which it is said that some provision ought
to be implied in an instrument, the question for the court is whether such
a provision would spell out in express words what the instrument, read
against the relevant background, would reasonably be understood to
mean.
Issue can be taken with the utility of saying that the implication of a term is
always about what the contract ‘means’.157 For example, implication may relate
to the scope or legal effect of the contract, not its ‘meaning’.158 That point aside,
the view that construction determines what terms are implied into a contract
must be correct. However, the view necessarily contradicts the idea that the law
associates implication with specific (doctrinal) rules applied by construction, and
it seems clear that neither of the two cases referred to by Lord Hoffmann
suggested that those rules should be abandoned. Indeed, in Equitable Life
Assurance Society v Hyman, Lord Steyn said159 it was ‘necessary to distinguish
between the processes of interpretation and implication’. It is more consistent
with the prior case law to emphasise the ‘close relationship between the process
of construction and the process of implication’.160
Lord Hoffmann’s views in Attorney General of Belize v Belize Telecom Ltd
are significant and clearly have important implications,161 not all of which have
been worked out.162 First, it is difficult to deny that the existence of specific
requirements has been regarded as providing a degree of certainty in relation to
implication. Although the degree of certainty may be slight, treating the whole
issue as one of construction tends to beg the question whether the role of the
specific requirements for implied terms is to facilitate implication or to limit
implication.
Second, under Lord Hoffmann’s approach, extrinsic evidence is not
admissible in the implication of a term. Whether that is correct may vary
according to the basis for implication. However, the authorities do not support
the view that extrinsic evidence is never admissible.163
Third, and perhaps most important of all, if specific rules do not need to be
applied, because the content of the implied term is worked out simply by
construing the contract, any term which is implied must be largely formal or
even redundant.164 It is simply the formal expression of an intention which can
be inferred by construction of the document in the light of context.165
Terms Implied in Law
[3-28] Concept. Terms implied in law are generally explained as terms
necessary to ‘complete’ an informal contract. The terms may create obligations,
define the applicable standard of contractual duty of an obligation or do both.
For example, where a contract for the provision of services does not include an
express term dealing with standard of duty, it will be ‘implied’ that the promisor
must exercise reasonable care, skill or diligence in performance; or, in a case of
special skill, the degree of care, skill and diligence reasonably expected of the
person exercising or professing to have the special skill.166
Such terms are implied as incidents of the type of contract at issue.167 For
example, under the general law168 or statute,169 a work and materials contract
which does not include an express statement of the promisor’s performance
obligations will include: (1) an implied term that the supplier will exercise
reasonable care in doing the work; and (2) implied terms to the effect that the
supplier will supply materials which are of good quality and reasonably fit for
the purpose for which they are supplied.
Each term creates a duty. But only term (1) includes a definition of the standard
of duty.170 However, given that there is no executory contract unless the builder
has agreed to do the work, the purpose of that term is simply to define the
standard of duty.
Terms implied in law are not limited to informal contracts. They are
potentially applicable to any contract which comes within a class of contract
which has recognised incidents. It is sufficient that the implication is not
inconsistent with the express terms. There is generally no positive ‘test’171 to be
satisfied. The legal rules are largely negative: in addition to the inconsistency
ground, an unjust or unreasonable term will not be implied.172 The basis for
decision is construction of the contract in light of context.
[3-29] New implications. Where a new term is sought to be implied in law in
relation to a contract which already has established incidents, such as an
employment contract,173 there are certain legal requirements which must be
satisfied. It must be necessary to make the new implication.174 But the sense of
‘necessary’ is different from the sense used in the traditional test for a term to be
implied in fact.175 The same requirement applies where the implication is a ‘one-
off’ implication in a particular contract.
The basis for a new implication is a conclusion on what terms a class of
contract ought to include. It is therefore difficult to say that the implication is
solely a matter of construction.176 There is a policy element.177 Thus, in Liverpool
City Council v Irwin178 the House of Lords recognised that the legal analysis
includes consideration of matters such as the justice and fairness of the contract,
and social policy.
[3-30] Implied legal duties. Where legal duties are implied, the approach of the
courts has been somewhat haphazard. For example, an insured’s common law
duty to disclose is not based on an implied term,179 and the same appears to be
true of the implied duty of a customer to take usual and reasonable precautions
in drawing a cheque to prevent a fraudulent alteration which might occasion loss
to the banker.180 There are also statutory examples.181
The duty of co-operation in contract is an important example. The leading
case is Mackay v Dick.182 An express term of a contract for the sale of a machine
required that it pass performance tests. The House of Lords held that the contract
obliged the buyer to co-operate in the testing of the machine. Lord Blackburn
justified this conclusion by construction, and made his famous statement that:183
I think I may safely say, as a general rule, that where in a written contract
it appears that both parties have agreed that something shall be done,
which cannot effectually be done unless both concur in doing it, the
construction of the contract is that each agrees to do all that is necessary
to be done on his part for the carrying out of that thing, though there be
no express words to that effect. What is the part of each must depend on
[the] circumstances.
The statement relies solely on an inference of intention (in relation to legal
effect) based on the construction of the express terms, which is drawn without
the need to imply a term.184 However, Lord Blackburn’s statement has frequently
been applied on the basis that it leads to the implication of a term.185 So also has
the corollary, namely, that neither party will prevent the other from performing
the contract,186 and the more general idea that ‘each party agrees … to do all
such things as are necessary on his part to enable the other party to have the
benefit of the contract’.187
Given that the categories of implied term do not include as an identifiable
category ‘terms which are implied in all contracts’, the idea that a term requiring
‘co-operation’ is implied into all contracts has no doctrinal support. The extent to
which parties must co-operate with each other is in all cases a question of
construction. As presumptions of intention, duties of that sort operate as default
rules.188
DEFAULT RULES AND IMPLIED TERMS
Introduction
[3-31] Terms implied in law as default rules. Where terms are implied in law,
the implications give effect to default rules. There are therefore rules of law
applied as presumptions of intention.189 Although the cases still tend to insist that
the doctrinal basis is an implied term, the law is now sufficiently mature to drop
the implied term fiction.190 The same analysis is applicable to situations in which
a legal duty is implied without formal expression as an implied term.
Given that a particular default rule is present, the construction question is
whether the contract provides to the contrary. For example, in the context of a
term implied to state the standard of duty in performance, the construction
question is whether the parties have agreed to a different duty. But where the
question is whether the promisor agreed to a more onerous duty, the issue has
usually been dealt with according to the rules on terms implied in fact. Thus, in
Greaves & Co (Contractors) Ltd v Baynham Meikle & Partners,191 Lord
Denning MR treated the issue of whether a consultant engineer had undertaken a
fitness for purpose obligation as involving the search for an implied term.
[3-32] Redundant implications. If it is correct to say that terms implied in law
are default rules, applied as presumptions of intention, the presumptions concern
the legal effect of a contract. A presumption can only be applied — and the term
implied — if it is consistent with the construction of the contract. Whether the
obligation (or other matter) with which the implied term deals is an element of
the bargain is simply a question of construction. For example, where a deposit is
paid, there is an implied right of forfeiture. This has traditionally been
rationalised as arising from an implied term.192 But it is really a default rule.
In all cases, the construction question is whether the presumption is
applicable. In the case of verbal contracts, where there is no document to
construe, an implied term analysis may have some merit. But in the context of a
commercial contract expressed in writing or evidenced by writing, the implied
term analysis is an unnecessary complication. The implied term is redundant.193
The same must be true of implied duties of co-operation and the like. However,
as indicated above, an implied term rationalisation has been common.194
Terms Implied in Law and Contract Doctrine
[3-33] Introduction. Just about all terms implied in law have two
characteristics. First, they deal with the legal effect of the contract into which the
term is implied. Generally, they relate either to the standard or scope of the
promisor’s duty.
Second, as explained above, they operate as default rules, and therefore take
effect as presumptions of intention.
Those two features also conform to the operation of contract doctrine in areas
such as mistake, frustration and discharge for breach. In relation to the scope of a
party’s performance obligation, the doctrines serve to qualify, as a matter of legal
presumption, what the law originally regarded as absolute promises.195 In the
areas of mistake, frustration and discharge for breach, doctrine is applied by
construction without the aid of implied terms. For example, if an event occurs
which the law recognises as frustrating the contract, because the circumstances
in which performance is called for are radically different from those
contemplated by the parties,196 there is no obligation to perform. Even though the
contract does not include an express qualification referring to the frustrating
event, the parties are discharged.
However, an implied term analysis is still applied in many other contexts. The
only difference is that whereas doctrine operates across contracts of all kinds,
terms are implied in law as incidents of specific categories of contract.
[3-34] From implied term to construction. The relationship between
implication and construction exhibits a process of evolution.197 The process takes
various forms. One form of evolution is the replacement of an implied term
analysis by the application of a legal principle based solely on construction of
the contract, that is, a default rule.198 For example, the implication of a term was
initially199 regarded as the legal basis for the entitlement of a promisee to
terminate the performance of a contract for repudiation of obligation. Although
the implied term basis seems never to have been formally rejected,200 it is clear
that the basis for the promisee’s entitlement is a rule of law, that is, a default
rule.201
Similarly, in Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd,202
Diplock LJ said203 that where the breach of a contractual term gives rise to an
‘event’ which deprives the innocent party of substantially the whole benefit of a
contract: … it does not clarify, but on the contrary obscures, the modern
principle of law where such an event has occurred as a result of a breach of an
express stipulation in a contract, to continue to add the now unnecessary
colophon Therefore it was an implied condition of the contract that a particular
kind of breach of an express warranty should not occur’.
Another prominent illustration is the doctrine of frustration. The rationale for
term implication was, again, the absence of an expressed intention.
Today, the work of implied terms is done by particular default rules, the
content of which is determined by doctrine. By entering into the contract the
parties become subject to the default rules of contract law.204 The role of
construction is to apply the default rules as presumptions of intention. In the
leading cases, such as Davis Contractors Ltd v Fareham UDC205 and Hongkong
Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd,206 this process is treated as no
more than the rational evolution of the common law. It is not only that the
implied term is redundant. It is also clear from decisions such as Codelfa
Construction Pty Ltd v State Rail Authority of New South Wales,207 that a
contract may be frustrated even though an implied term argument fails.
Default rules such as these have been rationalised in American law under the
rubric of ‘constructive conditions’.208 These are ‘conditions’ (or contingencies)
based on broader considerations than the construction of the express terms of
particular (individual) contracts. Their content does not depend on the rules
governing the implication of terms into contracts.
[3-35] Other default rules.
Article 3.3 — Taking presumptions into account.
In construing a contract, particularly when inferring the intention of the
parties in relation to the legal effect of the contract, account must be
taken of any relevant legal presumption arising from precedent or statute.
One of the lessons to be learned from terms and duties implied in law, and the
application of default rules by construction, is that in resolving any construction
dispute account must be taken of any relevant legal presumption arising from
precedent. That is particularly the case when it is necessary to infer the intention
of the parties in relation to the legal effect of the contract. As is discussed in
Chapter 13, presumptions may also arise in relation to the meaning of words.
Although the point largely goes unnoticed as a matter of analysis and
application of principles of construction, presumptions of intention abound in the
law of contract. In giving effect to precedent, they address the fact that, as
expressions of intention, contracts are always incomplete. The treatment of terms
implied in law as default rules which state legal presumptions brings them into
line with other situations in which intention is inferred.
Putting to one side general doctrines such as mistake, frustration and
discharge for breach, presumptions of intention are made on the basis of
agreement to particular obligations or relationships. Like the general doctrines,
they are applied as default rules by construction of the contract. A few
illustrations are: payment by personal cheque is a conditional payment;209
in relation to contracts of guarantee, that the guarantor is discharged by
variation to the principal contract;210
in contracts for the sale of land or goods, that performance is to occur
concurrently;211 and under a contract of indemnity to prevent harm, that
the indemnified party is not required to suffer payment to a third party
prior to claiming on the indemnity.212
Further illustrations arise in relation to the application of contracts,213 including
the presumption in favour of common law rights. And a further list could be
given of presumptions the source of which is not the law of contract, such as the
duties arising as incidents of a contractual fiduciary relationship.
Because the presumptions are just that, they are applicable only in cases
where it is necessary to infer the intention of the parties in relation to the matters
with which the presumptions deal. On that basis it might be said that the role of
construction is essentially negative: to determine whether the presumption has
been displaced.214 That is, indeed, the way in which the presumptions have
generally been applied. Nevertheless, as Deane J explained in Ankar Pty Ltd v
National Westminster Finance (Australia) Ltd:215
[S]pecial rules which prima facie (in the sense of being subject to
contrary agreement) define the rights and liabilities of the parties to a
particular category of consensual relationship, such as that between
guarantor and creditor…, are essentially concerned with presumptions of
contractual intention. There is no warrant, either in principle or in utility,
for distorting them into statements of immutable and overriding
principle.
The better view, therefore, is that construction should come first. There is no
room for application of a default rule if the parties have expressed an intention
on the matter with which the rule deals. Equally, if it is possible to infer the
parties’ intention by construction of the contract in light of context, the default
rule should not come into play.
GOOD FAITH
[3-36] Introduction. Since good faith is the essence of contract, a general
concern of contract law is to promote, and sometimes require, good faith in
negotiation or performance. However, English law does not overtly recognise
any distinct doctrine of good faith,216 either generally or in the construction of
contracts.217 There is a contrast not only with the position in the United States,218
but also Australian law, at least in specific areas.219 There is also a contrast with
the UNIDROIT Principles. Article 1.7 states: (1) Each party must act in
accordance with good faith and fair dealing in international trade.
(2) The parties may not exclude or limit this duty.
The refusal of English law to recognise a separate doctrine of good faith is
based on the view that it is unnecessary. Principles of commercial construction
promote, and are guided by, good faith considerations.220
[3-37] Sanctity of contract. The most general aspect of good faith — and its
chief positive role — lies in the sanctity of contract, that is, the view that persons
who make promises should keep them.221 Principles of commercial construction
are relevant in at least three ways. First, primacy is given to the parties’
expressed intention, as determined under the objective theory of contract law. It
would be contrary to good faith to permit the promisor to hold the promisee
bound by an uncommunicated intention.
Second, it follows that in the case of a contract in writing or evidenced by
writing, commitment to the document is crucial. As Lord Steyn said in Society of
Lloyd’s v Robinson,222 ‘loyalty to the text of a commercial contract, instrument or
document read in its contextual setting is the paramount principle of
interpretation’. That is reinforced by the approach to extrinsic evidence.
Third, in construing a contract, that is, in the process of determining and
giving effect to intention, choices are made which promote good faith. For
example, when faced with two tenable constructions of a contract, the choice
will generally be made in favour of the more reasonable construction223 because
that promotes good faith.
[3-38] Inferring intention. The fact that the parties have not expressed an
intention on a particular matter does not mean that the contract is to be enforced
as if they had no intention. If nothing else, the discussion in this and the previous
chapter shows that the approach of the common law of contract to inferring
intention is sophisticated. That sophistication is, in part, the embodiment of good
faith, and why good faith is inherent in the institution itself.224
Contract law includes general and specific bases for inferring intention,
variously expressed as construction rules, contract doctrine, default rules,
presumptions of intention and preferences in construction. These are applied by
construction. Policy underlies all of these matters.225 To a large extent, the role of
principles of ‘commercial construction’ is to unify, and make coherent, a diverse
collection of techniques.226 More generally, where it is necessary to infer the
intention of contracting parties in relation to a particular issue, a particular
presumption, including in relation to the legal effect of a contract, is frequently
regarded — rightly or wrongly — as the starting point. Although derived from
precedent, these presumptions reflect commercial understandings based on
commercial experience. They are therefore based on good faith. The fact that,
almost invariably, the parties are free to agree to a different result itself reflects
good faith.
[3-39] Good faith as a distinct requirement. In the discussion above the role of
good faith has been identified as having an underlying or rationalising role. As
Steyn LJ noted in First Energy (UK) Ltd v Hungarian International Bank Ltd,227
giving effect to the ‘reasonable expectations of honest men’ is a theme that runs
through contract law as a whole.
English law has steadfastly refused to recognise an overarching duty of good
faith and fair dealing embodied in an implied term,228 preferring instead to rely
on other matters. In the context of construction, that is the role of commercial
construction. The basis for this approach is that good faith is inherent or
‘implicit’.229 In other words, English law insists that good faith must come from
within the system, it cannot be ‘superadded’, as a gloss.230
1. See [1-04].
3. See generally on the use of extrinsic evidence to solve problems in
construction Chapters 14 and 18.
4. See [2-33]. In the commercial context, application of canons of
construction has long since ceased to be regarded as a viable general
technique and can be ignored. See Chapter 4.
5. See [1-22]–[1-26].
6. See, eg [2-13].
7. See [2-06]. The courts have also imposed their own machinery to deal with
incompleteness in a way which would have been unthinkable in the 19th
century. See Sudbrook Trading Estate Ltd v Eggleton [1983] 1 AC 444.
See also Oglebay Norton Co v Armco Inc, 52 Ohio St 3d 232; 556 NE 2d
515 (1990). Cf Contracts Restatement 2d (1979), §204. But cf Booker
Industries Pty Ltd v Wilson Parking (Qld) Pty Ltd (1982) 149 CLR 600.
8. See Becker Gray and Co v London Assurance Corp [1918] 1 AC 101 at
112.
9. Cf Fitzgerald v Masters (1956) 95 CLR 420 at 437.
10. See Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC 1101 at 1114;
[2009] UKHL 38 at [22]–[25].
11. See [2-09]–[2-15].
[2009] UKHL 38 at [22] (approving East v Pantiles (Plant Hire) Ltd (1981)
263 EG 61). See also KPMG LLP v Network Rail Infrastructure Ltd [2007]
Bus LR 1336 at 1350; [2007] EWCA Civ 363 at [45]; Pink Floyd Music Ltd
v EMI Records Ltd [2011] 1 WLR 770n; [2010] EWCA Civ 1429 at [21].
Cf X v Y[2011] 1 Lloyd’s Rep 694 at 698; [2011] EWHC 152 (Comm) at
[10].
13. Dalkia Utilities Services Plc v Celtech International Ltd [2006] 1 Lloyd’s
Rep 599 at 625; [2006] EWHC 63 (Comm) at [108] per Christopher Clarke
J.
14. See, eg Tropwood AG of Zug v Jade Enterprises Ltd (The Tropwind) [1982]
1 Lloyd’s Rep 232 at 237.
[2009] UKHL 38 at [21].
16. Homburg Houtimport BV v Agrosin Private Ltd (The Starsin) [2004] 1 AC
715 at 741; [2003] UKHL 12 at [23] per Lord Bingham.
17. [1974] AC 235. See also Multi-Link Leisure Developments Ltd v North
Lanarkshire Council [2011] 1 All ER 175; [2010] UKSC 47 (‘obligation *
the landlords’ for ‘obligation the landlords’).
18. (1956) 95 CLR 420.
19. See (1956) 95 CLR 420 at 427.
20. See [3-08].
21. Cf KPMG LLP v Network Rail Infrastructure Ltd [2007] Bus LR 1336 at
1355; [2007] EWCA Civ 363 at [64] (fact that there may be more than one
basis for supplying omission not a basis for refusing to do so).
22. [1995] 1 Lloyd’s Rep 617 at 621. See also Tropwood AG of Zug v Jade
Enterprises Ltd (The Tropwind) [1982] 1 Lloyd’s Rep 232 at 237, 238. Cf
Talbot Underwriting Ltd v Nausch Hogan & Murray Inc (The Jascon 5)
[2006] 2 Lloyd’s Rep 195 at 226; [2006] EWCA Civ 889 at [15] per Moore-
Bick LJ, with whom Waller and Richards LJJ agreed (necessary to read
words into clause to make it a ‘single coherent substantive provision’).
23. [2004] 1 AC 715; [2003] UKHL 12.
24. See [2004] 1 AC 715 at 741; [2003] UKHL 12 at [22] per Lord Bingham
(‘where one sentence contains a word which closed the preceding sentence
and the transcriber’s eye has wandered from one to the other, leading to the
entire omission of the whole passage lying between them’).
25. [1964-65] NSWR 456. See also Spectra Pty Ltd v Pindari Pty Ltd [1974] 2
NSWLR 617 at 620 (blank for period of notice for renewal of lease).
26. (1956) 95 CLR 420. For more recent Australian cases see Spunwill Pty Ltd
v BAB Pty Ltd (1994) 36 NSWLR 290 at 299–300; BHP Petroleum (Timor
Sea) Pty Ltd v Minister for Resources (1994) 121 ALR 280 at 297;
Lisciandro v Official Trustee in Bankruptcy (1996) 139 ALR 689 at 699;
McHugh Holdings Pty Ltd v Newtown Colonial Hotel Pty Ltd (2008) 73
NSWLR 53 at 64; [2008] NSWSC 542 at [39].
27. See (1956) 95 CLR 420 at 427. And see [3-07]. See also Perrylease Ltd v
Imecar AG [1988] 1 WLR 463; [1987] 2 All ER 373 (‘agreement’
construed as ‘agreements’); Dalkia Utilities Services Plc v Celtech
International Ltd [2006] 1 Lloyd’s Rep 599 at 626; [2006] EWHC 63
(Comm) at [118].
29. [1976] 2 Lloyd’s Rep 708.
30. See also Pink Floyd Music Ltd v EMI Records Ltd [2011] 1 WLR 770n;
[2010] EWCA Civ 1429 at [21]; ING Bank NV v Ros Roca SA [2012] 1
WLR 472 at 475; [2011] EWCA Civ 353 at [17].
31. [2009] 1 AC 1101; [2009] UKHL 38.
32. [2009] 1 AC 1101 at 1114; [2009] UKHL 38 at [25]. The other members of
the House of Lords agreed.
33. See KPMG LLP v Network Rail Infrastructure Ltd [2007] Bus LR 1336 at
1351; [2007] EWCA Civ 363 at [50] per Carnwath LJ, with whom
Mummery LJ and Sir Paul Kennedy agreed (correction of mistakes and
construing document ‘as it stands’ not ‘distinct exercises’). See also [2-13].
34. [1997] AC 313 at 386. See also Ackland v Wigmore (1910) 12 WAR 48 at
52, 55.
35. But see Pink Floyd Music Ltd v EMI Records Ltd [2011] 1 WLR 770n;
[2010] EWCA Civ 1429 at [21]; ING Bank NV v Ros Roca SA [2012] 1
WLR 472 at 480; [2011] EWCA Civ 353 at [22].
[2009] UKHL 38 at [15] per Lord Hoffmann, with whom the other
members of the House of Lords agreed (‘strong case’); Pink Floyd Music
Ltd v EMI Records Ltd [2011] 1 WLR 770n; [2010] EWCA Civ 1429 at
[20] per Lord Neuberger MR, with whom Laws and Carnwath LJJ agreed
(need for ‘arbitary’ or ‘irrational’ outcome).
37. See, eg Condogianis v Guardian Assurance Co Ltd [1921] 2 AC 125 at 130
(singular in insurance proposal question applied to include plural where
proponent had more than one prior claim). See further Chapters 16 and 17.
38. (1923) 32 CLR 159 at 167–8, 187, 193.
39. (1938) 61 CLR 286.
40. [1985] AC 191. See also Amann Aviation Pty Ltd v The Commonwealth
(1990) 92 ALR 601 (affirmed on other grounds sub nom The
Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64). Cf Galaxy
Energy International Ltd v Bayoil SA (The Ama Ulgen) [2001] 1 Lloyd’s
Rep 512 at 516; [2001] 1 All ER (Comm) 289 (‘can be recovered’ meant
‘can with the exercise of due diligence be recovered’).
41. See ING Bank NV v Ros Roca SA [2012] 1 WLR 472 at 502; [2011] EWCA
Civ 353 at [110]. See also [2-14], [5-23].
42. But see Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC 1101 at
1114; [2009] UKHL 38 at [24].
43. [1953] 1 QB 543 at 549, 551, 553 (applied Fitzgerald v Masters (1956) 95
CLR 420 at 427). See also Update Constructions Pty Ltd v Rozelle Child
Care Centre Ltd (1990) 20 NSWLR 251 at 278. Cf Glebe Island Terminals
Pty Ltd v Continental Seagram Pty Ltd (The Antwerpen) (1993) 40 NSWLR
206 at 225; [1994] 1 Lloyd’s Rep 213 at 236–7. But see Tropwood AG of
Zug v Jade Enterprises Ltd (The Tropwind) [1982] 1 Lloyd’s Rep 232 at
237.
44. See [3-12].
45. See [3-13].
46. [1893] AC 351 at 357. See also [17-33].
47. But there may be an express agreement. See, eg Brooks v Burns Philp
Trustee Co Ltd (1969) 121 CLR 432 at 442.
48. (1956) 95 CLR 420.
49. (1956) 95 CLR 420 at 427. Cf Ian Delbridge Pty Ltd v Warrandyte High
School Council [1991] 2 VR 545 at 559.
50. [1941] AC 251. Contrast Sweet & Maxwell Ltd v Universal News Services
Ltd [1964] 2 QB 699 at 726 per Harman LJ, with whom Pearson LJ agreed
(‘usual covenants’ in lease).
51. [1953] 1 WLR 280.
52. [1953] 1 WLR 280 at 283.
53. See also Love and Stewart Ltd v S Instone and Co Ltd (1917) 33 TLR 475
(‘subject to strike and lock-out clauses’).
54. See Nicolene Ltd v Simmonds [1953] 1 QB 543 at 552.
55. (1925) 36 CLR 60 at 72 (approved Whitlock v Brew (1968) 118 CLR 445 at
461).
56. [1985] AC 301 at 311.
57. (1938) 38 SR (NSW) 337 at 345.
58. [1985] AC 301 at 309. Cf Alec Lobb (Garages) Ltd v Total Oil (Great
Britain) Ltd [1985] 1 WLR 173 at 186.
59. See Chapter 2.
60. See, eg Brooks v Burns Philp Trustee Co Ltd (1969) 121 CLR 432 (no
severance where obligations under deed were interdependent); Stenhouse
Australia Ltd v Phillips [1974] AC 391 (severance of clauses which were in
unreasonable restraint of trade available where valid restraint was not
dependent on invalid clauses).
61. See, eg Alec Lobb (Garages) Ltd v Total Oil (Great Britain) Ltd [1985] 1
WLR 173 at 180.
62. See, eg Brooks v Burns Philp Trustee Co Ltd (1969) 121 CLR 432 at 442.
63. Cf Attwood v Lamont [1920] 3 KB 571 at 593.
64. Cf SST Consulting Services Pty Ltd v Rieson (2006) 225 CLR 516 at 530–2;
[2006] HCA 31 at [42]–[48].
65. See DJE Constructions Pty Ltd v Maddocks [1982] 1 NSWLR 5; Carney v
Herbert [1985] AC 301.
66. See Chapter 14.
67. See [2-42].
68. [1981] 1 WLR 711.
69. [1981] 1 WLR 711 at 719. Cf [1981] 1 WLR 711 at 727 per Lord Roskill.
70. [1981] 1 WLR 711 at 717. See also Hongkong Fir Shipping Co Ltd v
Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26 at 63, where Upjohn LJ used
the expression to refer to an implication from the express terms.
71. See, eg Metropolitan Electric Supply Co Ltd v Ginder [1901] 2 Ch 799 at
806; Queensland Co-operative Milling Association v Pamag Pty Ltd (1973)
133 CLR 260; Administrative and Clerical Officers Association v The
Commonwealth (1979) 26 ALR 497 at 501.
72. See [3-30].
73. See Adam Kramer, ‘Implication in Fact as an Instance of Contractual
Interpretation’ [2004] CLJ 384.
74. See further [3-33]–[3-34].
75. [1956] AC 696.
76. [1956] AC 696 at 728. See also F C Shepherd & Co Ltd v Jerrom [1987]
QB 301 at 322–3.
77. Derived from Taylor v Caldwell (1863) 3 B & S 826; 122 ER 309.
78. See Shell UK Ltd v Lostock Garage Ltd [1976] 1 WLR 1187 at 1196;
[1977] 1 All ER 481 at 487.
79. Cf Breen v Williams (1996) 186 CLR 71 at 103.
80. See [3-28]–[3-30].
81. See Equitable Life Assurance Society v Hyman [2002] 1 AC 408 at 458. See
also E L Oldendorff & Co GmbH v Tradax Export SA (The Johanna
Oldendorff) [1974] AC 479 at 554.
82. For discussion see, eg Ian Ayres and Robert Gertner, ‘Filling Gaps in
Incomplete Contracts: An Economic Theory of Default Rules’ (1989) 99
Yale LJ 87; T D Rakoff, The Implied Terms of Contracts: Of “Default
Rules” and “Situation Sense”’, in Jack Beatson and Daniel Friedmann, eds,
Good Faith and Fault in Contract Law, Clarendon Press, Oxford, 1995, p
191; Johan Steyn, ‘Contract Law: Fulfilling the Reasonable Expectations of
Honest Men’ (1997) 113 LQR 433 at 442.
83. Equitable Life Assurance Society v Hyman [2002] 1 AC 408 at 459 per
Lord Steyn (with whom Lords Hoffmann, Cooke and Hobhouse agreed).
84. Shepherd v Felt and Textiles of Australia Ltd (1931) 45 CLR 359 at 378 per
Dixon J; Trollope & Colls Ltd v North West Metropolitan Regional Hospital
Board [1973] 1 WLR 601 at 609 per Lord Pearson (with whom Lords
Guest, Diplock and Cross agreed). See also Byrne v Australian Airlines Ltd
(1995) 185 CLR 410 at 447 per McHugh and Gummow JJ (‘“tacit term” to
identify the latent unexpressed intentions of the parties’).
85. See Lister v Romford Ice and Cold Storage Co Ltd [1957] AC 555 at 579
per Viscount Simonds (‘legal incident’).
86. See Breen v Williams (1996) 186 CLR 71 at 103. See also Lister v Romford
Ice and Cold Storage Co Ltd [1957] AC 555 at 594 per Lord Tucker
(‘contractual terms … implied by general rules of law’).
87. All derived from the Sale of Goods Act 1893 (UK).
88. Glanville Williams, ‘Language on the Law — IV’ (1945) 61 LQR 384 at
401.
89. [1977] AC 239.
90. [1977] AC 239 at 254.
91. Cf The Moorcock (1889) 14 PD 64.
92. See Chapter 14.
93. See, eg Luxor (Eastbourne) Ltd v Cooper [1941] AC 108 at 137.
94. See, eg Heimann v The Commonwealth (1938) 38 SR (NSW) 691 at 695;
Luxor (Eastbourne) Ltd v Cooper [1941] AC 108 at 137. See also Con-Stan
Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia)
Ltd (1986) 160 CLR 226 at 235, 238 (custom or usage).
95. See, eg Heimann v The Commonwealth (1938) 38 SR (NSW) 691 at 695–6.
See also [16-06].
96. [1975] 1 WLR 1095 at 1099; [1975] 3 All ER 99 at 103. Browne and
Geoffrey Lane LJJ agreed. Cf Australis Media Holdings Pty Ltd v Telstra
Corp Ltd (1998) 43 NSWLR 104 at 123 (terms implied in law do not
depend on the intention of the parties).
97. See also Readhead v Midland Railway Co (1869) LR 4 QB 379 at 392. Cf
Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26
NSWLR 234 at 255–6. Contrast Johan Steyn, ‘Contract Law: Fulfilling the
Reasonable Expectations of Honest Men’ (1997) 113 LQR 433 at 441
(‘myth’ that implied term is based on an inference of ‘actual intention’).
98. See, eg Butts v O’Dwyer (1952) 87 CLR 267 at 280; Meehan v Jones
(1982) 149 CLR 571 at 591; Hawkins v Clayton (1988) 164 CLR 539 at
570; Industrie Chimiche Italia Centrale v Alexander G Tsavliris & Sons
Maritime Co (The Choko Star) [1990] 1 Lloyd’s Rep 516 at 526; Breen v
Williams (1996) 186 CLR 71 at 102; Equitable Life Assurance Society v
Hyman [2002] 1 AC 408 at 459. See Jane Swanton, ‘Implied Contractual
Terms: Further Implications of Hawkins v Clayton’ (1992) 5 JCL 127.
99. See, eg Luxor (Eastbourne) Ltd v Cooper [1941] AC 108 at 137. See also
Castlemaine Tooheys Ltd v Carlton & United Breweries Ltd (1987) 10
NSWLR 468 at 489 (terms implied in law); Breen v Williams (1996) 186
CLR 71 at 90 (implied terms in general).
100. See, eg Australian Coarse Grains Pool Pty Ltd v Barley Marketing Board
[1989] 1 Qd R 499 at 508. Cf Byrne v Australian Airlines Ltd (1995) 185
CLR 410 at 440 (term implied by custom).
101. Cf Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur
Insurance (Australia) Ltd (1986) 160 CLR 226 at 237.
102. See Gloucestershire County Council v Richardson [1969] 1 AC 480 at 503;
Codelfa Construction Pty Ltd v State Rail Authority of New South Wales
(1982) 149 CLR 337 at 346; Khoury v Government Insurance Office of New
South Wales (1984) 165 CLR 622 at 635–6; Hawkins v Clayton (1988) 164
CLR 539 at 570; Attorney General of Belize v Belize Telecom Ltd [2009] 1
WLR 1988 at 1994; [2009] UKPC 10 at [21].
104. Cf Sirius International Insurance Co (Publ) v FAI General Insurance Ltd
[2004] 1 WLR 3251 at 3259; [2004] UKHL 54 at [25] per Lord Steyn, with
whom Lords Nicholls and Walker agreed (‘constructional implication’).
105. See, eg Cromer v Harry Rickards’ Tivoli Theatres Ltd [1921] SASR 325;
Marbe v George Edwardes (Daly’s Theatre) Ltd [1928] 1 KB 269; Herbert
Clayton and Jack Waller Ltd v Oliver [1930] AC 209; White v Australian
and New Zealand Theatres Ltd (1943) 67 CLR 266. Cf Greig v Insole
[1978] 3 All ER 449 at 472; Television Broadcasters Ltd v Ashton’s
Nominees Pty Ltd (No 1) (1979) 22 SASR 552.
106. [1953] AC 216.
107. [1953] AC 216 at 227, 228 per Lord Porter for the Privy Council.
108. See, eg J C Williamson Ltd v Lukey (1931) 45 CLR 282; Hounslow London
Borough Council v Twickenham Garden Developments Ltd [1971] 1 Ch 233
at 247; Service Station Association Ltd v Berg Bennett & Associates Pty Ltd
(1993) 117 ALR 393 at 409.
109. See, eg McCarrick v Liverpool Corporation [1947] AC 219 (correlative
positive obligation implied from statutory implied term).
110. See [3-26].
111. See generally on integration Chapter 10.
112. (1910) 10 CLR 417. See also Long Island Rail Road Co v Northville
Industries Corp, 41 NY 2d 455; 362 NE 2d 558 at 562 (1977); Etna v Arif
[1999] 2 VR 353 at 371.
113. (1910) 10 CLR 417 at 427 per O’Connor J.
114. (1910) 10 CLR 417 at 421 per Griffith CJ.
115. (1910) 10 CLR 417 at 430 per Isaacs J.
116. Cf Andrews Brothers (Bournemouth) Ltd v Singer and Co Ltd [1934] 1 KB
17 at 25; Brambles Holdings Ltd v Bathurst City Council (2001) 53
NSWLR 153 at 165.
117. Attorney General of Belize v Belize Telecom Ltd [2009] 1 WLR 1988 at
1993; [2009] UKPC 10 at [18] per Lord Hoffmann for the Privy Council.
See also Crema v Cenkos Securities Plc [2011] 1 WLR 2066 at 2077;
[2010] EWCA Civ 1444 at [38] per Aikens LJ (‘process does not add
another term to the instrument’). And see Mechanical Horse (Australasia)
Pty Ltd v Council of the City of Broken Hill (1941) 41 SR (NSW) 135 at
139 per Jordan CJ, with whom Street and Roper JJ concurred (Hart v
MacDonald (1910) 10 CLR 417 does not decide that an ‘implied term is
contained in the contract’).
118. Cf Bucknell v Commercial Banking Co of Sydney Ltd (1937) 58 CLR 155 at
164 per Dixon J (the law is no stranger to an implication as ‘an artificial
legal consequence’).
119. See, eg Hick v Raymond [1893] AC 22 at 32, 34; Carlton SS Co Ltd v The
Castle Mail Packets Co Ltd [1898] AC 486 at 490, 496; Canning v Temby
(1905) 3 CLR 419 at 424; Perri v Coolangatta Investments Pty Ltd (1982)
149 CLR 537 at 540, 548, 554, 556; W & J Investments Ltd v
Commissioner of Taxation (1987) 16 FCR 314 at 321.
120. The position is generally different where the contract is executed. See, eg
Mamidoil-Jetoil Creek Petroleum Co SA v Okta Crude Refinery AD [2001]
2 Lloyd’s Rep 76 at 89 (parties may have acted in the belief that a binding
contract exists). See further [9-33], [18-38].
121. See, eg Foley v Classique Coaches Ltd [1934] 2 KB 1 at 10, 11, 15. But see
Hall v Busst (1960) 104 CLR 206 (sale of land).
122. See Aotearoa International Ltd v Scancarriers A/S [1985] 1 NZLR 513 at
556 (adopted Australian and New Zealand Banking Group Ltd v Frost
Holdings Pty Ltd [1989] VR 695 at 702). For discussion see Brian Coote,
‘Contract Formation and the Implication of Terms’ (1993) 6 JCL 51.
123. See Vroon BV v Foster’s Brewing Group Ltd [1994] 2 VR 32; Mamidoil-
Jetoil Creek Petroleum Co SA v Okta Crude Refinery AD [2001] 2 Lloyd’s
Rep 76 at 91.
124. Cf Hillas & Co Ltd v Arcos Ltd (1932) 43 L1 L Rep 359; 147 LT 503.
125. See, eg Foley v Classique Coaches Ltd [1934] 2 KB 1; Voest Alpine
Intertrading GmbH v Chevron Internation Oil Co Ltd [1987] 2 Lloyd’s Rep
547 at 562.
126. Cf Re Casey’s Patents; Stewart v Casey [1892] 1 Ch 104.
127. See, eg Decro-Wall International SA v Practitioners in Marketing Ltd
[1971] 1 WLR 361 at 371, 376; [1971] 2 All ER 216. Cf Barro Group Pty
Ltd v Fraser [1985] VR 577 at 583–4. But cf J Kitchen & Sons Pty Ltd v
Stewart’s Cash & Carry Stores (1942) 66 CLR 116 at 125.
128. See, eg Luxor (Eastbourne) Ltd v Cooper [1941] AC 108 at 118, 128, 149,
153; Nissho Iwai Petroleum Co Inc v Cargill International SA [1993] 1
Lloyd’s Rep 80 at 84; Empresa Exportadora de Azucar v Industria
Azucarera Nacional SA (The Playa Larga and Marble Islands) [1983] 2
Lloyd’s Rep 171 at 180; Gatoil International Inc v Tradax Petroleum Ltd
(The Rio Sun) [1985] 1 Lloyd’s Rep 350 at 360; Australian Coarse Grains
Pool Pty Ltd v Barley Marketing Board [1989] 1 Qd R 499 at 515. Cf
Michael Gerson (Leasing) Ltd v Greatsunny Ltd [2010] 1 Ch 558 at 573;
[2010] EWHC 1887 (Ch) at [63] (term implied in most contracts).
129. See, eg Staffordshire Area Health Authority v South Staffordshire
Waterworks Co [1978] 1 WLR 1387 at 1400; [1978] 3 All ER 769 per Goff
LJ (right to terminate by giving notice an ‘inference’); CEL Group Ltd v
Nedlloyd Lines UK Ltd [2004] 1 Lloyd’s Rep 381 at 385, 386; [2003]
EWCA Civ 1716 at [15], [22] (no difficulty in implying term applying rule
of law); Durham Tees Valley Airport Ltd v bmibaby Ltd [2011] 1 Lloyd’s
Rep 68 at 80; [2010] EWCA Civ 485 at [56] (term implied by construction).
Cf Measures Bros Ltd v Measures [1910] 2 Ch 248 at 258 per Kennedy LJ
(‘implication of law’).
130. Emmott v Michael Wilson and Partners Ltd [2008] Bus LR 1361 at 1380;
[2008] EWCA Civ 184 at [84] per Lawrence Collins LJ, with whom
Carnwath and Thomas LJJ agreed (in reference to implied term of
confidentiality of documents in arbitration proceedings).
131. See, eg Summers v The Commonwealth (1918) 25 CLR 144 at 148,
affirmed (1919) 26 CLR 180 (term implied by custom or usage); Liverpool
City Council v Irwin [1977] AC 239 at 258 (term implied in law); BP
Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 at
282–3 (term implied in fact).
132. See Greaves & Co (Contractors) Ltd v Baynham [1975] 1 WLR 1095 at
1100–1; [1975] 3 All ER 99 at 103–4.
133. See, eg Stephens v Junior Army and Navy Stores Ltd [1914] Ch 516 at 526;
Hope v RCA Photophone of Australia Pty Ltd (1937) 59 CLR 348 at 363;
Ansett Transport Industries (Operations) Pty Ltd v Commonwealth of
Australia (1977) 139 CLR 54 at 73; Empresa Exportadora de Azucar v
Industria Azucarera Nacional SA (The Playa Larga and Marble Islands)
[1983]2 Lloyd’s Rep 171 at 180; Navigas International Ltd v Trans-
Offshore Inc (The Bridgestone Maru) (No 3) [1985] 2 Lloyd’s Rep 62;
Euro-Diam Ltd v Bathurst [1990] 1 QB 1.
134. (1889) 14 PD 64 at 68.
135. [1939] 2 KB 206 at 227 (affirmed sub nom Southern Foundries (1926) Ltd
v Shirlaw [1940] AC 701).
136. See Associated Japanese Bank (International) Ltd v Credit du Nord SA
[1989] 1 WLR 255 at 263; Itex Shipping Pte Ltd v China Ocean Shipping
Co (The Jing Hong Hai) [1989] 2 Lloyd’s Rep 522 at 225; Coca-Cola
Financial Corp v Finsat International Ltd [1998] QB 43 at 48–9; Clarion
Ltd v National Provident Institution [2000] 1 WLR 1888 at 1896.
137. See Concord Trust v Law Debenture Trust Corp Plc [2005] 1 WLR 1591 at
1601; [2005] UKHL 27 at [37]. But see Reigate v Union Manufacturing Co
(Ramsbottom) Ltd [1918] 1 KB 592 at 605.
138. See Itex Shipping Pte Ltd v China Ocean Shipping Co (The Jing Hong Hai)
[1989] 2 Lloyd’s Rep 522 at 225. See also Mosvolds Rederi A/S v Food
Corp of India (The Damodar General T J Park) [1986] 2 Lloyd’s Rep 68 at
70–1 (‘business efficacy’ not an essential requirement).
139. (1977) 180 CLR 266; 16 ALR 363.
140. (1977) 180 CLR 266 at 282–3 (adopted Secured Income Real Estate
(Australia) Ltd v St Martin’s Investments Pty Ltd (1979) 144 CLR 596 at
605–6).
141. See Byrne v Australian Airlines Ltd (1995) 185 CLR 410. See Gregory
Tolhurst and J W Carter, ‘The New Law on Implied Terms’ (1996) 11 JCL
76.
142. Hawkins v Clayton (1988) 164 CLR 539 at 573 per Deane J. See also
Hospital Products Ltd v United States Surgical Corp (1984) 156 CLR 41 at
121.
143. Hawkins v Clayton (1988) 164 CLR 539 at 573 per Deane J.
144. (1982) 149 CLR 337 at 353. Stephen and Wilson JJ agreed. See also Re
Comptoir Commercial Anversois and Power Son and Co [1920] 1 KB 869
at 898; Secured Income Real Estate (Australia) Ltd v St Martins
Investments Pty Ltd (1979) 144 CLR 596 at 608.
145. [2002] 1 WLR 2849 at 2861. See also Elisabeth Peden, Good Faith in the
Performance of Contracts, Butterworths, Sydney, 2003, §2.17 (processes
‘very similar’).
146. (1977) 180 CLR 266 at 282–3.
147. But see Socimer International Bank Ltd v Standard Bank London Ltd
[2008] Bus LR 1304 at 1345–6; [2008] EWCA Civ 116 at [105].
148. [2009] 1 WLR 1988; [2009] UKPC 10. See Chris Peters, [2009] CLJ 513;
K F K Low and K C F Loi, (2009) 125 LQR 561; John McCaughran,
‘Implied Terms: The Journey of The Man on the Clapham Omnibus’ [2011]
CLJ 607.
149. [2009] 1 WLR 1988 at 1995; [2009] UKPC 10 at [27]. See also Fortis Bank
SA/NV v Indian Overseas Bank [2010] Bus LR 835 at 848; [2010] EWHC
84 (Comm) at [63].
150. Cf Mediterranean Salvage & Towage Ltd v Seamar Trading & Commerce
Inc (The Reborn) [2009] 2 Lloyd’s Rep 639 at 649; [2009] EWCA Civ 531
at [48] per Rix LJ (‘Lord Hoffmann’s formulation of the implied term test’).
at [18] per Lord Clarke MR, with whom Rix and Carnwath LJJ agreed (‘test
of necessity’).
153. [2009] 1 WLR 1988 at 1993; [2009] UKPC 10 at [19] (adopted
Mediterranean Salvage & Towage Ltd v Seamar Trading & Commerce Inc
(The Reborn) [2009] 2 Lloyd’s Rep 639 at 641; [2009] EWCA Civ 531 at
[8]). Cf Bahr v Nicolay [No 2] (1988) 164 CLR 604 at 618 (inference of
intention to create trust).
154. [1973] 1 WLR 601 at 609.
155. [2002] 1 AC 408 at 459.
156. [2009] 1 WLR 1988 at 1994; [2009] UKPC 10 at [21]. See also Transfield
Shipping Inc v Mercator Shipping Inc (The Achilleas) [2009] 1 AC 61 at
67, 71; [2008] UKHL 48 at [11], [26].
157. Cf [2009] 1 WLR 1988 at 1997; [2009] UKPC 10 at [34] per Lord
Hoffmann for the Privy Council (‘question is not what any particular
language in the instrument means but whether, without it having been
expressly stated, that is the meaning of the instrument’).
158. But see KG Bominflot Bunkergesellschaft fur Mineraloele mbH & Co KG v
Petroplus Marketing AG (The Mercini Lady) [2011] 1 Lloyd’s Rep 442;
[2010] EWCA Civ 1145 (term not implied in relation to quality of goods
because it was not part of the contract’s meaning).
159. [2002] 1 AC 408 at 458. Lords Hoffmann, Cooke and Hobhouse agreed.
160. C Itoh & Co Ltd v Companhia de Navegacao Lloyd Brasileiro (No 2) (The
Rio Assu) [1999] 1 Lloyd’s Rep 115 at 120 per Clarke J (affirmed [1999] 1
Lloyd’s Rep 115 at 122).
161. See Mediterranean Salvage & Towage Ltd v Seamar Trading & Commerce
at [8] per Lord Clarke MR, with whom Rix and Carnwath LJJ agreed (‘will
soon be as much referred to as’ his speech in Investors Compensation
Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896).
162. On the application of the analysis to partly written contracts see Crema v
Cenkos Securities Plc [2011] 1 WLR 2066 at 2076, 2077, 2086; [2010]
EWCA Civ 1444 at [37], [41], [71]. In relation to oral contracts, cf
Grisbrook v MGN Ltd [2011] Bus LR 599 at 611; [2010] EWCA Civ 1399
at [31].
163. See [10-54]. Cf [18-39].
164. But see Mediterranean Salvage & Towage Ltd v Seamar Trading &
Commerce Inc (The Reborn) [2009] 2 Lloyd’s Rep 639 at 643; [2009]
EWCA Civ 531 at [15].
165. See also Byrne v Australian Airlines Ltd (1995) 185 CLR 410 at 442 (term
inferred from course of dealing). Cf Milne v The Municipal Council of
Sydney (1912) 14 CLR 54 at 71.
167. See, eg Mears v Safecar Security Ltd [1983] QB 54 at 78. Cf F A Tamplin
SS Co Ltd v Anglo-Mexican Petroleum Products Co Ltd [1916] 2 AC 397 at
404 (infer term implied in law). See also [3-33].
168. See G H Myers & Co v Brent Cross Service Co [1934] 1 KB 46 at 55;
Young & Marten Ltd v McManus Childs Ltd [1969] 1 AC 454; Reg Glass
Pty Ltd v Rivers Locking Systems Pty Ltd (1968) 120 CLR 516 at 521;
1 at 8.
169. See Supply of Goods and Services Act 1982 (UK), ss 4, 13.
170. The standard of duty with respect to the other terms is left to general
principles. The duty is strict. See Carter’s Breach of Contract, §2-49.
171. Cf Mears v Safecar Security Ltd [1983] QB 54 at 76. But see [10-54]
(fitness for purpose).
172. See Young & Marten Ltd v McManus Childs Ltd [1969] 1 AC 454;
Gloucestershire County Council v Richardson [1969] 1 AC 480.
173. See Scally v Southern Health and Social Services Board [1992] 1 AC 294;
Byrne v Australian Airlines Ltd (1995) 185 CLR 410 at 450.
174. See generally Tai Hing Cotton Mill Ltd v Liu Chong Hing Bank Ltd [1986]
AC 80 at 104; Star Shipping AS v China National Foreign Trade
Transportation Corp (The Star Texas) [1993] 2 Lloyd’s Rep 445 at 452;
Esso Australia Resources Ltd v Plowman (1995) 183 CLR 10 at 31; Clarion
Ltd v National Provident Institution [2000] 1 WLR 1888 at 1897. Cf
Jameson v Central Electricity Generating Board [2000] 1 AC 455 at 477–8.
175. See also Wright v TNT Management Pty Ltd (1989) 15 NSWLR 679 at 697;
85 ALR 442 at 459; National Bank of Greece SA v Pinios Shipping Co No 1
[1990] 1 AC 637 at 645 (reversed on other grounds [1990] 1 AC 637).
176. But cf A Meredith Jones & Co Ltd v Vangemar Shipping Co Ltd (The
Apostolis) (No 2) [1999] 2 Lloyd’s Rep 292 at 300 per Longmore J,
reversed [2000] 2 Lloyd’s Rep 337 (reference to ‘constructional implication
of the type recognised’ in Liverpool City Council v Irwin [1977] AC 239).
177. See Elisabeth Peden, ‘Policy Concerns in Terms Implied in Law’ (2001)
117 LQR 459.
178. [1977] AC 239 at 253–4, 257–8. See also Codelfa Construction Pty Ltd v
State Rail Authority of New South Wales (1982) 149 CLR 337 at 345–6;
Scally v Southern Health and Social Services Board [1992] 1 AC 294 at
307. Cf Lister v Romford Ice and Cold Storage Co Ltd [1957] AC 555 at
576.
179. Khoury v Government Insurance Office of New South Wales (1984) 165
CLR 622 at 636; Banque Financière de la Cité SA v Westgate Insurance Co
Ltd [1991] 2 AC 249 at 280; Manifest Shipping Co Ltd v Uni-Polaris
Shipping Co Ltd (The Star Sea) [2003] 1 AC 469 at 493; [2001] UKHL 1 at
[46].
180. London Joint Stock Bank Ltd v Macmillan [1918] AC 777; Commonwealth
Trading Bank of Australia v Sydney Wide Stores Pty Ltd (1981) 148 CLR
304 (see J W Carter, (1982) 98 LQR 19).
182. (1881)6 App Cas 251.
183. (1881) 6 App Cas 251 at 263. He traced the ‘rule’ back to a case decided in
1469.
184. See, eg Secured Income Real Estate (Australia) Ltd v St Martins
Investments Pty Ltd (1979) 144 CLR 596 at 607; Kallang Shipping SA
Panama v AXA Assurances Senegal (The Kallang) (No 2) [2009] 1 Lloyd’s
Rep 124 at 137; [2008] EWHC 2761 (Comm) at [65]. Cf Sprague v Booth
[1909] AC 576 at 580.
185. See Ray v Davies (1909) 9 CLR 160 at 170; McCarrick v Liverpool
Corporation [1947] AC 219 at 231; Thompson v ASDA-MFI Group Plc
[1988] Ch 241 at 253. See also Carter’s Breach of Contract, §2-27.
186. See [3-18], [3-24]. The implied term approach derives from Stirling v
Maitland (1864) 5 B & S 841 at 852; 122 ER 1043 at 1047. See also
Southern Foundries (1926) Ltd v Shirlaw [1940] AC 701 at 741–2; Shindler
v Northern Raincoat Co Ltd [1960] 1 WLR 1038 at 1043.
187. Butt v M’Donald (1896) 7 QLJ 68 at 70–1 (approved Secured Income Real
Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR
596 at 607). See also Dalgety Wine Estates Pty Ltd v Rizzon (1979) 141
CLR 552 at 559.
188. See Elisabeth Peden, ‘Cooperation in English Contract Law: to Construe or
Imply?’ (2000) 16 JCL 56. Cf J F Burrows, ‘Contractual Cooperation and
the Implied Term’ (1968) 31 MLR 390.
189. Shell UK Ltd v Lostock Garage Ltd [1976] 1 WLR 1187 at 1196; [1977] 1
All ER 481 at 487. Cf Glanville Williams, ‘Language on the Law — IV’
(1945) 61 LQR 384 at 403.
190. Cf Platform Funding Ltd v Bank of Scotland Plc (formerly Halifax Plc)
[2009] 1 QB 426 at 438, 447; [2008] EWCA Civ 930 at [30], [62]
(presumption).
191. [1975] 1 WLR 1095; [1975] 3 All ER 99.
192. See Howe v Smith (1884) 27 Ch D 89 at 101; Coates v Sarich [1964] WAR
2 at 14. Contrast Workers Trust & Merchant Bank Ltd v Dojap Investments
Ltd [1993] AC 573 at 578–9.
193. Compare an agent’s implied condition of faithful service. See Measures
Bros Ltd v Measures [1910] 2 Ch 248 at 255; Shepherd v Felt and Textiles
of Australia Ltd (1931) 45 CLR 359 at 372, 378.
194. See, eg Langley v Foster (1906) 4 CLR 167 at 194 (implied term to comply
with the law); Richco International Ltd v Alfred C Toepfer International
Gmbh (The Bonde) [1991] 1 Lloyd’s Rep 136 at 144 (implied term to give
effect to principle of construction that person should not be permitted to
take advantage of own wrong). Cf Empresa Exportadora de Azucar v
Industria Azucarera Nacional SA (The Playa Larga and Marble Islands)
[1983] 2 Lloyd’s Rep 171 at 190 (implied term of validity under law of
place of performance).
196. See [2-34].
197. See also [3-17] (evolution of terms implied in fact to terms implied in law).
198. Cf James Miller & Partners Ltd v Whitworth Street Estates (Manchester)
Ltd [1970] AC 583 at 603 (proper law of contract no longer based on
implied term).
199. See Hochster v De la Tour (1853) 2 E & B 678 at 689; 118 ER 922 at 926.
200. Contrast Wight v Foran (1987) 11 NSWLR 470 at 486 (reversed on other
grounds sub nom Foran v Wight (1989) 168 CLR 385).
201. Carter’s Breach of Contract, §7-20.
202. [1962] 2 QB 26.
203. [1962] 2 QB 26 at 71.
204. See [2-06].
205. [1956] AC 696 at 728.
206. [1962] 2 QB 26 at 71. See also Great Peace Shipping Ltd v Tsavliris
Salvage (International) Ltd [2003] QB 679 at 704–5; [2002] EWCA Civ
1407 at [82].
207. (1982) 149 CLR 337.
208. See, eg E W Patterson, ‘Constructive Conditions in Contracts’ (1942) 42
Col LR 903; C J Goetz and R E Scott, ‘The Limits of Expanded Choice: An
(1985) 73 Calif L Rev 261 at 270.
209. See, eg Tankexpress A/S v Compagnie Financière Belge des Petroles SA
(The Petrofina) [1949] AC 76 at 97; W J Alan & Co Ltd v El Nasr Export
and Import Co [1972] 2 QB 189 at 212.
210. See [15-40].
212. See Firma C-Trade SA v Newcastle Protection and Indemnity Association
(The Fanti) [1991] 2 AC 1 (where the presumption was rebutted).
213. See, eg [16-05]–[16-08], [17-22]–[17-24].
214. See also [2-06]. Cf Byrne v Australian Airlines Ltd (1995) 185 CLR 410 at
448 per McHugh and Gummow JJ (‘rules of construction’).
215. (1987) 162 CLR 549 at 571.
216. See, eg Manifest Shipping Co Ltd v Uni-Polaris Shipping Co Ltd (The Star
Sea) [2003] 1 AC 469 at 492; [2001] UKHL 1 at [45] (no duty of
disclosure). Cf Walford v Miles [1992] 2 AC 128 (express agreement to
negotiate in good faith not binding). But cf Interfoto Picture Library Ltd v
Stiletto Visual Programmes Ltd [1989] QB 433 at 439–40.
217. See generally G H Treitel, Remedies for Breach of Contract, Clarendon
Press, Oxford, 1988, pp 360–1; J F O’Connor, Good Faith in English Law,
Dartmouth, Aldershot, 1990; Raphael Powell, ‘Good Faith in Contracts’
[1956] CLP 16. See also J W Carter and M P Furmston, ‘Good Faith and
Fairness in the Negotiation of Contracts’ (1994) 8 JCL 1, (1995) 8 JCL 93.
218. See Uniform Commercial Code (US), §1-203; Contracts Restatement 2d
(1979), §205. See R S Summers, ‘The General Duty of Good Faith — Its
Recognition and Conceptualization’ (1982) 67 Cornell LR 810.
219. See J W Carter and Elisabeth Peden, ‘Good Faith in Australian Contract
Law’ (2003) 19 JCL 155.
220. See Elisabeth Peden, Good Faith in the Performance of Contracts,
Butterworths, Sydney, 2003, ch 6.
221. See, eg Moschi v Lep Air Services Ltd [1973] AC 331 at 346; John Rawls, A
Theory of Justice, OUP, Oxford, 1973, p 342.
agreed. See also Rainy Sky SA v Kookmin Bank [2011] 1 WLR 2900 at
2910; [2011] UKSC 50 at [25].
223. See, eg [13-46], [16-12] (preference for reasonable results).
224. Cf [2-06] (commitment to the institution) 225. See, eg [2-34] (doctrine of
frustration), [3-29] (terms implied by law).
226. See Johan Steyn, ‘Contract Law: Fulfilling the Reasonable Expectations of
Honest Men’ (1997) 113 LQR 433 at 438 (concern for ‘reasonable
commercial standards’).
227. [1993] 2 Lloyd’s Rep 194 at 196. See also General Trading Company
(Holdings) Ltd v Richmond Corp Ltd [2008] 2 Lloyd’s Rep 475 at 493;
[2008] EWHC 1479 (Comm) at [96].
228. See, eg Bernhard Schulte GmbH & Co KG v Nile Holdings Ltd [2004] 2
Lloyd’s Rep 352 at 374; [2004] EWHC 977 (Comm) at [113].
229. Socimer International Bank Ltd v Standard Bank London Ltd [2008] Bus
LR 1304 at 1350; [2008] EWCA Civ 116 at [116] per Rix LJ. Laws and
Lloyd LJJ agreed. See Elisabeth Peden, ‘“Implicit Good Faith” — or Do
We Still Need an Implied Term of Good Faith?’ (2009) 25 JCL 50.
230. See, eg Lord Justice Staughton, ‘Good Faith and Fairness in Commercial
Contract Law’ (1994)7 JCL 193.
PART III
Rules and Principles Having General Application
4
General and Specific Construction Rules
General [4-03]
General Rules of Construction [4-05]
Introduction [4-05]
Construction Determined Constructively [4-07]
Time for Construction [4-09]
One Construction Only [4-10]
Construction of Document an Issue of Law [4-12]
Context Rule [4-19]
Whole Contract Rule [4-20]
Perspective Rule [4-22]
Exclusionary Rule [4-23]
Application of the General Rules [4-24]
Law and Equity [4-24]
Form of Contract [4-31]
Type of Contract or Term [4-33]
Other Utterances of Intention [4-36]
Specific Rules Concerning Documents [4-39]
General [4-39]
Giving Effect to the Whole Contract [4-43]
Construction Against Proferens [4-44]
Other Common Law Rules [4-48]
[4-01] Objects of Part III. This part of the book does two things. First, Chapter
4 sets out most of the basic rules in construction which are applicable to all
contracts. Second, Chapter 5 sets out and discusses the principles stated by Lord
Hoffmann in Investors Compensation Scheme Ltd v West Bromwich Building
Society.1
Of course, all of the material in this part of the book is taken up in more detail
later. But it is useful to be able to collect the basic rules in the same place. And
discussion of the ‘ICS principles’ provides an opportunity to explain why
contract construction is a specialised process.
[4-02] Objects of this chapter. The object of this chapter is to explain briefly
construction rules of general application. If this chapter included a discussion of
everything in connection with the construction of contracts which has been
described as a ‘rule’ of construction it would be a very long chapter indeed!
Many are simply specific bases for inferring intention in particular contexts or
for particular purposes. These include construction ‘preferences’ and
presumptions.
It follows that this chapter is not an exhaustive statement of the use and
applicability of rules in commercial construction. The general rules of contract
construction make up the body of law termed ‘construction’. However, unlike
other areas of contract law, there is no established set of rules to be applied as
such in determining the parties’ intention. Only a handful of rules apply to all
contracts. Some are too ‘big’ to discuss meaningfully in a single chapter. For
example, the rule that contracts must be construed objectively informs
everything in construction.
The specific rules considered in this chapter are general in the sense that they
are potentially applicable to any contract in writing or evidenced by writing.
This includes the so-called ‘canons of construction’. Apart, perhaps, from the
contra proferentem rule, these are not regarded as having utility as rules in the
modern law of commercial construction. The others are mentioned for
completeness.
GENERAL
[4-03] Perspectives. Most of this book is, of course, about ‘rules’ in construction
law. But there is a genuine distinction between substantive rules of contract law,
such as the exclusionary rule, and most of the ‘rules’ used to divine the intention
of the parties to a contract.2 The rules are diverse. They therefore have a variety
of bases and justifications. Four general points may be made. First, some rules
are basic or elementary. For example, the rule that a contract must be construed
as a whole is fundamental.
Second, because construction is the process by which important aspects of
contract doctrine are applied,3 whole lines of authority have developed in
connection with specific construction issues which must be determined in order
to apply doctrine, for example, as to whether time is of the essence of a contract.
The relevance of the cases to a work on construction is as illustrations as to how
construction operates as a process for applying contract doctrine.
Third, construction law has developed scores of specific rules which embody
presumptions about intention.4 They do not form a coherent whole. Some are
specific rules about the presumed content of particular categories of contract or
types of clause,5 and others are about the presumed legal effect of particular
events, such as payment by cheque. Rules of that nature are not discussed in this
chapter. They need only be illustrated in a general book on construction.
Fourth, there are even more specific ‘rules’ which deal with the construction
of particular words and expressions. Again, they can only be illustrated.6
[4-04] Rules and preferences. In principle, rules of construction are
distinguishable from mere preferences in construction. Preferences in
construction tend to reflect specific or underlying policy goals, such as that
people should not profit from their wrongs. An example of a rule of construction
is that the whole contract must be construed, in light of context. But the idea that
a court should choose the more reasonable of two tenable constructions is better
described as a construction preference. The importance of the distinction is that
construction rules are either immutable or express stronger presumptions about
intention than mere preferences in construction.
In this work, preferences in construction are analysed as ‘incidents’ of
commercial construction and do not form part of the discussion of rules.7
GENERAL RULES OF CONSTRUCTION
Introduction
[4-05] Perspective on the rules. The rules discussed below are general in the
sense that they apply to all contracts. Although not necessarily mandatory in
nature, they are genuine ‘rules’ about how to construe contracts in general, as
opposed to presumptions of contractual intention in relation to specific issues.
Therefore, the rules are formulated from the perspective of contracts in
general. There is also a general assumption of a contract which is in writing or
evidenced by writing. However, most of the rules apply directly or analogously
to verbal contracts.8 Similarly, in many cases the formulation of the rules by
reference to the construction of contracts does not limit the scope of the rules.
They may also apply — as rules of construction — in other contexts. In other
words, many of the rules are equally applicable to other expressions of intention,
particularly documentary utterances. Again, the application of the rule may be
direct, or analogous. This is an appropriate point to make in explaining some of
the rules.9
[4-06] Relevance. Generally speaking, the rules apply to all aspects of
construction, that is, the process of determining the meaning or legal effect of a
contract, or the scope of its application.10 Accordingly, it is not usually necessary
to distinguish between those various contexts in the citation of authority to
support the rules. Similarly, no distinction need be drawn by reference to the
form of any contractual document or type of contract.
No attempt is made to explain exceptions to the rules. That is left to later
chapters.
Construction Determined Objectively
[4-07] The rule.
Article 4.1 — Construction objective.
The construction of a contract is determined objectively.
Fundamental to the concept of construction is that the intention of the parties to a
legally binding contract is determined objectively. Objectivity informs all of
contract law. The ‘rule’ in relation to construction is simply an application of the
objective theory of contract.11
To the extent that construction is a process, the objective approach is
obvious.12 However, because the rule is so basic it underlies many other general
construction rules.
[4-08] Purpose. The fact that the process of contract construction is objective
does not deny that the purpose is to determine and give effect to the actual
intention of the parties.13 However, the concern is to establish a common
intention, in virtually all cases without the benefit of direct evidence of the
subjective views of the parties. Since common intention is determined under an
objective approach, it is ‘constructed’. That construct is termed the ‘construction
of the contract’.14 Because the parties are bound by that construction, the law
equates actual intention with intention as objectively determined. In other words,
the construction conclusion is presumed to state the parties’ actual intention.15
In relation to written expressions of intention, the objective approach is not
restricted to the construction of bilateral contracts.16 It also applies to unilateral
expressions of intention, such as offers and communications made in connection
with a contract.
Time for Construction
[4-09] The rule.
Article 4.2 — Relevant time.
The relevant time for construction of a contract is the time it was entered
into.
The relevant time for construction of a contract17 is the time at which it was
entered into.18 The rule applies whatever the nature of the construction issue.
In the application of the rule, it is presumed that the meaning of words has not
changed since entry into the contract.19 But, of course, the applicable law is
generally the law as understood at the time of resolution. Even in the context of
the construction of a third party standard form contract, cases decided after the
contract was entered into can be taken into account.20
One Construction Only
[4-10] The rule.
Article 4.3 — Contracts have one construction.
In its application to a given set of facts, a contract can have only one
construction.
Every contract is regarded as having, in its application to a given set of facts
(dispute), one and only one construction (a single resolution).21
Because contracts operate within an institution which applies legal sanctions
for a breach of duty, a contract must be capable of being applied with certainty to
the circumstances which have arisen. If more than one possible construction or
application of a contract is possible, a choice must be made. Choices are made
by construction of the contract in light of context,22 presumptions of intention,
preferences in construction,23 and, on occasion, by reference to extrinsic
evidence.24
[4-11] Focus of the rule. There are two aspects to the rule. First, in order to be
able to apply the contract to the facts, it is always necessary to arrive at a single
construction. In virtually every litigated construction dispute, more than one
meaning, legal effect or application will be tenable. The search is for what was
‘agreed’ or ‘intended’.25
Second, the meaning or legal effect determined by construction is the
meaning or legal effect of the contract. Because the ‘one construction’ rule
focuses on the need to apply the contract to a given set of facts, it also limits the
extent to which it is necessary to resolve issues of meaning (and legal effect). It
is self-evident that construction disputes most commonly arise in relation to
specific contractual provisions. Although it is the construction ‘of the contract’
which is determined, that is done by reference to particular factual
circumstances. It follows that neither the meaning of the whole contract, nor the
full scope of its application, is at issue.26
Construction of Document an Issue of Law
General
[4-12] The rule.
Article 4.4 — Construction of document an issue of law.
The construction of a document stating or evidencing a contract (in
whole or in part) is an issue of law.
The construction of a document has always been regarded as an issue of law, not
fact.27 Therefore, if an issue of intention arises in relation to a contractual
document, it is resolved as an issue of law. The wealth of authority28 which
supports the rule establishes that it applies equally to contracts expressed in
writing and to (oral) contracts evidenced by writing.29
However, there is a distinction between the construction of a document and
meanings which the words used in the document may have.30 The meanings of
particular words — such as under a trade usage — will in many cases be
determined as a matter of fact.
[4-13] Derivation and significance. The rule in relation to documents is derived
from the approach to jury trials. Construction of a document was a matter for the
judge, not the jury.31 The rule served to promote certainty in the construction of
standard form contracts. It continues to do so.32
The disappearance of jury trials is not the only reason why it is less important
today to draw sharp distinctions between questions of law and fact in
construction.33 The more important feature is that construction issues are — even
in relation to documentary expressions of intention — determined as a matter of
commercial judgment.34 Nevertheless, the rule is important to appeal
procedures.35 It has also had the beneficial effect of serving to ensure that
reasoned decisions are provided on the construction of commercial documents.36
[4-14] Application of contract doctrine. Whether a contract is written,
evidenced by writing or purely verbal, the application of contract doctrine to
resolve an issue of intention is a matter of law. More generally, where the
operation of a particular legal rule depends on the intention of the parties to the
contract, the contract must be construed to determine their intention. The
relevant rule need not be contractual in nature.
Because of the interaction between a legal rule and the construction rules
which are applied to determine the parties’ intention, the conclusion is ultimately
one of law, not fact, even if no document is involved. Important illustrations
include: the implication of a term;37
whether a party enjoys a right of termination for breach or repudiation;38
and the application of the doctrine of frustration.39
Application of the rule
[4-15] Impact. The ramifications of the contrast between questions of law and
fact are still felt, both procedurally and as a matter of precedent.40 Since most
contracts which come before the courts are in written form, the rule that the
construction of a document is an issue of law informs virtually every
construction case. That may be significant in relation to matters of judicial
review which are restricted to issues of law.41
Even though commercial contracts are usually in writing, or evidenced by
writing, and notwithstanding the characterisation of the construction of such
documents as questions of law, it remains important to distinguish between
construction and the necessary fact-finding exercises which do not form part of
construction itself. In Carmichael v National Power Plc,42 Lord Hoffmann
pointed out that, particularly where the contract is found partly in a document
and partly in conduct, fact finding plays an important role in the modern law of
construction. Even where a contract is wholly in writing or evidenced by writing,
factual issues may be important. Because contracts must be construed in light of
context, and applied to factual situations, the fact-finding process is crucial.
[4-16] Application of the contract. Ultimately, a contract must be applied to the
facts. Factual questions inevitably arise. Manifestly, a court must determine the
facts in order to apply the contract. Illustrations include:43
whether a reasonable period of time has elapsed for the performance of an
obligation;44
whether a reasonable period of time has been allowed in a notice to
perform;45 and whether the circumstances evidence an inability to
perform a contract.46
Application of a contract to a particular factual situation leads to a conclusion
about legal rights. That is necessarily a conclusion of law. The relationship
between fact and law in construction issues is reflected in the conception that
‘mixed’ questions of law and fact may arise.
[4-17] Mixed questions. Because application of a contract so often involves the
application of a legal rule, characterising construction issues according to
whether they are legal or factual is of limited value. The ultimate conclusion is
inevitably one of law.
Even where the contract is wholly in writing or evidenced by writing, many
issues resolved by construction are today appropriately — if not helpfully —
described as ‘mixed’ questions. For example, although the conclusion that a
contract has (or has not) been frustrated must be a legal conclusion,47 the event
relied on as frustrating the contract is something which happens in the ‘world of
fact’.48 Thus, the question raised by an allegation of frustration is one of mixed
law and fact,49 even though construction of the contract is the process by which
the doctrine of frustration is applied.
Many other illustrations could be given. For example, the intention of the
parties on whether a term of a contract is intermediate in character must be
decided by construction of the contract. It is a question of law even if the
contract is wholly oral. However, the consequences of any proved breach is a
factual matter,50 and the question whether the consequences of the breach are
sufficiently serious to justify termination of the performance of the contract has,
on that basis, been characterised as a mixed question of law and fact.51 Similarly,
where a repudiation of obligation is alleged to have occurred, questions of law
arise in the construction of the contract, construction of any written
communication and the application of the test for repudiation.52 However, the
extent to which the words or conduct evidence an absence of readiness or
willingness to perform is a matter of objective fact.53
It is, indeed, difficult to imagine any issue of contract doctrine resolved by
construction which is not properly characterised as a mixed question.54 Such
resolutions require commercial judgments.
[4-18] Matters of commercial judgment. A conclusion as to the intention of the
parties is very much a matter of commercial judgment. The approach to
application of the rule that the construction of a document is a question of law
differs markedly from its application when jury trials were in vogue.
Clearly, whenever intention is inferred by analysis of various factors which
are based on factual circumstances, either proved or hypothetical, the
commercial judgment is made on the basis of circumstances which are, to a large
extent, factual.55 An example is where a pre-contractual statement (whether or
not in writing) is alleged to be a term of the contract. This same approach is
applied whether the pre-contractual statement is oral or written. Commercial
judgment is also important in relation to mixed questions of law and fact, as
where application of a legal concept such as frustration is necessary. Frustration,
although ‘never a pure question of fact’,56 is determined as a matter of
commercial judgment. Thus, in Tsakiroglou & Co Ltd v Noblee Thorl GmbH57
Lord Radcliffe said58 that the ‘conclusion’ in a given case of alleged frustration
may be ‘almost completely determined by what is ascertained as to mercantile
usage and the understanding of mercantile men’. This will particularly be the
case where the operation of the frustration doctrine depends on an assessment of
delay.59 Similarly, the more recent decisions illustrate that even though the
question whether a promisor has repudiated a contract may depend on the
construction of a document, an appeal court should be reluctant to differ from
the trial judge or arbitrator.60 Accordingly, where it was alleged that messages by
buyers in relation to whether a full cargo would be loaded under an FOB
contract for the sale of maize amounted to repudiation, the conclusions of
arbitrators, reached with the aid of the correct legal test, were applied.61 On the
same basis, although the question whether breach of an intermediate term is
sufficiently serious to justify termination is a mixed question of law and fact, it
involves a commercial judgment.62 The conclusion on the seriousness of the
breach is largely factual.63 Therefore, a decision on the significance of the breach
is unlikely to be disturbed on appeal, assuming that the proper legal test has been
applied.64
More generally, it is now recognised that the conclusions of arbitrators must
be respected whatever the precise nature of the construction issue,65 including in
relation to the construction of notices under contracts and correspondence
alleged to give rise to contracts.66 The same is true of other construction matters.
For example, in Zeus Tradition Ltd v Bell (The Zeus V)67 reference was made to
the significance of the trial judge’s finding that an experienced yacht insurance
broker would use the expression ‘subject to’ to introduce a condition precedent.
Even in relation to questions of legal effect which fall to be decided solely by
construction,68 such as whether a term is a condition, a warranty or an
intermediate term, the construction of the contract is a matter of commercial
judgment, and necessarily affected by experience and expertise.69 Again,
therefore, an appellate court is likely to be heavily influenced by the commercial
judgments made by arbitrators and trial judges even though the particular
question of intention is ultimately one of law.70
No matter how much legal learning may surround a particular construction
issue raised by contract doctrine, there is always an underlying commercial
question which tends to be hidden by the legal formulation of the issue.71 There
are good practical reasons for the current approach. As Lord Radcliffe said in
Tsakiroglou & Co Ltd v Noblee Thorl GmbH,72 it is simply not possible to
‘analyse very precisely where law begins and fact ends’. It was notorious that,
prior to its demise, the stated case procedure for appeals in arbitrations led to too
many appeals on matters of commercial judgment. Today, in all commercial
contract cases, it is not a sufficient basis for disturbing the decision of an
arbitrator or trial judge that the court might reach a different conclusion on the
construction of a contractual document.73 Usually, the crucial question is simply
whether the correct legal criterion or test has been applied.
Of course, none of this prevents decisions by arbitrators and judges being
overturned on appeal in construction disputes. Indeed, many of the leading
decisions of appellate courts in recent years have involved just that.74 The
slightly odd feature of those decisions is that they have generally related to the
‘meaning’ of contracts,75 rather than the application by construction of complex
legal doctrines such as frustration and discharge for breach.
Context Rule
[4-19] The rule.
Article 4.5 — Contract must be placed in context.
The factual context (background or surrounding circumstances) of a
contract must be determined prior to construction of the contract.
Every contract must be construed in context. Therefore, the rule of construction
is that context must be determined prior to embarking on the process of
construction. In terms of authority, the root of the modern law is to be found in
the speeches of Lord Wilberforce in Prenn v Simmonds,76 L Schuler AG v
Wickman Machine Tool Sales Ltd77 and Reardon Smith Line Ltd v Yngvar
Hansen-Tangen,78 all of which were adopted by the High Court of Australia in
Codelfa Construction Pty Ltd v State Rail Authority of New South Wales.79
‘Context’ was described by Lord Wilberforce as the ‘factual matrix’.
The rule is of general application. Every expression of intention — whatever
its form or situation — must be considered in context. In relation to contractual
documents, the rule has been described as ‘fundamental’.80 The rule relates to
factual or external context, including the general legal background proved as a
matter of fact. This is one of two aspects of context. The other aspect is internal
context, which comprises the contract as a whole.
Whole Contract Rule
[4-20] The rule.
Article 4.6 — Contract construed as a whole.
(1) A contract must be construed as a whole, taking into account all terms
of the contract, including any implied term.
(2) Where two or more documents are intended to comprise a single
transaction, the transaction must be construed as a whole.
Even where a single word, phrase or clause of a contract is at issue, meaning
must be determined by reference to the contract as a whole. The authorities in
which this basic rule of construction has been stated are legion in both England81
and Australia.82 Since the whole contract must be considered, in any given case
account may need to be taken of all terms, whether express or implied (including
incorporated terms). If the contract is partly in writing (or evidenced by writing),
both written and verbal utterances must be taken into account.
The rule relates to contracts, not documents.83 And if various contracts are
intended to comprise a single transaction, the transaction must be construed as a
whole.84
[4-21] Rationale. A contract is, as a matter of law, a single utterance of
intention. As such, it must be construed as a whole. It is the contract, not
particular words, phrases or clauses, which is at issue. The meaning of any word,
phrase or clause is its meaning in reference to the contract as a whole. Thus, in
Investors Compensation Scheme Ltd v West Bromwich Building Society,85 Lord
Hoffmann drew a contrast between the ‘meaning which a document (or any
other utterance) would convey to a reasonable man’ and the ‘meaning of its
words’.
Although Lord Hoffmann characterised86 the latter as being ‘a matter of
dictionaries and grammars’, that does not mean that anyone construing a contract
should ignore dictionaries and rules of grammar. It is just that dictionaries
provide lists of available meanings and usages, and rules of ‘grammar’ (in the
sense which Lord Hoffmann used the word) state conventions as to the way
words are employed in a linguistic sense.87
Perspective Rule
[4-22] The rule.
Article 4.7 — Perspective rule.
The perspective for objectivity in construction is a reasonable person in
the position of the person to whom the words at issue were addressed.
Since an objective approach is generally taken in construction, the perspective
for construction is a reasonable person. The ‘perspective rule’ is that the
reasonable person is assumed to stand in the position of the person to whom the
words at issue were addressed.88 Since most contracts are addressed to the
parties, it is saying the same thing to express the rule in terms of a reasonable
person in the position of the parties.89 Allowing for that variety in expression, the
recent English cases proceed on this general basis.90 So also do the Australian
authorities.91 The perspective rule is applicable to all issues of construction.
The fact that a contract is construed objectively does not mean there is a
single standard for the construction of all contracts. In its application to issues of
linguistic meaning, the perspective rule assumes that the reasonable person has a
range of usages to choose from. Generally, the relevant usages are those of the
community at large. However, in some cases, a narrower standard of
interpretation may apply.92 For example, a trade meaning may have been used.
And where the scope of application of the contract is at issue, there may be more
than one standard to choose from. Therefore, although in most cases the
reasonable person is assumed to apply the contract commercially, in some cases
a strict standard of application may apply.93
Exclusionary Rule
[4-23] The rule.
Article 4.8 — Exclusionary rule.
Under the ‘exclusionary rule’, extrinsic evidence is not admissible: (a) in
relation to a document which integrates the terms of contract, to prove
agreement prior to adoption of the document to a term not stated in the
document (‘the parol evidence rule’); or (b) in relation to a document
which states or evidences a term of a contract, as a direct aid to
construction of the document.
The objective approach to construction, and the focus of construction on
expressed intention, are policed by a substantive rule which determines the
‘admissibility’ of evidence. In this work, the rule is described as the
‘exclusionary rule’. The evidence to which the rule relates is ‘extrinsic
evidence’.94
Traditionally, the rule has been termed the ‘parol evidence rule’. That
expression is used in this work to describe the first aspect of the exclusionary
rule stated above, under which evidence of terms other than those in a document
which integrates the contract is extrinsic evidence.95 Since it is necessary to
establish the parties’ bargain prior to applying the rule, the parol evidence rule is
restricted to documents which integrate contracts.96 The second aspect of the
exclusionary rule prohibits the use of extrinsic evidence as a direct aid to
construction of a document which states or evidences a term of a contract.97
In relation to each aspect of the exclusionary rule, there are three categories
of evidence which are regarded as ‘extrinsic’ when sought to be used for the
purposes proscribed, namely:98
(1) direct evidence of intention; (2) evidence of the parties’ negotiations; and
(3) evidence of the parties’ subsequent conduct.
APPLICATION OF THE GENERAL RULES
Law and Equity
General
[4-24] No conflict between common law and equity. It is an anachronism to
speak today of ‘common law’ and ‘equity’ as if they were separate systems of
law. In a fused system, there is no room for a distinction between construction at
common law and construction in equity.99 When law and equity were fused by
the Judicature reforms, conflicts between law and equity were resolved in favour
of equity. However, at the level of the general rules considered in this chapter,
there was no conflict to be resolved as part of the reforms.
Any suggestion that, prior to fusion, courts of common law and equity
applied different construction rules, is simply wrong in terms of general
principle. In Scott v Liverpool Corporation100 Lord Chelmsford LC said:101
‘There is no equitable construction of an agreement distinct from its legal
construction’. Similarly, Isaacs J said in Bacchus Marsh Concentrated Milk Co
Ltd v Joseph Nathan & Co Ltd102 that ‘equity construes contracts just as law
does’. Indeed, where a construction question arose in equity the court was
concerned to determine the meaning at common law, if necessary by requiring
the parties to go to common law.103 No general distinction was drawn between
construction to resolve issues of meaning and issues of legal effect.104 As a
process, construction was the same at common law and in equity.105
[4-25] No ‘equitable construction’. It follows that the law knows no general
concept of ‘equitable construction’.106 However, particular contexts may
illustrate specific differences in construction between common law and equity.
The fact that there was perceived to be a conflict between law and equity in
relation to the treatment of time stipulations107 superficially suggests that, in
specific contexts, construction of a contract may have differed as between law
and equity. If that is correct, there may be other instances of conflict. For
example, suggestions have sometimes been made in favour of an ‘equitable’ rule
applicable to deeds of release, under which general words of release are applied
by reference to the matters at issue between the parties to the deed, determined
by reference to recitals in the deed and the ‘actual intention of the releasor’.108
On every occasion on which the matter has been debated — including at the
level of specific issues — since the fusion of law and equity, it has been
concluded that no concept of ‘equitable’ construction exists. Therefore, the
construction of a contract is the same whatever the nature of the relief sought.109
In relation to deeds of release, in Bank of Credit and Commerce International SA
v Ali110 the House of Lords did not regard the approach to general words of
release in the modern law as derived from any special tenderness of equity. Nor
did it regard the approach as permitting recourse to direct evidence of
intention.111 Instead, the whole approach is simply one of commercial
construction.112
At a more specific level, particularly in the construction of deeds, decisions
on the Chancery side were considerably more legalistic than those at common
law. The canons of construction were indeed the darlings of equity, both before
and after the fusion of law and equity.113 Illustrations could certainly be given in
the context of conveyances and other deeds which, in the hands of the equity
judges, proved to be quite inadequate to the task of achieving anything
approaching common sense.
Time stipulations
[4-26] Introduction. As part of the Judicature reforms, the equitable treatment
of time stipulations was made dominant over the common law treatment. Section
25(7) of the Judicature Act 1873 (UK)114 therefore stated: Stipulations in
contracts, as to time or otherwise, which would not before the passing of this Act
have been deemed to be or to have become of the essence of such contracts in a
Court of Equity, shall receive in all Courts the same construction and effect as
they would have heretofore received in equity.
The current formulation is found in s 41 of the Law of Property Act 1925
(UK): Stipulations in a contract, as to time or otherwise, which according to
rules of equity are not deemed to be or to have become of the essence of the
contract, are also construed and have effect at law in accordance with the same
rules.
All Australian jurisdictions have adopted one or other of these formulations.115
The substance of each formulation is the same, and both refer to
‘construction’. However, the wording of s 25(7) of the Judicature Act 1873 (UK)
is, perhaps, a little more suggestive of a difference in construction than the
wording in s 41 of the Law of Property Act 1925 (UK). In terms of authority, the
well-known statements by Lord Romilly MR in Parkin v Thorold116 and by Lord
Cairns LJ in Tilley v Thomas,117 prior to the Judicature reforms, are sufficient to
reject any suggestion that the purpose of s 25(7) was to resolve a construction
conflict. The change of wording in s 41 makes no difference.118 Nevertheless, the
provision has engendered some confusion.
There is a suggestion of inconsistency in the reference in s 25(7) of the
Judicature Act 1873 (UK) to the ‘same construction and effect as they would
have heretofore received in equity’. This can be resolved by focusing on the
words ‘and effect’, that is, by recognising that a court of equity would not
always treat breach of a time stipulation as having the same effect as at common
law. Similarly, in relation to s 41 of the Law of Property Act 1925 (UK), any
inconsistency suggested by the words ‘construed and have effect at law in
accordance with the same rules’ can be resolved by focusing on the words ‘and
have effect’ as referring to the enforcement of a contract following breach of a
time stipulation.
[4-27] Different enforcement rules. Prior to the enactment of s 25(7) of the
Judicature Act 1873 (UK), a common law court would not usually enforce a
contract in favour of a party in breach of a time stipulation, timely performance
being ‘of the essence’.119 At common law, failure to perform on time was the
failure of a condition precedent to the promisee’s obligation to perform.
Nevertheless, relief by way of specific performance or injunction might be
granted in equity, in an appropriate case, to a promisor in breach. Simply
expressed, there were situations in which a court of equity would not refuse its
aid solely on the basis of a breach of a time stipulation by the plaintiff.
Therefore, from the perspective of the availability of equitable relief,
performance on time was ‘not of the essence’.120 But such relief would not be
granted in all cases. Thus, even apart from the considerations governing the
remedy, relief could be refused. For example, specific performance would not be
ordered, except by way of relief against forfeiture, in the face of an express
agreement that time was of the essence, or following the promisor’s failure to
comply with a notice allowing a reasonable time for performance following
breach. Moreover, there was no denial of the fact that the plaintiff had breached
the contract and was liable in damages accordingly.121 Accordingly, relief was
granted in equity on terms, including the payment of compensation.
It follows that any conflict between law and equity related not to the
construction of a time stipulation but to the effect of the common law
construction on rights and remedies. As Mason J said in Louinder v Leis,122
‘equity and common law differed not so much in the construction of the contract
as in the consequences which they assigned to a breach of it’.
[4-28] Two views. In the modern cases, two views have been debated.123 One
view is that the rule in s 41 of the Law of Property Act 1925 (UK) is directed to
cases where, prior to its enactment, equity would have intervened. Since it
cannot seriously be maintained that the rights of contracting parties should today
depend on the rights which similarly placed persons would have enjoyed in
1873, the proper formulation of this view is that the statutory rule applies in all
cases where, according to modern principles, equitable relief is available.124 But
there is a second view, namely, that the statutory rule is relevant to any case in
which the question whether time is ‘of the essence’ is raised. Under that view, s
41 applies whether or not equitable relief is sought or might have been sought by
the promisor.125 This is suggestive of an ‘equitable’ construction of time
stipulations, expressed as a presumption in construction that time of performance
is not of the essence.
The former view is correct. The view that s 41 of the Law of Property Act
1925 (UK) requires application of a concept of ‘equitable’ construction was in
effect rejected by the House of Lords in Bunge Corp New York v Tradax Export
SA Panama.126 Accordingly, the construction of many commercial contracts,
particularly contracts for the sale of goods, is not affected by the statutory rule.127
There is in that context no presumption that time of performance is not of the
essence.128
[4-29] Termination of the contract. What has also troubled modern contract
lawyers is the relationship between s 41 of the Law of Property Act 1925 (UK)
and the right to terminate the performance of a contract for failure to perform on
time.129
The problem with the second view explained above is that it treats s 41 as
concerned with the existence of a right to terminate a contract for breach. That
involves not only a conclusion that the fusion of law and equity was substantive
rather than procedural (which may be debated),130 but also a conclusion that the
object of s 25(7) of the Judicature Act 1873 (UK) was to change the whole focus
of analysis, from remedies to construction. In other words, the second view
changes the focus from consideration of the remedies available to the promisor
to a question of construction, namely, whether the promisee enjoys a right of
termination.
The original common law rule was not that the promisee could terminate for
failure to perform on time. The question was whether the promisor, as the party
in breach, could enforce the contract. The law was analysed131 in terms of
dependent and independent promises.132 At common law, failure to perform on
time was a good defence to any claim by the promisor (in debt or for damages)
to enforce the contract. The promisee’s common law defence was failure of a
condition precedent, not an effective termination of the contract. It was that
‘effect’ — relating to the remedies available to the promisor at common law —
which s 25(7) was designed to ameliorate. But the common law evolves.
Under the modern law, there is a difference in perspective, namely, the
general theory of discharge for breach. The question today is whether the
promisee is entitled to terminate the performance of the contract for the
promisor’s breach. Subject to precedent,133 it is presumed that the parties do not
intend any failure to comply with a promissory time stipulation — no matter
how minor — to give rise to a right to terminate for breach. In this way the
process by which time stipulations are construed as being essential or non-
essential is no different from the process applied to promissory terms in general,
where the question arises whether a particular term is a condition, a warranty or
an intermediate term.134 However, this has nothing to do with an idea of
‘equitable’ construction. That the result is similar to cases where the promisor
seeks to enforce the contract by way of specific performance does not derive
from application of s 41 of the Law of Property Act 1925 (UK).
Evidence of intention
[4-30] No ‘equitable’ approach to evidence. Prior to the fusion of law and
equity the substantive rules regulating the use (and therefore the ‘admissibility’)
of evidence in the construction of contracts appear to have been the same at law
and in equity.135 Accordingly, there was no conflict to be resolved as part of the
Judicature reforms. That is not to say that equity applied construction rules such
as the parol evidence rule to resolve issues such as whether specific performance
should be denied on a discretionary basis. Such matters stood then as they stand
today, outside the scope of the exclusionary rule.
Nevertheless, it is possible that in specific contexts the approach to evidence
may have differed between equity and the common law. It is, however, doubtful
whether any of these contexts survive today. For example, in Bank of Credit and
Commerce International SA v Ali136 the House of Lords considered an argument
that, when determining the scope of a release in a written agreement by way of
settlement, it is permissible to take account of direct evidence of the actual
intention of the parties. Such evidence would, of course, normally be excluded
from consideration as extrinsic evidence.137 This argument was in part based on a
statement by Dixon CJ, Fullagar, Kitto and Taylor JJ in Grant v John Grant &
Sons Pty Ltd:138
From the authorities which have already been cited it will be seen that
equity proceeded upon the principle that a releasee must not use the
general words of a release as a means of escaping the fulfilment of
obligations falling outside the true purpose of the transaction as
ascertained from the nature of the instrument and the surrounding
circumstances including the state of knowledge of the respective parties
concerning the existence, character and extent of the liability in question
and the actual intention of the releasor.
Whether Dixon CJ, Fullagar, Kitto and Taylor JJ considered direct evidence
of ‘actual intention’ to be admissible for the purpose of construction is not
entirely clear. Taken as a whole, the statement is directed to the objective of
construing a release by reference to what rights were known and at issue, on the
basis that it would be against conscience for the release to be applied more
broadly. Nevertheless, the House of Lords was adamant that there is no room in
the fused system of law and equity for an approach to the admissibility of
evidence which varies according to whether, historically, the construction issue
arose at common law or in equity. Thus, the scope of a release expressed by a
simple contract or by deed depends on the application of principles of
commercial construction.
Form of Contract
[4-31] Form of contract generally irrelevant. Contracts vary considerably in
form. The basic distinction is between simple contracts and deeds. Simple
contracts may be express or implied, in writing, evidenced by writing or verbal.
Any writing may state or evidence all or only part of the contract.
From the perspective of general rules of construction, contracts expressed in
deeds attract the same rules as those which apply to simple contracts. For
example, the rule that the contract must be construed as a whole applies to deeds
and to simple contracts, and to simple contracts evidenced by writing in the same
way that it applies to written contracts.139
Any distinctions drawn in the past between simple contracts and contracts
under seal no longer apply. For example, in Prenn v Simmonds140 Lord
Wilberforce said141 that the ‘time has long passed when agreements, even those
under seal, were isolated from the matrix of facts in which they were set and
interpreted purely on internal linguistic considerations’.
[4-32] Verbal contracts. The presence of a document is extremely important to
the construction process. In particular, the exclusionary rule plays a significant
role in limiting the raw material which may be used to construe a document. The
position is somewhat different where there is no document to construe.142 There
is also the rule that the construction of a document in always an issue of law.143
The meaning of an oral contract or communication, not evidenced by writing, is
a question of fact.144
There are obvious conceptual difficulties in applying to verbal contracts rules
developed, chiefly, in relation to the construction of documents. When the
contract is purely verbal, the bargain itself is ‘constructed’. Clues to meaning are
somewhat different. Nevertheless, once the terms of the bargain have been
established, context is a crucial consideration145 and the perspective rule applies
and the bargain must be ‘construed’ as a whole. Even in relation to a purely
verbal contract, conclusions about rights and remedies and the application of
contract doctrine are conclusions of law. Therefore, most of the general rules
summarised in this chapter apply, even if that is sometimes only on an analogous
basis.146
Type of Contract or Term
[4-33] Type of contract generally irrelevant. Subject to statute, for the
purposes of construction, the general rules of construction apply to all types of
contract. For example, in Bruton v London & Quadrant Housing Trust147 Lord
Hobhouse said that the rule requiring context to be taken into account ‘applies as
much to contracts relating to property as to any other contract’. And
notwithstanding the mysteries which surround some aspects of contracts of
insurance and reinsurance, they are governed by the same general rules of
construction as apply to all contracts.148 Refinements are sometimes necessary.
For example, although the whole contract rule applies to bills of lading,149 that
does not necessarily mean that the front includes the back.150 And it is impossible
to ignore the fact that some contracts are affected by particular rules, based on
authority, which directly inform the application of general principles.151
Refinements in the application of construction rules require some justification,
such as that the scope of context is affected by the distinction between a third
party standard form contract and a negotiated bargain.152
One perspective on cases such as Bank of Credit and Commerce International
SA v Ali153 is simply the view that releases are like any other contract, that is, the
general concern to promote a law of contract rather than a law of contracts. The
approach taken to construction is therefore an application of the general
principle stated by Roskill LJ in Cehave NV v Bremer Handelsgesellschaft mbH
(The Hansa Nord):154 ‘It is desirable that the same legal principles should apply
to the law of contract as a whole and that different legal principles should not
apply to different branches of that law.’
[4-34] Type of term generally irrelevant. Subject to statute, under the modern
law of contract, construction is a legal concept the general rules of which ought
not to be greatly affected by the type of term in relation to which an issue of
intention has arisen. That is necessarily the position where linguistic meaning is
at issue.
However, in relation to issues of legal effect, including the application of
contract doctrine, the type of term at issue may be important — even crucial.155
Specific types of term may attract special rules which are applied by
construction. For example, some contractual provisions such as conditions
precedent are applied more literally than contracts in general,156 and ‘special
rules’ have often been applied to exclusion clauses.157 But that does not deny the
applicability of general construction rules.
[4-35] Standard forms. Standard form contracts are of various kinds. But they
are all quite different from a ‘home-made’ or ‘one-off’ individually negotiated
written contract. Although standard form contracts are subject to the general
rules discussed above, there is some room for differentiation in their application
to standard form contracts. These differences can be significant.158
Differences in the application of general construction rules to standard form
contracts must reflect the nature and purpose of the document. Five differences
stand out.159 First, the ‘surrounding circumstances’ which need to be taken into
account when construing a standard form contract are likely to be much more
general than where the contract has been individually negotiated.160
Second, because such documents are frequently addressed to a wider
audience than the immediate parties, the fact that a standard form contract is at
issue is relevant to the application of the perspective rule.161
Third, because (by definition) such contracts are not negotiated contracts, the
exclusionary rule does not have the same sting. For example, the prohibition on
the use of prior negotiations as a direct aid to construction has much less
significance than when applied to a negotiated contract.
Fourth, concerns for certainty and predictability in construction are most
frequently expressed in the context of standard form contracts. This makes more
significant the rule that construction of a document is a question of law.162
Fifth, even where linguistic meaning is at issue, it follows that precedent has a
greater role in relation to a standard form contract. There is greater potential for
the words at issue to have been the subject of legal decision.163
Other Utterances of Intention
[4-36] Contracts and instruments. Not all contracts conform to the
paradigmatic bilateral contract with executory obligations on both sides.
Contracts such as bills of exchange, articles of association, the constitutions of
incorporated entities, collective bargaining agreements and so on are all, for a
variety of reasons, of a different nature. Nevertheless, as noted above, subject to
statute, the general rules of construction apply to all such contracts.164
The rule that the construction of a document is a question of law applies to
any expression of intention in writing or evidenced by writing. Therefore, as an
obvious illustration of a broader rule about transactions, the rule requiring
construction of a contract as a whole applies to other utterances, including
unilateral utterances such as trust deeds, assignments and deeds of gift. In
construing such instruments to determine and give effect to the intention of the
issuer of the instrument, courts seek to apply the general rules which are applied
to contracts.165
The principal rationale for this approach is not that unilateral instruments are
contracts or analogous to contracts, or that they share a common feature of being
expressed in or evidenced by writing. Rather, it is that they are all expressions of
intention to which the objective theory of construction applies. Lord Steyn
recognised the generality of construction rules in Society of Lloyd’s v Robinson166
when he said that ‘loyalty to the text of a commercial contract, instrument or
document read in its contextual setting is the paramount principle of
interpretation’.
[4-37] Construction of communications. Given that the general rules of
contract construction are usually applicable to a unilateral instrument such as a
deed poll, it is logical to expect that those rules will also generally apply to
unilateral utterances of intention made in connection with contracts, or proposed
contracts. For example, since the rule that the construction of a document is a
question of law applies to any written expression of intention, it applies to an
offer or an acceptance, or the exercise of a right under a contract, which is in
writing or evidenced by writing.167
Where a purely verbal utterance is at issue, the position is somewhat different.
In particular, the meaning of an oral communication is a question of fact, for
example, where it is alleged to show an election between rights.168 However,
because oral communications are interpreted objectively, the perspective rule
applies, and other rules are applicable in an analogous way. Since the unifying
idea is that any utterance of intention must be construed as a whole in light of
context, there is no difficulty in saying that the same rule applies to all
expressions of intention.169
[4-38] Analogous rules. The scope of application of the general rules of contract
construction depends, principally, on the scope of objectivity as a concept.
Ultimately, the basis for the analysis above is simply the fact that objectivity has
a broad application. Any instrument or communication in the construction of
which the law applies an objective approach will be subject to the same general
rules. Whether that shows that the contract rules influence the construction of
communications and instruments which have nothing to do with contracts, or
shows that the contract rules are merely specific manifestations of general
principles applicable to all expressions of intention which are interpreted
objectively, is simply an interesting question.
From the perspective of contract law, the concern is for instruments and
communications which are considered in connection with contracts (or proposed
or alleged contracts) to be construed in conformity with the general rules. For
that purpose, some general construction rules need to be modified, or can only
be applied by analogy. For example, the time for construction of a contract is
when it is entered into. However, many unilateral utterances of intention are not
‘entered into’. The relevant time is when the utterance is regarded as ‘made’ as a
matter of law. Similar comments may be made in reference to other rules, such
as the exclusionary rule.
SPECIFIC RULES CONCERNING DOCUMENTS
General
[4-39] Introduction. In the days when the forms of action ruled, documents
were construed by the application of formal rules. Although those rules
originated in deeds, they were long ago adopted as canons of construction
applicable to all instruments. The canons survive today. Indeed, they are
frequently still rendered, as ‘maxims’, in their original Latin formulations.170
Those formulations are typically abbreviated, on the basis of a once familiar
usage, to economical expressions such as expressio unius. But they are at best
‘secondary [aids] to construction’.171
It is easy to understand the fascination with formal rules in the early years of
the modern law of contract. First, there was no coherent body of law capable of
being expounded as a ‘law of contract’. Although ‘construction’ was a crucial
concept, it was a formalistic process.
Second, the construction of a document was the province of the judge rather
than the jury, and there was no need to state the rules used to construe documents
in common English.
Third, generally, what was regarded as appropriate for deeds was also
regarded as appropriate for simple contracts expressed in writing.
Fourth, courts had a genuine belief in the idea that words have fixed and
immutable meanings. It was logical for contracts to be construed and applied
literally, either according to a ‘plain’ meaning or a technical legal meaning.
Fifth, the exclusionary rule was thought to limit the use in construction of
(external) context.172 The idea that contracts had to be construed within their
‘four corners’ was more or less literally correct.
It was not until late in the 18th century that judges such as Lord Mansfield,
Lord Kenyon and Lord Ellenborough began to inject a commercial approach into
the construction of contractual documents.173 The historical perspective had by
then become irrelevant. But the damage, it might be said, had already been done.
Accordingly, the formalistic approach exerted a heavy influence in the cases on
the construction of standard form contracts of insurance, charterparty and sale of
goods which dominated the English cases on commercial contracts in the late
19th and early 20th centuries.174 Today, criticism of formalistic (and formulistic)
approaches to construction problems is not confined to the canons of
construction. Therefore, although Lord Hoffmann’s statement in Investors
Compensation Scheme Ltd v West Bromwich Building Society175 that ‘[a]lmost all
the old intellectual baggage of “legal” interpretation has been discarded’ must
include the canons of construction, that is merely one element of a general
mistrust for abstract and technical rules.176
[4-40] Jurisprudence. Rules such the contra proferentem rule and the expressio
unius rule sound clear and certain. Yet, nearly all the canons, both in their full
Latin expressions and in their translated or abbreviated format, gave rise to
debate. They took on a life of their own and developed their own jurisprudence.
The ejusdem generis rule at one time achieved a certain notoriety in that
respect.177 On occasion, more than one canon would be applied.178 It is hard to
imagine anything less inspiring than debating how the ejusdem generis rule or
the contra proferentem rule should be formulated and applied, and where they
differ.179 But for a long time that was the sort of thing which passed for theory in
contract construction. The canons were applied because it was thought that
applying formal rules to documents achieved certainty in construction. This
provoked an unhealthy respect for ‘signals’ that, if displayed, would prevent
their operation.180 Even today, the contra proferentem rule, at least, is a source of
debate.181 The reason is obvious. It is easy to say that a contract should be
construed against the interests of a particular person, but without knowing the
objective of the rule, it is impossible to know when it should be applied.
Detailed discussion of the canons of construction as rules of construction is
no longer appropriate.182 Because of the focus on the construction of documents
— rather than contracts — attempting to accommodate all the old canons of
construction within the framework of commercial construction would be
misconceived. And the law does not need to contemplate the creation of new
canons for the construction of documents.183
[4-41] Utility. The expression of rules potentially applicable to any contract in a
foreign tongue is out of place today.184 For construction rules to be meaningful to
commercial people they must, at least, be expressed in English. Moreover,
particularly in relation to contracts, the utility of any construction rule —
whether or not expressed as a canon of construction — can be questioned if it
merely states how a document should be construed.
Application to contracts of mechanical rules developed to construe documents
does not provide a reliable basis for decisions. That is because they rely solely
on internal context. From that perspective, the canons of construction might be
said to have a role in the construction of a standard form document.185 However,
because the rules assume the existence of a coherent and reasonably well drafted
instrument,186 it is some time since rules such as the ejusdem generis and
expressio unius rules were regularly applied to standard forms used for
commercial contracts. Indeed, the use of canons of construction in the
commercial context has always been somewhat selective.187 But the contra
proferentem rule continues to have an impact, particularly in the construction of
exclusion clauses and analogous provisions.188
[4-42] Underlying ideas. It would, of course, be easy to throw out the baby with
the bathwater. The mere fact that a construction rule is traditionally expressed in
a Latin formulation does not mean that it is not a viable rule. Some rules are
more formalistic than others. No doubt some of the general rules discussed in
this chapter have Latin formulations.189 But they are rules for the construction of
contracts, not canons applied to construe documents.
Detailed discussion of the canons of construction as rules of construction is
not appropriate. However, to the extent that they express ‘rules of thumb’ for the
construction of contracts, some continue to operate as construction preferences.
Although they do not need to be expressed in Latin,190 they remain viable and are
considered later.191 The underlying ideas of the rules identified below are less
useful, or too specific. But the discussion does not identify all the formal rules.192
Giving Effect to the Whole Contract
[4-43] The rule. The rule that a contract must be construed as a whole has often
been stated from the perspective that effect must be given to the whole
contract.193 But it seems a distinct rule that, even where particular words of a
document are at issue in a construction dispute, the construction should be one
under which effect is given to all aspects of the contract relevant to the issue.194
There is, in principle, much to be said for the view that it should be presumed
that the parties intend all provisions of a contract to have some (actual or
potential) operation and application.
However, in so far as the rule embodies a presumption against surplusage it
has never played a major role in the construction of commercial contracts. As
Staughton LJ said in Total Transport Corp v Arcadia Petroleum Ltd (The
Eurus),195 it is ‘well-established law that the presumption against surplusage is of
little value in the interpretation of commercial contracts’. There are also similar
statements in the specific contexts of contracts of insurance,196 building
contracts197 and charterparties,198 where standard form contracts are the norm.
Notwithstanding the general injunction that effect must be given to the whole
contract, courts are today more easily convinced that certain words may be
excluded from consideration than in the past.199
Construction Against Proferens
[4-44] Introduction. Of all the rules developed for the construction of
documents which continue to be stated in their Latin abbreviations, there is no
doubt that the most enduring has been the rule that a contractual provision may
be construed contra proferentem.200 Once the rule is found to apply, the
document is construed against the interests of one party to the contract, and
therefore in favour of the other.201
Although most familiar in the context of exclusion clauses, the rule is more
general than that.202 To the extent that the rule operates to penalise the drafter of
a document for lack of clarity,203 the rule has an obvious underlying policy
objective, particularly in the consumer context.204 That a drafter should not
benefit from shoddy drafting sounds reasonable enough. But the days are gone
when consumer protection needed to be meted out by way of construction
rules.205 If the rule has any function today it is to preserve contract validity in
cases of genuine ambiguity, in circumstances where there is no other basis for
doing so.206
[4-45] The rules. As can be inferred from the above, the contra proferentem rule
is in fact several rules.207 There are a great many versions or nuances:
resolution against the drafter of the clause or document;208
resolution against the person who proposed the clause for inclusion in the
document;209
resolution against the party for whose benefit the relevant provision
operates;210
resolution against the party who prepared the clause and seeks to rely on
it;211
resolution against the ‘party employing’212 the words; resolution against
a ‘covenantor’;213
in a grant of rights, resolution against the grantor;214 and in a
qualification on (or restriction of) a grant of rights, resolution against the
grantor.215
Commonly, each formulation is prefaced by reference to ‘ambiguity’.216 The
main version of the rule appears to be that if a clause is ambiguous, the
‘ambiguity’ should be resolved against the drafter of the clause.217 But that has
not invariably been the case.218
The fact that there are conflicting versions of the rule denies its utility, except
as a mere device. So also does the fact that the different versions may conflict in
their application to a given set of facts, as where the rights of the person who
drafted a contract are qualified by the contract.
[4-46] Need for ‘ambiguity’. It is often said, particularly in the modern cases,
that without the presence of ambiguity the contra proferentem rule is not
applicable.219 However, just what is meant by ‘ambiguity’ — as an excuse for
applying the rule — is far from clear.220 Therefore, in addition to the various
versions of the rule noted above, there are various formulations of the basis on
which the rule becomes applicable. For example, the rule has been said to apply,
not only in cases of genuine ambiguity,221 but also: where an ‘ambiguity’
which is ‘not fanciful’ arises;222
where a ‘difficulty’ in construction arises;223 and where there is a ‘doubt’
in construction.224
The impact is that there are both ‘weak’ and ‘strong’ versions of the contra
proferentem rule, according to whether the ‘ambiguity’ on the basis of which
application of the rule is justified is ‘genuine’ ambiguity or merely a construction
‘difficulty’. It follows that in many cases where the rule has been applied the
requirement of ‘ambiguity’ has been treated as satisfied simply because two or
more meanings or applications of a clause are open on the facts.225 This appears
to be the approach of the Contracts Restatement 2d (1979), in which the rule is
expressed as a construction ‘preference’. Section 206 states that in choosing
between ‘reasonable meanings … that meaning is generally preferred which
operates against the party who supplies the words or from whom a writing
otherwise proceeds’.
[4-47] Conclusion. The longevity of the contra proferentem rule can probably
be attributed to its frequent application to exclusion clauses.226 In that context,
and at one time in contracts of insurance,227 the rule has been applied not to
resolve ambiguity in meaning but, instead, to procure a strict construction of the
contract.228 However, in the absence of a proper policy foundation for the rule,229
or evidence that it achieves a commercial result, there is little to be said in favour
of the rule.230 Even in the application of exclusion clauses, indemnities and force
majeure clauses, construction contra proferentem should not occur simply on the
basis that the clause benefits the drafter, or the person who puts it forward to
establish a right or a defence.
It would today seem preferable to treat the contra proferentem rule as relevant
only for the purpose of preventing the clause in question being held to be void
for uncertainty. There are cases which treat the contra proferentem rule as one of
‘last resort’,231 to be applied ‘where other rules of construction fail’,232 or only in
where there is a ‘significant lack of clarity or ambiguity’.233 Most of these cases
are in the context of insurance contracts;234 but they seem to illustrate a general
concern for a robust approach. Even if genuine ambiguity is not always
expressed to be the justification for application of the rule, something more than
a ‘doubt’ ought generally to be present.
So far as the exclusion clause cases are concerned, the best that can be said is
that, although often couched in terms of the contra proferentem rule, the current
approach emphasises the need for doubt or ambiguity as the justification for
construing the contract against the interests of the party for whose benefit the
clause operates.235
Other Common Law Rules
[4-48] Exclusion by inclusion. An ancient specific rule for the construction of
documents is to treat an express reference to one person or thing as by
implication excluding any other person or thing to which the document might
otherwise apply.236 This is termed the expressio unius rule.237
In Colquhoun v Brooks,238 Wills J said239 that ‘[p]erhaps few so-called rules of
interpretation have been more frequently misapplied and stretched beyond their
due limits’. More recently, and perhaps unnecessarily restricted, Lord Hoffmann
said in Beaufort Developments (NI) Ltd v Gilbert-Ash NI Ltd,240 that exclusio
alterius arguments are ‘dangerous’ in the context of standard form building
contracts.
[4-49] List controlled by genus. Where there is a list of specific matters, which
appear to form a class or category, it may be legitimate to infer that they do form
a class or category. Each item in the list must be interpreted in such a manner
that the construction conforms to the class or category, that is, as being of the
same kind or nature. This is termed the ‘ejusdem generis rule’,241 which least has
the virtue of brevity and the distinction of not being subject to abbreviation. It is
rarely used today in the construction of commercial contracts.242
However, the expression seems to be used in other senses as well,243 and
sometimes seems simply a variation on the contra proferentem rule.244 In
Chandris v Isbrandtsen-Moller Co Inc,245 Devlin J considered it no different in
principle from the main object rule applied in cases such as Glynn v Margetson
& Co.246 As he also pointed out,247 since the rule assumes an absence of
surplusage, it ought to be regarded as inapplicable to commercial documents.
[4-50] False description. Under the falsa demonstratio rule,248 where a
description has two or more ingredients, false parts of the description are
rejected in favour of the ‘true’ part.249 Alternatively, the whole description may
be false. In Miramar Maritime Corp v Holborn Trading Ltd,250 Lord Diplock
stated251 as a ‘classic’ case ‘one in which the intended corpus which is
“Blackacre” is, by an obvious mistake described as “Whiteacre”’.
Although the rule might be used to formalise a construction conclusion, its
use outside the conveyancing context is not common. In any event, formalisation
of a construction conclusion by reference to a ‘rule’ is simply not necessary.
[4-51] Distributive interpretation. As explained by Lord Millett in AIB Group
(UK) Ltd v Martin,252 one situation in which a distributive interpretation is
presumed is where a ‘plural subject is followed by a plural predicate and the
plurals are broken down into their component singulars’. The effect, he
explained,253 is that when ‘plurals are broken down, each singular component
must be attributed to its respective singular and not to every other possible
singular’.254
For example, the distributive interpretation of a promise by the directors of a
company to pay ‘their debts’ to the company is an agreement by each director to
pay his or her debts, not a promise by each director to pay their own and each
other director’s debts. In AIB Group (UK) Ltd v Martin the distributive
interpretation rule was displaced in the application of an interpretation clause
which expanded the definition of ‘mortgagor’. Displacement seems a common
conclusion in other manifestations of the rule.255 The ‘neatness’ in drafting which
the rule assumes is not likely to be employed in the drafting of documents in the
commercial context.
[4-52] Handwritten words. There is long-standing authority256 for the
proposition that where there is inconsistency, particularly in a standard form
document, between the printed terms and handwritten or typed words, it will be
presumed that handwritten or typed words were intended to prevail over the
printed words.257
In the modern cases, although the rule is regarded as a viable one,258 its
application seems less automatic than in the past. Nevertheless, typewritten or
handwritten words, including ‘special conditions’, will carry greater weight in
the event of inconsistency with the printed form. For example, in Homburg
Houtimport BV v Agrosin Private Ltd (The Starsin)259 it was consistent with the
written words in certain bills of lading to treat them as charterer’s bills rather
than shipowner’s bills, even though some of the printed terms were to a contrary
effect. Lord Bingham said260 the rule that greater weight was to be attached to the
written words was a matter of ‘common sense’.
To the same effect, §203(d) of the Contracts Restatement 2d (1979) provides
that separately negotiated or added terms are given ‘greater weight than
standardised terms or other terms not separately negotiated’.
[4-53] Order of words. In some cases courts have been reduced to treating the
order in which words or clauses appear in a document as a basis for resolution of
construction disputes. Earlier words prevail over later words.261
One version of a doctrine of repugnancy was applied in this way, that is, on
the basis that a later clause could be regarded as repugnant to a former obligation
which it ‘destroys altogether’.262
The less said about such rules, the better.
1. [1998] 1 WLR 896 at 912–13. Lords Goff, Hope and Clyde agreed.
2. But cf Braes of Doune Wind Farm (Scotland) Ltd v Alfred McAlpine
Business Services Ltd [2008] 1 Lloyd’s Rep 608 at 614; [2008] EWHC
426 (TCC) at [26].
3. See, eg [2-06], [3-33]–[3-35].
4. See [3-35].
5. See Chapter 3. For the ‘rules’ applicable to exclusion clauses see Chapter
17.
6. See, eg [13-16]–[13-26] (‘legal interpretation’).
7. See Chapter 16.
8. See [4-31]–[4-32].
9. See also [4-31]–[4-38].
10. See [1-07].
11. See Chapter 2.
12. See Chapter 5.
13. See [1-04], [2-09].
14. See [1-03], [1-04].
15. See [2-09]–[2-12].
17. This generally includes a contract which is void or unenforceable. See [9-
07]–[9-08].
18. See, eg Shore v Wilson (1842) 9 Cl & F 355 at 542; 8 ER 450 at 524; Milne
v Municipal Council of Sydney (1912) 14 CLR 54 at 65; Total Gas
Marketing Ltd v Arco British Ltd [1998] 2 Lloyd’s Rep 209 at 221.
19. See [12-10], [14-29].
20. See generally on the role of precedent Chapter 13.
21. See, eg McConnel v Murphy (1873) LR 5 PC 203 at 219; Life Insurance Co
of Australia Ltd v Phillips (1925) 36 CLR 60 at 78, 79. See Lewison, §2.04.
22. See generally Chapters 13 (choice of meaning) and 16 (choice of
application). See also Chapter 17 (exclusion clauses).
23. See generally Chapter 16 (specific incidents of commercial construction).
See also Chapter 15 (use of specific standards of application).
25. It is in that sense that descriptions such as ‘true’ or ‘proper’ construction
must be understood. See [11-15].
26. See further Chapters 16 and 17.
27. Early cases include Hotham v The East India Co (1779) 1 Doug 272 at 277;
99 ER 178 at 181; Behn v Burness (1863) 3 B & S 751 at 756; 122 ER 281
at 283.
28. See, eg Stanton v Richardson (1875) 45 LJCP 78 at 82; Bowes v Shand
(1877) 2 App Cas 455 at 462, 486; Mackay v Dick (1881) 6 App Cas 251 at
264; Re Comptoir Commercial Anversois and Power Son and Co [1920] 1
KB 868 at 890, 893, 898; Pioneer Shipping Ltd v BTP Tioxide Ltd [1982]
AC 724 at 736; First Sport Ltd v Barclays Bank Plc [1993] 1 WLR 1229 at
1233; Sirius International Insurance Co (Publ) v FAI General Insurance
Ltd [2004] 1 WLR 3251 at 3253; [2004] UKHL 54 at [3]; Thorner v Major
[2009] 1 WLR 776 at 794, 800; [2009] UKHL 18 at [58], [82].
29. The same is true in Australia. See, eg Martin v Hogan (1917) 24 CLR 234
at 253; Life Insurance Co of Australia Ltd v Phillips (1925) 36 CLR 60 at
78; Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) 38 SR
(NSW) 632 at 642 (reversed on other grounds sub nom Luna Park (NSW)
Ltd v Tramways Advertising Pty Ltd (1938) 61 CLR 286); FAI Traders
Insurance Co Ltd v Savoy Plaza Pty Ltd [1993] 2 VR 343 at 351. See also
Yorkshire Insurance Co Ltd v Campbell [1917] AC 218 at 221.
31. See [2-21].
32. See Carmichael v National Power Plc [1999] 1 WLR 2042 at 2048–9.
33. Contrast R v Spens [1991] 1 WLR 624 at 632 per the Court of Appeal (in
criminal law context, construction of documents ‘in the general sense’ a
matter of fact for determination by the jury).
34. See [4-18].
35. See [4-15].
36. See Carmichael v National Power Plc [1999] 1 WLR 2042 at 2048–9. See
also Thorner v Major [2009] 1 WLR 776 at 794; [2009] UKHL 18 at [58]
per Lord Walker, with whom the other members of the House of Lords
agreed (‘pragmatic reasons’).
37. See Re Comptoir Commercial Anversois and Power Son and Co [1920] 1
KB 868 at 886, 898; Heimann v The Commonwealth (1938) 38 SR (NSW)
691 at 695; Derbyshire Building Co Pty Ltd v Becker (1962) 107 CLR 633
at 648; The Damodar General TJ Park [1986] 2 Lloyd’s Rep 68 at 70.
38. See, eg George D Emery Co v Wells [1906] AC 515 at 524 (adopted
Francis v Lyon (1907) 4 CLR 1023 at 1040). See further [4-17].
39. See Re Comptoir Commercial Anversois and Power Son and Co [1920] 1
KB 868 at 893, 898, 899; Scanlan’s New Neon Ltd v Tooheys Ltd (1943) 67
CLR 169 at 222–3; Tsakiroglou & Co Ltd v Noblee Thorl GmbH [1962] AC
93 at 116, 119, 124, 129, 134; National Carriers Ltd v Panalpina
(Northern) Ltd [1981] AC 675 at 688, 717; Pioneer Shipping Ltd v BTP
Tioxide Ltd [1982] AC 724 at 738. See also Consolidated Neon (Phillips
System) Pty Ltd v Tooheys Ltd (1942) 42 SR (NSW) 152 at 157; Universal
Cargo Carriers Corp v Citati [1957] 2 QB 401 at 435; F C Shepherd & Co
Ltd v Jerrom [1987] QB 301 at 316.
40. See also Chapter 13.
41. Pioneer Shipping Ltd v BTP Tioxide Ltd [1982] AC 724 at 736. See also
Lee v Showmen’s Guild of Great Britain [1952] 2 QB 329 at 345.
42. [1999] 1 WLR 2042 at 2049. Lords Goff and Jauncey agreed. See also
Thorner v Major [2009] 1 WLR 776 at 800; [2009] UKHL 18 at [82].
43. See further Chapter 18.
44. See, eg Postlethwaite v Freeland (1880) 5 App Cas 599 at 608, 621;
Cavallari v Premier Refrigeration Co Pty Ltd (1952) 85 CLR 20 at 26, 27;
Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537 at 567–8;
Rudi’s Enterprises Pty Ltd v Jay (1987) 10 NSWLR 568 at 575–6.
45. See Holland v Wiltshire (1954) 90 CLR 409 at 414.
46. See O’Brien v Dawson (1941) 41 SR (NSW) 295 at 304 (affirmed on other
grounds (1942) 66 CLR 18); Universal Cargo Carriers Corp v Citati
[1957] 2 QB 401 at 446–7.
47. See [4-14].
48. See Denny Mott & Dickson Ltd v James B Fraser & Co Ltd [1944] AC 265
at 276 per Lord Wright. See also Universal Cargo Carriers Corp v Citati
[1957] 2 QB 401 at 435; F C Shepherd & Co Ltd v Jerrom [1987] QB 301
at 316. See further [18-09].
49. See Davis Contractors Ltd v Fareham UDC [1956] AC 696 at 735;
Tsakiroglou & Co Ltd v Noblee Thorl GmbH [1962] AC 93 at 123; Codelfa
Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149
CLR 337 at 383. See also Covington Marine Corp v Xiamen Shipbuilding
Industry Co Ltd [2006] 1 Lloyd’s Rep 745 at 755–6; [2005] EWHC 2912
(Comm) at [39].
51. See Dolphin Hellas Shipping SA v Itemslot Ltd (The Aegean Dolphin)
[1992] 2 Lloyd’s Rep 178 at 184.
54. See also Friends’ Provident Life Office v Hillier Parker May & Rowden (A
Firm) [1997] QB 85 at 110 (whether a term should be implied in fact);
Covington Marine Corp v Xiamen Shipbuilding Industry Co Ltd [2006] 1
Lloyd’s Rep 745 at 756; [2005] EWHC 2912 (Comm) at [43] (whether
letters constituted binding agreement).
Diplock. The other members of the House of Lords agreed. But cf Atisa SA
v Aztec AG [1983] 2 Lloyd’s Rep 579 at 584.
57. [1962] AC 93.
58. [1962] AC 93 at 124. See also Bremer Handelsgesellschaft mbH v Toepfer
[1980] 2 Lloyd’s Rep 43 at 48–9; Pioneer Shipping Ltd v BTP Tioxide Ltd
[1982] AC 724 at 752; Codelfa Construction Pty Ltd v State Rail Authority
of New South Wales (1982) 149 CLR 337 at 381.
59. See, eg Pioneer Shipping Ltd v BTP Tioxide Ltd [1982] AC 724 at 753
(doubting Trade and Transport Inc v Iino Kaiun Kaisha Ltd (The Angelia)
[1973] 1 WLR 210); Codelfa Construction Pty Ltd v State Rail Authority of
New South Wales (1982) 149 CLR 337 at 383; Kodros Shipping Corp v
Empresa Cubana de Fletes (The Evia) (No 2) [1983] 1 AC 736; Adelfamar
SA v Silos E Mangimi Martini SpA (The Adelfa) [1988] 2 Lloyd’s Rep 466
at 471. But cf International Sea Tankers Inc v Hemisphere Shipping Co Ltd
(The Wenjiang) [1982] 1 Lloyd’s Rep 128.
60. See generally Carter’s Breach of Contract, §8-06.
61. Alfred C Toepfer International Gmbh v Itex Itagrani Export SA [1993] 1
Lloyd’s Rep 360 at 361–2. See also Woods v WM Car Services
(Peterborough) Ltd [1982] ICR 693 (no error of law by industrial tribunal);
Gulf Agri Trade FZCO v Aston Agro Industrial AG [2008] 2 Lloyd’s Rep
376 at 383; [2008] EWHC 1252 (Comm) at [48] (no error of law).
63. See, eg Cehave NV v Bremer Handelsgesellschaft mbH (The Hansa Nord)
[1976] QB 44 at 73; Tradax Internacional SA v Goldschmidt SA [1977] 2
Lloyd’s Rep 604 at 613.
65. See Pioneer Shipping Ltd v BTP Tioxide Ltd [1982] AC 724 at 736; Home
and Overseas Insurance Co Ltd v Mentor Insurance Co (UK) Ltd [1990] 1
WLR 153 at 158.
66. See, eg Bunge SA v Kruse [1977] 1 Lloyd’s Rep 492 at 496 (telexes).
67. [2000] 2 Lloyd’s Rep 587 at 595. See also Niobe Maritime Corp v Tradax
Ocean Transportation SA (The Niobe) [1995] 1 Lloyd’s Rep 579 at 583
(courts reluctant to depart from the views of commercial people).
68. See, eg SL Sethia Liners Ltd v State Trading Corporation of India Ltd
[1985] 1 WLR 1398 at 1404.
69. See, eg State Trading Corp of India Ltd v M Golodetz Ltd [1989] 2 Lloyd’s
Rep 277 at 281–2, 284; Compagnie Commerciale Sucres et Denrées v C
Czarnikow Ltd (The Naxos) [1990] 1 WLR 1337 at 1347.
70. See, eg Compagnie Commerciale Sucres et Denrées v C Czarnikow Ltd
(The Naxos) [1990] 1 WLR 1337 at 1348. See Carter’s Breach of Contract,
§§5-13, 6-06. See also [2-44]–[2-46].
71. See [2-34], [2-42].
72. [1962] AC 93 at 124.
Rep 277 at 281–2, 284.
74. See, eg Investors Compensation Scheme Ltd v West Bromwich Building
Society [1998] 1 WLR 896; Chartbrook Ltd v Persimmon Homes Ltd
[2009] 1 AC 1101; [2009] UKHL 38; Rainy Sky SA v Kookmin Bank [2011]
1 WLR 2900; [2011] UKSC 50.
[2009] UKHL 38 at [15].
76. [1971] 1 WLR 1381; [1971] 3 All ER 237.
77. [1974] AC 235.
78. [1976] 1 WLR 989; [1976] 3 All ER 570.
79. (1982) 149 CLR 337.
80. Mitsui Construction Co Ltd v Attorney-General (Hong Kong) [1986] LRC
(Comm) 245 at 253 per Lord Bridge for the Privy Council.
81. See, eg Bettini v Gye (1876) 1 QBD 183 at 188; Glynn v Margetson & Co
[1893] AC 351 at 357; North Eastern Railway Co v Lord Hastings [1900]
AC 260 at 267; L Schuler AG v Wickman Machine Tool Sales Ltd [1974]
AC 235 at 251; Bremer Handelsgesellschaft mbH v Vanden Avenne-Izegem
PVBA [1978] 2 Lloyd’s Rep 109 at 113; Photo Production Ltd v Securicor
Transport Ltd [1980] AC 827 at 842; Bunge Corp New York v Tradax
Export SA Panama [1981] 1 WLR 711 at 715; Daval Aciers D’Usinor et de
Sacilor v Armare Srl (The Nerano) [1996] 1 Lloyd’s Rep 1 at 4; Bank of
Credit and Commerce International SA v Ali [2002] 1 AC 251 at 259;
[2001] UKHL 8 at [8]; Riverside Housing Association Ltd v White [2007] 4
All ER 97 at 110; [2007] UKHL 20 at [34].
82. See, eg Thomas National Transport (Melbourne) Pty Ltd v May & Baker
(Australia) Pty Ltd (1966) 115 CLR 353 at 379, 385; Australian
Broadcasting Commission v Australasian Performing Right Association Ltd
(1973) 129 CLR 99 at 109; Darlington Futures Ltd v Delco Australia Pty
Ltd (1986) 161 CLR 500 at 509, 510; Australian Casualty Co Ltd v
Federico (1986) 160 CLR 513 at 525; Bowler v Hilda Pty Ltd (in liq)
(2001) 183 ALR 81 at 89.
83. See also UNIDROIT Principles, art 4.4. Cf Contracts Restatement 2d
(1979), §202(2).
84. See [13-34].
85. [1998] 1 WLR 896 at 913. Lords Goff, Hope and Clyde agreed. See [5-22].
86. [1998] 1 WLR 896 at 913.
87. See [11-17], [11-19], [13-45].
89. For other perspectives on objectivity see Chapter 11.
90. See Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997]
AC 749 at 767, 772, 779; Investors Compensation Scheme Ltd v West
Bromwich Building Society [1998] 1 WLR 896 at 913; Cook v Financial
Insurance Co Ltd [1998] 1 WLR 1765 at 1768; Barclays Bank Plc v Weeks
Legg & Dean (a firm) [1999] QB 309 at 331; Bank of Credit and Commerce
International SA v Ali [2002] 1 AC 251 at 259, 281; [2001] UKHL 8 at [8],
[78]; Homburg Houtimport BV v Agrosin Private Ltd (The Starsin) [2004] 1
AC 715 at 754; [2003] UKHL 12 at [73]; Sirius International Insurance Co
(Publ) v FAI General Insurance Ltd [2004] 1 WLR 3251 at 3257; [2004]
UKHL 54 at [18]. Cf UNIDROIT Principles, arts 4.1(2), 4.2(2).
91. See Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 210 CLR 181 at
188; [2001] HCA 70 at [11]; Wilson v Anderson (2002) 213 CLR 401 at
418; [2002] HCA 29 at [8]; Pacific Carriers Ltd v BNP Paribas (2004) 218
CLR 451 at 462; [2004] HCA 35 at [22]; Toll (FGCT) Pty Ltd v
Alphapharm Pty Ltd (2004) 219 CLR 165 at 179; [2004] HCA 52 at [40];
International Air Transport Association v Ansett Australia Holdings Ltd
(2008) 234 CLR 151 at 174; [2008] HCA 3 at [53].
95. For the scope of the rule see Chapter 9.
99. See, eg Firma C-Trade SA v Newcastle Protection and Indemnity
Association [1991] 2 AC 1 at 42 (construction of contract of indemnity).
But see Walker v Boyle [1982] 1 WLR 495 at 504; [1982] 1 All ER 634.
100. (1858)3 De G & J 334; 44 ER 1297.
101. (1858) 3 De G & J 334 at 360; 44 ER 1297 at 1307 (adopted Dibbs v
Newcastle Coal and Copper Co (1862) 1 SCR (NSW) L 248 at 254;
Harrington v Browne (1917) 23 CLR 297 at 307). See also Re Terry and
White’s Contract (1886) 32 Ch D 14 at 21, 26, 28.
102. (1919) 26 CLR 410 at 427. See also Maynard v Goode (1926) 37 CLR 529
at 537 per Isaacs J (‘the law as to … the construction of the contract… is
the same both in law and equity’).
103. See Parkin v Thorold (1852) 16 Beav 59 at 66–7; 51 ER 698 at 704.
104. See Hotham v The East India Co (1779) 1 Doug 272; 99 ER 178; Re Terry
and White’s Contract (1886) 32 Ch D 14 at 21. But cf Wilkinson v Clements
(1872) LR 8 Ch App 96 at 110 (whether contract ‘entire’).
105. See Hotham v The East India Co (1779) 1 Doug 272 at 277; 99 ER 178 at
181 per Lord Mansfield (‘true meaning’); Re Terry and White’s Contract
(1886) 32 Ch D 14 at 23 (ordinary interpretation of language as used in
business), 28 (mode of interpretation); Total Transport Corp v Arcadia
Petroleum Ltd (The Eurus) [1998] 1 Lloyd’s Rep 351 at 362 (construction
rules). The use of juries in common law courts may have had a practical
(forensic) significance.
106. See, eg Bank of Credit and Commerce International SA v Ali [2002] 1 AC
251 at 263; [2001] UKHL 8 at [17] per Lord Bingham, with whom Lord
Browne-Wilkinson agreed (no ‘rules of equitable construction of
documents’). Cf O’Sullivan v O’Leary [1955] VLR 52 at 58 per Gavan
Duffy J (‘principles’ of substantial performance might rest on ‘a benevolent
construction of the contract’).
107. See [4-26].
108. Grant v John Grant & Sons Pty Ltd (1954) 91 CLR 112 at 130 per Dixon
CJ, Fullagar, Kitto and Taylor JJ.
109. See Herbert Clayton and Jack Waller Ltd v Oliver [1930] AC 209 at 218.
110. [2002] 1 AC 251 at 263, 265; [2001] UKHL 8 at [17], [25]. See also [4-30].
111. See [4-30].
112. See [4-30].
113. For the canons of construction see [4-39]–[4-53].
114. Supreme Court of Judicature Act 1873 (UK), as amended by Supreme Court
of Judicature Act 1875 (UK).
115. See ACT: Civil Law (Property) Act 2006, s 501; NSW: Conveyancing Act
1919, s 13; NT: Law of Property Act 2000, s 65; Qld: Property Law Act
1974, s 62; SA: Law of Property Act 1936, s 16; Tas: Supreme Court Civil
Procedure Act 1932, s 11(7); Vic: Property Law Act 1958, s 41; WA:
Property Law Act 1969, s 21.
116. (1852) 16 Beav 59 at 66–7; 51 ER 698 at 701. See also Roberts v Berry
(1853) 3 D M & G 284 at 291; 43 ER 112 at 114–15; Canning v Temby
(1905) 3 CLR 419 at 432.
117. (1867) LR 3 Ch App 61 at 67. See also (1867) LR 3 Ch App 61 at 69;
Stickney v Keeble [1915] AC 386 at 402; Bell v Scott (1922) 30 CLR 387 at
397; Raineri v Miles [1981] AC 1050 at 1058, 1082; Perri v Coolangatta
Investments Pty Ltd (1982) 149 CLR 537 at 568; Behzadi v Shaftesbury
Hotels Ltd [1992] Ch 1 at 22.
118. Lock v Bell [1931] 1 Ch 35 at 43; Raineri v Miles [1981] AC 1050 at 1089.
119. But see S J Stoljar, ‘Untimely Performance in the Law of Contract’ (1955)
71 LQR 527.
120. See Howe v Smith (1884) 27 Ch D 89 at 98–9.
121. See Raineri v Miles [1981] AC 1050 at 1081; Louinder v Leis (1982) 149
CLR 509 at 524–5.
122. (1982) 149 CLR 509 at 524.
123. See Carter’s Breach of Contract, §§5-46–5-48. Cf P V Baker, ‘The Future
of Equity’ (1977) 93 LQR 530.
124. See Holland v Wiltshire (1954) 90 CLR 409 at 418 (exercise of common
law jurisdiction). See also Stickney v Keeble [1915] AC 386.
125. See United Scientific Holdings Ltd v Burnley BC [1978] AC 904 per Lord
Diplock.
126. [1981] 1 WLR 711.Cf Riverside Housing Association Ltd v White [2007] 4
All ER 97 at 107; [2007] UKHL 20 at [25].
127. For earlier authority to the same effect see Bowes v Chaleyer (1923) 32
CLR 159 at 196. Cf Bowes v Shand (1877) 2 App Cas 455 at 463.
128. See Carter’s Breach of Contract, §§5-65.
130. Compare and contrast Amherst v James Walker Goldsmith & Silversmith
Ltd [1983] Ch 305; G R Mailman & Associates Pty Ltd v Wormald (Aust)
Pty Ltd (1991) 24 NSWLR 80. See Diane Skapinker and J W Carter, ‘Time
in Rent Review Procedures: Promise, Condition or Limitation?’ (1992) 5
JCL 136.
132. The change began before the Judicature reforms, but the courts still
employed the language of dependent and independent promises. See Bettini
v Gye (1876) 1 QBD 183 at 187 per Blackburn J for the court, who framed
the question in terms of ‘whether this part of the contract is a condition
precedent to the defendant’s liability, or only an independent agreement, a
breach of which will not justify a repudiation of the contract’.
133. See [4-28].
135. Meres v Ansell (1799) 3 Wils 275 at 276; 95 ER 1053; Re Terry and White’s
Contract (1886) 32 Ch D 14 at 21. But cf Bank of Credit and Commerce
International SA v Ali [2002] 1 AC 251 at 265; [2001] UKHL 8 at [24].
136. [2002] 1 AC 251; [2001] UKHL 8. See further [16-38].
138. (1954) 91 CLR 112 at 129–30.
139. See, eg North Eastern Railway Co v Lord Hastings [1900] AC 260 at 267
(deed); Thomas National Transport (Melbourne) Pty Ltd v May & Baker
(Australia) Pty Ltd (1966) 115 CLR 353 at 379, 385 (contract evidenced by
writing); L Schuler AG v Wickman Machine Tool Sales Ltd [1974] AC 235
at 251 (written contract).
140. [1971] 1 WLR 1381; [1971] 3 All ER 237.
141. [1971] 1 WLR 1381 at 1383–4; [1971] 3 All ER 237 at 239. The other
members of the House of Lords agreed. For a more recent statement see
Total Transport Corp v Arcadia Petroleum Ltd (The Eurus) [1998] 1
Lloyd’s Rep 351 at 362. See also Re Bankrupt Estate of Murphy; Donnelly
v Commonwealth Bank of Australia Ltd (1996) 140 ALR 46 at 52 (bank
mortgage).
142. See also Thorner v Major [2009] 1 WLR 776 at 800–1; [2009] UKHL 18 at
[83].
143. See [4-12].
144. See [11-04]. Analogously, factual inferences of intention may be drawn
from words or conduct. See, eg R v Clarke (1927) 40 CLR 227; Dalgety
Australia Ltd v Harris [1977] 1 NSWLR 324, both illustrating the question
whether an offeree’s conduct showed an intention to accept an offer.
145. Khan v Khan [2007] EWCA Civ 399 at [36]; [2008] Bus LR Digest 73 at
D74.
146. Cf Khan v Khan [2007] EWCA Civ 399 at [36]; [2008] Bus LR Digest 73
at D74 per Arden LJ (‘no difference in principle between the rules which
apply to the interpretation of contractual documents and those which apply
to oral contracts’).
147. [2000] 1 AC 406 at 417. See also Burns Philp Hardware Ltd v Howard
Chia Pty Ltd (1987) 8 NSWLR 642 (10-year lease); Static Control
Components (Europe) Ltd v Egan [2004] 2 Lloyd’s Rep 429 at 435; [2004]
EWCA Civ 392 at [27] (requirement that court have regard to commercial
background applies to all contracts).
148. See Australian Casualty Co Ltd v Federico (1986) 160 CLR 513 at 520
(insurance); Charter Reinsurance Co Ltd v Fagan [1997] AC 313 at 391
(reinsurance); McCann v Switzerland Insurance Australia Ltd (2000) 203
CLR 579 at 589, 600–2, 642; [2000] HCA 65 at [22], [73]–[74], [197]
(professional indemnity insurance). See also [15-45].
149. See Daval Aciers D’Usinor et de Sacilor v Armare Srl (The Nerano) [1996]
1 Lloyd’s Rep 1 at 4.
150. See Homburg Houtimport BV v Agrosin Private Ltd (The Starsin) [2004] 1
AC 715; [2003] UKHL 12.
151. But see Bank of Credit and Commerce International SA v Ali [2002] 1 AC
251 at 272; [2001] UKHL 8 at [51] per Lord Hoffmann (‘how can
[construction] be affected by authority?’).
152. See [7-36]–[7-40].
153. [2002] 1 AC 251; [2001] UKHL 8.
154. [1976] QB 44 at 71 (approved Reardon Smith Line Ltd v Yngvar Hansen-
Tangen [1976] 1 WLR 989 at 998; [1976] 3 All ER 570). See also [1-36].
155. See [4-26]–[4-29] (treatment of time stipulations). Cf Spunwill Pty Ltd v
BAB Pty Ltd (1994) 36 NSWLR 290 at 298 (restraint of trade clause).
AC 715; [2003] UKHL 12.
159. The standard form is assumed to be a third-party standard form, rather than
one party’s standard terms of business. However, the points made have
some relevance to that type of document.
160. See Chapter 7.
162. See [4-12]. See also [1-30].
164. See, eg Dome Resources NL v Silver (2008) 72 NSWLR 693 at 698; [2008]
NSWCA 322 at [11] (company constitution); Attorney General of Belize v
Belize Telecom Ltd [2009] 1 WLR 1988; [2009] UKPC 10 (articles of
association).
165. See, eg Esso Australia Ltd v Australian Petroleum Agents’ & Distributors’
Association (1993) [1999] 3 VR 642 (deed poll); Society of Lloyd’s v
Robinson [1999] 1 WLR 756 at 766 (clause using trust device); Jennings v
Credit Corp Australia Pty Ltd (as assignee from Citicorp Person to Person
Financial Services Pty Ltd) (2000) 48 NSWLR 709 (assignment in writing);
Concord Trust v Law Debenture Trust Corp Plc [2005] 1 WLR 1591 at
1598; [2005] UKHL 27 at [22] (trust deed).
agreed.
167. See, eg Larratt v Bankers and Traders Insurance Co Ltd (1941) 41 SR
(NSW) 215 at 225 (written election between rights); Woodhouse AC Israel
Cocoa Ltd SA v Nigerian Produce Marketing Co Ltd [1972] AC 741
(construction of letters alleged to evidence estoppel a matter of law not
fact).
168. See, eg Hoad v Swan (1920) 28 CLR 258 at 265; Evans v Bartlam [1937]
AC 473 at 485; Agrokor AG v Tradigrain SA [2000] 1 Lloyd’s Rep 497 at
501. See also Mehmet v Benson (1965) 113 CLR 295 at 305 (extent of
election).
169. On the scope of relevance of context, see Chapter 7. For the approach to
meaning see Chapter 12.
170. For references to the full description of the contra proferentem rule, see, eg
Lancashire County Council v Municipal Mutual Insurance Ltd [1997] QB
897 at 910; Insurance Commission of Western Australia v Container
Handlers Pty Ltd (2004) 218 CLR 89 at 122; [2004] HCA 24 at [97]; Wilkie
v Gordian Runoff Ltd (2005) 221 CLR 522 at 529; [2005] HCA 17 at [17].
171. International Minerals & Chemical Corp v Karl O Helm AG [1986] 1
Lloyd’s Rep 81 at 97 per Hobhouse J (referring to contra proferentem rule).
172. See Chapter 6.
173. See [1-24].
174. Cf J Fenwick & Co Pty Ltd v Federal Steam Navigation Co Ltd (1943) 44
SR (NSW) 1 at 5.
175. [1998] 1 WLR 896 at 912. Lords Goff, Hope and Clyde agreed. But see The
Tychy (No 2) [2001] 2 Lloyd’s Rep 403 at 409; [2001] EWCA Civ 1198 at
[29] per Lord Phillips MR for the court (‘little intellectual hand baggage is
no bad thing’).
176. See, eg Sabah Flour and Feedmills Sdn Bhd v Comfez Ltd [1988] 2 Lloyd’s
Rep 18 at 20 (approach where inconsistent terms are incorporated by
reference); Shipping Corp of India Ltd v NSB Niederelbe
Schiffahrtsgesellschaft mbH & Co (The Black Falcon) [1991] 1 Lloyd’s
Rep 77 at 80 per Steyn J (court must not take a ‘conveyancer’s approach’).
See also [1-22].
177. See Chandris v Isbrandtsen-Moller Co Inc [1951] 1 KB 240 at 244–6
(reversed on other grounds [1951] 1 KB 240). See also Cody v J H Nelson
Pty Ltd (1947) 74 CLR 629 at 647.
178. See, eg Rodger v The Comptoir D’Escompte de Paris (1869) LR 2 PC 393
at 406 (hierarchy in application); Maye v Colonial Mutual Life Assurance
Society Ltd (1924) 35 CLR 14 at 26 (contra proferentem rule applied with
expressio unius rule).
179. See Chandris v Isbrandtsen-Moller Co Inc [1951] 1 KB 240 at 244
(reversed on other grounds [1951] 1 KB 240).
180. See Chandris v Isbrandtsen-Moller Co Inc [1951] 1 KB 240 at 245
(reversed on other grounds [1951] 1 KB 240). See also Re Stockport
Ragged Industrial and Reformatory Schools [1898] 2 Ch 687 at 696.
181. See [4-44]–[4-47].
182. As long ago as the decision in Colquhoun v Brooks (1887) 19 QBD 400 at
406, Wills J said that such rules ‘rarely … help one to arrive at what is
meant’. Lopes LJ expressed his agreement on appeal (see (1888) 21 QBD
52 at 65 (affirmed (1889) 14 App Cas 493)).
183. But cf Serena Navigation Ltd v Dera Commercial Establishment (The
Limnos) [2008] 2 Lloyd’s Rep 166 at 169; [2008] EWHC 1036 (Comm) at
[10] per Burton J (principle of Antaios Compania Naviera SA v Salen
Rederierna AB (The Antaios) [1985] AC 191 at 201 a ‘canon of
construction’).
184. But see AIB Group (UK) Ltd v Martin [2002] 1 WLR 94 at 104; [2001]
UKHL 63 at [47] per Lord Rodger, with whom Lord Hutton agreed
(referring to rule of distributive interpretation (redundo singual singulis —
‘concise and precise Latin’); Golden Fleece Maritime Inc v ST Shipping &
Transport Inc (The Elli and The Frixos) [2008] 2 Lloyd’s Rep 119 at 126;
[2008] EWCA Civ 584 at [23] per Longmore LJ, with whom Sir Anthony
Clarke MR and Lawrence Collins LJ agreed (generalia non specialibus
derogant a ‘well-known legal principle’).
185. That was the context of Lord Bingham’s comment in Homburg Houtimport
BV v Agrosin Private Ltd (The Starsin) [2004] 1 AC 715 at 737; [2003]
UKHL 12 at [9] that the canons of construction still give ‘valuable
guidance’. See also Golden Fleece Maritime Inc v ST Shipping & Transport
Inc (The Elli and The Frixos) [2008] 2 Lloyd’s Rep 119 at 126; [2008]
EWCA Civ 584 at [23] (application of generalia non specialibus derogant).
186. See, eg Bremer Handelsgesellschaft mbH v Vanden Avenne-Izegem PVBA
[1978] 2 Lloyd’s Rep 109 at 113 per Lord Wilberforce (in reference to
GAFTA form 100, ‘collage of clauses separately drafted, [lacking]
consistency in many respects’). See also Lord Justice Staughton,
‘Interpretation of Maritime Contracts’ (1995) 26 JMLC 259 at 262
(charterparties). See [11-18].
187. See also Cody v J H Nelson Pty Ltd (1947) 74 CLR 629 at 647.
189. See Maye v Colonial Mutual Life Assurance Society Ltd (1924) 35 CLR 14
at 23 (whole contract rule as a canon of construction). In Foley v Classique
Coaches Ltd [1934] 2 KB 1 at 16, Maugham LJ treated verba intentioni,
non e contra, debent inservire (words subservient to intent) as the basis for
whole contract rule. See also Metropolitan Gas Co v The Federated Gas
Employees’ Industrial Union (1925) 35 CLR 449 at 455.
190. Scottish Power Plc v Britoil (Exploration) Ltd (1997), unreported CA 18
November per Robert Walker LJ. On that basis, instinctive (or unstated)
application no doubt occurs. See, eg Clarence House Ltd v National
Westminster Bank Plc [2010] 1 WLR 1216 at 1235; [2009] EWCA Civ
1311 at [51].
191. See, eg [16-26] (ut res magis valeat quam pereat maxim).
192. See also, on the maxim that general things do not derogate from special
things (generalia non specialibus derogant): Sabah Flour and Feedmills
Sdn Bhd v Comfez Ltd [1988] 2 Lloyd’s Rep 18 at 20; Golden Fleece
Maritime Inc v ST Shipping & Transport Inc (The Elli and The Frixos)
[2008] 2 Lloyd’s Rep 119 at 126; [2008] EWCA Civ 584 at [23]; MH
Progress Lines SA v Orient Shipping Rotterdam BV (The Genius Star 1)
[2012] 1 Lloyd’s Rep 222; [2011] EWHC 3083 (Comm) at 227. See
Lewison, §7.05.
193. See, eg Patching v Dubbins (1853) Kay 1 at 14; 69 ER 1 at 6; Hayne v
Cummings (1864) 16 CBNS 421 at 427; 143 ER 1191 at 1194; Coddington
v Paleologo (1867) LR 2 Ex 193 at 200; Chamber Colliery Co Ltd v
Twyerould (1893) [1915] 1 Ch 268n at 272 (HL); Elderslie SS Co Ltd v
Borthwick [1905] AC 93 at 96; Christie v Robinson (1907) 4 CLR 1338 at
1352; Swan v Rawsthorne (1908) 5 CLR 765 at 779. See also [13-29].
194. See Lewison, §7.03. The canon is verba cum effectu accipienta sunt. See
also UNIDROIT Principles, art 4.5.
195. [1998] 1 Lloyd’s Rep 351 at 357. The other members of the Court of
Appeal agreed. See also Atlantic Lines & Navigation Co Inc v Hallam Ltd
(The Lucy) [1983] 1 Lloyd’s Rep 188 at 194.
196. See Flying Colours Film Co Ltd v Assicurazioni Generali SpA [1993] 2
Lloyd’s Rep 184 at 192 per Staughton LJ (‘surplusage is not unknown in
commercial contracts and particularly in contracts of insurance’);
Lancashire County Council v Municipal Mutual Insurance Ltd [1997] QB
897 at 906 (policy endorsements).
197. Beaufort Developments (NI) Ltd v Gilbert-Ash NI Ltd [1999] 1 AC 266 at
275 per Lord Hoffmann (redundancy arguments ‘dangerous’ in standard
form building contracts).
198. See Pera Shipping Corp v Petroship SA (The Pera) [1985] 2 Lloyd’s Rep
103 at 106 (presumption against surplusage never very strong in the context
of charterparties); Hyundai Merchant Marine Co Ltd v Trafigura Beheer BV
(The Gaz Energy) [2012] 1 Lloyd’s Rep 211 at 218; [2011] EWHC 3108
(Comm) at [28] (charterparties and other shipping contracts). See also
Homburg Houtimport BV v Agrosin Private Ltd (The Starsin) [2004] 1 AC
715 at 743; [2003] UKHL 12 at [30] (bills of lading).
199. See, eg Mangistaumunaigaz Oil Production Association v United World
Trade Inc [1995] 1 Lloyd’s Rep 617 at 621 (‘if any’ in arbitration clause
could be treated as surplusage). Cf Emeraldian Ltd Partnership v Wellmix
Shipping Ltd (The Vine) [2011] 1 Lloyd’s Rep 301 at 308; [2010] EWHC
1411 (Comm) at [55].
200. A common Latin formulation is verba chartarum fortius accipiuntur contra
proferentem. See Lancashire County Council v Municipal Mutual Insurance
Ltd [1997] QB 897 at 910. See generally Norton on Deeds, pp 127–33;
Lewison, §7.8.
201. Cf X v Y [2011] 1 Lloyd’s Rep 694 at 698; [2011] EWHC 152 (Comm) at
[10] per Burton J (‘less weight’ given to the construction ‘put forward by
the proferens’).
202. See, eg Symes v Laurie [1985] 2 Qd R 547; Tsang Chi Ming v Uvanna Pty
Ltd (1996) 140 ALR 273 at 284; Commission for the New Towns v Cooper
(Great Britain) Ltd [1995] Ch 259 at 277.
203. See UNIDROIT Principles, art 4.6.
204. In the commercial context the rule is often expressly excluded, at least as
applied against the drafter of a contract.
205. But cf Carr v McDonald’s Australia Ltd (1994) 63 FCR 358 at 370.
1356; [2007] EWCA Civ 363 at [66] (if there is more than one basis for
supplying an omission, choice may be made against the originator of the
document).
207. Cf Youell v Bland Welch & Co Ltd [1992] 2 Lloyd’s Rep 127 at 134. See
also K/S Victoria Street v House of Fraser (Stores Management) Ltd [2012]
2 WLR 470 at 489; [2011] EWCA Civ 904 at [68] per Lord Neuberger for
the court (‘abstruse issues as to who is the proferens’).
208. See, eg Western Australian Bank v Royal Insurance Co (1908) 5 CLR 533
at 554, 559, 566–7, 574; J Fenwick & Co Pty Ltd v Federal Steam
Navigation Co Ltd (1943) 44 SR (NSW) 1 at 5; Billyack v Leyland
Construction Co Ltd [1968] 1 WLR 471 at 477; [1968] 1 All ER 783; Pera
Shipping Corp v Petroship SA (The Pera) [1985] 2 Lloyd’s Rep 103 at 106;
Donegal International Ltd v Zambia [2007] 1 Lloyd’s Rep 397 at 477;
[2007] EWHC 197 (Comm) at [499]. Cf Birrell v Dryer (1884) 9 App Cas
345 at 354; Lewison, §7.08.
209. See, eg International Leasing Corp (Vic) Ltd v Aiken [1967] 2 NSWR 427
at 455; Wardens and Commonalty of the Mystery of Mercers of the City of
London v New Hampshire Insurance Co [1992] 2 Lloyd’s Rep 365 at 368;
Association of British Travel Agents Ltd v British Airways Plc [2000] 2
Lloyd’s Rep 209 at 221. Cf Houghton v Trafalgar Insurance Co Ltd [1954]
1 QB 247 at 249. See also UNIDROIT Principles, art 4.6.
210. See, eg Taylor v Liverpool and Great Western Steam Co (1874) LR 9 QB
546 at 549–50; Burton & Co v English & Co (1883) 12 QBD 218 at 220;
London and Lancashire Fire Insurance Co Ltd v Bolands Ltd [1924] AC
836 at 848; J Fenwick & Co Pty Ltd v Federal Steam Navigation Co Ltd
(1943) 44 SR (NSW) 1 at 5.
211. See, eg Arrale v Costain Civil Engineering Ltd [1976] 1 Lloyd’s Rep 98 at
102; Association of British Travel Agents Ltd v British Airways Plc [2000] 2
Lloyd’s Rep 209 at 216; BHP Petroleum Ltd v British Steel Plc [2000] 2
Lloyd’s Rep 277 at 281, 288.
212. Hume Steel Ltd v Attorney-General (Victoria) (1927) 39 CLR 455 at 465
per Higgins J (excepting the Crown).
213. New South Wales Sports Club Ltd v Solomon (1914) SR (NSW) 340 at 343.
214. Patching v Dubbins (1853) Kay 1 at 13–14; 69 ER 1 at 6.
215. See, eg Savill Bros Ltd v Bethell [1902] 2 Ch 523 at 537–8.
216. Or ‘real ambiguity’; see Dodson v Peter H Dodson Insurance Services
[2001] 1 WLR 1012 at 1029; [2001] 3 All ER 75 per the Court of Appeal;
Donegal International Ltd v Zambia [2007] 1 Lloyd’s Rep 397 at 477;
[2007] EWHC 197 (Comm) at [499] per Andrew Smith J. See also
Portolana Compania Naviera Ltd v Vitol SA Inc (The Afrapearl) [2004] 1
WLR 3111 at 3117; [2004] EWCA Civ 864 at [8] (onus of proof) 217. But
cf Yorkshire Insurance Co Ltd v Campbell [1917] AC 218 at 223.
218. Savill Bros Ltd v Bethell [1902] 2 Ch 523 at 537–8; London and Lancashire
Fire Insurance Co Ltd v Bolands Ltd [1924] AC 836 at 848. Cf Maye v
Colonial Mutual Life Assurance Society Ltd (1924) 35 CLR 14 at 22, 26
(contra proferentem rule allows the ‘more reasonable’ construction to be
adopted).
219. See Symes v Laurie [1985] 2 Qd R 547 (as clause relating to insurance was
not ambiguous there was no occasion for construction contra proferentem);
Minchillo v Ford Motor Co of Australia Ltd [1995] 2 VR 594 at 609, 613
(contra proferentem rule not applicable where warranty was not
ambiguous).
220. See J Fenwick &Co Pty Ltd v Federal Steam Navigation Co Ltd (1943) 44
SR (NSW) 1 at 5. In London and Lancashire Fire Insurance Co Ltd v
Bolands Ltd [1924] AC 836 at 848, Lord Sumner restricted the rule to
ambiguity.
221. See, eg McConnel v Murphy (1873) LR 5 PC 203 at 219 per Sir Montague
E Smith for the Privy Council (‘doubt’ to be understood as ‘doubt which
cannot otherwise be resolved’). But see Killick v Second Covent Garden
Property Co Ltd [1973] 1 WLR 658 at 662, 663; [1973] 2 All ER 337
(overruled on other grounds Ashworth Frazer Ltd v Gloucester City Council
[2001] 1 WLR 2180; [2001] UKHL 59), where Stamp LJ spoke in terms of
‘doubtful’ and Cairns LJ in terms of ‘ambiguous’. Davies LJ agreed with
both judgments.
222. BHP Petroleum Ltd v British Steel Plc [2000] 2 Lloyd’s Rep 277 at 288 per
May LJ.
223. See, eg Alex Kay Pty Ltd v General Motors Acceptance Corp [1963] VR
458 at 463 per Sholl J (clause was ‘vaguely and badly worded’).
224. See, eg Maye v Colonial Mutual Life Assurance Society Ltd (1924) 35 CLR
14 at 22 (‘doubtful’ words construed in favour of assured); Youell v Bland
Welch & Co Ltd [1992] 2 Lloyd’s Rep 127 at 134 per Staughton LJ, with
whom Fox LJ agreed (‘well established’ rule of construction that ‘in case of
doubt, wording is to be construed against the party who proposed it for
inclusion in the contract’); Cattles Plc v Welcome Financial Services Ltd
[2010] 2 Lloyd’s Rep 514 at 522; [2010] EWCA Civ 599 at [43] per Lloyd
LJ, with whom Mummery LJ and Sir Paul Kennedy agreed (‘admits of
doubt’). See Lewison, §7.8.
225. See, eg Pera Shipping Corp v Petroship SA (The Pera) [1985] 2 Lloyd’s
Rep 103 at 106; Whitecap Leisure Ltd v John H Rundle Ltd [2008] 2
Lloyd’s Rep 216 at 224; [2008] EWCA Civ 429 at [22].
227. See, eg Williamson v Caledonian Insurance Co (1898) 24 VLR 600 at 603;
Western Australian Bank v Royal Insurance Co (1908) 5 CLR 533 at 567.
See further [15-45].
228. There may be other specific contexts. See [15-38] (guarantees), [15-35]
(force majeure clauses). Cf Sig Bergesen DY & Co v Mobil Shipping and
Transportation Co (The Berge Sund) [1993] 2 Lloyd’s Rep 453 at 459
(‘ambiguity’ in off-hire clause to be resolved in favour of shipowner).
229. Cf Association of British Travel Agents Ltd v British Airways Plc [2000] 2
Lloyd’s Rep 209 at 221 per Sedley LJ (policy is to ‘limit the power of a
dominant contractor’ dealing on its own standard form).
230. See K/S Victoria Street v House of Fraser (Stores Management) Ltd [2012]
2 WLR 470 at 489; [2011] EWCA Civ 904 at [68].
231. McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579 at
602; [2000] HCA 65 at [74] per Kirby J; Sinochem International Oil
(London) Co Ltd v Mobil Sales and Supply Corp [2000] 1 Lloyd’s Rep 339
at 345 per Mance LJ.
232. Lancashire County Council v Municipal Mutual Insurance Ltd [1997] QB
897 at 905 per Simon Brown LJ. Staughton and Thorpe LJJ agreed.
233. International Minerals & Chemical Corp v Karl O Helm AG [1986] 1
Lloyd’s Rep 81 at 97 per Hobhouse J.
234. See also C E Heath Underwriting & Insurance (Australia) Pty Ltd v
Edwards Dunlop & Co Ltd (1993) 176 CLR 535 at 548 (because a fidelity
policy was not ‘obscurely worded’ it was held that there was no reason to
apply the contra proferentem rule).
236. Cf Reilly v R [1934] AC 176 at 179.
237. Expressio unius personae vel rei est exclusio alterius. See Norton on Deeds,
pp 126–7; Lewison, §7.06. Compare expressum facit cessare tacitum (what
is expressed renders what is implied silent). See Norton on Deeds, p 127.
238. (1887) 19 QBD 400 at 406 (affirmed (1888) 21 QBD 52; (1889) 14 App
Cas 493).
239. (1887) 19 QBD 400 at 406. When the decision was affirmed by the Court of
Appeal, Lopes LJ agreed (see (1888) 21 QBD 52 at 65).
240. [1999] 1 AC 266 at 275.
241. See generally Norton on Deeds, pp 246–51; Lewison, §7.13.
242. Cf Tandrin Aviation Holdings Ltd v Aero Toy Store LLC [2010] 2 Lloyd’s
Rep 668 at 675; [2010] EWHC 40 (Comm) at [44]. But see Dunavant
Enterprises Inc v Olympia Spinning & Weaving Mills Ltd [2011] 2 Lloyd’s
Rep 619 at 622; [2011] EWHC 2028 (Comm) at [10] (application of
ejusdem generis common ground).
243. Cf Arrale v Costain Civil Engineering Ltd [1976] 1 Lloyd’s Rep 98 at 101.
244. Cf Tillmanns & Co v SS Knutsford Ltd [1908] 2 KB 385 at 405 (affirmed
sub nom SS Knutsford Ltd v Tillmanns & Co [1908] AC 406).
245. [1951] 1 KB 240 at 244–5 (reversed on other grounds [1951] 1 KB 240).
See also Navrom v Callitsis Ship Management SA (The Radauti) [1987] 2
Lloyd’s Rep 276 at 281 (affirmed [1988] 2 Lloyd’s Rep 416).
246. [1893] AC 351.
247. [1951] 1 KB 240 at 245–6 (reversed on other grounds [1951] 1 KB 240).
248. Falsa demonstratio non nocet, itself an abbreviation for falsa demonstratio
non nocet cum de corpore constat (see Dumford Trading AG v OAO
Atlantrybflot [2005] 1 Lloyd’s Rep 289 at 294; [2005] EWCA Civ 24 at
[27]). See Norton on Deeds, pp 233–46; Lewison, §§9.5–9.6. See also
Wigmore on Evidence, vol 9, §§2476–7. See also [9-49] (misnomer).
249. See, eg Cowen v Truefitt Ltd [1899] 2 Ch 309 at 311–2; Eastwood v Ashton
[1915] AC 900 at 912; Freeguard v Rogers [1999] 1 WLR 375 at 380.
250. [1984] 1 AC 676.
251. [1984] 1 AC 676 at 687. The other members of the House of Lords agreed.
He referred to Adamastos Shipping Co Ltd v Anglo-Saxon Petroleum Co
Ltd [1959] AC 133 as an illustration.
252. [2002] 1 WLR 94 at 98; [2001] UKHL 63 at [15].
253. [2002] 1 WLR 94 at 99; [2001] UKHL 63 at [16].
254. The Latin tag is reddendo singula singulis. See AIB Group (UK) Ltd v
Martin [2002] 1 WLR 94 at 98; [2001] UKHL 63 at [16]. See Lewison,
§7.15.
255. See Schenker & Co (Aust) Pty Ltd v Maplas Equipment and Services Pty
Ltd [1990] VR 834 at 841–2; FAI Traders Insurance Co Ltd v Savoy Plaza
Pty Ltd [1993] 2 VR 343 at 345–6.
256. See, eg Robertson v French (1803) 4 East 130 at 136; 102 ER 779 at 782;
Glynn v Margetson & Co [1893] AC 351 at 355, 357; Ryan v Fergerson
(1909) 8 CLR 731 at 735–6; Hume Steel Ltd v Attorney-General (Victoria)
(1927) 39 CLR 455 at 463, 465; Geraghty v Queensland National Bank Ltd
[1933] St R Qd 13 at 19; Building and Engineering Constructions (Aust)
Ltd v Property Securities No 1 Pty Ltd [1960] VR 673 at 681.
257. See Lewison, §7.04. The presumption does not appear to have been
dignified by a Latin tag.
258. See, eg Eximenco Handels AG v Partredereit Oro Chief (The Oro Chief)
[1983] 2 Lloyd’s Rep 509 at 516; Navrom v Callitsis Ship Management SA
(The Radauti) [1987] 2 Lloyd’s Rep 276 at 279 (affirmed [1988] 2 Lloyd’s
Rep 416).
259. [2004] 1 AC 715; [2003] UKHL 12. See also Bravo Maritime (Chartering)
Est v Alsayed Abdullah Mohamed Baroom (The Athinoula) [1980] 2
Lloyd’s Rep 481 at 487–8; Whitecap Leisure Ltd v John H Rundle Ltd
[2008] 2 Lloyd’s Rep 216 at 225; [2008] EWCA Civ 429 at [29]. Contrast
Terkol Rederierne v Petroleo Brasileiro SA (The Badagry) [1985] 1 Lloyd’s
Rep 395 at 399 (no inconsistency); Alchemy Estates Ltd v Astor [2009] 1
WLR 940 at 953–4; [2008] EWHC 2675 (Ch) at [35] (no intention to
displace obligation).
260. [2004] 1 AC 715 at 737; [2003] UKHL 12 at [11].
261. Ex parte Cameron (1890) 11 LR (NSW) L 422 at 429; Hume Steel Ltd v
Attorney-General (Victoria) (1927) 39 CLR 455 at 463, 465; Australian
Guarantee Corp Ltd v Balding (1930) 43 CLR 140 at 151; Maile v Jennings
[1956] VLR 45 at 46; Spriggs v Sotheby Parke Bernet & Co [1986] 1
262. Forbes v Git [1922] 1 AC 256 at 259 per Lord Wrenbury for the Privy
Council. See also Rose and Frank Co v J R Crompton and Bros Ltd [1925]
AC 445 at 454; Australian Guarantee Corp Ltd v Balding (1930) 43 CLR
140 at 151. But cf Hvalfangerselskapet Polaris Aktieselskap v Unilever Ltd
(1933) 39 Com Cas 1 at 20.
5
The ICS Principles
General [5-02]
The Assimilation Conclusion [5-05]
General [5-05]
‘Serious Utterances’ and Context [5-07]
Purpose and Process [5-10]
Examples from Literature and Ordinary Life [5-11]
Conclusion [5-16]
The ICS Principles [5-18]
[5-01] Objects. The principal purpose of this chapter is to state and evaluate —
at least briefly — the important statement of principle made by Lord Hoffmann
in Investors Compensation Scheme Ltd v West Bromwich Building Society.1
Reflecting the way in which Lord Hoffmann expressed his statement of
principle, the chapter is divided into two parts. The first part2 deals with an
‘assimilation’ issue, namely, Lord Hoffmann’s conclusion that, subject to one
exception, documents are construed under the common sense principles by
which ‘serious’ utterances are interpreted in ‘ordinary life’.
The second part considers the five specific points — ‘ICS principles’ —
stated by Lord Hoffmann in connection with the assimilation conclusion.
GENERAL
[5-02] Introduction. Few statements of principle have in recent years attracted
such widespread approval as that of Lord Hoffmann in Investors Compensation
Scheme Ltd v West Bromwich Building Society.3 In the years since that decision,
the statement has been quoted and applied on countless occasions.4 But it has
also attracted controversy.
The precise impact of the statement of principle is difficult to gauge. It was
not put forward by Lord Hoffmann as a coherent statement of the law of
construction, or even a general summary of all the main principles. The principal
objective seems to have been to make a number of important points, by way of
emphasis and illustration, of what he described5 as ‘the fundamental change
which has overtaken this branch of the law’.
Lord Hoffmann did not suggest that he was saying anything revolutionary, or
even novel.6 What resonated with later judges was the clear and concise way in
which some important aspects of commercial construction were explained. Lord
Hoffmann later commented in Chartbrook Ltd v Persimmon Homes Ltd7 that
there was ‘little … which could not be found in earlier authorities’. But he went
on to say:8
The only points it decided that might have been thought in the least
controversial were, first, that it was not necessary to find an ‘ambiguity’
before one could have any regard to background and, secondly, that the
meaning which the parties would reasonably be taken to have intended
could be given effect despite the fact that it was not, according to
conventional usage, an ‘available’ meaning of the words or syntax which
they had actually used.
Although it seems fair to say that the first of these two points was inherent in the
approach taken to context since the 1970s,9 the second point has proved to be
quite a challenge.
[5-03] The statement of principle. In Investors Compensation Scheme Ltd v
West Bromwich Building Society,10 Lord Hoffmann said:11
I do not think that the fundamental change which has overtaken this
branch of the law, particularly as a result of the speeches of Lord
Wilberforce in Prenn v Simmonds [1971] 1 WLR 1381 at 1384–6 and
Reardon Smith Line Ltd v Yngvar Hansen-Tangen [1976] 1 WLR 989;
[1976] 3 All ER 570, is always sufficiently appreciated. The result has
been, subject to one important exception, to assimilate the way in which
such documents are interpreted by judges to the common sense principles
by which any serious utterance would be interpreted in ordinary life.
Almost all the old intellectual baggage of ‘legal’ interpretation has been
discarded. The principles may be summarised as follows.
(1) Interpretation is the ascertainment of the meaning which the
document would convey to a reasonable person having all the
background knowledge which would reasonably have been available to
the parties in the situation in which they were at the time of the contract.
(2) The background was famously referred to by Lord Wilberforce as the
‘matrix of fact,’ but this phrase is, if anything, an understated description
of what the background may include. Subject to the requirement that it
should have been reasonably available to the parties and to the exception
to be mentioned next, it includes absolutely anything which would have
affected the way in which the language of the document would have been
understood by a reasonable man.
(3) The law excludes from the admissible background the previous
negotiations of the parties and their declarations of subjective intent.
They are admissible only in an action for rectification. The law makes
this distinction for reasons of practical policy and, in this respect only,
legal interpretation differs from the way we would interpret utterances in
ordinary life. The boundaries of this exception are in some respects
unclear. But this is not the occasion on which to explore them.
(4) The meaning which a document (or any other utterance) would
convey to a reasonable man is not the same thing as the meaning of its
words. The meaning of words is a matter of dictionaries and grammars;
the meaning of the document is what the parties using those words
against the relevant background would reasonably have been understood
to mean. The background may not merely enable the reasonable man to
choose between the possible meanings of words which are ambiguous
but even (as occasionally happens in ordinary life) to conclude that the
parties must, for whatever reason, have used the wrong words or syntax:
see Mannai Investments Co Ltd v Eagle Star Life Assurance Co Ltd
[1997] AC 749.
(5) The ‘rule’ that words should be given their ‘natural and ordinary
meaning’ reflects the common sense proposition that we do not easily
accept that people have made linguistic mistakes, particularly in formal
documents. On the other hand, if one would nevertheless conclude from
the background that something must have gone wrong with the language,
the law does not require judges to attribute to the parties an intention
which they plainly could not have had. Lord Diplock made this point
more vigorously when he said in Antaios Compania Naviera SA v Salen
Rederierna AB [1985] AC 191 at 201: ‘if detailed semantic and
syntactical analysis of words in a commercial contract is going to lead to
a conclusion that flouts business commonsense, it must be made to yield
to business commonsense.’
[5-04] Elements. Lord Hoffmann’s statement of principle in Investors
Compensation Scheme Ltd v West Bromwich Building Society12 is expressed in
two elements or parts. The first is the ‘fundamental change’. Referring13 to the
‘principles by which contractual documents are nowadays construed’, and the
‘fundamental change which has overtaken this branch of the law’, he regarded
the impact as being to ‘assimilate the way in which such documents are
interpreted by judges to the common sense principles by which any serious
utterance would be interpreted in ordinary life’. This is discussed as the
‘assimilation conclusion’.
The second element of the statement is a summary, in the five numbered
paragraphs, of the ‘common sense principles’. Since he described those
paragraphs as a summary of the ‘principles’, they have been described as the
‘ICS principles’.14 They have been used as a reliable source of a concise
summary of some of the key aspects of commercial construction.15
THE ASSIMILATION CONCLUSION
General
[5-05] Introduction. The conclusion about ‘assimilation’ in Investors
Compensation Scheme Ltd v West Bromwich Building Society16 is expressed17 by
Lord Hoffmann in terms that principles for the construction of written contracts
have been assimilated to the ‘principles by which any serious utterance would be
interpreted in ordinary life’.
Lord Hoffmann repeated this view, in slightly more cautious terms, in Bank of
Credit and Commerce International SA v Ali,18 where he suggested:19
The disappearance of artificial rules for the construction of exemption
clauses seems to me in accordance with the general trend in matters of
construction, which has been to try to assimilate judicial techniques of
construction to those which would be used by a reasonable speaker of the
language in the interpretation of any serious utterance in ordinary life.
In that case, Lord Hoffmann preferred to refer to a ‘general trend’. But
whether the assimilation which he has in mind is a conclusion to be drawn from
the cases, or an endeavour, does not matter. As explained below, no such
assimilation has occurred. It is also difficult to see how assimilation can be
pursued as an endeavour. The point, although important, is really a very simple
one. In ‘ordinary life’, utterances of intention are interpreted on a subjective
basis. In order to pursue the assimilation which Lord Hoffmann advocated, the
law would need to abandon the objective approach to construction. Of course,
that was not advocated by Lord Hoffmann.
Although Lord Hoffmann framed most of the ICS principles on the basis of
construction of documents, what he described as a ‘serious utterance … in
ordinary life’ must logically include verbal utterances as well. However, given
that the ‘principles’ by which ‘serious utterances’ are ‘interpreted in ordinary
life’ do not depend on the medium chosen, that point is not a material one.
[5-06] Rationale. The rationale for Lord Hoffmann’s approach in Investors
Compensation Scheme Ltd v West Bromwich Building Society20 is the concept of
commercial construction itself, that is, the idea that construction of a contract
should lead to a commercially sensible result.21 A particular construction is more
likely to be commercially sensible if it is the one which a reasonable commercial
person would reach.22 The view seems to be that because the essential question is
what a reasonable commercial person would consider to be the meaning of a
contract, construction is — to a large extent at least — divorced from legal rules
and governed by the techniques that are employed in ordinary life.23
There are three specific aspects of contract construction which might be said
to point in the same direction.24 The first is a concern to demystify the
construction process. The construction of a contractual document should be
something which a non-lawyer can carry out.25 In that respect, the assimilation
conclusion reflects a preference for ‘natural meaning’. What Lord Hoffmann
described26 as the ‘common sense principles’, which would be employed ‘by a
reasonable speaker of the language’, should therefore be utilised.
The second aspect is that, since utterances in ordinary life are interpreted in
context, contracts must be construed against what is variously described as
‘context’, ‘surrounding circumstances’, ‘background’ and so on.
Third, there is a concern for ‘universality’ in construction principles. This has
several features, including: marginalisation of the relevance of form and type:
simple contracts are interpreted in the same way as deeds, and the rules of
construction should be independent of the type of contract at issue; the
processes applied in the construction of unilateral utterances such as offers,
letters, notices and so on should be the same as those applied to contracts; and
since people make mistakes in everyday speech, account must be taken of the
fact that people may also make mistakes when drafting contract documents.
Notwithstanding that these specific aspects emphasise the broad scope of
application of principles of commercial construction, they do not support the
view that contractual documents are construed in the same way as serious
utterances in ordinary life.
‘Serious Utterances’ and Context
[5-07] Introduction. Whatever the medium, all communications are addressed
to an audience. The interaction between medium and audience affects the form
of communication. Because ordinary speech is conducted on a face-to-face basis,
it does not take the form of punctuated sentences.27 There are exceptions, but
most relate to statements to an audience greater than one. For example, it is
possible to transcribe as coherent and grammatical sentences a lecture on the law
of contract, a presentation at a conference or any other form of address to a
group of people. This also reflects the fact that verbal utterances of that nature
are usually considered utterances.
Contractual documents form a distinct category of utterance in life. They are
exceptional for many reasons. First, they are documentary.
Second, documents which state or evidence a contract are often formal and
technical, in appearance, language, style and tone.
Third, the document is an utterance of joint authorship. The intention
expressed by a contract is a common intention.
Fourth, a contract is a single utterance. If the contract is only partly expressed
in written form, the utterance includes the verbal element. It is fundamental to
the construction of a contract that the concern is with the contract as a whole.28
Because conversation in ordinary life takes the form of utterances which are not
sentences, there is no reason why those utterances should form a coherent whole.
[5-08] ‘Serious utterances’. The focus given by Lord Hoffmann in Investors
Compensation Scheme Ltd v West Bromwich Building Society,29 namely, ‘serious
utterances’ in ‘ordinary life’, is imprecise. Linguists tend to use ‘utterance’ to
describe any written or verbal statement, but more particularly to describe the
expression of a single thought, concept, idea or fact.30 In broad terms, each
utterance conveys a message. Conversations are collections of utterances, each
conveying a message. But, as noted above, for the purposes of construction the
relevant utterance is the contract as a whole. Given the context of his statement,
Lord Hoffmann did not use the word ‘utterance’ in the sense of ‘verbal
utterance’. However, for the purposes of interpretation in ordinary life, no
distinction is drawn between verbal and other communications.
Contracts are ‘serious utterances’. So also are most statements made in
connection with a contract or contemplated contract, such as an offer, an
acceptance, a notice given under the contract and so on. It is, however, more
difficult to understand what is ‘serious’ in ‘ordinary life’. Semantics employs no
such concept. Of course, an utterance in ordinary life is certainly ‘serious’ if it is
one which may have legal consequences. But that is the very fact that tends to
attract special rules. The impact of moving to the contractual context is
significant. From the perspective of meaning, in ordinary life the author of any
utterance can insist on the meaning which was actually intended. That facility
generally ceases to be available once the context is contractual. The subjective
‘theory’ of meaning which applies in ordinary life is displaced by the legal
approach.
To maintain Lord Hoffmann’s conclusion, it would have to be concluded that
in ordinary life people interpret utterances in the same way that lawyers construe
contracts. That is plainly a false conclusion. Therefore, Lord Hoffmann’s
assimilation conclusion seems a truism: utterances in ordinary life which are
serious — in the sense that they have legal consequences — are generally
interpreted by lawyers in the same way as contracts are construed.
[5-09] Context. In so far as Lord Hoffmann’s assimilation conclusion in
Investors Compensation Scheme Ltd v West Bromwich Building Society31 is
predicated on equating the role of context in the construction of documents with
the role that context plays in ordinary life, the equation is false. Because it
employs a legal concept, the law takes a narrow view of context.32 The context
of an utterance made in ordinary life is far more extensive. It is no less than the
sum of knowledge and experience of the author of the utterance.
The extent to which a speaker’s knowledge and experience is shared by the
recipient of an utterance is important. No two people have the same knowledge
and experience. Their shared knowledge of circumstantial context may go a long
way towards ensuring that the recipient understands the meaning intended by the
speaker. The fact that no two people share the same knowledge and experience
does not prevent successful communication. However, the greater the difference
the more likely it is that the recipient will not understand what the speaker has
said in its intended sense. Meaning may not be conveyed effectively even though
the speaker has not made a mistake. Readers of works such as James Joyce’s
Finnegans Wake know that only too well. What is crucial in ordinary life is that
the clues to meaning are not limited to vocalisations of words, and that puzzles
of meaning are worked out by interrogation. Unfortunately, clues to the meaning
of documents are formal. Documents do not have body language.33 Nor can they
be interrogated.
Differences in knowledge and experience are taken into account in the
construction of written contracts. But the law relies on the perspective of the
person to whom the words were addressed, not that of the author of the
document.34 Whereas the meaning of an utterance in ordinary life is that actually
intended by the speaker or author, the author of a legal document cannot insist
on intended meaning unless it was known to the addressee. The general rule is
that, except in so far as it is part of objective context, no account is taken of the
actual knowledge and experience of the parties to a contract.35 Even if utterances
in ordinary life are viewed solely from the perspective of the addressee, the
differences in process extend much further than the ‘one important exception’36
to which Lord Hoffmann referred.37
The purpose of having regard to context when construing a document is to
obtain circumstantial assistance. Context does not of itself determine the
meaning of a contract. If meaning is thought of in terms of attachment of a
symbol to a particular referent, in ordinary life context (the sum of knowledge
and experience of the speaker) determines the referent to which the speaker
attached the symbol. That is manifestly not applicable to the construction of
contracts.
Purpose and Process
[5-10] Confusion between purpose and process. One of the most obvious (and
important) features of ‘utterances’ is diversity. Although it is convenient to adopt
a broad distinction between written and verbal utterances, that does tend to
oversimplify. It also glosses over the variety of contexts in which utterances are
made. In ordinary life, and also in the professional or business context,
utterances are usually made in face-to-face conversation, telephone calls, video
links and emails. But they are also made in journals, books, plays, concerts,
lectures, newspaper articles, television and radio broadcasts and so on, including
the undoubtedly serious utterances of judges. It is, to say the least, counter-
intuitive to suggest that all such utterances are subject to the same ‘rules of
interpretation’. There are important differences between purpose and process.
We cannot see into each other’s minds. Therefore, in ordinary life, reliance is
placed on both objective and subjective facts. But any conclusion as to intended
meaning is a subjective one. Moreover, process is different from purpose. In
ordinary life, the purpose is to discover the actual intention of the author. If, on
the basis of the available ‘evidence’, the recipient draws a different conclusion,
that does not change the meaning of the statement, or signify that the author has
an intention different from that actually held as a matter of fact. Nor does it
signify that the speaker has made a ‘mistake’. The difference between what is
intended and what is comprehended is ‘misunderstanding’, not mistake.38
However, contract construction is different. Actual intention is determined as a
matter of presumption, not fact.39 From that perspective, the law carries process
over into purpose. Therefore, if the party to whom the words are addressed has
drawn the conclusion which a reasonable person in that party’s position would
draw, the other party is bound by that conclusion. One rationale for principles of
commercial construction is to ensure that adjudicators of construction disputes
do not determine meaning on the basis of what they would have intended had
they used the words.
In ordinary life, no matter how objective the process employed by a recipient,
communicated meaning does not determine meaning.40 If the process fails, so
that there is misunderstanding, that does not mean that the speaker or author of
the utterance is bound by the meaning which the recipient divined. Still less does
it mean that the speaker is bound by the meaning which a reasonable person in
the position of the recipient would have divined. But contract construction is
different. The objective process does determine meaning. Even in relation to a
unilateral utterance, the speaker or author is, at least usually, bound by the
meaning which would have been determined by a reasonable person. The
contrast is even more marked where the construction of a written contract is at
issue. Although the concern is to determine an actual intention, the relevant
intention is a common intention. In relation to the documentary expression of a
common intention, what the law regards as ‘intention’ is necessarily a
‘construct’.41 The law presumes that the intention determined under an objective
process is the parties’ actual intention. But ‘actual intention’ is not a distinct
inquiry.42
Examples from Literature and Ordinary Life
[5-11] Introduction. In many of the cases in which Lord Hoffmann explained
his theory of contract construction, including Investors Compensation Scheme
Ltd v West Bromwich Building Society,43 he utilised homely examples and
illustrations from literature. Of course, they were all concerned to show how
lawyers construing contracts come to the same conclusions as people
interpreting each other’s utterances, or those of famous authors, in ordinary life.
Apart from the fact that there are obvious differences between works of
fiction and ordinary discourse, there are differences between ordinary discourse
and considered utterances such as contracts and works of literature and
scholarship. The idea that they are all interpreted in the same way, and the view
that lawyers are entitled to rely on the processes in ordinary life, seems to deny
the fact that contract construction has been, and remains, a specialised process.
That, in turn, reflects the fact that construction of contracts determines people’s
legal rights.
In addition, the examples given by Lord Hoffmann relate to unilateral
utterances. They are not easily carried over to the construction of utterances of
common intention.
[5-12] Documents as records. Conversation takes place in real time, and the
utterances made in the conversation are interpreted as they are made. Documents
are historical records. That is true whether the document is a book, a journal
article or a contract. However, a contract is necessarily ‘special’ in that it is a
record which has legal significance from a particular perspective. The
perspective is that it determines the incidents of a unique relationship. It is
necessarily a legal relationship. People may have a fondness for books, but the
book does not purport to set out a legal relationship between the author and the
reader. A book is addressed to the whole world. A contract is not. And in Carlill
v Carbolic Smoke Ball Co,44 the Court of Appeal held that the fact that the
advertisement was made to the whole world did not mean that it was to be
construed according to the meaning which the Smoke Ball Co claimed it was
intended to convey.
A negotiated contract expressed in written form is the record of a bargain. The
time at which a crucial question of construction arises may be years later than
when the document was prepared. Since the law takes an objective approach, a
person construing the document must go back in time. Accordingly, whether a
document is intended to state or evidence a bargain, it is, as a matter of law,
regarded as ‘capturing the moment’, so that statements of intention, prior
negotiations and subsequent conduct are generally to be disregarded.45 The
position is even clearer in relation to a standard form document. Although the
history of the form may go back over many decades, that is the history of the
document, not the bargain. A search for the actual intention of the authors of the
document would therefore be misconceived on two bases.
[5-13] Humpty Dumpty. In Investors Compensation Scheme Ltd v West
Bromwich Building Society,46 Lord Hoffmann referred to Alice’s conversation
with Humpty Dumpty in Through the Looking Glass. He said:47
Leggatt LJ 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.
Just what conclusion is intended to be drawn from this is not entirely clear.48 The
conversation took place in a work of fiction, which Lewis Carroll placed in a
fictitious world. Whether Alice could not understand Humpty Dumpty’s
intended meaning because it was a meaning that he made up (as Lord Hoffmann
seems to assume), or whether it was an available meaning for those on Humpty
Dumpty’s side of the looking glass, is not explained. The need for Alice to
receive an explanation from Humpty Dumpty is consistent with both hypotheses.
Humpty Dumpty’s conversation with Alice included his translation of
Jabberwocky. It seems a rather glib and lawyerly explanation, none of which is
confirmed elsewhere in Through the Looking-Glass. It may be, as Lord
Hoffmann assumed in relation to Humpty Dumpty’s meaning for ‘glory’,
entirely an invention of his own.49 Many of the words in Jabberwocky are
‘invalid’ on our side of the looking glass. For example, there is no meaning in
English for ‘borogoves’ because that is not recognised as a word.50 From a
linguistic perspective, the interesting feature is that although a poem may include
a great many words which are not in the lexicon, because they follow accepted
principles of phonology, some sense of the message can be gleaned if, unusually,
the symbols themselves suggest a connection with an intended (or pretended)
referent.51 Carroll’s invention of ‘borogoves’ did not make it a word on our side
of the looking glass.52 But the linguistic perspective on ‘glory’ is different.
Unlike ‘borogoves’, ‘glory’ is an ordinary English word on our side of the
looking glass. But the available meanings do not include ‘a nice knock-down
argument’. On our side of the looking glass it would be no more open to Humpty
Dumpty to use ‘glory’ to mean ‘a nice knock-down argument’ than it would be
open to a person to use the word ‘sunshine’ to mean ‘rain’.53 It is even less
acceptable in the context of contract construction.54 The fact that, employing
irony (‘more sunshine today I see’), a person can make a comment on the fact
that it is raining does not signify that ‘rain’ is one meaning of the word
‘sunshine’.
In the contractual context, utterances must be construed with the aid of a
standard of interpretation.55 That standard may be that of the community at large,
or the standard of members of a smaller group of people, such as those in a
particular trade. The narrowest standard permitted in the context of a contract is
one which is shared by only the parties to the contract. If the parties invent a
word or meaning, that does not, to use Lord Hoffmann’s statement in Investors
Compensation Scheme Ltd v West Bromwich Building Society, illustrate a
mistake of ‘meaning or syntax’. A contract expresses a common intention, and it
is that common intention which must be determined. The meaning of the word is
necessarily a shared meaning. There is no room in the world of contract for a
unilateral standard of interpretation, that is, a meaning invented by one of the
parties.56 Judged from our side of the looking glass, Humpty Dumpty indulged in
an utterance which relied on a standard of interpretation which is inapplicable to
contracts.
In the construction of documents, one party is not permitted to say that a word
or expression means what he or she intended it to mean. Unless it has been
adopted by the other party it is not an ‘available meaning’. As in other examples
given by Lord Hoffmann, the key to the difference is the distinction between the
objective approach of contract law and the subjective approach of ordinary life.
Under the objective approach, the meaning of ‘glory’ in a contract is the
meaning which a reasonable person would give to the word. In ordinary life, the
meaning is what the speaker intends it to mean if that is an available meaning.
On our side of the looking glass, the meaning ascribed to ‘glory’ by Humpty
Dumpty is unacceptable from both perspectives.57 In Mannai Investment Co Ltd
v Eagle Star Life Assurance Co Ltd,58 Lord Hoffmann also concluded that an
‘available meaning’ for ‘allegory’ (as used by Mrs Malaprop) is a ‘large scaly
creature’. With respect, however, that again uses ‘available meaning’ in an
idiosyncratic sense, both from the perspective of linguistic usage and the
approach to the construction of contracts. A speaker’s subjective meaning which
would not be shared by any other member of the community is not an ‘available’
linguistic meaning. The fact of successful communication does not imply that
the speaker’s usage is an ‘available meaning’.
[5-14] Homely examples. Many of Lord Hoffmann’s examples from ordinary
life suffer from the same difficulty as the examples from literature. They are
based on a subjective approach to meaning. Lord Hoffmann justifies these
examples solely on the basis of successful communication. But even that relies
on assumptions deemed to been made by the recipient. These assumptions,
although not verified by the author of the statement, are fed back into the
example to ‘prove’ that successful communication can occur even though a
speaker makes mistakes. The point glossed over is that while in contract
construction such assumptions, if reasonable, may bind the speaker to an
objectively determined meaning, they do not in ordinary life.
In Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd,59 Lord
Hoffmann referred60 to the following example: 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.
Lord Hoffmann does not explain why it is ‘obvious that he is referring to
one’s wife’. That is simply an assumption. And insufficient contextual
information is provided to enable validation of the assumption. The acquaintance
might, for example, be referring to a daughter or colleague. Or it might be the
acquaintance always asks after wives but usually forgets their names, or that he
thinks all wives are named Mary. Without wanting to labour the point, even
assuming that the intention was to refer to the addressee’s wife, it is by no means
clear that the acquaintance has made the mistake attributed by Lord Hoffmann. It
is quite possible that the mistake was as to the identity of the addressee. ‘Mary’
may well be the name of the wife of the person to whom he thought he was
speaking, even though he was not in fact the addressee.61 Only the acquaintance
knows the identity of the person to whom he was referring.
The example provides a telling illustration of the dangers in using assumed
mistake as a basis for interpretation in ordinary life. A similar danger arises in
the construction of contracts.
[5-15] What the speaker meant to say. Some of Lord Hoffmann’s examples do
indeed suggest a concern with the speaker’s actual intention. For example, in
Charter Reinsurance Co Ltd v Fagan,62 referring to the meaning of ‘actually’, he
said63 the ‘effect of the word … depends upon the nature of the distinction which
the speaker is wanting to make’. This is open to the criticism64 that it confuses
the objective approach of contract law with the subjective approach taken in
ordinary life. Contract law has adopted the dissenting opinion of Alice at the
Mad Hatter’s tea party in Alice’s Adventures in Wonderland, to the effect that ‘I
say what I mean’ is equivalent to ‘I mean what I say’.65 In order to adopt the
approach applied to discover meaning in ordinary life, it would be necessary to
side with the majority at the tea party (the Hatter, with whom the March Hare
and Dormouse agreed).66
Lord Hoffmann responded to this problem in Mannai Investment Co Ltd v
Eagle Star Life Assurance Co Ltd,67 where he said:68
[I]t is sometimes said that the examples which I have given from
ordinary life are concerned with what the speaker meant to say. He may
subjectively have intended to say something different from what he
actually said and it may be possible, by the kind of reasoning which I
have described, to divine what his subjective intentions were. But the law
is not concerned with subjective intentions. All that matters is the
objective meaning of the words which he has used.
It is of course true that the law is not concerned with the speaker’s
subjective intentions. But the notion that the law’s concern is therefore
with the ‘meaning of his words’ conceals an important ambiguity. The
ambiguity lies in a failure to distinguish between the meanings of words
and the question of what would be understood as the meaning of a person
who uses words. The meaning of words, as they would appear in a
dictionary, and the effect of their syntactical arrangement, as it would
appear in a grammar, is part of the material which we use to understand a
speaker’s utterance. But it is only a part; another part is our knowledge of
the background against which the utterance was made. It is that
background which enables us, not only to choose the intended meaning
when a word has more than one dictionary meaning but also, in the ways
I have explained, to understand a speaker’s meaning, often without
ambiguity, when he has used the wrong words.
When, therefore, lawyers say that they are concerned, not with
subjective meaning but with the meaning of the language which the
speaker has used, what they mean is that they are concerned with what he
would objectively have been understood to mean. This involves
examining not only the words and the grammar but the background as
well.
With respect, it might be said that there is much ‘confession and avoidance’ in
this explanation. The reference to the need ‘to understand a speaker’s meaning’
seems to transgress the objectivity rule. More fundamentally, the statement
neither addresses the problem nor explains how the gap between the speaker’s
intended meaning (meaning in ordinary speech) and the meaning determined by
a reasonable person in the recipient’s position (meaning in contract construction)
is bridged by construction principles. Although Lord Hoffmann suggests that it
is context which bridges the gap, that ignores the fact that, when compared with
‘context’ in construction (a closely confined legal concept), the content of
context is quite different in ordinary speech (a considerably more complex
concept). But it can also be said that it is one thing to be able to unravel
statements made in ordinary life according to what the addressee actually
considers to be the actual intention of the speaker, and it is quite different to
suggest that the same techniques are available to a reasonable person who is
seeking to construe a statement of common intention.69
Conclusion
[5-16] No assimilation. In relation to any utterance, communicated meaning
may differ from intended meaning. The obvious difficulty with the assimilation
conclusion, as made by Lord Hoffmann in Investors Compensation Scheme Ltd v
West Bromwich Building Society,70 is that in ordinary life both are subjective
concepts. In order for the conclusion to be applied in the construction of
contracts, it would be necessary to abandon the objective approach. Although the
modern rules applied in contract construction may generally lead to results that
are in accordance with the actual intention of the parties, that is not because the
processes are the same as in ordinary life.
In particular, invocation of the modern concept of ‘context’ does not provide a
basis for ignoring the differences between contract construction and
interpretation in ordinary life. If two friends or relations have a conversation,
their familiarity with each other may make it easy for each to determine the
intention of the other. If A says to B, I will meet you on the corner of Smith
Street and Brown Street at 7.00 pm, B is not concerned with whether a
reasonable person in B’s position would determine that A intends to be there.
Rather, B would rely on personal knowledge of A to decide whether there is any
point in going to the rendezvous. An intended message may differ from the
objective message. Not only can mistakes be spotted, unspoken signals may turn
a statement on its head. If A says to B, ‘I am taking the dog for a walk’, and at
the same time winks, B will appreciate that A does not in fact intend to take the
dog for a walk. The closest equivalent in a contractual document is a sham, that
is, a statement made to mask the real intention of the parties.71 But it is no
answer to responsibility for a contractual document for A to point out that A’s
fingers were crossed when the document was signed.
In ordinary life, how people react to statements depends on their evaluation of
actual, not objective, intention. But that does not determine meaning. Contract
law adopts what might be termed a ‘behavioural approach’72 to meaning under
which a person’s intention is determined by reference to how a reasonable
person would react to what is said and done, rather than what is thought.73 What
a contract (or offer, notice and so on) says is analogous to a stimulus, the
‘response’ to which is assumed to be conditioned by the objective approach. That
the person who made the utterance is generally bound by its ‘objective meaning’
reflects the importance attached to reasonable reliance.74
[5-17] Commercial construction. Contract construction differs from
interpretation in ordinary life. It is a distinctive process. The distinctive features
cannot be ignored. Indeed, they are crucial to considerations of certainty and
predictability. Principles of commercial construction do not seek to achieve
assimilation. The basis for the idea that commercial construction seeks to
achieve commercially sensible results is that construction conclusions should,
ideally, mirror those which would be reached by a reasonable commercial
person. However, that assumes application of the objective approach, as well as
the rules and principles of contract law. Under that approach, even linguistic
meaning in relation to a contract in writing or evidenced by writing is a
‘construct’, based on construction of the document as a whole and in the light of
context.
Limitations on the ability to assimilate construction with what happens in
ordinary life also arise from the fact that, although not referred to by Lord
Hoffmann, not all construction issues relate to the meaning of contracts. The
legal effect of a contract is often determined by the process of construction.
Indeed, the commercially sensible results which commercial construction seeks
to achieve are legal results. The extent to which complex legal issues which arise
in relation to contracts can be explained simply by reference to the reasonable
commercial person varies. Moreover, although the law of contract ought always
to be explicable in commercial terms, that is more of a goal than a fact.
Similarly, to assume that legal developments keep pace with developments in
commerce, and are never out of step, is not correct.75
In construction, rules regulating process and purpose take their content from
the law of contract. There are therefore limitations within the system on the
ability to achieve what the reasonable commercial person may require. In the
interpretation of an utterance made in ordinary speech the recipient’s objective is
to determine the actual intention of the person who made the utterance. That is
always the case. Absent a legal context, it is irrelevant whether the utterance is
‘serious’. It is not that in ordinary life people are not concerned with objective
meaning. But we understand that communicated meaning may or may not
correspond with intended meaning. Absent a contractual context, the person who
made the utterance is not bound by the communicated meaning.
It could not for one moment be suggested that all the features which
characterise contract construction are unique to contracts. However, contract
construction is sufficiently distinctive to make it different from the interpretation
of other ‘serious utterances’. A very good reason for not agreeing with the
assimilation conclusion with which in Investors Compensation Scheme Ltd v
West Bromwich Building Society76 Lord Hoffmann prefaced the ICS principles is
that its adoption would require modification of most of those principles.
THE ICS PRINCIPLES
[5-18] Introduction. This book does not discuss as distinct principles of
construction the ICS principles stated in Lord Hoffmann’s five numbered
paragraphs in Investors Compensation Scheme Ltd v West Bromwich Building
Society.77 By and large the ICS principles simply express or reflect aspects of
many of the established principles discussed throughout the book. Accordingly,
one objective of the brief discussion below is to locate the ICS principles within
the structure of this book. Some discussion of their relationship with the
underlying thesis of the book is included.
The ICS principles are not, and were not intended to be, a comprehensive
statement of the law. As generalisations, they are not always helpful. Very little
is provided by way of rationale for choosing to emphasise certain aspects of
construction. More fundamentally, the summary does not distinguish between
the various roles of construction in determining meaning, legal effect and the
application of contracts to fact situations. Nor does the summary explain the use
of construction in the application of contract doctrine.
[5-19] Objectivity. The first principle expressed by Lord Hoffmann in Investors
Compensation Scheme Ltd v West Bromwich Building Society78 is a statement of
the objective approach to contract construction as applied to the ‘ascertainment
of … meaning’. It postulates that the reasonable person has ‘all the background
knowledge which would reasonably have been available to the parties’. In so far
as this is a statement of the role of context in applying the principle of
objectivity, it is necessarily expressed in an abbreviated form.79
In addition to the objective theory, two ideas underlie this principle. One is
the idea of a ‘perspective’. Although Lord Hoffmann refers, simply, to the
‘reasonable person’, the question of whose shoes the reasonable person stands in
to construe a contract has occasioned debate. Although not stated in the first
principle, the conventional view is that the reasonable person stands in the shoes
of the person to whom the words in question were addressed.80
The other idea that the statement of the first principle seems to assume, as do
the other principles, is that the meaning of the contract is one which would occur
to an ordinary member of the public. However, not all contracts are governed by
the standard of interpretation of the community at large. As discussed in Chapter
12, there are narrower standards of interpretation.81
[5-20] Background knowledge. The second principle stated by Lord Hoffmann
in Investors Compensation Scheme Ltd v West Bromwich Building Society82
explains the concept of ‘background’. Lord Hoffmann makes four points. First,
in Lord Wilberforce’s analyses of the role of context, it was termed the ‘factual
matrix’.
Second, that concept may be an understatement of what the concept of
background includes.
Third, to count as background, the relevant information must have been
‘reasonably available to the parties’.83
Fourth, subject to the third point, background includes ‘absolutely anything
which would have affected the way in which the language of the document
would have been understood by a reasonable man’.84
The wide conception of ‘background’ subsequently came under criticism.
Equally, courts have struggled to define the scope of ‘background’.85
[5-21] Exclusionary rule. Lord Hoffmann’s second principle in Investors
Compensation Scheme Ltd v West Bromwich Building Society86 was subject to
his third principle. The latter is a statement of the exclusionary rule, which was
also the ‘one important exception’87 to his assimilation conclusion. He did not
use the description ‘exclusionary rule’.88 However, it is employed in this book to
describe the rule (or rules) under which the ‘declarations of subjective intent’89
and the ‘previous negotiations of the parties’90 are excluded from consideration
in construction. Although not referred to, Lord Hoffmann must have intended to
include evidence of subsequent conduct as falling within the exclusionary rule.
When sought to be used to construe a contract, each is a category of ‘extrinsic
evidence’. Since the exclusion of prior negotiations was subsequently confirmed
in Chartbrook Ltd v Persimmon Homes Ltd,91 Lord Hoffmann’s comment92 that
the ‘boundaries of this exception are in some respects unclear’ must now be read
subject to that case.93
In Investors Compensation Scheme Ltd v West Bromwich Building Society,
Lord Hoffmann considered94 that declarations of subjective intent and prior
negotiations ‘are admissible only in an action for rectification’. However, there
are also exceptions to the exclusionary rule,95 so that, for example, evidence of
prior negotiations may be admitted in certain cases, such as latent ambiguity.
Lord Hoffmann also made the point in relation to prior negotiations that ‘in this
respect only, legal interpretation differs from the way we would interpret
utterances in ordinary life’. As explained above, that cannot be correct. The first
principle — relating to the objective approach — sets contract construction apart
from interpretation of utterances in ordinary life. Legal rules in relation to the
‘admissibility’ of evidence flow from that. Otherwise, the refusal of the law to
consider ‘declarations of subjective intent’ would be the exception, not the rule.96
[5-22] Meaning of documents. The essence of Lord Hoffmann’s fourth
principle in Investors Compensation Scheme Ltd v West Bromwich Building
Society97 is expressed as:98
The meaning of words is a matter of dictionaries and grammars; the
meaning of the document is what the parties using those words against
the relevant background would reasonably have been understood to
mean.
It is incontrovertible that the meaning of a contractual document is what a
reasonable person would understand it to mean. But precisely the same contrast
which Lord Hoffmann draws between the meanings of words in dictionaries and
in documents can be drawn between the meaning of a sentence and the meaning
of a document.99 The difference between the fourth of the ICS principles and the
first is therefore difficult to identify. Each is an affirmation of the role of context
in applying the objective approach, and each assumes that the contract is
construed as a whole in light of that context.
To the extent that the purport of the fourth principle is that it is no good
looking in a dictionary to work out what a contract means, the point is an
obvious one. But it is vitally important.100 It marks an important difference
between commercial construction and the process which characterised many of
the older construction cases. The meaning of a contract is not determined by
looking up the meaning of each word which the parties used in their document.
However, because the law regards the document itself as a much more reliable
guide to choice of meaning, most of the material which in ordinary life would be
used as an aid to interpretation is ignored, including any discussions before and
after the making of the utterance.
Lord Hoffmann points out that:101
[B]ackground may not merely enable the reasonable man to choose
between the possible meanings of words which are ambiguous but even
(as occasionally happens in ordinary life) to conclude that the parties
must, for whatever reason, have used the wrong words or syntax ….
Because this harks back to the ‘meanings of words’, it undermines the
distinction which is drawn in the first sentence of the principle. There is also a
logical problem. If meaning can be determined on the basis of context, why are
the words ambiguous? It would seem more logical to express the role of context
in terms that the objective is to prevent difficulties in construction from
arising.102 The point seems to be that even though context is determined before
construction commences, its impact (as a legal concept) in construction is much
less direct than when deployed in ordinary life. The law treats internal context as
a much more reliable guide to choice of meaning.
More generally, the role of context in indicating that the parties ‘have used
the wrong words or syntax’ seems overstated. Lord Hoffmann cited Mannai
Investment Co Ltd v Eagle Star Life Assurance Co Ltd103 as an illustration.
However, in Mannai the focus of discussion was the construction of a unilateral
notice, not the construction of a contract. Nor was it a case about the meaning of
words. There was no doubt what the words which had been used meant as a
matter of ordinary English. What was at issue was whether the notice which
included the ‘wrong words’ was nevertheless given in fulfilment of the
requirements of the break clause in the lease. In so far as the case concerned
construction of a contract, the decision of the House of Lords was that although
the notice did not literally ‘match’ the lease, it was to be treated as complying
with the lease because of how a reasonable person in the position of the recipient
of the notice would understand it.
[5-23] Natural and ordinary meaning. The statements above in relation to the
fourth principle in Investors Compensation Scheme Ltd v West Bromwich
Building Society104 are also relevant to Lord Hoffmann’s fifth principle, which
invokes a concept of the ‘natural and ordinary meaning’ of words. Although he
placed the concept in quotation marks, there is no statement of what it means.
However, read in context it refers to the normal grammatical meaning of words
as they would be understood by an ‘ordinary’ person.
Lord Hoffmann expressed the view that:105
The ‘rule’ that words should be given their ‘natural and ordinary
documents.
To the extent that the statement refers to meanings in general usage in the
community, it is largely a restatement of the first and fourth of the ICS
principles. Otherwise, given that the source of ordinary meanings is a standard
English dictionary, it is not easy to reconcile the appearance of the concept in the
fifth principle when it was rejected in the fourth principle. In fact, later in his
speech in Investors Compensation Scheme Ltd v West Bromwich Building
Society, Lord Hoffmann said:106
I do not think that the concept of natural and ordinary meaning is very
helpful when, on any view, the words have not been used in a natural and
ordinary way.
He had made much the same point in Charter Reinsurance Co Ltd v
Fagan:107
I think that in some cases the notion of words having a natural meaning is
not a very helpful one. Because the meaning of words is so sensitive to
syntax and context, the natural meaning of words in one sentence may be
quite unnatural in another.
It is therefore unfortunate that the presumption in favour of ‘natural and ordinary
meaning’ was stated as a general ‘rule’ in the ICS principles. Whether ordinary
people making utterances think in terms of ‘natural meaning’ seems doubtful.
The perspective is the intention of the person making the utterance. What the
reasonable recipient would regard as natural — the contract lawyer’s perspective
— does not determine meaning. In ordinary life, the best that can be said is that,
in communications between strangers, people are likely to ask themselves what
they would have meant by the utterance. But since that does not determine what
the speaker meant, it does not determine the meaning of the utterance.
As Lord Hoffmann pointed out in Investors Compensation Scheme Ltd v West
Bromwich Building Society, dictionaries are of limited use in construing
contracts. That is the very reason why appeals to ‘natural and ordinary meaning’
are unconvincing. That concept is problematic in another respect. Dictionaries
are of even less use when it is sought to apply an established meaning to a
particular fact situation. That was the context of the important statement by Lord
Diplock in Antaios Compania Naviera SA v Salen Rederierna AB (The
Antaios).108 Although invoked by Lord Hoffmann by way of qualification to the
role of natural and ordinary meaning, and based on the idea that ‘something must
have gone wrong with the language’,109 the House of Lords upheld the
arbitrators’ award in The Antaios on the basis of a need to ensure commercial
application of the contract. It was not because something had gone wrong with
the language of the withdrawal clause.
[5-24] Relationship between the fourth and fifth principles. It is not easy to
reconcile the fourth and fifth principles in Investors Compensation Scheme Ltd v
West Bromwich Building Society.110 The problem is that although the statement
of the fourth principle emphasises the importance of determining the meaning of
the contract as a whole, the fifth principle conceives that ‘natural and ordinary
meaning’ can be departed from only in cases of error or mistake. What is the
source of this jurisdiction to correct mistakes which, if the fourth principle has
been applied, must be based on construction of the contract as a whole?111 One
answer is to say that the fifth principle relates to errors and mistakes which
would appear to be present if attention were limited to the document.112 But the
problem seems much deeper than saying that the fifth principle should logically
have preceded the fourth. The combined effect of the two principles is to call in
question not only the importance traditionally attached to expressed intention113
but also the remedy of rectification.114
To appreciate the point it is necessary to anticipate some of the discussion of
context in Chapter 6.115 Context has always been taken into account in
construction. However, the original approach was that context could not be used
to qualify the ‘plain’ or ‘ordinary’ meaning of a contract document. Context was,
however, given a greater role where the document was ‘susceptible of more than
one meaning’.116 Although the decision in Prenn v Simmonds117 can be taken as
marking the end of that approach, it could have been applied. The words at issue
were ‘aggregate profits of RTT’. Although the point achieved no prominence in
the later cases, ‘RTT’ was in fact a defined term. It therefore had a plain
meaning, namely, ‘Radio and Television Trust Limited’. The definition was held
not to apply, and ‘RTT’ was construed to mean ‘RTT and its subsidiaries’. Lord
Wilberforce noted that the document did not use the defined term consistently,
but it was the context of the contract, including its commercial purpose, which
was crucial.118 ‘Mistake’ did not figure in the analysis.
2. I am grateful to Professor Michael Furmston for permission to use material
from the draft of a joint paper on the topic.
3. [1998] 1 WLR 896.
4. For discussion see, eg P V Baker (1998) 114 LQR 55; David McLauchlan,
‘Plain Meaning and Commercial Construction: Has Australia Adopted the
ICS Principles?’ (2009) 25 JCL 7; Richard Buxton, ‘“Construction” and
Rectification after Chartbrook’ [2010] CLJ 253; Lewison, §§1.01ff.
5. [1976] 1 WLR 989 at 912; [1976] 3 All ER 570. Lords Goff, Hope and
Clyde agreed. See also John McCaughran, ‘Implied Terms: The Journey of
The Man on the Clapham Omnibus’ [2011] CLJ 607 at 610 (‘cultural
revolution’).
6. See Lewison, §1.02 (not a ‘new departure’). But cf Richard Buxton,
‘“Construction” and Rectification after Chartbrook’ [2010] CLJ 253 at
254.
8. [2009] 1 AC 1101 at 1119; [2009] UKHL 38 at [37].
9. See [5-24].
10. [1998] 1 WLR 896.
12. [1998] 1 WLR 896 at 912–13.
13. [1998] 1 WLR 896 at 912.
14. See, eg David McLauchlan, ‘Plain Meaning and Commercial Construction:
Has Australia Adopted the ICS Principles?’ (2009) 25 JCL 7.
15. For a summary of the summary see Enterprise Oil Ltd v Strand Insurance
Co Ltd [2006] 1 Lloyd’s Rep 500 at 514–15; [2006] EWHC 58 (Comm) at
[60].
16. [1998] 1 WLR 896.
17. [1998] 1 WLR 896 at 912.
18. [2002] 1 AC 251; [2001] UKHL 8.
19. [2002] 1 AC 251 at 276; [2001] UKHL 8 at [62]. In relation to exclusion
clauses, see Chapter 17.
20. [1998] 1 WLR 896 at 912–13.
21. See, eg [1-22], [13-06], [15-03].
22. See [1-26]. But some might challenge Lord Hoffmann’s comment in
Charter Reinsurance Co Ltd v Fagan [1997] AC 313 at 391, that what ‘is
true of ordinary speech is also true of reinsurance’.
23. Cf [4-18] (construction a matter of commercial judgment).
24. To some extent these are reflected in the numbered paragraphs of the ICS
principles.
25. See also [1-41].
26. [1998] 1 WLR 896 at 912.
27. See Lyons, vol 1, p 29 (‘tend to be … grammatically incomplete or
elliptical’).
28. See [4-20]. Lord Hoffmann may have treated the unit of communication in
ordinary life as a sentence. See also his statement in R v Brown [1996] AC
543 at 561. That does not seem to be the view taken in linguistics. See Neil
Smith and Deidre Wilson, Modern Linguistics: The Results of Chomsky’s
Revolution, Penguin Books, London, 1990, p 45 (sentences are ‘abstract
objects’ whereas utterances are ‘datable events’). Cf P F Strawson,
‘Intention and Convention in Speech Acts’, in J R Searle, ed, The
Philosophy of Language, Oxford University Press, Oxford, 1977, p 23.
29. [1998] 1 WLR 896.
30. But see Lyons, vol 1, p 26 (‘confusion … surrounds the term “utterance” in
linguistics’).
31. [1998] 1 WLR 896 at 912.
33. Cf, in the context of oral contracts, Khan v Khan [2007] EWCA Civ 399 at
[45]; [2008] Bus LR Digest 73 at D76 (shaking of hands and embrace).
34. See [4-22].
35. Cf Pink Floyd Music Ltd v EMI Records Ltd [2011] 1 WLR 770n; [2010]
EWCA Civ 1429 at [18] (account to be taken of parties’ experience and
expertise).
36. [1998] 1 WLR 896 at 912.
37. See Lewison, §1.03.
38. See Glanville Williams, ‘Language and the Law — IV’ (1945) 61 LQR 384
at 392.
39. See [2-09]–[2-17].
40. Cf Franklins Pty Ltd v Metcash Trading Ltd (2009) 76 NSWLR 603 at 623;
[2009] NSWCA 407 at [50].
41. See [1-03].
42. See [2-09]–[2-17].
43. [1998] 1 WLR 896.
44. [1893] 1 QB 256.
45. See [5-21].
46. [1998] 1 WLR 896.
47. [1998] 1 WLR 896 at 914.
48. Cf D W McLauchlan, ‘Objectivity in Contract’ (2005) 24 Univ Qld LJ 479
at 494.
49. The White King refers to one of the creatures in Jabberwocky, when he said
‘You see, a minute goes by so fearfully quick. You might as well try to stop
a Bandersnatch!’.
50. Humpty Dumpty described it as a ‘thin shabby-looking bird with its
feathers sticking out all round — something like a live mop’.
51. Humpty Dumpty perhaps felt himself accredited to translate Jabberwocky
on this basis. As he said, ‘my name means the shape I am’.
52. Contrast ‘jabberwock’, which the Oxford English Dictionary, 2nd ed, OUP,
Oxford, 1989, lists as ‘invented language, meaningless language,
nonsensical behaviour’.
53. See Lyons, vol 1, p 2 (‘sympathies … lie more with Alice’).
54. See G L Williams, ‘Language and the Law — IV’ (1945) 61 LQR 384 at
387. Cf Dave Goddard, ‘The Myth of Subjectivity’ (1987) 7 Leg Stud 263.
55. See Chapter 12.
56. Cf Liversidge v Anderson [1942] 1 AC 206 at 244–5 (statutory
interpretation).
57. Cf Brooks v Burns Philp Trustee Co Ltd (1969) 121 CLR 432 at 458 per
Windeyer J (‘But his latitude and his command of his words as his servants
are not generally allowed to lawyers. They are called upon to interpret other
men’s words.’).
58. [1997] AC 749 at 778.
59. [1997] AC 749.
60. [1997] AC 749 at 774.
61. Cf Cundy v Lindsay (1878) 3 App Cas 459.
62. [1997] AC 313.
63. [1997] AC 313 at 391–2 (italics supplied).
64. See D W McLauchlan, ‘Objectivity in Contract’ (2005) 24 Univ Qld LJ 479
at 493.
65. See [2-11].
25 JCL 83.
67. [1997] AC 749.
68. [1997] AC 749 at 775. Cf [1997] AC 749 at 774 (‘people can convey their
meaning unambiguously although they have used the wrong words’).
69. See generally on ‘clues to meaning’ Chapter 13.
70. [1998] 1 WLR 896 at 912.
71. See [2-27].
72. Cf Lyons, vol 1, ch 5.
73. Cf Charles M Willie & Co (Shipping) Ltd v Ocean Laser Shipping Ltd (The
Smaro) [1999] 1 Lloyd’s Rep 225 at 238 per Rix J (reference to subsequent
conduct to ‘check’ conclusions on construction); The Tychy (No 2) [2001] 2
Lloyd’s Rep 403 at 410; [2001] EWCA Civ 1198 at [36] per Lord Phillips
MR for the court (subsequent conduct a ‘comforting reassurance’).
74. Cf Paal Wilson & Co A/S v Partenreederei Hannah Blumenthal [1983] 1
AC 854 at 916 per Lord Diplock (‘injurious reliance’).
(1985) 73 Calif L Rev 261. Cf Clarence House Ltd v National Westminster
Bank Plc [2010] 1 WLR 1216 at 1234; [2009] EWCA Civ 1311 at [47] per
Ward LJ, with whom Jacob LJ and Warren J agreed (virtual assignments
‘strange new beasts in the forest’ which ‘smell’ of contract not trust).
76. [1998] 1 WLR 896 at 912.
77. [1998] 1 WLR 896 at 912–13.
78. [1998] 1 WLR 896 at 912.
79. The use of context in construction is discussed in Part IV.
80. See Chapter 11.
81. But not the unilateral standard of interpretation adopted by Humpty
Dumpty. See [12-21].
82. [1998] 1 WLR 896 at 912–13.
83. [1998] 1 WLR 896 at 912.
84. [1998] 1 WLR 896 at 913.
85. See Chapter 7.
86. [1998] 1 WLR 896 at 912–13.
87. [1998] 1 WLR 896 at 912.
88. Subsequently, he used the expression to refer to the exclusion of evidence
of prior negotiations; see Chartbrook Ltd v Persimmon Homes Ltd [2009] 1
AC 1101; [2009] UKHL 38.
89. [1998] 1 WLR 896 at 913.
90. [1998] 1 WLR 896 at 913.
91. [2009] 1 AC 1101; [2009] UKHL 38.
92. [1998] 1 WLR 896 at 913.
93. The exclusionary rule is discussed in Part V.
94. [1998] 1 WLR 896 at 913.
95. See generally Chapters 10, 14 and 18.
96. See also [11-30].
97. [1998] 1 WLR 896.
98. [1998] 1 WLR 896 at 913. See also Mannai Investment Co Ltd v Eagle Star
Life Assurance Co Ltd [1997] AC 749 at 779 per Lord Hoffmann (‘we no
longer confuse the meaning of words with the question of what meaning the
use of the words was intended to convey’).
99. See Neil Smith and Deidre Wilson, Modern Linguistics: The Results of
Chomsky’s Revolution, Penguin Books, London, 1990, p 148 (‘distinction
between the meaning of a sentence and the interpretation of an utterance’).
100. See also Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd
[1997] AC 749 at 772 per Lord Steyn (‘As Lord Hoffmann has observed we
no longer confuse the meaning of words with the question of what meaning
in a particular setting the use of words was intended to convey.’).
101. [1998] 1 WLR 896 at 913.
102. See, eg [6-14].
103. [1997] AC 749. See also [15-30].
104. [1998] 1 WLR 896.
105. [1998] 1 WLR 896 at 913. See also Bank of Credit and Commerce
International SA v Ali [2002] 1 AC 251 at 269; [2001] UKHL 8 at [39];
Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC 1101 at 1112; [2009]
UKHL 38 at [14].
106. [1998] 1 WLR 896 at 914.
107. [1997] AC 313 at 391.
108. [1985] AC 191 at 201.
109. [1998] 1 WLR 896 at 913.
110. [1998] 1 WLR 896 at 913.
111. Cf Lord Grabiner, ‘The Iterative Process of Contractual Interpretation’
(2012) 128 LQR 41 at 46.
112. Cf Neil Smith and Deidre Wilson, Modern Linguistics: The Results of
Chomsky’s Revolution, Penguin Books, London, 1990, p 41 (‘initial
judgments’).
113. Cf Oceanbulk Shipping and Trading SA v TMT Asia Ltd [2011] 1 AC 662 at
682–3; [2010] UKSC 44 at [43]–[45]. See also [2-13].
114. See Richard Buxton, ‘“Construction” and Rectification after Chartbrook’
[2010] CLJ 253 at 254–7, 260–2. See also [9-44].
115. See also [3-09].
116. Great Western Railway v Bristol Corporation (1918) 87 LJ Ch 414 at 419
per Lord Atkinson.
117. [1971] 1 WLR 1381; [1971] 3 All ER 237.
118. See Reardon Smith Line Ltd v Yngvar Hansen-Tangen [1976] 1 WLR 989 at
996; [1976] 3 All ER 570.
PART IV
Context of the Contract
6
Role of Context
General [6-03]
Introduction [6-03]
Internal and External Context [6-07]
Development [6-09]
Factual Context [6-16]
Introduction [6-16]
Content [6-20]
Common Intention [6-31]
[6-01] Objects of Part IV. This chapter and the next discuss one of the key
aspects of commercial construction, namely, the use of ‘context’. As with other
concepts used in the construction of contracts, ‘context’ has a specialised
meaning. It is therefore necessary to discuss the interaction between context and
other concepts, including ‘extrinsic evidence’.
Chapter 6 concerns the nature of the concept and its evolution. Chapter 7
discusses the scope of the concept, including the role of knowledge and the use
of context in the construction of standard form contracts.
[6-02] Objects of this chapter. It has never seriously been doubted that context,
or ‘background’, the ‘surrounding circumstances’ or ‘factual matrix’, can be
taken into account when construing a contract. However, the crucial role of the
concept has only been acknowledged in the past 40 years. The chapter explains
the evolution of context and the ways in which it is deployed in the modern law.
The factual context of a contract must be determined prior to construction of
the contract. The importance attached to context has led to the fundamental
change in the law to which Lord Hoffmann referred in Investors Compensation
Scheme Ltd v West Bromwich Building Society.1 Relevantly, the main difference
between the current approach and that formerly applied is the basis for its use. In
particular, no justification is required for the use of context in construction.
Context may therefore be utilised even though the document being construed is
not in any sense ‘ambiguous’.
GENERAL
Introduction
[6-03] Background summary. By way of background to this chapter and in
anticipation of what is explained in later chapters dealing with the ‘exclusionary
rule’, the approach taken to the use of raw material in the construction process
should be summarised. The four elements of the summary reflect the ‘stages in
construction’ analysis referred to earlier.2
First, the starting point for the resolution of any construction issue is to place
the contract in its (external) context.3 That is because evidence of context is
relevant to all construction questions. The form of the contract does not matter.
What raw material may be used is determined by what constitutes ‘context’.
Scope is necessarily relative to the circumstances. In relation to a commercial
contract in writing or evidenced by writing, ‘context’ stands outside the scope of
the exclusionary rule.
Second, when the issue is whether a statement (oral or written) made during
negotiations is a term of the contract, the dispute must be determined according
to the intention of the parties. An issue of construction may arise, namely,
whether any document adopted by the parties was intended to state or evidence
exhaustively the terms of the contract in relation to the subject matter with which
the statement deals.4 If that was the intention, the statement cannot be invoked as
a term of the contract.
Third, if a question arises as to the meaning of a contract (including the legal
effect of a term of a contract), the ability to rely on extrinsic evidence as a direct
aid to construction depends on the operation of an exception to the exclusionary
rule.5
Fourth, having determined the meaning of the contract, it must be applied to
the factual circumstances that have arisen. The relevant raw material comprises
those factual circumstances. Although the exclusionary rule has no direct
application to that aspect of construction, as is explained in Chapter 18, the
concept of ‘evidence in application’ is used in more than one way. In addition, it
may be found that the previously determined meaning cannot be applied. In such
a case, it may be necessary to reconsider the extent of the evidence available to
construe the contract. Again, this generally depends on the operation of an
exception to the exclusionary rule.6
[6-04] Terminology. The (external) ‘context’ of a contract has been described in
various ways over the years. There are many expressions, including:
‘surrounding circumstances’; ‘contractual setting’; ‘factual matrix’;
‘factual and legal matrix’; and ‘background’.
Nothing is to be gained from trying to draw distinctions between the various
expressions. References in the case law to any of these matters should therefore
be recognised as references to ‘admissible context’.
Nevertheless, the interaction between the legal concept on which these
descriptions rely and the legal rules relating to the ‘admissibility’ of evidence,
has changed over time.
[6-05] Extrinsic and other evidence. There is a general and important contrast
in contract construction between ‘extrinsic evidence’, which cannot — as a
matter of law — be used as a direct aid to construction, and ‘other evidence’
which may be utilised in construction, at least as a circumstantial guide. The law
in relation to the use of extrinsic raw material is substantive, not procedural.7
Therefore, although discussed in terms of the ‘admissibility’ of evidence, the
approach to extrinsic evidence is a substantive matter. The concern is to identify
evidence available as a direct aid to construction, not what evidence is
admissible under rules of evidence.
There is, of course, no difficulty in saying that internal context — the contract
as a whole — must be taken into account. Any document stating or evidencing
the terms of the contract is a direct guide to construction. But evidence of
context is, so far as intention is concerned, a circumstantial guide. The debate in
relation to context, including attempts to distinguish between evidence of
context and extrinsic evidence, concerns the role of circumstantial matters from
which inferences can be drawn as to the intention of the parties. Throughout the
whole history of contract construction, a debate has raged between the
‘textualists’ and the ‘contextualists’.8 In England, the latter have finally prevailed
so that, even though in reference to its internal context a document may appear
to be clear and unambiguous, context must nevertheless be taken into account.
Expressed in technical terms, evidence of the context of a document is not
extrinsic evidence.
[6-06] Evidence of context not extrinsic.
Article 6.1 — Context not extrinsic evidence.
Evidence of context is not extrinsic evidence for the purposes of the
exclusionary rule.
In this book, the term ‘extrinsic evidence’ is reserved for, and applied only to,
evidence which is deemed inadmissible as a direct aid to construction by a
substantive rule of contract law, namely, the exclusionary rule.9 That description
does not include evidence which, by agreement or the application of construction
rules, forms part of the factual context. Under principles of commercial
construction, evidence of the context of a contract is not extrinsic evidence. As
Lord Hobhouse pointed out in Bruton v London & Quadrant Housing Trust,10
context must be determined ‘before the court construes an agreement’.
In one sense, this has always been the position. Although in the older cases
the concept (‘surrounding circumstances’) was confusingly described as
‘extrinsic’ or ‘parol’ evidence, there is no doubt that courts have always
construed documents in light of their context. On that basis alone, the expression
‘extrinsic evidence’ should not be applied to evidence which is purely
contextual. Nevertheless, even in recent cases, admissible evidence of context is
sometimes termed ‘extrinsic evidence’.11 But the differences between the current
law and the old law are by no means purely a matter of terminology.
Internal and External Context
[6-07] Introduction. The role of context in the construction of contracts is
fundamental. Whether the contract is expressed in a document which is a deed or
in a document which states or evidences a simple contract, context plays a
crucial role. All utterances have a context. Context is no less important in the
interpretation of verbal utterances in connection with a contract or proposed
contract.12 So much follows from the truism that the meaning of any utterance —
whether or not having legal significance — depends on the context in which it
was made.
Context may be internal or external. For the purposes of the construction of
documents, the former is the document itself, and the latter the circumstances in
which the document was brought into existence. Clearly enough, both are
important. The importance of construing the document as a whole cannot be
doubted.13 Internal context is regarded as a direct guide to intention. Although at
one time courts may have regulated the use of (external) context by reference to
whether the internal context suggests ‘ambiguity’, or some other construction
difficulty, no such requirement exists today. It follows that context is always
taken into account. It may, of course, assist in the resolution of construction
difficulties apparent on the face of a document, but the principal objective is to
reduce the frequency with which construction difficulties arise.
[6-08] Semantic theory and context. A basic idea of semantic theory is that
meaning is given to words through the application of a word or other symbol to a
referent (person or thing).14 At a very basic level of sophistication, the
connection between symbol and referent is indirect, and achieved by application
of a third concept, namely, ‘meaning’. The connection made by the speaker, or
by the parties to a contractual document, therefore assumes a context for the
words and other symbols used. Without context, a word or other symbol could
have any of the various meanings which might be found in the appropriate
dictionary. Given the universal importance of context to meaning, it is today
regarded as a truism that the meaning of a contract cannot be determined merely
by reading the document in which it is expressed. As Brennan J said in Codelfa
Construction Pty Ltd v State Rail Authority of New South Wales,15 ‘the symbols
of language convey meaning according to the circumstances in which they are
used’.
It must, however, be conceded that it is impossible to gain much from
semantic theory when developing legal principles for construction. The
construction of contracts is a specialised process and the distinctive features of
the construction of contracts derive from the objective theory and specialised
rules.16 Therefore, although the meaning of words or other symbols in contracts
is ‘intended’ meaning, the actual intention of the parties is determined as a
matter of presumption. Accordingly, in relation to documents which state or
evidence a ‘contractual intention’, people are generally bound by what a
reasonable person would take to be their meaning.17
DEVELOPMENT
[6-09] Introduction. It is useful to explain how the concept of context achieved
its current status. In the old cases, the preferred usage for the concept was
‘surrounding circumstances’. In Prenn v Simmonds18 Lord Wilberforce
explained19 that the ‘time has long passed when agreements, even those under
seal, were isolated from the matrix of facts in which they were set and
interpreted purely on internal linguistic considerations’. Hardly surprisingly, the
modern law was for a time rationalised in terms of a ‘factual matrix’20 concept.
The change in terminology no doubt assisted the courts in breaking free from
the restrictive approach which is explained below. However, in the more recent
cases, words such as ‘setting’, ‘context’ and ‘background’ are preferred. As
noted above, these can all (including ‘surrounding circumstances’) be assumed
to be equivalent expressions.
At the substantive level, the evolution of the concept relates to the use of
context in the construction process. To some extent, the position under the
current law involves the resolution of a debate which was never in fact directly
addressed in the English cases.21 That debate relates to the proper use of context
when, on its face, the meaning of a document appears to be clear and
unambiguous. The fact that the debate continues to rage in Australia, and that
there is disquiet in some quarters22 about having regard to context where the
meaning of a document is clear on its face, are reasons enough to tell the tale of
context.
[6-10] Evidence of context admissible.
Article 6.2 — Evidence of context admissible.
The admissibility of evidence of context does not depend on an exception
or quasi-exception to the exclusionary rule. In particular, it is not
required that any document being construed be susceptible of more than
one meaning.
The modern law, founded on the speeches of Lord Wilberforce in three leading
cases,23 is that context must always be taken into account in the construction of a
contract.24 The impact of these authorities is that it is the ‘duty’ of anyone
construing a contract to determine, in the first stage of construction, the context
of the contract.25 Context is therefore determined — but not necessarily finally
— prior to embarking on the process of construction.26 The same is true under
Australian law.27
Evidence of context is not extrinsic evidence admitted under an exception or
quasi-exception to the exclusionary rule, based on a conclusion that the
document is ‘ambiguous’ in the sense of being susceptible of more than one
meaning.28 That may be explained on the simple basis that context is determined
at a stage which is preliminary to construction.29 Surprisingly, this aspect of the
context continues to be debated under Australian law.
[6-11] Evidence of surrounding circumstances always admissible. Any
number of well-known statements could be cited for the proposition that all
documents must be construed in the light of their ‘surrounding circumstances’,30
including in relation to the legal effect of a contract.31 For example, in
Charrington & Co Ltd v Wooder,32 Lord Dunedin said:33
Now, in order to construe a contract the Court is always entitled to be so
far instructed by evidence as to be able to place itself in thought in the
same position as the parties to the contract were placed, in fact, when
they made it — or, as it is sometimes phrased, to be informed as to the
surrounding circumstances.
Being a matter of fact, it was formerly the function of jury to determine the
surrounding circumstances.34
These well-known statements include Lord Blackburn’s classic statement of
the law in River Wear Commissioners v Adamson:35
In all cases the object is to see what is the intention expressed by the
words used. But, from the imperfection of language, it is impossible to
know what that intention is without inquiring farther, and seeing what the
circumstances were with reference to which the words were used, and
what was the object, appearing from those circumstances, which the
person using them had in view; for the meaning of words varies
according to the circumstances with respect to which they were used.
None of the cases ever sought to justify reliance on the surrounding
circumstances on a technical or doctrinal basis. At worst there was a concept of
‘extrinsic surrounding circumstances’. So far as evidence of context needed to be
put before a court, this was not regarded as being done on some exceptional
basis. Lord Blackburn frankly acknowledged the ‘imperfection of language’ as
being reason enough. Thus, in his celebrated speech in Prenn v Simmonds36 Lord
Wilberforce referred37 to what Lord Blackburn had said as illustrating and
providing ‘ample warrant for a liberal approach’, permitting, indeed requiring,
inquiry ‘beyond’ the language of the document to see ‘what the circumstances
were with reference to which the words were used, and the object, appearing
from those circumstances, which the person using them had in view’.
There is an impressive list of Australian authorities to the same effect,
decided in the first half of the 20th century.38 More recently, in Maggbury Pty
Ltd v Hafele Australia Pty Ltd39 Gleeson CJ, Gummow and Hayne JJ said:40
Interpretation of a written contract involves, as Lord Hoffmann has put it
(Investors Compensation Scheme Ltd v West Bromwich Building Society
[1998] 1 WLR 896 at 912; [1998] 1 All ER 98 at 114): ‘the
ascertainment of the meaning which the document would convey to a
reasonable person having all the background knowledge which would
reasonably have been available to the parties in the situation in which
they were at the time of the contract’.
The process illustrated by cases applying this approach is one in which
evidence of context (or the ‘surrounding circumstances’) is admitted for
consideration in construction before the process begins.41 But the fact that use of
context has — as the ‘surrounding circumstances’ — been a feature of contract
construction for a long time does not signify that the courts have always applied
the same concept. Similarly, the uses to which the evidence can legitimately be
put may have varied over time.
[6-12] Conflicting statements in the English cases. The fact that context must
always be before a court does not determine either the scope of the concept or
how it may be used. From those perspectives, the cases have never been in
complete agreement. Thus, in the older cases statements to the effect that
surrounding circumstances must always be before the court were often qualified.
These qualifications give the appearance that, in the construction of a document
stating or evidencing a contract or part of a contract, the use of ‘surrounding
circumstances’ involves the use of ‘parol’ or ‘extrinsic’ evidence, admitted under
an exception, or quasi-exception, to the exclusionary rule.42
This view is epitomised by Lord Atkinson’s elaborate analysis in Great
Western Railway v Bristol Corporation.43 Basing himself on a gross
misrepresentation44 of Lord Blackburn’s statement in River Wear Commissioners
v Adamson,45 Lord Atkinson said:46
Before … extrinsic evidence of the surrounding circumstances can be
admitted the Court must find in the written instrument words which have
not a fixed meaning, but are in the connection in which they are used
ambiguous, susceptible of more than one meaning.
He therefore considered that the broad statement of the law by Lord Blackburn
in River Wear Commissioners was confined to cases of ‘ambiguity’. Lord
Atkinson’s narrow approach was shared in the same case by Lord Shaw, who
said47 that as there was no ‘ambiguity’, recourse to surrounding circumstances in
construction was unnecessary.
Even in the leading (and recent) English cases, apparently conflicting
statements can be found concerning the reception of evidence of ‘surrounding
circumstances’. In L Schuler AG v Wickman Machine Tool Sales Ltd,48 Lord
Wilberforce, after stating49 the ‘general rule’ that ‘extrinsic evidence is not
admissible for the construction of a written contract’, said that there ‘are of
course exceptions’. He stated one such exception in terms that ‘evidence may be
admitted of surrounding circumstances’. This treats surrounding circumstances
as ‘extrinsic’ evidence admissible on an exceptional basis. On the other hand, in
Reardon Smith Line Ltd v Yngvar Hansen-Tangen50 Lord Wilberforce made no
reference to any exceptional basis when he said:51 ‘No contracts are made in a
vacuum: there is always a setting in which they have to be placed’. None of the
subsequent English cases have been troubled by the point, and Lord
Wilberforce’s earlier statement has been applied on the same basis as the later
formulation. Similarly, any suggestion that Lord Wilberforce intended to draw a
distinction between the use of ‘setting’ and ‘surrounding circumstances’ would
now be absurd.
Accordingly, the subsequent English cases have clearly proceeded on the
basis that whether termed ‘setting’, ‘surrounding circumstances’ or the ‘factual
matrix’, a court is in all cases entitled not only to inform itself of context but also
to use insights obtained from context when construing the contract. But the legal
conception of context is narrower than the conception applied in linguistics.
Therefore, although it may be correct to say with Lord Wilberforce that ‘[n]o
contracts are made in a vacuum’, so far as courts are concerned, construction
occurs in a ‘partial vacuum’.
[6-13] Conflicting statements in the Australian cases. The Australian
authorities are somewhat perplexing.52 In Bacchus Marsh Concentrated Milk Co
Ltd v Joseph Nathan & Co Ltd,53 Isaacs J characterised evidence of the
surrounding circumstances as ‘extrinsic evidence’, and said that it is legitimate
to adduce evidence of surrounding circumstances in order to prove that ‘words
susceptible of more than one meaning are applicable to one only of those
meanings’. More recent discussions have focused on the 1982 decision of the
High Court in Codelfa Construction Pty Ltd v State Rail Authority of New South
Wales.54 In that case, Mason J described55 as the ‘true rule’ that: [E]vidence of
surrounding circumstances is admissible to assist in the interpretation of the
contract if the language is ambiguous or susceptible of more than one meaning.
But it is not admissible to contradict the language of the contract when it has a
plain meaning.
These authorities — echoing Lord Atkinson’s words in Great Western Railway v
Bristol Corporation56 — unite in seeking to justify the use of context in
construction on an exceptional basis, expressed by reference to specific
requirements.57 Mason J’s conclusion in Codelfa was reached notwithstanding
his approval and adoption of the speeches of Lord Wilberforce which form the
basis for the approach to context taken under English law. Indeed, Mason J
expressly acknowledged58 the ‘broad purpose of the parol evidence rule’ as being
to exclude ‘extrinsic evidence (except as to surrounding circumstances)’. It is
therefore difficult to understand why he should later in the same judgment see
the need to rely on an exception to the exclusionary rule.
Australian law continues to accept that evidence of context is admissible in
all cases. For example, in Air Great Lakes Pty Ltd v K S Easter (Holdings) Pty
Ltd,59 three years after Codelfa Construction Pty Ltd v State Rail Authority of
New South Wales, McHugh JA said60 that ‘a court’s right to look at surrounding
circumstances in construing a document, if ever it was doubtful, is no longer
open to dispute’, and two years later in Ankar Pty Ltd v National Westminster
Finance (Australia) Ltd61 Mason ACJ, Wilson, Brennan and Dawson JJ said62
that ‘in construing the contract the court is entitled to look to the general setting
in which the contract has come into existence’. What continues to be debated is
the scope of the concept and how context can be used. Those matters depend on
the circumstances. Nevertheless, in Royal Botanic Gardens and Domain Trust v
South Sydney City Council63 the High Court (without referring to the statement
from the judgment in Maggbury Pty Ltd v Hafele Australia Pty Ltd64 quoted
above) treated Mason J’s judgment in Codelfa, requiring the words at issue to be
‘ambiguous or susceptible of more than one meaning’, as the basis for use of
context as an aid to construction.
To say that lower courts in Australia have been in something of a quandary is
an understatement. However, in recent years those courts have generally
maintained that the approach in Codelfa Construction Pty Ltd v State Rail
Authority of New South Wales has been overtaken by the High Court’s own
decisions.65 But some members of the High Court have continued to insist that
Mason J’s statement of principle remains good law, and have not only
maintained that the High Court has taken a consistent approach in its own
decisions but also strongly admonished those who have suggested otherwise.66
This approach seems rooted in adherence to the view that because evidence of
context is inherently extrinsic in nature, it may be used in construction only
when the document is not clear on its face. This seems to originate in the view
that, although ambiguity on the face of the document is not sufficient to enable
use to be made of direct evidence of intention or evidence of prior negotiations,67
it is a sufficient basis for use of ‘extrinsic surrounding circumstances’.68 An
alternative view is that under Australian law a broader concept of context is
employed where the contract is ‘ambiguous or susceptible of more than one
meaning’.69
[6-14] Ambiguity not required. Today, any attempt to confine Lord
Blackburn’s approach in River Wear Commissioners v Adamson70 in accordance
with Lord Atkinson’s analysis in Great Western Railway v Bristol Corporation71
is hopeless given decisions such as Reardon Smith Line Ltd v Yngvar Hansen-
Tangen.72 The subsequent cases have amplified the crucial role of context in
construction issues, and it is unthinkable that an English court would now regard
such evidence as received on an exceptional basis. Thus, in Investors
Compensation Scheme Ltd v West Bromwich Building Society73 Lord Hoffmann
acknowledged74 the general ability to consider ‘background knowledge’ in his
statement of the ICS principles.75
It also follows that evidence of context may be taken into account in
construction even if, by reference only to internal context, the meaning of the
contract may appear to be clear. Accordingly, in R (Westminster City Council) v
National Asylum Support Service,76 Lord Steyn said:77
The starting point is that language in all legal texts conveys meaning
according to the circumstances in which it was used. It follows that the
context must always be identified and considered before the process of
construction or during it. It is therefore wrong to say that the court may
only resort to evidence of the contextual scene when an ambiguity has
arisen.
For example, in Static Control Components (Europe) Ltd v Egan,78 the fact that
meaning of a guarantee may have been clear on its face did not ‘prevent, or
indeed excuse’ the court from taking context into account. However, even in the
modern cases there are statements which hark back to the view that ‘ambiguity’
is required.79
It would be pointless to treat evidence of context as admissible on the basis of
words being susceptible of more than one meaning because that is true of all
words.80 A choice may be made between competing meanings for the contract on
the basis of context. And, in practical terms, Lord Atkinson’s analysis81 in Great
Western Railway v Bristol Corporation was designed to deal with the fact that
ambiguity in construction does not justify the reception of extrinsic evidence.
However, the primary concern of the use of context is to prevent construction
difficulties — including ‘ambiguity’ — from arising.
[6-15] Justification of the current approach. There are good justifications for
the current approach, under which the concepts of ‘context’ and ‘surrounding
circumstances’ are regarded as synonymous, and their content determined,
initially at least, before the contract is construed. First, it is the legal reflection of
the circumstantial fact that meaning is always relative to context. After all, it is
the construction of the contract which is at issue, not the construction of a
document.
Second, any narrow view — in accordance with Lord Atkinson’s analysis in
Great Western Railway v Bristol Corporation82 — must be based on the non-
sequitur that words have ‘fixed’ meanings.83 If founded simply on the criterion
of a construction difficulty, rather than genuine ambiguity, admission of evidence
cannot occur on an ‘exceptional’ basis. Indeed, as mentioned above, ambiguity
on the face of a document has never been regarded as sufficient to engage an
exception to the exclusionary rule.
Third, it follows that an obvious danger in the conception that an exception or
quasi-exception to the exclusionary rule is in operation will be treated as
validating reliance on evidence going beyond context.84
Fourth, any attempt to justify a narrow approach on the basis that, if the
words of a document are clear the waters should not be muddied by taking
context into account, is the legal expression of the very idea semantics rejects.
As symbols, words have no meaning except in reference to their context. They
‘signify or stand for, other things’.85 If there is no context the symbols cannot be
understood. That taking context into account may lead to an understanding
which differs from meaning based on words on a page is the very reason why
context is crucial.
Fifth, because the law must reflect contract practice, to deny the importance
of context would be to suggest that contract advice can be provided without
instructions on the context of the contract. Clearly, that is not the basis on which
advice is given. Equally, this justification points very strongly towards the need
for limits to be placed on what material should be regarded as contextual.86
FACTUAL CONTEXT
Introduction
[6-16] The contractual setting. Contracts must always be placed in context.
Although there are still many uncertain aspects in relation to the scope of the
concept,87 it is clear that the courts are now alert to a basic tenet of semantics,
namely, that meaning depends on context. For example, in his dissenting speech
in Deutsche Genossenschaftsbank v Burnhope88 Lord Steyn described89
construction as the ‘search for the meaning of language in its contractual
setting’. Viewed as a single utterance, a contract occupies a particular position in
relation to the factual circumstances in which it was agreed. The factual
circumstances include the legal context of the contract.90
Even a document which looks to have been badly drafted may make sense
when considered in context. Equally, a well drafted document may make even
better sense when considered in the light of its context. Although more
contentious from a legal perspective, the statement that a document which looks
to be clear on its face may be less than clear, or even ‘change’ its meaning, when
considered in the light of context, is nevertheless correct. The only justification
that need be given for that statement is that it is a fallacy to regard a document
— divorced from context — as the only reliable guide to intention.91 Principles
of commercial construction provide guidance on what context is, and the uses to
which it may legitimately be put. The law is still developing, as in other areas,
under the shadow of the formalistic heritage of the law. A body of law has been
developed to ensure that a contract is construed with due regard to its context,
and to mark out what may be taken into account, as well as how context may be
used.
[6-17] Relevance. The principal relevance of context is, of course, to
construction of the contract as a whole. Even so, context necessarily influences
decisions in which a single word or a single phrase of the contract is directly at
issue. For example, in Association of British Travel Agents Ltd v British Airways
Plc92 context was relevant to the construction of the word ‘fares’. And in FAI
General Insurance Co Ltd v Maracorp Financial Services Ltd,93 commercial
context was used to determine meaning of the term ‘merchant bank’ for the
purpose of construing an exclusion clause in an insurance policy. The position
may be the same where a single promise is at issue.94
More than one external context may be relevant to a dispute. Utterances other
than the contract itself may need to be construed to resolve a given contract
dispute. For example, in addition to the contract, a written notice of termination
may be at issue. That communication has its own context, including the contract
in respect of which it was given.95 Indeed, every communication that is made in
the formation and performance of a contract has its own context. Each will have
its own distinctive features. In other words, even limiting the point to the
construction of documents, there are potentially as many contexts to identify as
there are communications between the parties. What is determined as context is
relevant to the meaning and legal effect of the document at issue.96
[6-18] Purpose.
Article 6.3 — Purpose of identifying context.
The purpose of identifying the context of a contract is to enable a court
construing the contract to place itself in the same position as the parties
at the time of entry into the contract.
The purpose of identification of context is to enable the court, or other person
adjudicating the construction dispute, to be placed in the same position as the
parties. Lord Wilberforce explained the position in Reardon Smith Line Ltd v
Yngvar Hansen-Tangen97 by saying that, when construing the contract, ‘what the
court must do must be to place itself in thought in the same factual matrix as that
in which the parties were’ when the contract was agreed.
Lord Wilberforce’s approach has been applied in countless cases.98
Determining the context of a contract is not simply an entitlement: it is the duty
of anyone called upon to construe a contract.
[6-19] Duty of the court. Lord Wilberforce’s statement in Reardon Smith Line
Ltd v Yngvar Hansen-Tangen99 emphasises the duty of the court when construing
the contract to confront the same factual situation which confronted the parties
when they entered into the contract. As Potter LJ said in Cargill International SA
v Bangladesh Sugar and Food Industries Corp,100 modern principles of
construction ‘require the court to have regard to the commercial background’. It
is clearly undesirable that a court should have to resolve a construction without
the aid of context.101 Of course, it is also the duty of lawyers providing advice on
any construction issue to identify the context of the contract.
Although there is an inherent uncertainty in the scope of context, and what
material can in any given case legitimately be regarded as contextual, the general
principle is not now in doubt. Any debate in relation to the scope of the
concept102 must take full account of the need for the adjudicator of a construction
dispute to be properly informed.
Content
General
[6-20] Introduction. Notwithstanding the universal relevance of context to
construction, it is difficult to improve on a definition in terms of what is
necessary to place the adjudicator of a construction dispute in the same position
as the parties at the time of entry into the contract. And even that is necessarily
affected by the exclusionary rule.
The difficulty of abstract definition of the concept is fully recognised in the
cases. As Lord Wilberforce noted in Reardon Smith Line Ltd v Yngvar Hansen-
Tangen,103 the phrase ‘the surrounding circumstances’ is ‘imprecise: it can be
illustrated but hardly defined’. Indeed, Fox LJ said in Rabin v Gerson Berger
Association Ltd104 that ‘practically anything can be described as “surrounding
circumstances”’. Judicial views about the concept vary considerably. In some
cases it has been given an extremely wide ambit.
[6-21] Scope. The difficulty in definition is, of course, important when
considering the scope of context as a legal concept. That is discussed in the next
chapter.105 For the present it is sufficient to make four points. First, context is
obviously relative to the circumstances, and affected by matters such as the
nature of the contract, including whether the terms of the bargain are stated in a
standard form document.
Second, it is of some help to draw a distinction between the general
commercial background of a contract, which does not usually need to be proved
by evidence, and specific matters which in many cases can only be established
by evidence or as agreed facts.
Third, at least in relation to a negotiated contract, the impossibility of abstract
definition is explicable on the basis that the concept has a unique application to
each contract.
Fourth, the scope of the concept is limited by purpose and legal rules. These
considerations serve to emphasise the legal nature of the concept. Practical
considerations such as need for certainty and uniformity, and the position of
practitioners who provide advice to clients, also have a role to play.
Elements
[6-22] Introduction.
Article 6.4 — Contextual matters.
(1) The context of a contract includes: (a) the general commercial
background of the contract; (b) the genesis of the contract; and (c) such
other material as is required to determine, objectively, the purpose, aim
or object of the contract.
(2) Once determined, the purpose, aim or object of the contract is an
element of context.
Although not a defintion of the concept, it is clear that context includes not only
the general commercial background of the contract, but also what Lord
Wilberforce described in Prenn v Simmonds106 as the ‘genesis’ of the contract.
Since, in addition, he recognised the importance of the ‘aim’ of the contract,
such other material as is necessary to determine the ‘aim’ — or purpose, or
object — of the contract may also be contextual. Once the purpose, aim or object
of the contract has been determined, it is itself an element of context. But that
does not mean that the concern is to identify the subjective aims of the parties.
Because purpose, aim or object is generated by context, the concern is with the
commercial object of a reasonable commercial person in the position of the
parties.107
All the matters described above are regarded as contextual because the person
whose task it is to construe the contract is entitled to be informed of what the
parties knew when they entered into the contract. There are two further points.
First, context may include legal matters which are proved as facts. Second, other
(specific) factual matters may form part of context.
[6-23] General background and specific context. It is a mistake to conceive of
context as something which must in all cases be proved.108 Consistently with the
nature of the concept, a great deal of context will be obvious or inherent.109
Aspects which are not obvious or inherent, but which are alleged to be
contextual, may be controversial, and may therefore need to be proved. From
this practical perspective, there is a disinction between the general commercial
background of the contract, and specific contextual facts.
The general commercial background may be very basic, such as the nature of
the subject matter of the contract, whether the contractual document is the
standard form contract of a third party, the market, trade or industry in which the
parties to a contract operate, and so on.110 Much of this material will be apparent
from the contractual document and found in those parts of the parties’
pleadings111 which are not objected to. In many cases, the same will be true of
matters such as where and when the contract was agreed, whether it was entered
into in the course of a business and whether it is part of a wider transaction.112
There may, indeed, be no dispute at all about the content of context. The
familiarity of the person called upon to resolve the dispute with contracts of the
nature at issue, and other matters which are necessarily known, or of which
notice may be taken, permit this background to be identified without proof.113
Since general commercial background does not usually need to be proved, there
is unlikely to be any dispute as to operation of the exclusionary rule. Of course,
that the general commercial background is fundamentally important will often be
taken for granted.
In some situations, context may operate at a more specific level. It may
therefore comprise material which, although not forming part of the general
commercial background, is legitimately part of the context of the specific
contract at issue. In relation to negotiated contracts, context will always include
information which has unique features. It may include specific facts which need
to be proved. In some cases that may include specific facts disclosed in prior
negotiations.114 It is therefore to be expected that, in relation to a negotiated
contract, particular items of alleged context will be objected to.
[6-24] Genesis of contract. Context includes the ‘genesis’ of the parties’
transaction. In Prenn v Simmonds115 Lord Wilberforce explained that ‘evidence
of the factual background known to the parties at or before the date of the
contract, [includes] evidence of the “genesis” … of the transaction’. The concern
is with how and why the contract was entered into. Some understanding of
genesis will always be present as part of the general commercial background116
and the process of contractual formation.
In relation to a contract in writing or evidenced by writing, the genesis of the
contract relates to how and why the document was adopted.117 The contract may
have been formed by acceptance of a written offer, or by the execution of a
formal document, and so on. The document may be a standard form or one
which was negotiated. The nature of the contract may be important. For
example, in Kleinwort Benson Ltd v Malaysia Mining Corp Berhad,118 the
genesis of a comfort letter provided in respect of a subsidiary’s borrowing
included a refusal to assume legal liability for the repayment of money lent to
the subsidiary, including as guarantor.119
There is no objection to evidence being given to establish how the document
was adopted. In any event, that will be uncontroversial if formation of the
contract is not in issue. The genesis of the contract may therefore include the fact
that the contract was negotiated through exchange of offer and acceptance,
including counter-offers. Notwithstanding that the fact of agreement through that
process remains part of the context, so far as construction of the contract is
concerned the communications are prior negotiations which are not admissible
as a direct aid to construction.120 Similarly, in DTR Nominees Pty Ltd v Mona
Homes Pty Ltd,121 Stephen, Jacobs and Mason JJ explained122 that evidence of
genesis may be part of the ‘surrounding circumstances’ where the facts are
‘mutually known’, but distinguished such evidence from evidence of one party’s
intention.123
[6-25] Purpose, aim or object of contract. Just as context may include material
necessary to understand the ‘genesis’ of the contract, so too may it include
material necessary to understand the purpose, aim or object of the contract.124 A
court should know the commercial purpose of the contract.125 For example, Lord
Wilberforce said in Prenn v Simmonds126 that ‘evidence of the factual
background known to the parties at or before the date of the contract’ includes
the ‘the “aim” of the transaction’. Accordingly, ‘purpose, aim or object’ refer to
the ‘commercial purpose, aim or object’ which is generated objectively by
context. Therefore, as Lord Wilberforce also explained,127 any evidence in
relation to ‘aim’ does not refer to one party’s intention. The degree of specificity
will depend on the circumstances. It is likely to be more generalised where the
contractual document is in a standard form than where the contract is negotiated
for a specific (and common) purpose. But the mere fact that a standard form
contract has been used does not mean that context is unimportant.
A leading illustration is Reardon Smith Line Ltd v Yngvar Hansen-Tangen.128
At a time when the oil market was buoyant — and carrying oil by tanker was
lucrative — the Sanko Steamship Co entered into a contract to deliver a ‘motor
tank vessel to be built at a yard in Japan’. A series of charterparties were then
agreed (on the Shelltime 3 form), including a five-year time charter with Yngvar
Hansen-Tangen. As it was still to be built, the vessel could not be declared as
such (for the purpose of the charterparties) at the time of the contract.
Accordingly, it was agreed that the vessel would be declared later, together with
the ‘applicable Hull number’. Subsequently, a sub-charter was agreed between
Yngvar Hansen-Tangen and Reardon Smith. This identified the vessel as
‘Newbuilding motor tank vessel called Yard No 354 at Osaka’. Sanko nominated
a vessel to be built by the Osaka Shipbuilding Co Ltd (‘Osaka’) and ‘known as
Hull No 354’ until named. An oil crisis in 1972 made Reardon Smith reluctant to
accept the vessel. It sought a way to escape from the transaction, and alleged
non-compliance with the contractual description of the vessel, that is, as
‘Newbuilding motor tank vessel called Yard No 354 at Osaka’. Reardon Smith
relied on the fact that the vessel was not personally built by Osaka, and that it
did not bear the yard number 354. In fact, it was built by the Oshima
Shipbuilding Co Ltd at Oshima, and given ‘hull number 004’. Reardon Smith
alleged that these discrepancies meant that it was entitled to terminate the
contract.
Lord Wilberforce considered129 that the business object or aim of the contract,
as disclosed by the objective background facts, was the delivery of a ‘medium
sized tanker suitable for use as such’. The context of the contract included the
construction arrangements and the methods by which the vessel would be
identified under the terms of the various contracts. Provided the object disclosed
by those circumstances was achieved, it was clear that no particular significance
could be attached to the insertions made for the purpose of identification, and to
facilitate sub-contracting. Moreover, since it planned, organised and directed the
building of the vessel, the vessel was (as a matter of substance) built by Osaka.
Accordingly, there was no basis for Reardon Smith’s claim that it would be
entitled to reject the vessel when it was delivered.130
[6-26] Giving effect to commercial purpose. Contextual facts generate an
understanding of commercial purpose which is itself an element of context. The
importance of context is therefore that it assists in ensuring that construction
gives effect to the commercial purpose of the contract. For example, if a contract
is open to two constructions, one of which would make the contract ‘futile’131
from the perspective of the commercial purpose identified by reference to
context, the alternative construction will be adopted. That construction must,
however, be in accordance with the common intention of the parties in relation to
commercial purpose, and not simply a better reflection of the particular purpose
of one of the parties.132
There may, of course, be differences, subtle or substantial, between the parties
as to how far the words of a contract give effect to the relevant commercial
purpose. In Prenn v Simmonds133 Lord Wilberforce acknowledged that:134
[I]t may be a matter of degree, or of judgment, how far one
interpretation, or another, gives effect to a common intention: the parties,
indeed, may be pursuing that intention with differing emphasis, and
hoping to achieve it to an extent which may differ, and in different ways.
Because the relevant criterion in construction is what a reasonable person in
the position of the parties would have seen as the commercial purpose of the
transaction, specific factual material designed to promote one party’s objectives
or purpose may not be contextual in nature. Thus, in Reardon Smith Line Ltd v
Yngvar Hansen-Tangen135 reliance on evidence of Japanese shipbuilding
practices was thought to go beyond the context of the sub-charterparty.
[6-27] Expectations. Evidence of the actual expectations of the parties is not
admissible as context. Accordingly, references to the parties’ intentions, desires,
aspirations or expectations are not references to actual intentions, desires,
aspirations or expectations of either party.136 Instead, one objective of principles
of commercial construction is to determine and give effect to the ‘reasonable
expectations of honest men’.137
Even though not expressly stated, the parties’ reasonable expectations may be
objectively apparent or a legitimate assumption. For example, it can be taken for
granted that each party expects the other to perform, and in many cases there is
an (assumed) expectation of profit from the transaction.138 Similarly, there is no
doubt an expectation that subsequent events will not frustrate the performance of
the contract. In relation to these matters, the assumed expectations of the parties,
gleaned from the economic and social circumstances current at the time of the
contract, and enshrined in the contract institution itself, are often extremely
important to the factual elements used when applying contract doctrine. In other
words, they may assist in working out the intention of the parties in relation to
the legal effect of the contract. In Codelfa Construction Pty Ltd v State Rail
Authority of New South Wales,139 the common understanding of the parties
included certain expectations, in particular, concerning the benefit of the Rail
Authority’s statutory immunity. This was important to the conclusion that the
delay caused by injunctions obtained by local residents was capable of
frustrating the contract.
Legal context
Article 6.5 — Context includes legal context.
The context of a contract includes general legal background, as
determined on a factual basis.
Context includes the general legal background or setting of the contract. That is
not because legal and factual context are distinct categories of context. Rather, it
is because the factual circumstances against which the parties contracted may
include legal context, such as a regulatory background. This is determined on a
factual basis and is therefore distinguishable from contract doctrine and statute
applied as a matter of law. Generally, ‘legal’ context is part of the general
commercial background referred to earlier.140
The relevance of legal background has sometimes been expressed by
reference to a contrast between the ‘factual matrix’ and the ‘legal matrix’. It
appears that the latter phrase was first coined by Lord Goff.141 The description is
useful for emphasising that the background of a contract may include its legal
setting or ‘legal context’. It may therefore include the fact that a particular legal
relationship exists between the parties, such as lessor and lessee. Most
importantly, it may also include statutory regulatory background, such as
employment legislation. For example, in Amcor Ltd v Construction Forestry
Mining and Energy Union,142 the legislative and industrial background of the
contract at issue was relevant to construction of the word ‘position’ in certain
contractual provisions relating to severance payments.
[6-29] Determining legal context. The terminological contrast between ‘factual
matrix’ and ‘legal matrix’ is apt to confuse. Two points may be made. First,
external context is, as a concept, limited to material which can (if necessary) be
proved as a matter of fact. Generally, it does not include anything which must be
proved as a matter of law, such as the construction of a particular statute.
Second, it follows that the ‘legal’ material is usually of a general nature, that
is, part of the general commercial background. But whether or not that is the
case, in order to count as context the relevant raw material must, in a
construction sense, be circumstantial and not determinative in the dispositive
sense of requiring the contract to be given a particular construction. In other
words, because of the conception that the raw material is contextual, it does not
determine directly the legal effect of the contract. Even in relation to meaning,
the assumption is that the raw material is not a direct aid to construction. For
example, in Prenn v Simmonds,143 the House of Lords considered that it was
appropriate to assume that both parties had a general understanding of the
operation of the companies legislation in relation to the preparation of profit and
loss accounts. But that legislation did not determine the meaning of the contract.
Since legal background is simply material to which the parties can be
assumed to have had regard when entering into the contract, it is not a separate
category of context. In cases where proof is necessary, it is proved as a matter of
fact. Its role (and relevance) is factual, not ‘legal’. Therefore, no special name is
needed.
[6-30] Precedent not context. As explained above, ‘legal’ background usually
refers to the general legal background — if any — relevant to the contract.
Suggestions have sometimes been made in favour of a broader view, namely,
that a distinct legal context may exist, including statutes which regulate the
transaction, relevant precedents and the policy or rationale for substantive rules
of contract law.144 There is an element of that approach in Hobhouse LJ’s
suggestion in Toomey v Eagle Star Insurance Co Ltd145 that the parties to a
commercial contract are considered to have ‘contracted against a background
which includes the previous decisions upon the construction of similar
contracts’. However, the treatment of precedent as part of the ‘legal background’
does not seem helpful.
First, in general, precedent and statute which are directly applicable in
construction determine the legal effect of the contract. That includes whether the
contract is void or unenforceable on the basis of statute or public policy. To view
all that material as ‘contextual’ would be a misuse of the concept. Clearly, to
treat the whole law of contract as contextual would be pointless.
Second, prior decisions and applicable statute are not ‘proved’ on an
evidentiary basis. Only foreign law is proved as a fact. Where the issue is one of
law, precedent is applied — by construction — as part of contract doctrine.
Precedent is the subject of legal argument concerning the legal effect of the
contract. In relation to negotiated contracts, prior decisions on meaning have
little or no value at all. In relation to standard form contracts, prior decisions
may well be determinative, even in relation to meaning. But that is because they
are regarded as directly applicable precedents.146
Third, except in relation to a third party standard form contract, there is no
logical basis for assuming that the parties contracted on the basis of any prior
decision as if it were a matter of fact. The parties are taken to have accepted the
application of doctrine to their contracts, so that relevant precedents may
determine the legal effect of their contract. But whether they have contracted
otherwise in their contract is determined as a matter of law by construction.
Fourth, most importantly, whereas factual context is of circumstantial
relevance, and generally used for information and guidance, applicable
precedent and statute comprise legal doctrine and are in a legal sense dispositive.
Entry into a contract is a commitment to the contract institution. That includes
the rules and principles which comprise particular doctrines of contract law. If
application of doctrine leads to a particular conclusion that is because the parties
are taken to have agreed to that result. It is not because they have contracted in
the ‘context’ of doctrine. And it would be inconsistent with the usual perspective
on context to treat as ‘admissible’ what is in the law reports.
The distinction is illustrated by Koompahtoo Local Aboriginal Land Council
v Sanpine Pty Ltd.147 In that case, which concerned a joint venture contract, the
High Court of Australia treated the legislation relating to Koompahtoo’s position
as a Local Aboriginal Land Council as part of context. Matters such as
custodianship of property and funds, and matters of accounts and audit, were
held148 to be part of the (legal) background relevant to construction of its joint
venture contract with Sanpine. However, when considering whether the breaches
of that contract by Sanpine justified termination by Koompahtoo, the court did
not regard prior decisions — such as Hongkong Fir Shipping Co Ltd v Kawasaki
Kisen Kaisha Ltd149 — as merely part of the legal background against which the
parties had contracted. Instead, those decisions were the sources of contract
doctrine and the issue was whether the High Court should adopt the intermediate
term as an element of doctrine, namely, the classification of promissory terms.150
Having adopted the Hongkong Fir decision, it was held that Koompahtoo’s
termination of the contract was justified.
Accordingly, ‘context’ refers to relevant external context — factual and legal
— which may (if necessary) be proved as a matter of fact.
Common Intention
[6-31] Introduction. As illustrated above, the reason for determining the genesis
of the contract, and its purpose, aim or object, is to ensure that when the contract
is construed ‘in context’ the common intention determined reflects the context of
the contract. It would, indeed, be a pointless exercise if construction of the
contract ignored matters generated by context, such as commercial purpose. As
Lord Hoffmann said in Fiona Trust and Holding Corp v Privalov,151 an
understanding of context will ‘influence’ construction.
However, the insistence that ‘context’ is limited to material which establishes
objective matters which the parties have in common emphasises that context is
used as a largely circumstantial aid to construction. It is legitimate to assume that
the contract gives effect to matters such as purpose, aim or object. And it is in
that sense that context assists in determining the meaning which the parties can
be taken to have ‘had in view’152 in relation to the words used.
[6-32] Common understandings and legal effect. In many cases, perhaps most,
the concept of ‘understandings’ common to the parties will go no further than
what may legitimately be inferred from the general commercial background of
the contract.153 However, the common understandings of the parties may go
beyond general understandings of the market and so on. Contextual facts may
therefore be general or specific.154 Specific facts may be important to the
objective of the transaction, including where the legal effect of the contract is at
issue.
A classic example is Krell v Henry.155 It illustrates use of context
(‘surrounding circumstances’) to determine (for the purpose of applying the
doctrine of frustration) an understanding common to the parties. Vaughan
Williams LJ referred156 to the ability to determine ‘not necessarily from the terms
of the contract’ the ‘substance of the contract’, including by ‘necessary
inferences, drawn from surrounding circumstances recognised by both
contracting parties’. He described157 as a fact, ‘regarded by both contracting
parties as the foundation of the contract’, the understanding that the Royal
Coronation procession of Edward VII would take place as planned.158 That
understanding was crucial to the decision that the contract was frustrated by
cancellation of the procession.
More recently, in Codelfa Construction Pty Ltd v State Rail Authority of New
South Wales159 the State Rail Authority engaged Codelfa to excavate tunnels for
a railway. Codelfa was to carry out blasting operations for the purpose of
constructing the tunnels. It was agreed that work would be carried out on a three
shifts per day basis, six days per week and without restriction as to Sundays.
That schedule was regarded as necessary for completion of the work on time. It
was also a common understanding or assumption that Codelfa would not be
hindered in its work by injunction for public nuisance — because it would have
the benefit of the Rail Authority’s statutory immunity. In the course of
performance, events undermined these understandings. Local residents obtained
an injunction which prevented Codelfa from carrying out blasting operations
between certain hours on certain days.
Although the arbitrator’s findings in relation to these common understandings
emerged from a consideration of the parties’ conduct in negotiating the contract,
the High Court of Australia held that they could be taken into account as part of
context (the ‘factual matrix’). Mason J said160 that the ‘discussions which
generated these findings were not negotiations about the terms of the contract’.
Rather, because the terms of the contract documents had been determined in
advance, ‘the discussions did not have the character of negotiations in the course
of which the parties gradually evolved the terms of a bargain ultimately
embodied in written form’.161 The case is slightly unusual in illustrating that
even in the context of a standard form contract the relevant factual background
may include evidence of a specific common understanding.
[6-33] Meaning and commercial purpose. That context, and commercial
purposes determined by reference to context, influence decisions on the meaning
of contracts cannot be doubted. That may occur no matter what the nature of the
contract.162
The leading case is Prenn v Simmonds.163 Simmonds claimed that he was
entitled to acquire from Prenn a four per cent interest in Radio & Television
Trust Ltd (RTT), a company controlled by Prenn, pursuant to a contract with
Prenn. The genesis of the contract was that Prenn wanted to acquire Simmonds’s
services. Simmonds had been employed as managing director and the leading
technician of a company (Airmec Ltd) owned by RTT. In order to secure
Simmonds’s services, Prenn purchased RTT from Crompton Parkinson Ltd. The
right of Simmonds to acquire the interest in RTT was agreed with Prenn as part
of that transaction, but it was subject to certain provisos, as set out in cl 2 of the
contract.Clause 2(a)required an outstanding debt to Crompton Parkinson to have
been paid out of the profits of RTT. The proviso in cl 2(b) required the
‘aggregate profits of RTT’ earned during certain years ‘and available for
dividend … whether declared or not’ to amount to £300,000 after payment of (or
provision for) tax.
Prenn contended that as less than £300,000 profits were available for
dividend, the proviso in cl 2(b) was not satisfied, so that the conditions
qualifying Simmonds’s right to acquire the shares had not been met. Prenn based
his contention on the profits of RTT alone. But Simmonds argued that because
‘profits … available for dividend’ meant the consolidated profits of a group of
companies consisting of RTT and its subsidiaries, the required amount had been
exceeded. He sought to rely on evidence of the parties’ prior negotiations as an
aid to construction. This was rejected by the House of Lords as not permissible
in law, and not helpful on the facts. One object of the contract was to regulate the
right to acquire an interest in the capital of RTT. That right was conditional on
Simmonds ‘remaining with RTT long enough to ensure that the Crompton
Parkinson debt was paid off out of profits of RTT and on RTT in fact earning
enough to enable the debts to be paid’.164 These were both matters of common
intention. Having regard to those commercial objectives, the ‘profits’ referred to
in the provisos were held to be the consolidated profits of the company group.
Lord Wilberforce said:165
[N]o purpose can be discerned why the reference should be to the
separate profits of RTT, which in fact means such part of the group
profits as the board of that company, effectively Mr Prenn, decided to
pass up to the parent company.
This construction gave effect to the common intention of the parties because
it was only consolidated profits ‘which could provide an incentive to Dr
Simmonds to remain and work with the group and which could be a measure of
his success’.166
1. [1998] 1 WLR 896 at 912. Lords Goff, Hope and Clyde agreed. See
Chapter 5.
2. See [1-08]–[1-21].
3. See [4-19].
7. See [8-04].
(1985) 73 Calif L Rev 261 at 264 (struggle between ‘“textualist” and
“contextualist” interpretive methodologies’).
9. See [4-23], and generally Part V.
10. [2000] 1 AC 406 at 417. See also R (Westminster City Council) v National
Asylum Support Service [2002] 1 WLR 2956 at 2958; [2002] UKHL 38 at
[5]. See [4-19].
11. See, eg Perrylease Ltd v Imecar AG [1988] 1 WLR 463 at 473; [1987] 2 All
ER 373 at 381; Boral Resources (Qld) Pty Ltd v Donnelly [1988] 1 Qd R
506 at 511; The Tychy (No 2) [2001] 2 Lloyd’s Rep 403 at 409; [2001]
EWCA Civ 1198 at [29]. Cf Wilcox v Richardson (1997) 43 NSWLR 4 at
13 (extrinsic evidence of ‘genesis’).
12. Cf Khan v Khan [2007] EWCA Civ 399 at [45]; [2008] Bus LR Digest 73
at D76 (evidence that it was part of culture of parties that matters would be
resolved without litigation).
13. See [4-20]. See generally Chapter 13.
14. See [5-09]. See further [11-08]–[11-10].
15. (1982) 149 CLR 337 at 401. Cf Royal Botanic Gardens and Domain Trust v
South Sydney City Council (2002) 240 CLR 45 at 53; [2002] HCA 5 at [10].
16. See generally Chapter 5. See also [6-12].
17. See [4-22] and generally Chapter 11.
18. [1971] 1 WLR 1381; [1971] 3 All ER 237.
members of the House of Lords agreed.
[1998] 1 WLR 896 at 912 per Lord Hoffmann (‘famously referred to’).
Lords Goff, Hope and Clyde agreed.
21. The prominence given by Lord Wilberforce in Prenn v Simmonds [1971] 1
WLR 1381 at 1383–4; [1971] 3 All ER 237 at 240 to Macdonald v
Longbottom (1859) 1 E & E 977; 120 ER 1177 (affirmed (1860) 1 E & E
987; 120 ER 1181), a case on the use of evidence in application of the
contract, may have contributed to this. See [7-17].
22. See also Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC 1101 at
1118; [2009] UKHL 38 at [36].
23. Prenn v Simmonds [1971] 1 WLR 1381; [1971] 3 All ER 237; L Schuler
AG v Wickman Machine Tool Sales Ltd [1974] AC 235; and Reardon Smith
Line Ltd v Yngvar Hansen-Tangen [1976] 1 WLR 989; [1976] 3 All ER
570.
24. See Amalgamated Investment & Property Co Ltd v Texas Commerce
International Bank Ltd [1982] 1 QB 84 at 118; Forsikringsaktieselskapet
Vesta v Butcher [1989] AC 852 at 909–10; Toomey v Eagle Star Insurance
Co Ltd [1994] 1 Lloyd’s Rep 516 at 519–20; Mannai Investment Co Ltd v
Eagle Star Life Assurance Co Ltd [1997] AC 749 at 767, 779; Investors
Compensation Scheme Ltd v West Bromwich Building Society [1998] 1
WLR 896 at 912; White v White [2001] 1 WLR 481 at 490; Bank of Credit
and Commerce International SA v Ali [2002] 1 AC 251 at 265; [2001]
UKHL 8 at [26].
25. See [6-19]. See also [1-09].
26. See Static Control Components (Europe) Ltd v Egan [2004] 2 Lloyd’s Rep
429 at 435; [2004] EWCA Civ 392 at [27].
27. For recent statements see Pacific Carriers Ltd v BNP Paribas (2004) 218
CLR 451 at 462; [2004] HCA 35 at [22]; Koompahtoo Local Aboriginal
Land Council v Sanpine Pty Ltd (2007) 233 CLR 115 at 132, 138; [2007]
HCA 61 at [32], [48]; International Air Transport Association v Ansett
Australia Holdings Ltd (2008) 234 CLR 151 at 160; [2008] HCA 3 at [8].
28. See [6-12], [6-14]. See also Contracts Restatement 2d (1979), §202, com a,
§212, com b.
29. See [6-06]. See also [1-11]–[1-12].
30. The older cases include Inglis v John Buttery & Co (1878) 3 App Cas 552
at 576–7; Gordon-Cumming v Houldsworth [1910] AC 537 at 548;
Charrington & Co Ltd v Wooder [1914] AC 71 at 77, 80, 82. See also
Commissioners of Inland Revenue v Duke of Westminster [1936] AC 1 at
20; Denny Mott & Dickson Ltd v James B Fraser &Co Ltd [1944] AC 265
at 274–5; British Movietonews Ltd v London and District Cinemas Ltd
[1952] AC 166 at 185; Davis Contractors Ltd v Fareham UDC [1956] AC
696 at 721, 729.
31. The older cases include Glaholm v Hays (1841) 2 Man & G 257 at 267; 133
ER 743 at 747; Behn v Burness (1863) 3 B & S 751 at 756; 122 ER 281 at
283; Bentsen v Taylor Sons & Co (No 2) [1893] 2 QB 274 at 281.
32. [1914] AC 71.
33. [1914] AC 71 at 82 (approved Reardon Smith Line Ltd v Yngvar Hansen-
Tangen [1976] 1 WLR 989 at 997; [1976] 3 All ER 570). See also Bank of
New Zealand v Simpson [1900] AC 182 at 188. Cf Great Western Railway v
Bristol Corporation (1918) 87 LJ Ch 414 at 429 per Lord Wrenbury (‘as in
every case of construction, your Lordships are here entitled, before reading
the document, to be informed of the surrounding circumstances’).
34. Behn v Burness (1863) 3 B & S 751 at 756; 122 ER 281 at 283; Re
Comptoir Commercial Anversois and Power Son and Co [1920] 1 KB 868
at 898, 899.
35. (1877) 2 App Cas 743 at 763.
36. [1971] 1 WLR 1381; [1971] 3 All ER 237.
37. [1971] 1 WLR 1381 at 1384; [1971] 3 All ER 237 at 239. The other
members of the House of Lords agreed. Cf Pacific Gas & Electric Co v G
W Thomas Drayage & Reggity Co, 69 Cal 2d 33 at 38; 442 P 2d 641 at 644
(1968).
38. See, eg Bowden Bros & Co Ltd v Little (1907) 4 CLR 1364 at 1376;
Harrington v Browne (1917) 23 CLR 297 at 306–7; Hope v RCA
Photophone of Australia Pty Ltd (1937) 59 CLR 348 at 362; Farmer v
Honan (1919) 26 CLR 183 at 192, 195, 197; Sinclair Scott & Co Ltd v
Naughton (1929) 43 CLR 310 at 327; McRae v Commonwealth Disposals
Commission (1951) 84 CLR 377 at 408.
39. (2001) 210 CLR 181; [2001] HCA 70.
40. (2001) 210 CLR 181 at 188; [2001] HCA 70 at [11].
41. See also Hvalfangerselskapet Polaris Aktieselskap v Unilever Ltd (1933) 39
Com Cas 1 at 3–4, 19; The Shannon Ltd v Venner Ltd [1965] 1 Ch 682 at
691. Cf Pacific Gas & Electric Co v G W Thomas Drayage & Reggity Co,
69 Cal 2d 33 at 39–40; 442 P 2d 641 at 645 (1968).
42. See Watcham v Attorney-General (East Africa Protectorate) [1919] AC 533
at 538; Mackay v Wilson (1947) 47 SR (NSW) 315 at 320.
43. (1918) 87 LJ Ch 414 at 418–19; see also at 425 per Lord Shaw.
44. See R (Westminster City Council) v National Asylum Support Service
[2002] 1 WLR 2956 at 2958–9; [2002] UKHL 38 at [5].
45. (1877)2 App Cas 743 at 763.
46. (1918) 87 LJ Ch 414 at 419. Lord Atkinson was reiterating his opinion in
Charrington & Co Ltd v Wooder [1914] AC 71 at 93. He said much the
same thing when delivering the advice of the Privy Council in Watcham v
Attorney-General of the East Africa Protectorate [1919] AC 533 at 538.
47. See (1918) 87 LJ Ch 414 at 424–5. See also Charrington &Co Ltd v
Wooder [1914] AC 71 at 77.
48. [1974] AC 235.
49. [1974] AC 235 at 261.
50. [1976] 1 WLR 989; [1976] 3 All ER 570.
51. [1976] 1 WLR 989 at 995. Viscount Dilhorne and Lords Simon and
Kilbrandon agreed.
52. See David McLauchlan and Matthew Lees, ‘Construction Controversy’
(2011) 28 JCL 101.
53. (1919) 26 CLR 410 at 427. See also Purcell v Bacon (1914) 19 CLR 241 at
265 (reversed on other grounds sub nom Bacon v Purcell (1916) 22 CLR
307); R W Cameron & Co v L Slutzkin Pty Ltd (1923) 32 CLR 81 at 91;
White v Australian and New Zealand Theatres Ltd (1943) 67 CLR 266 at
270–1. Contrast Newcombe v Newcombe (1934) 34 SR (NSW) 446 at 451
per Jordan CJ, with whom Stephen and Maxwell JJ agreed (‘plain words …
capable of being controlled by context’).
54. (1982) 149 CLR 337.
55. (1982) 149 CLR 337 at 352. Stephen and Wilson JJ agreed. See also Swan v
Rawsthorne (1908) 5 CLR 765 at 781; Giliberto v Kenny (1983) 48 ALR
NSWLR 153 at 166, 191; Homestake Australia Ltd v Metana Minerals NL
(1991) 11 WAR 435 at 443. Cf Coghlan v S H Lock (Australia) Ltd (1987)
8 NSWLR 88 at 92; 61 ALJR 289 at 291; Darlington Futures Ltd v Delco
Australia Pty Ltd (1986) 161 CLR 500 at 510 per the High Court of
Australia (‘due weight to the context … construing the clause contra
proferentem in case of ambiguity’). See David McLauchlan, ‘Plain Meaning
and Commercial Construction: Has Australia Adopted the ICS Principles?’
(2009) 25 JCL 7.
56. (1918) 87 LJ Ch 414 at 419.
57. In that regard it might be noticed that Lord Atkinson framed his statement
in terms of ‘ambiguous, susceptible of more than one meaning’, suggesting
a single justification, and explaining the sense of ‘ambiguous’. Mason J’s
replacement of Lord Atkinson’s comma with ‘or’ suggests alternative bases
and, logically, differences in concept.
58. (1982) 149 CLR 337 at 347. Stephen and Wilson JJ agreed.
59. (1985) 2 NSWLR 309.
60. (1985) 2 NSWLR 309 at 334. See also Chapman v Chapman [1983] 2
NSWLR 420 at 436; L and M Electrics Pty Ltd v State Government
Insurance Office (Queensland) [1985] 2 Qd R 370 at 372. Cf Davis v
Federal Commissioner of Taxation (1989) 86 ALR 195 at 220; Fitzwood
Pty Ltd v Unique Coal Pty Ltd (in liq) (2001) 188 ALR 566 at 580.
61. (1987) 162 CLR 549.
62. (1987) 162 CLR 549 at 561. See also BP Refinery (Westernport) Pty Ltd v
Shire of Hastings (1977) 180 CLR 266 at 284; Bahr v Nicolay [No 2]
(1988) 164 CLR 604 at 651; Pacific Carriers Ltd v BNP Paribas (2004)
218 CLR 451 at 462; [2004] HCA 35 at [22]. And see Hon Sir Anthony
Mason, ‘Opening Address’ (2009) 25 JCL 1.
63. (2002) 240 CLR 45 at 52, 81; [2002] HCA 5 at [9], [104].
64. (2001) 210 CLR 181 at 188; [2001] HCA 70 at [11].
65. See Lion Nathan Australia Pty Ltd v Coopers Brewery Ltd (2006) 236 ALR
561 at 570, 581, 607; [2006] FCAFC 144 at [46], [100], [238]; Ryledar Pty
Ltd v Euphoric Pty Ltd (2007) 69 NSWLR 603 at 626; [2007] NSWCA 65
at [107]–[109]; Masterton Homes Pty Ltd v Palm Assets Pty Ltd (2009) 261
ALR 382 at 385; [2009] NSWCA 234 at [1]; Franklins Pty Ltd v Metcash
Trading Ltd (2009) 76 NSWLR 603 at 616, 622–3, 630, 678; [2009]
NSWCA 407 at [14], [49], [90], [305]. And note Brambles Holdings Ltd v
Bathurst City Council (2001) 53 NSWLR 153 at 192 per Ipp J-A (‘much to
be said’ for a broad view).
66. See Byrnes v Kendle (2011) 243 CLR 253 at 285; [2011] HCA 26 at [99];
Western Export Services Inc v Jireh International Pty Ltd (2011) 282 ALR
604; [2011] HCA 45 (judgment in special leave application). See David
McLauchlan and Matthew Lees, ‘More Construction Controversy’ (2012)
29 JCL 97.
67. See Chapter 14.
68. It is saying the same thing to say that context cannot be used to ‘contradict’
the ‘plain meaning’ of the document. Cf Jones v Walton [1966] WAR 139 at
69. See Royal Botanic Gardens and Domain Trust v South Sydney City Council
(2002) 240 CLR 45; [2002] HCA 5; BP Australia Pty Ltd (formerly BP
Australia Ltd) v Nyran Pty Ltd (2003) 198 ALR 442 at 450; [2003] FCA
442 at [26]. See also Metcalf v Permanent Building Society (in liq) (1993)
10 WAR 145 at 156. Cf Schenker & Co (Aust) Pty Ltd v Maplas Equipment
and Services Pty Ltd [1990] VR 834 at 840.
70. (1877) 2 App Cas 743 at 763.
71. (1918) 87 LJ Ch 414 at 418–19.
72. [1976] 1 WLR 989.
73. [1998] 1 WLR 896.
74. [1998] 1 WLR 896 at 912. Lords Goff, Hope and Clyde agreed. See also
Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC 1101 at 1109–10,
1115–16; [2009] UKHL 38 at [3]–[4], [29]–[30].
75. See [5-02], [5-03].
76. [2002] 1 WLR 2956; [2002] UKHL 38.
77. [2002] 1 WLR 2956 at 2958; [2002] UKHL 38 at [5] (approved Oceanbulk
Shipping and Trading SA v TMT Asia Ltd [2011] 1 AC 662 at 680; [2010]
UKSC 44 at [36]). See also Lewison, §3.17.
78. [2004] 2 Lloyd’s Rep 429 at 435; [2004] EWCA Civ 392 at [27] per Arden
LJ. Holman J agreed. See also Khan v Khan [2007] EWCA Civ 399 at [36];
[2008] Bus LR Digest 73 at D74 (position the same in relation to oral
contracts). Cf Henderson-Smart v Quality Blow Moulders Pty Ltd (2010) 25
VR 724 at 727; [2010] VSCA 14 at [15].
79. See, eg Anglomar Shipping Co Ltd v Swan Hunter Shipbuilders Ltd (The
London Lion) [1980] 2 Lloyd’s Rep 456 at 467 per Dunn LJ (because words
were ‘plain’ there was no room for consideration of commercial purpose);
Nile Co for the Export of Agricultural Crops v H & J M Bennett
(Commodities) Ltd [1986] 1 Lloyd’s Rep 555 at 587 per Evans J (reference
to ambiguity which made it ‘permissible to refer to … matrix of the
agreement’).
80. See Trawl Industries of Australia Pty Ltd v Effem Foods Pty Ltd Trading as
‘Uncle Bens of Australia’ (1992) 27 NSWLR 326 at 358–9. Cf B &B
Constructions (Aust) Pty Ltd v Brian A Cheeseman & Associates Pty Ltd
(1994) 35 NSWLR 227 at 234–5.
81. (1918) 87 LJ Ch 414 at 418–19.
82. (1918) 87 LJ Ch 414 at 418–19.
83. See also Bank of New Zealand v Simpson [1900] AC 182 at 189.
84. See [7-27].
85. Lyons, vol 1, p 95 (‘signs’).
88. [1995] 1 WLR 1580.
89. [1995] 1 WLR 1580 at 1587.
90. See [6-28].
AC 749 at 779–80.
92. [2000] 2 Lloyd’s Rep 209 at 216. See also Speedway Safety Products Pty
Ltd v Hazell & Moore Industries Pty Ltd [1982] 1 NSWLR 255 at 260
(reliance on factual matrix entitled court to construe ‘stock’ in an expanded
sense).
93. [1994] 1 VR 455 at 469–70.
94. See, eg Birrell v Dryer (1884) 9 App Cas 345 at 347, 353–4 (navigation of
River St Lawrence as context of warranty in contract of marine insurance).
95. See [7-32].
97. [1976] 1 WLR 989 at 997; [1976] 3 All ER 570. Viscount Dilhorne and
Lords Simon and Kilbrandon agreed. See also Charrington & Co Ltd v
Wooder [1914] AC 71 at 82; Clifton v Coffey (1924) 34 CLR 434 at 437;
Johnstone v Holdway [1963] 1 QB 601 at 612. And see Contracts
Restatement 2d (1979), §202, 212.
98. It was adopted in Codelfa Construction Pty Ltd v State Rail Authority of
New South Wales (1982) 149 CLR 337 at 351, 401.
99. [1976] 1 WLR 989 at 997; [1976] 3 All ER 570. See also Prenn v
Simmonds [1971] 1 WLR 1381 at 1384; [1971] 3 All ER 237 at 239.
100. [1998] 1 WLR 461 at 468. Swinton Thomas LJ agreed. See also Thoresen
Car Ferries Ltd v Weymouth Portland Borough Council [1977] 2 Lloyd’s
Rep 614 at 618; Canmer International Inc v UK Mutual Steamship
Assurance Association (Bermuda) Ltd (The Rays) [2005] 2 Lloyd’s Rep 479
at 485; [2005] EWHC 1694 (Comm) at [22] per Gloster J (‘obliged’).
101. See HIH Casualty and General Insurance Ltd v New Hampshire Insurance
Co [2001] 2 Lloyd’s Rep 161 at 166; [2001] EWCA 735 at [9] (expression
of disquiet at being asked to construe contract without benefit of factual
matrix). See also Dodson v Peter H Dodson Insurance Services [2001] 1
WLR 1012 at 1020; [2001] 3 All ER 75; Static Control Components
(Europe) Ltd v Egan [2004] 2 Lloyd’s Rep 429 at 435; [2004] EWCA Civ
392 at [27]. For the position in strike out proceedings or an application for
summary judgment see: Glencore Energy (UK) Ltd v Sonol Israel Ltd (The
Team Anmaj) [2011] 2 Lloyd’s Rep 697 at 700; [2011] EWHC 2756
(Comm) at [13].
102. See Chapter 7.
103. [1976] 1 WLR 989 at 995; [1976] 3 All ER 570. Viscount Dilhorne and
Lords Simon and Kilbrandon agreed.
104. [1986] 1 WLR 526 at 533; [1986] 1 All ER 374 at 379–80. See further [7-
06].
105. See Chapter 7.
members of the House of Lords agreed. See also Gator Shipping Corp v
Trans-Asiatic Oil Ltd SA (The Odenfeld) [1978] 2 Lloyd’s Rep 357 at 370;
International Air Transport Association v Ansett Australia Holdings Ltd
(2008) 234 CLR 151 at 160; [2008] HCA 3 at [8].
107. Reardon Smith Line Ltd v Yngvar Hansen-Tangen [1976] 1 WLR 989 at
996; [1976] 3 All ER 570. See also Zhu v Treasurer of New South Wales
(2004) 218 CLR 530 at 559; [2004] HCA 56 at [82] (context of deed poll).
108. See, eg Multi-Link Leisure Developments Ltd v North Lanarkshire Council
[2011] 1 All ER 175 at 178; [2010] UKSC 47 at [3] (no oral evidence). See
also [7-09].
109. Cf Bernhard Schulte GmbH &Co KG v Nile Holdings Ltd [2004] 2 Lloyd’s
Rep 352; [2004] EWHC 977 (Comm) per Cooke J (commercial object
‘self-evident’).
995–6; [1976] 3 All ER 570; Re Sigma Finance Corp (in administrative
receivership) [2010] 1 All ER 571 at 581; [2009] UKSC 2 at [10]. See
further [7-11].
111. See, eg Yorkshire Insurance Co Ltd v Campbell [1917] AC 218 at 225 per
the Privy Council (‘nature of the transaction and the known course of
business and the forms in which such matters are carried out’). See also
Behn v Burness (1863) 3 B & S 751 at 756; 122 ER 281 at 283; Multi-Link
Leisure Developments Ltd v North Lanarkshire Council [2011] 1 All ER
175 at 178; [2010] UKSC 47 at [3].
112. See, eg Reardon Smith Line Ltd v Sanko Steamship Co Ltd (The Sanko
Honour) [1985] 1 Lloyd’s Rep 418 at 419 (simple factual matrix was set
out in arbitrator’s reasons and comprised fact that charter related to large
tanker and had a main loading port in the Persian Gulf).
113. See Birrell v Dryer (1884) 9 App Cas 345 at 346, 352 (judicial notice).
114. See, eg International Minerals & Chemical Corp v Karl O Helm AG [1986]
1 Lloyd’s Rep 81 at 90 (sale of company — company’s methods of
accounting). See [7-26].
members of the House of Lords agreed. The statement was adopted in
Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty
Ltd (1979) 144 CLR 596 at 606. See also Zhu v Treasurer of New South
Wales (2004) 218 CLR 530 at 559; [2004] HCA 56 at [82].
116. Cf Offshore International SA v Banco Central SA [1976] 3 All ER 749 at
751; [1976] 2 Lloyd’s Rep 402 at 406 (exchange of cables between banks).
118. [1989] 1 WLR 379 at 392–3. See also Global 5000 Ltd v Wadhawan [2012]
1 Lloyd’s Rep 239 at 245; [2012] EWCA Civ 13 at [34]. Cf Gastronome
(UK) Ltd v Anglo Dutch Meats (UK) Ltd [2006] 2 Lloyd’s Rep 587 at 590;
[2006] EWCA Civ 1233 at [19] (genesis of guarantee included the principal
debtor’s need for continued supplies).
119. See also Appleby v Pursell [1973] 2 NSWLR 879 at 891, 896 (genesis of
the transaction included advertisement calling for tenders); Wace v Pan
Atlantic Group Inc [1981] 2 Lloyd’s Rep 339 at 343 (genesis of reinsurance
contract); The Elpis [1999] 1 Lloyd’s Rep 606 at 611 (genesis of contract
included writ which led to letter of undertaking). Cf Bunge SA v Kruse
[1977] 1 Lloyd’s Rep 492 at 495, 497, 499 (background against which
parties to CIF contract negotiated what was alleged to be accord and
satisfaction).
120. Cf Arrale v Costain Civil Engineering Ltd [1976] 1 Lloyd’s Rep 98 at 104
(clarify ambiguity).
121. (1978) 138 CLR 423.
122. (1978) 138 CLR 423 at 429. See also Prenn v Simmonds [1971] 1 WLR
1381 at 1385; [1971] 3 All ER 237.
123. See also Codelfa Construction Pty Ltd v State Rail Authority of New South
Wales (1982) 149 CLR 337 at 351; Buche v Box Pty Ltd (1993) 31 NSWLR
NSWLR 153 at 163; Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR
451 at 462; [2004] HCA 35 at [22]. Cf International Air Transport
Association v Ansett Australia Holdings Ltd (2008) 234 CLR 151 at 160;
[2008] HCA 3 at [8].
124. See Contracts Restatement 2d (1979), §202(1) (‘principal purpose … is
given great weight’).
996; [1976] 3 All ER 570; Shamil Bank of Bahrain EC v Beximco
Pharmaceuticals Ltd [2004] 1 WLR 1784 at 1798; [2004] EWCA Civ 19 at
[47]. See also Woodside Offshore Petroleum Pty Ltd v Attwood Oceanics
Inc [1986] WAR 253 at 267.
members of the House of Lords agreed. The statement was adopted in
Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty
Ltd (1979) 144 CLR 596 at 606.
127. [1971] 1 WLR 1381 at 1385; [1971] 3 All ER 237 at 241.
128. [1976] 1 WLR 989; [1976] 3 All ER 570.
Kilbrandon agreed.
130. Alternatively, if there was a breach, it was not a breach of condition. See
Carter’s Breach of Contract, §5-33. See also [15-27].
131. See Prenn v Simmonds [1971] 1 WLR 1381 at 1384; [1971] 3 All ER 237 at
240 (adopted DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138
CLR 423 at 429). See also Codelfa Construction Pty Ltd v State Rail
Authority of New South Wales (1982) 149 CLR 337 at 351.
133. [1971] 1 WLR 1381; [1971] 3 All ER 237.
134. [1971] 1 WLR 1381 at 1385; [1971] 3 All ER 237 at 240–1. The other
members of the House of Lords agreed. See also Siebe Gorman & Co v
Barclays Bank Ltd [1979] 2 Lloyd’s Rep 142.
135. [1976] 1 WLR 989; [1976] 3 All ER 570. See also [18-25] (context in
application of the contract).
136. See Secured Income Real Estate (Australia) Ltd v St Martins Investments
Pty Ltd (1979) 144 CLR 596 at 606; Rabin v Gerson Berger Association
Ltd [1986] 1 WLR 526 at 533; [1986] 1 All ER 374 at 380.
137. First Energy (UK) Ltd v Hungarian International Bank Ltd [1993] 2
Lloyd’s Rep 194 at 196 per Steyn LJ. See also [3-39].
138. Cf Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC 1101 at 1130;
[2009] UKHL 38 at [75].
139. (1982) 149 CLR 337.
140. See [6-23].
141. Sir Robert Goff, ‘Commercial Contracts and the Commercial Court’ [1984]
LMCLQ 382 at 389.
142. (2005) 222 CLR 241 at 258, 262; [2005] HCA 10 at [52], [66]. For other
Australian cases see Langley v Foster (1906) 4 CLR 167 at 180 (legislative
background to conditional leases); Maynard v Goode (1925) 37 CLR 529
(both parties knew that compliance with legislative requirement might give
rise to delay in carrying out sale of land); Australian Energy Ltd v Lennard
Oil NL [1986] 2 Qd R 216 at 235 (mining and petroleum legislation as
background to ‘farmout’ agreement).
143. [1971] 1 WLR 1381 at 1388; [1971] 3 All ER 237 at 243.
144. Cf Bank of Credit and Commerce International SA v Ali [2002] 1 AC 251 at
281; [2001] UKHL 8 at [78] per Lord Clyde (‘matters of law as well as
matters of fact’).
145. [1994] 1 Lloyd’s Rep 516 at 520. McCowan and Ralph Gibson LJJ agreed.
See also Clough Engineering Ltd v Oil and Natural Gas Corp Ltd (2008)
249 ALR 458 at 479; [2008] FCAFC 136 at [81]. Cf Bank of Credit and
Commerce International SA v Ali [2002] 1 AC 251 at 269; [2001] UKHL 8
at [39] per Lord Hoffmann (‘state of the law’).
146. See [13-13].
147. (2007) 233 CLR 115; [2007] HCA 61.
148. (2007) 233 CLR 115 at 132; [2007] HCA 61 at [32].
149. [1962] 2 QB 26.
25 JCL 83.
151. [2007] Bus LR 1719 at 1723; [2007] UKHL 40 at [5]. The other members
of the House of Lords agreed. See also Durham v BAI (Run off) Ltd (in
scheme of arrangement) [2012] 1 WLR 867 at 877; [2012] UKSC 14 at
[19] per Lord Mance, with whom Lords Kerr, Clarke and Dyson agreed
(‘shape … meaning’). Cf Bahr v Nicolay [No 2] (1988) 164 CLR 604 at
616 per Mason CJ and Dawson J (inferences from context ‘so strong that
they necessarily influence the interpretation’).
152. Prenn v Simmonds [1971] 1 WLR 1381 at 1384; [1971] 3 All ER 237 per
Lord Wilberforce (referring to River Wear Commissioners v Adamson
(1877) 2 App Cas 743 at 763). The other members of the House of Lords
agreed. See also Air Great Lakes Pty Ltd v K S Easter (Holdings) Pty Ltd
(1985) 2 NSWLR 309 at 334.
269; [2001] UKHL 8 at [39] per Lord Hoffmann (‘common assumptions’).
154. See [6-23].
155. [1903] 2 KB 740. See also [18-09].
156. [1903] 2 KB 740 at 749. Sterling LJ agreed.
157. [1903] 2 KB 740 at 750.
158. Cf Associated Japanese Bank (International) Ltd v Credit du Nord SA
[1989] 1 WLR 255 (common mistake).
159. (1982) 149 CLR 337.
161. (1981) 149 CLR 337 at 354 per Mason J. Stephen and Wilson JJ agreed.
162. See, eg Sirius International Insurance Co (Publ) v FAI General Insurance
Ltd [2004] 1 WLR 3251 at 3258; [2004] UKHL 54 at [20] (objectives of
settlement by way of Tomlin order). Cf Continental Illinois National Bank
& Trust Co of Chicago v Papanicolaou (The Fedora) [1986] 2 Lloyd’s Rep
441 at 444 (commercial purpose of transaction was that bank would be paid
quickly on default by borrower).
163. [1971] 1 WLR 1381; [1971] 3 All ER 237.
164. [1971] 1 WLR 1381 at 1386; [1971] 3 All ER 237 at 242 per Lord
Wilberforce. The other members of the House of Lords agreed.
165. [1971] 1 WLR 1381 at 1388; [1971] 3 All ER 237 at 244.
166. [1971] 1 WLR 1381 at 1388; [1971] 3 All ER 237 at 244 per Lord
Wilberforce.
7
Scope of Context
General [7-02]
Extent of Context [7-05]
General [7-05]
Determining the Extent of Context [7-08]
Knowledge of the Parties [7-15]
Relationship with Exclusionary Rule [7-24]
Scope of Relevance [7-29]
General [7-29]
Contractual and Other Documents [7-31]
Other Issues of Intention [7-33]
Standard Form Contracts and Third Parties [7-36]
Standard Form Contracts [7-36]
Third Parties [7-41]
[7-01] Objects. In the previous chapter the role of context in construction was
discussed, principally from the perspective of explaining the concept and its
importance. As will be recalled from that chapter, references in the case law to
any of the following matters are recognised as references to the relevant context:
‘surrounding circumstances’; ‘contractual setting’; ‘factual matrix’;
‘factual and legal matrix’; and ‘background’.
Although ‘scope’ issues informed some of the analysis in the previous
chapter, this chapter looks at ‘scope’ from four more specific perspectives. First,
what is the extent of context?
Second, what is the relationship between the exclusionary rule and context?
Third, what is the scope of relevance of the concept?
Fourth, to what extent is the application of the concept affected where a
standard form contract is at issue?
GENERAL
[7-02] Introduction. In ordinary speech the ‘context’ of an utterance comprises
the sum of knowledge and experience of a speaker.1 The process by which
meaning is arrived at is internalised. The utterance itself is merely the attempt to
convey meaning to another person, by the use of words and other clues to
meaning. Even apart from the fact that clues to the meaning of documentary
utterances differ from those present in ordinary conversation, the fact that the
objective in construing a contract is to determine a common intention implies
that the concept employed is a refined one.
By comparison with ordinary speech, the reasonable person by reference to
whom construction occurs2 is given only limited information. Therefore,
decisions must be made as to what that information comprises. The narrow
concept of context in the construction of contractual documents suggests that
those decisions are made on the basis that ‘context’ is a legal concept.
[7-03] Context as a legal concept. Contextualising the contract in a factual
sense is something which must logically occur before the contract is construed.3
In the previous chapter,4 it was explained that the law is concerned with facts
which establish the genesis of the contract and objective aim or purpose.
Evidence which is purely contextual is not extrinsic evidence and is therefore
admissible as a matter of course.5 However, as noted above, decisions must still
be made as to the scope of context in any particular case. Those decisions must
be made on a principled basis. The applicable principles are not the rules of
evidence. Lack of relevance may simply be an additional reason for not
regarding a particular fact as an element of context. Therefore, the scope of
context is determined by contract law. That involves the application of legal
rules.
[7-04] Legal rules. The main aspects of the definition of context as a legal
concept derive from the rule that contracts are construed objectively6 and the
perspective rule.7 Both serve to restrict the scope of the concept to objective
facts. The perspective rule also ensures that decisions as to scope take account of
the range of persons to whom the document was addressed. In particular, content
is likely to be more general in the case of third party standard form contracts.8
The other general rule which plays a role in defining the scope of context is
the exclusionary rule.9 However, the interaction between that rule and scope of
context as a legal concept is at times subtle.10 There are also more specific
considerations at work. Although it may be unnecessary to describe them as
rules, there is no doubt that they limit the scope of the concept. The most
important consideration is the parties’ awareness of any fact alleged to be
contextual.11
EXTENT OF CONTEXT
General
[7-05] When context determined.
Article 7.1 — Relevant time.
The relevant time for determining the extent of context is when the
contract was entered into.
The factual context of a contract relevant to construction of the contract is the
factual context which existed at the time of entry into the contract.12 The extent
of context must therefore be determined by reference to the position at that
time.13 Subsequent conduct does not form part of context.14
But the decision is not necessarily ‘final’ for all purposes. The extent of
context determined for the purpose of construction of a contract may increase
according to the issues raised in construction. In addition, context is broader in
application of the contract than it is in construction.15
[7-06] Relative concept. It is obvious to say that ‘context’ is a relative concept,
and therefore much easier to illustrate than to define. In that respect, it is no
different from concepts such as ‘reasonable time’. However, as a tool of legal
analysis, the extent of the raw material which is capable of being contextual in
relation to a particular construction issue must be determined as a matter of law.
In Investors Compensation Scheme Ltd v West Bromwich Building Society,16
Lord Hoffmann said17 that context extends to ‘absolutely anything which would
have affected the way in which the language of the document would have been
understood by a reasonable’ person. That statement18 is, however, open to
criticism, as being too broadly expressed.19 Subsequently, in Bank of Credit and
Commerce International SA v Ali,20 he thought it appropriate to explain, ‘in
passing’,21 that he:22
… meant anything which a reasonable man would have regarded as
relevant. I was merely saying that there is no conceptual limit to what can
be regarded as background. It is not, for example, confined to the factual
background but can include the state of the law (as in cases in which one
takes into account that the parties are unlikely to have intended to agree
to something unlawful or legally ineffective) or proved common
assumptions which were in fact quite mistaken. But the primary source
for understanding what the parties meant is their language interpreted in
accordance with conventional usage: ‘we do not easily accept that people
have made linguistic mistakes, particularly in formal documents’
[Investors Compensation Scheme Ltd v West Bromwich Building Society
[1998] 1 WLR 896 at 913]. I was certainly not encouraging a trawl
through ‘background’ which could not have made a reasonable person
think that the parties must have departed from conventional usage.
With respect, as a matter of law, there must be a limit. It does not seem useful to
instance ‘that the parties are unlikely to have intended to agree to something
unlawful or legally ineffective’ as part of background context.23 Indeed, it is hard
to see how that is ‘context’ at all. And it seems something of an admission of
defeat to fall back on the document as the ‘primary source for understanding’.
[7-07] Legal limits. When employed as a legal concept, context is not
indeterminate. Nor is its scope determined by what is relevant in an evidentiary
sense. Something more than relevance is required. In particular, a fact is
contextual only if it can be used to provide assistance in construction. The
importance of purpose was emphasised by Lord Steyn in Mannai Investment Co
Ltd v Eagle Star Life Assurance Co Ltd.24 He said:25
First, in respect of contracts and contractual notices the contextual scene
is always relevant. Secondly, what is admissible as a matter of the rules
of evidence under this heading is what is arguably relevant. But
admissibility is not the decisive matter. The real question is what
evidence of surrounding circumstances may ultimately be allowed to
influence the question of interpretation.
As noted above, general construction rules inform the process and serve to
limit the scope of the concept. And further refinement is achieved by decisions
in relation to the concept itself. That includes the distinction between the use of
prior negotiations as a direct aid to construction and their use as a source of
context.26 These and other matters are used to determine the extent of context.
Determining the Extent of Context
[7-08] Introduction. Apart from the fact that ‘context’ connotes something
which is relative to what is being determined, three main considerations serve to
ensure that, in relation to a given construction dispute, context is finite. The first
is the distinction between general commercial context and the context which is
specific to the particular matter at issue.27
Second, the principal objectives in relation to context are to understand the
‘genesis’ of the contract and to determine commercial purpose. Therefore,
context may not extend any further than material which is sufficient to establish
those matters.
Third, context is generally limited to matters known, or capable of being
known, by both parties. This reflects general construction rules. But it also
attempts to limit the raw material to circumstances which can be assumed to
have influenced the parties’ choice of document and its contents.
[7-09] Necessary context.
Article 7.2 — Extent of context.
Subject to the requirement of ‘knowledge’, the extent of context is
determined by the raw material which is necessary to enable the court,
when construing the contract, to place itself in the same position as the
parties when they entered into the contract.
Given the role of ‘context’ as the description of the material which a court or
other person entrusted with construction of the contract needs to know, legal
principles seek to achieve a practical objective. Subject to the requirement of
‘knowledge’, the question is what information is necessary to place the person
construing the contract in the position the parties were in when they entered into
the contract.28 That person should be informed, but not overburdened.
General commercial background is always necessary, but may not need to be
proved. The broad division between the general commercial background and
other (more specific) material reflects the fact that, for particular contracts or
issues, specific contextual facts may exist. The extent to which specific factual
material is necessary will always depend on the circumstances. But a party who
seeks to rely on such matters may be required to establish that, as a matter of
law, they are contextual in nature.29
The extent of context is not always controversial. In many cases, but
particularly where a standard form contract is at issue, context may not be in
dispute. And whatever the nature of the contract, context will be found in agreed
facts.30
[7-10] Objective facts. Of course, the statement of principle made above
assumes the operation of the exclusionary rule.31 Relevantly, that rule excludes
from consideration direct evidence of the parties’ intention and evidence of their
prior negotiations.32 Because these matters are not admissible as direct aids to
construction, they are not generally the source of factual information which can
be brought to bear in the construction process. This leads to a concern with
‘objective facts’. Thus, in referring in Reardon Smith Line Ltd v Yngvar Hansen-
Tangen33 to the matters which may be regarded as evidence of the ‘factual
matrix’, Lord Wilberforce said34 they must ‘be objectively identifiable’.
Similarly, in Codelfa Construction Pty Ltd v State Rail Authority of New South
Wales35 Mason J referred36 to ‘objective background facts’.37
In this way, ‘context’ as a legal concept reinforces the general purpose of
construction, namely, to construe the contract as it would be understood by the
(relevant) reasonable person.38 Because context must relate to factual matters, it
is generally not legitimate to characterise as ‘contextual’ material such as the
opinions of the parties or, in relation to specific issues, opinions of those in a
trade or industry. For example, in Barlee Marine Corp v Mountain (The
Leegas)39 an attempt was made to introduce material which amounted to no more
than the subjective views of insurance market practitioners. This evidence was
not admissible as context.
The position is even clearer in relation to statements by the parties of their
intention. But the treatment of evidence of ‘prior negotiations’ can be complex.
The fact that negotiations took a particular form will always be part of the
genesis of the contract. However, the contents of the negotiations are not
contextual facts. Nevertheless, ‘objective facts’ may sometimes be
communicated during negotiations.40
[7-11] General commercial background. At the very least, context includes the
general commercial background or setting against which the parties contracted.41
The nature of the contract, the nature of the market or industry, the way that the
people in the market or industry generally transact business, the current
economic conditions, and so on, are all matters which influence the terms of
contracts and which form part of context. They have always been so regarded.42
Much of the material taken into account as the general commercial
background is before the court or arbitrator on the basis of their general
knowledge43 and experience44 in relation to contracts of the same general nature,
the pleadings, or because it is common ground between the parties. For such
matters, the extent of context may be entirely or largely uncontroversial. For
example, in Toomey v Eagle Star Insurance Co Ltd45 the practice of Lloyd’s for
settling claims was within the general knowledge of persons engaged in
insurance business in London. It was therefore within the knowledge of both
parties. Moreover, there is no need to draw sharp distinctions between general
commercial background and specific contextual matters if the parties do not do
so. For example, in Kleinwort Benson Ltd v Malaysia Mining Corp Berhad,46 the
context in which a comfort letter was requested and given was before the court
without any dispute as to its relevance or admissibility.
[7-12] Evidence of specific matters. The controversial aspects of context
generally arise where specific matters which need to be proved by evidence are
alleged to be ingredients of context. It is necessarily problematic to seek to
explain the choice of particular words by reference to what the parties said and
did before entry into the contract. It is therefore commonplace for a contested
issue of scope to arise if one party, but not the other, seeks to rely on specific
material as being contextual in nature. The matters likely to be in issue include
the extent of knowledge in relation to specific circumstances.47
Specific material may in some cases be necessary in order to identify, or to
identify more precisely, matters such as the aim and object of the contract.
Expert evidence may be admissible.48 But context is not controversial simply on
the basis that it is specific to the contract at issue. For example, evidence of the
state of the market for the subject matter of the contract may be necessary in
order to understand the bargain.49 Similarly, context may include information
necessary to understand a particular type of contract and specific features of the
contract at issue. For example, in BP Plc v G E Frankona Reinsurance Ltd,50
factual context included evidence of the highly complex nature of offshore gas
projects, and that the particular project would go through various stages.
[7-13] Evidence of ‘market practice’. Evidence of market practice may be an
element of context,51 capable of being proved by expert evidence.52 However,
descriptions such as ‘market practice’, ‘industry practice’ and ‘business practice’
are used in various senses. There is a distinction between evidence of market
practice which is admissible under the technical concept of custom and usage,53
and evidence of what commonly occurs in a market.54 Generally, only the latter
is ‘contextual’.
It follows that the relevance of market practice is not limited to the
implication of a term, or the proof of a particular meaning, on the basis of
market custom or usage.55 Although the distinction between what commonly
occurs in a market and evidence to prove custom or usage is not always easy to
draw, the use of market or industry practice to prove what a particular contract
means goes beyond purely contextual use.56 However, an established custom or
usage in a market or trade may also be an element of context, available for use in
construction.57
[7-14] Legal background. The general commercial background will in many
cases include general legal background. In relation to the former, there is a
contrast between determining context as a preliminary to construction, and the
use of context (and what emerges from context) in construction. Since they are
both factual in nature, there is a similar contrast in relation to the latter, namely,
between determining the general legal background on a factual basis as a
preliminary to construction, and the use of that general legal background as ‘a
necessary help’58 in construction. And just as in some cases context will be
specific to a particular transaction, so also legal context is sometimes specific.
For example, in Multi-Link Leisure Developments Ltd v North Lanarkshire
Council,59 the commercial background included the statutory duty of the local
authority not to dispose of land for a consideration less than the best that could
reasonably be obtained.
Since legal background relates to matters which must, if necessary, be proved
on a factual basis, the principles which determine the extent of context are
equally applicable to legal background. There is therefore a distinction between
the fact that the parties to an employment contract have contracted against a
particular regulatory background,60 and the application of the statutes which that
regulatory background comprises to determine the rights and obligations of the
parties under the contract. The latter is a legal matter, to be dealt with
accordingly. It is because the extent to which the legal background counts as
context is determined in the same way as other factual material that legal
background is not a distinct category of context. It is, as always, relative to the
transaction. For example, in an international dispute, international commercial
regulatory background is an element of context.61 Features of the laws of a
foreign jurisdiction against the background of which a contract was agreed may
be important. For example, in Shamil Bank of Bahrain EC v Beximco
Pharmaceuticals Ltd,62 ‘commercial realities’ and the legal background of
Islamic law were material in relation to a financing transaction with a bank
incorporated under the laws of Bahrain.
Similar comments can be made in relation to the contrast between general
knowledge, for example, that the law in a particular area is uncertain, and the
choice between competing precedents to resolve an issue of construction. That is
not to say that the distinction is always easy to draw.63 Nor does it mean that case
law is necessarily irrelevant. But, usually, what matters is how case law can
legitimately be regarded as providing a context for the contract as a whole, not
particular provisions. Although there may be exceptions, the relevant context is a
general understanding generated by case law. For example, in Eridania SpA v
Oetker (The Fjord Wind),64 background knowledge was held to include the
‘general approach in’ Adamastos Shipping Co Ltd v Anglo-Saxon Petroleum Co
Ltd.65
Knowledge of the Parties
General
[7-15] Introduction. Where only the general commercial background is put
forward as context, knowledge of the parties is not in issue. Accordingly, issues
of knowledge arise where reliance on context is for the purpose of proving
specific matters by reference to particular items of evidence. Many of the cases
in which the limits of context have been explored have therefore concerned the
extent to which the parties must themselves be aware of the specific matters.
The law’s treatment of a bilateral contract as an utterance of a common
intention leads naturally to the idea that there must be an element of ‘sharing’ in
relation to context. This suggests that if certain facts are known to one party only
they will rarely be regarded as legitimately part of the context. That is not to say
that knowledge of both parties must in all cases be proved, or that matters of
context can always be objected to on the basis of lack of actual knowledge. In
Reardon Smith Line Ltd v Yngvar Hansen-Tangen,66 Lord Wilberforce said67 that
the requirement of knowledge ‘should not be stated in too narrow a sense’. The
concept would indeed be unworkable in practice if it were necessary to prove
actual knowledge of everything which is relied on as contextual. However,
account must also be taken of objectives, that is, how evidence of alleged
context is sought to be used.
[7-16] General approach.
Article 7.3 — Knowledge of context.
In general, for any matter of fact to be an ingredient of context it must
have been known by, or at least reasonably available to, both parties to
the contract.
The general approach to knowledge in relation to context is to limit the scope of
the concept to matters known to the parties,68 or matters capable of being known,
at the time when the contract was agreed.69 The general requirement is therefore
knowledge, or that the fact was reasonably available to both parties.70
A fact is not admissible as context merely because it was known to both
parties. For example, in relation to the construction of contracts such as
negotiable instruments and bills of lading, which are not addressed solely to the
immediate parties, some facts within their knowledge may need to be ignored to
protect the interests of third parties.71
Facts known to both parties
[7-17] Mutually known facts. The most likely source for objective background
material which can be regarded as contextual for the purpose of construction is
background raw material within the knowledge of both parties at the time they
contracted. All such material is potentially part of context which may
legitimately be taken into account when construing or applying the contract.
For example, in Bacon v Purcell72 a contract for the sale of cattle was agreed
which required delivery on or before 26 April. The question arose whether all
the cattle were to be handed over on one day. There were two herds of cattle
which were depasturing in large and different areas. The cattle had to be
mustered together, held and counted before delivery. The Privy Council
considered the quantity of cattle involved and the place and conditions under
which delivery was to take place to be part of the context (‘surrounding
circumstances’). It concluded that, although the seller had to be ready to begin
delivery on 26 April and to complete delivery with all reasonable dispatch, there
was no requirement for delivery to be completed on 26 April. The contract
would be complied with — in accordance with the intention of the parties —
even though delivery was not completed in one day.73
Statements recognising the admissibility of ‘mutually known facts’ have
typically been made in reference to descriptions of the subject matter of the
contract, as in the case of Lord Wilberforce’s statement in Prenn v Simmonds74
that ‘mutually known facts may be admitted to identify the meaning of a
descriptive term’. Because such facts will usually become apparent in the
negotiation of the contract, communications during negotiations are a legitimate
source of context. But this must also be an area in which mutual knowledge is
not always required. For example, if A telephones B and B agrees to purchase
‘A’s red sports car’ for a certain price, sight unseen, the facts necessary to
‘explain’ the description ‘A’s red sports car’ are known only to A. It would be
absurd to treat that information as contextual on the basis of application of some
sort of exception to a general requirement of ‘mutually known facts’.75
[7-18] Specific knowledge. Some general knowledge may be specific
knowledge in the sense that it is material to the construction of a particular
contract or type of contract.76 Account can be taken of legislative background,
whether the contract is written or oral, whether it is a standard form or
negotiated contract, which party prepared any contract document, whether the
document was drafted by lawyers, and so on. For example, in Charrington & Co
Ltd v Wooder,77 the House of Lords held that evidence of ‘surrounding
circumstances’ was admissible in connection with a covenant in an underlease
which contained the words ‘fair market price’. The lease related to a public
house which was a tied house, and the covenant required payment by a brewery
which took part in tied house arrangements under which different prices were
charged to tied houses and free public houses. Evidence of context — prices
charged to lessees operating ‘tied houses’ — was admissible as part of the
context of the contract, whether or not the parties had directed their minds to the
significance of that material. Viscount Haldane LC said:78
The fallacy in the view taken by the Court of Appeal appears to me to
have been that they endeavoured to interpret the covenant without
reference to the circumstances of the particular trade and of the situation
of the parties who entered into the contracts contained in the leases.
More recently, in Codelfa Construction Pty Ltd v State Rail Authority of New
South Wales79 both the contractors (who were engaged by the Rail Authority to
excavate tunnels) and their employers knew that work was to be carried out on a
three shifts per day basis. This evidence, which was used to prove a common
understanding between the parties, was part of the context of the contract even
though it was based on the specific knowledge of the parties. Notwithstanding
that the contract was a standard form building contract, the context was unique
to their building contract and associated transactions.
Of course, even where knowledge of a specific fact does form part of context,
it may not generate anything of particular significance to construction.80
[7-19] Related contracts. If related contracts form part of a single transaction,
each provides context to the other and will frequently be treated as part of the
internal context, so that the documents must be construed together.81 The
position may be the same in the case of a contract to vary, replace, renew or
rescind an earlier contract.
It may be inappropriate to regard related contracts as part of the same
transaction where they are between different parties. But whether or not that is
the case, related contracts between the same parties, or between parties one of
which is a party to the contract at issue, will generally form an ingredient of the
context of that contract if they are within the knowledge of both parties.82 Even
though several contracts may form part of a single transaction, each will have its
own context, including the context of the transaction as a whole.83 Similarly, the
earlier contract will always form part of the context of a contract which varies,
replaces, renews or rescinds that contract.84 And where an assignment or other
transfer is made pursuant to a contract, the contract will at least form part of the
context of the transfer. However, the mere fact that one party to the contract at
issue happens to have entered into other similar contracts does not make those
contracts related contracts which form part of context.85
Under the modern approach to context,86 courts require very little convincing
to look at prior contracts between the same parties as part of the context of the
contract.87 Nevertheless, the fact that the parties contracted on a previous
occasion does not make evidence of previous contracts part of the context of the
contract at issue. As always, it depends on the circumstances.88 And even where
the prior contract is an element of context, it is not on that basis alone a direct
aid to construction.89
Facts capable of being known
[7-20] Facts which were reasonably available. The concept of context relates
to background raw material which the person who construes the contract needs
to know. That includes background material necessary to place the contract in its
setting. From the perspective of the element of knowledge, it may be sufficient
that the facts were reasonably available to both parties. Therefore, as a matter of
law, context may include material which ‘each might reasonably have expected
the other to know’.90 In particular, matters of general commercial background
include, as Lord Bingham (speaking for the Privy Council) said in Dairy
Containers Ltd v Tasman Orient Line CV,91 ‘such general commercial
knowledge’ as the parties to ‘such a transaction would ordinarily be expected to
have’.
Because of the objective focus of the concept, whether or not the parties were
actually aware of the context is, in a sense, irrelevant. If the facts are
‘notorious’,92 knowledge is presumed.93 One of the great strengths of English law
has always been the commercial knowledge and experience of the judges and
arbitrators who decide commercial matters. They are not required to put to one
side their general transactional knowledge obtained from experience and
familiarity with the type of contract at issue. It would, indeed, be a great waste of
time for the law to require the general industry or market background to the
standard form contracts which come before courts and arbitrators on a daily
basis to be proved.94 The fact that judges who hear commercial disputes are
experienced in commercial matters reduces considerably the need to prove
general commercial background. Arbitration is frequently chosen as a dispute
resolution procedure because of the importance of commercial experience in
resolving disputes in the same trade, industry or profession.
That is not to say that reasonably available facts are limited to those which
relate to general commercial context. Specific matters may be brought within the
same criterion. For example, in Post Office v British World Airlines Ltd,95 the
terms under which Post Office contracted with its customers were part of the
context of a claim by the Post Office against a carrier.
[7-21] Facts to which neither party adverted. Inherent in the objective nature
of context is the idea that anyone construing a contract assumes as background
facts those circumstances which a reasonable person in the position of the parties
would have had in mind. ‘Context’ must therefore embrace material of which the
parties, as reasonable persons, ought to have been aware.96 The criterion is what
is reasonably available,97 not what has consciously been relied upon.
Whether the parties to a contract actually adverted to the background facts
when entering into the contract is not a relevant consideration.98 There is, in
other words, no need to establish that the parties actually took context into
account. It is of no concern how far one party in fact had the material in mind at
the time of entry into the contract. It is sufficient that a reasonable person would
have taken it into account. Similarly, whether the significance of a particular fact
was appreciated is irrelevant.99
Facts known to one party
[7-22] Introduction. As illustrated above, in most cases objective background
material is either general commercial context in relation to the type of
transaction, other raw material which was reasonably available to both parties or
specific facts within the knowledge of both parties at the time the contract was
entered into.
Therefore, as a general rule, only material which is known to both parties will
play a contextual role. It is therefore hardly surprising that many descriptions of
the concept appear to limit its operation to such knowledge.100 For example, in
Codelfa Construction Pty Ltd v State Rail Authority of New South Wales101
Brennan J suggested102 that ‘an extrinsic fact known to only one of the
contracting parties can shed no light upon the meaning with which that word or
phrase was used by the other or others’.
[7-23] Proof of knowledge not generally required. Because contracts express a
common intention, it is certainly logical to say that background facts must as a
general rule be limited to material which is known. However, this does not imply
that knowledge must be proved. Generally, because they are taken to have
known or understood the factual background against which they contracted, the
parties need not give evidence of their own knowledge, or prove that of the other
party. That includes facts capable of being known by both parties.
Although there is always relevant background raw material, the use of that
material without proof of actual knowledge (or advertance) is not rationalised on
the basis of estoppel.103 Rather, it is a reflection of the perspective rule. That rule
requires contracts to be construed from the perspective of a reasonable person in
the position of the person to whom the words are addressed. That person is
imbued with knowledge of context. Since context may include material which is
capable of being known, such material does not cease to be part of the context
merely because a party can prove lack of knowledge as a fact. But a
subsequently discovered fact cannot be regarded as contextual in nature if it was
not capable of being known by both parties at the time the contract was entered
into.
If a fact put forward as context is challenged, it must be shown that the fact is,
in the circumstances, a legitimate element of context. In Dairy Containers Ltd v
Tasman Orient Line CV,104 Lord Bingham, speaking for the Privy Council,
said105 that a contract should be given the meaning it would convey to a
reasonable person ‘having all the background knowledge which is available to
the person or class of persons to whom the document is addressed’. Therefore,
proof of lack of knowledge is not per se sufficient to prevent a fact which was
available to both parties being contextual. Conversely, if the fact at issue was not
capable of being known by the other party, proof of knowledge by the party who
alleges the fact to be an ingredient of context may not be sufficient.106 However,
it is not immediately obvious that one party should always be denied the ability
to rely on facts known only to the other party.107
RELATIONSHIP WITH EXCLUSIONARY RULE
[7-24] Introduction. Under the exclusionary rule certain matters — ‘extrinsic
evidence’ — are excluded from consideration as direct aids to construction.108
Those matters comprise direct evidence of intention, evidence of prior
negotiations and evidence of the subsequent conduct of the parties. Because
context relates to material available when the contract was entered into, and
because of the requirement that context relate to objective facts, little need be
said about the use of direct evidence of intention or subsequent conduct as a
source of context. Therefore, most of the disputes about the relationship between
the exclusionary rule and the scope of context have focused on the use of
evidence of the prior negotiations of the parties.
Since, in a great many cases, evidence of prior negotiations will be before a
court or arbitrator, the question is what use can be made of the evidence. In any
case where a contract is concluded by offer and acceptance, evidence of
negotiations is necessarily relied upon to establish the contract. But evidence of
what was said in the course of negotiations is not for that reason alone ‘context’
which is available for use in construction of the contract. The rationale is the
difference in purpose. Because ‘prior negotiations’ comprise a category of
extrinsic evidence, what the exclusionary rule proscribes is the use of
negotiations as a direct aid to construction. It is purpose or use which is crucial.
Therefore, although prior negotiations cannot be used as a direct aid, there is no
prohibition on their use as a source of context. To the extent that negotiations
generate context, what is generated may be taken into account when construing a
document.
From the perspective of purpose and use, the same comments can be made in
relation to direct evidence of intention and subsequent conduct. However, given
that the concept of context relates to objective facts, the tension between context
and the operation of the exclusionary rule which is felt in relation to prior
negotiations does not arise in relation to direct evidence of intention or
subsequent conduct.
[7-25] Actual intention. Because contract construction is almost invariably an
objective process, evidence of the actual intention of the parties is rarely
admissible as an aid to construction. Expressions used in relation to context,
such as the ‘common understandings’ of the parties, and their ‘aim’, ‘purpose’ or
‘object’, all refer to objective concepts. They are generated by an objective
process. Therefore, unilateral statements of intention cannot be used as context.
It follows that in seeking to give effect to ‘aim’, ‘purpose’ or ‘object’, there is
no room for consideration of one party’s separate ‘aim’, ‘purpose’ or ‘object’. In
DTR Nominees Pty Ltd v Mona Homes Pty Ltd109 a contract for sale of nine lots
of land, which annexed a plan of subdivision for the whole land, stated that the
plan had been lodged with the relevant municipal council. The contract required
the vendor to proceed ‘with all due dispatch’ to comply with the conditions of
approval of the council, and to have the ‘relevant plan of subdivision’ lodged for
registration as a deposited plan. The context did not establish, as contended by
the vendor, that at the time of entering into the contract the parties were aware
that the total subdivision was to be carried out in stages. Nor could oral evidence
be received from the vendor as to its intentions, as evidence of the context of the
contract. Stephen, Mason and Jacobs JJ said110 that the ‘only plan of subdivision
within the common contemplation of the parties was that annexed to the contract
and the contract fell to be construed accordingly’. It was not possible to identify
any other plan as ‘the relevant plan’.111
[7-26] Prior negotiations. Notwithstanding that a document may be the result of
protracted negotiations, during which the final agreement evolves over time, it is
the version adopted by the parties which is the subject matter for construction. In
key cases such as Prenn v Simmonds,112 a clear contrast is drawn between
context and prior negotiations. In that case, evidence of negotiations, that is,
evidence about the content of the contract, could not be considered as part of the
‘factual matrix’. Similarly, it was recognised in Codelfa Construction Pty Ltd v
State Rail Authority of New South Wales113 that since pre-contractual negotiations
are not admissible as a direct aid to construction unless an exception to the
exclusionary rule applies, the negotiations are not context. But it is implicit in
even those cases that the contrast is between using negotiations as a direct aid to
construction — which is prohibited by the exclusionary rule — and
understanding the general and specific commercial background. One particular
concern has always been that where the contract is expressed in a formal
document, earlier versions of that document are not, from the perspective of the
legal concept, contextual.114
Nevertheless, in Chartbrook Ltd v Persimmon Homes Ltd,115 where the House
of Lords confirmed that the exclusionary rule prohibits the use of prior
negotiations as a direct aid to construction, it was acknowledged that in some
cases prior negotiations may be a legitimate source of context. The basis was
explained by Lord Clarke in Oceanbulk Shipping and Trading SA v TMT Asia
Ltd,116 in terms that context relates to background facts, and to the extent that
they comprise ‘objective facts communicated by one party to the other in the
course of the negotiations’, prior negotiations may make a contribution to
context. Therefore, reliance may sometimes be placed on prior negotiations to
glean objective factual material within the scope of ‘context’. Matters other than
the meaning of the terms of a contract will be discussed during the negotiation
process. And during the course of such discussions matters may emerge which
can be taken into account as elements of context. But the fact that an aspect of
context may in a particular case be established by reference to prior negotiations
does not make those negotiations admissible as a direct aid to construction.117
This is by no means an entirely new idea.118 Indeed, in any case where a
contract is formed through offer and acceptance it is impossible to understand
the ‘genesis’ of the contract as finally agreed independently of the negotiations.
Even in Codelfa Construction Pty Ltd v State Rail Authority of New South
Wales,119 where a standard form contract was at issue, Mason J distinguished
between reliance on negotiations qua their status as negotiations about the terms
of the contract, and reliance on negotiations as prior discussions from which
relevant background material may emerge. The common understanding of the
parties against which the agreement had to be construed became apparent during
negotiations and was to that extent admissible as evidence tending to ‘establish
objective background facts’.120 Because the contract was a standard form
contract, the distinction was relatively straightforward. Application of the
approach to negotiated contracts is conceptually more difficult.
[7-27] Prior drafts. The rationalisation in the more recent cases is more general.
Even if the negotiations relate directly to the terms and meaning of the contract,
objective facts about the contract may sometimes emerge. Although those
objective facts are used in construction, the rationalisation assumes that the prior
negotiations are not used as a direct aid to construction. It also assumes that an
objective approach is taken in the construction of the prior negotiations. Where
prior negotiations take the form of communications such as offer, counter-offer
and so on, it is relatively easy to say that objective facts may be communicated.
It is more difficult to justify recourse to prior drafts on that basis. In
particular, the law effectively forbids the process which a layperson might think
necessary, namely, working backwards through the drafts to find coherent
evolution. Since each draft of a document has its own context, there are major
difficulties in allowing the contents of prior drafts to be treated as context. There
may also be a fine line between looking at a prior draft to provide context and
use of the content of the draft as a direct aid to construction. For example, Royal
Botanic Gardens and Domain Trust v South Sydney City Council121 concerned a
long-term lease of a strata of land to accommodate the building and operation by
the lessee of a large (and commercially successful) parking station in the city of
Sydney. The land was administered by the lessor for public purposes including
recreation. Although entered into in 1976, the term of the lease commenced on 1
May 1958, when the parking station was constructed, and rental payments
began.
The issue concerned the lessor’s power to fix rent under cl 4(b) of the lease.
Clause 4(b)(iv) stated that: [I]n making any such determination the Trustees may
have regard to additional costs and expenses which they may incur in regard to
the surface of the Domain above or in the vicinity of the parking station and the
footway and which arise out of the construction operation and maintenance of
the parking station by the Lessee.
The lessor increased the rent to reflect the commercial value of the demise.
That was done on the basis that the lessor was not confined to the matters set out
above. However, the lessee argued that ‘may’ was to be read as ‘may and may
only’. To bolster its argument, the lessee sought to rely on the lengthy and
involved background to the lease and its negotiation. The High Court of
Australia considered that evidence of the ‘surrounding circumstances’ was
admissible under the principles stated in Codelfa Construction Pty Ltd v State
Rail Authority of New South Wales,122 presumably on the basis that ‘may’ did not
have a plain meaning, or because cl 4(b)(iv) was ‘ambiguous or susceptible of
more than one meaning’. Surprisingly, the surrounding circumstances included a
prior draft of cl 4. Having regard to that evidence, a majority of the High Court
(Kirby J dissenting) held that the lessee’s construction was correct.
However, a strong argument can be made, not only that the High Court relied
on extrinsic evidence (the draft) even though no exception to the exclusionary
rule was applicable, but also that, in any event, recourse to extensive background
material was unnecessary and legitimised on the false basis that there was
something ‘wrong’ with the lease document. A reasonable person, knowing the
public purpose of the lessor’s function, would understand that the lease was
necessary for the building and operation of the parking station, and also that
provision was necessary to ensure that the lessor did not bear any cost which
arose out of the ‘construction operation and maintenance of the parking station’.
Given the fact that the rent was not a commercial rent (legitimately part of the
context), and the absence of any other provision in the lease to deal with the fact
that the maintenance cost to the lessor ‘in regard to the surface … above or in the
vicinity of the parking station’ would increase, it was legitimate to view the
provision for rent variation as allocating the risk of such increases to the lessee.
[7-28] Subsequent conduct. Where a contract is being construed, context must
be determined as at the time when the contract was entered into.123
‘Circumstances subsequent’, including the conduct of the parties after the
contract was made, cannot be regarded as contextual in relation to the document
as agreed. Thus, in Prenn v Simmonds124 Lord Wilberforce limited125 the factual
material to material in existence ‘at or before the date of the contract’. Any
allegation that context includes facts arising from subsequent conduct must
therefore be seen as an attempt to rely on extrinsic evidence to construe the
contract.
The issue is hardly debatable today, as a matter of logic or authority.
Although in some of the older cases ‘surrounding circumstances’ may have been
treated as including subsequent conduct,126 that seems simply a misuse of
language. And it would today be a misuse of the concept to suggest that context
may include subsequent events.
SCOPE OF RELEVANCE
General
[7-29] Introduction. The role of context in relation to meaning is universal.
From the perspective of the concept discussed in this chapter, the principal
relevance of context is to provide commercial background to the construction of
any utterance which has legal significance. Whether the utterance is bilateral or
unilateral is an irrelevant consideration. In relation to construction of a contract,
context must be taken into account whether the contract is purely verbal, or
wholly or partly in writing or evidenced by writing.
From the perspective of the construction of documents, context must be
brought to bear not only in the construction of contract documents but also other
instruments even if they have no direct connection with an executory contract. It
similarly follows that context is relevant to the construction of written
communications in connection with a contract or proposed contract.
[7-30] Scope and ambiguity. It was explained in the previous chapter that proof
of ambiguity, in the sense that the words at issue are susceptible of more than
one meaning, does not condition the ability of a person construing a contract to
rely on insights provided by context. This approach, derived from cases such as
Reardon Smith Line Ltd v Yngvar Hansen-Tangen,127 has dispensed with the idea
that context cannot influence meaning where construction of the document
discloses a ‘plain’ meaning for the words at issue.
Nor is there any basis for saying that the scope of the concept varies
according to whether or not the contract is ambiguous. For example, as
explained above, the prior negotiations of the parties may sometimes be utilised
as a source of contextual material. But that does not depend on the contract
being ambiguous. Moreover, even if the contract is ambiguous in construction,
the content of the negotiations is not admissible as a direct aid to construction.
The most that can be said is that context may have a greater influence in
construction in cases where the document is ambiguous.
Contractual and Other Documents
[7-31] Introduction. In relation to the linguistic meaning of words, the potential
relevance and importance of the concept does not depend on the type of contract
at issue.128 That includes a contract which results from negotiations made on a
‘without prejudice’ basis, and notwithstanding that the negotiations may be a
source of context.129 The fact that the contract is one to which s 4 of the Statute
of Frauds 1677 applies makes no difference.130
Because of the universal role of context, there is no doubt that context must
be brought to bear in relation to utterances which may have no connection with
contracts, or at least no necessary connection. Trust deeds, conveyances,
assignments and so on must, like contracts, be construed in context.131 That
context will include any contract which is performed (in whole or in part) by the
execution of the document. And because such documents are construed
objectively, a legal conception of context is applicable, rather than the broader
sense in which context is employed in ordinary life.132
Whether the applicable legal conception has the same scope as that applied to
contracts wholly expressed or evidenced by writing will depend on the
circumstances. The content of the concept cannot be assumed to be the same in
all cases. But something very similar to the conception applied in contract
construction will operate. Even where a unilateral document is at issue, the broad
distinction between the general commercial background and specific context
may be applicable. So also may matters such as ‘genesis’. But since common
intention is not at issue, relevant aims and objectives necessarily have a different
perspective, for example, in relation to a trust deed.
[7-32] Communications. Since it is elementary in law as well as semantics that
context is everything, to say that context is relevant to utterances other than
contracts is obvious. Because all communications made in contemplation of a
contract, or pursuant to or in connection with a contract must be construed,
context must be taken into account. And because their legal effect is, to a large
extent at least, regulated by the law of contract, the contractual concept of
context applies.133 Therefore, if an issue of construction arises in relation to a
contract alleged to arise from an exchange of written communications, as where
a contract is formed by the process of offer and acceptance, each such document
must be construed in light of its own context.134 So much follows not only from
the fact that each such communication is an utterance, but also because the
communication is alleged to have its own legal significance under the law of
contract.
Each communication made during the life of the contract has its own context,
including the contract itself. Thus, where an alleged repudiation is
communicated in a document, the document must be construed in context,
including all other communications relevant to the issue.135 For example,
whether or not an alleged repudiation is in writing, context may be crucial to the
decision that an apparent refusal to perform is not a repudiation of obligation
because the promisor acted in good faith.136
Although notices served under a contract are not contracts, and
notwithstanding that they express a unilateral rather than a common intention,
the scope of context in relation to a notice is determined by reference to closely
analogous principles.137 Whether or not a communication relates to a contract,
context may include background legal material. For example, in Gascoyne v
Customs and Excise Commissioners138 the relevant context where a letter from
persons whose goods had been forfeited was being construed included the
legislative scheme under which the goods were forfeited, and the explanation of
the scheme given by the Commissioners prior to the letter being sent. Moreover,
notwithstanding that the context of a standard form document will often be
general, context has the same relevance to any notice served under such a
contract as to a notice served under a negotiated document. Indeed, the notice
may have more context than the contract document.
Other Issues of Intention
[7-33] Introduction. Whether or not the matter at issue is classified as one of
construction,139 and whether or not the contract is stated in or evidenced by a
document, it is difficult to imagine any issue of intention in relation to a contract
where context would not play a role.
It therefore seems obvious to say that whenever the objective theory of
contract applies, so that the issue is determined by reference to the views of the
appropriate reasonable person, that person will need to be informed of context.
But it also seems correct to say that context is relevant even if the objective
theory is displaced. For example, although in cases of deceit the question is
whether the statement, as its maker believed it would be understood, conveys a
false impression,140 the objective context of the statement is relevant. The point
is simply that although its scope may vary, ‘context’ is always important where
intention is at issue.
[7-34] Application of the contract. The facts (context) relevant to the
application of the contract to the circumstances in reference to which it was
agreed are different from the facts which emerge in performance, and to which
the contract must also be applied.
The evidence which is taken into account in the application of a contract to
facts in performance is always broader than the evidence which is taken into
account when construing a contract.141 Although contextual material remains
important, different issues often arise.142 Specific construction issues may also
arise. The interaction between construction and intention, and between the
different senses of ‘application’, can be complex,143 for example, in relation to
remoteness of damage.
[7-35] Remoteness of damage. If the parties have expressed agreement on
remoteness of damage, the extent of a promisor’s liability is an ordinary question
of construction.144 Context is taken into account in the usual way.
Where there is no express agreement, the test of remoteness is the rule in
Hadley v Baxendale.145 That rule relies on the intention of the parties. Under the
first limb, the promisee’s damages ‘should be such as may fairly and reasonably
be considered [as] arising naturally, ie, according to the usual course of things,
from such breach of contract itself’.146 Although the first limb is not applied by
construction of the contract, it raises an issue of intention. Therefore,
construction of the contract is relevant. If there is no expressed intention as to
what damages are recoverable, it is necessary to consider precedent and the
context of the contract. For example, in deciding in Koufos v C Czarnikow Ltd
(The Heron II)147 that the claim in question came within the first limb of the rule,
the House of Lords took into account the shared knowledge that the plaintiffs
were sugar merchants, that the cargo was a cargo of sugar to be delivered at
Basrah and that there was a market for sugar at Basrah.
More recently, in Transfield Shipping Inc v Mercator Shipping Inc (The
Achilleas)148 Lord Hoffmann said:149
[T]here is a good deal of support in the authorities and academic writings
for the proposition that the extent of a party’s liability for damages is
founded upon the interpretation of the particular contract; not upon the
interpretation of any particular language in the contract, but (as in the
case of an implied term) upon the interpretation of the contract as a
whole, construed in its commercial setting.
This approach draws attention to the relevance of construction of the contract to
remoteness of damage issues. Lord Hoffmann put forward the view that,
‘because all contractual liability is voluntarily undertaken’,150 remoteness of
damage must depend on the objective intention of the parties.151 Whether he was
also of the view that this approach dispenses with the rule in Hadley v
Baxendale, or simply states how the rule should be applied, is unclear.
Lord Hoffmann also said152 that a court must decide ‘whether the loss for
which compensation is sought is of a “kind” or “type” for which the contract-
breaker ought fairly to be taken to have accepted responsibility’. Therefore, in
his view:153
[T]he consequences for which the contracting party will be liable are
those which ‘the law regards as best giving effect to the express
obligations assumed’ and ‘[not] extending them so as to impose on the
[contracting party] a liability greater than he could reasonably have
thought he was undertaking’.
With respect, the rule in Hadley v Baxendale conforms to this analysis.154 The
purport of the first limb of the rule is that a defendant is not liable for the
plaintiff’s loss unless it was a ‘natural’ loss. It is a limitation on liability, not a
ground of liability.155 The concept of ‘natural’ loss relies on construction of the
contract, including of course the general nature of the contract and its
commercial background. In fact, much the same story was told in The Heron II,
both by Diplock LJ when the case was before the Court of Appeal156 and,
ignoring the largely unhelpful attempt to explain the first limb of the rule in
Hadley v Baxendale in terms of probabilities, by the House of Lords.
In The Achilleas and The Heron II the issue of remoteness of damage arose in
relation to a third-party standard form contract. As discussed below, context is
more general in relation to a standard form contract than a negotiated contract.
STANDARD FORM CONTRACTS AND THIRD PARTIES
Standard Form Contracts
[7-36] Introduction. If the meaning of a third-party standard form contract, such
as that of a trade association, industry body or professional organisation, is at
issue, the relevant background material is likely to be more general than in
relation to a negotiated contract. In particular, the relevant context will in many
cases be limited to general commercial background.157 Indeed, where a document
is addressed to a range of people, as in the case of a negotiable instrument or bill
of lading,158 the available context may be very general. In addition, because the
person called upon to adjudicate the dispute is likely to have expertise in the
trade, industry or profession, the need for context to be established by evidence
may not arise.
Although the bargain will have a negotiation history, the prior negotiations of
the parties may relate solely to obvious variables such as price, quantity, duration
and destination. The fact that the exclusionary rule prohibits the use of prior
negotiations as an aid to construction is much less important, except in relation
to negotiated variations to the standard form.
[7-37] Context for a class. Where a standard form contract is used, the range of
potential parties to the contract form a class of people linked by use of the same
form. Assuming that an appropriate form has been chosen, the general
commercial background will be much the same for all members of the class.159
Although the genesis of the contract may be informative, in most cases
commercial purpose will be inherent in the nature of the transaction within the
trade, industry or profession.160
The standard form contract of a third party — for example, a trade association
or professional organisation — is, of course, different from one person’s
standard terms of business. Use of the former may be limited to members of the
association or organisation, or at least to commercial parties with much the same
commercial objectives and interests. But in relation to standard terms of
business, there is potential for a range of contracting parties. It follows that there
is also greater potential for variation in the content and scope of background, and
for more refined analysis of objects and aims. Nevertheless, it is a given that a
common set of terms is at issue, and that the terms of the contract have been
arrived at on the basis of an assumed context which leaves little room for
common aims and objectives to which effect is given on a negotiated basis.
[7-38] Expertise. The need for explanation of context — by evidence — is
diminished in standard form contracts, particularly in relation to a third party
standard form of a trade association or professional organisation. That is
emphasised by the fact that disputes in relation to third party standard form
contracts are typically resolved by arbitrators or experts who may have a wealth
of experience in relation to the same and similar standard forms.
A third party standard form contract is therefore a type of contract in which
construction is likely to be carried out with reference to general material which,
because it is capable of being known by both parties, does not need to be proved.
Similarly, the contract may rely on industry-specific terminology. All such
matters are often easily understood by judges, arbitrators and experts because of
professional experience.161
[7-39] History of the document. A negotiated document is peculiar to the
parties’ bargain. The document’s history is their negotiating history. It is a unique
history which the law does not regard as contextual in nature. But the history of
a standard form contract has no direct connection with the bargain of the parties.
The evolution of a standard form document over time is therefore
distinguishable from the evolution of a negotiated document. That is particularly
the case where the standard form document has been prepared by a third party.162
The contracting parties may or may not be aware of the changes to the document
made over the years, and the changes are not their negotiation history. It follows
that the exclusionary rule in relation to prior negotiations has no direct
application to prior versions of the standard form. Therefore, earlier versions
may be an element of context.163 So also may explanations of revisions.164
[7-40] Specific context. The general context of a standard form contract relates
to the trade, industry or profession in which the parties are acting, and the
objective and ‘aim’ or ‘purpose’ of the contract will be common to all users.
However, even a standard form contract may generate a long list of facts known
to both parties.165 And in at least five situations there may be a specific context to
consider. First, since an important element of background is the choice of
document, if the parties have chosen an inappropriate standard form, the specific
context — including why the standard form was an inappropriate choice — is
likely to be significant.166
Second, there may be substantial revisions to the standard form. Those
revisions will generally be indicative of the insufficiency of general background
as context. Even more modest revisions may reflect a specific context.167 It is
also conceivable that the commercial terms of the transaction, such as quantity
and price, may suggest a specific context. For example, evidence to the effect
that the quantity is atypical may derive from a specific genesis and stamp a
contract for the sale of goods with a specific objective.
Third, ‘special conditions’ may be included. Special conditions or other
additions to any third party standard form may impact on context. In this respect
— from a contextual standpoint — a standard form sale of land contract may
well be quite different from a trade association’s standard form sale of goods
contract. Not only are ‘special conditions’ a common feature of such contracts,
but they may also reflect the unique subject matter.
Fourth, specific contextual features may be associated with the identity of one
of the contracting parties. For example, in Codelfa Construction Pty Ltd v State
Rail Authority of New South Wales168 the discussions of the parties prior to
entering into a standard form building contract evidenced a common
understanding between the parties in relation to the benefit of the Rail
Authority’s immunity from injunction for nuisance. The discussions were
admissible as context, and available to support allegations that the contract
included an implied term or had been frustrated.
Fifth, even a third-party standard form document may have permutations and
variables which the parties have to select.169 The selections made may be
influenced by specific contextual considerations.
Third Parties
[7-41] Interests of third parties. Although most contracts are relevant only to
the immediate parties, some contracts come into the hands of third parties, or are
relied on by third parties. That is obvious indeed in relation to negotiable
instruments and bills of lading which are not addressed solely to the immediate
parties. But it is also true of other contracts, whether or not in standard form.170
For example, one contract may provide the basis for another contract, as where
finance is provided by a third party on the faith of a contract of sale. Although
these third parties may make and rely on particular constructions of the
document, they may be quite unaware of the specific context against which the
immediate parties contracted.
In recent years the position of third parties has been discussed from the
perspective of the scope of context. For example, in Chartbrook Ltd v
Persimmon Homes Ltd,171 Lord Hoffmann said172 the ‘law has sometimes to
compromise between protecting the interests of the contracting parties and those
of third parties’. He had previously instanced documents such as documentary
credits in Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd,173
saying that the scope of context may be limited in the interests of certainty, so as
to ensure that the meaning which may legitimately be placed on the document
does not vary according to knowledge of context.
Because the situations contemplated are common illustrations of standard
form documents, so that context is in any event usually quite general, it may be
unncessary to confine context to protect third parties. Indeed, it is not easy to see
why there is any need for a special legal rule to take account of the position of
third parties such as bankers and indorsees. Moreover, to a large extent the law
provides its own mechanism to deal with the matter. The perspective rule itself
serves to confine the scope of context in relation to a document capable of being
negotiated. For example, in Dairy Containers Ltd v Tasman Orient Line CV,174
Lord Bingham, speaking for the Privy Council, said that ‘with a printed form of
contract, negotiable by one holder to another, no inference may be drawn as to
the knowledge or intention of any particular party’.
[7-42] Potential assignees. It is even more difficult to justify the need for
special rules simply on the basis that, in relation to a particular contract, there are
potential assignees or lenders.
By definition, without inquiry, a third-party assignee or lender may be
unaware of any contextual material which is specific to the immediate parties to
the bargain. Inquiries are, of course, frequently made. However, the extent of
such ‘due diligence’ necessarily varies from transaction to transaction. If finance
is provided, or the benefit of an assignment is taken, in reliance on the document
it might be said that the broader the concept of context, the more such third
parties may be at risk.
Given that many commercial contracts are assignable, or relied on by third
parties such as lenders, the mere fact that there is potential for third parties to be
affected cannot play a major role in determining the scope of context. That
seems clearly the position where the dispute is between the immediate parties to
whom the contract is solely addressed. Therefore, as a matter of principle, the
mere fact that a contract is assignable, so that third parties may acquire rights
under it, cannot prejudice the right of the parties to the contract to have it
construed with the aid of the normal range of context.
It could not be suggested that context should be limited simply because the
benefit of the contract might be assigned. An obligor’s position (in relation to
context) cannot be affected by whether or not it insisted on a prohibition on
assignment. And it would hardly be fair to the obligor to say that the scope of
context depends on whether its rights are adjudicated before or after an
assignment. Strictly, construction issues can only arise between the immediate
parties, who are bound by the construction of the document in its full factual
context. But different issues may arise between the obligee and the assignee in
relation to the assignment itself.175 For example, an estoppel may arise if the
assignee has acted to its detriment on the basis of a narrower context than that
applied as between the obligor and obligee.176 Whether that is the case will
depend on the circumstances.
1. See also [5-09].
2. See [4-22].
3. See [1-11], [4-19].
4. [6-22]–[6-27].
5. See [6-06].
8. See [7-36]–[7-42].
10. See [7-24]–[7-28].
[15]. See further [7-15]–[7-23].
12. See, eg Maine v Lyons (1913) 15 CLR 672 at 677; Johnstone v Holdway
[1963] 1 QB 601 at 612; Prenn v Simmonds [1971] 1 WLR 1381 at 1387;
[1971] 3 All ER 237 at 241; Reardon Smith Line Ltd v Yngvar Hansen-
Tangen [1976] 1 WLR 989 at 997; [1976] 3 All ER 570; Post Office v
British World Airlines Ltd [2000] 1 Lloyd’s Rep 378 at 384; [2000] 1 All
ER (Comm) 532; Absalom v TCRU Ltd [2005] 2 Lloyd’s Rep 735 at 740;
[2005] EWHC 1090 (Comm) at [25] (adopted on appeal [2006] 2 Lloyd’s
Rep 129 at 131; [2005] EWCA Civ 1586 at [7]). See David McLauchlan,
‘A Construction Conundrum?’ [2011] LMCLQ 428 at 434.
13. See also Maynard v Goode (1926) 37 CLR 529 at 538 per Isaacs J
(‘contemporaneous with … creation’).
14. See [7-28].
15. See Chapter 18.
16. [1998] 1 WLR 896.
Rank Enterprises Ltd v Gerard [2000] 1 Lloyd’s Rep 403 at 406; Thor
Navigation Inc v Ingosstrakh Insurance Co Ltd [2005] 1 Lloyd’s Rep 547 at
551; [2005] EWHC 19 (Comm) at [16]; Enterprise Oil Ltd v Strand
Insurance Co Ltd [2006] 1 Lloyd’s Rep 500 at 514; [2006] EWHC 58
(Comm) at [60]. Cf Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001)
210 CLR 181 at 188; [2001] HCA 70 at[11].
18. See also, but from a different perspective, [6-20].
19. See Scottish Power Plc v Britoil (Exploration) Ltd (1997) unreported, 18
November, CA per Staughton LJ (with whom Otton and Robert Walker LJJ
agreed). See also Sir Christopher Staughton, ‘How Do Courts Interpret
Commercial Contracts?’ [1999] CLJ 303 at 307.
20. [2002] 1 AC 251; [2001] UKHL 8.
21. [2002] 1 AC 251 at 269; [2001] UKHL 8 at [39].
22. [2002] 1 AC 251 at 269; [2001] UKHL 8 at [39]. See also Chartbrook Ltd v
Persimmon Homes Ltd [2009] 1 AC 1101 at 1117; [2009] UKHL 38 at
[33].
23. See [16-28].
24. [1997] AC 749.
25. [1997] AC 749 at 768.
27. See also [6-23].
28. See also [6-18].
29. Cf Scott v Martin [1987] 2 All ER 813 at 817.
30. See, eg Thames Valley Power Ltd v Total Gas & Power Ltd [2006] 1
Lloyd’s Rep 441 at 451; [2005] EWHC 2208 (Comm) at [49]; Talbot
Underwriting Ltd v Nausch Hogan & Murray Inc (The Jascon 5) [2006] 2
Lloyd’s Rep 195 at 223; [2006] EWCA Civ 889 at [8].
31. See [7-24] and generally Part V.
32. In relation to subsequent conduct see [7-28].
33. [1976] 1 WLR 989; [1976] 3 All ER 570.
Kilbrandon agreed.
35. (1982) 149 CLR 337.
37. See also Johnson Matthey Ltd v A C Rochester Overseas Corp (1990) 23
NSWLR 190 at 194–5; Maddestra v Penfolds Wines Pty Ltd (1993) 44 FCR
303 at 306.
38. See Dairy Containers Ltd v Tasman Orient Line CV [2005] 1 WLR 215 at
220.
39. [1987] 1 Lloyd’s Rep 471 at 475. See also Sunrock Aircraft Corp Ltd v
Scandinavian Airlines System Denmark-Norway-Sweden [2007] 2 Lloyd’s
Rep 612 at 616; [2007] EWCA Civ 882 at [17]; Durham v BAI (Run off) Ltd
(in scheme of arrangement) [2012] 1 WLR 867 at 886; [2012] UKSC 14 at
[40].
40. See [7-26]–[7-27].
41. See [6-23].
42. See, eg McConnel v Murphy (1873) LR 5 PC 203 at 215 per Sir Montague
E Smith for the Privy Council (what is ‘generally known throughout the
trade’); Tennants (Lancashire) Ltd v CS Wilson & Co Ltd [1917] AC 495 at
514 (surrounding circumstances included position of the merchant in
magnesium chloride trade).
43. See, eg Australis Media Holdings Pty Ltd v Telstra Corp Ltd (1998) 43
NSWLR 104 at 117 (fact that pay television was an emerging medium — in
context of distribution agreements). Cf Pink Floyd Music Ltd v EMI
Records Ltd [2011] 1 WLR 770n; [2010] EWCA Civ 1429.
44. See [7-20].
45. [1994] 1 Lloyd’s Rep 516 at 521. See also Birrell v Dryer (1884) 9 App Cas
345 at 348 (risks of navigation of River St Lawrence); Association of
British Travel Agents Ltd v British Airways Plc [2000] 2 Lloyd’s Rep 209 at
216 (in the construction of the word ‘fares’ the surrounding circumstances
included glossary used by travel agents).
46. [1989] 1 WLR 379 at 392.
47. See [7-15]–[7-23].
48. See Pink Floyd Music Ltd v EMI Records Ltd [2011] 1 WLR 770n; [2010]
EWCA Civ 1429 at [23] per Lord Neuberger MR, with whom Laws and
Carnwath LJJ agreed (expert evidence admissible to support case as to what
the parties ‘would have known or believed’).
49. See, eg Bowden Bros & Co Ltd v Little (1907) 4 CLR 1364 at 1376 (in a
contract for the supply of ‘Japan onions’, evidence that at the time of year
the goods could be acquired only in Kobe).
50. [2003] 1 Lloyd’s Rep 537 at 552, 553; [2003] EWHC 344 (Comm) at [89],
[100].
51. See, eg Hvalfangerselskapet Polaris Aktieselskap v Unilever Ltd (1933) 39
Com Cas 1 at 19 (common practice in the industry); Toomey v Eagle Star
Insurance Co Ltd [1994] 1 Lloyd’s Rep 516 at 520–1 (practices of London
insurance market); Association of British Travel Agents Ltd v British
Airways Plc [2000] 2 Lloyd’s Rep 209 at 216 (surrounding circumstances
included way in which ‘passenger service charges’ had been considered in
the past); Homburg Houtimport BV v Agrosin Private Ltd (The Starsin)
[2004] 1 AC 715 at 796; [2003] UKHL 12 at [188] (market practice as to
what information can be expected to be found on the face of a bill of
lading); Inta Navigation Ltd v Ranch Investments Ltd [2010] 1 Lloyd’s Rep
74 at 80; [2009] EWHC 1216 (Comm) at [29] (findings of arbitrators —
two methods for selling vessels under construction); ING Bank NV v Ros
Roca SA [2012] 1 WLR 472 at 478; [2011] EWCA Civ 353 at [13] (market
practice as to use of EBITA part of surrounding circumstances known to
both parties).
52. See, eg Crema v Cenkos Securities plc [2011] 1 WLR 2066 at 2079; [2010]
EWCA Civ 1444 at [45]. Contrast Maple Leaf Macro Volatility Master
Fund v Rouvroy [2009] 1 Lloyd’s Rep 475 at 512; [2009] EWHC 257
(Comm) at [225] (alleged French ‘business practice’ not established).
53. See Chapter 14.
54. See also Sir Christopher Staughton, ‘How Do Courts Interpret Commercial
Contracts?’ [1999] CLJ 303 at 312 (‘how the market operates’). But cf
Durham v BAI (Run off) Ltd (in scheme of arrangement) [2012] 1 WLR 867
at 885–6; [2012] UKSC 14 at [39].
55. See Fortis Bank SA/NV v Indian Overseas Bank [2010] Bus LR 835 at 849;
[2010] EWHC 84 (Comm) at [69]; Crema v Cenkos Securities Plc [2011] 1
WLR 2066 at 2078; [2010] EWCA Civ 1444 at [43] .Cf BP Plc v G E
Frankona Reinsurance Ltd [2003] 1 Lloyd’s Rep 537 at 556–7; [2003]
EWHC 344 (Comm) at [130]–[132]. Contrast Reardon Smith Line Ltd v
Yngvar Hansen-Tangen [1976] 1 WLR 989 at 995; [1976] 3 All ER 570
(evidence of practices adopted in the shipbuilding industry in Japan not part
of context of contract between two foreign companies whether or not it was
known).
56. See Sunrock Aircraft Corp Ltd v Scandinavian Airlines System Denmark-
Norway-Sweden [2007] 2 Lloyd’s Rep 612 at 616; [2007] EWCA Civ 882
at [17]; Durham v BAI (Run off) Ltd (in scheme of arrangement) [2012] 1
WLR 867 at 886; [2012] UKSC 14 at [39] (alleged practice based on
mistaken understanding by some insurers as to meaning of contracts was
not relevant background). Cf Thor Navigation Inc v Ingosstrakh Insurance
Co Ltd [2005] 1 Lloyd’s Rep 547 at 556; [2005] EWHC 19 (Comm) at [30]
(fact that contract was made subject to ‘English ..… practice’ did not make
evidence of practice admissible on whether policy was a valued policy). But
cf Star Steamship Society v Beogradska Plovidba (The Junior K) [1988] 2
Lloyd’s Rep 583 at 589 per Steyn J (‘broking views’ determined legal
effect).
57. See Bremer Handelsgesellschaft mbH v Toepfer [1980] 2 Lloyd’s Rep 43 at
48, 50 (knowledge of general trade practice under which inter-office
transactions were treated as part of a contract ‘string’ could be taken into
account in construing ‘buyer’ and ‘subsequent seller’).
58. Roach v Bickle (1915) 20 CLR 663 at 669 per Isaacs and Gavan Duffy JJ.
59. [2011] 1 All ER 175 at 184; [2010] UKSC 47 at [22]. See also Durham v
BAI (Run off) Ltd (in scheme of arrangement) [2012] 1 WLR 867 at 888–9;
[2012] UKSC 14 at [46]. Cf Maine v Lyons (1913) 15 CLR 672 at 677
(rejection of diseased potatoes by government inspectors).
60. See [6-28]. See also Norman; Re Forest Enterprises Ltd v FEA Plantation
Ltd (2011) 280 ALR 470 at 474; [2011] FCAFC 99 at [14] (terms of licence
granted under statute).
61. See Pagnan SpA v Tradax Ocean Transportation SA [1987] 3 All ER 565 at
568; [1987] 2 Lloyd’s Rep 342 at 345 (impact was for EEC to be only
foreign market into which tapioca could be exported).
62. [2004] 1 WLR 1784 at 1798; [2004] EWCA Civ 19 at [47] per Potter LJ.
Laws and Arden LJJ agreed.
63. Cf Nile Co for the Export of Agricultural Crops v H & J M Bennett
(Commodities) Ltd [1986] 1 Lloyd’s Rep 555 at 588 (rules relating to FOB
contracts). And, of course, the role of precedent differs as between standard
form contracts and negotiated contracts. See Chapter 13.
64. [2000] 2 Lloyd’s Rep 191 at 197; [2000] 2 All ER (Comm) 108 per Clarke
LJ. The other members of the Court of Appeal agreed.
65. [1959] AC 133.
66. [1976] 1 WLR 989; [1976] 3 All ER 570.
Kilbrandon agreed. See also Codelfa Construction Pty Ltd v State Rail
Authority of New South Wales (1982) 149 CLR 337 at 351. Cf River Wear
Commissioners v Adamson (1877) 2 App Cas 743 at 764; Inglis v John
Buttery & Co (1878) 3 App Cas 552 at 577–8; Bank of New Zealand v
Simpson [1900] AC 182 at 188.
68. See, eg Prenn v Simmonds [1971] 1 WLR 1381 at 1383–4; [1971] 3 All ER
237 at 239–40; Codelfa Construction Pty Ltd v State Rail Authority of New
South Wales (1982) 149 CLR 337 at 352; DTR Nominees Pty Ltd v Mona
Homes Pty Ltd (1978) 138 CLR 423 at 429. See Contracts Restatement 2d
(1979), §201, com b.
69. See [7-05].
Society [1998] 1 WLR 896 at 912; Dairy Containers Ltd v Tasman Orient
Line CV [2005] 1 WLR 215 at 220; [2004] UKPC 22 at [12]; Attorney
General of Belize v Belize Telecom Ltd [2009] 1 WLR 1988 at 1993; [2009]
UKPC 10 at [16]; Enterprise Oil Ltd v Strand Insurance Co Ltd [2006] 1
Lloyd’s Rep 500 at 514; [2006] EWHC 58 (Comm) at [60]; Crema v
Cenkos Securities Plc [2011] 1 WLR 2066 at 2077; [2010] EWCA Civ
1444 at [38]; Rainy Sky SA v Kookmin Bank [2011] 1 WLR 2900 at 2907;
[2011] UKSC 50 at [14].
[2009] UKHL 38 at [40]. See further [7-36]–[7-42].
72. (1916) 22 CLR 307.
73. See also Francis v Lyon (1907) 4 CLR 1023 at 1031–2 (in contract for sale
of sheep, context included conditions at the place of delivery and the
meaning of ‘fit to travel’ was determined in light of those conditions);
Goldsbrough Mort & Co Ltd v Carter (1914) 19 CLR 429 at 435
(circumstances surrounding contract to deliver ‘about 4000 Canonbar bred
ewes’ included circumstances at place where stock were located);
Harrington v Browne (1917) 23 CLR 297 (where contract for sale of
livestock specified date for delivery, surrounding circumstances were used
to determine the content of the buyer’s obligation).
members of the House of Lords agreed. See also Codelfa Construction Pty
Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 at 351–
2; GR Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1986)
40 NSWLR 631 at 636; Homestake Australia Ltd v Metana Minerals NL
(1991) 11 WAR 435 at 447.
75. See further on descriptive terms Chapter 18.
76. See, eg Mora Shipping Inc v AXA Corporate Solutions Assurance SA
[2005] 2 Lloyd’s Rep 769 at 775; [2005] EWCA Civ 1069 at [34] (known
or contemplated by both parties that general average would be settled in
London). Cf Brambles Holdings Ltd v Bathurst City Council (2001) 53
NSWLR 153 at 192 per Ipp J-A (‘shared beliefs’).
77. [1914] AC 71.
78. [1914] AC 71 at 79.
79. (1982) 149 CLR 337.
80. See, eg Absalom v TCRU Ltd [2006] 2 Lloyd’s Rep 129 at 132; [2005]
EWCA Civ 1586 at [12] (softness of market was part of background, but its
significance in construction was not clear).
82. See, eg Eximenco Handels AG v Partredereit Oro Chief (The Oro Chief)
[1983] 2 Lloyd’s Rep 509 at 516 (delivery documents in sale of vessels);
Chappuis v Filo (1990) 19 NSWLR 490 at 508 (related contracts of sale);
NBTY Europe Ltd (formerly Holland & Barrett Europe Ltd) v Nutricia
International BV [2005] 2 Lloyd’s Rep 350 at 356, 357; [2005] EWHC 734
(Comm) at [33], [43] (share sale agreement part of the background to
settlement agreement). See also Gastronome (UK) Ltd v Anglo Dutch Meats
(UK) Ltd [2006] 2 Lloyd’s Rep 587 at 590; [2006] EWCA Civ 1233 at [19]
(context of guarantee included knowledge of who had been supplying
principal debtor). Cf Mechanical Horse (Australasia) Pty Ltd v Council of
the City of Broken Hill (1941) 41 SR (NSW) 135 at 136 (incorporated
documents).
London Lion) [1980] 2 Lloyd’s Rep 456 at 462, 466, 467 (factual
background of letter of undertaking in shipbuilding transaction).
84. See, eg Great North East Railway Ltd v Avon Insurance Plc [2001] 2
Lloyd’s Rep 649 at 654–5; [2001] EWCA Civ 780 at [28]–[29]. Cf HIH
Casualty and General Insurance Ltd v New Hampshire Insurance Co
[2001] 2 Lloyd’s Rep 161 at 179; [2001] EWCA 735 at [83] (difficulty
where later contract intended to supersede the earlier contract).
85. Reardon Smith Line Ltd v Sanko Steamship Co Ltd (The Sanko Honour)
[1985] 1 Lloyd’s Rep 418 at 419 (arbitrator wrong to treat as part of context
other charters fixed by shipowners with third parties).
86. But cf Hvalfangerselskapet Polaris Aktieselskap v Unilever Ltd (1933) 39
Com Cas 1 at 21, 22.
87. See, eg HIH Casualty and General Insurance Ltd v New Hampshire
Insurance Co [2001] 2 Lloyd’s Rep 161 at 179; [2001] EWCA 735 at [83]
(always permissible to look at prior contracts as part of the factual matrix);
Ravennavi SpA v New Century Shipbuilding Co Ltd [2007] 2 Lloyd’s Rep
24 at 27; [2007] EWCA Civ 58 at [11] (option contract and subsequent
shipbuilding contract); Mulcaire v News Group Newspapers Ltd [2012] 2
WLR 831 at 845; [2011] EWHC 3469 (Ch) at [39] (prior indemnities
between same parties). See also KPMG LLP v Network Rail Infrastructure
Ltd [2007] Bus LR 1336 at 1347–8, 1350; [2007] EWCA Civ 363 at [36],
[43]; Mopani Copper Mines Plc v Millennium Underwriting Ltd [2008] 2
All ER (Comm) 976 at 991; [2008] EWHC 1331 at [65]; Australasian
Medical Insurance Ltd v CGU Insurance Ltd (2010) 271 ALR 142 at 158;
[2010] QCA 189 at [66]. Cf Lewison, §3.05.
88. Prior contracts may establish a course of dealing which can be used to
establish an estoppel. See [14-21].
89. See Youell v Bland Welch & Co Ltd [1992] 2 Lloyd’s Rep 127 at 134, 141
(insurance slip). See also Contracts Restatement 2d (1979), §215 (prior
agreements not admissible to ‘contradict’ term of integrated contract).
90. Youell v Bland Welch & Co Ltd [1992] 2 Lloyd’s Rep 127 at 133 per
Staughton LJ. Fox LJ agreed.
91. [2005] 1 WLR 215 at 220; [2004] UKPC 22 at [12].
92. Codelfa Construction Pty Ltd v State Rail Authority of New South Wales
(1982) 149 CLR 337 at 352 per Mason J. Stephen and Wilson JJ agreed.
93. See, eg Goldsbrough Mort & Co Ltd v Carter (1914) 19 CLR 429 at 435
per Griffith CJ (‘common knowledge’ that rate of mortality of sheep was
‘likely to be very large’).
94. See Home and Overseas Insurance Co Ltd v Mentor Insurance Co (UK) Ltd
[1990] 1 WLR 153 at 158.
95. [2000] 1 Lloyd’s Rep 378 at 384; [2000] 1 All ER (Comm) 532.
96. See Contracts Restatement 2d (1979), §202, com b.
97. See [7-16]. See also BP Plc v G E Frankona Reinsurance Ltd [2003] 1
Lloyd’s Rep 537 at 552; [2003] EWHC 344 (Comm) at [89]; Absalom v
TCRU Ltd [2005] 2 Lloyd’s Rep 735 at 740; [2005] EWHC 1090 (Comm)
at [25] (adopted on appeal [2006] 2 Lloyd’s Rep 129 at 131; [2005] EWCA
Civ 1586 at [7]).
996–7; [1976] 3 All ER 570; Bunge SA v Kruse [1977] 1 Lloyd’s Rep 492
at 495. See also [7-18].
99. See, eg Reardon Smith Line Ltd v Yngvar Hansen-Tangen [1976] 1 WLR
989 at 997; [1976] 3 All ER 570 (either or both may have taken no
particular interest); International Minerals & Chemical Corp v Karl O
Helm AG [1986] 1 Lloyd’s Rep 81 at 90 (in sale of company — importance
of company’s methods of accounting).
100. See, eg Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at 462;
[2004] HCA 35 at [22]. Cf Ravennavi SpA v New Century Shipbuilding Co
Ltd [2007] 2 Lloyd’s Rep 24 at 27; [2007] EWCA Civ 58 at [12].
101. (1982) 149 CLR 337.
102. (1982) 149 CLR 337 at 401.
103. Cf Birrell v Dryer (1884) 9 App Cas 345 at 353 per Lord Watson (‘had or
must be held to have had, in view’).
104. [2005] 1 WLR 215; [2004] UKPC 22.
105. [2005] 1 WLR 215 at 220; [2004] UKPC 22 at [12].
106. Cf Reardon Smith Line Ltd v Yngvar Hansen-Tangen [1976] 1 WLR 989 at
996; [1976] 3 All ER 570; Golar Gas Transport Inc v The Liquefied Gas
Shipping Co Ltd (The Hilli) [1979] 1 Lloyd’s Rep 153 at 163; Anangel
Atlas Compania Naviera SA v Ishikawajima-Harima Heavy Industries Co
Ltd (No 2) [1990] 2 Lloyd’s Rep 526 at 554.
107. See [7-17]. But see Movie Network Channels Pty Ltd v Optus Vision Pty Ltd
[2010] NSWCA 111.
109. (1978) 138 CLR 423.
110. (1978) 138 CLR 423 at 429–30.
111. See also Barlee Marine Corp v Mountain (The Leegas) [1987] 1 Lloyd’s
Rep 471 at 473; Schenker & Co (Aust) Pty Ltd v Maplas Equipment and
Services Pty Ltd [1990] VR 834 at 837; Bankers Trust Co v State Bank of
India [1991] 2 Lloyd’s Rep 443 at 456; Wilcox v Richardson (1997) 43
NSWLR 4 at 12–13.
112. [1971] 1 WLR 1381 at 1385; [1971] 3 All ER 237 at 241. See also
Fitzwood Pty Ltd v Unique Coal Pty Ltd (in liq) (2001) 188 ALR 566 at
580.
113. (1982) 149 CLR 337. See also Inglis v John Battery & Co (1878) 3 App
Cas 552 at 576; Secured Income Real Estates (Australia) Ltd v St Martins
Investments Pty Ltd (1979) 144 CLR 596 at 606.
114. See [7-27].
115. [2009] 1 AC 1101; [2009] UKHL 38.
116. [2011] 1 AC 662 at 681; [2010] UKSC 44 at [40]. The other members of
the Supreme Court agreed. See also [2011] 1 AC 662 at 683; [2010] UKSC
44 at [48] per Lord Phillips (‘evidence of facts within their common
knowledge is admissible … even where the knowledge of those facts is
conveyed by one party to the other in the course of negotiations’).
117. See ING Lease (UK) Ltd v Harwood [2008] Bus LR 762 at 769; [2007]
EWHC 2292 (QB) at [30] (contrast between material admissible as context
and what is admissible as a direct aid to construction).
118. See Luna Park (NSW) Ltd v Tramways Advertising Pty Ltd (1938) 61 CLR
286 at 303 per Latham CJ (‘preliminary correspondence’ part of
surrounding circumstances).
119. (1982) 149 CLR 337.
120. (1982) 149 CLR 337 at 352 per Mason J. Stephen and Wilson JJ agreed.
See also Air Great Lakes Pty Ltd v K S Easter (Holdings) Pty Ltd (1985) 2
NSWLR 309 at 334; Australia and New Zealand Banking Group Ltd v
Compagnie d’Assurances Maritimes Aeriennes et Terrestres [1996] 1 VR
561 at 565.
121. (2002) 240 CLR 45; [2002] HCA 5. See J W Carter and Andrew Stewart,
‘Interpretation, Good Faith and the “True Meaning” of Contracts: The
Royal Botanic Decision’ (2002) 18 JCL 182.
122. (1982) 149 CLR 337 at 352. See [6-13].
123. See [7-05].
124. [1971] 1 WLR 1381; [1971] 3 All ER 237.
126. See Barrier Wharfs Ltd v W Scott Fell & Co Ltd (1908) 5 CLR 647 at 663
per Griffith CJ (arguendo). Cf Hide & Skin Trading Pty Ltd v Oceanic Meat
Traders Ltd (1990) 20 NSWLR 310 at 327–8. See also [18-26].
127. [1976] 1 WLR 989; [1976] 3 All ER 570.
128. See, eg Eridania SpA v Oetker (The Fjord Wind) [2000] 2 Lloyd’s Rep 191
at 196; [2000] 2 All ER (Comm) 108 (all contracts); Canmer International
Inc v UK Mutual Steamship Assurance Association (Bermuda) Ltd (The
Rays) [2005] 2 Lloyd’s Rep 479 at 485; [2005] EWHC 1694 (Comm) at
[22] (letter of undertaking); Attorney General of Belize v Belize Telecom Ltd
[2009] 1 WLR 1988; [2009] UKPC 10 (articles of association). See also [4-
33]. And note Contracts Restatement 2d (1979), §212(1) (integrated
agreement).
129. See Oceanbulk Shipping and Trading SA v TMT Asia Ltd [2011] 1 AC 662;
[2010] UKSC 44. See P S Davies, [2011] CLJ 24.
130. Heffield v Meadows (1869) LR 4 CP 595 at 599, 600; Perrylease Ltd v
Imecar AG [1988] 1 WLR 463 at 472–3; [1987] 2 All ER 373 at 381. See
also [15-39] (contracts of guarantee).
131. See, eg Johnstone v Holdway [1963] 1 QB 601 at 612 (conveyance); G & N
Angelakis Shipping Co SA v Compagnie National Algerienne de Navigation
(The Attika Hope) [1988] 1 Lloyd’s Rep 439 at 441–2 (telex alleged to
amount to assignment). See also Breakspear v Ackland [2009] 1 Ch 32 at
53; [2008] EWHC 220 (Ch) at [61] (‘wish letter’ as part of context of trust
deed); Pink Floyd Music Ltd v EMI Records Ltd [2011] 1 WLR 770n;
[2010] EWCA Civ 1429 at [23] (patent).
132. See [5-09].
133. Cf Forrest v Glasser [2006] 2 Lloyd’s Rep 392 at 397; [2006] EWCA Civ
1086 at [30] (antecedent correspondence as context of notice of warranty
claim).
134. See First Energy (UK) Ltd v Hungarian International Bank Ltd [1993] 2
Lloyd’s Rep 194 at 200–1.
135. See Jaks (UK) Ltd v Cera Investment Bank SA [1998] 2 Lloyd’s Rep 89 at
93; Gulf Agri Trade FZCO v Aston Agro Industrial AG [2008] 2 Lloyd’s
Rep 376 at 382; [2008] EWHC 1252 (Comm) at [42].
136. See Carter’s Breach of Contract, §§8-26–8-29
137. See, eg Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd
[1997] AC 749 at 768, 779–80 (notice given under break clause); Western
Bulk Carriers K/S v Li Hai Maritime Inc (The Li Hai) [2005] 2 Lloyd’s Rep
389 at 406; [2005] EWHC 735 (Comm) at [87] (notice of termination to be
construed in context).
138. [2005] Ch 215 at 235; [2004] EWCA Civ 1162 at [64].
140. See [11-29].
995; [1976] 3 All ER 570. See further [18-25].
143. See also [7-17], [18-23], [18-25] (‘context’ for descriptions of subject
matter).
144. If the agreement is as to the quantum of recovery, expressed intention is
qualified by the penalties rule. See [2-28].
145. (1854) 9 Ex 341; 156 ER 145.
146. (1854) 9 Ex 341 at 354; 156 ER 145 at 151 per Alderson B.
147. [1969] 1 AC 350.
148. [2009] 1 AC 61; [2008] UKHL 48. See Adam Kramer, ‘The New Test of
Remoteness in Contract’ (2009) 125 LQR 408; Brian Coote, ‘Contract as
Assumption and Remoteness of Damage’ (2010) 26 JCL 211.
149. [2009] 1 AC 61 at 67; [2008] UKHL 48 at [11]. Lord Walker agreed.
150. [2009] 1 AC 61 at 68; [2008] UKHL 48 at [12].
151. But cf Malik v Bank of Credit and Commerce International SA [1998] AC
20 at 49–50 (remoteness a question of fact).
153. [2009] 1 AC 61 at 69; [2008] UKHL 48 at [16]. The quotation is from his
speech in South Australia Asset Management Corpn v York Montague Ltd
[1997] AC 191 at 212.
154. Cf Islamic Republic of Iran Shipping Lines v Ierax Shipping Co of Panama
(The Forum Craftsman) [1991] 1 Lloyd’s Rep 81 at 85.
155. See European Bank Ltd v Evans (2010) 240 CLR 432 at 438; [2010] HCA 6
at [12].
156. Subnom C Czarnikow Ltd v Koufos [1966] 2 QB 695 at 725ff.
[15].
AC 715 at 754–5; [2003] UKHL 12 at [75]–[76] (bill of lading). See also
Re Sigma Finance Corp (in administrative receivership) [2010] 1 All ER
571 at 581, 589; [2009] UKSC 2 at [10], [37]–[38] (security trust deed
addressed to variety of creditors).
159. Cf Contracts Restatement 2d (1979), §211(2), which states, in relation to a
‘standardized agreement’, that the writing is ‘interpreted wherever
reasonable as treating alike all those similarly situated, without regard to
their knowledge or understanding of the standard terms of the writing’.
[15]. See also Glynn v Margetson & Co [1893] AC 351 at 355.
161. See [7-11]. Cf Talbot Underwriting Ltd v Nausch Hogan & Murray Inc
(The Jascon 5) [2006] 2 Lloyd’s Rep 195 at 227; [2006] EWCA Civ 889 at
[19] per Moore-Bick LJ, with whom Waller and Richards LJJ agreed
(‘market documents’ may be ‘almost unintelligible’ to those who do not
deal with them on a daily basis).
162. See Beaufort Developments (NI) Ltd v Gilbert-Ash NI Ltd [1999] 1 AC 266
at 274. See also Henry Boot Construction Ltd v Alstom Combined Cycles
Ltd [2005] 1 WLR 3850 at 3863; [2005] EWCA Civ 814 at [29].
163. See International Air Transport Association v Ansett Australia Holdings
Ltd (2008) 234 CLR 151 at 160, 166; [2008] HCA 3 at [8], [22]. See also
Leonie’s Travel Pty Ltd v Qantas Airways Ltd (2010) 265 ALR 727 at 740;
[2010] FCAFC 37 at [54] (decisions of courts in other jurisdictions are also
part of the ‘context’ of the parties’ agreement).
164. See Pacific Basin JHX Ltd v Bulkhandling Handymax AS (The Triton Lark)
[2012] 1 Lloyd’s Rep 151 at 156; [2011] EWHC 2862 (Comm) at [32]
(BIMCO Special Circular part of context of CONWARTIME 1993). Cf
Investors Compensation Scheme Ltd v West Bromwich Building Society
[1998] 1 WLR 896 at 913–14.
and The Frixos) [2008] 1 Lloyd’s Rep 262 at 269–70; [2007] EWHC 1890
(Comm) at [28] (affirmed [2008] 2 Lloyd’s Rep 119; [2008] EWCA Civ
584). See also Hvalfangerselskapet Polaris Aktieselskap v Unilever Ltd
(1933) 39 Com Cas 1 at 27 (printed form) and [6-25].
166. See AIB Group (UK) Ltd v Martin [2002] 1 WLR 94 at 96; [2001] UKHL
63 at [7] (specific factual background not very relevant unless it shows that
the parties have used the form inappropriately).
167. On the use of deletions as an aid to construction see [14-30]–[14-32].
168. (1982) 149 CLR 337.
169. See Star Steamship Society v Beogradska Plovidba (The Junior K) [1988] 2
Lloyd’s Rep 583 at 586 (Gencon standard form with alternative provisions
requiring positive selection).
170. See Wilson v Anderson (2002) 213 CLR 401 at 418; [2002] HCA 29 at [8].
171. [2009] 1 AC 1101; [2009] UKHL 38.
the House of Lords agreed. See also Westfield Management Ltd v Perpetual
Trustees Co Ltd (2007) 233 CLR 528 at 539; [2007] HCA 45 at [39] (third
party inspecting register of land dealings).
173. [1997] AC 749 at 779. See also Attorney General of Belize v Belize Telecom
Ltd [2009] 1 WLR 1988 at 1998; [2009] UKPC 10 at [36]–[37].
174. [2005] 1 WLR 215 at 220; [2004] UKPC 22 at [12]. See also Homburg
754–5; [2003] UKHL 12 at [75]–[76] (bill of lading).
1349; [2007] EWCA Civ 363 at [41] (fact that original lease agreement may
not be available to successors not relevant when it is available).
176. See David McLauchlan, ‘Plain Meaning and Commercial Construction:
Has Australia Adopted the ICS Principles?’ (2009) 25 JCL 7 at 36–7.
PART V
The Exclusionary Rule
8
Categories of Extrinsic Evidence
General [8-03]
Extrinsic Evidence [8-05]
General [8-05]
Classification of Evidence [8-08]
The Parol Evidence Rule [8-13]
General [8-13]
Evidence in Relation to Terms [8-16]
Extrinsic Evidence in Construction [8-22]
The Parol Evidence Rule and Meaning [8-22]
Direct Evidence of Intention [8-24]
Evidence of Prior Negotiations [8-28]
Evidence of Subsequent Conduct [8-34]
[8-01] Objects of Part V. This part of the book deals with the ‘exclusionary
rule’. Where the rule applies, ‘extrinsic evidence’ is not ‘admissible’ to prove
agreement to a term not stated in a document, or as an aid to construction.
The principal questions in relation to the exclusionary rule are: (1) What is
the rule?
(2) To what evidence does the rule apply?
(3) What is the scope of the rule?
(4) What are the exceptions to the rule?
This chapter is mainly concerned with the first two questions. Chapter 9 deals
with the scope of the rule as a whole. Chapter 10 deals with application of the
aspect termed the ‘parol evidence rule’. It does so on the basis that the
proscription on use of extrinsic evidence to prove agreement to a term not stated
in a document applies only where the document integrates the bargain. Chapter
10 also considers possible exceptions to that aspect of the exclusionary rule.
The use of extrinsic evidence in relation to the second aspect of the
exclusionary rule, namely, as an aid to construction of the contract, is dealt with
in later parts of the book.1
[8-02] Objects of this chapter. There is no doubt that, from a substantive (and
limiting) perspective, the exclusionary rule is extremely important. The principal
concern of the chapter is to describe the rule and the evidence to which it
applies. The latter relates to the concept of ‘extrinsic evidence’.
The descriptions of the rule, and the concept of extrinsic evidence, proceed on
the basis that the exclusionary rule relates to three specific categories of
evidence which are regarded as ‘extrinsic’ only when sought to be used for
specific purposes. The two purposes, and the two aspects of the exclusionary
rule to which they give effect, are explained in this chapter.
GENERAL
[8-03] Introduction. The question of what raw material can be used to resolve
construction issues is a thorny one. From a practitioner’s perspective this is
indeed unfortunate. The issue with which the exclusionary rule2 deals is vitally
important in practice, and the applicable legal principles are very significant to
the resolution of construction disputes under formal procedures. The concept of
‘extrinsic evidence’ is fundamental to its operation.
The judgments in Shogun Finance Ltd v Hudson3 and Chartbrook Ltd v
Persimmon Homes Ltd4 include recent reassertions of different aspects of the
exclusionary rule. In the former, Lord Hobhouse went so far as to say5 that the
rule is ‘one of the great strengths of English commercial law and is one of the
main reasons for the international success of English law in preference to laxer
systems which do not provide the same certainty’. It cannot be denied that the
exclusionary rule is important. However, whatever may have been the position in
the past, today it is not the most important rule of construction. The principal
reason for that is the use of context. Indeed, evidence of context was at one time
regarded as admissible on an exceptional (or quasi-exceptional) basis. That is no
longer the approach.6
[8-04] Nature of the exclusionary rule. The exclusionary rule is a substantive
rule of law. It is not a rule of evidence.7 Properly applied, the exclusionary rule
plays a useful and positive role in construction.8
Principles of commercial construction are concerned with the process of
determining and giving effect to the intention of the parties to a contract.9 In
construing a contract, a large number of questions may arise.10 It is impossible to
conceive of the exclusionary rule applying in the same way to every such
question. Two points flow from this. The first is that, although the categories of
evidence which the law treats as ‘extrinsic’ remain the same, the rule has a
variable operation according to purpose. Since there are two purposes, the rule
has two aspects.11
Second, evidence which is extrinsic for the purposes proscribed by the
exclusionary rule is not so regarded when used for other purposes.12
EXTRINSIC EVIDENCE
General
[8-05] Concept.
Article 8.1 — ‘Extrinsic evidence’ defined.
For the purposes of the exclusionary rule, extrinsic evidence comprises:
(a) direct evidence of the intention of the parties; (b) evidence of the
parties’ negotiations; and (c) evidence of the parties’ subsequent conduct.
Instead of a general restriction on the use of ‘parol evidence’ which was applied
in the past, the law proceeds on the basis that extrinsic evidence comprises three
categories which are not only specific but also more directed. They comprise:
direct evidence of the parties’ intentions, their negotiations and their subsequent
conduct. The rule itself is applied for two distinct purposes, so that the rule has
two different aspects.13
One aspect limits the evidence to prove the terms of the contract to the extent
that the bargain is integrated in writing. The impact of the rule is that extrinsic
evidence cannot be used to prove agreement prior to adoption of the writing to a
term not stated in the document. This aspect is conveniently described as the
‘parol evidence rule’.
The other aspect of the exclusionary rule is of more general application. It
applies if a term of a contract is in writing or evidenced by writing. The impact
of the rule is that extrinsic evidence is not admissible as a direct aid to
construction of the document. It applies not only where construction is used to
determine linguistic meaning, but also where the legal effect of a term of the
contract is at issue.
[8-06] Context not extrinsic. The essence of the concept of ‘extrinsic evidence’
is that certain evidence is ‘inadmissible’ in the sense that, whether or not it is
before the court, it cannot be used for a purpose proscribed by the exclusionary
rule. The concept includes both verbal and written evidence.14 However, the law
has until quite recently often been ambivalent as to whether ‘extrinsic’ describes
all material other than the document being construed, some of which may be
admissible, or evidence which is admissible only under an exception to the rule.
The problems in relation to evidence of the ‘surrounding circumstances’15 can
largely be traced to that ambivalence.
Since the modern conception of the exclusionary rule relates it directly to
specific categories of ‘extrinsic evidence’ sought to be used for specific
purposes, evidence of context (‘surrounding circumstances’)16 is not ‘extrinsic
evidence’. It stands ‘outside’17 the exclusionary rule. Therefore, the admissibility
of contextual material is not based on an exception to the exclusionary rule.18 To
put the same point another way, operation of the exclusionary rule assumes that
context is already before the person called upon to construe the contract.
[8-07] Technical categories. Whether the three categories of extrinsic evidence
described above state the full extent of the exclusionary rule can perhaps be
doubted. Given that many of the older cases proceeded on the basis that
everything outside the ‘four corners’ of the document is ‘parol evidence’,19
additional categories of ‘extrinsic’ evidence may exist.20 For example, evidence
which is put forward to prove custom or usage becomes inadmissible as a direct
aid to construction if the requirements of custom or usage are not satisfied. Such
evidence might then be termed ‘extrinsic’. But for the purposes of the modern
law, it seems unnecessary to employ a technical concept to describe evidence
which simply fails its purpose under a different legal concept.
At one time, the common law may have recognised subsidiary (and technical)
categories of extrinsic evidence based on the conception of what a written
contract or deed comprises. Cases which have treated lack of clarity in the
operative part of a document as justification for having recourse to recitals21 or
the consideration clause22 seem to be based on the view that such provisions are
purely contextual.23 But the authorities establish that all parts of a document
must be taken into account under the ‘whole contract’ rule.24 Nevertheless, it is
open to the parties to stipulate that some components of a document cannot be
used as aids to construction.25
Classification of Evidence
[8-08] Admissible and extrinsic evidence. Notwithstanding that in many cases
the word ‘extrinsic’ has been applied to evidence of every fact standing outside a
document, it conforms to the approach of the courts today to treat the concept of
extrinsic evidence as limited to evidence which, because it falls within a
particular category, is admissible for a proscribed purpose only in cases where an
exception to the exclusionary rule operates.26
The concept of ‘admissibility’ is therefore slightly misleading. The
exclusionary rule is not a rule of evidence. For example, it does not prevent
evidence of prior negotiations being admitted for purposes not proscribed by the
exclusionary rule, such as to prove a misrepresentation. The evidence is
‘inadmissible’ only if the sole purpose is a proscribed purpose,27 and no
exception to the exclusionary rule is applicable.
[8-09] ‘Parol evidence’. There are thousands of reported cases which have
applied a rule or rules referenced to ‘parol evidence’,28 apparently on the basis
that such evidence is not admissible. Since these cases appear to be based on a
rule of law, it would seem reasonable to say both that they all relate to a single
rule, and that the rule is the ‘parol evidence rule’. At the same time, however, it
is exceptionally difficult to find in the traditional expositions of the parol
evidence rule compendious statements of such a rule relating it to particular
purposes.29 Instead, reliance has been placed on generalised statements based on
certain assumptions.
Since the generalised statements vary, conceptions of the parol evidence rule
must vary. The unifying feature seems to be, simply, the idea of ‘parol evidence’.
Nevertheless, those cases make it clear that the evidence encompasses both
written and verbal evidence.30
[8-10] Relevance of the Statute of Frauds.The requirements of form which
were introduced by the Statute of Frauds 167731 can be seen as emphasising a
preference for written evidence. By requiring certain transactions to be carried
out by deed, or to be in writing or evidenced by writing, parties were forced to
embody their transactions in documents having a prescribed form, or at least
capable of being proved by written evidence. The preamble to the Statute of
Frauds stated its purpose as the prevention of ‘many fraudulent practices, which
are commonly endeavoured to be upheld by perjury and subornation of perjury’.
Section 4 — the most important section for contract lawyers — was therefore
based on the express assumption that written evidence is more reliable than oral
evidence. The fact that certain promises (as enumerated in ss 4 and 17) were not
subjected to a requirement of a deed was a concession that debt and covenant
had ceased to be of major significance so far as most contracts were concerned.32
In order to comply with s 4, either the contract or some memorandum or note of
the contract must be in writing and signed by the party sought to be made liable.
Following some uncertainty, it was established, both in relation to contracts
affected by s 4 and in relation to contracts affected by s 17, that the Statute of
Frauds was procedural in effect.33 The statute served to give courts greater
control over juries, and may also have been perceived as adding a further
dimension to the rules relating to ‘parol evidence’.34 By making unenforceable
contracts not evidenced by writing, the Act reinforced the idea of a hierarchy of
evidence,35 and emphasised the significance of a rule termed the ‘parol evidence
rule’.36 Since the Act gave effect to a ‘special rule of evidence’,37 the cases on s 4
(and to a lesser extent, s 17) simply applied an additional rule in relation to
‘parol evidence’, at least as used to prove the terms of a contract.
There is therefore an obvious danger in treating statements as to the
ineffectiveness of parol evidence made in the context of contracts required to be
in writing or evidenced by writing as statements about the application and effect
of a parol evidence rule. However, it seems clear that the Statute of Frauds
influenced the traditional formulations of the parol evidence rule.38 In fact, Goss
v Lord Nugent,39 a frequently cited authority, may have been such a case. It
concerned oral evidence of an agreement to dispense with proof of good title in
relation to part of the land the subject of a written contract of sale. The court
actually held that the evidence was admissible, but did not give rise to an
enforceable agreement.40
The evidentiary function of a statutory requirement of writing does not
exhaust the utility of such a requirement. There are also channelling and
cautionary functions.41 The former function requires the use of a designated form
so that similar agreements are given a similar form. The latter function justifies
the imposition of formal requirements to ensure that the parties think carefully
about a transaction before it is agreed. Today, the cautionary function and (to a
lesser extent) the channelling function are more significant than the evidentiary
function, and requirements of writing more typically apply to consumer credit
contracts and transactions involving land. The gap between the ‘parol evidence
rule’ — as an expression of the exclusionary rule — and the operation of the
statutory requirements of writing has therefore widened considerably in the past
50 years or so. Section 4 of the Statute of Frauds 1677 surives only in relation to
contracts of guarantee.42
The better view is that the general rule in relation to extrinsic evidence ‘has
no necessary relation to any rule of law requiring acts to be done with a
particular formality, such as writing’.43 Therefore, so far as the construction of
documents which evidence a contract is concerned, the exclusionary rule is
applied to contracts affected by a statutory requirement of writing in the same
way that it is applied to contracts in general.44
[8-11] No hierarchy of evidence. Except in a loose and common sense way,
contract law does not recognise any general hierarchy of evidence when
examining raw material in construction. However, this was not always the
position.45 For a very long time contract law was characterised by a predilection
towards the treatment of formal expressions of contractual intention as more
reliable than purely verbal expressions. Deeds were regarded as superior to
unsealed writings. And an unsealed document, even if signed, was only evidence
of a contract. This historical perspective has some relevance to the concept of
extrinsic evidence.
The idea of a hierarchy of evidence may be one reason for the concept of a
‘parol’ evidence rule.46 Indeed, its description as the parol evidence rule at least
hints in that direction. The distrust of verbal evidence, and also unsealed
documents, is further evidenced by the Statute of Frauds 1677, and in the limited
role assigned to juries in the construction of documents.47 The treatment of the
construction of a document as an issue of law,48 and the use of the parol evidence
rule to restrict the evidence available for consideration by a jury, were probably
both seen as ways to ensure that disputes were resolved in accordance with the
expressed intention of the parties, rather than a jury’s perception of their actual
intention.49
[8-12] Form of evidence irrelevant. Although one meaning of ‘parol’ is ‘oral’,
restrictions on the use of ‘parol evidence’ have never been restricted to purely
verbal utterances. Only evidence of a deed between the parties to the contract
may stand outside the concept.50 Subject to that point, the conception of extrinsic
evidence in relation to a document is independent of form.51
Accordingly, although verbal statements are necessarily included within the
concept, and therefore capable of being extrinsic evidence in a given case, so
also are documentary statements, as well as evidence of conduct. On this basis,
from a construction perspective, whether facsimiles, email, and so on illustrate
‘writing’ is immaterial.
THE PAROL EVIDENCE RULE
General
[8-13] Introduction. The exclusionary rule is a rule of law.52 The conception of
‘extrinsic’ evidence, as evidence excluded by the exclusionary rule, does not
depend on rules of evidence. In relation to the aspect of the exclusionary rule
which is in this work termed the ‘parol evidence rule’, the rule relates to
evidence which is sought to be used to prove the terms of the contract.
The parol evidence rule has been part of the law of contract for a very long
time.53 There are countless cases, in England54 and also in Australia,55 which
assert that a rule termed the ‘parol evidence rule’ operates to proscribe the use of
extrinsic evidence. Whether all these cases rely on the same conception of the
rule is doubtful.
[8-14] Evolution. The paragraphs below trace the evolution of the parol
evidence rule in the context of contracts in writing or evidenced by writing. In
relation to proof of the terms of a contract, the evolution is from a presumptive
rule applicable to a document which appears to express or evidence a bargain to
a rule of law which applies only where the document is proved to express or
evidence the bargain.
To the extent that the older cases on the parol evidence rule treated it as a
general prohibition on the use of ‘parol’ evidence, with a myriad of exceptions, it
has been replaced by a rule based on a more directed concept of extrinsic
evidence. It is a rule to which there are few exceptions.56
[8-15] The Law Commission’s analysis. In its Parol Evidence Rule Working
Paper, the Law Commission for England and Wales summarised its conception
of the parol evidence rule in the following terms:57
When a transaction is recorded in a document, it is not generally
permissible to adduce other evidence of (a) its terms or (b) other terms
not included, expressly or by reference, in the document or (c) its writer’s
intended meaning.
The Commission went on to express58 the view that this formulation states
three rules. The first rule, excluding other evidence of the terms of a document,
expresses the proposition that a document which records a transaction is the
‘best evidence’ of the contract. As a rule of evidence, it is concerned with the
‘exclusiveness’ of the document as evidence of the contract.59 The rule is not
relevant to a book on commercial construction and can for the most part be
ignored.
The second rule, excluding evidence of other terms not included expressly or
by reference in a document, relies on the proposition that if a transaction is
recorded in a document, that document contains all the terms of the bargain. It is
distinguished from the first rule by reference to the ‘conclusiveness’ of the
document as a statement or record of all the agreed terms.60 This rule is an
expression of the aspect of the exclusionary rule which is described in this book
as the ‘parol evidence rule’.
The third rule is to the effect that, if a transaction is recorded in a document,
that document operates to exclude evidence which relates solely to the actual
(subjective) intention of the drafter. The Law Commission said61 this rule is
concerned with the construction of documents. It did not regard the rule as
relevant to its inquiry. Clearly, however, the law also treats as inadmissible
evidence of the prior negotiations of the parties, and evidence of their
subsequent conduct.62 This rule therefore states the second aspect of the
exclusionary rule referred to above.63
Evidence in Relation to Terms
Introduction
[8-16] Traditional formulations. A great many examples could be given of
judicial formulations of the parol evidence rule as traditionally conceived.
However, three formulations have been particularly influential. In Goss v Lord
Nugent,64 Denman CJ said:65
By the general rules of the common law, if there be a contract which has
been reduced to writing, verbal evidence is not allowed to be given of
what passed between the parties, either before the written instrument was
made, or during the time that it was in a state of preparation, so as to add
to or subtract from, or in any manner to vary or qualify the written
contract … .
Denman CJ’s formulation was regarded as an authoritative statement of the rule
by Mason J in Codelfa Construction Pty Ltd v State Rail Authority of New South
Wales.66
Lord Blackburn, in Inglis v John Buttery & Co,67 quoted68 with approval the
following formulation:69
Now, I think it is quite fixed — and no more wholesome or salutary rule
relative to written contracts can be devised — that where parties agree to
embody, and do actually embody, their contract in a formal written deed,
then in determining what the contract really was and really meant, a
Court must look to the formal deed and to that deed alone. This is only
carrying out the will of the parties.
The formulation was approved by Isaacs J in Gordon v Macgregor.70
When giving the advice of the Privy Council in Bank of Australasia v
Palmer,71 Lord Morris recorded72 that counsel for the respondent had admitted:
[P]arol testimony cannot be received to contradict, vary, add to or subtract from
the terms of a written contract, or the terms in which the parties have
deliberately agreed to record any part of their contract.
This statement of the rule was approved by Lord Kilbrandon in National
Westminister Bank Ltd v Halesowen Presswork & Assemblies Ltd.73 It was
applied by Isaacs J in Hoyt’s Pty Ltd v Spencer.74 The formulation was also
adopted, as a viable summary of the rule as applied by the courts, in the Law
Commission’s Parol Evidence Rule Working Paper.75
[8-17] Excluded evidence. The formulations of the parol evidence rule quoted
above, although expressed in slightly different terms, unite in excluding as
inadmissible evidence to prove terms other than those stated in the document.
Such evidence is therefore ‘extrinsic evidence’.
Of course, if the parties intend a document to state or evidence all the express
terms, evidence to the contrary is properly excluded. However, where that is not
the position, application of the rule would be inconsistent with the parties’
intention. In that respect, the traditional formulations of the rule do not explain
how it is applied. They either beg the question of what the bargain comprises, or
presume the parties’ intention to have been established simply on the basis of a
document which looks to be a complete statement of the terms of a contract. This
has led to at least three different conceptions of how the rule should be applied.
Application of the rule
[8-18] Three views. One view is that where a document appears to be complete
on its face, there is a rebuttable presumption that the document contains all the
express contractual terms in relation to the subject matter of the document.76 The
force of the presumption may vary from contract to contract.77
A second view is that the application of the parol evidence rule is a matter of
intention. The rule is applicable only if each party has led the other reasonably to
believe that the document is a complete statement of the bargain. Diplock LJ
explained in Hardwick Game Farm v Suffolk Agricultural and Poultry Producers
Association Ltd:78
Whatever the historical origin of this rule … its justification today is that
it is so well established that any party to a contract by agreeing that its
terms shall be embodied in a written document so conducts himself as to
lead the other to believe that he intended the written document to set out
all the rights and liabilities of each party towards the other which do not
arise by implication of law from the nature of the contract itself.
Since the concept of ‘agreeing’ that the terms are embodied in a document is
ambiguous, the statement is consistent with a presumptive application of the
rule. But the presumption is based on a general view as to the function of
contractual documents, rather than the fact that the document appears to be the
bargain.
The third view is that application of the parol evidence rule is a matter of
proof. Therefore, where one party contends that the contract includes an express
term not set out in the document, it is open to that party to prove agreement to
the term by reference to the prior negotiations of the parties unless the other
party establishes that the document was intended to be a complete statement of
the bargain. The issue is one of construction to which Lord Diplock’s criterion is
applicable, but there is no presumption.
In the majority of cases a presumptive approach has been stated. However, if
regard is had to how the parol evidence rule has been applied in the recent cases,
the third view represents the law. Two points have been recognised. First, there
is a distinction between what must be established in order to make the rule
applicable, and its legal effect when it does apply.
Second, in the absence of an express agreement as to what the contract
comprises, an allegation that a contract includes a term which is not set out in the
document must be considered.
Under this approach, the parol evidence rule is a narrow rule and there is little
room for exceptions to the rule.79
[8-19] Application of the presumptive approach. Use of a presumptive
approach to application of the parol evidence rule necessarily includes the idea
that, as with any other presumption, it is capable of being confirmed or rebutted
by evidence.80 In Gillespie Bros & Co v Cheney Eggar & Co81 Lord Russell CJ
said that:82
[A]lthough when the parties arrive at a definite written contract the
implication or presumption is very strong that such contract is intended
to contain all the terms of their bargain, it is a presumption only, and it is
open to either of the parties to allege that there was, in addition to what
appears in the written agreement, an antecedent express stipulation not
intended by the parties to be excluded, but intended to continue in force
with the express written agreement.
The approach of the Contracts Restatement 2d (1979) is similar. Section
209(3) states the parol evidence rule in terms of a presumption about
‘integration’. It provides:83
Where the parties reduce an agreement to a writing which in view of its
completeness and specificity reasonably appears to be a complete
agreement, it is taken to be an integrated agreement unless it is
established by other evidence that the writing did not constitute a final
expression.
This statement of the rule acknowledges the importance of integration as a
concept,84 and that any presumption in favour of integration may be displaced by
evidence. Clearly, therefore, it is open to a party to support an allegation that
additional terms were agreed by evidence to that effect.85
However, in some cases the view has been taken that the presumption must be
rebutted by reference to the document alone. For example, in L G Thorne & Co
Pty Ltd v Thomas Borthwick & Sons (A/Asia) Ltd,86 the question was whether a
buyer of neatsfoot oil was entitled to claim damages. Prior to placing its order,
the buyer said the oil had to be under 30 degrees Fahrenheit cloud point, and
asked for a sample. The seller forwarded what it described as a ‘representative
sample’. Analysis of the sample showed it to conform to the cloud point
requirement. But the goods supplied did not conform. The buyer sought to
establish a term of the contract to the effect that the sale was ‘by sample’. The
obstacle was that the contract document (a duplicate copy of which was
endorsed ‘confirmed’ by the plaintiff) made no reference to the sale being by
sample.87
Street CJ said88 that since the document set out the arrangement with a
considerable degree of particularity, and included the words ‘confirming the
sale’, it had to be presumed that all the terms of the sale agreed upon were set
out in the document. Roper CJ in Eq said89 the document was complete on its
face, and that whether it was intended to be the final written expression of the
full consensus could be determined only by reference to its own terms. He
therefore joined with the Chief Justice (who reached the conclusion somewhat
reluctantly) in saying that the buyer’s claim failed by reason of the operation of
the parol evidence rule. Herron J dissented. Adopting a different conception of
the rule, he would have held that evidence could be given to prove that the
contract was partly set out in the document and partly oral.90
[8-20] Law Commission’s view. As noted above, in its Working Paper the Law
Commission accepted91 a traditional conception of the rule as a correct statement
of the law. It provisionally recommended that the rule should be abolished by
legislation. In its final report, the Law Commission saw things very differently. It
said:92
We have now concluded that although a proposition of law can be stated
which can be described as the ‘parol evidence rule’ it is not a rule of law
which, correctly applied, could lead to evidence being unjustly excluded.
Rather, it is a proposition of law which is no more than a circular
statement: when it is proved or admitted that the parties to a contract
intended that all the express terms of their agreement should be as
recorded in a particular document or documents, evidence will be
inadmissible (because irrelevant) if it is tendered only for the purpose of
adding to, varying, subtracting from or contradicting the express terms of
that contract.
The final recommendation of the Law Commission was therefore that enactment
of legislation was not required in order to prevent the rule being a source of
injustice.93 It doubted whether it was correct to refer to any ‘presumption’ in the
application of the rule.94
The conclusion of the Law Commission was based primarily on J Evans &
Son (Portsmouth) Ltd v Andrea Merzario Ltd,95 where Roskill LJ said:96
The court is entitled to look at and should look at all the evidence from
start to finish in order to see what the bargain was that was struck
between the parties.
The Commission also agreed with Herron J’s dissenting judgment in L G Thorne
& Co Pty Ltd v Thomas Borthwick & Sons (A/Asia) Ltd.97 More recently, in
Carmichael v National Power Plc98 the House of Lords said that the question
whether the parties intend a document (or documents) to be a complete record of
the terms of their agreement is one of fact.
There is no logic in a rule which treats the mere fact that the parties have
brought into existence a document which looks to be a complete expression of
the bargain as an impediment to proof of what the bargain comprises. But that is
how the parol evidence rule has often been viewed. Thus, Latham CJ referred in
Hope v RCA Photophone of Australia Pty Ltd99 to ‘exceptional’ cases, in which
‘parol evidence is admitted to complete the written contract’. The legal
proposition which the Law Commission’s views embody is that evidence of
additional terms can be admitted unless it is proved that the document states all
the terms of the bargain.
Therefore, under the Law Commission’s approach, the question to ask is
whether it has been proved that the document integrates the bargain. When the
parol evidence rule applies, it has the effect of making inadmissible evidence of
other terms. An exception to the rule must be established in order to justify the
admission of evidence of other terms.100 However, the idea which the
Commission also expressed,101 namely, that the parol evidence rule is a ‘circular
statement’ seems incorrect. All rules which are expressed in terms of the
ingredients that make them applicable appear to be circular or tautological.102
The rule that consideration is required for a simple contract is not rendered
circular simply because the definition of a simple contract is an ‘agreement
supported by consideration’.
[8-21] Conclusion. Ultimately, any inability to treat a pre-contractual statement
as a term of the contract must depend on the fact that the parties have agreed that
the document is complete as a statement of the bargain. As a typical application
of the presumptive approach to the parol evidence rule, L G Thorne & Co Pty
Ltd v Thomas Borthwick & Sons (A/Asia) Ltd103 also highlights its absurdity. One
majority decided that the evidence in question was inadmissible to prove an oral
term of the contract. But a different majority held that a new trial should be
ordered, limited to whether a collateral contract between the same parties could
be established, to the effect that the oil delivered would be equal to the sample
supplied. To allow form to triumph over substance in such a way is unacceptable
today. It also leads to the creation of artificial exceptions.104
The views of the Law Commission were approved in an unreported decision
of the Court of Appeal.105 Most of the subsequent English and Australian cases
have proceeded on much the same basis as the Commission.106
EXTRINSIC EVIDENCE IN CONSTRUCTION
The Parol Evidence Rule and Meaning
[8-22] Introduction. Extrinsic evidence is not admissible as a direct aid to the
construction of a document. As explained above, the three categories of extrinsic
evidence comprise: (1) direct evidence of intention; (2) evidence of the parties’
negotiations; and (3) evidence of the parties’ subsequent conduct.
The relationship between the prohibition on the use of such evidence in
construction and the prohibition expressed in terms of what has been described
above as the ‘parol evidence rule’ has always been unclear.
However, restrictions on the use of extrinsic evidence in construction are
more broadly based than restrictions which apply in proof of the terms of a
contract. Indeed, in Shore v Wilson107 Parke B treated each category of extrinsic
evidence as relating back to the concept of ‘intention’. He said108 that ‘no
extrinsic evidence of the intention of the party to the deed, from his declarations,
whether at the time of his executing the instrument, or before or after that time,
is admissible’.
Most of the judicial formulations of the parol evidence rule quoted earlier109
speak in terms of evidence to ‘add to’, ‘subtract from’ or ‘vary’ the document.110
Only the formulation approved by Lord Blackburn in Inglis v John Buttery &
Co111 expressly treats the parol evidence rule as applicable to what the contract
‘means’. And in L Schuler AG v Wickman Machine Tool Sales Ltd112 Lord
Wilberforce said113 that it is ‘one and the same principle which excludes
evidence of statements, or actions, during negotiations, at the time of the
contract, or subsequent to the contract’. He did not name the rule. Nor did the
House of Lords in Chartbrook Ltd v Persimmon Homes Ltd,114 when the passage
in Inglis was approved as a statement that evidence of prior negotiations is
inadmissible as a direct aid to the construction of a contractual document. But,
arguably, these cases accept the ‘parol evidence rule’ as the doctrinal basis for
both aspects of the exclusionary rule.115
[8-23] ‘Parol evidence’ in construction. In Codelfa Construction Pty Ltd v
State Rail Authority of New South Wales,116 Mason J said117 that although the
‘traditional expositions’ of the parol evidence rule ‘did not in terms deny resort
to extrinsic evidence for the purpose of interpreting the written instrument, it has
often been regarded as prohibiting the use of extrinsic evidence for this purpose’.
He traced118 this wider conception of the parol evidence rule to the ‘broad
purpose’ of the rule in excluding extrinsic evidence to ‘subtract from, add to,
vary or contradict the language of a written instrument’, and linked that purpose
to the theory ‘that the words of a contract are ordinarily to be given their plain
and ordinary meaning’. As Mason J said,119 recourse to extrinsic (‘parol’)
evidence is then ‘superfluous’, since ‘at best it confirms what has been definitely
established by other means; at worst it tends ineffectively to modify what has
been so established’. With respect, that view is not only borne out by the
authorities, but also shows why, in the analysis of extrinsic evidence in
construction, the ‘parol evidence rule’ description should not be used.120
In Mercantile Bank of Sydney v Taylor,121 Lord Watson, delivering the advice
of the Privy Council, referred122 to the ‘parol evidence rule’ in traditional terms
and explained that parol evidence cannot be used as a basis for ‘putting a
construction upon an expression occurring in [the] contract which it does not
naturally bear’, or ‘altering its ordinary legal construction’. Similarly, in Inglis v
John Buttery & Co,123 Lord Hatherley said124 that where words have a ‘plain’
meaning, ‘it is not legitimate to introduce parol testimony to say what the
meaning of the contract is’. There are Australian cases to the same effect.125 In
fact, the view that evidence of context (‘surrounding circumstances’) can
influence construction only where the document is ‘susceptible of more than one
meaning’,126 a view which was adopted by Mason J in Codelfa, seems directly
attributable to the use of the parol evidence rule to police the plain meaning rule.
Whatever the current status of the plain meaning rule,127 it is clear that
evidence of context is no longer regarded as ‘extrinsic’. Moreover, conclusions
about matters such as ‘ambiguity’ are made in light of context, not by reference
to the document alone, or by reference to whether the words at issue have a
‘fixed’ meaning. Therefore, under the modern law, the inclusion of prior
negotiations within the concept of extrinsic evidence cannot be rationalised by
reference to whether or not it ‘adds to’, ‘subtracts from’ or ‘varies’ the plain
meaning of a document. For example, although the exclusionary rule is a
technical rule, the inclusion of prior negotiations as a category of extrinsic
evidence is based on pragmatic grounds.128 The result is that such evidence is not
available as a direct aid to construction. Whether, as a matter of fact, the
evidence adds to, subtracts from or varies the document is simply not a relevant
consideration. Since the original conception of the rationale for the application
of the parol evidence rule to evidence in construction is no longer applied, that
terminology has ceased to be appropriate.129
A more substantive reason is the distinction between the two aspects of the
exclusionary rule.130 As has been explained, the parol evidence rule is applicable
only to documents which integrate the bargain. However, the prohibition which
the exclusionary rule states in relation to evidence as an aid to construction is
more general. It applies to the construction of any document which states a term
of the contract. The importance of the distinction can be seen in cases where,
because the document does not integrate the contract, reliance can be placed on
prior negotiations to prove a term of the contract. The contents of those
negotiations are nevertheless extrinsic evidence for the purpose of construing the
contract.
Direct Evidence of Intention
[8-24] The exclusion. References to ‘intention’ in the construction of a contract
are to objective intention.131 Therefore, when ‘one speaks of the intention of the
parties to a contract, one is speaking objectively’.132 It follows from the objective
approach that direct evidence of a party’s intentions is not admissible: it is
extrinsic to the contract.
There is, therefore, a ‘recognised rule of construction’133 to the effect that ‘the
parties cannot themselves give direct evidence of what their intention was’.134
There is a wealth of authority supporting the exclusion in England,135 and also in
the Australian cases.136 The exclusion of direct evidence of intention applies to
evidence of either party’s intentions or understandings.137
[8-25] Operation. As the exclusion of direct evidence of intention is older than
statutes conferring competency on parties to give evidence, the exclusion is not
simply a prohibition on the giving of oral evidence of intention. It extends to
‘declarations’ of intention by a party, whether at the time of execution of the
instrument, or before or after that time.138 The evidence is extrinsic evidence
whether or not the document integrates the contract, and irrespective of whether
the contract is in writing or merely evidenced by a document.
Whether the evidence is oral or documentary is also irrelevant. For example,
in Prenn v Simmonds,139 a mass of oral and documentary evidence as to the
parties’ intentions was let in by a claim for rectification of the contract
document. Once this claim failed, the House of Lords held that the evidence was
not admissible in the construction of the words at issue, namely, ‘aggregate
profits of RTT … available for dividend’. Similarly, in DTR Nominees Pty Ltd v
Mona Homes Pty Ltd,140 a vendor of land sought to give oral evidence to have
the contract construed by reference to its intention that a subdivision of the land
would be carried out in stages. However, the High Court of Australia held that
the evidence was extrinsic evidence.
[8-26] Legal effect. The exclusion of direct evidence of intention applies to
evidence sought to be used to determine the legal effect of a term of the contract,
as opposed to its linguistic meaning.
For example, in the famous case of Bentsen v Taylor Sons & Co (No 2),141
Bowen LJ said142 that whether a term is a condition or a warranty depends on
‘whether the intention of the parties, as gathered from the instrument itself, will
best be carried out by treating the promise as a warranty sounding only in
damages, or as a condition’. Since the test is objective, it is not open to the
promisee to give direct evidence of its intention when entering into the contract.
[8-27] Justification. The justification for the exclusion of direct evidence of
intention has always been broader than the exclusionary rule. That is shown by
the fact that it applies to issues of intention which are not determined by
construction. The objective theory of intention, as applied to contract
construction, has always been (and remains) a simple and straightforward
justification for the exclusion of direct evidence of intention in relation to the
construction of a contractual document.
The fear that the operation of the contract might ultimately be governed by
the unexpressed actual intention of one of the parties would itself be enough to
dissuade a lawyer from any feeling of confidence about giving advice as to the
construction of the contract.143 But the prohibition also shuts out evidence of any
declared intention in relation to the meaning of the document.
Evidence of Prior Negotiations
[8-28] The exclusion. The parties’ prior negotiations are the most likely source
of direct and circumstantial evidence of their unilateral actual intentions.144 From
that perspective, the exclusion of prior negotiations is either a natural corollary
to, or an instance of, the exclusion of direct evidence of intention.145 Abundant
authority exists in the English cases146 to support a general exclusion of evidence
of prior negotiations. Indeed, it has been said to be ‘elementary’147 that prior
negotiations are not admissible to construe a contract. The same is true under
Australian law.148 The House of Lords recently confirmed the application of the
exclusionary rule to this category of extrinsic evidence in Chartbrook Ltd v
Persimmon Homes Ltd.149
What was done or said at the time of execution of a document is generally
also treated as part of the prior negotiations in relation to the document. For
example, in L Schuler AG v Wickman Machine Tool Sales Ltd150 Lord
Wilberforce referred151 to the exclusion of evidence of what was said ‘at the time
of the contract’ as a direct aid to the construction of a term in a distributorship
agreement, where the issue was whether the term should be construed as an
essential term of the contract.
[8-29] Operation. The exclusion applies to evidence of negotiations between the
parties prior to adoption of a document as an expression of one or more terms of
the contract. That includes discussions about the content of the terms of a
contract or a proposed contract, their meaning or legal effect. Such evidence is
extrinsic evidence, which is not generally admissible.152 For example, in Trawl
Industries of Australia Pty Ltd v Effem Foods Pty Ltd Trading as ‘Uncle Bens of
Australia’,153 an attempt to prove the meaning of the word ‘cost’ by reference to
a statement made during negotiations was held to be impermissible. More
recently, in Chartbrook Ltd v Persimmon Homes Ltd,154 pre-contractual
negotiations in relation to a development contract, including a letter expressing
an understanding of the effect of the provisions which formed the principal focus
of the construction dispute, were held to be inadmissible as aids to the
construction of the document adopted by the parties.
Evidence of prior discussions between the parties — not involving
negotiation of the contract — can be used to generate context for construction of
the contract.155 The same is sometimes true of the parties’ prior negotiations.156
Because the discussions and negotiations are not used as direct aids to
construction, no exception to the exclusionary rule operates in such cases.
Rather, it is the factual context which they generate which influences the
construction of the contract.
[8-30] Prior drafts. Hardly surprisingly, there is considerable authority — both
old157 and recent158 — for the proposition that evidence of any draft of the
document which is subject to a construction issue is not admissible as a direct
aid to construction.
All such drafts represent particular points on a continuum of prior
negotiations running from the commencement of negotiations and ending when
the final document is executed or otherwise adopted by the parties. Because each
draft may express a degree of consensus, prior drafts may differ from the
unilateral communications of the parties during negotiations. But, by definition,
no draft is the final consensus. The exclusionary rule is as applicable to prior
drafts as it is to other communications on the basis of which the contract is
established, or which form the basis for the preparation and adoption of a single
contractual document. In Prenn v Simmonds,159 Lord Wilberforce said:160 ‘There
were prolonged negotiations between solicitors, with exchanges of draft clauses,
ultimately emerging in cl 2 of the agreement’. This evidence was inadmissible in
construction, and admitted only on the basis of a claim for rectification.
[8-31] Legal effect. Although the more common application of the exclusion is
where prior negotiations are sought to be used as to aid to linguistic meaning, it
is also impermissible to rely on prior negotiations where the legal effect of a
contract is at issue.161
Therefore, when in Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd162
Jordan CJ said that one basis for construing a term as a condition is that the
promisee ‘would not have entered into the contract unless assured of a strict and
literal performance’163 of the term, he was speaking objectively. It is not open to
a promisee to prove what actually motivated it to enter into the contract by
reference to direct evidence of intention or prior negotiations. The ‘intention’,
Jordan CJ said,164 must appear from the ‘general nature’ of the contract
considered as a whole or from ‘some particular term or terms’, considered in
light of context.
[8-32] Justifications. One basis for the treatment of evidence of prior
negotiations as extrinsic evidence is that the objective of setting out the agreed
terms in a document is to put an end to ‘disputes which would inevitably arise if
the matter were left upon verbal negotiations or upon mixed communings partly
consisting of letters and partly of conversations’.165 That does not differ from the
justification usually given for the parol evidence rule. The rationale — that the
negotiations have been ‘superseded’ — is clearly applicable where the document
integrates the bargain, or the relevant part of the bargain. However, because the
exclusion of prior negotiations as an aid to construction is more broadly based,
today that is the wrong rationalisation.166 Evidence of prior negotiations is
regarded as extrinsic whether or not the document integrates the contract.167
The operation of the exclusionary rule in respect of evidence of prior
negotiations has often been justified on the basis of convenience and efficiency.
In particular, it saves time in a trial or arbitration. If the law took the view that
contracts must be construed not only against the factual background, but also
with due regard to the parties’ prior negotiations, the cost of obtaining legal
advice would be even more expensive. That is not, however, true in all cases. In
many situations evidence of prior negotiations is received in order to establish
agreement. And a claim based on estoppel or rectification is sufficient to make
evidence of prior negotiations admissible.168 A more practical justification is that
it is not feasible for routine construction advice to be provided on the basis of a
consideration of all the negotiations which led up to the adoption of a document.
And it is inherently objectionable for construction in litigation and arbitration to
be regarded as being of a different order from the provision of construction
advice.169
These matters were taken into account by Lord Wilberforce in Prenn v
Simmonds.170 He concluded that the legal justification is practical rather than
technical:171
The reason for not admitting [the evidence] is not a technical one or even
mainly one of convenience (though the attempt to admit it did greatly
prolong the case and add to its expense). It is simply that such evidence
is unhelpful. By the nature of things, where negotiations are difficult, the
parties’ positions, with each passing letter, are changing and until the
final agreement, though conveying, still divergent. It is only the final
document which records a consensus.
These and other justifications were fully considered by the House of Lords
when in Chartbrook Ltd v Persimmon Homes Ltd172 it confirmed the application
of the exclusionary rule to evidence of prior negotiations. For example, it was
pointed out that the exclusion serves to protect third parties.173
[8-33] Criticism. The treatment of evidence of prior negotiations as extrinsic
evidence has been criticised.174 Article 8(3) of CISG provides that in determining
the intent of a party, or the understanding of a reasonable person in the same
position as the other party, due consideration is given to all relevant
circumstances of the case, including the negotiations of the parties. Similarly,
under art 4.3 of the UNIDROIT Principles, a contract is construed having regard
‘to all the circumstances’, including ‘preliminary negotiations between the
parties’. In Chartbrook Ltd v Persimmon Homes Ltd,175 Lord Hoffmann
distinguished176 both on the ground that they are based on ‘the French
philosophy of contractual interpretation, which is altogether different from that
of English law’. Whether or not that is correct,177 it does not alter the fact that
both CISG and the UNIDROIT Principles are intended to reflect a consensus in
the international community as to the appropriate construction rules. If adopted
by the parties, the provisions of CISG apply even if English law governs the
contract. Nor does ‘French philosophy’ explain the treatment of prior
negotiations as aids to construction in common law jurisdictions such as the
United States.178
Nevertheless, given that the arguments for and against this aspect of the
exclusionary rule were considered in Chartbrook Ltd v Persimmon Homes Ltd,
and the conclusion reached that prior negotiations are not admissible as a direct
aid to construction, the position under English law is settled.179 And the prospect
of the High Court of Australia changing its mind on the issue is remote indeed.180
Evidence of Subsequent Conduct
[8-34] The exclusion. Evidence of the subsequent conduct of the parties cannot
be used as an aid to the construction of a document stating or evidencing a term
of the contract. Such evidence is ‘extrinsic evidence’. In England, the exclusion
was treated as established law181 in James Miller & Partners Ltd v Whitworth
Street Estates (Manchester) Ltd.182 It was held that the parties’ choice of the
proper law of the contract (and the proper law under an arbitration clause) was a
matter of intention, to be decided by construction of the document unaffected by
the parties’ subsequent conduct. The House of Lords confirmed that approach in
L Schuler AG v Wickman Machine Tool Sales Ltd.183
In Australia, in Codelfa Construction Pty Ltd v State Rail Authority of New
South Wales184 the High Court of Australia adopted the general approach to
evidence taken in the leading English cases, including L Schuler AG v Wickman
Machine Tool Sales Ltd. That the position under Australian law in relation to
subsequent conduct appeared to be settled was taken for granted by the Privy
Council in Narich Pty Ltd v Commissioner of Pay-Roll Tax185 in 1983. However,
the exclusion was not finally established186 until 2008, in the High Court’s
decision in Agricultural and Rural Finance Pty Ltd v Gardiner.187 The court did
not regard the matter as in any way controversial.
[8-35] The Watcham line of cases. Somewhat surprisingly, for a long time the
authorities on the use of subsequent conduct were in a very confused state. That
the confusion continued after James Miller & Partners Ltd v Whitworth Street
Estates (Manchester) Ltd188 was largely due to a dictum in Watcham v Attorney-
General (East Africa Protectorate).189 The decision of the Privy Council
concerned narrow issues, namely, the construction of ancient documents and the
use of subsequent conduct to decide the scope of an ambiguous title to land.190 If
the decision has any relevance at all today, that relevance is restricted to the
construction of ancient documents.191 However, Lord Atkinson made192 the
obiter comment that in the construction of a modern instrument in which there is
ambiguity, either latent or patent, ‘evidence may be given of user under it to
show the sense in which the parties to it used the language they have employed,
and their intention in executing the instrument as revealed by their language
interpreted in this sense’. As a decision of the Privy Council, Watcham
necessarily had an impact on Australian law.193
Like other pronouncements on construction principles by Lord Atkinson, the
comment in Watcham v Attorney-General (East Africa Protectorate) does not
resonate with the modern law. Nevertheless, when L Schuler AG v Wickman
Machine Tool Sales Ltd194 was before the Court of Appeal,195 it was on the basis
of Watcham that the majority treated the parties’ subsequent conduct as an aid to
the construction of the word ‘condition’ in a distributorship agreement. On
appeal, the House of Lords said, in no uncertain terms, that the Court of Appeal
was wrong. It held that the construction of the contract was not affected by the
parties’ conduct even if the word ‘condition’ was ‘ambiguous’. Watcham was
roundly disapproved, and described196 by Lord Wilberforce as a precedent which
‘had long been recognised to be nothing but the refuge of the desperate’.197
[8-36] Operation. Evidence of the subsequent conduct of the parties is extrinsic
evidence whether or not the document integrates the contract. However, given
that the focal point is conduct ‘post agreement’, unlike evidence of the prior
negotiations it is not available as a source for context in construction.
Relevantly, the prohibition on the use of subsequent conduct relates to its use
as an aid to construction. Evidence of subsequent conduct is not extrinsic if it is
sought to be used for another purpose, for example, to apply the contract.198
Therefore, although evidence of a contractual variation by conduct has in some
cases been treated as received under an exception to the exclusionary rule, it is
difficult to see why this should be the case. The position is simply that the use of
subsequent conduct for other purposes stands outside the scope of the
exclusionary rule.199
[8-37] Legal effect. The leading English authority on the exclusion of
subsequent conduct as an aid to construction concerned the legal effect of a
contractual term. In L Schuler AG v Wickman Machine Tool Sales Ltd,200 a
distributorship agreement made visits by Wickman to Schuler’s clients a
‘condition’ of the contract. The issue was whether the term was a promissory
condition, that is, an essential term of the contract. Wickman’s contention that
the subsequent conduct of the parties showed that the term was not intended to
be essential was rejected because the evidence was extrinsic evidence,
inadmissible as an aid to construction.
However, in some situations the legal effect of a contract is determined by its
application to the facts. There are, therefore, cases in which the substantive legal
operation of a contract has been influenced by consideration of the parties’
conduct.201
[8-38] Justification. In Inglis v John Buttery & Co,202 Lord O’Hagan treated
evidence of subsequent conduct as inadmissible on the same basis as evidence of
prior negotiations. Generally, however, the treatment of subsequent conduct as
extrinsic evidence has been justified on a simpler basis, namely, that to construe
a contract by reference to what the parties have done under it might result in its
construction changing over time.203 That justification reflects the general rule
that the relevant time for construction of a contract is the time it was entered
into.204
In L Schuler AG v Wickman Machine Tool Sales Ltd205 Lord Simon gave three
further reasons. First, since subsequent conduct has no greater probative value
than evidence of prior negotiations, or direct evidence of intention, it might be
‘most misleading to let in evidence of subsequent conduct without reference to
these matters’.206
Second, the evidence is ‘equally referable to what the parties meant to say as
to the meaning of what they said’,207 whereas only the latter is relevant.208
Third, Lord Simon said209 the ‘practical difficulties’ created by the admission
of evidence of subsequent conduct ‘are only marginally, if at all, less than are
involved in admitting evidence of prior negotiations’.
These are powerful theoretical and practical justifications. Two further
justifications are mentioned below: the prohibition protects third parties; and it
discourages self-serving conduct.
[8-39] Criticism. The treatment of evidence of subsequent conduct as extrinsic
evidence has been criticised, both judicially210 and in scholarly discussions.211 It
has not been universally accepted in common law countries. For example, the
contrary view has been adopted by American law.212 Indeed, according to Lord
Denning MR in Port Sudan Cotton Co v Govindaswamy Chettiar & Sons,213 the
approach of English law is contrary to the law of every ‘civilised system of law’.
Recent formulations of construction rules for the purposes of international
contracts also reject the exclusion.214 Thus, art 8(3) of CISG provides that in
determining the intent of a party or the understanding a reasonable person in the
same position as the other party, due consideration must be given to all relevant
circumstances of the case, including any subsequent conduct of the parties. And
under art 4.3 of the UNIDROIT Principles, a contract is construed having regard
‘to all the circumstances’, including the ‘conduct of the parties subsequent to the
conclusion of the contract’.
It might, of course, be said that to treat subsequent conduct as inadmissible as
an aid to construction ignores practicalities. Those who support the use of
subsequent conduct do so on the basis that it is cogent evidence of intended
meaning: the parties should be regarded as the best judges of what their contract
means. Supporters of the use of subsequent conduct therefore point out that the
conception that meaning might ‘change’ misses the point:215 the contract has a
single meaning which is evidenced by the parties’ subsequent conduct. However,
that merely leads into the second justification given by Lord Simon in L Schuler
AG v Wickman Machine Tool Sales Ltd,216 namely, that evidence of subsequent
conduct is more logically evidence of what the contract was thought to mean.
Third parties who may have relied on the contract need to be protected. If the
contract means what the parties have treated it as meaning, the third party would
be bound by it even though not privy to the conduct. To protect third parties, it is
more logical to approach the issue from the perspective that subsequent conduct
may create an estoppel operating only as between the parties.
Criticism of the rule may therefore pay insufficient regard to the difference
between the process of construction and the question whether a party is
disentitled to enforce a contract as construed at the time of contract formation.217
The parties’ subsequent conduct is either consistent with the construction which
would otherwise be placed on the contract or contradicts that construction. If the
two are consistent no question arises. If the subsequent conduct suggests a
different construction, the real question is whether the ‘true’ construction is
available to a party seeking to rely on it. In most cases, the party relying on
subsequent conduct will point to the failure of the other to complain as sufficient
to bind the parties to the construction arising from the subsequent conduct.
Since the law allows for the possibility of subsequent conduct amounting to a
variation or creating an estoppel, it is not easy to see why conduct which
satisfies the requirements of neither should be accorded legal significance.218
This is an aspect of the practical problem, since if the conduct is of one party
only, the adjudicator of any dispute faces the very real difficulty of
distinguishing self-serving conduct from conduct which is genuinely reflective
of intended meaning. It is similarly difficult to distinguish conduct which is
acquiesced in by the other party because it reflects intended meaning, from other
conduct which is simply ignored as being irrelevant or misconceived. If the idea
is that the parties must ‘join’ in the conduct, so as to stamp the contract with an
‘agreed meaning’, it seems obvious that the evidence must establish an estoppel
or a variation to the contract.219 The point is that if the subsequent conduct of the
parties does establish an estoppel in relation to a particular meaning, what the
contract means as a matter of construction is irrelevant.
2. For the rule see [4-23].
3. [2004] 1 AC 919; [2003] UKHL 62.
4. [2009] 1 AC 1101; [2009] UKHL 38.
6. See Chapter 6. See further [8-06].
7. See Parol Evidence Rule Report, para 1.3. See also Contracts Restatement
2d (1979), §213, com a; Wigmore on Evidence, vol 9, §§2400, 2425. Cf
Nemeth v Bayswater Road Pty Ltd [1988] 2 Qd R 406 at 413 per
McPherson J, with whom Williams J agreed (‘not really one of evidence
or admissibility in the ordinary sense’). But cf R W Cameron & Co v L
Slutzkin Pty Ltd (1923) 32 CLR 81 at 90 per Isaacs J (‘evidentiary law’).
Contrast Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC 1101 at
1129; [2009] UKHL 38 at [70] per Lord Rodger (‘rule about prior
negotiations forms part of the law of evidence’).
8. For a brief evaluation of the rule see [14-33]–[14-35].
9. See [1-04].
10. See [1-08]–[1-21] (stages in construction).
11. See [8-05].
12. See Chapter 9.
13. See also [4-23].
14. See [8-12].
15. See generally [6-09]–[6-15].
16. For other descriptions see [6-04].
17. Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC 1101 at 1121; [2009]
UKHL 38 at [42] per Lord Hoffmann. The other members of the House of
Lords agreed. See [6-06].
18. See [6-10].
19. See Inglis v John Buttery & Co (1878) 3 App Cas 552 at 572 per Lord
O’Hagan (the ‘contract must stand by itself: and must be construed
according to its own words, and the provisions contained within its own
four corners’). For the concept of ‘parol evidence’ see [8-09].
20. Cf [9-51] (evidence of parties).
21. Leggott v Barrett (1880) 15 Ch D 306 at 311 per Brett LJ (recitals
admissible in cases of ‘doubt’); Bank of India v Trans Continental
Commodity Merchants Ltd [1982] 1 Lloyd’s Rep 506 at 512, affirmed
[1983] 2 Lloyd’s Rep 298 (no lack of clarity to justify looking at recital). Cf
Matthews v Smallwood [1910] 1 Ch 777 (counterpart); Crouch v Crouch
[1912] 1 KB 378 at 381, 383.
22. See Bank of India v Trans Continental Commodity Merchants Ltd [1982] 1
Lloyd’s Rep 506 at 512, affirmed [1983] 2 Lloyd’s Rep 298 (no lack of
clarity to justify looking at consideration clause). Cf Boral Resources (Qld)
Pty Ltd v Donnelly [1988] 1 Qd R 506 at 511–12.
23. See BP Australia Pty Ltd (formerly BP Australia Ltd) v Nyran Pty Ltd
(2003) 198 ALR 442 at 457; [2003] FCA 442 at [57], [59] (recitals as
evidence of ‘surrounding circumstances’); Franklins Pty Ltd v Metcash
Trading Ltd (2009) 76 NSWLR 603 at 698; [2009] NSWCA 407 at [388].
25. See [13-33].
26. For exceptions see Chapters 10, 14 and 18.
27. See generally on the scope of the exclusionary rule Chapter 9.
28. See, eg Charrington & Co Ltd v Wooder [1914] AC 71 at 77; Hope v RCA
Photophone of Australia Pty Ltd (1937) 59 CLR 348 at 359.
29. See [8-16].
30. See [8-12].
31. For a summary of the subsequent history of the contracts affected see
Actionstrength Ltd v International Glass Engineering IN.GL.EN Spa [2003]
2 AC 541 at 545, 546, 549; [2003] UKHL 17 at [3]-[4], [6], [21].
32. Cf A W B Simpson, A History of the Common Law of Contract, Clarendon
Press, Oxford, 1975, pp 617–19.
33. See Morris v Baron & Co [1918] AC 1 (explaining Noble v Ward (1867)
LR 1 Ex 117; (1867) LR 2 Ex 135); Perpetual Executors and Trustees
Association of Australia Ltd v Russell (1931) 45 CLR 146 at 157; Smith v
Hartshorn (1959) 60 SR (NSW) 391 at 394.
34. See Parol Evidence Rule Report, para 2.5.
35. See [8-11].
36. See Harnor v Groves (1855) 15 CB 667 at 674; 139 ER 587 at 590 per
Maule J, adopted Gordon v Macgregor (1909) 8 CLR 316 at 320 (‘more
especially is that so’).
37. Morris v Baron & Co [1918] AC 1 at 16 per Viscount Haldane.
38. See Hardwick Game Farm v Suffolk Agricultural and Poultry Producers
Association Ltd [1966] 1 WLR 287 at 339; [1966] 1 All ER 309 at 345
(affirmed sub nom Henry Kendall & Sons v William Lillico & Sons Ltd
[1969] 2 AC 31).
39. (1833) 5 B & Ad 58;110 ER 713.
40. See (1833) 5 B & Ad 58 at 65; 110 ER 713 at 716.
41. See Carter on Contract, §09-020.
42. See also [9-08]. For the position in Australia, see Carter on Contract, §§09-
050–09-110.
43. Wigmore on Evidence, vol 9, §2425. See, eg Beckett v Nurse [1948] 1 KB
535.
44. See Heffield v Meadows (1869) LR 4 CP 595 at 599, 600; Perrylease Ltd v
Imecar AG [1988] 1 WLR 463 at 472–3; [1987] 2 All ER 373 at 381.
45. See Wigmore on Evidence, vol 9, §2472.
46. See Parol Evidence Rule Report, para 2.2.
47. See [4-13].
48. See [4-12].
49. See also [2-21].
50. And even that is doubted in the Parol Evidence Rule Report, para 2.21. Cf
Seatrade Groningen BV v Geest Industries Ltd (The Frost Express) [1996] 2
Lloyd’s Rep 375 at 378 per Evans LJ, with whom the other members of the
Court of Appeal agreed (‘extra-contractual’).
51. See, eg Shogun Finance Ltd v Hudson [2004] 1 AC 919 at 944; [2003]
UKHL 62 at [49] per Lord Hobhouse, with whom Lord Walker agreed
(‘oral or other extrinsic evidence’). See further [9-03].
52. See [8-04].
53. In L G Thorne & Co Pty Ltd v Thomas Borthwick & Sons (A/Asia) Ltd
(1955) 56 SR (NSW) 81 at 93, Herron J traces the rule back to Lord Coke
in Lady Rutland’s Case (1605) 5 Co Rep 256; 77 ER 89. Wigmore on
Evidence, vol 9, §2405 says the rule was ‘almost fullfledged by the 1400s’.
54. See, eg Goss v Lord Nugent (1833) 5 B & Ad 58 at 64–5; 110 ER 713 at
716; Pym v Campbell (1856) 6 E & B 370 at 374, 375; 119 ER 903 at 904–
5, 905; Gordon-Cumming v Houldsworth [1910] AC 537 at 548; Great
Western Railway v Bristol Corporation (1918) 87 LJ Ch 414 at 418;
National Westminister Bank Ltd v Halesowen Presswork & Assemblies Ltd
[1972] AC 785 at 818–19. See also Mercantile Bank of Sydney v Taylor
[1893] AC 317 at 321; Bank of Australasia v Palmer [1897] AC 540 at 545.
55. See, eg Gordon v Macgregor (1909) 8 CLR 316 at 323; Re Salter and Rolls’
Contract (1917) 13 Tas LR 24; Hoyt’s Pty Ltd v Spencer (1919) 27 CLR
133 at 139, 144; R W Cameron & Co v L Slutzkin Pty Ltd (1923) 32 CLR
81 at 90; Codelfa Construction Pty Ltd v State Rail Authority of New South
Wales (1982) 149 CLR 337 at 347.
57. Parol Evidence Rule Working Paper, para 4. See also the summary in Parol
Evidence Rule Report, para 1.2.
58. See Parol Evidence Rule Working Paper, para 6. In Wigmore on Evidence,
vol 9, §§2400, 2401, four rules are analysed as the ‘parol evidence rule’.
59. See, eg Bull v Gaul [1950] VLR 377 at 379. Cf Major v Bretherton (1928)
41 CLR 62 at 67–8; Carmichael v National Power Plc [1999] 1 WLR 2042
at 2049.
60. See Hoyt’s Pty Ltd v Spencer (1919) 27 CLR 133 at 139 per Knox CJ
(‘conclusive evidence of its terms’), 143 per Isaacs J (‘conclusive record’);
Major v Bretherton (1928) 41 CLR 62 at 67 per Isaacs J (‘conclusive
record’).
61. See Parol Evidence Rule Working Paper, para 6.
62. See Youell v Bland Welch & Co Ltd [1992] 2 Lloyd’s Rep 127 at 140.
63. See [8-05].
64. (1833) 5 B & Ad 58; 110 ER 713.
65. (1833) 5 B & Ad 58 at 64–5; 110 ER 713 at 716.
66. (1982) 149 CLR 337 at 347. Stephen and Wilson JJ agreed. See also Re
Salter and Rolls’ Contract (1917) 13 Tas LR 24; L G Thorne & Co Pty Ltd
v Thomas Borthwick & Sons (A/Asia) Ltd (1955) 56 SR (NSW) 81 at 93;
Akot Pty Ltd v Rathmines Pty Ltd [1984] 1 Qd R 302 at 305.
67. (1878) 3 App Cas 552.
68. (1878) 3 App Cas 552 at 577 (approved Chartbrook Ltd v Persimmon
Homes Ltd [2009] 1 AC 1101 at 1109, 1115; [2009] UKHL 38 at [3], [29]).
69. Stated by Lord Gifford in the Second Division (1877) 5 R 58. See also
Harnor v Groves (1855) 15 CB 667 at 674; 139 ER 587 at 590 (adopted
Gordon v Macgregor (1909) 8 CLR 316 at 320).
70. (1909) 8 CLR 316 at 323–4. See also Gelling v Crespin (1917) 23 CLR 443
at 452–3.
71. [1897] AC 540.
72. [1897] AC 540 at 545. See also Gordon-Cumming v Houldsworth [1910]
AC 537 at 548.
73. [1972] AC 785 at 818–19. See also Shogun Finance Ltd v Hudson [2004] 1
AC 919 at 944; [2003] UKHL 62 at [49].
74. (1919) 27 CLR 133 at 144.
75. Parol Evidence Rule Working Paper, para 6. See also Parol Evidence Rule
Report, para 2.10.
76. See, eg Pym v Campbell (1856) 6 E & B 370 at 374; 119 ER 903 at 905 per
Erle J (‘strong presumption’); Major v Bretherton (1928) 41 CLR 62 at 67
per Issacs J (‘presumption is strong’). See also Nemeth v Bayswater Road
Pty Ltd [1988] 2 Qd R 406 at 414; Masterton Homes Pty Ltd v Palm Assets
Pty Ltd (2009) 261 ALR 382 at 401; [2009] NSWCA 234 at [90]. Cf
Shogun Finance Ltd v Hudson [2004] 1 AC 919 at 944; [2003] UKHL 62 at
[49].
77. See Gordon v Macgregor (1909) 8 CLR 316 at 320, 322–3; Major v
Bretherton (1928) 41 CLR 62 at 68 per Isaacs J (how ‘formal, precise and
detailed’). But cf Macdonald v Shinko Australia Pty Ltd [1999] 2 Qd R 152
at 155.
78. [1966] 1 WLR 287 at 339; [1966] 1 All ER 309 at 345 (affirmed sub nom
Henry Kendall & Sons v William Lillico & Sons Ltd [1969] 2 AC 31).
80. Cf Wake v Harrop (1861) 30 LJ Ex 273 at 277; 6 H & N 768 at 775; 158
ER 317 at 320 (affirmed (1862) 1 H & C 202; 158 ER 859), where Baron
Bramwell said it is open to either party to ‘show whether or not the written
document is the binding record of the contract’. The statement was adopted
by Isaacs J in Gordon v Macgregor (1909) 8 CLR 316 at 323.
81. [1896] 2 QB 59.
82. [1896] 2 QB 59 at 62. See also Gordon v Macgregor (1909) 8 CLR 316 at
320; Life Insurance Co of Australia Ltd v Phillips (1925) 36 CLR 60 at 71;
State Rail Authority of New South Wales v Heath Outdoor Pty Ltd (1986) 7
NSWLR 170 at 191–2; Nemeth v Bayswater Road Pty Ltd [1988] 2 Qd R
406 at 413–14; Trazray Pty Ltd v Russell Foundries Pty Ltd (1988) NSW
Conv R ¶55-393 at 57, 647; Masterton Homes Pty Ltd v Palm Assets Pty
Ltd (2009) 261 ALR 382 at 401; [2009] NSWCA 234 at [90].
83. Cf Uniform Commercial Code (US), §2-202.
85. But see [10-21]–[10-33] (entire agreement clauses).
86. (1955) 56 SR (NSW) 81.
87. Cf R W Cameron & Co v L Slutzkin Pty Ltd (1923) 32 CLR 81.
88. (1955) 56 SR (NSW) 81 at 88.
89. (1955) 56 SR (NSW) 81 at 91.
90. See (1955) 56 SR (NSW) 81 at 94.
91. Parol Evidence Rule Working Paper, para 6.
92. Parol Evidence Rule Report, para 2.7. See also Parol Evidence Rule Report,
para 2.19, where the Commission recognises that the same or a similar rule
operates in relation to part of a contract finally embodied in written form.
93. For discussion see Geoffrey Marston, [1986] CLJ 192; J W Carter, ‘The
Parol Evidence Rule: The Law Commission’s Conclusions’ (1988) 1 JCL
33.
94. See ParolEvidence Rule Report, paras 2.13, 2.45.
95. [1976] 2 All ER 930.
96. [1976] 2 All ER 930 at 935.
97. (1955) 56 SR (NSW) 81.
98. [1999] 1 WLR 2042 at 2049. See also Norwest Beef Industries Ltd v
Peninsula and Oriental Steam Navigation Co (1987) 8 NSWLR 568 at 570.
99. (1937) 59 CLR 348 at 357.
101. Parol Evidence Rule Report, para 2.7.
102. See G L Williams, ‘Language and the Law — IV’ (1945) 61 LQR 384 at
398.
103. (1955) 56 SR (NSW) 81.
105. Wild v Civil Aviation Authority (1987), unreported CA No 85/NJ/4250 25
September. See also State Rail Authority of New South Wales v Heath
Outdoor Pty Ltd (1986) 7 NSWLR 170 at 192; Rosseel NV v Oriental
Commercial & Shipping Co (UK) Ltd [1991] 2 Lloyd’s Rep 625 at 628;
Youell v Bland Welch & Co Ltd [1992] 2 Lloyd’s Rep 127 at 140.
107. (1842) 9 Cl&F 355; 8 ER 450.
108. (1842) 9 Cl & F 355 at 556; 8 ER 450 at 529 (approved L Schuler AG v
Wickman Machine Tool Sales Ltd [1974] AC 235 at 269–70). Cf Parol
Evidence Rule Working Paper, para 6.
109. See [8-16].
110. See also Meres v Ansell (1799) 3 Wils 275 at 276; 95 ER 1053; Chanter v
Hopkins (1838) 4 M & W 399 at 406; 150 ER 1484 at 1487; Bacchus
Marsh Concentrated Milk Co Ltd v Joseph Nathan & Co Ltd (1919) 26
CLR 410 at 427; Hope v RCA Photophone of Australia Pty Ltd (1937) 59
CLR 348 at 357, 359, 366–7; State Rail Authority of New South Wales v
Heath Outdoor Pty Ltd (1986) 7 NSWLR 170 at 191.
111. (1878) 3 App Cas 552 at 577.
112. [1974] AC 235.
113. [1974] AC 235 at 261.
114. [2009] 1 AC 1101 at 1109, 1115; [2009] UKHL 38 at [3], [29].
115. For cases which appear to support that conclusion see Arrale v Costain
Civil Engineering Ltd [1976] 1 Lloyd’s Rep 98 at 105; Rabin v Gerson
Berger Association Ltd [1986] 1 WLR 526 at 537; [1986] 1 All ER 374 at
382–3; Youell v Bland Welch & Co Ltd [1992] 2 Lloyd’s Rep 127 at 133;
HIH Casualty and General Insurance Ltd v New Hampshire Insurance Co
[2001] 2 Lloyd’s Rep 161 at 179; [2001] EWCA 735 at [83]. Cf
Partenreederei MS Karen Oltmann v Scarsdale Shipping Co Ltd (The
Karen Oltmann) [1976] 2 Lloyd’s Rep 708 at 712.
116. (1982) 149 CLR 337.
117. (1982) 149 CLR 337 at 347. Stephen and Wilson JJ agreed. See also B & B
Constructions (Aust)Pty Ltd v Brian A Cheeseman & Associates Pty Ltd
(1994) 35 NSWLR 227 at 243.
118. (1982) 149 CLR 337 at 347.
119. (1982) 149 CLR 337 at 347, 348.
120. See Parol Evidence Rule Working Paper, para 6, where the Law
Commission clearly did not regard the statement of the parol evidence rule
that it approved as relating to evidence in construction. See also D W
McLauchlan, ‘The Plain Meaning Rule of Contract Interpretation’ (1995) 2
NZBLQ 80 at 87.
121. [1893] AC 317.
122. [1893] AC 317 at 321. Cf Hogg v Snaith (1808) 1 Taunt 347 at 352; 127 ER
867 at 869; National Bank of Australasia Ltd v J Falkingham & Sons
[1902] AC 585 at 591.
123. (1878) 3 App Cas 552.
124. (1878) 3 App Cas 552 at 558. See also Hvalfangerselskapet Polaris
Aktieselskap v Unilever Ltd (1933) 39 Com Cas 1 at 24. Cf Loraine v
Thomlinson (1781) 2 Doug 585 at 587; 99 ER 369 at 371.
125. See Bacchus Marsh Concentrated Milk Co Ltd v Joseph Nathan & Co Ltd
(1919) 26 CLR 410 at 427 per Isaacs J (‘altering its ordinary legal
construction’); Lyford v Commonwealth Bank of Australia (1995) 130 ALR
267 at 282 per Nicholson J (‘[w]here there is a plain meaning extrinsic
evidence is not admissible as an aid to construction’). See also White v
Australian and New Zealand Theatres Ltd (1943) 67 CLR 266 at 270;
Mackay v Wilson (1947) 47 SR (NSW) 315 at 320; BP Australia Pty Ltd
(formerly BP Australia Ltd) v Nyran Pty Ltd (2003) 198 ALR 442 at 452;
[2003] FCA 442 at [33].
126. See [6-12].
128. See [8-32].
129. Cf Youell v Bland Welch & Co Ltd [1992] 2 Lloyd’s Rep 127 at 133 per
Staughton LJ (‘oldfashioned’), 140 per Beldam LJ (‘different’). Fox LJ
agreed with both judgments.
130. See David McLauchlan, ‘Deleted Words, Prior Negotiations and Contract
Interpretation’ (2010) 24 NZULR 277 at 286–8.
131. See Chapter 2.
996; [1976] 3 All ER 570 per Lord Wilberforce. Viscount Dilhorne and
Lords Simon and Kilbrandon agreed.
133. Farmer v Honan (1919) 26 CLR 183 at 195 per Isaacs and Rich JJ. See also
The Shannon Ltd v Venner Ltd [1965] 1 Ch 682 at 691 (general principle).
996; [1976] 3 All ER 570 per Lord Wilberforce. Viscount Dilhorne and
Lords Simon and Kilbrandon agreed. See also Bank of Credit and
Commerce International SA v Ali [2002] 1 AC 251 at 267; [2001] UKHL 8
at [31].
135. See, eg Prenn v Simmonds [1971] 1 WLR 1381 at 1385; [1971] 3 All ER
237 at 241; L Schuler AG v Wickman Machine Tool Sales Ltd [1974] AC
235 at 269; Reardon Smith Line Ltd v Yngvar Hansen-Tangen [1976] 1
WLR 989 at 996; [1976] 3 All ER 570.
136. See, eg Farmer v Honan (1919) 26 CLR 183 at 195; Life Insurance Co of
Australia Ltd v Phillips (1925) 36 CLR 60 at 71, 85; DTR Nominees Pty Ltd
v Mona Homes Pty Ltd (1978) 138 CLR 423 at 429; Air Great Lakes Pty
Ltd v K S Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309 at 334.
137. See Prenn v Simmonds [1971] 1 WLR 1381 at 1385; [1971] 3 All ER 237 at
241; Rasomen Pty Ltd v Shell Co of Australia Ltd(1996) 142 ALR 135 at
140.
138. See, eg Shore v Wilson (1842) 9 Cl & F 355 at 525, 556, 565–6; 8 ER 450
at 518, 529, 532, 533; Prenn v Simmonds [1971] 1 WLR 1381 at 1385;
[1971] 3 All ER 237 at 241. See also Rabin v Gerson Berger Association
Ltd [1986] 1 WLR 526 at 530; [1986] 1 All ER 374 at 377 (approving
Halsbury’s Laws of England, 4th ed, vol 12, para 1478).
139. [1971] 1 WLR 1381; [1971] 3 All ER 237.
140. (1978) 138 CLR 423.
141. [1893] 2 QB 274.
142. [1893] 2 QB 274 at 281 (approved Bunge Corp New York v Tradax Export
SA Panama [1981] 1 WLR 711 at 725; adopted Ankar Pty Ltd v National
Westminster Finance (Australia) Ltd (1987) 162 CLR 549 at 556).
143. Cf Shore v Wilson (1842) 9 Cl & F 355 at 566; 8 ER 450 at 532.
144. See Codelfa Construction Pty Ltd v State Rail Authority of New South
Wales (1982) 149 CLR 337 at 352. Cf L Schuler AG v Wickman Machine
Tool Sales Ltd [1974] AC 235 at 268–9.
145. See Inglis v John Buttery & Co (1878) 3 App Cas 552 at 576 per Lord
Blackburn (the Scottish term is ‘communings’).
146. See, eg Inglis v John Buttery & Co (1878) 3 App Cas 552 at 572; Millbourn
v Lyons [1914] 2 Ch 231 at 244; Prenn v Simmonds [1971] 1 WLR 1381 at
1384–5; [1971] 3 All ER 237 at 240–1; L Schuler AG v Wickman Machine
Tool Sales Ltd [1974] AC 235 at 261, 268–9. See also Mercantile Bank of
Sydney v Taylor [1893] AC 317 at 321; National Bank of Australasia Ltd v
J Falkingham & Sons [1902] AC 585 at 591.
147. Anangel Atlas Compania Naviera SA v Ishikawajima-Harima Heavy
Industries Co Ltd (No 2) [1990] 2 Lloyd’s Rep 526 at 554 per Hirst J.
148. See, eg Gordon v Macgregor (1909) 8 CLR 316 at 323–4; Gelling v
Crespin (1917) 23 CLR 443 at 452–3; Secured Income Real Estate
(Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596 at
606; Codelfa Construction Pty Ltd v State Rail Authority of New South
Wales (1982) 149 CLR 337 at 352; Bahr v Nicolay [No 2] (1988) 164 CLR
604 at 617.
149. [2009] 1 AC 1101; [2009] UKHL 38. See Janet O’Sullivan, [2009] CLJ
510; David McLauchlan, (2010) 126 LQR 8.
150. [1974] AC 235.
151. [1974] AC 235 at 261.
152. See, eg Mercantile Bank of Sydney v Taylor [1893] AC 317 at 321 (prior
conversations); Gordon v Macgregor (1909) 8 CLR 316 (oral negotiations
in contract for the sale of timber); Secured Income Real Estate (Australia)
Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596 at 606 (oral
testimony as to what was said during negotiations).
153. (1992)27 NSWLR 326 at 361.
154. [2009] 1 AC 1101; [2009] UKHL 38.
155. See [6-32].
156. See [7-26].
157. See, eg National Bank of Australasia Ltd v J Falkingham & Sons [1902]
AC 585 (drafts of deed for asssignment of book debts); Heisler v Anglo-Dal
Ltd [1954] 1 WLR 1273 at 1280; [1954] 2 All ER 770 (draft forms of
contract); City and Westminster Properties (1934) Ltd v Mudd [1959] Ch
129 at 140 (draft of lease).
158. See, eg PW & Co v Milton Gate Investments Ltd [2004] Ch 142 at 160;
[2003] EWHC 1994 (Ch) at [56] per Neuberger J (‘whether a deed or
otherwise’); Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC 1101;
[2009] UKHL 38. But cf Royal Botanic Gardens and Domain Trust v South
Sydney City Council (2002) 240 CLR 45; [2002] HCA 5.
159. [1971] 1 WLR 1381 at 1384; [1971] 3 All ER 237 at 240.
agreed.
161. See, eg L Schuler AG v Wickman Machine Tool Sales Ltd [1974] AC 235 at
269; Reardon Smith Line Ltd v Yngvar Hansen-Tangen [1976] 1 WLR 989
at 996; [1976] 3 All ER 570.
162. (1938) 38 SR (NSW) 632 (reversed on other grounds sub nom Luna Park
(NSW) Ltd v Tramways Advertising Pty Ltd(1938) 61 CLR 286). See
Carter’s Breach of Contract, §5-18.
163. (1938) 38 SR (NSW) 632 at 642 (approved Associated Newspapers Ltd v
Bancks (1951) 83 CLR 322 at 337).
164. See (1938) 38 SR (NSW) 632 at 641–2.
165. Inglis v John Buttery & Co (1878) 3 App Cas 552 at 577 per Lord
Blackburn, quoting Lord Gifford in the Second Division (1877) 5 R 58
(approved Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC 1101 at
1109, 1115; [2009] UKHL 38 at [3], [29]; adopted Gordon v Macgregor
(1909) 8 CLR 316 at 323–4).
166. See David McLauchlan, ‘Deleted Words, Prior Negotiations and Contract
Interpretation’ (2010) 24 NZULR 277 at 287. It also harks back to the days
when the rule was used to police the plain meaning rule. See [8-23].
167. For the concept of evidence to ‘explain’ a document see [18-22].
168. This has often been the subject of adverse comment when the claim fails.
See, eg Hvalfangerselskapet Polaris Aktieselskap v Unilever Ltd (1933) 39
Com Cas 1 at 27; Prenn v Simmonds [1971] 1 WLR 1381 at 1383; [1971] 3
All ER 237 at 239. Cf Chartbrook Ltd v Persimmon Homes Ltd[2009] 1 AC
1101 at 1118; [2009] UKHL 38 at [35].
169. But cf J Edward Bayley, ‘Prior Negotiations and Subsequent Conduct in
Contract Interpretation: Principles and Practical Concerns’ (2011) 28 JCL
179.
170. [1971] 1 WLR 1381; [1971] 3 All ER 237.
members of the House of Lords agreed. See also Investors Compensation
Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 at 913
per Lord Hoffmann, with whom Lords Goff, Hope and Clyde agreed
(reasons of ‘practical policy’). Cf B & B Constructions (Aust) Pty Ltd v
Brian A Cheeseman & Associates Pty Ltd (1994) 35 NSWLR 227 at 243
per Mahoney JA (function is to prevent or limit disputes as to the results
which the parties ‘intended to achieve by the document’).
172. [2009] 1 AC 1101; [2009] UKHL 38. See also Oceanbulk Shipping and
Trading SA v TMT Asia Ltd [2011] 1 AC 662 at 680; [2010] UKSC 44 at
[37].
173. See [2009] 1 AC 1101 at 1119; [2009] UKHL 38 at [40].
174. See, eg Gerard McMeel, ‘Prior Negotiations and Subsequent Conduct —
The Next Step Forward for Contractual Interpretation?’ (2003) 119 LQR
272; Donald Nicholls, ‘My Kingdom for a Horse: The Meaning of Words’
(2005)121 LQR 577; David McLauchlan, ‘Contract Interpretation: What is
it About?’ (2009) 31 Syd LR 5; Catherine Mitchell, ‘Contract Interpretation:
Pragmatism, Principle and the Prior Negotiations Rule’ (2010) 26 JCL 134.
175. [2009] 1 AC 1101; [2009] UKHL 38.
177. See M P Furmston, ‘Current Issues in the Interpretation of Contracts’
(2011) 28 JCL 78. See also [11-30].
178. Under the Contracts Restatement 2d (1979), §214(c), evidence of prior
negotiations is generally admissible in relation to the ‘meaning of a
writing’; but see §215 (prior agreements or negotiations not admissible to
‘contradict’ term of integrated contract). See also Andrew Phang, ‘Recent
Developments in Singapore Contract Law — the Search for Principle’
(2011) 28 JCL 3.
179. But see David McLauchlan, ‘Interpretation and Rectification: Lord
Hoffmann’s Last Stand’ [2009] NZ L Rev 431.
180. See also David McLauchlan, ‘Contract Interpretation in the Supreme Court
— Easy Case, Hard Law?’ (2010) 16 NZBLQ 229 (position in New
Zealand).
181. For earlier cases to the same effect see, eg Behn v Burness (1863) 3 B & S
751 at 758; 122 ER 281 at 284; Inglis v John Buttery & Co (1878) 3 App
Cas 552 at 571; North Eastern Railway Co v Lord Hastings [1900] AC 200
at 263, 268–9; Wallis v Pratt [1911] AC 394 at 395, 400.
182. [1970] AC 583 at 603, 606, 611, 614. See also Trollope & Colls Ltd v North
West Metropolitan Regional Hospital Board [1973] 1 WLR 601 at 611.
183. [1974] AC 235. See also Greig v Insole [1978] 3 All ER 449 at 472; Amin
Rasheed Shipping Corp v Kuwait Insurance Co [1983] 1 WLR 228 at 241,
251 (affirmed [1984] AC 50); Barlee Marine Corp v Mountain (The
Leegas) [1987] 1 Lloyd’s Rep 471 at 475.
184. (1982) 149 CLR 337 at 348. For earlier authority excluding subsequent
conduct see Campbell v Kitchen & Sons Ltd (1910) 12 CLR 515 at 527;
Kitchen & Sons Ltd v The Brisbane Soap Co Ltd [1910] St R Qd 801 at
808; Maynard v Goode (1926) 37 CLR 529 at 538; Minister for Supply and
Development v Servicemen’s Co-operative Joinery Manufacturers Ltd
(1951) 82 CLR 621 at 641.
185. [1983] 2 NSWLR 597 at 601; (1983) 50 ALR 417 at 420–1. See also
Australian Mutual Provident Society v Chaplin (1978) 18 ALR 385 at 392–
3.
186. Various views were expressed, but the Victorian authorities supported the
exclusion. See Hide & Skin Trading Pty Ltd v Oceanic Meat Traders Ltd
(1990) 20 NSWLR 310 at 327–8; FAI Traders Insurance Co Ltd v Savoy
Plaza Pty Ltd [1993] 2 VR 343; Ryan v Textile Clothing & Footwear Union
of Australia [1996] 2 VR 235 at 238, 261; Posgold (Big Bell) Pty Ltd v
Placer (Western Australia) Pty Ltd (1999) 21 WAR 350 at 362; [1999]
WASCA 217 at [49]; Brambles Holdings Ltd v Bathurst City Council
(2001) 53 NSWLR 153 at 164.
187. (2008) 238 CLR 570 at 582; [2008] HCA 57 at [35] (general principle). See
also Franklins Pty Ltd v Metcash Trading Ltd (2009) 76 NSWLR 603 at
615, 625, 630, 680; [2009] NSWCA 407 at [11], [58], [90], [314]–[317].
188. [1970] AC 583.
189. [1919] AC 533 at 540.
190. In Administration of the Territory of Papua and New Guinea v Daera Guba
(1973) 130 CLR 353 at 466, Gibbs J recognised that the decision ‘although
criticized, may possibly be supported as laying down a special rule for the
interpretation of … instruments’ relating to land.
191. See [14-29].
192. [1919] AC 533 at 540.
193. See Farmer v Honan (1919) 26 CLR 183 at 197 per Isaacs and Rich JJ
(Watcham as the ‘latest and most complete authority’ on the point); Horton
v Jones (1934) SR (NSW) 359 at 364 (affirmed without reference to the
point (1935) 53 CLR 475). Cf Campbell v Kitchen & Sons Ltd (1910) 12
CLR 515 at 535; E T Fisher & Co Pty Ltd v English Scottish and Australian
Bank Ltd (1940) 64 CLR 84 at 102; K A & C Smith Pty Ltd v Ward (1998)
45 NSWLR 702 at 715.
194. [1974] AC 235.
195. Sub nom Wickman Machine Tool Sales Ltd v L Schuler AG [1972] 1 WLR
840; [1972] 2 All ER 1173.
196. [1974] AC 235 at 261.
197. See also Sussex Caravan Parks Ltd v Richardson [1961] 1 WLR 561 at 568
per Harman LJ (‘suspicion of the gravest kind from real property lawyers’).
199. See [9-12].
200. [1974] AC 235. See also [18-08] (‘warranty ex post facto’).
201. See [18-33]–[18-34].
202. (1878) 3 App Cas 552 at 571, 572.
203. See James Miller & Partners Ltd v Whitworth Street Estates (Manchester)
Ltd [1970] AC 583 at 603.
204. See [4-09].
205. [1974] AC 235.
206. [1974] AC 235 at 268.
207. [1974] AC 235 at 269. See also Sir Johan Steyn, ‘Written Contracts: To
What Extent May Evidence Control Language?’ [1988] CLP 23 at 30
(treatment of subsequent conduct flows from objective approach).
208. See [2-11].
209. [1974] AC 235 at 269.
210. See, eg Port Sudan Cotton Co v Govindaswamy Chettiar & Sons [1977] 2
Lloyd’s Rep 5 at 11; Amalgamated Investment & Property Co Ltd v Texas
Commerce International Bank Ltd [1982] 1 QB 84 at 120.
211. See M Kerr, ‘Modern Trends in Commercial Law and Practice’ (1978) 41
MLR 1 at 19; Stephen Charles, ‘Interpretation of Ambiguous Contracts by
Reference to Subsequent Conduct’ (1991) 4 JCL 16; Gerard McMeel, ‘Prior
Negotiations and Subsequent Conduct — The Next Step Forward for
Contractual Interpretation?’ (2003) 119 LQR 272; David McLauchlan,
‘Contract Interpretation: What Is It About?’ (2009) 31 Syd L Rev 5.
212. See Uniform Commercial Code (US), §2-208 and Contracts Restatement 2d
(1979), §202(4), which apply to contracts with ‘repeated occasions for
performance’. Under the former, any ‘course of performance’ which is
‘accepted or acquiesced in without objection’ is ‘relevant’. Under the latter,
it is given ‘great weight’. In addition, and more generally, §202 5) of the
Contracts Restatement 2d (1979) provides that wherever ‘reasonable, the
manifestations of intention of the parties’ are interpreted as ‘consistent with
… any relevant course of performance’. On the position in New Zealand
see D W McLauchlan, ‘Contract Formation, Contract Interpretation, and
Subsequent Conduct’ (2006) 25 Univ Qld LJ 77; David McLauchlan,
‘Contract Interpretation: What is it About?’ (2009) 31 Syd L Rev 5 at 43ff.
See also the review in Lewison, §3.19.
213. [1977] 2 Lloyd’s Rep 5 at 11. See also Estee Lauder Pty Ltd v Federal
Commissioner of Taxation (1989) 86 ALR 415 at 420.
214. See D W McLauchlan, ‘Subsequent Conduct as an Aid to Interpretation’
(1996) 2 NZBLQ 237 at 254–5.
215. See Lewison, §3.19 (‘possible fallacy’).
216. [1974] AC 235 at 269.
217. See also [18-17].
218. But see D W McLauchlan, ‘Subsequent Conduct as an Aid to Interpretation’
(1996) 2 NZBLQ 237 at 247 (probative value of subsequent conduct will
vary).
219. The exclusionary rule does not apply. See [9-12], [9-18], [18-11]. Cf
Spunwill Pty Ltd v BAB Pty Ltd (1994) 36 NSWLR 290 at 311 per Santow J
(‘clear and mutual conduct by which the parties evidence what they
originally intended’).
9
Scope of the Exclusionary Rule
General [9-02]
Documents to Which the Rule Applies [9-05]
General [9-05]
Void and Unenforceable Contracts [9-07]
Other Documents and Instruments [9-09]
Scope Determined by Purpose [9-11]
General [9-11]
Interaction with Rules of Law [9-13]
Estoppel and Admissions [9-18]
Intention to Contract [9-20]
General [9-20]
Impact of Objective Theory [9-22]
Intention to Create Legal Relations [9-25]
Intention to Be Bound [9-29]
Mistake [9-34]
General [9-34]
Common Mistake [9-36]
Mutual Mistake [9-38]
Unilateral Mistake [9-40]
Rectification [9-43]
Signature, Parties and Capacities [9-48]
General [9-48]
Signature and Capacities [9-50]
Parties and Relationships [9-54]
[9-01] Objects. One of the chief difficulties with the exclusionary rule has been
uncertainty as to the scope of its operation. It is not meaningful to consider
exceptions to the exclusionary rule unless the scope of the rule — as a matter of
law — has been determined. That is one of the three main issues with which this
chapter is concerned.
The second issue relates to the transactions to which the exclusionary rule
applies. It is convenient to describe the rule as applicable to documents which
state or evidence ‘contracts’. But that does not define the full scope of its
application.
Third, there is the question of how the law deals with matters which, although
clearly issues of intention, are not resolved exclusively on the basis of
construction of a contractual document. The relevance of the exclusionary rule to
intention to contract, mistake and the parties to a contract remains a matter of
debate.
GENERAL
[9-02] Extrinsic evidence. The concept of ‘extrinsic evidence’ is crucial to the
scope of the exclusionary rule. It will be recalled that there are three categories:
(1) direct evidence of the intention of the parties; (2) evidence of the parties’
prior negotiations; and (3) evidence of the subsequent conduct of the parties.
Evidence is not inadmissible in a contract dispute merely because it happens
to fall within one of these categories. The descriptions do not refer merely to the
physical or temporal place of evidence in relation to a document. Account must
also be taken of the purpose for which the evidence is sought to be used.1 As has
been explained,2 evidence is ‘extrinsic’ only if sought to be used for a purpose
proscribed by the exclusionary rule. There are two such purposes. First, in
relation to a document which integrates a bargain, the purpose proscribed is
proof of agreement prior to adoption of the document of a term not included in
the document. That aspect of the exclusionary rule is in this work termed the
‘parol evidence rule’.
Second, in relation to a document which expresses or evidences a term of
contract, the proscribed purpose is use of extrinsic evidence as a direct aid to
construction of the document.
[9-03] Importance of scope.
Article 9.1 — Scope of exclusionary rule.
(1) The scope of application of the exclusionary rule is limited to the
categories of extrinsic evidence, and is determined by reference to the
purpose for which evidence is sought to be used.
(2) Evidence is not ‘extrinsic’ unless sought to be used for a purpose
proscribed by the exclusionary rule.
For practical purposes, the application of the exclusionary rule is limited to the
three specific categories of extrinsic evidence. The scope of the rule is
determined by reference to the purposes proscribed by the rule. The form which
extrinsic evidence takes is not relevant to the scope of the rule.3 Nor is it affected
by the distinction between simple contracts and deeds.
Because the categories of raw material to which the exclusionary rule applies
are specific rather than general, it is simply not correct to regard all issues of
intention which may arise in connection with a contract in writing (or evidenced
by writing) as affected by the exclusionary rule. In particular, the use of evidence
to apply a contract does not usually raise an issue to be resolved by reference to
the exclusionary rule.4 Account must also be taken of the fact that ‘intention’ is
not always synomymous with ‘construction’.
[9-04] Intention and construction. ‘Intention’ is a broader concept than
‘construction’.5 Even in relation to contracts expressed in writing or evidenced
by writing, not all issues of intention are resolved solely by construction. Where
a document exists, construction is invariably relevant. But construction of the
document is not necessarily determinative: factual matters still arise.6
To some extent, the explanation for the host of cases in which alleged
exceptions to the exclusionary rule appear to have been recognised is the view
that if resolution of an issue of intention depends on the interaction between a
document and facts proved by ‘parol evidence’, that must involve the application
of some sort of ‘exception’ to the exclusionary rule. On that approach, proof of
matters such as misrepresentation and estoppel depend on exceptions to the
exclusionary rule.7
Although such mistakes are seldom made today, there remain troublesome
areas where the interaction between intention and construction makes the scope
of the exclusionary rule unclear. Three are discussed later in this chapter: (1)
intention to contract;
(2) mistake; and
(3) parties and relationships.
The fact that these are, on any view, fundamental issues of contract law is
surprising, if not disturbing.
DOCUMENTS TO WHICH THE RULE APPLIES
General
[9-05] Introduction. The general perspective for discussing the scope of
application of the exclusionary rule is in relation to documents which state or
evidence contracts. However, the same (or an analogous) rule may apply to other
documents. Three points are discussed briefly below. First, the exclusionary rule
applies to documents which state or evidence contracts which are in point of law
void or unenforceable.
Second, the rule is applicable to any instrument in writing or evidenced by
writing.
Third, the prohibition on the use of extrinsic evidence to construe a document
applies to documents brought into existence in connection with a contract.
[9-06] Verbal contracts. Suggestions have sometimes been made in favour of
application of the exclusionary rule to purely verbal contracts,8 that is, oral
contracts not evidenced by writing.
It is not easy to see why that approach should be taken, or why it would be
desirable. In working out the terms of a verbal transaction, evidence is
necessarily broader in scope than when the contract is in writing or evidenced by
writing.9
Void and Unenforceable Contracts
[9-07] Void contracts. There are cases which recognise the ability to invoke an
exception to the exclusionary rule to prove that a contract which would
otherwise be void is valid. For example, extrinsic evidence can generally be
relied on to prove that a contract is supported by consideration.10 These cases
necessarily treat the exclusionary rule as applicable to documents which (as a
matter of law) are neither contracts nor evidence of a contract.11
However, exceptions to the exclusionary rule are not always available to
establish a valid contract. For example, the speeches of Lord Hobhouse and Lord
Phillips in Shogun Finance Ltd v Hudson12 treat the exclusionary rule as
applicable to a contract void for unilateral mistake, even though extrinsic
evidence might establish a valid contract.13
[9-08] Unenforceable contracts. Most of the cases discussing unenforceable
contracts have concerned the use of extrinsic evidence in connection with a
contract affected by s 4 of the Statute of Frauds 1677. Because s 4 survives only
in relation to contracts of guarantee, the contemporary relevance of these cases is
limited.14 Nevertheless, the issue of principle raised by the requirement of
written evidence of a contract is a general one.
An oral promise within the scope of s 4 is not enforceable unless evidenced
by a signed memorandum or note. The impact is procedural. By definition, the
bargain is not integrated in a document. Accordingly, the basis on which
evidence of terms not evidenced by writing cannot be received is the statute
itself, not the operation of the parol evidence rule.15 However, the exclusionary
rule determines the scope of evidence available in construction where a contract
is required to comply with the Statute of Frauds.16
Other Documents and Instruments
[9-09] Parol evidence rule. Since form is irrelevant, the parol evidence rule
applies to contracts in deed form. However, the rule has no direct application to
unilateral documents which do not state or evidence transactions. That includes
offers and counter-offers not executed as deeds. Similarly, it has no direct
application to documents such as notices created in connection with a contract.
Nevertheless, the parol evidence rule is potentially applicable to any
instrument which is intended to be a complete statement of the subject matter
with which it deals. For example, where property is transferred by written
instrument, it is immaterial to consider whether the instrument is also a contract.
The parol evidence rule may apply.17 In many cases, the instrument of transfer
will be created in discharge of a contractual obligation. When made by deed, the
prior contract may merge in the deed.18
Whether or not the parol evidence rule applies, the exclusionary rule’s
prohibition on the use of extrinsic evidence as a direct aid to construction of the
instrument is applicable.
[9-10] Evidence in construction. Although the formulation of the exclusionary
rule used in this work relates to a document which states or evidences a term of
the contract, there is no doubt that extrinsic evidence cannot be used as a direct
aid to the construction of other documents and instruments. For example, if an
issue of construction arises in relation to a pre-contractual document such as an
offer, extrinsic evidence is not admissible.19 The position is the same in relation
to an instrument of transfer.
There are three points in relation to a document subsequently created in
connection with a contract.20 First, the document cannot be used as a direct aid to
construction of the contract to which it relates. From that perspective, the
document is extrinsic evidence.21
Second, if the subsequent document states or evidences a contract, the
exclusionary rule (including the parol evidence rule) applies in the normal way.22
Third, even if the subsequent document does not state or evidence a contract,
the exclusionary rule (or an analogous rule) has a distinct application in relation
to construction of the document.23 For example, the document may be a notice
served under the contract. In that context, in Mannai Investment Co Ltd v Eagle
Star Life Assurance Co Ltd,24 Lord Hoffmann asked,25 rhetorically: ‘Why …
should the rules for the construction of notices be different from those for the
construction of contracts? There seems to me no answer to this question’. He
was mainly concerned to make the point that notices must be construed in light
of context and in accordance with the perspective rule. But there would seem no
need to make that point if extrinsic evidence were admissible when construing
the notice.
SCOPE DETERMINED BY PURPOSE
General
[9-11] Requirements for exception.
Article 9.2 — When exception to exclusionary rule is necessary.
Unless the use is permitted by a rule of law, an exception to the
exclusionary rule must be established if extrinsic evidence is sought to be
used: (a) to prove prior agreement to a term not stated in a document
which integrates the terms of the bargain; or (b) as a direct aid to
construction of a document which states or evidences a term of the
contract.
Since the scope of the exclusionary rule is determined by the proscribed
purposes to which it relates, use of extrinsic evidence for a proscribed purpose
must usually be justified by reference to an exception to the rule. But that is not
always the case. A rule of law may permit the evidence to be used. The rule of
law may arise under contract doctrine or statute.
The principal rationale for the discussion below is to explain the bases for
identifying exceptions by reference to the scope of the exclusionary rule, rather
than the application of the exceptions.26
[9-12] Purpose generally determinative. In Chartbrook Ltd v Persimmon
Homes Ltd,27 Lord Hoffmann explained28 that the exclusionary rule: [E]xcludes
evidence of what was said or done during the course of negotiating the
agreement for the purpose of drawing inferences about what the contract meant.
It does not exclude the use of such evidence for other purposes: for example, to
establish that a fact which may be relevant as background was known to the
parties, or to support a claim for rectification or estoppel. These are not
exceptions to the rule. They operate outside it.
Other examples of the use of prior negotiations independently of the
exclusionary rule include to prove misrepresentation, duress and other vitiating
factors.
The same is true of evidence of subsequent conduct. Exceptions to the
exclusionary rule in relation to such conduct are virtually non-existent. The use
of subsequent conduct to prove matters such as estoppel, variation and so on
simply falls outside the scope of the exclusionary rule because the purpose is not
to construe the contract.29
Interaction with Rules of Law
[9-13] Introduction. Evidence is not extrinsic evidence for the purpose of the
exclusionary rule if its use is permitted by a rule of law.30 The most important
examples arise under specific legal doctrines such as estoppel,
misrepresentation, and so on. More generally, the use of evidence in aid of a
remedy such as damages or rectification is not justified by reference to an
These rules of law do not usually contradict the exclusionary rule. But that is
not always the case. For example, doctrine ‘trumps’ the exclusionary rule in
relation to proof of an illegal purpose. Similarly, if statute permits the use for a
proscribed purpose of evidence which falls within the exclusionary rule, the rule
is inapplicable. In each case, the impact is to define the scope of the exclusionary
rule for a particular purpose.
There are also certain ‘grey areas’.32
[9-14] Vitiating factor. Although sometimes put forward as illustrating an
exception to the exclusionary rule,33 evidence to establish a vitiating factor is not
extrinsic evidence.34 It follows that evidence relating to matters such as
misrepresentation, duress, undue influence and unconscionable conduct is not
within the scope of the exclusionary rule.
There is an obvious difference between construing a written communication
made during negotiations to determine whether it is a misrepresentation, and an
attempt to use the communication to prove an additional term of the contract, or
as a direct aid to construction of a document which states or evidences the
contract.35 The same is true of evidence to support or rebut a plea of non est
factum.36 The basis for admission of the evidence is the concern to prevent fraud
— in the broadest sense. That is a sufficient justification for the reception of the
evidence independently of the exclusionary rule, even though it may involve
recourse to declarations of intention.37
Nevertheless, the law’s treatment of evidence of mistake is complex, and
somewhat problematic.38
[9-15] Remoteness of damage. The question whether the first limb of the rule in
Hadley v Baxendale39 is satisfied is informed by construction and precedent.
However, prior negotiations are not admissible on the issue except in so far as
they may generate context.40
The position is different under the second limb of the rule. Notwithstanding
that the construction of the contract is an obvious source for what was in the
‘contemplation of both parties’,41 the negotiations of the parties may be used to
determine whether the plaintiff communicated ‘knowledge of the special
circumstances’.42 Therefore, although it is a question of construction whether the
contract excludes or limits liability in respect of any such loss,43 the exclusionary
rule does not limit the use of prior negotiations to prove what was in the
‘contemplation of both parties’. No exception to the exclusionary rule is
operative because reliance on the evidence is permitted by a rule of law.
[9-16] Variation, rescission and related concepts. Evidence to prove an
agreement to vary, rescind or discharge a contract relates to the subsequent
conduct of the parties. However, such evidence falls outside the exclusionary
rule’s prohibition on the use of evidence of subsequent conduct.44 Therefore,
although proof of variation has sometimes been regarded as operating by way of
exception to the exclusionary rule,45 that is not correct.
Similar comments may be made in relation to related concepts, such as
election, ‘waiver’, forbearance to enforce rights, and so on.46
[9-17] Illegality. A contract which the parties thought to be valid may be void,
and perhaps also illegal, because of statute or a rule of public policy. Evidence to
establish such matters stands outside the exclusionary rule.
In some cases it has been stated that evidence of illegality is admitted under
an exception to the exclusionary rule.47 However, a court has a duty to consider
an allegation of illegality, including any evidence relevant to that issue.48 That is
true even if the issue arises because of an allegation that the contract document
does not state the actual intention of one of the parties. If the alleged intention is
to achieve an illegal purpose or result, the duty to uphold public policy (which
includes legislative policy) must prevail over the strictures of the exclusionary
rule. The evidence may include direct evidence of the intention of the parties, or
one of them.49
Estoppel and Admissions
[9-18] Estoppel. Estoppel in one or other of its various forms may be raised in
relation to the enforceability or existence of a contract or its meaning. For
example, in Standard Chartered Bank Aust Ltd v Bank of China50 a
representation by A to B, that a letter of credit was authentic, led to an estoppel
between A and B even though the document was in fact a forgery and not
binding. Again, where a contract is required by statute to be in writing or
evidenced by writing, estoppel may be used to defeat the defence.51 Similarly,
there may be an estoppel in relation to the existence of application of a term of
the contract.52
There is no limit to the matters which may be the subject of an estoppel.
Expressed in terms of overall rationale, the concern is with ‘good faith and
equity’53 or ‘fair dealing and justice’.54 It would therefore be surprising for a
technical rule of construction to apply to prevent the admission of evidence of
estoppel. Of course, in all cases there is an element of fiction. In particular,
where there is an estoppel in relation to what a contract means, the construction
of the contract is not altered. The impact is that the construction cannot be
asserted. The fact that the concept has a doctrinal status of itself suggests that the
operation of estoppel is unaffected by the exclusionary rule.55
[9-19] Admissions. Notwithstanding the exclusionary rule, evidence of an
admission may be relied on. That includes an admission that a document is
binding as a contract, or is evidence of a contract, including a variation to an
existing contract.56 This way around the exclusionary rule was a favourite of
Lord Denning. For example, in Port Sudan Cotton Co v Govindaswamy Chettiar
& Sons57 he said:58
[I]f a party, by words or conduct, admits at a later date that a contract was
concluded between him and the other; or admits that it contained such
and such a term; then that admission is receivable in evidence and [can]
be given such weight as the court thinks proper.
In Greaves & Co (Contractors) Ltd v Baynham Meikle & Partners,59 a term
was implied in a contract between a contractor and a consultant structural
engineer to the effect that the engineer’s design would produce a building fit for
the purpose disclosed to the engineer. The implication was justified by reference
to admissions in the pleadings,60 and evidence given in cross-examination. There
was no reference to any exception to the exclusionary rule.
An admission by one party as to the meaning of a contract is unlikely to count
for much in construction.61 In the absence of evidence of reliance, an admission
can generally be withdrawn.62 It is, moreover, a purely evidentiary matter. The
better view is that the exclusionary rule is simply not relevant.
INTENTION TO CONTRACT
General
[9-20] Senses. The expression ‘intention to contract’ is used in various senses.
One is to describe an assumption of contractual responsibility, as in the
description of a statement as a ‘warranty’, rather than a representation. Another
signifies an intention to be bound immediately, rather than on the occurrence of a
particular event in the nature of a condition precedent, such as the execution of a
formal contract. A third sense — ‘intention to create legal relations’ — refers to
the intention that an agreement satisfying the legal requirements of a binding
contract is to take effect as such, rather than on a non-contractual basis.
It is not always easy to distinguish between these various senses.63 From the
perspective of construction, because in each case intention is generally
determined objectively,64 it is seldom necessary to do so. But distinctions may
need to be made for the purpose of applying the exclusionary rule. The same is
true where mistake is alleged.65
[9-21] Application of the exclusionary rule. The exclusionary rule is
applicable to the construction of contractual documents. Therefore, where
intention to contract in any of the senses referred to above is at issue, and the
matter falls to be determined by reference to a document, the general rule is that
extrinsic evidence is not a direct aid to construction.
Nevertheless, consensus ad idem is an essential element of agreement.66 That
aspect of intention may stand in a special position for the purposes of the
exclusionary rule. English law does not take the position that absence of
‘intention to contract’ can never be proved by evidence. The difficulties lie in
explaining how and when that may occur. The role of the exclusionary rule has
never been clearly articulated in the cases.
Impact of Objective Theory
[9-22] Proof of intention to contract. The objective theory, and the
presumption in favour of contractual intent in the commercial context,67 combine
to ensure that the law does not require proof of an intention to contract as a
distinct matter. The parties are judged by their words and conduct. The general
(objective) criterion for intention is what each party has led the other
‘reasonably’ to believe.68 In the context of a written agreement, it is usually
sufficient that the document was signed or otherwise adopted by both parties.
The overriding principle is therefore that neither party is entitled to prove a
unilateral and uncommunicated lack of intention.69 However, the position is
different where the absence of intention has been communicated. Conversely,
allowance must be made for the use of evidence to prove adoption as a contract
of a document which would not otherwise have that status.70
[9-23] Ability to assert objective intention. Whether or not a document has
been adopted, it follows from the above that it is in general sufficient that a
reasonable person in each party’s position would conclude that the other
intended to contract.71
However, satisfaction of that test is not conclusive. If B alleges a contract
with A on the basis that a reasonable person in B’s position would infer that A
intends to contract, in circumstances where in fact A had no such intention, it is
open to A to prove that B did not in fact draw the inference that a reasonable
person would have drawn.72 Thus, in Paal Wilson & Co A/S v Partenreederei
Hannah Blumenthal,73 Lord Diplock described74 as a ‘novel heresy’ the view that
consensus ad idem is not an essential element of contractual formation, and
treated as self-evident the proposition that a contract cannot be inferred
(objectively) from conduct where there was, in fact, no belief that the other party
intended to contract.75 Lord Brightman agreed76 with Lord Diplock and adopted
the same approach.77
This is, however, distinguishable from the situation stated by Blackburn J in
Smith v Hughes,78 namely, where one person intends ‘to make a contract on one
set of terms, and the other intends to make a contract on another set of terms’.
The statement assumes that each party has knowledge of the other’s intention, or
that such intention would have been apparent from an objective perspective.79
Because each party has a different intention, there is no contract.80 Nevertheless,
as Blackburn J acknowledged, one person may be estopped by conduct from
denying an intention to contract on the other’s terms.
[9-24] Competing views. If an absence of intention has been communicated, it
may be proved even in cases where a document has been adopted. But there are
competing views on why this is so. One view is that any issue of intention to
contract must be resolved solely by construction of the document in light of
context. On this view, proof of an absence of intention to contract relies on an
The opposing view is that intention to contract is determined as a matter of
fact, rather than as an orthodox issue of construction. That view was taken by
McHugh JA in Air Great Lakes Pty Ltd v K S Easter (Holdings) Pty Ltd,82 where
he said83 that ‘intention to be bound is a jural act separate and distinct from the
terms of their bargain’.
Choosing between these views in a given fact situation will determine the role
of the exclusionary rule. It is impossible to reconcile all the cases on the issue.
However, the second view seems correct as a matter of principle. The balance of
authority is also in favour of that view,84 particularly when account is taken of
the cases which have looked at the issue from the perspective of intention to
create legal relations.
Intention to Create Legal Relations
[9-25] Introduction. The rules defining the concept of ‘contract’ posit a
requirement that the parties intend to create legal relations. As expressed by
Atkin LJ in Rose and Frank Co v J R Crompton and Bros Ltd,85 there must
always be a ‘common intention … to enter into legal obligations, mutually
communicated expressly or impliedly’. The issue is approached from an
objective perspective, without regard to uncommunicated intention.86
However, in the commercial context an intention to create legal relations is
presumed or readily inferred. From the perspective of commercial construction,
that is simply application of the preference to uphold agreements as contracts.87
The approach ensures that no construction issue is created by the mere failure to
state expressly an intention to be legally bound. It follows that an absence of
intention to create legal relations will hardly ever be inferred.88 Therefore, a
party who alleges that there was no intention to create legal relations bears the
onus of proof.89 In addition, the absence of such an intention must be proved on
an objective basis.90
[9-26] Commercial contracts. Where a contractual document has been adopted,
an absence of intention to create legal relations must normally be established by
construction of the document in light of context. As Bankes LJ emphasised in
Rose and Frank Co v J R Crompton and Bros Ltd,91 if the terms of a document
include a bona fide expression of an intention not to be legally bound, the matter
is concluded by construction. Thus, in that case, the ‘honourable pledge’ clause
was held, as a matter of construction, to show that there was no intention to
create legal relations. That conclusion will not be reached lightly. There must be
a clear and unambiguous expression of intention. In Edwards v Skyways Ltd,92
the use of the words ‘ex gratia’ to describe a promise of payment was
insufficient to negative contractual intention. The words were construed by
Megaw J as signifying only that the promisor did not admit liability to make the
payment.
As was recognised by the Court of Appeal in Kleinwort Benson Ltd v
Malaysia Mining Corp Berhad,93 if the absence of an intention to create legal
relations is alleged, the allegation may be supported by reference to a separate
agreement to that effect. The court did not deny the use of prior negotiations to
resolve the issue; nor did it justify its approach by reference to an exception to
the exclusionary rule. However, once the separate agreement alleged was found
not to exist, the argument that the comfort letter at issue had no contractual effect
became untenable. In Orion Insurance Co Plc v Sphere Drake Insurance Plc,94
Mann LJ said95 it is ‘elementary law … that extrinsic evidence is admissible to
show the lack of intent’. In that case the onus of proving that a pool agreement
between insurers was not intended to be legally binding was discharged by
reference to all the circumstances, including oral evidence. Similarly, in
Homburg Houtimport BV v Agrosin Private Ltd (The Starsin)96 Lord Millett said
that ‘intention to create legal relations … is a question of fact and may be
established by evidence’. There is therefore considerable support for the
admission of evidence on the broader basis referred to above.97
[9-27] Document a ‘sham’. The presumption of intention to create legal
relations in respect of a document which appears to state a contract may also be
rebutted by proof that the document was a mere ‘sham’.98 The document is a
sham in the sense that the parties never intended to enter into legal relations.99
There must therefore be a common intention that the document is not to take
effect as a contract.100
Given that, in the context of a dispute between the parties,101 one will contend
that the issue should be resolved by objective construction of the document, the
sham cases are consistent with the view that intention to create legal relations is
a question of fact, so that intention may be negatived by reference to evidence
which would be extrinsic evidence in an ordinary construction dispute.102 The
position is the same where a document executed as a joke is later relied on as a
contract.103
[9-28] Contracts of a domestic nature. There are some agreements of a
domestic nature, for example, between the members of a family, where intention
to create legal relations is not presumed.104 The cases are typified by informal
arrangements. Even though the issue depends on what each party has led the
other reasonably to believe, intention is determined as a matter of fact. Evidence
which would be extrinsic evidence for the purposes of the exclusionary rule may
be relied on to rebut105 or support106 the presumption that there is no intention to
be legally bound. The cases do not distinguish between verbal arrangements,
oral arrangements which are evidenced by a document and arrangements in
writing.
Evidence may be given to support the presumption that there was no intention
to create legal relations. For example, in Jones v Padavatton107 the issue arose
whether there was an agreement between a mother and her daughter which was
intended to be legally binding. The agreement was regarded as being of a
domestic nature and therefore subject to the presumption that legal relations
were not intended. The Court of Appeal held that the presumption was not
rebutted. Fenton Atkinson LJ said108 that it was ‘subsequent history’ which gave
the best ‘guide to the parties’ intention at the material time’, and referred to
subsequent conduct, and the daughter’s evidence in cross-examination at the
trial.
Intention to Be Bound
General
[9-29] Introduction. The situations considered above do not exhaust the
contexts where the question of intention to be bound contractually may arise.
Relevantly, there are three further categories of case. The first is where the
question is whether there is an intention to warrant the truth of a statement of
fact. The issue usually arises in connection with a pre-contractual statement
which is not recorded in a document alleged to integrate the contract.109
Accordingly, resolution of the issue depends on application of the parol evidence
rule.110 Although less common, the issue may arise in relation to a statement of
fact, opinion or expectation in a document which states or evidences the terms of
a contract.
Second, although the document is silent on the matter, one party may allege
that contract formation was subject to an unfulfilled condition precedent. The
orthodox view is that the term may be proved by extrinsic evidence, under an
exception to the parol evidence rule.111
The third category of case focuses on a distinction between agreement that a
document is a statement of what has been agreed (consensus) and the decision
(intention) to adopt the document as a statement or record of a contract.112 Lack
of intention to be bound may be based on proof that negotiations were broken off
prior to consensus being reached.
[9-30] Promissory intent. A contractual document may include a statement of
fact, opinion or expectation. Whether there was an intention to be bound by such
a statement as a warranty or promise is a distinct issue of construction.113 For
example, the accuracy of the statement in a charterparty as to the location of a
vessel may be guaranteed.114
Because ‘intention’ is in this situation an orthodox issue of construction, the
exclusionary rule applies. For example, in Kleinwort Benson Ltd v Malaysia
Mining Corp Berhad115 a comfort letter was addressed by the defendants to the
plaintiffs (merchant bankers) in connection with a loan facility granted by the
plaintiffs to the defendants’ subsidiary. The letter included a statement by the
defendants that it was their ‘policy to ensure that the business of [the subsidiary]
is at all times in a position to meet its liabilities to you under the above
arrangements’. Notwithstanding the words ‘at all times’, the statement was held
to be purely representational.116 Therefore, there was no breach of contract when
the defendants’ policy changed, and they refused to support the subsidiary.
Whether negotiations complete
[9-31] Introduction. It is elementary that, where a document is put forward as
stating or evidencing the terms of a contract, assent to the document must be
proved.117 No difficulty arises where the document has been adopted as a
contract by signature.
If the document has not been signed, assent to its terms must be proved
independently of the document. Assent may be express or inferred from conduct,
including where acceptance of a written offer is an inference from conduct. No
issue of principle is raised, and the exclusionary rule has no application. In
addition, a contract may be formed ‘during and as a result of performance’.118
Traditionally, the authorities have involved negotiations ‘subject to contract’.
More recent cases have concerned ‘preliminary agreements’ such as letters of
intent.119
[9-32] Use of ‘subsequent’ conduct. Once a contract has been formed, although
further discussions may be used to establish a variation, subsequent conduct
cannot be used to prove that the original bargain included additional terms, or
that an otherwise complete bargain was incomplete.120
However, the mere fact that the parties reach agreement on matters sufficient
to satisfy the legal requirements for formation of a contract is not conclusive if
they continue to negotiate on the basis that no contract was agreed.121 Therefore,
the question is always what the ‘subsequent conduct’ establishes. For example,
in Barrier Wharfs Ltd v W Scott Fell & Co Ltd,122 correspondence ‘subsequent’
to an alleged contract showed that a concluded contract had not been entered
into. More generally, whether there is a contract depends on a consideration of
‘all the circumstances of the case’.123 Unless a document has been adopted as a
statement of the terms of the contract, a concept of ‘subsequent conduct’ is
meaningless in relation to what terms were agreed.124
[9-33] Inferences confirmed by conduct. Where the negotiation of an
agreement extends over many months, it is not uncommon where one party
withdraws from negotiations for the other to allege that a contract was already in
place. The allegation may be put on the basis that a draft document was adopted
as a binding contract, or as the proper inference to be drawn from the conduct as
a whole. The question is whether the ‘subsequent’ conduct of the parties is
extrinsic evidence.
In Lennon v Scarlett & Co,125 subsequent conduct was alleged to indicate that
no contract had been agreed, or resulted in the formation of a new contract.
However, when examined, the conduct merely confirmed the construction of
documents for the sale of maize as constituting a binding agreement. If there is
an express agreement that no binding contract is to arise until formal
documentation is executed, a finding that an unsigned document has been
adopted as the contract will not lightly be made. However, as the decision in RTS
Flexible Systems Ltd v Molkerei Alois Müller GmbH & Co KG (UK
Production)126 illustrates, that may sometimes occur. In that case, evidence of the
subsequent conduct of the parties was used to confirm the inference that a
contract had been agreed at an earlier date.127 It also established that the parties
had waived the benefit of a clause to the effect that execution of a formal
document was a condition precedent to entry into a contract.128
If the situation is one in which a legitimate inference is that the parties do not
intend to be bound unless and until a formal document is signed, subsequent
conduct may be used to confirm the inference. In Howard Smith & Co Ltd v
Varawa129 Griffith CJ referred130 to ‘the subsequent conduct of the parties’ to
support the conclusion that an apparent transaction was ‘not intended to have a
contractual operation at all’. The statement was made in the context of a contract
alleged to have been formed by the exchange of cablegrams between buyer and
seller in different countries. Evidence of the parties’ conduct showed that the
negotiations for the purchase of a ship were not in fact concluded. The evidence
confirmed what the High Court of Australia inferred (from the document) as the
intention of the parties. The case illustrates that the mere fact that one party
alleges that a contract was formed on a particular date is not sufficient to render
evidence of the conduct of the parties after that date inadmissable as extrinsic
evidence.131
In none of these cases is the use of subsequent conduct regarded as received
under an exception to the parol evidence rule.
MISTAKE
General
[9-34] Introduction. The mistake cases defy coherent analysis. In so far as a
contract may be regarded as ‘void’ on the basis of mistake, the cases range over
construction, implied term and an independent doctrine of mistake. Since many
cases have concerned verbal agreements, the relationship between ‘intention’
and ‘construction’ is difficult to unravel. That includes whether extrinsic
evidence may be given to prove mistake where the agreement is in writing or
evidenced by writing.
The mistake cases are usually classified according to who was mistaken. In
cases of ‘common mistake’ both parties make the same mistake. ‘Mutual
mistake’ may be present if both parties are mistaken but their mistakes differ. If
only one party is mistaken, the case is one of ‘unilateral mistake’. That simple
classification gives no clue to the complexities and variables in the cases. Nor
does it address the operation of the exclusionary rule.132 But since under English
law a contract may be ‘void’ for mistake under a rule of law, evidence of pre-
contractual mistake is admissible independently of the exclusionary rule, to
establish that the requirements of the rule of law are satisfied.
Much of the discussion of the objective theory of contract law has occurred in
the context of mistake.133
[9-35] Objective theory and the exclusionary rule. The objective approach to
intention applies to both contract formation134 and contract construction,
including the implication of terms.135 Although it seems generally to be assumed
that the exclusionary rule is applicable to a contract which is in point of law
void,136 evidence of mistake is generally before the court as part of the
background, or on the basis of misrepresentation or other evidence admissible
independently of the exclusionary rule.137 Since what is at issue is the impact of
proved mistake, in many cases, no comment is made on admissibility of
evidence.138
The objective theory does not prevent evidence being given of one party’s
knowledge that the other did not intend to contract.139 It seems equally clear that
in some of the mistake cases the objective theory is displaced by evidence which
shows an absence of intention to contract. In such cases, analysis in terms of
mistake seems purely circumstantial. For example, in Scriven Bros & Co v
Hindley & Co,140 the evidence showed that buyers at auction who intended to bid
for hemp believed that the ‘tow’ being sold was ‘hemp’. Since the circumstances
also showed that the terms and conduct of the auction contributed to the buyers’
mistake, the buyers were not precluded by their conduct from setting up their
intention. There was no contract.
Where an apparent contract is expressed in or evidenced by a document,
neither party is permitted to impeach the terms of the document solely on the
ground that it did not read them (and therefore assumed that they were different),
or misunderstood their legal effect.141 The circumstances in which a party is
entitled to say that a document was signed ‘by mistake’ are limited indeed.
Paradoxically, in Shogun Finance Ltd v Hudson,142 a majority of the House of
Lords held that a contract was void because extrinsic evidence could not be
given of the identity of the person who signed the contract.
Common Mistake
[9-36] Construction approach. Many cases of so-called ‘common mistake’
have been rationalised on the basis of construction of the contract. On this
approach, ‘mistake’ is not a basis for denying validity, but there may be an
express or implied term in the nature of a condition precedent to contract
formation.143
In McRae v Commonwealth Disposals Commission144 it was argued that a
contract for the sale of a non-existent tanker was void for mistake when both
parties erroneously believed that the tanker existed. Dixon and Fullager JJ
emphasised, as the relevant general question, whether the parties:145
[P]roceeded on the basis of a common assumption of fact so as to justify
the conclusion that the correctness of the assumption was intended by
both parties to be a condition precedent to the creation of contractual
obligations.
On the facts, there was no such term, express or implied. Instead, the seller was
held to have warranted the existence of the tanker.146
Since under this approach the conclusion that no contract exists depends
solely on construction, the basis is the parties’ agreement. In the case of a
contract in writing or evidenced by writing, the exclusionary rule is applicable.
The approach reflects the decision, and most of the analysis, in Bell v Lever Bros
Ltd,147 where it was said148 that the mistake must appear from the contract and its
surrounding circumstances.
[9-37] Rule of law. The most obvious case of common mistake is where one
party makes an innocent misrepresentation to the other. The common law
recognised that a right of rescission might arise from induced fundamental
error.149 But proof of an innocently induced mistake has never been regarded as a
sufficient basis for concluding that the contract is void. That the contrary view
may be taken in cases of spontaneous mistake is not easy to explain.150
Notwithstanding the emphasis on construction, Lord Atkin’s speech in Bell v
Lever Bros Ltd151 acknowledged that a contract may be void for mistake. So also
did Dixon and Fullagar JJ in McRae v Commonwealth Disposals Commission.152
But in both, the idea that a written contract might be void for common mistake
was regarded as largely theoretical, except under statute.153 Nevertheless, the
subsequent decisions in which contracts have been held to be void, such as
Associated Japanese Bank (International) Ltd v Credit du Nord SA,154 have
included application of a ‘doctrine’ of ‘fundamental’ common mistake.
Under this approach evidence to prove common mistake falls outside the
scope of the exclusionary rule. Although an objective approach is taken, the
prior negotiations of the parties are admissible to prove mistake.155 In addition,
since the effect is to recognise a ‘default rule’, construction determines whether
the parties agreed to be bound notwithstanding their fundamental mistake.156
Mutual Mistake
[9-38] Introduction. Under the concept of mutual mistake, the parties’ mistakes
differ. However, because offer and acceptance may literally coincide, the parties’
mistake may only become apparent when the contract is applied to the facts. If
the mistake is ‘fundamental’, there is no contract.
One issue is whether evidence may be given of mistake. Although the logical
position for the law to take is ‘simply’ that the issue is one of construction,
determined in accordance with ordinary rules — including the exclusionary rule
where construction of a document is at issue — the cases appear to proceed on
the basis that there is a doctrine of mutual mistake. Therefore, evidence which
would otherwise be extrinsic is admissible to prove the mistake and its
fundamental nature. For example, in Gordon-Cumming v Houldsworth157 it was
suggested that if in that case it had been proved that the buyer believed he was
buying according to a certain description in a title deed, but the seller believed
he was selling according to the plan, ‘there would have been very strong ground
for maintaining that there was no contract’,158 or ‘no consensus ad idem’.159
[9-39] Raffles.The idea that a contract may be void for mutual mistake is usually
traced to the famous decision in Raffles v Wichelhaus.160
The parties entered into an agreement for the sale of cotton ‘ex Peerless from
Bombay’. It transpired that there were two ships by that name to which the
description was literally applicable. The proceedings were on demurrer and the
only decision was that the seller’s claim for damages for non-acceptance failed.
Because there were two ships to which the description was applicable, evidence
of which ship was intended was regarded as admissible,161 not to prove mistake,
but to resolve a latent ambiguity of subject matter.162 Whether the contract was
void for unresolved ambiguity or mutual mistake, or whether the buyers’
understanding was in fact correct, are matters of speculation not decision. A
conclusion that the contract was void was certainly not inevitable. The case is
typical of many 19th-century decisions in which the only question was whether
the plaintiff could succeed, not whether the contract was void.163 No claim for
damages was made by the buyers. It was therefore unnecessary to decide
whether the contract was on terms as reasonably understood by them.
Nevertheless, Raffles v Wichelhaus has often been treated as establishing that
a contract may be void for mutual mistake. For example, in Smith v Hughes,164
Hannen J cited it for the proposition that ‘if two persons enter into an apparent
contract concerning a particular person or ship, and it turns out that each of
them, misled by a similarity of name, had a different person or ship in his mind,
no contract would exist between them’. Similarly, in Sharp v Thomson,165 Isaacs
J said:166
The word ‘Wedgwood’ was used in the contract. If it could have been
shown that by reason of there being two ‘Wedgwoods’ the parties were
not at one as to what they respectively meant by the word ‘Wedgwood’,
so as to show a want of consensus ad idem, the case might have been
brought under the principle of the well-known authority of Raffles v
Wichelhaus (1864) 2 H & C 906; 159 ER 375.
Two propositions are consistent with the cases. First, if ambiguity arises in the
attempt to apply a contract to the facts, the latent ambiguity may be resolved by
evidence admitted under an exception to the exclusionary rule. Evidence of the
prior negotiations of the parties is admissible to resolve the ambiguity.167 If that
evidence does not resolve the ambiguity, there is no contract. It adds nothing to
say that the parties made a mistake.
Second, even if it is possible to apply the contract to the facts, a party may
give evidence of fundamental mistake which, if reasonably made, renders the
contract void on the basis of a doctrine of mutual mistake. Either because an
independent doctrine is being applied, or because the evidence relates to
intention to contract,168 it is unnecessary to invoke an exception to the
exclusionary rule.
Unilateral Mistake
[9-40] Introduction. Evidence of spontaneous and uncommunicated unilateral
mistake is not admissible as an aid to construction of a document which states or
evidences the terms of the contract.169 Where a unilateral mistake is induced by
misrepresentation, evidence of the mistake is admissible, including to support a
plea of non est factum.170 As in cases of common and mutual mistake, the law
recognises a doctrine under which a contract may be void for unilateral
mistake.171 But that does not render the exclusionary rule irrelevant.
Because there is a right of rescission for fraudulent misrepresentation, the
argument that the contract is void for mistake is generally made because a third
party has obtained an interest in the subject matter of the contract. Recognition
of a doctrine under which a contract may be void for mistake therefore places
third parties at risk. The contrary view, namely, that a contract is not void for
unilateral mistake, even where the mistake is known to the other party, was
maintained by Lord Denning MR.172 His view was that if A’s expression of
intention to contract with B is affected by a fundamental mistake, there is a
contract if the detached observer would form the view that the parties manifested
an intention to contract. For example, in Lewis v Averay173 the party asserting
that there was no contract did in fact intend to contract, although the intention
was affected by a mistake of identity induced by the other’s fraud.174 Ignoring
the ‘fly on the wall’ version of the objective theory, the justification for Lord
Denning’s approach is simply that the remedies for fraud sufficiently protect
such a party.
[9-41] Unilateral mistake as to identity. Although it has always been possible
to rationalise decisions such as Cundy v Lindsay175 on the basis of lack of
intention to contract,176 it is also clear that mistake as to the identity of a
contracting party falls within the doctrine of unilateral mistake.177
That is true even where the parties execute a written contract. In Shogun
Finance Ltd v Hudson178 a rogue, pretending to be a man named Patel, persuaded
a motor dealer to sell a vehicle to a finance company so that the rogue could
acquire it on hire-purchase terms. After certain checks were made, the rogue
executed a hire-purchase agreement in the name of Patel. He then purported to
sell the vehicle to an innocent ‘purchaser’. The majority held that the hire-
purchase agreement was a nullity.179 In so far as the majority applied the law of
mistake, on the authority of Cundy v Lindsay the hire-purchase agreement was a
nullity because of the finance company’s unilateral mistake as to the identity of
the rogue. But the case was also decided on the basis of construction of the
document. The exclusionary rule was applied. In Lord Hobhouse’s view,180 the
exclusionary rule prevented evidence being given to prove that the rogue was the
‘true’ contracting party.181 But it was also held that the finance company could
rely on extrinsic evidence to establish its mistake, that is, to establish that the
person who signed the document was not in fact the person named (or that
person’s agent). But that did not, it seems, involve the application of an
exception to the exclusionary rule.
[9-42] Unilateral mistake as to terms. The leading cases on unilateral mistake
as to terms are Smith v Hughes182 and Taylor v Johnson.183 In the former, it was
accepted that a fundamental unilateral mistake as to the terms of the contract —
in that case the terms under which the oats were agreed to be sold — would have
avoided the contract. Because the contract was verbal, the exclusionary rule was
not at issue. However, there is no reason to believe that the exclusionary rule
would have applied had the offer and acceptance been in writing.184
In Taylor v Johnson, a written contract for the sale of 10 acres of land
expressed the price as $15,000. Ms Johnson (the vendor) gave evidence that she
believed, and contracted on the basis that, the contract provided for a price of
$15,000 per acre ($150,000 in total). The High Court of Australia held that
because Taylor (the purchaser) had acted unconscionably in taking steps to
ensure that the vendor did not appreciate her mistake, she was entitled to have
the contract set aside. But the contract was not void. Given that the evidence was
used to establish unconscionable conduct, no exception to the exclusionary rule
was relevant.
Rectification
[9-43] Introduction. Rectification is a remedy derived from equity for the
correction of mistakes in documents. It is relevant to contractual documents,
including documents which integrate contracts. Since the objective of relief is to
correct documents, not to reform contracts,185 the terms of the document cannot
be changed otherwise than to give effect to the agreed terms.186 The mistake may
be common or unilateral.187 In each case, convincing proof has always been
insisted on.188
If the parties have made a mistake in expressing or recording their contract in
a document, evidence may be given of a continuing common intention in
relation to its terms. It need not be shown that adoption of the document sought
to be rectified was preceded by a contractually binding agreement.189 English law
treats an external manifestation of the parties’ intention as part of that convincing
proof.190 However, convincing proof without any external manifestation is
sufficient under Australian law.191 Although English law appeared to be moving
in that direction,192 the approach of the House of Lords in Chartbrook Ltd v
Persimmon Homes Ltd193 has almost certainly halted that.
As was pointed out in Commission for the New Towns v Cooper (Great
Britain) Ltd,194 where only one party is mistaken, rectification ‘is not ordinarily
appropriate’. For example, in Thor Navigation Inc v Ingosstrakh Insurance Co
Ltd195 rectification was not available where an insurance contract did not reflect
the subjective intention of the insured, but the mistake was not known to the
insurer and there was no unconscionable conduct. Rectification is nevertheless
available in cases of unilateral mistake where there is proof of unconscionable
conduct in relation to the adoption of the document.196
[9-44] Rectification and construction. Errors and mistakes capable of remedy
under the doctrine of rectification include mistakes in ‘verbal expression’197 and
‘literal discrepancies’.198 It is also clear that a mistake as to the ‘meaning’ of a
document, as opposed to its legal effect, may form the basis for a claim for
rectification.199 The name for a contracting party may also be corrected.200
However, many such ‘mistakes’ are corrected in construction.201 The modern
approach to construction therefore makes rectification less important than in the
past.202
This ‘close relationship’203 between construction and rectification also makes
it difficult to maintain the conventional view that rectification is ‘distinct from
an exercise in construction’.204 In order to contemplate the need for rectification
it is necessary to assume an allegation that construction of the document as a
whole in light of context does not accord with the parties’ intention.205 That has
led to the view206 that the ‘fundamental difference between interpretation and
rectification’ lies in the ability to use the prior negotiations of the parties.
But as a matter of principle there is a difference between mistakes which can
be ‘corrected’ by construction and mistakes for which a formal order is
required.207 The fact that rectification is a remedy informed by matters such as
the prevention of unconscionable conduct must still have some relevance.208
[9-45] Exclusionary rule not applicable. In its Parol Evidence Rule Report, the
Law Commission for England and Wales cast doubt on the approach to
rectification taken in virtually every case in which the doctrine was stated to
operate as an exception to the ‘parol evidence rule’. The Commission stated209
that it is the ‘very essence’ of the rule that the parties wrote down all that they
agreed. If there are other terms which were not intended to be in the document,
rectification is unnecessary. If the parties intended to record all the terms, but
omitted one (or more) by mistake, the document may be rectified so that it
accords with their intention to integrate the contract. Thus, the Law Commission
stated that in ‘one sense rectification may be seen as complementary to the parol
evidence rule’.210
Similarly, if the meaning of a document is corrected by rectification on the
basis of evidence which is (for the purposes of the exclusionary rule) extrinsic
evidence, the fact that an independent doctrine is at work is a sufficient
justification for saying that the exclusionary rule is irrelevant. Since the primary
evidence to establish rectification is evidence of prior negotiations, it seems
incorrect (and pointless) to regard such evidence as admitted under an exception
to the exclusionary rule. Thus, in Chartbrook Ltd v Persimmon Homes Ltd,211
Lord Hoffmann said212 that ‘a claim for rectification’ operates ‘outside’ the
exclusionary rule. Of course, if the claim for rectification fails, the contract must
be construed without regard to the evidence.
Rectification is not permissible where the document has been adopted as
superseding or overriding the parties’ original intention.213 However, an entire
agreement clause (or similar provision) does not always achieve that result. Such
a clause does not of itself prevent a claim for rectification.214 Although the clause
may be drafted to integrate the bargain and render inadmissible (as a matter of
agreement) evidence of other terms, an entire agreement clause does not prevent
prior negotiations being used to rectify the document. Even if it is possible to
contract out of the doctrine of rectification, it is legitimate to infer that the
intention expressed in the entire agreement clause is to integrate the agreed
bargain, not the imperfect expression of the bargain which is found in the
document.
[9-46] Evidence of intention. Since it can be assumed that the parties’ prior
negotiations are indicative of their actual intention, indirect evidence of intention
is always considered in claims for rectification. The position in relation to direct
evidence of intention is less clear. There are cases in which evidence of actual
intention has been said to be admissible. For example, in Bank of Credit and
Commerce International SA v Ali,215 Lord Nicholls said216 ‘evidence of the actual
intention of the parties is … admissible … on a claim for rectification’.
However, because of the requirement that a continuing common intention be
manifested, such statements must be referenced to declarations made during
negotiations, even if not ingredients of the negotiations.217
Thus, the position taken in Chartbrook Ltd v Persimmon Homes Ltd218 was
that the evidence put forward to justify a claim for rectification must be
construed objectively, so that the actual intention of the parties is gleaned in the
same way as actual intention is determined in the construction of a contract.219
Therefore, the evidence must establish the relevant intention on an objective
basis.
[9-47] Mistake as to legal effect. Relief by way of rectification is not available
for mistakes as to legal effect.220 In other words, since in cases of common
mistake the common intention required is that the document take a particular
form, rectification is usually not permissible if the intention was for the
document to have a certain legal effect which it fails to achieve. For example, in
Pukallus v Cameron221 the parties to a sale of land contract believed that an area
containing a bore and cultivation was within the land as described by the
contract. In fact, it was within land which the vendor retained. The High Court
of Australia held that rectification was not available. The purchasers had not
established a common intention that the instrument should provide for anything
other than a sale of the land as described.
The distinction between words understood to have a meaning different from
that which they actually bear, and the use of words which do not achieve a
desired effect must often be subtle.222 In Frederick E Rose (London) Ltd v
William H Pim Junior & Co Ltd,223 the parties made an oral agreement for the
sale of ‘horsebeans’ and the subsequent written contract used the same word.
The parties mistakenly thought that ‘horsebeans’ were ‘feveroles’. In fact, they
were different goods. Rectification was not available for the common mistake
because the written contract did not depart from the oral agreement. Denning LJ
said:224
Rectification is concerned with contracts and documents, not with
intentions. In order to get rectification it is necessary to show that the
parties were in complete agreement on the terms of their contract, but by
an error wrote them down wrongly; and in this regard, in order to
ascertain the terms of their contract, you do not look into the inner minds
of the parties — into their intentions — any more than you do in the
formation of any other contract. You look at their outward acts, that is, at
what they said or wrote to one another in coming to their agreement, and
then compare it with the document which they have signed. If you can
predicate with certainty what their contract was, and that it is, by a
common mistake, wrongly expressed in the document, then you rectify
the document; but nothing less will suffice.
Nevertheless, the fact that the parties have used the very words that they
intended to use is not in itself a bar to rectification. Moreover, some Australian
decisions discount the distinction between content and meaning on the one hand,
and legal effect on the other.225
SIGNATURE, PARTIES AND CAPACITIES
General
[9-48] Introduction. Problems as to parties do not usually arise in relation to
executed documents. That may be one explanation of why the relationship
between proof of who are the parties to a contract, and the function of signature
in relation to that issue, are somewhat problematic from the perspective of the
exclusionary rule. Except perhaps in relation to issues of agency and misnomer,
it is exceedingly difficult to determine the precise role of the exclusionary rule in
relation to proof of the parties to a contract, and the capacities in which they
contracted. In relation to latent ambiguity, there is no reason to doubt that
evidence of prior negotiations is admissible to resolve the ambiguity. To that
extent at least there may be an exception to the exclusionary rule.226
As in other areas, it seems fair to say that the increased role of context in the
modern law reduces considerably the need to consider whether ‘extrinsic’
evidence is admissible. Cases in which, in the past, courts have referred to the
admissibility of ‘parol’ or ‘extrinsic’ evidence are in this respect not particularly
helpful since the evidence may, as a matter of fact, have related solely to what is
now understood as ‘context’.227
The law also seeks to distinguish between identity problems and
‘misnomer’.228
[9-49] Misnomer. Misnomer issues have arisen in a variety of contexts. The
attitude of the courts towards the exclusionary rule has been ambivalent. The
general rule is that where there is a discrepancy between name and subject or
object, the question is whether a reasonable person in the position of the person
to whom the document is addressed would understand the description as being
an unequivocal reference to a particular person or object.229
In other words, the starting point is the perspective rule. On that basis,
resolving a name error is simply a question of construction.230 To that extent at
least, if misnomer exists as a legal concept, its resolution is under a ‘doctrine of
construction’.231 Similarly, discrepancies within a contract document, as where a
document refers to the ‘vendor’, when it is an obvious mistake for ‘purchaser’,
although capable of being portrayed as ‘misnomer’,232 merely raise orthodox
construction problems.
It follows that if a document refers unambiguously to some thing or person
which exists, the task is, simply, to apply the contract. In such cases, the
exclusionary rule applies,233 and courts have warned about the dangers of
permitting extrinsic evidence to be used to raise, rather than resolve,
ambiguity.234 Due account must, as always, be taken of context. Suggestions that
where two possible entities exist it must be possible to say from the ‘four corners
of the document’235 which was intended, refer to the document construed in
context. Accordingly, references in the cases236 to the admissibility of ‘extrinsic
evidence’ relate either to context or to situations where something more than
misnomer is at issue.
Signature and Parties
[9-50] Function of signature. The role of signature by way of execution of a
document has been a matter of debate. There is no doubt that the function is to
adopt the document as an expression of, or as evidence of, the terms of a
contract. But the cases do not present a clear picture of the legal analysis. There
remains a tendency to speak in terms of the parties to the document, rather than
the parties to the contract.
One view is that a signature is simply the representation of an intention to be
bound by the document.237 Where a document merely evidences a contract, that
may be an appropriate rationalisation. Since the contract is oral, the function of
the signature may be purely evidentiary. However, in cases where the contract is
in writing, the better view must be that a signature by way of execution of the
document is the expression of assent to the contract, that is, an agreement to be
bound by the document.238 To treat the signature as simply a representation
would seem equivalent to saying that a contractual document not under seal can
only ever be evidence of contract, a view that the law now rejects.239
[9-51] Determining the parties. If a document names the parties, and has been
adopted by signature or conduct, the question of who are the parties to the
contract will, in most cases, be resolved by construction. That includes where
there are apparent discrepancies within the document. For example, in MB
Pyramid Sound NV v Briese Schiffahrts GmbH and Co KG MS ‘Sina’ (The
Ines)240 the identity of the parties to a contract of carriage appeared to be
ambiguously expressed, because of the form of the signature box of the bill of
lading. However, construing the whole document (in light of context), Clarke J
held that the contract was between shippers and shipowners.
Nevertheless, identifying the parties cannot be simply a question of
construction. It is more logically determined as a matter of fact. On that basis,
the exclusionary rule does not limit the admissible evidence. Thus, in Homburg
Houtimport BV v Agrosin Private Ltd (The Starsin)241 Lord Millett said:242
The identity of the parties to a contract is fundamental. It is not simply a
term or condition of the contract. It goes to the very existence of the
contract itself. If it is uncertain, there is no contract. Like the nature and
amount of the consideration and the intention to create legal relations it is
a question of fact and may be established by evidence. Such evidence is
admissible even where the contract is in writing, at least so long as it
does not contradict its express terms, and possibly even where it does …
.
Lord Bingham also recognised that the question is not solely one of construction,
at least not in an orthodox sense. Nevertheless, he thought the approach to be
taken is a ‘similar’243 one to construction. And Lord Millett’s qualification in
relation to evidence which ‘contradicts’ the document looks like a concession to
the exclusionary rule. In fact, The Starsin proceeds on the basis that because a
bill of lading is a document of title, the identity of the parties must be determined
from the document itself.
Subsequently, in Shogun Finance Ltd v Hudson244 a majority of the House of
Lords applied the exclusionary rule in deciding who were the parties to an
alleged hire-purchase contract which was in writing. It was held that extrinsic
evidence was not admissible to establish that the signatory was the contracting
party, even though the fact that the person who signed the document was not the
party named could be proved by evidence. The case appears to establish that
where the alleged contract is in writing, and the signature is by way of purported
execution as a party, a decision as to who are the parties to the contract is a
question of construction of the document, and the identity of the contracting
party cannot be proved as a fact if that would contradict the document.245
‘Names’ are therefore very potent in construction.246
The Australian authorities are ambivalent. In GR Securities Pty Ltd v
Baulkham Hills Private Hospital Pty Ltd,247 McHugh JA took the same approach
as later suggested by Lord Millett in The Starsin, saying that when the issue is
whether the person who is sued or is suing is a party to the contract the matter is
determined by evidence whether or not there is ambiguity. However, in Pacific
Carriers Ltd v BNP Paribas,248 whether the bank was a party to an indemnity
contract was determined by the High Court as a question of construction of the
document, that is, by asking what a reasonable person in the indemnified party’s
position would conclude.
[9-52] Discrepancy between name and identity. In cases where there is a
discrepancy between the name and the identity of the person alleged to be a
party, resolution of the discrepancy may be necessary to uphold the agreement as
a contract. In Shogun Finance Ltd v Hudson249 a rogue persuaded a motor dealer
to sell a vehicle to a finance company on the basis that he would enter into a
hire-purchase contract with the finance company. The rogue gave his name as
Patel, whose driving licence he had stolen, and executed the hire-purchase
agreement in Patel’s name. The majority held that since Patel had no knowledge
of the hire-purchase agreement, there was no contract.
Treating the question as one of construction, Lord Hobhouse said250 that
‘where the party is … specifically identified in the document: oral or other
extrinsic evidence is not admissible’ to prove the contrary. Lord Phillips also
treated the issue as one of construction. He said:251
[A] person carrying on negotiations in writing can, by describing as one
of the parties to the putative agreement an individual who is
unequivocally identifiable from that description, preclude any finding
that the party to the putative agreement is other than the person so
described. The process of construction will lead inexorably to the
conclusion that the person with whom the other party intended to
contract was the person thus described.
The facts that the finance company inserted the name ‘Patel’ and that the rogue
did not sign his own name were therefore crucial.
Accordingly, unlike the position when parties contract face-to-face, where the
fact that one party has ‘named’ the other is irrelevant, if the parties purport to
contract in writing naming is sufficient. The difference in legal results between
verbal and written agreements therefore seems wholly attributable to the
[9-53] Other discrepancies. Because contracts are between ‘parties’, it is
always necessary to be able to establish the identity of each contracting party.
Many signatures are accompanied by a description of the signatories or the
capacities in which they signed the document. Whether or not (technically
speaking) a ‘term’ of the contract, any such description may be taken into
account as factual evidence of the identities of the parties and the capactities in
which they contracted.253 There is no basis for recourse to extrinsic evidence if
any discrepancy can be resolved by construction of the document as a whole,254
in the light of context, including mutually known facts.255
Whether or not it is correct to say that identification of the parties to a
contract is a matter of construction regulated by the exclusionary rule, allowance
must be made for inconsistent or insufficient descriptions. For example, in
Shogun Finance Ltd v Hudson,256 Lord Hobhouse said:257
[I]f the contents of the document are, without more, insufficient
unequivocally to identify the actual individual referred to or if the
identification of the party is non-specific, evidence can be given to fill
any gap.
Since Lord Hobhouse clearly had in mind evidence to explain the document
without contradicting it, no exception to the exclusionary rule is at work.
Therefore, evidence is admissible to identify the person named in the contract
where necessary for the purpose of applying the contract to the facts.258
Parties and Capacities
[9-54] Agency. The general rule in relation to agency issues is easy to state.
Anyone who signs a contractual document in their own name is liable as
principal unless the document provides to the contrary.259 Two points can be
inferred. First, the law takes a relatively uncompromising approach to personal
liability on a contract. That is understandable. From the perspective of the
counterparty, knowing whether the person who has signed a document stating or
evidencing a contract has undertaken a personal liability is vital.260
Second, the issue is one of construction to which the exclusionary rule
applies. Therefore, in order for the signatory to justify admission of extrinsic
evidence to prove that a third party was in fact personally liable on the contract,
an exception to the exclusionary rule must be applicable. Since there is no
general exception in relation to proof of agency, extrinsic evidence cannot be
relied on except where ambiguity arises in application of the contract.261 Of
course, the contract must be construed as a whole in light of context. From that it
may be clear that a person executed the document as agent even though it was
signed without qualification.262 Inconsistencies may also arise.
[9-55] Resolving inconsistencies. Lord Hobhouse acknowledged by approving
Young v Schuler263 in Shogun Finance Ltd v Hudson,264 that in the ‘case of an
equivocal agency signature … evidence [is] admissible that the signature was
also a personal signature’.
However, there is no need to have recourse to extrinsic evidence if
construction of the contract as a whole, with due regard to context, is sufficient
to resolve inconsistencies or, more accurately, to prevent the contract being
ambiguous. For example, in Giliberto v Kenny265 Mrs Kenny signed a contract
for the sale of land, which described her as the purchaser of the land. But the
document also stated that the vendor had agreed to sell to ‘Mr Kenny’. There
was, therefore, a patent inconsistency or ambiguity as to the identity of the
purchaser, or the capacity in which Mrs Kenny executed the document. The High
Court of Australia held266 that ‘extrinsic evidence’ was admissible to show that in
agreeing to buy Mrs Kenny was acting for herself and as agent for her husband.
This evidence took the form of evidence of ‘surrounding circumstances’ and
‘mutually known facts’. Accordingly, ‘Mr Kenny’ was construed as ‘Mr and Mrs
Kenny’.267
The decision in Giliberto v Kenny is similar to other decisions in which
evidence termed ‘extrinsic evidence’ amounts to no more than what is, today,
regarded as ‘context’.268
[9-56] Guarantees. Much the same picture emerges from the cases on contracts
of guarantee. An issue may arise as to the identity of the relevant party, or who,
as between the parties, is the guarantor, principal debtor or creditor. The issue is
determined by construing the principal contract and contract of guarantee with
the aid of context.269 For example, in Maddestra v Penfolds Wines Pty Ltd,270
application of a broad view as to what constituted ‘objective background facts’
in relation to a contract of guarantee enabled the description of the principal
debtor as ‘Retail Equity Limited’ to be understood as ‘Retail Equity Pty Ltd’.
In cases where the contract of guarantee is ambiguous, extrinsic evidence
may be given as to who in fact was the guarantor, the creditor or the principal
debtor.271 However, references to ‘extrinsic evidence’ have always been
somewhat ambivalent as between evidence of context and evidence of prior
negotiations.272
1. See Sir Johan Steyn, ‘Written Contracts: To What Extent May Evidence
Control Language?’ [1988] CLP 23 (question is how the evidence can be
used, not what evidence is admissible).
3. See [8-12].
4. Nevertheless, issues can arise. See Chapter 18.
6. See also [2-06] (impact of presumptions of intention).
7. See Parol Evidence Rule Working Paper, paras 10ff, where fraud, specific
performance and rescission and damages for misrepresentation, as well as
implied terms, are all discussed under an ‘exceptions’ heading. Contrast
Parol Evidence Rule Report, para 2.31.
8. See Khan v Khan [2007] EWCA Civ 399 at [36]; [2008] Bus LR Digest 73
at D74 (exclusionary rule applies to oral contracts). Cf Parol Evidence
Rule Report, para 2.20 (would be ‘proper’ to analyse oral agreements by
reference to principles of the parol evidence rule ‘if it were helpful to do
so’).
9. See, eg Thorner v Major [2009] 1 WLR 776 at 800–1; [2009] UKHL 18 at
[82]–[83] (evidence of subjective understanding may be admissible). See
also Daventry DC v Daventry and District Housing Ltd [2012] Bus LR
485 at 534; [2011] EWCA Civ 1153 at [197].
10. See [10-41]–[10-43].
11. Decisions such as Pym v Campbell (1856) 6 E & B 370; 119 ER 903, have
often been interpreted on the same basis. And see Contracts Restatement 2d
(1979), §213 (3) (integrated agreement which is not binding). Contrast D W
McLauchlan, ‘Mistake of Identity and Contract Formation’ (2005) 21 JCL 1
at 23.
12. [2004] 1 AC 919; [2003] UKHL 62. Lord Walker agreed with Lord
Hobhouse.
13. See further [9-20]–[9-47] (intention to contract and mistake).
14. Under s 2 of the Law of Property (Miscellaneous Provisions) Act 1989
(UK), a contract for the sale of land is void if not in writing. For the
position in Australia see Carter on Contract, §09-090.
15. See [8-10].
16. See [8-10].
17. See, eg Tsang Chuen v Li Po Kwai [1932] AC 715 (deed of assignment);
Guardian Ocean Cargoes Ltd v Banco do Brasil SA (Nos 1 and 3) [1991] 2
Lloyd’s Rep 68 at 80 (affirmed without reference to the point [1994] 2
Lloyd’s Rep 152).
18. See [10-35].
19. But see Guardian Ocean Cargoes Ltd v Banco do Brasil SA (Nos 1 and 3)
[1991] 2 Lloyd’s Rep 68 at 80 (affirmed without reference to the point
[1994] 2 Lloyd’s Rep 152) (exclusionary rule did not apply to instructions
to bank, which could be construed in the light of oral evidence).
20. See also [9-16].
21. See [8-34]–[8-39],[18-10].
22. See [18-10].
23. Cf Best Buy Co Inc v Worldwide Sales Corp España SL [2011] Bus LR
1166 at 1173; [2011] EWCA Civ 618 at [19] (query whether subsequent
conduct admissible in construction of letter alleged to be threat of
trademark infringement proceedings).
24. [1997] AC 749.
25. [1997] AC 749 at 779–80.
26. For exceptions to the prohibition on the use of evidence in construction see
Chapters 14 and 18. For exceptions to the parol evidence rule see Chapter
10.
27. [2009] 1 AC 1101; [2009] UKHL 38.
28. [2009] 1 AC 1101 at 1121; [2009] UKHL 38 at [42]; see also [2009] 1 AC
1101 at 1122; [2009] UKHL 38 at [47]. The other members of the House of
Lords agreed. See also Oceanbulk Shipping and Trading SA v TMT Asia Ltd
[2011] 1 AC 662 at 680; [2010] UKSC 44 at [37].
29. See Chapter 18.
30. The canons of construction (see Chapter 4) are not rules of law. Cf BHP
Petroleum Ltd v British Steel Plc [2000] 2 Lloyd’s Rep 277 at 281 per
Evans LJ, with whom Lord Lloyd agreed (in context of application of
contra proferentem rule, ‘not … right wholly to exclude drafting history’).
31. See also [18-06]–[18-09]. See also Contracts Restatement 2d (1979),
§214(e) (grounds for granting or denying remedy, including ‘reformation’).
32. See [9-20]–[9-56].
33. See Reliance Marine Insurance Co v Duder [1913] 1 KB 265 at 273
(mistake, fraud and misrepresentation as exceptions to the exclusionary
rule). Cf Life Insurance Co of Australia Ltd v Phillips (1925) 36 CLR 60 at
71 (fraud).
34. See Byrnes v Kendle (2011) 243 CLR 253 at 285–6; [2011] HCA 26 at
[101]. See also Contracts Restatement 2d (1979), §214(d) (evidence to
establish ‘invalidating cause’).
35. See, eg Arrale v Costain Civil Engineering Ltd [1976] 1 Lloyd’s Rep 98 at
103 (evidence of misrepresentation); Bahr v Nicolay [No 2] (1988) 164
CLR 604 at 617 (fraud and rectification).
36. See Arrale v Costain Civil Engineering Ltd [1976] 1 Lloyd’s Rep 98 at 101,
103. Cf Pym v Campbell (1856) 6 E & B 370 at 374; 119 ER 903 at 905
(parol evidence that a document was signed by mistake).
37. See, eg Taylor v Johnson (1983) 151 CLR 422 (unconscionable conduct as
basis for order for rescission).
38. See [9-34]–[9-47].
39. (1854) 9 Ex 341 at 354; 156 ER 145 at 151.
40. See [7-26].
41. (1854) 9 Ex 341 at 354; 156 ER 145 at 151 per Alderson B.
42. Robophone Facilities Ltd v Blank [1966] 1 WLR 1428 at 1448 per Diplock
LJ.
43. See [17-24] (exclusion of liability for ‘consequential loss’).
44. See [18-11].
45. See, eg Australian Mutual Provident Society v Chaplin (1978) 18 ALR 385
at 392–3; Narich Pty Ltd v Commissioner of Pay-Roll Tax [1983] 2
NSWLR 597 at 601; (1983) 50 ALR 417 at 420–1.
46. See further [18-06]–[18-08], [18-13]–[18-14].
47. See, eg Pao On v Lau Yiu Long [1980] AC 614 at 631 (illegal
consideration).
48. See, eg Alexander v Rayson [1936] 1 KB 169 at 182; Yaroomba Beach
Development Co Pty Ltd v Coeurde Lion Investments Pty Ltd (1989) 18
NSWLR 398 at 414, 418.
49. See, eg Alexander v Rayson [1936] 1 KB 169. See also Byrnes v Kendle
(2011) 243 CLR 253 at 273; [2011] HCA 26 at [52].
50. (1991) 23 NSWLR 164.
51. See Kok Hoong v Leong Cheong Kweng Mines Ltd [1964] AC 993 at 1015–
16; Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 at 408,
432–3, 446, 464; Actionstrength Ltd v International Glass Engineering
IN.GL.EN Spa [2003] 2 AC 541 at 547, 551, 552, 556–7; [2003] UKHL 17
at [8], [29], [35], [50]–[53]. As to the impact of estoppel where a deed is
not executed in accordance with formal requirements, see Shah v Shah
[2002] QB 35; [2001] EWCA Civ 527.
52. See, eg Government of Swaziland Central Transport Administration v Leila
Maritime Co Ltd (The Leila) [1985] 2 Lloyd’s Rep 172 at 178–9;
Norwegian American Cruises A/S v Paul Mundy Ltd (The Vistafjord) [1988]
2 Lloyd’s Rep 343 at 350–2. See also [18-17].
53. Jorden v Money (1854) 5 HLC 180 at 210; 10 ER 868 at 880 per Lord
Cranworth LC.
54. Tankexpress A/S v Compagnie Financière Belge des Petroles SA (The
Petrofina) [1949] AC 76 at 98 per Lord Wright.
55. See James Miller & Partners Ltd v Whitworth Street Estates (Manchester)
Ltd [1970] AC 583 at 611, 615; Carmichael v National Power Plc [1999] 1
WLR 2042 at 2051; Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC
1101 at 1121; [2009] UKHL 38 at [42]; Byrnes v Kendle (2011) 243 CLR
253 at 286; [2011] HCA 26 at [101]. See further [14-20], [18-17].
56. See [18-11].
57. [1977] 2 Lloyd’s Rep 5.
58. [1977] 2 Lloyd’s Rep 5 at 11. See also Winks v W H Heck & Sons Pty Ltd
[1986] 1 Qd R 226 at 233 (admission may be strong evidence of what was
agreed or effect of contract). But cf Heinrich Hirdes & GmbH v Edmund
[1991] 2 Lloyd’s Rep 546 at 549–50.
59. [1975] 1 WLR 1095; [1975] 3 All ER 99. Whether the contract was in
writing is unclear.
60. In fact, the admission was struck out by an amendment to the defence.
61. See Atco Controls Pty Ltd (in liq) v Newtronics Pty Ltd (Receivers and
Managers Appointed) (in liq) (2009) 25 VR 411 at 424; [2009] VSCA 238
at [44] (little value in relation to construction questions). Cf Heinrich
Hirdes & GmbH v Edmund [1991] 2 Lloyd’s Rep 546 at 550 (statement of
additional premium calculation by brokers did not amount to admission as
to period of insurance); FAI Traders Insurance Co Ltd v Savoy Plaza Pty
Ltd [1993] 2 VR 343 at 351.
62. See, eg Hoad v Swan (1920) 28 CLR 258 at 264–5.
63. See, eg Hanoman v Southwark London Borough Council (No 2) [2009] 1
WLR 374 at 391; [2008] EWCA Civ 624 at [48] per Arden LJ (with whom
Sir Anthony Clarke MR and Jacob LJ agreed), affirmed [2009] 1 WLR
1367; [2009] UKHL 29 (‘intention to create legal relations’ depended on
application of tests to determine whether pre-contractual statement took
effect as collateral contract).
64. See, eg Riches v Hogben [1985] 2 Qd R 292 at 297 (affirmed [1986] 1 Qd R
315); Edmonds v Lawson [2000] QB 501 at 513.
65. See [2-16], [2-20], [2-22].
66. See, eg Shogun Finance Ltd v Hudson [2004] 1 AC 919 at 932, 947, 964;
[2003] UKHL 62 at [6], [55], [123]. See also [2-20] and further [9-23].
67. See [9-25].
68. See also P S Atiyah, ‘The Hannah Blumenthal and Classical Contract Law’
(1986) 102 LQR 363 at 366. Cf Anne De Moor, ‘Intention in the Law of
Contract: Elusive or Illusory?’ (1990) 106 LQR 632 at 649ff.
69. See Snook v London and West Riding Investments Ltd [1967] 2 QB 786 at
802 (unexpressed intention as to sham nature of document). For the general
principle see [2-16], [2-20], [2-22].
70. Air Great Lakes Pty Ltd v K S Easter (Holdings) Pty Ltd (1985) 2 NSWLR
309 at 337. See also [9-33].
71. See, eg Allied Marine Transport Ltd v Vale do Rio Doce Navegacao SA
(The Leonidas D) [1985] 1 WLR 925 at 936–7. See J Beatson, (1986) 102
LQR 19; M J Lawson, [1988] LMCLQ 302.
72. Cf Shogun Finance Ltd v Hudson [2004] 1 AC 919 at 964; [2003] UKHL
62 at [123] per Lord Phillips (‘[i]f the offeree knows that the offeror does
not intend the terms of the offer to be those that the natural meaning of the
words would suggest, he cannot, by purporting to accept the offer, bind the
offeror to a contract’).
73. [1983] 1 AC 854.
74. [1983] 1 AC 854 at 917. See also [2-20].
75. See [1983] 1 AC 854 at 916–7; see also [1983] 1 AC 854 at 924. See also
Collin v Duke of Westminster [1985] QB 581 at 596; Maple Leaf Macro
Volatility Master Fund v Rouvroy [2009] 1 Lloyd’s Rep 475 at 512; [2009]
EWHC 257 at [228]. Cf Food Corp of India v Antclizo Shipping Corp (The
Antclizo) [1987] 2 Lloyd’s Rep 130 at 146–7 (affirmed [1988] 1 WLR 603);
Thai-Europe Tapioca Service Ltd v Seine Navigation Co Inc (The Maritime
Winner) [1989] 2 Lloyd’s Rep 506 at 514.
76. [1983] 1 AC 854 at 924 (‘that the buyers so conducted themselves as to
entitle the sellers to assume, and that the sellers did assume’).
77. In the subsequent cases, perceived differences between Lord Diplock and
Lord Brightman have been resolved in favour of the latter. See Allied
Marine Transport Ltd v Vale do Rio Doce Navegacao SA (The Leonidas D)
[1985] 1 WLR 925 at 936; Food Corp of India v Antclizo Shipping Corp
(The Antclizo) [1987] 2 Lloyd’s Rep 130 at 137, 145 (affirmed [1988] 1
WLR 603).
78. (1871) LR 6 QB 597 at 607. See also Goldsbrough Mort & Co Ltd v Quinn
(1910) 10 CLR 674 at 695; Shogun Finance Ltd v Hudson [2004] 1 AC 919
at 964; [2003] UKHL 62 at [123].
79. See also Taylor v Johnson (1983) 151 CLR 422 at 432; Byrnes v Kendle
(2011) 243 CLR 253 at 285; [2011] HCA 26 at [101]. See David
McLauchlan,’ The “Drastic” Remedy of Rectification for Unilateral
Mistake’ (2008) 124 LQR 608 at 611. Cf UNIDROIT Principles, arts 4.1(1),
4.2(1).
80. See D W McLauchlan, ‘Mistake of Identity and Contract Formation’ (2005)
21 JCL 1 at 43–4.
46 (affirmed without reference to the point [1986] 2 Lloyd’s Rep 44 at 58).
82. (1985) 2 NSWLR 309 at 334, 336, 337. Cf (1985) 2 NSWLR 309 at 318.
83. (1985) 2 NSWLR 309 at 337. Cf (1985) 2 NSWLR 309 at 331, 333. See
also Nicolazzo v Harb (2009) 22 VR 220 at 235; [2009] VSCA 79 at [89].
84. Cf Shogun Finance Ltd v Hudson [2004] 1 AC 919 at 932; [2003] UKHL
62 at [7] per Lord Nicholls (‘whether a person has consented to this or that
is a question of fact’).
85. [1923] 2 KB 261 at 293 (reversed on other grounds [1925] AC 445). See
also Dobbs v National Bank of Australasia Ltd (1935) 53 CLR 643 at 652.
86. See Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR
95 at 105; [2002] HCA 8 at [25]; RTS Flexible Systems Ltd v Molkerei Alois
Müller GmbH & Co KG (UK Production) [2010] 1 WLR 753 at 771;
[2010] UKSC 14 at [45].
87. See generally Chapter 16 (specific incidents of commercial construction).
88. See also Edmonds v Lawson [2000] QB 501 at 515 (pupillage contract). Cf
Esso Petroleum Ltd v Commissioners of Customs and Excise [1976] 1 All
ER 117 (intention in relation to token given away ‘free’ with goods
purchased).
89. See Orion Insurance Co Plc v Sphere Drake Insurance Plc [1992] 1
Lloyd’s Rep 239 at 263, 292 (onus to prove lack of intention to create legal
relations a heavy one). See also Rose and Frank Co v J R Crompton and
Bros Ltd [1923] 2 KB 261 at 288, 293 (reversed on other grounds [1925]
AC 445); Reid v Zoanetti [1943] SASR 92 at 98; Esso Petroleum Ltd v
Commissioners of Customs and Excise [1976] 1 All ER 117 at 121;
Kleinwort Benson Ltd v Malaysia Mining Corp Berhad [1989] 1 WLR 379
at 383.
90. See, eg Ermogenous v Greek Orthodox Community of SA Inc (2002) 209
CLR 95 at 105–6; [2002] HCA 8 at [25]; Toll (FGCT) Pty Ltd v
Alphapharm Pty Ltd (2004) 219 CLR 165 at 178; [2004] HCA 52 at [38].
91. [1923] 2 KB 261 at 283 (reversed on other grounds [1925] AC 445). See
also Home Insurance Co v Administratia Asigurarilor de Stat [1983] 2
Lloyd’s Rep 674 (‘honourable engagement’ provision in arbitration
agreement).
92. [1964] 1 All ER 494.
93. [1989] 1 WLR 379 at 389. See also Banque Brussels Lambert SA v
Australian National Industries Ltd (1989) 21 NSWLR 502; Commonwealth
Bank of Australia v TLI Management Pty Ltd [1990] VR 510; Norman; Re
Forest Enterprises Ltd v FEA Plantation Ltd (2011) 280 ALR 470 at 482;
[2011] FCAFC 99 at [91] (letter of commitment). Contrast Atco Controls
Pty Ltd (in liq) v Newtronics Pty Ltd (Receivers and Managers Appointed)
(in liq) (2009) 25 VR 411; [2009] VSCA 238 (letter of support).
94. [1992] 1 Lloyd’s Rep 239.
95. [1992] 1 Lloyd’s Rep 239 at 292; see also [1992] 1 Lloyd’s Rep 239 at 273,
301.
96. [2004] 1 AC 715 at 794; [2003] UKHL 12 at [175].
97. See [9-24].
98. See [9-27].
58; ICT Pty Ltd v Sea Containers Ltd (1995) 39 NSWLR 640 at 656. See,
eg Glatzer v Bradston Ltd (The Ocean Enterprise) [1997] 1 Lloyd’s Rep
449 at 485 (series of sham sale transactions not intended to be binding);
Shalson v Russo [2005] Ch 281 at 341; [2003] EWHC 1637 (Ch) at [188]
(sham settlement).
100. See Bankway Properties Ltd v Pensfold-Dunsford [2001] 1 WLR 1369 at
1380; [2001] EWCA Civ 528 at [42] per Arden LJ (‘common subjective
intention’). See also Scott v Commissioner of Taxation of the
Commonwealth (No 2) (1966) 40 ALJR 265 at 279; Snook v London and
West Riding Investments Ltd [1967] 2 QB 786 at 802, 804; ICT Pty Ltd v
Sea Containers Ltd (1995) 39 NSWLR 640 at 656; Circuit Systems Ltd (in
liq) v Zuken-Redac (UK) Ltd [1997] 1 WLR 721 at 728; Glatzer v Bradston
Ltd (The Ocean Enterprise) [1997] 1 Lloyd’s Rep 449 at 485.
101. As opposed to, for example, a dispute with the revenue authorities. See, eg
Raftland Pty Ltd as Trustee of the Raftland Trust v Commissioner of
Taxation (2008) 238 CLR 516; [2008] HCA 21.
102. See Raftland Pty Ltd as Trustee of the Raftland Trust v Commissioner of
Taxation (2008) 238 CLR 516 at 531; [2008] HCA 21 at [33] (exclusionary
rule does not apply). See also Snook v London and West Riding Investments
Ltd [1967] 2 QB 786 at 802; Air Great Lakes Pty Ltd v K S Easter
(Holdings) Pty Ltd (1985) 2 NSWLR 309 at 318; Chappuis v Filo (1990)
19 NSWLR 490 at 507; Byrnes v Kendle (2011) 243 CLR 253 at 285–6;
[2011] HCA 26 at [101]. Cf Progress Property Co Ltd v Moore [2011] 1
WLR 1 at 11; [2010] UKSC 55 at [29].
103. See Air Great Lakes Pty Ltd v K S Easter (Holdings) Pty Ltd (1985) 2
NSWLR 309 at 331, 333, 336.
104. Cf Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR
95 at 106; [2002] HCA 8 at [26].
105. See, eg Riches v Hogben [1985] 2 Qd R 292 at 297 (affirmed [1986] 1 Qd R
315).
106. See, eg Jones v Padavatton [1969] 1 WLR 328; [1969] 2 All ER 616.
107. [1969] 1 WLR 328; [1969] 2 All ER 616.
108. [1969] 1 WLR 328 at 336; [1969] 2 All ER 616 at 624. See also Todd v
Nichol [1957] SASR 72 at 75–6; Parker v Clark [1960] 1 WLR 286 at 293;
[1960] 1 All ER 93. See D W McLauchlan, ‘Subsequent Conduct as an Aid
to Interpretation’ (1996) 2 NZBLQ 237 at 255–7.
109. On proof that the statement is binding see [2-37]–[2-41].
111. See [10-49].
112. Barrier Wharfs Ltd v W Scott Fell & Co Ltd (1908) 5 CLR 647 at 650. See
also Marek v Australasian Conference Association Pty Ltd (1990) [1994] 2
Qd R 521 at 529. Cf Australian Energy Ltd v Lennard Oil NL [1986] 2 Qd
R 216 at 237 (contract requires proof of assent to terms).
113. See, eg Behn v Burness (1863) 3 B & S 751 at 754; 122 ER 281 at 282;
Reilly v Finlay (1900) 21 LR (NSW) L 100 at 103. See also Goldsbrough
Mort & Co Ltd v Carter (1914) 19 CLR 429 at 443.
114. See, eg Behn v Burness (1863) 3 B & S 751; 122 ER 281. See also
Angelos) [1971] 1 QB 164(‘warranty’ that there were reasonable grounds
for statement that vessel was ‘expected ready to load’ about 1 July 1965).
115. [1989] 1 WLR 379 at 391. See also Australian European Finance Corp Ltd
v Sheahan (1993) 60 SASR 187 at 206 (non-promissory statement of
intention). Contrast Banque Brussels Lambert SA v Australian National
Industries Ltd (1989) 21 NSWLR 502.
116. Contrast Showa Oil Tanker Co Ltd of Japan v Maravan SA of Caracas (The
Larissa) [1983] 2 Lloyd’s Rep 325 at 330 (telex used words of obligation
not representation).
117. See generally on adoption of documents [10-10]–[10-13].
118. RTS Flexible Systems Ltd v Molkerei Alois Müller GmbH & Co KG (UK
Production) [2010] 1 WLR 753 at 773; [2010] UKSC 14 at [50] per Lord
Clarke for the court. See also The Tychy (No 2) [2001] 2 Lloyd’s Rep 403 at
409; [2001] EWCA Civ 1198 at [29] per Lord Phillips MR for the court (if
there is no formal document, task is to determine what terms proposed in
negotiations became the ‘subject of a joint agreement’).
119. See, eg Coal Cliff Collieries Pty Ltd v Sijehama Pty Ltd (1991) 24 NSWLR
1 (heads of agreement); RTS Flexible Systems Ltd v Molkerei Alois Müller
GmbH & Co KG (UK Production) [2010] 1 WLR 753; [2010] UKSC 14
(letter of intent). See generally Michael Furmston and G J Tolhurst,
Contract Formation: Law and Practice, Oxford University Press, Oxford,
2010, chs 7 and 8.
120. See Perry v Suffields Ltd [1916] 2 Ch 187 at 191–2. Cf Harmony Shipping
Co SA v Saudi-Europe Line Ltd (The Good Helmsman) [1981] 1 Lloyd’s
Rep 377 at 409, 416.
121. See also Tekdata Interconnections Ltd v Amphenol Ltd [2010] 1 Lloyd’s
Rep 357 at 360–1; [2009] EWCA Civ 1209 at [19] (care needs to be taken
not to read too much into (subsequent) correspondence).
122. (1908) 5 CLR 647 at 668–9. See also Terrex Resources NL v Magnet
Petroleum Pty Ltd [1988] 1 WAR 144 at 160.
123. RTS Flexible Systems Ltd v Molkerei Alois Müller GmbH & Co KG (UK
Production) [2010] 1 WLR 753 at 775; [2010] UKSC 14 at [54] per Lord
Clarke for the court. Cf Carmichael v National Power Plc [1999] 1 WLR
2042 at 2051 per Lord Hoffmann, with whom Lords Goff and Jauncey
agreed (subsequent conduct relevant to show what the parties ‘thought they
had agreed’).
124. See Great North East Railway Ltd v Avon Insurance Plc [2001] 2 Lloyd’s
Rep 649 at 655; [2001] EWCA Civ 780 at [29] per Longmore LJ, with
whom the other members of the court agreed (rule in relation to subsequent
conduct does not ‘exist’ when question is whether a term was agreed). See
also Tekdata Interconnections Ltd v Amphenol Ltd [2010] 1 Lloyd’s Rep
357 at 360–1, 362; [2009] EWCA Civ 1209 at [19], [30] (subsequent
conduct may be used to prove terms). See generally D W McLauchlan,
‘Contract Formation, Contract Interpretation, and Subsequent Conduct’
(2006) 25 Univ Qld LJ 77.
125. (1921) 29 CLR 499 at 509.
126. [2010] 1 WLR 753; [2010] UKSC 14.
127. [2010] 1 WLR 753 at 767, 783, 784; [2010] UKSC 14 at [30], [85], [88].
128. See [2010] 1 WLR 753 at 784; [2010] UKSC 14 at [87].
129. (1907) 5 CLR 68.
130. (1907) 5 CLR 68 at 77. O’Connor J agreed. See also Australian
Broadcasting Corp v XIVth Commonwealth Games Ltd (1988) 18 NSWLR
540 at 547–8, 550. Cf Franklins Pty Ltd v Metcash Trading Ltd (2009) 76
NSWLR 603 at 616; [2009] NSWCA 407 at [13].
131. See also B Seppelt & Sons Ltd v Commissioner for Main Roads (1975) 1
BPR 9147 (subsequent conduct confirmed inferences drawn from the nature
of the transaction and the terms of the documents themselves, that there was
no intention to contract).
132. See also Contractual Mistakes Act 1977 (NZ) which, although passed to
‘mitigate the arbitrary effects of mistakes on contracts’, says nothing about
evidence.
133. See also [2-18]–[2-22].
134. For recent statements see Maple Leaf Macro Volatility Master Fund v
Rouvroy [2009] 1 Lloyd’s Rep 475 at 511; [2009] EWHC 257 (Comm) at
[223]; RTS Flexible Systems Ltd v Molkerei Alois Müller GmbH & Co KG
(UK Production) [2010] 1 WLR 753 at 771; [2010] UKSC 14 at [45].
135. See Chapter 3.
136. See [9-07].
137. Cf Shogun Finance Ltd v Hudson [2004] 1 AC 919 at 967, 968, 972; [2003]
UKHL 62 at [133], [135], [154], where Lord Phillips treats reliance on
extrinsic evidence as the basis for the decisions in several mistake cases.
138. See, eg Shamil Bank of Bahrain EC v Beximco Pharmaceuticals Ltd [2004]
1 WLR 1784 at 1801–2; [2004] EWCA Civ 19 at [57]–[60] (alleged
mistake of fact or law which was not fundamental). Cf Furness Withy
(Australia) Pty Ltd v Metal Distributors (UK) Ltd (The Amazonia) [1990] 1
139. See [9-23]. See also Daniel Friedmann, ‘The Objective Principle and
Mistake and Involuntariness in Contract and Restitution’ (2003) 119 LQR
68 at 72 (referring to Hartog v Colin & Shields [1939] 3 All ER 566).
Query whether the position is too broadly stated in Statoil ASA v Louis
Dreyfus Energy Services LP (The Harriette N) [2008] 2 Lloyd’s Rep 685 at
694; [2008] EWHC 2257 (Comm) at [87].
140. [1913] 3 KB 564 at 569–70.
141. See [10-22].
142. [2004] 1 AC 919; [2003] UKHL 62. But cf G Percy Trentham Ltd v
Archital Luxfer Ltd [1993] 1 Lloyd’s Rep 25 at 29.
143. See Bell v Lever Bros Ltd [1932] AC 161 at 226–7; McRae v
Commonwealth Disposals Commission (1951) 84 CLR 377 at 407–9.
144. (1951) 84 CLR 377.
145. (1951) 84 CLR 377 at 409.
146. But see Barrow Lane & Ballard Ltd v Phillip Phillips & Co Ltd [1929] 1
KB 574 at 582.
147. [1932] AC 161.
148. [1932] AC 161 at 225, 236.
149. Kennedy v Panama New Zealand and Australian Royal Mail Co Ltd (1867)
LR 2 QB 580 at 587. But cf Great Peace Shipping Ltd v Tsavliris Salvage
(International) Ltd [2003] QB 679; [2002] EWCA Civ 1407; see Andrew
Tettenborn, ‘Agreements, Common Mistake and the Purpose of Contract’
(2011) 27 JCL 91.
150. Cf McRae v Commonwealth Disposals Commission (1951) 84 CLR 377 at
408 (no reliance can be placed on common mistake where there is ‘fault’).
151. [1932] AC 161.
152. (1951) 84 CLR 377 at 408. See also Bruce v Tyley (1916) 21 CLR 277 at
293; Svanosio v McNamara (1956) 96 CLR 186 at 206.
153. See Sale of Goods Act 1979 (UK), s 6. See also ACT: Sale of Goods Act
1954, s 11; NSW: Sale of Goods Act 1923, s 11; NT: Sale of Goods Act
1972, s 10; Qld: Sale of Goods Act 1896, s 9; SA: Sale of Goods Act 1895,
s 6; Tas: Sale of Goods Act 1896, s 11; Vic: Goods Act 1958, s 11; WA:
Sale of Goods Act 1895, s 6.
154. [1989] 1 WLR 255; see G H Treitel, (1988) 104 LQR 501; Geoffrey
Marston, [1989] CLJ 173; J W Carter, (1991) 3 JCL 237. See also Furness
Withy (Australia) Pty Ltd v Metal Distributors (UK) Ltd (The Amazonia)
[1990] 1 Lloyd’s Rep 236; Great Peace Shipping Ltd v Tsavliris Salvage
(International) Ltd [2003] QB 679 at 703, 704; [2002] EWCA Civ 1407 at
[73], [82]. Cf Beesly v Hallwood Estates Ltd [1960] 1 WLR 549 at 558
(affirmed [1961] 1 Ch 105); Harvela Investments Ltd v Royal Trust Co of
Canada (CI) Ltd [1986] 1 AC 207 at 235. Contrast Oscar Chess Ltd v
Williams [1957] 1 WLR 370 at 373.
155. See also Reliance Marine Insurance Co v Duder [1913] 1 KB 265 at 273
(evidence of intention may be given in cases of common mistake).
156. See Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd
[2003] QB 679 at 703; [2002] EWCA Civ 1407 at [73] (rule of law). See
also William Sindall Plc v Cambridgeshire County Council [1994] 1 WLR
1016 at 1039.
157. [1910] AC 537.
158. [1910] AC 537 at 550 per Lord Kinnear. Cf Kennedy v Panama New
Zealand and Australian Royal Mail Co Ltd (1867) LR 2 QB 580 at 587–8.
159. [1910] AC 537 at 557 per Lord Shaw. See also Sharp v Thomson (1915) 20
CLR 137 at 141–2. Contrast NBTY Europe Ltd (formerly Holland & Barrett
Europe Ltd) v Nutricia International BV [2005] 2 Lloyd’s Rep 350 at 355;
[2005] EWHC 734 (Comm) at [27] (parties not at cross purposes when no
evidence of inconsistent understanding of content of offer).
160. (1864) 2 H & C 906; 159 ER 375.
161. As Mellish argued, in support of the plea that the ship intended by the
buyers was a different ship.
163. Cf Bell v Lever Bros Ltd [1932] AC 161 at 222; Svanosio v McNamara
(1956) 96 CLR 186 at 209. See Daniel Friedmann, ‘The Objective Principle
and Mistake and Involuntariness in Contract and Restitution’ (2003) 119
LQR 68 at 73. See also McRae v Commonwealth Disposals Commission
(1951) 84 CLR 377 at 406–7 (referring to Couturier v Hastie (1856) 5 HLC
673; 10 ER 1065).
164. (1871) LR 6 QB 597 at 609.
165. (1915) 20 CLR 137.
166. (1915) 20 CLR 137 at 142. See also Life Insurance Co of Australia Ltd v
Phillips (1925) 36 CLR 60 at 79–80. Cf Falck v Williams [1900] AC 176 at
181 (exchange of ambiguous coded telegraphic messages).
168. See Gordon-Cumming v Houldsworth [1910] AC 537 at 549–50, 557;
Scriven Bros & Co v Hindley & Co [1913] 3 KB 564 at 569. Cf Great
Peace Shipping Ltd v Tsavliris Salvage (International) Ltd [2003] QB 679
at 690; [2002] EWCA Civ 1407 at [28]. But cf O W Holmes, The Common
Law, M De W Howe, ed, Little Brown & Co, Boston, 1963, p.242.
169. A right of rescission may arise if the mistake is associated with
unconscionable conduct. See Taylor v Johnson (1983) 151 CLR 422.
170. For the general principles see Saunders v Anglia Building Society [1971]
AC 1004; Petelin v Cullen (1975) 132 CLR 355.
171. See, eg Taylor v Johnson (1983) 151 CLR 422 at 429; Toll (FGCT) Pty Ltd
v Alphapharm Pty Ltd(2004) 219 CLR 165 at 179; [2004] HCA 52 at [41];
Statoil ASA v Louis Dreyfus Energy Services LP (The Harriette N) [2008] 2
Lloyd’s Rep 685 at 694; [2008] EWHC 2257 (Comm) at [87] per Aikens J
(‘clearer to say that there was never a contract at all’).
172. See Solle v Butcher [1950] 1 KB 671 at 691.
173. [1972] 1 QB 198 at 207. See also Magee v Pennine Insurance Co Ltd
[1969] 2 QB 507.
174. See Shogun Finance Ltd v Hudson [2004] 1 AC 919 at 932–3; [2003]
UKHL 62 at [10].
175. (1878) 3 App Cas 459.
176. See also Bell v Lever Bros Ltd [1932] AC 161 at 217.
177. See Esther Stern, ‘Objectivity, Legal Doctrine and the Law of Mistaken
Identity’ (1995) 8 JCL 154. Cf Said v Butt [1920] 3 KB 497 (aversion to
contract with undisclosed principal); and see Shogun Finance Ltd v Hudson
[2004] 1 AC 919 at 955; [2003] UKHL 62 at [88].
178. [2004] 1 AC 919; [2003] UKHL 62. See D W McLauchlan, ‘Mistake of
Identity and Contract Formation’ (2005) 21 JCL 1.
179. On that basis, the rogue was not a ‘debtor’ for the purposes of a provision in
the hire-purchase legislation under which the purchaser would have
acquired the finance company’s title. In his dissenting opinion, Lord Millett
said ([2004] 1 AC 919 at 948; [2003] UKHL 62 at [60]) that the ‘law
should if at all possible favour a solution which protects innocent third
parties by treating the contract as voidable rather than void, whether for
fraud or for mistake’.
180. See [2004] 1 AC 919 at 943–4; [2003] UKHL 62 at [49]. Lord Walker
agreed.
181. See further [9-51], [9-52].
182. (1871) LR 6 QB 597 (see [2-22]). See also Statoil ASA v Louis Dreyfus
Energy Services LP (The Harriette N) [2008] 2 Lloyd’s Rep 685 at 695;
[2008] EWHC 2257 (Comm) at [95].
183. (1983) 151 CLR 422.
184. Cf Statoil ASA v Louis Dreyfus Energy Services LP (The Harriette N)
[2008] 2 Lloyd’s Rep 685 at 694; [2008] EWHC 2257 (Comm) at [87] per
Aikens J (‘if the court admits evidence to show what each side subjectively
intended’).
185. See, eg Frederick E Rose (London) Ltd v William H Pim Junior & Co Ltd
[1953] 2 QB 450 at 461. Cf Daventry DC v Daventry and District Housing
Ltd [2012] Bus LR 485 at 529; [2011] EWCA Civ 1153 at [177] (give effect
to the contractual bargain).
186. See, eg Etablissements Georges et Paul Levy v Adderley Navigation Co
Panama SA (The Olympic Pride) [1980] 2 Lloyd’s Rep 67 at 72; Agip SpA v
Navigazione Alta Italia SpA (The Nai Genova) [1984] 1 Lloyd’s Rep 353 at
359.
187. See David McLauchlan, ‘The “Drastic” Remedy of Rectification for
Unilateral Mistake’ (2008) 124 LQR 608.
188. See, eg Etablissements Georges et Paul Levy v Adderley Navigation Co
Panama SA (The Olympic Pride) [1980] 2 Lloyd’s Rep 67 at 73 per Mustill
J (‘proved with a high degree of conviction’); Franklins Pty Ltd v Metcash
Trading Ltd (2009) 76 NSWLR 603 at 712; [2009] NSWCA 407 at [451].
189. See Slee v Warke (1949) 86 CLR 271 at 280; Joscelyne v Nissen [1970] 2
QB 86; Maralinga Pty Ltd v Major Enterprises Pty Ltd (1973) 128 CLR
336 at 350; Pukallus v Cameron (1982) 180 CLR 447 at 452, 456;
Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC 1101 at 1125–6;
[2009] UKHL 38 at [59].
190. See Etablissements Georges et Paul Levy v Adderley Navigation Co
Panama SA (The Olympic Pride) [1980] 2 Lloyd’s Rep 67 at 72 per Mustill
J, approved Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC 1101 at
1126; [2009] UKHL 38 at [61] (‘[i]t is the words and acts of the parties
demonstrating their intention, not the inward thoughts of the parties, which
matter’). See also Frederick E Rose (London) Ltd v William H Pim Junior
& Co Ltd [1953] 2 QB 450 at 461, 462; Joscelyne v Nissen [1970] 2 QB 86
at 98.
191. See NSW Medical Defence Union Ltd v Transport Industries Insurance Co
Ltd (1986) 6 NSWLR 740 at 753; Ryledar Pty Ltd v Euphoric Pty Ltd
(2007) 69 NSWLR 603 at 641; [2007] NSWCA 65 at [179]. Cf Pukallus v
Cameron (1982) 180 CLR 447 at 452 (point left open).
192. See Re Butlin’s Settlement Trusts; Butlin v Butlin [1976] Ch 251 at 259;
Sargeant v Reece [2007] EWHC 2663 (Ch) at [44].
193. [2009] 1 AC 1101 at 1123, 1126, 1136–7; [2009] UKHL 38 at [48], [60]–
[61], [100].
194. [1995] Ch 259 at 277 per Stuart-Smith LJ. Evans and Farquharson LJJ
agreed.
195. [2005] 1 Lloyd’s Rep 547 at 561; [2005] EWHC 19 (Comm) at [58]. See
also Agip SpA v Navigazione Alta Italia SpA (The Nai Genova and The Nai
Superba) [1984] 1 Lloyd’s Rep 353 at 365 (no sharp practice — unilateral
mistake as to construction).
196. See, eg Agip SpA v Navigazione Alta Italia SpA (The Nai Genova and The
Nai Superba) [1984] 1 Lloyd’s Rep 353 at 360 per Slade LJ, with whom
Robert Goff and Oliver LJJ agreed (‘fraud, undue influence or fiduciary
relationship’). Cf David McLauchlan, ‘The “Drastic” Remedy of
Rectification for Unilateral Mistake’ (2008) 124 LQR 608 at 640.
197. Agip SpA v Navigazione Alta Italia SpA (The Nai Genova and The Nai
Superba) [1984] 1 Lloyd’s Rep 353 at 359 per Slade LJ. Robert Goff and
Oliver LJJ agreed.
198. Rhodian River Shipping Co SA v Halla Maritime Corp (The Rhodian River
and Rhodian Sailor) [1984] 1 Lloyd’s Rep 373 at 375 per Bingham J.
199. Re Butlin’s Settlement Trusts; Butlin v Butlin [1976] Ch 251 at 260
(approved Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC 1101 at
1122; [2009] UKHL 38 at [46]). See also Sargeant v Reece [2007] EWHC
2663 (Ch) at [44]; Wills v Sir Roger Gibbs [2007] EWHC 3361 (Ch) at
[15].
200. See Rhodian River Shipping Co SA v Halla Maritime Corp (The Rhodian
River and Rhodian Sailor) [1984] 1 Lloyd’s Rep 373 at 377.
201. See [3-05]–[3-13].
202. See, eg Chinnock v Hocaoglu [2009] 1 WLR 765 at 768; [2008] EWCA Civ
1175 at [6].
203. Oceanbulk Shipping and Trading SA v TMT Asia Ltd [2011] 1 AC 662 at
682; [2010] UKSC 44 at [44] per Lord Clarke. The other members of the
court agreed.
204. Dalkia Utilities Services Plc v Celtech International Ltd [2006] 1 Lloyd’s
Rep 599 at 625; [2006] EWHC 63 (Comm) at [108] per Christopher Clarke
J.
205. Cf Ryledar Pty Ltd v Euphoric Pty Ltd (2007) 69 NSWLR 603 at 629;
[2007] NSWCA 65 at [123].
206. Pink Floyd Music Ltd v EMI Records Ltd [2011] 1 WLR 770n; [2010]
EWCA Civ 1429 at [19] per Lord Neuberger MR. Laws and Carnwath LJJ
agreed. Cf Richard Buxton, ‘“Construction” and Rectification after
Chartbrook’ [2010] CLJ 253 at 261.
207. For rectification without formal order, see, eg Hamed el Chiaty & Co (t/a
Travco Nile Cruise Lines) v Thomas Cook Group Ltd (The Nile Rhapsody)
[1992] 2 Lloyd’s Rep 399 at 409 (affirmed [1994] 1 Lloyd’s Rep 382).
208. See Franklins Pty Ltd v Metcash Trading Ltd (2009) 76 NSWLR 603 at
710; [2009] NSWCA 407 at [444]; Daventry DC v Daventry and District
Housing Ltd [2012] Bus LR 485 at 508, 534; [2011] EWCA Civ 1153 at
[83], [198].
211. [2009] 1 AC 1101; [2009] UKHL 38.
213. See Maralinga Pty Ltd v Major Enterprises Pty Ltd (1973) 128 CLR 336.
214. See Macdonald v Shinko Australia Pty Ltd [1999] 2 Qd R 152 at 155, 156;
Surgicraft Ltd v Paradigm Biodevices Inc [2010] EWHC 1291 (Ch) at [73].
See generally on entire agreement clauses [10-21]–[10-33].
215. [2002] 1 AC 251; [2001] UKHL 8.
216. [2002] 1 AC 251 at 267; [2001] UKHL 8 at [31]. See also National
Australia Bank Ltd v Budget Stationery Supplies Pty Ltd (1997) 217 ALR
365 at 381; Ryledar Pty Ltd v Euphoric Pty Ltd (2007) 69 NSWLR 603 at
642; [2007] NSWCA 65 at [182]; Daventry DC v Daventry and District
Housing Ltd [2012] Bus LR 485 at 524, 534; [2011] EWCA Civ 1153 at
[158], [198]. Cf Pritchard v Briggs [1980] Ch 338 at 387. See generally
Marcus Smith, ‘Rectification of Contracts for Common Mistake, Joscelyne
v Nissen, and Subjective States of Mind’ (2007) 123 LQR 116.
AC 749 at 779.
218. [2009] 1 AC 1101 at 1123, 1126, 1136–7; [2009] UKHL 38 at [48], [60],
[100].
219. See also PT Berlian Laju Tanker TBK v Nuse Shipping Ltd (The Aktor)
(process objective). Cf Lord Justice Staughton, ‘Interpretation of Maritime
Contracts’ (1995) 26 JMLC 259 at 263 (‘rule excluding subjective intention
does not apply’).
220. See Bacchus Marsh Concentrated Milk Co Ltd v Joseph Nathan & Co Ltd
(1919) 26 CLR 410 at 451; Frederick E Rose (London) Ltd v William H
Pim Junior & Co Ltd [1953] 2 QB 450.
221. (1982) 180 CLR 447.
222. See NSW Medical Defence Union Ltd v Transport Industries Insurance Co
Ltd (1986) 6 NSWLR 740 at 748.
223. [1953] 2 QB 450. See Allnutt v Wilding [2007] EWCA Civ 412 at [19]–[20]
(mistake as to fiscal effects). Contrast Price v William-Wynn [2006] EWHC
788 (Ch) at [42] (settlement).
224. [1953] 2 QB 450 at 461 (approved Chartbrook Ltd v Persimmon Homes Ltd
[2009] 1 AC 1101 at 1126; [2009] UKHL 38 at [60]).
225. See Winks v W H Heck & Sons Pty Ltd [1986] 1 Qd R 226; Bush v National
Australia Bank Ltd (1992) 35 NSWLR 390 at 406–7. See also
Commissioner of Stamp Duties (NSW) v Carlenka Pty Ltd (1995) 41
NSWLR 329 at 337 (deed poll).
226. See also [9-53]. Cf [18-20], [18-28], [18-29].
227. See, eg Mallinson v The Scottish Australian Investment Co Ltd (1920) 28
CLR 66 at 75 (‘parol’ evidence of membership of association); Giliberto v
Kenny (1983) 48 ALR 620 at 623 (evidence of context described as
‘extrinsic evidence’). See also [18-23].
228. See, eg Front Carriers Ltd v Atlantic and Orient Shipping Corp (The
Double Happiness) [2007] 2 Lloyd’s Rep 131 at 136, 137; [2007] EWHC
421 (Comm) at [42], [44] (mistake one of name not identity).
229. See Nittan (UK) v Solent Steel Fabrication Ltd [1981] 1 Lloyd’s Rep 633 at
637. See, eg F Goldsmith (Sicklesmere) Ltd v Baxter [1970] Ch 85 at 91
(‘Goldsmith Coaches (Sicklesmere) Ltd’ inaccurate description of ‘F
Goldsmith (Sicklesmere) Ltd’).
230. See, eg Front Carriers Ltd v Atlantic and Orient Shipping Corp (The
Double Happiness) [2007] 2 Lloyd’s Rep 131 at 137; [2007] EWHC 421
(Comm) at [44].
231. Dumford Trading AG v OAO Atlantrybflot [2005] 1 Lloyd’s Rep 289 at
295; [2005] EWCA Civ 24 at [32] per Rix LJ. Brooke and Jonathan Parker
LJJ agreed. See also Almatrans SA v Steamship Mutual Underwriting
Association (Bermuda) Ltd (The Tutova) [2007] 1 Lloyd’s Rep 104 at 107;
[2006] EWHC 2223 (Comm) at [10].
232. See Nittan (UK) v Solent Steel Fabrication Ltd [1981] 1 Lloyd’s Rep 633 at
639.
233. Cf Almatrans SA v Steamship Mutual Underwriting Association (Bermuda)
Ltd (The Tutova) [2007] 1 Lloyd’s Rep 104 at 107; [2006] EWHC 2223
(Comm) at [11].
234. See Dumford Trading AG v OAO Atlantrybflot [2005] 1 Lloyd’s Rep 289 at
296; [2005] EWCA Civ 24 at [36].
235. Dumford Trading AG v OAO Atlantrybflot [2005] 1 Lloyd’s Rep 289 at
295; [2005] EWCA Civ 24 at [32] per Rix LJ. Brooke and Jonathan Parker
LJJ agreed.
236. See, eg Perrylease Ltd v Imecar AG [1988] 1 WLR 463 at 469; [1987] 2 All
ER 373 at 378 per Scott J (‘[e]xtrinsic evidence’). Cf TTMI SARL v Statoil
ASA (The Sibohelle) [2011] 2 Lloyd’s Rep 220 at 226–7; [2011] EWHC
1150 (Comm) at [26]–[31].
237. See the discussion in Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004)
219 CLR 165 at 181–3; [2004] HCA 52 at [46]–[49] (signature may be
evidence of consent).
238. See McCutcheon v David MacBrayne Ltd [1964] 1 WLR 125 at 134 per
Lord Devlin (‘without any recourse to the doctrine of estoppel’).
239. See [10-07].
240. [1995] 2 Lloyd’s Rep 144 at 149–50.
241. [2004] 1 AC 715; [2003] UKHL 12.
242. [2004] 1 AC 715 at 794; [2003] UKHL 12 at [175]. See also Shogun
Finance Ltd v Hudson [2004] 1 AC 919 at 959; [2003] UKHL 62 at [103].
243. [2004] 1 AC 715 at 737; [2003] UKHL 12 at [9].
244. [2004] 1 AC 919; [2003] UKHL 62. See also TTMI SARL v Statoil ASA
(The Sibohelle) [2011] 2 Lloyd’s Rep 220 at 227; [2011] EWHC 1150
(Comm) at [34].
245. See also Stokes v Whicher [1920] 1 Ch 411 at 416; F Goldsmith
(Sicklesmere) Ltd v Baxter [1970] Ch 85 at 91 (but cf at 93); Air Tahiti Nui
Pty Ltd v McKenzie (2009) 264 ALR 709 at 713–14; [2009] NSWCA 429 at
[28].
246. But cf Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd
[1997] AC 749 at 778 per Lord Hoffmann (‘ancient fallacy which assumes
that descriptions and proper names can somehow inherently refer to people
or things’).
247. (1986) 40 NSWLR 631 at 636–7. The other members of the New South
Wales Court of Appeal agreed.
248. (2004) 218 CLR 451; [2004] HCA 35.
249. [2004] 1 AC 919; [2003] UKHL 62. See also [9-41], [9-51].
250. [2004] 1 AC 919 at 943–4; [2003] UKHL 62 at [49]. Lord Walker agreed.
251. [2004] 1 AC 919 at 973; [2003] UKHL 62 at [161]. But see Lewison,
§10.07.
252. For the contrary arguments see Shogun Finance Ltd v Hudson [2004] 1 AC
919 at 936–7, 937–8, 953–4, 960–1; [2003] UKHL 62 at [24], [30], [81]–
[83], [108].
AC 715 at 794; [2003] UKHL 12 at [176]. See further [9-54]–[9-56].
254. See Shogun Finance Ltd v Hudson [2004] 1 AC 919 at 963–4; [2003]
UKHL 62 at [121]. See also [9-49].
255. See GR Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd(1986)
40 NSWLR 631 at 636.
256. [2004] 1 AC 919; [2003] UKHL 62.
258. See, eg Gordon-Cumming v Houldsworth [1910] AC 537 at 548. See also
[18-20], [18-21]. But see Akot Pty Ltd v Rathmines Pty Ltd [1984] 1 Qd R
302 at 305 per McPherson J (courts have been ‘less liberal’ in admitting
evidence to identify a party than in identifying the subject matter). On
identification of the subject matter see Chapter 18.
259. See, eg H O Brandt & Co v H N Morris & Co Ltd [1917] 2 KB 784 at 793,
794, 796–7; Transcontinental Underwriting Agency SRL v Grand Union
Insurance Co Ltd [1987] 2 Lloyd’s Rep 409. Cf Wake v Harrop (1861) 30
LJ Ex 273 at 278, 279; 6 H & N 768 at 774, 775; 158 ER 317 at 319, 320
(affirmed (1862) 1 H & C 202; 158 ER 859).
260. Cf Punjab National Bank v de Boinville [1992] 1 WLR 1138 at 1146, 1155
(‘on account of ’).
262. See H O Brandt & Co v H N Morris & Co Ltd [1917] 2 KB 784 at 794,
797;J S Robertson (Aust) Pty Ltd v Martin (1956) 94 CLR 30 at 56.
263. (1883) 11 QBD 651. See also Elpis Maritime Co Ltd v Marti Chartering Co
Inc (The Maria D) [1992] 1 AC 21 at 31.
264. [2004] 1 AC 919 at 943; [2003] UKHL 62 at [49]. Lord Walker agreed. See
also Seatrade Groningen BV v Geest Industries Ltd (The Frost Express)
[1996] 2 Lloyd’s Rep 375 at 381 (description of person ‘as agents’ in body
of charter does not necessarily preclude their liability as principals).
265. (1983) 48 ALR 620.
266. (1983) 48 ALR 620 at 623 per Gibbs CJ. The other members of the High
Court agreed.
267. (1983) 48 ALR 620 at 623 per Gibbs CJ.
268. See Seatrade Groningen BV v Geest Industries Ltd (The Frost Express)
[1996] 2 Lloyd’s Rep 375 at 379–80. See further [18-23].
269. Cf Astilleros Espanoles SA v Bank of America National Trust and Savings
Association [1995] 2 Lloyd’s Rep 352 at 357–8 (sense in which ‘guarantor’
was ‘primary obligor’).
270. (1993) 44 FCR 303 at 306. Cf Gastronome (UK) Ltd v Anglo Dutch Meats
(UK) Ltd [2006] 2 Lloyd’s Rep 587 at 590; [2006] EWCA Civ 1233 at [20]
(use of the word ‘Gastronome’ was not intended to identify particular entity,
and in the circumstances there was only one entity to which the guarantee
was addressed and no mistake had occurred).
271. See Manzo v 555/255 Pitt Street Sydney Pty Ltd (1990) 21 NSWLR 1 at 7
(evidence of pre-contractual conversation to show who is guarantor and
who is a principal debtor).
272. See also Boral Resources (Qld) Pty Ltd v Donnelly [1988] 1 Qd R 506
(consideration clause treated as extrinsic evidence to resolve ambiguity in
description of party). Cf AGC (Advances) Ltd v West (1984) 5 NSWLR 590
at 603 per Hodgson J, affirmed without reference to the point sub nom West
v AGC (Advances) Ltd (1986) 5 NSWLR 610 (‘extrinsic evidence’ to
establish who as between debtors are principal debtors and who are sureties
only).
10
Contracts Integrated in Documents
General [10-02]
Classification of Contracts and Adoption of Documents [10-04]
General [10-04]
Classification of Contracts [10-06]
Adoption of Documents [10-11]
The Integration Concept [10-14]
General Principles [10-14]
Intention and Construction [10-18]
Express Integration Provisions [10-21]
General [10-21]
Relevant Provisions [10-23]
Scope of Express Provisions [10-26]
Validity of Express Provisions [10-31]
Merger, Discharge and Integration [10-34]
Exceptions to the Parol Evidence Rule [10-39]
General [10-39]
Consideration [10-41]
Partly Written Contracts [10-44]
Implied Terms [10-52]
[10-01] Objects. One aspect of the exclusionary rule proscribes the use of
extrinsic evidence to prove terms of the contract other than those stated in a
document which integrates all or part of a contract. That aspect of the
exclusionary rule is in this work termed the ‘parol evidence rule’. The principal
purpose of this chapter is to explain the concept of integration and how it
operates. This chapter also considers exceptions to the exclusionary rule in that
context.
As a preliminary to explaining the integration concept, the various ways by
which documents are adopted as written contracts, or as evidence of the terms of
oral contracts, are considered. Integration often occurs expressly under an entire
agreement clause or analogous provision. The operation of such provisions is an
important issue.
GENERAL
[10-02] Introduction. The scope of the exclusionary rule is determined by the
purpose for which extrinsic evidence is sought to be used.1 For practical
purposes, extrinsic evidence comprises: (1) direct evidence of intention;
(2) evidence of the parties’ prior negotiations; and (3) evidence of the parties’
subsequent conduct.
A distinct aspect of application of the exclusionary rule occurs when a
document integrates all or part of a contract. In this work the description ‘parol
evidence rule’ is reserved for that aspect. The scope of the rule is undoubtedly
much narrower today than in the past.2 However, unless an exception applies, the
rule proscribes the use of extrinsic evidence to prove that terms other than those
set out in the document were agreed prior to its adoption.3
[10-03] Function of the exclusion. The parol evidence rule serves an important
function, namely, preservation of the integrity of a document adopted by the
parties as a complete statement of their bargain.4
The rule reflects the legitimate concern for ‘document’ and ‘bargain’ to be
synonymous concepts. The frequent use of ‘entire agreement’ clauses and similar
provisions is evidence of that concern. But it is not the purpose of the parol
evidence rule to permit one party to renege on promises which were intended to
form part of the bargain. Whether those promises are based on pre-contractual or
contemporaneous statements, in correspondence or in side letters is of no
moment. In order for evidence of such promises to be excluded from
consideration, it must be proved that the document was intended to supersede
them.
The ability to rely on prior negotiations to prove agreement to an oral term is
less important than it was prior to the enactment of the Misrepresentation Act
1967 (UK), under which damages may be recovered for innocent
misrepresentation. However, the distinctions between a representation the truth
of which is guaranteed and a mere representation, and between a promise and a
representation, remain significant. Since it prevents proof of a term, but not
proof of misrepresentation, the parol evidence rule also remains significant.5
CLASSIFICATION OF CONTRACTS AND ADOPTION OF
DOCUMENTS
General
[10-04] Introduction. To the extent that a contract is in writing, or evidenced by
writing, the parol evidence rule may operate to prevent proof of other terms. The
rule applies if a document is intended to be a complete statement of the bargain,
or that part of the bargain dealt with by the document, but not otherwise.6
However, there is something of a ‘chicken and egg’ problem with the parol
evidence rule’s treatment of evidence of terms other than those set out in a
document as extrinsic evidence. What comes first, the rule or the evidence?7
The answer given by the modern cases8 is that the evidence comes first.
Therefore, unless it is proved that a document has been adopted for the purpose
of integrating the bargain, other terms may be established. It follows that the key
to the application of the parol evidence rule is the ‘integration’ concept. The
necessary background to that concept includes the classification of contracts and
the processes by which documents are adopted.
[10-05] Documents and bargains. In any use of the word ‘contract’ there is an
inherent ambiguity in cases where a document exists. Does the word refer to the
bargain or to the document which sets out its terms? Lawyers drafting
documents intended to be executed as written contracts not unnaturally tend to
see the one as synonymous with the other.9 But the general commercial
perspective is the same if the parties adopt a document as evidence of the
bargain.
In both contexts, entire agreement (and similar clauses) are common
provisions which seek to achieve equivalence between ‘bargain’ and ‘document’.
Their importance is not to be denied by their frequent status as ‘boilerplate’
provisions.10 But in all other cases, whether a document states the bargain is a
matter of proof.
Classification of Contracts
[10-06] Simple contracts and deeds. Contracts are classified as being either
simple contracts or deeds. Simple contracts are sometimes referred to, at least in
the old cases, as ‘agreements by parol’. Contracts expressed in deed form are
‘special contracts’, ‘specialties’ or ‘contracts under seal’.11 This is a classification
from the perspective of form. But for the law of contract there is also a
substantive contrast, based on the fact that a deed is not subject to the
consideration requirement.
When debate as to the nature of the consideration requirement was resolved at
the end of the 18th century, it was held that the law does not recognise a separate
category of ‘written contracts’.12 However, the object was to reject the view that
writing could be a substitute for consideration. Therefore, from the perspective
of that requirement, all contracts which are not deeds are ‘simple’ or ‘parol’
contracts, whether or not in writing or evidenced by writing.
[10-07] Documents as written contracts. A contract which is in writing differs
from an oral contract which is evidenced by writing. After tracing the history of
the concept of a written contract, and the movement from specialties to simple
contracts, Wigmore concluded13 that a ‘legal transaction when reduced in writing
[is] now to be conceived as constituted, not merely indisputably proved, by the
writing’. The contrary view is that contracts not under seal are no more than
records. Bramwell B said in Wake v Harrop14 that ‘a written contract, not under
seal, is not the contract itself, but only evidence — the record of the contract’.
This view was adopted by Isaacs J in Gordon v Macgregor.15 However, it is
outmoded16 and, from the perspective of the parol evidence rule, unhelpful. The
distinction between a contract in writing and an oral contract evidenced by
writing is both meaningful and important.
Under statute, the contrast may be crucial. Some contracts are required by
statute to be in writing,17 so that written evidence is not sufficient. But for the
purposes of ss 4 and 17 of the Statute of Frauds 1677, written evidence was also
sufficient. Accordingly, those provisions required certain contracts (strictly,
promises) to be in writing or evidenced by writing.18 Execution of a written
contract was therefore contrasted with execution of ‘memorandum or note’ of the
contract.
[10-08] When a contract is ‘in writing’. Subject to statute, a contract may be
‘in writing’ in at least five situations.19 First, and most commonly in the case of a
negotiated agreement, a contract is in writing if a document expressing the terms
of the bargain is executed by both parties as a written contract. It is irrelevant
whether the document was read (or understood) prior to its execution.20 Except
where counterparts are exchanged,21 execution of the document is generally
synonymous with entry into the contract. The document may be executed as a
simple contract or as a deed.
Second, the parties may exchange counterparts of a document intended to
constitute the contract.22 Whether the document is the counterpart signed by a
party, or all counterparts taken together, depends on the parties’ intention.
Third, an unsigned document expressing the terms of a bargain is a contract in
writing if it is acknowledged as such by both parties.23
Fourth, if an offer is in writing, its acceptance gives rise to a written contract.
It is irrelevant whether the acceptance is written, verbal or made by . conduct.24
Fifth, the contract is in writing if a bargain is agreed verbally but a document
is subsequently adopted (by signature or conduct) with the intention of
discharging and replacing the earlier bargain.25
It follows that signature is not an essential requirement of a written contract.
It is sufficient that the parties intended the document to take effect as such. That
intention is determined objectively as a matter of fact, but documents such as
receipts and invoices26 are presumed to have no contractual force even if signed.
[10-09] Oral contracts. A contract which is not in writing may be purely verbal,
oral but evidenced by writing, or based on conduct. Equally, the contract may be
partly in writing or evidenced by writing. One feature of the distinction between
contracts in writing and contracts evidenced by writing27 is therefore that the
terms of a purely oral contract may be set out in a document. It follows that
although a contract formed by word of mouth is easily recognised as an oral
contract in the sense of being purely ‘verbal’, a contract may be oral even though
the terms of the contract are set out in a document.28
Since the concept of an oral contract includes a contract evidenced by writing,
a contract is not ‘in writing’ merely because a document setting out the terms of
the contract has been adopted. The purpose of adoption determines that issue.
The fact that the document has been signed does not alter the position.
[10-10] Partly written contracts. The description ‘partly written, partly oral’ is
applied to a variety of contracts. In all cases, at least one term is regarded as
being ‘in writing’, and at least one term was agreed orally. Of course, as a matter
of fact any oral term may be evidenced by a document. But references to ‘partly
written contracts’ for the purposes of the parol evidence rule do not distinguish
between the two purposes which a document may serve. The usual context is
where a term which was agreed upon during negotiations is not reproduced in a
document which is adopted to state, and not merely evidence, contractual terms.
That document may or may not have been signed by the parties. Unless adopted
for the purpose of integrating the bargain, the previously agreed term remains
binding.29
In some contexts it is more appropriate to speak of a partly written and partly
oral transaction. There may be two contracts, the oral term being expressed in a
collateral contract in accordance with the principle of Heilbut Symons & Co v
Buckleton.30 That contract may be evidenced by writing. In many cases, it has
not been regarded as crucial to determine whether there is one contract, or a
written contract and a collateral contract.31 However, a finding that two contracts
were agreed has been used as a device to avoid the operation of the parol
evidence rule.32
Adoption of Documents
[10-11] Introduction. The processes by which documents become contracts, or
evidence of contracts, are to some extent technical. However, in all cases the
issues are whether the document has been adopted by the parties and their
purpose in doing so.
So far as purpose is concerned, there are also two issues. The first is whether
the document has been adopted as a contract or as evidence of a contract. The
second is whether the purpose is to integrate the bargain, that is, to be an
exhaustive statement of the terms of the contract, so far as dealt with by the
document. The present concern is with the first issue. As an issue of intention, it
is generally resolved on the basis of what each party has led the other reasonably
to believe.
[10-12] Proof of adoption. Proof that a document has been adopted as a written
contract is usually based on execution of a document. In all other cases, adoption
must be proved independently of the document itself. However, proof of actual
knowledge of the terms of the document is not generally required.
These basic points were explained by Mellish LJ in Parker v South Eastern
Railway Co:33
In an ordinary case, where an action is brought on a written agreement
which is signed by the defendant, the agreement is proved by proving his
signature, and, in the absence of fraud, it is wholly immaterial that he has
not read the agreement and does not know its contents. The parties may,
however, reduce their agreement into writing, so that the writing
constitutes the sole evidence of the agreement, without signing it; but in
that case there must be evidence independently of the agreement itself to
prove that the defendant has assented to it. In that case, also, if it is
proved that the defendant has assented to the writing constituting the
agreement between the parties, it is, in the absence of fraud, immaterial
that the defendant had not read the agreement and did not know its
contents.
Where a document is alleged to have been adopted as a written contract, it
must be established that a reasonable person in the position of the person to
whom the document was presented would understand that the document was
intended to state a term of the contract. For example, in a ‘ticket case’, the
question is ‘whether the party proffering the ticket has so conducted himself as
to lead the other party reasonably to believe that the written term on which he
seeks to rely formed part of the terms on which alone he was willing to
contract’.34 The unsigned ticket states the terms of a written contract.35 As
Mellish LJ went on to explain in Parker v South Eastern Railway Co, in such
cases the document is adopted as a written contract whether or not the terms
were read.36 More generally, where an offer is in writing, a verbal acceptance37 or
other conduct amounting to acceptance38 is an adoption of the document as a
contract in writing.
[10-13] Adoption as evidence. Unless a document has been adopted as a written
contract, any document which has been adopted as a written statement of
contractual terms merely evidences those terms. There are two main categories
of case. First, the parties may choose to prepare a written memorandum or
record of the terms of a contract orally agreed. The bargain is the oral contract.
But the adopted document evidences the terms previously agreed.39 It is
generally irrelevant whether the memorandum is read or signed. However, the
purpose of a signature may be to show adoption of the document as a written
contract discharging the (prior) oral contract.40 In such cases, any description of
the document as a ‘memorandum’ or ‘record’ is something of a misnomer.41
The second category is more general. It comprises all other situations in
which a document is adopted as evidence of the terms of a contract. The general
rule is that once a contract is agreed verbally, the subsequent issue of a document
purporting to state contractual terms has no impact, even if the document is
signed. Unless the document is adopted as the bargain, or as evidence of the
bargain, the contract remains purely verbal.42 The general rule may be qualified
by a course of dealing. A document such as an invoice which is issued after
agreement to the contract may be adopted as a statement of the terms of the
contract by reason of a course of dealing between the parties to the contract. The
contract is oral and, even if the invoice is signed, the fact that terms are set out in
a document does not mean that the contract is in writing.43
The leading case is Henry Kendall & Sons v William Lillico & Sons Ltd.44 A
long and consistent course of dealing was effective to incorporate the terms of
certain ‘sold notes’ into a sale of goods contract. When the case was before the
Court of Appeal,45 Diplock LJ explained46 the result in terms that: … each party
has led the other reasonably to believe that he intended that rights and liabilities
towards one another which would otherwise arise by implication of law from the
nature of the contract … should be modified in the manner specified in the
written document.
In such cases, because the contract is oral it is not relevant to ask whether the
document is ‘contractual’ in nature.47 The document is not adopted as a contract
in writing or to evidence the express terms of the contract.48 Instead, the purpose
of adoption is to state (in documentary form) terms which the parties intend to be
incorporated into the oral contract.
THE INTEGRATION CONCEPT
General Principles
[10-14] Introduction. The exclusionary rule as a whole has frequently been
justified on the basis that the prior negotiations are ‘superseded by, and merged
in’49 a document. In relation to the parol evidence rule, the test is whether a
document adopted by the parties is in fact a complete statement of the bargain or
part of the bargain.50 Although rarely described as such,51 the ‘integration’
concept provides the best theoretical rationalisation of the process by which a
document is adopted as a complete statement of the bargain.
Proof of integration is essential to the operation of the parol evidence rule.
Wigmore described52 ‘integration’ as the ‘process of embodying the terms of a
jural act in a single memorial’. The bargain may be in writing or evidenced by
writing. Within their sphere of application, under English law expressions such
as ‘reduced to writing’ and ‘superseded by, and merged in’ a document are to the
same effect as ‘integrated in a document’.53
Once the parol evidence is found to apply, evidence of other terms cannot be
admitted in the absence of fraud, or some other basis for impugning the
document as a complete expression or record,54 including under an exception to
the parol evidence rule.55
[10-15] Matter of intention. It is proof of an intention to integrate the bargain
(or part of the bargain) in a document which makes the parol evidence rule
applicable. The intention may relate to the contract as a whole (total integration)
or to some designated part of the bargain (partial integration).56 In practice,
integration is usually established by express agreement, that is, under an ‘entire
agreement’ clause or similar provision.57 In the absence of such an agreement,
whether additional terms were agreed is a question of fact.58 The prior
negotiations may therefore be relied on.
To the extent that integration is proved to have occurred, ‘all other utterances
of the parties [become] legally immaterial for the purpose of determining what
are the terms’59 of the contract. The document may be a contract in writing or a
document which evidences the terms of the bargain. And in deciding what terms
have been integrated in the document, regard must be had to the document as a
whole.60
[10-16] Cases of total integration.
Article 10.1 — Total integration.
A contract is integrated in a document if each party has led the other
reasonably to believe that the document sets out all the terms of the
contract.
In terms of general principle, as stated by Diplock LJ in Hardwick Game Farm v
Suffolk Agricultural and Poultry Producers Association Ltd,61 the parol evidence
rule applies on the basis that each party has led the other ‘to believe that he
intended the written document to set out all the rights and liabilities of each party
towards the other’. As noted above, the usual case is where there is an express
provision, for example, that the document constitutes the ‘entire agreement’
between the parties.62 It is irrelevant whether the document was signed. The
integration concept therefore applies to contracts in writing and to documents
which evidence the terms of the contract.63
A common intention to integrate a bargain in a document may be present
where:64
it is proved that the parties intended the contract to be ‘reduced to writing’65
in the document; the document is established as the ‘agreed record of
the contract’;66
the document is proved ‘to constitute an exclusive memorial’;67
it is proved that the parties intended the ‘whole terms of the agreement’68 to
be set out in the document; it is established that the parties have
‘conclusively embodied their intentions in a formal document’;69 or it is
proved that the parties intended the document to represent the ‘complete
and final’70 expression of the contract.
Unless the matter is concluded by express agreement, whether a contract has
been integrated in a document is a question of fact.71 For example, in Carmichael
v National Power Plc72 the issue was whether certain letters were intended to be
the ‘exclusive record’ or ‘sole record’ of the bargain. The House of Lords
treated73 the issue as one of fact. Because there was no such intention, the
contract was found partly in the letters and partly in oral exchanges. It was also
recognised that the ‘subsequent’ conduct of the parties could be taken into
account.74
[10-17] Cases of partial integration.
Article 10.2 — Partial integration.
A contract is partially integrated in a document to the extent that each
party has led the other reasonably to believe that the document sets out
all the terms of a definite part of the bargain.
In terms of general principle, partial integration occurs where each party has led
the other reasonably to believe that the document sets out all the terms relating to
a definite part of the contract. But in practice, as §210(2) of the Contracts
Restatement 2d (1979) states, ‘partial integration’ is simply an integration which
is less than total.
The mere existence of a document which sets out one or more terms does not
amount to partial integration, since there may be other terms relating to the
subject matter of the document.75 The required intention is for a definite part of
the bargain to be fully expressed or recorded in a document.76 As Isaacs J said in
Hoyt’s Pty Ltd v Spencer,77 to the extent that the parties have ‘deliberately agreed
to record any part of their contract that record stands unimpeachable by oral
testimony’.78 Accordingly, descriptions such as those quoted above in relation to
total integration may be appropriate conclusions about part of the bargain.
Intention and Construction
[10-18] Introduction. In deciding whether the parol evidence rule applies, so as
to make evidence of other terms extrinsic evidence, the ‘crucial issue’79 is
whether the parties intended the document to be the final embodiment,
expression or record of all or part of the bargain.
If no intention has been expressed, the parties’ intention must be inferred. It
may be necessary to take into account:80
legal rules, such as the doctrine of merger; and the substantive effect of
the document.
However, until integration is proved, the parol evidence rule has no
application.
[10-19] Sequence of events. The sequence of events under the modern law is
different from that formerly applied under traditional versions81 of the parol
evidence rule. One of the first examples in the Commonwealth cases is the
dissenting judgment of Herron J in L G Thorne & Co Pty Ltd v Thomas
Borthwick & Sons (A/Asia) Ltd.82 Herron J said that the parol evidence rule does
not apply until it is established that the document at issue was intended to deal
exhaustively with the subject matter with which the term sought to be
established by verbal or other evidence deals. The parol evidence rule is then the
legal expression of the impact of the parties’ agreement. This approach accords
with the Contracts Restatement 2d (1979). Under §209(2), the question whether
there is an integrated agreement must ‘be determined by the court as a question
preliminary to determination of a question of interpretation or to application of
the parol evidence rule’.
A key authority is J Evans & Son (Portsmouth) Ltd v Andrea Merzario Ltd.83
The defendants were forwarding agents employed by the plaintiffs (importers of
machinery) to arrange transport for certain machinery. There was a history of
dealings between the parties under which, prior to the introduction of container
transport, machinery was shipped under standard conditions in crates stored
below deck. When container transport became popular, the plaintiffs were
concerned that containers carrying their machinery might be carried on deck.
Their representative told the defendants: ‘I am afraid that our machines may get
rusty if they are carried on deck.’ An instruction was therefore given to the
defendants that the containers ‘must not be carried on deck’. The defendants
assured the plaintiffs: ‘If we do use containers, they will not be carried on deck.’
Unfortunately, a valuable moulding machine for which the defendants had
arranged carriage was shipped on deck and lost on its way to Tilbury when two
containers fell overboard. The defendants denied that they had breached the
contract. The Court of Appeal upheld the plaintiffs’ claim.84 Roskill LJ said85 the
court was ‘entitled to look at and should look at all the evidence from start to
finish in order to see what the bargain was that was struck between the parties’.
Although pressed with a collateral contract argument, the court said that recourse
to that device was unnecessary.86 The position was that the parties’ bargain was a
single contract which included the oral promise.
[10-20] Construction. The parol evidence rule does not control the evidence
which may be used to construe a document. That is the function of the other
aspect of the exclusionary rule.87 It follows that extrinsic evidence cannot be
used as a direct aid to construction of a document alleged to integrate the
bargain.88 For example, extrinsic evidence cannot be used to construe any entire
agreement clause or similar provision.
If there is no express agreement, it is necessary to establish that a reasonable
person would infer an intention to integrate the bargain in the document. But no
such inference can be drawn if it is proved as a fact that an additional term was
orally agreed. It follows that evidence that a term was orally agreed must always
be considered, not as a basis for construing the document, but in order to
determine the bargain. That is the impact of cases such as J Evans & Son
(Portsmouth) Ltd v Andrea Merzario Ltd.89 For example, in Metro Meat Ltd v
Fares Rural Co Pty Ltd90 an oral agreement was not reduced to writing because
it was not established that the telexes at issue comprised the entire bargain.
EXPRESS INTEGRATION PROVISIONS
General
Article 10.3 — Integration by entire agreement clause.
An entire agreement clause or similar provision to the effect that a
document states all the terms of the bargain integrates the bargain in the
document. The scope of application of the clause is a question of
construction.
Entire agreement clauses and analogous provisions are the chief examples of
express integration clauses. The purpose is to make the document to which the
clause relates an exhaustive statement of the bargain.91 Such clauses vary
considerably in content. Their scope of application is a question of construction.
In Inntrepreneur Pub Co (GL) v East Crown Ltd92 Lightman J expressed the
position by saying that the purpose of such clauses is to stop a party ‘finding in
the course of negotiations some (chance) remark or statement (often long
forgotten or difficult to recall or explain) on which to found a claim’.
Notwithstanding the element of exaggeration, the objective of the clause is to
provide certainty as to the terms of the bargain by way of an express agreement
as to the terms which the contract comprises. From that perspective, little is to be
gained from making fine distinctions based solely on the particular words chosen
by the parties to state their agreement. Nevertheless, each such clause raises its
own construction issues.93
[10-22] Legal effect. Because the scope of an entire agreement clause — or
analogous provision — varies according to its objective, various conclusions are
possible as to the legal effect of the clause. The conclusion may be crucial if the
provision is alleged to be an exclusion clause regulated by statute.
Surprisingly diverse views have been expressed as to the legal effect of entire
agreement clauses. However, as an agreement as to what terms the bargain
comprises, the better view is that the clause simply integrates the express terms
of the bargain in the document.94 This view seems also to accord with the
approach taken under United States law. In other words, the clause has the same
effect as the parol evidence rule: the clause does not merely ‘preclude’ a party
from proving other terms. However, in several cases, entire agreement clauses
have been given effect to on the basis of estoppel. Frequent reference is made to
a concept of ‘contractual estoppel’.95 Other cases explain legal effect in terms of
estoppel by convention,96 or ‘evidential estoppel’.97
Reliance on estoppel may be technically correct where the document merely
evidences a contract, or the clause is expressed as a unilateral acknowledgment.
However, such distinctions seem unhelpful. Since the agreement as to what the
contract comprises is supported by consideration, recourse to estoppel seems
incorrect as a matter of principle. In L’Estrange v F Graucob Ltd,98 the King’s
Bench Division did not rationalise its decision that the entire agreement clause in
that case was binding on the basis of preclusion. It applied a rule of law. A
conventionally drafted entire agreement clause is no different from any other
provision which states the parties’ agreement on a particular matter. For
example, if a contract states ‘time is of the essence’, the legal effect is to define
the time stipulations in the contract as essential terms. That has never been
rationalised on the basis of estoppel. It is not easy to see why an entire
agreement clause should be any different. But since such clauses sometimes
have various components, the relevant legal effect may depend on what aspect of
the clause is at issue.99
Relevant Provisions
[10-23] Entire agreement clauses. A provision to the effect that the document
sets out the ‘entire agreement’100 or the ‘entire understanding’ of the parties is the
most common form of clause. The clause is an agreement that the document in
question integrates the bargain.
In Hope v RCA Photophone of Australia Pty Ltd,101 a contract for the hire of
‘electrical sound-reproduction’ equipment provided: [T]his agreement and lease
as herein set forth contains the entire understanding of the respective parties with
reference to the subject matter hereof and there is no other understanding
agreement warranty or representation express or implied in any way binding
extending defining or otherwise relating to the equipment or the provisions
hereof on any of the matters to which these presents relate.
The clause was held to be effective to integrate the bargain in the document.
Accordingly, although the defendant alleged the contract to relate to ‘new’
equipment, and might otherwise have been permitted to amend his plea, so as ‘to
allege and prove the existence of a supplementary term that the equipment was
to be new equipment’,102 given the express provision, that was not permissible.
More recently, in Inntrepreneur Pub Co (GL) v East Crown Ltd103 an entire
agreement clause deprived pre-contractual statements of the contractual force
that they might otherwise have had.
[10-24] All terms clauses. A provision stating that the document expresses ‘all
the terms’ of the contract will in most cases have the same effect as an entire
agreement clause. For example, in L’Estrange v F Graucob Ltd104 a written
contract for the supply of an automatic cigarette vending machine stated: This
agreement contains all the terms and conditions under which I agree to purchase
the machine specified above and any express or implied condition, statement, or
warranty, statutory or otherwise not stated herein is hereby excluded.
The clause was effective to prevent proof by the plaintiff of an implied term
that the machine would be fit for the purpose for which it was purchased. In that
respect, the clause also operated as an exclusion clause. The fact that Ms
L’Estrange had not read the clause did not matter: she was bound because she
had executed the written contract.105
[10-25] Merger and discharge clauses. Another form of express integration
provision is a ‘merger clause’. Such terms are to the effect that all prior
agreements, promises, and so on, are ‘merged in’ the document.
In the same way, a clause will be effective to integrate the bargain in a
document if it states that all prior agreements, promises, and so on, are
‘superseded’, ‘cancelled’ or ‘discharged’ by adoption of the document.106
Scope of Express Provisions
[10-26] Introduction. From the perspective of integration of the bargain in a
document, in most cases an entire agreement clause (or analogous provision)
achieves a total integration. It is self-evident that the document integrates the
express terms of the bargain with respect to the subject matter with which the
document deals. But the clause may have other purposes.
What the clause achieves is always a matter of intention to be determined by
construction. The scope of such provisions is considered below in relation to:
collateral contracts; implied terms; representations; and estoppel.
[10-27] Collateral contracts. One form of collateral contract is where a
(collateral) warranty is given in consideration of entry into the main contract. In
such cases there are two contracts. Proof of a collateral contract has always been
regarded as an exception to the parol evidence rule. However, when integration
is achieved by express agreement, the issue is one of construction.107 If the
clause refers expressly to collateral contracts, it was recognised in Webster v
Higgin108 that effect may be given to the express agreement. If the clause does
not refer expressly to collateral contracts, the question is what intention should
be inferred.
In the older cases, the courts were influenced by the form of drafting, and
tended to characterise entire agreement clauses drafted in the negative as in the
nature of exclusion clauses. For example, in Webster v Higgin a collateral
contract to guarantee the condition of a vehicle the subject of a hire-purchase
agreement was not affected by an express clause of the main contract which
stated that ‘no warranty … as to the state or quality of the vehicle is given’. In
general, however, the recent decisions have applied entire agreement clauses on
the basis that the ‘entire agreement’ wording is applicable to collateral contracts.
In other words, because an entire agreement clause is assumed to integrate the
transaction as a whole, the bargain does not include the alleged collateral
contract. For example, in Deepak Fertilisers and Petrochemicals Corp v ICI
Chemicals & Polymers Ltd109 an alleged collateral contract based on a ‘contract
proposal’ could not be proved because it was inconsistent with an entire
agreement clause referring to ‘agreements, understandings, promises … oral or
written’. Similarly, in Inntrepreneur Pub Co (GL) v East Crown Ltd110 a poorly
drafted entire agreement provision was held to be sufficient to render a
‘collateral warranty’ devoid of legal effect.
The recent cases do not appear to distinguish between a collateral contract the
consideration for which is entry into the main contract, and a ‘collateral contract’
in the sense of an oral term (not recorded in the document) of a single contract.111
However, that distinction remains relevant.112 Therefore, whatever an entire
agreement states, it must always be a question of fact whether there is more than
one binding contract.113 Where the alleged collateral contract was entered into in
consideration of entry into the main contract, it is not immediately obvious that
the collateral contract is within the scope of the clause. There is no magic in
words such as ‘entire agreement’. If a collateral contract was in fact agreed, it
would be uncommercial to infer the contrary from the mere fact that the entire
agreement is capable of applying to such a contract.114
[10-28] Implied terms. Entire agreement clauses and analogous provisions
referring to implied terms have a long history. For example, in Eccles v Mills,115
a provision to the effect that there were no implied terms was held to apply to
terms implied by construction. But, as always, the scope of the clause is a
question of construction. Whether or not the provision refers to implied terms is
a material consideration. An entire agreement clause expressed in general terms,
and referenced to ‘prior negotiations’, cannot of itself prevent the implication of
a term into a contract. But it would also be difficult to say that the courts have
been consistent in their approach.
In cases where the term is implied in fact as an inference from the express
terms, Hart v MacDonald116 illustrates that a statement that there is no
‘agreement or understanding’ between the parties not ‘embodied’ in a contractual
document may not prevent the implication of a term. Nor is it easy to see why
the parties would envisage the application of a general clause to prevent the
implication. Since the implied term is necessary to make the contract work, it
would seem counter-intuitive to suggest that the parties intend the entire
agreement clause to apply. Accordingly, some cases support a more general
approach. For example, in AXA Sun Life Services Plc v Campbell Martin Ltd117
the entire agreement clause referred to ‘prior … implications’. Stanley Burnton
LJ said118 that any terms implied to give business efficacy to the contract were
‘intrinsic provisions’ which fell within what was agreed to be the ‘entire
agreement’ of the parties. Similarly, in Etna v Arif119 a provision stating that the
document was the ‘sole repository of the agreement’, and that there were ‘no
terms … other than those included in this contract [sic]’ was held120 by the
Victorian Court of Appeal not to stand in the way of the ‘implication of a term
which is otherwise to be implied’.
An entire agreement clause may function not only to integrate the bargain but
also to exclude expressly terms which would otherwise be implied by law.
L’Estrange v F Graucob Ltd121 is a classic authority illustrating enforcement of
such an agreement. In that case the ‘all terms’ clause was an agreement that
terms which might otherwise have been implied by the Sale of Goods Act 1893
(UK) were not to be implied.
[10-29] Representations. It is not a necessary function of an entire agreement
clause to deal with pre-contractual representations. Nevertheless, many such
provisions make express reference to representations.122 It cannot be inferred
from that fact alone that the clause applies to misrepresentation.123
Although not directly relevant to the present discussion, contracts sometimes
include stand-alone ‘no reliance’ provisions.124 As with entire agreement clauses,
the drafting varies, but they are generally agreements or acknowledgments that
no reliance has been placed on any representation made during negotiations.
They may also exclude liability.125 The scope of such a provision is a question of
construction. It is relevant to consider the class of persons to whom the clause
was addressed.126 Legal effect is also a question of construction. If the clause is
expressed as a unilateral acknowledgment, the clause may create an estoppel.127
But estoppel has also been invoked where the parties expressly agree that one
party has not made any representation to the other.128
[10-30] Proof of estoppel. Whether an entire agreement provision or analogous
clause prevents proof of an estoppel which would otherwise arise in relation to
the terms of the contract is a question of construction. There is no necessary
connection between integration of the bargain and estoppel. Moreover, the issue
is of limited relevance to the present discussion because proof of estoppel stands
outside the parol evidence rule.129 However, two points may be noted.
First, treating estoppel as the rationale for the enforcement of an entire
agreement clause creates analytical difficulties. For example, in Johnson
Matthey Ltd v A C Rochester Overseas Corp130 an entire agreement clause (cl
18.9) was expressed in terms of an ‘understanding’ that the document cancelled
and superseded ‘all previous agreements, negotiations, comments and writings’.
It was held by McLelland J that the clause created an estoppel by convention.
Clause 13.3 stated a right of termination following a competitiveness
comparison with ‘other responsible suppliers’. An estoppel by convention was
alleged, to the effect that the relevant comparison was with local suppliers.
McLelland J said that it was not open to the supplier to rely on the convention.131
Accordingly, one estoppel by convention precluded proof of a different estoppel
by convention.132
Second, in so far as an entire agreement clause may prevent proof of an
antecedent estoppel, it must be limited to common law varieties.133
Validity of Express Provisions
[10-31] Introduction. Whatever the proper rationalisation for the binding effect
of entire agreement (and analogous) clauses, it is doubtful whether such clauses
are conclusive, even at common law. The Law Commission for England and
Wales said134 that without legislative provision an express clause ‘cannot … have
conclusive effect’.
Nevertheless, in cases where a party seeks to go behind a clause which is
applicable as a matter of construction, there must be some legal justification for
doing so.
[10-32] Impact of vitiating factor. Cases such as L’Estrange v F Graucob Ltd135
acknowledge that an entire agreement clause does not apply in cases of fraud,
misrepresentation or where the plea of non est factum is available. If the contract
is validly rescinded on the basis of a vitiating factor, or void for mistake, the
available remedies lie outside the terms of the contract, and any entire agreement
clause (or similar provision) is irrelevant. Misrepresentation may be relevant in
two other ways. First, if the effect of the clause is misrepresented, an estoppel
may arise in relation to the operation of the clause.136
Second, where the allegation is that a term set out in a document was
incorporated into an oral contract, a misrepresentation as to the operation of the
term may prevent incorporation of the term. The document in question, such as
the receipt in Curtis v Chemical Cleaning and Dyeing Co,137 does not purport to
integrate the contract. Rather, it is intended to evidence agreement to an
exclusion clause which would, but for the misrepresentation, qualify liability for
breach of the contract, or for negligence.138
[10-33] Clause may be invalid. An entire agreement clause or analogous
provision may be invalid under statute. At the time when L’Estrange v F
Graucob Ltd139 was decided, consumer protection was in its infancy. The fact
that the clause at issue in that case applied equally to express and implied terms
was not relevant to its validity. The position is different today. The most likely
context for a validity issue to arise is where the clause expressly applies to terms
implied into the contract by statute. Under the Unfair Contract Terms Act 1977
(UK),140 any clause which purports to exclude statutory implied terms may be
invalid, or invalid if unreasonable. That includes an entire agreement clause or
analogous provision which would otherwise apply to a statutory implied term.
At common law the clause is void if it purports to negate liability for a
fraudulent misrepresentation.141 The same is true of a ‘no reliance’ clause. At
common law, an entire agreement clause may be effective in relation to innocent
misrepresentation,142 but not in relation to fraud.143 If the clause refers expressly
to pre-contractual representations, it will be construed on the basis that it is not
intended to have an operation which is contrary to public policy or statute.144
Under s 3 of the Misrepresentation Act 1967 (UK),145 a clause may be of no
effect if it excludes or restricts any liability of the representor, or any remedy
available to the representee. The test of reasonableness under s 11(1) of the
Unfair Contract Terms Act 1977 (UK) applies. One view is that the issue should
be approached from the perspective of whether the clause operates by way of
exclusion or definition, on the basis that the Act does not apply if the clause
merely defines the parties’ rights.146 The issue is one of substance and effect, not
form.147 And if the clause is unilateral, it may also be necessary to take account
of whether the clause was brought to the attention of the other party before entry
into the contract.148 There are two other views.
First, s 3 applies to clauses which define the parties’ rights, so that the test of
reasonableness is applicable.149
The second view is that a clause which purports to deny legal effect to any
misrepresentation which was in fact made is invalid independently of s 3. By
creating certain statutory rights in relation to misrepresentation, the
Misrepresentation Act embodies rules of public policy. A no reliance clause, to
the effect that no representations were made or relied on, is simply an attempt to
contract out of the Act. There is nothing in the Act which permits that to occur.
Section 3, under which an express exclusion or limitation of liability may be
enforced if the provision is ‘reasonable’, is a qualification to the policy which
the Act embodies. If the parties choose instead to contract out of the Act, their
clause is simply void and no question of reasonableness can arise. That this view
is not supported by authority150 is not easy to explain.
MERGER, DISCHARGE AND INTEGRATION
[10-34] Introduction. An effect analogous to integration may occur where one
document merges in another, or when a contract is discharged by a later contract.
There are two distinct categories. First, merger or discharge may occur as a
matter of law.
The second category comprises situations in which, although there is no
applicable legal rule, the intention (express or inferred) in adopting a document
is to discharge a prior agreement.
Whatever technical legal analysis is applicable, the later document may
include an entire agreement clause or similar provision.
[10-35] Merger in deed. Relevantly, the principal example of the doctrine of
merger is execution of a deed in discharge of a simple contract.151 The terms of
the simple contract — whether or not in writing or evidenced by writing — are
not integrated in the deed. Rather, they are discharged because execution of the
deed is performance of the simple contract.152 Subject to the intention of the
parties, the rights and liabilities of the parties are governed by the deed.
Speaking for the Privy Council in Knight Sugar Co Ltd v The Alberta Railway
& Irrigation Co,153 Lord Russell stated:154
It is well settled that, where parties enter into an executory agreement
which is to be carried out by a deed afterwards to be executed, the real
completed contract is to be found in the deed. The contract is merged in
the deed …. The most common instance, perhaps, of this merger is a
contract for sale of land followed by conveyance on completion. All the
provisions of the contract which the parties intend should be performed
by the conveyance are merged in the conveyance, and all the rights of the
purchaser in relation thereto are thereby satisfied. There may, no doubt,
be provisions of the contract which, from their nature, or from the terms
of the contract, survive after completion.
This statement was adopted by McTiernan, Williams and Webb JJ in Svanosio
v McNamara.155 They said:156
Upon the execution of the conveyance the rights and obligations of the
parties under the contract are merged in the conveyance except in so far
as the contract provides expressly or impliedly that merger shall not take
place — for instance where it is intended that a right to compensation
given by the contract may be exercised even after completion: Knight
Sugar Co Ltd v The Alberta Railway & Irrigation Co [1938] 1 All ER
266 at 269. As a result the rights of a purchaser against the vendor, apart
from those which arise under covenants for title, for quiet enjoyment etc
included in the conveyance itself or implied by statute, are very limited.
Because the contract is merged in the deed, any difference between the deed
and the prior contract must, in the absence of a claim for rectification, be
resolved in favour of the deed.157 An intention that provisions in the earlier
document are to remain enforceable must therefore be proved. The contract or
deed may contain an express statement of intention;158 if not, intention may be
inferred.159
From the perspective of the parol evidence rule, the important point is that the
prior contract is admissible as evidence of the parties’ intention. In Knight Sugar
Co Ltd v The Alberta Railway & Irrigation Co, the Privy Council referred160 to
Palmer v Johnson161 as an example of the qualification expressed in terms of
‘provisions of the contract which, from their nature, or from the terms of the
contract, survive after completion’. The ‘foundation of this decision’ was
explained162 as being the ‘construction of the contract’. The conclusion was that
the parties did not intend the obligation in question (stated in a compensation
clause) ‘to be performed by the subsequent deed, and it was therefore not
satisfied by, or merged in, that deed’.163
[10-36] ‘Merger’ in simple contract. The essence of the concept of merger in a
deed such as a conveyance of real property is that the execution of the deed is
performance of the contract. An analogous situation may arise even though there
is no deed.164 For example, a formal document for the sale of land or goods may
be executed in performance of an obligation in a preliminary contract. As in the
case of merger, execution of the document is a matter of obligation. But because
the situation is merely analogous, there are distinguishing features. First,
performance of the obligation is not performance of the bargain.165
Second, the idea of merger assumes a document of a higher order than a
simple contract.166 That is distinguishable from agreement to two simple
contracts. As a simple contract expressed in writing, the second contract is not of
a higher order even if the first contract was purely verbal.
Third, the subsequent document may integrate the bargain. If so, it is a
complete statement of the executory obligations of the parties.
[10-37] Integration and discharge by agreement. Where parties enter into two
contracts relating to the same subject matter, the intention may be to discharge
the earlier contract.167 If there is no express agreement to that effect, whether
discharge should be inferred depends on a consideration of the transaction as a
whole. Assuming that the second contract is in writing, the relevant
considerations include whether there was an obligation to execute the document,
and the operation of the document.168 The legal analysis is the same whether the
document relates to part or all of the subject matter of the prior contract, and
whether the prior agreement was oral or written.169 In each case, the document
may integrate the whole bargain or that part of the prior agreement with which
the document deals.170
A familiar application is in the context of agreement ‘subject to contract’.171 It
is generally correct to infer that the document is intended to discharge or rescind
the prior agreement, particularly where the prior agreement was not an
enforceable contract. But that is not required. For example, in Hutton v
Watling172 the Court of Appeal was concerned with a contract for the sale of a
business the terms of which were recorded in a document prepared and signed
by the vendors. The vendors sought to prove by oral evidence that the sale was
verbal, and had in fact been completed, with the result that the document was of
no contractual effect. The evidence was held not to be admissible.
If there is a sequence of contracts relating to the same subject matter, it may
be appropriate to infer that the final document is intended to discharge all prior
contracts because, as a matter of construction, it deals entirely with the subject
matter of those contracts. Usually, the rationale is the inherent unlikelihood that
the parties would intend their contract to be a composite of prior contracts and
the final document.173 The inference is based on the fact that the document deals
with the same subject matter as the prior agreements, and is not expressed to
operate by way of variation. This was a familiar idea in the context of cases174 on
the distinction between rescission and variation for the purpose of requirements
of writing during the period in which ss 4 and 17 of the Statute of Frauds 1677
were in full force.
[10-38] Integration without discharge. The mere fact that a document is
brought into existence following entry into an oral contract does not of itself
imply that the document is intended to discharge that contract. A document may
be adopted as stating, recording or otherwise evidencing a single bargain. As
Maugham LJ pointed out in L’Estrange v F Graucob Ltd,175 a document ‘may
not be the contract but merely a memorandum’ of an oral bargain. The question
is one of intention and effect.176 In this way, the distinction between a written
contract and an oral contract integrated in a document evidencing the bargain is
maintained.177
Where a document merely evidences an oral contract, it cannot discharge that
contract. But it may be the agreed record of a single contract the terms of which
are set out in the document.178 Therefore, the parties may intend a
‘memorandum’, ‘note’ or ‘record’ to integrate the terms of an oral bargain which
remains binding. The parol evidence rule applies to the extent that the document
integrates the bargain. For example, in Gelling v Crespin179 a bought and sold
note prepared by a broker evidenced a sale of goods contract. It referred only to
the quality and quantity of the goods sold, and the season of their growth, but
was alleged to relate to a specific parcel of wheat. However, the document was
established as the ‘agreed record of the contract’.180 Any discussions about a
specific parcel were therefore prior negotiations and held not to be admissible.
EXCEPTIONS TO THE PAROL EVIDENCE RULE
General
[10-39] Evidence must relate to other terms. Extrinsic evidence within the
scope of the exclusionary rule may be written or oral.181 But an exception to the
rule need only be established if the evidence is sought to be used for a proscribed
purpose.182 In relation to the parol evidence rule aspect, that purpose is to prove
agreement to a term of the contract which is not stated in a document.
If the views expressed above in relation to integration are correct, the
document must itself have a particular characteristic or effect, namely,
integration of the terms of the bargain.
[10-40] Dealing with exceptions. The concept of an exception to the parol
evidence rule is itself a controversial one. The original conception of the rule, in
terms of a presumption that a document which looks to state or evidence all the
terms of the bargain has that effect, led to recognition of a great many
exceptions. In most cases, those ‘exceptions’ were simply recognised ways of
displacing the presumption. The position is different today. The terms of the
bargain must be identified before the parol evidence rule is applied.183 Therefore,
‘exceptions’ relating to partly written contracts are not genuine exceptions.
It is meaningful to contemplate an exception to the rule only when an
intention to integrate the terms of a bargain in a document is established.
Because there are few (genuine) exceptions, the parol evidence rule conforms
with other important rules of the common law, such as the requirement of
consideration and the privity rule.
The discussion below considers both genuine (or true) exceptions to the parol
evidence rule and apparent (or false) exceptions.
Consideration
[10-41] Introduction. In order to take effect as a contract, a promise stated in a
document not under seal must be supported by consideration. Debate may arise
as to whether (and what) consideration was provided, including where a nominal
consideration is stated.
Delivering the advice of the Privy Council in Pao On v Lau Yiu Long,184 Lord
Scarman said:185
There is no doubt … that extrinsic evidence is admissible to prove the
real consideration where (a) no consideration, or a nominal
consideration, is expressed in the instrument, or (b) the expressed
consideration is in general terms or ambiguously stated, or (c) a
substantial consideration is stated, but an additional consideration exists.
The additional consideration must not, however, be inconsistent with the
terms of the written instrument. Extrinsic evidence is also admissible to
prove the illegality of the consideration.
Three points can be made in relation to this statement. First, in effect it lists at
least six situations in which ‘extrinsic evidence’ is admissible. The impact of the
evidence varies: it does not in all cases establish an additional term of the
contract. Therefore, the reference point for the statement is the exclusionary rule
as a whole, and not merely the parol evidence rule.
Second, it seems clear that Lord Scarman used the description ‘extrinsic
evidence’ to embrace more than the three specific categories of evidence on
which the exclusionary rule focuses. It may well include what is today referred
to as context.186
Third, at least in relation to evidence ‘to prove the illegality of the
consideration’, the statement treats evidence which is outside the scope of the
exclusionary rule as admitted by way of exception.187
The exceptions referred to are considered below under two general headings,
according to whether evidence is used: (1) to establish a binding contract; or (2)
to prove the extent of consideration.
[10-42] To establish binding contract. Where it is necessary to establish an
agreement as an effective (simple) contract, extrinsic evidence of consideration
may be given.188 Words which suggest a past consideration may be shown to
relate to an executory or executed consideration.189 The general justification for
an exception to the parol evidence rule where no consideration is stated in the
document is to uphold the agreement as a contract. An alternative rationalisation
is that the exclusionary rule does not apply because consideration is an aspect of
intention to contract.190
If the statement of the consideration is ambiguous, extrinsic evidence is
admissible if resolution of the ambiguity is necessary to uphold the agreement as
a contract.191 In cases where the ‘ambiguity’ is simply difficulty in construction,
the difficulty must be resolved by construction in light of context192 and extrinsic
evidence is not admissible.193
[10-43] Extent of consideration. Where the document states a valuable
consideration, the status of the agreement as a contract is not at issue. According
to Pao On v Lau Yiu Long,194 extrinsic evidence may be given to prove the extent
of consideration, including an additional consideration. The Privy Council also
said195 that the ‘additional consideration must not … be inconsistent with the
written instrument’.
The extent of consideration may be at issue because it is alleged that:196
one or more additional promises were made; or as a money sum, the
contract price is greater than the sum stated in the document.
The decision in Pao On v Lau Yiu Long illustrates proof of an additional
consideration, namely, a promise to perform another contract.
If proof of additional consideration is a genuine exception to the rule, it is
difficult to understand why the additional consideration must be consistent with
the document.197 However, the better view is that no exception operates to enable
proof of an additional term of an integrated contract.198 Proof of agreement to a
contractual term as an additional consideration merely establishes that the
document does not integrate the bargain. Any inconsistency between terms must
therefore be resolved by construction.
Where the ‘nature and amount of the consideration’199 is at issue, and proof of
the extent of consideration does not require proof of agreement to an additional
term of the contract, the issue is one of fact. The parol evidence rule does not
apply and the cases accept the view that proof of agreement to pay an additional
money sum is not to be denied on the basis of inconsistency.200
Partly Written Contracts
General
[10-44] Introduction. Although the issue of what terms comprise a contract is
(subject to statute) a question of intention, it is not necessarily a question of
construction.201 No construction decision can be made in relation to the contract
until a conclusion has been reached as to the content of the contract.202 In the
absence of an express agreement as to the content of the bargain, that is a
question of fact, not construction.
The view that the parol evidence rule applies only to bargains integrated in
documents therefore reflects the fundamental rule that the contract must be
construed as a whole.203 And it follows that any inconsistency between terms
must be resolved by construction of the contract.
[10-45] Approach to partly written contracts. It seems pointless to regard all
situations in which it is proved that a contract is partly written as based on an
exception to the parol evidence rule. In other words, the concept of a ‘partly
written contract’ is not an exception to the parol evidence rule. Rather, it
describes a situation in which the rule does not apply.
It would be inconsistent with cases such as J Evans & Son (Portsmouth) Ltd v
Andrea Merzario Ltd204 to treat evidence of oral terms as received under an
exception to the parol evidence rule. As discussed below, the authorities which
have proceeded on that basis merely illustrate the use of evidence to displace a
presumption based on the fact that a document looks to state all the terms of the
contract. Moreover, to the extent that a presumptive approach is appropriate in
any given case, it is merely a restatement of the fundamental rule that any party
who propounds a contractual term must prove that the term was agreed.
Two further points can be made. First, even if a contract is entirely oral, if a
document which evidences the terms of the contract includes an entire
agreement provision, exceptions to the parol evidence rule are not relevant. The
relevant issues are the scope of the provision and whether it can be impugned.205
Second, although a case can be made for recognising proof of a collateral
contract as an exception to the rule, that is largely a concession to authority.
Collateral contracts
[10-46] The exception.
Article 10.4 — Proof of collateral contract.
A collateral contract may be proved even if the terms of the main
contract are wholly integrated in a document.
Where the parties enter into two contracts, one collateral to the other, the fact
that the main contract is integrated in a document does not prevent proof of the
collateral contract, which may be purely verbal, in writing or evidenced by
writing. The conventional view is that this illustrates an exception to the parol
evidence rule.206 Equally, however, it has been recognised that the exception is
something of a device to avoid application of the rule.207
The most common form is a collateral contract made in consideration of entry
into the main contract.208 For example, in De Lassalle v Guildford209 the plaintiff,
who leased a house from the defendant, was able to prove that before
counterparts were exchanged the defendant orally warranted that the drains were
in good order.210 He recovered damages for breach of the warranty on the basis
that it was a contract collateral to the lease (which made no reference to the state
of the drains).
[10-47] Application of the exception. In England, a collateral contract is
enforceable on the basis of the parties’ intention, even if the collateral contract
varies or adds to the main contract, and notwithstanding that the main contract is
in writing.211 However, such cases are ‘viewed with suspicion’212 and proof is
strictly policed.213
But in Australia a collateral contract is enforceable only to the extent that it is
consistent with the terms of the main contract. In Hoyt’s Pty Ltd v Spencer,214
Isaacs J said215 that the ‘truth is that a collateral contract … being supplementary
only to the main contract, cannot impinge on it, or alter its provisions or the
rights created by it’. Although expressed in terms of the need to ensure that the
promisor under the collateral contract obtains the full benefit of the
consideration expressed in the main contract, the plain object of the requirement
of consistency is preservation of application of the parol evidence rule. The logic
is difficult to fathom. If proof of a collateral contract is an exception to the parol
evidence rule, allowance must be made for the fact that the two contracts may be
inconsistent. Otherwise, proof of a collateral contract is not a genuine exception
to the rule.
Another view is that the parol evidence rule has nothing to do with proof of a
collateral contract. By definition, the document (stating the ‘main’ contract
between the parties) does not state the whole contractual position. The document
may integrate the bargain of the parties in relation to the subject matter with
which it deals without integrating the transaction as a whole. The parol evidence
rule can apply to the contract integrated by the document without also applying
to the whole transaction. Although a contrary result may be intended where there
is an express entire agreement clause, that is not always the position.216
Conditions precedent and subsequent
[10-48] Introduction. The parties may agree (expressly or impliedly) that an
agreement does not take effect as a contract, or that performance of a contract is
postponed, pending the occurrence of an uncertain event (condition precedent).
Alternatively, they may agree that the occurrence of an event discharges the
contract automatically or confers a right of discharge (condition subsequent).
On one view, whether or not the parties agreed to a term affecting the
operation of the contract stands apart from the parol evidence rule.217 However,
if the bargain is integrated in a document, it is difficult to see why a party should
be entitled to adduce evidence to establish a further term relating to the operation
of the contract. If the law permits such a term to be proved, a genuine exception
to the parol evidence rule must operate.
[10-49] Condition precedent to formation. In Pym v Campbell,218 Pym agreed
in writing to sell to the defendants three one-eighth parts of the benefits to accrue
from his invention. The defendants claimed not to be bound by the agreement on
the basis that an agreed (but undocumented) condition precedent to formation
had failed. This condition precedent was to the effect that the plaintiff would
explain the invention to two engineers appointed by the defendants, and the sale
would go through only if they approved the invention. One of the engineers did
not approve. The jury brought in a verdict in favour of the defendants. A rule nisi
for a new trial on the ground of misdirection came before the Court of Queen’s
Bench, which held that there was no misdirection. Erle J said219 ‘evidence to
vary the terms of an agreement in writing is not admissible’. However, he
considered that ‘evidence to show that there is not an agreement at all is
admissible’.
The conventional view is that Pym v Campbell illustrates an exception to the
parol evidence rule.220 The alternative view is that the parol evidence rule did not
apply because it was not proved that the document integrated the bargain.221
Another view is that the document was intended to express the contract only if
approval was given, so that there was, in effect, a collateral contract in relation to
the approval.
[10-50] Condition precedent to performance. If Pym v Campbell222 does
illustrate a genuine exception to the parol evidence rule, rationalised on the basis
that the condition precedent goes to the existence of the contract, the obvious
inference is that no exception would have been applicable if the term had merely
conditioned performance of the contract. Indeed, it might be said that the very
purpose of treating the term as a condition precedent to formation was to apply
an exception to the rule.223
The construction of most ‘subject to’ terms is that they condition contract
performance, rather than contract formation.224 If it is alleged that a condition
precedent was agreed, but no such provision is included in the document alleged
to state or evidence the contract, the question is whether the document integrates
the bargain. If it does so, the condition precedent cannot be proved.225 But if no
such intention is established, under the modern conception of the parol evidence
rule whether a term in the nature of a condition precedent to performance was
agreed during negotiations must be considered. If the term was agreed, the
document does not integrate the contract. Analysis along those lines was adopted
by the Law Commission for England and Wales.226
[10-51] Condition subsequent. The modern perspective on the distinction
between conditions precedent and conditions subsequent is that it is largely a
matter of semantics or form.227 It must follow that application of the parol
evidence rule cannot depend on whether the condition is precedent or
subsequent.
Therefore, if the document integrates the bargain, it is not open to either party
to prove prior agreement to a term in the nature of a condition subsequent. But if
there was no intention to integrate the bargain, the parol evidence rule does not
prevent proof that the term was agreed. Recourse to an exception to the parol
evidence rule is unnecessary.
Implied Terms
[10-52] Introduction. The ability to prove an implied term has never been
rationalised as an exception to the parol evidence rule.228 Moreover, to the extent
that the implication of a term is governed by specific legal requirements,229 any
evidence which is admissible in order to apply those requirements simply stands
outside the scope of the rule.230
Since the applicable requirements depend on the basis on which the term is
alleged to be implied, the raw material which may be used to support (or rebut)
the implication of a term depends primarily on the basis for the implication
alleged. Subject to statute, the document may include a provision to the effect
that a term which would otherwise be implied does not form part of the contract.
For example, the document may include an entire agreement clause or similar
provision applicable to both express and implied terms.231
[10-53] Terms implied in fact. Under traditional analyses, the implication of a
term on a factual basis is governed by specific legal requirements which are
applied by construction.232 Those requirements do not permit reliance on
evidence which is extrinsic evidence for the purposes of the exclusionary rule.
But as Mason J pointed out in Codelfa Construction Pty Ltd v State Rail
Authority of New South Wales,233 when the ‘inquiry whether a term is to be
implied the court is no more confined than it is when it construes the contract’.
The important decision of the Privy Council in Attorney General of Belize v
Belize Telecom Ltd,234 which marginalises the role of specific legal requirements,
emphasises that the document must be construed in light of context.235
Three points follow from this. First, extrinsic evidence is not admissible to
rebut or support the presumption against implication.
Second, because the requirements for implication are applied by construction,
the relevant exceptions to the exclusionary rule are those which permit extrinsic
evidence to be used as a direct aid to construction.236
Third, whether the document integrates the contract is not a relevant
consideration unless the scope of an entire agreement clause is at issue.237
[10-54] Terms implied in law. The usual basis for a term implied in law is
simply that the term is an established incident of the contract.238 Since the
contract is presumed to include the term, recourse to evidence is necessary only
where implication of the term depends on the satisfaction of specific
requirements. Even though it may involve reliance on the prior negotiations of
the parties, such evidence is admissible to support the implication.
The principal example is the implication of a fitness for purpose term. In
Gillespie Bros & Co v Cheney Eggar & Co,239 evidence of a pre-contractual
conversation was admitted to show that buyers of coal had expressly made
known to their sellers the purpose for which goods were required, so as to
indicate reliance on the sellers’ skill or judgment. The court regarded the
evidence as admissible under an exception to the parol evidence rule.240
However, the fact that in a sale of goods evidence of a particular purpose is
admissible under statute to support the implication places such evidence beyond
the scope of the parol evidence rule.241 And at common law, the evidence is
admissible under a rule of law.242
In some cases, evidence of subsequent conduct has been regarded as
admissible to support or rebut the implication of a term at common law. Whether
these decisions are based on an exception to the parol evidence rule has never
been explained. But the better view is that no exception is in operation.243
[10-55] Custom and usage. The implication of a term on the basis of custom or
usage requires the satisfaction of specific legal requirements.244 In Con-Stan
Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia)
Ltd,245 the High Court of Australia treated the parol evidence rule as an
explanation for the requirement that a term implied on the basis of custom (or
usage) must be consistent with the express terms.246 But the court also said247 that
a ‘more fundamental explanation’ is that ‘presumed intention’ — the basis on
which the implication is made — ‘must yield to their actual intention as
embodied in the express terms of the contract, regardless of whether the contract
is written or oral’.
Three points seem correct. First, references in the cases to evidence of custom
or usage being ‘parol evidence’, although suggestive of an exception to the parol
evidence rule, simply reflect an outmoded view as to the scope of the extrinsic
evidence concept.
Second, the relevant evidence does not generally fall within the categories of
extrinsic evidence. But to the extent that it does, admissibility is based on a rule
of law, not an exception to the parol evidence rule.
Third, the requirement of consistency, and the fact that the same rules apply
whether or not the contract is integrated in a document, indicate that the parol
evidence rule is largely irrelevant to the implication of a term by reference to
custom or usage.
[10-56] Course of dealing. A term may be implied into a contract by reference
to a course of dealing. Where such a term is alleged, the admissible evidence
necessarily includes prior contracts.248
The cases in which terms have been incorporated by a course of dealing have
not sought to explain the process by reference to an exception to the parol
evidence rule. Even if otherwise integrated in a document, the bargain is taken to
include consistent terms implied from the course of dealing.249 However, if an
entire agreement clause integrates the bargain, the clause may extend to implied
terms.250 In such cases, no term can be implied and it is irrelevant whether the
term contradicts the document.
1. See [9-03], [9-11].
3. For the scope of operation of the rule see Chapter 9.
4. For a brief evaluation of the rule see [14-33]–[14-35].
5. See [2-37].
6. See [10-14]–[10-20].
7. See further [10-19] (sequence of events).
8. See J Evans & Son (Portsmouth) Ltd v Andrea Merzario Ltd [1976] 2 All
ER 930; State Rail Authority of New South Wales v Heath Outdoor Pty Ltd
(1986) 7 NSWLR 170 at 191; Nemeth v Bayswater Road Pty Ltd [1988] 2
Qd R 406 at 413; Carmichael v National Power Plc [1999] 1 WLR 2042;
Masterton Homes Pty Ltd v Palm Assets Pty Ltd (2009) 261 ALR 382 at
402; [2009] NSWCA 234 at [90]; Nicolazzo v Harb (2009) 22 VR 220 at
231, 233; [2009] VSCA 79 at [71], [77]. See also [8-20].
9. This leads to tautological drafting. See, eg Etna v Arif [1999] 2 VR 353 at
357 (‘no terms … have been relied upon by the Purchaser in entering into
this contract other than those included in this contract’); Inntrepreneur
Pub Co (GL) v East Crown Ltd [2000] 2 Lloyd’s Rep 611 at 613 (‘this
Agreement … constitutes the entire Agreement’).
10. See Ravennavi SpA v New Century Shipbuilding Co Ltd [2007] 2 Lloyd’s
Rep 24 at 30; [2007] EWCA Civ 58 at [25].
11. It is unnecessary to consider the various usages of these expressions, for
example, the contrast between ‘special contract’ and a contract implied
under the old law of quasicontract (eg, Weston v Downes (1778) 1 Doug 23
at 24; 99 ER 19 at 20; Hain SS Co Ltd v Tate & Lyle Ltd(1936) 41 Com Cas
350 at 369; [1936] 2 All ER 597 at 611). Similarly, the fact that ‘specialties’
includes obligations owed under statute (eg, Royal Trust Co v Attorney-
General for Alberta [1930] 1 AC 144 at 151; Collin v Duke of Westminster
[1985] QB 581 at 601) is not relevant.
12. See Rann v Hughes (1778) 7 TR 350n; 101 ER 1014n.
13. Wigmore on Evidence, vol 9, §2426.
14. (1861) 30 LJ Ex 273 at 277; 6 H & N 768 at 774–5; 158 ER 317 at 320
(affirmed (1862) 1 H & C 202; 158 ER 859). See also Pym v Campbell
(1856) 5 E & B 370 at 374; 119 ER 903 at 905. Cf Parker v South Eastern
Railway Co (1877) 2 CPD 416 at 421.
15. (1909) 8 CLR 316 at 323.
16. See Southern Cross Assurance Co Ltd v Australian Provincial Assurance
Association Ltd (1939) 39 SR (NSW) 174 at 185. Cf Hoyt’s Pty Ltd v
Spencer (1919) 27 CLR 133 at 139 per Knox CJ (‘the writing constitutes
the contract … or at any rate is conclusive evidence of its terms’).
17. See, eg Bills of Exchange Act 1882 (UK), s 3(1); Law of Property
(Miscellaneous Provisions) Act 1989 (UK), s 2. See also Bills of Exchange
Act 1909 (Cth), s 8(1).
18. See also [8-10].
19. Cf Parol Evidence Rule Report, para 2.18.
20. See, eg Parker v South Eastern Railway Co (1877) 2 CPD 416 at 421;
L’Estrange v F Graucob Ltd [1934] 2 KB 394; Jones v Aircrafts Pty Ltd
[1949] St R Qd 196; Amiri Flight Authority v BAE Systems Plc [2003] 2
Lloyd’s Rep 767 at 772; [2003] EWCA Civ 1447 at [16]; Toll (FGCT) Pty
Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165; [2004] HCA 52.
21. See, eg Eccles v Bryant [1948] Ch 93 at 99; Sindel v Georgiou (1984) 154
CLR 661 at 667.
22. See, eg Sindel v Georgiou (1984) 154 CLR 661 at 668; Commission for the
New Towns v Cooper (Great Britain) Ltd [1995] Ch 259 at 285–6.
23. If only one party has signed the document, it is sufficient that it has been
acknowledged by the conduct of the other as a written contract.
24. See [10-12].
25. See [10-37].
26. See, eg Curtis v Chemical Cleaning and Dyeing Co [1951] 1 KB 805
(document headed ‘Receipt’). Cf Le Mans Grand Prix Circuits Pty Ltd v
Iliadis [1998] 4 VR 661.
27. See [10-07], [10-38].
28. Particular provisions of a document may not take effect as terms if their
content or effect was misrepresented. See [10-32].
29. See generally [10-14]–[10-20].
30. [1913] AC 30 at 47.
31. See, eg Couchman v Hill [1947] KB 554; Kargotich v Mustica [1973] WAR
167; Handbury v Nolan (1977) 13 ALR 339; J Evans & Son (Portsmouth)
Ltd v Andrea Merzario Ltd [1976] 2 All ER 930; Equuscorp Pty Ltd v
Glengallan Investments Pty Ltd (2004) 218 CLR 471 at 484; [2004] HCA
55 at [36].
32. See, eg L G Thorne & Co Pty Ltd v Thomas Borthwick & Sons (A/Asia) Ltd
(1955) 56 SR (NSW) 81. See further [10-46].
33. (1877) 2 CPD 416 at 421. See also Foreman v Great Western Railway Co
(1878) 38 LT 851 at 853.
34. Hardwick Game Farm v Suffolk Agricultural and Poultry Producers
Association Ltd [1966] 1 WLR 287 at 340; [1966] 1 All ER 309 at 345 per
Diplock LJ (affirmed sub nom Henry Kendall & Sons v William Lillico &
Sons Ltd [1969] 2 AC 31).
35. See Hood v Anchor Line (Henderson Bros) Ltd [1918] AC 837;
McCutcheon v David MacBrayne Ltd [1964] 1 WLR 125 at 131, 136;
Hardwick Game Farm v Suffolk Agricultural and Poultry Producers
Association Ltd [1966] 1 WLR 287 at 339–40; [1966] 1 All ER 309 at 345
(affirmed sub nom Henry Kendall & Sons v William Lillico & Sons Ltd
[1969] 2 AC 31).
36. If insufficient notice was given of a term subsequently relied on, that term
may not be incorporated into the contract. See, eg Hood v Anchor Line
(Henderson Bros) Ltd [1918] AC 837 at 847; Thornton v Shoe Lane
Parking Ltd [1971] 2 QB 163; Oceanic Sun Line Special Shipping Co Inc v
Fay (1988) 165 CLR 197 at 229; Circle Freight International Ltd v
Medeast Gulf Exports Ltd [1988] 2 Lloyd’s Rep 427 at 432–3; Interfoto
Picture Library Ltd v Stiletto Visual Programmes Ltd [1989] QB 433.
37. See, eg Zambia Steel & Building Supplies Ltd v James Clark & Eaton Ltd
[1986] 2 Lloyd’s Rep 225 at 229, 234, 235; AS Klaveness Chartering v
Pioneer Freight Futures Co Ltd [2010] 2 Lloyd’s Rep 613 at 624; [2009]
EWHC 3386 (Comm) at [55].
38. See, eg Brogden v Metropolitan Railway Co (1877) 2 App Cas 666; White
Trucks Pty Ltd v Riley (1948) 66 WN (NSW) 101; Zambia Steel & Building
Supplies Ltd v James Clark & Eaton Ltd [1986] 2 Lloyd’s Rep 225 at 234;
Anangel Atlas Compania Naviera SA v Ishikawajima-Harima Heavy
Industries Co Ltd (No 2) [1990] 2 Lloyd’s Rep 526 at 543. Cf Goldsbrough
Mort & Co Ltd v Quinn (1910) 10 CLR 674 at 695.
39. Cf MacRobertson Miller Airline Services v Commissioner of State Taxation
(WA) (1975) 133 CLR 125. See further [10-38] (integration without
discharge).
40. Cf Parker v South Eastern Railway Co (1877) 2 CPD 416 at 421.
41. Contrast Electrosteel Castings Ltd v Scan-Trans Shipping & Chartering Sdn
Bhd [2003] 1 Lloyd’s Rep 190 at 197–8; [2002] EWHC 1993 (Comm) at
[25] (booking note was the contract, not evidence of a prior contract). See
further [10-37] (integration and discharge).
42. Cf McCutcheon v David MacBrayne Ltd [1964] 1 WLR 125 at 131.
43. But that may be the purpose of signature. Cf Re Bond Worth Ltd [1980] Ch
228 at 244.
44. [1969] 2 AC 31. Contrast Metaalhandel J A Magnus BV v Ardfields
Transport Ltd [1988] 1 Lloyd’s Rep 197 at 203 (no regular course of
dealing).
45. Sub nom Hardwick Game Farm v Suffolk Agricultural and Poultry
Producers Association Ltd [1966] 1 WLR 287; [1966] 1 All ER 309.
46. [1966] 1 WLR 287 at 340; [1966] 1 All ER 309 at 345.
47. For a suggestion that the document must be of a ‘contractual nature’. See D
J Hill & Co Pty Ltd v Walter H Wright Pty Ltd [1971] VR 749 at 753. See
also Eggleston v Marley Engineers Pty Ltd (1979) 21 SASR 51 at 64–5.
48. See Circle Freight International Ltd v Medeast Gulf Exports Ltd [1988] 2
49. Codelfa Construction Pty Ltd v State Rail Authority of New South Wales
(1982) 149 CLR 337 at 352 per Mason J. Stephen and Wilson JJ agreed.
See also Inglis v John Buttery & Co (1878) 3 App Cas 552 at 577;
Mercantile Bank of Sydney v Taylor [1893] AC 317 at 321; Great Western
Railway v Bristol Corporation (1918) 87 LJ Ch 414 at 428; Southern Cross
Assurance Co Ltd v Australian Provincial Assurance Association Ltd
(1939) 39 SR (NSW) 174 at 185. See also [8-32].
50. See H K Lücke, ‘Contracts in Writing’ (1966) 40 ALJ 265.
51. For use of the ‘integration’ terminology, see L G Thorne & Co Pty Ltd v
Thomas Borthwick & Sons (A/Asia) Ltd (1955) 56 SR (NSW) 81 at 94;
Stoddart Tiles Pty Ltd v Cafoots (Townsville)Pty Ltd (1983) unreported, 27
June, SC (Qld) No 5059 of 1982 (McPherson J); Air Great Lakes Pty Ltd v
K S Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309 at 336; Nemeth v
Bayswater Road Pty Ltd [1988] 2 Qd R 406 at 413; Rosseel NV v Oriental
Commercial & Shipping Co (UK) Ltd [1991] 2 Lloyd’s Rep 625 at 628. Cf
G Percy Trentham Ltd v Archital Luxfer Ltd [1993] 1 Lloyd’s Rep 25 at 26
per Steyn LJ, with whom the other members of the Court of Appeal agreed
(‘no integrated written subcontracts’).
52. Wigmore on Evidence, vol 9, §2425. See also Contracts Restatement 2d
(1979), §209(1).
53. See [10-16].
54. See, eg Gordon v Macgregor (1909) 8 CLR 316 at 324 (cf (1909) 8 CLR
316 at 321); L’Estrange v F Graucob Ltd [1934] 2 KB 394 at 403, 406.
55. See [10-39]–[10-56].
56. L G Thorne & Co Pty Ltd v Thomas Borthwick & Sons (A/Asia) Ltd (1955)
56 SR (NSW) 81 at 93–4. See further [10-17].
57. See [10-21]–[10-33].
58. See Carmichael v National Power Plc [1999] 1 WLR 2042 at 2049 (partly
written contract). See further [10-16].
59. Wigmore on Evidence, vol 9, §2425 (italics removed).
60. Cf Ansett Transport Industries (Operations) Pty Ltd v Commonwealth of
Australia (1977) 139 CLR 54 at 72 (inferred promise to discharge
obligation acknowledged in a recital where there is no express promise in
the operative part).
61. [1966] 1 WLR 287 at 339; [1966] 1 All ER 309 at 345 (affirmed sub nom
Henry Kendall & Sons v William Lillico & Sons Ltd [1969] 2 AC 31). Cf M
A Eisenberg, ‘The Emergence of Dynamic Contract Law’ (2000) 88 Calif L
Rev 1743 at 1770 (‘individualized issue’).
62. See generally [10-21]–[10-33].
63. See Contracts Restatement 2d (1979), §211 (standardised agreements). Cf
GFT Australia Pty Ltd v Collector of Customs (NSW) (1995) 126 ALR 219
at 233–4.
64. Although the formulations state what must be proved, some of the cases
from which the quotations are taken were based on a presumptive approach
to application of the parol evidence rule. See [8-19], [10-40].
65. Goss v Lord Nugent (1833) 5 B & Ad 58 at 64; 110 ER 713 at 716 per
Denman CJ; Harnor p Groves (1855) 15 CB 667 at 674; 139 ER 587 at 590
per Maule J (adopted Gordon v Macgregor (1909) 8 CLR 316 at 319).
66. Gelling v Crespin (1917) 23 CLR 443 at 452 per Isaacs J.
67. Carmichael v National Power Plc [1999] 1 WLR 2042 at 2047 per Lord
Irvine. The other members of the House of Lords agreed. See also [1999] 1
WLR 2042 at 2049, 2050 per Lord Hoffmann, with whom Lords Goff and
Jauncey agreed (‘exclusive record’).
68. Mercantile Bank of Sydney v Taylor [1893] AC 317 at 321 per Lord Watson
for the Privy Council. See also Harris v Rickett (1859) 4 H & N 1 at 7; 157
ER 734 at 737; Secured Income Real Estate (Australia) Ltd v St Martins
Investments Pty Ltd (1979) 144 CLR 596 at 606 per Mason J, with whom
the other members of the High Court of Australia agreed (all the terms were
intended to be recorded ‘comprehensively’ in the document).
69. Guardian Ocean Cargoes Ltd v Banco do Brasil SA (Nos 1 and 3) [1991] 2
Lloyd’s Rep 68 at 80 per Hirst J (affirmed without reference to the point
[1994] 2 Lloyd’s Rep 152).
70. Gordon-Cumming v Houldsworth [1910] AC 537 at 548 per Lord Kinnear.
See also Uniform Commercial Code (US), §2-202 and Contracts
Restatement 2d (1979), §210(1), which refer to a ‘complete and exclusive
statement’.
71. Cf H K Lücke, ‘Contracts in Writing’ (1966) 40 ALJ 265 at 267.
72. [1999] 1 WLR 2042.
73. [1999] 1 WLR 2042 at 2049, 2050. See also Metro Meat Ltd v Fares Rural
Co Pty Ltd [1985] 2 Lloyd’s Rep 13 at 15.
74. [1999] 1 WLR 2042 at 2047, 2051. Cf Masterton Homes Pty Ltd v Palm
Assets Pty Ltd (2009) 261 ALR 382 at 407; [2009] NSWCA 234 at [114].
See also [9-33].
75. Wigmore on Evidence, vol 9, §2429.
76. See Bank of Australasia v Palmer [1897] AC 540 at 545; L G Thorne & Co
Pty Ltd v Thomas Borthwick &Sons (A/Asia) Ltd (1955) 56 SR (NSW) 81 at
94.
77. (1919) 27 CLR 133 at 144.
78. For use of the ‘partial integration’ description see L G Thorne & Co Pty Ltd
v Thomas Borthwick & Sons (A/Asia) Ltd (1955) 56 SR (NSW) 81 at 94 per
Herron J.
79. Masterson v Sine, 68 Cal 2d 222 at 225; 436 P 2d 561 (1968) per Traynor
CJ.
80. See [10-34]–[10-38].
81. See Chapter 8.
82. (1955) 56 SR (NSW) 81 at 93–4. Herron J’s views were adopted by
McPherson J in Stoddart Tiles Pty Ltd v Cafoots (Townsville) Pty Ltd
(1983) unreported, SC (Qld) (No 5059 of 1982). See generally Andrew
Stewart, ‘Oral Promises, Ad Hoc Implication and the Sanctity of Written
Agreements’ (1987) 61 ALJ 119. See also [8-20].
83. [1976] 2 All ER 930.
84. The decision was adopted in Finucane v New South Wales Egg Corp (1988)
80 ALR 486 at 520–1.
85. [1976] 2 All ER 930 at 935.
86. Cf Daewoo Heavy Industries Ltd v Klipriver Shipping Ltd (The Kapitan
Petko Voivoda) [2003] 2 Lloyd’s Rep 1 at 14; [2003] EWCA Civ 451 at
[19].
87. For the two aspects of the exclusionary rule see [8-05].
88. See Gelling v Crespin (1917) 23 CLR 443 at 452 per Isaacs J (‘internal
content [of documents] and the evidence relating to them’).
89. [1976] 2 All ER 930. See also Contracts Restatement 2d (1979), §214 (use
of prior negotiations to establish whether or not contract is integrated in
document).
90. [1985] 2 Lloyd’s Rep 13 at 16.
91. See Elisabeth Peden and J W Carter, ‘Entire Agreement — and Similar —
Clauses’ (2006) 22 JCL 1; Catherine Mitchell, ‘Entire Agreement Clauses:
Contracting Out of Contextualism’ (2006) 22 JCL 222.
92. [2000] 2 Lloyd’s Rep 611 at 614.
93. See AXA Sun Life Services Plc v Campbell Martin Ltd [2011] 2 Lloyd’s
Rep 1 at 8, 15; [2011] EWCA Civ 133 at [35], [94].
94. See Inntrepreneur Pub Co (GL) v East Crown Ltd [2000] 2 Lloyd’s Rep 611
at 614 per Lightman J, approved AXA Sun Life Services Plc v Campbell
Martin Ltd [2011] 2 Lloyd’s Rep 1 at 11; [2011] EWCA Civ 133 at [63]
(entire agreement clause is a ‘binding agreement’ that the ‘full contractual
terms’ are found in the document). See also Exxonmobil Sales and Supply
Corp v Texaco Ltd (The Helene Knutsen) [2003] 2 Lloyd’s Rep 686 at 690;
[2003] EWHC Comm 1964 at [24]. Cf Satyam Computer Services Ltd v
Upaid Systems Ltd [2008] 2 All ER (Comm) 465 at 476; [2008] EWCA Civ
487 at [56].
95. See, eg Mineralimportexport v Eastern Mediterranean Maritime Ltd (The
Golden Leader) [1980] 2 Lloyd’s Rep 573 at 575; Titan Steel Wheels Ltd v
Royal Bank of Scotland Plc [2010] 2 Lloyd’s Rep 92 at 110; [2010] EWHC
211 (Comm) at [87]. See also Springwell Navigation Corp v J P Morgan
Chase Bank [2010] 2 CLC 705 at 756; [2010] EWCA 1221 at [170]
(contractual estoppel by representation in acknowledgment).
96. See, eg Johnson Matthey Ltd v A C Rochester Overseas Corp (1990) 23
NSWLR 190.
97. See, eg Watford Electronics Ltd v Sanderson CFL Ltd [2001] 1 All ER
(Comm) 696 at 710; [2001] EWCA Civ 317 at [39]. See also Orient Centre
Investments Ltd v Société Générale [2007] 3 SLR(R) 566 at 583; [2007]
SGCA 24 at [44].
98. [1934] 2 KB 394.
99. See FoodCo UK LLP (t/a Muffin Break) v Henry Boot Developments Ltd
[2010] EWHC 358 (Ch) at [165]. See also [10-30].
(Comm) 696 at 699; [2001] EWCA Civ 317 at [6].
101. (1937) 59 CLR 348. See also Hart v MacDonald (1910) 10 CLR 417 (‘no
agreement or understanding … not embodied’ in the document); McMahon
v National Foods Milk Ltd (2009)25 VR 251 at 272; [2009] VSCA 153 at
[37] (‘entire agreement and understanding’); AXA Sun Life Services Plc v
Campbell Martin Ltd [2011] 2 Lloyd’s Rep 1 at 6; [2011] EWCA Civ 133 at
[13] (‘entire agreement and understanding’).
102. (1937) 59 CLR 348 at 358 per Latham CJ.
103. [2000] 2 Lloyd’s Rep 611 at 614.
104. [1934] 2 KB 394. See also Etna v Arif [1999] 2 VR 353 at 357 (provision
stating that document was ‘sole respository of the agreement’); General
Trading Company (Holdings) Ltd v Richmond Corp Ltd [2008] 2 Lloyd’s
Rep 475 at 480; [2008] EWHC 1479 (Comm) at [11] (‘whole agreement’
clause).
105. Cf Toll (FGCT)Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165; [2004]
HCA 52.
106. See, eg Johnson Matthey Ltd v A C Rochester Overseas Corp (1990) 23
NSWLR 190 (‘supersedes all previous agreements, negotiations, comments
and writings in respect thereof’); Macdonald v Shinko Australia Pty Ltd
[1999] 2 Qd R 152 at 154 (‘cancels all prior agreements’).
107. See [10-47].
108. [1948] 2 All ER 127 at 129. Cf Mechanical Horse (Australasia) Pty Ltd v
Council of the City of Broken Hill (1941) 41 SR (NSW) 135 at 140.
109. [1999] 1 Lloyd’s Rep 387 at 395. See also Macdonald v Shinko Australia
Pty Ltd [1999] 2 Qd R 152 at 156 (entire agreement clause expressed in
terms of ‘arrangements’ and ‘understandings’ would have extended to
collateral contract).
110. [2000] 2 Lloyd’s Rep 611 at 614. See also AXA Sun Life Services Plc v
Campbell Martin Ltd [2011] 2 Lloyd’s Rep 1 at 8, 17; [2011] EWCA Civ
133 at [34]–[35], [108].
111. Cf Couchman v Hill [1947] KB 554.
112. See North Eastern Properties Ltd v Coleman [2010] 1 WLR 2715 at 2734;
[2010] EWCA Civ 277 at [83] (doubting Inntrepreneur Pub Co (GL) v East
Crown Ltd [2000] 2 Lloyd’s Rep 611 at 614).
113. See North Eastern Properties Ltd v Coleman [2010] 1 WLR 2715 at 2728;
[2010] EWCA Civ 277 at [57] (composite transaction).
114. See McMahon v National Foods Milk Ltd (2009) 25 VR 251 at 272–3;
[2009] VSCA 153 at [39]–[40].
115. [1898] 1 AC 360 at 366–7.
116. (1910) 10 CLR 417.
117. [2011] 2 Lloyd’s Rep 1; [2011] EWCA Civ 133.
118. [2011] 2 Lloyd’s Rep 1 at 9; [2011] EWCA Civ 133 at [41]. Rix and Wilson
LJJ agreed. See also Exxonmobil Sales and Supply Corp v Texaco Ltd (The
Helene Knutsen) [2003] 2 Lloyd’s Rep 686 at 691; [2003] EWHC Comm
1964 at [27].
119. [1999] 2 VR 353.
120. [1999] 2 VR 353 at 371 per Batt JA. Charles and Callaway JJA agreed. See
also Johnson Matthey Ltd v A C Rochester Overseas Corp (1990) 23
NSWLR 190. Cf Mulvay v Henry Berry & Co Pty Ltd (1938) 38 SR (NSW)
389 at 396. Contrast NT Power Generation Pty Ltd v Power and Water
Authority (2001) 184 ALR 481 at 570–1.
121. [1934] 2 KB 394. See also Hope v RCA Photophone of Australia Pty Ltd
(1937) 59 CLR 348 at 363; Mechanical Horse (Australasia) Pty Ltd v
Council of the City of Broken Hill (1941) 41 SR (NSW) 135 at 139.
(Comm) 696 at 699; [2001] EWCA Civ 317 at [6] (‘entire agreement’
clause included agreement that no representation had been ‘relied upon’);
Exxonmobil Sales and Supply Corp v Texaco Ltd (The Helene Knutsen)
[2003] 2 Lloyd’s Rep 686 at 690; [2003] EWHC Comm 1964 at [22]
(‘entire agreement’ clause referred to ‘promise, representation, warranty,
usage or course of dealing affecting’ the subject matter of the contract). See
also Hope v RCA Photophone of Australia Pty Ltd (1937) 59 CLR 348. Cf
L’Estrange v F Graucob Ltd [1934] 2 KB 394 (reference to ‘statements’).
123. See AXA Sun Life Services Plc v Campbell Martin Ltd [2011] 2 Lloyd’s Rep
1 at 8, 14; [2011] EWCA Civ 133 at [36], [81], [86]. See also BSkyB Ltd v
HP Enterprise Services UK Ltd [2010] EWHC 86 (TCC) at [382] (approved
AXA Sun Life Services Plc v Campbell Martin Ltd [2011] 2 Lloyd’s Rep 1
at 15; [2011] EWCA Civ 133 at [92]).
124. See Alexander Trukhtanov, ‘Misrepresentation: Acknowledgement of Non-
reliance as a Defence’ (2009) 125 LQR 648.
125. See, eg Government of Zanzibar v British Aerospace (Lancaster House) Ltd
[2000] 1 WLR 2333 at 2344 (‘all liabilities for … any representations are
excluded’).
126. See Raiffeisen Zentralbank Osterreich AG v Royal Bank of Scotland Plc
[2011] 1 Lloyd’s Rep 123 at 142, 177; [2010] EWHC 1392 (Comm) at [81],
[314] (whether clause addressed to a sophisticated commercial party).
127. See Peekay Intermark Ltd v Australia and New Zealand Banking Group Ltd
[2006] 2 Lloyd’s Rep 511 at 521; [2006] EWCA Civ 286 at [56]; Raiffeisen
Zentralbank Osterreich AG v Royal Bank of Scotland Plc [2011] 1 Lloyd’s
Rep 123 at 169; [2010] EWHC 1392 (Comm) at [253]. See also Watford
Electronics Ltd v Sanderson CFL Ltd [2001] 1 All ER (Comm) 696 at 711;
[2001] EWCA Civ 317 at [40] (no reliance component of entire agreement
clause treated as acknowledgment).
128. See Springwell Navigation Corp v J P Morgan Chase Bank [2010] 2 CLC
705 at 756; [2010] EWCA 1221 at [170] (contractual estoppel); Bank Leumi
(UK) Plc v Wachner [2011] EWHC 656 (Comm) at [184] (estoppel by
contract); Cassa di Risparmio della Repubblica di San Marino SpA v
Barclays Bank Ltd [2011] 1 CLC 701 at 820; [2011] EWHC 484 (Comm) at
[505] (contractual estoppel). Cf FoodCo UK LLP (t/a Muffin Break) v
Henry Boot Developments Ltd [2010] EWHC 358 (Ch) at [171]. See also
Morgan v Pooley [2010] EWHC 2447 (QB) at [113] (authorities in
conflict).
129. See [9-18], [18-16].
130. (1990) 23 NSWLR 190.
131. d Atlantic Lines & Navigation Co Inc v Hallam Ltd (The Lucy) [1983] 1
132. McLelland J nevertheless held that there was an implied term that the
product in question would be coated in Australia, so that the relevant
comparison was with local suppliers.
133. See Franklins Pty Ltd v Metcash Trading Ltd (2009) 76 NSWLR 603 at
621, 734; [2009] NSWCA 407 at [33], [554].
134. Parol Evidence Rule Report, para 2.15. See also Contracts Restatement 2d
(1979), §209, com b (express agreement not conclusive). Cf H K Lücke,
‘Contracts in Writing’ (1966) 40 ALJ 265 at 278. But cf UNIDROIT
Principles, art 2.1.17 (merger clause).
135. [1934] 2 KB 394 at 403, 406. See also Macdonald v Shinko Australia Pty
Ltd [1999] 2 Qd R 152 at 154; Equuscorp Pty Ltd v Glengallan Investments
Pty Ltd (2004) 218 CLR 471 at 482–3; [2004] HCA 55 at [32]; Toll (FGCT)
Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 at 180–1; [2004] HCA
52 at [42]–[46].
136. See Curtis v Chemical Cleaning and Dyeing Co [1951] 1 KB 805 at 808–9.
137. [1951] 1 KB 805.
1 at 17; [2011] EWCA Civ 133 at [105] (clause not incorporated). Cf J
Evans & Son (Portsmouth) Ltd v Andrea Merzario Ltd [1976] 2 All ER 930
at 936; Peekay Intermark Ltd v Australia and New Zealand Banking Group
Ltd [2006] 2 Lloyd’s Rep 511 at 520; [2006] EWCA Civ 286 at [44].
139. [1934] 2 KB 394.
140. See Unfair Contract Terms Act 1977 (UK), ss 5, 6(1), (2), 7(2), 21. See AXA
Sun Life Services Plc v Campbell Martin Ltd [2011] 2 Lloyd’s Rep 1 at 10;
[2011] EWCA Civ 133 at [50]. See also Australian Consumer Law, ss 64,
64A (consumer guarantees).
141. See [16-28].
142. See Life Insurance Co of Australia Ltd v Phillips (1925) 36 CLR 60 at 82–
3.
143. See S Pearson & Son Ltd v Dublin Corporation [1907] AC 351 at 356, 362,
365. See also Commercial Banking Co of Sydney Ltd v R H Brown & Co
(1972) 126 CLR 337 at 344, 350 (disclaimer).
144. See, eg Government of Zanzibar v British Aerospace (Lancaster House) Ltd
[2000] 1 WLR 2333 at 2347(entire agreement clause excluding liability for
representations).
145. See also ACT: Civil Law (Wrongs) Act 2002, s 176; SA: Misrepresentation
Act 1972, s 8. Cf Australian Consumer Law, s 18; see Carter on Contract,
§21-160. And see Contractual Remedies Act 1979 (NZ), s 4.
146. See Watford Electronics Ltd v Sanderson CFL Ltd [2001] 1 All ER (Comm)
696 at 711; [2001] EWCA Civ 317 at [41]; Raiffeisen Zentralbank
Osterreich AG v Royal Bank of Scotland Plc [2011] 1 Lloyd’s Rep 123 at
177; [2010] EWHC 1392 (Comm) at [316].
1 at 10; [2011] EWCA Civ 133 at [51]. See also Trident Turboprop (Dublin)
Ltd v First Flight Couriers Ltd [2009] 1 All ER (Comm) 16 at 26; [2008]
EWHC 1686 (Comm) at [48] (affirmed without reference to the point
[2010] QB 86; [2009] EWCA Civ 290).
148. See Raiffeisen Zentralbank Osterreich AG v Royal Bank of Scotland Plc
149. See Smith v Bush [1990] 1 AC 831 at 848–9; Government of Zanzibar v
British Aerospace (Lancaster House) Ltd [2000] 1 WLR 2333 at 2347–8.
150. See Springwell Navigation Corp v J P Morgan Chase Bank [2010] 2 CLC
705 at 760; [2010] EWCA 1221 at [186] (estoppel in relation to operation
of the Act); Cassa di Risparmio della Repubblica di San Marino SpA v
Barclays Bank Ltd [2011] 1 CLC 701 at 823; [2011] EWHC 484 (Comm) at
[514] (contractual estoppel prevented contention that representation
actionable under the Act had been made); AXA Sun Life Services Plc v
Campbell Martin Ltd [2011] 2 Lloyd’s Rep 1 at 15; [2011] EWCA Civ 133
at [93] per Rix LJ, with whom Wilson and Stanley Burnton LJJ agreed
(‘clause acknowledging the making of no representations is an effective
exclusion of any liability in misrepresentation’).
151. See, eg Leggott v Barrett (1880) 15 Ch D 306 (agreement for dissolution of
partnership merged in deed of dissolution); Goss v Chilcott [1996] AC 788
(oral loan agreement merged in mortgage). Cf IPC v Norwich Union (1986)
3 Const LJ 203 at 205.
152. See, eg Hissett v Reading Roofing Co Ltd [1969] 1 WLR 1757 at 1763;
[1970] 1 All ER 122.
153. [1938] 1 All ER 266.
154. [1938] 1 All ER 266 at 269. See also Pallos v Munro (1970) 72 SR (NSW)
507 at 511; Ciciwill Pty Ltd v Consumer Claims Tribunal (1997) 41
NSWLR 737 at 746–7.
155. (1956) 96 CLR 186.
156. (1956) 96 CLR 186 at 206–7.
157. See Leggott v Barrett (1880) 15 Ch D 306 at 309–10, 311, 314; Millbourn v
Lyons [1914] 2 Ch 231 at 240, 244; Knight Sugar Co Ltd v The Alberta
Railway & Irrigation Co [1938] 1 All ER 266 at 269.
158. See, eg Hissett v Reading Roofing Co Ltd [1969] 1 WLR 1757 at 1763;
[1970] 1 All ER 122.
159. See Pascon Pty Ltd v San Marco in Lamis Cooperative Social Club Ltd
[1991] 2 VR 227 at 229.
160. [1938] 1 All ER 266 at 269.
161. (1884) 13 QBD 351.
162. [1938] 1 All ER 266 at 269. See also Lawrence v Cassel [1930] 2 KB 83 at
89, applied Dean v Gibson [1958] VR 563 at 572–3 (collateral stipulation);
Hancock v B W Brazier (Anerley) Ltd [1966] 1 WLR 1317 at 1324,
affirmed [1966] 1 WLR 1317 (inference from dual nature of sale of land by
builder); R v Levine; Ex parte de Jong [1981] VR 131 at 133 per Murray J
(‘collateral agreement’). Cf Pascon Pty Ltd v San Marco in Lamis
Cooperative Social Club Ltd [1991] 2 VR 227 (obligation to pay balance of
purchase price).
163. [1938] 1 All ER 266 at 269.
164. See Leggott v Barrett (1880) 15 Ch D 306 at 311; Millbourn v Lyons [1914]
2 Ch 231 at 244. See also Parol Evidence Rule Report, para 2.28.
165. See, eg Masters v Cameron (1954) 91 CLR 353 at 361.
166. See Leggott v Barrett (1880) 15 Ch D 306 at 311 per Brett LJ (deed of
dissolution of partnership ‘superior document’ to agreement for
dissolution).
167. Cf Elpis Maritime Co Ltd v Marti Chartering Co Inc (The Maria D) [1992]
1 AC 21 at 32 per Lord Brandon, with whom the other members of the
House of Lords agreed (‘subsumed in’).
168. See Harnor v Groves (1855) 15 CB 667 at 674; 139 ER 587 at 590 per
Maule J, adopted Gordon v Macgregor (1909) 8 CLR 316 at 319–20
(‘[w]here a contract, though completely entered into by parol, is afterwards
reduced into writing’). See also British and Beningtons Ltd v North Western
Cachar Tea Co Ltd [1923] AC 48 at 67; Southern Cross Assurance Co Ltd v
Australian Provincial Assurance Association Ltd (1939) 39 SR (NSW) 174
at 185.
169. See Equuscorp Pty Ltd v Glengallan Investments Pty Ltd (2004) 218 CLR
471 at 484; [2004] HCA 55 at [36] per the court (‘[i]f there was an earlier,
oral, consensus, it was discharged and the parties’ agreement recorded in
the writing they executed’). See also Gordon v Macgregor (1909) 8 CLR
316 at 319–20. Cf Williams Bros v Ed T Agius Ltd [1914] AC 510 at 527.
170. See Contracts Restatement 2d (1979), §213.
171. See Lamont v Heron (1970) 126 CLR 239 at 245 per Barwick CJ
(‘reduction of an informally made agreement into a formal document’). See
also Sinclair Scott & Co Ltd v Naughton (1929) 43 CLR 310 at 317. Cf
Branca v Cobarro [1947] 1 KB 854 at 858, 859.
172. [1948] Ch 398.
173. Cf Concut Pty Ltd v Worrell (2000) 176 ALR 693; see J W Carter and
Andrew Stewart, (2001)17 JCL 181.
174. See, eg Morris v Baron & Co [1918] AC 1 at 31; British and Beningtons
Ltd v North Western Cachar Tea Co Ltd [1923] AC 48 at 62, 67–9;
Tallerman & Co Pty Ltd v Nathan’s Merchandise (Victoria) Pty Ltd (1957)
98 CLR 93 at 112–13.
175. [1934] 2 KB 394 at 406. See also Hutton v Watling [1948] Ch 398 at 405.
176. Cf Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165; [2004]
HCA 52.
177. See also [10-07], [10-12]–[10-13]. Cf Contracts Restatement 2d (1979),
§213.
178. See Hutton v Watling [1948] Ch 398 at 404 per Lord Greene MR, with
whom Somervell and Cohen LJJ agreed (‘true record of the contract’). See
also Gordon v Macgregor (1909) 8 CLR 316 at 322. Cf Orion Insurance Co
Plc v Sphere Drake Insurance Plc [1992] 1 Lloyd’s Rep 239 at 273, 301
(document was record of agreement which was not intended to create legal
relations).
179. (1917) 23 CLR 443.
180. (1917) 23 CLR 443 at 452 per Isaacs J. Contrast Bank of Australasia v
Palmer [1897] AC 540 at 546 (document not adopted).
181. See [8-12].
183. See [10-19] (sequence of events).
184. [1980] AC 614.
185. [1980] AC 614 at 631. See also Classic Maritime Inc v Lion Diversified
Holdings Berhad [2010] 1 Lloyd’s Rep 59 at 66–7; [2009] EWHC 1142
(Comm) at [47].
186. See [9-56].
187. See [9-17]. See also Gozzard v McKell (1931) 32 SR (NSW) 39.
188. See, eg Barba v Gas & Fuel Corporation of Victoria (1976) 136 CLR 120
at 131–2 (option contract — promise to pay nominal sum); Arrale v Costain
Civil Engineering Ltd [1976] 1 Lloyd’s Rep 98 at 103 (document of
release); Yaroomba Beach Development Co Pty Ltd v Coeur de Lion
Investments Pty Ltd (1989) 18 NSWLR 398 at 407–8 (real (or additional)
consideration for a shares agreement was sale of land). See also Contracts
Restatement 2d (1979), §218(2) (even though agreement appears to be
completely integrated).
189. See, eg Classic Maritime Inc v Lion Diversified Holdings Berhad [2010] 1
Lloyd’s Rep 59 at 67; [2009] EWHC 1142 (Comm) at [47] (‘future’
consideration). See also Re Casey’s Patents; Stewart v Casey [1892] 1 Ch
104; Lilley v Midland Brick Co Pty Ltd (1992) 9 WAR 339 at 343. Cf
Coghlan v S H Lock (Australia) Ltd (1987) 8 NSWLR 88 at 94; 61 ALJR
289 at 292 (advance of money pursuant to contemporaneous or past
request).
190. See [9-20]–[9-33].
191. Cf Yaroomba Beach Development Co Pty Ltd v Coeur de Lion Investments
Pty Ltd (1989) 18 NSWLR 398 at 407.
192. See further Chapter 14. See also [18-19] (evidence to ‘explain’ descriptve
term).
193. See [14-02]. Cf Lilley v Midland Brick Co Pty Ltd (1992) 9 WAR 339 at
343 (no consideration expressed on face of instrument).
194. [1980] AC 614 at 631.
195. [1980] AC 614 at 631.
196. No exception to the parol evidence rule need be considered if the matter is
raised in a claim for rectification. See [9-45].
197. Cf [10-47] (collateral contract).
198. Contrast [10-46] (collateral contract).
199. Homburg Houtimport BV v Agrosin Private Ltd (The Starsin) [2004] 1 AC
715 at 794; [2003] UKHL 12 at [175] per Lord Millett.
200. See Frith v Frith [1906] AC 254; Yaroomba Beach Development Co Pty Ltd
v Coeur de Lion Investments Pty Ltd (1989) 18 NSWLR 398 at 407–8;
Classic Maritime Inc v Lion Diversified Holdings Berhad [2010] 1 Lloyd’s
201. See also [1-11]–[1-12] (preliminary stage in construction).
202. Cf Air Great Lakes Pty Ltd v K S Easter (Holdings) Pty Ltd (1985) 2
NSWLR 309 at 337.
204. [1976] 2 All ER 930.
205. See [10-21]–[10-33].
206. See, eg De Lassalle v Guildford [1901] 2 KB 215 at 222–3; Hoyt’s Pty Ltd v
Spencer (1919) 27 CLR 133 at 139, 145; L G Thorne & Co Pty Ltd v
Thomas Borthwick & Sons (A/Asia) Ltd (1955) 56 SR (NSW) 81; Codelfa
CLR 337 at 402; Yani Haryanto v E D & F Man (Sugar) Ltd [1986] 2
Lloyd’s Rep 44 at 46–7 (affirmed without reference to the point [1986] 2
Lloyd’s Rep 44); Bahr v Nicolay [No 2] (1988) 164 CLR 604 at 651;
Record v Bell [1991] 1 WLR 853 at 861. Cf Contracts Restatement 2d
(1979), §216 (consistent additional term supported by separate
consideration).
207. See, eg J Evans & Son (Portsmouth) Ltd v Andrea Merzario Ltd [1976] 2
All ER 930 at 935; Libyan Arab Foreign Bank v Bankers Trust Co [1989]
QB 728 at 747. On the application of s 2 of the Law of Property
(Miscellaneous Provisions) Act 1989 (UK), see Hanoman v Southwark
London Borough Council (No 2) [2009] 1 WLR 374 at 393; [2008] EWCA
Civ 624 at [57] (affirmed [2009] 1 WLR 1367; [2009] UKHL 29). On the
application of s 4 of the Statute of Frauds 1677, see De Lassalle v
Guildford [1901] 2 KB 215; Leipner v McLean (1909) 8 CLR 306.
208. See also [10-27].
209. [1901] 2 KB 215. See also Angell v Duke (1875) LR 10 QB 174.
210. See the explanation in Heilbut Symons & Co v Buckleton [1913] AC 30 at
50-1 and J J Savage & Sons Pty Ltd v Blakney (1970) 119 CLR 435 at 442.
211. See Parol Evidence Rule Report, paras 2.35–2.36.
212. Heilbut Symons & Co v Buckleton [1913] AC 30 at 47 per Lord Moulton.
See also City and Westminster Properties (1934) Ltd v Mudd [1959] Ch 129
at 145–6 (estoppel); Atlantic Lines & Navigation Co Inc v Hallam Ltd (The
Lucy) [1983] 1 Lloyd’s Rep 188 at 197 (estoppel or collateral contract).
213. See also K W Wedderburn, ‘Collateral Contracts’ [1959] CLJ 58 at 81–5.
But see Hanoman v Southwark London Borough Council (No 2) [2009] 1
WLR 374 at 392; [2008] EWCA Civ 624 at [56] (affirmed without
reference to the point [2009] 1 WLR 1367; [2009] UKHL 29).
214. (1919) 27 CLR 133.
215. (1919) 27 CLR 133 at 147. See also Leipner v McLean (1909) 8 CLR 306
at 313–14; Dobbs v National Bank of Australasia Ltd (1935) 53 CLR 643 at
655; Maybury v Atlantic Union Oil Co Ltd(1953) 89 CLR 507 at 517–8;
Bahr v Nicolay [No 2] (1988) 164 CLR 604 at 651. Cf Waltons Stores
(Interstate) Ltd v Maher (1988) 164 CLR 387 at 400–1 (relationship with
estoppel).
216. See [10-27]. See also Nile Co for the Export of Agricultural Crops v H & J
M Bennett (Commodities) Ltd [1986] 1 Lloyd’s Rep 555 at 560 (no
additional term or collateral contract proved where it was clear that parties
intended document to state all agreed terms). Cf Hamed el Chiaty & Co (t/a
Travco Nile Cruise Lines) v Thomas Cook Group Ltd (The Nile Rhapsody)
[1992] 2 Lloyd’s Rep 399 at 407, affirmed [1994] 1 Lloyd’s Rep 382 (oral
agreement was not collateral).
217. See Codelfa Construction Pty Ltd v State Rail Authority of New South
Wales (1982) 149 CLR 337 at 358 per Mason J, with whom Stephen and
Wilson JJ agreed (‘the parol evidence rule has never been applied so as to
exclude evidence of a condition, non-fulfilment of which goes to the
existence or validity of the contract’). Cf Metro Meat Ltd v Fares Rural Co
Pty Ltd [1985] 2 Lloyd’s Rep 13 at 16 (subsequent conduct to prove oral
agreement included tolerance of 10 per cent more or less at seller’s option).
218. (1856) 6 E & B 370; 119 ER 903.
219. (1856) 6 E & B 370 at 374; 119 ER 903 at 905. See also (1856) 6 E & B
370 at 375; 119 ER 903 at 905 per Crompton J (‘they never came to an
agreement’); (1856) 6 E & B 370 at 375; 119 ER 903 at 905 per Lord
Campbell CJ (‘there never was any agreement’).
220. See, eg Life Insurance Co of Australia Ltd v Phillips (1925) 36 CLR 60 at
71. Cf Contracts Restatement 2d (1979), §217 (agreement not integrated
with respect to oral condition).
221. See D W McLauchlan, ‘Objectivity in Contract’ (2005) 24 Univ Qld LJ 479
at 485. Cf Pym v Campbell (1856) 6 E & B 370 at 374; 119 ER 903 at 905
per Erle J (‘in the present case the defence begins one step earlier’).
222. (1856) 6 E & B 370; 119 ER 903.
223. See Corbin on Contracts, vol 3A, §745 (disapproval would have put an end
to an existing obligation).
224. See [16-30].
225. Cf Codelfa Construction Pty Ltd v State Rail Authority of New South Wales
(1982) 149 CLR 337 at 358.
226. See Parol Evidence Rule Report, para 2.11. Cf Spunwill Pty Ltd v BAB Pty
Ltd (1994) 36 NSWLR 290 at 299.
227. See Meehan v Jones (1982) 149 CLR 571 at 582; Total Gas Marketing Ltd
v Arco British Ltd [1998] 2 Lloyd’s Rep 209 at 221, 224–5.
228. See, eg Consolidated Neon (Phillips System) Pty Ltd v Tooheys Ltd (1942)
42 SR (NSW) 152 at 158.
230. See [9-11] (rule of law).
231. See [10-28]. Contrast Scanlan’s New Neon Ltd v Tooheys Ltd (1943) 67
CLR 169 at 205 (implied term under doctrine of frustration).
232. See Chapter 3.
234. [2009] 1 WLR 1988; [2009] UKPC 10.
235. But cf Wood Hall Ltd v The Pipeline Authority (1979) 141 CLR 443 at 451
per Gibbs J (inability to imply term which would contradict ‘ordinary
meaning’ of the contract).
237. See [10-28] and further [10-56].
238. See [3-18].
239. [1896] 2 QB 59.
240. Cf Consolidated Neon (Phillips System) Pty Ltd v Tooheys Ltd (1942) 42
SR (NSW) 152 at 159 per Jordan CJ, with whom Halse Rogers J agreed and
Roper J concurred (‘exceptional case’).
241. See Slater v Finning Ltd [1997] AC 473 (importance of communication of
purpose in giving seller opportunity to exercise its skill or judgment). Cf
1 (evidence to rebut implication).
242. See Criss v Alexander (1928) 28 SR (NSW) 297 at 300–1 (common law
rule applicable to hire contract).
243. See [18-39].
244. See [12-15], [12-37]–[12-38], [14-11]–[14-13].
245. (1986) 160 CLR 226 at 237.
246. But see [14-13].
247. (1986) 160 CLR 226 at 237.
248. See [14-21].
249. See [10-13]. See also Gemmell Power Farming Co Ltd v Nies (1935) 35 SR
(NSW) 469 at 476 (evidence of course of dealing may be used to support,
negative or vary the implication of a term which would otherwise be
implied); Fal Bunkering of Sharjah v Grecale Inc of Panama [1990] 1
Lloyd’s Rep 369 at 372 per Saville J (no need to discover ‘actual
intentions’); Capes (Hatherden) Ltd v Western Arable Services Ltd [2010] 1
Lloyd’s Rep 477 at 484, 485; [2009] EWHC 3065 (QB) at [33], [42]
(limited course of dealing did not justify conclusion that terms were
included).
250. See [10-28].
PART VI
Meaning of the Contract
11
Meaning and Legal Effect
Issues and Concepts [11-03]
Meaning and Linguistic Theory [11-07]
General [11-07]
Meaning and Application [11-13]
‘Categories’of Meaning [11-15]
Natural Meaning [11-18]
The Perspective Rule [11-22]
General [11-22]
Perspectives for Promissory Statements [11-24]
Impact of ‘Common Intention’ [11-27]
Scope of Application [11-29]
[11-01] Objects of Part VI. Dealing with ‘meaning’ is necessarily a
fundamental concern of commercial construction. Very little has been done by
way of theoretical analysis of the concept of meaning in the common law of
contract. And for good reason. The meaning of a contract is such a practical
issue that it is inappropriate to think in terms of prescriptive principles divorced
from particular factual situations. However, construing a contract is a specialised
process, and the absence of a theoretical perspective for meaning has served to
create uncertainty and inconsistency. The relationship between linguistic
meaning of a contract and its legal effect is also important.
This Part of the book attempts to explain the use of principles of commercial
construction to determine the meaning of a contract. There are five main
elements: (1) the concepts of meaning and legal effect in construction; (2) a
‘perspective rule’, that is, the idea that contracts are construed from the
perspective of a particular reasonable person; (3) the concept of a ‘standard of
interpretation’, that is, the idea that the reasonable person has a certain
‘vocabulary’; (4) the ‘choice of meaning’ process; and (5) what factual raw
material is available in construction, including under exceptions to the
exclusionary rule.
This chapter is principally concerned with the first two issues. However, it
touches on the general principles relevant to the other issues. Chapter 12
discusses the concept of standard of interpretation. Chapter 13 deals with the
choice of meaning process. The use of evidence in construction is discussed in
Chapter 14.
[11-02] Objects of this chapter. One objective of this chapter is to explain the
concept of ‘meaning’ in construction. The emphasis is, of course, on written
utterances. In order to determine the meaning of an utterance, it is necessary to
identify the basis on which meaning is determined. Consideration of that
question is the second main concern of this chapter. It is not a sufficient answer
to say that meaning must be determined ‘objectively’, that is, from the
perspective of a reasonable person.
The concept of a ‘perspective rule’ assumes two things. First, the reasonable
person stands in a particular position, generally that of the person to whom the
words at issue were addressed. In this chapter, emphasis is given to the legal
implications of this assumption.
Second, the reasonable person is taken to have a certain amount of factual
knowledge. In relation to issues of meaning, that knowledge includes the context
of the contract and a particular ‘vocabulary’. The latter relates to usages under
what is termed the ‘standard of interpretation’.
As matters which inform both assumptions, also discussed are the differences
between the meaning of words and the meaning of a contract, and between the
meaning of a contract and its legal effect.
ISSUES AND CONCEPTS
[11-03] Meaning. The first question in relation to meaning is ‘Whose
meaning?’. From a purely linguistic perspective, the meaning of an utterance is
the meaning intended to be conveyed by the person who made it. Similarly, the
meaning of a contract is the parties’ intended meaning. However, under the
objective theory of contract, ‘meaning’ refers to communicated meaning. That is
generally determined by applying a legal rule, namely, the ‘perspective rule’.1
Under that rule, ‘meaning’ is the meaning which a reasonable person in the
position of the person to whom the words were addressed would place on the
words. As a matter of law, that meaning is presumed to be the meaning actually
intended by the parties.2
Application of the perspective rule assumes that the reasonable person has
certain knowledge. In addition to knowledge of context, the reasonable person
must have a ‘vocabulary’.3 As members of the community at large, the parties to
contracts always have the ‘vocabulary’ of that community. But they may also use
specialised words (or other symbols) or use words which have common usages
in specialised senses. It is therefore necessary to conceive that particular
standards of interpretation mediate between words (and other symbols) and the
usages available to the reasonable person. Accordingly, in order to apply the
perspective rule, an answer must be given to a second question, namely, ‘Whose
standard?’.
The object of applying the perspective rule is to arrive at a single meaning for
a contract (or any other utterance). However, because more than one meaning
may be tenable, it may be necessary to choose between competing meanings. A
third question of meaning must therefore arise, namely, ‘Which meaning?’.
There is no single basis for answering that question. But it is a function of
principles of commercial construction to ensure that choices are made in a
coherent way.4
Decisions in relation to ‘meaning’ of a contract may also embody conclusions
about how the contract is applied.5
[11-04] Fact and law. Where a written utterance is construed, the conclusion is
one of law.6 That is true whether the utterance is a contract or a statement such as
an offer. However, in relation to a purely verbal utterance, meaning is
determined as a matter of fact.7
Because the rule that a conclusion as to the construction of a document is one
of law is to some extent technical, further distinctions have been drawn. In some
cases, the meaning of words in their ‘ordinary sense’, has been regarded as a
question of fact, even where the words appear in a document.8 And in
Carmichael v National Power Plc,9 Lord Hoffmann referred10 to the
‘construction of documents in their natural and ordinary meaning’ as a question
of fact which is treated as a question of law. Some cases therefore contrast the
position where words are used in a specialised sense.11 A broader view may have
been taken by Lindley LJ in Chatenay v Brazilian Submarine Telegraph Co
Ltd.12 He said13 the meaning of words is a ‘question of fact in all cases, whether
we are dealing with a poem or a legal document’.
However, there is a difference between the senses in which words (or other
symbols) may be used — their range of meanings — and the sense in which they
have been used in the document.14 The former is an issue of fact. However, it is
only possible to identify the latter after the contract has been construed. Once
that has occurred, linguistic sense can also be described in factual terms, and that
must be true whether or not that sense is ‘common’ or ‘special’.15 But the point
remains that it is the construction of the document — a conclusion of law —
which determines the sense in which a word or expression has been used.16
[11-05] Issues of legal effect. The legal effect of a contract is the sum of the
rights that the contract confers, as determined by construction and the
application of doctrine. Legal effect is a matter of intention to which the
objective theory applies. If legal effect is determined by construction, principles
of commercial construction also apply. That includes the perspective rule.17
However, ‘meaning’ and ‘legal effect’ are different concepts.
The concept of ‘legal effect’ has several aspects.18 Many of these involve
issues of characterisation, such as whether a statement is a promise, whether a
promise is a condition and whether a contract is one of guarantee. Those
characterisations lead to conclusions about legal rights. For example, any breach
of a condition entitles the promisee to terminate the contract and, if a contract is
one of guarantee, it is regarded as having (as a matter of presumption) certain
legal incidents.
There are three important points about the relationship between meaning and
legal effect in construction. The first is that, in principle at least, there is a
distinct sequence of inquiry. The meaning of the contract must be known in
order for the legal effect of the contract to be determined.
Second, the role of precedent is more significant in relation to the legal effect
of a contract.19 For example, assume that a seller tenders non-comforming goods
and the buyer purports to reject the goods for breach of an express quality term.
The right of the buyer to do so depends on the intention of the parties. The issues
include whether the seller’s promise should be classified as a condition, a
warranty or an intermediate term. That is an issue of construction which is
heavily influenced by precedent.20
Third, ultimately, the legal effect of a contract is the result achieved when it is
applied to a particular factual situation.21
[11-06] Distinguishing between meaning and legal effect. The rules applied in
the construction of contracts sometimes blur the distinction between linguistic
meaning and legal effect. One aspect is that the legal significance of words may
be determined in the choice of meaning process.22 Because there is a certain
amount of ‘legal interpretation’,23 even where words have common usages,
precedent may play a role in relation to meaning.
Another aspect is that the construction of any document is always the
expression of a legal conclusion. The fact that a particular construction (legal
conclusion) can be expressed in terms of a meaning which is understood by an
ordinary member of the public does not imply that the linguistic meaning of a
document is all that has been determined.24 For example, in Carlill v Carbolic
Smoke Ball Co,25 given the context in that case of an advertisement circulated to
the public at large, the applicable standard of interpretation was that of the
general community.26 The words used — ‘will be paid’ — were construed to
mean ‘will be paid pursuant to a contract’. The construction of the advertisement
as an ‘offer’ was a conclusion as to the legal effect of the advertisement. But the
analysis would have been just the same if the word ‘offer’ had been used in the
advertisement. That an ordinary member of the public would understand that one
meaning of ‘offer’ is ‘offer to enter into the contract’ simply illustrates that a
legal usage may also be a community usage. The construction decision involves
more than a choice between competing ‘meanings’ for a single word.27
MEANING AND LINGUISTIC THEORY
General
[11-07] Introduction. The contrast which the law draws between intended
meaning and communicated meaning determined by the application of a legal
rule is in one sense purely technical, derived from the objective theory of
contract. However, it is also a reflection of four features which distinguish the
concept of meaning in construction from meaning in everyday speech.28 First,
contracts create legal rights. It would be contrary to good faith for the meaning
of a contract — and therefore legal rights — to depend on either party’s
uncommunicated subjective intentions.29 In addition, the exclusionary rule30
limits the ability to rely on communicated subjective intentions not embodied in
the document.
Second, whereas in everyday speech utterances are generally unilateral,
contracts are bilateral (or multilateral) utterances. The concern is with
‘common’, ‘joint’ or ‘shared’ meaning. Therefore, one person’s subjective
understanding of another’s intention is also generally irrelevant.
Third, it follows that when a document states (or evidences) the terms of a
contract, individual intentions are assumed to have been embodied in the
document as a shared intention. When construed in light of admissible evidence,
the conclusion about the intention of the parties is necessarily a ‘construct’.31
Fourth, no distinction is drawn in the application of the objective approach to
unilateral utterances made in connection with a contract or proposed contract.
Therefore, the perspective rule continues to apply.
The search for the meaning of a contract, particularly when stated in
documentary form, is therefore a specialised one. The meaning of a contract
depends on the application of specialised rules which owe little to linguistic
theory, as applied to utterances made in ordinary life. That is not to say that
construction can only be carried out by a lawyer. But it is a mistake to conclude
from the fact that people can determine what their contracts mean as a matter of
English that contracts are construed under the same ‘rules’ as apply in ordinary
speech.32 The differences between the specialised process of contract
construction and the interpretation of utterances in ordinary life do provide some
insights into the construction process. But the relevance of linguistic theory is
that it helps to explain why the construction of contracts is ‘special’.33
[11-08] Words as symbols. It is elementary that words are merely symbols by
the use of which — along with other symbols — communication occurs.
Generally the symbols are, of themselves, quite meaningless. Symbols are
intended to refer to or name things (‘referents’).34 However, the conventional
view is that there is no direct connection between words as symbols and the
referents to which they are attached by a speaker.35 Basic semantic theory
suggests that the connection between the two is indirect and achieved via a
concept. That concept is ‘meaning’. Only the person who makes an utterance can
know its intended meaning. It is irrelevant whether the utterance is verbal or
written. So far as the addressee is concerned, communicated meaning is also
determined on a subjective basis.
The symbols in contracts also have intended referents. The task of anyone
called upon to adjudicate a contract dispute by construing a contract is to
determine the intended referents. For most contracts there are two points of
reference, namely, when the contract was agreed and when it is applied in
performance. What matters is communicated meaning. Since that is generally
determined on an objective basis,36 the adjudicator’s task cannot be discharged
by reference to what that person would subjectively have understood as the
communicated meaning. One purpose of principles of commercial construction
is to reduce the risk of that occurring. The objective approach to meaning, the
emphasis on expressed intention37 and general rules and principles38 which must
be applied to all contracts, are designed to ensure that the appropriate (intended)
meaning is interposed by the adjudicator and applied in accordance with the
intention of the parties. What is at issue is the meaning of the contract, not the
meaning of words.
[11-09] Contracts as utterances. All utterances are units of communication. In
relation to any utterance, there is a difference between what a word may mean,
the sense in which a word is used in a particular utterance and the meaning of the
utterance itself. In ordinary life, the only objective element is what words may
mean, as identified in any reliable dictionary of English usage.
In ordinary speech, utterances are unilateral and informal. They are not
sentences. Rather, they are expressions of thought. Where an utterance begins
and ends may not be easy to detect. Contracts are bilateral (or multilateral)
utterances and, as a matter of law, the unit of communication is the contract as a
whole. ‘Meaning’ is determined on that basis. It follows that although
conversations comprise a collection of discrete utterances each of which has its
own meaning — determined on a sequential basis — a contract is a single
utterance the meaning of which is determined on a ‘global’ basis.39 Similarly,
although distinctions between what a word may mean, the sense in which a word
is used and the meaning of the utterance itself are relevant, in relation to a
contract the concern is with the utterance as a whole.40
[11-10] Clues to meaning. Linguistically, there is an important difference
between spoken and written utterances.41 Spoken words have no sentence
structure as such. Documents which state or evidence contracts are expressed in
formal sentence structure. The clues to meaning differ accordingly.42 In relation
to verbal utterances, pauses, intonation, gestures, and so on, provide guidance.
Since such clues are simply not present in documents,43 reliance must be placed
on other matters. If a contract is a verbal bargain it must, in effect, be constructed
on the basis of pleadings and from evidence. In that process many of the clues to
meaning in relation to spoken English, such as emphasis, intonation and gesture,
are lost.
The fact that the clues to meaning differ as between spoken and written
utterances is significant at the theoretical level as well. For example, the
linguistic concept of ‘ostensive definition’44 is limited to contracts relating to a
physical subject matter which is present when the parties contract. For example,
in a face-to-face verbal contract for the sale of specific goods, the seller may
point to the goods. In all other cases the subject matter can merely be described.
Accurate definition then depends on the words chosen properly and sufficiently
identifying the subject matter. And due performance of the contract occurs if
what is tendered matches the contractual definition.
Whether an utterance is verbal or documentary, the role of context is crucial.
A person who shouts the word ‘fire’ may be warning others of the presence of a
fire or giving a particular instruction. The law now treats as self-evident that
factual context must be taken into account where the meaning of words in a
document is being considered. Given the general importance of context to
meaning, it is not easy to explain the technical difficulties which have arisen in
relation to its role in construing documents.45 However, the fact that the basic
rules for construing contracts were developed long before a general theory of
semantics emerged46 clearly had something to do with it. Nevertheless, a legal
concept is employed. When compared with the concept employed in non-legal
utterances, the legal conception of ‘context’ is a narrow one.47
[11-11] Meaning as relative concept. Meaning is a relative concept. But for a
long time decisions on the construction of contracts often approached meaning
as if it were an absolute concept.48 There are, for example, numerous references
in the cases to the idea that words may have ‘fixed’ meanings.49 In Holt & Co v
Collyer,50 Fry J was required to construe the word ‘beerhouse’ in a lease. It was,
he said:51
… important to the public that the meaning of the word ‘beerhouse’
should be ascertained once for all, because then persons who have to
draw instruments relating to businesses of this sort will know on what
principle to proceed, and counsel who are called upon to advise whether
there is or is not a case to proceed upon at law will know how to advise.
The passage illustrates the fallacious belief that some words have ‘absolute and
constant referents’.52
Such views are seldom ventilated today.53 If the modern cases on commercial
construction stand for anything, it is that the meaning of words in contractual
documents varies according to the contexts in which they are used. It is
nevertheless worth making the point that much of the controversy in relation to
the use of context in construction54 can be traced to non sequiturs such as that
particular words have ‘fixed’ linguistic meanings when used in contracts.
Equally, because the construction of contracts differs from the interpretation of
utterances in ordinary life, there is no doubt that judicial decisions may create
presumptions about the meanings of words.55
[11-12] Multiple meaning. All words in common use have more than one
meaning. It is therefore not surprising that simple words such as ‘and’, ‘upon’
and ‘after’ are capable of leading to lively debate in construction disputes.56 The
function of construction is to determine which of the various meanings was
intended by the parties.
In linguistics, a distinction is drawn between multiple meaning (‘polysemy’)
and ‘homonymy’, where the same word form has two or more meanings which
are regarded as separate words even though the symbol is the same.57
Lexicographers indicate the presence of multiple meaning by listing the various
meanings under a single entry.58 For example, the word ‘execute’ has multiple
meanings, such as ‘carry out’ and ‘inflict capital punishment’. In contract
documents the word ‘execution’, when used in the sense of ‘carrying out’, may
refer to the signing of a document in accordance with applicable legal rules, or
performing the obligations created by the contract.59 But the word ‘contract’ has
not only multiple meanings, but also multiple dictionary entries to distinguish
between, for example, ‘making something smaller’ and ‘a legally binding
agreement’.
In relation to ‘contract’ it is relatively easy in both speech and writing to
distinguish between use of the same form to refer to different things. However, it
may be difficult to decide which of the various possible meanings the word
‘execute’ was intended to have. Indeed, multiple use of the word in a single
contractual provision may lead to conclusions that it refers to the signing of a
document in one place and performance of the contract in another.60 And there is,
particularly for lawyers, an inherent ambivalence towards the word ‘contract’,
which may refer to a contractual document or to the bargain which the document
expresses or evidences.61
Although anyone entrusted with the task of construing a contract will
intuitively understand distinctions of the kind described above, judicial notice of
multiple meaning, with or without recourse to dictionaries, is an incomplete and
inadequate tool for the analysis of symbols when divorced from their factual
context. Differences in meaning can only be determined by reference to context.
That is true even in relation to a defined term.62 The idea that, because a
document has a single external context, it will use a word with multiple
meanings in a single sense was exploded long ago.63
Meaning and Application
[11-13] Denotation and connotation. Another semantic distinction is between
denotation and connotation.64 For example, from one perspective, where a word
or expression refers to a physical thing (for example, ‘vehicle’) or property (for
example, ‘blue’), its ‘denotation’ comprises the range of objects to which the
word or expression can be applied (for example, ‘all vehicles’ or ‘everything
blue’). The ‘connotations’ of a word or expression then comprise the elements
which, by describing the attributes which the thing must have for the word or
expression to apply to it, serve to define the range of potential applications for
the word or expression in the physical world (for example, ‘light blue motorised
vehicle’).
In Hope v RCA Photophone of Australia Pty Ltd,65 a contract for the hire of
goods described the subject matter as ‘electrical sound-reproduction’ equipment.
Those words were capable of denoting, for example, new equipment, used
equipment or equipment of any colour.66 Accordingly, if applied literally, the
supplier’s obligation would be discharged by the supply of either new or used
equipment or, for example, blue equipment. In the case, the contention of the
hirer was that the words were intended to refer only to ‘new’ equipment. Latham
CJ characterised67 this contention as an attempt to add an attribute which, by
enriching (increasing) the connotation of the description, decreased its
denotation. In contractual terms, he saw an increase in connotation as refining
the obligation of the supplier by narrowing the items of electrical sound-
reproduction equipment which would match the contractual description and
therefore satisfy the requirements of the contract when performed.
Translating semantic theory to legal rules, Latham CJ reasoned that the
construction placed on the contract by the hirer in Hope v RCA Photophone of
Australia Pty Ltd was not permissible because there was no promise to supply
‘new equipment’. The hirer’s contention in relation to the ‘meaning’ of the
contract was therefore viewed as a contention that the supplier had warranted
that ‘new’ goods would be supplied. Applying the parol evidence rule (and the
entire agreement clause that the contract contained), Latham CJ said that
evidence of an oral promise to prove the warranty would have been
inadmissible. However, Dixon J explained:68
It is evident that, although in the bare words of a written agreement
interpreted apart from circumstances nothing can be found amounting to
a condition or warranty stipulating that articles supplied under the
agreement shall be new, yet proof of the character of the parties and of
the surrounding circumstances may show that the writing so intended. In
such a case the true meaning of terms expressed in the document may be
understood only when the surrounding circumstances are known.
From both a legal and a linguistic perspective, Dixon J’s approach was clearly
correct.69 Whether the supply of second-hand equipment satisfied the contract
depended on the context in which the words at issue were used. All that the
document established was an indeterminate description, namely, ‘electrical
sound-reproduction’ equipment. Relevantly, the meaning of the document
established no more than how the words used were capable of being applied.
[11-14] Application of the contract. A decision about what a contract ‘means’
will frequently embody a decision about how the contract should be applied to
the facts in performance. Notwithstanding that application of a contract is
temporally divorced from the circumstances in which it was agreed, conclusions
in construction must determine the scope of application of a contract.70 The
distinctions between symbol and referent, and between denotation and
connotation, do provide insights into the process of applying contracts to factual
situations.71 They identify issues. But they do not provide solutions. That is
unsettling. Because a contract can have only one construction, the law permits
only yes or no answers.
Dictionaries may assist when deciding what words in a contract may mean,
but it is construction of the contract which determines what the words at issue
are intended to mean. Similarly, what words may mean assists when deciding
how they should be applied, but it is construction of the contract which
determines how they are intended to apply. In terms of ‘matching’ issues such as
arose in Hope v RCA Photophone of Australia Pty Ltd,72 disputes characterised
as ‘meaning’ disputes are more about scope of application. As was explained
above, the issue was whether supply of second-hand ‘electrical sound-
reproduction’ equipment would discharge the supplier’s obligations. When the
symbols (the words quoted from the contract) were applied to the relevant
referent, namely, the second-hand equipment which had been supplied, the High
Court of Australia held that the contract had been performed. There was no
breach by the supplier because the thing supplied (referent) matched the
symbols. However, the court did not attempt to explain all the possible
applications of the contract. Nor was it relevant to consider other attributes, such
as colour. The problem with Latham CJ’s use of semantic theory is the erroneous
assumption that semantics requires the literal application of words to referents.
Not only does it leave out subjective meaning, it also requires the decision on
meaning to be made without the benefit of what is, linguistically, the ‘context’ of
an utterance. It also ignores the fact that the relevant ‘referent’ was not even
present when the contract was agreed. Therefore, in a broader sense, it is the
scope of application of words, rather than their ‘meaning’, which is at issue in
such cases. Although the scope of application of a given meaning depends on a
further decision, namely, how that meaning should be applied, the construction
of the contract will embody both decisions. Thus, Latham CJ’s construction
embodied a decision that the contract was intended to be applied literally.
Courts are often faced with expressions which are ‘indeterminate’ from a
semantic perspective at the time when agreed. All that can be said on the basis of
the document is that words like ‘electrical sound-reproduction’ equipment are
capable of being applied to various things. Considered in isolation, the meaning
of the document is indeterminate because it is unclear that ‘electrical sound-
reproduction’ is intended to be a complete definition of the attributes of the
subject matter.73 From a legal perspective, because construction is a specialised
process, commercial construction distinguishes between the meaning of a
contract and its scope of application. In order to avoid slavish adherence to
literalism, it employs a concept to mediate between meaning and application. In
this book that concept is termed the ‘standard of application’.74
‘Categories’ of Meaning
[11-15] ‘Proper’ and ‘true’ meaning. The cases abound with references to the
‘proper meaning’,75 ‘true meaning’,76 ‘proper construction’,77 ‘true
construction’,78 and so on, of words, documents and contracts. Such descriptions
are relevant to construction only if understood in the sense of ‘agreed’ or
‘intended’ meaning or construction. However, there seems no doubt that, on
occasion, epithets such as ‘true’ and ‘proper’79 have been used to express value
judgments about what words ought to mean.80 Since there is no place in the
construction of contracts for an abstract concept of ‘true’ or ‘proper’ meaning,
those descriptions can only refer to the meaning which is ‘constructed’ by
applying principles of commercial construction. The various descriptions must
be taken to express (or at least reflect) the legal rule that a contract can, in its
application to a particular set of facts, have only one construction.81 As a matter
of law, that construction is taken to be the parties’ meaning. For example, in
Hutton v Watling82 Lord Greene MR said:83
The true construction of a document means no more than that the court
puts upon it the true meaning, being the meaning which the other party,
to whom the document was handed or who is relying upon it, would put
upon it as an ordinary intelligent person construing the words in a proper
way in the light of the relevant circumstances.
Therefore, it is not legitimate to approach the construction of a contract on the
basis of an evaluation of dictionary meanings from the perspective of what is
‘true’ or ‘proper’. However, that process has sometimes been used. For example,
in L Schuler AG v Wickman Machine Tool Sales Ltd84 the question was whether a
distributorship agreement could be terminated for breach of a term (cl 7(b))
which stated that it was a ‘condition’ of the contract that the distributor would
make weekly visits to clients. Surprisingly, this was characterised as an issue of
meaning. When the case was before the Court of Appeal,85 Lord Denning MR
said:86
There are three meanings of ‘condition’ open to us. The first is the proper
meaning, which is given pride of place in the Oxford English Dictionary:
‘Something demanded or required as a prerequisite to the granting or
performance of something else’: and which is carried over into the law in
this way: ‘In a legal instrument, eg a will, or contract, a provision on
which its legal force or effect is made to depend’.
…
The second meaning of ‘condition’ is the common meaning which
receives little attention in the Oxford English Dictionary: ‘a provision, a
stipulation’.
The word is frequently used by laymen and lawyers in this sense.
When an agreement is made for the sale of land, it is always subject to
‘conditions of sale’. …
[T]he third meaning of ‘condition’… is the meaning given to it by
lawyers as a term of art. A ‘condition’ in this sense is a stipulation in a
contract which carries with it this consequence: if the promisor breaks a
‘condition’ in any respect, however slight, it gives the other party a right
to be quit of his future obligations and to sue for damages: unless he, by
his conduct, waives the condition, in which case he is bound to perform
his future obligations, but can sue for the damages he has suffered. A
‘condition’ in this sense is used in contrast to a ‘warranty’.
In the result, Lord Denning MR rejected all three meanings in favour of
construing cl 7(b) as ‘an important term of the agreement’.87 That was hardly
surprising. Apart from the limitations inherent in seeking to determine the
meaning of a contract by reference to the various meanings of a single word in a
dictionary, the relevant issue was not one of meaning. What was at issue was
whether the parties had agreed that the contract could be terminated for any
breach of cl 7(b). The use of the word ‘condition’ in the clause was a relevant
consideration, but it was the legal effect of the contract as a whole which was at
issue, not the meaning of a single word in one ungrammatical clause. Although
the House of Lords agreed with the Court of Appeal that the term was not a
condition — without adopting Lord Denning MR’s analysis of meaning — Lord
Simon thought88 it relevant to consider ‘primary’ and ‘secondary’ meanings of
the word ‘condition’.
[11-16] ‘Primary’ and ‘secondary’ meaning. When ‘primary’ meaning is
distinguished from ‘secondary’ meaning in construction, the contrast is usually89
between ‘plain’ meaning (‘primary meaning’) on the one hand and some trade,
technical or scientific meaning (‘secondary meaning’) on the other.90 Where a
word has both ordinary meanings and other meanings, the terminology may,
perhaps, be useful to mark off community usages from specialised usages.
Nevertheless, questions of ‘primary’ meaning do not figure in the drafting of a
contract, and evidence of what the parties considered to be the primary meaning
of any word they used is simply not admissible.
The terminology is capable of masking an unexplained value judgment about
what ought to be the meaning of the words for the parties. The fact that a judge
or arbitrator may consider that the community at large would have used a word
in a particular (different) sense merely establishes that the parties’ usage is a
‘secondary’ one from the community’s perspective. If it is clear that a word has
been used in a different sense (from that of the community), for the parties their
meaning is the ‘primary’ meaning. From their perspective, the meaning in
common usage is then a secondary meaning. And whatever the utility of the
distinction in relation to issues of linguistic meaning, it can have no value in
determining the legal effect of a contract.
The primary–secondary contrast was, however, relied on in that context by
Lord Simon in L Schuler AG v Wickman Machine Tool Sales Ltd.91 It will be
recalled that the question was whether cl 7(b) of the distributorship contract
stated a promissory condition. The distributor agreed to make weekly visits to
clients. Clause 7(b) stated that obligation in terms that ‘[i]t shall be [a] condition
of this agreement’. After describing92 as the ‘primary legal sense’ of the word
‘condition’ the meaning stated by Fletcher Moulton LJ in his dissenting
judgment in the Court of Appeal in Wallis v Pratt,93 Lord Simon said:94
It was argued on behalf of the respondents that ‘condition’ does not, since
recent cases (eg, Hongkong Fir Shipping Co Ltd v Kawasaki Kisen
Kaisha Ltd [1962] 2 QB 26), bear this primary meaning in the law of
contract. But … [the] sense designated by Fletcher Moulton LJ is still, in
my view, the primary meaning of ‘condition’ as a legal term of art. It is
therefore, prima facie, in this sense that the word is used in cl 7(b).
Having rejected this meaning as the construction of the contract,95 Lord Simon
considered a ‘secondary meaning of “condition” as a term of art’, namely,
‘contractual term’. He rejected that meaning as well, and concluded that breach
of cl 7(b) was a ‘material breach’ for the purposes of another provision of the
contract. Therefore, the contrast between primary and secondary meanings
proved to be quite pointless.
[11-17] ‘Proper’ and ‘desired’ meaning. Words do not have abstract ‘proper’
meanings. There may be usages which are etymologically or grammatically
correct in a given utterance, for particular people at a particular time or place.
But for the parties to a contract, the only ‘proper’ meaning is that to which they
agreed. Although it is common sense to expect the parties to have used an
available meaning for a word, in no respect are parties required to observe rules
or conventions, etymological, grammatical or otherwise.96 Glanville Williams
argued97 that, even in law, the expression ‘proper meaning’ can only
scientifically be used to refer to an ordinary meaning of a word in the
community or to a meaning assigned by the parties. If used in some other sense
it is a synonym for ‘desired’ meaning, and is no more than an expression of what
ought to be the proper (intended) meaning. Williams’s approach may be
somewhat dated from the perspective of semantic theory, but it remains a cogent
criticism of the way in which the objective approach to contract construction has
sometimes been carried out.
The relevant issue is always the meaning of the contract, not the meaning of a
particular word. Unless dictated by precedent, there is no justification today for
approaching a contract with a pre-conceived notion of what ought to be the
meaning of a word or expression. Precedent hardly ever determines meaning in a
negotiated bargain.98 Use of the standard of interpretation concept is important.99
For example, if in L Schuler AG v Wickman Machine Tool Sales Ltd100 the
linguistic meaning of ‘condition’ had been at issue, the first question would have
been whether the standard of interpretation was that of the community at large. If
so, use by the parties of a meaning known only to lawyers would have been
unlikely. However, because the legal effect of the contract was at issue, the
meaning of the word ‘condition’ was of marginal relevance. Therefore, had the
parties so intended, cl 7(b) of the contract could have been construed as stating a
promissory condition even if it had said ‘[i]t shall be [a] [term] of this
agreement’.
Use of the concept of ‘natural meaning’ creates similar problems.
Natural Meaning
[11-18] Introduction. The construction of contracts is a search for ‘intended’
meaning. It is not a search for ‘natural meaning’.101 Under principles of
commercial construction, the search is for the ‘commercially sensible’
construction.102 However, courts often insist that the starting point for any
construction dispute — no matter what the issue — is the ‘natural meaning’ of
the words at issue. Of the many problems which such an approach presents, four
may be mentioned.103 The first is that, like all attempts to postulate that there is
some universal guide to the meaning of words, the concept has no scientific
basis. Every negotiated contract is a unique instrument. The words and syntax of
any clause are also likely to be unique. The task of the person who construes the
contract is to determine its meaning. Whether it is a ‘natural’ one is largely
irrelevant.
The second problem is therefore that application of a natural meaning concept
is apt to confuse intended meaning with the way in which the adjudicator of the
dispute would use words. Construction on that basis is the expression of a purely
subjective view. What may be ‘unnatural’ to the parties may be quite ‘natural’ to
the person called upon to determine the meaning of the contract.104 In litigated
construction disputes, natural meaning is unlikely to provide a solution. For
example, in Investors Compensation Scheme Ltd v West Bromwich Building
Society105 Lord Hoffmann considered106 that the court was faced with a choice
between ‘competing unnatural meanings’. And in Re Sigma Finance Corp (in
administrative receivership)107 one reason why the Supreme Court disagreed
with the lower courts was that too much weight had been attached ‘to what the
courts perceived as the natural meaning’ of one sentence of the clause at issue.
Third, in all cases there is an unstated assumption as to the underlying
concept on which ‘natural’ relies.108 Since in contract construction ‘meaning’ has
several senses, different concepts for ‘natural’ are at work. One is referenced to
‘construction’ in the sense of linguistic meaning. The others are referenced to the
use of construction to determine the legal effect of a contract and the scope of its
application.
Fourth, the idea that words (or contracts) have ‘natural’ meanings assumes a
certain degree of coherence and care in drafting in the documentation. Given that
many of the contracts which come before the courts are typified by poor
drafting,109 it may not be easy to detect a natural construction. Similarly, the
person who adjudicates the dispute is often confronted by bad grammar,110 the
use of old-fashioned language111 or a lack of punctuation.112 It is difficult to see
how applying a concept of natural meaning can be of assistance. It is counter-
intuitive to suggest that construction problems which have driven parties to
formal dispute procedures are likely to be resolved by recourse to ‘natural
meaning’.113 Again, it is notorious that standard form contracts are not models of
clarity, and the search for any meaning — natural or otherwise — is exacerbated
by problems such as choice of the wrong standard form114 and obscure
adaptations115 of standard forms.
[11-19] Linguistic sense. Perhaps the most common usage for ‘natural’ is in
reference to linguistic meaning.116 When used in that way, it seems equivalent in
sense to ‘plain meaning’.117
This usage therefore reflects, or suggests, a presumption that the linguistic
sense of words is the plain meaning of words. For example, in Investors
Compensation Scheme Ltd v West Bromwich Building Society118 Lord Hoffmann
referred119 to the ‘“rule” that words should be given their “natural and ordinary
meaning”’. In similar vein, in relation to a clause or word string, natural meaning
may refer to the ‘natural sense’ of the words under conventions of grammar and
syntax.120
There is no doubt that contracts must be construed with due regard to
conventions in language. But conventions do not determine the meanings of
contracts.121
[11-20] Legal effect. The concept of ‘natural meaning’ is sometimes employed
where the legal effect of a contract is at issue.122 For example, in Pagnan SpA v
Tradax Ocean Transportation SA123 sellers agreed to sell tapioca pellets on FOB
terms to buyers for importation into what was then the EEC. Under the heading
‘Special Conditions’ appeared the statement: Sellers to provide for export
certificate enabling Buyers to obtain import licence into EEC under tariff 07.06
with 6% import levy.
A quota system restricted the import of tapioca pellets, and a co-operation
agreement between the EEC and Thailand (where the goods were to be obtained)
included an undertaking to limit exports by a system of export certificates. The
sellers were unable to obtain certificates for the April and May deliveries. Were
they in default? Steyn J said124 that the special condition imposed the duty of
obtaining the certificate on the sellers, and that it was a ‘matter of construction’
whether that duty was a strict duty or one requiring the exercise of reasonable
diligence. On the basis that the contract was not to be approached with any
preconceptions, Steyn J said125 that the ‘natural meaning’ of the words was ‘more
consistent’ with a strict obligation than a duty to use diligence. His decision was
affirmed by the Court of Appeal.126
Two things may be said about this analysis. First, since the linguistic sense of
the words was not at issue, the question was not one of meaning, ‘natural’ or
otherwise. The question was what had to be done to discharge the obligation
which the provision created. The construction issue related to the legal effect of
the contract, namely, the standard of contractual duty which the contract created.
That was a question of law to which prior authority was relevant.
Second, use of the word ‘natural’ masked the application of a default rule, to
the effect that agreement to a strict standard of duty should be inferred from an
agreement expressed in the form ‘A promises to do X’.127 An inference of that
nature is common for sale of goods contracts. In relation to export and import
licences there is a body of law to the effect that a promise expressed in
unqualified terms is presumed to create a strict duty.128 In that respect, the basis
for the decision in Pagnan SpA v Tradax Ocean Transportation SA was
doctrinal. The construction of the contract was ‘natural’ in the sense that there
was nothing to indicate that the parties had contracted out of the default rule.
[11-21] Application of the contract. Concepts such as ‘natural meaning’ do not
generally assist when applying contracts to factual situations.129 In that context,
references to ‘natural’ meaning tend to be associated with ‘literal’ meaning and
may embody a presumption in favour of ‘natural and literal’130 meaning. The
sense of ‘natural meaning’ is then ‘literal application’ of the contract. But literal
application is not always — or even usually — the commercial application of a
contract.131
As where ‘natural meaning’ is used to refer to linguistic sense, ‘natural’ and
‘ordinary’ meaning are often treated as interchangeable. An appeal to natural
meaning is then, ostensibly, an appeal to a single common usage.132 However,
where application of the contract is at issue, a conclusion in favour of ‘natural’
meaning is a conclusion about the scope of application of the contract.133
Although it may seem absolutely right to reject ‘unnatural’ applications of
contracts, to seek to determine scope from a meaning perspective simply begs
the question, and risks confusion between literal application and commercial
application.
The cases on exclusion clauses illustrate these problems.134 In Ailsa Craig
Fishing Co Ltd v Malvern Fishing Co Ltd,135 Lord Wilberforce said136 that the
words in issue were to be given ‘if possible, their natural, plain meaning’.
Similarly, in Darlington Futures Ltd v Delco Australia Pty Ltd137 the High Court
of Australia said138 that the ‘interpretation of an exclusion clause is to be
determined by construing the clause according to its natural and ordinary
meaning’. In these cases references to ‘plain’, ‘ordinary’ and ‘natural’ meanings
are reactions to, or warnings against, strained constructions of contracts.139 But
the lack of reliability of the concept in this context is illustrated by the fact that
attempts to arrive at a ‘natural meaning’ for the expression ‘consequential loss’
have led to quite different views as to what is ‘natural’.140
From the perspective of commercial construction, in such cases it is the scope
of application of the clause which is at issue, that is, whether the words apply to
factual circumstances. The idea implied by the use of words such as ‘plain’,
‘ordinary’ and ‘natural’ — that an answer can be found by consulting a
dictionary — is clearly not intended. The statements by Lord Wilberforce and
the High Court are intended to emphasise that a commercial approach should be
taken when a contract is applied. What is described as ‘meaning’ is a
construction of the contract which achieves a commercially sensible result when
applied to the facts.141 It is not so much that the ‘plain’, ‘ordinary’ or ‘natural’
meaning which must be found and respected, as that a commercially sensible
conclusion must be reached as to the scope of application of the contract.
Because the inquiry is not a search for linguistic sense, references to natural
meaning are ultimately unhelpful. As in the other contexts, the construction issue
must be resolved by applying the perspective rule.
THE PERSPECTIVE RULE
General
[11-22] Introduction. The objective approach applied under principles of
commercial construction requires the use of a ‘reasonable person’ to determine
the parties’ intention. The relevant principle is the ‘perspective rule’,142 under
which the reasonable person is taken to stand in the shoes of the addressee of the
words at issue. Because contracts give effect to a shared (or common) intention,
application of the rule leads to a conclusion about common intention. The rule
applies to all issues of construction. It is therefore employed not only to generate
conclusions about linguistic meaning, but also conclusions in relation to legal
effect and the application of contracts.
The perspective rule was stated in the following terms by Lord Diplock in
Ashington Piggeries Ltd v Christopher Hill Ltd:143
In each of the instant appeals the dispute is as to what the seller promised
to the buyer by the words which he used in the contract itself and by his
conduct in the course of the negotiations which led up to the contract.
What he promised is determined by ascertaining what his words and
conduct would have led the buyer reasonably to believe that he was
promising. That is what is meant in the English law of contract by the
common intention of the parties. The test is impersonal. It does not
depend upon what the seller himself thought he was promising, if the
words and conduct by which he communicated his intention to the seller
[sic — buyer] would have led a reasonable man in the position of the
buyer to a different belief as to the promise; nor does it depend upon the
actual belief of the buyer himself as to what the seller’s promise was,
unless that belief would have been shared by a reasonable man in the
position of the buyer. The result of the application of this test to the
words themselves used in the contract is ‘the construction of the
contract’.
The perspective rule therefore requires the reasonable person to stand in the
position of the person to whom the words in question are addressed.144 The
standard is that of the ‘reasonable addressee’.145
In order to apply the perspective rule, certain information must be attributed
to the reasonable person. So far as factual information is concerned, there are
three overlapping components: (1) context, and other admissible evidence; (2)
the range of meanings (of the words at issue) under the applicable standard of
interpretation; and (3) the circumstances in which the contract is applied.
The discussion below is principally concerned with formulations of the
perspective rule and its scope of application. The legal issues which arise in
relation to context were discussed earlier.146 The scope of other factual
information available to the reasonable person is discussed in later chapters.147
[11-23] Other possible perspectives. Attempts have been made to justify or
explain the objective theory of contract as applied in construction on the basis of
choice between various perspectives.148 The variations derive from different
conclusions about where the reasonable person ‘stands’. Assuming that the issue
arises in relation to a promise, three possibilities have been discussed: (1) the
promisee’s perspective (‘promisee objectivity’); (2) the promisor’s perspective
(‘promisor objectivity’); and (3) the perspective of a detached bystander
(‘detached objectivity’).
As is explained below, since ‘promisee objectivity’ refers in most cases to
objectivity from the perspective of the addressee, it is simply an application of
the perspective rule. In addition, any contrast between promisee and promisor
objectivity is largely illusory. However, application of a concept of detached
objectivity seems wrong in principle.
Perspectives for Promissory Statements
[11-24] Promisee objectivity. Since a promise is addressed by the promisor to
the promisee, in relation to promises the perspective rule suggests the general
rule that objectivity is applied from the perspective of the reasonable promisee.
That was the position taken by Lord Diplock in Ashington Piggeries Ltd v
Christopher Hill Ltd.149 But as he explained, the result of applying the rule is a
conclusion about the common intention of the parties. Therefore, the intention of
the parties in relation to a promise is determined on the basis of what that
promisor has led the promisee reasonably to believe.
Because it conforms to the perspective rule, there are many cases in which
‘promisee objectivity’ has been applied.150 Indeed, there seems no doubt that, as
a matter of law, it is the basis on which the objective approach is applied to
determine common intention.
[11-25] Promisor objectivity. There is much less support in the cases for
objectivity from the promisor’s perspective as the appropriate basis for
determining intention.151 And discussion of ‘promisor objectivity’ seems to focus
more on unilateral expressions of intention such as offers.152 No issue arises if a
reasonable person in the position of the promisor would reach the same
conclusion as a reasonable person in the position of the promisee. But if that is
not the case, promises are construed according to the meaning understood by the
promisor only where the promisee knows of the promisor’s intention, or the
promisee is precluded from denying an intention to contract on that basis.153 In
other words, the objective theory may be inapplicable or an estoppel may arise.
Questions may, of course, arise as to who is the addressee for the purposes of
applying the perspective rule. For example, if a building contract specifies the
materials which the builder must use, the legal question is to whom the
specification is addressed. Whether that person is the promisor or the promisee is
irrelevant. Therefore, if the specification is an instruction by the employer to the
builder, the reasonable person stands in the position of the builder. That includes
situations in which the employer prepared the specification.154 Similarly, one
party’s standard terms of business may be construed exclusively from the
perspective of a reasonable person in the position of the recipient.155
[11-26] Detached objectivity. Although it is appropriate to refer to ‘the parties’
intention’ when stating the objective approach, that does not legitimise a view
that intention is determined by what a detached bystander would take to be the
common intention of the parties. Nor is that perspective on intention legitimised
by the fact that the law emphasises the importance of external manifestations of
intention.
However, in many of his judgments, particularly in the mistake cases, Lord
Denning purported to apply a test relying on the view which a detached
bystander (rather than a reasonable person in the position of one of the parties)
would take as to the intention of the parties. In Solle v Butcher,156 he said (as
Denning LJ):157
[O]nce a contract has been made, that is to say, once the parties, whatever
their inmost states of mind, have to all outward appearances agreed with
sufficient certainty in the same terms on the same subject matter, then the
contract is good unless and until it is set aside for failure of some
condition on which the existence of the contract depends, or for fraud, or
on some equitable ground. Neither party can rely on his own mistake to
say it was a nullity from the beginning, no matter that it was a mistake
which to his mind was fundamental, and no matter that the other party
knew that he was under a mistake. A fortiori, if the other party did not
know of the mistake, but shared it.
The idea that the parties should be bound by the construction which would be
placed on their contract by the well-educated fly on the wall is manifestly
unappealing.158 It does not acknowledge the role of context and, in relation to
issues of mistake, it takes no account of the fact that if one party does know of
the other’s intention the objective theory may not apply. From that perspective,
Lord Denning’s approach seems difficult to reconcile with Blackburn J’s famous
statement in Smith v Hughes.159
There is little support for Lord Denning’s approach in the recent English
cases.160 Statements to the effect that construction issues are resolved on the
basis of what a reasonable person would consider to be the intention of ‘the
parties’ are nevertheless common. For example, in Reardon Smith Line Ltd v
Yngvar Hansen-Tangen,161 Lord Wilberforce said162 that when ‘one speaks of
intention one is speaking objectively … what must be ascertained is what is to be
taken as the intention which reasonable people would have if placed in the
situation of the parties’. Such statements emphasise that the reasonable person
must know, and take into account, what the parties know; and that, once
determined, the intention is a shared or common intention. Lord Wilberforce was
not suggesting that contracts are construed according to the views of the
detached bystander.163 Therefore, provided it is understood that the ‘observer’
has the benefit of ‘all the background knowledge which would reasonably be
available’164 to the parties, it is perhaps unobjectionable to express the
perspective rule in terms of ‘what a reasonable outside observer’165 would regard
as the parties’ intention.
In Taylor v Johnson,166 the High Court of Australia, in rejecting a subjective
approach to intention in the context of mistake, appeared to support the detached
bystander approach. The majority referred to the passage in Solle v Butcher
quoted above, and said167 that the passage was intended to extend ‘to a mistake
as to the existence or content of an actual term of such a contract’. There is no
trace in the High Court decisions prior to Taylor v Johnson of this disembodied
conception of contractual intention.168 The subsequent cases have generally
applied the more orthodox version of the perspective rule, so that intention is
determined by reference to what each party has led the other reasonably to
believe.169
Impact of ‘Common Intention’
[11-27] Commitment to common intention. When the objective approach is
applied in the construction of a contract, the meaning of the contract is expressed
as a conclusion about common intention. Although most promissory provisions
are expressed in the form ‘I will do this’ and ‘you will do that’, other promissory
provisions state mutual obligations. For example, an arbitration clause is a
mutual agreement to the effect that, ‘if a dispute arises, we will arbitrate’.
However, because contracts are expressions of common intention this is a
pointless contrast. It is fundamental to the concept of agreement that obligations
expressed in the form ‘I will do this’ and ‘you will do that’ must be read as ‘we
agree that I will do this’ and ‘we agree that you will do that’.
Bilateral documents are not expressions of two sets of unilateral utterances.
Agreement to a contract is a commitment to a common intention. What the
perspective rule therefore signifies is that where a provision is expressed in the
form of a statement by one party addressed to the other, the common intention is
the meaning which a reasonable person in the position of the addressee would
deduce. Accordingly, where the provision is bilateral, so that each party has
made the same promise to the other, as under an arbitration clause, precisely the
same meaning will be deduced no matter whether the reasonable person stands
in the position of the promisee or the promisor.
[11-28] Non-promissory statements. Not all issues of meaning arise in relation
to promises. Non-promissory expressions must also be construed. The concepts
of ‘promisor objectivity’ and ‘promisee objectivity’ seem meaningless in those
contexts. That is one reason for the appeal of the perspective rule. Another is that
it enables the same rule to be applied to communications between the parties in
connection with the contract.
Some contractual provisions are necessarily addressed to both parties. For
example, a termination clause or force majeure clause may be drafted to apply in
favour of both parties. The meaning of the clause cannot depend on who is
promisor and who is promisee, or which party invokes the clause. Similarly, a
defined term or interpretation clause applying to the whole contract must receive
the same construction no matter who relies on the clause. But it may still be
necessary to identify the characteristics of the person to whom the document was
addressed.170
Scope of Application
[11-29] Introduction. Because objectivity is the hallmark of the search for
intention in contract, both as a matter of logic and also common sense, the
perspective rule must apply to construction issues which arise not only in
relation to documents which state or evidence contracts but to other documents
as well. That is also true as a matter of law. At a theoretical level, the scope of
application of the perspective rule is limited only by the scope of objectivity as a
legal concept. Nor is there any requirement for a document to be at issue. The
perspective rule applies to verbal statements and contracts,171 and also to other
conduct, whether or not evidenced by writing.172
The criterion runs only so far as objectivity runs. Not all utterances of
intention are governed by the objective theory. For example, the meaning of a
statement alleged to amount to a fraudulent misrepresentation is affected by the
nature of the allegation of deceit. Relevantly, the question is whether the
statement, understood in the sense in which its maker believed it would be
understood, conveys a false impression to the person to whom it was
addressed.173
Most importantly, the perspective rule is not applicable if the intended
meaning of an utterance is known by the person to whom it was made.
[11-30] Known meaning. It is easy to forget that the perspective rule is used to
‘construct’ the intended meaning of an utterance.174 Application of the rule gives
effect to legal presumptions.175 The intended meaning of an utterance is
determined on the basis of the meaning communicated to a reasonable person
because (as a matter of law) that is presumed to be the meaning which was
actually intended.176 But the presumption is unnecessary if there is actual
knowledge of intended meaning.
Article 4.1 of the UNIDROIT Principles states: (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.
The contrast between known meaning and meaning determined by application
of the perspective rule177 is even more explicit in art 4.2 of the UNIDROIT
Principles, which provides: (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.
Article 8 of CISG is to the same effect as art 4.2.
Under both provisions of the UNIDROIT Principles, the perspective rule
(stated in arts 4.1(2) and 4.2(2)) is applicable only where it is necessary to
determine intention on an objective basis. The rule is not necessary if there is
knowledge of actual intention or if the addressee is precluded from denying such
knowledge. The same is true under English law.178 The fact that in the vast
majority of cases it is the ‘objective meaning’ of a contract (or unilateral
communication) which is at issue simply serves to make the perspective rule the
applicable rule. So also does the limited evidence which is available under
English law to establish ‘common intention’.179
[11-31] Legal effect of contract. The perspective rule applies to all issues of
intention which are resolved (objectively) by construction. It is therefore
employed when the legal effect of a contract is at issue.180 But the role of the
reasonable person in this context is somewhat different from where linguistic
meaning is at issue. Legal effect is nearly always determined with the aid of
contract doctrine. Recourse to the perspective rule — the views of a reasonable
person — seems somewhat fictional. But the cases do not support the view that
in order to apply the perspective rule to resolve ‘legal’ questions, the reasonable
person from whose perspective the contract is construed must be a ‘reasonable
lawyer’.181
The perspective rule is relevant at two levels. The first is that by entering into
a contract each party is expressing to the other a commitment to the legal effect
of their contract, as determined by application of the law of contract. In relation
to issues such as whether a contract is a lease or a licence, the expressed
intention of the parties is not conclusive.182 It is the (legal) effect of the contract
that matters, not what labels the parties have applied.
At a second level the perspective rule is used to resolve specific issues of
contract doctrine applied by construction. For example, whether a promissory
term is intended to be a condition, a warranty or an intermediate term is
determined on the basis of the construction which a reasonable person in the
position of the promisee would place on the contract. If the parties have not
expressed an intention, precedent is necessarily relevant in deciding what
intention should be inferred. But the perspective rule nevertheless plays a direct
role. Therefore, complex legal issues such as whether a term is a condition, and
whether a contract has been frustrated, are to a large extent resolved as matters
of commercial judgment. In other words, the perspective rule is applied on the
basis that there is always an underlying commercial question which must be
answered.183
[11-32] Contracts and other instruments. There is no limit to the instruments
to which the perspective rule can be applied. As has been explained, it is
sufficient that the relevant intention is determined objectively. The perspective
rule is therefore applicable to a unilateral instrument such as a deed poll or
assignment.184
In relation to contracts, the perspective rule applies to documents which
merely evidence contracts, as well as to contracts in writing. But there is no
point in giving example after example of the specific types of contract or
instrument to which the perspective rule has been applied.185 What is important,
however, is that not all contracts are addressed merely to the immediate parties.
For example, a bill of lading or negotiable instrument is also addressed to
potential holders of the instrument.186 Occasionally, contracts make express
reference to an audience wider than the immediate parties.187
The range of people to whom a contract or instrument is addressed will in
some cases impact on the information which the reasonable person is taken to
know. Adjustments in construction are made to reflect the different addressees.188
In particular, context may be more general where a document is addressed to an
audience wider than the immediate parties.189 And in Homburg Houtimport BV v
Agrosin Private Ltd (The Starsin),190 taking account of the range of addressees of
a bill of lading led to the front of the bill being treated as determinative in
construction. A single contract or instrument may also need to be construed with
reference to addressees who may have differing characteristics. For example, a
supplier’s standard terms of business may be used in both commercial and
consumer contexts.
[11-33] Other documents and other issues. Because it is sufficient that the
intention of the issuer of a document is determined objectively, the perspective
rule applies when the meaning of an utterance made in connection with a
contract or proposed contract is at issue.191 There need never be a contract, as
where a document is alleged to be an offer is construed.192 Similarly, documents
which may have no association with a contract are subject to the perspective rule
if the objective approach is applicable.193 That includes a writ.194 Again, issues of
intention and meaning which arise in other contexts will be resolved by use of
the perspective rule.195
In relation to communications made in connection with the performance of a
contract, the general position is that where a notice is given, or some other
statement is made, the intention of the person who issued the notice or made the
statement is determined under the perspective rule. Two examples may be given.
First, where a statement by a promisor is alleged to constitute a repudiation, the
conclusion will be based on the construction which a reasonable person in the
position of the promisee would place on the words used.196 In the application of
the test to what is alleged to be an express refusal, and also where repudiation is
said to arise as a matter of inference, the question is how a reasonable person in
the promisee’s position would view the words and conduct of the promisor.197
Second, where a party is alleged to have elected to affirm, terminate or
rescind a contract, the question is what conclusion a reasonable person in the
position of the party against whom the right was available would have
reached.198 For example, in Mannai Investment Co Ltd v Eagle Star Life
Assurance Co Ltd199 the construction of a notice given under a break clause in a
lease was determined by applying the perspective rule. The relevant test was, in
Lord Steyn’s words,200 whether a reasonable person in the position of the
recipient would be ‘left in no doubt’ that the right has been exercised. Although
the notice nominated the wrong date for termination, the lease did not require the
lessees to nominate any date, and because Lord Steyn’s test was satisfied, the
notice was effective.201
1. See [4-22] and generally [11-22]–[11-33].
2. See Chapter 2.
3. The reasonable person is also assumed to know the circumstances in which
contract falls to be applied. See Chapter 18.
5. See [11-13]–[11-14]. For legal effect see [11-05].
6. See [4-12].
7. See Thorner v Major [2009] 1 WLR 776 at 794, 800–1; [2009] UKHL 18
at [58], [82]–[83]. See, eg Handbury v Nolan (1977) 13 ALR 339 (where
sale of goods contract was oral, the meaning of the words used was a
question of fact).
8. See, eg Brutus v Cozens [1973] AC 854 at 861; Commonwealth Smelting
Ltd v Guardian Royal Exchange Assurance Ltd [1986] 1 Lloyd’s Rep 121
at 126; Collector of Customs v Agfa-Gevaert Ltd (1996) 186 CLR 389 at
396–7. Cf Tropwood AG of Zug v Jade Enterprises Ltd (The Tropwind)
[1982] 1 Lloyd’s Rep 232 at 236. See, eg Belgravia Navigation Co SA v
Cannor Shipping Ltd (The Troll Park) [1988] 2 Lloyd’s Rep 423 at 425
(‘built’).
9. [1999] 1 WLR 2042.
10. [1999] 1 WLR 2042 at 2048. Lords Goff and Jauncey agreed.
11. But see Woodhouse AC Israel Cocoa Ltd SA v Nigerian Produce Marketing
Co Ltd [1972] AC 741 at 770 per Lord Salmon (‘question of law … unless
there is some evidence that … words have some special meaning different
from their ordinary meaning’). See also Showa Oil Tanker Co Ltd of Japan
v Maravan SA of Caracas (The Larissa) [1983] 2 Lloyd’s Rep 325 at 330.
12. [1891] 1 QB 79.
13. [1891] 1 QB 79 at 85 (adopted Life Insurance Co of Australia Ltd v Phillips
(1925) 36 CLR 60 at 78).
14. See Chapter 12.
15. Cf Max Cooper & Sons Pty Ltd v Sydney City Council (1980) 29 ALR 77 at
85; 54 ALJR 234.
16. See further [11-09], [13-06].
17. For application of the exclusionary rule see [1-07], [4-06], [8-05].
18. See [1-18]–[1-19].
19. Cf Agnew v Commissioner of Inland Revenue [2001] 2 AC 710 at 725–6;
[2001] UKPC 28 at [32]. See further [13-12]–[13-15] (standard form
contracts).
20. See [2-46].
21. Part VII discusses the role of construction in the application of contracts.
22. See Total Gas Marketing Ltd v Arco British Ltd [1998] 2 Lloyd’s Rep 209
at 221 per Lord Steyn (impact of failure of condition precedent ‘inherent’ in
use of the term).
23. See generally [13-16]–[13-26].
24. See the discussion of L Schuler AG v Wickman Machine Tool Sales Ltd
[1974] AC 235 in [11-15], [11-16].
25. [1893] 1 QB 256.
26. See [1893] 1 QB 256 at 266 per Bowen LJ (‘How would an ordinary person
reading this document construe it?’). See also Blackpool and Fylde Aero
Club Ltd v Blackpool Borough Council [1990] 1 WLR 1195 at 1201.
27. See Harvela Investments Ltd v Royal Trust Co of Canada (CI) Ltd [1986] 1
AC 207 at 233 per Lord Diplock (‘argument based on the possible meaning
of the word “offer” confuses definition with construction’).
29. See [3-37].
30. See [4-23] and generally Part V.
31. See [1-03].
32. See Chapter 5.
33. See, eg [5-11], [12-05], [13-02].
34. See Lyons, vol 1, p 96.
35. But see [5-13].
36. But see [11-30] (‘known meaning’).
39. See Rainy Sky SA v Kookmin Bank [2011] 1 WLR 2900 at 2908; [2011]
UKSC 50 at [21] per Lord Clarke, with whom the other members of the
court agreed (‘one unitary exercise’).
40. See [4-20]. See also [5-07], and generally Chapter 13. Generally speaking,
the same is true of unilateral utterances, such as letters, notices, and so on.
42. See further [13-28] (formalised clues to meaning).
43. See [5-09]. See also Lyons, vol 1, p 40 (‘sincerity and reliability’).
46. See C K Ogden and I A Richards, The Meaning of Meaning, Routledge &
Kegan Paul, London, 1923. See also G L Williams, ‘Language and the Law
— I’ (1945) 61 LQR 71 at 72.
47. See [5-09], [6-12], [7-03].
49. See, eg Bank of New Zealand v Simpson [1900] AC 182 at 189;
Charrington & Co Ltd v Wooder [1914] AC 71 at 80, 82, 84; Great Western
Railway v Bristol Corporation (1918) 87 LJ Ch 414 at 419, 429; R W
Cameron & Co v L Slutzkin Pty Ltd (1923) 32 CLR 81 at 91.
50. (1881) 16 Ch D 718.
51. (1881) 16 Ch D 718 at 722.
52. Pacific Gas and Electric Co v G W Thomas Drayage & Rigging Co Inc, 69
Cal 2d 33 at 38; 442 P 2d 641 at 644 (1968) per Traynor CJ.
53. But see B & B Constructions (Aust) Pty Ltd v Brian A Cheeseman &
Associates Pty Ltd (1994) 35 NSWLR 227 at 236.
54. See [6-12]–[6-14].
55. See Chapter 13.
56. See, eg Partenreederei MS Karen Oltmann v Scarsdale Shipping Co Ltd
(The Karen Oltmann) [1976] 2 Lloyd’s Rep 708 (‘after’); Brien v Dwyer
(1978) 141 CLR 378 at 391, 392, 402, 406 (contrast between ‘after’ and
‘immediately after’); Sirius International Insurance Co (Publ) v FAI
General Insurance Ltd [2004] 1 WLR 3251 at 3262; [2004] UKHL 54 at
[35] (‘notwithstanding’).
57. Alternatively, the words may be identical in sound (pronunciation) but not
form. An example is ‘red’/’read’. See Chris Baldick, The Concise Oxford
Dictionary of Literary Terms, Oxford University Press, Oxford, 1990,
‘homonym’.
58. See Lyons, vol 1, pp 21–3, 235.
59. See Hilmi & Associates Ltd v 20 Pembridge Villas Freehold Ltd [2010] 1
WLR 2750 at 2758; [2010] EWCA Civ 314 at [28].
60. See Canada SS Lines Ltd v R [1952] AC 192 at 211–12; Anglomar Shipping
Co Ltd v Swan Hunter Shipbuilders Ltd (The London Lion) [1980] 2
Lloyd’s Rep 456 at 468. See also Watson v Haggitt [1928] AC 127 at 131
(‘nett profits’).
61. See, eg Touche Ross & Co v Baker [1992] 2 Lloyd’s Rep 207 at 213 (‘the
Policy’ used in three different senses in Lloyd’s policy); Etna v Arif [1999]
2 VR 353 at 357 (provision stating that there were ‘no terms … other than
those included in this contract’). See also [10-03].
62. See, eg Prenn v Simmonds [1971] 1 WLR 1381; [1971] 3 All ER 237.
63. But see Cadbury Pty Ltd v Mercer Investment Nominees Ltd [2011]
NSWSC 622.
64. See Lyons, vol 1, pp 175–6, 206–7.
65. (1937) 59 CLR 348.
277; [2001] UKHL 8 at [63]–[64].
67. (1937) 59 CLR 348 at 357.
68. (1937) 59 CLR 348 at 362. Rich J agreed.
69. The consideration of context was to some extent limited by the fact that the
proceedings were on demurrer. Cf (1937) 59 CLR 348 at 360, 362–3.
71. But see Lyons, vol 1, p 175 (‘term “connotation” can … lead to confusion’).
72. (1937) 59 CLR 348.
73. On the use of evidence of the subject matter of a contract see Chapter 18.
75. See, eg Turner Kempson & Co Pty Ltd v Camm [1922] VLR 498 at 503 per
Irvine CJ (‘proper meaning’ of letter).
per Lord Davey; Thornley v Tilley (1925) 36 CLR 1 at 7 per Knox CJ;
Herbert Clayton and Jack Waller Ltd v Oliver [1930] AC 209 at 214 per
Lord Buckmaster (with whom the other members of the House of Lords
agreed); Hope v RCA Photophone of Australia Pty Ltd (1937) 59 CLR 348
at 362 per Dixon J; L Schuler AG v Wickman Machine Tool Sales Ltd
[1974] AC 235 at 252 per Lord Reid. See also Moore v Security Trust &
Life Ins Co, 168 F 496 at 499 (CA, 8th Cir, 1909).
77. See, eg Associated Alloys Pty Ltd v ACN 001 452 106 Pty Ltd (in liq)
(2000) 202 CLR 588 at 599; [2000] HCA 25 at [15] per Gaudron, McHugh,
Gummow and Hayne JJ; Homburg Houtimport BV v Agrosin Private Ltd
(The Starsin) [2004] 1 AC 715 at 736; [2003] UKHL 12 at [8] per Lord
Bingham.
78. See, eg Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256 at 264 per
Lindley LJ; Hvalfangerselskapet Polaris Aktieselskap v Unilever Ltd (1933)
39 Com Cas 1 at 31 per Lord Wright; CEL Group Ltd v Nedlloyd Lines UK
Ltd [2004] 1 Lloyd’s Rep 381 at 385; [2003] EWCA Civ 1716 at [18] per
Hale LJ (with whom the other members of the court agreed); Oceanbulk
Shipping and Trading SA v TMT Asia Ltd [2011] 1 AC 662 at 677; [2010]
UKSC 44 at [30] per Lord Clarke (with whom the other members of the
court agreed).
79. Some of the cases associate the epithet with a concept of ‘plain’ or ‘natural’
meaning. See, eg Adams v Richardson & Starling Ltd [1969] 1 WLR 1645
at 1658 per Winn LJ (‘proper natural meaning’).
80. Cf George Mitchell (Chesterhall) Ltd v Finney Lock Seeds Ltd [1983] QB
284 at 296–7 (affirmed [1983] 2 AC 803), where Lord Denning MR
referred to ‘true construction’ as a ‘weapon’ used to justify departure from
natural meaning; see also Bank of Credit and Commerce International SA v
Ali [2002] 1 AC 251 at 275; [2001] UKHL 8 at [58].
81. See [4-10]. See, eg McConnel v Murphy (1873) LR 5 PC 203 at 219 per Sir
Montague E Smith for the Privy Council (‘must be one true construction’);
Woodhouse AC Israel Cocoa Ltd SA v Nigerian Produce Marketing Co Ltd
[1972] AC 741 at 768 per Lord Cross (‘only “true” construction’).
82. [1948] Ch 398.
83. [1948] Ch 398 at 403. Somervell and Cohen LJJ agreed. See also Council
of the Upper Hunter County District v Australian Chilling and Freezing Co
Ltd (1968) 118 CLR 429 at 436.
84. [1974] AC 235.
85. Sub nom Wickman Machine Tool Sales Ltd v L Schuler AG [1972] 1 WLR
840; [1972] 2 All ER 1173.
86. [1972] 1 WLR 840 at 849–51; [1972] 2 All ER 1173 at 1180–1. Italics have
been supplied, but the descriptions applied by Lord Denning MR were his
own invention, and his separation of meanings is not faithful to the
dictionary entry to which he refers. See Oxford English Dictionary, 2nd ed,
OUP, Oxford, 1989, ‘condition’.
87. [1972] 1 WLR 840 at 852; [1972] 2 All ER 1173 at 1182. Cf Skips A/S
Nordheim v Syrian Petroleum Co Ltd (The Varenna) [1984] QB 599 at 618,
620.
88. [1974] AC 235 at 264–5.
89. But cf Utica City Nat Bank v Gunn 222 NY 204 at 208; 118 NE 607 at 608
(CA, 1918) per Cardozo J (‘primary or strict … secondary or loose’); B & B
Constructions (Aust) Pty Ltd v Brian A Cheeseman & Associates Pty Ltd
(1994) 35 NSWLR 227 at 236 per Kirby P (‘primary or strict’).
90. See, eg Shore v Wilson (1842) 9 Cl & F 355 at 527; 8 ER 450 at 518 per
Coleridge J (not ‘etymological’); M’Cowan v Baine [1891] AC 401 at 408
per Lord Watson (‘primary and natural’), 411 per Lord Bramwell (‘natural
primary’); Thornley v Tilley (1925) 36 CLR 1 at 11 per Isaacs J (‘no
primary meaning that the general community ordinarily attaches’); Holt &
Co v Collyer (1881) 16 Ch D 718 at 720 per Fry J (‘primary and popular
signification’); L Schuler AG v Wickman Machine Tool Sales Ltd [1974] AC
235 at 264 per Lord Simon (‘most usual and natural’). Cf McEntire v
Crossley Brothers Ltd [1895] 1 AC 457 at 467; Re Bond Worth Ltd [1980]
Ch 228 at 245.
91. [1974] AC 235.
92. [1974] AC 235 at 264. Contrast Contracts Restatement 2d (1979), §224
(‘condition’ is an event, not certain to occur, which must occur, unless its
non-occurrence is excused, before performance under a contract becomes
due). See generally S J Stoljar, ‘The Contractual Concept of Condition’
(1953) 69 LQR 485.
93. [1910] 2 KB 1003 at 1012. The judgment was adopted by the House of
Lords [1911] AC 394.
94. [1974] AC 235 at 264–5. See also Hvalfangerselskapet Polaris Aktieselskap
v Unilever Ltd (1933) 39 Com Cas 1 at 9, 17, 20, 24–5, 32 (primary and
secondary meanings of ‘production’); Re Bond Worth Ltd [1980] Ch 228 at
249 (primary meaning of ‘equitable and beneficial ownership’); Gregory v
MAB Pty Ltd (1989) 1 WAR 1 at 8 (primary meaning of ‘negotiate’).
Contrast Buckland v Farmar [1979] 1 WLR 221 at 232 (no primary
meaning for ‘rescind’).
95. Agreeing with Lord Reid that this would have produced such ‘absurd
results’ that the parties could not have intended it.
97. See Glanville Williams, ‘Language and the Law — IV’ (1945) 61 LQR 384
at 385ff.
98. See Chapter 13.
99. Cf AXA Reinsurance (UK) Plc v Field [1996] 1 WLR 1026 at 1035.
100. [1974] AC 235.
101. See A N Allott, Law and Language, University of London, London, 1965, p
18 (any approach based on idea of words having a ‘natural’ meaning
‘doomed to failure’).
102. See Society of Lloyd’s v Robinson [1999] 1 WLR 756 at 763 per Lord
Steyn, with whom the other members of the House of Lords agreed (‘words
ought to be interpreted in the way in which a reasonable commercial person
would construe them’).
103. See J W Carter and Elisabeth Peden, ‘The “Natural Meaning” of Contracts’
(2005) 21 JCL 277. See also [12-29] (plain meaning rule).
104. Cf Pacific Basin IHX Ltd v Bulkhandling Handymax AS (The Triton Lark)
(since ‘may be’ naturally meant likely to be’, the natural meaning of ‘may
be, or are likely to be’ exposed to war risks was ‘may be, that is, are likely
to be’ exposed).
105. [1998] 1 WLR 896.
106. [1998] 1 WLR 896 at 914. Lords Goff, Hope and Clyde agreed.
107. [2010] 1 All ER 571 at 582; [2009] UKSC 2 at [12] per Lord Mance. Lords
Hope, Scott and Collins concurred.
108. See, eg Sweet & Maxwell Ltd v Universal News Services Ltd [1964] 2 QB
699 at 736 per Buckley J (‘natural, prima facie meaning’); Reardon Smith
Line Ltd v Sanko Steamship Co Ltd (The Sanko Honour) [1985] 1 Lloyd’s
Rep 418 at 419 per Hobhouse J (‘natural and proper’).
109. See, eg W N Lindsay & Co Ltd v European Grain & Shipping Agency Ltd
[1963] 1 Lloyd’s Rep 437 at 443; Investors Compensation Scheme Ltd v
West Bromwich Building Society [1998] 1 WLR 896 at 899 per Lord Lloyd
(‘slovenly’); Multi-Link Leisure Developments Ltd v North Lanarkshire
Council [2011] 1 All ER 175 at 183; [2010] UKSC 47 at [19].
110. Tor Line AB v Alltrans Group of Canada Ltd (The TFL Prosperity) [1984] 1
WLR 48 at 53; [1984] 1 All ER 103 (bad grammar, bad drafting and
surplusage are common features of clauses in charterparties).
111. See, eg Wardens and Commonalty of the Mystery of Mercers of the City of
London v New Hampshire Insurance Co [1992] 2 Lloyd’s Rep 365 at 368
(archaic language); Trafalgar House Construction (Regions) Ltd v General
Surety & Guarantee Co Ltd [1996] AC 199 at 209 (archaic language of
bond which was unnecessarily lengthy).
112. See, eg Burke v State Bank of New South Wales (1994) 37 NSWLR 53 at 57
(paragraph of mortgage was single sentence running to full page with no
punctuation). Cf Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC
1101; [2009] UKHL 38.
113. Cf Rainy Sky SA v Kookmin Bank [2011] 1 WLR 2900 at 2912; [2011]
UKSC 50 at [34].
114. See, eg Tennants (Lancashire) Ltd v C S Wilson & Co Ltd [1917] AC 495 at
514; Homburg Houtimport BV v Agrosin Private Ltd (The Starsin) [2004] 1
AC 715 at 738, 795; [2003] UKHL 12 at [12], [182].
115. See VOS of Moscow v Temple SS Co Ltd (1945) 62 TLR 43 at 44 per
Viscount Simon (parties took Baltime form of charterparty and ‘so altered it
by insertions, omissions and alterations as to make it neither fish, flesh,
fowl nor good red herring’).
116. See, eg Anangel Atlas Compania Naviera SA v Ishikawajima-Harima
Heavy Industries Co Ltd (No 2) [1990] 2 Lloyd’s Rep 526 at 547 per Hirst J
(natural meaning of ‘resale’ was ‘resale to a third party’).
117. See Charter Reinsurance Co Ltd v Fagan [1997] AC 313 at 384 per Lord
Mustill, with whom Lords Goff, Griffiths and Browne-Wilkinson agreed
(‘natural meaning, in the sense of … primary meaning in ordinary speech’).
See also North Eastern Railway Co v Lord Hastings [1900] AC 260 at 267;
Thornley v Tilley (1925) 36 CLR 1 at 7, 18. See generally on the plain
meaning rule Chapter 12.
118. [1998] 1 WLR 896.
119. [1998] 1 WLR 896 at 913. Lords Goff, Hope and Clyde agreed. See also Sir
Robert Goff, ‘Commercial Contracts and the Commercial Court’ [1984]
LMCLQ 382 at 388 (rule that contracts should be given their ‘natural and
ordinary’ meaning is ‘primary rule of construction’).
120. See, eg Lennon v Scarlett & Co (1921) 29 CLR 499 at 509 (‘natural’ sense
of ‘please forward contract’); Pacific Basin IHX Ltd v Bulkhandling
Handymax AS (The Triton Lark) [2012] 1 Lloyd’s Rep 151 at 157; [2012]
EWHC 2862 (Comm) at [38] (natural meaning of ‘may be, or are likely to
be’). Cf Prenn v Simmonds [1971] 1 WLR 1381 at 1385; [1971] 3 All ER
237 at 241.
121. See, eg Charter Reinsurance Co Ltd v Fagan [1997] AC 313 at 391;
Investors Compensation Scheme Ltd v West Bromwich Building Society
[1998] 1 WLR 896 at 914. See also [11-17] and further [13-45].
122. See Phillipson v Indus Realty Pty Ltd (2004) 8 VR 446 at 449 per Chernov
JA (‘normal’ or ‘usual’ meaning of ‘subject to completion’); Mora Shipping
Inc v AXA Corporate Solutions Assurance SA [2005] 2 Lloyd’s Rep 769 at
776; [2005] EWCA Civ 1069 at [44] (natural meaning of clause which
imposes an obligation to do A or B is that it is for the promisor to choose —
cargo insurers could decide whether to pay shipowners or average
adjusters).
123. [1987] 3 All ER 565; [1987] 2 Lloyd’s Rep 342. See David Yates and J W
Carter, (1988) 1 JCL 57.
124. [1987] 1 All ER 81 at 87; [1986] 2 Lloyd’s Rep 646 at 650.
125. [1987] 1 All ER 81 at 87; [1986] 2 Lloyd’s Rep 646 at 651. Cf
Environmental Systems Pty Ltd v Peerless Holdings Pty Ltd (2008) 19 VR
358 at 385; [2008] VSCA 26 at [79] (‘ordinary meaning’ of ‘liquidated
damages’).
126. But note the analysis ([1987] 3 All ER 565 at 575; [1987] 2 Lloyd’s Rep
342 at 351) of cl 19 (a prohibition of export term).
127. Contrast UNIDROIT Principles, art 5.1.5 (form of expression a factor).
128. See K C Sethia (1944) Ltd v Partabmull Rameshwar [1950] 1 All ER 51,
affirmed sub nom Partabmull Rameshwar v KCSethia (1944) Ltd [1951] 2
All ER 352n; [1951] 2 Lloyd’s Rep 89 (no implied term qualifying duty).
The position in Pagnan SpA v Tradax Ocean Transportation SA would have
been different had the term stating the duty been implied. See, eg Brauer &
Co (Great Britain) Ltd v James Clark (Brush Materials) Ltd [1952] 2 All
ER 497. See Carter’s Breach of Contract, §§2-35, 2-44.
129. Cf Hvalfangerselskapet Polaris Aktieselskap v Unilever Ltd (1933) 39 Com
Cas 1 at 17.
130. See Bowes v Shand (1877) 2 App Cas 455 at 468 per Lord Cairns.
131. Cf Sunport Shipping Ltd v Tryg-baltica International (UK) Ltd (The
Kleovoulos of Rhodes) [2003] 1 Lloyd’s Rep 138 at 147; [2003] EWCA Civ
12 at [42] (what ‘trading regulations’ naturally includes); Edlington
Properties Ltd v J H Fenner & Co Ltd [2006] 1 WLR 1583 at 1601, 1602;
[2006] EWCA Civ 403 at [71], [72] per Neuberger LJ with whom Pill and
Scott Baker LJJ agreed (‘abatement’ in commercial lease does not
‘naturally refer to equitable set-off’); Tandrin Aviation Holdings Ltd v Aero
Toy Store LLC [2010] 2 Lloyd’s Rep 668 at 675; [2010] EWHC 40 (Comm)
at [45] (‘natural and ordinary meaning’ of words in force majeure clause).
132. See Homestake Australia Ltd v Metana Minerals NL (1991) 11 WAR 435 at
446.
133. See, eg Bensaude v Thames and Mersey Marine Insurance Co Ltd [1897]
AC 609 at 612, 613; Carr v J A Berriman Pty Ltd (1953) 89 CLR 327 at
347.
135. [1983] 1 WLR 964.
136. [1983] 1 WLR 964 at 966. Lords Elwyn-Jones, Salmon and Lowry agreed.
137. (1986) 161 CLR 500.
138. (1986) 161 CLR 500 at 510. See also Bowes v Shand (1877) 2 App Cas 455
at 469; Nissho Iwai Australia Ltd v Malaysian International Shipping Corp
Berhad (1989) 167 CLR 219 at 227; Bank of Credit and Commerce
International SA v Ali [2002] 1 AC 251 at 259; [2001] UKHL 8 at [8].
140. See Croudace Construction Ltd v Cawoods Concrete Products Ltd [1978] 2
Lloyd’s Rep 55 at 59 (affirmed [1978] 2 Lloyd’s Rep 55); Environmental
Systems Pty Ltd v Peerless Holdings Pty Ltd (2008) 19 VR 358 at 389;
[2008] VSCA 26 at [93]. See also [17-24].
142. See [4-22].
143. [1972] AC 441 at 502 (adopted Australian Broadcasting Corp v XIVth
Commonwealth Games Ltd (1988) 18 NSWLR 540 at 549; Ryan v Textile
Clothing & Footwear Union of Australia [1996] 2 VR 235 at 261). See also
Hutton v Watling [1948] Ch 398 at 403; Marcus Clark (Victoria) Ltd v
Brown (1928) 40 CLR 540 at 548–9; Gissing v Gissing [1971] AC 886 at
906; Pioneer Shipping Ltd v BTP Tioxide Ltd [1982] AC 724 at 737; Pacific
Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at 462; [2004] HCA 35 at
[22]; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 at
179; [2004] HCA 52 at [40].
144. See [4-22].
146. See Part IV. See also [18-21]–[18-23].
147. See Chapters 12, 14 and 18.
148. See, eg William Howarth, ‘The Meaning of Objectivity in Contract’ (1984)
100 LQR 265. Cf P S Atiyah, ‘The Hannah Blumenthal and Classical
Contract Law’ (1986) 102 LQR 363.
149. [1972] AC 441 at 502.
150. See, eg Marcus Clark (Victoria) Ltd v Brown (1928) 40 CLR 540 at 548–9
(words in contract for sale of motor car interpreted as buyer would
reasonably have understood them); Ashington Piggeries Ltd v Christopher
Hill Ltd [1972] AC 441 at 503 (responsibility as to the characteristics of the
goods to be supplied which the buyer would reasonably believe that the
seller was accepting by entering into the contract).
151. Cf Schenker & Co (Aust) Pty Ltd v Maplas Equipment and Services Pty Ltd
[1990] VR 834 at 840. See also Air Great Lakes Pty Ltd v K S Easter
(Holdings) Pty Ltd (1985) 2 NSWLR 309 at 336, where the point is left
open.
152. See William Howarth, ‘The Meaning of Objectivity in Contract’ (1984) 100
LQR 265 at 266ff.
153. See [11-30].
154. See Sun Alliance Pensions Life & Investments Services Ltd v RJL [1991] 2
Lloyd’s Rep 410 at 416 (acknowledgment construed from perspective of
reasonable person in the position of the person making the acknowledgment
because the person to whom the acknowledgment was made prepared the
document).
155. Cf Hutton v Watling [1948] Ch 398 at 403.
156. [1950] 1 KB 671.
157. [1950] 1 KB 671 at 691. See also Leaf v International Galleries [1950] 2
KB 86 at 92; Oscar Chess Ltd v Williams [1957] 1 WLR 370 at 375; Lewis
v Averay [1972] 1 QB 198 at 207. Cf Dick Bentley Productions Ltd v
Harold Smith (Motors) Ltd [1965] 1 WLR 623 at 627.
158. See J R Spencer, ‘Signature, Consent, and the Rule in L’Estrange v
Graucob’ [1973] CLJ 104; David McLauchlan, ‘The Contract that Neither
Party Intends’ (2012) 29 JCL 26.
159. (1871) LR 6 QB 597 at 607 (see [2-22]).
160. But see D W McLauchlan, ‘Mistake of Identity and Contract Formation’
(2005) 21 JCL 1 at 42–6 (discussing Shogun Finance Ltd v Hudson [2004]
1 AC 919; [2003] UKHL 62).
161. [1976] 1 WLR 989; [1976] 3 All ER 570.
162. [1976] 1 WLR 989 at 996. See also Di Dio Nominees Pty Ltd v Brian Mark
Real Estate Pty Ltd [1992] 2 VR 732 at 742.
163. Cf Hospital Products Ltd v United States Surgical Corp (1984) 156 CLR 41
at 62 (position of ‘intelligent bystander’ in relation to implied term).
See also Oceanbulk Shipping and Trading SA v TMT Asia Ltd [2011] 1 AC
662 at 680; [2010] UKSC 44 at [37]; Re Sigma Finance Corp (in
administrative receivership) [2010] 1 All ER 571 at 582; [2009] UKSC 2 at
[12]. Cf Ryledar Pty Ltd v Euphoric Pty Ltd (2007) 69 NSWLR 603 at 655;
[2007] NSWCA 65 at [262].
165. Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC 1101 at 1120; [2009]
UKHL 38 at [39] per Lord Hoffmann. The other members of the House of
Lords agreed.
166. (1983) 151 CLR 422. See also Esanda Ltd v Burgess [1984] 2 NSWLR 139
at 146; Biotechnology Australia Pty Ltd v Pace (1988) 15 NSWLR 130 at
153.
167. (1983) 151 CLR 422 at 430.
168. See, eg McRae v Commonwealth Disposals Commission (1951) 84 CLR
377 at 407. Cf Svanosio v McNamara (1956) 96 CLR 186 at 195–6.
169. See, eg Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at 462;
[2004] HCA 35 at [22]; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004)
219 CLR 165 at 179; [2004] HCA 52 at [40]. But see Byrnes v Kendle
(2011) 243 CLR 253 at 285–6; [2011] HCA 26 at [99–101]
170. See, eg [17-05].
171. See also [4-32].
172. See also [4-37].
173. See, eg Major v Bretherton (1928) 41 CLR 62 at 71; John McGrath Motors
(Canberra) Pty Ltd v Applebee (1964) 110 CLR 656 at 659–60; Mihaljevic
v Eiffel Tower Motors Pty Ltd [1973] VR 545 at 555; Krakowski v Eurolynx
Properties Ltd (1995) 183 CLR 563 at 577; AIC Ltd v ITS Testing Services
(UK) Ltd (The Kriti Palm) [2007] 1 Lloyd’s Rep 555 at 594; [2006] EWCA
Civ 1601 at [253]; Raiffeisen Zentralbank Osterreich AG v Royal Bank of
Scotland Plc [2011] 1 Lloyd’s Rep 123 at 180; [2010] EWHC 1392
(Comm) at [339].
174. See [11-07] (contrast between intended meaning and communicated
meaning determined by the application of a legal rule).
175. See [2-11], [2-15].
176. See [2-09], [2-10] (‘presumed intention’).
177. See also Contracts Restatement 2d (1979), §201.
178. See Smith v Hughes (1871) LR 6 QB 597. See also [2-22], [9-23], [9-42].
179. See [2-16], [8-33]. See also [11-22], [11-27]–[11-28].
180. See [4-22].
182. See [2-26]–[2-31]. See further [12-16], [13-18].
183. See [2-34], [2-42].
184. See [4-36]. See also Royal Society for the Prevention of Cruelty to Animals
v Sharp [2011] 1 WLR 980 at 989; [2010] EWCA Civ 1474 at [31].
Ltd [2004] 1 WLR 3251 at 3257; [2004] UKHL 54 at [18] (settlement in
Tomlin order); C v D [2012] 1 WLR 1962 at 1978; [2011] EWCA Civ 646
at [45] (Part 36 offer). See also Community Care North East (a partnership)
v Durham County Council [2012] 1 WLR 338 at 344; [2010] EWHC 959
(QB) at [24].
AC 715 at 755; [2003] UKHL 12 at [76] (merchants, bankers and lawyers
as addressees of bill of lading).
[2005] 2 Lloyd’s Rep 769 at 775; [2005] EWCA Civ 1069 at [36] (average
guarantee addressed to shipowners and ‘other parties to the adventure as
their interests may appear’).
AC 715 at 754; [2003] UKHL 12 at [73]; Dairy Containers Ltd v Tasman
Orient Line CV [2005] 1 WLR 215 at 220; [2004] UKPC 22 at [12];
Anthracite Rated Investments (Jersey) Ltd v Lehman Brothers Finance SA
(in liq) [2011] 2 Lloyd’s Rep 538 at 553; [2011] EWHC 1822 (Ch) at [67].
189. See [7-36]–[7-42].
190. [2004] 1 AC 715; [2003] UKHL 12. See also Chartbrook Ltd v Persimmon
Homes Ltd [2009] 1 AC 1101 at 1120; [2009] UKHL 38 at [40].
191. See, eg Forrest v Glasser [2006] 2 Lloyd’s Rep 392 at 396; [2006] EWCA
Civ 1086 at [19] (notice of warranty claim); PEC Ltd v Thai Maparn
Trading Co Ltd [2012] 1 Lloyd’s Rep 295 at 303; [2011] EWHC 3306
(Comm) at [33] (construction of emails alleged to be notice of claim for
extension of time).
192. See, eg First Energy (UK) Ltd v Hungarian International Bank Ltd [1993] 2
193. See, eg Gascoyne v Customs and Excise Commissioners [2005] Ch 215 at
235; [2004] EWCA Civ 1162 at [63] (letter in relation to Commissioners’
decision to forfeit goods to be interpreted as reasonable person in the
position of the Commissioners to whom it was addressed would have
interpreted it); Best Buy Co Inc v Worldwide Sales Corp España SL [2011]
Bus LR 1166 at 1173; [2011] EWCA Civ 618 at [18] (letter alleged to be
threat of trade mark infringement proceedings).
194. See, eg Davies v Elsby Brother Ltd [1960] 3 All ER 672 at 676; Whittam v
W J Daniel & Co Ltd [1962] 1 QB 271 at 277, 282.
195. See, eg Woodhouse AC Israel Cocoa Ltd SA v Nigerian Produce Marketing
Co Ltd [1972] AC 741 at 755, 768, 771 (estoppel); Chartbrook Ltd v
Persimmon Homes Ltd [2009] 1 AC 1101 at 1123, 1126, 1136–7; [2009]
UKHL 38 at [48], [60]–[61], [100] (rectification).
196. See, eg Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989)
166 CLR 623 at 648, 658; Gulf Agri Trade FZCO v Aston Agro Industrial
AG [2008] 2 Lloyd’s Rep 376 at 383; [2008] EWHC 1252 (Comm) at [44];
Seadrill Management Services Ltd v OAO Gazprom (The Ekha) [2010] 1
197. See generally Carter’s Breach of Contract, §§8-03–8-07.
198. The cases do not draw distinctions between written or verbal statements, or
conduct. See generally Carter’s Breach of Contract, §§10-14, 10-18, 10-23,
11-15.
199. [1997] AC 749. See also Delta Vale Properties Ltd v Mills [1990] 1 WLR
445 (notice to complete); Yukong Line Ltd of Korea v Rendsburg
Investments Corp of Liberia (The Rialto) [1996] 2 Lloyd’s Rep 604 at 609
(telex alleged to be affirmation).
200. [1997] AC 749 at 768. See also Sullivan v Glennon (1986) 61 ALJR 63 at
64; 68 ALR 399 at 401 per the High Court of Australia (‘made it plain’);
Delta Vale Properties Ltd v Mills [1990] 1 WLR 445 at 455 per Slade LJ,
with whom the other members of the Court of Appeal agreed (‘no
reasonable doubt’). See further [15-30].
201. Cf Wingadee Shire Council v Willis (1910) 11 CLR 123 at 131, 140, 144,
148, where a similar problem was resolved in relation to a rates notice by
the use of canons of construction.
12
Standards of Interpretation
General [12-02]
Introduction [12-02]
Scope [12-04]
Relevant Standards [12-06]
General [12-06]
General Community Standard [12-09]
Standard of a Defined Class [12-13]
Standard of Specific Parties [12-17]
Unilateral Standard [12-21]
Choice of Standard [12-24]
General [12-24]
General Community Standard Presumed [12-27]
Proof of Choice [12-30]
[12-01] Objects. Where the meaning of a contract is determined objectively, the
perspective rule is applied. In applying that rule, the reasonable person who is
taken to construe the contract is assumed to be aware of the usages of the class
of persons of which the addressee is a member. Therefore, it is necessary to
identify and apply the relevant ‘standard of interpretation’ for the contract.
This chapter discusses the standard of interpretation concept. Application of
the concept does not determine the construction of a contract, but it does explain
why some contracts must be construed by reference to a range of meanings not
shared by members of the community at large. There are two main issues. The
first is identification of the various standards of interpretation at the level of
principle or theory.
The second issue is the basis on which the applicable standard of
interpretation is determined in a given context. Although the standard is in most
cases presumed to be that of the community at large, the presumption is not
always applicable, and may in any event be rebutted. The argument is made that
the law no longer applies a ‘plain meaning rule’, under which there is a
presumption in favour of a single (plain) meaning.
GENERAL
Introduction
[12-02] Concept.
Article 12.1 — Standard of interpretation defined.
‘Standard of interpretation’ refers to the usages of the class of persons of
which the person to whom the words at issue in construction were
addressed is a member.
The meaning of a contract necessarily depends on interactions between a variety
of factors. Where linguistic meaning is determined objectively, an important
factor is the knowledge and understanding of the person who is, as a matter of
law, taken to construe the contract. Under the perspective rule,1 a contract is
construed on the basis of how a reasonable person in the position of the person
to whom the words were addressed would construe it. By definition, the
reasonable person must be a member of a class of persons.2 The usages of that
class make up the ‘standard of interpretation’ by reference to which the
perspective rule is applied.
Therefore, in order to identify the available meanings for words at issue in the
construction of a contract, the relevant standard of interpretation must be
identified. The fact that all contracting parties are members of the community at
large does not mean that contracts must be construed solely by reference to the
linguistic understandings of ordinary members of the public. For example, in
Marc Rich & Co Ltd v Tourloti Compania Naviera SA (The Kalliopi A)3
Staughton LJ said4 that the construction of a charterparty ‘cannot be conducted
solely on the basis of the ordinary English meaning’ of words. The essential
question raised by the standard of interpretation concept is whether the addressee
is merely a member of the community at large or also a member of a narrower
class of persons.
[12-03] Function. The main significance of the standard of interpretation
concept is to provide a framework for description and analysis. At the very least,
it helps to explain why and when the applicable meaning is not in use within the
general community. For example, where it is concluded that a word must be
interpreted in a scientific sense, the concept explains that this conclusion is
based on the fact that the parties intended a scientific sense to apply. The
conclusion is not based on the mere fact that the word in question has a scientific
meaning.
As an incident of commercial construction, the concept is generally applied as
a matter of common sense. It is an intuitive reaction to contextual information
and, where necessary, evidence of the usages of particular classes of people.
However, legal technicality intervenes to restrict the ability to take a common
sense approach. Two points are crucial. First, common sense suggests that most
words fall to be construed against the usages of the community at large.
Although those usages represent the ‘plain’ or ‘common’ meanings of words, the
law has traditionally applied a ‘plain meaning rule’ under which one particular
usage of the community at large is presumed to be applicable.5 The most
technical aspect of that rule, under which context cannot be used to rebut the
presumption, has more or less disappeared.6 In substance, any plain meaning rule
has been displaced by a presumption in favour of the standard of interpretation
of the community at large.
Second, technical rules relating to custom and usage have restricted the
ability to prove that a standard of interpretation other than that of the community
at large is applicable. It is largely because those rules now occupy a minor role7
that the standard of interpretation concept has become an incident of commercial
construction.
The meaning of words is not determined merely by locating the applicable
standard of interpretation. It is not the function of the concept to determine what
a contract means. The purpose is to locate a range of meanings for particular
words and expressions. The distinction undermines the use of English
dictionaries as a guide to the meaning of contracts.8 As Steyn J said in Phillips v
Dorintal Insurance Ltd,9 to determine the meaning of a contract the person
construing the contract cannot simply ‘turn to a dictionary’. Similarly, Lord
Hoffmann said in Investors Compensation Scheme Ltd v West Bromwich
Building Society10 that the ‘meaning of words is a matter of dictionaries …; the
meaning of the document is what the parties using those words against the
relevant background would reasonably have been understood to mean’.
Of course, in cases where the standard of interpretation of the community at
large is not applicable, so that a narrower standard of interpretation is employed,
there may be only one meaning to be applied in construction.
Scope
[12-04] Introduction. Because it is used in applying the perspective rule, the
standard of interpretation concept tracks that rule. It is therefore applicable to the
construction of any utterance to which that rule applies, including a contract. It is
irrelevant whether the contract is verbal, evidenced by writing or in writing — in
whole or in part.
Because the perspective rule applies to all expressions of intention to which
the objective approach of contract law applies, so also does the standard of
interpretation concept.11 Therefore, the concept is relevant to the construction of
communications in connection with a contract or proposed contract.12 It is
similarly relevant to unilateral instruments such as assignments, deeds poll, and
so on, whether or not made in connection with a contract or a proposed
contract.13
Nevertheless, the principal concern is with use of the concept in connection
with the construction of contracts in writing or evidenced by writing.
[12-05] Matters of fact and legal effect. The standard of interpretation concept
is limited to issues of linguistic meaning. In all cases, the usages under a
standard of interpretation are determined as a matter of fact, not law.14 For the
purpose of the construction of contracts, ‘linguistic meaning’ includes technical
and scientific senses of words determined under particular standards of
interpretation.
Intention in relation to the legal effect of a contract does not depend on
application of a standard of interpretation.15 Therefore, if a particular word or
expression has various legal meanings, a decision that the construction of a
contract requires a choice to be made between competing legal meanings does
not invoke the standard of interpretation concept. At least, that is the better view.
There are two points. The first is simply that the standard of interpretation
concept is limited to issues of linguistic meaning.16 The legal effect of a contract
is a different issue which is in most cases resolved (as a matter of law), after the
meaning of the contract has been determined.
The second point is that if various ‘legal meanings’ are available, each will
usually represent a different conclusion of law. Decisions in which particular
words with meanings in ordinary usage have been construed in particular legal
senses illustrate ‘legal interpretation’.17 That process reflects the specialised
nature of the process of construction. Although it may require linguistic meaning
to be determined as a matter of law on the basis of precedent, it does not
illustrate the application of a standard of interpretation.
Foreign law is perhaps an exception. Since foreign law is proved as a matter
of fact,18 available meanings under a foreign law are determined in a way which
is analogous to the way in which usages under a particular standard of
interpretation are determined.19 More relevantly, where foreign law is not the
applicable law, usages under that law may form a standard of interpretation.
Thus, in Forsikringsaktieselskapet Vesta v Butcher20 the meaning of ‘failure to
comply’ in an English reinsurance contract was determined by reference to
Norwegian law, not on the basis of choice of law, but as if the parties had chosen
a ‘Norwegian legal dictionary’, that is, under a particular standard of
interpretation.
RELEVANT STANDARDS
General
[12-06] Introduction. Although not always reflected in its terminology, the
approach of English law to the standard of interpretation concept is broadly
consistent with the classification suggested by Wigmore in his famous work on
the law of evidence.
Under Wigmore’s classification, there are four possible standards:21
(1) that of the community at large; (2) that of a defined class of persons within
the community; (3) one which is specific to the parties; and (4) a unilateral
standard, which Wigmore termed that of the ‘individual actor’.
These standards provide a viable framework for analysis, and also for an
evaluation of the ‘plain meaning rule’.22
[12-07] Possible standards.
Article 12.2 — Standards of interpretation.
The standard of interpretation of a contract may be: (a) that of the
community at large; (b) that of an identifiable class of persons, such as
the members of a particular trade, industry or profession, or those at a
particular location; or (c) one which is unique to the parties.
Under the objective approach to the construction of a contract, there are three
potential standards of interpretation, according to whether usages are those of the
community at large, an identifiable class of persons or unique to the parties.
Which standard of interpretation applies to the contract is a matter of intention.23
The most common standard is that of the community at large. But in the
commercial context, ‘intermediate’ standards of interpretation play a very
important role.24 For example, the fact that standard forms are often prepared by
trade associations for use by members of the association frequently leads to the
conclusion that an intermediate standard of interpretation is applicable to some
of the words used in the standard form. Although the meaning of a negotiated
contract is always unique, a standard of interpretation which is unique to the
parties is unusual. Use of such a standard is distinguishable from adoption of a
particular meaning within the community standard or an intermediate standard,
that is, as an agreed (chosen) meaning.25
The above standards are used to apply the perspective rule, that is, to enable
meaning to be determined on an objective basis.26
[12-08] Commercial construction. The concept of ‘commercial construction’
sounds like a standard of interpretation. It is not.27 Although the parties to a
contract may be members of the ‘commercial community’, that is not a defined
class of persons with uniform usages differing from those of the community at
large.
The objective of commercial construction is to arrive at a commercially
sensible construction for a contract.28 That objective applies whatever
interpretation standard applies to the contract. But the ability to arrive at such a
construction assumes that the usages within the relevant community have been
considered. The standard of interpretation concept is therefore used as an
incident of commercial construction. The various usages of particular trades,
professions and industries which necessarily exist are accounted for by
recognising subclasses within the community at large. The use of the concept as
an incident of commercial construction is acknowledged not only by the
technical concept of custom and usage but also more generally. The need to
satisfy specific rules of custom and usage is frequently bypassed by taking
proper account of context.29
General Community Standard
[12-09] Introduction. The principal standard of interpretation is that of the
community at large. Because the meanings within this standard are in general
use and have no specialised content, they are frequently referred to as ‘plain’,
‘common’ or ‘ordinary’ meanings.30 Since commercial contracts are for the most
part written in standard English, this is the standard most generally applied in
commercial construction.
There is, however, a major problem with references in construction cases to
‘plain’, ‘common’ or ‘ordinary’ meaning. Although references in the more recent
cases31 may signify and give effect to a conclusion that the applicable standard of
interpretation is that of the community at large, it seems clear that the concept
has usually been used in a more refined way. Generally speaking, the assumption
behind references to ‘plain’ meaning is that, in a given situation, the meaning of
the contract can be determined on the basis of a single plain usage. Since many
of the cases (particularly the older cases) also speak in terms of a presumption in
favour of ‘plain meaning’, use of the concept in that way implies a legal
commitment to a presumption in favour of a single meaning. However, all
English words in common use have several usages. The choice of one such
usage must in all cases be explained, that is, as the meaning of the contract.
Moreover, where a document is at issue, the conception of ‘plain meaning’
has traditionally been divorced from factual context. Indeed, on one view of the
law there was a time when context could not be used to ‘contradict’ the plain
meaning of a document. Since the law has now succeeded in distancing itself
from that idea,32 and also from the idea that words may have ‘fixed’ meanings,33
under the modern law any presumption in favour of plain meaning can be no
more than a presumption that words are used in accordance with the usages of
the community at large. In other words, any presumption is in favour of an
interpretation standard, not a particular usage within that standard.34
[12-10] Content. The content of the general community standard of
interpretation is found in any reliable (and appropriate) dictionary of the English
language. But the available meanings for words change over time. The range of
available meanings under the general community standard is not fixed. Usages
which are common today may not have been common in the past. The converse
is also true. Similarly, some words which are in general use today did not exist in
the past. Again, the converse is also true.
Given that a contract must be construed at the time it was agreed,35 what
passes for meanings in use in the community at large — the content of the
standard — must be determined at the time when the contract was agreed. The
need to consider usages which were current at that time seldom creates difficulty
in construing contracts, since it is uncommon for the usages current in the
community to change during the life of an ordinary commercial contract. At a
technical level, only in relation to ancient documents is it conceived that special
rules may be needed to take account of change in the content or senses of words
under the community standard of interpretation.36
The reasonable person who is taken to construe a contract is entitled to be
informed of usages which were current at the time of agreement. Even a
document which is not ‘ancient’ (in the technical sense) may be sufficiently old
to raise an issue as to the range of meanings which were current when the
contract was agreed.37 If so, dictionaries in use at that time may be more reliable
than current dictionaries as a guide to usages. For example, a contract of
indefinite duration, expressed in or evidenced by a document which cannot be
classified as an ancient document, may nevertheless fall to be construed at a date
some distance from the time when the contract was agreed. In such cases, it may
be appropriate to consider what usages were common when the contract was
agreed.38 For other contracts, the issue is more likely to arise in connection with
its application.39
Clearly, anyone who adjudicates on a construction dispute must know the
appropriate usages for the words at issue, if necessary by access to a dictionary.40
The content of the applicable dictionary is also assumed to be known by the
reasonable person who is taken to construe a contract under the perspective rule.
The Oxford English Dictionary is assumed to include all the available meanings
in England. However, generally speaking, lesser works of scholarship are
adequate guides to current community usages.41
[12-11] Appropriate general community. It is convenient to speak of a
standard of interpretation of the ‘community at large’, as if it were common to
all English-speaking people. However, the range of meanings may differ,
particularly when colloquial usage is taken into account. For example, the word
‘gas’ has a range of community meanings in England (and elsewhere) which
differs from that applicable in the United States or Canada. Thus, a contract
which confers a right to buy ‘gas’ may or may not be using that word to include
‘gasoline’.
The fact that the parties have chosen the law of a particular jurisdiction as the
governing law of the contract may not be conclusive as to the relevant general
community. It depends on what knowledge the reasonable person who is taken to
construe the contract is assumed to have.42 A choice may therefore sometimes
need to be made between English usages and those of other communities. And,
of course, American usages are now more influential than they were before the
advent of television and the internet. However, the decision to use a particular
dictionary should not be made in the name of the adoption of the standard of a
defined class of persons. Where it is the appropriate general community which is
at issue, the decision must be made on the basis of the community of which the
person (or class of persons) to whom the document was addressed was a
member. For example, in Hardwick Game Farm v Suffolk Agricultural and
Poultry Producers Association Ltd,43 the meaning of the word ‘poultry’44 was at
issue. Davies LJ said:45
No ordinary person would, in my view, consider that pheasants and
partridges are or would be included in the word ‘poultry’. In common
parlance there is a marked distinction between ‘poultry’ and ‘game’. This
distinction is to be found in, with one exception, all the dictionaries to
which the judge and this court were referred. The exception was an
American dictionary, namely, Webster’s Third New International
Dictionary (1961) which is of no value as to English, as opposed to
American, usage in 1926.
Where the standard of interpretation of the community at large applies, so that
meanings in common use must be determined, it may be more appropriate to
have regard to dictionaries of local usages even though they may not be the most
comprehensive. Thus, in some Australian cases46 it has been said that the Oxford
English Dictionary is not necessarily the most reliable guide to current usages
for a contract between members of the Australian community. On the other hand,
in Buche v Box Pty Ltd,47 because the document at issue was prepared by
professional advisers in 1956, Brownie J considered that it was more
appropriate, when construing the word ‘express’, to look at usages listed in the
Oxford English Dictionary, rather than a dictionary of current Australian
English.
[12-12] Usages and meaning. Words such as ‘plain’, ‘ordinary’, and so on,
describe a range of current dictionary meanings to which anyone construing a
contract may turn. The point of the exercise of determining the applicable
standard of interpretation extends no further than providing assistance as to the
range of accepted usages. Therefore, statements to the effect that dictionaries are
of limited use in resolving construction questions48 relate more to the process of
choosing between available meanings, that is, the process of construing the
contract as a whole.
An understanding of available usages is nevertheless important. Since a court
is entitled to be credited with a knowledge of the ordinary usages of English,49
recourse to dictionaries is not always necessary. Frequently, relevant usages
which comprise the current community standard are treated as understood, rather
than based on the review of a dictionary.50 Dictionaries may play a greater role
when an intermediate standard of interpretation is at issue, particularly a
specialised standard under which the usages may be akin to a foreign language
to the adjudicator of the construction dispute. And in this context, ‘dictionary’
includes not only works of scholars within the field, but also notional
dictionaries.51 Given the approach to third party standard form contracts, such
forms are of themselves specialised usages.52
Standard of a Defined Class
[12-13] General. The second standard of interpretation is that of a defined class
within the community. Membership of the class is smaller than the community at
large, but larger than that comprised only of the parties to the contract. It is
therefore an ‘intermediate’ standard of interpretation.
There is no limit to the number of intermediate standards of interpretation. All
that is required is the ability to identify a particular subclass of the community at
large having as a distinctive feature or characteristic the use of words or other
symbols with specialised meanings.53 There are three obvious bases for
identifying particular classes, which may overlap: (1) involvement in a particular
market, trade, profession, employment or industry; (2) membership of a sub-
culture or community, such as a specific scientific community or religious group;
and (3) presence at a particular location.
The standard of a defined class may be applicable whether or not the word or
expression at issue also has ordinary usages. However, technical phrases are less
likely to have common meanings, and may not include any words in common
usage. There are three situations. First, a word or other symbol may be wholly
specialised, that is, invented or appropriated for use by a particular class of
persons. Many scientific terms illustrate this situation, such as ‘Helium’ gas. So
also do certain mathematical symbols. Although some members of the general
public may be aware of such words and symbols, few are likely to have an
understanding of what they denote. In the contract context, an example is
‘demurrage’.
Second, particular words (and other symbols) having ordinary usages may be
used to create in combination an expression which has a specialised meaning.
The usage may be common to the members of more than one class of people.
Examples include mathematical formulae expressed in ordinary words, such as
Newton’s third law of motion. In the contract context, trade or industry meaning
may arise in this way, as with the expression ‘subject details’.54 Alternatively,
usage may be restricted to a particular class of persons. The meaning of such
expressions may be wholly unintelligible to the general public. But because
ordinary English words are used, unless reference is made to the applicable
standard of interpretation an unintended meaning may be assigned. In the
insurance contract context, an example is ‘sue and labour’.
Third, an expression which is unintelligible to a member of the general public
may comprise particular words or other symbols, some or all of which are in fact
used by ordinary members of the public. Even if the words or symbols are
known, and perhaps understood, the expression is not in ordinary use. And even
if the whole expression is a familiar one, what it actually denotes to those who
use the expression cannot be understood without specialised knowledge. An
example is the equation E = mc2. Contracts sometimes include complex
mathematical formulae, for example, to quantify price variations under a long-
term supply contract.
Where necessary, evidence may be given of the usages under the standard.55
[12-14] Intermediate standards. The descriptions of categories of meaning in
terms such as ‘technical’, ‘scientific’, ‘trade’, ‘customary’, ‘local’ invite
contrasts with ‘common’ meanings. The descriptions are therefore helpful in
identifying that a particular standard of interpretation may operate. At a practical
level, the terminology is also sometimes useful as an adjectival description
which identifies the relevant community and which may provide a link with
relevant case law. However, from a theoretical perspective the general
conception is that the standard is intermediate between that of the community at
large and one which is specific to the parties. It is therefore unnecessary to
assume that all intermediate interpretation standards can be given a familiar or
technical adjectival description.
Just as the law applies presumptions in relation to the legal effect of some
words, there are also presumptions in relation to ‘custom and usage’.56 The
presumptions are based on application of specific legal rules, rather than use of a
general theory about standards of interpretation. When satisfied, the impact is
that the word (or other symbol) or expression at issue has a particular meaning.
However, an intermediate standard may apply even if custom or usage is not
proved. Thus, it has been the law for a very long time that evidence of technical
or other usages may be given independently of the rules on custom and usage.57
Nevertheless, for words and expressions which also have common meanings, the
‘plain meaning’ rule and the technical rules of custom and usage have always
posed problems.
[12-15] Custom and usage. ‘Usage’ is defined in Halsbury’s Laws of England58
as a ‘particular course of dealing or line of conduct generally adopted by persons
engaged in a particular department of business life or entering into a common
type of contract’. Halsbury also states that such a usage has the effect that:59
[A] particular course of dealing or line of conduct which has acquired
such notoriety that, where persons enter into contractual relationships of
the particular kind, or in a particular place, to which usage is alleged to
attach, those persons must be taken to have intended to follow that course
of dealing or line of conduct, unless they have expressly or impliedly
stipulated to the contrary.
‘Custom’ is similar. Generally, the reference is to custom in a particular trade,
industry or profession, or custom at a particular locality. From the perspective of
the meaning of words and expressions, to the extent that usage is ‘customary
practice’, it is difficult to see any difference between the two concepts.60 Thus,
under §219 of the Contracts Restatement 2d (1979), usage is ‘habitual or
customary practice’.
[12-16] No legal standard. As professionals, lawyers are members of a defined
class of the community. All the senses in which lawyers use particular words can
be gathered together in a legal dictionary. On that basis, even though such
dictionaries include words which also have usages within the community at
large, it seems no less sensible to speak of ‘legal usage’ than it is to speak of
‘trade usage’. Some cases do indeed draw a distinction between the community
sense of words and the sense those words bear in ‘legal’ usage.61
It would be misconceived to say that the specialised usages of lawyers
comprise an intermediate standard of interpretation. Typically, ‘legal meanings’
for words are descriptions of the legal effect of a contract, not its meaning. In
particular, words such as ‘guarantee’, ‘charge’, ‘condition’ and ‘warranty’ are
used by lawyers to describe contractual provisions which have particular legal
consequences. Those legal consequences may arise whether or not ‘legally
correct’ words are used in the provisions, or to describe them. In relation to the
legal effect of a contract, intention comes first, legal label comes second.
Words such as ‘offer’, which contract lawyers use to express particular legal
conclusions, are also in use within the general community. Their use by lawyers
is technical in the sense that usage assumes or describes the satisfaction of
certain conceptual requirements. Such technical usage may also be understood
by an ordinary member of the community, as in the case of ‘offer’. However,
that understanding will not usually extend to the conceptual basis on which the
word is used. That may of course lead to subtle differences between legal usage
and community usages for the same word. An example is ‘negligence’. The
word may be a synonym for ‘carelessness’ or describe the breach of a legally
recognised duty of care. Only the former is clearly a community usage.
That courts do not actually apply a legal standard of interpretation when
construing words such as ‘charge’, ‘condition’, ‘warranty’, and so on, is shown
by the fact that, when the perspective rule is applied, courts do not ask what
meaning a reasonable lawyer would attribute to the contract. Although it might
be said that the reason for that is that an arbitrator or judge can stand in the shoes
of a reasonable member of the legal profession when construing the contract,
usages of the legal community are not proved as matters of fact. It is not sensible
to regard written and oral submissions on the legal significance of words such as
‘charge’ and ‘condition’ as being in the nature of expert evidence. It makes no
difference that the contract is addressed to a lawyer.62
Standard of Specific Parties
[12-17] Introduction. The third standard of interpretation is one which is unique
to the parties to a particular contract. For this standard to apply, the parties must
have adopted their own usages for the symbols in the document, including
symbols which are also words having ordinary usages, as a code. It is a rare
phenomenon. In order to maintain a clear distinction between this and other
standards, the usages must be ‘party-specific’ in the sense of being unique to the
parties. But since the standard of interpretation concept is concerned with usages
for words and expressions, the fact that every negotiated contract has a unique
meaning does not illustrate the operation of a party-specific standard.
Similarly, the fact that the parties have selected particular usages for their
contract, for example, by express definition, does not illustrate a party-specific
standard. Instead, the process involves the making of a choice between available
meanings within a broader standard. That broader standard is commonly the
general community standard. Such instances of agreed meaning do not illustrate
unique usages.
[12-18] Unique usages. Expressed in terms of basic semantics, the essence of a
party-specific standard is an association between symbol and referent which no-
one else would make. It is not sufficient that members of the community at large
would not make the association if, for example, the members of a particular
profession would make the same association.63
Unique usage may arise in at least three situations. First, the parties may have
invented their own symbols. Because both symbol and meaning are unique,
anyone reading the document will be aware that a code has been used.
Second, the parties may have used words or other symbols which, although
not in themselves unique, are used in unique senses. For example, for reasons
best known to themselves, parties may have agreed that ‘cloth’ means ‘brick’. In
the same way, particular combinations of words or other symbols may signify
unique meanings. An ordinary reader may or may not detect that the usage is
unique.
Third, words or other symbols which are in ordinary use may be used as a
code in circumstances where it will be clear to the ordinary reader that a ‘key’ is
needed. For example, for reasons of confidentiality, the parties to a contract may
have agreed to identify the areas covered by a restraint of trade by the symbols
‘A’, ‘B’ and ‘C’.
Since, ultimately, all words (and other symbols) in a contract must be reduced
to English, and since once so reduced the words and symbols must be given a
meaning, it is always necessary for the person construing the contract to be given
access to the parties’ usages.64
[12-19] Express definition. Express definition of a word (or expression) does
not necessarily, or even usually, signify the adoption of a party-specific standard.
The practice of expressly defining words may have any of four purposes. First,
but rarely, the purpose may be to adopt a unique meaning.
Second, the purpose may be to confirm the application of a meaning in
common use. In terms of the inquiries posed earlier,65 the parties have answered
— at least presumptively — the ‘Which meaning?’ inquiry. For example, if a
contract defines ‘person’ to mean ‘a natural person’, the parties have merely
adopted one of a range of meanings for that word available under the general
community standard.66
Third, the purpose may be to show the adoption of an intermediate standard
of interpretation, or one meaning from various available meanings under an
intermediate standard, such as a particular profession.
Fourth, the purpose may be to express an agreement on legal effect. For
example, a contract might provide that ‘“warranty” has the same meaning as in
the Sale of Goods Act 1979 (UK)’.
[12-20] Agreed meaning. It follows that where the parties adopt as a defined
meaning one of a range of meanings in use in the community at large, the
parties’ meaning is a chosen meaning under that standard.67 Although it is
necessarily specific in the sense that it is ‘particular’, the meaning is not unique.
The position is simply that by making a choice from within a range of meanings,
the parties have expressed their intention as to the applicable meaning. For
example, a contract might define ‘boat’ to mean ‘engine-powered water vessel’.
Whether that meaning is applicable to all usages of the word in the contract is a
question of construction.68
A chosen meaning may not be one which is in common usage. However, that
does not of itself signify adoption of a party-specific standard. The meaning may
have been chosen from usages under an intermediate standard of interpretation.
Identification of an agreed meaning on that basis may also assist in relation to
undefined terms. For example, an express definition which adopts a particular
trade meaning may justify the inference that other words in the contract are
intended to be construed by reference to trade meanings.
In some cases, express choice of meaning has been analysed in terms of a
contrast between primary and secondary meaning.69 For example, in
Hvalfangerselskapet Polaris Aktieselskap v Unilever Ltd70 Lord Wright said71
that parties ‘no doubt may include an interpretation clause expressly in their
contract, or may expressly stipulate that words are to have a secondary
meaning’. However, the adoption of a party-specific standard of interpretation
can be deduced only if the (‘secondary’) meaning is unique to the parties.72
Unilateral Standard
[12-21] Concept. Wigmore’s fourth standard, that of the ‘individual actor’, is a
unilateral standard. It differs from all other standards because it is not a ‘shared’
standard.73 The standard is subjective to the person who makes the utterance.74
Ordinary speech is carried on by reference to this standard.75
The content of a unilateral standard of interpretation is limited to the
knowledge of the person who makes the utterance. Since ‘available meanings’
within the standard are those considered, subjectively, to apply in a given
context, it is impossible for anyone else to know the content of the standard.
Although linguistically invalid, its content may include usages which are unique
to that person, in the sense of including associations between symbol and
referent which other people would regard as incorrect.76
In the construction of a contract, since intention is usually determined
objectively,77 the general rule is that neither party can insist on application of a
unilateral standard of interpretation. That applies equally to the meaning of
unilateral utterances.
[12-22] Unilateral documents. The perspective rule applies to all documents
which are construed on an objective basis.78 That includes documents such as
letters, notices and assignments brought into existence in connection with a
contract or contemplated contract.
Although in each case the meaning determined under the objective approach
is the meaning of the author of the document, and notwithstanding that in most
cases that may well be the meaning actually intended by the author, the standard
of interpretation is determined in the ordinary way. There is, however, more
scope for application of a unilateral standard in relation to a unilateral document
such as an offer.
[12-23] Application. Contracts are (at least) bilateral acts which involve the
adoption of a standard of interpretation which is shared by (binding on) both
parties. The meaning determined by applying the perspective rule is taken to
represent the common intention of the parties.79 Whatever meaning one party
may have intended (or understood), that meaning cannot be asserted unless it
was agreed to by the other, or that party is precluded from denying that it was
agreed to.80 In such cases the impact is the adoption of a common meaning.81
Where evidence of the unilateral intention of one party is admissible, and the
circumstances show that the intended meaning was not adopted by the other
party, there may be no contract.82 Thus, §201(3) of the Contracts Restatement 2d
(1979) acknowledges that, except as stated in §201, ‘neither party is bound by
the meaning attached by the other, even though the result may be a failure of
mutual assent’.
CHOICE OF STANDARD
General
[12-24] Matter of intention.
Article 12.3 —Choice of standard.
(1) The standard of interpretation applicable to a contract depends on the
intention of the parties.
(2) More than one standard of interpretation may apply to a contract.
The standard of interpretation applicable to a contract is a matter of intention.
However, more than one standard may apply. In particular, the standard of
interpretation of the community at large is never wholly displaced.
The intention of the parties may be resolved by construction of the document
in the ordinary way. For the most part, commercial contracts are written in
standard English to which the standard of interpretation of the community at
large is presumed to apply. Adoption of some other standard for particular words
or expressions may be proved by evidence. However, allegations of such
adoptions have traditionally been viewed with suspicion.83
[12-25] Choice may be express or inferred. Use of the correct standard of
interpretation is essential to application of the perspective rule. The starting point
is construction of the contract in the light of context. If there is no express
choice, the relevant intention may be inferred.84
Express adoption of the community standard is unnecessary and therefore
unlikely to occur. An agreement that a contract must be construed in accordance
with usages at a particular locale, or usages of the members of a particular
profession or trade, is more likely. Alternatively, an express agreement may
relate to a party-specific standard. But the fact that an agreement includes
express definitions or an interpretation clause does not usually amount to such an
agreement. Instead, the usual function is to choose a meaning from within a
range of meanings under the applicable standard of interpretation.85
[12-26] Legal meanings. As has been explained,86 the concept of a ‘legal’
standard of interpretation makes no sense. From the perspective of proof of
choice of standard, there are three points. First, where words such as ‘guarantee’,
‘charge’, ‘condition’ and ‘warranty’ are used, the fact that they have common
meanings and particular legal meanings does not imply that it must be asked
whether the parties have adopted a legal standard of interpretation.
Second, a good indication of the fact that an intermediate standard of
interpretation may apply is that the parties to the contract are the members of a
particular class of persons who have specialised or technical usages. Similarly, if
a specialist has been engaged to draft part of a contract, such as a technical
specification, that may indicate an intention to adopt the usages of the
specialist’s profession as the applicable standard of interpretation for technical
words in the specification. But, the fact that a contract is between lawyers does
not imply that words with particular legal meanings must be construed on the
basis of adoption of a legal standard of interpretation. There is simply no
evidence of such contracts being construed in that way.87 More generally,
whether a lawyer drafted the contract is relevant to the legal effect of the
contract, not the standard of interpretation.88
The first two points come together in cases such as L Schuler AG v Wickman
Machine Tool Sales Ltd.89 As was explained earlier,90 the fact that the parties had
used the word ‘condition’ in the clause at issue was of some relevance to the
question which arose, namely, whether the promise was a condition in the sense
of ‘essential term of the contract’. So also was the fact that the contract was
drafted by lawyers. However, the construction issue was whether the parties
intended any breach of the promise to confer a right of termination. If that had
been the intention, the word ‘condition’ would have been an appropriate legal
label to apply to the promise.
The third point is that the use of a word such as ‘guarantee’, ‘condition’ or
‘warranty’ does not raise the issue of whether the parties have adopted a
technical standard of interpretation. If a certain word (or phrase) is regarded as
having a particular significance under the law of contract, the construction
question is whether that is the legal effect of the contract.91 An intention to
achieve a particular legal effect can only be ascribed on the basis of a
construction of the contract as a whole. The language chosen is simply a relevant
consideration.92
General Community Standard Presumed
[12-27] Presumption in favour of community standard.
Article 12.4 — General community standard presumed.
(1) Where the standard is capable of being applied, the standard of
interpretation is presumed to be that of the community at large.
(2) The presumption in favour of the standard of the community at large
may be displaced by construction of the contract, or rebutted by evidence
establishing the adoption of a narrower standard of interpretation.
The law has always taken a presumptive approach to standards of interpretation.
For words which have usages under the standard of the community at large, that
standard is presumed to apply. However, if the words at issue do not have usages
under that standard, some other standard must be found.
In relation to words in ordinary use, it follows that the community standard of
interpretation is applied as a default rule. Because it is merely a default rule, the
presumption may be displaced by construction of the contract or rebutted by
evidence. Therefore, any allegation that the community standard does not apply
must be considered. Construction of the contract in light of context may be
sufficient. If not, adoption of a narrower standard of interpretation must be
proved, for example, by reference to custom or usage.
[12-28] The plain meaning rule. At least as originally conceived, the ‘plain
meaning rule’ is a presumption in favour of a single meaning in common use.93 It
is distinguishable from a rule which treats any usage under the standard of
interpretation of the community at large as potentially applicable. In other words,
it is a choice of meaning rule, not a choice of standard rule. There is a long line
of authority supporting the rule.
In 1803 in Robertson v French,94 Lord Ellenborough referred to a
presumption in favour of the ‘plain, ordinary, and popular sense’ of words. In
Shore v Wilson,95 in 1842, Tindal CJ said96 that where the words of an instrument
are ‘free from ambiguity’ the ‘instrument is always to be construed according to
the strict, plain, common meaning of the words themselves’. In 1900, the Earl of
Halsbury LC said in North Eastern Railway Co v Lord Hastings97 that ‘no
principle has ever been more universally or rigorously insisted upon than that
written instruments, if they are plain and unambiguous, must be construed
according to the plain and unambiguous language of the instrument itself ’. And
as recently as Investors Compensation Scheme Ltd v West Bromwich Building
Society, 98 Lord Hoffmann said:99
The ‘rule’ that words should be given their ‘natural and ordinary
documents.
None of these statements rely expressly on the concept of a community
standard of interpretation. They reflect the view that in many cases a contract
will be amenable to a single ‘plain’ meaning. There are similar Australian
cases.100 The Contracts Restatement 2d (1979) adopts the same approach.
Section 202(3)(a) states that, unless a ‘different intention is manifested’,
language which has a ‘generally prevailing meaning’ is interpreted in accordance
with that meaning. Like Lord Hoffmann’s statement, the commentary to the
provision recognises that it must ‘yield to internal indications such as
inconsistency, absurdity, or departure from normal grammar, punctuation, or
word order’.
[12-29] Status of the plain meaning rule. There seems little doubt that courts
continue to treat the plain meaning rule as a choice of meaning rule, apparently
on the basis that a contract can have only one ‘plain’ meaning in any given
situation.101 So far as concerns the interaction between meaning and the standard
of interpretation concept, there are four relevant points.102 First, it is not easy to
reconcile a plain meaning approach with the evolution in the role of context.103
Particularly in the 19th century cases, the plain meaning rule was applied on the
basis that the use of any evidence to contradict plain meaning infringed the
exclusionary rule.104 But if there was linguistic ambiguity, it was conceived that
there could be no ‘plain’ meaning. On that basis, the ‘surrounding circumstances’
were available to resolve the ambiguity. Those aspects of the plain meaning rule
no longer hold true.105
Second, construction is the search for a single — intended — meaning. It is
not the search for a ‘plain’ (or ‘ordinary’ or ‘natural’) meaning.106 From the
perspective of the standard of interpretation concept, any meaning in use in the
community at large is a plain meaning. No doubt, some meanings are plainer
than others, that is, more obvious or logical given the syntax of the document.
However, what may appear to be plain to one person may not be plain to
another.107 Therefore, the conclusion that a particular meaning is a plain meaning
may merely reflect the linguistic experience (and preferences) of the person
adjudicating in construction, that is, how they would have used the words at
issue.
Third, the distinction between the standard of interpretation of a contract and
the choice of meaning under the applicable standard is important. The concept of
‘plain meaning’ is distracting, if not unhelpful. In Charter Reinsurance Co Ltd v
Fagan108 Lord Hoffmann said:109
I think that in some cases the notion of words having a natural meaning is
not a very helpful one. Because the meaning of words is so sensitive to
syntax and context, the natural meaning of words in one sentence may be
quite unnatural in another.
With respect, that seems absolutely correct and (if there is a difference) equally
applicable to plain meaning.110 It is one of the most important features of the
English language that any utterance may have a unique meaning even though
each word has been used in accordance with commonly accepted usages. If the
sense attributed to the words at issue by construction of the contract is in use in
the general community, the meaning is a ‘plain’ meaning.
Fourth, because there will almost invariably be more than one usage available
to the parties, the distinction between available meanings (standard of
interpretation) and the meaning of words in a document (intended sense) is most
important where the standard of interpretation is that of the community at large.
Consistently with the modern approach to context, the best explanation for the
continued use of the plain meaning terminology in the recent cases is simply that
two steps are often taken at once. The first step is an unstated conclusion that the
applicable standard of interpretation is that of the community at large.
The second step is the statement of a prima facie conclusion as to the choice
of meaning under that standard. References in the statement to ‘plain’ (or
‘ordinary’ or ‘natural’) meaning are to the obvious meaning,111 or the likely
meaning112 under the community standard of interpretation, given the immediate
context.113 Although such conclusions may be in the nature of ‘conditioned
responses’, that is, conclusions based on personal knowledge or experience,114
the approach does not amount to application of a default rule in favour of a
single ‘plain meaning’ for words, and certainly not a presumptive meaning
which can be carried from contract to contract.115
Proof of Choice
General
[12-30] Introduction. The applicable standard of interpretation depends on the
intention of the parties. The perspective rule116 applies. Therefore, at least as a
general rule, the question is what conclusion a reasonable person standing in the
position of the party to whom the words at issue are addressed would reach. The
presumption in favour of the standard of interpretation of the community at large
reflects the fact that all contracts are addressed to members of the community at
large. Where the words at issue have usages under that standard, consideration of
whether the parties adopted a different interpretation standard is from the
perspective of adoption of a narrower standard.
Where the words at issue do not have usages under the standard of
interpretation of the community at large, there can be no presumption in favour
of those usages. In most cases the question is whether the parties have adopted
an intermediate standard of interpretation. But in some cases a party-specific
standard may have been chosen. Even though the words at issue may have
usages under the general community standard, a different standard may
nevertheless apply.
[12-31] Bases. There are three bases for showing that the parties have departed
from the standard of interpretation of the community at large. First, that may be
apparent from construction of the document at issue in light of context.
Second, proof that the usages of the community at large are not applicable
may be based on evidence. That includes evidence of course of dealing, or the
prior negotiations of the parties.
Third, the parties are presumed to have adopted a standard based on custom
or usage if the applicable technical requirements are satisfied. However, proof of
adoption of the usages of a particular class of the community, including the
members of a trade or profession, is not limited to situations where those
technical requirements are satisfied.
The discussion below is limited to explaining the first and third bases.117
Construction of the contract
[12-32] Introduction. Construction of the contract will be sufficient to indicate
an intention to adopt a standard of interpretation other than that of the
community at large in any case where the words (or other symbols) at issue: (1)
are invented, foreign or used as a code; or (2) are otherwise meaningless under
the community standard.
At one time the general view was that if a document could be given a plain
meaning, evidence of context could not be used to attribute a different meaning
to the contract.118 As has been noted,119 that view no longer represents the law.
Therefore, there is a third category. Even in cases where the words at issue do
have meanings in common use, it may be clear from a construction of the
contract in light of context that words have been used in a specialised sense.
[12-33] Knowledge of the adjudicator. What in many cases prevents
consideration of context leading to expert evidence on specialised meanings is
the experience of commercial arbitrators and judges.120
Words and other symbols (including abbreviations) which are meaningless to
ordinary members of the public may have well-established meanings which are
largely taken for granted. Some are both common and general in their
application, such as ‘L/C’ and ‘laycan’. Some specialised meanings are well
known and cross boundaries between classes, such as the use of ‘accept/except’
in the shipping and oil and gas trades.121 Evidence of the meaning of descriptions
and codes such as ‘laycan’ and ‘NCAD’ is seldom necessary or controversial.122
Indeed, terminology which would be unfamiliar to an ‘outsider’ may be used
without comment in specialised contexts.123
The knowledge, experience and understanding of arbitrators and judges
familiar with mercantile usages have always been regarded as crucial in the
construction of commercial contracts. That includes familiarity with particular
standard form documents.124 Sometimes this leads to a difference between the
linguistic meaning of words and what they signify as a matter of law. For
example, not only are the abbreviations CIF and FOB capable of being
understood by parties to a wide range of contracts, but a whole body of law has
developed, defining the common or usual incidents of such contracts.125
Therefore, although the linguistic sense of ‘CIF’ is ‘cost, insurance and freight’,
whether or not the contract has the normal incidents of a CIF contract is a quite
different issue of construction.126 And it is possible that, in particular trades, the
incidents of the transaction may differ from what are regarded as normal or usual
incidents.127
[12-34] Invented or foreign words and codes. In Shore v Wilson,128 Parke B
acknowledged that construction of a document may establish a narrower
standard of interpretation than the community standard. He referred129 to a
situation in which the ‘language of the instrument is such as the court does not
understand … as when it is written in a foreign tongue’. Where a contract uses
words or other symbols which are (from the perspective of the English language)
invented, foreign or otherwise represent a code, the displacement of the standard
of interpretation of the community at large will be apparent on the face of the
document. But there is a difference between a contract written in a foreign
language — the usages of which are shared by a class of people — and the use
of words or other symbols which are meaningful only to the parties.
The use of evidence to decode the contract is also distinguishable from the
choice of the applicable standard of interpretation. Although the words used in a
foreign language must be translated, once that has occurred the standard of
interpretation will generally be that of the community at large. The issue may
also arise whether that community is the foreign community. Under the
perspective rule, the matter is resolved by reference to the position of the person
to whom the words at issue were addressed.130 If that leads to a foreign
community, any particular usages in that community are, for the purposes of a
contract governed by English law, a matter of proof.
Even if the parties have used as a code words which have no meanings in
ordinary English usage, the meanings may nevertheless be well understood in a
particular market, industry, trade or profession. That understanding will be an
element of the context of the contract. There is therefore a distinction between
‘codes’ which comprise the usages of a particular class of persons and codes
which are necessarily party-specific. In Falck v Williams,131 various invented
words were used — as a one-off code — to save money in negotiations
conducted by telegraph. The symbols and the meanings assigned were unique.
But where the ‘code’ is proved to comprise the usages of a market, industry,
trade or profession, the standard of interpretation comprises the usages of the
members of a particular class.
All documents written using codes need to be decoded. Accordingly, in cases
like Falck v Williams where the symbols are invented, and have meaning only to
the parties, use of the key renders the symbols used into words. There are then
two possibilities. First, applying the key may generate words and other symbols
in ordinary use. The interpretation standard of the community at large is
presumed to apply. But that presumption may be displaced or rebutted.
Second, applying the key may generate words and other symbols which are
not in ordinary use. The standard of interpretation of the community at large
does not apply. Instead, an intermediate standard of interpretation has been
adopted.
[12-35] Absence of common meaning. The generalised concept which is
illustrated by foreign, code or invented words (or other symbols) is that the
parties’ usages are meaningless under the standard of interpretation of the
community at large. If the aspect of the contract at issue consists of an
abbreviation or a grouping of words which has no common meaning, the parties
have either made a mistake under the community standard, or have adopted
some other standard. Meaning may be established by reference to the standard of
the members of a particular trade, industry or profession. Alternatively, a party-
specific standard may be applicable. Either way, a solution must be found. What
that solution is will depend on the circumstances.132
Commercial contracts frequently employ symbols, abbreviations, and so on.
Even if meaningless to the community at large, they have well-established
specialised meanings, for example, in a trade or industry. They may not be
regarded as English words by the compilers of standard dictionaries. For
example, in Charter Reinsurance Co Ltd v Fagan,133 Lord Mustill referred134 to
words which ‘come from a specialist vocabulary and have no significance in
ordinary speech’. Particularly in the case of abbreviations, these may cross
boundaries.135 Use of words or other symbols which are peculiar to a defined
class of the community, particularly one of which the parties are members, is
evidence of an intention to adopt the standard of interpretation of that defined
class.
The idea that words (or other symbols) may have no meaning under the
community standard of interpretation extends to expressions comprising
ordinary words. For example, in Max Cooper & Sons Pty Ltd v Sydney City
Council136 the expression at issue was ‘pay loadings’, as used in a ‘rise and fall’
clause in a building contract. This was regarded as having no meaning in
ordinary speech. In other words, although the words ‘pay’ and ‘loadings’ have
ordinary meanings, the Privy Council was satisfied that use of the expression
‘pay loadings’ indicated adoption of the usages of members of the building
industry.
[12-36] Inference from context. If a contract is agreed by two people, neither of
whom is engaged in a business, the standard of interpretation of the community
at large will apply, assuming the absence of any allegation of local custom or
usage. The community standard will also apply if the document at issue is
addressed to an ordinary member of the public.137 Since it is impossible to speak
of a standard of interpretation of the ‘commercial community’, the mere fact that
the document is addressed to a person who carries on a business does not
displace the community standard. Except where the requirements of custom or
usage are satisfied, there is no presumption in favour of specialised usages.
Therefore, the fact that the words or other symbols used in a contract have
specialised meanings as well as ordinary meanings does not of itself signify that
the parties to a contract have adopted those specialised usages.
However, context may be sufficient to establish an intention to adopt
specialised usages.138 In any case where both contracting parties are seen to have
specialised knowledge, based on their experience in a particular trade, profession
or industry, or to have relied on others with specialised knowledge to prepare a
document, context is likely to suggest that some words and phrases have been
used in reference to the usages of a subclass of the community. For example,
where a contract refers to ‘petroleum’, context will indicate whether it is
necessary to distinguish what passes between participants of the oil industry as
petroleum from what a chemist would regard as a petroleum product, or what a
member of the community would regard as petroleum (‘petrol’).139
If the contract is between members of a defined class of the community, and
the document uses words (or other symbols) which are terms of art, or are
otherwise capable of being used in specialised senses, application of the standard
of interpretation of the community at large may be doubtful. Context may show
that the community standard is not applicable. As Lord Mustill explained in
Charter Reinsurance Co Ltd v Fagan,140 where a word has ‘one meaning in
common speech and another in a specialist vocabulary … the context may show
that the author of the document in which it appears intended it to be understood
in the latter sense’. For example, a trade or technical standard may apply.141
Similarly, §202(3)(b) of the Contracts Restatement 2d (1979) states that
‘technical terms and words of art are given their technical meaning when used in
a transaction within their technical field’.
Applicable custom or usage
[12-37] Introduction. The time-honoured basis for showing the adoption of an
intermediate standard of interpretation is by proof that the requirements of
custom or usage are satisfied. Illustrations of a standard of a particular class of
persons include the standards of interpretation adopted by those in a particular
trade, profession or industry. The present discussion focuses on the applicable
rules.142
The applicable rules draw no real distinction between the implication of a
term and proof of customary or trade meaning. In addition, as in relation to the
plain meaning rule,143 it would seem more accurate to say that the concern is
with choice of meaning, rather than choice of an interpretation standard.
Accordingly, the usual perspective for application of the requirements of custom
or usage is adoption of a single meaning to be applied in construction.
Although they have not disappeared entirely from the legal landscape, the
technical rules of custom and usage play a minor role in the modern law. There
are few recent cases.
[12-38] Legal rules. The rules relating to custom and usage have proved
difficult to satisfy. The cases in which allegations of custom or usage have failed
on the basis of lack of proof are legion.144 That is to no small extent a product of
the strict and technical nature of the rules. The intention of the parties is
determined on a doctrinal basis. One reason why the rules are strict is that they
prescribe the circumstances in which the parties are deemed to have contracted
on the basis of meanings under custom or usage. But it follows that in any case
where the allegation of a particular meaning is made, but not established, the
community standard of interpretation will remain applicable.145
The requirements may be summarised as follows.146 First, although it does not
have to be shown that the custom or usage is universally accepted,147 it must be
shown that the custom or usage relied on is well known and acquiesced in to the
extent that it can reasonably be inferred that the parties intended to contract on
the basis of (or by reference to) the custom or usage.148
Second, the custom or usage must be consistent with the express agreement of
the parties.149 An inconsistent custom or usage cannot be relied on.150 The
concept includes inconsistency with the tenor of the language of the document.151
Third, the custom or usage must be certain.152 This seems simply to illustrate
the general requirement of cogency. If there is uncertainty, the custom or usage
cannot form a basis for implication or adoption of a particular meaning.153
Fourth, the custom or usage must be reasonable.154 This reflects the influence
of the implied term rationalisation for most of the cases on custom and usage. It
would hardly be consistent with the emphasis on inferred intention for the parties
to be bound by an unreasonable custom or usage. In Thornley v Tilley,155 a
contract between a client and a stockbroker contained the expression ‘carry at 8
per cent’. The stockbroker called evidence to prove a custom or usage under
which the expression was a shorthand way of saying that the stockbroker was
entitled to charge interest at eight per cent, and to deal with the shares without
being liable to account to the client. Even if the custom or usage had been
proved, it was an unreasonable usage which could not affect the construction of
the contract.
Fifth, the custom or usage must be legal.156
Sixth, if the custom or usage is notorious it will be presumed to govern the
construction of the contract.157 But actual knowledge by both parties of the
custom or usage is not essential.158
Seventh, whether custom or usage has been proved is a question of fact.159
The rules under CISG and the UNIDROIT Principles are not quite as
technical. Article 8 (3) of CISG provides that in ‘determining the intent of a
party or the understanding a reasonable person of the same kind as the other
party would have had, due consideration is to be given to all relevant
circumstances of the case including … usages’. Under art 9(1), the parties are
bound by any usage to which they have agreed. Under art 9(2) of CISG, the
parties are also considered, unless they have otherwise agreed, to have impliedly
made applicable to their contract (or its formation) a usage of which the parties
knew or ought to have known and which in international trade is widely known
to, and regularly observed by, parties to contracts of the type involved in the
particular trade concerned.160 Similarly, art 1.9(1) of the UNIDROIT Principles
states that the parties are bound by any usage to which they have agreed and by
any practices which they have established between themselves. Article 1.9(2)
provides that, unless application of the usage would be unreasonable, the parties
are bound by a usage that is widely known to and regularly observed in
international trade by parties in the particular trade concerned.
Under §222(1) of the Contracts Restatement 2d (1979),161 a usage of trade is a
‘usage having such regularity of observance in a place, vocation, or trade as to
justify an expectation that it will be observed with respect to a particular
agreement’. And §220(1) states that a contract is construed in accordance with a
relevant usage if ‘each party knew or had reason to know of the usage and
neither party knew or had reason to know that the meaning attached by the other
was inconsistent with the usage’.162
[1998] 1 WLR 896 at 902; Dairy Containers Ltd v Tasman Orient Line CV
[2005] 1 WLR 215 at 220; [2004] UKPC 22 at [12].
3. [1988] 2 Lloyd’s Rep 101.
Appeal agreed. See also Brown v Byrne (1854) 3 E & B 703 at 715; 118
ER 1304 at 1309 per Coleridge J, for the Queen’s Bench (‘language
peculiar to merchants’); Cero Navigation Corp v Jean Lion & Cie (The
Solon) [2000] 1 Lloyd’s Rep 292 at 294; [2000] 1 All ER (Comm) 214;
715 at 747; [2003] UKHL 12 at [45] per Lord Steyn (in the context of a
bill of lading, ‘reasonable person, versed in the shipping trade’).
5. The law also conceives that technical words and expressions may have
plain or ordinary meanings. See Max Cooper & Sons Pty Ltd v Sydney
City Council (1980) 29 ALR 77 at 85; 54 ALJR 234.
6. See generally Chapter 6. See also [8-23].
7. See Sir Johan Steyn, ‘Written Contracts: To What Extent May Evidence
Control Language?’ [1988] CLP 23 at 27 (role of custom of ‘marginal
importance’).
9. [1987] 1 Lloyd’s Rep 482 at 485.
Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC
749 at 775; Emeraldian Ltd Partnership v Wellmix Shipping Ltd (The Vine)
[2011] 1 Lloyd’s Rep 301 at 308; [2010] EWHC 1411(Comm) at [53];
Anthracite Rated Investments (Jersey) Ltd v Lehman Brothers Finance SA
(in liq) [2011] 2 Lloyd’s Rep 538 at 553; [2011] EWHC 1822(Ch) at [68].
And see [4-21], [5-22].
12. See [11-33].
13. See [11-32].
15. See further [12-16], [12-26].
16. Cf Durham Tees Valley Airport Ltd v bmibaby Ltd [2011] 1 Lloyd’s Rep 68
at 72; [2010] EWCA Civ 485 at [10] (trial judge’s finding of meaning of
‘exclusivity’ under ‘aviation law’).
17. See generally [13-16]–[13-26].
18. See, eg Furness Withy (Australia) Pty Ltd v Metal Distributors (UK) Ltd
(The Amazonia) [1990] 1 Lloyd’s Rep 236 at 245, 247.
19. Cf King v Brandywine Reinsurance Co (UK) Ltd [2005] 1 Lloyd’s Rep 655
at 670; [2005] EWCA Civ 235 at [68] (whether evidence related to special
meaning for ‘debris’ under New York law).
20. [1989] AC 852 at 911.
21. See Wigmore on Evidence, vol 9, §§2458, 2460.
22. The analysis does not conform entirely to Wigmore’s theory.
23. See [12-24].
24. However, the category of ‘a specific portion of the community’ does not
include the legal community. See [12-05], [12-16].
25. See [12-17], [12-20]. For the evidential considerations see Chapter 14.
26. See [11-30]. See also [12-21]–[12-23] (unilateral standard).
27. See [15-22] (standard for application).
28. See [1-23].
29. See [12-36]. See also [7-13].
30. Cf SA Maritime et Commerciale of Geneva v Anglo-Iranian Oil Co Ltd
[1954] 1 WLR 492 at 495–6 per Birkett LJ (‘true, ordinary and reasonable
meaning’).
31. See, eg L Schuler AG v Wickman Machine Tool Sales Ltd [1974] AC 235 at
250 per Lord Reid (‘ordinary use’); Codelfa Construction Pty Ltd v State
Rail Authority of New South Wales (1982) 149 CLR 337 at 347 per Mason
J, with whom Stephen and Wilson JJ agreed (‘plain and ordinary meaning’).
For the senses of ‘natural’ meaning see Chapter 11.
32. See [8-23], and generally Chapter 6.
33. See [11-11].
35. See [4-09].
37. Cf Shore v Wilson (1842) 9 Cl & F 355 at 528; 8 ER 450 at 519.
38. See Staffordshire Area Health Authority v South Staffordshire Waterworks
Co [1978] 1 WLR 1387 at 1395; [1978] 3 All ER 769; Buche v Box Pty Ltd
(1993) 31 NSWLR 368 at 374. Cf Administration of the Territory of Papua
and New Guinea v Daera Guba (1973) 130 CLR 353 at 466 (whether
special rules for document executed within the limits of living memory).
39. See also Durham v BAI (Run off) Ltd (in scheme of arrangement) [2012] 1
WLR 867 at 898; [2012] UKSC 14 at [70] (impact of changes in the
common law).
40. See, eg Nippon Yusen Kaisha Ltd v Scindia Steam Navigation Co Ltd (The
Jalagouri) [2000] 1 Lloyd’s Rep 515 at 518–19 (use of Oxford English
Dictionary in relation to meaning of ‘detained’ — vessel was ‘detained’
when port authority would not permit vessel to stay at berth pending
provision of security).
41. See, eg Absalom v TCRU Ltd [2006] 2 Lloyd’s Rep 129 at 132; [2005]
EWCA Civ 1586 at [9] (Shorter Oxford English Dictionary source of
available meanings for ‘deposit’).
42. Cf Forsikringsaktieselskapet Vesta v Butcher [1989] AC 852 at 911.
43. [1966] 1 WLR 287; [1966] 1 All ER 309 (affirmed sub nom Henry Kendall
& Sons v William Lillico & Sons Ltd [1969] 2 AC 31).
44. As used in the Fertilisers and Feeding Stuffs Act 1926 (UK).
45. [1966] 1 WLR 287 at 310; [1966] 1 All ER 309 at 323.
46. See Provincial Insurance Australia Pty Ltd v Consolidated Wood Products
Pty Ltd (1991) 25 NSWLR 541 at 553, 561 (‘canal’ interpreted by reference
to meanings listed in Macquarie Dictionary); Spunwill Pty Ltd v BAB Pty
Ltd (1994) 36 NSWLR 290 at 302 (‘similar’ construed with aid of
Macquarie Dictionary). Contrast Botany Fork & Crane Hire Pty Ltd v New
Zealand Insurance Co Ltd (1993) 116 ALR 473 at 477 (‘custody’ —
reference to Shorter Oxford English Dictionary); Agricultural and Rural
Finance Pty Ltd v Gardiner (2008) 238 CLR 570 at 581; [2008] HCA 57 at
[32] (‘punctual’ — Oxford English Dictionary).
47. (1993) 31 NSWLR 368 at 374. See also Castlemaine Tooheys Ltd v Carlton
& United Breweries Ltd (1987) 10 NSWLR 468 at 482 (‘assure’ — use of
Shorter Oxford English Dictionary, where Macquarie Dictionary had no
definition).
Society [1998] 1 WLR 896 at 913.
49. See, eg Provincial Insurance Australia Pty Ltd v Consolidated Wood
Products Pty Ltd (1991) 25 NSWLR 541 at 560 (judge’s understanding of
sense of words). Cf Coddington v Paleologo (1867) LR 2 Ex 193 at 200
(judicial notice).
50. See, eg King v Brandywine Reinsurance Co (UK) Ltd [2004] 2 Lloyd’s Rep
670 at 686; [2004] EWHC 1033 (Comm) at [86] (affirmed [2005] 1 Lloyd’s
Rep 655; [2005] EWCA Civ 235); Commonwealth Smelting Ltd v Guardian
Royal Exchange Assurance Ltd [1986] 1 Lloyd’s Rep 121 at 126. See
further [14-07] (expert evidence not admissible).
51. See [14-08].
52. C J Goetz and R E Scott, ‘The Limits of Expanded Choice: An Analysis of
the Interactions Between Express and Implied Contract Terms’ (1985) 73
Calif L Rev 261 at 313.
53. See, eg Tropwood AG of Zug v Jade Enterprises Ltd (The Tropwind) [1982]
1 Lloyd’s Rep 232 at 236 per Lord Denning MR (meanings attached ‘by
persons in the shipping trade’).
54. See, eg Star Steamship Society v Beogradska Plovidba (The Junior K)
[1988] 2 Lloyd’s Rep 583. See [16-31].
55. See Chapter 14.
56. See further [12-15], [12-37]–[12-38], [14-11]–[14-13].
57. See, eg Myers v Sarl (1860) 3 El & El 306 at 315–16; 121 ER 457 at 461
(evidence to prove ‘weekly account of work’ had particular signification in
building trade). See Norton on Deeds, pp 143–4.
58. Vol 12 (reissue), §650.
59. Vol 12 (reissue), §650. For the rules see [12-37]–[12-38].
60. Cf General Reinsurance Corp v Forsakringsaktiebolaget Fennia Patria
[1983] QB 856 at 872. But see Vitol SA v Phibro Energy AG (The Mathraki)
[1990] 2 Lloyd’s Rep 84 at 87–8.
61. See [11-06], [11-16] and further Chapter 13.
62. See [12-26].
63. See [14-15].
64. See, eg Shore v Wilson (1842) 9 Cl & F 355 at 555; 8 ER 450 at 529; Falck
v Williams [1900] AC 176. See further Chapter 14.
65. See [11-03].
66. But they have also rebutted a statutory presumption. See [13-24].
67. See also [14-19].
68. See [13-39].
69. See also [11-16].
70. (1933) 39 Com Cas 1.
71. (1933) 39 Com Cas 1 at 32. See also (1933) 39 Com Cas 1 at 9 per Lord
Atkin.
73. See Wigmore on Evidence, §2466.
74. On one view that is illustrated by Humpty Dumpty’s use of ‘glory’ in
Through the Looking Glass. See [5-13].
75. See Chapter 5.
76. Cf Noam Chomsky, ‘Topics in the Theory of Generative Grammar’ in J R
Searle, ed, The Philosophy of Language, Oxford University Press, Oxford,
1977, p 73 (contrast between competence and performance).
77. See [4-07].
78. See Chapter 11.
79. See [11-27]–[11-28].
80. See Chapter 2. See also [9-23], [9-35].
81. See [11-30].
82. See [2-22], [9-34]–[9-47] (mistake).
83. See, eg Bowes v Shand (1877) 2 App Cas 455 at 473 per Lord Hatherley
(‘strongest evidence’ of custom meaning necessary for court to deviate from
‘plain natural sense’).
84. For classification of intention as actual, expressed or inferred, see Chapter
2.
85. See [12-19], [12-20], [13-39].
86. See [12-16].
87. See Macedonia Maritime Co v Austin & Pickersgill Ltd (The Fayrouz I-IV)
[1989] 2 Lloyd’s Rep 73 at 80–1, 83–4 (no suggestion that agreement
between lawyers should be construed differently to any other contract). See
also C v D [2012] 1 WLR 1962 at 1978, 1985; [2011] EWCA Civ 646 at
[45], [75]. Cf Cutts v Head [1984] Ch 290 at 316 per Fox LJ (meaning of
‘without prejudice’ ‘capable of variation according to usage in the
profession’).
88. See also E W Patterson, ‘The Interpretation and Construction of Contracts’
(1964) 64 Columbia LR 833 at 842.
89. [1974] AC 235.
90. See [11-15], [11-16].
91. See also [12-16].
92. But see [13-16]–[13-26].
93. See [12-03], [12-19].
94. (1803) 4 East 130 at 135; 102 ER 779 at 781.
95. (1842) 9 Cl & F 355; 8 ER 450.
96. (1842) 9 Cl & F 355 at 565; 8 ER 450 at 532.
97. [1900] AC 260 at 263. See also Holt & Co v Collyer (1881) 16 Ch D 718 at
721 per Fry J (search is for ‘the ordinary meaning’); Van Diemen’s Land Co
v Marine Board of Table Cape [1906] AC 92 at 97.
98. [1998] 1 WLR 896.
99. [1998] 1 WLR 896 at 913. Lords Goff, Hope and Clyde agreed.
100. See Rosenhain v Commonwealth Bank of Australia (1922) 31 CLR 46 at 53
per the High Court of Australia (presumption of ‘plain ordinary and popular
meaning’); Provincial Insurance Australia Pty Ltd v Consolidated Wood
Products Pty Ltd (1991) 25 NSWLR 541 at 560 per Mahoney JA (‘ordinary
or natural meaning’). See also Cohen & Co v Ockerby & Co Ltd (1917) 24
CLR 288 at 299–300; Codelfa Construction Pty Ltd v State Rail Authority
of New South Wales (1982) 149 CLR 337 at 347; Johnson v American
Home Assurance Co (1998) 192 CLR 266 at 272. Cf Minister for Supply
and Development v Servicemen’s Co-operative Joinery Manufacturers Ltd
(1951) 82 CLR 621 at 641.
101. See, eg BP Exploration Operating Co Ltd v Kvaerner Oilfield Products Ltd
(ordinary meaning— on basis that there was only one); Agricultural and
Rural Finance Pty Ltd v Gardiner (2008) 238 CLR 570 at 581; [2008] HCA
57 at [32] (in an indemnity agreement, ‘punctually’ was to be read in its
‘ordinary’ sense).
102. Most of the points made earlier in relation to natural meaning also apply.
See [11-18]–[11-21].
103. See [6-09]–[6-15]. And see David McLauchlan, ‘Plain Meaning and
Commercial Construction: Has Australia Adopted the ICS Principles?’
(2009) 25 JCL 7.
104. See [8-23], [18-30]. Cf Pacific Gas & Electric Cov G W Thomas Drayage
& Rigging Co, 69 Cal 2d 33 at 37; 442 P 2d 641 at 643 (1968) per Traynor
CJ (‘exclusion of testimony that might contradict the linguistic background
of the judge reflects a belief in the possibility of perfect verbal expression’).
105. See [12-03]. Cf Lion Mutual Marine Insurance Association Ltd v Tucker
(1883) 12 QBD 176 at 186 per Brett MR (‘cardinal rule’ is to construe
words according to their ‘ordinary meaning’ as applied to the subject
matter, not their ‘mere ordinary general meaning’).
106. See D W McLauchlan, ‘The Plain Meaning Rule of Contract Interpretation’
(1995) 2 NZBLQ 80.
107. See also [11-18] (‘natural’ meaning).
108. [1997] AC 313.
109. [1997] AC 313 at 391. See also [1997] AC 313 at 384 per Lord Mustill,
with whom Lords Goff, Griffiths and Browne-Wilkinson agreed (‘there are
occasions where direct recourse to [plain] meaning is inappropriate’).
110. See [5-23], [11-18].
111. See, eg Commonwealth Smelting Ltd v Guardian Royal Exchange
Assurance Ltd [1986] 1 Lloyd’s Rep 121 at 126 (‘explosion’); M/S Aswan
Engineering Establishment Co Ltd v Iron Trades Mutual Insurance Co Ltd
[1989] 1 Lloyd’s Rep 289 at 293 (ordinary meaning of ‘liable at law’).
112. See Lord Grabiner, ‘The Iterative Process of Contractual Interpretation’
(2012) 128 LQR 41 at 45 (meaning words ‘would convey to most people’).
113. See, eg Turner v Manx Line Ltd [1990] 1 Lloyd’s Rep 137 at 145
(‘interest’). But see [13-07].
114. See Charter Reinsurance Co Ltd v Fagan [1997] AC 313 at 381 per Lord
Mustill (‘instinctive response [to] be verified by studying the other terms of
the contract, placed in the context of the factual and commercial
background of the transaction’). See also Durham v BAI (Run off) Ltd (in
scheme of arrangement) [2012] 1 WLR 867 at 877; [2012] UKSC 14 at
[19]. Cf Australian Joint Stock Bank Ltd v Bailey [1899] AC 396 at 400 per
Lord Morris for the Privy Council (sort of proposal a person ‘would
naturally make to their bankers’). See also Lyons, vol 1, p 46 (signals
decoded partly in light of what addressee thinks the message will be).
115. But see [13-16]–[13-26] (‘legal interpretation’).
117. For the use of evidence of course of dealing and prior negotiations see
Chapter 14.
118. Cf Pacific Gas & Electric Co v G W Thomas Drayage & Rigging Co, 69
Cal 2d 33 at 37; 442 P 2d 641 at 643–4 (1968) per Traynor CJ (‘remnant of
a primitive faith in the inherent potency and inherent meaning of words’).
119. See [12-03].
120. See Tsakiroglou & Co Ltd v Noblee Thorl GmbH [1962] AC 93 at 124 per
Lord Radcliffe (‘personal acquaintance with mercantile usages’). Contrast
Bakri Navigation Co Ltd v Owners of Ship ‘Golden Glory’ Glorious
Shipping SA (1991) 217 ALR 152 at 156 (meaning of abbreviations and
terms was not apparent).
121. See Statoil ASA v Louis Dreyfus Energy Services LP (The Harriette N)
[2008] 2 Lloyd’s Rep 685 at 693; [2008] EWHC 2257 (Comm) at [75]. See
also Thoresen & Co (Bangkok) Ltd v Fathom Marine Co Ltd [2004] 1
Lloyd’s Rep 622 at 623; [2004] EWHC 167 (Comm) at [7] (‘sub details’
meant ‘subject to details’).
122. See Commercial Union Assurance Co Plc v Sun Alliance Insurance Group
Plc [1992] 1 Lloyd’s Rep 475 at 477, 479 (NCAD — Notice of
Cancellation at Anniversary Date).
123. See, eg BP Exploration Operating Co Ltd v Kvaerner Oilfield Products Ltd
[2005] 1 Lloyd’s Rep 307 at 309; [2004] EWHC 999 (Comm) at [1] (no
discussion of special meaning obviously attached to ‘Xmas tree’ located on
top of well head).
124. See RG Grain Trade LLP v Feed Factors International Ltd [2011] 2
Lloyd’s Rep 432 at 438; [2011] EWHC 1889 (Comm) at [21] (GAFTA form
124).
125. See G Scammell and Nephew Ltd v Ouston [1941] AC 251 at 273 (‘definite
… meaning under the law merchant’).
126. But see Rosenthal & Sons Ltd v Esmail [1965] 1 WLR 1117 at 1125
(ordinary meanings of ‘shipment’).
127. Cf Manbre Saccharine Co Ltd v Corn Products Co Ltd [1919] 1 KB 198
(no evidence of custom in the market or usage between the parties that
buyers under CIF contract for the sale of starch would accept letter in place
of the insurance policy).
128. (1842) 9 Cl & F 355; 8 ER 450.
Wickman Machine Tool Sales Ltd [1974] AC 235 at 269–70).
130. See [12-02].
131. [1900] AC 176.
132. There may be no solution other than to sever the words (see [3-12]–[3-13])
or to hold the contract void for uncertainty. See further [14-22]–[14-29].
133. [1997] AC 313.
134. [1997] AC 313 at 384. Lords Goff, Griffiths and Browne-Wilkinson agreed.
135. See also [12-33].
136. (1980) 29 ALR 77 at 85; 54 ALJR 234.
[1998] 1 WLR 896 at 902.
138. Cf Lewison, §5.09.
139. See Borys v Canadian Pacific Railway Co [1953] AC 216 at 222–3, 225.
140. [1997] AC 313 at 384. Lords Goff, Griffiths and Browne-Wilkinson agreed.
141. See, eg Birrell v Dryer (1884) 9 App Cas 345 at 353 (no evidence to show
‘technical meaning’ attached to ‘no St Lawrence’); Commercial Union
Assurance Co Plc v Sun Alliance Insurance Group Plc [1992] 1 Lloyd’s
Rep 475 at 480 (relevance of what was usual in relevant insurance markets
to meaning of ‘with 120 days NCAD’). Contrast Thor Navigation Inc v
Ingosstrakh Insurance Co Ltd [2005] 1 Lloyd’s Rep 547 at 557; [2005]
EWHC 19 (Comm) at [34] (ordinary meaning of ‘sum insured’ not
displaced in favour of specialised meaning).
142. For the evidentiary issues see Chapter 14.
143. See [12-28].
144. See, eg Birrell v Dryer (1884) 9 App Cas 345 at 346 (no local or general
usage proved in relation to sense of ‘warranted no St Lawrence’); Summers
v The Commonwealth (1918) 25 CLR 144, affirmed (1919) 26 CLR 180
(evidence did not establish trade usage relating to method of shaping
marble for shipment and delivery so as to affect meaning of ‘capable of
being worked and polished in London’); Hodgson v Morella Pastoral Co
Pty Ltd (1975) 13 SASR 51 (allegation that ‘due to calf’ had trade meaning
which included warranty by seller not supported by the evidence);General
Reinsurance Corp v Forsakringsaktiebolaget Fennia Patria [1983] QB 856
(no proof of binding custom giving insured or reinsured option to cancel
contract resulting from writing of line); Homestake Australia Ltd v Metana
Minerals NL (1991) 11 WAR 435 at 451 (no usage in gold mining industry
as to meaning of ‘sufficient economic interest’).
145. See Bowes v Shand (1877) 2 App Cas 455 at 469–70; Homestake Australia
Ltd v Metana Minerals NL (1991) 11 WAR 435 at 447–8, 451.
146. See generally Nelson v Dahl (1879) 12 Ch D 568 (affirmed sub nom Dahl v
Nelson Donkin & Co (1881) 6 App Cas 38); Thornley v Tilley (1925) 36
CLR 1 at 8; Majeau Carrying Co Pty Ltd v Coastal Rutile Ltd (1973) 129
CLR 48 at 61; Bank of India v Trans Continental Commodity Merchants
Ltd [1982] 1 Lloyd’s Rep 506 at 515 (affirmed [1983] 2 Lloyd’s Rep 298);
Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur (Australia)
Ltd (1986) 160 CLR 226 at 236–7.
147. See, eg Sagar v H Ridehalgh and Son Ltd [1931] 1 Ch 310 at 339. Cf
Devonald v Rosser & Sons [1906] 2 KB 728 at 741.
148. See General Reinsurance Corp v Forsakringsaktiebolaget Fennia Patria
[1983] QB 856 at 874–5; Drexel Burnham Lambert International NV v El
Nasr [1986] 1 Lloyd’s Rep 356 at 365; Libyan Arab Foreign Bank v
Bankers Trust Co [1989] QB 728 at 757–8; Baker v Black Sea & Baltic
General Insurance Co Ltd [1998] 1 WLR 974 at 983–4. See also Byrne v
Australian Airlines Ltd (1995) 185 CLR 410 at 423.
149. See, eg Tucker v Linger (1883) 8 App Cas 508 at 511 (right of tenant to sell
flints found and removed in ordinary course of husbandry for own benefit).
See also W Siemon & Sons Ltd v Samuel Allen & Sons Ltd [1925] St R Qd
269 at 273, 276.
150. See, eg Re Nudgee Bakery Pty Ltd’s Agreement [1971] Qd R 24 (evidence
of alleged trade practice was not admissible where agreement to purchase
flour provided method of fixing prices); Soules CAF v PT Transap of
Indonesia [1999] 1 Lloyd’s Rep 917 at 921 (custom that buyer would
accept discrepant shipping documents not consistent with the terms of the
contract). See also Palgrave Brown and Son Ltd v Owners of SS Turid
[1922] 1 AC 397; Rosenhain v Commonwealth Bank of Australia (1922) 31
CLR 46 at 53.
151. See [14-13].
152. See, eg Devonald v Rosser & Sons [1906] 2 KB 728 at 743; Sagar v H
Ridehalgh and Son Ltd [1931] 1 Ch 310 at 340; Re Palmdale Insurance Ltd
[1982] VR 921 at 925.
153. See, eg Bank of India v Trans Continental Commodity Merchants Ltd
[1982] 1 Lloyd’s Rep 506 at 516, affirmed [1983] 2 Lloyd’s Rep 298
(alleged custom failed tests of certainty and reasonableness). See also LAC
Minerals Ltd v International Corona Resources Ltd (1989) 61 DLR (4th) 14
at 38 (custom, practice or usage in the mining industry that a party in
serious negotiation towards a joint venture will not act to the detriment of
the other).
154. See, eg Sagar v H Ridehalgh and Son Ltd [1931] 1 Ch 310 at 339.
155. (1925) 36 CLR 1. See also Pryke v Gibbs Hartley Cooper Co Ltd [1991] 1
Lloyd’s Rep 602 at 615. Cf Robinson v Mollett (1875) LR 7 HL 802 at 810.
156. Rosenhain v Commonwealth Bank of Australia (1922) 31 CLR 46 at 53
(statute).
157. Cf Re Comptoir Commercial Anversois and Power Son and Co [1920] 1
KB 868 (buyers in business of exporting grain from America to Europe on
sale or exchange in America were aware of, but the construction of their
contract was not affected by, usage or custom for shippers of grain from
America to sell or negotiate the exchange to or with an exchange buyer in
that country).
158. See Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur
Insurance (Australia) Ltd (1986) 160 CLR 226 at 238 per the High Court of
Australia (‘contention that industry practices unknown to the assured are
incapable of forming the basis of an implied term of the contract’ could not
be sustained).
159. See Nelson v Dahl (1879) 12 Ch D 568 at 575 (affirmed sub nom Dahl v
Nelson Donkin & Co (1881) 6 App Cas 38); Tsakiroglou & Co Ltd v Noblee
Thorl GmbH [1962] AC 93 at 124; Letovsky Bros Ltd v Kremnizer (1969)
90 WN (NSW) 126 at 130; Con-Stan Industries of Australia Pty Ltd v
Norwich Winterthur Insurance (Australia) Ltd (1986) 160 CLR 226 at 240.
160. Article 4 states that except as otherwise expressly provided in CISG, it is
not concerned with the validity of any usage.
161. Cf Uniform Commercial Code (US), §1-205.
162. In cases where the meaning ‘attached by one party accorded with a relevant
usage and the other knew or had reason to know of the usage, the other is
treated as having known or had reason to know the meaning attached by the
first party’. See Contracts Restatement 2d (1979), §220(2).
13
Choice of Meaning
General [13-02]
Meaning and Construction [13-02]
Application of the Perspective Rule [13-05]
Role of Precedent [13-09]
General [13-09]
Standard Form Contracts [13-12]
Legal Interpretation [13-16]
General [13-16]
Common Law Presumptions [13-18]
Statutory Presumptions [13-22]
Using the Whole Contract [13-27]
General [13-27]
Scope [13-30]
Composition and Use of Components [13-32]
Particular Applications of the Rule [13-44]
[13-01] Objects. The concern of the previous chapter was to identify the
standard of interpretation which is used to apply the perspective rule. It dealt
with the question ‘Which standard?’. This chapter considers choice of meaning.
It therefore relates to the ‘Which meaning?’ question. From one perspective that
question simply invokes the process of attribution of meaning by construction.
Most of this book is about that process. But another perspective is that the
‘Which meaning?’ question relates to how the choice of meaning process
resolves construction difficulties, including the need to choose between
competing meanings.
There is a difference between what words may mean and what a contract
means. The difference is fundamental. It is construction of the contract which
determines the meaning of the words as used in the contract. The principal basis
for choice of meaning discussed in this chapter is therefore the rule that a
contract must be construed as a whole. There are two main aspects of that
discussion. The first concerns the identification of what the ‘whole contract’
comprises and how those components are used in construction.
The second relates to how the whole contract is used to resolve construction
difficulties.
In some cases choice of meaning may be based on presumptions derived from
the common law or statute. Accordingly, the role of precedent in construction,
and the use of ‘legal interpretation’, are also considered.
GENERAL
Meaning and Construction
[13-02] Introduction. ‘Construction’ is the process by which the intention of the
parties to a contract is determined and given effect to.1 Working out what a
contract ‘means’ is an essential ingredient. Therefore, in one sense, ‘choice of
meaning’ is the process by which intended meaning is attributed to the parties by
construction. However, in litigated disputes construction of the contract resolves
construction difficulties, such as the need to choose between competing
meanings. Principles of commercial construction explain that process.
The concept of ‘meaning’ is a specialised one.2 The construction of a contract
not only determines the linguistic sense in which words have been used, but also
the effect of the contract as a matter of law. The contrast is often illusive. It is,
however, helpful to distinguish between meaning, legal effect and how a contract
is intended to be applied to a given set of facts.
[13-03] Legal effect and application. Construction issues are many and varied.
A decision as to what a contract means necessarily determines the legal rights of
the parties. Equally, however, distinct legal questions may arise, such as whether
a contract is a licence or a lease, whether it has been frustrated, and so on. Many
of these issues are resolved by the use of construction principles to apply
contract doctrine. Therefore, in resolving construction disputes, contract doctrine
is never far away. However, what a promise means is conceptually different
from, for example, whether the promise should be classified as a condition. The
process of attributing intention in relation to the legal effect of a contract is
therefore distinguishable from choice of meaning.3 The distinction is reflected in
the role of precedent.4
Conclusions made in construction also embody decisions about how a
contract should be applied to particular fact situations.
[13-04] Meaning and application. What a contract means in a linguistic sense
does not necessarily determine its scope of application to factual situations.
From that perspective, the application of a contract is a distinct stage in
construction.5 Conceptually, it is also something which is done after meaning has
been arrived at.6
However, a construction conclusion — even when expressed in terms of
‘meaning’ — often embodies a decision about how the contract should be
applied.7 For example, construction of the word ‘loss’ in a liability clause as
meaning ‘loss or damage’ embodies a decision about the scope of application of
the contract.8 In this work, ‘choice of application’ issues are accorded separate
treatment.9
This chapter is primarily concerned with meaning. But the perspective rule is
applicable no matter what the issue.
Application of the Perspective Rule
[13-05] Introduction. A contract — like any other utterance — must be
construed as a whole.10 In most cases, the construction of a contract is
determined by applying the perspective rule.11 The meaning of a contract is
therefore the conclusion which a reasonable person in the position of the person
to whom the words at issue were addressed would reach.12
In construction disputes subjected to formal resolution procedures, competing
meanings are presented as alternative constructions for the contract at issue.
There may be many to consider.13 Because a contract can have only one
construction in relation to a given set of facts,14 the perspective rule is used to
make the choice, and to resolve other construction difficulties.15
Fundamental to this process is the distinction between what words may mean
and what a contract means. The latter is not determined simply by consulting a
dictionary.
[13-06] Meaning and dictionaries. In the previous chapter it was explained that
the standard of interpretation mediates between symbols and what the symbols
can stand for, that is, what they may mean. The concept postulates that both the
symbols and what they stand for (usages) depend on the applicable interpretation
standard; it does not determine the meaning of a contract.16 But when the
perspective rule is applied, it follows that account must be taken of the usages of
the members of the class of persons to whom the words at issue were addressed.
Particularly where the usages of those of the community at large,17 more than
one usage may be relevant.
Accordingly, although dictionaries18 are useful sources for available usages
which make up the ‘vocabulary’ of the reasonable person from whose
perspective the contract is construed,19 their utility beyond that is doubtful. In
International Fina Services AG v Katrina Shipping Ltd (The Fina Samco),20
Neill LJ observed21 that dictionaries ‘never solve concrete problems of
construction’. Since the concern in commercial construction is to arrive at a
commercially sensible result, business common sense is a ‘better guide than a
dictionary’.22 The point may be expressed by saying that the intended sense for
any word (or expression) is determined by construction of the contract.
Nevertheless, it seems likely that routine construction issues which lawyers face
on a daily basis are satisfactorily resolved in a converse way, so that choice of
linguistic sense of a word or expression in a particular clause determines the
construction of the contract.
What words may mean is a question of fact. There are other factual influences
on the perspective rule.
[13-07] Other factual influences. In the construction of contracts in
documentary form, context is an important influence on choice of meaning.23 In
Codelfa Construction Pty Ltd v State Rail Authority of New South Wales,24
Mason J explained:25
[W]hen the issue is which of two or more possible meanings is to be
given to a contractual provision we look, not to the actual intentions,
aspirations or expectations of the parties before or at the time of the
contract, except in so far as they are expressed in the contract, but to the
objective framework of facts within which the contract came into
existence, and to the parties’ presumed intention in this setting.
Even though legally defined,26 the concept is a factual one. For example,
evidence of mutually known facts plays a distinctive role where the meaning of a
term which describes the subject matter of the contract is at issue.27 And
notwithstanding the exclusionary rule, as Lord Clarke pointed out in Oceanbulk
Shipping and Trading SA v TMT Asia Ltd,28 the ‘factual matrix is admissible as
an aid to interpretation even where the evidence formed part of the negotiations’.
Most litigated construction disputes focus on a need to resolve a construction
difficulty of one sort or another. It seems not unreasonable to emphasise the
important role of context in that process.29 But identifying (and labelling) a
particular difficulty is not a pre-condition to allowing context to influence
construction.30 Two consequences follow. First, as Lord Hoffmann explained in
Charter Reinsurance Co Ltd v Fagan:31 ‘It is artificial to start with an
acontextual preconception about the meaning of the words and then see whether
that meaning is somehow displaced.’
Second, whether or not there is a construction difficulty to be resolved can be
deduced only by taking context into account.32
There are also various legal influences.
[13-08] Legal influences. Principles of commercial construction include legal
rules which are applied when the perspective rule is employed in formal dispute
resolution procedures. For the purposes of this chapter, the principal rule is that
the contract must be construed as a whole. But there are other rules.
In particular, the exclusionary rule33 limits the raw material available to be
used as a direct aid to construction. The mere fact that more than one meaning is
tenable for a contract is not a sufficient basis for the use of extrinsic evidence as
an aid to construction.34 Therefore, direct evidence of intention, the prior
negotiations of the parties or their subsequent conduct cannot be used.35 Other
legal influences are more flexible. Most do not rise above the level of guidelines.
For example, certain construction preferences are applied as specific incidents of
commercial construction. The preference for reasonable results is noted later in
this chapter.36
However, some guidelines are applied as presumptions of intention.37
Presumptions in favour of ‘plain’ or ‘natural’ meaning have a long history.
Several points have already been made about those.38 First, there is no scientific
basis for a presumption in favour of some inherently ‘natural’ meaning or a
single ‘plain’ meaning.
Second, since dictionaries do not determine the meanings of contracts, any
‘rule’ that words should be given their plain meaning is simply a presumption in
favour of the usages of the community at large. It cannot be a choice of meaning
rule, based on the plain or natural meaning of a particular word.
Third, there is no reason why what is plain or natural to the adjudicator of a
construction dispute should have been so regarded by the parties.
Presumptions in favour of particular meanings for words may be based on
precedent or statute.
ROLE OF PRECEDENT
General
[13-09] Meaning does not depend on precedent.
Article 13.1 — Role of precedent.
The meaning given to one contract has no value as a precedent on the
construction of any other contract, unless the contracts are on the same
third party standard form.
Although the construction of a contractual document is a question of law,39
earlier cases are not binding on the person who adjudicates a construction
dispute.40 The general rule is therefore that a decision on the meaning of one
contract has no value as a precedent on the construction of any other contract.41
Third party standard form contracts form an exception to the rule.
In relation to a negotiated contract, the general rule applies even if a prior
case has construed similar words or a similar document.
[13-10] Negotiated contracts. The basis for the general rule in relation to
precedent is that every contract is a unique bargain, with a unique context, which
must be applied to a unique fact situation. The long-standing approach is
therefore to decry the citation of authority to determine the meaning of a
negotiated contract.42
Even if the words at issue are the same as those construed in a prior case, or
the contract is similar, there is no ‘established meaning’43 for the contract.
Similarly, the fact that the syntactical arrangement of words in one document
may be much the same as in a document which has been the subject of decision
counts for very little. And although particular expressions or clauses may be the
same or similar, the contract never is. As Lord Hoffmann said in Deeny v Gooda
Walker Ltd (in liq),44 ‘[n]o case on the construction of one document is authority
on the construction of another, even if the words are very similar’.45 There is
even less point in seeking to rely on the construction of different words in
different contracts.46
Nevertheless, precedent may be important.
[13-11] When precedent matters. Most construction cases are purely
illustrative, and instructive only at the level of process. However, precedent is
the source of principles of commercial construction. The fact that the decisions
may have concerned specific construction issues is irrelevant. Such cases
provide valuable guidance on rules and process.47 Precedents on rules such as the
exclusionary rule48 determine their content and scope, and how the rules should
be applied as a matter of law.
There are three additional situations in which precedent matters. First,
although prior decisions are of little value where they relate to the meanings of
words as used in other contracts, the position is different where the legal effect
of a contract is at issue.
Second, there has always been a certain amount of ‘legal interpretation’ in the
construction of contracts.49
Third, the general rule in relation to precedent does not apply to standard
form contracts.
Standard Form Contracts
[13-12] Introduction. Standard form contracts are variable. Relevantly, the
concern is with documents prepared by third parties, such as industry bodies,
trade associations or professional bodies. These typically address risks likely to
arise in any transaction for which the document is an appropriate choice. The
document is assumed to achieve an allocation of risk between the parties which
is accepted in the trade, industry or profession.50 Much law has been built up in
the construction of commonly used forms of charterparty and sale of goods.
However, not all third party standard forms are of the same nature. For
example, in Anthracite Rated Investments (Jersey) Ltd v Lehman Brothers
Finance SA (in liq),51 it was pointed out that because of the various uses of an
ISDA Master Agreement in different transactions, it is not appropriate to assume
that it will always have the same meaning. Similarly, although commonly used
precedent documents are analogous, they are not treated in quite the same way as
standard form contracts.52
Distinctions between the meaning of a contract and its legal effect or scope of
application are far less significant than in the construction of negotiated
contracts.
[13-13] Meaning.
Article 13.2 — Meaning of third party standard form.
By adopting a third party standard form contract without amendment, the
parties are presumed to agree to the constructions previously placed on
the contract by the courts.
Adoption of a third party standard form without amendment is a commitment to
its construction in prior cases.53 Those decisions establish the ‘objective
construction’54 of the contract, and may be binding as a matter of precedent.55
Each party is therefore entitled to assume the other agrees to such
constructions.56
Uniform construction of third party standard forms is important because it
promotes certainty and uniformity.57 The position is obvious in relation to the
same words of the same form.58 The concern for consistency of decision is also
apparent in the context of ‘international’ standard forms.59 Construction of
standard forms of that kind may not only lead to consideration of decisions in
other jurisdictions, but also require flexibility in the application of English law.60
The same approach is often taken where construction focuses on the same or
similar words or expressions, as used in different standard forms.61 However, the
inference that the parties intend to be bound by a prior decision on a different
standard form seems doubtful, particularly where the wording is merely similar.
Nevertheless, decisions on the wording of particular types of clause may be
influential.62
It is, of course, open to the parties to depart from prior decisions by
amendment to the standard form. The standard form is also (at least to a degree)
responsive to change.63
[13-14] Legal effect and application. The position is even clearer in relation to
the legal effect of third party standard form contracts. For example, the
construction of a term as a condition64 or as an intermediate term65 is binding on
the parties to subsequent contracts on the same form. Prior cases on similar
clauses in different types of contract may also be relied on. For example, in
Angelos)66 the decision that an ‘expected ready to load’ clause in a voyage
charterparty was a condition (rather than an intermediate term) was heavily
influenced by the construction of similar provisions in sale of goods contracts.
Similarly, prior construction decisions which determine the scope of
application of particular types of provision are sometimes relied on, at least
when the same type of contract is being construed. Distinct lines of authority
may develop in relation to particular issues, for example, in the interaction
between similarly worded force majeure clauses and demurrage clauses in
different standard forms.67 But since the scope of application of a contract
depends on the facts to which it is applied, the clause, the contract and the facts
must all be similar.68
[13-15] One-off issues. Notwithstanding the general contrast between third party
standard forms and negotiated documents, a ‘one-off’ issue may arise. There are
three situations. First, the construction issue may relate to ‘special conditions’
which serve to distinguish the contract from the norm.69
Second, commercial terms with unusual features may be at issue, such as the
quantity of goods in a sale of goods. Context will play a greater role.70
Third, as the House of Lords explained in Pioneer Shipping Ltd v BTP
Tioxide Ltd,71 if the standard form is substantially amended, the contract may be
much the same as a negotiated contract. That may also be the position where the
form adopted is an inappropriate choice.72
LEGAL INTERPRETATION
General
[13-16] Introduction. Given that the construction of a document is a conclusion
of law, and that considerable importance is attached to certainty and consistency
of decision,73 it is perhaps not surprising that conclusions about the meanings of
contracts are affected by a process of ‘legal interpretation’. That process is at
work whenever meaning is determined by application of a presumption of
intention derived from the common law or statute.
A weaker version of the process is to regard prior decisions on different
contracts as part of the ‘context’ of a later contract, where the same or a similar
word or expression is at issue.74 Although there is no presumption of intention in
such cases, intention is inferred on the basis that authority is contextual.
However, this seems a misuse of context. Knowledge of the contents of law
reports cannot be presumed.75 In the absence of evidence to the contrary, prior
decisions do not create a specific factual context to be applied in construction.76
When applied as construction rules, canons of construction also illustrate
‘legal interpretation’. Their use is the most obvious source for criticism of the
legal interpretation process.
[13-17] Criticism. Decisions on the meaning of words in contracts do not
embody rules of law.77 The impact of the general rule — that prior decisions do
not determine the construction of a negotiated contract — is therefore that no
presumption of intention can be based on precedent. ‘Legal interpretation’
departs from the general rule. It has been the subject of much criticism. In
Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd,78 Lord Steyn
said79 that the ‘reasonable commercial person is hostile to technical
interpretations’. And in Investors Compensation Scheme Ltd v West Bromwich
Building Society,80 Lord Hoffmann said81 that ‘[a]lmost all the old intellectual
baggage of “legal” interpretation has been discarded’.
The ‘old intellectual baggage’ includes the canons of construction.82 When
applied as rules for the construction documents, the canons discount the role of
external context. From that perspective, they have no place in principles of
commercial construction. Accordingly, although the rule that a contract must be
construed as a whole can be stated as a canon for the construction of a document,
it does not refer to the document divorced from context. The sentiment and
underlying logic of some canons may therefore be taken into account as
preferences in construction.83 Nevertheless, the contra proferentem rule
continues to dictate construction decisions in particular contexts.84
Common Law Presumptions
[13-18] Introduction. All words (and other symbols) are labels. The general rule
applied in relation to precedent is an assertion that the meanings given to labels
as used by the parties in one contract are not relevant to the intended meaning
for the same labels as used in another contract. However, common law
presumptions of intention are based on the view that the decision in any case
may be predetermined by the use of a particular label. The label may be a word
or an expression. Alternatively, the label may be the description applied to a
clause, document or contract.
Labels are of course important. But in most cases relevant labels are legal
labels. These describe the legal effect of a clause or contract,85 not its meaning.
However, it is one thing for a lawyer to use a label to describe the legal effect of
a contract — as construed. It is something quite different to say that the legal
status of an obligation or contract can be determined simply on the basis of the
parties’ choice of label. Construction of the contract as a whole comes first, legal
label second.86 As has been explained,87 the parties’ use of a label such as ‘lease’
is taken into account in construction; but is not binding as an expressed
intention.
Nevertheless, even a single word may acquire a technical legal meaning. In
some cases this leads to linguistic meaning being determined on the basis of
precedent.
[13-19] Presumption in favour of legal meaning. Because all words in
common use have more than one meaning, it is impossible to predict in what
sense any word will be used in a given contract. The same must generally be true
of words which also have legal meanings.88 However, certain words and
expressions may acquire presumptive legal meanings.89
In L Schuler AG v Wickman Machine Tool Sales Ltd,90 Lord Reid said91 that
‘some words used by lawyers do have a rigid inflexible meaning’. Lord Morris
stated the following general principle:92
If a word either by reason of general acceptance or by reason of judicial
construction has come to have a particular meaning then, if used in a
business or technical document, it will often be reasonable to suppose
that the parties intended to use the word in its accepted sense. But if a
word in a contract may have more than one meaning then, in interpreting
the contract, a court will have to decide what was the intention of the
parties as revealed by or deduced from the terms and subject matter of
their contract.
In fact, the case is a telling illustration that ‘technical legal meanings’ can be
distracting.93 The meaning of the word ‘condition’ in a distributorship contract
was said to be at issue. Lord Morris did not consider that the principle which he
stated was applicable. And although Lord Reid thought94 there might ‘be some
presumption that in a formal legal document’ the word ‘condition’ means
‘essential term of the contract’, that was not the ‘meaning’ which he gave to the
word.
It is difficult to see how a presumption as to the meaning of a contract can be
based on the fact that a word (or expression) in common use also has one or
more legal meanings. Viscount Simon LC’s protestations in Perrin v Morgan95
against the idea that ‘money’ has a presumed legal meaning to be adopted in
construction unless shown to have been ‘ousted’ by some other meaning, are as
valid in the contractual context as when made in the context of a will. Because
words such as ‘rescind’,96 ‘terminate’97 and ‘guarantee’ are used in such diverse
ways even in legal discourse, to attempt to apply a presumptive approach is at
best unhelpful. For example, Sheen J said in The Zuhal K and The Selin98 that
there is ‘no magic’ in the use of words ‘insurance’ and ‘guarantee’.
Fundamentally, it is construction of the contract as a whole which determines
the meaning of a word. Nevertheless, much use has been made of a concept of
proper legal meaning.99
[13-20] Application of proper legal meaning. Illustrations of legal
interpretation, including the idea that words may have a ‘proper’ legal meaning,
are not hard to find, particularly in the older cases. For example, in London and
Lancashire Fire Insurance Co Ltd v Bolands Ltd100 Lord Sumner said101 there
was ‘no warrant’ for construing the word ‘riot’ in a proviso to the insuring clause
in a theft policy for the plaintiffs’ business premises as an ‘uninstructed layman’
would construe it. The word was, he said,102 ‘emphatically a term of legal art’.
He drew support from the use of ‘burglary’ and ‘housebreaking’ in the
contract.103 Accordingly, the House of Lords construed the contract by applying
the technical legal meaning.104 Because theft occurred during an armed holdup in
circumstances amounting ‘in law’ to a riot, the defendant-insurers were not
liable.
The only justification for choice of a ‘legal meaning’ is that it was intended
by the parties as the construction of the contract.105 Lord Sumner’s approach in
London and Lancashire Fire Insurance Co Ltd v Bolands Ltd borders on the
absurd. It is less likely to occur today. For example, in National Oil Co of
Zimbabwe (Private) Ltd v Sturge106 Saville J saw no difficulty in giving ‘civil
war’, ‘rebellion’ and ‘insurrection’ what he described107 as their ‘ordinary
“business” meaning’. And in Australian Casualty Co Ltd v Federico,108 there
was nothing in a contract of disability insurance, or its context, to suggest that a
technical meaning for the word ‘injury’ was intended.
There is little is to be gained in the modern law by use of a concept of
‘technical legal meaning’.109 As a matter of principle, a search for the ‘proper’ or
‘strict’ legal meaning is difficult to justify.110 But the process may promote
certainty and consistency.
[13-21] Promotion of certainty and consistency. Once a word or expression
has been given a ‘legal interpretation’, a concern for certainty and consistency
may lead to the application of a particular construction in the same or similar
contexts.111 For example, in Thames and Mersey Marine Insurance Co Ltd v
Hamilton Fraser & Co112 Lord Herschell said,113 in reference to general words in
a marine policy, that ‘words in common use in a mercantile instrument’ should
be given consistent meanings. And Lord Sumner similarly said in Becker Gray
and Co v London Assurance Corp114 that the same words should mean the same
thing in mercantile contracts, even though the contracts may differ. He gave as
illustrations ‘perils of the seas’ and ‘restraints of princes’.
Most of the modern cases115 concern third party standard form contracts, or
contracts which are recognisably based on standard precedent documents.116
Construction of the former is an exception to the general rule in relation to the
role of precedent. But the concern for consistency extends to other situations as
well. In Ferguson v Inland Revenue Commissioners,117 Lord Diplock said118 that
a particular and commonly used expression may acquire an ‘idiosyncratic
meaning as a term of art’. Because contracts may have been drafted on the basis
of the ‘idiosyncratic meaning’, there is a reluctance to depart from the
established construction. Similarly, in Hyde Management Services Pty Ltd v FAI
Insurance Ltd119 Mason J referred120 to the ‘far-reaching consequences’ of such a
departure for other transactions employing similar formulations based on
precedent documents.
Such reasoning is more cogent in relation to words or expressions in standard
form contracts than wording which is derived from precedent documents.
However, in the latter context legal interpretation may have the utility of giving a
presumptive meaning to an elusive concept. In Akici v L R Butlin Ltd,121
Neuberger LJ said122 it was desirable for courts to be consistent with the
construction of ‘standard phrases in standard contexts’. In that case, the Court of
Appeal considered123 that the parties to a commercial lease had adopted as the
meaning of ‘possession’ the ‘technically legal correct’ meaning in that context.
Statutory Presumptions
[13-22] Introduction. No doubt there are many statutes which state
presumptions of intention, or specific construction rules,124 which resolve choice
of meaning issues in particular contexts. However, the only statutory
presumptions which apply to contracts in general are those stated in s 61 of the
Law of Property Act 1925 (UK).125 These are briefly summarised below.
Each presumption is expressed to apply: In all deeds, contracts, wills, orders
and other instruments executed, made or coming into operation after the
commencement of this Act, unless the context otherwise requires ….
Although the presumptions are therefore limited to documentary expressions of
intention, the same presumptions apply to verbal contracts.
Some of the presumptions in s 61 of the Law of Property Act reflect common
law presumptions. Others modify those presumptions. However, modern
negotiated contracts usually include interpretation clauses. These frequently list
not only some or all of the s 61 presumptions, but also different presumptions.126
[13-23] Month. The presumption where the word ‘month’ is used in a document
is that the parties intend it to refer to a calendar month, rather than a lunar
month. Section 61(a) of the Law of Property Act 1925 (UK) states: ‘“Month”
means calendar month …’. The sale of goods legislation states the same
presumption,127 in relation to a ‘contract of sale’.
At common law ‘month’ was presumed to refer to the lunar variety, and taken
to be 28 days.128 However, the presumption was easily rebutted,129 and did not
apply in ‘commercial matters’.130
[13-24] Person. A reference in a document to a ‘person’ is presumed to include
natural persons and corporations. Section 61(b) of the Law of Property Act 1925
(UK) provides: ‘“Person” includes a corporation …’.
The decision in Deutsche Genossenschaftsbank v Burnhope131 is a recent
example where the presumption was rebutted. A ‘bankers policy’ provided
insurance against loss of property through ‘theft, larceny or false pretences,
committed by persons present on the premises’ of the insured. As a matter of
construction, ‘persons’ were limited to natural persons.
[13-25] Singular and plural. Singular usages in documents are presumed to
include the plural; and plural usages are presumed to include the singular. Thus,
s 61(c) of the Law of Property Act 1925 (UK) states: ‘The singular includes the
plural and vice versa …’.
[13-26] Gender. A reference to the masculine or feminine gender in a document
is presumed to include a reference to the feminine or masculine gender. The
presumption is stated in s 61(d) of the Law of Property Act 1925 (UK), in terms
that the ‘masculine includes the feminine and vice versa’.
USING THE WHOLE CONTRACT
General
[13-27] Introduction. The rule that a contract must be construed as a whole132
states the duty of anyone called upon to adjudicate a construction dispute. As
Evans LJ said in BHP Petroleum Ltd v British Steel Plc,133 ‘it is axiomatic’.
The reference point is the contract considered in light of context, not simply
the physical document. In some situations, the concept is the ‘whole transaction’,
so that the ‘whole contract’ may include other documents and other contracts.134
Thus, §202(2) of the Contracts Restatement 2d (1979) expresses the rule that a
‘writing is interpreted as a whole, and all writings that are part of the same
transaction are interpreted together’. It is, of course, also true that where an issue
arises in respect of a particular clause, it must be read as a whole.135 Such a ‘rule’
has been referred to in various contexts,136 but it is no more than an aspect of the
general duty.
As a guide to meaning (external) context is largely circumstantial. Its
significance varies from case to case, including according to whether the
document at issue relates to a negotiated bargain. Context will often be very
general in the case of a third party standard form contract.137 By contrast, for all
documents ‘internal context’ necessarily plays a direct role. Each word, phrase,
sub-clause, clause and document has its own immediate context, as well as the
context of the document (or documents) as a whole. Whether the document is a
negotiated contract or a standard form, internal context should be revealing. But
some contracts are better drafted than others, and it is notorious that standard
forms are often badly drafted.138
[13-28] Formalised clues to meaning. The range of clues available for use in
determining the meaning of an utterance depend on the form of its expression.
Clues to meaning for an utterance that is purely verbal therefore differ from
those available where it is in written form.139 As formal expressions of intention,
contractual documents rely on formalised clues to meaning, including a clause
by clause format and particular stylistic and typographical features, such as bold
and italics. Many contracts include headings, cross references, and so on. All
such features provide clues to meaning.
However, the formalised clues of a written contract are by no means
equivalent to clues to meaning available in ordinary speech.140 They are much
less reliable as guides to meaning. Indeed, on one view, fonts and other features
which go merely to appearance are irrelevant.141 Although the modern cases
accept that formal features may play a role, headings and formal layout rarely
make much of a contribution. For example, when construing the expression
‘following provisions’ in BP Exploration Operating Co Ltd v Kvaerner Oilfield
Products Ltd,142 Colman J tested the layout of the clause as a ‘clue to meaning’.
But he concluded that the layout was wrong, and regarded the conclusions to be
drawn from construction of the contract as a whole (including an attachment) as
paramount. Other formalised features, such as the use of definitions and
interpretation rules, are more important.
Sometimes contracts also include express statements about how conflicts
between documents or provisions should be resolved, or fly formal flags.143
Courts also apply formal presumptions. For example, it is presumed that typed or
handwritten words are intended to take precedence over printed or typed
words.144 It is difficult to deny the logic. But the presumption seems less reliable
as a guide to meaning than the related (formal) presumption that ‘special
conditions’ override ‘general conditions’.
[13-29] Giving effect to the whole contract. The rule that a contract must be
construed as a whole suggests that internal coherence should be promoted by
giving effect to the whole contract.145 For example, in Australian Broadcasting
Commission v Australasian Performing Right Association Ltd146 Gibbs J said
that the ‘whole of the instrument has to be considered, since the meaning of any
one part of it may be revealed by other parts, and the words of every clause must
if possible be construed so as to render them all harmonious one with another’.
It would be impossible to construe contracts without assuming that one clause
may shed light on another, and that inferences are intended to be drawn from the
choice of words in particular clauses.147 Giving effect to the whole contract may
sometimes be the basis for arriving at a particular construction. For example, in
Vaswani v Italian Motors (Sales and Services) Ltd148 a provision in a printed
contract permitted a seller to increase the price of the goods and required the
buyer to pay the ‘price ruling at the date of delivery’. On one construction, that
provision entitled the seller to change the list price as a matter of discretion.
However, other provisions referred to price increases made necessary by
increased costs, and matters beyond the control of the seller. In order to give
those provisions some application, and because it would have been
uncommercial to construe the contract as simply conferring a discretion, the
seller was limited to price increases reflecting cost increases.
Giving effect to the whole contract is based on a general assumption of
internal coherence. Clearly, that is more viable in some situations than others.149
It is regularly impossible to give effect to commercial documents as instruments
which are internally harmonious and contain no surplusage.150 Therefore, the
best that can be said is that although giving effect to all the words of a contract is
desirable, it is not an end in itself. The duty to construe the contract as a whole is
therefore distinct from the goal of giving effect to the entire contract.
Accordingly, it is not by discharging the former necessary to achieve the latter.151
Scope
[13-30] Application to all contracts. The rule that a contract must be construed
as a whole applies to all contracts, regardless of form, type or subject matter.152
That the contract is in a deed does not confine the operation of the rule to certain
parts of the document.
However, the form, type and subject matter of a contract or transaction are
relevant considerations when applying the rule. Such matters may also be
relevant to what the ‘whole’ comprises. For example, for some types of
transaction, more than one document can be expected to be the norm.153
[13-31] Other uses. A contract must be construed as a whole because it is a
single utterance of intention.154 The generalised concept is that any utterance
made in connection with a contract (or proposed contract) must be construed as a
whole, in light of its context.155 For example, a document alleged to be an offer
to contract must be construed as a whole.156
Similarly, a notice alleged to be an effective termination of a contract is
construed as a whole. Other examples include where it is alleged that a
document evidences a repudiation of obligation157 or evidences conduct
amounting to the ‘waiver’ of a right.158
Composition and Use of Components
General
[13-32] Introduction. To apply the rule that the contract must be construed as a
whole, the components of the contract must be identified. There are two issues:
(1) what the ‘whole’ comprises; and (2) how the various components should
be used.
Both issues depend on the intention of the parties.159 However, the general
principle is that any part of any document which the parties have adopted may be
used in construction. As Isaacs J said in Milne v The Municipal Council of
Sydney,160 no rule of law confines construction to ‘any part of the document they
sign’. Since labels do not confine the operation of the whole contract rule, the
general principle extends to attachments, specifications, annexures, and so on.
Such documents may themselves be contracts, or state the terms of contemplated
contracts. For example, standard terms of sale may be attached to a distribution
contract. In addition, where two or more contracts form part of a single
transaction, it is presumed that they are all intended to be taken into account.
The presumption may be confirmed by reference to features such as cross-
references, or the incorporation of definitions in one document into another. But
express statements of intention are common.
[13-33] Expressed intention. The parties may have expressed their intention as
to what the whole contract comprises or the role of the various components.
There may be a negative perspective, as where a contract provides that headings
are for convenience only.161 Alternatively, there may be a positive perspective.162
For example, a credit contract may provide that it is to be construed in
conjunction with the debtor’s credit application. In addition, labels may be used,
including to describe specific clauses or ingredients within the document.163
These are also relevant to construction.
Particularly in complex arrangements where various documents need to be
considered, issues of relative importance may arise. An appreciation of the need
to deal with such issues may lead to express statements of intention. For
example, a construction hierarchy may be expressed to deal with inconsistencies
between documents, or between general terms and ‘special conditions’.164
Transaction as a whole
[13-34] Composite transactions. The concept of the ‘whole contract’ includes
the whole transaction between the parties. Therefore, if the documents are
composite parts of a single transaction, the meaning of one document may
depend on construction of the transaction as a whole.165 It follows that
transaction documents between the same parties are taken into account in the
construction of any individual contract. That may include a document executed
pursuant to another document.166
The fact that the parties to the documents differ does not of itself imply that
related documents should not be construed together. For example, it would be
absurd not to construe a contract of guarantee in conjunction with the principal
contract.167 It is generally sufficient that the documents form part of a composite
transaction.168
Related documents or contracts which do not form part of a composite
transaction may be taken into account as elements of context of the contract
being construed.169 It is not always easy to distinguish between use of a related
contract or document as part of context and construction of two documents as
components of a single transaction.170
[13-35] Counterparts. Although a party who executes a counterpart is bound by
that counterpart, inconsistencies between counterparts may need to be resolved.
For example, in Matthews v Smallwood171 a lease under seal provided that the
lessor could re-enter following any breach by the lessee ‘of the covenant
hereinbefore contained and on his part to be performed’. In fact, there were
numerous such covenants. Parker J considered that he could have regard to the
counterpart of the lease. This employed the plural ‘covenants’, and Parker J
concluded that there was a clerical error in the lease. Therefore, the right of re-
entry came into operation on the breach of any of the prior covenants.
At one time, recourse to a counterpart may have been thought to illustrate an
exception to the exclusionary rule. However, such an approach could not be
taken today. In Matthews v Smallwood, Parker J did not have regard to extrinsic
evidence. Instead, he simply construed the whole contract. In any event, the
parties may have agreed that all counterparts are to be read together as a single
instrument.
Specific elements and ingredients
[13-36] Implied and incorporated terms. Construction of the contract as a
whole is not concerned solely with express terms. Whatever the rationalisation
for the implication of a term,172 the ‘whole contract’ includes express and implied
terms. Therefore, implied terms must be taken into account when construing the
contract as a whole to determine the meaning of express terms,173 and express
terms must be taken into account in construing implied terms.174
Similarly, if terms are incorporated into a contract, they form part of the
contract as a whole.175 Neither the basis for incorporation, nor whether they take
effect as express or implied terms, is relevant.
[13-37] Recitals. Recitals have always been regarded as available in
construction,176 usually as a contract component.177 They may play a significant
role, not merely to provide context for the operative part of the contract, but as a
direct aid to construction.178 The classic example is the use of recitals in the
construction of a general release of liability.179
Under the modern law, the only general principle in relation to recitals is that
they are part of the contract. Their precise role in construction depends on what
— in the circumstances — they are intended to achieve,180 and the relationship
intended by the parties between the recitals and the operative part of the
document.181 Difficulties in reconciling a recital with the operative part of a
document are resolved under general principles, rather than by applying formal
rules, such as that recitals are necessarily subordinate, to be taken into account
only in cases of ambiguity.182 Moreover, any idea that the operative part
necessarily prevails over a recital183 has never been applied consistently.184
[13-38] Consideration clause. Even a modern contract may include a
‘consideration clause’, that is, a formal statement of the consideration for entry
into the contract which the document expresses or evidences.
Whether a consideration clause is — technically — ‘extrinsic’ to the
document, to be taken into account only in cases of ‘ambiguity’, cannot be
debated today.185 Therefore, a consideration clause is available for use as a direct
guide to meaning, and used in much the same way as recitals.186
[13-39] Definitions. Choice of meaning may be achieved by express definition
of a word, expression, concept or person.187 Often, the purposes are to simplify
the document and to avoid repetition.188 For example, ‘claim’ may be a defined
term, to enable abbreviated usage in liability clauses. In the balance of the
document, defined terms are conventionally shown in bold, italics, in capital
letters or by capitalising the first letter of each word of the defined word or
term.189
When collected in a single clause or schedule, the list of defined terms is
commonly prefaced with words to the effect, ‘unless the context indicates
otherwise’. That is an express warning that a term may not be used exclusively
in its defined sense. However, the absence of such a warning does not mean that
the definition necessarily applies to every usage of the term in the document.190
All definitions state interpretation rules. That includes definitions of concepts,
which may have a broader operation than other definitions. Even the definition
of a single word may incorporate a concept. For example, if a definition states
that a word has the same meaning as in a particular statute, the usual impact is to
incorporate the definition in the statute, as if written out in the contract.191 Those
words are then, as Lord Collins explained in Enviroco Ltd v Farstad Supply
A/S,192 construed ‘as a matter of contract, in their contractual context’. In that
case, the defined concept was ‘subsidiary’. As the decision indicates, the
construction will generally be the same as in the statute, even though its
ramifications may not have been appreciated by the parties.193
[13-40] Interpretation clauses. Modern contract drafting also employs clauses
which state specific interpretation rules. Such clauses may do no more than
confirm statutory rules.194 For example, it is common to define ‘month’ to mean
‘calendar month’.195 There are other examples showing that it is common
practice to say things which do not need to be said. For example, a document
may state that any list which follows the word ‘includes’ (or ‘including’) is not
to be construed as exhaustive. Construction of the contract as a whole may show
that an interpretation rule is inapplicable to a particular usage in the document.196
In AIB Group (UK) Ltd v Martin,197 Lord Millett said198 that express
interpretation rules should not be construed so as to ‘enlarge’ operative
provisions, unless that was clearly the intention of the parties. In that case, cl
2(1) of a deed stated that ‘the mortgagor’ covenanted with the bank to pay or
discharge on demand all sums advanced to the mortgagor by the bank, and all
other indebtedness of the mortgagor to the bank. An interpretation clause
provided that if there was more than one ‘mortgagor’ (as there was), ‘the
obligations of such persons hereunder shall be joint and several’, and that the
term ‘mortgagor’ was to be construed as referring to ‘all and/or any one’ of the
mortgagors. The House of Lords held that the impact199 was that each mortgagor
was liable to discharge the indebtedness of each other mortgagor. The result was
somewhat surprising, and perhaps not intended.200
Interpretation clauses may be used to deal with construction rules. For
example, the operation of the contra proferentem rule is sometimes expressly
excluded.
[13-41] Headings and marginal notes. Headings, marginal notes, captions, and
so on, are labels which may be taken into account in construction unless the
parties have agreed otherwise.201 For example, in EE Caledonia Ltd v Orbit
Valve Co Europe202 a contrast between the words used in headings was relevant
to the construction of certain liability provisions. Of course, headings are not
always helpful;203 and the meaning of a contract is unlikely to turn on the content
of a heading to a particular clause. As descriptive labels, headings are generally
regarded as circumstantial guides. For example, in Hutton v Watling204 the form
of heading was an indication that the promises at issue were part of the
consideration.
It is not easy to find cases in which reliance on a heading has been a material
factor in construction. However, in Gyllenhammar & Partners International Ltd
v Sour Brodogradevna Industria205 Hirst J regarded206 the title given to a clause
as being ‘of crucial significance’. And Lord Bingham said in J I MacWilliam Co
Inc v Mediterranean Shipping Co SA207 that although a court is not bound by a
label, where the court is considering a ‘bona fide mercantile document’ it may be
‘slow to reject the description’. In that case, the heading was ‘bill of lading’.
[13-42] Boilerplate clauses. ‘Boilerplate’ clauses are recognised as provisions
with common or standard wording, usually collected at the end of the document
under headings such as ‘miscellaneous’ or ‘general’. They commonly deal with
matters such as service of notices, variation, waiver of rights and ‘further
assurances’. Boilerplate clauses are construed and taken into account in
construction in the same way as any other clause.208 The fact that provisions such
as entire agreement clauses are often included shows that boilerplate provisions
may play a crucial role.
Boilerplate clauses typically derive from standard terms commonly in use, a
law firm’s precedent document, or other documents used by the party who
prepared the first draft of a negotiated document. In the last situation at least, the
content of the clauses may have been the subject of negotiation. But in all cases,
a boilerplate provision is as binding as any other clause, whether read or not.209
[13-43] Schedules, annexures etc. Schedules and attachments to documents,
including annexures, appendices and specifications, form a physical part of the
contract documents. It is therefore presumed that the parties intend them to be
brought to bear in construction of the contract as a whole.210 Any heading is a
label which may also be taken into account, but is not of itself sufficient to
indicate that the ‘whole contract’ does not include the attachment.
The role of schedules and attachments in construction depends on the
intention of the parties. There is nothing in the modern cases to suggest that
placement of an execution clause may render some documents ‘extrinsic’ to the
contract.211 Where no intention has been expressed, the role of any attachment in
construction depends on the circumstances, including the nature of the contract
and the information any document contains, and whether it is the parties’
document. For example, material in an appendix is more likely to play a role in
construction when expressed in terms settled by the parties.212
If documents are inconsistent, the question is how the inconsistency should be
resolved, and whether there is any basis for preferring one over another. The
adoption of certain documents with particular labels may suggest that the
document to which they are attached is the primary or principal document for
construction. Where the inconsistency is between what is identifiable as the
principal document and another document, it is logical to assume that the parties
intend the former to prevail.213 Conflicts between various attachments may be
more difficult. It is, of course, open to the parties to express their agreement on
the matter.214
Particular Applications of the Rule
[13-44] Introduction. In an ideal world, all contracts would expressly reflect the
background to the transaction, be clear, unambiguous and internally coherent.
But since that is not true of documents in general, there is no reason why it
should be true of contracts in writing or evidenced by writing.215 The fact that an
executory contract deals with anticipated events, the inherent flexibility of the
English language, and that contract drafting is affected by practical
considerations of skill, time and cost, all suggest that even the most carefully
prepared contract can give rise to construction difficulties. And, of course,
contracts which become subject to formal dispute resolution procedures are
necessarily problematic, due to matters such as linguistic ambiguity,
unconventional syntax, drafting mistakes and internal inconsistencies. Principles
of commercial construction provide bases for dealing with construction
problems in a coherent way.
Five points can be made by way of background to the discussion below of
particular uses for the whole contract rule. First, although the presence of a
construction difficulty is not always indicative of bad drafting, in considering
whether a particular intention is probable or improbable, the quality of the
drafting can be taken into account.216
Second, frequent reference is made in the cases to matters such as lack of
clarity, ambiguity and inconsistency. In the present context,217 ‘ambiguity’ refers
to a need to make a choice between two or more meanings.218 It is therefore no
more than a construction difficulty.219
Third, notwithstanding construction difficulties, the contract must be
construed without the aid of extrinsic evidence.220
Fourth, an overriding consideration is a preference for reasonable results in
construction.
Fifth, the rule that the contract must be construed as a whole is crucial,
including to deal with mistakes. In applying the rule, words may be added,
deleted or replaced in construction.221
[13-45] Dealing with mistakes. In Investors Compensation Scheme Ltd v West
Bromwich Building Society,222 Lord Hoffmann said ‘we do not easily accept that
people have made linguistic mistakes, particularly in formal documents’.
However, construction difficulties are frequently attributable simply to the
failure to adhere to usual (traditional) conventions of spelling, syntax and
grammar. Documents used in the commercial context are notorious for their lack
of grammatical precision.223
Many contracts appear to others as unconventional (even idiosyncratic) in
their use of English and syntactic structure. But failure to adhere to conventions
in language does not necessarily illustrate ‘mistake’.224 Of course, obvious
drafting errors are unlikely to lead to formal dispute resolution procedures.225
The problems dealt with in litigated construction disputes are usually more
subtle. But they may be compounded by ‘errors’ of syntax, and the like.
Whatever label may be attached to the difficulty, there is a choice of meaning
issue to be resolved by construction of the contract as a whole.
References to ‘mistakes’ in the construction of contracts are also ambiguous
as to their reference point. Is it the ‘face of the document’ or the document
construed in context? That there is a difference — and that the difference is
important — cannot be denied.226 Whether or not there are errors on the face of a
document, construction of the contract as a whole is not a process which is
prefaced by a different inquiry, namely, whether there are mistakes in a
document.227 Nevertheless, when a construction difficulty is resolved, it seems
almost inevitable for the construction of the contract to be stated with the aid of
additional or different words.228 For example, in Charter Reinsurance Co Ltd v
Fagan229 the construction of a contract of reinsurance which used the expression
‘actually paid’ was that ‘actually’ meant ‘in the event when finally ascertained’
and that ‘paid’ meant ‘exposed to liability as a result of the loss insured’. The
process does not of itself signify that any mistake was made. It may simply be a
reflection of the need to explain the sense in which particular words have been
used. In other words, it may be no more than a statement of intended sense, as
determined by construction of the contract as a whole.
With the benefit of hindsight, it might be said that any ambiguity of meaning,
or apparent inconsistency between clauses, illustrates ‘mistake’.230 However,
except in a claim for rectification, the label is purely explanatory and has no
legal significance.231 Litigated construction disputes often expose ‘perception
errors’, that is, problems which emerge when the document is subjected to close
scrutiny in a particular fact situation against which the parties may not have
tested their contract.232 As Chartbrook Ltd v Persimmon Homes Ltd233 illustrates,
the problem may be fundamental. In that case, the schedule to a development
contract included a definition of price expressed in terms of an aggregate of total
land value and a balancing payment. The latter was defined as the ‘additional
residential payment’, and was expressed in the formula: 23.4% of the price
achieved for each residential unit in excess of the minimum guaranteed
residential unit value less the costs and incentives.
No doubt the words used seemed clear enough when formulated by the parties.
However, because the formula was expressed in words, mathematical
conventions could not be used to resolve the patent ambiguities which the
formula presented. At a linguistic level, the problem was the absence of the
precise punctuation necessary to show the sequence in which the calculations
were intended to be carried out.234 The solution had to be found in construction
of the contract as a whole in light of context, including commercial purpose.
Clearly, the parties did not perceive the dramatically different results which
would flow from applying the two constructions of the contract which were
subsequently debated.235 Chartbrook argued for 23.4 per cent of the result
obtained by deducting ‘minimum guaranteed residential unit value’ and ‘costs
and incentives’ from the price. Lord Hoffmann described236 the ‘striking feature’
of the case as being that Chartbrook’s construction was not merely favourable to
it, but also made the ‘structure and language of the various provisions of
schedule 6 appear arbitrary and irrational’. Construing the contract as a whole —
taking into account the structure of the schedule, and commercial purpose — it
was held that the parties intended ‘costs and incentives’ to be deducted from the
price obtained for each residential unit to arrive at the net amount received by
Persimmon. The ‘additional residential payment’ was then the excess of 23.4 per
cent of that amount over the ‘minimum guaranteed residential unit value’.237
From a commercial perspective that led to the more reasonable result, even
though it did not ‘reflect what the words would conventionally have been
understood to mean’.238
[13-46] Reasonable results. The preference for reasonable results over
unreasonable results which is the hallmark of commercial construction is by no
means a recent phenomenon.239 Courts have always been disinclined to adopt
‘absurd’240 constructions for contracts. The modern statement of principle is to
be found in Antaios Compania Naviera SA v Salen Rederierna AB (The
Antaios).241 Lord Diplock said242 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 must be made to yield to business
commonsense’. The idea is not limited to contracts.243 In Ulysses Compania
Naviera SA v Huntingdon Petroleum Services (The Ermoupolis),244 Steyn J
applied the same approach to telexes appointing an arbitrator. And in Zhu v
Treasurer of New South Wales245 the High Court of Australia said246 it was
‘necessary to construe’ a standard form deed poll ‘so as to avoid it making
commercial nonsense or working commercial inconvenience’.
In P & O Oil Trading Ltd v Scanoil AB (The Orient Prince),247 Webster J
relied on Lord Diplock’s statement in The Antaios to reject what he termed a
‘logical’ approach to a delivery clause in a CIF contract, in favour of a more
practical commercial construction. Taking a commercial approach necessarily
involves the rejection of an ‘utterly absurd’248 construction. For example, Fox J
in Weller v Akehurst249 rejected as being ‘inconceivable’ the construction of a
lease under which no rent would have been payable when a rent review
procedure failed. The preference for reasonable results has also been expressed
in statements to the effect that alternative constructions should be preferred to
those which are ‘wholly uncommercial’.250 Similarly, unless only one
construction is open, the preference is in favour of a different construction where
that contended for is ‘most unbusinesslike’251 or one which would not make
business sense.252 For example, in Gollin & Co Ltd v Karenlee Nominees Pty
Ltd253 the High Court of Australia explained that a construction which would
have made a promise to pay rent in advance devoid of legal effect made no
commercial sense.
Applying the idea that the contract must be construed as a whole is crucial to
this approach,254 even if the meaning of a single word is at issue. It is sufficient
that a ‘clear alternative interpretation’255 is available. The alternative is preferred
over a ‘commercially unreasonable’256 construction. Although sufficient, it is not
necessary to show competition with a construction which flouts business
common sense.257 The process includes making decisions as to the relative
weight to be attached to particular clauses.258 The overall concern is to promote
commercial purpose.
[13-47] Giving effect to commercial purpose. A court has no jurisdiction to
construe a contract to achieve a result which is, objectively, more reasonable
than that agreed to by the parties.259 However, if no intention has been expressed
on a particular matter, intention must be inferred. Since the object of the contract
is to achieve one or more commercial purposes, the preference for reasonable
results is simply an assertion that choice of meaning is relative to the purpose,
aim and object of the contract, objectively determined.260
One perspective on the concern for reasonable results is a preference for
constructions which when applied do not defeat the commercial purpose of the
contract, over those which do. However, the real point of the preference for
reasonable results is to arrive at constructions which are commercially sensible
in the sense that they promote commercial purpose. In litigated construction
disputes, the various constructions put forward are tested against the objective of
achieving a commercially sensible result.261 In Equitable Life Assurance Society
v Hyman,262 Lord Steyn explained263 that the purpose of construction is ‘to assign
to the language of the text the most appropriate meaning which the words can
legitimately bear’.
The choice between competing meanings may therefore be made by reference
to what is more in accord with ‘underlying purpose’.264 It is clear that such
choices can be based simply on the conclusion that one is more reasonable than
the other.265
[13-48] Resolving ambiguity. Linguistic ambiguity is present if there is more
than one sense in which a word or expression may have been used.266 However,
if construction of the contract as a whole generates a single intended sense
(single meaning), the contract is not ambiguous. For example, in Max Cooper &
Sons Pty Ltd v Sydney City Council 267 the Privy Council said268 that when the
contract was ‘read as a whole’ there was no ambiguity in the expression
‘conditions of employment’, as used in a ‘rise and fall clause’ in a building
contract. Similarly, in Partenreederei MS Karen Oltmann v Scarsdale Shipping
Co Ltd (The Karen Oltmann),269 the word ‘after’ in the expression ‘after 12
months trading’ might have been used in the sense of ‘on the expiry of’ or ‘at
any time following’. But Kerr J held270 that this did not make the contract
ambiguous. Construction of the contract as a whole generated ‘on the expiry of’
as the intended sense.
It follows that although particular words may be ambiguous, in that there is
more than one sense in which they may have been used, the purpose of
construction of the contract as a whole is to generate a single sense or meaning
for the word or expression. For example, in Prenn v Simmonds271 the expression
‘aggregate profits of RTT … available for dividend’ was at issue. It was
necessary to determine the sense in which ‘profits of RTT’ had been used.
Although ‘RTT’ was defined as Radio & Television Trust Ltd, construing the
contract as a whole, the House of Lords held that ‘aggregate profits’ referred to
the ‘consolidated profits’ of a group of companies of which RTT was a member.
The background to the transaction, the reference in the contract to profits
‘earned’, and to ‘provision for income tax and profits tax’, all pointed to
consolidated profits.
More recently, in The Mahkutai272 a bill of lading provided that sub-
contractors were to have the benefit of ‘exceptions, limitations, provisions,
conditions or liberties’. The Privy Council held that construction of the whole
contract showed that the reference to ‘provisions’ was not sufficient to embrace
the mutual agreement which an exclusive jurisdiction clause represented. It was
not a ‘provision’ in the sense of an exception, limitation, condition or liberty.
[13-49] Resolving inconsistency. An obvious basis for choice of meaning in
relation to a particular contractual provision is to achieve harmony with other
provisions.273 For example, in Wilkie v Gordian Runoff Ltd274 Gleeson CJ,
McHugh, Gummow and Kirby JJ referred275 to the role of the rule that a contract
must be construed as a whole in achieving a construction of the contract which
ensures the ‘congruent’ operation of the various components of the whole.
However, that is not always possible.276
Inconsistency between contractual provisions is generally described in terms
that one provision contradicts another.277 Because full effect cannot be given to
both, one must to some extent qualify the other, or take precedence over the
other. Inconsistency between clauses is a matter which courts construing
contracts deal with on a more or less routine basis. For example, in Shamil Bank
of Bahrain EC v Beximco Pharmaceuticals Ltd,278 having adopted English law
under a choice of law clause, it was improbable that the parties intended
enforceability of the contract to be governed by the Sharia, and the contract was
to be construed accordingly, notwithstanding a proviso referring to the principles
of that regime.279
In Multi-Link Leisure Developments Ltd v North Lanarkshire Council,280 a
lease which required the lessees to develop the land as a golf course included cl
18.1, which stated an option to purchase. If the option was exercised in the first
year of the lease, the price was £130,000. If exercised at a later date — as it was
— cl 18.1 stated that the price would be: equal to the full market value of the
subjects hereby let as at the date of entry for the proposed purchase (as
determined by the landlords) of agricultural land or open space suitable for
development as a golf course but, for the avoidance of doubt, shall be not less
than the sum of ONE HUNDRED AND THIRTY THOUSAND POUNDS
(£130,000) STERLING. In determining the full market value (i) the landlords
shall assume (a) that the subjects hereby let are in good and substantial order and
repair and that all obligations of the landlords and the tenants under this lease
have been complied with, and (b) that the subjects hereby let are ready for
occupation, and (ii) the landlords shall disregard (a) any improvements carried
out by the tenants during the period of this lease otherwise than in pursuance of
an obligation [sic — to] the landlords, and (b) any damage to or destruction of
the subjects hereby let.
At the time of entry into the lease, it was not contemplated that the land might,
as later occurred, be identified as having potential for residential development.
When the option was exercised, the full market value of the land, assessed on a
‘hope value’ basis, was £5.3 million. But the lessees contended that cl 18.1
required the land to be valued by reference to its current use as a golf course,
which they assessed at £500,000.
The price calculation provision was difficult to construe. The syntax was
unconventional, both in the placement of the phrase ‘(as determined by the
landlords)’ and the use of ‘market value of the subjects … of agricultural land’.
The typographical error in ‘an obligation the landlords’ also confirmed the
inadequacies of the drafting. More substantively, the unconventional syntax
meant that it was difficult to know how to relate ‘of agricultural land or open
space suitable for development as a golf course’ to ‘full market value’. In
addition, the assumptions and disregards were difficult to reconcile with ‘full
market value of the subjects’. But there was a clear commercial context, which
included the statutory duty of the lessors not to dispose of the land for a
consideration less than the best that could reasonably be obtained.
Given the drafting problems, it is perhaps not surprising that the Supreme
Court should emphasise the importance of ‘full market value’ as controlling the
construction of the option. Construing the contract as a whole, ‘full market value
of the subjects’ could be seen as the basis for valuation, so that, notwithstanding
the inferences that might otherwise have been drawn from the assumptions and
disregards, the status of the land as a golf course did not control the valuation
process.281 Alternatively, the assumptions and disregards could be seen as
irrelevant when the ‘full market value’ of the land was being determined
otherwise than on the basis of its use as a golf course.282
[13-50] Intended relationship between express and implied rights. Express
contractual rights interact with common law rights.283 Difficulties of construction
which arise in working out the intended relationship between the two are
resolved by construing the contract as a whole.
For example, in L Schuler AG v Wickman Machine Tool Sales Ltd284 cl 7(b) of
a distributorship agreement stated that it was a ‘condition’ that the distributor
would visit the manufacturer’s clients ‘at least once in every week for the
purpose of soliciting orders’. Clause 11(a) provided that either party could, by
notice in writing to the other, terminate the contract following the failure to
remedy a ‘material breach … within 60 days of being required in writing so to
do’. Clause 7(b) was breached. However, the manufacturer did not invoke cl
11(a) prior to terminating the contract. It therefore argued that cl 7(b) stated a
promissory condition and sought to justify its termination of the contract by
reference to a common law right. Since cl 11(a) dealt with ‘material’ breach, and
because some breaches of cl 7(b) would come within cl 11(a),285 it would have
been strange for the parties to have intended any breach of cl 7(b) to give rise to
an independent right of termination. Construing the contract as a whole, and
relying on the preference in favour of reasonable results,286 the majority held that
cl 7(b) did not state a condition.
[13-51] Interrelationship between terms. Interrelationships between
contractual terms are particularly important where the legal effect of a contract is
at issue. For example, whether the obligation of one party to perform is
dependent on prior performance by the other is an issue of construction which
has troubled courts for centuries. At one time, formal rules were applied.287
Construction of the contract as a whole is the modern solution.288
Dependency between performance obligations may also be important where
the question is whether a term is intended to state a promissory condition. For
example, in Bunge Corp New York v Tradax Export SA Panama289 sellers of
goods on FOB terms alleged that their buyers had breached a condition by not
giving at least 15 days’ notice of the probable readiness of the vessel (and the
quantity of goods to be loaded), as required by cl 7 of the contract (GAFTA form
119). Another term required the sellers to nominate one Gulf port as the loading
port. They could not do so until the buyers had given their notice. Accordingly,
notice by the buyers was a condition precedent to nomination by the sellers. An
intention for cl 7 to be a promissory condition was therefore a legitimate
inference from the interrelation of obligation established by construction of the
whole contract.290
1. See [1-04].
2. See [11-07].
3. See [11-05]–[11-06]. Cf Davis Contractors Ltd v Fareham UDC [1956]
AC 696 at 728.
4. See [13-09]–[13-15].
5. See [1-16].
6. See [15-03].
7. See the discussion in [11-13]–[11-14]. See also Chapter 15.
8. See [15-04].
9. See Part VII.
10. See [4-20]. See further [13-27]–[13-51].
11. See [4-22], and generally Chapter 11.
12. But see [11-30].
13. See, eg P & O Oil Trading Ltd v Scanoil AB (The Orient Prince) [1985] 1
Lloyd’s Rep 389 at 392 (arbitrator considered eight different constructions).
14. See [4-10].
15. See, eg Life Insurance Co of Australia Ltd v Phillips (1925) 36 CLR 60 at
69 per Knox CJ (‘experience shows that many, if not most documents …
are reasonably capable of more than one meaning’); Home and Overseas
Insurance Co Ltd v Mentor Insurance Co (UK) Ltd [1990] 1 WLR 153 at
164 (two views possible on most questions).
16. See also [12-03].
17. See [11-12]. The position may be different where a narrower standard of
interpretation applies. See [12-14].
18. The concept is not limited to formal dictionaries. See [12-12], [14-08].
19. See [12-12].
20. [1995] 2 Lloyd’s Rep 344.
Appeal agreed. See also Sunport Shipping Ltd v Tryg-baltica International
(UK) Ltd (The Kleovoulos of Rhodes) [2003] 1 Lloyd’s Rep 138 at 143–4;
[2003] EWCA Civ 12 at [20].
22. Shipping Corp of India Ltd v NSB Niederelbe Schiffahrtsgesellschaft mbH
& Co (The Black Falcon) [1991] 1 Lloyd’s Rep 77 at 80 per Steyn J.
23. See Chapter 6.
24. (1982) 149 CLR 337.
26. See Chapter 7.
28. [2011] 1 AC 662 at 680; [2010] UKSC 44 at [38]. The other members of
the court agreed. See also [7-26].
29. See, eg National Coal Board v National Union of Mineworkers [1986] ICR
736 at 770.
30. See [5-02], [6-10], [7-30].
31. Charter Reinsurance Co Ltd v Fagan [1997] AC 313 at 392. See also
Franklins Pty Ltd v Metcash Trading Ltd (2009) 76 NSWLR 603 at 669;
[2009] NSWCA 407 at [268]; C v D [2012] 1 WLR 1962 at 1985; [2011]
EWCA Civ 646 at [74]. But see Multi-Link Leisure Developments Ltd v
North Lanarkshire Council [2011] 1 All ER 175 at 180; [2010] UKSC 47 at
[11].
UKSC 50 at [21].
33. See [4-23].
34. See [14-25].
35. See Chapter 8.
36. See [13-46]–[13-47]. Many such preferences are more relevant to the scope
of application of a contract. See Chapter 16.
37. See also [16-36]–[16-40] (presumption in favour of common law rights).
38. See [11-18]–[11-21], [12-28]–[12-29].
39. See [4-12].
40. Mitsui Construction Co Ltd v Attorney-General (Hong Kong) [1986] LRC
(Comm) 245 at 256.
41. See, eg Bradford v Williams (1872) LR 7 Ex 259 at 261; Pioneer Shipping
Ltd v BTP Tioxide Ltd [1982] AC 724 at 736; Deeny v Gooda Walker Ltd
(in liq) [1996] 1 WLR 426 at 435; Morton v Elgin-Stuczynski (2008) 19 VR
294 at 300; [2008] VSCA 25 at [27].
42. See Ogdens Ltd v Nelson [1905] AC 109 at 110, 111, 113.
Diplock. The other members of the House of Lords agreed. See also
Bradford v Williams (1872) LR 7 Ex 259 at 261 per Martin B (impossible to
argue from ‘letter’ of one contract to that of another); Parker v Rankin
(1991) [1993] 2 Qd R 282 at 287 (not reliable as precedents).
44. [1996] 1 WLR 426 at 435.
45. See, eg Australian Casualty Co Ltd v Federico (1986) 160 CLR 513 at 525
(of limited significance in construction of word ‘injury’ in policy of
insurance that similar words in other policies had been construed as having
different meanings); Navrom v Callitsis Ship Management SA (The Radauti)
(difficulties when similar clause or phrase or word is used in different
context); Morton v Elgin-Stuczynski (2008) 19 VR 294 at 300; [2008]
VSCA 25 at [27] (cases of limited assistance — ‘accrued interest’).
46. See, eg Turner v Manx Line Ltd [1990] 1 Lloyd’s Rep 137 at 147 (cases on
different words in different type of policy not helpful). See also Crouch v
Jeeves (1938) Pty Ltd (1946) 46 SR (NSW) 242 at 245; L Schuler AG v
Wickman Machine Tool Saks Ltd [1974] AC 235 at 256; Reardon Smith
Line Ltd v Sanko Steamship Co Ltd (The Sanko Honour) [1985] 1 Lloyd’s
Rep 418 at 420.
47. Cf Mackay v Wilson (1947) 47 SR (NSW) 315 at 321.
48. For a summary of the general construction rules, see Chapter 4.
49. See [13-16]–[13-26].
[15].
51. [2011] 2 Lloyd’s Rep 538 at 561; [2011] EWHC 1822 (Ch) at [115].
52. See Hyde Management Services Pty Ltd v FAI Insurance Ltd (1979) 144
CLR 541 at 547.
53. See also [12-12] (standard forms as specialised usages).
54. Dodson v Peter H Dodson Insurance Services [2001] 1 WLR 1012 at 1022;
[2001] 3 All ER 75 per the Court of Appeal. For an early authority, see
Robertson v French (1803) 4 East 130 at 136; 102 ER 779 at 782 (in
reference to standard form, acquisition of definite meaning).
55. See, eg Petroleo Brasileiro SA v Kriti Akti Shipping Co SA (The Kriti Akti)
[2004] 1 Lloyd’s Rep 712 at 714; [2004] EWCA Civ 116 at [6] (court
bound to apply Chiswell Shipping Ltd v National Iranian Tanker Co (The
World Symphony and World Renown) [1992] 2 Lloyd’s Rep 115 in relation
to Shelltime 3 form).
56. Pioneer Shipping Ltd v BTP Tioxide Ltd [1982] AC 724 at 736.
57. See, eg Pioneer Shipping Ltd v BTP Tioxide Ltd [1982] AC 724 at 737; AIB
Group (UK) Ltd v Martin [2002] 1 WLR 94 at 96; [2001] UKHL 63 at [7].
58. See, eg Thompson v T Lohan (Plant Hire) Ltd [1987] 1 WLR 649 at 654;
[1987] 2 All ER 631 (same words, same form). Cf Merritt Cairns
Constructions Pty Ltd v Wulguru Heights Pty Ltd [1995] 2 Qd R 521 at 526
(‘due’ in standard form building contract).
59. See Chiswell Shipping Ltd v National Iranian Tanker Co (The World
Symphony and World Renown) [1992] 2 Lloyd’s Rep 115 at 118 (Shelltime
3 form); Sunport Shipping Ltd v Tryg-baltica International (UK) Ltd (The
12 at [29] (Institute Clauses). See also Fortis Bank SA/NV v Indian
Overseas Bank [2010] Bus LR 835 at 844, 845; [2010] EWHC 84 (Comm)
at [41], [43]; and Fortis Bank SA/NV v Indian Overseas Bank [2011] 2
Lloyd’s Rep 33 at 37–8; [2011] EWCA Civ 58 at [26]–[29], following the
approach to UCP stated in Glencore International AG v Bank of China
[1996] 1 Lloyd’s Rep 135 at 148.
60. On the Hague Rules see Stag Line Ltd v Foscolo Mango and Co Ltd [1932]
AC 328 at 350; Serena Navigation Ltd v Dera Commercial Establishment
(The Limnos) [2008] 2 Lloyd’s Rep 166 at 168; [2008] EWHC 1036
(Comm) at [9]; Daewoo Heavy Industries Ltd v Klipriver Shipping Ltd (The
Kapitan Petko Voivoda) [2003] 2 Lloyd’s Rep 1 at 12–13; [2003] EWCA
Civ 451 at [13]–[14]. See also Comandate Marine Corp v Pan Australia
Shipping Pty Ltd (2006) 238 ALR 457 at 495; [2008] 1 Lloyd’s Rep 119;
[2006] FCAFC 192 at [164]–[165].
61. See, eg Cosco Bulk Carrier Co Ltd v Team-Up Owning Co Ltd (The
Saldanha) [2011] 1 Lloyd’s Rep 187 at 189; [2010] EWHC 1340 (Comm)
at [11] (‘average accident’); X v Y [2011] 1 Lloyd’s Rep 694 at 697; [2011]
EWHC 152 (Comm) at [8] (words ‘final discharge’ given same meaning as
under other standard form charterparties). See also Marc Rich & Co Ltd v
Tourloti Compania Naviera SA (The Kalliopi A) [1988] 2 Lloyd’s Rep 101
at 105. But cf Durham v BAI (Run off) Ltd (in scheme of arrangement)
[2012] 1 WLR 867 at 889; [2012] UKSC 14 at [48] (contrast between
public liability and employers’ liability policies).
62. See [17-08].
63. See, eg Shell International Petroleum Co Ltd v Gibbs [1983] 2 AC 375 at
386; Nereide SpA di Navigazione v Bulk Oil International (The Laura
Prima) [1981] 3 All ER 737 at 740; [1982] 1 Lloyd’s Rep 1 at 3.
64. See, eg Lusograin Comercio Internacional de Cereas Ltda v Bunge AG
[1986] 2 Lloyd’s Rep 654 at 657 (application of Bunge Corp New York v
Tradax Export SA Panama [1981] 1 WLR 711).
65. See, eg Bunge SA v Kruse [No 2] [1980] 2 Lloyd’s Rep 142 (application of
Bremer Handelsgesellschaft mbH v Vanden Avenne-Izegem PVBA [1978] 2
Lloyd’s Rep 109). See also Bremer Handelsgesellschaft mbH v Finagrain
Compangie Commercial Agricole et Financière SA [1981] 2 Lloyd’s Rep
66. [1971] 1 QB 164 at 194, 199–200, 206. See also Continental Grain Export
Corp v STM Grain Ltd [1979] 2 Lloyd’s Rep 460. See Carter’s Breach of
Contract, §5-10.
67. See Ellis Shipping Corp v Voest Alpine Intertrading (The Lefthero) [1992] 2
Lloyd’s Rep 109 (application of Marc Rich & Co Ltd v Tourloti Compania
Naviera SA (The Kalliopi A) [1988] 2 Lloyd’s Rep 101); Cero Navigation
Corp v Jean Lion & Cie (The Solon) [2000] 1 Lloyd’s Rep 292 at 299;
[2000] 1 All ER (Comm) 214 (application of The Lefthero).
68. See Ashville Investments Ltd v Elmer Contractors Ltd [1989] QB 488 at
494 per May LJ (in reference to arbitration clause in JCT standard form,
meaning of same words in same type of clause not ‘immutable’). Cf Kodros
Shipping Corp of Monrovia v Empresa Cubana de Fletes (The Evia) (No 2)
[1983] 1 AC 736 at 768 (frustration).
69. See [4-52], [7-40].
70. See [7-40].
71. [1982] AC 724 at 736, 746.
AC 715 at 738, 795; [2003] UKHL 12 at [12], [182].
73. See [1-27]–[1-38].
74. See Toomey v Eagle Star Insurance Co Ltd [1994] 1 Lloyd’s Rep 516 at
520 (prior decisions on similar contracts an element of ‘context’). Cf
Sunport Shipping Ltd v Tryg-baltica International (UK) Ltd (The
12 at [28] (decisions on prior versions of Institute Clauses as context).
75. See [6-30] (precedent not context).
76. But see Promet Engineering (Singapore) Pte Ltd v Sturge (The Nukila)
[1997] 2 Lloyd’s Rep 146 at 152 (parties enter into contracts on the basis of
the law stated in the applicable authorities — latent defects clause);
Starlight Shipping Co v Allianz Marine & Aviation Versicherungs AG (The
Alexandros T) [2012] 1 Lloyd’s Rep 162 at 173; [2011] EWHC 3381
(Comm) at [29] (prior construction of Tomlin orders). Cf Navrom v Callitsis
Ship Management SA (The Radauti) [1987] 2 Lloyd’s Rep 276 at 279
(affirmed [1988] 2 Lloyd’s Rep 416).
77. Luxor (Eastbourne) Ltd v Cooper [1941] AC 108 at 130. See also [13-10].
78. [1997] AC 749.
79. [1997] AC 749 at 771. See also Multi-Link Leisure Developments Ltd v
[21].
80. [1998] 1 WLR 896.
Bank of Credit and Commerce International SA v Ali [2002] 1 AC 251 at
276–7; [2001] UKHL 8 at [62].
82. See Chapter 4.
83. See Chapter 16. Cf Petroleum Oil and Gas Corp of South Africa (Pty) Ltd v
FR8 Singapore Pte Ltd (The Eternity) [2009] 1 Lloyd’s Rep 107 at 113;
[2008] EWHC 2480 (Comm) at [20].
84. See [15-38], [17-11]. See generally on the rule [4-44]–[4-47].
85. Cf W N Lindsay & Co Ltd v European Grain & Shipping Agency Ltd [1963]
1 Lloyd’s Rep 437 at 443; Marubeni Hong Kong and South China Ltd v
Mongolian Government [2005] 1 WLR 2497 at 2504; [2005] EWCA Civ
395 at [20].
86. See [12-16].
87. See [2-26]–[2-31].
88. See [11-31], [12-16], [12-26] (no ‘legal standard of interpretation’
analogous to a trade standard).
89. See, eg Barclays Bank Plc v Weeks Legg & Dean (a firm) [1999] QB 309 at
325 per Millett LJ, with whom Pill and May LJJ agreed (‘a good
marketable title’ has ‘well-established meaning’); Mulcaire v News Group
Newspapers Ltd [2012] 2 WLR 831 at 846; [2011] EWHC 3469 (Ch) at
[42] per Sir Andrew Morritt C (‘“conflict of interest” in relation to
proceedings has a well recognised meaning’). See also Lord Justice
Staughton, Interpretation of Maritime Contracts’ (1995) 26 JMLC 259
(‘huge corpus of case-law on the meaning of particular expressions in
maritime contracts’).
90. [1974] AC 235.
91. [1974] AC 235 at 251.
92. [1974] AC 235 at 256.
93. See [11-15], [11-16].
94. [1974] AC 235 at 250. See also [1974] AC 235 at 264. But cf McCarrick v
Liverpool Corporation [1947] AC 219 at 228.
95. [1943] AC 399 at 407–8.
96. See Berry v Mahony [1933] VLR 314 at 320, 324; Buckland v Farmar
[1979] 1 WLR 221 at 232, 238. See also Mussen v Van Diemen’s Land Co
[1938] Ch 253 at 260 (‘rescission’).
97. See Stocznia Gdynia SA v Gearbulk Holdings Ltd [2010] QB 27 at 35;
[2009] EWCA Civ 75 at [13].
98. [1987] 1 Lloyd’s Rep 151 at 155. See also Anglomar Shipping Co Ltd v
Swan Hunter Shipbuilders Ltd (The London Lion) [1980] 2 Lloyd’s Rep
456 at 462–3 (merely calling a document a ‘guarantee’ does not give
agreement the features of a guarantee). But see Clarence House Ltd v
National Westminster Bank Plc [2010] 1 WLR 1216 at 1235; [2009] EWCA
Civ 1311 at [51] (‘assignment’ means a legal assignment).
99. See also on ‘proper’ meaning, [11-15].
100. [1924] AC 836. See also Bradley v H Newsom Sons & Co [1919] AC 16 at
24–5 (‘derelict’). Cf Minion v Graystone Pty Ltd [1990] 1 Qd R 157 at 161
(prima facie meaning for ‘insolvency’ in termination clause based on
authority).
101. [1924] AC 836 at 847.
102. [1924] AC 836 at 847. See also [1924] AC 836 at 843.
103. See also the dissenting speech of Lord Steyn in Deutsche
Genossenschaftsbank v Burnhope [1995] 1 WLR 1580 at 1587 (adoption of
meaning of ‘theft’ in criminal law in insurance policy). Cf London County
Council v Henry Boot & Sons Ltd [1959] 1 WLR 1069 at 1074 (‘wage’);
Delaney v Staples (t/a De Montfort Recruitment) [1992] 1 AC 687 at 692
(payments not referable to work are not ‘wages’).
104. Lord Atkinson went so far (see [1924] AC 836 at 845, 846) as to treat the
technical meaning as its ‘ordinary sense’ and ‘ordinary meaning’.
105. Cf M’Cowan v Baine [1891] AC 401 at 408 per Lord Watson (whether the
parties had ‘the law in their contemplation’).
106. [1991] 2 Lloyd’s Rep 281.
107. [1991] 2 Lloyd’s Rep 281 at 283. Compare Staughton J’s tongue in cheek
analysis of ‘premises’ in Mint Security v Blair Thomas R Miller & Son
(Home) Ltd [1982] 1 Lloyd’s Rep 188 at 194 (‘premises’ meant
‘buildings’).
108. (1986) 160 CLR 513 at 525. Cf Smit Tak Offshore Services v Youell [1991]
2 Lloyd’s Rep 420 at 430 per Sheen J, affirmed [1992] 1 Lloyd’s Rep 154
(the word ‘liable’ in the indemnity clause of a policy of insurance was given
its ‘ordinary meaning … in a legal context’, that is, to denote responsibility
at law).
273; [2001] UKHL 8 at [51].
110. See Perrin v Morgan [1943] AC 399 at 412 (rejection of terminology of
‘strict legal’ as suggesting ‘some superior right’). But see Utica City Nat
Bank v Gunn, 222 NY 204 at 208; 118 NE 607 at 608 (CA, 1918) per
Cardozo J (‘proper legal meaning’ of ‘loans and discounts’); Sunport
Shipping Ltd v Tryg-baltica International (UK) Ltd (The Kleovoulos of
Rhodes) [2003] 1 Lloyd’s Rep 138 at 144; [2003] EWCA Civ 12 at [23] per
Clarke LJ, with whom Peter Gibson and Scott Baker LJJ agreed (‘proper
legal meaning … must ordinarily prevail in a legal document’).
111. See Lewison, §2.09 (promotion of commercial certainty).
112. (1887)12 App Cas 484.
113. (1887)12 App Cas 484 at 494.
114. [1918] 1 AC 101 at 114. See also the less than enthusiastic comments by
Staughton J in Navrom v Callitsis Ship Management SA (The Radauti)
(words etc used in ‘shipping world’). Cf Care Shipping Corp v Latin
American Shipping Corp (The Cebu) [1983] QB 1005 at 1012 (scope of
contrast between ‘freight’ and ‘hire’ in charterparty context).
115. See, eg Sunport Shipping Ltd v Tryg-baltica International (UK) Ltd (The
12 at [47], [56] (Institute Clauses). Cf Excess Insurance Co Ltd v Mander
[1997] 2 Lloyd’s Rep 119 at 124 per Colman J (whether ‘settled rule of
construction’ in bill of lading cases applied to incorporation of arbitration
clause in reinsurance context).
116. But see [17-22]–[17-24] (legal interpretation of exclusion clauses).
117. [1970] AC 442.
118. [1970] AC 442 at 466.
119. (1979) 144 CLR 541.
120. (1979) 144 CLR 541 at 548. The other members of the High Court of
Australia agreed. Cf Cargill International SA v Peabody Australia Mining
Ltd (2010) 78 NSWLR 533 at 565; [2010] NSWSC 887 at [104].
121. [2006] 1 WLR 201; [2005] EWCA Civ 1296.
122. [2006] 1 WLR 201 at 207; [2005] EWCA Civ 1296 at [24]. Mummery LJ
agreed. See also Clarence House Ltd v National Westminster Bank Plc
[2010] 1 WLR 1216 at 1228; [2009] EWCA Civ 1311 at [30].
123. [2006] 1 WLR 201 at 207; [2005] EWCA Civ 1296 at [25]–[26]. See also
Clarence House Ltd v National Westminster Bank Plc [2010] 1 WLR 1216
at 1227, 1229; [2009] EWCA Civ 1311 at [26], [30].
124. See, eg Bills of Exchange Act 1882 (UK), s 9(2) (if there is a discrepancy
between the sum payable expressed in words and in figures, the former
prevails); Bills of Exchange Act 1909 (Cth), s 14(2) (if more than one sum
is expressed to be payable in a bill, the lesser or least is taken to be the only
sum ordered to be paid); Marine Insurance Act 1906 (UK), sch 1 and
Marine Insurance Act 1909 (Cth), sch 2 (‘Rules for Construction of
Policy’).
125. See also NSW: Conveyancing Act 1919, s 181; NT: Law of Property Act, s
50; Qld: Property Law Act 1974, s 48; Vic: Property Law Act 1958, s 61;
WA: Property Law Act 1969, s 8.
126. On the role of definitions and interpretation clauses see [13-39]–[13-40].
Goods Act 1895, s 10(2); Tas: Sale of Goods Act 1896, s 15; Vic: Goods
Act 1958, s 15; WA: Sale of Goods Act 1895, s 10(2).
128. See Norton on Deeds, p 169.
129. See, eg Carpentaria Investments Pty Ltd v Airs [1972] Qd R 436 at 463.
130. Bowes v Chaleyer (1923) 32 CLR 159 at 175 per Isaacs and Rich JJ. See
Norton on Deeds, p 173. But cf Brewarrina Shire Council v Beckhaus Civil
Pty Ltd (2003) 56 NSWLR 576 at 586; [2003] NSWCA 4 at [47].
131. [1995] 1 WLR 1580.
132. See [4-20]. See also ENE Kos 1 Ltd v Petroleo Brasileiro SA (The Kos) (No
2) [2012] 2 WLR 976 at 983; [2012] UKSC 17 at [11].
133. [2000] 2 Lloyd’s Rep 277 at 282. Lord Lloyd agreed. See also Fitzgerald v
Masters (1956) 95 CLR 420 at 437 per McTiernan, Webb and Taylor JJ
(‘trite law that an instrument must be construed as a whole’); Bowler v
Hilda Pty Ltd (in liq) (2001) 183 ALR 81 at 89; [2001] FCAFC 341 at [22]
per Drummond J (‘fundamental rule’).
134. See [13-34].
135. See Nereide SpA di Navigazione v Bulk Oil International (The Laura
Prima) [1981] 3 All ER 737 at 742; [1982] 1 Lloyd’s Rep 1 at 6 per Lord
Roskill, with whom the other members of the House of Lords agreed
(‘axiomatic’). See also Multi-Link Leisure Developments Ltd v North
Lanarkshire Council [2011] 1 All ER 175 at 183, 187; [2010] UKSC 47 at
[18], [36]. Cf Homburg Houtimport BV v Agrosin Private Ltd (The Starsin)
[2004] 1 AC 715 at 741; [2003] UKHL 12 at [24] (relevant part of clause).
136. See, eg Davis v Pearce Parking Station Pty Ltd (1954) 91 CLR 642 at 652
(exclusion clause); Max Cooper & Sons Pty Ltd v Sydney City Council
(1980) 29 ALR 77 at 86; 54 ALJR 234 (rise-and-fall clause in building
contract); Mangistaumunaigaz Oil Production Association v United World
Trade Inc [1995] 1 Lloyd’s Rep 617 at 621 (read as a whole, arbitration
clause provided for any dispute to be settled in accordance with ICC rules
in London under English law); Coastal (Bermuda) Petroleum Ltd v VTT
Vulcan Petroleum SA (No 2) (The Marine Star) [1996] 2 Lloyd’s Rep 383 at
385 (force majeure clause).
137. See [7-36]–[7-42].
138. See [11-18]. See also Dairy Containers Ltd v Tasman Orient Line CV
[2005] 1 WLR 215 at 222; [2004] UKPC 22 at [17] (amendments may
make it difficult to see standard form as coherent).
139. See [5-05]–[5-17], [11-10].
140. See Lyons, vol 1, p 69 (‘prosodic and paralinguistic features of speech are
only crudely and very incompletely represented by punctuation marks and
the use of italics, etc, in writing’).
141. See Yorkshire Insurance Co Ltd v Campbell [1917] AC 218 at 222 per the
Privy Council (‘for purposes of construction founts of type have no legal
meaning’, and parallel lines on a policy proposal were ‘mere typography’).
142. [2005] 1 Lloyd’s Rep 307 at 320–2; [2004] EWHC 999 (Comm) at [79]–
[94]. See also Ets Soules & Cie v International Trade Development Co Ltd
[1979] 2 Lloyd’s Rep 131 at 136 per Robert Goff J, reversed on another
ground [1980] 1 Lloyd’s Rep 129 (only ‘fragile’ inference could be drawn
from the setting out of the clauses).
Ltd [2004] 1 WLR 3251 at 3262; [2004] UKHL 54 at [35] (‘for avoidance
of doubt’).
144. See [4-52]. See also McVeigh (trustee of the bankrupt estate of Piccolo) v
National Australia Bank Ltd (2000) 278 ALR 429 at 441; [2000] FCA 187
at [40].
145. For the canon of construction see [4-03]. See also Contracts Restatement 2d
(1979), §203(a) (construction preference).
146. (1973) 129 CLR 99 at 109. See also Government of Newfoundland v
Newfoundland Railway Co (1887) 13 App Cas 199 at 208 per Lord
Hobhouse for the Privy Council (construction to prevent loss of ‘unity’);
Dovuro Pty Ltd v Wilkins (2000) 182 ALR 481 at 519 (reversed on other
grounds (2003) 215 CLR 317; [2003] HCA 139). But see [11-12] (idea that
a word will be used in a single sense thoughout exploded long ago).
147. See, eg Forrest v Glasser [2006] 2 Lloyd’s Rep 392 at 397, 398; [2006]
EWCA Civ 1086 at [21], [26] (meaning of ‘claim’ was that no particulars
had to be included — in contrast with specific notification requirements of
other provisions); Intergraph Best (Vic) Pty Ltd v QBE Insurance Ltd
(2005) 11 VR 548 at 555; [2005] VSCA 180 at [28] (relationship between
insuring clause and policy extension provisions).
148. [1996] 1 WLR 270 at 275–6.
149. See, eg Ravennavi SpA v New Century Shipbuilding Co Ltd [2007] 2
Lloyd’s Rep 24 at 27; [2007] EWCA Civ 58 at [12] per Moore-Bick LJ,
with whom the other members of the court agreed (detailed document of
complex nature could be assumed to be carefully drafted to ‘ensure that its
provisions dovetail neatly’).
150. See Beaufort Developments (NI) Ltd v Gilbert-Ash NI Ltd [1999] 1 AC 266
at 274 per Lord Hoffmann (argument from redundancy seldom ‘secure’);
715 at 743, 763; [2003] UKHL 12 at [30], [112]; Multi-Link Leisure
Developments Ltd v North Lanarkshire Council [2011] 1 All ER 175 at 185;
[2010] UKSC 47 at [27]; Ashworth Frazer Ltd v Gloucester City Council
[2001] 1 WLR 2180 at 2185; [2001] UKHL 59 at [17] (leases). See also [4-
03].
151. See, eg Arash Shipping Enterprises Co Ltd v Groupama Transport [2011] 2
Lloyd’s Rep 607 at 613; [2011] EWCA Civ 620 at [31] per Stanley Burnton
J, with whom Ellias and Tomlinson LJJ agreed (fact that particular
construction would deprive part of clause of ‘practical effect’ to be taken
into account). Cf Thoresen & Co (Bangkok) Ltd v Fathom Marine Co Ltd
(argument that would have rendered ‘sub details’ superfluous rejected); see
also Thames Valley Power Ltd v Total Gas & Power Ltd [2006] 1 Lloyd’s
152. For cases where the operation of the rule is noticed in particular contexts
see Bunge Corp New York v Tradax Export SA Panama [1981] 1 WLR 711
at 715 (sale of goods on FOB terms); Photo FAI General Insurance Co Ltd
v Maracorp Financial Services Ltd [1994] 1 VR 455 at 470, 477–8
(insurance contract); C Itoh & Co Ltd v Companhia de Navegacao Lloyd
Brasileiro (No 2) (The Rio Assu) [1999] 1 Lloyd’s Rep 115 at 118, affirmed
[1999] 1 Lloyd’s Rep 115 at 122 (letter of undertaking); Mora Shipping Inc
v AXA Corporate Solutions Assurance SA [2005] 2 Lloyd’s Rep 769 at 774;
[2005] EWCA Civ 1069 at [30] (‘average guarantee’); Lion Nathan
Australia Pty Ltd v Coopers Brewery Ltd (2006) 236 ALR 561 at 580;
[2006] FCAFC 144 at [97] (articles of association); Independiente Ltd v
Music Trading On-Line (HK) Ltd [2008] 1 WLR 608 at 614; [2007] EWCA
Civ 111 at [18] (undertaking in settlement).
153. See, eg Netherlands Insurance Co Est 1845 Ltd v Karl Ljungberg & Co AB
(The Mammoth Pine) [1986] 2 Lloyd’s Rep 19 at 22; [1986] 3 All ER 767
(contracts of marine insurance include provisions in one or more
incorporated documents).
154. See [4-21]. See also [5-07], [13-05].
155. See UNIDROIT Principles, art 4.4.
156. See, eg Sun Alliance Pensions Life & Investments Services Ltd v RJL
[1991] 2 Lloyd’s Rep 410 at 416 (construction of whole of letter as offer).
157. See Jaks (UK) Ltd v Cera Investment Bank SA [1998] 2 Lloyd’s Rep 89 at
93 (where repudiation is communicated in a document, the document must
be read as a whole).
158. See, eg Bunge SA v Compagnie Europeene de Cereales [1982] 1 Lloyd’s
Rep 306 at 309 (in context of alleged ‘waiver’, necessary to consider telex
exchanges as a whole); Yukong Line Ltd of Korea v Rendsburg Investments
Corp of Liberia (The Rialto) [1996] 2 Lloyd’s Rep 604 at 608 (telex alleged
to be affirmation to be read as a whole).
159. On the use of execution clauses in construction see [9-53], [9-55].
160. (1912) 14 CLR 54 at 72.
161. See, eg Film Finance Inc v Royal Bank of Scotland [2007] 1 Lloyd’s Rep
382 at 385; [2007] EWHC 195 (Comm) at [14] (express provision that
‘captions’ to be ‘ignored’ in construction); Orleans Investments Pty Ltd v
Mindshare Communications Ltd (2009) 254 ALR 81 at 101; [2009]
NSWCA 40 at [67]–[68] (trial judge should not have taken heading into
account when document stated that headings did not ‘affect interpretation’).
Cf Castlemaine Tooheys Ltd v Carlton & United Breweries Ltd (1987) 10
NSWLR 468 at 482 (express provision that headings were ‘for reference
purposes only’).
162. See Selected Seeds Pty Ltd v QBEMM Pty Ltd (2010) 242 CLR 336 at 344;
[2010] HCA 37 at [29] (endorsement agreed to form part of policy).
163. See also [13-41].
164. See, eg Westerngeco Ltd v ATP Oil & Gas (UK) Ltd [2006] 2 Lloyd’s Rep
535 at 538; [2006] EWHC 1164 (Comm) at [9] (clause to the effect that
special conditions prevailed over general conditions of contract); MH
Progress Lines SA v Orient Shipping Rotterdam BV (The Genius Star 1)
(provision that inter-club agreement terms prevailed over charterparty
terms).
165. See, eg International Leasing Corp (Vic) Ltd v Aiken [1967] 2 NSWR 427
at 454; Sarma Navigation SA v Sidermar SpA (The Sea Pioneer) [1982] 1
Lloyd’s Rep 13 at 16 (two charterparties construed together, so that
demurrage was payable only once); KJRR Pty Ltd v Commissioner of State
Revenue [1999] 2 VR 174 at 183 (franchise agreement and licence were
construed together).
166. See, eg Zhu v Treasurer of New South Wales (2004) 218 CLR 530 at 559;
[2004] HCA 56 at [82] (deed poll executed pursuant to agency agreement).
167. See Breusch v Watts Development Division Pty Ltd (1987) 10 NSWLR 311
at 315 (guarantee read with loan agreement). Cf ING Lease (UK) Ltd v
Harwood [2008] Bus LR 762 at 772; [2007] EWHC 2292 (QB) at [101]
(‘composite’ guarantee and personal guarantee).
168. See, eg Henderson v Merrett Syndicates Ltd [1995] 2 AC 145 at 197 (where
an agency and sub-agency agreement constituted the contractual regime,
they formed a coherent whole and were to be read together); Attaleia
Marine Co Ltd v Bimeh Iran (Iran Insurance Co) (The Zeus) [1993] 2
Lloyd’s Rep 497 at 500 per Phillips J (contracts with three different parties
construed together on basis that they were ‘to a degree interdependent’).
See also McVeigh (trustee of the bankrupt estate of Piccolo) v National
Australia Bank Ltd (2000) 278 ALR 429 at 439, 448, 451; [2000] FCA 187
at [32], [70], [77].
169. See, eg BP Australia Ltd v Nabalco Pty Ltd (1977) 16 ALR 207; 52 ALJR
412 (construction of the words ‘onerous terms’ in a 10-year supply
contract); Dodson v Peter H Dodson Insurance Services [2001] 1 WLR
1012 at 1022; [2001] 3 All ER 75 (proposal for insurance); UBS AG v HSH
Nordbank AG [2008] 2 Lloyd’s Rep 500 at 515; [2008] EWHC 1529
(Comm) at [93] (affirmed [2009] 2 Lloyd’s Rep 272; [2009] EWCA Civ
585). See also [7-19].
170. Cf Electrosteel Castings Ltd v Scan-Trans Shipping & Chartering Sdn Bhd
[2003] 1 Lloyd’s Rep 190 at 198; [2002] EWHC 1993 (Comm) at [27]–
[28].
171. [1910] 1 Ch 777.
172. See Chapter 3.
173. See Associated Alloys Pty Ltd v ACN 001 452 106 Pty Ltd (in liq) (2000)
202 CLR 588 at 609-10; [2000] HCA 25 at [45].
174. See South Australia Asset Management Corp v York Montague Ltd [1997]
AC 191 at 211–13.
175. See, eg Maye v Colonial Mutual Life Assurance Society Ltd (1924) 35 CLR
14 at 22 (policy to be construed with incorporated documents); Cook v
Financial Insurance Co Ltd [1998] 1 WLR 1765 at 1768 (application for
insurance, and the contract of insurance into which it was incorporated by
an insurance certificate, were read together).
176. See generally Franklins Pty Ltd v Metcash Trading Ltd (2009) 76 NSWLR
603 at 695ff; [2009] NSWCA 407 at [379]ff.
177. Cf Milne v The Municipal Council of Sydney (1912) 14 CLR 54 at 72.
178. See Breusch v Watts Development Division Pty Ltd (1987) 10 NSWLR 311
at 317 (reading recital against the ‘background’ of the terms of a loan
agreement, consideration was not past consideration). A recital in deed may
also create an estoppel. For a recent discussion see PW & Co v Milton Gate
Investments Ltd [2004] Ch 142 at 181–2; [2003] EWHC 1994 (Ch) at
[148]–[152].
179. See [4-25], [16-38].
180. See, eg Leggott v Barrett (1880) 15 Ch D 306 at 309, 311 (agreement for
dissolution recited in deed of dissolution of partnership).
181. See, eg Shell Tankers (UK) Ltd v Astro Comino Armadora SA (The Pacific
Colocotronis) [1981] 2 Lloyd’s Rep 40 at 44, 45 (recital incorporated by
operative provision); Intergraph Best (Vic) Pty Ltd v QBE Insurance Ltd
(2005) 11 VR 548 at 555; [2005] VSCA 180 at [28] (preamble to extension
provisions in insurance contract).
182. But see Harpur v Levy (2007) 16 VR 587 at 592; [2007] VSCA 128 at [16].
See also [8-07].
183. See, eg Crouch v Crouch [1912] 1 KB 378 at 381; Harpur v Levy (2007) 16
VR 587 at 601, 609; [2007] VSCA 128 at [63], [102]. See also Shell
Tankers (UK) Ltd v Astro Comino Armadora SA (The Pacific Colocotronis)
[1981] 2 Lloyd’s Rep 40 at 43.
184. See, eg Australian Joint Stock Bank Ltd v Bailey [1899] AC 396 at 400
(recitals may qualify condition of bond). Cf Barton v Fitzgerald (1812) 15
East 530 at 542; 104 ER 944 at 948.
185. See [8-07]. But cf [9-56].
186. See, eg ING Lease (UK) Ltd v Harwood [2008] Bus LR 762 at 772; [2007]
EWHC 2292 (QB) at [98] (way consideration expressed relevant to scope
of guarantee). See also National Bank Nigeria Ltd v Awolesi [1964] 1 WLR
1311 at 1315. But cf Boral Resources (Qld) Pty Ltd v Donnelly [1988] 1 Qd
R 506 at 509, 510–11.
187. See also [12-19].
188. See AIB Group (UK) Ltd v Martin [2002] 1 WLR 94 at 96; [2001] UKHL
63 at [7].
189. See, eg RTS Flexible Systems Ltd v Molkerei Alois Müller GmbH & Co KG
(UK Production) [2010] 1 WLR 753 at 759; [2010] UKSC 14 at [10].
190. See, eg Prenn v Simmonds [1971] 1 WLR 1381; [1971] 3 All ER 237 (that
‘RTT’ was not always used in defined sense was clear).
191. See Adamastos Shipping Co Ltd v Anglo-Saxon Petroleum Co Ltd [1959]
AC 133.
192. [2011] 1 WLR 921 at 933; [2011] UKSC 16 at [51]. The other members of
the Supreme Court agreed.
193. See [2011] 1 WLR 921 at 933; [2011] UKSC 16 at [52] (nothing in factual
matrix to suggest otherwise, and construction did not flout business
commonsense).
194. See [13-22]–[13-26].
195. See, eg Brewarrina Shire Council v Beckhaus Civil Pty Ltd (2003) 56
NSWLR 576 at 586; [2003] NSWCA 4 at [48].
196. See also Law of Property Act 1925 (UK), s 61 (‘unless the context
otherwise requires’).
197. [2002] 1 WLR 94; [2001] UKHL 63.
198. [2002] 1 WLR 94 at 96; [2001] UKHL 63 at [8].
199. Displacing the operation of the distributive interpretation rule. See [4-51].
200. An action against the mortgagor’s solicitors for negligence succeeded. See
[2002] 1 WLR 94 at 104; [2001] UKHL 63 at [44].
201. See [13-33].
202. [1994] 1 WLR 1515 at 1520; [1995] 1 All ER 174. See also Navrom v
Callitsis Ship Management SA (The Radauti) [1987] 2 Lloyd’s Rep 276 at
281–2, affirmed [1988] 2 Lloyd’s Rep 416 (heading ‘force majeure’ could
be taken into account but did not affect construction); M & J Polymers Ltd
v Imerys Minerals Ltd [2008] 1 Lloyd’s Rep 541 at 547; [2008] EWHC 344
(Comm) at [14] (heading of ‘warranty’ taken into account when considering
whether term breached was a condition); Whitecap Leisure Ltd v John H
Rundle Ltd [2008] 2 Lloyd’s Rep 216 at 224–5; [2008] EWCA Civ 429 at
[25] (heading to limitation clause).
203. See, eg BP Australia Ltd v Nabalco Pty Ltd (1977) 16 ALR 207 at 217; 52
ALJR 412 at 416 per Lord Russell for the Privy Council (no reliance could
be placed on label in heading which was ‘inapt’).
204. [1948] Ch 398 at 405.
205. [1989] 2 Lloyd’s Rep 403.
206. [1989] 2 Lloyd’s Rep 403 at 416. Contrast H O Brandt & Co v H N Morris
& Co Ltd [1917] 2 KB 784 at 794, 797 (heading did not displace
presumption that a person who signs in own name is liable as principal);
Norwegian American Cruises A/ S v Paul Mundy Ltd (The Vistafjord)
[1988] 2 Lloyd’s Rep 343 at 356 (broad heading not sufficient to give
extended meaning to payment term).
207. [2005] 2 AC 423 at 444; [2005] UKHL 11 at [5]. See also M/S Aswan
[1989] 1 Lloyd’s Rep 289 at 293 (title given to insurance policy); Canmer
International Inc v UK Mutual Steamship Assurance Association
(Bermuda) Ltd (The Rays) [2005] 2 Lloyd’s Rep 479 at 486; [2005] EWHC
1694 (Comm) at [26] (heading to letter of undertaking).
208. See, eg Ravennavi SpA v New Century Shipbuilding Co Ltd [2007] 2
Lloyd’s Rep 24 at 30; [2007] EWCA Civ 58 at [25] (significance not
diminished — entire agreement clause).
209. Subject to the usual exceptions. See [10-14].
210. See, eg Inglis v John Buttery & Co (1878) 3 App Cas 552 (specifications
for modifications to vessel); Hyde Management Services Pty Ltd v FAI
Insurance Ltd (1979) 144 CLR 541 at 546 (deed included appendices); BP
Exploration Operating Co Ltd v Kvaerner Oilfield Products Ltd [2005] 1
Lloyd’s Rep 307; [2004] EWHC 999 (Comm) (attachment).
211. Cf Andrew & Son v Barker (1891) 17 VLR 514 at 519.
212. See Hyde Management Services Pty Ltd v FAI Insurance Ltd (1979) 144
CLR 541 at 546 (in a deed, notwithstanding that the instruments were
between different parties).
213. See, eg Film Finance Inc v Royal Bank of Scotland [2007] 1 Lloyd’s Rep
382 at 388; [2007] EWHC 195 (Comm) at [36] (schedule could not be
allowed to drive a conclusion that would have defied the parties’ intentions
under completion guarantee).
214. See [13-33].
215. See, eg Breusch v Watts Development Division Pty Ltd (1987) 10 NSWLR
311 at 313 (long recital which was regarded as crucial in construction was
single sentence); Wardens and Commonalty of the Mystery of Mercers of
the City of London v New Hampshire Insurance Co [1992] 2 Lloyd’s Rep
365 at 368 per Parker LJ (‘most unsatisfactory document’); Amiri Flight
Authority v BAE Systems Plc [2003] 2 Lloyd’s Rep 767 at 773; [2003]
EWCA Civ 1447 at [22] (erratic punctuation).
216. See Mitsui Construction Co Ltd v Attorney-General (Hong Kong) [1986]
LRC (Comm) 245 at 253 (adopted Multi-Link Leisure Developments Ltd v
North Lanarkshire Council [2011] 1 All ER 175 at 183, 189; [2010] UKSC
47 at [20], [45]).
217. See further [14-24], [18-27]–[18-31] (a contract may also be ambiguous in
its application).
218. See [13-48].
219. See further [14-26], [18-28].
220. If any construction problem remains unresolved, an issue of contract
validity may arise. For the use of extrinsic evidence see Chapter 14. See
also [18-29].
221. See [3-05]–[3-13].
Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC 1101 at 1112; [2009]
UKHL 38 at [14].
223. See, eg Touche Ross & Co v Baker [1992] 2 Lloyd’s Rep 207 at 213
(insurance documents in the London market); Multi-Link Leisure
Developments Ltd v North Lanarkshire Council [2011] 1 All ER 175 at 189;
[2010] UKSC 47 at [43] per Lady Hale (‘grammatical ineptitude’). See also
[11-18], [13-29].
224. Cf Royal Society for the Prevention of Cruelty to Animals v Sharp [2011] 1
WLR 980 at 988; [2010] EWCA Civ 1474 at [22] (will).
225. Cf G & S Brough Ltd v Salvage Wharf Ltd [2010] 1 Ch 11 at 29; [2009]
EWCA Civ 21 at [79]–[80].
226. See also [2-13], [3-09], [5-23]–[5-24].
227. But see Multi-Link Leisure Developments Ltd v North Lanarkshire Council
[2011] 1 All ER 175 at 180; [2010] UKSC 47 at [11]. See David
McLauchlan, ‘A Construction Conundrum?’ [2011] LMCLQ 428 at 429–30.
228. See also [3-09] (paraphrasing in construction).
229. [1997] AC 313 at 386.
230. But see Pink Floyd Music Ltd v EMI Records Ltd [2011] 1 WLR 770n;
[2010] EWCA Civ 1429 at [20] (contrast between mistake and ambiguity).
231. Cf Catherine Mitchell, ‘Contract Interpretation: Pragmatism, Principle and
the Prior Negotiations Rule’ (2010) 26 JCL 134 at 153.
232. See, eg Re Sigma Finance Corp (in administrative receivership) [2010] 1
All ER 571; [2009] UKSC 2 (insolvency of structured investment vehicle).
233. [2009] 1 AC 1101; [2009] UKHL 38. See David McLauchlan,
‘Interpretation and Rectification: Lord Hoffmann’s Last Stand’ [2009] NZ L
Rev 431; Richard Buxton, ‘“Construction” and Rectification after
Chartbrook’ [2010] CLJ 253. See also Janet O’Sullivan, [2009] CLJ 510;
David McLauchlan, (2010) 126 LQR 8.
234. On one view, that could be resolved by deciding whether to place a comma
before ‘less the costs and incentives’. See [2009] 1 AC 1101 at 1111; [2009]
UKHL 38 at [12]. But see [2009] 1 AC 1101 at 1132; [2009] UKHL 38 at
[85].
235. See [2009] 1 AC 1101 at 1133–4; [2009] UKHL 38 at [89].
237. See [2009] 1 AC 1101 at 1115, 1135; [2009] UKHL 38 at [26], [93].
238. See [2009] 1 AC 1101 at 1115; [2009] UKHL 38 at [26] per Lord
Hoffmann.
239. See the often quoted (see, eg Tropwood AG of Zug v Jade Enterprises Ltd
(The Tropwind) [1982] 1 Lloyd’s Rep 232 at 238) statement of Lord Wright
in Hillas & Co Ltd v Arcos Ltd (1932) 43 Ll L Rep 359 at 367; 147 LT 503
(‘fairly and broadly’). Cf McConnel v Murphy (1873) LR 5 PC 203 at 218
per Sir Montague E Smith for the Privy Council (a court should prefer the
‘more natural interpretation’). See also [16-02].
240. Summers v The Commonwealth (1918) 25 CLR 144 at 149 per Isaacs J
(affirmed (1919) 26 CLR 180). See also Vigers Bros v Sanderson Bros
[1901] 1 KB 608 at 611.
241. [1985] AC 191.
242. [1985] AC 191 at 201. The other members of the House of Lords agreed.
See also Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 210 CLR 181
at 198; [2001] HCA 70 at [43]; Multi-Link Leisure Developments Ltd v
[21].
243. See also Serena Navigation Ltd v Dera Commercial Establishment (The
Limnos) [2008] 2 Lloyd’s Rep 166 at 169; [2008] EWHC 1036 (Comm) at
[10] (application to international rule incorporated into commercial
transaction).
244. [1990] 1 Lloyd’s Rep 160 at 165. See also Bunge SA v Compagnie
Europeene de Cereales [1982] 1 Lloyd’s Rep 306 at 310; PEC Ltd v Thai
Maparn Trading Co Ltd [2012] 1 Lloyd’s Rep 295 at 302; [2011] EWHC
3306 (Comm) at [23] (email messages in relation to extension of time).
245. (2004) 218 CLR 530; [2004] HCA 56.
246. (2004) 218 CLR 530 at 559; [2004] HCA 56 at [82] (approving Hide &
Skin Trading Pty Ltd v Oceanic Meat Traders Ltd (1990) 20 NSWLR 310 at
313–14). See also ERG Petroli SpA v Vitol SA (The Ballenita and BP
Energy) [1992] 2 Lloyd’s Rep 455 at 465; Franklins Pty Ltd v Metcash
Trading Ltd (2009) 76 NSWLR 603 at 618; [2009] NSWCA 407 at [19];
Multi-Link Leisure Developments Ltd v North Lanarkshire Council [2011] 1
All ER 175 at 186; [2010] UKSC 47 at [31].
247. [1985] 1 Lloyd’s Rep 389 at 392, 393.
248. Shipping Corp of India Ltd v NSB Niederelbe Schiffahrtsgesellschaft mbH
& Co (The Black Falcon) [1991] 1 Lloyd’s Rep 77 at 80 per Steyn J. See
also L Schuler AG v Wickman Machine Tool Sales Ltd [1974] AC 235 at
255–6 per Lord Reid (‘utterly fantastic’); Shamil Bank of Bahrain EC v
Beximco Pharmaceuticals Ltd [2004] 1 WLR 1784 at 1798; [2004] EWCA
Civ 19 at [47].
249. [1981] 3 All ER 411 at 416.
250. Richco International Ltd v Bunge & Co Ltd (The New Prosper) [1991] 2
Lloyd’s Rep 93 at 99 per Phillips J.
251. Commercial Union Assurance Co Plc v Sun Alliance Insurance Group Plc
[1992] 1 Lloyd’s Rep 475 at 480 per Steyn J. See also Showa Oil Tanker Co
Ltd of Japan v Maravan SA of Caracas (The Larissa) [1983] 2 Lloyd’s Rep
325 at 329 per Hobhouse J (‘unbusinesslike’); Harvela Investments Ltd v
Royal Trust Co of Canada (CI) Ltd [1986] 1 AC 207 at 225–6 (business
purpose would have been defeated).
252. See CEL Group Ltd v Nedlloyd Lines UK Ltd [2004] 1 Lloyd’s Rep 381 at
386; [2003] EWCA Civ 1716 at [19].
253. (1983) 153 CLR 455 at 464.
254. See Chiswell Shipping Ltd v National Iranian Tanker Co (The World
Symphony and World Renown) [1992] 2 Lloyd’s Rep 115 at 117 per Lord
Donaldson MR (claim that a clause is commercially absurd has to be
determined taking into account ‘whole package’, including agreements on
price).
255. ING Bank NV v Ros Roca SA [2012] 1 WLR 472 at 502; [2011] EWCA Civ
353 at [110] per Carnwath LJ. Rix and Stanley Burnton LJJ agreed.
256. Inta Navigation Ltd v Ranch Investments Ltd [2010] 1 Lloyd’s Rep 74 at
82; [2009] EWHC 1216 (Comm) at [45] per Teare J. But cf BP Exploration
Operating Co Ltd v Kvaerner Oilfield Products Ltd [2005] 1 Lloyd’s Rep
307 at 321; [2004] EWHC 999 (Comm) at [93] per Colman J (departure
from ordinary meaning not permissible even if another construction would
be ‘more reasonable in commercial terms for both parties’). See also [16-
14].
257. Rainy Sky SA v Kookmin Bank [2011] 1 WLR 2900 at 2916; [2011] UKSC
50 at [43]. See also Multi-Link Leisure Developments Ltd v North
Lanarkshire Council [2011] 1 All ER 175 at 189; [2010] UKSC 47 at [45].
See further [16-15].
258. See, eg Re Sigma Finance Corp (in administrative receivership) [2010] 1
All ER 571 at 582; [2009] UKSC 2 at [12] (lower courts attached too much
weight to ‘subsidiary provision’). See further [13-49].
259. See [16-16]. Cf Multi-Link Leisure Developments Ltd v North Lanarkshire
Council [2011] 1 All ER 175 at 185; [2010] UKSC 47 at [23] per Lord
Hope (‘what reasonable commercial men would have agreed to’).
260. See [16-19].
261. See Reardon Smith Line Ltd v Sanko Steamship Co Ltd (The Sanko Honour)
[1985] 1 Lloyd’s Rep 418 at 421 (compare commercial sense of one
alternative as against another); Rainy Sky SA v Kookmin Bank [2011] 1
WLR 2900 at 2911; [2011] UKSC 50 at [28] per Lord Clarke for the court
(‘iterative process’).
262. [2002] 1 AC 408.
263. [2002] 1 AC 408 at 458. Lords Hoffmann, Cooke and Hobhouse agreed.
264. Ashville Investments Ltd v Elmer Contractors Ltd [1989] QB 488 at 494 per
May LJ. See also Home and Overseas Insurance Co Ltd v Mentor
Insurance Co (UK) Ltd [1990] 1 WLR 153 at 165; Re Sigma Finance Corp
(in administrative receivership) [2010] 1 All ER 571 at 584, 588; [2009]
UKSC 2 at [21], [32] (‘improbable’ construction).
265. See Rainy Sky SA v Kookmin Bank [2011] 1 WLR 2900; [2011] UKSC 50.
See further [16-13], [16-23].
266. See, eg Ashville Investments Ltd v Elmer Contractors Ltd [1989] QB 488 at
494. Cf London and Lancashire Fire Insurance Co Ltd v Bolands Ltd
[1924] AC 836 at 848 per Lord Sumner (‘ambiguity — that is to say, some
choice of an expression’).
267. (1980) 29 ALR 77; 54 ALJR 234.
268. (1980) 29 ALR 77 at 86.
269. [1976] 2 Lloyd’s Rep 708.
270. See [1976] 2 Lloyd’s Rep 708 at 711–12.
271. [1971] 1 WLR 1381; [1971] 3 All ER 237. See also Provincial Insurance
Australia Pty Ltd v Consolidated Wood Products Pty Ltd (1991) 25
NSWLR 541; ERG Petroli SpA v Vitol SA (The Ballenita and BP Energy)
[1992] 2 Lloyd’s Rep 455 at 465 per Judge Diamond QC (significance
sought to be attached to ‘latest’ was contrary to ‘whole scheme’ of the
contract).
272. [1996] AC 650 at 667–8. See also Whitfords Beach Pty Ltd v Gadsdon
(1992) 6 WAR 537 at 547 (whole contract used to determine the scope of an
arbitration clause).
273. See also [13-29].
274. (2005) 221 CLR 522; [2005] HCA 17.
275. (2005) 221 CLR 522 at 529; [2005] HCA 17 at [16]. See also Compagnie
Commerciale Sucres et Denrées v C Czarnikow Ltd (The Naxos) [1990] 1
WLR 1337 at 1344; Port of Tilbury (London) Ltd v Stora Enso Transport
and Distribution Ltd [2009] 1 Lloyd’s Rep 391 at 397; [2009] EWCA Civ
16 at [36] (construction of disputed payment clause, which entitled disputed
payment to be withheld, as limited to matters of quantum and could
therefore be construed consistently with agreement that no set-off was
permitted under agreement).
276. Inconsistency may also be perceived between the literal application of a
contract and fulfilment of its commercial purpose. See [16-19], [17-15].
277. See Pagnan SpA v Tradax Ocean Transportation SA [1987] 3 All ER 565 at
575; [1987] 2 Lloyd’s Rep 342 at 350; Yaroomba Beach Development Co
Pty Ltd v Coeur de Lion Investments Pty Ltd (1989) 18 NSWLR 398 at 405.
See also BP Australia Ltd v Nabalco Pty Ltd (1977) 16 ALR 207 at 219; 52
ALJR 412 at 417 (relationship between sub-clauses); Durham v BAI (Run
off) Ltd (in scheme of arrangement) [2012] 1 WLR 867 at 897; [2012]
UKSC 14 at [69] (linked contracts).
278. [2004] 1 WLR 1784 at 1800–1; [2004] EWCA Civ 19 at [54]–[55].
279. See also Federal Commerce and Navigation Co Ltd v Molena Alpha Inc
[1979] AC 757 at 785 (lien clause (cl 18) had to yield to cl 9, under which
master was under the orders of the charterers); Insurance Co of Africa v
Scor (UK) Reinsurance Co Ltd [1985] 1 Lloyd’s Rep 312 at 331
(inconsistency between ‘follow the settlements’ clause and claims co-
operation clause resolved in favour of the latter).
280. [2011] 1 All ER 175; [2010] UKSC 47. See David McLauchlan, ‘A
Construction Conundrum?’ [2011] LMCLQ 428.
281. See [2011] 1 All ER 175 at 181, 182, 185, 189; [2010] UKSC 47 at [13],
[15], [23], [45].
282. See [2011] 1 All ER 175 at 187, 189; [2010] UKSC 47 at [36], [43], [46].
283. See further [16-39]–[16-40].
284. [1974] AC 235. See also DTR Nominees Pty Ltd v Mona Homes Pty Ltd
(1978) 138 CLR 423. Contract Maredelanto Compania Naviera SA v
Bergbau-Handel GmbH (The Mihalis Angelos) [1971] 1 QB 164.
285. See [1974] AC 235 at 249, 259, 265, 271. Indeed, perhaps every breach of
that clause could be regarded as a material breach; see [1974] AC 235 at
251–2, 265.
286. See [16-24].
287. See [1-24].
288. Of course, there are presumptions. See Carter’s Breach of Contract, §§1-
21–1-24. See also [2-20].
289. [1981] 1 WLR 711. See also Associated Newspapers Ltd v Bancks (1951)
83 CLR 322; Ankar Pty Ltd v National Westminster Finance (Australia) Ltd
(1987) 162 CLR 549 at 555–6.
290. See [1981] 1 WLR 711 at 729 per Lord Roskill, with whom the other
members of the House of Lords agreed (‘most important single factor’). See
also Metrolands Investments Ltd v J H Dewhurst Ltd [1986] 3 All ER 659
at 671. Contrast State Trading Corp of India Ltd v M Golodetz Ltd [1989] 2
Lloyd’s Rep 277 at 282 (independent promises); Universal Bulk Carriers
Ltd v André et Cie [2001] 2 Lloyd’s Rep 65 at 71, 72; [2001] EWCA Civ
588 at [27], [32] (no interrelation between notice provisions in relation to
laycan spread in charterparty).
14
Evidence in Aid of Construction
General [14-02]
Evidence of Applicable Usages [14-05]
General [14-05]
Usages of a Defined Class [14-08]
Use of Prior Negotiations [14-14]
Uncertainty of Meaning [14-22]
General [14-22]
Use of Extrinsic Evidence [14-25]
Deletions and Insertions [14-30]
Utility of the Exclusionary Rule [14-33]

[14-01] Objects. In the previous chapter it was explained that the principal basis
for making decisions about the meaning of a contract is construction of the
contract as a whole, in light of context. Even where difficulties arise, these must
generally be resolved without regard to further evidence. But that is not always
the case. This chapter discusses when further evidence may be used in aid of
construction.
One object is to identify exceptions to the exclusionary rule. However, not all
the ‘further evidence’ which can be used in construction is admitted under an
exception to the exclusionary rule. The main evidence discussed in this chapter
relates to proof of relevant usages and their adoption by the parties (including
under the ‘private dictionary’ principle). Possible exceptions to the exclusionary
rule are at issue in that discussion, and also in relation to how problems in
construction which rise above the level of mere ‘difficulty’ are resolved.
Some specific issues are appropriately dealt with in this chapter. In particular,
the ability to use deletions as an aid to construction is controversial.
Finally, there are some brief observations on the utility of the exclusionary
rule.
GENERAL
[14-02] Introduction. The mere fact that a contract can be given more than one
meaning has no impact on the evidence which may be used in construction.1
Therefore, where a contract is stated in a document, or a contract is evidenced by
a document, the assumption behind most discussions of construction is that
meaning must be determined by construction of the contract as a whole in light
of context. That is a reflection of the impact of the exclusionary rule,2 under
which extrinsic evidence cannot be used as a direct aid to construction.
However, the exclusionary rule’s prohibition on the use of extrinsic evidence
does not mean that no factual material other than context is admissible in
construction. Factual evidence may be admissible to prove the standard of
interpretation adopted by the parties.3 And, except where the standard of the
community at large applies, evidence may be given of usages under the adopted
standard. But the use of the prior negotiations of the parties to prove that a
particular meaning was intended (chosen) by the parties is by definition
problematic.4
A logical starting point is a consideration of the scope of the exclusionary
rule.5
[14-03] Exclusionary rule. The exclusionary rule operates to exclude three
categories of extrinsic evidence:6
(1) direct evidence of intention; (2) evidence of prior negotiations; and (3)
evidence of subsequent conduct.
One aspect of the rule proscribes the use of such evidence as a direct aid to
construction of a term of the contract which is in writing or evidenced by
writing.7 The other aspect (the ‘parol evidence rule’) proscribes the use of
extrinsic evidence to prove agreement to a term not included in a document
which integrates the bargain, or the relevant part of the bargain.8 That aspect is
not directly relevant to evidence which may be used in construction.9 However,
it may still have a role, including in relation to the technical rules on custom and
usage.10
The first aspect of the exclusionary rule is also applicable to the construction
of documents created in connection with a contract,11 and in resolving issues of
legal effect by construction. However, since unilateral notices given under a
contract are not negotiated, the prohibition on the use of prior negotiations is not
relevant; and the use as background of discussions which led to service of the
notice is not controversial.12 Although the exclusionary rule applies when the
legal effect of a contract is determined by construction, for the purposes of this
chapter13 it is unnecessary to draw any distinction between meaning and legal
effect. However, suggestions have sometimes been made in favour of a more
relaxed approach to admissible evidence in relation to some issues of legal effect
resolved by construction, including whether an agreed damages clause is a
penalty,14 and whether a restraint of trade is reasonable.15
[14-04] Identifying exceptions. Exceptions are not made to the exclusionary
rule on an individualised basis. Equally, there is no single rationale for
exceptions to the rule. The law is too pragmatic for that. However, it is possible
to identify three requirements which, if met in relation to a particular fact,
establish that the evidence is admitted under an exception.16 First, the evidence
must fall within the three categories of extrinsic evidence noted above.
Second, the evidence must be used for a proscribed purpose. In the present
context that is use as a direct aid to construction.
Third, there is a negative requirement, namely, that the evidence is not
admitted under a rule of law.
Where extrinsic evidence is an aid to construction under an exception to the
exclusionary rule, it will usually be limited to prior negotiations.17
EVIDENCE OF APPLICABLE USAGES
General
[14-05] Introduction. In general, the meaning of a contract is determined by
application of the perspective rule. Although meaning is a relative concept, the
application of that rule has been heavily influenced by two other rules. First, the
parties are bound by their expressed intention. Construction is concerned with
what the parties have said, rather than what they meant to say.18
The second is the plain meaning rule. To the extent the rule still exists, it
should be seen as expressing a presumption that the parties have employed the
usages of the community at large.19 Where the presumption is displaced or
rebutted,20 the applicable interpretation standard is usually that of a particular
class (‘intermediate standard’), for example, the usages of the members of a
particular trade or industry. Exceptionally, usages may be specific to the parties,
for example, the contract may include unique symbols employed as a code.
[14-06] Applying the perspective rule. Under the perspective rule,21 a contract
is given the meaning which a reasonable person in the position of the person to
whom the words at issue were addressed would place on the contract.22 The
usual case in which further evidence is necessary in construction is where the
‘vocabulary’ of the reasonable person includes usages in addition to those of the
community at large.
The standard of interpretation concept mediates between words (and other
symbols) and the range of meanings available to the reasonable person, standing
in the position of the addressee.23 It therefore provides a theoretical rationale for
the practical necessity of relating use of the perspective rule to general or
particular usages. Since in most cases the usages are those of the community at
large, the relevant meanings are the ‘plain’ or ‘common’ meanings of words. But
account must also be taken of the fact that, particularly in commercial contracts,
other standards may operate. Evidence may be necessary of those specialised
usages. And, albeit rarely, there may be party-specific usages.
The distinction between evidence of the usages which were available to the
parties and the construction of the contract in which those usages are employed
suggests various categories of further evidence.
[14-07] Three categories of further evidence. The basic points stated above
have always been part of the law of construction. In 1842 in Shore v Wilson,24
Parke B said:25
In the first place, there is no doubt that not only where the language of
the instrument is such as the Court does not understand, it is competent to
receive evidence of the proper meaning of that language, as when it is
written in a foreign tongue; but it is also competent, where technical
words or peculiar terms, or indeed any expressions are used, which at the
time the instrument was written had acquired an appropriate meaning,
either generally or by local usage, or amongst particular classes. …
This description of evidence is admissible, in order to enable the Court
to understand the meaning of the words contained in the instrument itself,
by themselves, and without reference to the extrinsic facts on which the
instrument is intended to operate.
Having regard to Parke B’s statement and modern principles of commercial
construction, three kinds of evidence may be necessary to ensure the proper
application of the perspective rule.26 The first is evidence of context.27 Although
Parke B regarded his concept of ‘extrinsic facts’ as distinct from the ‘context of
the instrument’ to which he went on to refer, that is no longer the position.28
Second, evidence may need to be given of relevant usages, that is, those
available under the standard of interpretation. Courts rely on judicial notice and
dictionaries to identify common usages. Indeed, no ‘expert’ evidence should be
admitted as to meanings under the community standard.29 The position is
different where an intermediate or party-specific standard of interpretation is at
issue. The various descriptions used by Parke B (such as ‘technical words’)
relate to those standards. Although not always necessary, it is open to the parties
to call expert evidence of usages.
The third kind of evidence relates to proof of what standard the parties have
adopted. If the standard of the community at large is capable of being applied, it
is presumed to apply. But the adoption of a different standard (which Parke B no
doubt regarded as inherent in proof of the usages themselves) may be proved by
evidence.30
Although in many cases evidence under each category has been termed ‘parol
evidence’ (or ‘extrinsic evidence’), that merely illustrates the outmoded view
that anything outside the ‘four corners’ of a document is extrinsic,31 or a
conception of the exclusionary rule under which necessary evidence is regarded
as admitted on an exceptional basis. Thus, in L Schuler AG v Wickman Machine
Tool Sales Ltd32 Lord Simon referred33 to Parke B’s authoritative statement in
Shore v Wilson as expressing ‘well recognised exceptions to the rule against
adduction of extrinsic evidence to interpret an instrument’.
The exclusionary rule is relevant only where evidence which falls within the
concept of extrinsic evidence is at issue. In relation to usages the exclusionary
rule does not usually come into play. That is clearly the position where all the
matters referred to above are resolved by construction of the contract and the
only ‘further’ evidence is contextual.34 But the position is generally the same
where direct evidence is given of the usages of a defined class of persons.
Usages of a Defined Class
General
[14-08] Proof of usages.
Article 14.1 — Proof of usages under intermediate interpretation
standard.
The usages of an identifiable class of persons, such as the members of a
particular trade, industry or profession, or those at a particular location,
may be established: (a) by reference to context; or (b) by reliance on
expert evidence.
If the applicable standard of interpretation for a contract is that of an identifiable
class of persons, the relevant usages may be established by reference to the
context of the contract or by expert evidence. Examples include the usages of the
members of a particular trade, industry or profession, or those at a particular
location. The ability to prove such usages is not limited by the technical rules on
custom and usage.35 The words (or other symbols) may be meaningless to
members of the public. However, evidence of specialised meanings may be
given in relation to words which also have meanings in common usage.36
The ability to prove usages does not mean that proof is always required.
Indeed, there is no general requirement to plead relevant usages.37 The notoriety
of the specialised nature of some words and expressions, and the ability of the
adjudicator of a construction dispute to rely on acquired knowledge, may make
evidence of specialised usages unnecessary.38 However, references in the old
cases to use of a ‘mercantile dictionary’39 or an ‘appropriate business
dictionary’40 included notional dictionaries based on ‘parol’ evidence.41 Expert
evidence may therefore be necessary.
[14-09] Expert evidence. The reasonable person from whose perspective a
contract is construed is deemed to be aware of the usages of the relevant class of
persons. Therefore, the person who adjudicates a construction dispute must be
informed of those usages. If they are not apparent from context,42 expert or other
evidence may be relied on. For example, in Max Cooper & Sons Pty Ltd v
Sydney City Council43 the Privy Council was satisfied that the expression ‘pay
loadings’, as used in a ‘rise and fall’ clause in a building contract, was intended
to have a technical meaning. Lord Diplock, giving the advice of the Board, said44
of the expression: It is a technical term, or term of art, used in the building
industry. It is not an expression that is used in ordinary speech; without extrinsic
evidence from a witness experienced in the building industry and familiar with
the technical terms used in it, a judge could only speculate as to the meaning of
‘pay loadings’.
Therefore, whether the relevant usages are technical or simply a matter of
jargon, the words are part of a specialised vocabulary of an identifiable class of
persons. Expert evidence may be relied on.45
Notwithstanding references which may be found to ‘parol’ or ‘extrinsic’
evidence, usages are not proved under an exception to the exclusionary rule.
Although in the passage quoted above from Max Cooper & Sons Pty Ltd v
Sydney City Council Lord Diplock referred to ‘extrinsic evidence’, he also
explained:46
That the ordinary meaning in which a technical expression is used in a
particular industry is not a question of construction but is a question of
fact to be decided upon expert evidence, has been undoubted law since it
was laid down by Baron Parke in Shore v Wilson (1842) 9 Cl & F 355; 8
ER 450.
But expert evidence is not admissible to prove what a contract means. A
distinction must therefore be drawn between evidence of usages and attempts to
prove by evidence the intended meaning of a contract. For example, in Sunrock
Aircraft Corp Ltd v Scandinavian Airlines System Denmark-Norway-Sweden47
the Court of Appeal complained about an attempt to rely on evidence from
people in the industry as to what meaning might be placed by those in the
industry on certain aircraft lease documentation drafted by expert lawyers.
Once evidence of usages is properly admitted, it is available for use in
construction.
[14-10] Use in construction. Whether the usages are proved by reference to
context or by expert evidence, they may be used in construction.48 As noted
above, there is a distinction between evidence of usages and evidence of
meaning. But there may be a fine line between technical usages evidence of
which may be used to explain the sense in which words are commonly used by
members of a particular class, and attempts to prove the construction which
would be placed on a contract by those in a particular trade, industry or
profession. In all cases, the intended sense of a word (or other symbol) or
expression is established by construction of the contract as a whole.49
Therefore, where a word or expression, as used in the contract, is alleged to
have a particular signification, the issue is one of construction. For example, in
Max Cooper & Sons Pty Ltd v Sydney City Council50 Lord Diplock, giving the
advice of the Privy Council, said51 that a question of construction: … arises only
when it becomes necessary to determine whether the particular context in which
the expression is used shows that in that context it was intended to bear its
ordinary technical meaning or some more extended or restricted meaning.
Equally, however, the conventional view is that evidence of mercantile
meaning can explain but not contradict the contract.52 In particular, where a
specialised usage is proved by reference to the technical rules of custom and
usage, the parties are presumed to have used the word in the specialised sense.53
In other words, use of the evidence in construction is presumed to determine the
meaning of the contract.
Custom and usage
[14-11] Introduction. The law regards proof of custom or usage as regulated by
specific rules.54 Relevant evidence may include what a custom signifies and
evidence of usages relevant to construction of the contract. However, it is
virtually impossible to distinguish between use of the rules to regulate proof of
meaning under custom or usage and their use to prove an implied term of the
contract.55 Because the parties are presumed to have intended the custom or
usage to apply, the relevant meaning (or term) is treated as if written out in the
contract.56 For that reason, the meaning (or term) must be consistent with the
contract. At least, that is the conventional view.57
Generally, it is necessary for a trade usage to be alleged in the pleadings of
the party who relies on it. For example, in Thornley v Tilley58 Knox CJ made the
point that the evidence called by a stockbroker was inadmissible as there had
been no allegation that the expression at issue (‘carry at 8 per cent’) possessed a
particular trade meaning.
[14-12] Evidence of custom and usage. Trade or customary usage is proved as
a matter of fact.59 That includes evidence of the degree of notoriety. But trade or
customary usage may apply even though the evidence does not establish
awareness by both parties.60
The classic decision, Smith v Wilson,61 concerned usage at a particular
location. The defendant leased a rabbit warren to the plaintiffs, who covenanted
that at the expiry of the term they would leave 10,000 rabbits. The defendant
promised to pay £60 per 1000 for that number and any more that might be left.
The plaintiffs left 19,200 rabbits. A sum sufficient to pay for 16,000 rabbits was
paid into court by the defendant, on the basis that there were 1600 dozen, and
that he was not required to pay the greater sum which the plaintiffs claimed.
Evidence was led at the trial that in the place where the contract was made, 100
meant six score, so that ‘1000’ meant ‘one hundred dozen’. Although objected
to, this evidence was received by the trial judge, who directed the jury to find for
the defendant. A rule nisi for a new trial was obtained, on the basis that the
evidence should not have been received. The rule was discharged by the Court of
King’s Bench, which held that the ‘parol evidence’ was admissible and could be
used to construe the contract.
More recently, in Appleby v Pursell,62 the meaning of the expression ‘push
and stack’ in a lease of land which was to be cleared for farming was established
on the basis of evidence of the trade usage.
[14-13] Evidence may become inadmissible. The older cases typically referred
to evidence of custom or usage as ‘parol evidence’.63 Although suggestive of
admission on the basis of an exception to the exclusionary rule, that is
inconsistent with the modern perception of the scope of the rule. Nevertheless, if
the rules applicable to proof of custom or usage are not satisfied, the evidence is
regarded as an inadmissible aid to construction. However, that seems no more
than a reflection of failure of purpose.64
The rules applicable to custom and usage include a requirement of
consistency.65 In relation to meaning, this is conventionally treated as requiring
consistency with the tenor of the language of the document. Therefore,
construction with the aid of evidence of custom or usage has been denied where
it contradicts the ‘plain meaning’ of the document.66 However, that approach
seems impossible to support.67 Wigmore took the view that evidence of custom
must always vary the contract.68 Given the obvious plain meaning of words of
number, to the modern eye the requirement is flatly contradicted by Smith v
Wilson.69 On what basis can it be said that the evidence explained70 the sense of
‘1000’ without contradicting its common meaning? The more logical approach is
to seek to resolve any inconsistency or at least to acknowledge that it is the
meaning of the contract which is at issue, not the plain meaning of a document.71
USE OF PRIOR NEGOTIATIONS
[14-14] Introduction. Unless an exception to the exclusionary rule applies, the
raw material which may legitimately be used as a direct aid to construction does
not include the prior negotiations of the parties. However, it has been suggested
that prior negotiations may be used to show that the parties ‘have in effect given
their own dictionary meaning to the words’72 or adopted ‘an agreed meaning for
the language used’.73
In so far as these suggestions conceive that prior negotiations may become
admissible simply on the basis of an assertion of agreed meaning, and that an
exception to the exclusionary rule applies if the assertion is made out, they are
clearly not supportable in light of Chartbrook Ltd v Persimmon Homes Ltd.74
Such evidence falls within the extrinsic evidence concept, and no independent
rule of law permits proof of an agreed meaning. In order to justify reception of
the evidence, the prior negotiations must establish a party-specific meaning.
[14-15] Party-specific usages.
Article 14.2 — Proof of unique usages.
Where the words (or other symbols) at issue in construction have been
used in a unique, party-specific sense, the usages of the parties may be
proved by evidence, including evidence of prior negotiations.
A party-specific standard of interpretation, by the use of which the parties have
adopted unique meanings for words or other symbols, is unusual. Because the
usages are unique, admissible evidence includes evidence of the prior
negotiations of the parties.
Unique usage is distinguishable from choice of meaning.75 There are two
categories,76 applicable where individual words (or other symbols) or particular
expressions are: (1) meaningless under any other interpretation standard; or (2)
comprise words in ordinary use to which unique meanings have been assigned.
Although usages may be proved in each category, where the words are
meaningful only to the parties, there seems little doubt that the key to the parties’
code will be pleaded, and usually be common ground. Although the usages thus
established are used to construe the contract, at least in relation to the first
category it is not necessary to say that an exception to the exclusionary rule is at
work.77
[14-16] Invented words and codes. For reasons of confidentiality, convenience
or brevity (for example, in electronic communications), the parties may have
written part (or all) of their contract using symbols which they have invented for
themselves, or which otherwise form a code.
Where the ‘words’ are invented symbols, the contract will have no meaning
except to the parties themselves.78 For example, in Falck v Williams,79 the parties
invented various symbols, including ‘begloom’ and ‘escorte’, which they used as
words in order to conduct negotiations by telegram. In such cases, anyone called
upon to construe the contract must first be given access to the key used by the
parties to generate the symbols, so that they can be decoded. By that process, the
relevant document — the telegrams in Falck — are rendered into English.
If the parties’ usages do not otherwise emerge, they must be proved as a
matter of fact by evidence. That evidence must usually include the prior
negotiations of the parties. However, the purpose of the evidence is merely to
establish with what ordinary word symbols the parties intended to replace the
symbols used in the document at issue. The construction of the contract remains
an issue of law for the court. In relation to that issue, prior negotiations are not
admissible.
[14-17] Meaningless expressions. The aspect of the contract at issue may
consist of an abbreviation, or a grouping of words or other symbols, which is
meaningless under the community standard of interpretation.80 If so, it is open to
the parties to prove the adoption of an intermediate standard, for example, of the
members of a trade, or to prove that they have employed their own unique
usages.
In R W Cameron & Co v L Slutzkin Pty Ltd,81 a contract for the sale of goods
described the goods as ‘matchless 2475 39/40 white voile’. From the perspective
of common usage, the expression was meaningless. An attempt to prove trade
usage failed. Knox CJ said:82
In the present case, it having been found that the words in question had
no common trade meaning, and it being apparent that apart from a trade
or conventional meaning they are not significant of any particular goods
or quality of goods, it became necessary, if any effect were to be given to
the contract, to determine from the relevant acts and statements of the
parties to the contract what meaning they attached to them. The only
alternative is to treat the contract as void for uncertainty.
The High Court of Australia therefore held that evidence of the production
prior to the contract of a specimen of the goods was admissible, as was evidence
of a conversation on the same day. This established that the subject matter of the
contract was voile corresponding to the specimen.83 On the facts, the buyer was
not bound to accept the voile of inferior grade or quality which was tendered by
the sellers.
[14-18] Private dictionary principle. An ordinary English word (or other
symbol) may be used in a unique way.84 The same is true of expressions, that is,
collections of symbols which are in common use. Extrinsic evidence seems
always to have been regarded as available to prove unique usages (and their
adoption), for expressions made up of words with common meanings. But there
seems no reason to deny that the same process cannot occur in relation to a
single word which happens to have common meanings.85
The idea is sometimes described as the ‘private dictionary’ principle. For
example, in Hvalfangerselskapet Polaris Aktieselskap v Unilever Ltd86 the words
at issue were ‘entire production’. Although inapplicable on the facts, references
were made to the use of prior negotiations of the parties to prove agreement to a
‘special “dictionary”’, 87 ‘special code of language’88 or ‘secondary meaning’.89
More recently, in Chartbrook Ltd v Persimmon Homes Ltd,90 Lord Hoffmann
said:91
It is true that evidence may always be adduced that the parties habitually
used words in an unconventional sense in order to support an argument
that words in a contract should bear a similar unconventional meaning.
This is the ‘private dictionary’ principle, which is akin to the principle by
which a linguistic usage in a trade or among a religious sect may be
proved …. For this purpose it does not matter whether the evidence of
usage by the parties was in the course of negotiations or on any other
occasion. It is simply evidence of the linguistic usage which they had in
common.
Lord Hoffmann did not define the sense in which he used the word
‘unconventional’. However, the analogy (‘akin to’) with specialised meanings
(‘usage in a trade or among a religious sect’) indicates that he intended to
include usage peculiar to the parties.92 Evidence may be given of such usages.
Where used for the purposes of a single contract, so that adoption is proved by
reference to the prior negotiations of the parties, an exception to the exclusionary
rule would seem to be at work.
[14-19] Chosen meaning. There is a difference between an allegation that
ordinary usages do not apply and an allegation that the parties have used a word
having common usages in a particular sense.93 That is the difference between use
of a symbol (which also happens to be a word in common use) in a unique way
and use of a word in a particular sense, chosen from common usages. In terms of
the theory employed in this book, the former relates to a party-specific standard
of interpretation, and the latter to choice of meaning within the community
standard.94 For example, if the parties have assigned the meaning ‘stone’ to their
use of the word ‘timber’ in a contract,95 it is irrelevant whether that usage is
proved by reference to an express definition of the word in the contract or by
reference to their negotiations. As explained above, the distinction is equally
applicable to expressions which have common meanings.
It seems clear that courts apply the distinction, and also that the ‘private
dictionary’ principle applies to the former but not to the latter. Lord Hoffmann
illustrated that point in Chartbrook Ltd v Persimmon Homes Ltd96 when he
disapproved the reasoning in Partenreederei MS Karen Oltmann v Scarsdale
Shipping Co Ltd (The Karen Oltmann).97 In that case, Kerr J held that it was
legitimate to use the prior negotiations of the parties to establish that ‘after’ in
the expression ‘after 12 months trading’ meant ‘on the expiry of’.
Although Kerr J referred98 to the evidence as establishing that the parties had
given ‘their own dictionary meaning’ to the words, the evidence simply
established a choice between common meanings for ‘after’. In Chartbrook, it
was held that extrinsic evidence could not be used in that way. As suggested
below, The Karen Oltmann is consistent with the cases on estoppel. Three further
points may be made.
First, not everything which could be regarded as going to the ‘meaning’ of
words is so treated for the purposes of construction. For example, an allegation
that a contract for the sale of goods relates to goods having a particular attribute
which is not expressly included in the description is likely to be treated as the
assertion of a warranty, as in a claim that ‘heifer’ means ‘unserved heifer’. That
the warranty was in fact given can be proved by reference to prior negotiations,99
unless the document integrates the bargain.100 But the exclusionary rule prevents
reliance on prior negotiations to prove an agreed meaning for ‘heifer’.101
Second, where adoption of a unique meaning is established by reference to
prior negotiations, that meaning will generally also be capable of being
expressed as a term of the contract.102 But even if the bargain is integrated in a
document, the exclusionary rule does not prevent proof of adoption of the unique
meaning.
Third, it must follow that if an agreed meaning can be proved as a term of the
contract, the exclusionary rule (parol evidence rule) will not apply unless the
document integrates the bargain. Therefore, if in The Karen Oltmann the agreed
(chosen) meaning had been alleged as a term of the contract, prior negotiations
would have been admissible to prove agreement to the term.
The fact that the so-called ‘private dictionary’ principle has sometimes been
analysed in terms of an ‘agreed interpretation clause’ might be said to highlight
the artificial nature of the distinctions drawn in the three points made above.
However, the ‘answer’ may be that finding consideration for the agreed meaning
is problematic. Accordingly, the chosen meaning must be proved on the basis of
estoppel or course of dealing.
[14-20] Estoppel. Evidence to prove an estoppel is not received under an
exception to the exclusionary rule.103 The prior negotiations of the parties may
therefore be used, including to establish an estoppel by convention. Such an
estoppel may arise in relation to the meaning of a contract. But this must be quite
rare.104 For example, in Commercial Union Assurance Co Plc v Sun Alliance
Insurance Group Plc105 Steyn J held that the evidence fell short of establishing
an agreed meaning for the expression ‘with 120 days of NCAD’ in a reinsurance
contract. There was no evidence unequivocally suggesting that a conventional
meaning had been adopted.
The principle stated in Partenreederei MS Karen Oltmann v Scarsdale
Shipping Co Ltd (The Karen Oltmann)106 can be supported on an estoppel basis.
Kerr J said:107
If a contract contains words which, in their context, are fairly capable of
bearing more than one meaning, and if it is alleged that the parties have
in effect negotiated on an agreed basis that the words bore only one of
the two possible meanings, then it is permissible for the Court to examine
the extrinsic evidence relied upon to see whether the parties have in fact
used the words in question in one sense only, so that they have in effect
given their own dictionary meaning to the words as the result of their
common intention.
As noted above, Kerr J was not referring to a unique meaning, the existence
of which can legitimately be proved by evidence. Instead, the passage refers to a
situation where the parties have ‘in effect negotiated on an agreed basis’, in
circumstances where the words at issue are ‘fairly capable of bearing more than
one meaning’. Kerr J did not regard the ‘agreed basis’ as arising from an
estoppel.108 But he nevertheless expressed his conclusion109 in terms that, in light
of the pre-contractual exchanges, the charterers could not ‘depart from this
common meaning by asserting that this word has the opposite meaning’ in the
contract. That is the language of estoppel. Arguably, it falls within the classic
reference by Dixon J in Thompson v Palmer110 to an ‘assumption’ which ‘formed
the conventional basis upon which the parties entered into contractual or other
mutual relations’.111 For example, in Atlantic Lines & Navigation Co Inc v
Hallam Ltd (The Lucy)112 Mustill J held that pre-contractual conduct ‘impressed’
the words of a head charter with a ‘conventionally agreed meaning’.
[14-21] Course of dealing. Where there is a course of dealing between the
parties, it may impact on construction, including by giving words an agreed
(chosen) meaning.113 Prior contracts are sometimes used to establish context,114
which may therefore also play a role. But prior contracts are not admissible as a
direct aid to construction, and unless the impact of the course of dealing is to
imply a term into the contract, an issue of agreed meaning is under English law
likely to be dealt with on the basis of estoppel.115
The position appears to be different under the Contracts Restatement 2d
(1979). Section 223(1) states that a course of dealing is a sequence of previous
conduct between the parties ‘which is fairly to be regarded as establishing a
common basis of understanding for interpreting their expressions and other
conduct’. Section 223(2) then provides that, unless otherwise agreed, a course of
dealing between the parties gives meaning to or supplements or qualifies the
parties’ agreement.
UNCERTAINTY OF MEANING
General
[14-22] Introduction. Problems such as uncertainty, ambiguity and
inconsistency of meaning can arise in relation to any utterance. For example, the
statement “Twas brillig, and the slithy toves’ is meaningless because not all the
symbols used as words are recognised as such. The ungrammatical nature of the
statement ‘my son are 18 years old’ creates ambiguity of meaning — should
‘son’ be ‘sons’ or should ‘are’ be ‘is’? Equally, a statement may make perfect
sense linguistically, but convey an unintended meaning, as where a person says
‘this is the penultimate jar of coffee’, believing that ‘penultimate’ means last.
And they are all distinguishable from ‘I will take you to dinner tonight’, which
suffers from a lack of definition — what is ‘dinner’?
In ordinary life, a failure to communicate intended meaning is capable of
being remedied by discussion. Linguistic uncertainty can be cured by inquiry or
investigation even if, in relation to the first example given above, that will
establish no more than that the words are the first line of a poem. The fact that
much the same problems can arise in relation to contractual documents raises an
important issue of principle.
[14-23] An issue of principle. The issue of principle is whether the law should
respond in a way which is directly analogous to ordinary speech processes,
including by permitting relentless inquiry or investigation. That issue was, of
course, resolved long ago. Although the concern to establish the parties’ actual
intention could be addressed by the reception of extrinsic evidence to resolve
linguistic uncertainty, that simply does not occur. It would be inconsistent with
the emphasis on communicated intention, the objective approach to that concept
and the operation of the exclusionary rule,116 not to mention the concern that
further investigation might show that the parties were never actually in
agreement as to what their contract meant!
Therefore, the solution to all construction problems is that the parties’
intention must be inferred by applying principles of commercial construction.117
It necessarily follows that although the cases speak in terms that a contract may
be ‘ambiguous’, ‘uncertain’ or ‘inconsistent’ in construction or in application to a
given set of facts,118 these are generally just construction difficulties. The
descriptions are imprecise and employ concepts in various overlapping senses.
What is inconsistency to one person is ambiguity to another.119 Such descriptions
do not, of themselves, generate conclusions about the raw material admissible
for use in construction. But the position may be different when the validity of the
contract is at stake.
[14-24] Contract validity. The legal rule for an agreement to be effective as a
contract is commonly formulated in terms that the ‘vital’, ‘essential’ or ‘material’
terms must be agreed and sufficiently certain.120 But certainty of meaning is not
always sufficient. For example, an agreement the meaning of which is clear may
be incomplete as a matter of law, as in the case of an agreement to agree.121
Equally, the mere fact that there is some element of uncertainty or
incompleteness that cannot be resolved by the ordinary processes of construction
does not signify that there is no contract. For example, a reference to an
agreement to agree may be ignored,122 and a contract which while executory may
appear to be uncertain may be rendered certain by the acts done in
performance.123
Given these (and other) devices which deal with problems of uncertainty and
incompleteness, cases in which agreements intended to operate as contracts are
found to be too uncertain to qualify as such are rare under the modern law.124
Nevertheless, when construed as a whole the conclusion may be reached that no
meaning can be given to an agreement.125 Alternatively, an agreement may be
hopelessly ambiguous in its application.126 In such situations, the issue of
principle framed above takes on a particular significance. Since the law strives to
uphold agreements which the parties intended to operate as contracts, extrinsic
evidence should be admitted, even if only as a matter of last resort, because it
may enable the agreement to be upheld. Extrinsic evidence is admissible to cure
ambiguity in the application of an agreement to the facts.127 Whether that
illustrates a general principle, so that extrinsic evidence is also admissible to
cure problems of meaning in relation to an executory agreement which cannot be
resolved by construction of the contract as a whole, seems doubtful.128
Use of Extrinsic Evidence
[14-25] Introduction. From a linguistic perspective, an utterance which is
capable of being given more than one meaning is ambiguous or uncertain. In a
great many cases, courts have described ambiguity of meaning in such terms.129
As noted above, such descriptions have no impact on the use of extrinsic
evidence. However, that has not always been the position.
A conclusion that the words in a document are ‘ambiguous, susceptible of
more than one meaning’130 was at one time regarded as permitting extrinsic (or
parol)131 evidence of the surrounding circumstances to be used in construction.
Such an approach blurs the distinction between context and extrinsic evidence. It
also blurs any distinction which might be drawn for the purposes of admitting
extrinsic evidence between a construction difficulty and a document which is
ambiguous when construed as a whole in light of context. For example, in Royal
Botanic Gardens and Domain Trust v South Sydney City Council132 the words
‘may have regard to’ were apparently regarded as ambiguous because it was
unclear whether ‘may’ meant ‘may only’. Although the High Court of Australia
thought that a sufficient basis for calling in aid the surrounding circumstances —
which were held to include a prior draft of the contract — ambiguity of that
nature is inherent in most contracts and can have no impact on the admissibility
of evidence.133 It merely illustrates a construction issue to be resolved in the
ordinary way with due regard to context, but not extrinsic evidence.
[14-26] Difficulty of construction and contract validity. Uncertainty of
meaning, including ambiguity at the linguistic level, is merely difficulty in
construction. It is resolved as a ‘daily task’134 of the courts by construction of
contract as a whole.135 No issue of validity is raised. Thus, in a famous passage
in G Scammell and Nephew Ltd v Ouston,136 Lord Wright said:137
[T]he object of the court is to do justice between the parties, and the
court will do its best, if satisfied that there was an ascertainable and
determinate intention to contract, to give effect to that intention, looking
at substance and not mere form. It will not be deterred by mere
difficulties of interpretation. Difficulty is not synonymous with
ambiguity so long as any definite meaning can be extracted.
When distinguished from difficulty in construction, ‘ambiguity’ may have an
evidentiary significance. Accordingly, when discussing exceptions to the
exclusionary rule in L Schuler AG v Wickman Machine Tool Sales Ltd,138 Lord
Wilberforce said:139
But ambiguity in this context is not to be equated with difficulty of
construction, even difficulty to a point where judicial opinion as to
meaning has differed. This is, I venture to think, elementary law.
In that case, the House of Lords took the view that the use of the word
‘condition’ in the phrase ‘It shall be [a] condition of this agreement’ made the
contract difficult to construe. However, the contract was not ambiguous in any
sense which permitted reliance on extrinsic evidence.
[14-27] Prior negotiations. The use of extrinsic evidence in construction can be
justified to give effect to the policy140 to uphold agreements as contracts.
Accordingly, where a contract would be void for uncertainty of meaning, the
parties’ prior negotiations ought to be available in construction. However, it is by
no means clear that the law adopts that position.
In L Schuler AG v Wickman Machine Tool Sales Ltd,141 Lord Simon said:142
The justification for the adduction of extrinsic evidence to resolve an
ambiguity must be that it might be the last resort to save an instrument
from being void for uncertainty. This type of practical consideration is
characteristically potent in shaping our law; but in this field its practical
recommendation is, in my judgment, outweighed by the inconveniences
and anomalies involved.
Whether Lord Simon intended to deny the use of extrinsic evidence to uphold
an agreement as a contract is unclear. There is no doubt that extrinsic evidence is
admissible where ambiguity occurs in application rather than in construction.
Lord Simon seems to have been more concerned to deny the subtle distinctions
drawn in that context.143 There are certainly cases in which the prior negotiations
of the parties have been admitted as an aid to construction in order to give
meaning to an otherwise meaningless contract.144 It also seems clear that if in G
Scammell and Nephew Ltd v Ouston145 the prior negotiations had identified the
‘hire-purchase terms’ in relation to which the parties purported to contract, the
agreement would have been upheld.
But the use of subsequent conduct is a different matter.
[14-28] Subsequent conduct. Speaking for the Privy Council in Watcham v
Attorney-General (East Africa Protectorate),146 Lord Atkinson said, in reference
to a ‘modern instrument’, that if there is ‘ambiguity’ in construction, ‘evidence
may be given of user under it to show the sense in which the parties to it used the
language they have employed, and their intention in executing the instrument as
revealed by their language interpreted in this sense’. Although a much-maligned
dictum, it does not stand alone.
In North Eastern Railway Co v Lord Hastings,147 a question arose as to the
entitlement of a landowner to rents from a railway company. For many years
rents had been paid on a basis which was not in accordance with the agreement.
When the landowner appreciated what had happened he claimed the unpaid rent.
The House of Lords held that the contract was not ambiguous and that the
landowner was entitled to be paid. However, Lord Brampton said:148
I grant that if the clause were capable of two constructions, one of which
would support, the other of which would defeat the claim, the omission
[to pay or claim rent] would afford irresistible proof that the latter was
the interpretation intended by the parties. No such ambiguity, however,
exists, and it seems therefore to me that, in the absence of any proof to
the contrary, it must be assumed that the parties knew and understood the
language they were using, and that in executing the agreement containing
that clause they were truly expressing their intentions, and are bound by
the writing they have signed.
Isaacs J expressed a similar sentiment in Sinclair Scott & Co Ltd v
Naughton149 when he said150 that conduct ‘by which both parties concur in
placing the same construction on words that are in themselves of doubtful
construction, sometimes, but very rarely, may be accepted by the Court’. And in
Bacchus Marsh Concentrated Milk Co Ltd v Joseph Nathan & Co Ltd151 Isaacs J
said152 that in cases of ambiguity, ‘mutual conduct showing how the parties
construed the agreement may be considered’.
So far as ambiguity in construction is concerned, there is little point today in
debating the accuracy of the statements quoted above, or the sense in which
‘ambiguity’ is used. Although subsequent conduct may preclude a party from
relying on a meaning established by construction,153 such conduct cannot be used
in construction. In L Schuler AG v Wickman Machine Tool Sales Ltd154 the
contract was not ambiguous, but the House of Lords expressed in strong terms
the view that Watcham v Attorney-General (East Africa Protectorate) stands for
no general principle.155 Nevertheless, the role of subsequent conduct in
upholding the validity of contracts is significant.156 And lingering doubts remain
in relation to ancient documents.
[14-29] Ancient documents. A specific exception to the exclusionary rule is
said to apply in the case of ancient documents. For the purpose of the exception,
a document executed within the limits of living memory is not ‘ancient’.157 An
ancient document may be construed by reference to what the parties have done
under it, that is, by reference to their subsequent conduct. However, the fact that
the document is ancient does not of itself justify reliance on subsequent conduct.
The document must also be ‘ambiguous’.158 That was the position in Watcham v
Attorney-General (East Africa Protectorate),159 where subsequent conduct was
used to decide the scope of an ambiguous title to land.
However, the recent cases, including L Schuler AG v Wickman Machine Tool
Sales Ltd,160 have questioned the exception, or at least the scope of its
application. Thus, Watcham v Attorney-General (East Africa Protectorate) was
doubted in Schuler. In Administration of the Territory of Papua and New Guinea
v Daera Guba,161 Gibbs J considered162 that Watcham, ‘although criticized, may
possibly be supported as laying down a special rule for the interpretation of such
instruments’. However, he ultimately refused to decide whether the case ‘laid
down a correct principle of construction’.163 In relation to the concept of
‘ambiguity’, the modern law may proceed on the basis that the words in question
must have no contemporary meaning, or meanings which may differ from those
in use at the time the document was agreed. Thus, in Schuler Lord Wilberforce
explained164 that, in the case of ancient documents, ‘contemporaneous or
subsequent action may be adduced in order to explain words whose
contemporary meaning may have become obscure’.165
Whatever status the exception may have, it is more or less irrelevant to
commercial contracts.
DELETIONS AND INSERTIONS
[14-30] Introduction. Considerable uncertainty surrounds the use of deletions
from a document.166 If the deletion of words is regarded as simply an act giving
effect to the negotiations of the parties, the exclusionary rule is inconsistent with
the use of the deleted words in the construction of the document. Indeed, given
that modern word processing programs enable parties to preserve all deletions
and insertions from former drafts in a ‘master document’, if the law took the
view that deletions and insertions were always admissible the consequences
could be very inconvenient. It would also lead to the odd result that deletions
and additions could be taken into account if an executed document is expressed
in ‘mark-up’, whereas if the parties execute a ‘clean’ copy of the document,
deletions and additions capable of being identified from prior drafts could not.
The traditional view, as stated by the House of Lords in Inglis v John Buttery &
Co,167 is that evidence of deletions is inadmissible, unless an exception to the
exclusionary rule is applicable. Although that case may have few supporters
today, as an expression of the general rule in relation to negotiated contracts it
remains the law. The fact that modern technology makes possible the preparation
of a document which expresses comparisons between versions of an agreement
as deletions and insertions cannot have any legal significance.
Generally, the modern cases have distinguished between negotiated and
standard form documents, and taken the view that deletions can be taken into
account in relation to the latter but not the former. Another view is that evidence
of a deletion is always admissible where the words which remain are
‘ambiguous’.168 The cases which support this approach appear to treat ambiguity
at the linguistic level as sufficient. And whether they distinguish between
negotiated and standard form documents is unclear. There is perhaps another
view, namely, that deleted words — or the fact of deletion — can be regarded as
an element of context, so that although deleted words cannot be used as a direct
aid to construction, they may be taken into account.169
The fact that deleted words may in some cases be taken into account does not
mean that they are helpful.170 And just as various views have been expressed as
to when and how deleted words can be relied on in construction, so various
views have also been expressed on the inferences which should be drawn from a
consideration of deletions, or deletions and insertions.171
[14-31] Standard form documents. In Timber Shipping Co SA v London &
Overseas Freighters Ltd,172 Lord Reid said that although a word deleted from a
negotiated document prior to execution cannot be used in construction, the
position where the word is deleted from a printed form may be different. It now
seems to be accepted that, at least in cases of ‘ambiguity’173 but probably more
generally, evidence of deletions from a standard form document is admissible.174
A similar approach has been taken to precedent documents.175 And in NZI
Capital Corp Pty Ltd v Child,176 Rogers CJ Comm D admitted evidence of pre-
contractual conduct in the form of a deletion of a term from a document used in
a prior transaction which had been adopted as an ad hoc precedent.
The logic for taking a different approach to standard form documents is that
the unamended form is not an element of the negotiation of the parties.177 The
content of the document is simply a matter of fact, and the difference between
the unamended form and the amended form adopted by the parties is an element
of the parties’ agreement. Since the contract expressly includes changes to the
document, it is consistent with the exclusionary rule to take any deletion or
insertion into account in construction. There is, of course, no basis for restricting
this approach to cases where the deletion is apparent on the face of the
document. The fact that the parties have availed themselves of a ‘soft copy’ of
the standard form can make no difference.178
There remains the problem of what to make of the deletion (or insertion). It is
simplistic to say that the deletion — or any other amendment — must be
significant. There are various reasons why the deletion might have been made,
including that the parties misconstrued the standard form. Without the benefit of
evidence of why the deletion occurred it is difficult to know what inference
should be drawn. However, such evidence would usually relate to the parties’
intention or their negotiations.
[14-32] Negotiated contracts. Many cases have proceeded on the basis that
deletions are not admissible where the document states a negotiated contract.179
It is difficult to see how, consistently with Inglis v John Buttery & Co,180 any
other approach could be taken. Nevertheless, the utility of the distinction
between standard form contracts and negotiated contracts has been doubted. In
Punjab National Bank v de Boinville181 the contract was in part a printed form.
The Court of Appeal regarded182 the fact of deletion as in itself an aid to
construction, as showing what was not agreed. But the court also considered183
that where an insurance policy included an endorsement which stated what was
to be deleted from the policy, and how it was to be replaced, regard could be had
to all aspects of the endorsement when construing the contract. That included the
deletions. This approach was said to be applicable whether or not the deletion is
to a printed form.184
In Esso Australia Ltd v Australian Petroleum Agents’ & Distributors’
Association,185 Hayne J suggested186 that evidence of a deletion is admissible
whether the document is a negotiated contract or a standard form, at least for the
purpose of negativing an inference that might otherwise be drawn from context.
The document at issue was a deed poll. He based this conclusion on a statement
by Mason J in Codelfa Construction Pty Ltd v State Rail Authority of New South
Wales,187 where the construction of a standard form building contract was at
issue. Mason J said188 that if it ‘transpires that the parties have refused to include
in the contract a provision which would give effect to the presumed intention of
persons in their position it may be proper to receive evidence of that refusal’.
The passage was introduced189 with the word ‘perhaps’. Mason J was solely
concerned with evidence which might be used to counter an inference of
intention which, although consistent with the document, was in fact rejected
during negotiations. Thus, he spoke190 of ‘a meaning which the parties have
united in rejecting’. Moreover, since he regarded the admissible evidence as
including the ‘actual intention’191 of the parties, it is not clear that he had
deletions in mind. The passage was more concerned with the failure of the
parties to include a particular term, or their failure to draft an agreed term in a
particular way. Ormiston J suggested in Centrepoint Custodians Pty Ltd v
Lidgerwood Investments Pty Ltd,192 that it would be ‘logical’ for Mason J’s
dictum to be applied in the context of deletions from standard forms. But as he
also recognised, whether the fact of deletion is apparent on the face of the
document could hardly be a controlling factor.
UTILITY OF THE EXCLUSIONARY RULE
[14-33] Introduction. Principles of commercial construction apply whether or
not the contract is in writing or evidenced by writing. However, those principles
include limitations on the use of certain kinds of evidence in the construction of
documentary expressions of intention. They are expressed in the exclusionary
rule. As a rule of substantive law, the exclusionary rule operates independently
of procedural rules. But it may help to ensure that only relevant evidence is
considered for admission, and to that extent reinforce procedural rules. In
addition, it is possible that the exclusionary rule lessens the risk of perjury.193
The evolution of the law in the past 40 years has included a much less
technical approach to the exclusionary rule. The process has been one of
simplification and refinement. Although both the formulation of the exclusionary
rule and any statement of its scope are open to debate, on any view the modern
conception of the exclusionary rule (and its scope of application) is quite
different from the ‘parol evidence rule’ as traditionally conceived and applied.194
The generalised and ambiguous notion of ‘parol evidence’ has been replaced by
specific categories of evidence. The exclusionary rule can be stated succinctly. It
is also more directed than in the past. Genuine exceptions to the rule are few in
number. But there are also ‘grey areas’, including in relation to important
issues.195
[14-34] Evidence of terms. The utility of any legal rule depends not only on the
ability to state it succinctly, but also on the ability to identify exceptions. The
aspect of the exclusionary rule which is in this book termed the ‘parol evidence
rule’ plays a minor role. Although that aspect proscribes the use of extrinsic
evidence to prove terms not stated in the document, the Law Commission’s view,
that application of the parol evidence rule is incapable of leading to injustice, is
shared by the courts.196 In fact, the frequent use of entire agreement clauses and
similar provisions has to some extent rendered it redundant.
Since the content of any contract depends on the parties’ agreement, whether
a document states all the terms of a contract must depend on their intention. The
difficult cases are those in which there appear to be conflicting indications of
intention, that is, where the document appears to be inconsistent with the
contention that there was such an additional term. However, such difficulties
have to be resolved, they cannot be explained away by legal incantation. The
justification for the current approach is that a document has no function other
than as an embodiment of intention. It has no effect other than that given to it by
the parties.197 Therefore, if one party denies that the document states or
evidences the whole bargain, the raw material on which the allegation is based
must be heard unless the parties have expressly agreed otherwise.
This contrasts markedly with traditional conceptions of the parol evidence
rule, including the idea that a document which merely looks to state all the terms
of a contract should be treated as doing so.198 Those conceptions led to a great
many purely formal exceptions to the rule. Although the impact may have been
to leave little scope for the application of the rule in practice,199 the whole
approach was artificial. It was also excessively technical and served to
undermine the importance of the rule.
[14-35] Evidence in construction. The principal operation of the exclusionary
rule today is to limit the evidence available for use as a direct aid to the
construction of a document which states or evidences a term of the contract.200
The rationale for the rule is more practical than technical, and a reflection of the
objective approach to construction. The formalistic idea that taking account of
evidence of ‘surrounding circumstances’ must be justified on a technical basis,
even though explicable by reference to a commitment to ‘plain’ meaning,201 has
been rejected. So also has the idea that anything external to a document is
‘extrinsic’. Factual context is always taken into account.
When applied in construction, the exclusionary rule is designed to promote
efficiency in dispute resolution, and the provision of construction advice.202 Any
desire for individualised justice in construction must, particularly in the
commercial context, be balanced against certainty and efficiency concerns. If the
law required every construction dispute to be resolved by reference to the totality
of material which might have some bearing on the dispute, giving legal advice
would be even more expensive and time consuming than it is. The exclusionary
rule enables routine construction advice to be provided on the basis of the
document and an understanding of context. If only to a limited degree, the
exclusionary rule promotes certainty and emphasises the need for clear drafting.
Where a document is prepared by lawyers, the existence of the rule serves as a
warning against loose drafting. In decisions such as Chartbrook Ltd v
Persimmon Homes Ltd,203 the rule has been subjected to close scrutiny. But that
does not mean that it is beyond reproach.
The predictability that the rule ought to promote is to some extent
undermined by the use of prior negotiations as a source of context. In addition,
as has often been pointed out, it is not difficult to get in evidence of prior
negotiations to support a claim for rectification. And an allegation of estoppel
may lead to the admission not only of evidence of the parties’ prior negotiations
but also their subsequent conduct. For those and other reasons, evidence which is
extrinsic to construction is very often before the court. The result is to place the
person adjudicating the construction dispute in the position to where material
which is legitimately in evidence for one purpose must be disregarded for
another. The psychological difficulties are obvious.204 The fact that courts
sometimes test their construction conclusions by reference to extrinsic evidence
is perhaps indicative of anxiety.205
1. See, eg Great Western Railway v Bristol Corporation (1918) 87 LJ Ch 414
at 429 per Lord Wrenbury (‘parol evidence is inadmisible to explain a
patent ambiguity’); Life Insurance Co of Australia Ltd v Phillips (1925) 36
CLR 60 at 71 (fact that a contract has more than one meaning not a basis
for receiving extrinsic evidence). See also Chartbrook Ltd v Persimmon
Homes Ltd [2009] 1 AC 1101 at 1122; [2009] UKHL 38 at [47].
2. See [14-03].
3. For the standard of interpretation concept see [11-02] and generally
Chapter 12.
4. See [14-14]–[14-21].
6. See [8-05].
7. See [4-23], [8-05], [8-22]–[8-29].
8. See [4-23], [8-05], [8-16]–[8-21].
9. For exceptions to that aspect of the rule, see Chapter 10.
10. See [14-11]–[14-13]. See also [14-19] (agreed meaning as term of contract).
11. See [9-05], [9-10] (directly or by analogy).
12. See, eg Forrest v Glasser [2006] 2 Lloyd’s Rep 392 at 398; [2006] EWCA
Civ 1086 at [27], [30] (antecedent correspondence to notice of warranty
claim).
13. But see [18-26], [18-32]–[18-39] (subsequent conduct).
14. On whether prior negotiations may be used see Multiplex Constructions Pty
Ltd v Abgarus Pty Ltd (1992) 33 NSWLR 504 at 507–8, 513; General
Trading Company (Holdings) Ltd v Richmond Corp Ltd [2008] 2 Lloyd’s
Rep 475 at 497; [2008] EWHC 1479 (Comm) at [124]; Azimut-Benetti SpA
v Healey [2011] 1 Lloyd’s Rep 473 at 475; [2010] EWHC 2234 (Comm) at
[4]. Cf M & J Polymers Ltd v Imerys Minerals Ltd [2008] 1 Lloyd’s Rep
541 at 555; [2008] EWHC 344 (Comm) at [46].
15. On the use of subsequent conduct in construction of a restraint of trade, see
Bacchus Marsh Concentrated Milk Co Ltd v Joseph Nathan & Co Ltd
(1919) 26 CLR 410 at 427–8; Shell UK Ltd v Lostock Garage Ltd [1976] 1
WLR 1187 at 1197–8; [1977] 1 All ER 481 at 488–9.
16. See [9-11].
17. See L Schuler AG v Wickman Machine Tool Sales Ltd [1974] AC 235 at
261, 268.
18. See Chapter 2.
19. See Chapter 12. See also [13-08].
20. See [12-27].
22. The rule does not always apply. See [11-30].
23. See [11-03].
24. (1842) 9 Cl & F 355; 8 ER 450.
25. (1842) 9 Cl & F 355 at 555–6; 8 ER 450 at 529 (approved L Schuler AG v
Wickman Machine Tool Sales Ltd [1974] AC 235 at 269–70).
26. See [11-22].
28. See further [18-24]–[1 8-26].
29. See, eg Birrell v Dryer (1884) 9 App Cas 345 at 346; Hardwick Game Farm
v Suffolk Agricultural and Poultry Producers Association Ltd [1966] 1
WLR 287 at 310; [1966] 1 All ER 309 (affirmed sub nom Henry Kendall &
Sons v William Lillico & Sons Ltd [1969] 2 AC 31).
30. See also [12-24].
31. In relation to evidence of context, see [6-09]–[6-15].
32. [1974] AC 235.
33. [1974] AC 235 at 269.
34. See [12-30]–[12-36].
35. See [12-14].
36. Cf Brown v Byrne (1854) 3 E & B 703 at 716; 118 ER 1304 at 1309 per
Coleridge J, for the Queen’s Bench (‘words perfectly unambiguous in their
ordinary meaning are used … in a different sense’).
37. But see [14-11].
38. See [12-33]. Although this includes a word or expression having an
established ‘legal interpretation’, that is a different story. See generally [13-
16]–[13-26].
39. Bowes v Shand (1877) 2 App Cas 455 at 468 per Lord Cairns.
40. See Purcell v Bacon (1914) 19 CLR 241 at 265 per Isaacs, Gavan Duffy
and Rich JJ, reversed on other grounds sub nom Bacon v Purcell (1916) 22
CLR 307 (process of finding ‘appropriate business dictionary’).
41. See Bowes v Shand (1877) 2 App Cas 455 at 468 per Lord Cairns (‘parole
evidence’).
42. See Wace v Pan Atlantic Group Inc [1981] 2 Lloyd’s Rep 339 at 343
(background of reinsurance contract included meaning of expression
‘fronting’ in London insurance market).
43. (1980) 29 ALR 77; 54 ALJR 234.
44. (1980) 29 ALR 77 at 85. See also Myers v Sarl (1860) 3 El & El 306 at
315–16; 121 ER 457 at 461 per Cockburn CJ (‘parol evidence’ admissible
— ‘weekly account of work’ had particular signification in building trade).
45. See, eg Douglas v Baynes [1908] AC 477 at 484–5 (expert evidence of
‘develop’ in context of agreement to develop farm as mining property);
Hvalfangerselskapet Polaris Aktieselskap v Unilever Ltd (1933) 39 Com
Cas 1 at 21 (conventional meaning in trade); Insurance Co of the State of
Pennsylvania v Grand Union Insurance Co [1989] 2 HKLR 574; [1990] 1
Lloyd’s Rep 208 at 222 (evidence of specialist meanings in reinsurance
context); Durham Tees Valley Airport Ltd v bmibaby Ltd [2011] 1 Lloyd’s
Rep 68 at 72; [2010] EWCA Civ 485 at [10] (trial judge’s finding that
‘exclusively’ had well understood meaning in the aviation industry).
46. (1980) 29 ALR 77 at 85; 54 ALJR 234.
47. [2007] 2 Lloyd’s Rep 612 at 616–17; [2007] EWCA Civ 882 at [17]–[18].
See also Royal Insurance Australia Ltd v Government Insurance Office of
NSW [1994] 1 VR 123 at 133–4 (evidence in relation to meaning of ‘follow
the settlement’ provisions); Eitzen Bulk A/S v TTMI SARL (The Bonnie
Smithwick) [2012] 1 Lloyd’s Rep 407 at 413; [2012] EWHC 202 (Comm) at
[27] (market understanding).
48. Cf Samos Shipping Enterprises Ltd v Eckhardt & Co KG (The Nissos
Samos) [1985] 1 Lloyd’s Rep 378 at 385 (broking practice used to
determine ‘meaning’ of ‘subject details’); see also Star Steamship Society v
Beogradska Plovidba (The Junior K) [1988] 2 Lloyd’s Rep 583 at 587, 589.
49. See Chapter 13.
50. (1980) 29 ALR 77; 54 ALJR 234.
51. (1980) 29 ALR 77 at 85.
52. Bowes v Shand (1877) 2 App Cas 455 at 468; Palgrave Brown and Son Ltd
v Owners of SS Turid [1922] 1 AC 397 at 407. See also Bremer
Handelsgesellschaft mbH v Toepfer [1980] 2 Lloyd’s Rep 43 at 50 (trade
practice can ‘extend’, but not contradict, meaning of the document).
54. See [12-37]–[12-38].
55. Cf Homestake Australia Ltd v Metana Minerals NL (1991) 11 WAR 435 at
448.
56. See, eg Tucker v Linger (1883) 8 App Cas 508 at 511; Produce Brokers Co
Ltd v Olympia Oil and Cake Co Ltd [1916] AC 314 at 325, 327–8, 331–2;
Palgrave Brown and Son Ltd v Owners of SS Turid [1922] 1 AC 397 at 407.
58. (1925) 36 CLR 1 at 7.
59. See, eg Shore v Wilson (1842) 9 Cl & F 355 at 567; 8 ER 450 at 533; Bowes
v Shand (1877) 2 App Cas 455 at 462 (custom of the trade); Vitol SA v
Phibro Energy AG (The Mathraki) [1990] 2 Lloyd’s Rep 84 at 89 (trade
usage). Cf Contracts Restatement 2d (1979), §222(2) (existence and scope
of a usage of trade determined as questions of fact, but if a usage is
embodied in a ‘written trade code or similar writing’ the construction of the
writing must be determined as a question of law). For the use of case law to
establish custom or usage see Sonicare International Ltd v East Anglia
Freight Terminal Ltd [1997] 2 Lloyd’s Rep 48 at 62–3.
60. See [12-38]. Cf Toomey v Eagle Star Insurance Co Ltd [1994] 1 Lloyd’s
Rep 516 at 521.
61. (1832) 3 B & Ad 728; 110 ER 266. See also Shore v Wilson (1842) 9 Cl &
F 355 at 543; 8 ER 450 at 524; Stockton Coal Co v McIlwraith McEacharn
& Co (1899) 20 NSWR (L) 292 at 296; Vitol SA v Phibro Energy AG (The
Mathraki) [1990] 2 Lloyd’s Rep 84 at 87.
62. [1973] 2 NSWLR 879 at 888–9.
63. See, eg Smith v Wilson (1832) 3 B & Ad 728 at 732, 734; 110 ER 266 at
267, 268; Myers v Sarl (1860) 3 El & El 306 at 315, 318; 121 ER 457 at
461, 462.
64. See [8-07].
65. See [12-38].
66. See, eg Palgrave Brown and Son Ltd v Owners of SS Turid [1922] 1 AC
397 at 408 per Viscount Birkenhead LC (rejection of custom on the basis
that it was ‘inconsistent with the tenor of the language of the charterparty’);
Thor Navigation Inc v Ingosstrakh Insurance Co Ltd [2005] 1 Lloyd’s Rep
547 at 556; [2005] EWHC 19 (Comm) at [30] (custom or usage
inadmissible to contradict plain language).
67. See Phillips v Dorintal Insurance Ltd [1987] 1 Lloyd’s Rep 482 at 486–7
(customary meaning displaced any contrary construction); Insurance Co of
the State of Pennsylvania v Grand Union Insurance Co [1989] 2 HKLR
574; [1990] 1 Lloyd’s Rep 208 at 322. Cf Contracts Restatement 2d (1979),
§222(3) (usage in the vocation or trade in which the parties are engaged, or
of which they knew or had reason to know, ‘gives meaning to or
supplements or qualifies their agreement’).
69. (1832) 3 B & Ad 728; 110 ER 266.
70. See Brown v Byrne (1854) 3 E & B 703 at 716; 118 ER 1304 at 1309.
71. Cf Myers v Sarl (1860) 3 El & El 306 at 320; 121 ER 457 at 462
(inconsistency with trade usage depends on construction of the contract as a
whole).
72. Partenreederei MS Karen Oltmann v Scarsdale Shipping Co Ltd (The
Karen Oltmann) [1976] 2 Lloyd’s Rep 708 at 712 per Kerr J.
73. Youell v Bland Welch & Co Ltd [1992] 2 Lloyd’s Rep 127 at 133 per
Staughton LJ. Fox LJ agreed. Cf Kleinwort Benson Ltd v Malaysia Mining
Corp Berhad [1989] 1 WLR 379 at 389 (not proved that specific meaning
had been attached to expression ‘comfort letter’).
74. [2009] 1 AC 1101; [2009] UKHL 38. Cf Trawl Industries of Australia Pty
Ltd v Effem Foods Pty Ltd Trading as ‘Uncle Bens of Australia’ (1992) 27
NSWLR 326 at 361 (oral evidence could not be used to show that parties
had agreed that a word had a particular meaning which it was not capable of
bearing).
75. See further [14-18]–[14-19]. See also on the distinction between agreed
(chosen) meaning and party-specific meaning, [12-07], [12-17].
76. See also [12-32] (situations where community meaning displaced or
rebutted).
78. See also [12-18], [12-34].
79. [1900] AC 176.
80. See also [12-14], [12-15], [12-35].
81. (1923) 32 CLR 81.
82. (1923) 32 CLR 81 at 86.
83. In L G Thorne & Co Pty Ltd v Thomas Borthwick & Sons (A/Asia) Ltd
(1955) 56 SR (NSW) 81 at 88, the decision was said to illustrate an
exception to the exclusionary rule. Cf [18-19]–[18-31] (descriptive terms).
84. See [12-18].
85. Cf Contracts Restatement 2d (1979), §212, ill 4 (see D W McLauchlan,
‘The Plain Meaning Rule of Contract Interpretation’ (1995) 2 NZBLQ 80 at
90).
86. (1933) 39 Com Cas 1.
87. (1933) 39 Com Cas 1 at 9 per Lord Atkin.
88. (1933) 39 Com Cas 1 at 25 per Lord Macmillan.
89. (1933) 39 Com Cas 1 at 9 per Lord Atkin, 25 per Lord Macmillan (in cases
of ‘ambiguity’), 32 per Lord Wright.
90. [2009] 1 AC 1101; [2009] UKHL 38.
92. Cf [2009] 1 AC 1101 at 1136; [2009] UKHL 38 at [97] per Lord Walker
(‘meaning of the English word “after” can hardly be equated to the use of a
technical or trade term’).
93. See also [12-31].
94. But it may also relate to choice between usages under the standard of
interpretation of a particular class of persons.
95. See also [12-18].
96. [2009] 1 AC 1101 at 1122–3; [2009] UKHL 38 at [45]–[47]. The other
members of the House of Lords agreed. See David McLauchlan, ‘Common
Intention and Contract Interpretation’ [2011] LMCLQ 30.
97. [1976] 2 Lloyd’s Rep 708. See David McLauchlan, ‘Interpretation and
Rectification: Lord Hoffmann’s Last Stand’ [2009] NZ L Rev 431 at 446ff.
98. [1976] 2 Lloyd’s Rep 708 at 712. See also Spunwill Pty Ltd v BAB Pty Ltd
(1994) 36 NSWLR 290 at 309–10 (extrinsic evidence of parties’ common
intention, to give their own dictionary meaning to words, where the contract
is ambiguous); Australasian Medical Insurance Ltd v CGU Insurance Ltd
(2010) 271 ALR 142 at 156; [2010] QCA 189 at [58], [61] (exception to
exclusionary rule).
99. Cf Couchman v Hill [1947] KB 554.
100. See [8-18]–[8-21], [10-10]. See also [10-46] (collateral contract). But cf
[11-13].
101. But cf New South Wales Cancer Council v Sarfaty (1992) 28 NSWLR 68 at
77.
102. Cf Birrell v Dryer (1884) 9 App Cas 345 (technical meaning would have
affected scope of warranty).
103. See [9-12], [9-18]. See also [18-17].
104. See Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC 1101 at 1122–3;
[2009] UKHL 38 at [47].
105. [1992] 1 Lloyd’s Rep 475 at 481.
106. [1976] 2 Lloyd’s Rep 708.
107. [1976] 2 Lloyd’s Rep 708 at 712.
108. See [1976] 2 Lloyd’s Rep 708 at 713. However, he prefaced his statement
with discussion of reliance on a ‘representation’; see [1976] 2 Lloyd’s Rep
708 at 712.
109. [1976] 2 Lloyd’s Rep 708 at 713.
110. (1933) 49 CLR 507 at 547. See also Amalgamated Investment & Property
Co Ltd v Texas Commerce International Bank Ltd [1982] QB 84 at 121.
111. Cf David McLauchlan, ‘Contract Interpretation: What is it About?’ (2009)
31 Syd LR 5 at 25.
112. [1983] 1 Lloyd’s Rep 188 at 198.
113. But cf Hvalfangerselskapet Polaris Aktieselskap v Unilever Ltd (1933) 39
Com Cas 1 at 32.
114. See [7-19].
115. Cf CISG, art 9(1) (parties are bound by any practices which they have
established between themselves).
116. See [14-03], [14-18].
118. Cf Anangel Atlas Compania Naviera SA v Ishikawajima-Harima Heavy
Industries Co Ltd (No 2) [1990] 2 Lloyd’s Rep 526 at 545–6 (distinction
between conceptual and evidential uncertainty).
119. See, eg Matthews v Smallwood [1910] 1 Ch 777 at 785 (patent ambiguity in
‘covenant hereinbefore contained’ where there were numerous covenants).
Cf Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC 1101 at 1132;
[2009] UKHL 38 at [84]. See also [13-35].
120. But see Pagnan SpA v Feed Products Ltd [1987] 2 Lloyd’s Rep 601 at 619,
where the ‘ambiguity’ inherent in such concepts is noted.
121. See Booker Industries Pty Ltd v Wilson Parking (Qld) Pty Ltd (1982) 149
CLR 600; Walford v Miles [1992] 2 AC 128.
122. See Nile Co for the Export of Agricultural Crops v H & J M Bennett
(Commodities) Ltd [1986] 1 Lloyd’s Rep 555 at 588. See also [3-12]–[3-13]
(severance).
124. See G Scammell and Nephew Ltd v Ouston [1941] AC 251 at 268 per Lord
Wright (‘[s]uch a position is not often found’).
125. See, eg Falck v Williams [1900] AC 176 at 181 (no basis for preferring one
construction of telegram over another); National Australia Bank Ltd v
Budget Stationery Supplies Pty Ltd (1997) 217 ALR 365 at 381
(irreconcilable inconsistency between clauses).
126. See [18-31].
127. See [18-29].
128. See, eg Whitlock v Brew (1968) 118 CLR 445 at 461. Cf Shogun Finance
Ltd v Hudson [2004] 1 AC 919 at 943; [2003] UKHL 62 at [49].
129. See [13-48].
130. Great Western Railway v Bristol Corporation (1918) 87 LJ Ch 414 at 419
per Lord Atkinson. See also Codelfa Construction Pty Ltd v State Rail
Authority of New South Wales (1982) 149 CLR 337 at 352 per Mason J,
with whom Stephen and Wilson JJ agreed (‘ambiguous or susceptible of
more than one meaning’). See generally Chapter 6.
131. See, eg Shore v Wilson (1842) 9 Cl & F 355 at 540, 566; 8 ER 450 at 523,
533.
132. (2002) 240 CLR 45; [2002] HCA 5.
133. Cf B & B Constructions (Aust) Pty Ltd v Brian A Cheeseman & Associates
Pty Ltd (1994) 35 NSWLR 227 at 235. See also Ryan Catterwell, ‘The
“Indirect” Use of Evidence of Prior Negotiations in Contract Construction:
Part of the Surrounding Circumstances’ (2012) 29 JCL (forthcoming).
134. Fawcett Properties Ltd v Buckingham County Council [1961] 1 AC 636 at
678 per Lord Denning. See also Youell v Bland Welch & Co Ltd (The
Superhulls Cover Case) (No 2) [1990] 2 Lloyd’s Rep 431 at 440.
136. [1941] AC 251.
137. [1941] AC 251 at 268. See also Hillas & Co Ltd v Arcos Ltd (1932) 43 Ll L
Rep 359 at 367; 147 LT 503; McDermott v Black (1940) 63 CLR 161 at
175, 188–9; Council of the Upper Hunter County District v Australian
Chilling and Freezing Co Ltd (1968) 118 CLR 429 at 436–7; Meehan v
Jones (1982) 149 CLR 571 at 578.
138. [1974] AC 235.
139. [1974] AC 235 at 261; see also [1974] AC 235 at 265. See also
Partenreederei MS Karen Oltmann v Scarsdale Shipping Co Ltd (The
Karen Oltmann) [1976] 2 Lloyd’s Rep 708 at 711–12; Australian Football
League v Carlton Football Club Ltd [1998] 2 VR 546 at 564; Associated
Alloys Pty Ltd v ACN 001 452 106 Pty Ltd (in liq) (2000) 202 CLR 588 at
599; [2000] HCA 25 at [15].
140. See also [16-10], [16-26] (relevant construction preferences).
141. [1974] AC 235.
142. [1974] AC 235 at 268.
143. See [18-28].
144. See, eg R W Cameron & Co v L Slutzkin Pty Ltd (1923) 32 CLR 81 at 86
(meaningless words); Pao On v Lau Yiu Long [1980] AC 614 at 631
(ambiguity in consideration treated as exception to the exclusionary rule).
On operation of the parol evidence rule see also [9-07], [10-42].
145. [1941] AC 251. See further [18-36].
146. [1919] AC 533 at 540. Cf Earl of Beauchamp v Winn (1873) LR 6 HL 223
at 236.
147. [1900] AC 260.
148. [1900] AC 260 at 270 (adopted Campbell v Kitchen & Sons Ltd (1910) 12
CLR 515 at 528). See also Van Diemen’s Land Co v Marine Board of Table
Cape [1906] AC 92 at 98; Gaisberg v Storr [1950] 1 KB 107 at 113–14. Cf
Hvalfangerselskapet Polaris Aktieselskap v Unilever Ltd (1933) 39 Com
Cas 1 at 32.
149. (1929) 43 CLR 310.
150. (1929) 43 CLR 310 at 327. Cf Farmer v Honan (1919) 26 CLR 183 at 197
per Isaacs and Rich JJ (‘conduct of the parties to elucidate the contract,
where its terms are doubtful’).
151. (1919) 26 CLR 410.
152. (1919) 26 CLR 410 at 436; and see (1919) 26 CLR 410 at 428 per Isaacs J
(the meaning of the expression ‘dried milk’ was ‘susceptible of just such
meaning as the parties mutually attached to it in their communings’).
153. See [18-16]–[18-18].
154. [1974] AC 235. North Eastern Railway Co v Lord Hastings was cited to the
House of Lords, to support the exclusion of subsequent conduct.
155. See [8-35].
156. See [18-35]–[18-39].
157. North Eastern Railway Co v Lord Hastings [1900] AC 260 at 268;
Administration of the Territory of Papua and New Guinea v Daera Guba
(1973) 130 CLR 353 at 446.
158. See also Wigginton & Milner Ltd v Winster Engineering Ltd [1978] 1 WLR
1462 at 1475; [1978] 3 All ER 436 at 446. But cf Norton on Deeds, p 154.
159. [1919] AC 533. Cf Shore v Wilson (1842) 9 Cl & F 355 at 566; 8 ER 450 at
533.
160. [1974] AC 235.
161. (1973) 130 CLR 353.
162. (1973) 130 CLR 353 at 446.
163. (1973) 130 CLR 353 at 446.
164. [1974] AC 235 at 261. See also [1974] AC 235 at 272, where Lord
Kilbrandon perhaps stated the position more broadly.
165. See also [12-10] (meanings change over time).
166. See generally Lewison, §3.04; David McLauchlan, ‘Deleted Words, Prior
Negotiations and Contract Interpretation’ (2010) 24 NZULR 277.
167. (1878) 3 App Cas 552 at 558, 569, 571, 572, 576 (words deleted from
repair contract). See also Mobil Oil Australia Ltd v Kosta (1969) 14 FLR
343 at 349; Tuckey v Lawfield Pty Ltd [1990] QCA 16.
168. See Postle v Sengstock [1994] 2 Qd R 290 at 298; Burger King Corp v
Hungry Jack’s Pty Ltd (2001) 69 NSWLR 558; [2001] NSWCA 187 at
[137]; BP Australia Pty Ltd (formerly BP Australia Ltd) v Nyran Pty Ltd
(2003) 198 ALR 442 at 458–9; [2003] FCA 442 at [64].
at [18] per Lord Clarke MR, with whom Carnwath LJ agreed (deletion a
‘pointer’ in relation to construction of Gencon terms).
170. See Mineralimportexport v Eastern Mediterranean Maritime Ltd (The
Golden Leader) [1980] 2 Lloyd’s Rep 573 at 575 (deletions did not provide
assistance).
171. See, eg Mineralimportexport v Eastern Mediterranean Maritime Ltd (The
Golden Leader) [1980] 2 Lloyd’s Rep 573 at 575 per Lloyd J (deletions do
not mean parties are taken to have accepted ‘converse’); Mopani Copper
Mines Plc v Millennium Underwriting Ltd [2008] 2 All ER (Comm) 976 at
1002; [2008] EWHC 1331 at [117] per Christopher Clarke J (indication of
what parties ‘did not want to agree’).
172. [1972] AC 1 at 15–16. Lord Cross agreed. Cf Building and Engineering
Constructions (Aust) Ltd v Property Securities No 1 Pty Ltd [1960] VR 673
at 681.
173. Mopani Copper Mines Plc v Millennium Underwriting Ltd [2008] 2 All ER
(Comm) 976 at 1002; [2008] EWHC 1331 at [120] per Christopher Clarke
J.
174. City and Westminster Properties (1934) Ltd v Mudd [1959] Ch 129 at 140;
T J Watkins Ltd v Cairns Meat Export Co Pty Ltd [1963] Qd R 21 at 27;
Channel Island Ferries Ltd v Sealink UK Ltd [1987] 1 Lloyd’s Rep 559 at
577, affirmed [1988] 1 Lloyd’s Rep 323. See also Mineralimportexport v
Eastern Mediterranean Maritime Ltd (The Golden Leader) [1980] 2
Lloyd’s Rep 573 at 575 (deletions from printed clause admissible); BHP
Petroleum Ltd v British Steel Plc [2000] 2 Lloyd’s Rep 277 at 284
(reference to additions to one party’s standard form without comment);
Eitzen Bulk A/S v TTMI SARL (The Bonnie Smithwick) [2012] 1 Lloyd’s
Rep 407 at 409; [2012] EWHC 202 (Comm) at [6] (common ground).
Contrast Ben Shipping Co (Pte) Ltd v An-Board Bainne (The C Joyce)
[1986] 2 Lloyd’s Rep 285 at 291; [1986] 2 All ER 177 (not permissible to
look at standard bill of lading clause deleted from charterparty form).
175. Cf Lewison, §3.06.
176. (1991) 23 NSWLR 481. Cf Centrepoint Custodians Pty Ltd v Lidgerwood
Investments Pty Ltd [1990] VR 411 at 425. But see David McLauchlan,
‘Deleted Words, Prior Negotiations and Contract Interpretation’ (2010) 24
NZULR 277 at 295–6.
177. See Timber Shipping Co SA v London & Overseas Freighters Ltd [1972]
AC 1 at 15–16.
178. Cf NZI Capital Corp Pty Ltd v Child (1991) 23 NSWLR 481 at 483, 494.
179. See, eg Channel Island Ferries Ltd v Sealink UK Ltd [1987] 1 Lloyd’s Rep
559 at 577, affirmed [1988] 1 Lloyd’s Rep 323 (no entitlement to look at
deletions where not a printed form). See also City and Westminster
Properties (1934) Ltd v Mudd [1959] Ch 129 at 141.
180. (1878) 3 App Cas 552.
181. See [1992] 1 WLR 1138.
182. See [1992] 1 WLR 1138 at 1148.
183. [1992] 1 WLR 1138 at 1148–9.
184. See also Burger King Corp v Hungry Jack’s Pty Ltd (2001) 69 NSWLR
558; [2001] NSWCA 187 at [137]; Mopani Copper Mines Plc v Millennium
Underwriting Ltd [2008] 2 All ER (Comm) 976 at 1002; [2008] EWHC
1331 at [117], [120].
185. (1993) [1999] 3 VR 642.
186. (1993) [1999] 3 VR 642 at 647. See also NZI Capital Corp Pty Ltd v Child
(1991) 23 NSWLR 481 at 493–4. Cf Mopani Copper Mines Plc v
Millennium Underwriting Ltd [2008] 2 All ER (Comm) 976 at 1002; [2008]
EWHC 1331 at [120].
187. (1982) 149 CLR 337.
188. (1982) 149 CLR 337 at 352. Stephen and Wilson JJ agreed. See also New
South Wales Cancer Council v Sarfaty (1992) 28 NSWLR 68 at 76–7. For
discussion see Donald Nicholls, ‘My Kingdom for a Horse: The Meaning of
Words’ (2005) 121 LQR 577 at 583–4; D W McLauchlan, ‘Objectivity in
Contract’ (2005) 24 Univ Qld LJ 479 at 488–9.
189. See also (1982) 149 CLR 337 at 353 (‘[i]t is possible’).
190. (1982) 149 CLR 337 at 353.
191. (1982) 149 CLR 337 at 352.
192. [1990] VR 411 at 423.
193. B & B Constructions (Aust) Pty Ltd v Brian A Cheeseman & Associates Pty
Ltd (1994) 35 NSWLR 227 at 243.
194. Cf Lord Justice Staughton, ‘Interpretation of Maritime Contracts’ (1995) 26
JMLC 259 at 264 (‘much of the old rule has gone’).
195. See Chapter 9.
196. See [8-21]. See also Yani Haryanto v E D & F Man (Sugar) Ltd [1986] 2
Lloyd’s Rep 44 at 47 (affirmed [1986] 2 Lloyd’s Rep 44 at 58); Chartbrook
Ltd v Persimmon Homes Ltd [2009] 1 AC 1101 at 1136; [2009] UKHL 38
at [99].
197. See M A Eisenberg, ‘The Emergence of Dynamic Contract Law’ (2000) 88
Calif L Rev 1743 at 1748.
198. Cf G H Treitel, Doctrine and Discretion in the Law of Contract, Clarendon
Press, Oxford, 1981, p 10 (effect of the exceptions is that the parol evidence
rule amounts to ‘an undeclared discretion to apply or disregard the rule at
the court’s pleasure’).
199. See Rosseel NV v Oriental Commercial & Shipping Co (UK) Ltd [1991] 2
Lloyd’s Rep 625 at 628 per Steyn J, referring to the parol evidence rule
(‘well known that the exceptions to that rule have just about swallowed up
the rule’); Parol Evidence Rule Working Paper, para 21 (wrong conception
of rule leads to wrong view about extent of exceptions). See also Yani
Haryanto v E D & F Man (Sugar) Ltd [1986] 2 Lloyd’s Rep 44 at 47
(affirmed [1986] 2 Lloyd’s Rep 44 at 58); D E Allan, ‘The Scope of the
Contract’ (1967) 41 ALJ 274 at 287.
200. For the scope of the rule see Chapter 9.
201. See [8-23], [12-03].
202. See also [8-27], [8-32]. For criticism see [8-33], [8-39].
203. [2009] 1 AC 1101; [2009] UKHL 38.
204. See, eg Toomey v Eagle Star Insurance Co Ltd [1994] 1 Lloyd’s Rep 516 at
519 (claim for rectification let in evidence which may have confused the
question of what evidence was relevant to construction). See also Prenn v
Simmonds [1971] 1 WLR 1381 at 1383; [1971] 3 All ER 237 at 239; Arrale
v Costain Civil Engineering Ltd [1976] 1 Lloyd’s Rep 98 at 101, 103, 105;
B & B Constructions (Aust) Pty Ltd v Brian A Cheeseman & Associates Pty
Ltd (1994) 35 NSWLR 227 at 233.
205. See Charles M Willie & Co (Shipping) Ltd v Ocean Laser Shipping Ltd
(The Smaro) [1999] 1 Lloyd’s Rep 225 at 238 per Rix J (reference to
subsequent conduct to ‘check’ conclusions on construction); The Tychy (No
2) [2001] 2 Lloyd’s Rep 403 at 410; [2001] EWCA Civ 1198 at [36] per
Lord Phillips MR for the court (subsequent conduct a ‘comforting
reassurance’); AIB Group (UK) Ltd v Martin [2002] 1 WLR 94 at 96;
[2001] UKHL 63 at [5] (evidence obtained in relation to non est factum
confirmed construction).
PART VII
Application of the Contract
15
Standards for Applying Contracts
General [15-03]
Resolving Application Issues [15-06]
Relevant Standards [15-09]
General [15-09]
Standards of Application [15-11]
Choosing the Standard [15-15]
Commercial Application [15-18]
General [15-18]
Construction Processes and Commercial Application [15-21]
Contexts in which Literal Application May Prevail [15-24]
General [15-24]
Conditions Precedent [15-26]
Notice Requirements [15-29]
Documentary Credits [15-32]
Contexts where Strict Application May Prevail [15-34]
General [15-34]
Contracts of Guarantee [15-36]
Contracts of Indemnity [15-44]

[15-01] Objects of Part VII. This part of the book deals with the third stage in
construction, namely, ‘application of the contract’. Logically, the application of a
contract to a given set of facts is something which occurs after the contract has
been construed in the second stage in construction. Indeed, except when contract
doctrine is being applied by construction, there is a tendency to relate all issues
of construction to what the contract ‘means’. However, in practice, application
issues are bound up with issues of meaning.
Because a contract is only construed to the extent that is necessary, the facts
to which the contract must be applied provide the rationale for the resolution of
construction issues. In many cases, the construction of a contract will embody a
decision about how the contract should be applied to the facts. Such decisions
are construction decisions. This feature of construction is acknowledged by the
cases in two related ways. First, discussions of whether the contract should be
given a ‘strict’ or ‘literal’ construction (‘application’), rather than a ‘commercial’
or ‘liberal’ construction, assume that there are various standards by reference to
which contracts are applied to factual situations. The present chapter explains the
‘standard of application’ concept. Commercial application is the default rule
under principles of commercial construction.
Second, since the objective of commercial construction is to achieve a
commercially sensible result, the concept focuses on application of the contract
to the facts which have arisen. In relation to specific issues, commercially
sensible results may be achieved with the aid of preferences in construction.
These are discussed in Chapter 16, as specific incidents of commercial
construction.
The acknowledgments that various standards of application exist, and that the
objective of commercial construction is commercially sensible results, come
together in the discussion of exclusion and limitation clauses in Chapter 17.
Finally, it is necessary to consider the evidence which is admissible in
application. That is dealt with in Chapter 18. Since the parties may have
attempted to apply their contract, one concern is the relevance of their conduct to
construction issues. In addition, that chapter explains a distinction between
evidence which is necessary to enable a contract to be applied and evidence of
facts in performance; and how problems in applying contracts may lead to the
admission of extrinsic evidence as an aid to construction.
[15-02] Objects of this chapter. Even though the (linguistic) meaning of a
contract may be clear, decisions may need to be made as to how that meaning
should be applied to the facts. Therefore, at least at a theoretical level, having
answered the question ‘Which meaning?’, it may still be necessary to decide
‘Which application?’. In practice, these questions cannot be treated as raising
entirely separate issues. However, an appreciation that construction conclusions
include decisions about how contracts should be applied is extremely important.
It is therefore necessary to seek to unravel the two issues in the third stage of
construction.
The ‘standard’ by reference to which a contract should be applied depends on
the intention of the parties. It is an issue of construction. There are three
standards: commercial application, literal application and strict application. The
principal object of this chapter is to explain the ‘standard of application’ concept,
and the various standards used to apply contracts.
Having explained those standards, the second object is to discuss their use.
The goal is to explain the role which principles of commercial construction play
in choosing the standard of application.
GENERAL
Introduction
[15-03] Meaning and application. Construction is the process by which the
parties’ intention is determined and given effect to.1 Having construed the
contract in light of context, in the third stage in construction2 the contract is
applied to the facts to give effect to the parties’ intention.3 At the level of
principle, however, there is a difference between what a contract means as a
matter of English and its scope of application to a given set of facts. In practice,
that distinction is blurred. The reasons for that are not hard to find. First,
application of the contract determines the rights of the parties. As a matter of
law, a contract can have only one construction in relation to a given set of facts.4
Those facts determine the extent to which the contract must be construed.5 This
leads to distinctions between meaning and definition. For example, in Portolana
Compania Naviera Ltd v Vitol SA Inc (The Afrapearl)6 Clarke LJ said7 it was
‘not possible to define’ the expression ‘breakdown of equipment in or about the
plant of the … consignee’ except by reference to the ‘facts of the particular
case’. Such decisions are made in the third stage in construction.
Second, the goal of commercial construction is to achieve commercially
sensible results.8 The reference point is therefore application of the contract.
Accordingly, all construction decisions are made with due regard to the results in
application. For example, in Durham v BAI (Run off) Ltd (in scheme of
arrangement)9 Lord Mance referred10 to the need to consider the ‘implications of
the rival interpretations’.
It follows that although a decision on the meaning of a contract — in stage
two in construction — is different from a decision as to its scope or standard of
application, construction conclusions embody decisions about both. There is no
legal principle to require a person who adjudicates a construction dispute to treat
meaning and application as distinct issues. Indeed, the Introductory Note to
Chapter 9 of the Contracts Restatement 2d (1979) suggests that stating
‘separately’ rules relating to the application of contracts ‘may convey an
erroneous impression of the psychological reality of the judicial process in
which many elements are typically combined in a single ruling’.11 However,
there is a difference between the meaning and scope of words.
[15-04] Meaning and the scope of words. ‘Construction’ is a specialised
process. Except at a very rudimentary level, principles of commercial
construction do not invoke or seek to advance particular linguistic theories.12 In
this book, the point has often been made that the insights which a study of
language may provide are mainly limited to illustrating and emphasising that the
construction of contracts is ‘special’.13 A specific concern is that the tendency to
rationalise the process of construction as being solely concerned with the
‘meaning’ of contracts is misleading. That is particularly true where the scope of
application of a contract is determined.
Dictionaries of standard English are helpful in ascertaining the senses in
which words are used by the community at large. But they do not determine the
meanings of contracts.14 Even at a purely linguistic level, a decision as to what
words (or other symbols) may mean is distinct from a decision as to their
intended sense when used in a contract. It is construction of the contract as a
whole that determines the linguistic sense in which words have been used.
Similarly, although a dictionary may provide assistance in determining the things
to which particular words are capable of being applied, use of a dictionary will
rarely determine whether a contract applies to a factual situation. That depends
on the scope of its application. In a linguistic sense, the scope of application for
an utterance is represented by the propositions which hold ‘true’ for the utterance
or what the utterance assumes or ‘entails’ as a matter of fact.15 However, where a
contract is the utterance, the view that the utterance entails everything which is
literally ‘true’ for the words used confuses the scope which the contract may
have with its intended scope of application.16
The points made above lead to two closely related propositions. Each is a
proposition about contract construction. First, any conclusion about what a
contract means determines no more than the range of persons and things to
which the contract is capable of being applied. If the contract is capable of being
applied to more than one person or thing, a decision must be made as to the
contract’s intended application. For example, the word ‘loss’ is capable of
referring to ‘loss or damage’. When used in a contract, the scope of application
of the word ‘loss’ depends on the intention of the parties.17 A conclusion that
‘loss’ is not intended to include ‘damage’ is a construction conclusion which
determines the scope of application of the contract. Decisions on the scope of
application of words in third party standard form contracts can have a profound
significance.18
Second, a decision that a contract has a particular meaning as a matter of
English does not determine how that meaning should be applied to a factual
situation. For example, a contract which confers a right to terminate for ‘breach’
of the agreement can be applied in various ways. If applied literally, the
promisee is entitled to terminate for any breach of contract. But that may not be
how the parties intend the contract to be applied.19 Whatever conclusion is
reached by construction, it determines whether the contract applies to the breach
which in fact occurred.
The approach of the law to the distinction between meaning and application is
far from uniform. However, principles of commercial construction must explain
decisions which determine — as a matter of construction — how contracts are
applied to factual situations, and therefore the scope of their application. The
guiding principle (default rule) is that contracts are applied commercially.
[15-05] Conclusion of law. A conclusion as to the meaning of a contract
expressed in or evidenced by writing is itself a conclusion of law.20 So also is a
conclusion as to the scope of application of the contract. For example, the
decision that a force majeure clause applies to the facts which have occurred is a
conclusion of law.
Recourse to contract doctrine is often an integral element of application of a
contract to a given fact situation. For example, the conclusion that a contract has
been frustrated is ultimately a conclusion of law.21 The interaction between
construction and contract doctrine is therefore important. This book does not
purport to be an exposition of contract doctrine applied by construction.
However, illustrations of that process are particularly relevant to this part of the
work.
Resolving Application Issues
[15-06] Introduction. Most contracts are indeterminate, in the sense that they
have any number of potential applications. One reason why scope of application
issues frequently come before the courts is the obvious fact that contracts are
drafted in anticipation of future circumstances. The drafting of contracts focuses
primarily on desired applications. But the fact that most contracts include
provisions such as force majeure clauses and exclusions of liability shows that
attempts are also made to anticipate undesired applications of the contract.
If the scope of a contract in relation to a given set of facts has not been dealt
with expressly, the contract may have competing applications. Although that
exposes the parties’ expressed intention as being indeterminate, it is not of itself
suggestive of uncertainty or incompleteness in any legal sense.22 However, it is
suggestive of a need for coherent principles under which choices are made
between competing applications, that is, to provide bases for inferring the
intended scope of the contract.23
[15-07] Techniques. Various techniques are employed to resolve application
issues.24 In addition to the standard of application concept explained below, there
are four main techniques. Each leads to a construction conclusion. First, a term
may be implied to give effect to inferred intention.25
Second, precedent is important.26 That is obvious where contract doctrine is
applied by construction. But precedent also exerts an influence in the application
of particular types of contracts or clauses. Even the scope of application of
particular words may be determined by precedent. Illustrations are given later in
this chapter.27
Third, at least where the contract is ambiguous in its application to a given
subject matter or person, extrinsic evidence may be admissible.28 The purpose of
such evidence is to resolve the ambiguity by construction.
Fourth, a construction preference may be used as an aid to application.
[15-08] Construction preferences. ‘Construction preferences’ are used to make
systematic choices in construction. The preference for reasonable results over
unreasonable results is the most important preference.29 Although ultimately
derived from precedent, construction preferences are also based on common
sense and policy.
Construction preferences may be used in relation to any aspect of
construction.30 But since most focus on how contracts should be applied to
factual situations, it seems appropriate to deal with them in that context. They
are therefore discussed in the next chapter, as specific incidents of commercial
construction.
RELEVANT STANDARDS
General
[15-09] Introduction. It has long been recognised that different construction
results may be obtained according to how a given meaning is applied. The cases
abound with descriptions such as ‘strict’, ‘literal’, ‘liberal’, ‘broad’, ‘purposive’
and ‘commercial’. Such descriptions signify that just as words may have more
than one meaning, a single meaning may be applied in more than one way.
Whether or not expressly referenced to application of the contract, the decision
to apply the meaning in a particular way determines the scope of application of
the contract.
In relation to the meaning of words, the standard of interpretation concept
mediates between a word (or other symbol) and the usages available to the
reasonable person who is taken to construe a contract under the perspective
rule.31 In an analogous way, ‘standard of application’ is a concept which
mediates between linguistic meaning and the facts to which the contract must be
applied. Use of the concept generates construction conclusions.
[15-10] Definition.
Article 15.1 — Standard of application defined.
‘Standards of application’ describe the standards by reference to which
contracts are applied to factual situations.
Construction questions which arise in the application of indeterminate contracts
may be resolved by employing the ‘standard of application’ concept. In
mediating between meaning and factual circumstances, the concept has two
functions. The principal function is descriptive: it describes the standards by
reference to which contracts are applied to factual situations.
Second, the standard of application concept is a construction tool. Different
results may arise under different standards. But construction is not a
discretionary process: choice of a particular standard of application provides a
principled basis for giving effect to the intention of the parties.32
Standards for Application
Article 15.2 — Possible standards.
The ‘standard of application’ of a contract may be: (a) commercial;
(b) literal; or
(c) strict.
In order to interpose a particular standard for applying an established meaning to
factual circumstances, it is necessary to identify the available standards.
Relevantly, there are three standards, according to whether construction of the
contract achieves a ‘commercial’, ‘literal’ or ‘strict’ application to the facts.
Other words are used to describe commercial application, such as ‘liberal’,
‘broad’ and ‘purposive’.
Particular standards logically operate in opposition to others. For example,
‘literal’ construction is often used in opposition to ‘liberal’ or ‘purposive’
construction.33 Other cases use ‘strict’ in opposition to ‘liberal’ or ‘purposive’.34
But, at times, ‘literal’ is used to mean ‘strict’.35 It is therefore difficult to be
scientific in the use of such terminology. Indeed, the utility of the concepts has
been doubted.36 However, a standard of ‘commercial’ application is inherent in
the idea that the object of construction is to achieve a commercially sensible
result. The issue is therefore one of process, not description.
[15-12] Distinguishing literal and strict application. Literal application of a
contract treats the meaning of words as determinative of their scope. For
example, literal application of an exclusion clause will make the contract
applicable to all circumstances to which the clause is capable of applying as a
matter of ordinary English.37 If nothing else, the cases on such clauses, and
provisions which are regarded as analogous, show that the idea that English law
has traditionally applied contracts literally is a myth. For example, if an
exclusion clause states that the promisor has ‘no liability for breach’ of the
contract, literal application makes the contract little more than a declaration of
intent. Such clauses have never been applied in that way.38
Accordingly, it has often been said that an exclusion clause must be strictly
construed.39 That is a reading down process. For example, construed strictly, a
clause referring to ‘liability’ does not include ‘liability for negligence’. Although
the reading down process enables the clause to be applied literally, in truth, the
application of the contract is strict. The rationale is that the clause lacks words
which are necessary to make it expressly applicable.
[15-13] Literal application and plain meaning. Conventionally, literal
meaning is associated with literal application, so that construction in accordance
with the ‘plain meaning’ of a contract has often been equated with its literal
application, or an application ‘strictly’ in accordance with the plain meaning of
words.40 For example, when stating the presumption in favour of plain meaning
in Shore v Wilson,41 Tindal CJ spoke42 in terms of the ‘strict, plain, common
meaning of the words’.
However, because there is no direct relationship between the standard of
application of a contract and its standard of interpretation,43 the fact that words
have been used in accordance with usages of the community at large says little
about their intended scope of application.44 Since a single meaning may have
more than one application, construction must deal with a further question,
namely, ‘Which application?’.
It follows that whatever a contract means in a linguistic sense, recourse to an
application standard may be necessary in order to construe the contract. A belief
that what the contract means in a linguistic sense determines its scope of
application is a commitment to literalism in application. In Staffordshire Area
Health Authority v South Staffordshire Waterworks Co,45 Lord Denning MR
pointed out46 that any such commitment, as derived from the plain meaning rule,
is ‘quite out of date’. In that case, notwithstanding the plain meaning of ‘at all
times hereafter’ in relation to a supply obligation, the contract was not applied
literally.47
[15-14] Literal application and natural meaning. The senses in which the
expression ‘natural meaning’ is used were identified earlier.48 The concept is
problematic because several concepts masquerade as one. ‘Natural’ is often
regarded as interchangeable with ‘plain’, ‘literal’, and ‘ordinary’, as in the
expression ‘natural and literal’.49 Therefore, in the application of contracts,
‘natural meaning’ is easily equated with ‘literal application’.50
In Prenn v Simmonds,51 Lord Wilberforce said52 that in construction the
question may arise ‘how far one interpretation, or another, gives effect to a
common intention’. He went on to explain:53
The words used may, and often do, represent a formula which means
different things to each side, yet may be accepted because that is the only
way to get ‘agreement’ and in the hope that disputes will not arise.
Lord Wilberforce said54 that, in these circumstances, the only course open is to
‘try to ascertain the “natural” meaning’.
Like so many cases, the decision in Prenn v Simmonds embodied a particular
conclusion about how the contract applied to the facts. The issue was the
construction to be placed on the words ‘aggregate profits of RTT … available for
dividend’. Although the contract defined ‘RTT’ to mean ‘Radio and Television
Trust Limited’, the words ‘aggregate profits of RTT’ were construed on the basis
that they referred to the consolidated profits of a group of companies, namely,
RTT and its subsidiaries. The construction of the contract gave it a commercial
application. The construction was ‘natural’, in the sense that it was
‘commercial’. It was not literal.
Choosing the Standard
[15-15] Issue of intention.
Article 15.3 — Choice of standard a matter of intention.
(1) The standard of application for a contract depends on the intention
of the parties.
(2) More than one standard of application may be used when applying a
contract.
The standard of application of any contract depends on the intention of the
parties. As a matter of law, a choice between standards must give effect to their
intention. But a choice need only be made where intention in relation to
application of the contract must be inferred. The construction decision will then
embody a conclusion about the standard of application for the contract. But, as
with the standard of interpretation concept,55 a contract may attract more than
one standard of application.
In theory, the parties may expressly state how they intend the contract to be
applied. However, that is a rare phenomenon.56 Moreover, because meaning does
not determine the scope of application of a contract, an express definition may
not lead to a single application. That was the position, for example, in AIB
Group (UK) Ltd v Martin,57 where there was more than one way to apply an
interpretation clause which defined ‘mortgagor’.
[15-16] Perspective rule applies. Intention is inferred in relation to the scope of
a contract by applying the perspective rule.58 The intended application of a
contract is therefore determined objectively.59 Because the standard of
application concept tracks the perspective rule, it is applicable to any document
to which that rule applies, including a notice served under a contract.60 Whether
the contract is a simple contract or expressed in a deed is not relevant.61
How a contract should be applied therefore depends on the conclusion
reached by a reasonable person in the position of the person to whom the words
are addressed.62 Account must be taken of the characteristics of that person and
the context of the contract. When the contract is addressed to a commercial
person, the standard for application of the contract is presumed to be that of a
reasonable commercial person. Construction is heavily influenced by
commercial purpose.63 If the addressee is an ordinary consumer, a different
standard may apply.64
[15-17] Presumptions of intention. Intention may be inferred by the application
of presumptions of intention applied as rules of construction.65 Such rules are
commonly associated with the incidents of particular categories of contract, such
as contracts of guarantee and option contracts. These are discussed later in the
chapter.66
Construction rules which determine the scope of application of a contract may
also arise in relation to particular categories of clause, or particular words. Even
when the rule serves to determine the scope of application of a contract, the
construction conclusion is often expressed in terms of ‘meaning’. For example,
decisions restricting the scope of application of clauses which incorporate by
reference terms in other contracts are sometimes explained in terms of the
‘meaning’ of the incorporation clause.67 Even so, the result is often a strict
application.68 The principal examples are to be found in the context of exclusion
clauses and analogous provisions.69
COMMERCIAL APPLICATION
General
[15-18] Introduction. The cases have traditionally spoken in favour of the literal
application of contracts.70 It is not difficult to find 19th century decisions
extolling the virtues of literal application. For example, Martin B said in
Coddington v Paleologo71 that literal application was to be preferred even if it
allowed a ‘shabby defence’ to prevail. But the approach was hardly uniform.
Indeed, in the commercial context, courts often championed a ‘liberal’ approach,
or at least issued warnings about the dangers of ‘extreme literalism’.72
The emphasis on commercial construction has witnessed a process of
evolution under which commercial application has become the default rule for
choosing between competing applications of a contract.
[15-19] Liberalism. In Hotham v The East India Co,73 Lord Mansfield said74 in
1779 that mercantile contracts ‘ought to have a liberal interpretation’. Nearly
100 years later, Mellish LJ, speaking for the Privy Council in The Teutonia,75
said that ‘a mercantile contract, which is usually expressed shortly, and leaves
much to be understood, ought to be construed fairly and liberally for the purpose
of carrying out the object of the parties’. A century later, in Bunge SA v Kruse76
Lord Denning MR said77 that telexes alleged to constitute an accord and
satisfaction should be given the ‘liberal interpretation’ of a commercial person,
rather than the ‘literal interpretation’ to which a lawyer might be inclined.
These statements illustrate that ‘liberalism’ in construction has been an
enduring theme in English law. Of course, allowance must be made for different
perceptions of what ‘liberalism’ in construction entails.78 Considerations of
certainty in commercial matters frequently require applications of contracts
which could hardly be described as ‘liberal’.
[15-20] Evolution. As might be expected, the law has evolved.79 Broadly
expressed, construction has evolved from formalism to literal construction, and
from literal application to commercial application. As Lord Steyn80 explained in
his dissenting speech in Deutsche Genossenschaftsbank v Burnhope:81
Parallel to the shift during the last two decades from a literalist to a
purposive approach to the construction of statutes there has been a
movement from a strict or literal method of construction of commercial
contracts towards an approach favouring a commercially sensible
construction.
Lord Steyn’s preference for ‘commercially sensible’, over ‘purposive’, seems
appropriate. In Antaios Compania Naviera SA v Salen Rederierna AB (The
Antaios),82 Lord Diplock deprecated83 the ‘extension of the use of the expression
“purposive construction” from the interpretation of statutes to the interpretation
of private contracts’. But there is no magic in a label, and Lloyd LJ’s reference
in Summit Investment Inc v British Steel Corp (The Sounion)84 to separation of
‘purposive sheep from the literalist goats’ expresses the objective.
The same process of evolution has occurred in relation to contract doctrine
applied by construction. Although frustration and discharge for breach are legal
concepts, they are applied as matters of commercial judgment.85 The modern
doctrine of frustration, and the approach to discharge for breach formulated by
Diplock LJ in Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd,86
illustrate the triumph of commercialism over literalism in the application of
contracts. Therefore, a contract which is literally applicable to the circumstances
which have occurred may nevertheless be discharged by frustration. A key
ingredient has been the rejection of the theory of unconditional promises and
absolute liability based on the literal application of contracts to factual
situations.87
Construction Processes and Commercial Application
[15-21] Why commercial application is preferred. Since the task in
construction is always to determine and give effect to the intention of the parties,
labels do not matter. But the processes used to construe contracts do matter,
including how construction decisions which determine the scope of application
of contracts are arrived at. An important ingredient in the process of evolution in
construction is therefore the increased role given to context. Literal application is
objectionable where insufficient account is taken of context. For example, in
Hope v RCA Photophone of Australia Pty Ltd88 a contract for the hire of
electrical sound-reproduction equipment did not say whether it was to be new or
second-hand. Applying the words literally, it was held that the goods would
comply with the contract whether they were new or second-hand. But, as Dixon
J pointed out,89 in such a case the context of the contract may indicate that the
parties were, in fact, bargaining in relation to the supply of new equipment.
The basis for preferring commercial construction is not an abstract contrast
between various standards of application. Rather, it is that the systematic
elements in the construction process should always promote commercially
sensible constructions. Just as it is clear that literal application is not always
intended, a systematic process of strict application is inconsistent with the
objectives of commercial construction. Systematic strict application of
provisions such as exclusion clauses on the basis that they attract presumptions
of intention discounts the role of general principles. In addition, on occasions,
the rationale is simply that particular words have in the past been applied
strictly.90 Precedent cannot be ignored,91 but its use to justify the strict
application of a contract is not in the spirit of commercial construction.
[15-22] Commercial application as default rule.
Article 15.4 — Presumed standard.
Subject to precedent, if the context of a contract is commercial it is
presumed that the parties intend the contract to be applied commercially.
Accordingly, intention is inferred in relation to the scope of application
of the contract to a given set of facts by application of the commercial
standard.
The view now taken is that, where the context of the contract is commercial, the
only viable general standard is the commercial standard. In Mannai Investment
Co Ltd v Eagle Star Life Assurance Co Ltd,92 Lord Steyn referred expressly to a
‘standard of a commercial construction’. The standard is applied if it is
necessary to infer the intention of the parties in relation to the scope of
application of the contract. That includes choosing between competing
applications. However, the default rule may be displaced by precedent. The chief
example is the application of exclusion clauses and analogous provisions. In that
context, the extent to which the commercial standard applies is a matter of
debate.93
The impact of the cases is therefore that a standard of commercial application
is employed as a default rule.94 Courts now treat with scepticism suggestions that
‘literal’ or ‘strict’ construction is meaningful in the choice between competing
applications in a commercial context.95
[15-23] Application of the default rule. Of course, much of this book is about
application of the default rule. Because construction decisions often embody
conclusions about how the contract should be applied, many of the leading cases
discussed in previous chapters are revisited in this part of the book from an
application perspective.96
Commercial application is often inconsistent with the literal application of a
contract.97 The scope of application of a contract is therefore rarely determined
on a literal basis. For example, in Miramar Maritime Corp v Holborn Trading
Ltd98 Lord Diplock criticised99 two 19th century decisions100 in which a ‘literalist
construction’ approach had been applied to words appearing in bills of lading
issued for cargo loaded under certain voyage charterparties. The House of Lords
held that, in the absence of express words to the contrary, a provision in a bill of
lading which incorporates the terms of a specified charterparty does not apply to
terms which impose obligations on the designated charterer in matters relating to
shipment, carriage or delivery of goods. The impact was therefore to narrow the
scope of application of the incorporation clause. The basis was that ‘no business
man who had not taken leave of his senses would intentionally enter into a
contract which exposed him to a potential liability’101 of the kind which would
have flowed from literal application.
The leading case is Antaios Compania Naviera SA v Salen Rederierna AB
(The Antaios).102 A time charterparty contract on the New York Produce
Exchange form conferred a right to withdraw the vessel, ‘failing the punctual
and regular payment of the hire, … or on any breach of this charterparty’. The
italicised words were at issue. If the contract was applied literally, the
shipowners were entitled to withdraw the vessel for any breach by the charterers,
no matter how minor.103 The arbitrators concluded:104
We would say that if necessary, in a situation such as this, a purposive
construction should be given to the clause so as not to defeat the
commercial purpose of the contract.
Referring to the conclusion, Lord Diplock said:105
While deprecating the extension of the use of the expression ‘purposive
construction’ from the interpretation of statutes to the interpretation of
private contracts, I agree with the passage … and 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 must be made to yield to business commonsense.
In the result, the clause was construed on the basis that the words ‘any breach’
were applicable to ‘any repudiatory breach’.106
More recently, in Lancashire County Council v Municipal Mutual Insurance
Ltd107 construction of the word ‘compensation’ in an insurance contract as not
including (applying to) exemplary damages was seen108 as ‘a literal, lawyer’s
understanding of the term’, and not applied. And in Bank of Credit and
Commerce International SA v Ali109 the bank’s argument for literal application of
a release of liability was rejected. The release referred to ‘all or any claims … of
whatsoever nature’. But it did not apply to an employee’s claim for stigma
damages, which was not capable of being known at the time of the contract.110
CONTEXTS IN WHICH LITERAL APPLICATION MAY PREVAIL
General
[15-24] Introduction. The fact that contracts must be applied commercially does
not mean that legal rules can be ignored, or that commercial application can be
used to second-guess the intended application of a contract. For example, if a
contract requires the delivery of 100 tonnes of wheat, delivery of 90 tonnes does
not satisfy the contract. The fact that such a delivery may be a ‘substantial’
compliance with the obligation is generally irrelevant from the perspective of
whether the contract has been breached.111 The same is true of time
requirements.112
In such cases, so far as proof of breach is concerned, it is not meaningful to
speak of a choice between literal and commercial application. The scope of
application of the contract is not at issue. However, as Antaios Compania
Naviera SA v Salen Rederierna AB (The Antaios)113 illustrates, the position may
be quite different in relation to other issues, such as whether an express right of
termination is applicable. And the point is more or less obvious in relation to the
legal effect of a contractual term, as in Bettini v Gye,114 where the fact that
Bettini had agreed to be in London ‘without fail’ at least six days before the
commencement of his engagement did not settle the question whether the
contract was to be applied on the basis that time was of the essence.
[15-25] Relevant contexts. Because commercial construction (application) is a
default rule, it does not apply if the parties have agreed to the contrary. That
includes cases in which there is a failure to displace a rule of law — based on a
presumption of intention — in favour of literal application. In such cases,
application is literal unless the construction of the contract indicates a contrary
agreement.
There are three traditional categories: (1) conditions precedent;
(2) notice requirements; and (3) documentary credits.
However, the approach to the first category is perhaps more refined than in the
past, and the second category can no longer be maintained.
Conditions Precedent
[15-26] Introduction. Where a contract, or the obligation to perform a contract,
is subject to the prior occurrence of a particular event, that event is generally
referred to as a ‘condition precedent’.115 If the condition precedent fails, there is
no contract, or no obligation to perform.116
From the perspective of application of the contract, the approach to
conditions precedent is literal. What is put forward as compliance with the
condition must ‘match’ exactly the contract requirements.117 There is generally
no room for ‘substantial’ compliance. If fulfilment of the condition precedent has
been promised, the term may be a promissory condition.118
[15-27] Identification of the condition precedent. In all cases, whether the
occurrence of a particular event (contingency) is a condition precedent, and what
is required for the contingency to be fulfilled, are matters of construction.119
Where a contract includes a condition precedent, it is not correct to assume that
every item which is an element of the condition precedent must be applied
literally to the facts.
Both points are illustrated by Reardon Smith Line Ltd v Yngvar Hansen-
Tangen.120 Time charterparty and sub-charter contracts were entered into in
respect of a vessel described as a ‘motor tank vessel to be built at a yard in
Japan’. The sub-charterers sought a declaration that they would not be obliged to
accept the vessel when it was built, because the vessel would not comply with its
contractual description. Various labels had been applied by the documents at
issue. These included: ‘to be built by the Osaka Shipbuilding Co Ltd’ and
‘known as Hull No 354 until named’ and, in the sub-charter, ‘[n]ewbuilding
motor tank vessel called Yard No 354 at Osaka’. If the various labels were
contractual descriptions, literal compliance with each ingredient was not a
condition precedent. Lord Wilberforce said:121
Even if a strict and technical view must be taken as regards the
description of unascertained future goods (eg commodities) as to which
each detail of the description must be assumed to be vital, it may be, and
in my opinion is, right to treat other contracts of sale of goods in a similar
manner to other contracts generally so as to ask whether a particular item
in a description constitutes a substantial ingredient of the ‘identity’ of the
thing sold, and only if it does to treat it as a condition (see Couchman v
Hill [1947] KB 554 at 559).
Alternatively, applying the rules on description, since the elements which were at
issue did not go to the ‘identity’ of the vessel, the sub-charterers were obliged to
accept the vessel. No condition precedent was at issue. The contracts were
therefore applied on the basis that the vessel ‘matched’ its contractual identity as
a medium-sized tanker which, for the purposes of the proceedings, was assumed
to conform with its specifications.122
The approach taken in Reardon Smith Line Ltd v Yngvar Hansen-Tangen is
yet to be fully embraced by the cases on option contracts.
[15-28] Conditions precedent in options. An option contract confers on the
optionee the right to acquire property (or to require the optionor to acquire
property) by exercise of the option. Obviously, the contract will specify certain
requirements. What those requirements involve, and whether literal compliance
with each is a condition precedent, are questions of construction. There need be
no ‘condition precedent’ language.123
It is well-established that what is put forward as exercise of the option must
be a literal match with the requirements of the option. The treatment of options
as offers has been influential.124 There is a long line of authority supporting
literal application, which is often expressed in terms that the requirements must
be ‘strictly’ complied with.125 For example, if the price must be paid on exercise,
and payment is not made, that will usually amount to failure of a condition
precedent.126 Compliance with the requirements of the option may also involve
performance of another contract.127
Similarly, if the option requires notice to be received on or before a specified
date, a condition precedent may fail if the notice of exercise is not timely.128 The
same approach has been applied where a reasonable time for exercise is implied,
as in United Dominions Trust (Commercial) Ltd v Eagle Aircraft Services Ltd.129
A finance company which purchased certain aircraft was granted an option to
require the seller to repurchase. The court implied a requirement of exercise
within a reasonable time of termination of the contract between the finance
company and the hire-purchasers of the aircraft. Because notice was not given
within a reasonable time, the condition precedent failed, and the seller was not
obliged to repurchase.
Various explanations have been given of this approach.130 However, the fact
that the optionee does not promise to comply with the requirements for exercise
is a key feature.131 If the optionor is prejudiced by non-compliance, there is no
right to compensation. Accordingly, it may be a reasonable inference that the
parties intend the option contract to be applied literally.
But that is by no means inevitable. The identification of the condition precedent,
and whether the contract is intended to be applied literally, are questions of
construction.132 The law has never required the optionee to follow the
requirements of exercise to the absolute letter.133 Where several elements are
included, it is arguable that the courts have too readily accepted that literal
compliance with each is a condition precedent.134 Moreover, so far as concerns
notice of exercise, the decision in Mannai Investment Co Ltd v Eagle Star Life
Assurance Co Ltd135 suggests that the presumption is in favour of commercial
application.
Notice Requirements
[15-29] Introduction. Notice requirements are very common in contracts. The
contexts are diverse, and include notice of default, notice of a claim, notice of
termination, notice of force majeure, and so on.
In some contexts, an intention in favour of literal application has been
presumed, so that the notice is invalid if it is not literally in accordance with the
contractual provision. That includes a notice given in the exercise of an option,
or a notice served under a contract of guarantee. In other areas, whether there is
any presumption is unclear.136 However, situations in which literal application is
insisted on must now be regarded as ‘special cases’, in the sense that, following
Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd,137 commercial
application is the general approach to notice requirements.
[15-30] Termination procedures. Virtually every express right of termination
will be drafted to include notice as an element of exercise. That is true whether
the right is to terminate for breach, or independently of breach, as under a break
clause or a force majeure clause.
In the past, a requirement of literal compliance was often applied.138 The
decision in Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd139 is
an important illustration of commercial application. In that case, cl 7(13) of a
lease provided: [T]he tenant may by serving not less than six months’ notice in
writing on the landlord or its solicitors such notice to expire on the third
anniversary of the term commencement date determine this lease and upon
expiry of such notice this lease shall cease and determine and have no further
effect.
The lessees served a notice which said: ‘Pursuant to cl 7(13) of the lease we as
tenant hereby give notice to you to determine the lease on 12 January 1995 …
.’In fact, the third anniversary of the term commencement date was 13 January
1995. The question was whether the notice was an effective exercise of the
power conferred by the lease.
The lessors argued that nomination of the incorrect date vitiated the notice. If
the notice was construed and applied literally, they were correct. But it was held
(Lords Goff and Jauncey dissenting) that the notice determined the lease. Lord
Steyn framed140 the issue in terms of ‘satisfying the test that no reasonable
recipient of the notice could be misled’, and said:141
The question is not whether 12 January can mean 13 January: it self-
evidently cannot. The real question is a different one: does the notice
construed against its contextual setting unambiguously inform a
reasonable recipient how and when the notice is to operate under the
right reserved?
The majority said that the notice was good because, judged by reference to a
reasonable person in the position of the lessor, it was sufficiently clear.
The impact of Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd
is that, in applying a notice and the contract to the facts to determine whether
there is a ‘match’ between the notice and the contract, the approach is
commercial, not literal or strict.142 If a reasonable person in the position of the
party to whom the notice is addressed would be left in no doubt that the right (or
power) has been exercised, the notice will be regarded as valid even though,
applied literally, the match may not be exact.143
Of course, even though it may be clear what the notice is intended to achieve,
it may still be invalid. A notice which does not comply with a mandatory
statutory requirement will be invalid.144 In relation to notices served under
contracts, the issue is one of construction.145 Activation of a termination right by
a specific date, or in a specific manner, may be a condition precedent to effective
exercise.146 However, in deciding whether the notice is a valid exercise of the
right, account must be taken of the consequences of that decision.147
If a notice requirement is promissory in nature, a notice will often be effective
even though it does not comply with the contract.
[15-31] Promissory notice requirements. Where the notice requirements set
out in a contract are promissory in nature,148 the first step is to apply the
perspective rule in accordance with the principles stated in Mannai Investment
Co Ltd v Eagle Star Life Assurance Co Ltd.149 The question is whether a
reasonable person in the position of the recipient of the notice would understand
it to have been given for the purpose stated. Assuming that is established, but the
notice is nevertheless defective, the issuer is liable in damages.
The second step is to determine whether the notice is nevertheless an effective
notice. That depends on whether the issuer has breached a condition, a warranty
or intermediate term.150 If the contract states a promissory condition, due
compliance is a condition precedent to enjoyment of the right or power in
respect of which the notice purports to be given. Examples are uncommon.
However, breach of condition will lead to an inability to invoke a rent review
procedure151 or a force majeure clause.152
The above discussion concerns notices given in exercise of rights and powers
in relation to particular applications of a contract by the parties when specified
events occur.153 The impact of breach of a promissory condition is simply that
the right or power is not enjoyed. Notices given in performance of the contract
are different. In such cases, classification of the term as a condition means that
the promisee is entitled to terminate the contract.154
Documentary Credits
[15-32] Introduction. In relation to documentary credits, the contract between
the issuer of the credit and the applicant is applied literally. So also is the
contract which is regarded as existing between the beneficiary and the issuer.
The approach conforms to the analysis above of conditions precedent. However,
the arrangements for financing international sale contracts and other transactions
in which banks and other financial institutions undertake responsibility for
payment under documentary credits, performance bonds, and so on, comprise a
distinct category of case.
A documentary credit operates both as the primary source of payment and as
a security for the payee. As such, it is clearly a commercially significant
document. Moreover, the bank involved has no interest in the underlying sale
transaction.155 There is no expectation that the bank will familiarise itself with
the details of that transaction. Since a documentary credit is issued under an
autonomous contract, the bank’s position is not affected by allegations of breach
of the underlying transaction.156 Nor does its obligation to pay depend on third
party default.157 Assuming that it has been put in funds, the bank’s concern is
with the requirements which regulate its obligation to pay. The issuing bank’s
obligation to pay under a letter of credit therefore depends on a tender of
conforming documents (as described in the instructions), in accordance with
current banking practice. It is otherwise an unconditional obligation.158
As elements of general context, all the points noted above suggest an
underlying assumption that the intention is for such contracts to be applied
literally. However, it would be simplistic to suggest that literal application is
commercially appropriate to all aspects of the transactions involved.
[15-33] Literal application. The duty of a bank is to determine what documents
were stipulated159 and to ensure that the documents tendered are on their face in
accordance with (match) the instructions.160 The bank must make its decision by
a literal application of its instructions to the documents tendered.161 Time
constraints, and the nature of the role which the bank plays, militate against the
application of a principle that would require the bank to take steps to determine
whether discrepancies in the documents can safely be ignored. Indeed, it is
doubtful whether the de minimis principle applies as between the bank and the
beneficiary.162
Particularly in the international trade context, it is well established that a bank
is entitled to make its decisions without inquiry. Since questions such as whether
the documents tendered are substantially or almost the same, or equally as good
as those against which the bank promised to pay, cannot be answered without
inquiry, they do not arise.163 There is no choice to be made between competing
applications of the contract. It is sufficient that on a ‘reasonably careful
examination’,164 the documents appear to conform.
But even in this context, literal application is not slavish. The fact that
instructions are ambiguous, or are otherwise capable of applying to more than
one set of documents, does not mean that a tender of documents should always
be rejected. It is sufficient for the bank to act, within a reasonable time, on a
reasonable construction of the instructions.165 And if a documentary credit
provides for payment against bills of lading without further qualification, it is
understood that only ‘clean’ bills of lading are acceptable.166 This accords with a
commercial understanding, not a literal application of the words ‘bills of lading’.
In addition, some irregularities or linguistic discrepancies are justifiably
regarded as irrelevant.167
CONTEXTS WHERE STRICT APPLICATION MAY PREVAIL1
General
[15-34] Introduction. ‘Strict’ construction is often equated with ‘literal’
construction. However, from the perspective of application of a contract there is
a difference. As standards of application, both require an exact (and in that sense
‘literal’) match between the contract and the facts to which the contract is sought
to be applied. But ‘strict’ application of a contract involves a ‘reading down’
process.168 Therefore, where words which are capable of being applied to the
facts are construed strictly, they are less likely to match the facts.
The use of strict application has often been justified by recourse to
presumptions of intention, that is, construction rules. On other occasions, strict
application is simply the result of employing canons of construction. For
example, for some years169 the ejusdem generis rule was employed to achieve
strict application of protective provisions in standard form contracts.170 It ought
now to be possible to ignore the canons applied as construction rules, but the
contra proferentem rule is still given a role in the context of exclusion clauses
and provisions which are regarded as analogous.171
In addition, for certain kinds of clause, strict application may be the norm.
‘No waiver’ clauses, deeming conduct which might otherwise prevent exercise
of a right of termination not to be a waiver of the right, have frequently been
applied strictly.172 A forfeiture clause is another example.173 ‘Strict construction’
of such a clause seems to be regarded as an element of modern commercial
construction.174
The discussion below concerns the role of strict application in contracts of an
aleatory nature.
[15-35] Aleatory contracts. Where the obligation to perform a contract arises
on the occurrence of an event that neither party desires to occur, the aleatory
nature of the contract is relevant to construction. Contracts of insurance and
contracts of guarantee are examples. Since such contracts have frequently come
before the courts, there is a substantial body of authority on their construction.
Application of such contracts has often been more strict than commercial.
Other contexts in which strict application is common may also be rationalised
on the basis that the construction issues relate to fortuitous events. Accordingly,
but under different lines of authority, courts have deployed strict application in
relation to provisions which purport to exclude or limit liability, as well as force
majeure clauses and analogous provisions.175
Contracts of Guarantee
[15-36] Introduction. Although the obligation of a guarantor to perform is
activated by the occurrence of a fortuitous event, non-occurrence of the event is
something which the guarantor has agreed to procure.176 Accordingly, default by
the principal debtor is synonymous with default by the guarantor.
The legal incidents of contracts of guarantee were worked out at a time when
guarantors commonly received no direct benefit for their promises. Often, the
motivation (and reward) was moral or sentimental rather than financial,
including to secure the indebtedness of a relative. Given the aleatory nature of
the contract, the absence of commercial motive and, in many cases, the absence
of legal advice, it is not surprising that the courts devised legal rules to protect
guarantors.177 Two rules relevant to construction are discussed below: (1) the
strict application rule; and (2) the variation rule.
Although guarantees given in the commercial context are not motivated by
sentiment or moral duty,178 these rules still apply as presumptions of intention.179
Ultimately, whether the parties intend a contract to be applied strictly is a
question of construction. It is therefore necessary to determine whether the
presumptions which the two rules referred to above embody are intended to
apply. In practice, they are often expressly displaced.180 That is evidence of a
view that the rules are not commercially acceptable, and need adaptation in the
commercial context.
[15-37] Construction principles in general. In Utica City Nat Bank v Gunn,181
Cardozo J had no doubt that processes in construction are not affected by the
mere fact that the contract is one of guarantee. From the perspective of
construction principles in general, a contract of guarantee is no different from
any other contract.182 For example, the contract must be construed as a whole,183
applying the perspective rule.184
There may be every reason to apply guarantees strictly where the reasonable
person who is taken to construe the contract stands in the position of a person
whose motivation for providing the guarantee is sentimental. However, the
contracts which come before the courts today are typically provided by directors,
parent companies and others who have a financial interest in due performance of
the principal contract. Guarantees are also provided by companies whose
business includes the provision of guarantees for reward (so-called,
‘compensated sureties’).
[15-38] The strict application rule. The strict application of contracts of
guarantee is expressed in the strictissimi juris rule. That rule is usually traced
back to the somewhat ambiguous statement of Lord Ellenborough in Bacon v
Chesney.185 He said186 that a claim against a surety is ‘strictissimi juris, and it is
incumbent on the plaintiff to shew that the terms of the guarantee have been
strictly complied with’. The scope and continued viability of a rule expressed in
those terms, and also its relationship with the variation rule discussed below, are
uncertain. However, in ST Microelectronics NV v Condor Insurance Ltd187
Christopher Clarke J cited cases on both rules in reaching the conclusion that the
‘principle underlying’ the cases is one of ‘strict application’.
In Ankar Pty Ltd v National Westminster Finance (Australia) Ltd,188 Mason
ACJ, Wilson, Brennan and Dawson JJ said:189
At law, as in equity, the traditional view is that the liability of the surety
is strictissimi juris and that ambiguous contractual provisions should be
construed in favour of the surety. The doctrine of strictissimi juris
provides a counterpoise to the law’s preference for a construction that
reads a provision otherwise than as a condition. A doubt as to the status
of a provision in a guarantee should therefore be resolved in favour of the
surety.
Because it posits ambiguity, the first sentence suggests that the strictissimi juris
rule is analogous to the contra proferentem rule.190
In Coghlan v S H Lock (Australia) Ltd,191 the Privy Council, in stating192 what
it described as ‘well-known principles of construction in relation to guarantees’,
said that the ‘document falls to be construed strictly; it is to be read contra
proferentem; and, in case of ambiguity, it is to be construed in favour of the
surety’. Taken at face value, the Privy Council’s summary states three
construction rules, each of which operates in favour of the guarantor. Whether or
not that was intended,193 it clearly regarded strict construction as inherent in the
construction of contracts of guarantee. Recent Australian cases, such as Chan v
Cresdon Pty Ltd,194 have treated the majority’s statement in Ankar Pty Ltd v
National Westminster Finance (Australia) Ltd as supporting a general principle
of strict construction.195
[15-39] Status of the strict application rule. English law has not in terms
rejected the strict application rule in favour of the view that a commercial
contract of guarantee should be applied commercially. For example, in Wardens
and Commonalty of the Mystery of Mercers of the City of London v New
Hampshire Insurance Co196 Parker LJ said that, ‘in general contracts of
suretyship are to be construed favourably to the surety’. And in Estates Gazette
Ltd v Benjamin Restaurants Ltd197 Nourse LJ did not dissent from an approach
under which a guarantee is construed against the creditor where there is an
element of ‘ambiguity or doubt’. On the facts, there was no ambiguity or doubt,
and the reference to ‘doubt’ suggests that some justification is necessary in order
for the contract to be applied strictly. But it also validates application of a
version of the contra proferentem rule. Therefore, even if the strictissimi juris
rule does not remain part of English law,198 the application of a contract of
guarantee may often be strict rather than commercial.
The fact that the guarantee is given for a commercial purpose ought to be a
sufficient basis for use of a commercial standard of application where it is
necessary to infer the parties’ intention. There may be a movement in that
direction, including by reliance on general and specific context and commercial
purpose. For example, in Static Control Components (Europe) Ltd v Egan199 the
question was whether a contract of guarantee applicable to ‘goods that you may
supply to the trader’ applied only to future supplies. Having regard to context,
the Court of Appeal held that was not the construction of the guarantee. In
reaching this result, the ICS principles200 were applied.201 Similarly, express
provisions which alter the normal incidents of contracts of guarantee are not
always subjected to the strict construction rules applied to exclusion clauses.202
Under Australian law it is clear much of the old learning survives.203 The
High Court of Australia204 has expressly rejected arguments in favour of the idea
(which appears to have support in the United States)205 that guarantees provided
by compensated sureties should be applied commercially.
[15-40] The variation rule. The variation rule is derived from equity. The rule
protects the guarantor from conduct of the creditor which might increase the risk
that the guarantee will be called upon, or affect the quantum of liability or the
guarantor’s rights of subrogation.206 As stated in cases such as Holme v
Brunskill,207 the rule applies if there is a variation to the principal contract,208 or
if the creditor grants the principal debtor some unauthorised ‘indulgence’.209 The
impact is that the guarantor is automatically discharged unless the alteration or
indulgence is immaterial, or to the guarantor’s benefit.210 However, termination
of the principal contract for breach or repudiation by the debtor does not bring
the rule into play.211
The rationale for the variation rule is that application of the guarantee
contract is different if the principal contract is varied. Therefore, like the strict
application rule, it concerns the scope of application of the guarantor’s promise.
The parties may, however, agree that the variation rule does not apply. Such an
agreement is a common feature of modern contracts.212 But provisions of that
nature are not new.213
[15-41] Relationship between the rules. The relationship between the two rules
has never been clear. However, a particular standard of application is inherent in
each. From the perspective of the contract of guarantee, the standard is strict
application. From the perspective of the principal contract, the standard is literal
application. A commercial standard is conspicuously absent.
In practice, any contrast between the two rules is difficult to maintain.214 That
is particularly the case where the guarantor relies on breach of contract by the
creditor.
[15-42] Breach by the creditor. A breach by the creditor may relate to the
contract of guarantee or to the principal contract. Ankar Pty Ltd v National
Westminster Finance (Australia) Ltd215 concerned the former. A security deposit
agreement — which operated as a form of guarantee — was entered into
between the lessor (as creditor) and Lombard (as guarantor) to secure
performance of the lessee’s obligations under a lease of goods. The guarantor
claimed to be discharged by the creditor’s breach of two terms of the guarantee.
Clause 8 required the exercise of best endeavours to ensure that the goods
remained in the lessee’s possession. Clause 9 required the creditor to notify (and
to consult with) the guarantor following default by the lessee. The majority
applied general principles of discharge for breach and classified the terms as
conditions. The guarantor was discharged, but the variation rule was not
applicable.
Deane J considered the facts brought into play an aspect of the variation rule.
He quoted216 the following passage from Halsbury’s Laws of England:217
Any departure by the creditor from his contract with the surety without
the surety’s consent, whether it be from the express terms of the
guarantee itself or from the embodied terms of the principal contract,
which is not obviously and without inquiry quite unsubstantial, will
discharge the surety from liability, whether it injures him or not, for it
constitutes an alteration in the surety’s obligations.
Applying this statement, Deane J treated the creditor’s breach of the guarantee as
having the same effect as an unauthorised variation to the principal contract. The
guarantor was therefore discharged, and whether the creditor had breached a
condition did not matter.
Where the principal contract is not embodied in the guarantee, it is difficult to
see why breach by the creditor of that contract, which is neither a variation nor
analogous to a variation, should activate the variation rule. In National
Westminster Bank Plc v Riley,218 the Court of Appeal said that breach by the
creditor does not always discharge the guarantor. Whether the guarantor is in all
cases discharged by ‘repudiatory breach’ of the principal contract is unclear. So
also is whether a lesser breach can ever be sufficient.219 If a commercial
approach is taken, the question would always be decided by commercial
construction of the guarantee.
However, if the guarantee ‘embodies’ the principal contract, it seems that,
unless ‘unsubstantial’, any ‘departure’ by the creditor from the principal contract
will discharge the guarantor.220 The rationale appears to be that a breach by the
creditor must be accorded the same effect as a ‘variation’ to the principal
contract.
[15-43] Conditions precedent in guarantee contracts. Whether or not the law
requires guarantee contracts to be applied strictly, the literal approach applied to
the exercise of options221 has inevitably been employed in relation to similar
provisions in contracts of guarantee and directly analogous contracts. The basis
is that the guarantor is subject to a performance obligation activated by an event
which the creditor has not promised to bring about. For example, if the contract
of guarantee requires notice to the guarantor within a specified or reasonable
time following default by the principal debtor, the requirement may take effect as
a condition precedent.222 If the requirements (as to time or otherwise) are not
met, the guarantor is not obliged to perform even though there is no breach of
contract by the creditor.
Given the nature of the risk undertaken by a guarantor, it is a reasonable
inference that the parties intend requirements which directly qualify the
creditor’s right to call upon the guarantor to be met exactly. In other words, the
contract should be applied literally.223 An extreme example is Tricontinental
Corp Ltd v HDFI Ltd,224 where an ‘underpinning’ contract took effect as a
guarantee. Literal satisfaction of all the requirements set out in the contract for
the making of a demand was held to be a condition precedent to the guarantor’s
liability, even though there was an express provision dealing with ‘conditions
precedent’ which did not refer to the requirements in issue. The right to make
demand under the contract was lost by a failure to serve notice at a Perth
address. The notice was served in Sydney, on a person who had no authority to
receive it, but who had conducted the negotiations for the facility.
Notwithstanding that — as a matter of fact — there was knowledge of default, a
$22 million liability was avoided.
The fundamental question is always the intention of the parties. Whether the
obligation of the guarantor to pay is subject to fulfilment of a condition
precedent, and what that condition precedent entails, are questions of
construction. To assume that each element attracts a literal standard of
application, under which even a formal failure is fatal, would be
uncommercial.225
Contracts of Indemnity
[15-44] Introduction. Indemnity promises are found in a variety of contexts.
The most common form is an insurer’s promise to indemnify an insured under a
contract of liability or property insurance. But indemnity promises in ordinary
commercial contracts are also quite common. A guarantee promise is a form of
indemnity promise.226 In the context of a third-party guarantee, there may be
little to choose between the two concepts. Indeed, most modern contracts of
guarantee include indemnity promises.227
At least where the guarantor’s promise is ‘that the principal debtor will carry
out his contract’,228 an action against a guarantor is an action for damages.229
Similarly, a claim against an indemnifier is also, at least usually, an action for
damages.230 Nevertheless, much ink has been spilled in the cases applying s 4 of
the Statute of Frauds 1677 in distinguishing guarantees from indemnities.231
While one reason for emphasising the distinction in that context has been to limit
the application of s 4, it is meaningful to distinguish between the two types of
contract.232
In particular, whereas the liability of a guarantor usually depends on default
by the debtor, liability on an indemnity promise may be independent of default.
Therefore, more generally expressed, a contractual indemnity is a primary
obligation which is breached by the failure of the indemnifier to prevent the
indemnified person suffering damnum.233 However, a contractual indemnity may
be construed not as a primary obligation, but rather as an exclusion of the
indemnified party’s liability to the indemnifier on the basis stated in the
indemnity provision.234
[15-45] Application of indemnity contracts. Historically, insurance contracts
were construed against the insurer. But that approach is out of place in the
commercial context.235 For the most part, the recent cases state or assume that
general construction principles apply,236 and deny the viability of a general
approach requiring a literal or a strict application of the contract.237 This serves
to emphasise the role of commercial construction in the application of contracts
of insurance. As Neill LJ said in Turner v Manx Line Ltd,238 the concern is with
‘business common sense’. Similarly, in McCann v Switzerland Insurance
Australia Ltd239 Gleeson CJ said240 that an insurance contract must be given a
‘businesslike’ construction; and Kirby J said241 that provisions in an insurance
contract should be given their ‘ordinary and fair meaning’. However, the
authorities are far from uniform. For example, in Lancashire County Council v
Municipal Mutual Insurance Ltd242 Simon Brown LJ said243 that the contra
proferentem rule ‘strongly applies’ to contracts of insurance. And particular
issues may be subject to special rules.244
Generally speaking, a commercial approach is taken to non-insurance
indemnities.245 The strict application and variation rules deployed in relation to
third party guarantees have not usually been applied.246 Although such contracts
typically also include indemnity promises, indemnities operate in a variety of
other contexts. For example, a contractual indemnity may relate to an external
event such as a third party’s claim against the indemnified party, or the
performance obligations of one of the parties, as where a contract for the
provision of services includes a promise by the supplier to indemnify the
customer in relation to supplier default. This diversity has led to some
complexity in the application of such contracts.247 Nevertheless, under English
law there is no general principle of strict construction.248 But a strict standard for
application (in favour of the indemnifier) is presumed where the question is
whether the indemnity applies to a breach of duty by the indemnified party.249
However, in Andar Transport Pty Ltd v Brambles Ltd250 the High Court of
Australia adopted a more general solution to the construction of non-insurance
indemnities. Drawing on the analogy with contracts of guarantee, Gleeson CJ,
McHugh, Gummow, Hayne and Heydon JJ said251 that, ‘notwithstanding the
differences in the operation of guarantees and indemnities, both are designed to
satisfy a liability owed by someone other than the guarantor or indemnifier to a
third person’. On that basis, they held252 that the construction principles applied
in the guarantee cases are ‘relevant to the construction of indemnity clauses’.
The authorities cited in support of this proposition included cases253 in which
indemnity promises have been treated as analogous to exclusion clauses. But the
approach is more broadly based.254
1. See [1-04].
2. For the stages in construction see [1-08]–[1-21].
3. See, eg Promet Engineering (Singapore) Pte Ltd v Sturge (The Nukila)
[1997] 2 Lloyd’s Rep 146 at 157.
4. See [4-10].
5. In addition, how the parties have applied the contract must be taken into
account in construction. See Chapter 18.
6. [2004] 1 WLR 3111; [2004] EWCA Civ 864.
7. [2004] 1 WLR 3111 at 3118; [2004] EWCA Civ 864 at [10]. The other
members of the court agreed. See also Dolphin Tanker SrL v Westport
Petroleum Inc (The Savina Caylyn) [2011] 1 Lloyd’s Rep 550 at 558;
[2010] EWHC 2617 (Comm) at [44] (appropriate to test results under
arbitrator’s construction).
8. See [1-22].
9. [2012] 1 WLR 867; [2012] UKSC 14.
10. [2012] 1 WLR 867 at 880; [2012] UKSC 14 at [26]. Lords Kerr, Clarke and
Dyson agreed. See also International Fina Services AG v Katrina Shipping
Ltd (The Fina Samco) [1995] 2 Lloyd’s Rep 344 at 351 per Neill LJ, with
whom the other members of the Court of Appeal agreed (‘necessary to
consider the scope of the indemnity’ which would result from charterers’
construction). And see [13-47]. This has not always been acknowledged.
See Metropolitan Electric Supply Co Ltd v Ginder [1901] 2 Ch 799 at 805.
UKSC 50 at [21] per Lord Clarke, with whom the other members of the
court agreed (‘one unitary exercise’).
12. See [11-07]–[11-21].
13. See, eg [11-07], [13-02].
14. See, eg [12-10].
15. Cf J J Katz, ‘The Philosophical Relevance of Linguistic Theory’ in J R
Searle, ed, The Philosophy of Language, Oxford University Press, Oxford,
1977, p 113.
16. See Southland Frozen Meat and Produce Export Co Ltd v Nelson Bros Ltd
[1898] AC 442 at 444 per Lord Herschell for the Privy Council (words in
question were not to be applied ‘to everything that might be said to come
within a possible dictionary use of them’). See also International Fina
Services AG v Katrina Shipping Ltd (The Fina Samco) [1995] 2 Lloyd’s
Rep 344 at 350–1. And see M A Eisenberg, ‘Mistake in Contract Law’
(2003) 91 Calif L Rev 1573 at 1625 (‘incoherent’).
17. See Serena Navigation Ltd v Dera Commercial Establishment (The Limnos)
[2008] 2 Lloyd’s Rep 166 at 175; [2008] EWHC 1036 (Comm) at [37] per
Burton J (‘no etymological reason’). Cf Nissho Iwai Australia Ltd v
Malaysian International Shipping Corp Berhad (1989) 167 CLR 219 at
227–8.
18. For a recent example, see ENE Kos 1 Ltd v Petroleo Brasileiro SA (The
Kos) (No 2) [2012] 2 WLR 976; [2012] UKSC 17 (scope of charterers’
indemnity in Shelltime 3).
19. See Antaios Compania Naviera SA v Salen Rederierna AB (The Antaios)
[1985] AC 191 (see [15-23]).
20. See [4-12].
21. See [2-34].
22. See Mitsubishi Corp v Eastwind Transport Ltd (The Irbenskiy Proliv)
(application of clause to be determined on a case-by-case basis).
23. On the various senses of ‘intention’ see Chapter 2.
24. See also [2-33], [3-02], [3-38].
25. See Chapter 3. See also [18-36].
26. See generally on the role of precedent [13-09]–[13-15].
27. But the principal discussion is in the application of exclusion clauses. See
Chapter 17.
28. See Chapter 18.
29. See [16-12]–[16-25].
30. See also [13-08], [13-17].
32. See [15-15].
33. See, eg International Fina Services AG v Katrina Shipping Ltd (The Fina
Samco) [1995] 2 Lloyd’s Rep 344 at 350 (contrast between ‘literal’ and
‘purposive’).
34. See Burke v State Bank of New South Wales (1994) 37 NSWLR 53 at 71
(‘liberal’ contrasted with ‘strict’).
35. See, eg United Dominions Trust (Commercial) Ltd v Eagle Aircraft Services
Ltd [1968] 1 WLR 74 at 87; [1968] 1 All ER 104 (‘strict compliance’ used
to refer to literal compliance); Gregory v MAB Pty Ltd (1989) 1 WAR 1 at
12 per Malcolm CJ (‘strict literal approach’); Bank of Credit and Commerce
International SA v Ali [2002] 1 AC 251 at 282; [2001] UKHL 8 at [80] per
Lord Clyde (‘strict or literal approach’).
36. See Ashville Investments Ltd v Elmer Contractors Ltd [1989] QB 488 at
494, where May LJ was sceptical of the contrast between ‘liberal’ and
‘narrow’ approaches.
38. See [16-29].
39. See [17-09]–[17-11].
40. See generally on the plain meaning rule Chapter 12.
41. (1842) 9 Cl & F 355; 8 ER 450.
42. (1842) 9 Cl & F 355 at 565; 8 ER 450 at 532.
43. See also [11-19].
44. Cf Forrest v Glasser [2006] 2 Lloyd’s Rep 392 at 397; [2006] EWCA Civ
1086 at [21] (‘ordinary meaning’ of ‘claim’ was that no particulars had to be
included); BP Exploration Operating Co Ltd v Dolphin Drilling Ltd (The
Byford Dolphin) [2010] 2 Lloyd’s Rep 192 at 195; [2009] EWHC 3119
(Comm) at [13] per David Steel J (‘harsh result’ under ‘ordinary meaning’).
45. [1978] 1 WLR 1387; [1978] 3 All ER 769.
46. [1978] 1 WLR 1387 at 1395. Cf Burke v State Bank of New South Wales
(1994) 37 NSWLR 53 at 71 (‘widely drawn’ mortgage).
47. See also More OG Romsdal Fylkesbatar AS v Demise Charterers of the
Ship ‘Jotunheim’ [2005] 1 Lloyd’s Rep 181 at 185; [2004] EWHC 671
(Comm) at [30] per Cooke J (literal application would have been ‘in
practice unworkable’). Cf Wilson v Anderson (2002) 213 CLR 401 at 418;
[2002] HCA 29 at [9] per Gleeson CJ (‘exercise’ is not ‘formal and
literalistic’).
48. See [11-18]–[11-21].
49. See Bowes v Shand (1877) 2 App Cas 455 at 468 per Lord Cairns;
Rosenhain v Commonwealth Bank of Australia (1922) 31 CLR 46 at 53 per
the High Court of Australia; Bowes v Chaleyer (1923) 32 CLR 159 at 167
per Knox CJ.
50. See also [17-15].
51. [1971] 1 WLR 1381; [1971] 3 All ER 237.
53. [1971] 1 WLR 1381 at 1385; [1971] 3 All ER 237 at 241.
54. [1971] 1 WLR 1381 at 1385; [1971] 3 All ER 237 at 241.
55. See [12-25].
56. But cf Home and Overseas Insurance Co Ltd v Mentor Insurance Co (UK)
Ltd [1990] 1 WLR 153 at 161 (clause stating that reinsurance contract was
not to be construed ‘in accordance with a literal interpretation of the
language’).
57. [2002] 1 WLR 94 at 99; [2001] UKHL 63 at [19].
59. Joseph Constantine SS Line Ltd v Imperial Smelting Corp Ltd [1942] AC
154 at 185.
60. See [15-30].
61. A literal approach has traditionally been taken to the application of deeds.
See Norton on Deeds, p 63. See also [1-24].
62. See [11-14].
63. See, eg ENE Kos 1 Ltd v Petroleo Brasileiro SA (The Kos) (No 2) [2012] 2
WLR 976 at 983; [2012] UKSC 17 at [12].
64. See, eg [17-05].
65. See also [16-05] (preferences and presumptions).
66. See also [16-06] (legal incidents of contracts).
67. See Federal Bulk Carriers Inc v C Itoh & Co Ltd (The Federal Bulker)
[1989] 1 Lloyd’s Rep 103 at 111 per Dillon LJ (‘well-established meaning
of … words of incorporation’).
68. See, eg The Delos [2001] 1 Lloyd’s Rep 703 at 706; [2001] 1 All ER
(Comm) 763 (use of ‘whatsoever’ did not overcome need for express
incorporation of arbitration clause in bill of lading). See also Ceval
Alimentos SA v Agrimpex Trading Co Ltd (The Northern Progress) (No 2)
[1996] 2 Lloyd’s Rep 319 at 330; Federal Bulk Carriers Inc v C Itoh & Co
Ltd (The Federal Bulker) [1989] 1 Lloyd’s Rep 103 at 107.
(literal meaning); London County Council v Henry Boot & Sons Ltd [1959]
1 WLR 1069 (literal application of ‘rates of wage’).
71. (1867) LR 2 Ex 193 at 198.
72. M’Cowan v Baine [1891] AC 401 at 403 per the Earl of Selborne.
73. (1779) 1 Doug 272; 99 ER 178.
74. (1779) 1 Doug 272 at 277; 99 ER 178 at 181. See also Shadforth v Higgin
(1813) 3 Camp 385 at 387; 170 ER 1419 at 1420 per Lord Ellenborough
(‘fair interpretation’).
75. (1872) LR 4 CP 171 at 182 (adopted Sinclair Scott & Co v Naughton
(1929) 43 CLR 310 at 320).
76. [1977] 1 Lloyd’s Rep 492.
77. [1977] 1 Lloyd’s Rep 492 at 495. See also Cohen & Co v Ockerby & Co
Ltd (1917) 24 CLR 288 at 300.
78. See also [13-46].
79. See also [1-24]–[1-26]. Cf Wigmore on Evidence, vol 9, §261.
80. See also Johan Steyn, ‘Contract Law: Fulfilling the Reasonable
Expectations of Honest Men’ (1997) 113 LQR 433 at 441; Johan Steyn,
‘The Intractable Problem of the Interpretation of Legal Texts’ (2003) 25 Syd
LR 5 at 7.
81. [1995] 1 WLR 1580 at 1589. See also his comments in Mannai Investment
Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749 at 770 (‘shift
from strict construction of commercial instruments’); Sirius International
Insurance Co (Publ) v FAI General Insurance Ltd [2004] 1 WLR 3251 at
3257–8; [2004] UKHL 54 at [19].
82. [1985] AC 191.
But see Post Office v British World Airlines Ltd [2000] 1 Lloyd’s Rep 378
at 384; [2000] 1 All ER (Comm) 532 per Thomas J (‘sensible and
purposive’); Fortis Bank SA/NV v Indian Overseas Bank [2010] Bus LR
835 at 845; [2010] EWHC 84 (Comm) at [43] per Hamblen J (‘purposive
approach … appropriate’). And see Home and Overseas Insurance Co Ltd v
Mentor Insurance Co (UK) Ltd [1990] 1 WLR 153 at 162, where Parker LJ
was ‘not clear’ as to Lord Diplock’s objection. The other members of the
Court of Appeal agreed.
84. [1987] 1 Lloyd’s Rep 230 at 235. Nicholls LJ agreed. See also Seven
Network (Operations) Ltd v TCN Channel 9 Pty Ltd (2005) 222 ALR 569 at
586; [2005] FCAFC 144 at [91] per Finkelstein J (‘sheep must win the
day’).
85. See [2-34], [2-44].
86. [1962] 2 QB 26.
87. See Carter’s Breach of Contract, §§2-22–2-29. Cf G L Williams,
‘Language and the Law — III’ (1945) 61 LQR 293 at 299 (‘attitude’ that the
court ‘wishes to adopt towards the facts’). See also International Fina
Services AG v Katrina Shipping Ltd (The Fina Samco) [1995] 2 Lloyd’s
Rep 344 at 351.
88. (1937) 59 CLR 348.
89. (1937) 59 CLR 348 at 362.
90. See, eg [17-23].
91. See generally on the role of precedent [13-09]–[13-15].
92. [1997] AC 749 at 771.
[2005] 2 Lloyd’s Rep 769 at 774; [2005] EWCA Civ 1069 at [31] (recent
cases emphasise commercial rather than literal approach); A Turtle Offshore
SA v Superior Trading Inc (The A Turtle) [2009] 1 Lloyd’s Rep 177 at 193;
[2008] EWHC 3034 (Admlty) at [109] per Teare J (‘contracts are not
construed literally’). See also Mitsubishi Corp v Eastwind Transport Ltd
(The Irbenskiy Proliv) [2005] 1 Lloyd’s Rep 383 at 388; [2004] EWHC
2924 (Comm) at [28].
95. See, eg Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd
[1997] AC 749 at 770–1, 779. See also Australian Medic-Care Co Ltd v
Hamilton Pharmaceutical Pty Ltd (2009) 261 ALR 501 at 565; [2009] FCA
1220 at [271]. But see Michael Gerson (Leasing) Ltd v Greatsunny Ltd
[2010] 1 Ch 558 at 568; [2010] EWHC 1887 (Ch) at [37] (process should
begin with an assumption in favour of literal construction). Cf Sir Robert
Goff, ‘Commercial Contracts and the Commercial Court’ [1984] LMCLQ
382 at 388 (‘courts do not lightly depart from the literal interpretation’).
96. See, eg [15-14], [15-27], [15-30], [18-25].
269; [2001] UKHL 8 at [38] per Lord Hoffmann (language not ‘to be read
completely literally’).
98. [1984] 1 AC 676.
99. [1984] 1 AC 676 at 686. The other members of the House of Lords agreed.
Cf Ceval Alimentos SA v Agrimpex Trading Co Ltd (The Northern
Progress) (No 2) [1996] 2 Lloyd’s Rep 319 at 329 per Rix J (‘requirement
of rationality and commercial realism in the interpretation of incorporation
clauses’). Contrast Daval Aciers D’Usinor et de Sacilor v Armare Srl (The
Nerano) [1996] 1 Lloyd’s Rep 1 at 4.
100. Gray v Carr (1871) LR 6 QB 522; Porteus v Wasney (1878) 3 QBD 534.
101. [1984] 1 AC 676 at 685 per Lord Diplock. The other members of the House
of Lords agreed.
102. [1985] AC 191.
104. [1985] AC 191 at 201.
See also Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 210 CLR 181
at 198; [2001] HCA 70 at [43]. And see [13-46], [15-20].
106. A similar approach was adopted in Amann Aviation Pty Ltd v The
Commonwealth (1990) 92 ALR 601 (affirmed on other grounds sub nom
The Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64).
107. [1997] QB 897.
108. [1997] QB 897 at 904 per Brown LJ. Thorpe LJ agreed.
109. [2002] 1 AC 251; [2001] UKHL 8.
110. Contrast Starlight Shipping Co v Allianz Marine & Aviation Versicherungs
AG (The Alexandros T) [2012] 1 Lloyd’s Rep 162 at 171; [2011] EWHC
3381 (Comm) [18] (financial loss alleged to be greater).
111. See Arcos Ltd v E A Ronaasen and Son [1933] AC 470 at 479. Cf Bowes v
Chaleyer (1923) 32 CLR 159 at 167–8,187,193.
112. See, eg Union Eagle Ltd v Golden Achievement Ltd [1997] AC 514; Re
Ronim Pty Ltd [1999] 2 Qd R 172 at 178–9; [1998] QCA 44 at [14]. Cf
Heinrich Hirdes & GmbH v Edmund [1991] 2 Lloyd’s Rep 546 at 559 per
Hirst J (‘natural meaning’ of ‘until 16 July’ as including 16 July).
113. [1985] AC 191.
114. (1876) 1 QBD 183.
115. See also [16-30]–[16-31].
116. See, eg G H Treitel, ‘“Conditions” and “Conditions Precedent”’ (1990) 106
LQR 185; J W Carter, ‘Conditions and Conditions Precedent’ (1991) 4 JCL
90.
117. See, eg Haugland Tankers AS v RMK Marine Gemi Yapin Sanayii ve Deniz
Tasimaciligi Isletmesi AS [2005] 1 Lloyd’s Rep 573 at 577; [2005] EWHC
321 (Comm) at [17] per Langley J (‘exact compliance’). Cf Bernhard
Schulte GmbH & Co KG v Nile Holdings Ltd [2004] 2 Lloyd’s Rep 352 at
362; [2004] EWHC 977 (Comm) at [38] (‘refer’ included acceptance of
appointment even though matter had to be referred within period of seven
days).
118. See, eg [13-51], [15-31]. The approach to concurrent conditions is less
literal, at least from the perspective of readiness and willingness to perform.
Cf Carter’s Breach of Contract, §§7-28, 7-61.
119. See, eg Bayerische Vereinsbank AG v National Bank of Pakistan [1997] 1
Lloyd’s Rep 59 at 65 (no condition precedent — lack of precision).
120. [1976] 1 WLR 989; [1976] 3 All ER 570.
Kilbrandon agreed.
122. See [1976] 1 WLR 989 at 999–1000, 1001–3. See Carter’s Breach of
Contract, §5-33.
123. See Haugland Tankers AS v RMK Marine Gemi Yapin Sanayii ve Deniz
Tasimaciligi Isletmesi AS [2005] 1 Lloyd’s Rep 573 at 577; [2005] EWHC
321 (Comm) at [23] (construction of the contract as a whole showed that
simultaneous payment was a condition precedent to or a requirement of
exercise of option). See also G & N Angelakis Shipping Co SA v
Compagnie National Algerienne de Navigation (The Attika Hope) [1988] 1
124. See, eg Gilbert J McCaul (Aust) Pty Ltd v Pitt Club Ltd (1957) 59 SR
(NSW) 122 at 123; United Scientific Holdings Ltd v Burnley Borough
Council [1978] AC 904 at 928, 945.
125. See, eg Hare v Nicoll [1966] 2 QB 130 at 141 per Willmer LJ (option must
be exercised ‘strictly within time’), 148 per Winn LJ (terms of option
treated as ‘strict conditions’); Holwell Securities Ltd v Hughes [1974] 1
WLR 155 at 159; [1974] 1 All ER 161 per Lawton LJ (‘truism’ that grantee
of option must ‘comply strictly’ with its terms); Re Gray decd [2005] 1
WLR 815 at 820; [2004] EWHC 1538 (Ch) at [17] per Rimer J (‘exercise of
an option to acquire a property interest ordinarily requires the strict
observance of any specified time limits’).
126. See Hare v Nicoll [1966] 2 QB 130 (option in relation to share purchase).
Contrast Millichamp v Jones [1982] 1 WLR 1422, overruled on other
grounds Samarenko v Dawn Hill House Ltd [2012] 2 All ER 476; [2011]
EWCA Civ 1445 (failure to pay deposit did not prevent exercise of the
option).
127. See, eg Bastin v Bidwell (1881) 18 Ch D 238 (option for further term
contingent on performance of lease); Gilbert J McCaul (Aust) Pty Ltd v Pitt
Club Ltd (1957) 59 SR (NSW) 122 (lessee’s option to purchase land subject
to condition precedent that there was no breach of the lease). See also Bass
Holdings Ltd v Morton Music Ltd [1988] Ch 493; Commonwealth of
Australia v Antonio Giorio Pty Ltd (1986) 67 ALR 244 at 248–9; B S
Stillwell & Co Pty Ltd v Budget Rent-A-Car System Pty Ltd [1990] VR 589.
128. See Lewes Nominees Pty Ltd v Strang (1983) 49 ALR 328; 57 ALJR 823
(exercise invalid where payment of balance of deposit was not included
with notice of exercise, which was given out of time).
129. [1968] 1 WLR 74; [1968] 1 All ER 104; see P S Atiyah, (1968) 31 MLR
332.
130. See the discussion in United Scientific Holdings Ltd v Burnley BC [1978]
AC 904 at 929, 945–6, 951, 961–2.
132. Cf Pan Foods Co Importers & Distributors Pty Ltd v Australia and New
Zealand Banking Group Ltd (2000) 170 ALR 579 at 582; [2000] HCA 20 at
[13]. See Carter’s Breach of Contract, §4-35.
133. See, eg Spectra Pty Ltd v Pindari Pty Ltd [1974] 2 NSWLR 617 at 624
(failure to use registered post for notice of exercise not relevant where
notice was received at time contemplated).
134. See Diab v Regent Insurance Co Ltd [2007] 1 WLR 797 at 803; [2006]
UKPC 29 at [16]; HLB Kidsons (a firm) v Lloyd’s Underwriters [2009] Bus
LR 759 at 781–3; [2008] EWCA Civ 1206 at [113]–[114].
135. [1997] AC 749.
136. In relation to the approach to notice of demurrage claims, see, eg Petroleum
Oil and Gas Corp of South Africa (Pty) Ltd v FR8 Singapore Pte Ltd (The
Eternity) [2009] 1 Lloyd’s Rep 107 at 116; [2008] EWHC 2480 (Comm) at
[37] (reluctance to treat whole claim as invalid on basis of ‘non-contractual’
element); National Shipping Co of Saudi Arabia v BP Oil Supply Co (The
Abqaiq) [2012] 1 Lloyd’s Rep 18 at 31; [2011] EWCA Civ 1127 at [60],
[61] per Tomlinson LJ, with whom Ward LJ and Sir Mark Potter agreed
(not ‘helpful’ to introduce notions of strict compliance — question is one of
‘clarity sufficient to achieve certainty’). Contrast Waterfront Shipping Co
Ltd v Trafigura AG (The Sabrewing) [2008] 1 Lloyd’s Rep 286; [2007]
EWHC 2482.
137. [1997] AC 749. See also Amec Civil Engineering Ltd v Secretary of State
for Transport [2005] 1 WLR 2339 at 2358; [2005] EWCA Civ 291 at [65]
(reluctance to accept that formal claim was condition precedent to ability to
say there was a ‘dispute’).
138. See, eg Re Stewardson Stubbs & Collett Pty Ltd [1965] NSWR 1671 at
1675; Eriksson v Whalley [1971] 1 NSWLR 397 at 401; Nund v McWaters
[1982] VR 575 at 582–3; Lintel Pines Pty Ltd v Nixon [1991] 1 VR 287. Cf
Western Bulk Carriers K/S v Li Hai Maritime Inc (The Li Hai) [2005] 2
139. [1997] AC 749; see P V Baker, (1998) 114 LQR 55.
140. [1997] AC 749 at 772.
141. [1997] AC 749 at 772. But cf Lord Hoffmann’s analysis ([1997] AC 749 at
776), explaining the result in terms of ‘meaning’. See also Chartbrook Ltd v
Persimmon Homes Ltd [2009] 1 AC 1101 at 1114; [2009] UKHL 38 at [21]
per Lord Hoffmann, with whom the other members of the court agreed
(‘meaning’ was ‘expressed in language quite different from that used by the
parties (“12 January” instead of “13 January”)’).
142. But cf [1997] AC 749 at 773 per Lord Hoffmann (‘notices … must comply
strictly with the terms of the lease’).
143. See also The Pearl of Jebel Ali and The Pride of Al Salam 95 [2009] 2
Lloyd’s Rep 484 at 488; [2009] EWHC 1365 (Admlty) at [27] per Teare J
(notice effective to exercise right to terminate standstill agreement even
though language used did not ‘exactly replicate’ language of agreement).
Contrast Barclays Bank Plc v Bee [2002] 1 WLR 332 at 340, 343; [2001]
EWCA Civ 1126 at [33]–[34], [53] (inconsistent notices); Western Bulk
Carriers K/S v Li Hai Maritime Inc (The Li Hai) [2005] 2 Lloyd’s Rep 389
at 406; [2005] EWHC 735 (Comm) at [87] (notice of termination did not
contain sufficient content).
144. See Fernandez v McDonald [2004] 1 WLR 1027; [2003] EWCA 1219
(non-compliance with statutory requirement); Akici v L R Butlin Ltd [2006]
1 WLR 201 at 212; [2005] EWCA Civ 1296 at [54] (failure to comply with
s 146 of the Law of Property Act 1925 (UK)); Hilmi & Associates Ltd v 20
Pembridge Villas Freehold Ltd [2010] 1 WLR 2750 at 2756; [2010] EWCA
Civ 314 at [19] (statutory requirement for due execution). See also Poets
Chase Freehold Co Ltd v Sinclair Gardens Investments (Kensington) Ltd
[2008] 1 WLR 768 at 783; [2007] EWHC 1776 (Ch) at [54].
145. Cf Western Bulk Carriers K/S v Li Hai Maritime Inc (The Li Hai) [2005] 2
Lloyd’s Rep 389 at 406; [2005] EWHC 735 (Comm) at [87] (question is not
how recipient may have understood termination notice but whether it
complied with the contract).
146. See [15-31].
147. See, eg Summers v The Commonwealth (1918) 25 CLR 144 at 151,
affirmed (1919) 26 CLR 180 (forfeiture); Bayerische Vereinsbank AG v
National Bank of Pakistan [1997] 1 Lloyd’s Rep 59 at 65 (look for
reasonable result).
148. See [16-33] (preference for promise).
149. [1997] AC 749.
150. See also [16-34].
151. See, eg G R Mailman & Associates Pty Ltd v Wormald (Aust) Pty Ltd
(1991) 24 NSWLR 80 (rent review provisions in a lease held to be
‘essential’ terms); Starmark Enterprises Ltd v CPL Distribution Ltd [2002]
Ch 306 (presumption that time for making objection was not of the essence
rebutted by deeming provision). For discussion see Diane Skapinker and J
W Carter, ‘Conceptualising Deeming Provisions in Rent Review
Procedures’ (2003) 19 JCL 84.
152. See, eg Bremer Handelsgesellschaft mbH v Vanden Avenne-Izegem PVBA
[1978] 2 Lloyd’s Rep 109 at 116 (definite time period stated); Mamidoil-
Jetoil Creek Petroleum Co SA v Okta Crude Refinery AD (No 2) [2003] 1
Lloyd’s Rep 1 at 25; [2002] EWHC 2210 (Comm) at [134], affirmed
without deciding the point [2003] 2 Lloyd’s Rep 635 at 642; [2003] EWCA
Civ 1031 at [34]) (‘shall give prompt notice’).
153. See J W Carter, ‘Partial Termination of Contracts’ (2008) 24 JCL 1.
154. See, eg Bunge Corp New York v Tradax Export SA Panama [1981] 1 WLR
711.
155. The construction of the underlying contract is influenced by the form of
payment. For example, the time within which a buyer must open the letter
of credit is of the essence. See Carter’s Breach of Contract, §5-30.
156. See, eg Hamzeh Malas & Sons v British Imex Industries Ltd [1958] 2 QB
127; Howe Richardson Scale Co Ltd v Polimex-Cekop [1978] 1 Lloyd’s
Rep 161. See also Edward Owen Engineering Ltd v Barclays Bank
International Ltd [1978] 1 QB 159 at 169 (performance bond). Cf Wood
Hall Ltd v The Pipeline Authority (1979) 141 CLR 443 at 451, 457–8, 461
(bank guarantee).
157. Contrast [15-36] (position of third-party guarantor).
158. See also United City Merchants (Investments) Ltd v Royal Bank of Canada
[1983] 1 AC 168 at 184, 186 (subject to fraud exception, the duty of
confirming bank is unqualified). On the fraud exception see John Ren, ‘The
Scope of the Fraud Exception in Letter of Credit Law’ (2010) 26 JCL 289.
159. See Credit Agricole Indosuez v Muslim Commercial Bank Ltd [2000] 1
Lloyd’s Rep 275 at 277; [2000] 1 All ER (Comm) 172.
160. See, eg Compania Naviera SA v National Westminster Finance Ltd (The
Lena) [1981] 1 Lloyd’s Rep 68; United City Merchants (Investments) Ltd v
Royal Bank of Canada [1983] 1 AC 168 at 184, 186; Forestal Mimosa Ltd v
Oriental Credit Ltd [1986] 1 WLR 631 at 640. See also Banco Nacional
Ultramino v First Nat Bank of Boston, 289 F 169 at 175 (D Mass, 1923).
161. See Westpac Banking Corp v South Carolina National Bank [1986] 1
162. See Bunge Corp v Vegetable Vitamin Foods (Pte) Ltd [1985] 1 Lloyd’s Rep
613 at 616. Cf Fortis Bank SA/NV v Indian Overseas Bank [2011] 2 Lloyd’s
Rep 33 at 36; [2011] EWCA Civ 58 at [18] (discrepancy could not be
regarded as trivial). The de minimis principle may apply as between buyer
and seller: SIAT di dal Ferro v Tradax Overseas SA [1980] 1 Lloyd’s Rep
53 at 62; Soon Hua Seng Co Ltd v Glencore Grain Ltd [1996] 1 Lloyd’s
Rep 398 at 403.
163. See, eg Equitable Trust Co of New York v Dawson Partners Ltd (1927) 27
Ll L Rep 49 at 52; Banque de l’Indochine et de Suez SA v J H Rayner
(Mincing Lane) Ltd [1983] QB 711 at 729–30; Bunge Corp v Vegetable
Vitamin Foods (Pte) Ltd [1985] 1 Lloyd’s Rep 613 at 616. Cf Meritz Fire
and Marine Insurance Co Ltd v Jan de Nul NV [2011] 2 Lloyd’s Rep 379 at
385; [2011] EWCA Civ 827 at [27] (advance payment guarantee).
164. United City Merchants (Investments) Ltd v Royal Bank of Canada [1983] 1
AC 168 at 186 per Lord Diplock. The other members of the House of Lords
agreed.
165. See Commercial Banking Co of Sydney Ltd v Jalsard Pty Ltd [1973] AC
279 at 285. See also Banque de l’Indochine et de Suez SA v J H Rayner
(Mincing Lane) Ltd [1983] QB 711 at 730; Credit Agricole Indosuez v
Muslim Commercial Bank Ltd [2000] 1 Lloyd’s Rep 275 at 279; [2000] 1
All ER (Comm) 172.
166. See, eg British Imex Industries Ltd v Midland Bank Ltd [1958] 1 QB 542.
167. See Westpac Banking Corp v South Carolina National Bank [1986] 1
Lloyd’s Rep 311 at 316 (words ‘loaded on board’ did not detract from
‘shipped on board’).
168. See [15-12].
169. See, eg Thames and Mersey Marine Insurance Co Ltd v Hamilton Fraser &
Co (1887) 12 App Cas 484 at 491, 502; SS Knutsford Ltd v Tillmanns & Co
[1908] AC 406 at 409, 410; Stott (Baltic) Steamers Ltd v Marten [1916] 1
AC 304 at 307, 310–11, 312.
170. But see Bank of Credit and Commerce International SA v Ali [2002] 1 AC
251 at 275; [2001] UKHL 8 at [57].
171. See [17-11]. See also F & D Normoyle Pty Ltd v Transfield Pty Ltd t/a
Transfield Bouygues Joint Venture (2005) 63 NSWLR 502 at 512; [2005]
NSWCA 193 at [67] (use of ejusdem generis rule in application of
contractual indemnity).
172. See Carter’s Breach of Contract, §11-19. Cf General Trading Company
(Holdings) Ltd v Richmond Corp Ltd [2008] 2 Lloyd’s Rep 475 at 491, 493;
[2008] EWHC 1479 (Comm) at [82], [100] (no variation or waiver in
writing as required).
173. See, eg Fawcett Properties Ltd v Buckingham County Council [1961] 1 AC
636 at 678, 692.
174. See Akici v L R Butlin Ltd [2006] 1 WLR 201 at 208; [2005] EWCA Civ
1296 at [30]. See also Clarence House Ltd v National Westminster Bank Plc
[2010] 1 WLR 1216 at 1229 at 1230; [2009] EWCA Civ 1311 at [30], [32].
176. Cf Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245 at 255.
177. See Re Sherry (1884) 25 Ch D 692 at 703 per the Earl of Selborne LC
(‘object of some favour’). See also National Bank Nigeria Ltd v Awolesi
[1964] 1 WLR 1311 at 1316.
178. Cf Actionstrength Ltd v International Glass Engineering IN.GL.EN Spa
[2003] 2 AC 541 at 546; [2003] UKHL 17 at [6].
179. Further rules may apply in particular contexts. See, eg Sabah Shipyard
(Pakistan) Ltd v Government of Pakistan [2008] 1 Lloyd’s Rep 210 at 228;
[2007] EWHC 2602 (Comm) at [143] (general words in guarantee not
sufficient to render guarantor liable to honour arbitration award against
principal debtor).
180. See [15-40]. See also Cattles Plc v Welcome Financial Services Ltd [2010]
2 Lloyd’s Rep 514 at 517; [2010] EWCA Civ 599 at [6] (no competition
clause).
181. 222 NY 204 at 207; 118 NE 607 at 608 (CA, 1918) (approved Prenn v
Simmonds [1971] 1 WLR 1381 at 1384; [1971] 3 All ER 237 at 240). See
also Reardon Smith Line Ltd v Yngvar Hansen-Tangen [1976] 1 WLR 989
at 996; [1976] 3 All ER 570; Static Control Components (Europe) Ltd v
Egan [2004] 2 Lloyd’s Rep 429 at 434, 437; [2004] EWCA Civ 392 at [24],
[37].
182. See Perrylease Ltd v Imecar AG [1988] 1 WLR 463 at 469–70; [1987] 2
All ER 373 at 378 (approving Halsbury’s Laws of England, 4th ed, vol 20,
para 143). See also Lisciandro v Official Trustee in Bankruptcy (1996) 139
ALR 689 at 706–7.
183. See, eg Australian Joint Stock Bank Ltd v Bailey [1899] AC 396 at 399;
Hyundai Shipbuilding & Heavy Industries Co Ltd v Pournaras [1978] 2
184. Construction preferences may also be applied. See, eg Heisler v Anglo-Dal
Ltd [1954] 1 WLR 1273 at 1281; [1954] 2 All ER 770 (construction of
‘guarantee’ as undertaking by seller — to preserve contract); International
Leasing Corp (Vic) Ltd v Aiken [1967] 2 NSWR 427 at 454 (preference for
construction of guarantee which meant that it was operative).
185. (1816) 1 Stark 192; 171 ER 443.
186. (1816) 1 Stark 192 at 193; 171 ER 443. See also Jones v Mason (1892) 8
NSWR (L) 157 at 162; ST Microelectronics NV v Condor Insurance Ltd
[2006] 2 Lloyd’s Rep 525 at 530; [2006] EWHC 977 (Comm) at [33]. But
cf Heffield v Meadows (1869) LR 4 CP 595 at 600, 601.
187. [2006] 2 Lloyd’s Rep 525 at 530–1; [2006] EWHC 977 (Comm) at [33]–
[35], [36].
188. (1987) 162 CLR 549.
189. (1987) 162 CLR 549 at 561. See also Corumo Holdings Pty Ltd v C Itoh
Ltd (1991) 24 NSWLR 370 at 379; Andar Transport Pty Ltd v Brambles Ltd
(2004) 217 CLR 424 at 433; [2004] HCA 28 at [17].
190. But see Wardens and Commonalty of the Mystery of Mercers of the City of
London v New Hampshire Insurance Co [1992] 2 Lloyd’s Rep 365 at 368
(construction in favour of the guarantor displaced by contra proferentem
rule).
191. (1987) 8 NSWLR 88; 61 ALJR 289.
192. (1987) 8 NSWLR 88 at 92; 61 ALJR 289 at 291 (approved Andar
Transport Pty Ltd v Brambles Ltd (2004) 217 CLR 424 at 434–5; [2004]
HCA 28 at [19]). See also Burke v State Bank of New South Wales (1994)
37 NSWLR 53 at 72 (direct application of contra proferentem rule).
193. Cf (1987) 8 NSWLR 88 at 95; 61 ALJR 289 at 292–3.
194. (1989) 168 CLR 242 at 256 per Mason CJ, Brennan, Deane and McHugh JJ
(‘settled principle governing the interpretation of contracts of guarantee’).
195. See, eg Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245 (strict
application of words ‘all moneys payable’ in guarantee of purchaser’s
obligation under sale of land contract). See also Sandtara Pty Ltd v
Abigroup (1996) 42 NSWLR 491 at 499; Lisciandro v Official Trustee in
Bankruptcy (1996) 139 ALR 689 at 699, 706; Andar Transport Pty Ltd v
Brambles Ltd (2004) 217 CLR 424 at 433, 437–8; [2004] HCA 28 at [17],
[23], [26]–[27]. But cf Henderson-Smart v Quality Blow Moulders Pty Ltd
(2010) 25 VR 724 at 727; [2010] VSCA 14 at [18] (‘ambiguity’ required).
196. [1992] 2 Lloyd’s Rep 365 at 368.
197. [1994] 1 WLR 1528 at 1533.
198. See J C Phillips, The Modern Contract of Guarantee, 2nd English ed,
Sweet & Maxwell, London, 2010, pp 281–4, §§5-01–5-07.
199. [2004] 2 Lloyd’s Rep 429; [2004] EWCA Civ 392. See also Hyundai
Shipbuilding & Heavy Industries Co Ltd v Pournaras [1978] 2 Lloyd’s Rep
502 at 506 (limited construction would have been inconsistent with
commercial purpose); Barclays Bank Plc v Kingston [2006] 2 Lloyd’s Rep
59 at 64; [2006] EWHC 533 (QB) at [29]; Gastronome (UK) Ltd v Anglo
Dutch Meats (UK) Ltd [2006] 2 Lloyd’s Rep 587 at 589, 590; [2006]
EWCA Civ 1233 at [14], [18]. Cf ING Lease (UK) Ltd v Harwood [2008]
Bus LR 762 at 773; [2007] EWHC 2292 (QB) at [102] (all monies clause in
guarantee did not apply to assigned debts).
200. See Chapter 5.
201. See [2004] 2 Lloyd’s Rep 429 at 432, 435, 437; [2004] EWCA Civ 392 at
[13], [27], [37].
202. See Barclays Bank Plc v Kingston [2006] 2 Lloyd’s Rep 59 at 64; [2006]
EWHC 533 (QB) at [29]. But cf Cattles Plc v Welcome Financial Services
Ltd [2010] 2 Lloyd’s Rep 514 at 522; [2010] EWCA Civ 599 at [48]
(clauses subjected to contra proferentem rule).
203. But see Andar Transport Pty Ltd v Brambles Ltd (2004) 217 CLR 424 at
453–4; [2004] HCA 28 at [72] per Kirby J (much to be said for a ‘more
nuanced approach to interpretation’).
204. See Andar Transport Pty Ltd v Brambles Ltd (2004) 217 CLR 424 at 435–
6; [2004] HCA 28 at [20]–[21]. Cf Ankar Pty Ltd v National Westminster
Finance (Australia) Ltd (1987) 162 CLR 549 at 560–1.
205. See Pan Foods Co Importers & Distributors Pty Ltd v Australia and New
Zealand Banking Group Ltd (2000) 170 ALR 579 at 581–2; [2000] HCA 20
at [11]. Cf International Leasing Corp (Vic) Ltd v Aiken [1967] 2 NSWR
427 at 454.
206. See Moschi v Lep Air Services Ltd [1973] AC 331 at 354–5, 359; Skipton
Building Society v Stott [2001] QB 261 at 269. See also Robinson v Mollett
(1875) LR 7 HL 802 at 814; Bond v Hongkong Bank of Australia Ltd
(1991) 25 NSWLR 286; Geelong Building Society (in liq) v Encel (1994)
[1996] 1 VR 594; Farrow Mortgage Services Pty Ltd (in liq) v Slade (1996)
38 NSWLR 636.
207. (1877) 3 QBD 495.
208. See National Bank Nigeria Ltd v Awolesi [1964] 1 WLR 1311 at 1316
(opening of new account). Contrast Bank of India v Trans Continental
Commodity Merchants Ltd [1982] 1 Lloyd’s Rep 506 at 514–15, affirmed
[1983] 2 Lloyd’s Rep 298 (‘irregular’ acts not a variation); Gill & Duffus
SA v Rionda Futures Ltd [1994] 2 Lloyd’s Rep 67 at 83 (no variation);
Triodosbank NV v Dobbs [2005] 2 Lloyd’s Rep 588 at 593, 596; [2005]
EWCA Civ 630 at [19], [37] (any variation was not a variation to the
principal contract).
209. See, eg Marubeni Hong Kong and South China Ltd v Mongolian
Government [2005] 1 WLR 2497; [2005] EWCA Civ 395 (refinancing of
debt); Barclays Bank Plc v Kingston [2006] 2 Lloyd’s Rep 59 at 61; [2006]
EWHC 533 (QB) at [15] (release of security without consent); McMahon v
National Foods Milk Ltd (2009) 25 VR 251 at 284; [2009] VSCA 153 at
[82]. Cf Associated British Ports v Ferryways NV [2008] 2 Lloyd’s Rep
353 at 367; [2008] EWHC 1265 (Comm) at [87], affirmed [2009] 1 Lloyd’s
Rep 595; [2009] EWCA Civ 189 (‘time to pay’ agreement discharged
guarantor). Contrast ST Microelectronics NV v Condor Insurance Ltd
(acceptance of debtor’s early payment).
210. See Moschi v Lep Air Services Ltd [1973] AC 331 at 354, 359; Bank of
India v Trans Continental Commodity Merchants Ltd [1982] 1 Lloyd’s Rep
506 at 514 (affirmed [1983] 2 Lloyd’s Rep 298); Ankar Pty Ltd v National
Westminster Finance (Australia) Ltd (1987) 162 CLR 549 at 558, 568;
Skipton Building Society v Stott [2001] QB 261 at 268, 269; Associated
British Ports v Ferryways NV [2008] 2 Lloyd’s Rep 353 at 366; [2008]
EWHC 1265 (Comm) at [77] (affirmed [2009] 1 Lloyd’s Rep 595; [2009]
EWCA Civ 189); Royal Bank of Scotland Plc v Chandra [2010] 1 Lloyd’s
Rep 677 at 693–4; [2010] EWHC 105 (Ch) at [93]–[100].
211. Moschi v Lep Air Services Ltd [1973] AC 331. See Carter’s Breach of
Contract, §13-46. See also ST Microelectronics NV v Condor Insurance Ltd
[2006] 2 Lloyd’s Rep 525 at 533; [2006] EWHC 977 (Comm) at [57]. Cf
Gill & Duffus SA v Rionda Futures Ltd [1994] 2 Lloyd’s Rep 67 at 84
(change in ownership of the guarantor).
212. See, eg Static Control Components (Europe) Ltd v Egan [2004] 2 Lloyd’s
Rep 429 at 431; [2004] EWCA Civ 392 at [2] (aspect of variation rule);
North Shore Ventures Ltd v Anstead Holdings Inc [2011] 3 WLR 628 at
645; [2011] EWCA Civ 230 at [44] (express clause prevented variation
discharging guarantor). See also Trafalgar House Construction (Regions)
Ltd v General Surety & Guarantee Co Ltd [1996] AC 199 at 205;
Triodosbank NV v Dobbs [2005] 2 Lloyd’s Rep 588 at 590; [2005] EWCA
Civ 630 at [7]; Barclays Bank Plc v Kingston [2006] 2 Lloyd’s Rep 59 at
64; [2006] EWHC 533 (QB) at [26]; IIG Capital LLC v Van Der Merwe
[2008] 2 Lloyd’s Rep 187 at 189–90; [2008] EWCA Civ 542 at [9];
McMahon v National Foods Milk Ltd (2009) 25 VR 251 at 284; [2009]
VSCA 153 at [83].
213. See Re Sherry (1884) 25 Ch D 692 at 694. See also Wood Hall Ltd v The
Pipeline Authority (1979) 141 CLR 443 (bank guarantee).
214. Cf Australian Joint Stock Bank Ltd v Bailey [1899] AC 396 at 399 per Lord
Morris for the Privy Council (‘a surety is not bound beyond the scope of his
engagement’); ST Microelectronics NV v Condor Insurance Ltd [2006] 2
215. (1987) 162 CLR 549. See J W Carter and J C Phillips ‘Construction of
Contracts of Guarantee and the Hongkong Fir Case’ (1988) 1 JCL 70.
216. (1987) 162 CLR 549 at 568.
217. Halsbury’s Laws of England, 4th ed, vol 20, p 141, para 259.
218. [1986] FLR 213 at 223. See also Wardens and Commonalty of the Mystery
of Mercers of the City of London v New Hampshire Insurance Co [1992] 2
Lloyd’s Rep 365 at 370, 371, 376–7.
219. See Wardens and Commonalty of the Mystery of Mercers of the City of
London v New Hampshire Insurance Co [1992] 2 Lloyd’s Rep 365 at 377.
220. See Wardens and Commonalty of the Mystery of Mercers of the City of
London v New Hampshire Insurance Co [1992] 2 Lloyd’s Rep 365 at 370,
371.
221. See [15-28].
222. Cf United Dominions Trust (Commercial) Ltd v Eagle Aircraft Services Ltd
[1968] 1 WLR 74; [1968] 1 All ER 104.
223. Cf [15-32] (documentary credits). But see [15-30] (approach to notices).
224. (1990) 21 NSWLR 689. See J W Carter, ‘Conditions and Conditions
Precedent’ (1991) 4 JCL 90; Lee Aitken, [1992] LMCLQ 177.
225. See also [15-27].
226. See Pitts v Jones [2008] 1 QB 706 at 712; [2007] EWCA Civ 1301 at [21]
(common ground).
227. See, eg Associated Japanese Bank (International) Ltd v Credit du Nord SA
[1989] 1 WLR 255.
228. Moschi v Lep Air Services Ltd [1973] AC 331 at 345 per Lord Reid. Lords
Gardiner and Simon agreed.
229. See Carter’s Breach of Contract, §13-48. Contrast McGuinness v Norwich
and Peterborough Building Society [2012] 2 All ER (Comm) 265 at 287;
[2011] EWCA Civ 1286 at [66] (liability for liquidated sum as principal
debtor).
230. See, eg Wren v Mahony (1972) 126 CLR 212 at 227; Firma C-Trade SA v
Newcastle Protection and Indemnity Association (The Fanti) [1991] 2 AC 1
at 34; CGU Workers Compensation (NSW) Ltd v Garcia (2007) 69 NSWLR
680 at 695; [2007] NSWCA 193 at [75]. Cf Raiffeisen Zentralbank
Osterreich AG v Five Star Trading LLC (The Mount I) [2001] QB 825 at
844; [2001] EWCA 68 at [42]. See also Wayne Courtney, ‘The Nature of
Contractual Indemnities’ (2011) 27 JCL 1.
231. See, eg Yeoman Credit Ltd v Latter [1961] 1 WLR 828 at 835; Clipper
Maritime Ltd v Shirlstar Container Transport Ltd (The Anemone) [1987] 1
232. And to recognise that most formally drafted contracts of guarantee also
include indemnity promises.
233. See Firma C-Trade SA v Newcastle Protection and Indemnity Association
[1991] 2 AC 1 at 34.
234. Farstad Supply AS v Enviroco Ltd (The Far Service) [2010] Bus LR 1087;
[2010] UKSC 18. See also [17-28].
235. See Turner v Manx Line Ltd [1990] 1 Lloyd’s Rep 137 at 142, 145 (words
considered to be used in plain and ordinary senses); Wilkie v Gordian
Runoff Ltd (formerly known as GIO Insurance Ltd) (2005) 221 CLR 522 at
529; [2005] HCA 17 at [17] (no contra proferentem rule where the parties
were organisations involved in the business of insurance).
236. See, eg Deutsche Genossenschaftsbank v Burnhope [1995] 1 WLR 1580
(presumed meaning which favoured insured displaced by construction);
Suncorp Metway Insurance Ltd v Landridge Pty Ltd (t/a L J Hooker
Hampton Park) (2005) 12 VR 290 at 293; [2005] VSCA 223 at [11] (role of
context); PT Buana Samudra Pratama v Maritime Mutual Insurance
Association (NZ) Ltd (The Buana Dua) [2011] 2 Lloyd’s Rep 655 at 659;
[2011] EWHC 2413 (Comm) at [26] (construction of ‘follow settlements’
clause in light of commercial purpose — not limited to settlement on
matters of quantum).
237. See, eg Commonwealth Smelting Ltd v Guardian Royal Exchange
Assurance Ltd [1986] 1 Lloyd’s Rep 121 at 126 (‘explosion’ in primary
risks clause in material damage policy). Cf Pratt v Aigaion Insurance Co
SA (The Resolute) [2009] 1 Lloyd’s Rep 225 at 231; [2008] EWCA Civ
1314 at [25]–[26] (‘at all times’ in insurance contract warranty could not be
applied literally).
238. [1990] 1 Lloyd’s Rep 137 at 142. See also Yorkshire Water Services Ltd v
Sun Alliance &London Insurance Plc [1997] 2 Lloyd’s Rep 21 at 28 per
Stuart-Smith LJ, with whom Waite and Otton LJJ agreed (‘commercial
sense’ of the agreement); Norman; Re Forest Enterprises Ltd v FEA
Plantation Ltd (2011) 280 ALR 470 at 493; [2011] FCAFC 99 at [197].
239. (2000) 203 CLR 579.
240. (2000) 203 CLR 579 at 589; [2000] HCA 65 at [22]. See also C E Heath
Underwriting & Insurance (Australia) Pty Ltd v Edwards Dunlop & Co Ltd
(1993) 176 CLR 535; Andar Transport Pty Ltd v Brambles Ltd (2004) 217
CLR 424 at 466; [2004] HCA 28 at [124]; Tower Australia Ltd v Farkas
(2005) 64 NSWLR 253 at 260; [2005] NSWCA 363 at [32]; Wilkie v
Gordian Runoff Ltd (2005) 221 CLR 522 at 529; [2005] HCA 17 at [17];
CGU Insurance Ltd v Porthouse (2008) 235 CLR 103 at 116; [2008] HCA
30 at [43].
241. (2000) 203 CLR 579 at 600–1; [2000] HCA 65 at [74]. See also M/S Aswan
[1989] 1 Lloyd’s Rep 289 at 293 (ordinary meaning of ‘liable at law’);
Johnson v American Home Assurance Co (1998) 192 CLR 266 at 274.
242. [1997] QB 897.
243. [1997] QB 897 at 905. Thorpe LJ agreed. See also Yorkshire Water Services
Ltd v Sun Alliance & London Insurance Plc [1997] 2 Lloyd’s Rep 21 at 28
(construction more favourable to insured in cases of ‘ambiguity’); Zeus
Tradition Ltd v Bell (The Zeus V) [2000] 2 Lloyd’s Rep 587 at 597 per
Potter LJ, with whom Pill LJ and Sir Murray Stuart-Smith agreed (where
‘uncertainty’ arises in relation to an exclusionary provision in an insurance
contract ‘a contra proferentem approach is appropriate’); Pratt v Aigaion
Insurance Co SA (The Resolute) [2009] 1 Lloyd’s Rep 225 at 231; [2008]
EWCA Civ 1314 at [25]–[26] (‘at all times’ in insurance contract construed
contra proferentem on basis of ‘ambiguity’); Atlas Navios-Navegaçao LDA
v Navigators Insurance Co Ltd (The B Atlantic) [2012] 1 Lloyd’s Rep 629
at 632; [2012] EWHC 802 (Comm) at [26] (debate as to application of rule
to exclusions in Institute Clauses). See also [4-47].
244. See, eg Becker Gray and Co v London Assurance Corp [1918] 1 AC 101 at
116 (strict construction applied to ‘causation’ in policies of insurance). See
also [17-14] (exclusion clauses).
245. See, eg County and District Properties Ltd v C Jenner & Son Ltd [1976] 2
Lloyd’s Rep 728 at 736 (indemnity clauses in building site contract); ENE
Kos 1 Ltd v Petroleo Brasileiro SA (The Kos) (No 2) [2012] 2 WLR 976 at
983, 987; [2012] UKSC 17 at [10]–[11], [60] (charterers’ indemnity in
favour of shipowners). See also EE Caledonia Ltd v Orbit Valve Co Europe
[1994] 1 WLR 1515 at 1525; Rank Enterprises Ltd v Gerard [2000] 1
Lloyd’s Rep 403 at 406; [2000] EWCA Civ 15 at [8]; Bank of Scotland v
Euclidian (No 1) Ltd [2008] Lloyd’s Rep IR 182; [2007] EWHC 1732
(Comm) at [32].
246. See Marubeni Hong Kong and South China Ltd v Mongolian Government
[2005] 1 WLR 2497 at 2508; [2005] EWCA Civ 395 at [34] (variation rule
does not apply where indemnity creates primary liability); Associated
British Ports v Ferryways NV [2009] 1 Lloyd’s Rep 595 at 596; [2009]
EWCA Civ 189 at [1]. Cf HIH Casualty and General Insurance Ltd v New
Hampshire Insurance Co [2001] 2 Lloyd’s Rep 161 at 182–3; [2001]
EWCA 735 at [109]–[110] (reinsurer may be discharged where original
policy varied without consent).
247. See, eg Antiparos ENE v SK Shipping Co Ltd (The Antiparos) [2008] 2
Lloyd’s Rep 237 at 243; [2008] EWHC 1139 (Comm) at [32]–[33]
(restrictive construction of charterer’s indemnity); Great Eastern Shipping
Co Ltd v Far East Chartering Ltd (The Jag Ravi) [2011] 2 Lloyd’s Rep 309
at 318; [2011] EWHC 1372 (Comm) at [43], affirmed [2012] 1 Lloyd’s Rep
637; [2012] EWCA Civ 180 (need for robust construction of letter of
indemnity).
London Lion) [1980] 2 Lloyd’s Rep 456 at 467; Farstad Supply AS v
Enviroco Ltd (The Far Service) [2010] Bus LR 1087; [2010] UKSC 18;
ENE Kos 1 Ltd v Petroleo Brasileiro SA (The Kos) (No 2) [2012] 2 WLR
976; [2012] UKSC 17.
249. Under the rules derived from Canada SS Lines Ltd v R [1952] AC 192. See
[17-25]–[17-31].
250. (2004) 217 CLR 424; [2004] HCA 28. See J W Carter and David Yates,
‘Perspectives on Commercial Construction and the Canada SS Case’ (2004)
20 JCL 233; Wayne Courtney, ‘Construction of Contractual Indemnities —
Out with the Old, in with the New?’ (2008) 24 JCL 182.
251. (2004) 217 CLR 424 at 437; [2004] HCA 28 at [23].
252. (2004) 217 CLR 424 at 437; [2004] HCA 28 at [23]. Contrast Pendal
Nominees Pty Ltd v Lednez Industries (Australia) Ltd (1996) 40 NSWLR
282 at 289. Cf Yeoman Credit Ltd v Latter [1961] 1 WLR 828 at 830;
Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at 462; [2004]
HCA 35 at [22].
253. Davis v Commissioner for Main Roads (1968) 117 CLR 529 at 534, 537;
Smith v South Wales Switchgear Co Ltd [1978] 1 WLR 165; [1978] 1 All
ER 18.
254. See Bofinger v Kingsway Group Ltd (2009) 239 CLR 269 at 292; [2009]
HCA 44 at [53].
16
Commercial Application
General [16-02]
Incidents of Contracts and Construction [16-05]
Presumptions Used in Application [16-05]
Preferences in Construction [16-09]
Reasonableness of Result [16-12]
General [16-12]
Formulations and Descriptions [16-14]
Limitations [16-16]
Operation of the Preference [16-19]
Preference for Reasonable Legal Results [16-24]
Upholding Agreements as Contracts [16-26]
Encouraging Contract Performance [16-32]
Preferences in relation to Rights and Remedies [16-36]
General [16-36]
Termination and Accrued Rights [16-39]
Preferences with a Policy Component [16-41]
[16-01] Objects. The previous chapter discussed ‘standards of application’. It
was mainly concerned with the issue ‘Which standard?’. This chapter deals with
the question ‘Which application?’. The key feature is a discussion of
‘preferences in construction’. These preferences provide principled bases for
choosing between competing applications for a contract.
Preferences in construction — whether expressed as such or as canons of
construction or presumptions of intention — have been in use for a long time.
One use is to qualify the literal application of contracts in particular factual
situations. They give effect to underlying assumptions, such as that the parties
intend their contract to be effective as such.
The application of a construction preference does not depend on a prior
decision in favour of a particular standard of application. However, as specific
incidents of commercial construction, they are designed to achieve commercially
sensible results.
GENERAL
[16-02] Commercial construction. The objective of commercial construction is
to arrive at commercially sensible results in the construction of contracts.1
Although what is commercially sensible is relative to the terms of the contract
and the circumstances in which the contract must be applied, the search is for a
construction which leads to a practical and reasonable application of the
contract. A contract may have more than one construction without being in any
way uncertain or incomplete (as a matter of law). It is therefore implicit in the
concept of commercial construction that more than one result may be possible —
more than one application to the facts — according to which construction is
chosen.2
A concern for contracts to be applied commercially is a long-standing feature
of contract law.3 References to the need to construe and apply contracts in a
‘business and practical sense’,4 or in a ‘business fashion’,5 as well as to the need
to give contracts a ‘balanced and business interpretation’,6 have always been an
element in the construction of commercial contracts. For example, Brett MR said
in Lion Mutual Marine Insurance Association Ltd v Tucker7 that if two possible
results are applicable, one of which is ‘ridiculous’, and the other ‘just and
according to business’, the court should choose the construction which achieves
the ‘just and honest and businesslike’ result. And in Ringstad v Gollin & Co Pty
Ltd,8 Starke J saw9 the choice as being between construction of a provision as a
‘rigid stipulation’ and construction as a ‘flexible stipulation’. He chose the latter.
The recent cases exhibit a more generalised approach. For example, in Riverside
Housing Association Ltd v White10 Lord Neuberger looked for, and found, a
‘sensible and fair’ construction.
The struggle has always been to preserve the certainty and predictability
which are hallmarks of English contract law. Even though the contract being
construed may be indeterminate in its application to a given set of facts, the basis
for the decision must be recognisable as a principled one. The process must also
be systematic. Principles of commercial construction are a mixture of rules of
law, presumptions, preferences, guidelines and objectives.11 The thesis of this
book is that they form a coherent whole and that the application of those
principles is a systematic process.12 Use of preferences in construction as
incidents of commercial construction is part of that system.
Like commercial construction itself, the preferences considered in this chapter
are unified by the concept of good faith which underpins all of contract law.13
[16-03] Meaning and application. As a matter of law, a contract can only have
one construction in relation to a given set of facts.14 That is fundamental. Since
the only concern is to construe the contract to the extent necessary to apply it to
the facts which have occurred, the full scope of application of a contract need
not be determined.15 Similarly, hypothetical construction issues need not be
resolved.16
Given that issues of meaning and application are often bound up together,17
distinguishing between decisions about ‘meaning’ and decisions about how
contracts should be applied to factual situations is often difficult. Even when
expressed by reference to the meaning of a contract, a construction decision will
often embody a particular conclusion about how it should be applied18 or its
scope.19 Such decisions often involve use of a standard of application.
‘Commercial application’ is one of three standards used to apply contracts to
factual situations.20 The other two standards are ‘literal’ application and ‘strict’
application. The default rule is in favour of commercial application.21 Although
the need to choose between standards does not always arise, the concern to
achieve a commercially sensible result remains.
The concern to achieve commercially sensible results may be addressed in
various ways. It could not be suggested that literal application is never
commercially sensible.22 Similarly, in order to achieve a commercially sensible
result it may be necessary to engage the reading down process which
characterises strict application.23 Unless based on systematic use of literal or
strict application as the standard for applying a contract, in each case the process
remains commercial.24 Construction preferences play a role in the process,
including where it is necessary to choose between commercially sensible results.
[16-04] Impact of preferences. If a contract is capable of being given more than
one application, the parties’ intention may be inferred with the aid of a
preference in construction. The concept has a long history.
Use of a preference in construction to choose between competing applications
of a contract generates a construction conclusion. Since the result is a
commercially sensible one, it achieves a commercial application. For the most
part, the impact is to qualify literal application of the contract. Although there is
an element of system in the use of construction preferences, their operation does
not depend on systematic choice of a particular standard of application.
The most important is the preference for reasonable results.25 Frequent use of
that preference has in recent years led to explicit evaluation of the relative merits
of competing applications of contracts in a way which would have been
unthinkable 40 years ago. The ‘language’ of the courts is also different. For
example, although statements to the effect that ‘clear words’ are necessary to
achieve a particular result were in the past inevitably a precursor to strict
application, today they are more likely to explain construction to achieve a result
which is, in the circumstances, commercially sensible.26
INCIDENTS OF CONTRACTS AND CONSTRUCTION
Presumptions Used in Application
[16-05] Preferences and presumptions. Construction preferences are aids to
construction. In one way or another, all aids to construction rely on presumptions
about intention. However, in principle, there is a distinction between the use of a
presumption of intention and use of a construction preference. The distinction is
that whereas genuine presumptions are applied as construction rules which
determine the parties’ intention unless they have agreed to the contrary,
construction preferences do not come into play unless two or more tenable
constructions are at issue. The contrast is evident in the differential approach of
the modern law to canons of construction.
As traditionally conceived, canons of construction were applied simply by
reference to a document, and therefore divorced from (external) context. In that
respect, they are inherently objectionable today.27 But even when applied to
contracts (rather than documents) canons applied as rules of construction28 are
out of place in the modern law because they determine the parties’ intention on a
doctrinal basis. However, the common sense which underlines many of the
canons finds expression in the modern law as construction preferences, not rules.
When applied as specific incidents of commercial construction, most
construction preferences simply give effect at a specific level to more general
presumptions about intention. For example, the presumption in favour of
intention to contract is evident in several construction preferences. Although the
distinction between a preference and a presumption may in some contexts be
simply a matter of perception, it is important. For example, the discussion in this
chapter of the presumption in favour of common law rights and remedies is
intended to highlight the problems which such a presumption creates.29 It ought
to be no more than a preference.
Many specific presumptions of intention are applied as construction rules
under contract doctrine.30 It is not sensible for a book on construction to seek to
explain the details of contract doctrine. However, presumptions of intention
cannot be ignored. Therefore, by way of background to discussion of the
preferences, the three main bases for presumptions which play a role in the
application of contracts are discussed briefly below.31
[16-06] Legal incidents of contracts. Most contracts are regarded as having
certain legal incidents, derived from the nature of the relationship they create.32
Presumptions of intention arise in the application of those incidents.33 It is
impossible to divorce such incidents from the mass of case law which supports
them. Whether the incidents are expressed as implied terms or presumptions of
intention, they operate as construction rules. The incidents are elements of
contract doctrine which provide a perspective for construction.34
Because construction — including intended application — is determined
presumptively, the fact that contracts have particular legal incidents may create
barriers to commercial application. For example, contracts of guarantee attract a
rule of law that variation to the principal contract automatically discharges the
guarantor.35 That is a rule about how the contract should be applied. Although all
such incidents can be excluded by agreement, the perspective for construction is
largely a negative one, namely, whether and to what extent the parties have
agreed to the contrary.36
[16-07] Particular provisions and obligations. Presumptions of intention may
be made at the level of provision or obligation irrespective of the nature of the
contract. For example, the scope of application of exclusion clauses has
traditionally been determined with the aid of specific rules, including in relation
to negligence.37 Similarly, force majeure clauses are applied on the basis that the
person who relies on the clause must take reasonable steps in relation to the
event relied on as a force majeure event.38
There are also examples of ‘sacred cows’, particularly in the shipping world.39
The continued application of these is rationalised on the basis that considerations
of certainty and predictability require the subordination of some aspects of
commercial construction in favour of particular presumptions. They are ‘hard
wired’ into the system by precedent, and suffered today as a legacy of history.
For example, a body of law has developed in relation to the application of
demurrage clauses.40 But the law also evolves. For example, although the rules
for applying exclusion clauses have by no means disappeared, they have to an
extent been subsumed under more general principles.
[16-08] Particular words. Authority may stamp a particular word or expression
with a presumed scope of application. Usage of the word or expression then
attracts a specific presumption of intention41 which is applied as a construction
rule. The intention of the parties is therefore determined on a prima facie basis.
For example, the construction of ‘warranty’ in an exclusion clause as not
including a ‘condition’ is a ‘principle of construction’.42 It is a rule about the
scope of application of the word ‘warranty’.
Unless designed to achieve commercially sensible results — which is clearly
not the case in the example given above — such rules are generally out of place
today.43 As always, in the standard form context it is to be expected that certain
words will be regarded as having a prima facie scope of application.44 That
includes words derived from long-standing precedents. Because of the influence
of the facts in focusing application issues, there is less scope for reliable specific
rules.45 But uniformity in the general approach to be taken to recurring types of
clause in different standard forms drafted in materially similar terms is
desirable.46
Preferences in Construction
[16-09] Introduction. Where a choice must be made between two or more
possible constructions for a contract, to determine its application to a given set of
facts, the choice must be made on a principled basis. English law employs a
great many construction preferences as aids to construction. They generate
construction conclusions.
The incidents considered below illustrate what §203 of the Contracts
Restatement 2d (1979) describes as ‘standards of preference’ in construction.
They are ‘construction preferences’ which generate ‘preferred constructions’,
designed to achieve commercially sensible results. Since construction
preferences are needed only where no intention has been expressed, they provide
principled bases for inferring intention47 when two or more constructions and
applications are available.
Therefore, preferences are not usually applied as construction rules.48 The
only ‘presumption’ is that the parties intend a commercially sensible result.
From that perspective, the preferences are a means to an end. Because they also
give effect to more general policy concerns, they may inform the application of
contract doctrine. The law of contract is not the ultimate source of all the
preferences used in construction.49
[16-10] Established preferences.
Article 16.1 — Preferred constructions.
(1) Preferences in construction may be applied as incidents of
commercial construction, including to choose between competing
applications of a contract.
(2) Such preferences include: (a) a preference for reasonable results;
(b) a preference to uphold an agreement as a binding contract; (c) a
preference to encourage contract performance; (d) a preference in
favour of common law rights and remedies; and (e) any other
preference the application of which gives effect to a relevant policy
concern, such as that persons should not benefit from their own
wrongs.
The principal preferences in construction are listed above. The list is not
exhaustive, and some are better seen as embracing several preferences. All are
rooted not only in precedent but also in policy. It therefore seems appropriate to
include a generalised category of policy-based preferences. As noted above,50
some preferences are applied as presumptions of intention, that is, construction
rules.
The preferences are used when applying the perspective rule.51 However, the
basis for the preferred construction is a general view about the conclusion that a
reasonable person in the position of the person to whom the words at issue were
addressed would reach. That conclusion often relates to how the contract should
be applied to particular factual situations.
[16-11] Construction to preserve object. Particularly in the older cases,
reference was sometimes made to a repugnancy rule.52 Aspects of that rule have
been employed in a variety of contexts, including to preserve contractual intent,53
or to give effect to the main purpose of the contract. For example, under the
‘main purpose rule’ stated in cases such as Glynn v Margetson & Co,54
provisions can be ‘rejected’ in construction on the basis of their repugnancy with
the purpose of the contract. That rule still has its supporters,55 and it may play a
role in the strict construction of exclusion clauses.56
The more generalised concept is a preference in favour of constructions
which preserve the objective ‘purpose’, ‘object’ or ‘aim’ of the contract. For two
reasons there seems no role for analysis of a distinct construction preference
directed to preservation of object. First, the repugnancy rule from which it is
derived is associated with formal bases57 for resolving construction issues.
Second, the more generalised concept is simply a restatement of the concern
which informs commercial construction as a whole and, in particular, the
preference in favour of reasonable results.58
REASONABLENESS OF RESULT
General
[16-12] Introduction. The preference for reasonable results over unreasonable
results is the most important construction preference. It is an aid to construction
in the choice between competing meanings, competing legal effects or
competing applications. However, the ‘results’ perspective implies that the
principal focus is the impact of applying the contract to the facts which have
arisen.
Under both English59 and Australian law,60 the preference has been expressed
in various terms. Often, the formulations refer to a preference against
‘unreasonable’, ‘absurd’ or ‘nonsensical’ results. However, the recent cases
support three general propositions which are explained below. First, the
preference operates in favour of constructions the application of which leads to
reasonable results.
Second, the preference may be applied even though none of the constructions
under consideration can be described as ‘absurd’ or ‘nonsensical’. But the more
unreasonable the result of applying a particular construction, the stronger the
preference in favour of an alternative construction.
Third, therefore, where the competition is between two (or more) reasonable
constructions, the preference is in favour of the construction which leads to the
more (or most) reasonable result.
[16-13] Bases for preferring reasonable results. There are three bases for
choosing a construction which leads to a reasonable result. The first is
commercial construction itself. Since the objective is to arrive at a commercially
sensible result,61 the concern for reasonable results influences the whole process.
That process may include employing the commercial standard of application.62
The second basis is precedent. Reliance can sometimes be placed on
decisions which give effect to a general view about how certain types of contract
are intended to be applied.63 In other words, in some specific situations the
preference in favour of reasonable results operates as a construction rule.64 An
important example is Fiona Trust and Holding Corp v Privalov,65 where the
House of Lords held that an arbitration clause should be construed with the aid
of a presumption that the parties do not intend the clause to be applied on the
basis that different tribunals will have jurisdiction, according to whether the
dispute raises an issue of validity or an issue of construction and enforcement.66
The objective is to discourage the resolution of construction disputes on the basis
of fine distinctions about the intended scope of application of expressions such
as ‘arising out of’, ‘in connection with’ or ‘in any way related to’.
Third, where a contract is open to more than one construction, leading to
different applications to the facts at issue, there is a preference in favour of the
construction which will — when applied — achieve the more reasonable result.67
Formulations and Descriptions
[16-14] Preference in favour of reasonable results. The preference has been
stated time and time again over the years. A typical (positive) formulation of the
preference was made by Buckley LJ in Gillespie Bros & Co Ltd v Roy Bowles
Transport Ltd:68
In choosing between two or more equally available interpretations of the
language used it is of course right that the court should consider which
will be likely to produce the more reasonable result, for the parties are
more likely to have intended this than a less reasonable result.
Similarly, under §203(a) of the Contracts Restatement 2d (1979), a construction
which gives a reasonable and effective meaning to the contract is preferred to
one ‘which leaves a part unreasonable’.
The ‘more reasonable’ formulation can be found in many other cases. Not all
are recent.69 It is a preference in favour of reasonable results. In recent years,
positive formulations have become dominant over negative formulations.
Although that may seem a distinction without a difference, it has an impact:
those who support results which are objectively ‘unreasonable’ have the burden
of explanation. Three points can be made. First, in general, positive formulations
of principle are more helpful than negative formulations.
Second, positive formulation of the preference reflects the default rule in
favour of the commercial standard of application.70
Third, expressing the preference in a positive form reflects the way in which
the overall goal of commercial construction is expressed.
[16-15] Descriptions of the alternative. Because the law has traditionally
favoured the literal application of contracts, the preference has often been
expressed in the negative. And whether stated in a positive or negative
formulation, descriptions of the alternative result have varied. For example,
Latham CJ and McTiernan J referred in J Kitchen & Sons Pty Ltd v Stewart’s
Cash & Carry Stores71 to a construction which would make the parties’
agreement ‘foolish’.
In Prenn v Simmonds,72 Lord Wilberforce expressed himself in terms of the
commercial or business object of the contract, suggesting:73
[I]f it can be shown that one interpretation completely frustrates that
object, to the extent of rendering the contract futile, that may be a strong
argument for an alternative interpretation, if that can reasonably be
found.
And, in an oft-quoted statement, in L Schuler AG v Wickman Machine Tool
Sales Ltd74 Lord Reid said:75
The fact that a particular construction leads to a very unreasonable result
must be a relevant consideration. The more unreasonable the result the
more unlikely it is that the parties can have intended it, and if they do
intend it the more necessary it is that they shall make that intention
abundantly clear.
Under these formulations, for the preference to apply it is sufficient that an
epithet such as ‘foolish’, ‘absurd’ or ‘very unreasonable’ accurately describes the
result which would be achieved by applying the contract under the alternative
construction.
The inability to apply such epithets has in some cases been used to justify a
refusal to apply the preference, even though the decision leads to an
unreasonable result. The argument is that a construction which conforms to a
natural meaning of the contract is preferred unless it leads to a result which is
‘wholly unreasonable’ or ‘absurd’, even though the result can nevertheless be
described as ‘unreasonable’ or ‘uncommercial’.76 To refuse to apply the
preference on that basis is not a commercial approach. If two constructions are
open, it is not to the point that it is impossible to characterise either as leading to
an absurd result. As Lord Clarke said when delivering the judgment of the
Supreme Court in Rainy Sky SA v Kookmin Bank,77 it is not ‘necessary to
conclude that, unless the most natural meaning of the words produces a result so
extreme as to suggest that it was unintended, the court must give effect to that
meaning’.
Similarly, whether one construction is more in tune with literal application of
the contract is neither here nor there. The concern is to give effect to the
intention of the parties. Since the parties are assumed to be rational, they must be
assumed to prefer the more reasonable result.78
Limitations
[16-16] No supervisory jurisdiction. The relevance of the preference is to
choices which are consistent with the parties’ expressed intention. The
preference is not the assertion of a general supervisory jurisdiction, or a power to
impose a particular construction simply on the basis that its application would
lead to what a reasonable person would consider to be a reasonable result.
Isaacs J expressed the point in Ringstad v Gollin & Co Pty Ltd:79
But in construing a mercantile contract fairly and liberally for the
purpose of carrying out the object of the parties and for the purpose of
giving it the efficacy intended by the parties, a Court has not a free hand
to make what it thinks a reasonable or effective contract. The Court’s
business is interpretation only, and the words of the contract properly
understood must have their own effect.
Similarly, in Australian Broadcasting Commission v Australasian Performing
Right Association Ltd80 Gibbs J said81 that the ‘court has no power to remake or
amend a contract for the purpose of avoiding a result which is considered to be
inconvenient or unjust’. More recently, in Photo Production Ltd v Securicor
Transport Ltd82 Lord Diplock said83 that a court cannot refuse to apply a
particular construction ‘however unreasonable the court itself may think it is, if
the words are clear and fairly susceptible of one meaning only’.
[16-17] Expressed intention paramount. It follows that the preference in
favour of reasonable results cannot be applied to contradict the expressed
intention of the parties. The fact that a court or arbitrator might consider the
result to be unreasonable does not justify an unintended application of the
contract. But there must be an expressed intention.84 The law no longer equates
literal application with expressed intention. The fact that the linguistic meaning
of the contract may be clear, or that the contract is capable of literal application
to a given fact situation, is not synonymous with the parties having expressed an
intention.85
In his dissenting judgment in Australian Broadcasting Commission v
Australasian Performing Right Association Ltd,86 Gibbs J said87 that ‘if the
words used are unambiguous the court must give effect to them, notwithstanding
that the result may appear capricious or unreasonable, and notwithstanding that it
may be guessed or suspected that the parties intended something different’. To
the extent that statements of that nature assume a literal application of the
contract, they are no longer reliable guides. That is made clear by decisions such
as Antaios Compania Naviera SA v Salen Rederierna AB (The Antaios).88
Moreover, many of the statements in favour of literal application were made
before the recognition of the role of context, that is, before rejection of the idea
that context could not be used to qualify the ‘plain meaning’ of a contract.89
[16-18] Interaction with other incidents. Because it lies at the heart of the
concept of commercial construction, the preference in favour of a construction
the application of which leads to a reasonable result is often reinforced by other
specific incidents.
However, the preference may come into conflict with other preferences. For
example, even if the application of a particular construction looks to be
unreasonable, it may nevertheless be chosen if it is necessary to preserve
contractual intent90 or commercial purpose. Thus, in Star Shipping AS v China
National Foreign Trade Transportation Corp (The Star Texas),91 because the
primary concern in relation to the construction of an arbitration clause was to
uphold the parties’ agreement to refer disputes to arbitration, and because a
workable meaning could be given to the clause, it was not to be struck down as
uncertain even if the construction placed on the clause could be regarded as
unreasonable.
Operation of the Preference
[16-19] Concept relative. Reasonableness is necessarily a relative concept.
What is reasonable in one situation may be unreasonable in another. And what is
reasonable to one person may be unreasonable to another. Whether a particular
construction produces a reasonable or unreasonable result in its application is
relative to commercial purpose and the facts to which the contract must be
applied. If a contract can be given more than one meaning, or there are
competing applications for a contract under a particular meaning, each may be
tested by reference to commercial purpose.92
Particular conclusions in construction are made by reference to the reasonable
person who is taken to construe the contract. The context of the contract is
crucial. That includes the purpose, object and aim of the contract, objectively
determined.93 The more reasonable the result relative to commercial purpose, the
more likely it is for the parties to have intended it. A court will therefore prefer
the construction which leads to the reasonable result, even though it may be the
‘less obvious’94 construction. It goes without saying that an ‘absurd’ or ‘foolish’
result is rarely intended.
[16-20] Absurd results. As noted above, in various contexts, courts have
rejected as unintended constructions those which produce ‘absurd’95 results or
lead to ‘absurdities’.96 For example, in Transpetrol Ltd v Transol Olieprodukten
BV97 Phillips J rejected the literal application of a nomination provision on the
basis that it would have led to a ‘nonsensical’ result. And in Pacific Carriers Ltd
v BNP Paribas,98 the High Court of Australia said it would have been absurd to
treat letters of indemnity given to support the release of goods without
presentation of bills of lading as terminated by cancellation of the bills.
Similarly, courts have often rejected constructions which would lead to
‘bizarre’99 or ‘irrational’100 results when the contract is applied to the facts. For
example, Parker J in Maritime Transport Operators GmbH v Louis Dreyfus et
Cie (The Tropwave)101 rejected a construction on the basis that it would ‘fly in
the face of the wording of the clause, common sense and commercial reality’.
In similar vein, and again when applied to the facts, courts have been
disinclined to adopt constructions which make the parties’ agreement ‘foolish’,102
produce an ‘extraordinary’ result103 or lead to ‘manifest incongruity’.104 For
example, in Barclays Bank Plc v Weeks Legg & Dean (a firm)105 a solicitor gave
an undertaking to a bank that money lent to the solicitor’s client would be
‘applied solely for acquiring a good marketable title’ to certain property. Because
it was ‘inconceivable’ that solicitors would undertake a more onerous obligation
towards the bank than that assumed in favour of their client, a literal application
of the contract was inappropriate. The contract was therefore applied on the
basis that the contract referred to ‘what a reasonably competent solicitor acting
with proper skill and care would accept as a good marketable title’.106
[16-21] Attempts to deflect reasonable constructions. In many of the cases,
the basis on which constructions described as ‘absurd’, and so on, have been
rejected is that, on the facts, there was only one tenable application of the
contract. The alternative constructions are in such cases put forward to deflect
sensible and reasonable constructions by reference to unrealistic or extravagant
assertions of the dire consequences of a particular construction.
It seems doubtful that the preference is actually at work in such cases.
Instead, the contract is simply applied commercially to the facts which have
occurred. For example, Lord Wilberforce, speaking for the Privy Council in Port
Jackson Stevedoring Pty Ltd v Salmond & Spraggon (Australia) Pty Ltd (The
New York Star),107 rejected as ‘commercially unreal’108 the argument that, if the
limitation clause under consideration was held to apply to the facts at issue, the
decision would imply that the carrier might simply dump goods on the wharf and
retain the benefit of the limitation.
[16-22] Reasonable results. In any case where a contract is open to two or more
constructions, it will have different applications. Use of the preference in favour
of reasonable results requires a decision as to whether, having regard to the
contract as a whole (considered in light of context), one construction is more
reasonable than the other. A reasonable construction is on that basis preferred
over a construction which leads to a ‘commercially implausible’109 application.
For example, in BP Plc v G E Frankona Reinsurance Ltd110 Cresswell J rejected
a construction of an open cover policy the application of which would have
achieved an ‘impractical and uncommercial’ result.
The operation of the preference is based on the view that, the parties not
having expressly stated their intention, it is legitimate to infer an intention in
favour of the construction which achieves the more reasonable result when
applied. For example, in Cargill International SA v Bangladesh Sugar and Food
Industries Corp111 a contract for the sale of goods provided that a performance
bond was ‘liable to be forfeited by the buyer’ if the sellers breached the contract.
The contract was construed on the basis of an intention that, if a breach occurred,
the buyer could recoup its loss by calling for payment under the bond. Because it
accorded more with ‘reason, fairness and commercial good sense’,112 that
construction was to be preferred over literal application of the word ‘forfeited’,
under which the buyer would receive the full amount of the bond without regard
to its actual loss.
[16-23] More reasonable results. Because reasonableness is a relative concept,
allowance must be made for the possibility that there may be more than one
‘reasonable’ construction for a contract. In other words, consistently with the
expressed intention of the parties, the contract may have two (or more)
reasonable applications to a given set of facts. The preference is then used to
choose the more (or most) reasonable construction. As noted above,113 the fact
that the preference may be used in this way discounts the traditional (negative)
formulation of the preference in terms of a preference against constructions
which achieve ‘absurd’ results in application.
In Rainy Sky SA v Kookmin Bank,114 the scope of application of certain refund
guarantees obtained by a shipbuilder was at issue. The guarantees took the form
of bonds issued by the bank in letter format addressed to the buyers. Using the
numbering subsequently applied by the courts as an aid to interpretation, para 2
relevantly provided: 2. Pursuant to the terms of the contract, you are entitled,
upon your rejection of the vessel in accordance with the terms of the contract,
your termination, cancellation or rescission of the contract or upon a total loss of
the vessel, to repayment of the pre-delivery instalments of the contract price paid
by you prior to such termination or a total loss of the vessel (as the case may be)
… together with interest thereon ….
Paragraph 3 relevantly provided: 3. … [W]e hereby, as primary obligor,
irrevocably and unconditionally undertake to pay to you, your successors and
assigns, on your first written demand, all such sums due to you under the
contract (or such sums which would have been due to you but for any
irregularity, illegality, invalidity or unenforceability in whole or in part of the
contract) provided that the total amount recoverable by you under this bond shall
not exceed [US$26,640,000] … plus interest thereon ….
The builder became subject to certain procedures under Korean law, the effect
of which was to entitle the buyers to require immediate refund by the builder of
all the instalments paid, together with interest, under art XII.3 of the contracts.
There was an express right to terminate following the refund. The buyers
demanded payment from the builder and called on the bank to honour its
obligation under the bonds. They relied on the reference in para 3 to ‘pre-
delivery instalments’. But the bank denied that it was obliged to pay, contending
that the scope of its obligation under the bonds was limited to circumstances in
which the contracts had been terminated, or the vessels had become a total loss.
References to those matters in para 2 were therefore stressed by the bank, which
argued that the words ‘all such sums’ in para 3 related to the sums referred to in
para 2.
Both constructions were tenable, and neither was commercially absurd.
However, the Supreme Court held that the buyers’ construction gave the bonds a
more reasonable application than the construction contended for by the bank.
Delivering the judgment of the Supreme Court, Lord Clarke concluded:115
I would, if necessary, go so far as to say that the omission of the
obligation to make such repayments from the bonds would flout common
sense but it is not necessary to go so far. … [O]f the two arguable
constructions of para 3 of the bonds, the buyers’ construction is to be
preferred because it is consistent with the commercial purpose of the
bonds in a way in which the bank’s construction is not.
Preference for Reasonable Legal Results
[16-24] Application. The preference in favour of reasonable results is applicable
where the legal effect of a contract is at issue.
The preference played a role in establishing the intermediate term concept. In
Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd,116 the question
was whether the seaworthiness term in a time charterparty117 should be construed
as a promissory condition. Upjohn LJ said118 that such a construction would have
been ‘contrary to common sense’. The Court of Appeal preferred a construction
the application of which would entitle the charterers to terminate the contract
only if the breach by the shipowners frustrated the commercial purpose of the
charterparty. On the facts, that was not its effect. Use of the preference in the
classification of a promise as an intermediate term was confirmed in L Schuler
AG v Wickman Machine Tool Sales Ltd.119
In Home Counties Dairies Ltd v Skilton,120 the preference in favour of
reasonable results reinforced the preference for constructions which preserve the
validity of a contract.121 Clause 15 of the defendant’s employment contract
included a covenant not to ‘serve or sell milk or dairy produce to … any person
or company who at any time during the last six months of his employment’ had
been a customer of the plaintiffs, and served by the defendant in the course of his
employment as a milk roundsman. To show that it was invalid, the defendant
argued that the clause was intended to be applied literally. Salmon LJ said122 that
would have made the clause applicable to circumstances which were
‘extravagant’, ‘fantastical’ or ‘unlikely or improbable’. For example, if applied
literally, cl 15 prevented the defendant from working in a restaurant where milk
or dairy produce was served to a customer of the plaintiffs. Clause 12 stated a
restraint applicable during employment. It was expressly limited to dairy
businesses. The Court of Appeal held cl 15 was similarly limited. Accordingly,
cl 15 was applied as ‘an agreement not to serve an employer as a milk
roundsman’.123 That construction was preferred over the alternative construction,
the application of which would have led to ‘extravagant results’ or ‘improbable
contingencies’.124
[16-25] Scope of express rights and powers. The scope of an express right or
power is a question of construction. If more than one construction is reasonably
tenable, the construction which achieves the more reasonable application of the
clause is preferred.125
The leading case is Antaios Compania Naviera SA v Salen Rederierna AB
(The Antaios).126 A time charterparty contract on the New York Produce
Exchange form conferred a right to withdraw the vessel, ‘failing the punctual
and regular payment of the hire, … or on any breach of this charterparty’. The
italicised words were at issue. If the contract was applied literally, the
shipowners were entitled to withdraw the vessel for any breach by the charterers,
no matter how minor. In the result, the words ‘any breach of this charterparty’
were applied127 on the basis that their scope was limited to ‘any repudiatory
breach of this charterparty’.128
An example in the context of a contractual power is Carr v J A Berriman Pty
Ltd.129 Clause 1 of the conditions annexed to a building contract provided that
the architect could, ‘in his absolute discretion’, issue instructions ‘in regard to
the … omission … of any work’. The employer contended that cl 1 entitled it to
omit steel fabrication work from the contract, for the purpose of having it carried
out by a third party. Fullagar J said130 ‘a power in the architect to hand over at
will any part of the contract to another contractor would be a most unreasonable
power, which very clear words would be required to confer’. Therefore, the
power had not been used for a purpose within its scope of application.
UPHOLDING AGREEMENTS AS CONTRACTS
[16-26] Introduction. At least in the commercial context, there is a presumption
in favour of contractual intent.131 That presumption has various underlying
policy bases, including that it is in the community’s interest for intended
contracts to be upheld whenever possible. Construction of any agreement should
therefore promote the objective of the parties to enter into a legally enforceable
contract.132
Of course, an agreement is not effective as a contract merely because that is
the expressed intention of the parties. Legal rules relating to matters such as
consideration, certainty and completeness also need to be satisfied. However, the
policy to uphold agreements as contracts informs the content of those rules.133
In the context of alleged uncertainty (or incompleteness), various distinctions
are drawn, including between uncertainty of meaning and difficulty in
construction,134 and between uncertainty of meaning and uncertainty in
application.135 Principles of commercial construction include various techniques
to uphold contracts, such as: taking into account how the parties have applied
the contract;136
application of general techniques, such asseverance137 and the implication
of terms;138 and use of construction preferences.
[16-27] The preferences. In Meehan v Jones,139 Mason J referred140 to the
‘traditional doctrine that courts should be astute to adopt a construction which
will preserve the validity of the contract’. The validity of a contract, and whether
it is immediately binding, may depend on a choice made in construction. Where
there is a choice between competing constructions, the preference is in favour of
the construction which, when applied, upholds the agreement as an immediately
binding contract.141 The preference is often applied directly, whether or not
noticed as such. For example, since a promise supported by past consideration is
not binding, if a contract is open to two constructions under one of which the
consideration is executed, but under the other is a past consideration, the former
will be preferred.142
Since the preference is derived from the presumption in favour of contractual
intent, it is applicable to all agreements which purport to be contracts.143 But
because it applies in a variety of situations, from an analytical perspective it
seems better to recognise that many preferences are used. Three are illustrated
below: (1) a preference in favour of legality; (2) a preference in favour of
contractual intent; and (3) in relation to ‘subject to’ clauses, a preference for an
immediately binding agreement.
[16-28] Construction to preserve legality. Where a contract is capable of being
construed in two or more ways, the application of one of which would render the
contract illegal, an alternative construction is preferred.144 Three examples may
be given.
First, if a contract would otherwise be frustrated by war, a clause which
purports to suspend the contract if performance becomes impossible by
circumstances beyond the control of the parties will be void if it would permit
trading with the enemy. Even though a literal application of the contract would
have that effect, the preferred construction is that the clause does not extend to
trading with the enemy.145
The decision of the High Court of Australia in Roach v Bickle146 provides a
second illustration. Clause 13 of a sub-lease stated that it was ‘subject to the
written approval of the Commissioner for Water Conservation and Irrigation’.
The question was whether the contract was to be applied on the basis that the
clause conditioned formation of the contract or its performance. Both
constructions were open. However, because a statute prohibited entry into a sub-
lease without the consent of the Commissioner, cl 13 was held to condition
formation of the contract. Isaacs and Gavan Duffy JJ said147 ‘the document ought
to be construed as not attempting to violate the law’.
Third, an exclusion or limitation of liability (including by way of indemnity)
for misrepresentation which applies to fraud is void as contrary to public
policy.148 Since misrepresentation is a concept which includes fraudulent
misrepresentation, a clause which refers to ‘misrepresentation’ is literally
applicable to fraud. But the preference is to construe the contract on the basis
that it is intended to apply only to cases of innocent misrepresentation, which
may include a misrepresentation made in breach of a duty of care.149 The
preference is also relevant where the clause relates to misrepresentation by an
agent.150
[16-29] Construction to preserve contractual intent. If an agreement is open
to two or more constructions the application of one of which would render it a
non-binding declaration of intent, there is a preference to adopt an alternative
construction.151 For example, in Henderson v Merrett Syndicates Ltd152 an
argument that a clause appointing an underwriting agent created no contractual
responsibility was contrary to the purpose of the agreement, and so improbable
that it had to be rejected.
When the issue has been discussed in the context of exclusion clauses, the
preference has sometimes been stated as a construction rule. For example, in
Photo Production Ltd v Securicor Transport Ltd153 Lord Diplock said154 that
parties are ‘free to agree to whatever exclusion or modification of all types of
obligations as they please within the limits that the agreement must retain the
legal characteristics of a contract’. Similarly, in Carmichael v National Power
Plc155 Lord Irvine LC referred156 to an ‘irreducible minimum of mutual
obligation’. Such statements invoke the repugnancy rule referred to earlier.157
However, just as the parties may expressly agree that there is no intention to
create legal relations,158 an agreement which includes provisions expressly to the
effect that there is no liability for failure to perform may not be a contract.159 The
position is simply that an absence of intention to create legal relations is hardly
ever inferred.160 Therefore, if two constructions are open, the preference is in
favour of the construction which upholds the agreement as a contract.
[16-30] Construction of ‘subject to’ clauses. Where a clause is introduced by
the expression ‘subject to’, it will usually create a condition precedent.161 The
occurrence of the event (contingency) referred to may condition formation of the
contract or its performance.162
At one time it was not uncommon for ‘subject to’ provisions to be construed
as introducing conditions precedent to formation. For example, in Aberfoyle
Plantations v Cheng163 obtaining the renewal of certain leases was held by the
Privy Council to be a condition precedent to formation of a contract for the sale
of land. Similarly, in Astra Trust Ltd v Adams164 Megaw J held that an agreement
for the sale of a vessel expressly made subject to a survey satisfactory to the
buyer was not intended to be binding until a satisfactory survey had been
obtained. The impact of such decisions is that there is no contract until the event
occurs. Either party may retire from the agreement, without regard to whether or
not the contingency will ultimately be fulfilled.
The question is always one of construction. However, the preference to
uphold agreements as contracts suggests that if the agreement may be construed
in either way, construction of the agreement as an immediately binding contract
is preferred. The modern cases apply that construction preference,165 on the basis
that it gives effect to inferred intention. For example, in Graham v Pitkin166
completion of a sale of land contract was agreed to take place on or before a
certain date, ‘subject to the purchaser obtaining finance’ from a named building
society. Fulfilment of the contingency was held to condition performance of the
contract, not its formation. Similarly, in Meehan v Jones167 a term of a contract
for the sale of certain land said that the agreement was ‘executed subject to’ the
purchaser receiving approval for finance, on satisfactory terms and conditions in
an amount sufficient to complete the purchase. The High Court of Australia
applied the provision on the basis that performance of the contract was
conditional on occurrence of the event.168
This preference is now supported by a distinct line of authority. Therefore,
Aberfoyle Plantations v Cheng has been doubted,169 and constructions such as
those made in Astra Trust Ltd v Adams must today be justified.170
[16-31] Limitations. The preference to uphold agreements as contracts is not
applicable in all cases. Since it assumes that two constructions are open, the
preference is not relevant if the parties have expressed an intention not to be
legally bound.171
If the preference in favour of legality cannot be applied, because its
application would be inconsistent with the expressed intention of the parties, the
clause is void.172 For example, a clause which purports to suspend performance
during war is void if expressed to apply to trading with the enemy.173
The preference in relation to ‘subject to’ clauses is not always relevant. For
example, in contrast to the ‘subject to finance’ cases, conveyancing practice
creates a presumption that an agreement to sell land ‘subject to contract’ is not
intended to be binding until execution of a formal contract of sale.174 Similarly,
market practice in relation to the expression ‘subject to details’ has in recent
years been presumed to create a condition precedent going to the formation of
charterparty and sale contracts relating to ships.175 But even in these specific
contexts, the issue remains one of construction.176
Although a contract may be open to two constructions, other preferences may
need to be taken into account. For example, application of a ‘subject to’ clause
on the basis that it conditions performance may make the contract illegal. The
preference in favour of legality will lead to the conclusion that the event
conditions formation, as in Roach v Bickle.177
ENCOURAGING CONTRACT PERFORMANCE
[16-32] Introduction. The injunction of Roskill LJ in Cehave NV v Bremer
Handelsgesellschaft mbH (The Hansa Nord),178 that a ‘court should tend to
prefer that construction which will ensure performance and not encourage
avoidance of contractual obligations’, suggests a construction preference which
is capable of being applied to a variety of situations as a specific incident of
commercial construction. Where a contract is open to two or more constructions,
the preference is for a construction the application of which will encourage
performance. The purpose of the preference is to encourage certain kinds of
conduct. Use of the preference in The Hansa Nord led to the result that the
buyers’ termination of the contract was invalid.
The preference may be used in conjunction with, or may reinforce, other
preferences. For example, in Hongkong Fir Shipping Co Ltd v Kawasaki Kisen
Kaisha Ltd179 use of the preference in favour of reasonable results in the
construction of the seaworthiness term was also an application of the preference
to encourage performance. And in the application of ‘subject to’ clauses the
preference for constructions which encourage performance reinforces the
preference to uphold contracts.
As with the preference to uphold contracts, applications which themselves
take effect as specific preferences may be identified. Two are illustrated below:
(1) the preference in favour of promises; and (2) the preference in favour of
intermediate terms.
[16-33] Construction of terms as promises. If the existence of a contract, or the
obligation to perform a contract, is subject to the occurrence of a particular event
(contingency), there is no contract, or no duty to perform, until the event occurs
and the contingency is fulfilled. A ‘subject to’ clause is the most common
example. Particular rights may also be subject to the fulfilment of a contingency.
For example, timely notice under a force majeure clause may be a condition of
enjoyment of the rights which the provision confers. In deciding whether such
contingencies have been fulfilled, the contract is usually applied literally. The
classic example is an option contract.180 Failure of the contingency is associated
with a loss of rights. That may include the forfeiture of an interest in property.181
By definition, no inquiry into the significance of breach can arise.182
However, the failure to perform a promise according to its terms does not
necessarily prevent enforcement of the contract by the promisee, or bring about
an automatic loss of rights. In such cases, further inquiry is necessary. Where a
provision is open to construction as either a promise or the statement of a
condition, the preference to encourage performance points in favour of the
former construction. In Maynard v Goode,183 Higgins J said184 that ‘the Courts
always object to treat words as imposing a condition where a different effect can
fairly be given to them’. The preference is an overt feature of United States
law.185 Section 227(2) of the Contracts Restatement 2d (1979) provides: Unless
the contract is of a type under which only one party generally undertakes duties,
when it is doubtful whether (a) a duty is imposed on an obligee that an event
occur, or (b) the event is made a condition of the obligor’s duty, or (c) the
event is made a condition of the obligor’s duty and a duty is imposed on the
obligee that the event occur, the first interpretation is preferred if the event is
within the obligee’s control.
Application of the preference therefore suggests that if the provision is open
to two constructions — as (stating) a condition or a promise — the latter
construction should be preferred. The rationale is that it encourages performance
of the contract. There are important examples of the use of the preference under
English law. Thus, in Bremer Handelsgesellschaft mbH v Vanden Avenne-Izegem
PVBA186 a prohibition of export clause in a contract for the sale of goods on CIF
terms (cl 21 of GAFTA form 100) stated that if they invoked the clause, ‘[s]ellers
shall advise Buyers without delay with the reasons therefor’. The House of
Lords construed the notice requirement as promissory. Similarly, in United
Scientific Holdings Ltd v Burnley Borough Council187 certain rent review clauses
specified a timetable which applied when the lessors sought a rent review. The
timetable was held to be promissory in nature. More recent examples have
concerned notice provisions in insurance contracts.188
It is probably fair to say that these cases illustrate intuitive use of the
preference.189 The general goal of commercial construction is at work, rather
than resolution of a perceived construction choice by the application of a
construction preference.190 Application of the preference will not assist the
promisor if the provision is classified as a promissory condition.191 That is
another question. However, §227(2) of the Contracts Restatement 2d (1979) also
recognises that the preferred construction for a promissory provision is that due
performance does not condition the promisee’s obligation to perform. Under
English law, that is a preference in favour of classification of the promise as an
intermediate term.192
[16-34] Construction of terms as intermediate terms. The construction of
terms which can be breached in various ways as intermediate terms is regarded
as encouraging the performance of contracts.193 That was the context of Roskill
LJ’s statement in Cehave NV v Bremer Handelsgesellschaft mbH (The Hansa
Nord).194
The issue in The Hansa Nord was whether cl 7 of a sale of goods contract
(GAFTA form 100) was intended to be a promissory condition. Clause 7
required ‘[s]hipment to be made in good condition’. The sellers’ breach of the
term was invoked by the buyers to justify their decision to reject the goods and
terminate the contract. Their commercial motive was a fall in market prices.
Since there was no expressed intention, the issue was what intention should be
inferred. Because the term could be breached in various ways, with varying
degrees of seriousness, the case law195 supported the classification of the term as
intermediate in character. The term was so construed. On the facts, the
consequences of the breach were not sufficiently serious to justify the buyers’
termination.196
The same approach has sometimes been taken to notice provisions. For
example, in Bremer Handelsgesellschaft mbH v Vanden Avenne-Izegem PVBA197
the requirement in the prohibition of export clause to provide notice ‘without
delay’ was construed as creating an intermediate term, rather than a condition.
Lord Wilberforce referred198 to the relevance of ‘general considerations of law’
as including ‘the approach, which modern authorities recognise, of treating such
a provision as having the force of a condition … or of a contractual term …
according to the nature and gravity of the breach’.199 Therefore, failure to
provide notice ‘without delay’ did not deprive the sellers of the benefit of the
clause.
[16-35] Limitations. Preferences which encourage contract performance cannot
be used unless the contract is reasonably open to two constructions.200 For
example, the preference in favour of promises is not usually relevant to option
contracts. In that context, the limitation stated in §227(2) of the Contracts
Restatement 2d (1979)201 by reference to contracts ‘of a type under which only
one party generally undertakes duties’ is applicable under English law.
Similarly, use of the preference in the classification of terms as intermediate
terms rather than conditions is subject to the vast body of case law on the topic.
There are various lines of authority. These necessarily influence construction, for
example, in the classification of time stipulations in commercial contracts.202
PREFERENCES IN RELATION TO RIGHTS AND REMEDIES
General
[16-36] Introduction. There is a general preference in favour of common law
rights and remedies.203 In addition, various specific construction preferences
operate.
From one perspective, the preferences merely recognise the simple and
obvious fact that contracts are always incomplete expressions of intention in
relation to rights and remedies. It is impossible to conceive of a contract being a
complete code in relation to such matters.204 Similarly, a force majeure clause is
unlikely to be intended to operate as a code dealing with events beyond the
control of the parties.205 However, the preferences have a much greater impact.
[16-37] The general preference. There is a substantial body of case law
recognising a general preference in favour of common law rights and remedies.
It is usually stated as a presumption of intention, that is, as a construction rule.
For example, in Photo Production Ltd v Securicor Transport Ltd206 Lord Diplock
referred to a ‘presumption in favour of the implied primary and secondary
obligations’ of the parties. Implied primary obligations derive from the
established incidents of contracts,207 and secondary obligations arise on breach of
an express or implied term of the contract. Since the obligations give rise to
correlative rights, there is a presumption in favour of common law rights.
In Gilbert-Ash (Northern) Ltd v Modern Engineering (Bristol) Ltd,208 Lord
Diplock said209 that in construing a ‘contract for sale of goods or for work and
labour or for both’, the starting point is a ‘presumption that neither party intends
to abandon any remedies for its breach arising by operation of law’. He also
said210 that ‘clear express words must be used in order to rebut this presumption’.
The statement of principle was approved by the House of Lords in Stocznia
Gdanska SA v Latvian Shipping Co211 and Beaufort Developments (NI) Ltd v
Gilbert-Ash NI Ltd.212 It has also been said213 that the more ‘valuable’ the
common law right, the ‘clearer’ the language must be to rebut the presumption.
The contracts at issue in the above cases were detailed commercial contracts
which necessarily affected the parties’ common law rights and remedies. The
impact of the approach can be expressed in three propositions which are
discussed below. First, because the presumption is a construction rule, it is
applied directly, without any prior decision that the contract is open to two
constructions. The construction question is therefore whether the presumption
has been rebutted.
Second, rights expressly conferred by a contract are presumed to supplement
common law rights, as where a building contract includes a promise to rectify
defects in the work.214 Accordingly, an express conferral of rights has no impact
unless the contract also excludes or limits the promisee’s common law rights.215
Third, because it achieves a strict application of the contract, application of
the preference as a construction rule is not in the spirit of commercial
construction.
The same points can generally also be made in relation to the specific
preferences.
[16-38] Specific preferences. Application of a preference in favour of common
law rights to particular categories of right generates specific preferences, with
distinct lines of authority. For example, in Edlington Properties Ltd v J H Fenner
& Co Ltd,216 Neuberger LJ referred217 to the ‘clear and consistent approach’ to
the words ‘without deduction’ as not affecting rights of set-off in commercial
leases. In relation to exclusion clauses, application of the general preference to
specific issues such as negligence218 creates or justifies specific construction
rules. Further illustrations are given below.
However, in some situations, a mere preference may operate. The modern
cases on releases of liability can be viewed as illustrations. General releases of
liability have never been applied literally.219 When expressed in a deed, the usual
approach has been to limit the release by reference to the recitals.220 But the
modern perspective seems simply to be that where a release can be applied in
more than one way, the preference may be used when deciding its scope of
application. The leading case is Bank of Credit and Commerce International SA
v Ali.221 In 1990 the bank made a number of its employees redundant. In addition
to his statutory redundancy payment, the respondent (Mr Naeem) received an ex
gratia payment. He agreed that this was ‘in full and final settlement of all or any
claims whether under statute, common law or in equity of whatsoever nature that
exist or may exist’. The bank was corrupt, and collapsed in 1991. In unrelated
proceedings, the House of Lords held222 (in 1997) that the bank’s employees
might have claims for ‘stigma’ damages for loss suffered when they tried to re-
enter the labour market. The question was whether Naeem had released the right
to make such a claim.
Naeem did not know that the bank was corrupt. Nor could he have known in
1990 what would be decided in 1997.223 But the bank knew all the relevant facts
on the basis of which stigma damages might be claimed. More than one
application of the release was open, and literal application of the expression ‘of
whatsoever nature’ would have been uncommercial. For example, it was
conceded that the release did not apply to claims which employees might have in
relation to amounts owed under their banking accounts. A majority of the House
of Lords held that in deciding which common law rights remained enforceable, it
was legitimate to take into account what could reasonably have been
contemplated, and to prefer a construction under which the release did not apply
to any claim for stigma damages.224
Termination and Accrued Rights
[16-39] Termination rights. Most negotiated contracts include termination
clauses.225 The interaction between the common law and express termination
rights is important, and potentially complex.226 Nevertheless, the impact of the
general preference is a specific presumption that express rights are additional
rights.
Of course, the idea that the parties might intend an express statement of
termination rights to be exhaustive is largely a theoretical possibility. Common
law rights are never entirely displaced. For example, an express right to
terminate for breach of a contractual term227 is unlikely to affect the common law
right to terminate for a refusal to perform the contract, including by wrongful
termination.228 But that is not really the issue. The presumption is in favour of
concurrent and independent common law rights.229 Accordingly, all common law
rights are presumed to remain available230 unless there is outright inconsistency,
or the contract is a complete code in respect of a particular basis for termination
at issue.231 This approach seems unjustified. There are three points. First, in
relation to matters within the scope of an express regime, it seems uncommercial
to apply a presumption that the regime is intended to operate concurrently with
the common law.
Second, common law rights are implied rights. The interaction between
express and implied rights always depends on construction of the contract as a
whole.232 Terms stating express rights are not exclusion clauses, and there is no
reason to expect the contract to include an express exclusion of concurrent
common law rights.233
Third, express termination regimes frequently relate to matters such as
‘material breach’. Commonly, the promisee is required to provide the promisor
with an opportunity to ‘remedy’ the breach.234 Such a regime does not of itself
prevent a term to which the clause applies being construed as a promissory
condition. However, a breach of condition may be a material breach. To apply a
presumption that the common law right is entirely independent of the express
regime, so that compliance with the regime is a matter of discretion, seems
uncommercial.235
[16-40] Accrued rights. Where a contract is terminated for breach or
repudiation, or by frustration, the question may arise whether rights which
accrued prior to termination remain enforceable following termination. There is
a specific preference in favour of (accrued) common law rights and remedies. It
is applied as a rule of construction.
Contracts commonly include provisions to the effect that termination is
without prejudice to accrued rights. For example, in Hyundai Heavy Industries
Co Ltd v Papadopoulos236 a shipbuilding contract stated that the rights expressly
conferred were in addition to such ‘rights, powers and remedies’ as the
shipbuilders might have ‘at law, at equity or otherwise’. The clause did not play
a crucial role in the conclusion of the House of Lords, namely, that the
shipbuilders were entitled to recover a payment which was overdue when they
terminated the contract pursuant to an express right. But the preference in favour
of common law rights means that such provisions are usually unnecessary.
Accordingly, although it was argued in Stocznia Gdanska SA v Latvian Shipping
Co237 that the absence of an express preservation clause was significant, the
House of Lords applied Papadopoulos on the basis that the omission made no
difference.238
There is, of course, no reason why termination of a contract should prevent a
promisee enforcing rights and remedies which accrued due prior to termination.
The question in the above cases was whether the right to receive payment of a
debt accrued due unconditionally prior to the termination of the shipbuilding
contracts at issue.239 More problematic are contracts which include detailed
provisions which regulate liability when the contract is terminated.240 But
because a construction rule is in operation in such cases, the common law
remains applicable unless excluded by the contract.241
PREFERENCES WITH A POLICY COMPONENT
[16-41] Introduction. The policy basis for all preferences in construction is
commercial construction. However, certain preferences are informed by
additional policy concerns. Thus, §207 of the Contracts Restatement 2d (1979)
states that in ‘choosing among the reasonable meanings of a promise or
agreement or a term thereof, a meaning that serves the public interest is
generally preferred’. Under English law, such preferences operate at three levels.
First, a preference in construction may have a specific policy perspective. As
noted above,242 the policy to preserve contractual intent is an illustration.
Second, public policy may be directly promoted, as where the construction
preference in favour of the legality of a contract is applied.243
Third, since commercial construction reflects the role of good faith in
contract,244 aspects of that concept inform the construction of contracts. For
example, there is a preference in favour of constructions which do not enable
people to be advantaged by their wrongs.
[16-42] Taking advantage of own wrong. As Lord Goff pointed out in Attorney
General v Guardian Newspapers Ltd (No 2),245 the idea that people should not
benefit from their own wrongs is influential in various contexts.246 It is relevant
to the construction of contracts.247 For example, the idea may be used to justify
the implication of a term.248 More generally, where a contract is open to more
than one construction, the application of one of which would permit a party to
benefit from its own wrong,249 another construction is preferred.
One context for use of the preference is an automatic termination clause. If a
contract is stated to terminate automatically, or to become ‘void’, if a particular
event occurs, the event is in the nature of a condition subsequent. If the event
can be brought about by one party,250 the preference may be applied on the basis
that there is no intention for that party to take advantage of its own wrong.251 The
clause is then construed on the basis that occurrence of the event confers a right
of termination (or perhaps rescission) on the other party.252 Although often
expressed in terms that ‘void’ means ‘voidable’,253 the construction is a statement
about how the contract is intended to be applied. However, the preference will
not usually be relevant where any duty is owed to a third party.254
The preference is potentially relevant in any case where breach of contract
would be a reason for obtaining a benefit.255 The preference to construe an
exclusion clause as not applying wilful default is an illustration.256 However, in
order for the preference to apply, two or more constructions must be open.257 For
example, in Petroplus Marketing AG v Shell Trading International Ltd (The
Ninae)258 it was held that the parties intended price to be calculated by reference
to the bill of lading date whether or not there was late delivery by the seller. Nor
will the preference apply to an automatic termination clause which is open to
only one construction.259
1. See [1-22].
2. See [15-04].
3. See also [15-19] (‘liberalism’). See further [16-12]–[16-25] (‘reasonable
results’).
4. Mendl & Co v Ropner & Co [1912] 1 KB 27 at 32 per Bray J.
5. Southland Frozen Meat and Produce Export Co Ltd v Nelson Bros Ltd
[1898] AC 442 at 444 per Lord Herschell for the Privy Council.
6. Naylor Benzon & Co Ltd v Krainische Industrie Gesellschaft [1918] 1 KB
331 at 335 per McCardie J, but noting that had the clause been in favour of
one party it would have been construed strictly against that party.
7. (1883) 12 QBD 176 at 190.
8. (1924) 35 CLR 303.
9. (1924) 35 CLR 303 at 316.
10. [2007] 4 All ER 97 at 108; [2007] UKHL 20 at [31]. The other members of
the House of Lords agreed. Cf Beaufort Developments (NI) Ltd v Gilbert-
Ash NI Ltd [1999] 1 AC 266 at 282.
11. See also [13-08].
12. See [1-09].
13. See [3-36]–[3-39]. See also [16-41].
14. See [4-10].
15. See, eg Golar Gas Transport Inc v The Liquefied Gas Shipping Co Ltd (The
Hilli) [1979] 1 Lloyd’s Rep 153 at 163 (scope of application of word
‘interruption’).
16. Stellar Chartering & Brokerage Inc v Efibanca-Ente Finanziario
Interbancario SpA (The Span Terza) (No 2) [1984] 1 WLR 27 at 32.
17. See [15-03].
18. See [15-04].
19. Cf HIH Casualty and General Insurance Ltd v New Hampshire Insurance
Co [2001] 2 Lloyd’s Rep 161 at 184; [2001] EWCA 735 at [119] per Rix
LJ, with whom the other members of the court agreed (to the ‘fullest extent
permissible by applicable law’ were ‘words of saving’ and did not extend
the words which followed).
20. See [15-11].
21. See [15-22].
22. See, eg Michael Gerson (Leasing) Ltd v Greatsunny Ltd [2010] 1 Ch 558 at
568; [2010] EWHC 1887 (Ch) at [40] per Nicholas Strauss QC, sitting as a
deputy High Court judge (literal construction made ‘good commercial
sense’).
23. See [15-23].
24. For the process problems associated with literal and strict construction see
[15-21].
25. See [16-12]–[16-25].
26. See, eg Pera Shipping Corp v Petroship SA (The Pera) [1985] 2 Lloyd’s
Rep 103 at 108 per Griffiths LJ (‘very clear language’); Trafalgar House
Construction (Regions) Ltd v General Surety & Guarantee Co Ltd [1996]
AC 199 at 208 per Lord Jauncey, with whom the other members of the
House of Lords agreed (‘clear and unambiguous language’); Beaufort
Developments (NI) Ltd v Gilbert-Ash NI Ltd [1999] 1 AC 266 at 276 per
Lord Hoffmann (‘very clear words’); Edlington Properties Ltd v J H
Fenner & Co Ltd [2006] 1 WLR 1583 at 1601; [2006] EWCA Civ 403 at
[68].
27. See [4-39].
28. The chief example is the version of the contra proferentem rule applied to
exclusion clauses. See [17-11], [17-14].
29. See [16-36]–[16-40]. See also [17-34].
30. See also [3-16], [3-35].
31. See also [13-16]–[1 3-26].
32. See Chapter 3.
34. See [3-25], [3-31], [3-33]–[3-35].
35. See [15-40].
36. See, eg Thornley v Tilley (1925) 36 CLR 1 at 11 (consistency between the
construction alleged and fiduciary duty of agent); Jadranska Slobodna
Plovidba v Gulf Shipping Line Ltd (The Matija Gubec) [1983] 1 Lloyd’s
Rep 24 at 27 per Staughton J (whether ‘given form of words’ is sufficient to
exclude ‘implication which the law would otherwise make’); Trafalgar
House Construction (Regions) Ltd v General Surety & Guarantee Co Ltd
[1996] AC 199 at 208 (suretyship). See also [3-25], [3-35], [15-17].
37. See Chapter 17.
38. See B & S Contracts and Design Ltd v Victor Green Publications Ltd
[1984] ICR 419 at 424–5, 426, 427–8; Channel Island Ferries Ltd v Sealink
UK Ltd [1988] 1 Lloyd’s Rep 323 at 327, 328. See also RDC Concrete Pte
Ltd v Sato Kogyo (S) Pte Ltd [2007] 4 SLR 413 at 435; [2007] SGCA 39 at
[64]. Cf Brauer & Co (Great Britain) Ltd v James Clark (Brush Materials)
Ltd [1952] 2 All ER 497 (sale of goods subject to export licence).
39. See, eg Burton & Co v English & Co (1883) 12 QBD 218 at 224 per Bowen
LJ (clauses providing relief from the ‘ordinary laws of the sea’); Elderslie
SS Co Ltd v Borthwick [1905] AC 93 (seaworthiness); Atlantic Shipping
and Trading Co Ltd v Louis Dreyfus and Co [1922] 2 AC 250 at 260
(seaworthiness); Bunge Y Born Limitada Sociedad Anonima Commercial
Financiera Y Industrial of Buenos Aires v H A Brightman and Co [1925]
AC 799 at 816 (obligation to provide cargo and seaworthiness obligation);
Sametiet M/T Johs Stove v Istanbul Petrol Rafinerisi A/S (The Johs Stove)
[1984] 1 Lloyd’s Rep 38 at 41 (laytime and demurrage).
40. See Islamic Republic of Iran Shipping Lines v Ierax Shipping Co of
Panama (The Forum Craftsman) [1991] 1 Lloyd’s Rep 81 at 87 per
Hobhouse J (where it can ‘sensibly be construed as applying to other
obligations’, courts have declined to apply an exclusion as qualifying
demurrage obligation). See also Ellis Shipping Corp v Voest Alpine
Intertrading (The Lefthero) [1992] 2 Lloyd’s Rep 109 at 112; Portolana
Compania Naviera Ltd v Vitol SA Inc (The Afrapearl) [2004] 1 WLR 3111
at 3117; [2004] EWCA Civ 864 at [8]. Cf [13-14].
41. See also [13-20].
42. Mechanical Horse (Australasia) Pty Ltd v Council of the City of Broken
Hill (1941) 41 SR (NSW) 135 at 138 per Jordan CJ. Street and Roper JJ
concurred. See further [17-23].
43. See also [13-17].
44. See [13-12]–[13-14]. See also Legal & General Insurance Australia Ltd v
Eather (1986) 6 NSWLR 390 at 394 (established constructions of insurance
contracts). Cf Atlas Navios-Navegaçao LDA v Navigators Insurance Co Ltd
(The B Atlantic) [2012] 1 Lloyd’s Rep 629 at 632; [2012] EWHC 802
(Comm) at [24] (decisions on earlier editions of Institute Clause).
45. See also [13-14].
46. See, eg National Shipping Co of Saudi Arabia v BP Oil Supply Co (The
Abqaiq) [2012] 1 Lloyd’s Rep 18 at 29–30; [2011] EWCA Civ 1127 at
[53]–[54] (approach to time bar clause in BPVoy4 form applicable to
demurrage claims — applying Babanaft International Co SA v Avant
Petroleum Inc (The Oltenia) [1982] 1 Lloyd’s Rep 448 at 453, affirmed
[1982] 1 WLR 871; [1982] 3 All ER 244 (Asbatankvoy form)).
47. See generally on express and inferred intention Chapter 2.
48. But see [16-37] (presumption in favour of common law rights and
remedies).
49. See, eg [16-42] (taking advantage of own wrong).
50. See [16-05].
52. See Rose and Frank Co v J R Crompton and Bros Ltd [1925] AC 445 at
454; Crouch v Jeeves (1938) Pty Ltd (1946) 46 SR (NSW) 242 at 244.
53. See [16-29].
54. [1893] AC 351 at 357.
55. See Davy Offshore Ltd v Emerald Field Contracting Ltd [1992] 2 Lloyd’s
Rep 142 at 155 per Staughton LJ, with whom the other members of the
Court of Appeal agreed (‘high authority’ that provisions should be rejected
if they cannot be reconciled with the remainder); Bankway Properties Ltd v
Pensfold-Dunsford [2001] 1 WLR 1369 at 1385–6, 1387; [2001] EWCA
Civ 528 at [58], [67]–[69]. Cf Daewoo Heavy Industries Ltd v Klipriver
Shipping Ltd (The Kapitan Petko Voivoda) [2003] 2 Lloyd’s Rep 1 at 15;
[2003] EWCA Civ 451 at [22] (when account was taken of contract as a
whole, there was no repugnancy).
56. See [17-33]. Cf Fraser v B N Furman (Productions) Ltd [1967] 1 WLR 898
at 905; [1967] 3 All ER 57 at 60.
57. See [4-53] (basis for preferring one clause over another).
58. Cf C v D [2012] 1 WLR 1962 at 1985, 1987; [2011] EWCA Civ 646 at
[75], [84] (construction of Part 36 offer).
59. See generally Glynn v Margetson & Co [1893] AC 351 at 355; Hongkong
Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26 at 62–3;
Gillespie Bros & Co Ltd v Roy Bowles Transport Ltd [1973] QB 400 at 421;
L Schuler AG v Wickman Machine Tool Sales Ltd [1974] AC 235;
Macedonia Maritime Co v Austin & Pickersgill Ltd (The Fayrouz I-IV)
[1989] 2 Lloyd’s Rep 73 at 84; Rainy Sky SA v Kookmin Bank [2011] 1
WLR 2900; [2011] UKSC 50.
60. See generally J Kitchen & Sons Pty Ltd v Stewart’s Cash & Carry Stores
(1942) 66 CLR 116 at 124–5; Australian Broadcasting Commission v
Australasian Performing Right Association Ltd (1973) 129 CLR 99 at 109;
TCN Channel 9 Pty Ltd v Hayden Enterprises Pty Ltd (1989) 16 NSWLR
130 at 146; Gollin & Co Ltd v Karenlee Nominees Pty Ltd (1983) 153 CLR
455 at 464; Hide & Skin Trading Pty Ltd v Oceanic Meat Traders Ltd
(1990) 20 NSWLR 310 at 314; Tern Minerals NL v Kalbara Mining NL
(1990) 3 WAR 486 at 497; Spunwill Pty Ltd v BAB Pty Ltd (1994) 36
NSWLR 290 at 299; Zhu v Treasurer of New South Wales (2004) 218 CLR
530 at 559; [2004] HCA 56 at [82].
61. See, eg [1-22], [13-47], [15-03].
63. See further [16-05]–[16-08] (presumptions used in application).
64. Cf [15-20] (impact of commercial construction on doctrine).
65. [2007] Bus LR 1719 at 1723, 1725; [2007] UKHL 40 at [7], [13]. See also
Sul América Cia Nacional de Seguros SA v Enesa Engenharia SA [2012] 1
Lloyd’s Rep 275 at 285; [2012] EWHC 42 (Comm) at [48] per Cooke J,
affirmed [2012] 1 Lloyd’s Rep 671; [2012] EWCA Civ 638 (‘liberal
approach’). For another example, see Miramar Maritime Corp v Holborn
Trading Ltd [1984] 1 AC 676.
66. Contrast UBS AG v HSH Nordbank AG [2008] 2 Lloyd’s Rep 500 at 514;
[2008] EWHC 1529 (Comm) at [91], affirmed [2009] 2 Lloyd’s Rep 272;
[2009] EWCA Civ 585 (different agreements dealing with dfferent aspects
of overall relationship); Barclays Bank Plc v Nylon Capital LLP [2012] Bus
LR 542 at 551; [2011] EWCA Civ 826 at [28] (expert determination — no
presumption either way). Cf Lombard North Central Plc v GATX Corp
(express agreement that only certain disputes were to be referred).
67. Rainy Sky SA v Kookmin Bank [2011] 1 WLR 2900 at 2908, 2911, 2916;
[2011] UKSC 50 at [21], [30], [45]. See [16-23].
68. [1973] QB 400 at 421.
69. See, eg Hong Guan & Co Ltd v R Jumabhoy & Sons Ltd [1960] AC 684 at
700; Attica Sea Carriers Corp v Ferrostaal Poseidon Bulk Reederei GmbH
[1976] 1 Lloyd’s Rep 250 at 253; Australian Casualty Co Ltd v Federico
(1986) 160 CLR 513 at 520; Yorkshire Water Services Ltd v Sun Alliance &
London Insurance Plc [1997] 2 Lloyd’s Rep 21 at 28. See also Meehan v
Jones (1982) 149 CLR 571 at 592 per Mason J (‘more sensible’).
70. See [15-22].
71. (1942) 66 CLR 116 at 124–5.
72. [1971] 1 WLR 1381; [1971] 3 All ER 237.
73. [1971] 1 WLR 1381 at 1385; [1971] 3 All ER 237 at 240–1. The other
74. [1974] AC 235.
75. [1974] AC 235 at 251. See also Telfair Shipping Corp v Athos Shipping Co
SA (The Athos) [1983] 1 Lloyd’s Rep 127 at 140, 144, 145; International
Fina Services AG v Katrina Shipping Ltd (The Fina Samco) [1995] 2
Lloyd’s Rep 344 at 350; Charter Reinsurance Co Ltd v Fagan [1997] AC
313 at 388.
76. Anglomar Shipping Co Ltd v Swan Hunter Shipbuilders Ltd (The London
Lion) [1980] 2 Lloyd’s Rep 456 at 467 per Dunn LJ; see also [1980] 2
Lloyd’s Rep 456 at 468 per Sir David Cairns (‘normal meaning would
involve sheer absurdity’); Jireh International Pty Ltd t/a Gloria Jean’s
Coffee v Western Exports Services Inc [2011] NSWCA 137, SLR sub nom
Western Export Services Inc v Jireh International Pty Ltd (2011) 282 ALR
604; [2011] HCA 45 (‘uncommercial’ application chosen where it was not
absurd); see David McLauchlan and Matthew Lees, ‘Construction
Controversy’ (2011) 28 JCL 101. Cf Telfair Shipping Corp v Athos
Shipping Co SA (The Athos) [1983] 1 Lloyd’s Rep 127 at 144 per Purchas
LJ (‘hardly more acceptable’).
77. [2011] 1 WLR 2900 at 2908; [2011] UKSC 50 at [21]. See also [2011] 1
WLR 2900 at 2915–16; [2011] UKSC 50 at [43].
78. See [16-23].
79. (1924) 35 CLR 303 at 312.
80. (1973) 129 CLR 99.
81. (1973) 129 CLR 99 at 109.
82. [1980] AC 827.
83. [1980] AC 827 at 851 (adopted Darlington Futures Ltd v Delco Australia
Pty Ltd (1986) 161 CLR 500 at 508). See also Levison v Patent Steam
Carpet Cleaning Co Ltd [1978] QB 69 at 79–80. But cf Hunter Engineering
Co Inc v Syncrude Canada Ltd [1989] 1 SCR 426; see M H Ogilvie,
‘Fundamental Breach Excluded but not Extinguished: Hunter Engineering v
Syncrude Canada’ (1990) 17 CBLJ 74.
84. Cf Attorney General of Belize v Belize Telecom Ltd [2009] 1 WLR 1988 at
1993; [2009] UKPC 10 at [16] per Lord Hoffmann for the Privy Council (a
‘court has no power to improve upon the instrument which it is called upon
to construe’).
85. See, eg [15-13], [16-20].
86. (1973) 129 CLR 99.
87. (1973) 129 CLR 99 at 109. See also Société Anonyme Marocaine de
l’Industrie du Raffinage v Notos Maritime Corp (The Notos) [1987] 1
Lloyd’s Rep 503 at 507; Johnson v American Home Assurance Co (1998)
192 CLR 266 at 272.
88. [1985] AC 191.
89. See [6-13], [8-23], [12-29].
90. For the preference see [16-29].
91. [1993] 2 Lloyd’s Rep 445 at 449.
92. See [13-47], [15-03].
93. See [6-22], [13-47]. See also [15-21].
94. Lancashire County Council v Municipal Mutual Insurance Ltd [1997] QB
897 at 905 per Simon Brown LJ. Staughton and Thorpe LJJ agreed.
95. H & E Van Der Sterren v Cibernetics (Holdings) Pty Ltd (1970) 44 ALJR
157 at 158 (time limitation clause); L Schuler AG v Wickman Machine Tool
Sales Ltd [1974] AC 235 at 265 (alleged promissory condition). See also
Coddington v Paleologo (1867) LR 2 Ex 193 at 200; Maynard v Goode
(1926) 37 CLR 529 at 536; Pacific Carriers Ltd v BNP Paribas (2004) 218
CLR 451 at 463; [2004] HCA 35 at [26].
96. See [13-46]. Cf Burke v State Bank of New South Wales (1994) 37 NSWLR
53 at 71 per Santow J (‘liberal’ interpretation of widely drawn mortgage not
to be adopted if it ‘would yield absurdities’).
97. [1989] 1 Lloyd’s Rep 309 at 311. See also Yorkshire Water Services Ltd v
Sun Alliance & London Insurance Plc [1997] 2 Lloyd’s Rep 21 at 28 per
Stuart-Smith LJ, with whom Waite and Otton LJJ agreed (literal
construction should be rejected if it would lead to absurd result or be
‘contrary to the real intention of the parties’).
98. (2004) 218 CLR 451 at 463; [2004] HCA 35 at [26].
99. Adams v Richardson & Starling Ltd [1969] 1 WLR 1645 at 1653 per
Salmon LJ (would have been ‘absurd’ or ‘bizarre’ to construe warranty to
re-treat timber as requiring contractors to repair timber); Alghussein
Establishment v Eton College [1988] 1 WLR 587 at 595 (literal
construction would have led to bizarre result that contractor who failed to
complete development without fault could not call for lease, whereas
contractor who wilfully defaulted could do so).
100. Dominion Coal Co Ltd v Dominion Iron and Steel Co Ltd [1909] AC 293 at
310.
101. [1981] 2 Lloyd’s Rep 159 at 167.
102. See J Kitchen & Sons Pty Ltd v Stewart’s Cash & Carry Stores (1942) 66
CLR 116 at 124–5.
103. Charter Reinsurance Co Ltd v Fagan [1997] AC 313 at 387 per Lord
Mustill. Lords Goff, Griffiths and Browne-Wilkinson agreed.
104. Associated Alloys Pty Ltd v ACN 001 452 106 Pty Ltd (in liq) (2000) 202
CLR 588 at 600; [2000] HCA 25 at [18] per Gaudron, McHugh, Gummow
and Hayne JJ.
105. [1999] QB 309.
106. [1999] QB 309 at 327–8 per Millett LJ. Pill and May LJJ agreed. See also
Niobe Maritime Corp v Tradax Ocean Transportation SA (The Niobe)
[1995] 1 Lloyd’s Rep 579 at 582.
107. (1980) 144 CLR 300; [1981] 1 WLR 138.
108. (1980) 144 CLR 300 at 310; [1981] 1 WLR 138 at 147. See also Stocznia
Gdynia SA v Gearbulk Holdings Ltd [2010] QB 27 at 39; [2009] EWCA
Civ 75 at [21]. Cf Golar Gas Transport Inc v The Liquefied Gas Shipping
Co Ltd (The Hilli) [1979] 1 Lloyd’s Rep 153 at 164 per Lloyd J (‘argument
ad absurdum’ lost almost all force).
109. Sirius International Insurance Co (Publ) v FAI General Insurance Ltd
[2004] 1 WLR 3251 at 3259; [2004] UKHL 54 at [22] per Lord Steyn.
Lords Nicholls and Walker agreed.
also Arash Shipping Enterprises Co Ltd v Groupama Transport [2011] 2
Lloyd’s Rep 607 at 613; [2011] EWCA Civ 620 at [31] per Stanley Burnton
J, with whom Ellias and Tomlinson LJJ agreed (‘sensible effect’).
111. [1998] 1 WLR 461; see Gerard McMeel, [1999] LMCLQ 5.
112. [1998] 1 WLR 461 at 469 per Potter LJ. Swinton Thomas LJ agreed.
113. See [16-14], [16-15].
114. [2011] 1 WLR 2900; [2011] UKSC 50. See David McLauchlan and
Matthew Lees, ‘More Construction Controversy’ (2012) 29 JCL 97.
115. [2011] 1 WLR 2900 at 2916; [2011] UKSC 50 at [45].
116. [1962] 2 QB 26.
117. That is, the shipowners’ undertaking that the vessel was ‘in every way fitted
for ordinary cargo service’.
118. [1962] 2 QB 26 at 62.
119. [1974] AC 235. See further [16-34].
120. [1970] 1 WLR 526; [1970] 1 All ER 1227. See also Mills v Dunham [1891]
1 Ch 576 at 590; Marion White Ltd v Francis [1972] 3 All ER 857;
Littlewoods Organisation Ltd v Harris [1978] 1 All ER 1026. Cf Geraghty
v Minter (1979) 142 CLR 177 (‘allied business activities’).
121. For the preference see [16-28].
122. [1970] 1 WLR 526 at 536.
123. [1970] 1 WLR 526 at 533 per Harman LJ.
124. [1970] 1 WLR 526 at 536, 537 per Cross LJ.
125. Cf Carey Group Plc v AIB Group (UK) Plc [2012] 2 WLR 564 at 577–8;
[2011] EWHC 567 (Ch) at [51]–[53] (no implied term that discretion to be
exercised personally).
126. [1985] AC 191.
127. Contrast Home and Overseas Insurance Co Ltd v Mentor Insurance Co
(UK) Ltd [1990] 1 WLR 153 at 165 (case concerned ‘meaning’ of the word
‘breach’).
128. See also Amann Aviation Pty Ltd v The Commonwealth (1990) 92 ALR
601, affirmed without reference to the point sub nom Commonwealth of
Australia v Amann Aviation Pty Ltd (1991) 174 CLR 64 (show cause
procedure); More OG Romsdal Fylkesbatar AS v Demise Charterers of the
Ship ‘Jotunheim’ [2005] 1 Lloyd’s Rep 181 at 185; [2004] EWHC 671
(Comm) at [30] (literal application of withdrawal clause would have been
unworkable).
129. (1953) 89 CLR 327.
130. (1953) 89 CLR 327 at 347. The other members of the High Court of
Australia agreed. Cf Socimer International Bank Ltd v Standard Bank
London Ltd [2008] Bus LR 1304 at 1330; [2008] EWCA Civ 116 at [60].
131. See [9-25].
132. There is a Latin maxim: verba ita sunt intelligenda ut res magis valeat
quam pereat. See Hillas & Co Ltd v Arcos Ltd (1932) 43 Ll L Rep 359 at
367; 147 LT 503; C v D [2012] 1 WLR 1962 at 1980; [2011] EWCA Civ
646 at [55].
133. See, eg Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991] 1 QB 1
(pragmatic approach to the consideration requirement).
134. See [13-44], [14-22].
135. See [14-23], [18-27]–[18-28].
137. See [3-11]–[3-13].
139. (1982) 149 CLR 571.
140. (1982) 149 CLR 571 at 589. See also Hillas & Co Ltd v Arcos Ltd (1932)
43 L1 L Rep 359 at 367; 147 LT 503.
141. See Lancashire County Council v Municipal Mutual Insurance Ltd [1997]
QB 897 at 906 (ut res magis valeat quam pereat). Cf Rodger v The
Comptoir D’Escompte de Paris (1869) LR 2 PC 393 at 406.
142. See Re Casey’s Patents; Stewart v Casey [1892] 1 Ch 104. Cf Breusch v
Watts Development Division Pty Ltd (1987) 10 NSWLR 311 at 314–17.
143. See, eg Foley v Classique Coaches Ltd [1934] 2 KB 1 at 13 (sale of goods);
Josselson v Borst [1937] 1 KB 723 at 736 (assignment); Ferguson v Inland
Revenue Commissioners [1970] AC 442 at 456, 464–5 (separation
agreement); Meehan v Jones (1982) 149 CLR 571 at 589 (sale of land). See
also Langley v Foster (1906) 4 CLR 167 at 181, 194 (presumption in favour
of compliance with law); C v D [2012] 1 WLR 1962 at 1980, 1985; [2011]
EWCA Civ 646 at [55], [76] (preference for construction of document so
that it did not fail as Part 36 offer). Cf Mills v Dunham [1891] 1 Ch 576 at
590 (need for ‘ambiguity’).
144. See Hirsch v The Zinc Corp Ltd (1917) 24 CLR 34 at 59; Lancashire
County Council v Municipal Mutual Insurance Ltd [1997] QB 897 at 906,
910. Cf Sinclair v Judge [1930] St R Qd 220 at 227 (‘duty’ of court); Bank
of Credit and Commerce International SA v Ali [2002] 1 AC 251 at 269;
[2001] UKHL 8 at [39] (element of ‘context’). See also Contracts
Restatement 2d (1979), §203(a) (preference is given to a construction of the
contract which gives a lawful meaning and does not leave a part unlawful).
145. See Hirsch v The Zinc Corp Ltd (1917) 24 CLR 34 at 59; Ertel Bieber and
Co v Rio Tinto Co Ltd [1918] AC 260 at 290. Cf Naylor Benzon & Co Ltd v
Krainische Industrie Gesellschaft [1918] 1 KB 331 at 345.
146. (1915) 20 CLR 663.
147. (1915) 20 CLR 663 at 671.
148. See also [10-33].
149. See, eg S Pearson & Son Ltd v Dublin Corporation [1907] AC 351 at 360,
365; Crouch v Jeeves (1938) Pty Ltd (1946) 46 SR (NSW) 242 at 244; HIH
Casualty and General Insurance Ltd v Chase Manhattan Bank [2003] 2
Lloyd’s Rep 61 at 81; [2003] UKHL 6 at [97]; Granville Oil & Chemicals
Ltd v Davis Turner & Co Ltd [2003] 2 Lloyd’s Rep 356 at 360. See also
[10-33] (clause may be invalid under statute).
150. See the discussion in HIH Casualty and General Insurance Ltd v Chase
Manhattan Bank [2003] 2 Lloyd’s Rep 61; [2003] UKHL 6.
151. See, eg Hong Guan & Co Ltd v R Jumabhoy & Sons Ltd [1960] AC 684 at
700 (construction which would have made performance optional). See also
Farnworth Finance Facilities Ltd v Attryde [1970] 1 WLR 1053 at 1060. Cf
Swiss Bank Corp v Brink’s-MAT Ltd [1986] 2 Lloyd’s Rep 79 at 93 per
Bingham J (‘under no liability whatsoever howsoever arising’ did not
remove ‘substratum’ of carriage contract).
152. [1995] 2 AC 145 at 203. See also Helou v P D Mulligan Pty Ltd (2003) 57
NSWLR 74 at 79 (would have frustrated commercial purpose of guarantee
to construe it as ceasing to operate on bankruptcy of principal debtor).
153. [1980] AC 827.
154. [1980] AC 827 at 850. See also Firestone Tyre and Rubber Co Ltd v Vokins
& Co Ltd [1951] 1 Lloyd’s Rep 32 at 39; Hardwick Game Farm v Suffolk
Agricultural and Poultry Producers Association Ltd [1966] 1 WLR 287 at
334; [1966] 1 All ER 309 (affirmed sub nom Henry Kendall & Sons v
William Lillico & Sons Ltd [1969] 2 AC 31); Suisse Atlantique Société
d’Armement Maritime SA v NV Rotterdamsche Kolen Centrale [1967] 1 AC
361 at 433; George Mitchell (Chesterhall) Ltd v Finney Lock Seeds Ltd
[1983] QB 284 at 310 (affirmed without reference to the point [1983] 2 AC
803).
155. [1999] 1 WLR 2042.
156. [1999] 1 WLR 2042 at 2047. See also Ogdens Ltd v Nelson [1905] AC 109
at 113 per Lord James (construction to prevent ‘promise merely in words’);
Tor Line AB v Alltrans Group of Canada Ltd (The TFL Prosperity) [1984] 1
WLR 48 at 58; [1984] 1 All ER 103 (construction to prevent charterparty
becoming a declaration of intent).
157. See [16-11].
158. See [9-26].
159. See MacRobertson Miller Airline Services v Commissioner of State
Taxation (WA) (1975) 133 CLR 125. Cf Oceanic Sun Line Special Shipping
Co Inc v Fay (1988) 165 CLR 197 at 206; Homburg Houtimport BV v
Agrosin Private Ltd (The Starsin) [2004] 1 AC 715 at 790; [2003] UKHL
12 at [163]. The contrary view was an element of the doctrine of
fundamental breach. See, eg Astley Industrial Trust Ltd v Grimley [1963] 1
WLR 584 at 595, 597.
160. See [9-25].
161. However, that is not always the case. See, eg Masters v Cameron (1954) 91
CLR 353 at 360.
162. See also [10-49].
163. [1960] AC 115. See also Lee-Parker v Izzet (No 2) [1972] 1 WLR 775
(whether purchaser obtained a satisfactory mortgage was a contingency
which went to formation of the contract).
164. [1969] 1 Lloyd’s Rep 81. See also George v Roach (1942) 67 CLR 253
(agreement for the sale of a business at valuation by a named valuer
provided for a ‘condition precedent’ to the existence of a contract).
165. See Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537 at 552;
Bakri Navigation Co Ltd v Owners of Ship ‘Golden Glory’ Glorious
Shipping SA (1991) 217 ALR 152 at 157. Cf Total Gas Marketing Ltd v
Arco British Ltd [1998] 2 Lloyd’s Rep 209.
166. [1993] 1 WLR 403; see A J Oakley, [1992] CLJ 427; J W Carter, (1993) 6
JCL 266. See also Smallman v Smallman [1972] Fam 25 at 31–2. Cf Brauer
& Co (Great Britain) Ltd v James Clark (Brush Materials) Ltd [1952] 2 All
ER 497.
167. (1982) 149 CLR 571. See J P Swanton, ‘“Subject to Finance” Clauses in
Contracts for the Sale of Land’ (1984) 58 ALJ 633. See also Michael
Furmston, ‘Letters of Intent and Other Preliminary Agreements’ (2009) 25
JCL 95 at 105.
168. See also Gange v Sullivan (1966) 166 CLR 418 at 441; Gregory v MAB Pty
Ltd (1989) 1 WAR 1 at 21.
169. See Property and Bloodstock Ltd v Emmerton [1968] 1 Ch 94 at 116; Perri
v Coolangatta Investments Pty Ltd (1982) 149 CLR 537 at 542–3, 551,
556–7. Similarly, Lee-Parker v Izzet (No 2) [1972] 1 WLR 775 was
regarded as a doubtful decision in Graham v Pitkin [1993] 1 WLR 403.
170. See Varverakis v Compagnia de Navegacion Artico SA (The Merak) [1976]
2 Lloyd’s Rep 250 at 254. See also Michael Furmston and G J Tolhurst,
Contract Formation: Law and Practice, Oxford University Press, Oxford,
2010, §§9.92–9.94.
171. See [9-26] (express agreement not to create legal relations).
172. See generally S Pearson & Son Ltd v Dublin Corporation [1907] AC 351 at
353–4, 356, 362, 365; Suburban Homes Pty Ltd v Topper (1929) 35 ALR
294; Snarski & Snarski v Barbarich [1969] WAR 46; HIH Casualty and
General Insurance Ltd v Chase Manhattan Bank [2003] 2 Lloyd’s Rep 61
at 68, 76–8, 81, 84–5; [2003] UKHL 6 at [15], [68]–[82], [97], [119]–[122].
173. Ertel Bieber and Co v Rio Tinto Co Ltd [1918] AC 260 at 273, 275, 279–80,
281–2, 290.
174. See Chillingworth v Esche [1924] 1 Ch 97; Masters v Cameron (1954) 91
CLR 353. The significance of the presumption was considerably reduced by
the Law of Property (Miscellaneous Provisions) Act 1989 (UK). See
Commission for the New Towns v Cooper (Great Britain) Ltd [1995] Ch
259 at 289, 293–4.
175. See Samos Shipping Enterprises Ltd v Eckhardt & Co KG (The Nissos
Samos) [1985] 1 Lloyd’s Rep 378 at 385 (sale of ship); Star Steamship
Society v Beogradska Plovidba (The Junior K) [1988] 2 Lloyd’s Rep 583 at
588–9 (charterparty); Thoresen & Co (Bangkok) Ltd v Fathom Marine Co
Ltd [2004] 1 Lloyd’s Rep 622 at 626; [2004] EWHC 167 (Comm) at [35]
per Langley J (‘recognised meaning’ in context of sale of ships). See also
CPC Consolidated Pool Carriers GmbH v CTM Cia Mediterranea SA (The
CPC Gallia) [1994] 1 Lloyd’s Rep 68 at 72–4.
176. See Rossiter v Miller (1878) 3 App Cas 1124 at 1152; Masters v Cameron
(1954) 91 CLR 353 at 362.
177. (1915) 20 CLR 663 (see [16-28]). Contrast Sandra Investments Pty Ltd v
Booth (1983) 153 CLR 153 (no issue of illegality).
178. [1976] QB 44 at 71 (approved Bunge Corp New York v Tradax Export SA
Panama [1981] 1 WLR 711 at 715; adopted Ankar Pty Ltd v National
Westminster Finance (Australia) Ltd (1987) 162 CLR 549 at 556–7). See
also State Trading Corp of India Ltd v M Golodetz Ltd [1989] 2 Lloyd’s
Rep 277 at 283.
179. [1962] 2 QB 26.
180. See [15-28].
181. See Greville v Parker [1910] AC 335 (option for renewal of lease).
182. See United Dominions Trust (Commercial) Ltd v Eagle Aircraft Services
Ltd [1968] 1 WLR 74; [1968] 1 All ER 104 and generally Carter’s Breach
of Contract, §§4-30–4-37. See also M A Eisenberg, ‘The Emergence of
Dynamic Contract Law’ (2000) 88 Calif L Rev 1743 at 1790 (‘severe
sanction’).
183. (1926) 37 CLR 529.
184. (1926) 37 CLR 529 at 542.
185. See, eg Southern Surety Co v MacMillan Co, 58 F 2d 541 at 548 (CA, 10th
Cir, 1932).
186. [1978] 2 Lloyd’s Rep 109. See also Forrest v Glasser [2006] 2 Lloyd’s Rep
392 at 396; [2006] EWCA Civ 1086 at [19] (obligation to notify warranty
claim).
187. [1978] AC 904; see J W Carter, (1981) 97 LQR 194. See also G R Mailman
& Associates Pty Ltd v Wormald (Aust) Pty Ltd (1991) 24 NSWLR 80 (rent
review clause under which lessee was entitled to object to lessor’s review
treated as embodying promise). See Diane Skapinker and J W Carter, ‘Time
in Rent Review Procedures: Promise, Condition or Limitation?’ (1992) 5
JCL 136.
188. See, eg Alfred McAlpine Plc v BAI (Run-Off) Ltd [2000] 1 Lloyd’s Rep 437
at 444 (‘as soon as possible’); Glencore International AG v Ryan (The
Beursgracht) [2002] 1 Lloyd’s Rep 574 at 581; [2001] EWCA Civ 2051 at
[43]–[44] (late declaration of vessel under open cover charterers’ liability
policy); Friends Provident Life & Pensions Ltd v Sirius International
Insurance [2005] 2 Lloyd’s Rep 517; [2005] EWCA Civ 601
(‘immediately’). On whether such provisions operate as intermediate terms,
see Carter’s Breach of Contract, §6-31.
189. See F M B Reynolds, ‘Discharge of Contract by Breach’ (1981) 97 LQR
541 at 547–8. Cf Brewarrina Shire Council v Beckhaus Civil Pty Ltd (2003)
56 NSWLR 576 at 583; [2003] NSWCA 4 at [26] (‘shall’ an indication in
favour of promise).
190. Cf Zeus Tradition Ltd v Bell (The Zeus V) [2000] 2 Lloyd’s Rep 587 at 595
(no presumption that terms were conditions just because they appeared
under the heading ‘conditions’); Universal Bulk Carriers Ltd v André et Cie
[2001] 2 Lloyd’s Rep 65 at 69; [2001] EWCA Civ 588 at [17] (clause
imposed a duty — did not confer option).
191. See [15-29] (notice provisions).
192. See Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1987)
162 CLR 549 at 561 per Mason ACJ, Wilson, Brennan and Dawson JJ
(‘law’s preference for a construction that reads a provision otherwise than
as a condition’).
193. Cf Hoenig v Isaacs [1952] 2 All ER 176 at 180 (doctrine of substantial
performance).
194. [1976] QB 44 at 71 (see [16-32]).
195. Derived from Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd
[1962] 2 QB 26.
197. [1978] 2 Lloyd’s Rep 109.
198. [1978] 2 Lloyd’s Rep 109 at 113. See also Reardon Smith Line Ltd v Yngvar
Hansen-Tangen [1976] 1 WLR 989 at 998; [1976] 3 All ER 570; Federal
Commerce and Navigation Co Ltd v Molena Alpha Inc [1979] AC 757 at
785; Bunge Corp New York v Tradax Export SA Panama [1981] 1 WLR 711
at 715–16. Cf Friends Provident Life & Pensions Ltd v Sirius International
Insurance [2005] 2 Lloyd’s Rep 517; [2005] EWCA Civ 601 (interpreting
Alfred McAlpine Plc v BAI (Run-Off) Ltd [2000] 1 Lloyd’s Rep 437).
199. Cf United Scientific Holdings Ltd v Burnley Borough Council [1978] AC
904 (application of presumption that time not of essence).
200. Cf Westminster Properties Pty Ltd v Comco Constructions Pty Ltd (1991) 5
WAR 191 at 202.
201. See [16-33].
202. See generally Carter’s Breach of Contract, §§5-64–5-69. See also [2-42].
203. Of course, the same is true of statutory rights. See, eg Shell Egypt West
Manzala GmbH v Dana Gas Egypt Ltd [2010] 1 Lloyd’s Rep 109 at 116;
[2009] EWHC 2097 (Comm) at [37]–[38]. Cf Delaney v Pickett [2012] 1
WLR 2149 at 2172–3; [2011] EWCA Civ 1532 at [67].
204. See, eg Bem Dis a Turk Ticaret S/A TR v International Agri Trade Co Ltd
(The Selda) [1999] 1 Lloyd’s Rep 729 at 733 (cl 28 of GAFTA form 100 not
comprehensive statement as to measures of damage).
205. See, eg Empresa Exportadora de Azucar v Industria Azucarera Nacional
SA (The Playa Larga and Marble Islands) [1983] 2 Lloyd’s Rep 171 at 189.
206. [1980] AC 827 at 851 (adopted Darlington Futures Ltd v Delco Australia
Pty Ltd (1986) 161 CLR 500 at 508).
207. See [16-06].
208. [1974] AC 689.
209. [1974] AC 689 at 717. See also Mancorp Pty Ltd v Baulderstone Pty Ltd
(t/a Baulderstone Hornibrook) (No 2) (1992) 60 SASR 120 at 126–7;
Stocznia Gdynia SA v Gearbulk Holdings Ltd [2010] QB 27 at 39; [2009]
210. [1974] AC 689 at 717.
211. [1998] 1 WLR 574 at 585.
212. [1999] 1 AC 266 at 279, 286–7. See also Concut Pty Ltd v Worrell (2000)
176 ALR 693 at 699–700; [2000] HCA 64 at [23] (remedies and rights
flowing from breach).
213. Stocznia Gdynia SA v Gearbulk Holdings Ltd [2010] QB 27 at 39; [2009]
EWCA Civ 75 at [23] per Moore-Bick LJ. Ward and Smith LJJ agreed.
214. See, eg Hancock v B W Brazier (Anerley) Ltd [1966] 1 WLR 1317 at 1328,
1334. See also Mancorp Pty Ltd v Baulderstone Pty Ltd (t/a Baulderstone
Hornibrook) (No 2) (1992) 60 SASR 120 at 126–7 (in building contract,
right to damages is not displaced by right to recover additional costs of
completion).
215. See Bem Dis a Turk Ticaret S/A TR v International Agri Trade Co Ltd (The
Selda) [1999] 1 Lloyd’s Rep 729 at 733 (‘shall be based on’ in damages
clause not words of limitation); BHP Petroleum Ltd v British Steel Plc
[2000] 2 Lloyd’s Rep 277 (‘rectification’ clause in supply contract also a
limitation on supplier’s liability).
216. [2006] 1 WLR 1583; [2006] EWCA Civ 403.
217. [2006] 1 WLR 1583 at 1601, 1602; [2006] EWCA Civ 403 at [71], [72].
Pill and Scott Baker LJJ agreed. See also Nile Co for the Export of
Agricultural Crops v H & J M Bennett (Commodities) Ltd [1986] 1 Lloyd’s
Rep 555 at 588; Connaught Restaurants Ltd v Indoor Leisure Ltd [1994] 1
WLR 501. Contrast Norman; Re Forest Enterprises Ltd v FEA Plantation
Ltd (2011) 280 ALR 470 at 491–3; [2011] FCAFC 99 at [180]–[201].
218. See [17-31].
219. See also [4-25] (no ‘equitable construction’).
220. See Grant v John Grant & Sons Pty Ltd (1954) 91 CLR 112 at 123ff. See
also Qantas Airways Ltd v Gubbins (1992) 28 NSWLR 26 at 29, 43.
221. [2002] 1 AC 251; [2001] UKHL 8; see Kay Wheat, (2002) 65 MLR 425.
222. See Malik v Bank of Credit and Commerce International SA [1998] AC 20.
223. Cf Brennan v Bolt Burdon (a firm) [2005] QB 303 at 323; [2004] EWCA
Civ 1017 at [61].
224. See also Satyam Computer Services Ltd v Upaid Systems Ltd [2008] 2 All
ER (Comm) 465 at 482; [2008] EWCA Civ 487 at [84] (fraud based
claims).
225. See, eg J W Carter, ‘Termination Clauses’ (1990) 3 JCL 90.
226. See also [13-50].
227. See Amann Aviation Pty Ltd v The Commonwealth (1990) 92 ALR 601
(affirmed on other grounds sub nom The Commonwealth v Amann Aviation
Pty Ltd (1991) 174 CLR 64). Cf Duffen v Frabo SpA [2000] 1 Lloyd’s Rep
180 at 193.
228. See Carter’s Breach of Contract, §10-16. But see Stocznia Gdynia SA v
Gearbulk Holdings Ltd [2010] QB 27 at 39; [2009] EWCA Civ 75 at [21],
where literal construction was used to support application of the
presumption.
229. See J W Carter and Goh Yihan, ‘Concurrent and Independent Rights to
Terminate for Breach of Contract’ (2010) 26 JCL 103.
230. See, eg Maredelanto Compania Naviera SA v Bergbau-Handel GmbH (The
Mihalis Angelos) [1971] 1 QB 164 (termination for breach of condition
where cancellation clause not applicable); L Schuler AG v Wickman
Machine Tool Sales Ltd [1974] AC 235 (common law right for breach of
condition would have been available); Concut Pty Ltd v Worrell (2000) 176
ALR 693 at 699–700; [2000] HCA 64 at [23] (express right to terminate
employment contract did not remove the employer’s common law right to
terminate for serious breach).
231. See, eg Country and Metropolitan Homes Surrey Ltd v Topclaim Ltd [1996]
Ch 307 at 314 (termination for delay by service of notice). Cf Dalkia
Utilities Services Plc v Celtech International Ltd [2006] 1 Lloyd’s Rep 599
at 629; [2006] EWHC 63 (Comm) at [130] (express rights more extensive).
233. Cf [3-25] (contract may deal sufficiently with the subject matter of an
implication).
235. But cf L Schuler AG v Wickman Machine Tool Sales Ltd [1974] AC 235
(see [13-50]).
236. [1980] 1 WLR 1129. See also Thames Valley Power Ltd v Total Gas &
Power Ltd [2006] 1 Lloyd’s Rep 441 at 454; [2005] EWHC 2208 (Comm)
at [61].
237. [1998] 1 WLR 574. See J W Carter, ‘Shipbuilding Contracts: Not Quite the
Final Chapter’ (1998) 13 JCL 156.
238. But see Dalkia Utilities Services Plc v Celtech International Ltd [2006] 1
239. See Jack Beatson, ‘Discharge for Breach: The Position of Instalments,
Deposits and Other Payments Due Before Completion’ (1981) 97 LQR 389;
J W Carter and G J Tolhurst, ‘Recovery of Contract Debts Following
Termination for Breach’ (2009) 25 JCL 191.
240. See Stocznia Gdanska SA v Latvian Shipping Co (No 3) [2002] 2 Lloyd’s
Rep 436 at 449; [2002] EWCA Civ 889 at [71]–[72] (damages for
repudiatory breach where shipbuilding contract included regime in relation
to some aspects of accrued rights).
241. See Stocznia Gdynia SA v Gearbulk Holdings Ltd [2010] QB 27 at 39;
[2009] EWCA Civ 75 at [23]. See also Carter’s Breach of Contract, §12-06.
242. See [16-26].
243. See [16-28].
244. See [16-02].
245. [1990] 1 AC 109 at 286. See also Rede v Farr (1817) 6 M & S 121 at 124;
105 ER 1188 at 1189 per Lord Ellenborough CJ (‘universal principle of
law’); New Zealand Shipping Co Ltd v Société des Ateliers et Chantiers de
France [1919] AC 1 at 6, 9; Alghussein Establishment v Eton College
[1988] 1 WLR 587 at 594.
246. Cf Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2
QB 26 at 66 per Diplock LJ (‘moral rule’).
247. See Richco International Ltd v Alfred C Toepfer International Gmbh (The
Bonde) [1991] 1 Lloyd’s Rep 136 at 144 per Potter J (principle of
construction of ‘wide application’); Petroplus Marketing AG v Shell
Trading International Ltd (The Ninae) [2009] 2 Lloyd’s Rep 611 at 615;
[2009] EWHC 1024 (Comm) at [17] per Andrew Smith J (‘general
principle of construction’). See also International Leasing Corp (Vic) Ltd v
Aiken [1967] 2 NSWR 427 at 457–8; Harmsworth Pension Funds Trustees
Ltd v Charringtons Industrial Holdings Ltd (1985) 49 P & Cr 297 at 301.
248. See, eg Howe v Smith (1884) 27 Ch D 89 at 98 (rationale for implied right
to forfeit deposit); Joseph Constantine SS Line Ltd v Imperial Smelting
Corp Ltd [1942] AC 154 at 182 (self-induced frustration); Kallang Shipping
SA Panama v AXA Assurances Senegal (The Kallang) (No 2) [2009] 1
Lloyd’s Rep 124 at 138; [2008] EWHC 2761 (Comm) at [62] (implied duty
not to prevent performance by other party). See also [3-33].
249. As to the meaning of ‘wrong’ see Thompson v ASDA-MFI Group Plc
[1988] Ch 241 at 257.
250. The preference is not applicable if the event is beyond the control of the
parties. See, eg Westralian Farmers Ltd v Commonwealth Agricultural
Service Engineers Ltd (1936) 54 CLR 361 (automatic termination of agency
contract on termination of contract between different parties).
251. See Cheall v Association of Professional Executive Clerical and Computer
Staff [1983] 2 AC 180 at 188–9 per Lord Diplock, with whom the other
members of the House of Lords agreed (‘well known rule of construction’).
See also Gange v Sullivan (1966) 166 CLR 418 at 441; Carpentaria
Investments Pty Ltd v Airs [1972] Qd R 436 at 461; Alghussein
Establishment v Eton College [1988] 1 WLR 587 at 593–4; Thompson v
ASDA-MFI Group Plc [1988] Ch 241.
252. See generally Davenport v R (1877) 3 App Cas 115 at 128–9; New Zealand
Shipping Co Ltd v Société des Ateliers et Chantiers de France [1919] AC 1
at 9; Suttor v Gundowda Pty Ltd (1950) 81 CLR 418 at 441–2; Meehan v
Jones (1982) 149 CLR 571 at 591–2.
253. See, eg Quesnel Forks Gold Mining Co Ltd v Ward [1920] AC 222 at 227
(demise ‘absolutely forfeited’); Newbon v City Mutual Life Assurance
Society Ltd (1935) 52 CLR 723 at 733 (insurance contract ‘void’); Gange v
Sullivan (1966) 166 CLR 418 (agreement to be ‘at an end’); More OG
Romsdal Fylkesbatar AS v Demise Charterers of the Ship ‘Jotunheim’
[2005] 1 Lloyd’s Rep 181; [2004] EWHC 671 (Comm) (vessel subject of
demise charter ‘will return back’).
254. See Cheall v Association of Professional Executive Clerical and Computer
Staff [1983] 2 AC 180. See also J Lauritzen AS v Wijsmuller BV (The Super
Servant Two) [1990] 1 Lloyd’s Rep 1 at 13 (no relevant duty).
255. See Alghussein Establishment v Eton College [1988] 1 WLR 587 at 594–5
(preference applied).
256. See [17-37].
257. See, eg J Lauritzen AS v Wijsmuller BV (The Super Servant Two) [1990] 1
Lloyd’s Rep 1 at 12–13; Micklefield v SAC Technology Ltd [1990] 1 WLR
1002 at 1007; Richco International Ltd v Alfred C Toepfer International
Gmbh (The Bonde) [1991] 1 Lloyd’s Rep 136 at 144, 145. Cf Esteve
Trading Corp v Agropec International (The Golden Rio) [1990] 2 Lloyd’s
Rep 273 at 278 (closing-out was automatic under express provision). See
also Attorney General v Guardian Newspapers Ltd (No 2) [1990] 1 AC 109
at 286.
258. [2009] 2 Lloyd’s Rep 611 at 616; [2009] EWHC 1024 (Comm) at [23].
259. See, eg Alghussein Establishment v Eton College [1988] 1 WLR 587 at
595; Micklefield v SAC Technology Ltd [1990] 1 WLR 1002 at 1007. Cf
Gyllenhammar & Partners International Ltd v Sour Brodogradevna
Industria [1989] 2 Lloyd’s Rep 403 at 415–16 (‘unless otherwise agreed’
established literal application of provision that contract was void).
17
Exclusion and Limitation Clauses
General [17-02]
Function [17-06]
Strict Construction and the Contra Proferentem Rule [17-09]
General [17-09]
Attempts to Limit Strict Application [17-12]
Other Construction Rules [17-18]
General [17-18]
Rules Referable to Particular Words [17-22]
Rules Applicable to Negligence [17-25]
Commercial Construction [17-32]
General [17-32]
Use of Specific Incidents [17-34]

[17-01] Objects. Perhaps the most common issue which arises in relation to
exclusion clauses (and limitation clauses) is their scope of application. This
chapter discusses the themes of the cases and the rules applied to make decisions
about the application of exclusion clauses and analogous provisions. The
principal issue is how far such clauses are construed under general principles,
rather than by reference to specific rules. Therefore, the two objectives are to
explain the current law and to test the approach of the decisions against general
principles of commercial construction. That includes a consideration of the use
of the construction preferences discussed in the previous chapter.
Since the concern is with commercial construction, no attempt is made to deal
in detail with the regulation of exclusion clauses by statute. In any event, the
application of statute assumes that the clause is, as a matter of construction,
applicable to the circumstances which have occurred.
GENERAL
Introduction
[17-02] Application and construction. The discussion of exclusion and
limitation clauses in this part of the book is based on the view that the most
important issue in relation to exclusion clauses is their scope of application to
particular factual situations. Questions of meaning may of course arise, but in
general it is scope which is at issue. That is in fact emphasised by the general
assumption that they function as possible defences to a liability which has been
established.
Putting to one side the traditional hostility of courts towards exclusion clauses
(discussed below), the logical position for the law to take in applying exclusion
clauses can be expressed in two propositions. First, since the commercial
standard of application is the default rule for any contract addressed to a
commercial person,1 in that context exclusion clauses should be applied
commercially, rather than literally or strictly.
Second, the scope of application of most exclusion clauses is indeterminate.2
Because they are drafted in anticipation of circumstances which may occur, but
which neither party promises will occur, they never include complete definitions
of the circumstances in which they are intended to apply. Therefore, even when
applied commercially to particular facts, more than one application will often be
open. Construction preferences3 may then be used — along with other incidents
of commercial construction — to infer the intention of the parties.
Although the role of general principles remains uncertain, modern statements
of principle point in that direction.
[17-03] Modern statements of principle. The general hostility to exclusion
clauses was never restricted to consumer contracts. However, the introduction of
statutory consumer protection regimes4 led to calls for a commercial approach to
the construction of exclusion clauses.
In Photo Production Ltd v Securicor Transport Ltd5 Lord Wilberforce said:6
[I]n commercial matters generally, when the parties are not of unequal
bargaining power, and when risks are normally borne by insurance, not
only is the case for judicial intervention undemonstrated, but there is
everything to be said … for leaving the parties free to apportion the risks
as they think fit and for respecting their decisions.
To the same effect, Lord Diplock said:7
In commercial contracts negotiated between businessmen capable of
looking after their own interests and of deciding how risks inherent in the
performance of various kinds of contract can be most economically borne
(generally by insurance), it is, in my view, wrong to place a strained
construction upon words in an exclusion clause which are clear and fairly
susceptible of one meaning only even after due allowance has been made
for the presumption in favour of the implied primary and secondary
obligations.
Both statements are affirmations of the principle of freedom of contract.
The High Court of Australia adopted Lord Diplock’s statement in Darlington
Futures Ltd v Delco Australia Pty Ltd.8 The court stated9 as the guiding
principle: [T]he interpretation of an exclusion clause is to be determined by
construing the clause according to its natural and ordinary meaning, read in the
light of the contract as a whole, thereby giving due weight to the context in
which the clause appears including the nature and object of the contract, and,
where appropriate, construing the clause contra proferentem in case of
ambiguity.
The impact of these statements is difficult to gauge. In neither Photo
Production Ltd v Securicor Transport Ltd10 nor Darlington Futures Ltd v Delco
Australia Pty Ltd11 was the use of specific techniques and devices for applying
exclusion clauses denied.
[17-04] Devices and techniques. The strict application12 of contracts has most
commonly been associated with the construction of exclusion clauses. Various
devices and techniques have been employed, the effect of which is to narrow the
literal scope of application of the contract.13
These devices and techniques include: the treatment of exclusion clauses
as providing possible defences to a claim based on an assumed breach of duty;
application of the preference in favour of common law rights and remedies as a
presumption of intention; a strict construction rule; direct application of the
contra proferentem rule; and application of specific presumptions of intention
as construction rules, including special rules dealing with negligence.
The use of these devices and techniques in the construction of exclusion
clauses emphasises the traditional — hostile — approach. That approach has
also been applied to other provisions which impact on common law rights and
remedies.14
[17-05] Perspective rule. Under the perspective rule,15 the scope of application
of a contract is determined by reference to the conclusion which a reasonable
person in the position of the person to whom the words are addressed would
reach.16 The reasonable person is taken to know the context of the contract and
the facts in reference to which the contract must be applied.
A contract may have different constructions, according to the characteristics
of the person to whom the words at issue were addressed. When addressed to a
commercial person, the default rule is commercial application.17 For example,
when construing an exception in a charterparty, Bingham J referred in Industrie
Chimiche Italia Centrale SpA v NEA Ninemia Shipping Co SA (The Emmanuel
C)18 to the relevance of the addressee being an ‘informed practitioner in the
field’. Because it may not be appropriate to think in terms of an ordinary
member of the public,19 a statement of the perspective rule in Spriggs v Sotheby
Parke Bernet & Co20 might be doubted. Neill LJ said that an ordinary reader
would not be lulled into a ‘false sense of security’ by a clause to the effect that
although ‘all reasonable care’ would be taken, there was no responsibility for
negligence. He also considered that an ordinary reader would understand that
Sothebys were seeking to exclude their liability ‘as bailees’. Given the
commercial context, the conclusion that the clause applied was clearly correct,
but it seems unlikely that ordinary members of the public would understand a
clause to the effect, ‘all care but no liability’, still less would they appreciate the
concept of liability ‘as a bailee’.
It follows that even if a reasonable commercial person might be expected to
understand that negligence is potentially within the scope of a particular clause,
the understanding of an ordinary member of the public may be different. In
Hollier v Rambler Motors (AMC) Ltd,21 the plaintiff left his car at the
defendants’ premises for the purpose of repair. It was destroyed by a fire caused
by the defendants’ negligence. They relied on a provision to the effect that they
were ‘not responsible for damage caused by fire to customer’s cars on the
premises’. The provision was not in fact incorporated into the contract with the
plaintiff, but the court said that it would not have been applicable. Negligence
was the most logical basis for the defendants to be held liable for damage by fire
on their premises, and the clause was capable of applying to liability for
negligence. However, a reasonable person in the position of the plaintiff would
have understood the clause as a warning that the defendants were not liable
unless they were negligent. The justification lies in taking into account that the
clause was addressed to an ordinary member of the public, rather than a
commercial person.
Function
[17-06] Defence and definition. A commercial approach to the construction of
any contractual provision includes recognition of its function. In his classic work
on exclusion clauses, Professor Coote drew attention22 to their function in
defining the scope and standard of contractual (and other) duties. He contrasted
this with the defensive function usually accorded by the courts, under which
exclusion clauses are construed after liability has been established independently
of the clause.23 Under Coote’s ‘discerning’24 analysis, there is no liability if the
promisor has discharged the relevant duty as defined by the contract, including
any exclusion clause.
On occasions, for example, in the speech of Lord Diplock in Photo
Production Ltd v Securicor Transport Ltd,25 courts have construed clauses
framed in an exclusionary way as defining the promisor’s responsibility.
However, the defensive approach has been more common, with several
consequences. First, form has tended to triumph over substance. Effect is given
to express definition by the way in which a primary obligation is framed. The
fact that the substantive effect of an exclusion clause may be to define a primary
obligation is ignored, so that the clause is referable to a secondary duty (liability)
which is assumed to have arisen on the basis of breach of an unqualified primary
obligation.26
Second, whereas the onus rests on a promisee to prove that the facts establish
the breach of a primary duty, a promisor must show that an exclusion clause is
applicable to a secondary liability.27 Because each is an issue of construction, the
placement of the onus of proof is not crucial. However, it may be significant,
including in cases where clauses which are not in fact exclusionary are treated as
sufficiently analogous to attract the same rules, as in the case of a force majeure
clause.
Third, the approach has informed the drafting of legislation applicable to
exclusion clauses.
[17-07] Statute. Under the Unfair Contract Terms Act 1977 (UK), some
exclusion clauses are prohibited,28 and others are subjected to the requirement of
reasonableness.29
Most of the relevant provisions of the Unfair Contract Terms Act 1977 (UK)
refer to clauses excluding liability. The provisions which prohibit contracting out
of statutory implied terms (or common law obligations), or which deal with
liability for breach of contract or negligence, therefore appear to assume that the
agreement of the parties is expressed in a clause stating a complete defence to an
action for breach of duty, or a limitation of liability.30 For example, s 6(1) of the
Act prohibits clauses which exclude ‘liability for breach’ of specified obligations
implied into sale of goods and hire-purchase contracts. Similarly, under s 2(1): A
person cannot by reference to any contract term or to a notice given to persons
generally or to particular persons exclude or restrict his liability for death or
personal injury resulting from negligence.
Section 13(1)(b) of the Unfair Contract Terms Act 1977 (UK) extends the
operation of provisions such as s 6 to clauses ‘excluding or restricting any right
or remedy in respect of the liability’.31 However, the emphasis still rests on a
presumed liability, which may not in fact arise if the exclusion clause defines the
relevant duty.32 Nevertheless, the courts have generally looked to the substantive
effect of provisions alleged to be exclusionary, rather than to their form.33 And s
3(2)(b) may be relevant to a clause defining the promisor’s obligations.
[17-08] Other types of clause. The hostility towards exclusion clauses has often
been carried over to some forms of indemnity, force majeure clauses, and so on.
Whether or not drafted in terms directly referable to a breach of duty, they are
regarded as ‘analogous’ clauses on the basis that they serve to provide protection
against liability under common law principles.
Therefore, clauses which are regarded as analogous to exclusion clauses are
often treated as possible defences.34 As a corollary, the onus is on the promisor to
prove application of the clause to the facts which have arisen.35 Even in recent
cases, there are references to a general rule of ‘strict construction’ for such
clauses.36 The effect is to sideline general principles of commercial construction
in favour of particular techniques and devices designed to achieve strict
application. But it is also true that the approach to such clauses is by no means
uniform.37
STRICT CONSTRUCTION AND THE
CONTRA PROFERENTEM RULE
General
[17-09] Introduction. The most prominent of the various devices and techniques
used to achieve the strict application of exclusion clauses have been strict
construction and the contra proferentem rule. They have always gone hand in
hand. For example, in Thomas National Transport (Melbourne) Pty Ltd v May &
Baker (Australia) Pty Ltd,38 Windeyer J referred39 to ‘certain established rules of
law’ and gave as his first illustration that ‘an “exemption clause” — or
“exception clause” or “protective clause”, all terms are used — is ordinarily
construed strictly against the proferens, the party for whose benefit it is inserted’.
Notwithstanding the statements of principle,40 in Photo Production Ltd v
Securicor Transport Ltd41 Lord Diplock said42 ‘exclusion clauses are to be
construed strictly’. Lord Wilberforce described43 the idea that exclusion clauses
must be read contra proferentem as a ‘cardinal rule’. And he stated as a second
‘cardinal rule’ that ‘in order to escape from the consequences of one’s own
wrongdoing, or that of one’s servant, clear words are necessary’. In Darlington
Futures Ltd v Delco Australia Pty Ltd,44 the High Court confirmed the role of the
contra proferentem rule in cases of ‘ambiguity’.
[17-10] Strict and literal construction. Strict construction generally involves a
reading down process, under which literal meaning is qualified in application.45
For example, if an exclusion of liability for breach of warranty is strictly
construed, the clause does not apply to breach of condition.46 But since the
objective of both strict construction and application of the contra proferentem
rule is to read the clause against the interests of the party benefited by the clause,
they are not separate rules. Moreover, a construction contra proferentem may be
achieved by a literal application.
A classic example is Ernest Beck & Co v K Szymanowski & Co,47 which
concerned a contract for the sale of cotton thread on reels described as ‘200
yards reels’. The reels supplied had less than 200 yards of cotton. Under the
contract, ‘goods delivered’ were deemed to be ‘in all respects in accordance with
the contract’ unless the sellers received notice ‘of any matter or thing by reason
whereof … the goods are not in accordance with the contract’ within 14 days.
Although the buyers failed to complain within the specified period, it was held
(Lord Buckmaster dissenting) that the clause did not apply. On one view, the
clause was applied literally. Thus, Lord Shaw said48 that the clause applied to
goods ‘delivered’, but not to ‘goods which were not delivered’. On another view,
the clause was first construed strictly — so as to relate to qualitative defects —
and only then applied literally.49 Either way, the construction process was not
carried out commercially.50
[17-11] The contra proferentem rule. As a canon for the construction of
documents, the contra proferentem rule has been formulated in various ways.51
Many such formulations require an inquiry as to which party propounded the
relevant clause, or posit ‘ambiguity’ or ‘doubt’ before the rule can be applied.
Sometimes, these ideas are employed in the context of exclusion clauses and
analogous provisions. For example, Kitto J said in Sydney Corporation v West52
that ‘stipulations of this character, being framed as a rule by the party to be
protected and in any case being inserted in his favour, are to be construed
strictly’. And one of the rules stated by the Privy Council in Canada SS Lines
Ltd v R53 was expressed in terms that if ‘doubt arises … it must be resolved
against the proferens’.
However, the variant most frequently used in the context of exclusion clauses
is applied directly against the party who seeks to rely on the clause, as a way of
achieving strict application. For example, in Ailsa Craig Fishing Co Ltd v
Malvern Fishing Co Ltd54 Lord Fraser said55 that clauses which merely limit
liability to a sum of money ‘will … be read contra proferentem and must be
clearly expressed’. And as noted above, Lord Wilberforce described the idea that
exclusion clauses must be read contra proferentem as a ‘cardinal rule’ in Photo
Production Ltd v Securicor Transport Ltd.56 He made no reference to ambiguity
or doubt as the basis for its application. In these cases, the rule is applied
directly, that is, as a construction rule, to achieve an automatic reading of the
clause against the interests of the proferens. The impact is strict application of
the contract.
Attempts to Limit Strict Application
[17-12] Introduction. In Bank of Credit and Commerce International SA v Ali57
Lord Hoffmann referred58 to the ‘disappearance of artificial rules for the
construction of exemption clauses’. Although old habits die hard, various
attempts have been made to inject a more commercial approach into the
construction of exclusion clauses. Four are considered below: (1) warnings
against strained application; (2) insistence on ambiguity as a basis for strict
application; (3) promotion of natural meaning; and (4) differentiation between
exclusion and limitation clauses.
[17-13] Warnings against strained construction. If it did nothing else, Photo
Production Ltd v Securicor Transport Ltd59 warned against the strained
application of exclusion clauses. Lord Diplock said60 it was ‘wrong to place a
strained construction upon words in an exclusion clause which are clear and
fairly susceptible of one meaning only’. Similarly, in Ailsa Craig Fishing Co Ltd
v Malvern Fishing Co Ltd61 Lord Wilberforce stated62 that ‘one must not strive to
create ambiguities by strained construction’.
In Photo Production Ltd v Securicor Transport Ltd, Securicor agreed to
provide a night patrol service at Photo Production’s factory. Clause 1 of the
contract stated that under ‘no circumstances’ would Securicor be ‘responsible for
any injurious act or default by any employee … unless such act or default could
have been foreseen and avoided by the exercise of due diligence on the part’ of
Securicor. Photo Production claimed damages from Securicor for the loss
suffered when Securicor’s employee (who had satisfactory references and had
been employed for over three months) set fire to the premises. The House of
Lords held that Securicor was not liable. In Lord Diplock’s view, there was no
breach of duty.63 For Lord Wilberforce,64 cl 1 provided a complete defence.
At the same time, however, the House of Lords conceded the utility of a rule-
based approach, including strict construction and construction contra
proferentem.65 Although that approach is not necessarily synonymous with
‘strained’ construction,66 it is difficult to reconcile the use of both with the
warnings against strained construction.67 The distinction between ‘strict’ and
‘strained’ construction is not an obvious one. Moreover, Lord Diplock treated68
the presumption in favour of implied obligations as justifying the proposition
that ‘exclusion clauses are to be construed strictly’. Because the preference in
favour of common law rights is applied as a presumption of intention, it may
mask or legitimise what might otherwise be seen as a strained construction
(application) of the clause.
[17-14] Need for ambiguity. Many of the more recent statements of the contra
proferentem rule in the context of exclusion clauses require ‘ambiguity’. The
High Court of Australia favoured that approach to the rule in Darlington Futures
Ltd v Delco Australia Pty Ltd.69 Similarly, in relation to an exclusionary
provision in an insurance contract, Potter LJ said in Zeus Tradition Ltd v Bell
(The Zeus V)70 that ‘a contra proferentem approach is appropriate’ where
‘uncertainty’ arises. However, even if the clause is unambiguous at the linguistic
level,71 there will usually be an element of doubt in application.
Other statements of principle omit reference to the contra proferentem rule.
For example, in Youell v Bland Welch & Co Ltd72 Staughton LJ referred73 to the
‘well established’ construction principle that: [I]n cases of doubt, wording in a
contract is to be construed against a party who seeks to rely on it in order to
diminish or exclude his basic obligation or any common law duty which arises
apart from the contract.
Although Staughton LJ considered the principle to be distinct from the contra
proferentem rule, in application it seems to be simply a variant.74
More recently, giving the advice of the Privy Council in Dairy Containers Ltd
v Tasman Orient Line CV,75 Lord Bingham stated76 as a ‘general rule’ that: [I]f a
party, otherwise liable, is to exclude or limit his liability or to rely on an
exemption, he must do so in clear words; unclear words do not suffice; any
ambiguity or lack of clarity must be resolved against that party.
There is a difference between words which are unclear in a linguistic sense,
and clauses the scope of application of which is indeterminate. Under general
principles of commercial construction a difficulty such as ambiguity or lack of
clarity is resolved by construction of the contract as a whole.77 Therefore, the
automatic resolution against the party benefited by the clause as contemplated by
Lord Bingham departs from general principle. Accordingly, the statement that
‘clear words’ are required is simply an excuse for application of the contract on a
contra proferentem basis, to ensure strict application.78
[17-15] Promotion of natural meaning. Promotion of the ‘natural’ meaning79 of
a contract is another reaction against strict application. In Ailsa Craig Fishing
Co Ltd v Malvern Fishing Co Ltd,80 Lord Wilberforce said81 that the words in an
exclusion or limitation clause should be given ‘if possible, their natural, plain
meaning’. The High Court of Australia expressed the same view in Darlington
Futures Ltd v Delco Australia Pty Ltd,82 when it said83 that an exclusion clause is
construed ‘according to its natural and ordinary meaning, read in the light of the
contract as a whole’. In that case, a client suffered substantial losses when a
commodity broker engaged in unauthorised trading activity. Clause 7 of the
contract limited the broker’s liability ‘in respect of any claim arising out of or in
connection with the relationship established’ by the contract. Applying the words
in their natural and ordinary meaning, cl 7 was held to apply.84 The result was a
commercial application of the contract.
A ‘natural and ordinary meaning’ approach is not to be equated with literal
application of the contract.85 Similarly, Lord Diplock’s reference in Photo
Production Ltd v Securicor Transport Ltd86 to ‘clear and fairly susceptible of one
meaning’ cannot be ‘equated’ with ‘literal meaning’.87 Therefore, although it
may in some contexts be appropriate to apply an exclusion clause literally, a
commercial approach will generally suggest that there are some limits on the
scope of application of the clause. In Darlington Futures Ltd v Delco Australia
Pty Ltd, cl 6 of the contract stated that the broker was not ‘responsible for any
loss arising in any way out of any trading activity undertaken on behalf of
[Delco] whether pursuant to [the] Agreement or not’. It was held that the clause
did not apply to unauthorised trading activity. The court said:88
It can scarcely be supposed that the parties intended to exclude liability
on the part of the appellant for losses arising from trading activity in
which it presumed to engage on behalf of the respondent when the
appellant had no authority so to do.
Accordingly, unauthorised trading activity could not be regarded as ‘undertaken
on behalf of’ Delco.
Nevertheless, references to ‘meaning’ must to some extent beg the question.
The construction issue relates to the scope of application of a clause the
linguistic meaning of which may be clear. In other words, no issue arises unless
the clause is capable of being applied to the facts which have arisen. But what
‘natural’ signifies in the construction of exclusion clauses is no clearer than it is
in other contexts.89 Although the addition of the word ‘ordinary’ suggests an
association with meanings in use in the general community, that does not help
either.90 Literal application of a broadly expressed exclusion is hardly ever
consistent with commercial purpose. The real problem is that although the
contract is literally applicable, unless there is an expressed intention the contract
is indeterminate in its application to the facts.
[17-16] Distinguishing exclusion and limitation clauses. It goes without saying
that the nature of the term at issue is always important in construction. Generally,
limitation clauses have been thought less deserving of strict application than
exclusion clauses.91 In the case of time limitation clauses, that is to some extent
explained by the fact that they do not involve a demarcation of liability.
Prominence was given to the distinction between exclusions and limitations
in the second Securicor case, Ailsa Craig Fishing Co Ltd v Malvern Fishing Co
Ltd.92 Lord Wilberforce said93 that limitation clauses are ‘not regarded by the
courts with the same hostility’ as exclusion clauses. Lord Fraser said94 that, in
particular, the ‘very strict principles’ applied under the Canada SS rules to
determine the application of exclusion and indemnity clauses to negligence do
not apply ‘in their full rigour’ to clauses which merely limit liability. The
rationale is that a time bar clause or monetary limitation of liability is less
objectionable than an exclusion. But seeking to distinguish between exclusion
and limitation clauses at the level of principle seems the least satisfying of the
attempts made to inject more commerciality into the application of exclusion
clauses. It was rejected by the High Court of Australia in Darlington Futures Ltd
v Delco Australia Pty Ltd,95 on the basis that a commercial approach should be
taken to both.
There would seem no point in making the distinction except for the purpose
of applying general construction principles to limitation clauses. However, under
English law, limitation clauses are applied strictly. To take for granted that both
exclusion clauses and limitation clauses are applied strictly seems at odds with
the general message of the two Securicor cases. In addition, there is no magic in
a label. What a clause achieves in application cannot be predicted merely by
giving it a label. Compliance with an elaborate time limitation clause may be
difficult. The clause may make no allowance for the variety of circumstances in
which it can apply. Moreover, a total exclusion is simply contingent on non-
compliance with the clause. Similarly, if a promisee suffers a £500,000 loss,
there is no commercial difference between the application of a clause which
totally excludes liability and one which limits liability to the payment of, say,
£10,000.
Since limitation clauses are construed strictly, the distinction also relies on
degrees of strictness in application.
[17-17] Degrees of strictness. The idea that degrees of strictness may operate in
construction was referred to by Lord Diplock in Photo Production Ltd v
Securicor Transport Ltd.96 After stating97 that ‘exclusion clauses are to be
construed strictly’, Lord Diplock explained98 that ‘the degree of strictness
appropriate to be applied to their construction may properly depend upon the
extent to which they involve departure from the implied obligations’. Whether or
not he had the distinction between exclusion and limitation clauses in mind, an
approach based on degrees of strictness was confirmed in Ailsa Craig Fishing
Co Ltd v Malvern Fishing Co Ltd,99 where Lord Fraser acknowledged100 that
limitation clauses are construed ‘strictly against the proferens’.
In the context of exclusion clauses, it is well established that fine distinctions
are not conducive to commercial construction.101 What matters in the application
of such clauses is what always matters in construction: construction of the
contract as a whole in light of context. The idea of ‘degrees’ of strictness in
construction is conceptually challenging.102 There is no logical or empirical basis
for saying that commercial people apply their contracts in that way. There are
three further points. First, even allowing for the fact that the question whether a
clause is an exclusion or limitation must be resolved as a matter of substance,
when a limitation clause is applicable it excludes liability. Therefore, although a
limitation of liability to, say, £10 would easily be recognised as an exclusion,
even a ‘genuine’ monetary limitation clause may bear no relation to the
promisee’s actual loss.103 Similarly, since a time limitation clause will always
state a period substantially less than the statutory limitation period, such a clause
may involve a major departure from the promisee’s rights.104 The impact of any
clause must be taken into account.105 But that process is independent of the form
of exclusion.
Second, notwithstanding the contrary assumption in Ailsa Craig Fishing Co
Ltd v Malvern Fishing Co Ltd, it is arguable that limitation clauses in
commercial contracts have not generally been applied strictly.106 From that
perspective, Ailsa Craig may well have encouraged strict construction of
limitation clauses.107
Third, in so far as the rationale was to confine the application of the Canada
SS rules,108 Alderslade v Hendon Laundry Ltd,109 the case from which the rules
are derived, involved a monetary cap on liability. In that case, the limitation of
liability was held to apply. The recent cases applying the Canada SS rules have
emphasised that they are capable of being applied commercially.110 In that
context, Lord Hoffmann said in HIH Casualty and General Insurance Ltd v
Chase Manhattan Bank111 that there was no intention in the Securicor cases to
‘introduce one mechanistic rule’. Since the concern in Ailsa Craig Fishing Co
Ltd v Malvern Fishing Co Ltd was to insulate limitation clauses from the
Canada SS rules, the distinction now lacks utility.
OTHER CONSTRUCTION RULES
General
[17-18] Overview. Since exclusion and limitation clauses have very frequently
come before the courts, inferences of intention have often been rule-based. In
addition to the strict construction (and construction contra proferentem)
approach to exclusion and limitation clauses in general, intention has
traditionally been inferred by the application of specific rules referenced to
particular types of clause, recurring fact situations or particular words.
The modern cases have not expressly abandoned the specific rules. However,
the presumption in favour of common law rights and remedies112 has been used
to emphasise seriousness of breach as the principal concern.
[17-19] Specific rules. Many of the specific rules have been given descriptions
which tend to identify their basis or sphere of operation. They include: the
‘four corners’ rule,113 applicable where a bailee steps outside the four corners of
the contract, for example, by storing the goods at a location different from that
agreed; the ‘deviation’ rule, applicable where a carrier deviates from the
agreed course of carriage;114
the ‘fundamental breach’ rule;115
the ‘main purpose’ rule;116
the ‘rule in Flight v Booth’,117 applicable to determine the scope of an
‘errors or misdescriptions’ clause in a contract for the sale of land; and
the rules in relation to negligence, as formulated in Canada SS Lines Ltd
v R.118
Further sub-division or definition could be made, to justify reference to, for
example, rules applicable to ‘breach of a fundamental term’,119 ‘total’ breach,120
‘wilful’ breach,121 supply of a different article122 or a breach going to the ‘root’ of
the contract.123
[17-20] Bases for specific rules. All the specific rules tailored to exclusion
clauses are grounded in specific or general commercial considerations. As an
example of specific commercial justification, in Hain SS Co Ltd v Tate & Lyle
Ltd124 Lord Atkin pointed out that the deviation rule originated at a time when a
cargo owner became uninsured after deviation.125 The indeterminate nature of
exclusion clauses has also played a role. For example, if the clause is stated to
apply to an undefined concept of ‘breach’ of contract, it is unlikely that the
parties intend the clause to be applied without account being taken of the
seriousness of the breach at issue.
The rules overlap, and many derive from cases on the liability of bailees.126
However, there is no single historical source.127 Equally, some of the specific
rules were extended from their original contexts. For example, the rule in
relation to deviation in sea-carriage was extended to land carriage.128 And most
of the rules contributed to the development of the ill-fated doctrine of
fundamental breach.129 By contrast, attempts to apply the rule in Flight v Booth
to other situations130 have not succeeded.
[17-21] Status of the specific rules. The specific rules are applied by
construction. Thus, the idea that a fundamental breach rule applies independently
of the parties’ intention was rejected by the House of Lords in Photo Production
Ltd v Securicor Transport Ltd,131 where contrary authority was overruled.132
Again, in Ailsa Craig Fishing Co Ltd v Malvern Fishing Co Ltd133 the ‘total
breach’ rule was held to be a rule of construction. Similarly, any suggestion that
an exclusion clause cannot, as a matter of law, apply to an event which defeats
the main object of the contract is contradicted by the High Court of Australia’s
decision in Nissho Iwai Australia Ltd v Malaysian International Shipping Corp
Berhad.134
However, there may be exceptions. In Photo Production Ltd v Securicor
Transport Ltd, Lord Wilberforce left open135 the possibility that the cases
applying the deviation rule might need to be explained ‘as a body of authority
sui generis with special rules derived from historical and commercial reasons’.
The matter remains unresolved;136 but the recent cases have refused to apply the
deviation rule to other aspects of carriage of goods.137
None of the cases in which the specific rules were applied as rules of
construction were overruled in Photo Production Ltd v Securicor Transport Ltd
or Darlington Futures Ltd v Delco Australia Pty Ltd.138 The English decisions
have questioned the strength of the presumptions of intention to which the
specific rules give effect, either generally or in the context of limitation
clauses.139 The cases on the particular rules therefore contribute to a general
concept of seriousness of breach. However, as noted above, the rules have not
been expressly abandoned as aids to construction. In Darlington Futures Ltd v
Delco Australia Pty Ltd,140 the High Court confirmed the role of several of the
traditional rules, as applied in its own prior decisions.141 The Australian cases
have therefore debated which of the rules can still be applied. For example,
suggestions have been made that whereas the ‘four corners’ rule survives,142 the
Canada SS rules do not.143
Account must also be taken of construction rules applied to particular words
and expressions.
Rules Referable to Particular Words
[17-22] Introduction. Some words and expressions commonly found in
exclusion clauses and other ‘protective’ provisions144 have been given ‘legal
meanings’. These meanings are applied as presumptions of intention, that is, as
specific construction rules. The process is one of ‘legal interpretation’.145
Equally, the use of certain ‘magic words’146 may displace presumptions applied
under specific rules such as the Canada SS rules.147
In some contexts, the continued application of specialised constructions may
be justified by reference to a need for certainty in relation to commonly
recurring issues. Many of the cases have involved particular obligations in the
shipping context. For example, Stuart-Smith LJ explained in Motis Exports Ltd v
Dampskibsselskabet AF 1912 Aktieselskabet148 that even if the language of an
exclusion clause in a bill of lading is apt to cover delivery of goods against a
forged bill, that construction should not be adopted in relation to an obligation of
‘fundamental importance’.
[17-23] Breach of warranty. The best-known example of legal interpretation in
the exclusion clause context derives from Wallis v Pratt.149 In that case, a sale of
goods contract stated that the sellers of seed gave no ‘warranty’ as to growth,
description or any other matters. The House of Lords held that, because the
exclusion clause expressly referred to liability for breach of ‘warranty’, the word
was to be understood as having been used in contradistinction to ‘condition’.
That was the impact of the contrast between ‘warranty’ and ‘condition’ in the
Sale of Goods Act 1893 (UK). The fact that the Act acknowledged150 — as does
the Sale of Goods Act 1979 (UK) — that a promise described as a warranty may
be a condition,151 was not regarded as material.
The obvious problem with Wallis v Pratt is that although a promissory
condition is no more than a particular kind of warranty, or a warranty with a
particular feature, the scope of application of an exclusion clause using the word
‘warranty’ is determined by a rule of strict construction. Since the rule applies
unless the parties have expressly agreed to the contrary, the rule has been
religiously applied for over 100 years.152 It was recently justified by the Court of
Appeal — without much enthusiasm — as an example of a construction
‘principle’.153 It is not a commercial construction principle.154
[17-24] Consequential loss. A more recent illustration is construction of the
expression ‘consequential loss’.155 In decision after decision,156 the scope of
application of the expression when used in an exclusion clause has been limited
to loss (or damage) which would otherwise be recoverable under the second limb
of the rule in Hadley v Baxendale,157 thereby giving the clause a very limited
scope of application.
Exclusion of liability for consequential loss is often part of a scheme
regulating liability for loss of profit.158 The impact of the construction rule is for
a clause in the form ‘consequential loss … including loss of profit’ to be applied
only to loss of profit recoverable under the second limb of Hadley v
Baxendale.159 The parties can expressly state a contrary intention. But that
intention will not be inferred. It is shut out by legal interpretation.160 Such an
approach does no credit to the law. In Caledonia North Sea Ltd v British
Telecommunications Plc,161 Lord Hoffmann questioned the rule.
The scope of application of the expression ‘consequential loss’ ought to
depend on the particular contract. There is no reason why the parties to ordinary
commercial contracts should be credited with knowledge of case law on
remoteness of damage, let alone the decisions on the interpretation of the
expression ‘consequential loss’. And given that in the cases on remoteness of
damage the rule in Hadley v Baxendale is not applied on the basis that the
second limb is limited to ‘consequential loss’, the approach to exclusion clauses
which use the expression has no rational foundation. Those and other
considerations led the Victorian Court of Appeal to depart from the English
authorities in Environmental Systems Pty Ltd v Peerless Holdings Pty Ltd.162 The
court construed consequential loss as referring to any loss which is not a
‘normal’ loss, a construction which it regarded as giving effect to an intention to
apply the expression to loss of profit which might otherwise be recoverable
under the first limb. Therefore, the court rejected one legal interpretation in
favour of another.
Rules Applicable to Negligence
[17-25] Introduction. An exclusion of liability for negligence is subject to the
three rules which Lord Morton, speaking for the Privy Council, stated in Canada
SS Lines Ltd v R.163 The rules were a distillation of prior authority.164
The Canada SS rules are built on the view that unless referred to expressly,
the presumption is that an exclusion clause is not intended to apply to liability
for negligence.165 The rationale is that it is ‘inherently improbable that a
promisee should intend to absolve the promisor from the consequences of the
latter’s negligence’.166 Many of the cases have concerned indemnity provisions,
where the issue is whether the indemnity applies to negligence by the
indemnified party. Although the indemnity is not exclusionary in form, that may
be the effect of the clause. For example, it may be literally applicable to breach
of a duty of care owed to the indemnifier. In that context it might, indeed, be said
to be highly improbable that the parties should intend the clause to apply to
negligence.167
Lord Morton stated the three rules in the following terms:168
(1) If the clause contains language which expressly exempts the person in
whose favour it is made (hereafter called ‘the proferens’) from the
consequence of the negligence of his own servants, effect must be given
to that provision. …
(2) If there is no express reference to negligence, the court must consider
whether the words used are wide enough, in their ordinary meaning, to
cover negligence on the part of the servants of the proferens. If a doubt
arises at this point, it must be resolved against the proferens ….
(3) If the words used are wide enough for the above purpose, the court must
then consider whether ‘the head of damage may be based on some
ground other than that of negligence’, to quote … Lord Greene in
[Alderslade v Hendon Laundry Ltd] [1945] 1 KB 189 at 192. The ‘other
ground’ must not be so fanciful or remote that the proferens cannot be
supposed to have desired protection against it; but subject to this
qualification, … the existence of a possible head of damage other than
that of negligence is fatal to the proferens even if the words used are
prima facie wide enough to cover negligence on the part of his servants.
[17-26] Scope of the rules. The Canada SS rules have been given a broad scope
of application. For example, the rules have been held to apply to both unilateral
and bilateral exclusions and indemnities.169 Although they do not apply ‘in their
full rigour’170 to clauses which merely limit liability, such clauses are ‘read
contra proferentem and must be clearly expressed’.171
Certain other clauses have also been regarded as sufficiently analogous for
the purpose of applying the Canada SS rules.172 And there are specific
construction rules which appear to be to the same effect.173
[17-27] Approach to the rules. The modern cases emphasise that the Canada
SS rules must not be applied rigidly or mechanically.174 The ‘rules’ are aids to
construction which are now often described simply as ‘principles’.175 In other
cases, they have been described as ‘tests’176 or ‘guidelines’.177 Nevertheless, they
rely on presumptions of intention and, given their specificity, it seems difficult to
deny their status as ‘construction rules’.
As always, the contract must be construed as a whole, with proper regard to
context. For example, in Smith v South Wales Switchgear Co Ltd178 an indemnity
provision was expressed to apply to ‘[a]ny liability, loss, claim or proceedings
whatsoever under Statute or Common Law’. The House of Lords held that the
clause did not apply to all cases of negligence because its scope was restricted by
other provisions of the clause. It is also important to have regard to the
objectives of the contract, the insurability of the risk,179 the commercial purpose
of the contract180 and the class of persons to whom the clause is addressed.181
[17-28] The first rule. The effect of the first rule stated in Canada SS Lines Ltd
v R182 is that an express reference to negligence is usually sufficient to make the
provision applicable to negligence.183
When the Canada SS rules were approved by the House of Lords in Smith v
South Wales Switchgear Co Ltd,184 the point was made that a clause does not
expressly refer to negligence unless it actually uses the word ‘negligence’ or an
accepted synonym.185
[17-29] The second rule. Whereas the first rule in Canada SS Lines Ltd v R186 is
concerned with the parties’ expressed intention, the second is concerned with
inferences of intention in relation to the scope of application of the clause. Thus,
the Privy Council explained187 that ‘the court must consider whether the words
used are wide enough, in their ordinary meaning, to cover negligence’. If a
‘doubt arises at this point’, the Privy Council said, ‘it must be resolved against
the proferens’. In other words, the clause — applied literally — must be capable
of applying to negligence.
The typical case in which this rule has been satisfied is where the only
plausible basis for the defendant’s liability is negligence. The classic example is
Alderslade v Hendon Laundry Ltd,188 where a clause limiting the liability of a
launderer to 20 times the charge made for laundering was upheld on the ground
that negligence was the only plausible basis for the launderer’s liability. It was
also established prior to Canada SS Lines Ltd v R that an exclusion of ‘all
liability’ or liability for ‘any loss’ would not usually be regarded as capable of
applying to liability for negligence. A different conclusion would be reached if
the words ‘howsoever caused’ were used.189
Although the subsequent cases have taken much the same approach,190 the
mere fact that negligence is the only plausible basis for liability is not
conclusive.191 However, that ought usually to be sufficient in the commercial
context. There also seems little doubt that today a clause using words such as ‘all
liability’192 is normally regarded as capable of application to negligence.
Therefore, for the purposes of the second rule, use of that or a similar expression
may not be regarded as raising a doubt to be resolved against the proferens.193
[17-30] The third rule. The third rule stated in Canada SS Lines Ltd v R194
applies where the words used, when given their ‘ordinary’ meaning, are capable
of applying to negligence. It therefore provides a basis for inferring the parties’
intention in relation to the scope of application of the clause. If there is another
‘head of damage … based on some ground other than that of negligence’,195
against which it is reasonable to assume that the promisor desired protection,
there is a presumption that the clause is intended to apply to that head of damage
and not to the head of damage based on negligence.
The Privy Council said196 that the ‘other ground’ must ‘not be so fanciful or
remote that the proferens cannot be supposed to have desired protection against
it’. The facts were that Canada SS Lines Ltd leased a freight shed from the
Crown on terms that included an indemnity in favour of the Crown. On the
assumption that the second rule was satisfied, it was held that there were grounds
other than negligence against which it could realistically be regarded as having
sought an indemnity.197 Therefore, the indemnity did not apply to fire damage
caused by the negligence of the Crown.
In reaching its conclusion the Privy Council said198 that where there exists
some ground other than negligence on which liability may be based, that ‘is fatal
to the proferens’. In that regard, the Privy Council must be regarded as having
overstated the position.199 The conclusion may be reached that the promisor is
protected against both heads of damage.200 Cases decided on the basis of the
Privy Council’s view may not be reliable.201
[17-31] Application of the third rule. Many exclusion clauses have fallen at the
hurdle set up by the third rule.202 The crucial issue is the scope of the clause. The
recent cases have sought to take a commercial approach. In Lamport & Holt
Lines Ltd v Coubro & Scrutton (M & I) Ltd (The Raphael),203 Donaldson LJ
warned against uncommercial application by saying204 that ‘full force’ must be
given to the ‘caveat’ that the ‘other ground’ must not be ‘fanciful or remote’, and
May LJ emphasised205 that a ‘broader brush’ approach should be applied, by
examining the ‘facts and realities of the situation’.
While Steyn LJ in EE Caledonia Ltd v Orbit Valve Co Europe206 was content
to adopt May LJ’s ‘gloss’ on the third rule, he pointed out that the rule is no
more than an ‘aid in the process of construction’, and that exclusionary
provisions should not be construed in a ‘technical’ way. In that case, mutual
indemnity clauses in a contract between the operators of a drilling platform and
the contractors engaged to carry out work were capable of applying to
negligence. However, there were grounds of strict liability which were neither
fanciful nor remote, and to which the indemnity could be applied. Moreover,
treatment of the indemnity clauses as applicable to negligence would have
produced an unbalanced result.207 Accordingly, the operators were not entitled to
an indemnity where their negligence caused the death of the contractors’
employee.
The commercial approach was again emphasised in HIH Casualty and
General Insurance Ltd v Chase Manhattan Bank.208 In particular, it was said that
the third rule must not be applied to ‘produce a result inconsistent with the
commercial purpose of the contract in question’.209 Accordingly, the words ‘no
liability of any nature’ were described210 as ‘comprehensive language’, and held
to apply to liability in damages for negligent misrepresentation. It was not
appropriate to restrict the exclusion to rescission for misrepresentation, which
was expressly dealt with by another provision. Referring to the Canada SS rules,
Lord Bingham said:211
There can be no doubting the general authority of these principles, which
have been applied in many cases, and the approach indicated is sound.
The Courts should not ordinarily infer that a contracting party has given
up rights which the law confers upon him to an extent greater than the
contract terms indicate he has chosen to do; and if the contract terms can
take legal and practical effect without denying him the rights he would
ordinarily enjoy if the other party is negligent, they will be read as not
denying him those rights unless they are so expressed as to make clear
that they do. … Lord Morton was giving helpful guidance on the proper
approach to interpretation and not laying down a code. The passage does
not provide a litmus test which, applied to the terms of the contract,
yields a certain and predictable result. The Courts’ task of ascertaining
what the particular parties intended, in their particular commercial
context, remains.
This statement of principle does not rely on strict application of exclusion
clauses. Rather, it relies on the presumption in favour of common law rights and
remedies. The words ‘to an extent greater than the contract terms indicate he has
chosen to do’ must to a degree beg the question. However, the import of the
statement is clear. It is to emphasise commercial construction.
COMMERCIAL CONSTRUCTION
General
[17-32] Introduction. The time must surely have arrived for exclusion and
limitation clauses to be construed on the basis of general principles. The
continued use of strict construction as the basis for application of such
provisions is impossible to reconcile with general principles of commercial
construction. So also are the automatic resolution of doubts and ambiguities
against the beneficiary and the ‘legal interpretation’ of particular words and
expressions. Therefore, the statements of principle212 in Photo Production Ltd v
Securicor Transport Ltd213 and Darlington Futures Ltd v Delco Australia Pty
Ltd214 should be seen as commitments to the use of general principles of
commercial construction in the application of exclusion and limitation clauses.
There is no place today for the traditional hostility shown towards protective
provisions. Of course, allowance must be made for the role of precedent,
particularly in relation to standard form contracts in the shipping context. But in
relation to negotiated contracts, the overall concern of commercial construction
for sensible results is as applicable to the construction of contracts which include
exclusion and limitation clauses as it is to any other contract. Since such
provisions will often have more than one application to a given set of facts,
choices must be made in application. Construction preferences therefore play a
role. Moreover, construction in light of context, including commercial purpose,
is fundamental.
[17-33] Construction in light of purpose. A key aspect of the modern approach
to context215 is to construe contracts in light of commercial purpose.216 The ‘main
purpose’ rule in relation to exclusion clauses invokes commercial context as an
aid to construction. The classic example is Glynn v Margetson & Co.217 A liberty
to deviate clause in a charterparty conferred on the defendant-carriers the liberty
to proceed to and stay at a wide range of ports ‘for the purpose of delivering …
cargo or passengers, or for any purpose whatsoever’. Lord Halsbury LC said218
that looking at the ‘whole of the instrument, and seeing what one must regard …
as its main purpose, one must reject words, indeed whole provisions, if they are
inconsistent with what one assumes to be the main purpose of the contract’.
Giving effect to commercial purpose must necessarily depend on construction
of the contract as a whole. There is no rule of law in relation to the scope of
application of particular clauses. Many of the recent cases emphasise the need to
consider context — including commercial purpose — when determining the
scope of application of an exclusion clause.219 For example, in Post Office v
British World Airlines Ltd,220 the terms under which the Post Office contracted
with its customers were part of the context of a claim by the Post Office against
a carrier. Because the parties knew that the Post Office carried mail under
various regimes, a liability provision referring to the ‘amounts payable’ under a
statutory scheme was construed as fixing the maximum sum payable, rather than
as requiring the Post Office to have liability under the scheme.
If the contract does not deal expressly with the matter which has arisen, it can
be assumed that the intended application of any exclusion (or limitation) clause
is one which promotes commercial purpose.221 From that perspective, Lord
Halsbury LC’s statement in Glynn v Margetson & Co now seems too broadly
expressed. It is presumption of intention derived from a ‘repugnancy’ doctrine,222
associated with formal rules. A rule of that nature seems less useful than general
principle.223
Use of Specific Incidents
[17-34] Introduction. Cases such as Photo Production Ltd v Securicor
Transport Ltd224 and HIH Casualty and General Insurance Ltd v Chase
Manhattan Bank225 refer to the presumption in favour of common law rights and
remedies. Where different rights are at issue, such as a right to recover damages
and a right to terminate for breach, it is obvious that the exclusion of one may
say nothing about the availability of the other.226 But in any case where a
contrary construction is open, a preference in favour of common law rights and
remedies may play a role.
If the issue is the extent to which a particular right or remedy is affected, a
preference in favour of the common law seems less useful. And it is contrary to
the spirit of commercial construction to start with a presumption that common
law rights and remedies remain. However, choices may need to be made in the
application of such clauses, for example, whether an exclusion of liability for
breach applies to the breach of strict duties as well as those the breach of which
depends on proof of negligence, or whether a generally expressed limitation of
liability provision applies to intentional breach. In such situations, other
preferences are more useful, particularly the preference for reasonable results.227
[17-35] Reasonable results. In the construction and application of contracts,
choices between competing meanings or applications can be made on the basis
of the preference for reasonable results over unreasonable results.228
Specific rules tailored to the application of exclusion clauses to breaches to
which particular descriptions can be applied — ‘fundamental breach’, ‘total
breach’, and so on — are capable of being characterised as concerned with a
generic concept of ‘serious breach’.229 When viewed from the perspective of
general principles of commercial construction, they are manifestations of the
construction preference in favour of reasonable results.230 There is no doubt that,
as Buckley LJ recognised in Gillespie Bros & Co Ltd v Roy Bowles Transport
Ltd,231 the preference is applicable where the scope of application of an
exclusion clause is at issue. Therefore, if a clause is open to two tenable
applications, that which achieves the more reasonable result in application is
preferred.232
Similarly, an exclusion clause may be capable of applying in a variety of
circumstances. The results achieved in application of the clause may be more
reasonable for some circumstances than for others. Thus, in Photo Production
Ltd v Securicor Transport Ltd233 Lord Diplock said:234
[T]he court’s view of the reasonableness of any departure from the
implied obligations which would be involved in construing the express
words of an exclusion clause in one sense that they are capable of
bearing rather than another, is a relevant consideration in deciding what
meaning the words were intended by the parties to bear.
From both perspectives, what matters is the ‘degree of seriousness’,235 not
what labels can be given to the breach or obligation.236 But that does not mean
that the results will be the same as those obtained in the past by application of
specific rules. For example, it is doubtful whether all the ‘supply of a different
article’ cases can be supported today.237
[17-36] Construction to preserve intent. Where an agreement is clearly
intended to operate as a contract, the preferred construction of the agreement is
that it should be construed as a contract, rather than as a mere declaration of
intent.238
Although a construction issue in relation to contractual intent may arise on a
number of bases, many of the cases have concerned exclusion clauses.239 In that
context, the preference is applicable only ‘if the contract as a whole would
otherwise be virtually reduced to a declaration of intent’.240 Moreover, the
question is not so much whether the clause is inconsistent with an intention to
contract as whether application of the clause to the circumstances which have
occurred would render the contract a mere declaration of intent.241
[17-37] Taking advantage of own wrong. As Lord Hoffmann pointed out in
HIH Casualty and General Insurance Ltd v Chase Manhattan Bank,242 there is
‘no logical reason why the parties should not have intended to distinguish
between different ways in which the duty might be broken, even though the rule
imposing the duty treats those differences as irrelevant’. For example, although
in most respects the law does not distinguish between intentional and
unintentional breaches of contract, it is obvious — as a matter of common sense
— that deliberate or ‘wilful’ breach is not usually in the contemplation of the
parties. Where an exclusion clause is capable of being applied to wilful breach,
but it is also open to an alternative construction, the latter is the preferred
construction. Such cases illustrate the incident of commercial construction that
people should not benefit from their wrongs.243
Sze Hai Tong Bank Ltd v Rambler Cycle Co Ltd244 is the best-known
authority. Goods were delivered against a delivery order, rather than the bill of
lading. The shipping company relied245 on an exclusion clause to the effect that
the ‘responsibility of the carrier, whether as carrier or as custodian or bailee of
the goods shall be deemed … to cease absolutely after they are discharged’ from
the ship. It was unsuccessful. Delivering the advice of the Privy Council, Lord
Denning said246 that the clause had to be ‘modified so as not to permit the
shipping company deliberately to disregard its obligations as to delivery’.247 The
preference was applied as a construction rule. It is also likely that Lord Denning
saw the decision as an application of the fundamental breach doctrine.
Nevertheless, even today, a court would require an express statement to intention
in order to reach a different result in the same context as the Sze Hai Tong Bank
case.248
However, the scope of application of any exclusion is a matter of construction
and there is no warrant for an uncompromising approach to wilful breach, or
liability arising out of intentional wrongdoing by a servant or agent. Indeed,
Photo Production Ltd v Securicor Transport Ltd249 concerned liability for an
employee’s criminal act, and in Darlington Futures Ltd v Delco Australia Pty
Ltd250 the limitation clause was held to apply to wilful breach. The modern cases
are therefore more discerning. Of course, the clause at issue must be capable of
applying to intentional breach. The preference is relevant only if there is no
express statement of intention. That was the position in Internet Broadcasting
Corp Ltd v MAR LLC,251 where the exclusion was held to be inapplicable to
deliberate and repudiatory wrongdoing. Deliberateness was a relevant
consideration,252 but so also was whether insurance was available in respect of
deliberately wrongful conduct.253
The preference may also impact on the application of a clause which excludes
(or limits) the liability of one person by reference to the ‘wilful’ acts or
omissions of another. A commercial approach is taken in determining the
intended scope of application of the clause. For example, in Morley v United
Friendly Insurance Plc254 an insurance policy exclusion which referred to ‘wilful
exposure to needless peril’ was held not to apply to a momentary act of stupidity.
Although the clause was literally applicable to that conduct, the contract was
applied consistently with the construction preference.255 The clause was therefore
construed on the basis that it was applicable to deliberate wrongdoing, not
deliberate conduct per se.256
1. See [15-22], [16-03].
2. See [15-06], [16-02].
3. See [17-32]–[17-37] and generally Chapter 16.
4. See [17-07]. The ‘consumer protection’ extends to certain commercial
transactions.
5. [1980] AC 827.
6. [1980] AC 827 at 843. Lords Salmon, Keith and Scarman agreed.
7. [1980] AC 827 at 851. See also Raiffeisen Zentralbank Osterreich AG v
Royal Bank of Scotland Plc [2011] 1 Lloyd’s Rep 123 at 178; [2010]
EWHC 1392 (Comm) at [321].
8. (1986) 161 CLR 500.
9. (1986) 161 CLR 500 at 510.
10. [1980] AC 827.
11. (1986) 161 CLR 500.
12. See [15-12].
13. Further complexity is created by the conception that there are degrees of
strictness in application. See [17-17].
14. See further [17-08]. See also [16-07].
16. See [15-16], [16-10], [16-16].
17. See [15-22].
18. [1983] 1 Lloyd’s Rep 310 at 312; [1983] 1 All ER 686.
19. Contrast [12-08] (standard of interpretation).
20. [1986] 1 Lloyd’s Rep 487 at 495 per Neill LJ. Dillon and Fox LJJ agreed.
21. [1972] 2 QB 71; see Brian Coote, [1973] CLJ 14. Cf Olley v Marlborough
Court Ltd [1949] 1 KB 532 at 542, 550.
22. Brian Coote, Exception Clauses, Sweet & Maxwell Ltd, London, 1964, ch
1.
23. See, eg Karsales (Harrow) Ltd v Wallis [1956] 1 WLR 936 at 940.
Accordingly, even if a clause is effective to exclude all liability, there is still
technically a breach of contract. See Blue Anchor Line Ltd v Alfred C
Toepfer International GmbH (The Union Amsterdam) [1982] 2 Lloyd’s Rep
432 at 436.
24. Thomas National Transport (Melbourne) Pty Ltd v May & Baker
(Australia) Pty Ltd (1966) 115 CLR 353 at 385 per Windeyer J. See also
Sydney Corporation v West (1965) 114 CLR 481 at 495.
25. [1980] AC 827. See also Arthur White (Contractors) Ltd v Tarmac Civil
Engineering Ltd [1967] 3 All ER 586 at 593. For an early example see
Ashby v Tolhurst [1937] 2 KB 242 at 258 (bailment relation negatived by
terms of the contract where a car was parked at defendant’s car park). Cf
Thompson v T Lohan (Plant Hire) Ltd [1987] 1 WLR 649 at 655, 657, 658;
[1987] 2 All ER 631.
26. But see [10-33] (treatment of ‘no reliance’ clauses).
27. See Levison v Patent Steam Carpet Cleaning Co Ltd [1978] QB 69 at 82;
Bunge SA v Deutsche Conti Handelsgesellschaft mbH [1979] 2 Lloyd’s Rep
435 at 438; Euro Cellular (Distribution) Plc v Danzas Ltd t/a Danzas AEI
Continental [2004] 1 Lloyd’s Rep 521 at 529, 530; [2003] EWHC 3161
(Comm) at [55], [63].
28. See Unfair Contract Terms Act 1977 (UK), ss 2(1), 5, 6(1), (2), 7(2), (3A).
See also Australian Consumer Law, s 64 (clause void if it purports to
exclude, restrict or modify, or has the effect of excluding, restricting or
modifying the exercise of a right conferred by consumer guarantees
regime).
29. See Unfair Contract Terms Act 1977 (UK), ss 3, 6(3), 7(3), (4). See J N
Adams and Roger Brownsword, ‘The Unfair Contract Terms Act: A Decade
of Discretion’ (1990) 104 LQR 94. See also [10-33] (clauses subjected to
the reasonableness test by the Misrepresentation Act 1967 (UK)). Cf
Australian Consumer Law, s 64A(3) (consumer guarantees).
30. See also s 26(1) (‘limits imposed … on the extent to which a person may
exclude or restrict liability’). See Trident Turboprop (Dublin) Ltd v First
Flight Couriers Ltd [2010] QB 86; [2009] EWCA Civ 290. Cf s 4(1)
(indemnity).
31. See Stewart Gill Ltd v Horatio Myer & Co Ltd [1992] QB 600 at 606; see
Steve Hedley, [1992] CLJ 418.
32. See Brian Coote, ‘The Second Rise and Fall of Fundamental Breach’ (1981)
55 ALJ 788 at 802; David Yates, ‘Commentary on Two Concepts of Good
Faith’ (1994) 7 JCL 145 at 149.
33. See, eg Phillips Products Ltd v Hyland (1984) [1987] 1 WLR 659 at 666;
[1987] 2 All ER 620 (‘exclusion’ or ‘restriction’ for purposes of s 2(2)
depends on effect of the clause and is one of substance). See also Smith v
Bush [1990] 1 AC 831 at 848, 856–7. But cf Titan Steel Wheels Ltd v Royal
Bank of Scotland Plc [2010] 2 Lloyd’s Rep 92 at 112, 113; [2010] EWHC
211 (Comm) at [98], [101], [104]. On ‘no reliance’ clauses see [10-33].
34. Contrast Jackson v Union Marine Insurance Co Ltd (1874) LR 10 CP 125
(perils of the seas exception in charterparty). Cf Emeraldian Ltd
Partnership v Wellmix Shipping Ltd (The Vine) [2011] 1 Lloyd’s Rep 301 at
309; [2010] EWHC 1411 (Comm) at [59] per Teare J (clause at issue not
‘strictly speaking’ a force majeure clause because it defined obligation);
Sealion Shipping Ltd v Valiant Insurance Co (The Toisa Pisces) [2012] 1
Lloyd’s Rep 252 at 267; [2012] EWHC 50 (Comm) at [101] (definition of
extent of indemnity).
35. See, eg Brauer & Co (Great Britain) Ltd v James Clark (Brush Materials)
Ltd [1952] 2 All ER 497 (sale of goods subject to export licence); Hong
Guan & Co Ltd v R Jumabhoy & Sons Ltd [1960] AC 684 (‘subject to force
majeure and shipment’); Bremer Handelsgesellschaft mbH v Mackprang
[1979] 1 Lloyd’s Rep 221 at 223, 228, 230 (prohibition of export clause);
Kodros Shipping Corp of Monrovia v Empresa Cubana de Fletes (The Evia)
(No 2) [1983] 1 AC 736 at 755–6 (war risks clause); J Lauritzen AS v
Wijsmuller BV (The Super Servant Two) [1990] 1 Lloyd’s Rep 1 at 12
(cancellation clause); Sig Bergesen DY & Co v Mobil Shipping and
Transportation Co (The Berge Sund) [1993] 2 Lloyd’s Rep 453 at 462
(exception to exception); Portolana Compania Naviera Ltd v Vitol SA Inc
(The Afrapearl) [2004] 1 WLR 3111 at 3117; [2004] EWCA Civ 864 at [8]
(exception in demurrage clause). See also RDC Concrete Pte Ltd v Sato
Kogyo (S) Pte Ltd [2007] 4 SLR 413 at 436; [2007] SGCA 39 at [65] (force
majeure clause).
36. See, eg SHV Gas Supply & Trading SAS v Naftomar Shipping & Trading
Co Ltd Inc (The Azur Gaz) [2006] 1 Lloyd’s Rep 163 at 168; [2005] EWHC
Comm 2528 at [28] per Christopher Clarke J (a ‘force majeure clause is an
exceptions clause and must be construed strictly’).
37. See, eg Hoechong Products Co Ltd v Cargill Hong Kong Ltd [1995] 1 WLR
404; [1995] 1 Lloyd’s Rep 584; Coastal (Bermuda) Petroleum Ltd v VTT
Vulcan Petroleum SA (No 2) (The Marine Star) [1996] 2 Lloyd’s Rep 383 at
385 per Saville LJ, with whom Hutchinson and Nourse LJJ agreed (proper
approach is to construe force majeure clause as a whole, without any
preconception of the ‘general intention’ of the parties). Cf [15-29]–[15-31],
[16-33] (treatment of notice provisions).
38. (1966) 115 CLR 353.
39. (1966) 115 CLR 353 at 376. See also Adams v Richardson & Starling Ltd
[1969] 1 WLR 1645 at 1653 (same approach in relation to express warranty
which affects common law rights); Bright v Sampson & Duncan
Enterprises Pty Ltd (1985) 1 NSWLR 346 at 359 (an exclusion clause must
be construed strictly against the party relying on it). Cf David Yates,
Exclusion Clauses in Contracts, 2nd ed, Sweet & Maxwell, London, 1982,
p 133.
40. See [17-03].
41. [1980] AC 827.
42. [1980] AC 827 at 850.
44. (1986) 161 CLR 500.
45. See [15-12].
46. See [17-23].
47. [1924] AC 43. Cf Shell Chemicals UK Ltd v P & O Roadtanks Ltd [1995] 1
Lloyd’s Rep 297.
48. [1924] AC 43 at 50. Contrast George Mitchell (Chesterhall) Ltd v Finney
Lock Seeds Ltd [1983] 2 AC 803 at 813.
49. See [1924] AC 43 at 52.
50. Cf H & E Van Der Sterren v Cibernetics (Holdings) Pty Ltd (1970) 44
ALJR 157 (clause requiring a claim to be made within 14 days of delivery
was held to apply to defective goods). But cf Insight Vacations Pty Ltd v
Young (2011) 243 CLR 149 at 154, 162; [2011] HCA 16 at [9], [38].
51. See [4-44]–[4-47]. See also Charles Harpum, ‘Exclusion Clauses and
Contracts for the Sale of Land’ [1992] CLJ 263 at 274–8.
52. (1965) 114 CLR 481 at 493.
53. [1952] AC 192 at 208.
54. [1983] 1 WLR 964; [1983] 1 All ER 101.
55. [1983] 1 WLR 964 at 970; [1983] 1 All ER 101 at 105. The other members
of the House of Lords agreed. See also Rick Cobby Haulage Pty Ltd v
Simsmetal Pty Ltd (1986) 43 SASR 533 at 537.
57. [2002] 1 AC 251 at 276.
58. [2002] 1 AC 251 at 276; [2001] UKHL 8 at [62].
59. [1980] AC 827.
60. [1980] AC 827 at 851.
61. [1983] 1 WLR 964; [1983] 1 All ER 101.
62. [1983] 1 WLR 964 at 966; [1983] 1 All ER 101 at 102. Lords Elwyn-Jones,
Salmon and Lowry agreed. See also George Mitchell (Chesterhall) Ltd v
Finney Lock Seeds Ltd [1983] 2 AC 803 at 813; Spriggs v Sotheby Parke
Bernet & Co [1986] 1 Lloyd’s Rep 487 at 496.
55 ALJ 788.
64. Lords Salmon, Keith and Scarman agreed.
65. See [17-09].
66. See, eg Lamport & Holt Lines Ltd v Coubro & Scrutton (M & I) Ltd (The
Raphael) [1982] 2 Lloyd’s Rep 42 at 52. Cf Onego Shipping & Chartering
BV v JSC Arcadia Shipping [2010] 2 Lloyd’s Rep 221 at 229–30; [2010]
EWHC 777 (Comm) at [48]–[49] (apparent contrast between rejection of
‘strained construction’ and application of ‘guidelines’ in Canada SS rules).
67. And see Ease Faith Ltd v Leonis Marine Management Ltd [2006] 1 Lloyd’s
Rep 673 at 695; [2006] EWHC 232 (Comm) at [142] (ejusdem generis rule
also pressed into service).
68. [1980] AC 827 at 850, 851. See also Homburg Houtimport BV v Agrosin
Private Ltd (The Starsin) [2004] 1 AC 715 at 797; [2003] UKHL 12 at
[193] per Lord Millett (‘an exemption clause must be strictly construed’).
69. (1986) 161 CLR 500 at 510 (‘construing the clause contra proferentem in
case of ambiguity’).
70. [2000] 2 Lloyd’s Rep 587 at 597. Pill LJ and Sir Murray Stuart-Smith
agreed. See also [15-45].
71. Cf London and Lancashire Fire Insurance Co Ltd v Bolands Ltd [1924] AC
836 at 848 per Lord Sumner (‘capable of being solved by the ordinary rules
of grammar’).
72. [1992] 2 Lloyd’s Rep 127.
73. [1992] 2 Lloyd’s Rep 127 at 134. Fox LJ agreed.
74. See [17-11]. Cf Amiri Flight Authority v BAE Systems Plc [2003] 2 Lloyd’s
Rep 767 at 774; [2003] EWCA Civ 1447 at [25]; Whitecap Leisure Ltd v
John H Rundle Ltd [2008] 2 Lloyd’s Rep 216 at 223, 224; [2008] EWCA
Civ 429 at [20], [22].
75. [2005] 1 WLR 215; [2004] UKPC 22.
76. [2005] 1 WLR 215 at 220; [2004] UKPC 22 at [12]. See also Cook v
Financial Insurance Co Ltd [1998] 1 WLR 1765 at 1771; Homburg
779; [2003] UKHL 12 at [144].
77. See Chapter 13.
78. See Bank of Credit and Commerce International SA v Ali [2002] 1 AC 251
at 276; [2001] UKHL 8 at [61].
79. See also [11-21].
80. [1983] 1 WLR 964; [1983] 1 All ER 101.
Salmon and Lowry agreed.
82. (1986) 161 CLR 500.
83. (1986) 161 CLR 500 at 510. See also Nissho Iwai Australia Ltd v
Malaysian International Shipping Corp Berhad (1989) 167 CLR 219 at
227.
84. See (1986) 161 CLR 500 at 511.
85. Cf Whitecap Leisure Ltd v John H Rundle Ltd [2008] 2 Lloyd’s Rep 216 at
223; [2008] EWCA Civ 429 at [20] (approach not as ‘literal’ as in past). But
see Brambles Ltd v Wail (2002) 5 VR 169 (reversed sub nom Andar
Transport Pty Ltd v Brambles Ltd (2004) 217 CLR 424; [2004] HCA 28).
86. [1980] AC 827 at 851.
87. Internet Broadcasting Corp Ltd v MAR LLC [2009] 2 Lloyd’s Rep 295 at
299; [2009] EWHC 844 (Ch) at [25] per Gabriel Moss QC, sitting as a
deputy High Court judge.
88. (1986) 161 CLR 500 at 511.
89. See also [11-18]–[11-21], [15-14].
90. See also [12-29].
91. See, eg Commissioner for Railways (New South Wales) v Quinn (1946) 72
CLR 345 at 356, 372, 385 (time bar applicable to negligence); Port Jackson
Stevedoring Pty Ltd v Salmond & Spraggon (Australia) Pty Ltd (The New
York Star) (1980) 144 CLR 300; [1981] 1 WLR 138 (time bar clause
applicable to negligence).
92. [1983] 1 WLR 964; [1983] 1 All ER 101.
Salmon and Lowry agreed. See also George Mitchell (Chesterhall) Ltd v
Finney Lock Seeds Ltd [1983] 2 AC 803 at 813, 814; BHP Petroleum Ltd v
British Steel Plc [2000] 2 Lloyd’s Rep 277 at 282, 285, 289.
of the House of Lords agreed. See also EE Caledonia Ltd v Orbit Valve Co
Europe [1994] 1 WLR 1515 at 1521; [1995] 1 All ER 174 per Steyn LJ,
with whom Neill and Beldam LJJ agreed (courts ‘more indulgent’);
Whitecap Leisure Ltd v John H Rundle Ltd [2008] 2 Lloyd’s Rep 216 at
223, 224; [2008] EWCA Civ 429 at [20], [22] (although the question is one
of objective intention, a limitation clause is construed less restrictively).
95. (1986) 161 CLR 500 at 508–10. See Sir Anthony Mason, ‘Australian
Contract Law’ (1988) 1 JCL 1 at 5.
96. [1980] AC 827.
97. [1980] AC 827 at 850.
98. [1980] AC 827 at 850.
99. [1983] 1 WLR 964; [1983] 1 All ER 101.
of the House of Lords agreed. Cf Portolana Compania Naviera Ltd v Vitol
SA Inc (The Afrapearl) [2004] 1 WLR 3111 at 3117; [2004] EWCA Civ 864
at [8] (exception in demurrage clause).
101. See, eg Port Jackson Stevedoring Pty Ltd v Salmond & Spraggon
(Australia) Pty Ltd (The New York Star) (1980) 144 CLR 300 at 305; [1981]
1 WLR 138 at 144; Homburg Houtimport BV v Agrosin Private Ltd (The
Starsin) [2004] 1 AC 715 at 749; [2003] UKHL 12 at [56].
102. Cf M’Cowan v Baine [1891] AC 401 at 410 per Lord Bramwell (‘strictest’ a
‘difficult word to deal with’).
103. See also [17-16].
104. See Babanaft International Co SA v Avant Petroleum Inc (The Oltenia)
[1982] 1 WLR 871 at 886; [1982] 3 All ER 244 (time bar clauses can be
source of injustice or oppression).
105. Cf Ocean Chemical Transport Inc v Exnor Craggs Ltd [2000] 1 Lloyd’s
Rep 446 at 452.
106. See [17-16]. Cf H & E Van Der Sterren v Cibernetics (Holdings) Pty Ltd
(1970) 44 ALJR 157. Contrast Ernest Beck & Co v K Szymanowski & Co
[1924] AC 43.
107. Cf X v Y [2011] 1 Lloyd’s Rep 694 at 698; [2011] EWHC 152 (Comm) at
[10] per Burton J (since time bar clause was ‘analogous’ to a limitation
clause, it was to be construed strictly). Contrast National Shipping Co of
Saudi Arabia v BP Oil Supply Co (The Abqaiq) [2012] 1 Lloyd’s Rep 18 at
31; [2011] EWCA Civ 1127 at [61] (time bar clause applicable to
shipowners’ demurrage claims).
108. See Ailsa Craig Fishing Co Ltd v Malvern Fishing Co Ltd [1983] 1 WLR
964 at 970; [1983] 1 All ER 101 at 105.
109. [1945] 1 KB 189.
110. See further [17-25]–[17-31].
111. [2003] 2 Lloyd’s Rep 61 at 75; [2003] UKHL 6 at [63].
112. See, eg Photo Production Ltd v Securicor Transport Ltd [1980] AC 827 at
851; Ailsa Craig Fishing Co Ltd v Malvern Fishing Co Ltd [1983] 1 WLR
964 at 966; [1983] 1 All ER 101 at 102. See generally [16-36]–[16-40].
113. See, eg Gibaud v Great Eastern Railway Co [1921] 2 KB 426 at 435;
London and North Western Railway Co v Neilson [1922] 2 AC 263 at 273;
Sydney Corp v West (1965) 114 CLR 481.
114. See, eg Stag Line Ltd v Foscolo Mango and Co Ltd [1932] AC 328; Hain
SS Co Ltd v Tate and Lyle Ltd (1936) 41 Com Cas 350; [1936] 2 All ER
597; F Kanematsu & Co Ltd v The Ship ‘Shahzada’ (1956) 96 CLR 477.
115. See, eg Karsales (Harrow) Ltd v Wallis [1956] 1 WLR 936 at 940; UGS
Finance Ltd v National Mortgage Bank of Greece [1964] 1 Lloyd’s Rep
446 at 453; Suisse Atlantique Société d’Armement Maritime SA v NV
Rotterdamsche Kolen Centrale [1967] 1 AC 361; Australian Guarantee
Corp Ltd v Ross [1983] 2 VR 319 at 330.
116. See, eg Glynn v Margetson & Co [1893] AC 351 at 357.
117. (1834) 1 Bing (NC) 370 at 377; 131 ER 1160 at 1162–3. See also Batey v
Gifford (1997) 42 NSWLR 710 at 717–19. See Charles Harpum, ‘Exclusion
Clauses and Contracts for the Sale of Land’ [1992] CLJ 263 at 272–4.
118. [1952] AC 192 at 208; see [17-25]–[17-31].
119. See, eg Smeaton Hanscomb & Co Ltd v Sassoon I Setty Son & Co (No 1)
[1953] 1 WLR 1468 at 1470.
120. See, eg W & S Pollock & Co v Macrae 1922 SC (HL) 192 at 199, 200;
Yeoman Credit Ltd v Apps [1962] 2 QB 508 at 519–20, 523.
121. See [17-37].
122. See, eg W & S Pollock & Co v Macrae 1922 SC (HL) 192 at 199; Suisse
Atlantique Société d’Armement Maritime SA v NV Rotterdamsche Kolen
Centrale [1967] 1 AC 361 at 433.
123. See, eg Farnworth Finance Facilities Ltd v Attryde [1970] 1 WLR 1053 at
1059.
124. (1936) 41 Com Cas 350 at 354; [1936] 2 All ER 597 at 601.
125. See State Trading Corp of India Ltd v M Golodetz Ltd [1989] 2 Lloyd’s Rep
277 at 289 (impact of ‘held covered’ clause is for that argument to lose
force).
126. Cf Commissioner for Railways (New South Wales) v Quinn (1946) 72 CLR
345 at 373; Aktieselskabet de Danske Sukkerfabrikker v Bajamar Compania
Naviera SA (The Torenia) [1983] 2 Lloyd’s Rep 210 at 217.
127. See generally Brian Coote, Exception Clauses, Sweet & Maxwell, London,
1964, chs 3ff.
128. See, eg London and North Western Railway Co v Neilson [1922] 2 AC 263;
Thomas National Transport (Melbourne) Pty Ltd v May & Baker
(Australia) Pty Ltd (1966) 115 CLR 353.
129. Cf Daewoo Heavy Industries Ltd v Klipriver Shipping Ltd (The Kapitan
Petko Voivoda) [2003] 2 Lloyd’s Rep 1 at 10; [2003] EWCA Civ 451 at
[10].
130. See Torr v Harpur (1940) 40 SR (NSW) 585 at 594; Yeoman Credit Ltd v
Apps [1962] 2 QB 508 at 523.
131. [1980] AC 827 (confirming the decision in Suisse Atlantique Société
361). See also Port Jackson Stevedoring Pty Ltd v Salmond & Spraggon
(Australia) Pty Ltd (The New York Star) (1980) 144 CLR 300; [1981] 1
WLR 138; Ailsa Craig Fishing Co Ltd v Malvern Fishing Co Ltd [1983] 1
WLR 964; [1983] 1 All ER 101. The position is the same where the
contract is terminated for breach or repudiaton. See Carter’s Breach of
Contract, §§12-30–12-31.
132. Namely, Charterhouse Credit Ltd v Tolly [1963] 2 QB 683; Harbutt’s
‘Plasticine’ Ltd v Wayne Tank and Pump Co Ltd [1970] 1 QB 447; and
Wathes (Western) Ltd v Austins (Menswear) Ltd [1976] 1 Lloyd’s Rep 14.
133. [1983] 1 WLR 964 at 967, 970; [1983] 1 All ER 101 at 103, 106.
134. (1989) 167 CLR 219 at 227. See also Kamil Export (Aust) Pty Ltd v NPL
(Australia) Pty Ltd (1993) [1996] 1 VR 538 at 552.
Rep 277 at 287, 289. See Brian Coote, ‘Deviation and the Ordinary Law’,
in F D Rose, ed, Lex Mercatoria: Essays on International Commercial Law
in Honour of Francis Reynolds, LLP, London, 2000, p 13.
137. See, eg Kenya Railways v Antares Co Pte Ltd (The Antares) (Nos 1 & 2)
[1987] 1 Lloyd’s Rep 424 at 430 (unauthorised loading of deck cargo not
deviation). See also Daewoo Heavy Industries Ltd v Klipriver Shipping Ltd
(The Kapitan Petko Voivoda) [2003] 2 Lloyd’s Rep 1 at 12–13, 16; [2003]
EWCA Civ 451 at [14]–[15], [31].
138. (1986) 161 CLR 500.
139. See [17-16]. Cf Dorset County Council v Southern Felt Roofing Co Ltd
(1989) 48 Build LR 96.
140. (1986) 161 CLR 500.
141. See Sydney Corporation v West (1965) 114 CLR 481; Thomas National
Transport (Melbourne) Pty Ltd v May & Baker (Australia) Pty Ltd (1966)
115 CLR 353; H & E Van Der Sterren v Cibernetics (Holdings) Pty Ltd
(1970) 44 ALJR 157 at 158.
142. Glebe Island Terminals Pty Ltd v Continental Seagram Pty Ltd (The
Antwerpen) (1993) 40 NSWLR 206; [1994] 1 Lloyd’s Rep 213.
143. See, eg Schenker & Co (Aust) Pty Ltd v Maplas Equipment and Services
Pty Ltd [1990] VR 834 at 845; Brown v Petranker (1991) 22 NSWLR 717
at 722; Glebe Island Terminals Pty Ltd v Continental Seagram Pty Ltd (The
Antwerpen) (1993) 40 NSWLR 206 at 242; [1994] 1 Lloyd’s Rep 213 at
248. Contrast Graham v The Royal National Agricultural and Industrial
Association of Queensland [1989] 1 Qd R 624 at 630. The discussion of
indemnity clauses must be read in light of Andar Transport Pty Ltd v
Brambles Ltd (2004) 217 CLR 424; [2004] HCA 28. See J W Carter and
David Yates, ‘Perspectives on Commercial Construction and the Canada SS
Case’ (2004) 20 JCL 233; Wayne Courtney, ‘Construction of Contractual
Indemnities — Out with the Old, in with the New?’ (2008) 24 JCL 182.
144. See also [17-08].
145. See also [13-16]–[13-26].
146. See also Datec Electronics Holdings Ltd v United Parcels Service Ltd
[2007] 1 WLR 1325 at 1336; [2007] UKHL 23 at [26] per Lord Mance,
with whom Lords Hoffmann, Walker and Neuberger agreed (‘usual
phrases’).
147. See [17-29] (‘howsoever caused’).
Appeal agreed.
149. [1911] AC 394. See J L Montrose, ‘The Operation of Description in a
Contract of Sale of Goods’ (1937) 15 Can BR 760 at 776–8.
150. See [2-30].
151. Reflecting the position taken under the common law. See Stanton v
Richardson (1872) LR 7 CP 421 at 436 per Brett J, affirmed (1874) LR 9
CP 390; (1875) 45 LJCP 78 (‘a condition is necessarily also a warranty’).
See, eg Ashington Piggeries Ltd v Christopher Hill Ltd [1972] AC 441 at
469, 472, 496. Cf Carter’s Breach of Contract, §4-15.
152. See, eg Baldry v Marshall [1925] 1 KB 260 at 265–6,269 (‘guarantee’
which excluded any other guarantee or warranty, statutory or otherwise, did
not apply to breach of condition). See also Cammell Laird & Co Ltd v
Manganese Bronze and Brass Co Ltd [1934] AC 402; Gemmell Power
Farming Co Ltd v Nies (1935) 35 SR (NSW) 469 at 476; McRae v
Commonwealth Disposals Commission (1951) 84 CLR 377 at 398; Henry
Kendall & Sons v William Lillico & Sons Ltd [1969] 2 AC 31 at 107, 114,
126. Cf Harling v Eddy [1951] 2 KB 739 at 742–3.
153. KG Bominflot Bunkergesellschaft für Mineralöle mbH & Co v Petroplus
Marketing AG (The Mercini Lady) [2011] 1 Lloyd’s Rep 442 at 453; [2010]
EWCA Civ 1145 at [61] per Rix LJ. Maurice Kay and Patten LJJ agreed.
See also Air Transworld Ltd v Bombardier Inc [2012] 1 Lloyd’s Rep 349 at
357; [2012] EWHC 243 (Comm) at [16].
154. Contrast Air Transworld Ltd v Bombardier Inc [2012] 1 Lloyd’s Rep 349 at
359, 360; [2012] EWHC 243 (Comm) at [29], [31] (‘all other … obligations
… or liabilities express or impled by law’ was sufficiently clear).
155. See J W Carter, ‘Exclusion of Liability for Consequential Loss’ (2009) 25
JCL 118.
156. See, eg Deepak Fertilisers and Petrochemicals Corp v ICI Chemicals &
Polymers Ltd [1999] 1 Lloyd’s Rep 387 at 403 (exclusion of ‘consequential
loss’ did not apply to losses arising ‘naturally’). See also British Sugar Plc v
NEI Power Projects Ltd (1997) 87 BLR 45; Pegler Ltd v Wang (UK) Ltd
[2000] BLR 218; (2000) 70 Con LR 68; Addax Ltd v Arcadia Petrolem Ltd
[2000] 1 Lloyd’s Rep 493 at 496; Hotel Services Ltd v Hilton International
Hotels (UK) Ltd [2000] 1 All ER (Comm) 750; [2000] EWCA Civ 74;
Watford Electronics Ltd v Sanderson CFL Ltd [2001] 1 All ER (Comm) 696
at 709, 712; [2001] EWCA Civ 317 at [36], [43]. The rule derives from
Croudace Construction Ltd v Cawoods Concrete Products Ltd [1978] 2
Lloyd’s Rep 55.
157. (1854) 9 Ex 341 at 354; 156 ER 145 at 151.
158. See also Exxonmobil Sales and Supply Corp v Texaco Ltd (The Helene
Knutsen) [2003] 2 Lloyd’s Rep 686 at 691; [2003] EWHC Comm 1964 at
[35] (exclusion of ‘loss of prospective profits’ did not prevent recovery by
seller of damages for non-acceptance measured as the difference between
the contract price and the market price).
159. See Ferryways NV v Associated British Ports [2008] 1 Lloyd’s Rep 639 at
650; [2008] EWHC 225 (Comm) at [84] (even though some of the losses
referred to might well be recoverable under first limb of Hadley v
Baxendale).
160. Cf Ferryways NV v Associated British Ports [2008] 1 Lloyd’s Rep 639 at
649; [2008] EWHC 225 (Comm) at [82]–[83] (attempt to restrict cases on
basis that particular clause had not previously been considered — but ‘clear
words’ were nevertheless required to displace established meaning); Ease
Faith Ltd v Leonis Marine Management Ltd [2006] 1 Lloyd’s Rep 673 at
696; [2006] EWHC 232 (Comm) at [148], [149]. Contrast BHP Petroleum
Ltd v British Steel Plc [1999] 2 Lloyd’s Rep 583 at 600; [1999] 2 All ER
(Comm) 544 per Rix J, affirmed on other grounds [2000] 2 Lloyd’s Rep
277 (parties ‘may have been in error to permit the inference’ that ‘loss of
profits’ a category of ‘indirect’ or ‘consequential’ loss).
162. (2008) 19 VR 358; [2008] VSCA 26.
163. [1952] AC 192 at 208. See also Davis v Pearce Parking Station Pty Ltd
(1954) 91 CLR 642 at 649.
164. In particular, Alderslade v Hendon Laundry Ltd [1945] 1 KB 189.
165. See, eg Henderson v Merrett Syndicates Ltd [1995] 2 AC 145 at 183 per
Lord Goff, with whom the other members of the House of Lords agreed
(‘[c]lear words are required to exclude liability in negligence’). Cf Dresser
UK Ltd v Falcongate Freight Management Ltd [1992] QB 502
(construction of ‘document’ in choice of law clause as meaning ‘contract’,
with the result that it did not apply to a claim in tort for negligence).
166. Gillespie Bros & Co Ltd v Roy Bowles Transport Ltd [1973] QB 400 at 419
per Buckley LJ. See also Arthur White (Contractors) Ltd v Tarmac Civil
Engineering Ltd [1967] 3 All ER 586 at 599; Casualty and General
Insurance Ltd v Chase Manhattan Bank [2003] 2 Lloyd’s Rep 61 at 75;
[2003] UKHL 6 at [62]. Cf EE Caledonia Ltd v Orbit Valve Co Europe
[1994] 1 WLR 1515 at 1523; [1995] 1 All ER 174 per Steyn LJ, with whom
Neill and Beldam LJJ agreed (prima facie ‘implausibility’).
167. See Smith v South Wales Switchgear [1978] 1 WLR 165 at 168, 179; [1978]
1 All ER 18 at 21, 22, 31. See also Mediterranean Freight Services Ltd v
BP Oil International Ltd (The Fiona) [1994] 2 Lloyd’s Rep 506 at 517
(unlikely for one party to agree to indemnify another against the
consequences of the other’s negligence). See also Andar Transport Pty Ltd
v Brambles Ltd (2004) 217 CLR 424; [2004] HCA 28 (specific rule of strict
construction).
168. [1952] AC 192 at 208.
169. See EE Caledonia Ltd v Orbit Valve Co Europe [1994] 1 WLR 1515 at
1523, 1525–6; [1995] 1 All ER 174 (impact was that each party agreed to
bear the risk of its own negligence); Deepak Fertilisers and Petrochemicals
Corp v ICI Chemicals & Polymers Ltd [1999] 1 Lloyd’s Rep 387 at 397
(indemnity ‘against any and all liabilities’ for damage to indemnifier’s
property not appliable to indemnified party’s breach of contract).
170. Ailsa Craig Fishing Co Ltd v Malvern Fishing Co Ltd [1983] 1 WLR 964 at
970; [1983] 1 All ER 101 at 105 per Lord Fraser. The other members of the
171. Ailsa Craig Fishing Co Ltd v Malvern Fishing Co Ltd [1983] 1 WLR 964 at
970; [1983] 1 All ER 101 at 105 per Lord Fraser. The other members of the
172. See, eg Industrie Chimiche Italia Centrale SpA v NEA Ninemia Shipping
Co SA (The Emmanuel C) [1983] 1 Lloyd’s Rep 310 (exception in
charterparty); Sonat Offshore SA v Amerada Hess Development Ltd [1988]
1 Lloyd’s Rep 145 at 157 (equipment breakdown rate clause). Contrast, eg
Continental Illinois National Bank & Trust Co of Chicago v Papanicolaou
(The Fedora) [1986] 2 Lloyd’s Rep 441 at 444 (rules not applicable to
agreement, not in the nature of exclusion, that payment should be made
without set-off).
173. See Ellis Shipping Corp v Voest Alpine Intertrading (The Lefthero) [1992] 2
Lloyd’s Rep 109 at 113–14 (scope of charterer’s liability for delay); Onego
Shipping & Chartering BV v JSC Arcadia Shipping [2010] 2 Lloyd’s Rep
221 at 231; [2010] EWHC 777 (Comm) at [60] (similar principles in
relation to interaction between indemnity and shipowner’s seaworthiness
obligation).
174. See Mineralimportexport v Eastern Mediterranean Maritime Ltd (The
Golden Leader) [1980] 2 Lloyd’s Rep 573 at 574; Deepak Fertilisers and
Petrochemicals Corp v ICI Chemicals & Polymers Ltd [1999] 1 Lloyd’s
Rep 387 at 396–7; HIH Casualty and General Insurance Ltd v Chase
Manhattan Bank [2003] 2 Lloyd’s Rep 61 at 75, 84; [2003] UKHL 6 at
[61], [116].
175. Gillespie Bros & Co Ltd v Roy Bowles Transport Ltd [1973] QB 400 at 419
per Buckley LJ; Brown v Petranker (1991) 22 NSWLR 717 at 722 per
Clarke JA; HIH Casualty and General Insurance Ltd v Chase Manhattan
Bank [2003] 2 Lloyd’s Rep 61 at 67; [2003] UKHL 6 at [11] per Lord
Bingham (with whom Lord Steyn agreed).
176. Smith v South Wales Switchgear [1978] 1 WLR 165 at 167; [1978] 1 All ER
18 at 21 per Viscount Dilhorne; Lamport & Holt Lines Ltd v Coubro &
Scrutton (M & I) Ltd (The Raphael) [1982] 2 Lloyd’s Rep 42 at 47 per May
LJ.
177. Hollier v Rambler Motors (AMC) Ltd [1972] 2 QB 71 at 80 per Salmon LJ;
Smith v South Wales Switchgear [1978] 1 WLR 165 at 177; [1978] 1 All ER
18 at 30 per Lord Keith; Lamport & Holt Lines Ltd v Coubro & Scrutton (M
& I) Ltd (The Raphael) [1982] 2 Lloyd’s Rep 42 at 51 per Stephenson LJ;
HIH Casualty and General Insurance Ltd v Chase Manhattan Bank [2003]
2 Lloyd’s Rep 61 at 84; [2003] UKHL 6 at [116] per Lord Scott; Onego
Shipping & Chartering BV v JSC Arcadia Shipping [2010] 2 Lloyd’s Rep
221 at 230; [2010] EWHC 777 (Comm) at [49] per Hamblen J.
178. [1978] 1 WLR 165; [1978] 1 All ER 18.
179. See J Lauritzen AS v Wijsmuller BV (The Super Servant Two) [1990] 1
Lloyd’s Rep 1 at 7 (led to restrictive construction). Cf EE Caledonia Ltd v
Orbit Valve Co Europe [1994] 1 WLR 1515 at 1525–6; [1995] 1 All ER
174.
180. See HIH Casualty and General Insurance Ltd v Chase Manhattan Bank
[2003] 2 Lloyd’s Rep 61 at 84; [2003] UKHL 6 at [116].
181. See [17-05].
182. [1952] AC 192 at 208.
183. See, eg Farstad Supply AS v Enviroco Ltd (The Far Service) [2010] Bus LR
1087 at 1094, 1096; [2010] UKSC 18 at [23], [29] (indemnity clause
referring expressly to negligence of the indemnified party). See also J
Spurling Ltd v Bradshaw [1956] 1 WLR 461; Spriggs v Sotheby Parke
Barnet & Co [1986] 1 Lloyd’s Rep 487; Onego Shipping & Chartering BV
v JSC Arcadia Shipping [2010] 2 Lloyd’s Rep 221 at 230; [2010] EWHC
777 (Comm) at [53].
184. See [1978] 1 WLR 165 at 169, 173; [1978] 1 All ER 18 at 22, 26
(disapproving Gillespie Bros & Co Ltd v Roy Bowles Transport Ltd [1973]
QB 400 at 420, 421). See also Lamport & Holt Lines Ltd v Coubro &
Scrutton (M & I) Ltd (The Raphael) [1982] 2 Lloyd’s Rep 42 at 48; EE
Caledonia Ltd v Orbit Valve Co Europe [1994] 1 WLR 1515 at 1520;
[1995] 1 All ER 174.
185. See, eg Monarch Airlines Ltd v London Luton Airport Ltd [1998] 1 Lloyd’s
Rep 403 at 409 per Clarke J (‘neglect or default’ a synonym for
‘negligence’). Cf Mineralimportexport v Eastern Mediterranean Maritime
Ltd (The Golden Leader) [1980] 2 Lloyd’s Rep 573 at 574 (liability for
negligence accepted in some respects but not others).
186. [1952] AC 192 at 208.
187. [1952] AC 192 at 208.
188. [1945] 1 KB 189. See also Davis v Pearce Parking Station Pty Ltd (1954)
91 CLR 642 (‘at owner’s risk’); Davis v Commissioner for Main Roads
(1968) 117 CLR 529 at 536–7 (indemnity).
189. See Rutter v Palmer [1922] 2 KB 87 at 94; Commissioner for Railways
(New South Wales) v Quinn (1946) 72 CLR 345 at 372; White v John
Warwick & Co Ltd [1953] 1 WLR 1285 at 1294; [1953] 2 All ER 1021 (sub
nom White v John Warrick & Co Ltd). See also Mitsubishi Corp v Eastwind
Transport Ltd (The Irbenskiy Proliv) [2005] 1 Lloyd’s Rep 383 at 388;
[2004] EWHC 2924 (Comm) at [35] (‘however caused’).
190. On ‘whatsoever’ see Smith v South Wales Switchgear Co Ltd [1978] 1 WLR
165; [1978] 1 All ER 18; Onego Shipping & Chartering BV v JSC Arcadia
Shipping [2010] 2 Lloyd’s Rep 221 at 233; [2010] EWHC 777 (Comm) at
[81]. See also Bright v Sampson & Duncan Enterprises Pty Ltd (1985) 1
NSWLR 346 at 363 (‘own risk’). Cf Mediterranean Freight Services Ltd v
BP Oil International Ltd (The Fiona) [1994] 2 Lloyd’s Rep 506 (‘directly
or indirectly’).
191. See Hollier v Rambler Motors (AMC) Ltd [1972] 2 QB 71.
192. See BHP Petroleum Ltd v British Steel Plc [2000] 2 Lloyd’s Rep 277 at
285, 289 (as a matter of construction, ‘all liability’ embraced negligence).
Cf Port Jackson Stevedoring Pty Ltd v Salmond & Spraggon (Australia)
Pty Ltd (The New York Star) (1980) 144 CLR 300 at 306; [1981] 1 WLR
138 at 145 per Lord Wilberforce for the Privy Council (‘“all liability”
means what it says’).
193. See HIH Casualty and General Insurance Ltd v Chase Manhattan Bank
[2003] 2 Lloyd’s Rep 61 (‘no liability of any nature’ applied to negligent
misrepresentation); Trident Turboprop (Dublin) Ltd v First Flight Couriers
Ltd [2009] 1 All ER (Comm) 16 at 24; [2008] EWHC 1686 (Comm) at
[41], affirmed without reference to the point [2010] QB 86; [2009] EWCA
Civ 290 (‘any rights’ sufficient in relation to all types of misrepresentation
other than fraudulent misrepresentation). Cf Monarch Airlines Ltd v London
Luton Airport Ltd [1998] 1 Lloyd’s Rep 403 at 408 per Clarke J (there was
no liability for ‘ordinary negligence’ where clause said there was no
liability for an act unless done with intent to cause damage or recklessly);
Robinson v P E Jones (Contractors) Ltd [2011] 3 WLR 815 at 833; [2011]
EWCA Civ 9 at [85].
194. [1952] AC 192 at 208.
195. Alderslade v Hendon Laundry Ltd [1945] 1 KB 189 at 192 per Lord Greene
MR.
196. [1952] AC 192 at 208.
197. See also Onego Shipping & Chartering BV v JSC Arcadia Shipping [2010]
2 Lloyd’s Rep 221 at 232; [2010] EWHC 777 (Comm) at [66] (various risks
inherent in carriage of deck cargo).
198. [1952] AC 192 at 208.
199. See Onego Shipping & Chartering BV v JSC Arcadia Shipping [2010] 2
Lloyd’s Rep 221 at 230; [2010] EWHC 777 (Comm) at [55]. See also
Hollier v Rambler Motors (AMC) Ltd [1972] 2 QB 71 at 80; Gillespie Bros
& Co Ltd v Roy Bowles Transport Ltd [1973] QB 400 at 414, 421; Lamport
& Holt Lines Ltd v Coubro & Scrutton (M & I) Ltd (The Raphael) [1982] 2
200. Of course, there may be more than two potential ‘heads of damage’.
201. Cf White v John Warwick & Co Ltd [1953] 1 WLR 1285; [1953] 2 All ER
1021 (sub nom White v John Warrick & Co Ltd).
202. See, eg Industrie Chimiche Italia Centrale SpA v NEA Ninemia Shipping
Co SA (The Emmanuel C) [1983] 1 Lloyd’s Rep 310 at 314; Shell
Chemicals UK Ltd v P & O Roadtanks Ltd [1995] 1 Lloyd’s Rep 297 at
301.
203. [1982] 2 Lloyd’s Rep 42.
204. [1982] 2 Lloyd’s Rep 42 at 45 (approved J Lauritzen AS v Wijsmuller BV
(The Super Servant Two) [1990] 1 Lloyd’s Rep 1 at 6–7).
205. [1982] 2 Lloyd’s Rep 42 at 50.
206. [1994] 1 WLR 1515 at 1522; [1995] 1 All ER 174. Neill and Beldam LJJ
agreed.
207. Cf Thompson v T Lohan (Plant Hire) Ltd [1987] 1 WLR 649 at 655, 657;
[1987] 2 All ER 631.
208. [2003] 2 Lloyd’s Rep 61; [2003] UKHL 6. See H N Bennett, ‘Exclusion of
Rights and Remedies with Respect to Misrepresentation and Non-
disclosure’ (2003) 19 JCL 205; J W Carter and David Yates, ‘Perspectives
on Commercial Construction and the Canada SS Case’ (2004) 20 JCL 233.
209. [2003] 2 Lloyd’s Rep 61 at 84; [2003] UKHL 6 at [116] per Lord Scott. See
also [2003] 2 Lloyd’s Rep 61 at 81; [2003] UKHL 6 at [97] (commercial
importance of the ‘truth of statement’ clause).
210. [2003] 2 Lloyd’s Rep 61 at 67; [2003] UKHL 6 at [12] per Lord Bingham.
Cf Toomey v Eagle Star Insurance Co Ltd (No 2) [1995] 2 Lloyd’s Rep 88
(as a matter of construction, although an exclusion was effective to prevent
rescission for innocent misrepresentation or non-disclosure, it did not apply
to negligent misrepresentation or non-disclosure).
211. [2003] 2 Lloyd’s Rep 61 at 67; [2003] UKHL 6 at [11]. Lord Steyn agreed.
212. See [17-03].
213. [1980] AC 827.
214. (1986) 161 CLR 500.
215. See generally, Chapter 6.
216. See, eg [13-47], [16-19].
217. [1893] AC 351.
218. [1893] AC 351 at 357. See also G H Renton & Co Ltd v Palmyra Trading
Corp of Panama [1957] AC 149 at 163–4, 167–8; Sze Hai Tong Bank Ltd v
Rambler Cycle Co Ltd [1959] AC 576 at 587; Suisse Atlantique Société
361 at 393, 412–13, 428, 430; H & E Van Der Sterren v Cibernetics
(Holdings) Pty Ltd (1970) 44 ALJR 157 at 158; Clark v Refeld (1979) 25
SASR 246 at 279.
219. See, eg Davy Offshore Ltd v Emerald Field Contracting Ltd [1992] 2
Lloyd’s Rep 142 at 155; Motis Exports Ltd v Dampskibsselskabet AF 1912
Aktieselskabet [2000] 1 Lloyd’s Rep 211 at 215; Internet Broadcasting
Corp Ltd v MAR LLC [2009] 2 Lloyd’s Rep 295 at 299, 300; [2009] EWHC
844 (Ch) at [25], [29], [38]. See also Fraser v B N Furman (Productions)
Ltd [1967] 1 WLR 898 at 906; [1967] 3 All ER 57 at 61 (purpose of
‘condition’ in employer’s liability policy). Cf Atlas Navios-Navegaçao LDA
v Navigators Insurance Co Ltd (The B Atlantic) [2012] 1 Lloyd’s Rep 629
at 632; [2012] EWHC 802 (Comm) at [22] (exclusions in Institute Clauses).
220. [2000] 1 Lloyd’s Rep 378 at 384; [2000] 1 All ER (Comm) 532. See also
Housing Guarantee Fund Ltd v Dore (2003) 7 VR 257 at 265; [2003]
VSCA 126 at [25] (context provided key to meaning of phrase ‘the cost of
completing the domestic building work’).
221. See Kamil Export (Aust) Pty Ltd v NPL (Australia) Pty Ltd (1993) [1996] 1
VR 538 at 558 (‘main object’ of contract a factor to be taken into account);
A Turtle Offshore SA v Superior Trading Inc (The A Turtle) [2009] 1
Lloyd’s Rep 177 at 193; [2008] EWHC 3034 (Admlty) at [109] (to reflect
context or not to defeat main purpose). See also Tor Line AB v Alltrans
Group of Canada Ltd (The TFL Prosperity) [1984] 1 WLR 48 at 54; [1984]
1 All ER 103; Mitsubishi Corp v Eastwind Transport Ltd (The Irbenskiy
Proliv) [2005] 1 Lloyd’s Rep 383 at 388; [2004] EWHC 2924 (Comm) at
[29]. For operation of the general principle see, eg [13-47].
222. See, eg Spriggs v Sotheby Parke Bernet & Co [1986] 1 Lloyd’s Rep 487 at
495 (no repugnancy in clause to effect that although ‘all reasonable care’
would be taken there was no responsibility for negligence). See also [16-
11].
223. See, eg [13-49] (resolving inconsistency).
224. [1980] AC 827.
225. [2003] 2 Lloyd’s Rep 61; [2003] UKHL 6.
227. See also [16-28] (construction to preserve legality).
228. See [16-12]–[16-25]. See also [13-46]–[13-47].
229. See [17-18], [17-20], [17-21], [17-35].
230. See Gillespie Bros & Co Ltd v Roy Bowles Transport Ltd [1973] QB 400 at
415–17. Cf Levison v Patent Steam Carpet Cleaning Co Ltd [1978] QB 69
at 79–80; George Mitchell (Chesterhall) Ltd v Finney Lock Seeds Ltd
[1983] QB 284 at 298–301 (affirmed on other grounds [1983] 2 AC 803).
231. [1973] QB 400 at 421 (see [16-14]). See also Life Savers (Australasia) Ltd
v Frigmobile Pty Ltd [1983] 1 NSWLR 431 at 439.
232. Internet Broadcasting Corp Ltd v MAR LLC [2009] 2 Lloyd’s Rep 295 at
299; [2009] EWHC 844 (Ch) at [25].
233. [1980] AC 827.
234. [1980] AC 827 at 850–1. See also Bright v Sampson & Duncan Enterprises
Pty Ltd (1985) 1 NSWLR 346 at 366.
55 ALJ 788 at 801.
236. Cf Thames Valley Power Ltd v Total Gas & Power Ltd [2006] 1 Lloyd’s
Rep 441 at 455; [2005] EWHC 2208 (Comm) at [62] (total non-
performance).
237. Cf Robert A Munro & Co Ltd v Meyer [1930] 2 KB 312 at 327 (no-rejection
clause did not apply to goods which did not correspond with their
contractual description). See Carter’s Breach of Contract, §10-32.
238. See [16-29].
239. See also KG Bominflot Bunkergesellschaft für Mineralöle mbH & Co v
Petroplus Marketing AG (The Mercini Lady) [2011] 1 Lloyd’s Rep 442 at
451; [2010] EWCA Civ 1145 at [48].
240. Great North East Railway Ltd v Avon Insurance Plc [2001] 2 Lloyd’s Rep
649 at 655; [2001] EWCA Civ 780 at [31] per Longmore LJ (citing Tor
Line AB v Alltrans Group of Canada Ltd (The TFL Prosperity) [1984] 1
WLR 48 at 58–9; [1984] 1 All ER 103). The other members of the court
agreed.
241. See, eg A Turtle Offshore SA v Superior Trading Inc (The A Turtle) [2009] 1
Lloyd’s Rep 177 at 195; [2008] EWHC 3034 (Admlty) at [117] per Teare J
(construction ‘realistically required’).
243. See [16-42].
244. [1959] AC 576.
245. In fact the bank which provided a letter of indemnity in favour of the
shippers was sued, but it stood in no better position than the shippers.
246. [1959] AC 576 at 587.
247. See also Glebe Island Terminals Pty Ltd v Continental Seagram Pty Ltd
(The Antwerpen) (1993) 40 NSWLR 206 at 215–16, 238–9; [1994] 1
Lloyd’s Rep 213 (carrier’s liability for wilful conversion of goods); Kamil
Export (Aust) Pty Ltd v NPL (Australia) Pty Ltd (1993) [1996] 1 VR 538 at
553 (reading down of exclusion clause so as not to embrace intentional
breach); see Brian Coote, (1997) 12 JCL 169. Contrast H & E Van Der
Sterren v Cibernetics (Holdings) Pty Ltd (1970) 44 ALJR 157 at 158
(disregard of obligations was not deliberate).
248. See Trafigura Beheer BV v Mediterranean Shipping Co SA (The MSC
Amsterdam) [2007] 2 Lloyd’s Rep 622 at 629–30; [2007] EWCA Civ 794 at
[29]–[32] (binding line of authority in relation to application of exclusion
clauses where goods delivered in breach of obligation to deliver against bill
of lading).
249. [1980] AC 827. See also Frans Maas (UK) Ltd v Samsung Electronics (UK)
Ltd [2004] 2 Lloyd’s Rep 251 at 275, 276, 279; [2004] EWHC 1502
(Comm) at [128], [138], [152] (limitation of liability applied to wilful
default even though it arose from employee dishonesty).
250. (1986) 161 CLR 500. See also Compania Portorafti Commerciale SA v
Ultramar Panama Inc (The Captain Gregos) [1990] 1 Lloyd’s Rep 310 at
315 (time bar in Hague-Visby rules, art III, r 6 applicable to wilful breach).
252. [2009] 2 Lloyd’s Rep 295 at 297–8; [2009] EWHC 844 (Ch) at [16].
254. [1993] 1 WLR 996.
255. See also Transport Commission (Tasmania) v Neale Edwards Pty Ltd
(1954) 92 CLR 214 at 223, 227–8 (misconduct has to be wilful, not the
conduct); Swiss Bank Corp v Brink’s-MAT Ltd [1986] 2 Lloyd’s Rep 79 at
93 (‘wilful neglect or default’ referred to deliberate or conscious neglect or
default or reckless conduct). Contrast Circle Freight International Ltd v
Medeast Gulf Exports Ltd [1988] 2 Lloyd’s Rep 427 at 434 (knowing
exposure of goods to risk of theft was within scope of exclusion clause
referring to ‘wilful neglect’).
256. See also cases on reasonable precautions conditions, eg Fraser v B N
Furman (Productions) Ltd [1967] 1 WLR 898; [1967] 3 All ER 57; Legal
& General Insurance Australia Ltd v Eather (1986) 6 NSWLR 390 at 397.
18
Evidence in Application
General [18-02]
Application of Exclusionary Rule [18-04]
General [18-04]
Remedies and Rights [18-06]
Variation and Related Concepts [18-10]
Estoppel and Course of Dealing [18-16]
Descriptive Terms [18-19]
General [18-19]
Evidence to Enable Application [18-21]
Use of Evidence in Application [18-24]
Ambiguity in Application [18-27]
Application by the Parties [18-32]
Relationships and Legal Effect [18-32]
Uncertain and Incomplete Agreements [18-35]

[18-01] Objects. The principal object of this chapter is to explain the use of
‘evidence in application’ and its relationship with evidence ‘in construction’. The
main focus is the approach to descriptive terms, particularly terms descriptive of
the subject matter of the contract. Although evidence used to generate an
understanding of descriptive words has often been regarded as ‘extrinsic’
evidence, under the modern law, such evidence is contextual in nature.
The exclusionary rule prohibits the use of extrinsic evidence to prove
additional terms of a contract integrated in a document, or as an aid to the
construction of a document. Since neither prohibition is applicable to evidence
used to apply a contract, the exclusionary rule does not play a major role.
Nevertheless, the parties’ conduct in performance (and administration) of a
contract is evidence of their application of the contract to the facts. Even though
not used to construe the contract, such evidence may be important. A second
object is therefore to explain the significance of such conduct from the
perspective of commercial construction.
A contract may be ambiguous, uncertain or incomplete in construction, or in
its application to the facts. A third objective is to consider the interaction
between construction and the use of evidence in application of a contract in the
resolution of those matters.
GENERAL
[18-02] Introduction. ‘Construction’ is the process by which the intention of the
parties to a contract is determined and given effect to.1 Applying a contract to the
facts is the third stage in construction.2 The main points around which this part
of the book revolves are that the scope of application of a contract is
distinguishable from its linguistic meaning; and that decisions made in
construction may determine how a contract should be applied, or its scope of
application to a given set of facts. Those points have no direct bearing on what
evidence is admissible in the construction or application of a contract. Indeed,
although the facts to which it must be applied determine the extent to which a
contract must be construed,3 construction of the contract is a given for much of
what happens when a contract is applied to the facts in performance.
Nevertheless, an understanding of the relationship between principles of
commercial construction and the use of evidence in application is important.
One reason why principles of commercial construction play a role is that the
expression ‘evidence in application’ is used in two different senses. The first
refers to the factual circumstances in reference to which the contract was agreed.
The second — and more obvious sense under the modern law — refers to the
facts which emerge in the performance and administration of the contract. In
relation to the former, the cases on descriptive terms have traditionally relied on
a distinctive approach to evidence. In relation to the latter, it has also long been
recognised that the evidence is broader than in construction. These two senses
suggest a distinction between evidence which enables a contract to be applied
and evidence of the facts which emerge in performance and administration.4
Steps taken by the parties in performing and administering the contract
represent their attempts to apply the contract. Accordingly, although evidence of
subsequent conduct is not admissible as a direct aid to construction,5 it may be
crucial in application. That includes situations where an agreement is
ambiguous, uncertain or incomplete as a matter of construction or application.
[18-03] Evidentiary issues which arise in application. It is unnecessary to seek
to categorise all the issues which may arise when a contract is sought to be
applied. However, in order to identify relevant evidentiary issues, a number of
categories can be identified. They may overlap. The first relates to evidence
which is necessary to enable descriptive terms to be applied. Such evidence is
regulated by construction principles.
Second, evidence of what transpired in the performance and administration of
the contract may be necessary to determine matters such as whether the contract
was breached and whether the contract price was earned. Generally, construction
principles are not relevant to that evidence.
Third, what the parties have done under a contract may in some cases
determine on an ad hoc basis the legal relationship created by the contract, or
particular incidents of the contract. At the most fundamental level, an agreement
which would fail as a contract when executory may be made certain and
complete by such conduct. The interaction with evidence in construction is in
some respects problematic.
Fourth, evidence may relate to the application of contract doctrine, for
example, to show that the contract has been frustrated or repudiated. Apart from
the need to distinguish between construction of a contract and its application to
proved facts, there is no issue of principle.
Fifth, quantification issues abound in the application of contracts. Common
examples are proof of market prices, proof of loss or damage, and the
application of reasonableness standards, such as ‘reasonable time’. Although a
realisation of the need to deal with such matters may have served to focus the
construction process, the evidence is not used to construe the contract. No issue
of principle is raised.
Sixth, it may be impossible to apply the meaning arrived at in the second
stage of construction. Extrinsic evidence may then be admitted, so as to revisit
the second stage in construction.
Seventh, the parties’ subsequent conduct may vary or rescind a contract. Or it
may be evidence which impacts on their rights and remedies. Obvious examples
are estoppel and election between rights. The only issue of principle raised is the
scope of the exclusionary rule.
APPLICATION OF EXCLUSIONARY RULE
General
[18-04] Introduction. The exclusionary rule6 prohibits the use of extrinsic
evidence7 for certain proscribed purposes. Extrinsic evidence comprises direct
evidence of intention, evidence of prior negotiations and evidence of the
subsequent conduct of the parties. However, such raw material is not extrinsic
evidence unless used for a purpose proscribed by the exclusionary rule.8 From
the perspective of ‘evidence in application’, the general position can be summed
up in three propositions. The first is that evidence of context is necessary to
enable a contract to be applied. Principles of commercial construction are
applicable, and the distinction between evidence of context and extrinsic
evidence is important. However, there has always been a tendency to treat such
evidence as falling within a special category. It has frequently been termed ‘parol
evidence’, or ‘extrinsic evidence’. For example, in Bank of New Zealand v
Simpson9 Lord Davey, delivering the advice of the Privy Council said10 that
‘[e]xtrinsic evidence is always admissible … to apply’ the contract ‘to the facts
which the parties … were negotiating about’.
Second, the exclusionary rule is not relevant to evidence which is used to
apply a contract the construction of which has already been determined.
Therefore, although evidence of subsequent conduct or prior negotiations must
frequently be used when applying a contract, that use is not regulated by the
The third proposition is that an inability to apply a contract — as construed
— to the facts may justify the use of extrinsic evidence in construction.
[18-05] Identifying exceptions. Three requirements must be met in order to
conclude that evidence has been admitted under an exception to the exclusionary
rule.12 The first is that the evidence must fall within one of the three categories of
extrinsic evidence, namely, evidence of actual intention, prior negotiations or
subsequent conduct.
Second, the purpose for which the evidence is used must be proscribed by the
rule. The proscribed purposes are use as a direct aid to construction or to
establish an additional term of a contract which has been integrated in a
document.
Third, there is a negative requirement, namely, that the evidence is not
admitted under a rule of law.13
The discussion below is primarily concerned to illustrate situations in which it
is clear that these requirements are not met. Separate treatment is given to the
role of the exclusionary rule in connection with evidence of descriptive terms
and the use of evidence of application of the contract by the parties. If it is
impossible to apply a contract to the facts, the law appears to recognise an
exception to the exclusionary rule. Extrinsic evidence, including direct evidence
of intention, may be used in an attempt to uphold the contract.14
Remedies and Rights
[18-06] Evidence in relation to remedies. The exclusionary rule does not
regulate the use of evidence to establish entitlements under a remedy. Matters
such as evidence of loss or damage, or proof that a money sum has been earned
by performance of the contract, are not issues of construction. They fall outside
the scope of the exclusionary rule. Again, in a claim for restitution, although
matters such as conferral of benefit and termination of the contract are proved by
reference to the subsequent conduct of the parties, the evidence is not used to
construe the contract. The same is true of the use of prior negotiations or
subsequent conduct in connection with decisions to grant relief derived from
equity,15 including in a claim for rectification.16
Of course, construction issues often arise in relation to remedies. It may, for
example, be necessary to construe an exclusion clause to determine whether it
applies to the circumstances which have occurred.17 The exclusionary rule
applies. Similarly, to the extent that the construction of a contract is relevant to a
claim for equitable relief, the exclusionary rule applies.18 In the same way, when
a claim for restitution is made on the basis of a total failure of consideration, it is
necessary to construe the contract to identify the agreed return for the payment.
The exclusionary rule is applicable.
[18-07] Evidence of exercise of rights. Events which trigger contractual rights
are facts which emerge in the parties’ performance. Evidence of those facts is not
admitted for the purpose of construction. Similarly, evidence establishing the
exercise of a right to terminate or rescind a contract is not regulated by the
The same is true where evidence of conduct in performance is used to
establish an election against the exercise of a right, or to raise an estoppel in
relation to the right, whether analysed as such or by application of the ‘waiver’
concept.20
[18-08] Warranty ex post facto. The fact that the subsequent conduct of a
promisee may require the breach of a condition to be treated as if it were a
breach of warranty has sometimes been said to establish a ‘warranty ex post
facto’.21 The implication that the construction of the contract is altered by the
subsequent conduct of the parties22 occasioned some consternation in Wallis v
Pratt.23 In the context of the acceptance of goods by a buyer,24 Lord Shaw said,25
‘whoever heard in a commercial contract of construing the meaning of two
business men by a principle of that kind?’.
Of course, the ‘warranty ex post facto’ terminology is misleading.26 Assuming
it amounts to an election to continue performance, or an acceptance of goods, the
conduct of the promisee simply results in loss of the right to terminate. As was
decided in Wallis v Pratt, as a matter of construction the term remains a
condition.27
[18-09] Application of contract doctrine. Evidence which is necessary to apply
contract doctrine is always admissible, whether or not it is also available for use
in construction. Contract doctrine may therefore legitimise the use of evidence to
resolve issues of intention. Although unusual, that may extend to the use in
construction of evidence which would otherwise be extrinsic.28
Where contract doctrine is applied by construction, distinctions may need to
be drawn. For example, the doctrine of frustration is applied by construction of
the contract.29 It is necessary to distinguish between the evidence admissible in
construction and evidence of the event relied on to establish frustration.30 The
former is regulated by the exclusionary rule; the latter is not. Specific
construction issues may also arise, such as the scope of provisions alleged to
deal with the event which is relied on to establish frustration. Such issues are
resolved in the ordinary way.
However, frustration cases have sometimes provoked debate from the
perspective of the exclusionary rule. Indeed, the decision in Krell v Henry31 was
regarded as controversial from that perspective during the period when the
implied term theory was applied.32 Vaughan Williams LJ said33 that ‘inferences’
could be ‘drawn from surrounding circumstances’ as to ‘the substance of the
contract’; and also that ‘parol evidence’ was admissible to show that the ‘subject
of the contract was rooms to view the coronation procession, and was so to the
knowledge of both parties’. In Codelfa Construction Pty Ltd v State Rail
Authority of New South Wales,34 Mason J thought criticism of the case from the
perspective of the exclusionary rule ‘to be founded on the outmoded view …
that it was not legitimate to take extrinsic evidence into account’ when
construing the contract. In current terminology, the evidence to which Vaughan
Williams LJ referred in Krell v Henry was ‘contextual’ in nature.35
Variation and Related Concepts
[18-10] Introduction. The exclusionary rule has two applications where a
contract is varied, rescinded or discharged by agreement: the original contract;
and the later contract. The exclusionary rule’s treatment of subsequent conduct
as extrinsic evidence means that a later contract cannot be used as an aid to the
construction of any earlier contract.36 For example, an agreement for rescission is
not an aid to the construction of the rescinded contract. The exclusionary rule
applies to a contract of variation or rescission in the same way that it applies to
any other contract.37
However, evidence to prove that a contract has been varied, rescinded or
discharged by agreement falls outside the scope of the exclusionary rule. The
same is true of evidence to prove the application of related concepts.
[18-11] Variation. It would be extremely technical to treat the exclusionary rule
as relevant to proof of an agreement to vary a contract. However, when
delivering the advice of the Privy Council in Narich Pty Ltd v Commissioner of
Pay-Roll Tax,38 Lord Brandon referred39 to an exception to the exclusionary rule
as operating where the parties’ ‘subsequent conduct can be shown to have
amounted to an agreed addition to, or modification of, the original written
contract’. The conception is that since the aspect of the rule relating to the proof
of terms (‘parol evidence rule’)40 prohibits the use of evidence to ‘add to’,
‘subtract from’ or ‘vary’ the terms of a document stating or evidencing a
contract,41 evidence to prove a variation is admitted on an exceptional basis.
It is now recognised that such evidence is outside the scope of the rule.42 The
position is the same whether the variation is express or proved as a matter of
inference from conduct. Subsequent conduct amounting to an admission may
also be received as evidence of a prior variation.43 The parol evidence rule is
relevant only to proof that a term not included in a document was agreed prior to
adoption of the document as integrating the contract.44 Therefore, unless the
evidence (of subsequent conduct) is put forward for that purpose, it is not
extrinsic evidence.45
[18-12] Rescission by agreement. Like variation, rescission by agreement may
occur expressly or as an inference from conduct. There may be a simple
rescission; or a rescission and replacement, including by novation.46
Like any other contract, the agreement for rescission may be expressed in or
evidenced by a document. Although there are many permutations, depending on
the purpose and form of the contract of rescission, the analysis for application of
the exclusionary rule is the same as in cases of variation. Reliance on subsequent
conduct to prove rescission does not depend on an exception to the exclusionary
rule.
Precisely the same analysis applies in cases of termination by agreement.47
[18-13] Forbearance. To have legal significance, forbearance to perform or
enforce a contract must generally be in response to an express or implied
request. A common example is a seller’s (or buyer’s) forbearance to deliver (or
take delivery) at the request of the buyer (or seller).48
The evidence is not used to construe the contract or to prove an additional
term. Instead, the purpose is to establish that one party is disentitled to enforce
the contract in accordance with its construction. No exception to the
exclusionary rule is invoked.
[18-14] Alteration to mode of performance. An alteration to the mode or
manner of contract performance is proved by reference to the conduct of the
parties when applying the contract.
As in the case of forbearance, subsequent conduct is not used to construe the
contract or to prove agreement to an additional term. Rather, the purpose is to
show that one party (or both parties) is disentitled to insist on the construction of
the contract. No exception to the exclusionary rule operates. For example, in
Tankexpress A/S v Compagnie Financière Belge des Petroles SA (The
Petrofina)49 shipowners sought to exercise an express right of withdrawal on the
basis of late payment of hire by charterers in breach of a clause in the
charterparty which required ‘[p]ayment … [i]n cash, monthly, in advance, in
London’. The conduct of the parties in performance established payment by
cheque to a London bank for the credit of the shipowners at an Oslo bank as the
mode of payment. Since the charterers complied with that mode of performance,
the shipowners’ express right of withdrawal was not available.
[18-15] Impact of Statute of Frauds. Compliance with the requirement of
writing imposed by s 4 or s 17 of the Statute of Frauds 167750 was at issue in
many of the old cases on subsequent contracts. Section 4 survives, but only in
relation to contracts of guarantee.51 Cases on forbearance, or an alteration to the
mode or manner of performance, were also often decided in the context of a
contract subject to the requirement of writing.52
Since in the case of a verbal variation the original contract ‘stands
unaffected’,53 the contract must be construed and applied without regard to the
evidence. Although a contract for rescission or discharge is effective even if
purely verbal,54 if the agreement is for rescission (or discharge) and replacement,
the replacement contract is unenforceable unless in writing or evidenced by
writing.55
The frequent use in the cases decided in the context of the Statute of Frauds
1677 of the label ‘parol evidence’ to describe evidence of a variation does not
imply that the exclusionary rule is relevant. The same is true of references to the
use of ‘parol evidence’ to establish a rescission, a memorandum or note
satisfying the statute, or to establish part performance of the contract.56 Although
the statute may have reinforced a hierarchical approach to evidence and the
operation of the exclusionary rule,57 the use of subsequent conduct in such cases
has nothing to do with the rule. Any analysis suggesting the contrary confuses
the scope of the exclusionary rule with the scope and operation of the statute.58
Estoppel and Course of Dealing
[18-16] Introduction. Proof of an estoppel may qualify the rights and remedies
which arise under or in connection with a contract. Evidence of subsequent
conduct may be used to establish an estoppel.59
Broadly expressed, the purpose of the concept is to prevent the
unconscionable assertion of a right which would otherwise be available under or
in connection with the contract, as construed at the time it was agreed.60
Therefore, whether the estoppel relates to the meaning of the contract, its content
or the ability to enforce a right or remedy, such evidence is not ‘extrinsic’ for the
purposes of the exclusionary rule.61 The same is true of evidence of a course of
dealing.
[18-17] Estoppel. Where estoppel arises from the parties’ application of the
contract, it is based on evidence of the subsequent conduct of the parties. In
Amalgamated Investment & Property Co Ltd v Texas Commerce International
Bank Ltd,62 Lord Denning MR expressly referred63 to the possibility of an
estoppel in relation to meaning arising from detrimental reliance on a
representation. The more common case is estoppel by convention. Indeed, the
estoppel by convention established in the Amalgamated Investment case has
been seen as giving words a ‘wider meaning’64 than their construction.
The assumption in relation to which an estoppel by convention arises may
relate to a matter of fact or law.65 Such an estoppel may be based on proof of an
assumed meaning for a contract which differs from its construction.66 Equally, an
estoppel may relate to the scope of application of the contract, as construed. In
Norwegian American Cruises A/S v Paul Mundy Ltd (The Vistafjord),67 Bingham
LJ approved68 the following statement of principle:69
(1) parties have established by their construction of their agreement or
their apprehension of its legal effect a conventional basis, (2) on that
basis they have regulated their subsequent dealings, … (3) it would be
unjust or unconscionable if one of the parties resiled from that
convention.
In that case, an estoppel arose in relation to the application of a payment term.
And in Government of Swaziland Central Transport Administration v Leila
Maritime Co Ltd (The Leila),70 subsequent conduct in performance created an
estoppel in relation to the application of an arbitration clause.
[18-18] Course of dealing. The parties’ conduct in the application of a contract
may establish a course of dealing. That may have the effect of placing a
particular meaning on a contract expressed in a document. The parties are then
bound by that meaning, either because their conduct amounts to an informal
variation or by reason of estoppel. In such cases, the construction of the contract
is a given. The evidence of subsequent conduct is not received under an
exception to the parol evidence rule.71
In Amalgamated Investment & Property Co Ltd v Texas Commerce
International Bank Ltd,72 Lord Denning MR suggested73 that where there is
merely a single transaction: Although subsequent conduct cannot be used for the
purpose of interpreting a contract retrospectively, yet it is often convincing
evidence of a course of dealing after it. … If parties to a contract, by their course
of dealing, put a particular interpretation on the terms of it — on the faith of
which each of them — to the knowledge of the other — acts and conducts their
mutual affairs — they are bound by that interpretation just as much as if they had
written it down as being a variation of the contract.
Given that doubts about satisfaction of the requirement of consideration may
arise if the subsequent conduct is put forward to establish a variation, and that
subsequent conduct is not admissible as an aid to construction, the impact of the
course of dealing is usually to create an estoppel. For example, in Tamil Nadu
Electricity Board v ST-CMS Electric Co Pte Ltd74 Cooke J said that if the parties
‘by their course of dealing, put a particular interpretation’ on the contract, they
may be bound to adhere to that interpretation as if it were the construction of the
contract.
DESCRIPTIVE TERMS
General
[18-19] Introduction. All contracts include terms of a descriptive nature. The
most important provisions describe the subject matter of the contract. If
‘construction’ was solely concerned with what words mean as a matter of
English, documents using descriptions such as ‘your wool’, ‘sole professional
services’, ‘Yard No 354’ and ‘Housing Project No 4’ would pose no problems.
However, contracts are agreed in factual contexts, and must be applied to factual
contexts. Clarity of expression is not sufficient.
In order for a contract to be applied to the facts, the subject matter of the
bargain must first be identified. Similarly, other descriptive terms may need to be
‘explained’ before they can be construed and applied.75 Both subject and object
must be identified. In the formal resolution of construction disputes relating to
documents, the construction process is divorced in both a temporal and a
physical sense from the factual context in reference to which the documents
were created.76 Therefore, further information is always necessary to understand
not only what the contract is about, but also how it should be applied to a given
situation. In relation to descriptive terms, the law recognises that the issue is
more about definition than meaning.
Various devices have been employed to reconcile the need for evidence to
enable a document to be construed with the restrictions imposed by the
exclusionary rule. The most important is to regard identification of the subject
matter as being a question of fact.77
[18-20] Operation of the exclusionary rule. Descriptive terms require analysis
from two perspectives. The first is an understanding of what the contract is
about. What descriptions such as ‘your wool’ signify can be understood only by
reference to the circumstances in which the contract was agreed. The second
perspective is the legal effect of applying the understanding arrived at to the
facts which have occurred in performance (and administration) of the contract.
Identifying the persons and things to which the contract relates may depend
on evidence of the parties’ negotiations. But whatever evidence is used to
understand a descriptive term, and to apply that understanding to the facts, the
exclusionary rule must be respected. That includes the aspect of the rule (the
‘parol evidence rule’) relating to the proof of terms where a document integrates
the bargain.78 For example, in Gordon-Cumming v Houldsworth79 Lord Kinnear,
referring to the use of the plan of an estate, regarded80 it as: … settled law that
evidence may be given not to modify but to apply the contract by identifying any
person or thing mentioned in it which requires identification; and I see no
difference in this respect between the admissibility of a map or plan of the estate
and that of any other item of evidence, so long as the plan is not used for the
purpose of importing additional or different terms, but only to prove the external
facts to which the contract relates.
Lord Kinnear’s statement relates to evidence which is necessary to enable the
application of a contract to the facts which emerge in performance.
Evidence to Enable Application
[18-21] Introduction. There is a contrast between evidence of the persons and
things about which the parties contracted — and to which they intend the
contract to apply — and evidence of facts in performance to which the contract
(as construed) must be applied.
The position was explained as follows by Parke B in Shore v Wilson:81
For the purpose of applying the instrument to the facts, and determining
what passes by it, and who take an interest under it, a second description
of evidence is admissible, viz every material fact that will enable the
Court to identify the person or thing mentioned in the instrument, and to
place the Court, whose province it is to declare the meaning of the words
of the instrument, as near as may be in the situation of the parties to it.
The passage emphasises the need to know the facts which the parties knew when
they entered into the contract.82
As explained below, the modern cases do not treat such matters as forming a
separate category of evidence. Any such category has been swallowed up by the
modern conception of ‘context’.83 Evidence of what is done under the contract
— necessary to establish whether the contract has been performed — is
different. It is not admissible in construction. It relates to a different ‘context’.84
[18-22] Evidence to identify or explain. Evidence to identify the subject matter
of a contract, or to ‘explain’ a descriptive term, has always been regarded as
admissible on the basis that, whatever its construction, a contract can be applied
only if the court knows what the contract is about.
The older cases had no difficulty in treating the prior negotiations of the
parties as available evidence. If the description of the subject matter is
unintelligible, the position is obvious. For example, in Sharp v Thomson85
evidence of the exhibition of specimens was admitted to identify the subject
matter of a contract for the sale of goods where the contract description (‘50
crates Wedgwood Seconds in Pearl White and C C as per list’) would otherwise
have been unintelligible to the court. But the cases are more broadly based. For
example, in Bank of New Zealand v Simpson86 evidence of a circular, and of a
conversation on the day prior to entry into the contract, were held to be
admissible to explain (and then apply) the expression ‘the total cost of the
works’. And in Gordon-Cumming v Houldsworth,87 Lord Loreburn LC referred88
to the admissibility of ‘all that passed, either orally or in writing … to prove
what was in fact the subject of sale; not to alter the contract, but to identify its
subject’.
The rationale is not so much that the evidence is used to construe the
descriptive term, as that the reasonable person who is taken to construe the
contract must be equipped with sufficient information to understand the contract
and to apply it to the facts. For example, in Shepperd v Ryde Corporation89 a
contract for the sale of land described the land as part of the vendor’s ‘Housing
Project No 4’. Evidence was admitted to ascertain the project and its features.
The words in the contract could not be applied without evidence being given to
explain the description ‘Housing Project No 4’.
Such evidence has often been termed ‘parol evidence’.90 For example, in
Hope v RCA Photophone of Australia Pty Ltd91 Latham CJ said92 that ‘parol
evidence is admissible to apply the terms of the contract to the subject matter’
about which the parties were contracting. Hardly surprisingly, in many cases the
evidence has been termed ‘extrinsic evidence’.93 For example, in Shogun
Finance Ltd v Hudson94 Lord Phillips referred95 to the use of ‘extrinsic evidence’
to identify a ‘specific individual’ or the ‘subject matter … to which the words
refer’. Although the terminology is suggestive of an exception to the
exclusionary rule, in nearly all cases the evidence is contextual in nature.96
[18-23] Evidence is contextual. Whatever may have been the original
rationalisation for the use of evidence to identify the subject matter of a contract,
or otherwise to explain a descriptive term, under the modern law the evidence is
regarded as contextual. It is not ‘extrinsic’ for the purposes of the exclusionary
rule.97 For example, although in Freeguard v Rogers98 Peter Gibson LJ
described99 the evidence necessary to identify a property as ‘extrinsic’, he also
regarded it as part of the ‘surrounding circumstances’. Because the relevant facts
are often integral elements of the negotiation of the contract, this is probably the
main area where communications during negotiations are a legitimate source of
context.
The modern approach is derived from Prenn v Simmonds,100 where Lord
Wilberforce said101 that at least since 1859 ‘it has been clear enough that
evidence of mutually known facts may be admitted to identify the meaning of a
descriptive term’. The date refers to the decision of the Court of Queen’s Bench
in Macdonald v Longbottom,102 where evidence was used to explain (and then
apply) the description ‘your wool’. Under the analysis in Prenn v Simmonds —
and a great many other cases — evidence of ‘mutually known facts’ is
contextual.103 Since the negotiations are not admitted to construe the contract, it
is unnecessary to conceive that the evidence is received under an exception to
the exclusionary rule.
It follows that, whether or not such evidence was formerly thought to be
admissible only if an ‘ambiguous’ description was at issue, the view today is that
it is unnecessary to find ambiguity.104 Accordingly, it is irrelevant whether
suggestions that descriptions of the subject matter of contracts are inherently
ambiguous should be regarded as correct.105 Given Lord Wilberforce’s statement,
the position is no different where evidence is admitted in order to ‘explain’ the
meaning of a descriptive term.106
Use of Evidence in Application
[18-24] Introduction. The evidence which is used to identify the subject matter,
or to explain another descriptive term, is necessarily an aid to application of the
contract. Although the older cases often spoke of parol or extrinsic evidence
being used, no question of an exception to the rule arises unless it is in fact
impossible to apply the contract.
Deciding whether what is put forward as performance of a contract matches a
contractual description is an exercise in comparison, not construction. However,
evidence admissible to identify the subject matter of the contract may in some
cases include the subsequent conduct of the parties.
[18-25] Context and evidence in application. The distinction between the
scope of context for the purpose of construction, and the use of evidence to
apply a contract after it has been construed, was regarded as crucial in Reardon
Smith Line Ltd v Yngvar Hansen-Tangen,107 where descriptive terms in certain
charterparties were at issue. In relation to the use of ‘evidence as to Japanese
usages and practice’, Lord Wilberforce considered108 that it was necessary to
‘make a distinction’. It was ‘proper, and necessary, to take evidence as to the
factual situation’, in order to understand descriptions such as ‘Yard No 354’ and
‘to be built at a Yard’. However, from the perspective of construction of the
contract, the available evidence did not include Japanese usages and practices.
Lord Wilberforce explained:109
To argue that practices adopted in the shipbuilding industry in Japan, for
example as to sub-contracting, are relevant in the interpretation of a
charterparty contract between two foreign shipping companies, whether
or not these practices are known to the parties, is in my opinion to exceed
what is permissible.
Having construed the contract in light of what fell within the concept of
context (as confined) at the time of entry into the contract, Lord Wilberforce
turned to application of the contract to the facts. He said:110
So the question becomes simply whether, as a matter of fact, it can fairly
be said that — as a means of identification — the vessel was Yard No
354 at Osaka Zosen or ‘built by Osaka Shipping Co Ltd and known as
Hull No 354 until named’. To answer this, regard may be had to the
actual arrangements for building the vessel and numbering it before
named.
Lord Wilberforce did not speak in terms of a distinction between two
categories of context. However, the case illustrates that context in construction is
different from the ‘context’ of application. The distinction is important in the
interaction between the exclusionary rule and use of subsequent conduct in
application.
[18-26] Use of subsequent conduct. Subsequent conduct cannot be used to
construe a contract. In that regard, English (and Australian) law is sometimes
regarded as being overly conservative.111 But there is a distinction between what
a contract means in a linguistic sense and its intended scope of application. In
relation to descriptive terms, the distinction may lead to account being taken of
the subsequent conduct of the parties, as evidence of how they have applied the
contract.112
A good illustration is White v Australian and New Zealand Theatres Ltd,113
the leading Australian case. Two theatrical artists alleged that they were
contractually entitled to produce a certain revue, known as ‘Thumbs Up’. The
written contract with the theatre company stated that their ‘sole professional
services’ had been engaged, on certain terms. Those terms did not include a
definition for ‘sole professional services’. Nor did the contract make reference to
any role for the artists as producers. Latham CJ said:114
The contract does not specify the nature of the professional services
which the company hired and which the plaintiffs undertook to perform.
It was therefore not only proper, but, indeed, necessary, to identify such
services by means of extrinsic evidence.
Evidence of the status of the artists as well-known performers and producers was
legitimately part of the context of the contract. It was therefore impossible to
construe the contract on the basis that the artists had contracted to do whatever
the theatre company chose to require them to do. Such a construction would,
indeed, have entitled the company to provide no work at all. That was not the
construction of the contract.115
Subsequent conduct was taken into account in deciding the scope of the
obligation to provide work and whether it included work as producers of the
revue. Reference was made to what had been done under the contract prior to its
repudiation by the company, and the course of dealing between the parties under
the contract, as well as to the form of the program, in which the artists were
advertised as having special qualifications.116 That evidence was used to apply
the contract. From one perspective the concern was simply to determine whether
or not the theatre company had complied with its obligations under the contract.
But it seems idle to deny that application of the contract was used in making
definite the indefinite description of the subject matter of the contract.117 The
court described118 the evidence as part of the ‘surrounding circumstances’. But
those circumstances included not only the context in which the contract was
agreed, but also evidence of how it had been applied by the parties.119
Subsequent conduct may also be used to establish a particular legal
relationship120 or to cure uncertainty or incompleteness.121
Ambiguity in Application
[18-27] Patent and latent ambiguity. The concept of ‘ambiguity’ is
troublesome. Various types of ambiguity have been recognised, and the type of
ambiguity at issue still to some extent determines the evidentiary material which
may be used in construction. Many cases have drawn a distinction between
‘patent’ ambiguity and ‘latent’ ambiguity.122 Often, the purpose has been to
emphasise that only the latter has evidentiary consequences.123
At one level, the distinction between patent and latent ambiguity is a contrast
between ambiguity ‘in construction’ (linguistic ambiguity) and ambiguity ‘in
application’. The former is present whenever construction of the contract as a
whole must be used to make a choice between two or more senses for the words
at issue. Ambiguity in application may emerge in reference to the circumstances
in which the contract was made or only when the contract is sought to be applied
to the facts in performance. Ambiguity in construction has never been regarded
as a sufficient basis for the use of extrinsic evidence.124 Provided a choice can be
made by construction of the contract as a whole, extrinsic evidence is not
admissible. In such cases, the contract is not ambiguous.125 Although the
position may be different where it is necessary to resolve ambiguity in
application, the law has traditionally recognised different kinds of ambiguity.
[18-28] Types of ambiguity in application. For the purpose of the admission of
extrinsic evidence, a contract is not ‘ambiguous’ merely because it is capable of
being applied in more than one way. At a purely linguistic level, the meaning of
the statement ‘I will take you to dinner tonight’ is perfectly clear. It is neither
ambiguous nor uncertain.126 But it is somewhat indeterminate in its application.
Nor is a contract ambiguous if its scope of application can be resolved in
construction. For example, in Birrell v Dryer127 in their application to the facts
there were two potential subjects for the description ‘St Lawrence’, as used in a
marine insurance warranty. However, construction of the contract showed that
both were intended to be included.
Nevertheless, where a descriptive term is perfectly intelligible, ambiguity
may emerge from a consideration of pre-contractual or post-contractual facts.
For example, in Shore v Wilson128 Parke B referred129 to a contract with ‘two
subjects, or two objects, both described in the instrument, and each equally
agreeing with it’. Classic examples of ambiguity in application are therefore two
people with the same name, or two pieces of land which satisfy the contractual
description.130 The need to resolve latent ambiguities leads to further distinctions
or refinements.
In Life Insurance Co of Australia Ltd v Phillips,131 Starke J said:132
But, whatever the true principle be, all agree that ‘direct evidence of the
intention of the parties is inadmissible’ except in the case of equivocation
where the description of a person or ‘thing is equally applicable in all its
parts to more than one’ (Charter v Charter (1874) LR 7 HL 364 at 384;
Watcham v Attorney-General (East Africa Protectorate) [1919] AC 533
at 540; Thayer, Preliminary Treatise on Evidence, pp 444–5).
However, in L Schuler AG v Wickman Machine Tool Sales Ltd133 Lord Simon
expressed doubts about distinctions between the various types of ambiguity. He
said that134 ‘distinctions between patent ambiguities, latent ambiguities and
equivocations as regards admissibility of extrinsic evidence are based on
outmoded and highly technical and artificial rules and introduce absurd
refinements’. It is certainly correct to regard principles of commercial
construction as antipathetic to distinctions based on the type of ambiguity. The
modern approach is to attempt to resolve any ‘ambiguity’ by reference to
context. Lord Simon’s statement was made when rejecting an argument that
evidence of subsequent conduct should be admitted in a case of alleged
ambiguity of meaning. In rejecting the technical distinctions, Lord Simon cannot
have intended to deny the use of extrinsic evidence in application.
[18-29] Evidence to resolve ambiguity in application.
Article 18.1 — Extrinsic evidence where there is ambiguity in
application.
If a descriptive term of the contract is ambiguous in its application to the
facts at issue, and the ambiguity cannot be resolved by construction,
extrinsic evidence is admissible to construe and apply the contract.
Where application of a descriptive term to the facts produces an ambiguous
result, it may be possible to resolve the ambiguity as a matter of construction
without the aid of extrinsic evidence. If not, extrinsic evidence can be taken into
account, to construe and apply the contract.135 Therefore, armed with the
evidence, the court must return to construction and attempt to resolve the
ambiguity. If the evidence does not enable the ambiguity to be resolved, the
contract will generally fail.136 The justification for the exception is therefore the
policy to construe and apply as such any agreement intended to operate as a
contract.137
The catch-cry of the old cases was that ‘an ambiguity which is raised by
extrinsic evidence, may be removed by extrinsic evidence’.138 In most of those
cases it was conceived that the same evidence did both.139 Although that cannot
always be true, the circumstances in which evidence may be used to raise
ambiguity in application remain in doubt.
[18-30] Evidence to raise ambiguity. Extrinsic evidence cannot be used to raise
an ambiguity in construction. Indeed, prior to the recognition in the modern
cases of the role of context, the ‘surrounding circumstances’ could not be used to
raise an ambiguity in relation to the plain meaning of a document.140 Although
evidence of the ‘surrounding circumstances’ was admissible to resolve an
ambiguity apparent on the face of the document, that evidence seems in most
cases to have been regarded as being of a different nature from evidence to
identify the subject matter of a contract, or to explain a descriptive term.141
Therefore, to some extent at least, descriptive terms have been regarded as
special.
In other cases the use of evidence has been rationalised on the basis that
descriptive terms are inherently ambiguous.142 The idea influences the modern
cases in which evidence described as ‘parol’ or ‘extrinsic’ is regarded as
admissible, whether or not it serves to create or confirm ‘ambiguity’ in a
descriptive term. For example, in Freeguard v Rogers143 Peter Gibson LJ
considered144 it ‘permissible, indeed inevitable’ that recourse should be had to
evidence to identify a property described as ‘the property known as …’. He
described145 the evidence as ‘extrinsic evidence’. However, as noted above,146
Peter Gibson LJ also regarded the evidence as part of the ‘surrounding
circumstances’, that is, contextual evidence necessary for application of the
contract.
In Hope v RCA Photophone of Australia Pty Ltd,147 Latham CJ rejected the
view that all descriptive terms are ambiguous. He said148 that ‘the existence of
ambiguity is not established by the fact that a general description applies to all
persons or things falling within a certain class’. The statement is an important
recognition of the fact that apparent indefiniteness in a contractual description
does not mean that the contract is ambiguous. However, Latham CJ also drew a
distinction between a contract to supply a specific subject matter and a contract
to supply by reference to a generic description. In relation to the latter, he
appeared to deny the use of context to narrow the scope of application of the
descriptive term.149 The position is different today. Elements of context should
never be excluded from consideration merely on the basis that the evidence
would raise an ambiguity in relation to the application of a document which is
unequivocal merely as a matter of words. However, problems still arise in
relation to descriptions of the parties to a contract.150
[18-31] Unresolved ambiguity. Even when extrinsic evidence is admitted, it
may not resolve all cases in which a contract is ambiguous in its application.
One explanation for the decision in Raffles v Wichelhaus151 is that ambiguity in
application meant that there was no contract. In that case, a contract for the sale
of goods employed the description ‘ex Peerless from Bombay’. There were two
ships by that name to which the contract was literally applicable. One sailed in
October, and the other in December. Therefore, the description of the subject
matter was ambiguous in its application to the facts.152
The buyers refused to accept the goods tendered, which had been shipped on
the December vessel. It seems to have been accepted that, if the matter had gone
to trial, evidence of the buyers’ actual intention would have been admissible to
support their plea that they intended to purchase the cargo on the October vessel.
Therefore, extrinsic evidence would not have resolved the ambiguity. On the
contrary, it would have established that an essential ingredient in the description
of the subject matter had not been agreed.153
APPLICATION BY THE PARTIES
Relationships and Legal Effect
[18-32] Other concepts relative to facts. Many concepts and criteria employed
in contracts are necessarily relative to factual circumstances. All standards of
reasonableness are of that nature. What the parties understood by a concept such
as ‘reasonable time’ or ‘reasonable efforts’ is decided by construction. The
matter is determined in ‘light of commercial considerations and the commercial
purpose of the contract’.154 Whether the standard has been met is an issue of fact.
For example, whether a reasonable period has expired is determined in
application of the contract.155 Because it is not used to construe the contract, the
evidence is received without recourse to an exception to the exclusionary rule.156
The decision in Maynard v Goode157 provides an example of the distinction.
Settlement of a contract for the sale of land was subject to a proviso to the effect
that the transfer of other land owned by the purchaser would be completed ‘in
reasonable time’. Construed as understood at the date of the contract, the
expression meant within such time as might enable the purchaser with ordinary
despatch to comply with applicable statutory requirements, but not such delay as
to cause or threaten prejudice to the position of the vendor under the contract.
This construction conclusion was not affected by ‘circumstances subsequent’.158
However, analysis of subsequent conduct was clearly necessary to apply the
contract to the facts, that is, to determine whether a reasonable time had expired.
On the facts, it had not.
There are many other examples, including legal relationships.
[18-33] Legal relationships. It has always been recognised that the existence of
any relationship to which the law attaches certain incidents is a question of
substance and effect, not labels. Even in relation to a purely executory contract,
construction of the contract as a whole in light of context may show that the
parties have used the wrong label.159 For example, the fact that an agreement to
occupy land describes the occupier as a licensee is far from conclusive.160 In
addition, a legal relationship may be relative to the facts. Relationships such as
lessor and lessee and principal and agent can arise not only by agreement but
also as a result of conduct. In other words, a particular legal relationship may
arise solely as a matter of fact, whether or not there is a written contract.
Therefore, even if a particular relationship is not established by construction,
what is done under the contract may do so. That may be true even if the parties
have expressed a contrary intention. For example, although A, B and C may
enter into a joint venture contract which states that no party is the agent of any
other party, and that none has authority to contract on behalf of any other, their
conduct in performance may establish the relationship of principal and agent. In
Garnac Grain Co Inc v H M F Faure & Fairclough Ltd,161 Lord Pearson said162
that subsequent conduct ‘may have some bearing’ on whether the relationship of
principal and agent has arisen. And in Adam v Newbigging163 Lord Halsbury LC
referred164 to the ability to show that the ‘adventure being carried on in fact’ is
one of partnership. More recently, in AG Securities v Vaughan,165 in discussing
whether a contract should be labelled as a lease or a licence, Lord Templeman
said166 that subsequent conduct can be considered for the purpose of proving the
‘actual mode of occupation’.
[18-34] Legal effect. Labels which are given to relationships are expressions of
particular legal effects. They are descriptions of the legal consequences of
contracts. The justification for taking subsequent conduct into account is simply
that relationships such as lessor and lessee may arise in fact as well as by
agreement. The relevance of what is done as a matter of fact to the legal effect of
a contract is not limited to the identification of legal relationships.
Therefore, more generally, the construction of a contract may sometimes
differ from its legal effect, as performed by the parties. For example, in
Chapman v Bluck167 letters which taken together constituted an agreement for the
lease of land were treated as a demise of the premises, including by reference to
the parties’ conduct. Conduct may be used to establish a binding contract.168 For
example, in Darter Pty Ltd v Malloy169 to the extent that the existence of a
contract for the sale of a home unit was in doubt, ‘subsequent conduct’ could be
used to determine whether final agreement was reached. Of course, it may also
be possible to rationalise these results in other ways. For example, the contract
may have been varied by agreement, or an estoppel may have arisen.170
However, there is little trace in the recent cases of a rationalisation by reference
to an exception to the exclusionary rule.171
Further examples arise in connection with agreements which are uncertain or
incomplete as a matter of construction.
Uncertain and Incomplete Agreements
[18-35] Introduction. An executory agreement may be too uncertain to count as
a binding contract.172 Thus, in G Scammell and Nephew Ltd v Ouston173 Lord
Wright said:174
It is a necessary requirement that an agreement in order to be binding
must be sufficiently definite to enable the court to give it a practical
meaning. Its terms must be so definite, or capable of being made definite
without further agreement of the parties, that the promises and
performances to be rendered by each party are reasonably certain.
Where the necessary requirement is not met, the intention to contract is
vitiated: the agreement is not a contract. Similarly, an ‘incomplete’ agreement
fails to satisfy an essential legal requirement. Therefore, where the parties intend
to be bound only if agreement is reached on a particular term, there is no
contract if the term is not agreed.175
As with ambiguity, such issues may arise in construction, or become apparent
in application.
[18-36] Uncertainty in construction and application. The distinction between
uncertainty of meaning (in construction) and uncertainty in application is
important.176 But it has not always been respected in the courts’ terminology. For
example, in G Scammell and Nephew Ltd v Ouston177 an agreement to take a
motor vehicle ‘on hire-purchase terms’ was held to be void. Lord Wright
stated178 that there were ‘two grounds on which the court ought to hold that there
was never a contract’. He described the first in terms that the ‘language used was
so obscure and so incapable of any definite or precise meaning that the court is
unable to attribute to the parties any particular contractual intention’. The second
ground was that the agreement was incomplete.
Although the words at issue in G Scammell and Nephew Ltd v Ouston — ‘on
hire-purchase terms’ — were held to be uncertain,179 it was really the intended
application of the agreement that was uncertain. In a linguistic sense, the
meaning of the words was perfectly clear. The problem was that the words were
indeterminate in their application. In the absence of evidence that a particular set
of hire-purchase terms was intended, it was simply impossible to apply the
contract.180 Lord Wright’s alternative ground — which he said181 was ‘still
sounder’ — therefore seems more compelling.182 In fact, Lord Wright
emphasised the distinction between uncertainty in construction and uncertainty
in application in Tankexpress A/S v Compagnie Financière Belge des Petroles SA
(The Petrofina).183 In relation to the expression ‘[p]ayment … [i]n cash, monthly,
in advance, in London’, Lord Wright referred184 to performance of the contract
by the parties as evidence which gave the ‘necessary definiteness’ to the
expression. Had the parties in Scammell by their subsequent conduct adopted a
particular hire-purchase form, no issue would have arisen.
The discussion below relates to the use of subsequent conduct to cure
uncertainty or incompleteness. However, implied terms play a role,185 and more
than one rationalisation may be possible. For example, in some cases the conduct
may amount to a variation,186 or a contract may be implied by reference to the
parties’ conduct.187
[18-37] Curing uncertainty by performance. A contract which while
executory is uncertain may be rendered certain by the acts done in performance,
that is, in the parties’ application of the contract.188 In York Air Conditioning &
Refrigeration (A’sia) Pty Ltd v The Commonwealth,189 Latham CJ said:190
When the parties have shown by their conduct that they understand and
can apply the terms of a contract without difficulty, a court should be
very reluctant indeed to pay no attention to such conduct by holding that
the terms of the contract are unintelligible by reason of uncertainty.
Perhaps the most famous illustration is Hillas & Co Ltd v Arcos Ltd.191 In that
case, the buyers’ option to take a further supply of ‘1000 standards’ of Russian
softwood referred to goods of ‘fair specification over the season’. But it failed to
specify the kinds of timber, matters of size and quality, or the dates and ports of
shipment and discharge. The exercise of the option was nevertheless held to
create a binding contract. Although ‘1000 standards’ was ‘abstractly …
incapable of any definite meaning’,192 the concept was to some extent defined by
evidence of context, and the terms of the contract under which the option was
conferred. To the extent that ‘fair specification over the season’ was uncertain in
construction, it was capable of being rendered certain.193 In fact, in carrying out
the initial part of the contract,194 the parties had themselves shown what they
understood by ‘fair specification’. Matters of quality, times of delivery, and so
on, could (to the extent necessary) be settled under an implied term of
reasonableness and by the use of expert evidence.195 Similarly, in Turner v
Bladin196 any initial uncertainty as to items included in a sale of land was
resolved by the parties’ acts in performance.
Even an expression the meaning of which is obscure may be cured in
application. For example, in Thornley v Tilley197 the elliptical expression ‘carry
at 8 per cent’ was at issue in a contract between a stockbroker and his client.
Isaacs J said198 that meaning could be attributed to the expression by reference to
‘other words throwing light upon that phrase’, the ‘surrounding circumstances’
and the ‘subsequent mutual conduct of the parties’. He considered:199
The parties have, by conduct mutually adopted and recognized by them,
interpreted the term to a very great extent. What is left is highly
important, and its solution depends on principle.
More recently, in L Schuler AG v Wickman Machine Tool Sales Ltd200 Lord
Kilbrandon, referring to cases such as Hillas & Co Ltd v Arcos Ltd, perceived a
tension in the use of subsequent conduct and the prohibition on the use of such
evidence in construction.201 However, he suggested202 that although the
‘distinction may not be easily expressed in words’, those cases ‘concern the
ambit or extent of the contract rather than the interpreting of particular mutual
obligations’. It is not so much that subsequent conduct enables the words used to
be given a particular construction as that legal requirements for contract validity
may be satisfied even though an important element of a contract is expressed in
indefinite terms. Therefore, words which are uncertain (indefinite) are given a
definite application by the parties.
[18-38] Curing incompleteness by performance. The position is the same with
regard to incomplete contracts. For example, the law regards an executory
agreement to agree as an incomplete contract.203 However, if the parties in fact
reach agreement, incompleteness is resolved.204
In relation to descriptive terms, it may be impossible to draw a sensible
distinction between uncertainty and incompleteness. And since either may be
cured by performance it is usually unnecessary to do so. For example, in
Tankexpress A/S v Compagnie Financière Belge des Petroles SA (The
Petrofina)205 the payment clause in a time charterparty employed the expression
‘[p]ayment … [i]n cash, monthly, in advance, in London’. The provision was
obviously an incomplete statement of intention. Lord Wright explained206 that
‘“payment in cash in London” must involve some definition of what was to be
done by the charterers in order to effect payment, the mode and machinery of
performance in the contemplation of the parties’. The special case by which the
third arbitrator stated his award referred to the course of performance by the
parties as showing how the payment term should be applied. Lord Wright said207
that this was ‘a finding of fact which was necessary to fill up the gap in the
written charter’. He regarded the evidence as admissible, not just because it was
a finding of fact, but also because it related to application of the contract.
[18-39] Terms of the contract. The better view is that the question of what
terms a contract compromises is an issue of construction only where the contract
is integrated in a document. In all other cases, the content of the contract is an
issue of fact.208 Those facts may include conduct of the parties. Therefore, where
the terms expressly agreed do not represent a complete agreement, the terms of
the contract may be completed by reference to the parties’ acts in performance,
that is, in their application of the agreement to the facts.209 Such terms may be
express or implied.
The leading case is Liverpool City Council v Irwin.210 Certain terms were
implied in favour of the lessees of a maisonette located in a tower block housing
estate in relation to provision and maintenance of the common parts of the
building. Lord Wilberforce pointed out211 that the contract was partly stated in
writing, and said that ‘in order to complete it, in particular to give it a bilateral
character’, it was necessary ‘to take account of the actions of the parties and the
circumstances’. Included in the actions of the parties were the granting of
possession by the lessors, and reservation by them of the common parts. The
House of Lords did not consider it necessary to discuss the exclusionary rule.
Lord Wilberforce’s statement in Liverpool City Council v Irwin has been
relied on in several cases, including for the converse proposition that subsequent
conduct may show that a term should not be implied into a complete agreement.
For example, in Mears v Safecar Security Ltd212 a document stating the terms of
an employment contract made no provision for the payment of sick pay. The
employee alleged that a term requiring payments to be made during periods of
illness should be implied. However, the evidence established both that it was not
the employers’ policy to pay sick pay and that the employee did not request
payment when he was off work during illness.213 Therefore, although the term
might otherwise have been implied in law, subsequent conduct214 — how the
contract was carried out — was used to rebut the implication.
1. See [1-04].
2. For the stages in construction see [1-08-[1-21].
3. See [15-03].
4. See [18-19]–[18-31].
5. See [8-05], [8-34].
6. See [4-23] and generally Part V. For observations on the utility of the rule
see [14-33]–[14-35].
9. [1900] AC 182.
10. [1900] AC 182 at 187.
11. Cf Tankexpress A/S v Compagnie Financière Belge des Petroles SA (The
Petrofina) [1949] AC 76 at 95–6.
12. See [9-11].
13. Cf Michael Gerson (Leasing) Ltd v Wilkinson [2001] QB 514 at 531
(assuming that the reference in s 17 of the Sale of Goods Act 1979 (UK) to
the conduct of the parties permitted reliance on subsequent events to
determine intention as to when property passed, there was no intention for
property in specific goods to pass immediately).
14. See [18-29].
15. See, eg Tamplin v James (1880) 15 Ch D 215 at 217, 221; Goldsbrough
Mort & Co Ltd v Quinn (1910) 10 CLR 674 at 680; Svanosio v McNamara
(1956) 96 CLR 186 at 196. See also [9-14] (evidence to establish vitiating
factor).
[2009] UKHL 38 at [65] (subsequent conduct may also have some
evidential value).
18. See [4-30]. Cf [9-44] (rectification and construction).
19. Of course, if the evidence of exercise is documentary, the document must
be construed. The exclusionary rule applies. See [9-10].
20. See, eg Panoutsos v Raymond Hadley Corp of New York [1917] 2 KB 473
(estoppel in relation to right of termination); Hawker Pacific Pty Ltd v
Helicopter Charter Pty Ltd (1991) 22 NSWLR 298 at 305 (estoppel in
relation to right of rescission for economic duress). See also [18-08].
21. See, eg Ellen v Topp (1851) 6 Ex 424 at 441; 155 ER 609 at 617; Chandris
v Isbrandtsen-Moller Co Inc [1951] 1 KB 240 at 251–2 (reversed on other
grounds [1951] 1 KB 240); Academy of Health and Fitness Pty Ltd v Power
[1973] VR 254 at 266. Cf Graves v Legg (1854) 9 Ex 709 at 717; 156 ER
304 at 307.
22. See Carter v Scargill (1875) LR 10 CP 564 at 568 per the court (‘has ceased
to be so’). Cf Dimech v Corlett (1858) 12 Moo PC 199; 14 ER 887.
23. [1911] AC 394.
25. [1911] AC 394 at 400 (referring to Ellen v Topp (1851) 6 Ex 424 at 441;
155 ER 609 at 617).
26. Cf Carter’s Breach of Contract, §5-63 (meaning of statement to the effect
that a notice to perform makes time ‘of the essence’).
27. See [1911] AC 394 at 395, 400. See also Behn v Burness (1863) 3 B & S
751 at 755; 122 ER 281 at 283.
28. See [9-11]. Cf [7-35], [9-15], [14-03].
29. See [2-34].
30. See, eg Denny Mott & Dickson Ltd v James B Fraser & Co Ltd [1944] AC
265 at 274–5, 276.
31. [1903] 2 KB 740.
32. See Scanlan’s New Neon Ltd v Tooheys Ltd (1943) 67 CLR 169 at 193.
33. [1903] 2 KB 740 at 749, 754. Sterling LJ agreed.
35. See also [6-32].
36. See Trollope & Colls Ltd v North West Metropolitan Regional Hospital
Board [1973] 1 WLR 601 at 611; Hyundai Merchant Marine Co Ltd v
Trafigura Beheer BV (The Gaz Energy) [2012] 1 Lloyd’s Rep 211 at 216;
[2011] EWHC 3108 (Comm) at [13]. But cf Mamidoil-Jetoil Creek
Petroleum Co SA v Okta Crude Refinery AD [2001] 2 Lloyd’s Rep 76 at 82
(suggestion that absence of performance may be taken into account).
37. See also [9-09]–[9-10].
38. [1983] 2 NSWLR 597; (1983) 50 ALR 417.
39. [1983] 2 NSWLR 597 at 601; (1983) 50 ALR 417 at 420–1. The Privy
Council cited its decision in Australian Mutual Provident Society v Chaplin
(1978) 18 ALR 385 at 392–3. See also [9-16].
40. See [8-05].
41. See, eg [8-16].
42. See, eg James Miller & Partners Ltd v Whitworth Street Estates
(Manchester) Ltd [1970] AC 583 at 603 (new contract), 615 (subsequent
agreement); Carmichael v National Power Plc [1999] 1 WLR 2042 at
2051; The Tychy (No 2) [2001] 2 Lloyd’s Rep 403 at 410; [2001] EWCA
Civ 1198 at [33]. Cf Lancashire County Council v Municipal Mutual
Insurance Ltd [1997] QB 897 at 906.
43. See Australian Energy Ltd v Lennard Oil NL [1986] 2 Qd R 216 at 237.
44. See [4-23].
45. See McCausland v Duncan Lawrie Ltd [1997] 1 WLR 38 at 49 (since parol
evidence rule only applies to the ascertainment of the original intention of
the parties, the rule does not apply to a subsequent variation).
46. See, eg Morris v Baron & Co [1918] AC 1; Fightvision Pty Ltd v Onisforou
(1999) 47 NSWLR 473 at 492–3; The Tychy (No 2) [2001] 2 Lloyd’s Rep
403 at 410; [2001] EWCA Civ 1198 at [36].
47. See also André et Compagnie SA v Marine Transocean Ltd (The Splendid
Sun) [1981] QB 694, approved Paal Wilson & Co A/S v Partenreederei
Hannah Blumenthal [1983] 1 AC 854 (abandonment).
48. See, eg Ogle v Earle Vane (1867) LR 2 QB 275; (1868) LR 3 QB 272;
Morris v Baron & Co [1918] AC 1 at 31; Dowling v Rae (1927) 39 CLR
363; Electronic Industries Ltd v David Jones Ltd (1954) 91 CLR 288 at
295. See also McCausland v Duncan Lawrie Ltd [1997] 1 WLR 38 at 48.
49. [1949] AC 76 at 93, 98, 103.
50. Section 4 of the Sale of Goods Act 1893 (UK), which replaced s 17 of the
Statute of Frauds 1677, was repealed by the Law Reform (Enforcement of
Contracts) Act 1954 (UK).
51. See [8-10].
52. See, eg Hickman v Haynes (1875) LR 10 CP 598 at 604–5; Plevins v
Downing (1876) 1 CPD 220 at 225; Phillips v Ellinson Bros Pty Ltd (1941)
65 CLR 221 at 233, 244; Tallerman & Co Pty Ltd v Nathan’s Merchandise
(Victoria) Pty Ltd (1957) 98 CLR 93 at 120, 147.
53. Tallerman & Co Pty Ltd v Nathan’s Merchandise (Victoria) Pty Ltd (1957)
98 CLR 93 at 113 per Dixon CJ and Fullagar J. See also British and
Beningtons Ltd v North Western Cachar Tea Co Ltd [1923] AC 48; Phillips
v Ellinson Bros Pty Ltd (1941) 65 CLR 221 at 243–4.
54. See, eg Morris v Baron & Co [1918] AC 1; British and Beningtons Ltd v
North Western Cachar Tea Co Ltd [1923] AC 48 at 62; Tallerman & Co Pty
Ltd v Nathan’s Merchandise (Victoria) Pty Ltd (1957) 98 CLR 93 at 113.
55. See, eg Morris v Baron &Co [1918] AC 1; British and Beningtons Ltd v
North Western Cachar Tea Co Ltd [1923] AC 48 at 62; Tallerman & Co Pty
Ltd v Nathan’s Merchandise (Victoria) Pty Ltd (1957) 98 CLR 93 at 113;
United Dominions Corp (Jamaica) Ltd v Shoucair [1969] 1 AC 340 at 348,
349.
56. See, eg Morris v Baron & Co [1918] AC 1 at 18 per Viscount Haldane
(‘parol evidence is admissible to prove a total abandonment or rescission’);
J C Williamson Ltd v Lukey (1931) 45 CLR 282 at 292 per Starke J (‘parol
evidence of the arrangement between the parties’ in context of doctrine of
part performance); Fauzi Elias v George Sahely & Co (Barbados) Ltd
[1983] 1 AC 646 at 653 per the Privy Council (‘parol evidence’ of
memorandum or note).
57. See [8-11].
58. Cf McCausland v Duncan Lawrie Ltd [1997] 1 WLR 38 at 49.
59. See also [14-20] (use of prior negotiations).
60. Cf Government of Swaziland Central Transport Administration v Leila
Maritime Co Ltd (The Leila) [1985] 2 Lloyd’s Rep 172 at 179.
61. See [9-04], [9-13]. But cf [10-30] (impact of entire agreement clause).
62. [1982] QB 84.
63. See [1982] QB 84 at 121. See also Farrow Mortgage Services Pty Ltd v
Hogg (1995) 64 SASR 450 at 459–6 (express representation that parties to
guarantee continued to have status as guarantors).
64. Atlantic Lines &Navigation Co Inc v Hallam Ltd (The Lucy) [1983] 1
Lloyd’s Rep 188 at 197 per Mustill J.
65. See Republic of India v India Steamship Co Ltd (The Indian Grace) (No 2)
[1998] AC 878 at 913. Proof of representation as to the legal position is not
essential. See Government of Swaziland Central Transport Administration v
Leila Maritime Co Ltd (The Leila) [1985] 2 Lloyd’s Rep 172 at 178–9.
66. Cf K Lokumal & Sons (London) Ltd v Lotte Shipping Co Pte Ltd (The
August Leonhardt) [1985] 2 Lloyd’s Rep 28 (mutually manifest conduct).
67. [1988] 2 Lloyd’s Rep 343.
68. [1988] 2 Lloyd’s Rep 343 at 352. O’Connor and Taylor LJJ agreed. See also
Commercial Union Assurance Co Plc v Sun Alliance Insurance Group Plc
[1992] 1 Lloyd’s Rep 475 at 481. And see Johan Steyn, ‘Contract Law:
Fulfilling the Reasonable Expectations of Honest Men’ (1997) 113 LQR
433 at 440 (application to ‘interpretation’).
69. Stated by Peter Gibson J in Hamel-Smith v Pycroft &Jetsave Ltd (1987)
unreported, 5 Feb.
70. [1985] 2 Lloyd’s Rep 172 at 179–80. Cf Corumo Holdings Pty Ltd v C Itoh
Ltd (1991) 24 NSWLR 370 at 388, 392 (enforcement of common
assumption that party would continue to provide guarantee).
71. Cf [10-56].
72. [1982] QB 84.
73. See [1982] QB 84 at 120–1. Cf Thompson v Palmer (1933) 49 CLR 507 at
547; Grundt v Great Boulder Pty Gold Mines Ltd (1937) 59 CLR 641 at
674, 677.
also The Tychy (No 2) [2001] 2 Lloyd’s Rep 403 at 410; [2001] EWCA Civ
1198 at [34]–[35].
75. On descriptions of parties and capacities see also [9-53], [9-54]–[9-56].
76. See generally on context Chapters 6 and 7.
77. See Gordon-Cumming v Houldsworth [1910] AC 537 at 545 per Lord
Kinnear (‘identification of the subject-matter of an admitted contract … is a
question of fact to be determined by evidence’).
79. [1910] AC 537.
80. [1910] AC 537 at 548. See also Macdonald v Longbottom (1860) 1 E & E
987 at 987–8, 989; 120 ER 1181 (evidence to apply the contract does not
(and must not) vary the contract). Cf Seagate Shipping Ltd v Glencore
International AG (The Silver Constellation) [2008] 2 Lloyd’s Rep 440 at
451; [2008] EWHC 1904 (Comm) at [51].
Wickman Machine Tool Sales Ltd [1974] AC 235 at 269–70). See also
Gordon-Cumming v Houldsworth [1910] AC 537 at 541, 545, 549.
84. See [18-25].
85. (1915) 20 CLR 137. Cf [14-17]. See also Great Western Railway v Bristol
Corporation (1918) 87 LJ Ch 414 at 428–9.
86. [1900] AC 182 at 189. For a more recent example, see Shell Tankers (UK)
Ltd v Astro Comino Armadora SA (The Pacific Colocotronis) [1981] 2
Lloyd’s Rep 40 at 44, 45 (prior negotiations used to explain ‘assistance’).
See also Bacchus Marsh Concentrated Milk Co Ltd v Joseph Nathan & Co
Ltd (1919) 26 CLR 420 at 427; R W Cameron & Co v L Slutzkin Pty Ltd
(1923) 32 CLR 81 at 91, 94.
87. [1910] AC 537.
88. [1910] AC 537 at 541. See also Great Western Railway v Bristol
Corporation (1918) 87 LJ Ch 414 at 428; Charrington & Co Ltd v Wooder
[1914] AC 71 at 80.
89. (1952) 85 CLR 1. See also Ettridge v Vermin Board of the District of Murat
Bay [1930] SASR 210 at 213 (oral evidence admitted to determine the route
of fencing so as to identify the subject matter where the contract failed to
specify its placement); Wilcox v Richardson (1997) 43 NSWLR 4 at 12
(‘shop 1’).
90. See, eg Heffield v Meadows (1869) LR 4 CP 595 at 600 per Willes J; Magee
v Lavell (1874) LR 9 CP 107 at 116 per Denman J (‘parol evidence’ to
identify subject matter); Hvalfangerselskapet Polaris Aktieselskap v
Unilever Ltd (1933) 39 Com Cas 1 at 22 per Lord Russell; Macdonald v
Shinko Australia Pty Ltd [1999] 2 Qd R 152 at 154 per McPherson JA (with
whom Davies JA and Moynihan J agreed).
91. (1937) 59 CLR 348.
92. (1937) 59 CLR 348 at 356 (citing Ogilvie v Foljambe (1817) 3 Mer 53; 36
ER 21; Plant v Bourne [1897] 2 Ch 281).
93. See, eg Magee v Lavell (1874) LR 9 CP 107 at 114 per Coleridge CJ
(‘extrinsic evidence’ to identify subject matter); White v Australian and
New Zealand Theatres Ltd (1943) 67 CLR 266 at 270 per Latham CJ
(‘extrinsic evidence’ to identify services which were to be provided). Cf
(1982) 149 CLR 337 at 350 per Mason J, with whom Stephen and Wilson
JJ agreed (‘extrinsic evidence’ — ‘words in a contract are susceptible of
more than one meaning’). See also [18-04].
94. [2004] 1 AC 919; [2003] UKHL 62.
95. [2004] 1 AC 919 at 963, 964; [2003] UKHL 62 at [120], [124].
96. But cf Rabin v Gerson Berger Association Ltd [1986] 1 WLR 526 at 535–6,
537–8; [1986] 1 All ER 374 (as exception to exclusionary rule, to explain
whether words apply to a particular factual situation).
97. Cf G Scammell and Nephew Ltd v Ouston [1941] AC 251 at 255; L Schuler
AG v Wickman Machine Tool Sales Ltd [1974] AC 235 at 261.
98. [1999] 1 WLR 375.
99. [1999] 1 WLR 375 at 381. The other members of the Court of Appeal
agreed.
100. [1971] 1 WLR 1381; [1971] 3 All ER 237.
members of the House of Lords agreed. See also Reardon Smith Line Ltd v
Yngvar Hansen-Tangen [1976] 1 WLR 989 at 995; [1976] 3 All ER 570;
(1982) 149 CLR 337 at 351–2; GR Securities Pty Ltd v Baulkham Hills
Private Hospital Pty Ltd (1986) 40 NSWLR 631 at 636; Homestake
Australia Ltd v Metana Minerals NL (1991) 11 WAR 435 at 447.
102. (1859) 1 E & E 977; 120 ER 1177 (affirmed (1860) 1 E & E 987; 120 ER
1181). See also Heffield v Meadows (1869) LR 4 CP 595 at 600.
103. See [7-17].
104. See [6-14]. But cf Charrington & Co Ltd v Wooder [1914] AC 71 at 77 per
Viscount Haldane LC (‘parol evidence’ — where description is ‘susceptible
of more than one interpretation’).
105. See [18-30]. Cf G L Williams, ‘Language and the Law — II’ (1945) 61
LQR 179 at 181 (‘all words are capable of occasioning difficulty in their
application’).
106. See, eg Breusch v Watts Development Division Pty Ltd (1987) 10 NSWLR
311 at 315; Seatrade Groningen BV v Geest Industries Ltd (The Frost
Express) [1996] 2 Lloyd’s Rep 375 at 379–80.
107. [1976] 1 WLR 989; [1976] 3 All ER 570.
Kilbrandon agreed. See also [1-09]. Cf Carlton SS Co Ltd v The Castle
Mail Packets Co Ltd [1898] AC 486 at 494–5.
109. [1976] 1 WLR 989 at 995. See also [6-25].
110. [1976] 1 WLR 989 at 999.
111. See [8-39].
112. See Hillas & Co Ltd v Arcos Ltd (1932) 43 L1 L Rep 359; 147 LT 503 (‘fair
specification over the season’ — see [18-37]).
113. (1943) 67 CLR 266. See also Cocks v Maddern [1939] SASR 321 at 326–7
(subsequent conduct to identify dental practitioners’ practice). But cf Barlee
Marine Corp v Mountain (The Leegas) [1987] 1 Lloyd’s Rep 471 at 475 per
Hirst J (evidence of ‘method of business’ excluded as subsequent conduct).
114. (1943) 67 CLR 266 at 270.
115. See also Marbe v George Edwardes (Daly’s Theatre) Ltd [1928] 1 KB 269;
Herbert Clayton and Jack Waller Ltd v Oliver [1930] AC 209.
116. (1943) 67 CLR 266 at 277, 281.
117. See further [18-36]. Cf Sportsvision Australia Pty Ltd v Tallglen Pty Ltd
(1998) 44 NSWLR 103 at 115.
118. (1943) 67 CLR 266 at 270–1, 281.
119. See also G Percy Trentham Ltd v Archital Luxfer Ltd [1993] 1 Lloyd’s Rep
25 at 29; FAI Traders Insurance Co Ltd v Savoy Plaza Pty Ltd [1993] 2 VR
343 at 354. But see Hide & Skin Trading Pty Ltd v Oceanic Meat Traders
Ltd (1990) 20 NSWLR 310 at 327–8.
120. See [18-33]. See also [18-34] (legal effect).
121. See generally [18-35]–[18-39].
122. See, eg Great Western Railway v Bristol Corporation (1918) 87 LJ Ch 414
at 429; Watcham v Attorney-General (East Africa Protectorate) [1919] AC
533 at 540; Life Insurance Co of Australia Ltd v Phillips (1925) 36 CLR 60
at 69; Hope v RCA Photophone of Australia Pty Ltd (1937) 59 CLR 348 at
356; L Schuler AG v Wickman Machine Tool Sales Ltd [1974] AC 235 at
268.
123. For the use of subsequent conduct see [18-37].
124. See [14-02], [14-25]. Cf [9-53].
125. See [13-48].
126. See Hvalfangerselskapet Polaris Aktieselskap v Unilever Ltd (1933) 39
Com Cas 1 (no ambiguity in expression ‘entire production’); Hope v RCA
Photophone of Australia Pty Ltd (1937) 59 CLR 348 at 357 per Latham CJ
(no ambiguity in ‘general description’); Anangel Atlas Compania Naviera
SA v Ishikawajima-Harima Heavy Industries Co Ltd (No 2) [1990] 2
Lloyd’s Rep 526 at 546 (no uncertainty of concept in ‘actual payment terms
applied’). Cf British Bank for Foreign Trade Ltd v Novinex [1949] 1 KB
623 at 631. See further [18-36].
127. (1884) 9 App Cas 345 at 349–50, 355.
128. (1842) 9 Cl & F 355; 8 ER 450.
129. (1842) 9 Cl & F 355 at 557; 8 ER 450 at 529.
130. Meres v Ansell (1799) 3 Wils 275 at 276; 95 ER 1053.
131. (1925) 36 CLR 60.
132. (1925) 36 CLR 60 at 85–6.
133. [1974] AC 235.
134. [1974] AC 235 at 268–9.
135. See Raffles v Wichelhaus (1864) 2 H & C 906; 159 ER 375; L Schuler AG v
Wickman Machine Tool Sales Ltd [1974] AC 235 at 261; Codelfa
CLR 337 at 347; National Australia Bank Ltd v Budget Stationery Supplies
Pty Ltd (1997) 217 ALR 365 at 380.
136. See [18-31].
137. See [16-26].
138. Macdonald v Longbottom (1860) 1 E & E 987 at 989; 120 ER 1181 per
Byles J. See also Great Western Railway v Bristol Corporation (1918) 87
LJ Ch 414 at 429.
139. See Hope v RCA Photophone of Australia Pty Ltd (1937) 59 CLR 348 at
357 (evidence which raises ambiguity solves it).
140. See [8-23], [12-29], [14-25].
141. See [18-20], [18-21]–[18-22]. See also Watcham v Attorney-General (East
Africa Protectorate) [1919] AC 533 at 538 (evidence to identify the subject
matter of the contract is admissible without proof of ambiguity).
142. See Macdonald v Longbottom (1860) 1 E & E 987; 120 ER 1181 per Martin
J (‘ambiguity in the expression “your wool”’); Burns Philp Hardware Ltd v
Howard Chia Pty Ltd (1987) 8 NSWLR 642 at 645 (‘profits’ inherently
ambiguous). See also B & B Constructions (Aust) Pty Ltd v Brian A
Cheeseman & Associates Pty Ltd (1994) 35 NSWLR 227 at 234–5.
143. [1999] 1 WLR 375.
144. [1999] 1 WLR 375 at 381. The other members of the Court of Appeal
agreed. See also Akot Pty Ltd v Rathmines Pty Ltd [1984] 1 Qd R 302 at
305–7 (affidavit evidence admitted to identify the property which was the
subject of a contract for the sale of land where there was ambiguity in the
contract description).
145. [1999] 1 WLR 375 at 381.
146. See [18-23].
147. (1937) 59 CLR 348.
148. (1937) 59 CLR 348 at 357.
149. See [11-13], where the approach of Dixon J is contrasted.
150. See [9-52] (name and identity). Cf [9-49] (misnomer).
151. (1864) 2 H & C 906; 159 ER 375.
152. See NBTY Europe Ltd (formerly Holland & Barrett Europe Ltd) v Nutricia
International BV [2005] 2 Lloyd’s Rep 350 at 355; [2005] EWHC 734
(Comm) at [26]. Cf S L Phipson, ‘Evidence in Aid of Interpretation’ (1904)
20 LQR 245 at 270 (parties said different things).
153. See M A Eisenberg, ‘Mistake in Contract Law’ (2003) 91 Calif L Rev 1573
at 1613 (both parties were ‘at fault’ in thinking that the description of the
subject matter was unambiguous). See also [9-39].
154. Sinason-Teicher Inter-American Grain Corp v Oilcakes and Oilseeds
Trading Co Ltd [1954] 1 WLR 935 at 941 per Devlin J, affirmed [1954] 1
WLR 1394 (reasonable time). See also Decro-Wall International SA v
Practitioners in Marketing Ltd [1971] 1 WLR 361 at 370, 376–7; [1971] 2
All ER 216 (reasonable notice); Amec Civil Engineering Ltd v Secretary of
State for Transport [2005] 1 WLR 2339 at 2351; [2005] EWCA Civ 291 at
[35] (that statutory limitation period was about to expire was a relevant
consideration).
155. See, eg Postlethwaite v Freeland (1880) 5 App Cas 599 at 608, 621;
Etablissements Chainbaux SARL v Harbormaster Ltd [1955] 1 Lloyd’s Rep
303 at 311; Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537 at
567–8.
156. See also [4-16]. Cf Shakibaee v Chan (2001) 24 WAR 97 at 104; [2001]
WASC 60 at [34].
157. (1926) 37 CLR 529.
158. (1926) 37 CLR 529 at 538 per Isaacs J.
159. See [2-30].
160. See [2-31], [13-03].
161. [1968] AC 1130n.
162. [1968] AC 1130n at 1137. The other members of the House of Lords
agreed.
163. (1888) 13 App Cas 308.
164. (1888) 13 App Cas 308 at 315.
165. [1990] 1 AC 417.
166. [1990] 1 AC 417 at 458. Cf [1990] 1 AC 417 at 469 per Lord Oliver
(relevance of subsequent conduct to whether the documents were ‘genuine
documents giving effect to the parties’ true intention’). See also Bankway
Properties Ltd v Pensfold-Dunsford [2001] 1 WLR 1369 at 1380; [2001]
167. (1838) 4 Bing NC 187; 132 ER 760.
168. See [9-31]–[9-33].
169. [1993] 2 Qd R 615 at 619–20. See also RTS Flexible Systems Ltd v
Molkerei Alois Müller GmbH & Co KG (UK Production) [2010] 1 WLR
753; [2010] UKSC 14 (see [9-33]).
170. See, eg Australian Mutual Provident Society v Chaplin (1978) 18 ALR 385
at 392–4 (issue was whether agency contract was varied by subsequent
conduct). Cf Cocks v Maddern [1939] SASR 321 at 327 per Napier J
(‘interpretation, or as an agreement collateral to the main contract, or as
estoppel’).
171. See [9-33] (intention to be bound by document). Cf Watcham v Attorney-
General (East Africa Protectorate) [1919] AC 533 (treatment of subsequent
conduct when used to decide the scope of an ambiguous title to land under
an ancient document).
172. See [14-24].
173. [1941] AC 251.
174. [1941] AC 251 at 268–9. See also York Air Conditioning & Refrigeration
(A’sia) Pty Ltd v The Commonwealth (1949) 80 CLR 11 at 26; Durham Tees
Valley Airport Ltd v bmibaby Ltd [2011] 1 Lloyd’s Rep 68 at 80; [2010]
175. See [3-24]. See also [9-31]–[9-33]. Contrast [3-12] (severance).
176. Cf Home and Overseas Insurance Co Ltd v Mentor Insurance Co (UK) Ltd
[1990] 1 WLR 153 at 165 (distinction between ambiguity in application and
lack of clarity in application).
177. [1941] AC 251.
178. [1941] AC 251 at 268. See also Council of the Upper Hunter County
District v Australian Chilling and Freezing Co Ltd (1968) 118 CLR 429 at
437; Waldron v Tsimiklis (1975) 12 SASR 481 at 483–4; Meehan v Jones
(1982) 149 CLR 571 at 587.
179. See also [1941] AC 251 at 261.
180. See also Whitlock v Brew (1968) 118 CLR 445 at 456 (‘upon such
reasonable terms as commonly govern such a lease’ — terms not
ascertainable).
181. [1941] AC 251 at 269.
182. See Head v Kelk (1963) 63 SR (NSW) 340 at 344; [1962] NSWR 1363 at
1370–1.
183. [1949] AC 76.
184. [1949] AC 76 at 96.
185. See [18-39]. See also Foley v Classique Coaches Ltd [1934] 2 KB 1;
Mamidoil-Jetoil Creek Petroleum Co SA v Okta Crude Refinery AD [2001]
2 Lloyd’s Rep 76 at 85. Cf Durham Tees Valley Airport Ltd v bmibaby Ltd
[2011] 1 Lloyd’s Rep 68 at 80; [2010] EWCA Civ 485 at [56]. For
suggestions that after part performance it is easier to imply a term resolving
uncertainty, see G Percy Trentham Ltd v Archital Luxfer Ltd [1993] 1
Lloyd’s Rep 25 at 27; Maple Leaf Macro Volatility Master Fund v Rouvroy
186. Cf G Percy Trentham Ltd v Archital Luxfer Ltd [1993] 1 Lloyd’s Rep 25 at
27 per Steyn LJ, with whom the other members of the Court of Appeal
agreed (execution of transaction may enable court to ‘treat matter not
finalised in negotiations as inessential’). Contrast British Steel Corp v
Cleveland Bridge and Engineering Co Ltd (1981) [1984] 1 All ER 504.
187. See, eg Way v Latilla [1937] 3 All ER 759; Upton-On-Severn Rural District
Council v Powell [1942] 1 All ER 220. Cf TTMI SARL v Statoil ASA (The
Sibohelle) [2011] 2 Lloyd’s Rep 220 at 229–30; [2011] EWHC 1150
(Comm) at [44]–[48].
188. Cf Didymi Corp v Atlantic Lines and Navigation Co Inc (The Didymi)
[1988] 2 Lloyd’s Rep 108 at 115–16; Willis Management (Isle of Man) Ltd
v Cable and Wireless Plc [2005] 2 Lloyd’s Rep 597 at 603; [2005] EWCA
Civ 806 at [24].
189. (1949)80 CLR 11.
190. (1949) 80 CLR 11 at 53. See also Biotechnology Australia Pty Ltd v Pace
(1988) 15 NSWLR 130 at 135, 141–2. Cf Vroon BV v Foster’s Brewing
Group Ltd [1994] 2 VR 32 at 67.
191. (1932) 43 Ll L Rep 359; 147 LT 503.
192. (1932) 43 Ll L Rep 359 at 369 per Lord Wright.
193. See (1932) 43 Ll L Rep 359 at 364, 368.
194. See also (1932) 43 Ll L Rep 359 at 364 per Lord Tomlin, with whom Lords
Warrington and Macmillan concurred (‘course of trade’). Cf Integrated
Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd (1988)
5 BPR 11,110 at 11,118.
195. See G Scammell and Nephew Ltd v Ouston [1941] AC 251 at 272.
196. (1951) 82 CLR 463 at 471.
197. (1925) 36 CLR 1.
198. (1925) 36 CLR 1 at 11.
199. (1925) 36 CLR 1 at 11. Isaacs J went on to explain that due account had to
be taken of the nature of the relationship (agency) and the consistency
between the construction alleged and the fiduciary duty of the agent.
200. [1974] AC 235.
201. See [14-28]. See also YP Barley Producers Ltd v E C Robertson Pty Ltd
[1927] VLR 194 at 201 (if the words ‘nett cash against delivery’ in a CIF
contract for the sale of barley had been shown to be ambiguous, subsequent
conduct would have been admissible).
202. [1974] AC 235 at 272–3.
203. See [14-24]. Cf Sul América Cia Nacional de Seguros SA v Enesa
Engenharia SA [2012] 1 Lloyd’s Rep 275 at 282; [2012] EWHC 42
(Comm) at [28], affirmed [2012] 1 Lloyd’s Rep 671; [2012] EWCA Civ
638 (mediation clause did not state binding obligation).
204. See G Percy Trentham Ltd v Archital Luxfer Ltd [1993] 1 Lloyd’s Rep 25 at
29 (agreement on the identity of adjudicator and stakeholder).
205. [1949] AC 76 at 95–6.
206. [1949] AC 76 at 96.
207. [1949] AC 76 at 95. See also [1949] AC 76 at 92, 103, 105.
208. See [10-15], [10-16].
209. See Ferguson v John Dawson & Partners (Contractors) Ltd [1976] 1 WLR
1213 at 1221, 1229; [1976] 3 All ER 817. See D W McLauchlan,
‘Subsequent Conduct as an Aid to Interpretation’ (1996) 2 NZBLQ 237 at
257–8.
210. [1977] AC 239.
211. [1977] AC 239 at 253.
212. [1983] QB 54. See also Ferguson v John Dawson & Partners (Contractors)
Ltd [1976] 1 WLR 1213 at 1229; [1976] 3 All ER 817 (verbal contract).
213. See also Wilson v Maynard Shipbuilding Consultants AB [1978] QB 665 at
675, 677 (use of subsequent conduct to determine where employee
‘ordinarily’ worked for purposes of applicable statute).
214. According to Stephenson LJ ([1983] QB 54 at 77), this included how the
contract ‘was interpreted by both parties’. O’Connor LJ and Sir Stanley
Rees agreed.
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Rose, F D, ed, Lex Mercatoria: Essays on International Commercial Law in
Honour of Francis Reynolds, LLP, London, 2000
Searle, J R, ed, The Philosophy of Language, Oxford University Press, Oxford,
1977
Simpson, A W B, A History of the Common Law of Contract, Clarendon Press,
Oxford, 1975
Smith, Neil, and Wilson, Deidre, Modern Linguistics: The Results of Chomsky’s
Revolution, Penguin Books, London, 1990
Treitel, G H, Doctrine and Discretion in the Law of Contract, Clarendon Press,
Oxford, 1981
Treitel, G H, Remedies for Breach of Contract, Clarendon Press, Oxford, 1988
Wigmore, J H, Evidence in Trials at Common Law, rev ed, 10 vols, Chadbourn, J
H, Little Brown & Co, Boston, and Little Brown & Co (Canada) Ltd, Boston
and Toronto, 1981
Yates, David, Exclusion Clauses in Contracts, 2nd ed, Sweet & Maxwell,
London, 1982
LAW REFORM REPORTS
Law Commission for England and Wales, Law of Contract: The Parol Evidence
Rule, Working Paper No 70, HMSO, London, 1976
Law Commission for England and Wales, The Parol Evidence Rule, Cmnd 9700,
Law Com No 154, HMSO, London, 1986
Index
References are to paragraph numbers
Actual intention
aid to construction, not, [1-21], [8-05], [8-22], [13-08]
aim of contract, and, [7-25], [8-31]
clues to meaning, and, [11-10]
common intention, and, [2-16]
context, and, [6-25], [6-26], [6-27], [7-25]
determined indirectly, [2-09]
exclusionary rule, and, [4-23], [11-07]
expressed intention, and, [2-11]
extrinsic evidence, as, [8-24]–[8-27]
equity, and, [4-29]
exclusion of, [8-24]
operation of, [8-25]
form, [8-12], [8-25]
justification for, [8-27]
legal effect, and, [8-26]
generally, [1-37], [2-07], [2-10]
ICS principles, and, [5-03], [5-12], [5-15], [5-16], [5-21]
illegality, and, [9-17]
implied term, and, [3-21]
inferred intention, and, [2-15]
knowledge of, [11-30]
meaning, and, [8-25], [11-07]–[11-08], [12-23]
uncertainty of, [14-22], [14-23]
mistake, and, [2-22], [9-14]
negotiations, and, [8-28]
objective approach, and, [1-37], [2-18], [4-08]
parol evidence rule, and, [8-15], [8-22]
perspective rule, and, [11-30]
presumption of, [2-10], [2-11]
purpose of contract, and, [7-25], [8-31]
rectification, and, [8-25], [8-30], [9-46]
‘sham’ document, and, [2-27], [9-27]
— see also Extrinsic evidence; Intention to contract
Admissions
agreement to be bound, and, [9-19]
exclusionary rule, and, [9-19]
variation of contract, and, [9-19], [18-11]
Agency
ambiguity, and, [9-55]
context, and, [9-54]
exclusionary rule, and, [9-48], [9-54], [9-55]
expressed intention, [2-31]
extrinsic evidence, and, [18-33]
fact, in, [18-33]
joint venture, and, [18-33]
partnership, and, [18-33]
signature, [9-54]–[9-55]
subsequent conduct, and, [18-33]
Ambiguity
application of contract, in,
latent, [18-27]
resolution of, [18-29]–[18-30]
types of, [18-28]
unresolved, [18-31]
choice of meaning, and, [13-44]
concept of, [12-29], [13-44], [14-22], [14-25]
troublesome, as, [18-27]
consideration, in, [10-42]
context, and, [6-12]–[6-14] — see also Context
contra proferentem rule, and, [4-46], [4-47]
descriptions, [18-30]
parties, [9-51], [9-53]
subject matter, [18-23]
difficulty in construction, and, [4-47], [18-02]
validity of contract, and, [14-26]
whole contract rule, and, [13-48]
extrinsic evidence, and, [13-44], [14-23], [18-28]
raising, [18-30]
ICS principles, and, [5-21], [5-22]
inconsistency, and, [14-23]
indefiniteness, and, [18-30]
latent, [5-21], [9-48], [18-27], [18-29]
mistake, and, [9-39]
linguistic, [13-44], [13-48], [14-25], [18-27]
meaning, of — see Meaning
misnomer, and, [9-49]
‘on face of document’, [6-13]
patent, [9-53], [13-45], [18-27]
recitals, and, [13-37]
strictissimi juris rule, and, [15-38]
subsequent conduct, and, [14-28]–[14-29]
uncertainty, and, [14-23], [14-26], [16-26]
unresolved, [18-31]
validity of contract, and, [14-24], [14-26]
whole contract rule, and, [13-48], [18-27]
Ancient documents
standard of interpretation, and, [12-10]
subsequent conduct, and, [8-35], [14-29]
Annexures
component of contract, as, [13-43]
Appendices
Application of contract
ambiguity in, [18-27]–[18-28] — see also Ambiguity
choice of, [13-04], [16-01]–[16-11]
commercial, [15-18]–[15-23], [16-01]–[16-04]
commercial purpose, and, [16-18], [16-19], [16-23]
common intention, and, [2-16], [15-14]
competing, [16-01], [16-10], [16-19]
concept, [15-03]
condition precedent, [15-25]–[15-28], [16-30]
construction conclusion, as, [15-05]
contract doctrine, and, [15-05], [16-05] — see also Contract doctrine
course of dealing, and, [18-16], [18-18], [18-26]
descriptions, of, [18-19]–[18-32] — see also Descriptive terms
election, and, [9-16], [18-03], [18-07]
estoppel, and, [18-03], [18-07], [18-16]–[18-17]
evidence for — see Evidence in application
exclusion clause, of — see Exclusion clauses
exclusionary rule, and, [6-03], [8-36], [9-03], [18-01]
facts, proof of, [18-04]–[18-18]
forbearance, and, [18-13], [18-15]
generally, [2-11], [3-10], [15-01]–[15-02]
ICS principles, and, [5-18]
impossible, [18-31], [18-36]
incomplete agreements, and, [18-35]–[18-39]
indeterminate, [15-06], [15-10], [16-02]
intention, and, [2-07], [15-05], [15-16]–[15-17]
issues in, [15-06]–[15-08]
legal effect, and — see Legal effect
literal, [15-24]–[15-33] — see also Literal construction
meaning, and, [13-04]
construction decisions, and, [18-02]
definition, and, [18-19], [18-26], [18-38]
exclusion clauses, and, [17-14], [17-15]
generally, [11-13]–[11-15], [15-03], [16-03]
linguistic meaning, and, [11-21]
presumptions, and, [15-17]
notices, and, [15-29]–[15-31]
parties, by, [18-32]–[18-39]
performance, mode of, and, [18-14], [18-38]
perspective rule, and, [11-22], [17-05]
reasonable person, [15-16], [15-30], [16-10]
precedent, and, [15-07], [15-21], [16-07]–[16-08], [16-13]
preferences in,
generally [16-09]–[16-11]
performance, to encourage, [16-32]–[16-35]
policy component, with, [16-41]–[16-42]
reasonable results, for, [16-12]–[16-25]
rights, for, [16-36]–[16-40]
uphold contracts, to, [16-26]–[16-31]
— see also Preferences in construction
presumptions in, [3-35], [16-05]–[16-08]
principled, [16-02]
relationships, and, [18-33]
repugnancy rule, and, [16-11]
rescission, and, [9-16], [18-03], [18-07], [18-10], [18-12]
rules of construction, and,
exclusionary rule, [6-03], [9-03]
law, issue of, as, [4-16]
one construction rule, [4-10]–[4-11], [15-03]
perspective rule, [4-22]
time for construction, [4-16]
scope of contract, and, [15-04], [15-06], [15-17]
set-off clause, [16-38]
stage in construction, as, [1-16]–[1-17]
standard forms, [13-14], [15-34], [16-08]
standard of interpretation, and, [12-10], [15-13]
standards for, [15-11]–[15-14]
strict, [15-34]–[15-45] — see also Strict construction
systematic, [16-02]
techniques for, [15-07]
uncertainty in, [18-35]–[18-39] — see also Certainty of agreement
— see also Evidence in application; Standard of application
Arbitration
clause, [3-07], [8-34]
application of, [16-13], [16-18]
estoppel, and, [18-17]
commercial judgment in, [4-18]
context, arbitrators’ knowledge of, [7-11], [7-20]
frustration, and, [4-18]
notice, construction in, [4-18]
standard form, and, [7-38]
Assignments
context for, [7-31]
related contracts, [7-19]
scope of, [7-42]
diversity in construction, and, [1-44]
parol evidence rule, and, [9-09]
exclusionary rule, [9-09]
Attachments
specification, as, [13-32], [13-43]

Background — see Context Bills of lading
adding words to, [3-07]
ambiguity in, [13-48]
application of, [15-23]
context for, [7-16], [7-36]
incorporation clauses in, [15-23]
integration, and, [10-19]
label, [13-41]
parties to, [9-51]
standard form, [3-07], [4-52], [7-36]
third parties, and, [7-16], [7-41]
Breach of contract
application of contract, and, [15-24]
evidence of, [18-03]
exclusion of liability for — see Exclusion clauses
‘material’, [13-50]
own wrong, preference against, and, [16-42], [17-37]
proof of, [15-24]
termination for — see Termination
wilful, [17-25], [17-37]
Building contracts
context for, [6-25], [6-32], [7-18]
defects, promise to rectify, [16-37]
implied term, [9-19]
reasonable results, preference for, and, [16-25] ‘rise and fall’ clause, [12-35],
[13-48], [14-09]
standard form, [7-18], [14-32]
context, and, [6-27], [7-40]
surplusage, and, [4-43]

Canons of construction
clause order, as to, [4-53]
commercial construction, and, [4-40]
context and, [13-17], [16-05]
contra proferentem rule, [4-44]–[4-47] — see also Contra proferentem rule
criticism of, [4-48], [13-17], [16-05]
distributive interpretation rule, [4-51]
documents, for, [4-39]–[4-53] ejusdem generis rule — see Ejusdem generis rule
expressio unius rule — see Expressio unius rule falsa demonstratio rule, [4-
50]
ejusdem generis rule — see Ejusdem generis rule
expressio unius rule — see Expressio unius rule
falsa demonstratio rule, [4-50]
intellectual baggage, as, [5-03], [13-17]
jurisprudence of, [4-40]
legal interpretation, and, [13-17]
repugnancy rule, and, [4-53], [16-11], [16-29]
secondary aids, as, [4-39]
standard forms, and, [4-41]
strictissimi juris rule, [15-38]
utility of, [4-41]
whole contract rule, as, [13-17]
word order, as to, [4-53]
Carriage of goods
context for, [7-20]
remoteness of damage, and, [7-35]
exclusion clause, in, [17-21], [17-37]
deviation rule, [17-19], [17-20]
integration, [10-19]
parties to, [9-51]
Certainty
consistency, and, [2-44], [13-21]
doctrine, and, [1-33]
entire agreement clauses, and, [10-21]
legal interpretation, and, [13-16], [13-21]
need for, [1-30], [3-03]
precedent, and, [16-07], [13-20]
self-determination, and, [1-32]
shipping contracts, and, [16-07]
standard forms, and, [1-34], [2-44], [13-13], [13-21]
uniformity, and, [1-35]–[1-36], [13-13]
Certainty of agreement
application, in, [15-19], [16-26], [18-35]–[18-37]
completeness, and, [18-39]
completeness, and, [14-24], [18-35]–[18-37]
inferred intention, and, [3-04] contra proferentem rule, and, [4-47]
evidence in construction, and, [14-22]–[14-29]
negotiations, [14-27]
implied term, and, [3-24], [3-27], [9-32]
application of contract, [18-36], [18-38], [18-39]
indeterminate contract, and, [15-06]
meaning, and, [11-01], [18-36]
difficulty in construction, and, [14-22], [14-26], [16-26]
one construction rule, and, [4-10]
performance of contract, and, [18-36]–[18-37]
severance, and, [3-12]
Charterparties
commercial, [15-23], [15-24], [17-05]
literal, [15-27]
reasonable results, preference for, [16-24], [16-25]
bills of lading and, [15-23]
classification of terms, [2-45], [13-14]
condition precedent in, [15-27]
context for, [6-25]
exclusion clause in, [17-05], [17-33]
‘expected ready to load’ clause, [13-14]
formalistic approach to, [4-39]
giving effect to whole contract, [4-43]
incorporation of terms, and, [15-23]
‘payment in cash’, [18-38]
standard forms, [1-44], [4-39], [13-14]
surplusage in, [4-43]
standard of interpretation, [12-02], [15-23]
time, [3-10], [15-27], [18-38]
withdrawal clause, [5-23], [15-23], [15-24], [16-25]
voyage, [2-45], [13-14], [15-23]
warranty in, [9-30]
Choice of meaning
ambiguity, and, [13-44], [13-48]
application of contract, and, [13-02]–[13-04]
commercial judgment, and, [4-18], [11-31]
commercial purpose, and, [13-46]–[13-47]
competing, [1-15], [6-14], [11-01], [11-03], [13-01]
context, and, [6-31], [6-33], [13-07], [13-44]
custom and usage, under — see Custom and usage
defined terms, and, [13-39], [14-19]
dictionaries, and, [13-06]
document components, and, [13-32]–[13-43]
generally, [11-01], [13-01]–[13-03]
influences on, [13-07], [13-08]
interpretation clauses, and, [13-40]
paraphrasing, and, [3-09]
perspective rule, and, [13-01], [13-05]–[13-08]
plain meaning rule, and, [12-29]
preferences in construction, and, [13-08], [16-12]
reasonable results, and, [13-46]–[13-47], [16-12]
standard of interpretation, and, [12-17], [12-20], [12-25]
statute, and, [13-22]–[13-26]
unique usages, and, [14-15], [14-19]
whole contract, based on,
generally, [13-02]–[13-08]
legal interpretation, and, [13-16]–[13-26]
precedent, role of, [13-09]–[13-05]
uses of, [13-27]–[13-51]
— see also Meaning; Legal interpretation; Perspective rule
Classification of terms
actual intention, and, [8-26], [8-31]
commercial judgment in, [4-18]
condition, [11-15], [11-16], [11-17], [13-19]
generally, [2-42]
inferred intention, and, [2-42]–[2-46]
intermediate term, [16-24], [16-34]
labels, and, [2-30], [2-42]
notice requirements, and, [15-31], [16-33]
policy, and, [2-28]
preferences in construction, and, [16-24]
intermediate term, for, [16-34]
promises, for, [16-33]
promissory terms, of, [1-36], [2-25]
factors in, [2-44]
legal effect, as, [1-19], [2-13], [4-18]
meaning, and, [11-05], [11-31], [11-15], [11-16]
precedent, and, [2-45]–[2-46], [11-31]
tests for, [2-43]
express rights, and, [13-50]
standard forms, in, [2-44], [13-14]
warranty ex post facto, and, [18-08]
warranty, [12-19], [12-26], [16-08], [17-23]
— see also Time stipulations
Collateral contracts
consideration for, [10-27]
entire agreement clauses, and, [10-19], [10-27]
parol evidence rule, and, [8-21], [10-10], [10-27]
exception to, as, [10-46]–[10-47]
partly oral contracts, and, [10-10]
proof of, [10-27]
warranties, and, [2-37]
Commercial construction
application of contract, as, [1-16], [16-01]–[16-04]
default rule, [15-22]–[15-23]
standard in, [15-11], [15-18]–[15-23]
— see also Standard of application
canons of construction, and, [4-40]
certainty, and, [1-30]–[1-34], [16-02], [16-07]
rule uniformity, and, [1-36]
commercial judgment, in, [4-18], [15-20]
inferred intention, [2-35]–[2-46]
commercial purpose, and, [1-22], [15-20]
giving effect to, [6-26], [13-47], [16-11]
objectively determined, [7-25], [13-47]
concept, [1-26]
deeds, and, [1-24], [1-44], [4-25]
discharge for breach, and, [15-20]
evolution of, [1-24]–[1-26], [5-22], [15-20], [16-02]
exclusion clauses, of, [17-01], [17-32]–[17-37]
limitation clause, and, [17-01], [17-16]–[17-17]
formalism, rejection of, [1-24]
generally, [1-02], [1-06], [1-22], [2-01]
good faith, and, [3-36]–[3-39], [16-02]
ICS principles for, [5-02], [5-22]
assimilation conclusion, and, [5-17]
rationale, as, [5-06]
implied term, and, [3-15], [3-23] — see also Implied terms
incidents of, [1-23]
specific, [16-05]
literalism, and, [1-31], [11-14]
meaning, and, [11-01], [11-11]
policy in, [1-27]–[1-38]
functions, [1-27]
intention, and, [1-28]–[1-29]
presumptions, and, [2-12], [16-26]
uphold agreements, to, [14-27], [16-10], [16-26]
precedent, and, [13-11], [17-32]
predictability, and, [1-30]–[1-34]
principles of, [1-02], [1-22]–[1-26]
‘reasonable expectations of honest men’, and, [3-39], [6-27]
rise of, [1-26]
sensible results in, [1-22], [5-17], [11-21], [15-01]
application of contract, [16-01]–[16-04]
meaning, [13-46]–[13-47]
presumptions, and, [16-08]–[16-09]
standard of application, and, [15-11], [16-03]
standard of application, and, [15-18]
systematic process, as, [16-02]
uniformity, and, [1-34]–[1-38]
wills and, [1-02], [2-03]
— see also Construction
Common intention
application of contract, and, [2-16], [15-14]
‘construct’, as, [1-37], [2-32], [5-10], [5-17]
context, and, [6-26], [6-31]–[6-33]
determination of,
actual intention, and, [2-11]
objective approach, [1-37], [4-08]
— see also Objective approach
documentary expression of, [5-10]
generally, [1-37], [2-09], [2-16]–[2-17]
integrate bargain, to, [10-17]
perspective rule, and, [11-26]–[11-28]
rectification, and, [9-43]
‘shared’, as, [11-07], [11-26]
Communications
cablegram, [9-33]
context, and, [7-31], [7-32]
contracts, and, [6-07], [11-07]
electronic, [8-12], [14-16]
facsimile, [8-12]
ICS principles, and, [5-07], [5-08], [5-23]
letters, [6-24], [9-26], [12-22]
objective approach to, [4-08]
oral, [4-32], [4-37], [11-29]
performance, in, [11-33]
perspective rule, and, [11-28], [11-30], [11-33]
repudiation, of, [4-17]
rules of construction, and, [4-37]–[4-38]
analogous rules, [4-38]
telex, [10-20], [13-46], [15-19]
unilateral utterances, as,
instruments, and, [4-36]
non-promissory, [11-27]
— see also Negotiations; Notices; Offers
Conditions precedent
application of, [15-26]–[15-28]
definition of, [15-26]
formation of contract, to, [9-33], [9-36], [10-49], [16-28], [16-31]
identification of, [15-27]
intention to contract, and, [9-20]
notices, and, [15-30]
time requirements, and, [15-28]
parol evidence rule, and, [10-48]–[10-50]
performance, to, [10-50], [16-30], [16-31], [16-33]
preferences in construction, and, [16-28], [16-30], [16-31]
promissory conditions, and, [13-51], [15-24]
‘subject to completion’, [10-19]
‘subject to contract’, [10-37], [16-31]
‘subject to details’, [16-31]
‘subject to finance’, [16-30]
‘subject to force majeure conditions’, [3-12]
Consideration
clause, [8-07], [13-38]
collateral contracts, and, [10-27]
course of dealing, and, [18-18]
deeds, and, [10-06]
executed, [2-16], [10-42], [16-27]
failure of, [18-06]
intention, and, [2-16], [8-20]
parol evidence rule, and, [10-41]–[10-43] — see also Exceptions to parol
evidence rule
past, [10-42], [16-27]
‘private dictionary’ principle, and, [14-19]
simple contracts, and, [10-41]
variation, and, [18-18]
Construction
meaning, and, [11-13]–[11-15], [15-03]
— see also Application of contract ‘business fashion’, in, [16-02]
‘business fashion’, in, [16-02]
canons of, [4-39]–[4-53] — see also Canons of construction
changing words, by, [3-05]–[3-13]
adding, [3-07]
errors, and, [3-06]
mistakes, to deal with, [13-14]
replacing, [3-08]
common law, at, [4-24]–[4-30]
concept, [1-03]
conclusions of,
appeals from, [4-18]
law, as, [15-05]
meaning, [13-04]
standard of application, [15-09]
context, in — see Context; Scope of context
contract doctrine, and — see Contract doctrine
definition, [1-04]
diversity in, [1-43]–[1-44]
documents, of — see Documents
fallacies in, [1-49]–[1-52]
evidence, admissibility of, [1-51]
existence of contract, [1-50]
meaning, of, [1-52]
formalistic approach to, [4-39], [15-20]
function, diversity of, [1-43]
generally, [1-01]–[1-02]
implied term, and, [3-02]–[3-05]
rules for, [3-23]–[3-27]
— see also Implied terms
institution, commitment to, and, [2-06], [3-04], [11-31]
intention, and,
classification, [2-09]–[2-17]
inferred, [2-32]–[2-46]
objective theory, [2-18]–[2-22]
— see also Intention
interpretation, and, [1-05] — see also Interpretation
issues, characterisation of, [1-45]
law, as issue of, [4-12]–[4-18]
law and equity, [4-24]–[4-30]
conflict, no, [4-24]
‘equitable construction’, no, [4-25]
evidence, and, [4-30]
time stipulations, and, [4-26]–[4-29]
legal effect, and, [1-18]–[1-19], [4-18]
liberalism in, [15-19]
linguistic theory, and, [11-07]–[11-08] — see also Linguistic theory
literalism, in, [1-25], [11-14]
— see also Literal construction
meaning, and, [1-07], [11-02]
neutrality, in, [1-38]
notices, of — see Notices
objective approach to — see Objective approach
objective of, [1-04]
paraphrasing in, [3-09]
parties, identification of, and, [9-51]
preferences in — see Preferences in construction
presumptions in — see Presumptions
problems with, [1-39]–[1-48]
accessibility, [1-41]
default rules, and, [1-48]
intelligibility, [1-41]
legal rules, and, [1-47]
negative orientation, [1-42]
presumptions and, [1-46]
theory, [1-39]
‘proper’, [11-15]
raw material for, [1-20]–[1-21], [1-36] — see also Evidence
results in,
‘absurd’, [13-46], [16-12], [16-14],
‘bizarre’, [16-20]
‘foolish’, [16-15], [16-19]
‘irrational’, [16-20]
‘nonsensical’, [16-12]
‘reasonable’, [13-44]–[13-47], [16-12]–[16-25]
‘sensible’, [5-17], [11-21], [15-01]
‘uncommercial’, [16-15]
rules of — see Rules of construction
scope of, [1-07], [2-17]
severance, and, [3-11]–[3-13], [16-26]
specialised process, as, [1-03], [4-01], [11-01]
application of contract, [15-04]
legal interpretation, [12-05]
linguistic theory, and, [11-07]
meaning, [6-08], [11-14], [13-02], [14-19]
stages in — see Stages in construction
standards of application in — see Standard of application
standards of interpretation in — see Standard of interpretation
‘starting points’ for, [1-46], [2-09], [6-03], [6-14]
statute, and, [1-53]–[1-58]
CISG, and, [1-55]
Contracts Restatement 2d, and, [1-55]
rules of construction, [1-57]
UNIDROIT Principles, and, [1-55]
strict, [1-26] — see also Strict construction
terminology of, [1-40]
theory of — see Theory
time for, [4-09]
tool, as, [1-06]
‘true’, [11-15]
vacuum, not in, [6-12]
— see also Commercial construction
Construction contracts — see Building contracts
Construction preferences — see Preferences in construction
Construction rules — see Rules of construction
Context
admissibility of, [1-11], [1-21], [6-01]–[6-06], [13-07]
ambiguity and, [6-07], [7-30], [14-25]
Australian cases, [6-10], [6-13]
debate concerning, [6-05], [6-09], [6-13]
English cases, [6-12]
required, not, [6-14]
‘parol evidence’, and, [8-23]
aim or object, as,
commercial purpose, [6-22], [6-25], [6-33]
expert evidence, and, [7-12]
specific facts, and, [7-12]
application of contract, in — see Evidence in application
‘background’, as, [4-19], [7-01]
canons of construction, and, [13-17], [16-05]
commercial, [6-19], [7-09], [13-49]
economic, [6-27]
form of contract, and, [6-24]
general background, [7-11]
industry, of, [6-23]
knowledge of, [6-14], [7-15]
legal, [6-29], [7-14]
market, of, [6-23], [7-12], [7-20]
regulatory, [6-28]
subject matter, and, [6-23]
trade, of, [6-23]
type of contract, and, [7-12]
common understandings, as, [7-18]
foundation of contract, [6-32]
legislation, and, [6-29]
content of, [6-20]–[6-30]
elements, [6-22]–[6-27]
generally, [6-20]–[6-21]
imprecise, as, [6-20]
legal, [6-28]–[6-30]
‘contextualism’, [6-05]
‘contractual setting’, as, [6-04], [7-01]
custom and usage, and, [12-08]
difficulty in construction, and, [6-14]
elements of, [6-22]
expectations, and, [6-27]
expressed intention, and, [2-13], [2-14]
extent of, [7-08]–[7-23]
‘external’, as, [6-05], [6-07]
internal, and, [6-14]
extrinsic evidence, not, [6-05]–[6-06] — see also Extrinsic evidence
factual matter, [6-16]–[6-33]
common intention, and, [6-31]–[6-33]
generally, [6-16]–[6-19]
‘factual matrix’, as, [1-11], [4-19], [7-01]
frustration, and, [6-32], [18-09]
generally, [1-11], [4-19], [5-24], [6-01]–[6-08]
genesis of contract, as, [6-24], [6-33]
time of agreement, [6-23]
wider transaction, and, [6-23], [7-19]
‘guide’, as, [6-16]
guiding concept, as, [1-26]
ICS principles, and, [5-03], [5-06], [5-20], [5-24]
experience, [5-09]
objectivity, [5-19]
identification of,
court, duty of, [6-18], [6-19]
legal context, [6-29]
prior to construction, [4-19], [6-10], [6-15]
purpose, [6-18]
relevance, [6-17]
time for, [7-05]
importance of, [1-28]
‘inherent’, [6-23]
intention to contract and, [9-24], [9-26]
joint venture, [6-30]
knowledge, and, [7-15]–[7-23]
legal, [6-16], [6-28]–[6-30]
commercial background, as, [6-29]
determination of, [6-29]
employment legislation, [6-28], [7-14]
factual, as, [6-28]
foreign laws, [7-14]
international, [7-14]
precedent, not, [6-30], [7-14], [13-16]
proof of, [6-29], [6-30]
statutory duty, [13-49]
legal concept, as, [6-21], [7-03]
ordinary life, and, [7-02], [11-11]
rules for, [7-04]
legal effect, and, [2-26], [6-11], [6-17], [6-27]
common understandings, and, [6-32]
necessity for, [6-19]
notices, for, [6-17]
‘obvious’, [6-23]
profit, expectation of, [6-27]
proof of, [6-21], [7-20]
pleadings, and, [6-23], [7-11]
purpose for, [6-18]
relevance, scope of, [7-29]–[7-35]
generally, [7-06], [7-29]
intention, and, [7-33]
role of,
evolution, [6-09]–[6-15]
universal, as, [7-29], [7-31]
rule of construction, as, [4-19]
semantic theory, and, [6-08]
social, [6-27]
stages in construction, and, [6-03], [6-10]
standard form, [1-34], [4-35], [6-07], [6-21], [6-23]
third parties, and, [7-36]–[7-42]
— see also Standard forms
choice of, [12-31]
‘starting point’, as, [6-03], [6-14]
‘surrounding circumstances’, as, [1-11], [6-09], [7-01]
jury, and, [6-11]
symbols, and, [6-08], [6-15]
terminology of,
‘extrinsic evidence’, and, [6-06]
‘factual matrix’, [1-11], [6-09]
generally, [6-04]
‘legal matrix’, [6-28]
‘surrounding circumstances’, [1-11], [6-09], [6-20]
‘textualism’, and, [6-05]
utterances, and, [6-17]
verbal, [6-07]
— see also Scope of context
Contra proferentem rule
ambiguity, and, [4-46], [4-47]
exclusion clause, and, [17-09]–[17-17]
force majeure clause, [4-47]
formulations of, [4-44]–[4-45]
generally, [4-39], [13-17]
jurisprudence, [4-40]
last resort, as, [4-47]
policy, and, [4-44], [4-47]
status of, [4-47]
strict construction, and, [4-47], [15-34]
exclusion clauses, and, [17-09]–[17-17]
uncertainty, and, [4-47]
utility of, [4-41]
— see also Exclusion clauses
Contract doctrine
discharge for breach, and, [15-20]
frustration, and, [15-20], [18-03], [18-09]
certainty, and, [1-33]
choice of law, and, [8-34]
commercial judgment, and, [4-18]
construction, applied by, [4-03], [13-03]
evolution of, [1-06], [1-47], [15-20]
precedent, and, [15-07]
evidence in application, and, [18-03], [18-09]
freedom of contract, [1-02], [17-03]
implied term, and, [3-16], [3-34]
intention, and, [1-29], [2-07] — see also Intention
legal effect, and, [1-19], [2-07], [11-31] — see also Legal effect
law, issue of, [4-14], [15-05]
meaning and, [1-07]
repudiation, of — see Repudiation
uniformity, and, [1-36]
see also Classification of terms; Frustration; Mistake
Contracts
aleatory, [15-35]
‘ambiguous’, [14-23]
annexures to, [13-32], [13-43]
appendices to, [13-43]
assignments of — see Assignments
attachments to, [13-32], [13-43]
bargains, as, [5-10]
bilateral, [2-10], [4-08], [7-15], [7-29]
classification of, [10-06]–[10-10]
clauses in — see Terms and Clauses
collateral — see Collateral contracts
communications, and, [6-07], [11-07]
components of, [13-32]–[13-43]
conduct, and, [11-29]
documents adopted as, [10-04]–[10-13]
form of,
rules of construction, and, [4-06], [4-31]–[4-32]
illegal — see Illegal contracts
‘inconsistent’, [14-23]
indefinite duration, of, [12-10]
‘joke’, [9-27]
lawyers, between, [12-26]
legal incidents of, [3-28], [3-33], [16-05]–[16-08]
meaningless, [14-27]
oral — see Oral contracts
‘parol’ — see Simple contracts
preliminary — see Preliminary agreements
records, as, [5-12]
renewal of, [7-19]
rescission, for — see Rescission
sequence of, [10-37]
‘serious utterance’, as, [5-08]
‘simple’ — see Simple contracts
Terms of — see Terms and clauses
translations of, [12-34]
type of,
rules of construction, and, [4-33]
under seal — see Deeds
unenforceable — see Unenforceable contracts
utterances of intention, as, [4-21], [6-16], [11-08]
communication, unit of, [11-09]
variation of — see Variation of contracts
verbal — see Verbal contracts
void — see Void contracts
writing, evidenced by — see Contracts Contracts evidenced by writing
written — see Written contracts
— see also Specific contracts and instruments
Contracts evidenced by writing
‘bought and sold notes’, as, [10-38]
classification of contracts, and, [10-06]–[10-10]
context, and, [6-23], [6-24], [7-29]
document, adoption of, [10-11]
course of dealing, by, [10-13]
entire agreement clause, and, [10-22]
inconsistency in, [13-44]
integration, and, [10-35], [10-38]
invoices, [10-13]
memoranda, [10-13], [10-38]
oral contracts, and, [10-09]
process of construction, and, [1-03]
records, as, [10-13], [10-38]
law, as issue of, [4-15]
parol evidence rule, [8-10]
whole contract rule, [14-02]
signature, and, [9-50]
‘sold notes’, as, [10-13]
written contracts, and, [1-03], [4-15], [9-50], [10-07]
Contracts in writing — see Written contracts Conveyances
context for, [7-31]
‘equitable’ construction, and, [4-25]
falsa demonstratio rule, [4-50]
merger, and, [10-35]–[10-36]
performance, as, [10-35]
related contracts, and, [7-31]
Counterparts
exchange of, [10-08]
inconsistency between, [13-35]
written contract, as, [10-08]
Course of dealing
application of contract, and, [18-16], [18-18], [18-26]
contracts evidenced by writing, and, [10-13]
Contracts Restatement 2d, under, [14-21]
document, adoption of, by, [10-13]
evidence of, [10-13], [12-31], [14-21], [18-16], [18-18]
implied term, and, [3-19], [10-56], [14-21]
meaning, and, [14-19], [14-21], [18-18]
variation of contract, and, [18-18]
Custom and usage
CISG, under, [12-38]
context, and, [7-13], [12-08]
Contracts Restatement 2d, under, [12-38]
evidence of, [8-07]
inadmissible, when, [14-13]
usages under, [14-11]–[14-13]
implied term, under, [3-19], [7-13]
consistency, and, [12-38]
meaning and, [12-14], [12-37]
consistency, and, [14-13]
generally, [14-11]
plain meaning, [14-13]
pleadings, and, [14-11]
presumptions and, [12-14]
rules for, [12-14], [12-38], [14-13]
adoption of, [12-37]–[12-38]
defined class, of, [12-13]–[12-15]
stockbroking contract, and, [14-11]
UNIDROIT Principles, under, [12-38]
usages, under, [14-08], [14-11]–[14-13]

Damages
entitlement to, [8-19]
evidence for, [9-15], [18-06]
innocent misrepresentation, for, [10-03]
liquidated, [2-28], [2-29], [2-30]
remoteness of,
‘consequential loss’, and, [17-24]
Hadley v Baxendale, rule in, [7-35], [9-15]
— see also Rights and remedies
Deeds
commercial construction, and, [1-24], [1-44], [4-25]
consideration, and, [10-06], [10-41]
context for, [6-07], [6-09]
‘contracts under seal’ as, [10-06]
gift, of, [4-36]
hierarchy of evidence, and, [8-11]
interpretation clause, [13-40]
merger in, [10-35]
offers executed as, [9-09]
performance by, [10-35]
poll,
deletions from, [14-32]
reasonable results, and, [13-46]
standard of interpretation, [12-04]
release, of, [4-25], [4-33]
reliability of, [8-11]
rules of construction, and, [4-31], [4-39]
simple contracts and, [10-06]
discharging, [10-35]
merger in, [10-35]
order, higher, [10-36]
‘special contracts’, as, [10-06]
‘specialties’, as, [10-06]
trust, [1-44], [4-36], [7-31]
writing, in, [10-08]
— see also Conveyances
Definition clauses
functions of, [12-19]
‘mortgage’, [15-15]
standard of interpretation, and, [12-17],
party-specific standard, [12-25]
statute, and, [13-39]
unique usages, and, [14-19]
— see also Interpretation clauses
Deletions and insertions
exclusionary rule, and, [14-30]–[14-32]
extrinsic evidence, as, [14-30]
inferences from, [14-30], [14-31], [14-32]
insurance policies, [14-32]
‘mark-up’, and, [14-30]
negotiated contracts, [14-30], [14-32]
precedent documents, [14-31]
standard forms, [14-31], [14-32]
word processing, and, [14-30]
Descriptive terms
application of contract, and, [18-01],
ambiguity in, [18-23], [18-27]–[18-31]
evidence to enable, [18-21]–[18-23]
use of, [18-24]–[18-26]
evidence to explain, [18-02]
generally, [18-19]–[18-20]
context, and, [6-23], [7-12]
‘mutually known facts’, and, [7-17], [13-07], [18-23]
false descriptions, [4-50]
incompleteness in, [18-38]
indeterminate, [11-13]
subject matter, of, [7-17], [15-27]
uncertainty in, [18-37]–[18-38]
— see also Evidence in application
Dictionaries
American, [12-11]
Australian, [12-11]
‘business’, [14-08]
etymology, and, [11-17]
informal, [12-12]
legal, [12-16]
Norwegian, [12-05]
choice of, [13-06]
‘condition’, [11-15]
contract, of, and, [15-04]
multiple, [11-12]
‘own’, [14-14], [14-19]
‘plain’, and, [12-12], [13-08]
mercantile, [14-08]
notional, [12-12]
Oxford English, [12-10]
perspective rule, and, [12-10]–[12-12]
‘private dictionary’ principle, [14-18], [14-19]
standard of interpretation, and, [12-10], [12-11], [12-12], [14-07]
Documentary credits
‘clean’ bills of lading, and, [15-33]
generally, [15-32]
literal construction of, [15-32]–[15-33]
performance bonds, and, [15-32]
Documents
advertisement, [11-06]
ancient — see Ancient documents
annexures, [13-32], [13-43]
appendices, [13-43]
attachments, [13-32], [13-43]
bold, use of, [13-28]
canons of construction for, [4-39]–[4-53] — see also Canons of construction
captions, [13-41]
communications — see Communications
components of, [13-32]–[13-43]
conflicts between, [13-28]
generally, [13-32]–[13-33]
specific, [13-36]–[13-43]
transaction, and, [13-34]–[13-35]
consideration clause, [8-07], [13-38]
context of — see Context; Scope of Context
conveyances — see Conveyances
counterparts, [13-35] — see also Counterparts
cross-references, [13-28]
deeds — see Deeds
definitions, [13-39]
deletions from, [14-30]–[14-32]
diversity of, [1-44]
drafting of, poor, [6-16], [11-18], [13-27], [13-49]
exclusionary rule, application to, [9-05]–[9-10]
execution clauses, [13-43]
handwritten words, [4-52], [13-28]
headings, [13-28], [13-33], [13-41]
inconsistency in, [13-33], [13-35], [13-43]
resolving, [13-49]
insertions into, [14-30]–[14-32]
interpretation clauses, [13-40]
italics, use of, [13-28]
labels, and, [13-18], [13-32], [13-33], [13-41]
layout, [13-28]
marginal notes, [13-41]
meaning, and,
formal clues to, [13-28]
presumptions of, [13-18]–[13-26]
stylistic features, [13-28]
notices — see Notices
receipt, [10-32]
recitals, [8-07], [13-37]
schedules to, [13-43]
‘sham’, [2-12], [2-27]
specifications in, [13-32], [13-43]
title, of, [8-35], [14-29]
typed words, [4-52], [13-28]
unilateral instruments,
commercial approach to, [1-44]
objective approach, [2-03], [2-17]
perspective rule, [9-10], [11-29], [11-32]
standard of interpretation, [12-04]
whole contract rule, and, [4-20]–[4-21], [13-32]–[13-43]
word order, [12-28]
— see also Contracts; Standard forms; Whole contract rule

Ejusdem generis rule
formulation of, [4-49]
generally, [4-39]
standard forms, applied to, [4-41]
strict construction, and, [15-34]
utility of, [4-41]
Employment contracts
evidence in, [18-39]
restraint of trade, in, [16-24]
Entire agreement clauses
‘all terms’ clause, as, [10-24]
‘boilerplate’, as, [10-05]
construction of, [10-20]
‘discharge’ clause, as, [10-25]
estoppel, and, [10-22], [10-29]–[10-30]
evidence, and, [1-21], [9-45], [10-21]
exclusion clauses, as, [10-22], [10-24], [10-27], [10-29]
function of, [10-03], [10-05], [10-22]
generally, [10-21]–[10-22]
implied term, and, [3-23], [10-24], [10-28], [10-52], [10-56]
integration, and, [10-01], [10-15],
legal effect of, [10-16], [10-22], [10-29]
‘merger’ clauses, as, [10-25], [10-34]
misrepresentation, and, [10-32]
nature of, [10-23]
negotiations, and, [10-14]–[10-15], [10-21], [10-23], [10-29]
‘no reliance’ clauses, and, [10-29]
purpose of, [10-21]
representations, and, [10-29]
scope of, [10-26]–[10-30]
types of, [10-23]–[10-25]
validity of, [10-31]–[10-33]
Errors
changing words, [3-05]–[3-13]
clerical, [3-05], [3-06], [3-08], [13-35]
drafting, [3-10], [3-11], [6-16], [11-18], [13-44], [13-49]
expressed intention, in, [2-13], [2-14], [3-05], [3-06]
formal documents, in, [5-23], [7-06], [13-45]
generally, [2-22]
grammatical, [11-18], [12-28], [13-45], [14-22]
ordinary speech, in, [5-10]
meaning, of, [5-13], [9-44]
misnomer, [9-48]
obvious, [3-06]
‘perception’, [13-45]
punctuation, of, [3-06], [5-07], [11-18], [12-28], [13-45]
lack of, [11-10]
rectification of — see Rectification
spelling, [13-45]
standard form, in, [11-18]
syntax, in, [5-13], [13-44]–[13-45], [13-49]
typographical, [13-49]
word order, [12-28]
wrong words, [5-22]
— see also Inconsistency; Mistake
Estoppel
‘contextual construction’, and, [7-23]
‘contractual’, [10-22]
convention, by, [10-22], [10-30], [14-20], [18-17]
entire agreement clauses, and, [10-22], [10-30], [10-32]
‘evidential’, [10-22]
evidence in application, and, [18-16]–[18-18]
evidence in construction, and, [14-19]–[14-20]
scope of, and, [9-12]–[9-13]
forgery, and, [9-18]
formation of contract, and, [9-18]
meaning, and, [9-18], [14-19]–[14-20], [18-17]
misrepresentation, and, [9-18], [10-32]
negotiations, based on, [8-32], [14-20]
representation, by, [10-29]
Statute of Frauds, and, [8-10], [9-18]
subsequent conduct, based on, [18-16]–[18-18]
course of dealing, and, [18-18]
variation of contract, and, [18-18]
Evidence
admissions, of, [9-19]
application of contract, for — see Evidence in application
admissible and extrinsic, [8-08]
form, and, [8-12]
‘parol’, [8-09]
Statute of Frauds, and, [8-10]
code words, of, [14-16]
context, of — see Context; Scope of context
course of dealing, of, [10-13], [14-21], [18-16], [18-18]
custom and usage — see Custom and usage
deletions, of, [14-30]–[14-32]
descriptive terms, and, [18-19]–[18-31]
exclusionary rule, and — see Exclusionary rule
expert,
application of contract, for, [18-37]
context, of, [7-12], [7-13]
specialised meanings, and, [12-33]
usages, of, [14-07], [14-08], [14-09], [14-10]
forbearance, of, [9-16], [18-13], [18-15]
‘further’, [14-07]
hierarchy of, no, [8-11]
insertions, of, [14-30]–[14-32]
intention to contract, of, [9-21]–[9-33], [9-34]
negotiations, of — see Negotiations
principle, issue of, [14-23]
rules of,
stages in construction, and, [1-09]
standard of interpretation, and — see Standard of interpretation
variation of contract, of, [8-36], [18-11], [18-15]
verbal contract, of, [8-10]
vitiating factors, of, [9-12], [9-14]
— see also Actual intention; Extrinsic evidence; Subsequent conduct
Evidence in application
administration of contract, and, [18-02], [18-03], [18-20]
ambiguity, and, [18-27]–[18-31]
latent, [18-27], [18-29]
patent, [18-27]
raising, [18-30]
resolving, [18-29]
types of, [18-28]
unresolved, [18-31]
context, and, [16-17], [16-19], [16-21], [18-01], [18-33]
commercial application, and, [15-21]
enabling, as, [7-34], [18-21]–[18-23]
exclusion clauses, [17-05], [17-17]
use in, [18-25]
contract doctrine, to apply, [18-03], [18-09]
course of dealing, [18-16], [18-18], [18-26]
descriptive terms, and, [18-19]–[18-32] — see also Descriptive terms
discharge by agreement, [18-15]
election, [9-16], [18-07]–[18-08]
estoppel, [18-16]–[18-17]
ambiguity, [18-27]–[18-29]
exceptions to, [18-05], [18-29]
scope of application and, [9-03]
factual circumstances, as, [18-02]
forbearance, [18-13]
frustration, of, [18-03], [18-09]
generally, [6-03], [9-03], [18-01]–[18-03]
incompleteness, and, [18-35], [18-38]–[18-39]
issues of, [18-03]
loss or damage, of, [18-03], [18-06]
negotiations, and, [18-04] — see also Negotiations
parties, identifying, [9-53]
performance of contract, [18-21], [18-32]–[18-39]
incompleteness, curing, [18-35], [18-38]–[18-39]
mode of performance, [18-14]
relationships, and, [18-03], [18-33]
uncertainty, curing, [18-35]–[18-37]
‘reasonable time’, [18-32]
remedies, for, [9-13], [18-06]
rescission by agreement, [18-12], [18-15]
rights, exercise of, and, [18-07]
subject matter, to identify, [18-22]
contextual, as, [18-23]
generally, [18-01], [18-19]
subsequent conduct, of, [18-07]–[18-18], [18-32]–[18-39] — see also
Subsequent conduct
uncertain agreement, and, [18-35]–[18-37], [18-39]
use of, [18-24]–[18-26]
generally, [18-24]
variation of contract, [18-10]–[18-15]
Exceptions to exclusionary rule
ambiguity, and, [8-36], [9-54], [14-24], [14-27], [15-07]
latent, [9-39], [9-48], [18-27], [18-29]
application of contract, and, [18-04], [18-05], [18-28]–[18-30]
consideration, and, [10-41]
construction law, problems in, and, [1-39], [1-42]
generally, [1-51], [8-01], [8-02], [8-08], [14-01]
requirements for, [9-11], [14-04], [18-05]
scope of rule, and,
agreement, [9-31]
party-specific usages, [14-15]
subject matter, and, [18-22]–[18-23]
validity of contract, and, [9-07], [14-24], [14-27], [18-37]
— see also Exceptions to parol evidence rule
Exceptions to parol evidence rule
binding contract, to prove, [10-42]
collateral contracts, as, [10-27], [10-46]–[10-47]
condition precedent, and, [9-29],
formation, to, [10-49]
performance, to, [10-50]
condition subsequent, and, [10-51]
consideration, and, [10-41]–[10-43]
additional, [10-41], [10-43]
binding contract, to establish, [10-42]
executed, [2-16], [10-42]
extent of, [10-43]
illegal, [10-41]
nature of, [10-43]
nominal, [10-41]
past, [10-42]
price, [10-43]
generally, [10-39]–[10-40]
implied terms, and, [10-52]–[10-56]
course of dealing, [10-56]
custom and usage, [10-55]
fact, implied in, [10-53]
generally, [10-52]
law, implied in, [10-54]
partly written contracts, and, [10-44]–[10-51]
approach to, [10-45]
generally, [10-44]
Exclusion clauses
analogous clauses, and, [17-08]
force majeure, as, [17-06]
application of, [11-21], [15-06], [15-22]
commercial, [17-03], [17-05], [17-17], [17-31]
literal, [15-12], [17-10], [17-15], [17-29]
scope of, [17-01], [17-02]
strict, [17-09]–[17-17]
bailment, and, [17-05], [17-20], [17-37]
breach of contract, and, [17-10], [17-20], [17-23]
label for, [17-35]
wilful, [17-25], [17-37]
Canada SS rules, and, [17-25]–[17-31]
first rule, [17-28]
limitation clause, [17-16], [17-17]
scope of, [17-26]
second rule, [17-29]
statement of, [17-25]
status of, [17-21]
third rule, [17-30]–[17-31]
commercial construction, [17-03], [17-32]–[17-37]
preferences in construction, and, [17-34]–[17-37]
‘consequential loss’, [11-21], [17-24]
context, and, [6-17], [17-32]–[17-33]
contra proferentem rule, and, [15-34], [17-04]
ambiguity, [17-14]
canon of construction, as, [4-44]–[4-47]
generally, [17-09]
limitation clause, [17-16]
natural meaning, [17-15]
statements of, [4-45], [17-11]
strict construction, [17-09]–[17-17]
contractual duties, and, [17-06]
deviation rule, [17-19], [17-20], [17-21]
devices and techniques for, [17-04]
entire agreement clauses, and, [10-22], [10-24], [10-27], [10-32]
‘four corners’ rule, [17-19], [17-21]
function of, [17-06]–[17-08]
defensive approach to, [17-04], [17-06], [17-08]
fundamental breach, and, [17-19], [17-20], [17-21], [17-37]
hostility towards, [17-02], [17-32]
expressed, [2-14]
labels, and, [17-16]
legal interpretation of, [17-22]–[17-24]
limitation clauses, [17-16]–[17-17]
contra proferentem rule, and, [17-16]
loss of profit, [17-24]
main purpose rule, [16-11], [17-19], [17-33]
natural meaning of, [11-21], [17-03], [17-15]
negligence, and, [10-32], [16-07], [16-38], [17-19]
Canada SS rules, [17-25]–[17-31]
plain meaning of, [11-21], [17-15]
common law rights, for, [16-38], [17-04], [17-31]
own wrong, against, [17-37]
reasonable results, for, [17-35]
uphold agreements, to, [16-28], [16-29], [17-36]
principle, modern statements of, [17-03]
repugnancy rule, and, [16-11], [17-33]
‘rule in Flight v Booth’, [17-19], [17-20]
rules applicable to, [17-18]–[17-31]
bases for, [17-20]
generally, [17-18]–[17-21]
‘special’, as, [4-34]
status of, [17-21]
words, for particular, [17-22]–[17-24]
statute, regulated by, [10-22], [10-33], [17-07]
strict construction of, [17-04]
commercial construction, and, [15-34], [17-32]
contra proferentem rule, and, [17-09]–[17-17]
degrees of, [17-17]
generally, [17-09]
limitation clause, and, [17-16], [17-17]
literal construction, and, [15-12], [17-10]
natural meaning, and, [17-15]
‘strained’ construction, and, [17-15]
‘warranty’ in, [17-24]
Exclusionary rule
application of contract, and, [18-04]–[18-18] —
see also Evidence in application
bargain, and, [10-03]–[10-05]
capacities, parties and, [9-54]–[9-56]
context, and, [7-04], [7-10], [7-24]–[7-28], [8-06]
contract doctrine, and, [9-13]
deletions, and, [14-30]–[14-32]
discharge by agreement, and, [9-16]
documents, application to, [9-05]–[9-10]
election, and, [9-16], [18-07], [18-16]–[18-17]
entire agreement clause, and, [10-01], [10-03], [10-05]
estoppel, and — see Estoppel
evidence, rules of, and, [6-05], [8-04], [8-08]
extrinsic evidence under, [8-24]–[8-39]
actual intention, [8-24]–[8-27]
form of, and, [9-05]
generally, [8-01]–[8-05]
negotiations, [8-28]–[8-33]
subsequent conduct, [8-34]–[8-39]
forbearance, and, [9-16]
importance of, [8-03], [14-34]
insertions, and, [14-30]–[14-32]
integration, and, [10-01]–[10-02] — see also
Integration of the bargain
intention to contract, and, [9-04], [9-20]–[9-33] — see also Intention to
contract
legal effect, and, [6-03], [8-29], [14-03]
meaning, and, [6-03], [8-05], [8-29], [12-29]
choice of, [13-07]–[13-08], [14-19]
modern conception of, [8-06]
nature of, [8-04]
parol evidence rule, as aspect of, [4-23], [8-05], [9-02], [14-03]
purposes, proscribed, [4-23], [9-11]–[9-19]
generally, [8-04]–[8-05], [18-05]
relationships, and, [9-04], [9-48], [18-33]–[18-34]
rescission, and, [9-16], [18-10], [18-12]
rule of law, as, [6-05], [8-04]
scope of application,
admissions, [9-19]
contracts evidenced by writing, [9-05]
deeds, [9-03]
estoppel, [9-12]–[9-13]
generally, [9-01]–[9-02], [9-04]
illegality, [9-17]
intention to contract, [9-20]–[9-33]
law, rules of, and, [9-13]–[9-17]
mistake, [9-34]–[9-47]
oral contracts, [9-06]
parties, [9-04], [9-48]–[9-56] — see also Parties
purpose, and, [4-23], [8-04]–[8-05], [8-08]
determined by, [9-11]–[9-19]
generally, [9-02]–[9-04]
rectification, [9-13], [9-43]–[9-47]
signature, parties and, [9-50]–[9-53]
standard forms, and, [4-35], [7-36], [14-31]
Statute of Frauds, and, [8-10], [9-08], [18-15]
unenforceable contracts, and, [9-05], [9-08]
utility of, [14-33]–[14-35]
variation of contract, and, [8-36], [9-12], [9-16],
vitiating factor, and, [9-14]
void contracts, and, [9-05], [9-07]
waiver, and, [9-16], [18-07]
— see also Exceptions to exclusionary rule; Extrinsic evidence; Parol
evidence rule
Expressed intention
commercial purpose, and, [13-47]
context, and, [2-13], [2-14]
contract, not to, [9-26], [16-29], [16-31]
descriptions, and, [2-29], [2-30]
enforcement of contract, and, [16-26]
errors in, [3-06]
exclusion clauses, and, [17-28]–[17-29], [17-37]
generally, [1-37], [1-39], [2-02], [2-07], [2-09], [2-11]
good faith, and, [3-37]
‘incomplete’, [3-12], [3-24]
indeterminate, as, [15-06]
inferred intention, and, [1-28], [2-13]–[2-15]
legal effect, and, [2-26]–[2-31], [13-18]
limits on, [2-23]–[2-31]
generally, [2-23]–[2-25]
policy, and, [2-24]
literal application, and, [16-17]
meaning, and,
definitions, [13-39]
interpretation clauses, [13-40]
linguistic, [16-17]
merger, and, [10-35]
mistakes, in, [2-13]–[2-14], [3-05]–[3-06]
objective approach, and, [1-37]
operation, and, [3-02]
reasonable results, for, [16-16], [16-23]
uphold contracts, to, [16-31]
presumption in favour of, [2-11]
rebuttal of, [2-12]
scope of, [2-14]
‘starting point’, as, [2-09]
whole contract rule, and, [2-13], [13-32]–[13-33]
Expressio unius rule
criticism of, [4-48]
formulation, [4-48]
generally, [4-39]
standard forms, applied to, [4-41]
utility of, [4-41]
Extrinsic evidence
actual intention, as, [8-24]–[8-27] — see also Actual intention
admissions, and, [9-19]
agreement, and, [9-31]
aid to construction, not, [4-23], [8-05], [9-02], [9-04]
ambiguity, and — see Ambiguity
application of contract, and — see Evidence in application
categories of, [8-22]–[8-23]
technical, [8-07]
context, and, [6-09]–[6-15], [8-06], [9-48], [14-25]
generally, [6-01], [6-05]–[6-06]
‘parol evidence’, and, [8-23]
scope of, and, [7-24]–[7-28]
usages, and, [14-07]
custom and usage, and — see Custom and
definition of, [8-05], [9-02], [10-02]
discharge, and, [9-16]
election, and, [9-16]
exclusionary rule, and, [4-23], [8-01]–[8-02], [8-22], [14-19]
execution clauses, and, [13-43]
forbearance, and, [9-16]
generally, [1-21], [3-02], [8-01], [8-05]–[8-07]
inadmissible, as, [8-22]–[8-39], [10-20], [14-03]
intention, and, [6-05], [9-04], [9-21], [9-24]–[9-31]
mistake, and, [9-36], [9-41] — see also Mistake
negotiations, as [8-05], [8-28]–[8-33] — see also Negotiations
‘parol’, [8-07], [8-09], [8-12]
parties, and, [9-04], [9-48], [9-51]–[9-53]
purpose, and, [4-23], [8-04]–[8-05], [8-08], [9-02], [10-02]
rescission, and, [9-16], [18-12]
standard of interpretation, and, [14-05]–[14-10]
subjective intention, as — see Actual intention
subsequent conduct, as, [8-34]–[8-39] — see also Subsequent conduct
unenforceable contracts, and, [9-08]
verbal contracts, and, [9-06]
void contracts, and, [9-07]
written, [10-39]
written contracts, and, [8-06], [8-12], [10-39]

Factual matrix — see Context Force majeure clauses
strict, [15-35]
generally, [3-12]
natural meaning of, [11-19]
notice requirements, and, [15-30], [15-31], [16-33]
preferences, and, [16-07]
standard forms, in, [13-14]
Frustration
accrued rights, and, [16-40]
commercial judgment, and, [2-34], [4-18], [11-31], [15-20]
conclusion of law, as, [15-05]
context, and, [6-27], [18-09]
common understandings, [6-32]
delay, by, [4-18]
doctrine of, [3-33], [18-09]
facts relevant to, [4-17], [18-03], [18-09]
generally, [1-29], [4-18]
inferred intention, and, [2-34], [2-36]
law, issue of, [4-14], [4-16]–[4-17]
suspension of performance, and, [16-28], [16-31]
termination by, [16-40]
war, by, [16-28]

Good faith
role of, [3-36]–[3-39]
duty of, [3-36]–[3-39]
fair dealing, and, [3-36], [3-39], [9-18]
implied term for, [3-39]
literal construction, and, [1-31]
repudiation, and, [7-32]
requirement, as, [3-39]
sanctity of contract, and, [3-37]
uncommunicated intention, and, [11-07]
underlying concept, as, [3-39], [16-02]
UNIDROIT Principles, under, [3-36]
Guarantee contracts
aleatory contracts, as, [15-35]
ambiguity in, [15-38], [15-39]
commercial, [15-39]
literal, [15-43]
reasonable results, preference for, [16-23]
strict, [15-36]–[15-43]
commercial construction, [15-39]
commercial purposes, for, [15-37], [15-39]
‘compensated sureties’, by, [15-37], [15-39]
condition, breach of, [15-42]
context for, [6-14], [9-56], [15-37]
creditor, breach by, [15-42]
discharge of, [15-40], [15-42]
gap in, [3-07]
incidents of, [15-36]
indemnities, and, [15-44]
presumptions of, [3-35], [15-17]
labels, and, [2-30]
legal effect, and, [1-19], [11-05]
literal construction of, [15-43]
notice requirements under, [15-29], [15-43]
parties to, [9-56]
principal contract, and, [13-34], [15-40]–[15-42]
lease, as, [15-42]
relatives, for, [15-36]
Statute of Frauds, and, [9-08], [15-44]
strict construction, [15-36]–[15-43]
ambiguity and, [15-38], [15-39]
strictissimi juris rule, [15-38]–[15-39]
subrogation, and, [15-40]
‘third-party’, [15-44]
‘variation rule’, [15-40]–[15-42], [16-06]

Headings
marginal notes, and, [13-41]
whole contract rule, and, [13-28], [13-33], [13-41]
Hire contracts
‘electrical sound-reproduction equipment’, [11-13], [11-14]
entire agreement clause in, [10-23]
exclusion clause in, [17-07]
hire-purchase, [10-27], [14-27], [17-07], [18-36]
mistake, and, [9-51], [9-52]
severance and, [3-12]
label, [2-30]
meaning, [11-13]
sale, and, [2-30]

ICS principles
‘assimilation’ conclusion, [5-05]–[5-17]
audience, and, [5-07]
conclusion on, [5-16]–[5-17]
examples, and, [5-11]–[5-15]
generally, [5-05]–[5-06]
purpose and process, and, [5-10]
rationale, [5-06]
records, documents as, and, [5-12]
‘serious utterances’, for, [5-07]–[5-08]
context, and, [5-02], [5-03], [5-06], [5-09]
‘background knowledge’, [5-20]
elements in, [5-04]
form, and, [5-06]
generally, [5-01]–[5-02], [5-18]
homely examples, and, [5-14]
Humpty Dumpty, and, [5-13], [5-15]
literature, and, [5-13]
meaning, and,
document, [5-03], [5-22]
linguistic, [5-08], [5-22], [5-23]
‘natural and ordinary’, [5-03], [5-23]
objective approach to, [5-10], [5-19]
‘serious utterances’, and, [5-08]
shared, [5-13]
mistake, and, [5-06], [5-24]
misunderstanding, and, [5-10]
ordinary speech, and, [5-07]–[5-10], [5-14], [5-16]
‘serious utterances’, for, [5-06]–[5-07]
‘universality’, and, [5-06]
Illegal contracts
public policy, [2-24], [9-17]
statutory, [2-24], [9-17], [16-28]
subjective intention, and, [9-17]
uphold contracts, preference to, and, [16-28]
— see also Public policy; Void contracts
Implied terms
admissions, based on, [9-19]
bases for, [3-15], [3-25]
‘business efficacy’ test, [3-26]–[3-27]
care skill or diligence, [3-15], [3-25], [3-28]
categorisation of, [3-18]–[3-19]
commercial contracts, in, [3-32]
complete contract, to, [18-39]
consistency, requirement of, [3-25], [10-55], [10-56]
construction, and,
basis for, as, [3-23]–[3-26]
generally, [3-02]–[3-05]
relationship between, [3-34]
co-operation, requiring, [3-15], [3-30], [3-32]
course of dealing, on basis of, [3-19], [10-56]
custom and usage, under — see Custom and usage
default rules, and, [3-31]–[3-36] — see also Presumptions
duties, implied, and,
co-operation, of, [3-15], [3-30], [3-32]
disclosure, of, [3-30]
standard of, [3-31], [11-20]
employment contract, in, [3-29], [18-39]
entire agreement clauses, and, [3-23], [10-24], [10-28]
evolution in, [3-17], [3-34]
exclusion clauses, and, [17-17]
express terms, and, [3-21], [3-25], [3-32]
fact, in, [3-18], [3-26]–[3-27]
‘business efficacy’, and, [3-26], [10-28]
‘obviousness’, and, [3-26]
forfeiture, for, [3-32]
generally, [3-01]–[3-04], [3-14], [3-17]
good faith, of, [3-39]
incompleteness, and, [3-24], [18-39]
integration, and, [10-24], [10-28], [18-39]
intention, and,
classification of, [3-21]
default rules, and, [3-31]
expressed, [2-13]
inferred, [3-15], [3-20], [3-30]
presumptions of, [3-04], [3-17], [3-24], [3-35], [16-06]
law, in, [3-18], [3-28]–[3-30], [18-39]
default rules, and, [3-31]–[3-36]
fitness for purpose, [10-54]
incidents of contracts, as, [3-28], [3-33]
necessity, and, [3-29], [3-33]
law, issue of, [4-14]
legal effect, and, [3-16], [3-23], [3-27], [3-30], [3-33]
licence, contractual, [3-23]
mistake, and, [3-16], [9-34]
‘obviousness’ test, [3-26]–[3-27]
own wrong, preference against, and, [16-42]
course of dealing, [10-56]
entire agreement clause, [10-56]
fact, in, [10-53]
generally, [10-52]
policy and, [3-29]
precedent, and, [3-17], [3-35]
reasonable notice, [3-24]
reasonable time, [3-24]
redundant, [3-32]
relationships, and, [3-17], [3-35], [16-06]
rules for, [3-22]–[3-39]
scope of contract, and, [3-27]
statute, under, [3-14], [3-17], [3-18], [3-21]
uncertainty, and, [3-03], [18-36]
uphold contracts, to, [16-26]
work and materials, [3-28]
Inconsistency
agent, description of, [9-55]
clauses, between, [13-44]
custom and usage, and, [12-38], [14-13]
documents, between, [13-33], [13-43]
purpose of contract, and, [3-11]
whole contract rule, and, [13-33], [13-44], [13-49]
Incorporation of terms
adoption of document, and, [10-13]
clauses, for, [15-17], [15-23]
course of dealing, by, [10-13], [10-56]
document, adoption of, and, [10-13]
oral contracts, into, [10-13]
Indemnities
commercial, [15-45]
generally, [15-44]
reasonable results, preference for, and, [16-20]
uphold agreements, preference to, and, [16-28]
Canada SS rules, and, [17-25], [17-26]
generally, [15-44]
guarantees, and, [15-44]
insurance, as, [15-44]
labels, and, [2-30]
letters of, [16-20]
literal construction, and, [15-45]
misrepresentation, for, [16-28]
mutual, [17-31]
payment under, [3-35]
presumptions of intention, [3-35]
strict construction, and, [15-44]–[15-45]
Inferred intention
bases for, [2-32]–[2-34], [3-04]
concept, [2-15]
construction, as, [2-33], [3-04]
exclusion clauses, and, [17-18], [17-29]–[17-30]
expressed, and, [1-28], [2-13]–[2-15]
factorial approach, and, [2-35]–[2-46], [3-03]
classification of terms, [2-42]–[2-46]
generally, [2-35], [3-02]
pre-contractual statements, [2-37]–[2-41]
frustration, and, [2-34], [2-36]
generally, [1-37], [2-07], [2-15]
implied term, as, [2-15], [3-15], [3-21]
imputed, and, [2-09]
integrate bargain, to, [10-18]
legal effect, and, [2-36], [3-30], [3-35]
objective approach, and, [1-37], [2-15]
precedent, and, [2-35], [2-38], [2-39], [2-45] — see also Precedent
presumed, as, [2-09], [2-15], [3-21]
techniques for, [2-33]
tests for, [2-34]
Insertions — see Deletions and insertions Insurance contracts
aleatory contracts, as, [15-35]
commercial, [15-23]
bankers policy, [13-24]
‘compensation’, [15-23]
context for, [6-17]
industry knowledge, [7-11]
contra proferentem rule, and, [4-43], [4-47], [17-14]
deletions from, [14-32]
disability, [13-20]
disclose, duty to, [3-30]
endorsement, including, [14-32]
exclusion clauses in, [6-17], [17-14], [17-37]
indemnity contracts, as, [15-44]
‘injury’, [13-20]
legal interpretation of, [13-20]
Lloyd’s, [7-11]
marine, [13-21], [18-28]
‘open cover’, [16-22]
paraphrasing, and, [3-09]
‘person’, [13-24]
rectification of, [9-43]
reinsurance, [4-33], [14-20]
‘actually paid’, [3-09], [13-45]
‘riot’, [13-20]
standard form, [4-39]
surplusage in, [4-43]
‘sue and labour’, [12-13]
surplusage, [4-43]
whole contract, giving effect to, [4-43]
Integration of the bargain
collateral contracts, and, [10-27], [10-46]–[10-47]
concept, [10-14]–[10-20]
intention, and, [10-18]–[10-20]
principles, general, [10-14]–[10-17]
condition precedent, and, [10-48]–[10-50]
condition subsequent, and, [10-51]
construction, and, [10-18]–[10-20]
contract evidenced by writing, and, [10-16]
descriptions of, [10-14]
discharge of contract, and, [10-37], [10-38]
document, adoption of, and, [10-04]–[10-13]
events, sequence of, [10-19]
evidence in construction, and, [8-23], [8-32]
express provisions for, [10-21]–[10-33]
generally, [10-21]–[10-22]
scope of, [10-26]–[10-30]
validity of, [10-31]–[10-33]
— see also Entire agreement clauses
fact, issue of, [10-15]–[10-16]
generally, [10-01]–[10-02]
implied term, and, [10-24], [10-28], [10-52]–[10-56]
intention, and, [10-18]–[10-20]
expressed, [10-21]–[10-33]
inferred, [10-18], [10-20]
merger, and, [10-34], [10-36]
negotiations, and, [10-21], [10-23], [14-19]
generally, [10-14]–[10-15]
representations, and, [10-29]
parol evidence rule, and, [8-23], [10-39], [14-03], [18-11]
generally, [10-01]–[10-03]
presumptive approach, [8-18]–[8-20]
partial, [10-15]
tests of, [10-17]
proof of, [10-14]–[10-17]
terminology, [10-14]
tests for, [10-14]–[10-18]
total, [10-15]
tests of, [10-16]
written contracts, and, [10-14], [10-16]
Intention
actual, [2-10] — see also Actual intention
choice of law, [8-43]
classification of terms, and, [2-43]–[2-44], [8-26], [8-31]
common, [2-16] — see also Common intention
communicated, [14-22]–[14-23]
concept, [2-03]
construction, and, [11-07]
controlling factor, as, [2-04]
institution, commitment to, and, [2-06]
object of, as, [1-04], [2-01], [2-04], [8-04]
scope of, [2-05]–[2-08], [9-03]–[9-04]
tests of, [2-37]–[2-44]
context, and, [6-07], [6-11], [6-16]
contract, to — see Intention to contract
contract doctrine, and, [1-29], [2-07] — see also Contract doctrine
declarations of, [2-10], [2-11], [8-25]
definitions, and, [13-39]
evidence of — see Actual intention; Extrinsic evidence
expressed, [2-11] — see also Expressed intention
generally, [1-05], [1-15], [2-01]–[2-08], [3-08], [11-18]
implied terms, and — see Implied terms
imputed, [2-09]
inferred, [2-15] — see also Inferred intention
interpretation clauses, and, [13-40]
legal effect, and — see Legal effect
objective theory, and, [2-18]–[2-22] — see also Objective approach
meaning, and, [11-22]–[11-33]
pre-contractual statements, and, [2-34], [6-03]
presumed, [2-09], [2-15], [3-21]
presumptions of — see Presumptions
remoteness of damage, and, [7-35]
generally, [4-02], [4-05], [4-07]–[4-08], [4-11]
issue of law, as, [4-14]
one construction rule, [4-10]
‘Which?’, [2-09]–[2-15]
whole contract rule, and, [2-13], [13-32]–[13-33]
‘Whose?’, [2-16]–[2-17]
— see also Construction; Meaning
Intention to contract
absence of, [9-26], [16-29], [16-31]
commercial contracts, and, [9-23], [9-25]
conditions precedent, and, [9-29]
consensus ad idem, as, [2-22], [9-21], [9-38], [9-39]
construction, role of, [9-24]
‘ex gratia’ payment, and, [9-26]
bound, intention to be, [9-29]–[9-33]
generally, [9-20]–[9-21]
legal relations, to create, and, [9-25]–[9-28]
domestic agreement, in, [9-28]
objective theory, and, [9-22]–[9-24]
fact, as, [9-24]
generally, [9-20]–[9-21]
‘honourable pledge’ clause, and, [9-26]
inferred, [9-33], [16-29]
mistake, and, [9-34]–[9-47]
incomplete, [9-31]–[9-33]
subsequent conduct, [9-32]
objective theory, and, [9-22]–[9-25]
reliance on, [9-23]
pre-contractual statements, and, [9-29]
preferences in construction, and, [16-05], [16-26]–[16-27]
preliminary agreements, and, [9-31], [9-33]
preservation of, [16-29]
presumptions and, [9-23], [9-25], [9-27]–[9-28]
promissory intent, and, [9-30]
proof of, [9-22], [9-33]
senses of, [9-20]
separate agreement, and, [9-26]
signature, and, [9-22], [9-31], [9-48]–[9-56]
subsequent conduct, and, [9-32]–[9-33], [18-35]
— see also Subjective theory
Interpretation
clause — see Interpretation clauses
‘construction’, and, [1-05]
statutory interpretation, [1-54], [1-58]
generally, [1-05]
legal, [13-16]–[13-26] — see also Legal interpretation
ordinary life, in, [11-07], [11-09], [11-11]
ICS principles, and, [5-03]–[5-05], [5-16], [5-17], [5-21]
standard of — see Standard of interpretation
Interpretation clauses
agreed meaning, and, [12-20]
distributive interpretation rule, and, [4-51]
‘includes’, [13-40]
‘month’, [13-40]
presumptions, as, [13-22], [13-40]

Language
abbreviations, [12-35]
application, in, [16-04]
art, terms of, [11-15]–[11-16]
code, [12-17]–[12-18], [12-32], [12-34]–[12-35]
usages under, [14-16], [14-18]
conventions in,
etymology, and, [11-17]
grammar, [11-17], [11-19], [13-45]
proper meaning, and, [11-17]
spelling, [13-45]
syntax, [11-19], [13-44], [13-45], [13-49]
dictionaries, and, [4-21], [11-12], [11-15]
flexibility of, [13-44]
foreign, [12-32], [12-34], [12-35], [14-07]
grammar, and, [4-21], [5-07], [11-17], [11-19], [12-28]
errors in, [11-18], [13-45]
‘imperfection of ’, [6-11]
invented, [5-13], [12-18], [12-32], [12-34]–[12-35], [14-16]
‘magic’ words, [1-45], [17-22]
mathematical, [12-13]
meaningless words, [3-11], [14-22]
‘naming’, [9-52]
‘old-fashioned’, [11-18]
ordinary speech, of,
contracts, and, [11-07], [11-09]
ICS principles, and, [5-10], [5-11], [5-17], [5-23]
scope of, [15-04]
specialised, [11-03]
usages under, [14-18]
symbols for, [5-09], [6-08], [6-15], [11-08], [11-12], [11-14]
labels, words as, [2-26], [2-30], [13-18]
unique, [12-18], [14-05], [14-16]
syntax, [13-10], [13-44], [13-45], [13-49]
natural meaning, and, [11-18], [11-19]
plain meaning, and, [12-29]
technical, [4-39], [11-16], [12-26]
utterances,
bilateral, [11-07], [11-09]
contracts as, [4-21], [6-16], [11-07], [11-09]
meaning of, [11-02]
ordinary speech, in, [10-10], [11-12]
sentences, and, [5-07], [11-10]
serious, [5-08]
units of communication, as, [11-09]
verbal, [11-07], [11-09]–[11-10], [11-12]
written, [11-04], [11-12]
verbal utterances, and, [11-10], [13-28]
— see also Linguistic theory; Natural meaning; Plain meaning
Leases
aircraft, [14-09]
‘beerhouse’, [11-11]
break clause in, [11-33], [15-30]
collateral contract, and, [10-47]
commercial, [13-21], [16-38]
context for, [6-28], [7-18], [13-35]
counterparts, [13-35]
‘covenant’, [13-35]
drafts of, [7-27]
guarantees, and, [15-42]
implied terms in, [18-39]
indemnity in, [17-30]
label, [13-18]
licence, and, [2-13], [2-30], [2-31]
application of contract, [18-33], [18-34]
legal effect, [1-19], [11-31], [13-03], [13-18]
notice under, [5-22], [15-30]
option to purchase, under, [13-49]
payment under, [7-18], [14-12]
‘possession’, [13-21]
public house, of, [7-18]
railway, [14-28]
re-entry under, [13-35]
renewal of, [16-30]
rent under, [13-46]
review clause, [15-31], [16-33]
set-off under, [16-38]
sub-lease, [16-28]
subsequent conduct, and, [14-28], [18-33], [18-34], [18-39]
‘tied houses’, of, [7-18]
underlease, [7-18]
validity of, [16-28]
Legal effect
agreed damages clause, [14-03]
application of contract, and, [1-09], [11-05], [13-03], [15-24]
legal incidents, [16-05]–[16-09]
classification of terms, and, [1-19], [2-13], [11-05], [13-51]
communications, of, [7-32]
concept, [11-05]
context, and, [2-26], [6-11], [6-17], [6-32]
contract doctrine, and, [1-19], [2-07], [11-31]
entire agreement clause, of, [10-22], [10-29]
expressed intention, and, [2-26], [2-29]–[2-30], [13-18]
generally, [1-18], [2-14], [2-27]
implied term, and, [3-16], [3-23], [3-27], [3-30], [3-33]
intention, and, [2-07], [11-05]
expressed, [2-13]
inferred, [2-36], [3-30], [3-35]
issues of, [11-05]
‘condition’, [2-25], [2-30]
‘deposit’, [2-29]
‘guarantee’, [2-30]
‘indemnity’, [2-30]
legal, [2-25]
‘licence’, [1-19], [11-31], [13-03]
linguistic meaning, and, [18-19]
‘liquidated damages’, [2-28], [2-29], [2-30]
‘penalty’, [2-28]
meaning, and, [1-44], [2-14], [3-16], [11-15]
generally, [13-02], [13-04]
linguistic, and, [1-05], [1-18], [2-30], [9-47]
natural, [11-18], [11-20]
mistake and, [9-35]
negotiations, and, [8-29], [8-31]
objective approach, [11-05]
precedent, and, [1-18], [11-05], [13-11] — see also Precedent
restraint of trade clause, of, [14-03]
generally, [4-06]
one construction rule, [4-11]
perspective rule, [11-05], [11-31]
standard forms, of, [13-14]
standard of duty, and, [11-20]
subsequent conduct, and, [18-34], [18-36]–[18-39]
— see also Legal interpretation
Legal interpretation
application of contract, and, [16-08], [17-22]–[17-24]
certainty, and, [13-16], [13-21], [17-22]
exclusion clauses, of, [17-22]–[17-24]
generally, [13-16]
intellectual baggage, as, [5-03], [13-17]
meaning, and, [13-01], [13-16]–[13-26]
legal, [13-19], [13-20]
‘money’, of, [13-19]
‘perils of the sea’, of, [13-21]
‘possession’, of, [13-21]
precedent, determined by, [13-11], [13-16]–[13-21]
precedent documents, of, [13-21]
proper legal meaning, as, [13-20]
‘restraints of princes’, of, [13-21]
‘riot’, of, [13-20]
standard forms, and, [13-12]–[13-15], [13-21]
strict legal, as, [13-20]
Limitation clauses
aleatory contracts, and, [15-35]
breach, intentional, and, [17-34]
public policy, and, [16-28]
— see also Exclusion clauses
Linguistic theory
connotation, [11-13]
denotation, [11-13]
homonymy, [11-12]
meaning, and, [11-07]–[11-21]
objective approach, and, [11-07], [11-17]
‘ostensive definition’, [11-10]
phonology, [5-13]
polysemy, [11-12]
referent, [11-08], [11-14], [12-21]
relevance of, [11-07]
semantics, [11-08], [11-10]
context, and, [6-08], [6-15], [6-16]
usages, and, [12-18]
— see also Language; Theory
Literal construction
breach’, of, [15-05]
commercial construction, and, [1-31], [11-14], [15-18]–[15-20]
authority and, [15-18]
commercial application, as, [15-01], [15-09]
contrasted with, [1-16], [15-22]–[15-23]
commercially sensible results, and, [16-03]
condition precedent, of, [15-26]–[15-28]
contexts for, [15-25]
generally, [15-24]–[15-25]
incorporation clause, and, [15-17]
natural meaning, and, [11-21], [15-14]
notices, and, [15-29]–[15-31]
objections to, [15-21]
plain meaning, and, [11-21], [15-13]
presumptions of intention, and, [15-34]
strict construction, and, [1-31], [15-12], [15-34], [17-10]
— see also Application of contract

Meaning
agreed, [12-07], [12-18]–[12-19], [14-14], [14-19]
ambiguity of,
context, and, [6-02], [6-07], [6-09], [7-30]
Australian cases, [6-10], [6-13]
English cases, [6-12], [6-14]
uncertainty, and, [14-22]–[14-29]
application of contract, and, [11-13]–[11-14], [13-04], [15-03] — see also
Application of contract
‘available’, [5-13], [12-21], [12-29]
‘behavioural approach’ to, [5-16]
business common sense, and, [13-06], [13-46]
categories of, [11-15]–[11-17]
certainty of, [13-21]
clues to,
formal, [13-28]
utterances, [5-09], [11-10], [13-28]
communicated, [11-03], [11-07], [11-08], [11-30], [14-22]
concept of, [1-40], [13-02]
construction, and, [1-07], [11-02]
custom and usage, and — see Custom and usage
definition, and, [15-03], [18-19]
descriptive terms, of — see Descriptive terms
desired, [11-17]
dictionaries, and — see Dictionaries
exclusionary rule, and — see Exclusionary rule
extrinsic evidence, and — see Extrinsic evidence
‘fixed’, [6-15], [8-23], [11-11], [12-09]
foreign law, under, [12-05]
generally, [11-01]
ICS principles, and — see ICS principles
‘idiosyncratic’, [13-21]
indeterminate, [11-13]–[11-14]
industry, [12-13]
interpretation clauses, and, [12-20], [12-25], [13-40]
joint, [11-07]
known, [11-30], [12-07]
legal, [13-16]–[13-26] — see also Legal interpretation
legal effect, and, [13-02]–[13-04] — see also Legal effect
‘likely’, [12-29]
linguistic, [11-01], [11-06], [13-02]
linguistic theory, and, [11-07]–[11-21]
local, [12-14]
multiple, [3-08], [11-12]
natural — see Natural meaning
‘objective’, [5-16], [5-17], [11-02], [11-30]
‘obscure’, [18-37]
‘obvious’, [12-29]
perspective rule, and — see Perspective rule
plain — see Plain meaning
precedent, and, [13-09]–[13-21] — see also Precedent
presumptions of — see Presumptions
primary, [11-16], [12-20]
proper, [1-52], [11-15], [11-17]
relative concept, as, [11-11]
scientific, [11-16], [12-03], [12-13], [12-14]
scope of words, and, [15-04]
secondary, [11-16], [12-20], [14-18]
single, [11-03], [12-28]
specialised, [11-04], [11-16], [12-13], [12-33]
‘stage’, [1-13]–[1-15] — see also Stages in construction
‘susceptible of more than one’, [6-10], [6-13], [7-27], [8-23]
technical, [12-14], [14-07], [14-09]
trade, [11-16], [12-13], [12-14], [12-20], [14-07]
custom and usage, and, [12-15], [14-11]–[14-13]
true, [1-52], [11-15]
uncertainty of, [14-22]–[14-29], [16-26], [18-36] — see also Certainty of
agreement
unintended, [12-13], [14-22]
unique, [12-29]
usages, and — see Standard of interpretation
— see also Choice of meaning; Intention; Words and phrases
Merger
clause, [10-25]
conveyance, in, [10-35]
deed, in, [10-35]
doctrine of, [10-35]
generally, [10-34]
simple contract, and, [10-36]
Misrepresentation
agent, by, [16-28]
duty of care, breach of, [16-28]
entire agreement clause, and, [10-32]–[10-33]
estoppel, and, [9-18], [10-32]
exclusion clauses, and, [10-32], [16-28], [17-31]
extrinsic evidence, not, [9-12]–[9-14]
fraudulent, [10-33]
uphold contracts, preference to, and, [16-28]
innocent, [9-37], [10-33], [16-28]
damages for, [10-03]
mistake, and, [9-35], [9-40]
statute, and, [10-03], [10-33]
unilateral mistake, induced by, [9-40]
vitiating factor, as, [9-12]
Mistake
common, [9-36]–[9-37]
construction and, [9-36]
rectification, for, [9-47]
consensus ad idem, and, [2-22], [9-21], [9-38], [9-39]
doctrine of,
common mistake, [9-34], [9-36]–[9-37]
mutual mistake, [9-38]–[9-39]
unilateral mistake, [9-34], [9-40]–[9-42]
evidence of, [9-04], [9-38], [9-42]
actual intention, [2-22], [9-14]
background, [9-35]
common mistake, [9-37]
extrinsic, [9-14]
generally, [9-34]
identity, [9-41]
latent ambiguity, and, [9-39], [18-31]
mutual mistake, [9-39]
unilateral mistake, [9-40]
exclusionary rule, and, [9-04], [9-14], [9-34]–[9-47]
generally, [9-34]–[9-35]
‘fundamental’, [9-37], [9-38]
generally, [9-34]
identity, as to, [9-35], [9-41]
intention to contract, and, [2-22], [9-35]–[9-41], [11-26]
legal effect, and, [9-35], [9-44], [9-47]
misnomer, and, [9-48], [9-49]
mutual, [9-38]–[9-39]
Raffles v Wichelhaus, [9-39], [18-31]
names, as to, [9-41], [9-51]–[9-52]
non est factum, and, [9-14], [10-32]
objective theory, and, [2-22], [9-35]
parties, as to, [9-41], [9-51]–[9-52]
rectification for, [9-43]–[9-47]
specific performance, and, [2-16]
subjective approach to, [11-26]
unilateral, [9-40]–[9-42]
rectification for, [9-43]
Smith v Hughes, [2-22], [9-38]
terms, as to, [9-42]
— see also Errors; Rectification; Void contracts

Natural meaning
exclusion clauses, of, [11-21], [17-15]
fact, whether issue of, [11-04]
fallacy in construction, as, [1-52]
force majeure clause, [11-19]
generally, [11-18]
grammar, and, [11-19]
linguistic sense, and, [11-18], [11-19]
literal construction, and, [11-21], [15-14]
plain meaning, and, [1-46], [11-21], [12-28], [13-08], [15-14]
presumption in favour of, [13-08]
problems with, [11-18]
‘rule’, [1-46]
syntax, and, [11-19]
Negotiable instruments
bills of exchange, [4-36]
standard form, as, [7-36]
Negotiations
subject matter, and, [18-20], [18-22], [18-23]
choice of meaning, and, [14-15], [14-19]
code words, and, [14-15], [14-16]
context, and — see Scope of context
contract evidenced by writing, and, [10-38]
deletions, and, [14-30]–[14-32]
direct aid, not, [7-25], [7-27], [8-22], [9-14], [13-08], [14-14]
estoppel, and, [8-32], [14-20]
parol evidence rule, under, [8-15], [8-23], [10-14]
extrinsic evidence, as, [1-21], [8-05], [8-28]–[8-33], [9-02]
criticism, [8-33]
exclusion of, [8-28]
justifications for, [8-32]
prior drafts, and, [8-30]
third parties, and, [8-32]
implied term, and, [10-52]–[10-56]
insertions, and, [14-30]–[14-32]
latent ambiguity, and, [9-39], [9-48], [14-27], [18-27], [18-28]
meaningless words, and, [14-17]
entire agreement clause, and, [10-21], [10-23], [10-29]
integration, and, [8-32], [10-21], [10-23]
generally, [10-14]–[10-15]
meaning, and, [8-22]–[8-23]
party-specific meaning, and, [14-14]
prior drafts, including, [7-27], [7-39], [8-30], [14-21]
‘private dictionary’ principle, and, [14-18]–[14-19]
rectification, and, [5-03], [5-21], [8-32], [9-44], [9-45]
standard forms, and, [7-26], [7-36], [7-39]
vitiating factors, and, [9-12]
‘without prejudice’, [7-31]
— see also Exceptions to exclusionary rule; Extrinsic evidence; Integration
of the bargain

Notices
conditions precedent, and, [15-28], [15-30]
context, and, [6-17], [7-32]
default, of, [2-14], [15-29]
scope of, [11-29], [11-32], [11-33]
requirements of,
application of, [15-29]–[15-31], [16-33]
‘claim’, for, [15-29]
express, [13-42]
force majeure clause, in, [15-29]
implied, [3-24]
options, and, [15-28]–[15-29]
promissory, [15-31], [16-33], [16-34]
statutory, [15-30]
‘without delay’, [16-34]
standard form, under, [7-32]
standard of application, [15-16]
standard of interpretation, [12-04], [12-22]
termination, of, [1-44], [6-17], [11-33], [15-29]–[15-30]
unilateral utterances, as, [5-22], [7-32]
— see also Communications

Objective approach
common intention, and, [2-11], [4-08]
communicated intention, and, [2-10], [14-23]
construction, basis for, [1-03], [2-18]
application of contract, [15-16]
detached objectivity, [11-26]
formation of contract, and, [9-22]–[9-25], [9-34]
generally, [1-29], [1-41], [2-04], [2-08]
assimilation conclusion, and, [5-16], [5-17]
‘ordinary life’, and, [5-12], [5-15]
process and purpose, [5-10]
intention to contract, and, [9-22]–[9-24]
known meaning, and, [11-30]
linguistic theory, and, [11-07], [11-17]
mistake, and, [2-18]–[2-22], [9-34]–[9-35]
perspective rule, and, [4-22], [11-22]–[11-33]
scope of, [11-29]–[11-30]
promisee objectivity, [11-24]
promisor objectivity, [11-25]
purpose of contract, and, [7-25]
rule, as, [4-07]–[4-08]
scope, [2-19]
standard of interpretation, and, [12-03]–[12-04], [12-07]
theory of, [1-39], [2-18]–[2-22]
generally, [2-18]–[2-19]
perspectives for, [2-24]–[2-26]
will theory, and, [2-20]–[2-22]
uniformity, and, [1-36], [1-37]
unilateral utterances, and, [4-08], [4-38]
Offers
acceptance of, [9-31]
written contracts, and, [10-08], [10-12]
advertisements as, [11-06]
context for, [7-32]
counter-offers, [7-27]
invitation to treat, and, [2-17]
legal effect of, [11-06]
meaning of, [11-06]
law, as issue of, [11-04]
standard of interpretation for, [12-04], [12-22]
unilateral utterances, as, [2-17]
— see also Communications
Option contracts
literal, [15-17], [15-28], [15-43]
performance, preference to encourage, and, [16-35]
conditions precedent in, [15-28]
contingencies in, [16-33]
literal construction, of, [1-31], [15-17], [15-28], [15-43]
notice requirements, and, [15-28]–[15-29]
offers, and, [15-28]
time requirements, [15-28]
Oral contracts
concept, [10-09]
context for, [7-29]
evidenced by writing — see Contracts evidenced by writing
partly written, [4-15], [4-20], [4-31], [7-29], [8-19]
exceptions to, [10-44]–[10-51]
reliability of, [8-11]
written contracts, and, [1-13], [1-29], [7-29], [9-50]
classification of contract, and, [10-07], [10-09]
— see also Verbal contracts

Parol evidence rule
adoption of documents, and, [10-04]–[10-13]
events, sequence of, and, [10-19]
presumptive approach to, [8-18], [8-19]
test for, [10-14]–[10-15], [10-18]
views about, [8-18]
bargain, and, [10-03]–[10-05]
classification of contracts, and, [10-07]
conceptions of, [8-13]–[8-16]
consideration, and, [10-41]–[10-43]
definition of, [8-05], [8-09], [8-11], [8-16]
entire agreement clauses, and, [10-21]–[10-33]
equity, and, [4-29]
evidence proscribed by, [4-23], [9-02], [10-39]
extrinsic, as, [8-05], [8-13], [10-01], [10-02]
intention, direct, [8-22], [10-02]
negotiations, [10-02], [10-14]–[10-15]
‘parol’, [8-09]
subsequent conduct, [8-22], [10-02]
verbal, [8-09], [8-10]
written, [8-09], [8-12]
exceptions to, [10-39]–[10-56] — see also Exceptions to parol evidence rule
fallacy of, [1-51]
function of, [10-03]
generally, [10-01], [10-04]
illegality and, [9-13], [10-41]
implied terms, and, [10-52]–[10-56] — see also Implied terms
integration, and, [10-14]–[10-38] — see also Integration of the bargain
Law Commission’s analysis, [8-15]–[8-16], [8-20]
meaning, and, [8-22]–[8-23], [14-19]
plain, [8-23]
mistake, and, [9-34]–[9-47]
pre-contractual statements, and, [1-12], [9-29], [10-03]
evolution of rule, and, [8-21]
partly written contracts, and, [10-45]–[10-51]
presumptive approach to, [8-18], [8-19]
rule of law, as, [6-05], [8-04], [10-40]
scope of,
admissions, and, [9-19]
assignments, [9-09]
estoppel, and, [9-18], [18-17]
evidence in construction, and, [9-10]
meaning, and, [8-22]–[8-23]
notices, [9-09]
rescission by agreement, and, [9-16], [18-12]
unenforceable contracts, [9-08]
unilateral documents, [9-09]
vitiating factor, and [9-14]
void contracts, [9-07]
Statute of Frauds, and, [8-10], [8-11], [10-07], [18-15]
subjective theory, and, [2-21]
utility of, [14-34]
warranty, and, [9-29]
— see also Exclusionary rule; Integration of the bargain
Parties
capacities, and, [9-54]–[9-56]
agency, [9-54]
guarantor, [9-56]
inconsistencies, in, [9-55]
principal debtor, [9-56]
discrepancies, [9-52]–[9-53]
identification of, [9-47]–[9-53]
construction, by, [9-51]–[9-53]
signature, from, [9-50]–[9-51]
misnomer, [9-48]
names, and,
labels, as, [9-51], [9-56]
‘naming’, and, [9-52]
relationships, and, [9-54]–[9-56] — see also Relationships
signature, and, [9-50]–[9-53]
Perspective rule
audience, and, [11-32]
CISG, and, [11-30]
classification of terms, and, [11-31]
context, and, [7-04], [11-22], [13-07], [14-07]
knowledge, of, [7-23]
deceit, and, [11-29]
evidence, and, [14-05]–[14-06]
generally, [11-22]–[11-23]
intention, and, [2-18], [2-22], [11-33], [14-05]
meaning, and, [1-14], [12-23]
choice of, [13-05]–[13-08]
contract, of, [13-05]
generally, [11-01]–[11-03]
known, [11-30], [12-07]
semantic theory, [6-08]
non-promissory statements, and, [11-28]
objective approach, and, [4-22], [11-24]–[11-27]
plain meaning rule, and, [12-03], [12-06], [12-28], [14-05]
promissory statements, for, [2-42], [11-24]–[11-26]
reasonable person, and, [4-22], [7-23], [12-02], [12-10]
facts attributed to, [11-22]
knowledge of, [11-02], [11-32], [12-11]
lawyer, not, [12-16]
‘reasonable addressee’, as, [11-22]
vocabulary of, [11-02]–[11-03], [13-06], [14-06]
scope of, [11-22], [11-29]–[11-33], [14-06]
communications, [11-32]–[11-33]
conduct, [11-29]
instruments, and, [11-32]
intention, issues of, [11-33]
known meaning, and, [11-30]
negotiable instruments, [11-32]
non-contractual documents, [11-29], [11-32]–[11-33]
notices, [11-32]–[11-33], [15-16], [15-31]
standard forms, [4-35], [11-32]
unilateral utterances, [4-37], [11-07]
writ, [11-33]
statement of, [4-22], [11-22]
termination, and, [11-33]
UNIDROIT Principles, and, [11-30]
Plain meaning
ambiguity, and, [7-30], [12-29]
common or ordinary meaning, as, [12-28], [12-29], [14-06], [15-14]
legal meaning, and, [12-26]
context, and, [5-24], [7-27], [12-09], [12-29], [16-17]
natural meaning, and, [1-46], [11-21], [12-28], [13-08], [15-14]
perspective rule, and, [1-14], [11-22], [11-29], [11-33]
community standard, as, [12-09]
generally, [11-01]–[11-03], [12-06]
presumption for, [12-09], [13-08]
referents, and, [11-08]
rule,
standard of interpretation, and, [12-28]–[12-29]
status of, [12-29]
Precedent
classification of terms, and, [2-45]–[2-46], [13-03]
context, not, [6-30], [7-14], [13-16] — see also Context
general rule, [13-09]
incidents of contracts, and, [16-06]
legal effect, and, [1-18], [2-26], [11-05], [13-03], [13-11] — see also Legal
effect
liquidated damages clauses, and, [2-28]
meaning, and, [1-19], [11-06], [11-17], [13-09]–[13-21]
generally, [13-01], [13-03], [13-16]–[13-17]
legal interpretation, and, [13-16]–[13-21]
preferences, and, [16-05]
standard forms, [13-12]–[13-15]
negotiated contracts, and, [13-10]
precedent documents, and, [13-21]
role of, [13-09]–[13-15]
rules, as source of, [13-11]
shipping contracts, and, [16-07]
standard forms, and, [13-12]–[13-15] — see also Standard forms
— see also Legal interpretation; Presumptions
Pre-contractual statements
default rule, no, [2-38]
intention, test of, [2-37], [6-03]
collateral contracts, as, [2-37]
entire agreement clauses, and, [10-21]–[10-33]
exceptions to, [10-44]–[10-51]
puffery, [2-37]
representations, as, [2-37]
warranties, as, [2-37]
— see also Negotiations
Preferences in construction
absurd results, against, [13-46], [16-12], [16-15], [16-19], [16-20]
accrued rights, for, [16-40]
Contracts Restatement 2d, under, [16-09], [16-14]
established, [16-10]
expressed intention, and, [16-09], [16-16], [16-23]
limitation on, as, [16-17], [16-31], [16-35]
generally, [1-17], [16-01], [16-09]–[16-11]
impact, [16-04]
nonsensical results, against, [16-12]
own wrong, preference against, [16-41]–[16-42]
automatic termination, and, [16-42]
profit by, and, [4-04], [16-42]
performance, to encourage, [16-32]–[16-35]
conditions, and, [16-33]
intermediate terms, and, [16-34]
limitations on, [16-35]
promises, and, [16-33]
reasonable results, and, [16-32]
termination of contract, and, [16-32]
upholding contracts, and, [16-32]
policy, based on, [15-08], [16-09]–[16-10]
precedent, and, [15-08], [16-13]
reasonable results, for, [13-46]–[13-47], [16-12]–[16-25]
bases for, [16-13]
choice of meaning, and, [13-46]–[13-47]
commercial application, and, [16-21]–[16-22]
context, and, [16-17], [16-19]
deed poll, [13-46]
express rights and powers, [16-25]
formulations of, [16-14]–[16-15]
generally, [13-44], [15-08], [16-01], [16-12]–[16-13]
impact, [16-04]
intermediate term, and, [16-24]
legal effect, and, [16-24]–[16-25]
limitations on, [16-16]–[16-17], [16-23]
literal application, and, [16-03], [16-15], [16-20]
loan contract, [16-20]
more than one, where, [16-23]
object of contract, and, [16-11]
operation of, [16-19]–[16-23]
performance, encouraging, and, [16-32]
reasonable person, and, [16-19]
sensible results, as, [16-13], [16-14]
shipping contracts, [16-22]
standard of application, and, [15-11], [16-13]–[16-14]
telex, [13-46]
whole contract rule, and, [13-46]–[13-47]
relationships between, [16-18], [16-32]
remedies, for, [16-36]–[16-40]
rights, for, [16-05], [16-10], [16-36]–[16-40]
accrued rights, [16-40]
general preference, [16-37]
generally, [16-36]
presumption, as, [16-37]
releases of liability, [16-38]
specific preferences, [16-38]
termination rights, [16-39]
sensible results, for, [16-09]
unreasonable results, against, [16-12], [16-14], [16-15]
uphold contracts, to, [16-10], [16-26]–[16-31]
contractual intent, and, [16-29]
exclusion clauses, and, [16-28], [16-29], [17-36]
legality, to preserve, [16-28]
limitations on, [16-31]
performance, encouraging, and, [16-32]
policy, based on, [16-41]
‘subject to’ clauses, and, [16-30]–[16-31]
Preliminary agreements
agreements to agree, [14-24]
discharge of, [10-37]
enforceability of, [9-33]
intention to contract, and, [9-31], [9-33]
letters of intent, [9-31]
‘subject to contract’, [9-31]
Presumptions
cheque, in payment by, [3-35]
common law rights, for, [3-35], [16-05], [16-37], [17-13]
concurrent performance, [3-35]
handwritten words, and, [4-52], [13-28]
implied term, and, [3-04], [3-17], [3-24], [16-06]
incidents of contracts, and, [3-28], [3-33], [16-05], [16-07], [16-10]
intention, of, [1-45]
actual, and, [2-10], [2-11]
application of contract, in, [3-35], [16-05]–[16-08]
expressed, in favour of, [2-11]
handwritten words, [13-28]
legal effect, and, [3-32] — see also Legal effect
typed words, [13-28]
whole contract, and, [13-32]–[13-33]
words, particular, and, [16-08]
intention to contract, [9-23], [9-25], [9-27]–[9-28]
preferences in construction, and, [16-05], [16-26]–[16-27]
meaning, of, [3-35], [13-01], [13-16]–[13-26]
common law, at, [13-18]–[13-21]
generally, [13-16]–[13-17]
statute, under, [13-22]–[13-26]
rules of construction, as, [16-05]
‘special conditions’, and, [4-52], [13-15]
statute, under, [13-22]–[13-26], [13-40]
surplusage, against, [4-43]
time stipulation, and, [1-56], [1-57], [3-24], [4-28]
type of clause, based on, [16-07]
typed words, and, [4-52], [13-28]
— see also Legal interpretation; Statute
Prior negotiations — see Negotiations Public policy
enforcement of contracts, and, [16-26]
entire agreement clause, and, [10-33]
illegal contracts, and, [2-24], [9-17]
liquidated damages clauses, and, [2-26], [2-28]
Misrepresentation Act, and, [10-33]
preferences in construction, and,

Reasonable results — see Preferences in construction
Recitals
clarity, lack of, and, [8-07]
consideration clause, and, [13-38]
context, as, [8-07], [13-37]
deed, in, [4-25]
document, as part of, [13-37]
operative part, and, [8-07], [13-37]
preference in construction, and, [16-36]
release of liability, and, [4-25], [13-37], [16-38]
subordinate, whether, [13-37]
Rectification
common mistake, for, [9-43], [9-46]
construction, and, [3-05], [3-09], [9-44]
‘continuing common intention’, [9-46]
evidence for,
actual intention, [8-25], [8-30], [9-46]
‘external manifestations’, [9-43]
negotiations, of, [9-44], [9-45]
objective approach to, [9-46]
generally, [9-43]
intention, and, [2-12], [10-35]
legal effect, mistake as to, [9-47]
‘literal discrepancies’, of, [9-44]
negotiations, and, [5-03], [5-21], [9-44], [9-45]
unconscionable conduct, and, [9-43], [9-44]
unilateral mistake, for, [9-43]
‘verbal expression’, of, [9-44]
Relationships
capacities, and, [9-54]–[9-56]
context, and, [6-28], [18-33]
description of, [2-26] — see also Descriptive terms
exclusionary rule, and, [9-48], [18-33]–[18-34]
fact, in, [18-33]
fiduciary, [2-31]
implied terms, and, [3-17], [3-35], [16-06]
legal effect, and [18-34]
parties, and, [9-54]–[9-56] — see also Parties
performance, in, [18-03], [18-33]
Representations
breach of contract, and, [9-30]
estoppel, and, [10-29], [18-17]
pre-contractual statements, as, [2-37]
Repudiation
breach, and, [3-10]
context, and, [7-32], [13-31]
doctrine, [3-34]
termination for, [3-34], [16-40]
Rescission
agreement, by,
conduct, by, [18-12]
evidence in application, as, [18-03]
express, [18-12]
implied, [10-37]
termination, and, [18-12]
verbal, [18-15]
writing requirements, and, [10-37], [18-15]
misrepresentation, for, [9-37], [9-40], [10-32]
replacement, and, [18-12], [18-15]
‘simple’, [18-12]
unilateral mistake, for, [9-40]
Rights and remedies
construction, arising from, [1-19]
damages — see Damages
evidence for, [18-06]–[18-09]
forbearance to enforce, [9-16], [18-13]
forfeiture, [3-32], [4-27], [16-33]
liquidated damages, [2-28]–[2-30]
notice requirements, and, [15-31]
pre-emptive, [2-27]
preference for, [16-36]–[16-40] — see also Preferences in construction
rectification — see Rectification
rescission — see Rescission
specific performance,
time stipulations, and, [4-27], [4-29]
termination — see Termination
Rules of construction
canons, [4-39]–[4-53] — see also Canons of construction
context rule, [4-19]
exclusion clauses, for, [17-18]–[17-31] — see also Exclusion clauses
exclusionary rule, [4-23] — see also Exclusionary rule
general rules, [4-05]–[4-38]
form of contract, and, [4-31]–[4-32]
law and equity, [4-24]–[4-30]
‘other utterances’, [4-36]–[4-38]
type of contract, and, [4-33]–[4-35]
type of term, and, [4-33]–[4-35], [15-37]
ICS principles, as, [5-18]–[5-24]
generally, [4-01]–[4-04]
law, construction as issue of, [4-12]–[4-18]
application, [4-15]–[4-18]
mixed questions, and, [4-17]
objective approach, [4-07]–[4-08], [4-38] — see also Objective approach
one construction rule, [4-10]–[4-11]
parol evidence rule, [4-23] — see also Parol evidence rule
perspective rule, [4-22] — see also Perspective rule
plain meaning rule — see Plain meaning
presumptions, as, [16-05]
specific rules for documents, [4-39]–[4-53]
time for construction, [4-09]
whole contract rule, [4-20] — see also Whole contract rule
— see also ICS principles

Sale of goods
ambiguity in, [18-31]
auction, by, [9-35]
CIF, [12-33], [13-46], [16-33]
context for, [7-17], [13-29]
sample, exhibition of, [18-22]
co-operation, duty of, [3-30]
damages, [9-39]
delivery under, [2-22], [18-13]
distributorship contract, and, [13-32]
entire agreement clause in, [10-24], [10-27]
evidenced by writing, [10-38]
exclusion clause in, [17-07], [17-10], [17-23]
export certificate, [11-20]
FOB, [11-20], [13-51]
hire-purchase, and, [3-12], [14-27]
implied terms, [3-17], [3-18], [10-54]
incomplete, [3-11], [18-37]
incorporation of terms, [10-13]
integration, [10-36], [10-38]
intention to contract, [9-33]
intermediate terms in, [16-34]
labels, and, [2-30]
meaningless words in, [14-17]
mistake, in, [2-22], [9-39], [9-42], [9-47]
negotiations, for,
parol evidence rule, and [8-19], [10-38]
notice requirement in, [16-33]
option in, [18-37]
oral, [2-22], [10-13], [10-38], [11-10]
performance bond, and, [16-22]
performance of, [3-35], [18-37]
common law rights, for, [16-37]
performance, to encourage, [16-33]
price, [3-24], [13-29]
prohibition of export, [16-33]
quality of goods, [3-28], [11-05], [16-34]
sample, by, [2-22], [8-19], [8-21]
ship, [9-33], [16-30]
sold notes, [10-13], [10-38]
standard forms, [4-39], [13-14] — see also Standard forms
statute, and, [1-54], [17-07]
classification of terms, [2-42]
delivery, [1-57]
implied term, [3-17], [10-54]
‘warranty’, and, [12-19], [17-23]
subject matter of, [11-10], [18-22], [18-31], [18-37]
uncertain, [3-11], [18-37]
‘usual conditions of acceptance’, [3-11]
warranty in, [10-27], [14-19], [17-23]
whole contract rule, [13-29], [13-51]
writing, evidenced by, [10-38]
Sale of land
agency, and, [9-55]
conditions precedent in, [16-30]
context for, [7-25]
conveyance, merged in, [10-35]
‘market value’, [13-49]
merger in deed, [10-35], [10-36]
mistake, in, [2-22], [9-38], [9-42]
parties to, [9-55]
performance of, [3-35]
preference to encourage, and, [16-30], [16-31]
‘special conditions’, [7-40]
standard form, [7-40]
subject matter of, [18-22]
subsequent conduct, [18-32]
Schedules
definitions, in, [13-39]
Scope of context
assignments, [7-19]
common intention, and, [6-31]–[6-33], [7-23]
communications, and, [7-32]
damages assessment, and, [7-35]
definition, [6-21], [7-03]–[7-04]
descriptive terms, and, [18-23]
exclusionary rule, and, [7-04], [7-10], [7-24]–[7-28], [8-06]
extent of, [7-05]–[7-23]
determining, [7-08]–[7-14]
expert evidence, and, [7-13]
generally, [7-05]–[7-07]
industry, about, [7-12], [7-13]
legal, [7-14]
market practice, [7-13]
necessary raw material, [7-09]
negotiations, [7-07], [7-10], [7-17]
‘reasonably available’, [7-20]–[7-21]
related contracts, [7-19]
significance of, [7-18], [7-21]
subject matter, [7-17], [18-23]
trade, about, [7-18], [7-21]
generally, [7-01]–[7-03]
industry, about, [7-12], [7-13]
joint venture, [6-30]
both parties, of, [7-16]–[7-19]
‘capable of being known’, [7-20]–[7-21]
advertence to, [7-21]
evidence, proof by, [7-15]
general background, and,
industry, [7-11]
judges’ knowledge of, [7-11], [7-20]
market, [7-20]
parties, [7-11], [7-20]–[7-21]
‘reasonably available’, [7-20]
generally, [7-15]–[7-16]
‘mutually known facts’, [7-17], [18-23]
necessity for, [7-16]
one party, of, [7-22]–[7-23]
proof of, [7-23]
‘reasonably available’, [7-20], [7-21]
shared, [5-09], [7-15]
specific facts, of, [7-12], [7-16], [7-18]
time of contract, at, [7-16]
limits on,
generally, [7-06], [7-08]
legal, and, [6-21], [7-07]
objectivity, and, [7-10]
purpose, and, [6-21], [7-07]
relevance, and, [7-06]
market, about, [7-12], [7-13]
negotiations, and, [6-23], [7-07], [7-24], [8-29], [13-07]
objective facts, [7-10], [7-26]
prior drafts, [7-27], [7-39], [8-30], [14-21]
‘without prejudice basis’, on, [7-31]
objective approach, [7-04]
opinions, [7-10]
reasonable person, and, [11-22]
related contracts, [7-19], [7-31], [13-34]
standard forms, and, [7-36]–[7-42] — see also Standard forms
subject matter of contract, [18-23]
assignees, [7-42]
bankers, [7-41]
indorsees, [7-41]
lenders, [7-42]
time for, [7-05]
uncertainty and, [6-19]
unilateral utterances, and, [7-31]
Services contracts
exclusion clause in, [17-05], [17-13], [17-29]
implied term, and,
duty, standard of, [3-15]
law, in, [3-18]
indemnity in, [15-45]
personal services, [3-23]
‘sole professional services’, [18-19], [18-26]
Severance
construction, and, [3-11], [3-13]
deletion, by, [3-12]
generally, [3-05], [3-11]
public policy, and, [3-13]
tests for, [3-13]
uphold contract, to, [16-26]
Signature
description, and, [9-51], [9-53]
‘execution’, and, [11-12]
function of, [9-50]
generally, [9-48]
intention to contract, and, [9-22], [9-31]
mistaken, [9-35]
parties and capacities, and, [9-50]–[9-53]
determining, [9-51]
discrepancies, [9-52], [9-53]
written contract, and, [10-08]
Simple contracts
deeds, merger in, [10-35]
parol agreement, as, [10-06]
writing, in, [10-08]
Specific contracts and instruments
articles of association, [4-36]
assignments — see Assignments
bailment, [17-20]
bills of exchange, [4-36]
bills of lading — see Bills of lading
building contracts — see Building contracts
business, sale of, [10-37]
carriage, of — see Carriage of goods
charterparties — see Charterparties
collective bargaining, [4-36]
comfort letters, [6-24], [9-26], [9-30]
company constitutions, [4-36]
construction contracts — see Building contracts
credit, [13-33]
deeds — see Deeds
development, for, [13-45]
distributorship, [11-15], [11-16], [13-19], [13-50]
documentary credits — see Documentary credits
employment — see Employment contracts
guarantees — see Guarantee contracts
hire — see Hire contracts
hire-purchase — see Hire contracts
indemnities — see Indemnities
insurance — see Insurance contracts
joint venture, [6-30], [18-33]
leases — see Leases
letters of credit — see Documentary credits
licences, [3-23]
loan, of, [7-14], [16-21]
mortgage, [13-40]
negotiable instruments — see Negotiable instruments
options — see Option contracts
reinsurance, [4-33], [13-45], [14-20]
release, of, [13-37], [15-23], [16-38]
sale of goods — see Sale of goods
sale of land — see Sale of land
services, for — see Services contracts
shipbuilding, [16-40]
shipping, [16-07], [16-21], [17-37]
stockbroking, [12-38], [17-15], [18-37]
supply, [3-23], [12-13], [15-13]
underwriting, [16-29]
work and materials, [3-28], [16-37]
— see also Standard forms
Stages in construction
application, [1-16]–[1-17], [7-05], [7-34]
which?, [1-17]
which standard?, and, [1-16]
basis for, [1-09]
derivation of, [1-09]
generally, [1-08]–[1-10]
meaning, [1-13]–[1-15]
generally, [1-13]
which?, [1-15]
whose?, [1-14]
preliminary, [1-11]–[1-12]
context, as, [1-11], [6-10]
terms of contract, and, [1-12]
relevance of, [1-10]
Standard forms
adaptations, [11-18], [13-15]
adjudicator, knowledge of, [12-33]
amendment, [7-40], [13-15]
strict, [15-34]
arbitrators, knowledge of, [7-38]
business, of, [7-37], [11-32]
certainty, and, [1-34], [2-44], [4-35], [13-13]
charterparty, [1-44], [4-39], [13-14]
CIF, [16-33]
classification of terms in, [2-44], [13-14]
context for, [7-36]–[7-42], [12-07]
class, for, [7-37]
common understandings, and, [6-32], [7-40]
expertise, [7-38]
general background, [7-36]
history of document, [7-39]
negotiations, and, [7-26], [7-36]
scope of, [7-38]
specific facts, [7-40]
unusual features, [13-15]
deed poll, [13-46]
deletions, [14-30]–[14-32]
demurrage clause in, [13-14]
diversity of, [1-44]
ejusdem generis rule, and, [4-41], [15-34]
errors in, [11-18]
‘expected ready to load’ clause in, [13-14]
expertise, in, [7-38]
expressio unius rule, and, [4-41]
force majeure clause in, [13-14]
GAFTA, [1-34]
form 100, [16-33], [16-34]
form 119, [3-15], [13-51]
handwritten words, [4-52]
insertions, [14-30]–[14-32]
international, [13-13]
ISDA Master Agreement, [13-12]
legal effect of, [1-19], [13-12], [13-14]
NYPE, [15-23], [16-25]
poorly drafted, [11-18], [13-27]
precedent, and, [2-46], [4-35], [13-12]–[13-15], [16-08]
generally, [13-12]
legal effect, [13-14]
meaning, [13-13]
‘idiosyncratic’, [13-21]
negotiated contracts, and, [13-12], [13-15]
one-off issues, [13-15]
remoteness of damage, [7-35]
context rule, [4-33]
exclusionary rule, [4-35], [14-31]
Shelltime 3, [6-25]
‘special conditions’, [4-52], [7-40], [13-15]
surplusage, in — see Surplusage
third party, and, [7-41]
typed words, [4-52]
uniform construction, [13-13]
unusual features in, [13-15]
wrong form, use of, [11-18], [13-15]
Standard of application
‘broad’, [15-09], [15-11]
choice of, [15-10], [15-15]–[15-17]
consumer, and, [15-16]
context, and, [15-16], [15-21], [15-39]
express, [15-15]
inferred, [15-16], [15-22]
intention, issue of, [15-02], [15-15]
interpretation clause, and, [15-16]
presumed, [15-17]
commercial, [1-16], [15-01], [15-09], [15-18]–[15-23]
default rule, as, [15-04], [15-18], [15-22], [16-03]
evolution in, [15-20]
generally, [15-18]–[15-20], [16-01]–[16-04]
incorporation clauses, and, [15-23]
liberal, and, [15-19]
literal, and, [15-22], [15-23]
processes in construction, and, [15-21]–[15-23]
reasonable results, preference for, and, [15-11], [16-13], [16-14]
releases of liability, and, [15-23]
strict, contrasted with, [15-22]
termination clauses, and, [15-23]
concept, [15-01], [15-02], [15-09]
deeds, and, [15-16]
definition of, [15-10]
exclusion clause, and — see Exclusion clauses
generally, [1-16], [15-01]–[15-02], [15-09]–[15-11]
incorporation clauses, and, [15-17], [15-23]
liberal, [15-09], [15-11], [15-19]
literal, [15-24]–[15-33]
strict application, and, [15-12]
— see also Literal construction
multiple, [15-15]
notice requirements, and, [15-16], [15-29]–[15-30]
option contract, [15-28]
plain meaning, and, [15-13]
possible standards, [15-11]
purposive, [1-16], [15-09], [15-11]
strict, [15-34]–[15-45]
literal application, and, [15-12]
— see also Strict construction
terminology of, [15-11]
utility of, [15-11]
— see also Application of contract
Standard of interpretation
choice of, [12-24]–[12-38]
bases for, [12-31]
community at large, [12-27]–[12-29]
custom and usage, and, [12-37]–[12-38]
evidence of, [12-13], [12-24], [12-31], [14-07]
negotiations, [14-17], [14-18]
express, [12-25]
intention, issue of, [12-24]
intermediate class, [12-26], [12-30]
party-specific, [12-34]–[12-35], [14-05]
presumptions, and, [12-24], [12-25], [12-27], [12-30]
proof of, [12-30]–[12-38]
choice of meaning, and, [12-20], [13-06], [14-19]
party-specific standard, and, [12-17], [14-08]
plain meaning rule, and, [12-28], [12-29]
class, defined, of, [12-06], [12-13]–[12-16]
commercial community, not, [12-08]
identifiable, [12-07]
common meaning, and, [12-03], [12-09]
community at large, of, [4-22], [11-17], [12-09]–[12-12]
advertisement to public, and, [11-06]
appropriate, [12-11]
content of, [12-10]
dictionaries, and, [12-10], [12-11], [12-12]
foreign, [12-12], [12-34]
intermediate standard, and, [12-11], [12-16], [12-32]
party-specific standard, and, [12-19], [12-35]
presumed, [12-27], [12-30], [12-36], [14-05], [14-07]
displaced, [12-24], [12-31]
concept, [12-03]
definition, [12-02]
construction, use in, [12-01], [12-24], [12-27]
context, and, [12-25], [12-27], [12-29], [12-31]
inference from, [12-36]
custom and usage, and, [12-08], [12-14]–[12-15]
defined terms, and, [12-17]
evidence, and, [14-02]
categories of, [14-07]
intermediate standard, [12-13]
party-specific standard, [12-24], [14-18]
exclusionary rule, and, [12-29], [14-14], [14-18], [14-19]
expert evidence, [14-07], [14-08], [14-09]
foreign law, and, [12-05]
foreign words, and, [12-32], [12-34], [12-35]
generally, [1-14], [12-01], [12-06]–[12-07]
governing law, and, [12-11]
industry, of, [12-08], [12-13], [12-15], [14-09]
usages, evidence of, [14-05], [14-08]
intention, and, [12-07], [12-24]
choice of standard, proof of, [12-30]
inferred, [12-25]
legal meanings, and, [12-26]
intermediate class, [12-13]–[12-16]
community standard, and, [12-11], [12-16]
custom and usage, as, [12-14]–[12-15]
dictionaries, and, [12-12], [14-08]
identifiable as, [12-07]
party-specific standard, and, [12-19]
usages under, [14-08]–[14-13]
legal, no, [12-16], [12-25]–[12-26]
legal effect, and, [12-05], [12-16], [12-26]
location, at, [12-13]
usages under, [14-09], [14-11]
market, of, [12-13], [12-34]
multiple, [12-24]
negotiations, use of, [12-31], [14-14]–[14-21]
ordinary meaning, and, [12-02], [12-09], [12-29]
party-specific, [12-17]–[12-20]
adoption of, [12-30], [12-34]
code, as, [12-17]–[12-18], [12-32]
community standard, and, [12-19]
confidentiality, [12-18]
express definition, by, [12-19]
intermediate standard, and, [12-19]–[12-20]
invented words, [12-18], [12-32], [12-34]
common meaning, absence of, [12-35]
symbols, for, [12-34], [14-05], [14-16], [14-19]
usages under, [12-18], [14-08], [14-14]
legal standard, and, [12-16]
proof of choice, and, [12-30]
reasonable person, and, [12-02], [12-10], [14-06]
tracks, [12-04]
unilateral standard, and, [12-23]
used to apply, [12-07]
plain meaning, and, [12-03], [12-28], [12-29], [14-05]
possible standards, [12-07]
primary meaning, and, [12-20]
profession, of, [12-07], [12-08], [12-13], [12-15]
usages, evidence of, [14-08]
relevant standards, [12-06]–[12-23]
religious group, of, [12-13]
scientific community, of, [12-03], [12-13]
scope of application, [12-04]–[12-05]
linguistic meaning, for, [12-05]
standard forms, [12-07]
secondary meaning, and, [12-20]
semantics, and, [12-18]
specification, contract, [11-25], [12-26]
technical meaning, and, [12-14]
time for construction, and, [12-10]
trade, of, [4-22], [12-07], [12-08], [12-13], [12-14], [12-20]
usages, evidence of, [12-15], [14-05], [14-08]
translations, and, [12-34]
unilateral, [12-06], [12-21]–[12-23]
application, [12-23]
concept, [12-21]
documents, [12-22]
usages under, evidence of, [12-10], [14-05]–[14-13]
community standard, no, [14-07]
context, [14-08]
expert, [14-08], [14-09]
generally, [14-05]–[14-07]
— see also Custom and usage; Plain meaning

Statute
classification of terms, and, [2-42]
common mistake, and, [9-37]
construction, and, [1-53]–[1-58] — see also Construction
context, as, [6-28], [6-32], [7-14], [7-40], [13-49]
contracts, classification of, under, [10-07]
definitions incorporating, [13-39]
exclusion clause, and, [10-22], [17-07], [17-23]
consumer protection, [10-33], [17-03]
generally, [1-04], [1-53]–[1-54]
illegality under, [2-24], [9-17], [16-28]
implied terms under, [3-17], [10-35]
invalidity under,
contracts, [2-24], [6-30], [9-17]
entire agreement clause, [10-33]
exclusion clause, [17-07]
‘no reliance’ clause, [10-33]
meaning, presumptions under, [13-22]–[13-26]
gender, [13-26]
generally, [13-22]
‘month’, [13-23], [13-40]
‘person’, [13-24]
plural, [13-25]
singular, [13-25]
presumptions under, [13-16], [13-22]–[13-26]
relationships, and, [2-31] — see also Relationships
rules of construction, and, [1-55]–[1-56], [8-10]
Statute of Frauds — see Statute of Frauds time stipulations, and — see Time
stipulations
unenforceable contracts, and, [2-24], [6-30], [9-08] — see also Unenforceable
contracts
writing requirement under, [1-58], [2-30] — see also Statute of Frauds
Statute of Frauds
construction and, [1-58]
discharge, and, [10-37], [18-15]
estoppel, and, [8-10], [9-18]
evidence, hierarchy of, and, [8-11], [18-15]
extrinsic evidence, and, [8-10], [18-15]
guarantees, and, [9-08], [15-44]
impact of, [8-10], [9-08], [18-15]
indemnity, and, [15-44]
labels, and, [2-30], [15-44]
‘memorandum or note’, [10-07], [18-15]
parol evidence, and, [8-10], [10-07], [18-15]
part performance, and, [18-15]
requirements of, [8-10], [8-11], [10-07], [18-15]
rescission, and, [10-37], [18-15]
Strict construction
aleatory contracts, and, [15-35]
application of contract, [15-01], [15-09], [16-03], [16-11]
commercial, and, [1-16], [15-22]
standard of, as, [15-11]
common law rights, and, [16-37]
contra proferentem rule, and — see Contra proferentem rule
ejusdem generis rule, and, [15-34]
exclusion clause, of, [17-09]–[17-17] — see also Exclusion clauses
force majeure clause, of, [15-35]
forfeiture clause, of, [15-34]
literal, and, [1-31], [15-12], [15-34], [17-10]
main purpose rule, and, [16-11]
‘no waiver’ clauses, of, [15-34]
objections to, [15-21]
‘reading down’, by, [15-34]
systematic process, as, [15-21], [15-36]–[15-45]
Subjective intention — see Actual intention Subjective theory
consensus ad idem, and, [2-20]–[2-22], [9-38], [9-39]
ICS principles, and, [5-08], [5-13]–[5-16]
mistake, and, [2-22] — see also Mistake
rejection of, [2-21]
‘will’ theory, as, [2-20]–[2-22]
Subsequent conduct
ancient documents, and, [8-35], [14-29]
parties, by, [18-32]–[18-39]
context, not, [8-36]
course of dealing, as, [18-16], [18-18], [18-26]
discharge of contract, by, [9-16], [18-10], [18-15]
distributorship contract, and, [8-35]
election, and, [9-16], [18-03], [18-07], [18-08]
estoppel, and, [8-39], [9-12], [18-03], [18-17]
extrinsic evidence, as, [1-21], [8-34]–[8-39], [9-02]
choice of law, and, [8-34]
exclusion of, [4-23], [8-05], [8-34]
justification for, [8-38]
Watcham line of cases, and, [8-35]
forbearance, and, [9-16], [18-13]
implied term, and, [10-54], [18-37], [18-39]
incomplete bargain, and, [9-32], [18-35], [18-38]–[18-39]
linguistic meaning, and, [8-37], [8-39]
performance, mode of, and, [18-14]
rescission, [9-16], [18-03], [18-10], [18-12]
terms of contract, and, [8-15], [9-32], [10-17], [18-39]
uncertainty, and, [18-35]–[18-37]
variation of contract, by, [8-36], [9-12], [9-16], [18-10]–[18-11]
waiver, by, [9-16], [18-07]
warranty ex post facto, and, [18-08]
Surplusage
building contract, in, [4-43]
charterparty, in, [4-43]
commercial documents, [4-49], [12-29]
insurance contract, in, [4-43]
Surrounding circumstances — see Context

Termination
agreement, by, [18-12]
breach, for,
commercial judgment, in, [4-18], [15-20]
legal context, and, [6-30]
time stipulation, of, [4-29]
evidence of, [18-07], [18-12]
frustration, by — see Frustration
frustration, for, [3-16]
invalid, [16-32]
notice of, [1-44], [6-17], [11-33], [18-07]
requirements for, [15-29]–[15-30]
performance, to encourage, [16-32]
repudiation, for, [3-34], [16-40]
rights, [4-14], [10-30], [12-26]
common law, [13-50], [16-39], [17-34]
express, [1-48], [3-10], [11-28]
commercial application, and, [15-23], [15-24]
loss of, [18-08]
wrongful, [16-39]
— see also Classification of terms
Terms and clauses
agreed damages, [14-03]
‘all terms’, [10-24]
arbitration — see Arbitration
bilateral, [11-27]
boilerplate, [10-05], [13-42]
break, [11-33], [15-30]
choice of law, [13-49]
conditions — see Classification of terms
conditions precedent — see Conditions precedent
conditions subsequent, [10-48], [10-51]
own wrong, preference against, and, [16-42]
consideration, [8-07], [13-38]
covenants, [2-20], [7-18], [13-35]
definitions — see Definition clauses
delivery, [13-46]
demurrage, [13-14], [16-07]
entire agreement — see Entire agreement clauses
exclusion — see Exclusion clauses
execution, [13-43]
‘expected ready to load’, [13-14]
force majeure — see Force majeure clauses
forfeiture, [15-34]
‘honourable pledge’, [9-26]
incorporation, [15-17], [15-23] — see also Incorporation of terms
intermediate — see Classification of terms
interpretation, [12-20], [12-25] — see also Interpretation clauses
liability, [13-04], [13-41]
limitation, [17-16]–[17-17]
liquidated damages, [2-25], [2-26]
‘no reliance’, [10-29], [10-33]
‘no waiver’, [13-42], [15-34]
nomination, [16-20]
notices, for, [13-42]
oral, [2-45], [10-03]
penalties, [2-28]
pre-emptive rights, [2-27]
price, contract, [3-24], [7-18], [13-29], [13-49]
promissory, [1-56], [2-44], [2-46], [16-33]
rent review, [15-31], [16-33]
restraint of trade, [12-18], [14-03]
‘rise and fall’, [12-35], [14-09]
set-off, [16-38]
severance of, [3-12]–[3-13]
shipping, [16-07]
‘subject to’, [10-19], [10-37], [10-50]
preferences in construction, and, [16-30]–[16-31], [16-33]
termination, [1-48], [3-10], [11-28]
time, as to — see Time stipulations
‘vital’, [14-24]
warranty — see Classification of terms
withdrawal, [5-23], [15-23], [15-24], [16-25]
Theory
assimilation conclusion, [5-05]–[5-17]
contributions to,
Humpty Dumpty, [5-13]
Lord Atkinson, no, [6-12], [8-35]
Lord Ellenborough, [4-39]
Lord Hoffmann, [1-26], [5-01], [5-02]
Lord Kenyon, [4-39]
Lord Mansfield, [2-20], [4-39]
Lord Steyn, [1-26]
Lord Wilberforce, [1-09], [1-26]
Wigmore, [12-06]
generally, [1-02], [1-08], [1-39]
integration, of, [10-14]
linguistic — see Linguistic theory
meaning, [11-07]–[11-11]
semantic, [5-08], [6-08], [6-15], [11-08], [11-10]
stages in construction, as, [1-08]–[1-17]
standard of application, [1-16], [1-22], [15-02]
standard of interpretation, [1-16], [1-22], [12-01]
unitary, [1-35]
— see also Commercial construction; Objective approach; Subjective
theory
Time stipulations
classification of terms, and, [2-42], [2-44], [4-29], [4-30]
equitable treatment of, [4-26]–[4-30]
essential, [1-56], [2-42], [10-22], [13-51]
implied, [3-24], [15-28]
Law of Property Act, and, [4-26]–[4-29]
legal effect of, [2-42], [10-22], [15-24]
enforcement rules, and, [4-27]
‘reasonable time’, [18-03], [18-32]
remedies, and, [4-27]
standard forms, in, [2-44]
statute, and,
Judicature Act, [4-26], [4-27], [4-29]
Law of Property Act, [4-26]–[4-29]
sale of goods, [1-56], [1-57]

Uncertainty — see Certainty; Certainty of agreement
Unconscionable conduct
extrinsic evidence, not, [9-14]
rectification, and, [9-43], [9-44]
Unenforceable contracts
generally, [9-08]
public policy, under, [2-24], [6-30]
statute, under, [2-24], [6-30], [9-08]
— see also Contracts; Void contracts

Variation of contracts
boilerplate clause, and, [13-42]
evidence in application, as, [18-03], [18-10], [18-11]
extrinsic evidence, not, [9-12]
verbal, [18-15]
writing requirements, and, [10-37], [18-15]
Verbal contracts
extrinsic evidence, as, [8-06]
meaning of, [11-04], [11-07], [11-09], [11-12]
oral contracts, and, [4-37], [8-12], [11-04], [13-28]
process of construction, and, [2-05]
Vitiating factors
duress, [9-12], [9-14]
extrinsic evidence, not, [9-14], [9-17]
fraud, [10-32]
misrepresentation, [9-12]–[9-14], [10-32]
mistake, [2-22], [9-34]–[9-40], [10-32]
unconscionable conduct, [9-14], [9-42]
undue influence, [9-14]
— see also Misrepresentation; Mistake; Unconscionable conduct
Void contracts
incompleteness, and, [3-12], [14-24], [18-35]
mistake, for, [9-34]–[9-47]
common, [9-37]
generally, [9-34]
identity, of, [9-35]
mutual, [9-39]
unilateral, [9-40]
public policy, under, [2-24], [3-12], [6-30], [9-16], [9-17]
statute, under, [2-24], [6-30], [9-17]
uncertain contracts, [3-12], [14-24], [18-35]
— see also Certainty of agreement; Illegal contracts; Mistake

Waiver
boilerplate clause, as, [13-42]
evidence of, [9-16], [18-07]
‘no waiver’ clause, [15-34]
‘subject to contract’ clause, of, [9-33]
Whole contract rule
ambiguity, and, [14-24], [14-25], [18-27]
resolving, [13-48]
‘axiomatic’, as, [13-27]
canon of construction, as, [13-17]
clause as whole, and, [13-27]
commercial purpose, and, [13-47]
common law rights, and, [13-50]
components of contract, and, [13-32]–[13-43]
annexures, [13-32], [13-43]
appendices, [13-43]
attachments, [13-32]
captions, [13-41]
consideration clauses, [8-07], [13-38]
counterparts, [13-35]
execution clauses, [13-43]
headings, [13-28], [13-33], [13-41]
implied terms, [13-36]
incorporated terms, [13-36]
marginal notes, [13-41]
recitals, [8-07], [13-37]
schedules, [13-43]
specifications, [13-32], [13-43]
using, [13-27]–[13-31], [13-44]–[13-51]
context, and, [6-05], [6-07], [6-14], [13-27]
cross-references, and, [13-28]
deed, and, [13-30]
definitions, and, [13-39]
exclusion clause, and, [17-17], [17-27]
generally, [4-20]–[4-21], [13-27]
giving effect to whole, and, [4-43], [13-29]
inconsistency, resolving, [13-49]
internal relationships, and, [13-29], [13-33], [13-43], [13-44]
dependency of obligation, [13-51]
inconsistency, [13-49]
rights, between, [13-50]
interpretation clause, and, [13-40]
meaning, and, [13-01], [13-05], [13-08]
mistakes, and, [13-45]
notice, and, [13-31]
reasonable results, and, [13-46]–[13-47]
scope of, [13-30]–[13-51] — see also Documents
statement of, [4-20]–[4-21], [13-27]
stylistic features, and, [13-28]
transaction, whole, and, [13-27], [13-30], [13-34]–[13-35]
using, [13-27]–[13-31], [13-44]–[13-51]
generally, [13-27]–[13-29]
scope, [13-30]–[13-31]
Will theory — see Subjective theory
Words and phrases
‘accept/except’, [12-33]
‘actually paid’, [3-09], [13-45]
‘additional residential payment’, [13-45]
‘after 12 months trading’, [3-08], [11-12], [13-48], [14-19]
‘aggregate profits’, [5-24], [6-33], [8-25], [13-48], [15-14]
‘all liability’, [17-29]
‘any breach’, [15-04], [15-12], [15-23], [16-25]
‘any loss’, [17-29]
‘at all times hereafter’, [15-13]
‘beerhouse’, [11-11]
‘bill of lading’, [13-41]
‘breakdown of equipment’, [15-03]
‘carry at 8 per cent’, [12-38], [14-12], [18-37]
‘CIF’, [12-33]
‘civil war’, [13-20]
‘claim’, [13-39]
‘condition’, [11-15], [11-16], [11-17], [13-19]
‘conditions of employment’, [13-48]
‘consequential loss’, [11-21], [17-24]
‘contract’, [11-12]
‘cost insurance and freight’, [12-33]
‘covenant’, [13-35]
‘demurrage’, [12-13]
‘electrical sound-reproduction equipment’, [11-13], [11-14]
‘entire production’, [14-18]
‘ex gratia’, [9-26]
‘execute’, [11-12]
‘execution’, [11-12]
‘failure to comply’, [12-05]
‘fair market price’, [7-18]
‘fair specification over the season’, [18-37]
‘fares’, [6-17]
‘50 crates Wedgwood Seconds’, [18-22]
‘FOB’, [11-20], [13-51]
‘following provisions’, [13-28]
‘forfeited’, [16-22]
‘gas’, [12-11]
‘guarantee’, [2-30], [12-26], [13-19]
‘Housing Project No 4’, [18-19], [18-22]
‘howsoever caused’, [17-29]
‘in reasonable time’, [18-32]
‘includes’, [13-40]
‘including’, [13-40]
‘indemnity’, [2-30]
‘injury’, [13-20]
‘insurance’, [13-19]
‘insurrection’, [13-20]
‘L/C’, [12-33]
‘laycan’, [12-33]
‘loss’, [13-04], [15-04]
‘loss or damage’, [13-04], [15-04]
‘market value’, [13-49]
‘matchless 2475 39/40 white voile’, [14-17]
‘may’, [7-27], [11-19], [14-25]
‘merchant bank’, [6-17]
‘month’, [1-57], [13-23], [13-40]
‘mortgagor’, [13-40]
‘NCAD’, [12-33]
‘negligence’, [12-16]
‘no liability of any nature’, [17-31]
‘offer’, [12-16]
‘on hire-purchase terms’, [3-12], [14-27], [18-36]
‘paid’, [13-45]
‘pay loadings’, [12-35], [14-09]
‘payment in cash’, [18-38]
‘perils of the sea’, [13-21]
‘person’, [13-24]
‘petroleum’, [12-36]
‘please forward contract’, [11-19]
‘position’, [6-28]
‘possession’, [13-21]
‘poultry’, [12-11]
‘price ruling at the date of delivery’, [13-29]
‘provision’, [13-48]
‘push and stack’, [14-12]
‘reasonable efforts’, [18-32]
‘reasonable time’, [18-03], [18-32]
‘rebellion’, [13-20]
‘rescind’, [13-19]
‘restraints of princes’, [13-21]
‘riot’, [13-20]
‘sole professional services’, [18-19], [18-26]
‘subject to completion’, [10-19]
‘subject to force majeure conditions’, [3-12]
‘subsidiary’, [13-39]
‘sue and labour’, [12-13]
‘terminate’, [13-19]
‘their debts’, [4-51]
‘total cost of the works’, [18-22]
‘usual conditions of acceptance’, [3-11]
‘usual conditions of sale’, [3-12]
‘vendor’, [9-49]
‘warranty’, [12-19], [12-26], [16-08], [17-23]
‘will be paid’, [11-06]
‘without deduction’, [16-38]
‘without delay’, [16-34]
‘Yard No 354’, [18-19], [18-25]
‘your wool’, [18-19], [18-23]
— see also Descriptive terms
Written contracts
adoption of documents as, [10-11]–[10-13]
acknowledgment, by, [10-08]
conduct, by, [10-08], [10-12]
counterparts, by exchange of, [10-08]
execution, by, [10-08], [10-12]
knowledge of terms, and, [10-12]
offer, acceptance of, [10-08], [10-12]
proof of, [10-12]
signature, by, [9-50], [10-08]
ticket cases, [10-12]
classification of contracts, and, [10-06]–[10-10]
concept, [10-07]
deeds, and, [10-06]
documents as, [10-07]
evidenced by writing, and, [1-03], [4-15], [9-50], [10-07]
execution of, [10-08]
‘in writing’, [10-08]
law, construction as issue of, [4-12], [4-15], [4-17]
meaning, and, [1-13], [5-17]
oral contracts, and, [1-13], [1-29], [7-29], [10-07], [10-09] — see also Oral
contracts
partly, [4-15], [4-20], [4-31], [7-29], [8-19], [10-10]
simple contracts, and, [10-06]

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