LW11011 PLS I - Week7InterpretationRectificationContractTerms2024 PDF

Interpretation and Rectification of Contract Welcome to PLS I – Week 7 with Dr Lorna Gillies Express Terms – Incorporation of Terms Our focus: What is interpretation/construction? Why do we need it? Interpretation How do courts work out what a term of a contract m...

Interpretation and Rectification of Contract Welcome to PLS I – Week 7 with Dr Lorna Gillies Express Terms – Incorporation of Terms Our focus: What is interpretation/construction? Why do we need it? Interpretation How do courts work out what a term of a contract means? Objective test “Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person…” per Lord Hoffman ICS Ltd v West Bromwich Building Society 1 WLR 896 Not a repairs facility Rectification Two Approaches to Interpretation (i) (1) Literal Approach What does the contract say? Ordinary meaning and party knowledge of surrounding circumstances - Bank of Scotland v Dunedin Properties 1998 SC 657 Plus Contextualism - ICS Ltd v West Bromwich Building Society 1 WLR 896 per Lord Hoffman Two Approaches to Interpretation (ii) (2) Factual Matrix/Unitary Approach The purpose of the contract – natural meaning – Reardon Smith Line Ltd v Hansen-Tangen 1 WLR 989, per Lord Wilberforce The facts known to the parties at the time of contracting – surrounding context – Reardon Smith (above) Prior communings – commercial common sense Now Unitary approach Arnold v Britton UKSC 36 and Wood v Capita UKSC 24  Factual Matrix Factual Matrix – three requirements (1) Whole commercial context … Means what? Arnold v Britton UKSC 36 and Wood v Capita UKSC 24  Factual Matrix (2) Factual Matrix – three requirements (2) Commercially sensible Role of judge in a commercial dispute R&J Dempster v Motherwell Bridge 1964 SC 308 Rainy Sky SA v Kookmin Bank UKSC 50  Factual Matrix (3) Factual Matrix – three requirements (3) Prior Communings Bank of Scotland v Dunedin Properties 1998 SC 657 Chartbrook v Persimmon Homes UKHL 38  Factual Matrix = Now Unitary Approach No need for ambiguity of words for a contract dispute – Luminar Lava Ignite Ltd v Mama Group CSIH 1 Arnold v Britton UKSC 36 Natural and ordinary meaning Any other relevant provisions Overall purpose of the document Facts and circumstances known or assumed known to parties at time contract formed Commercial common sense Excluding subjective evidence of intentions  Other Approaches to Interpretation (3) The Iterative Approach Arnold v Britton 2015 and Rainy Sky v Kookmin 2011 (above) – taken into account in the unitary/flexible approach Wood v Capita Insurance Services UKSC 24 “…where there are rival meanings, the court can give weight to the implications of rival constructions by reaching a view as to which construction is more consistent with business common sense… This unitary exercise involves an iterative process by which each suggested interpretation is checked against the provisions of the contract and its commercial consequences investigated.” per Lord Hodge  Further Approaches to Interpretation (4) Contra Proferentem See Woolman & Black at 8-18, 8-19 This rule is usually applied in contracts with standard terms (i.e., where some terms may not have been negotiated) When interpreting an ambiguous clause, courts interpret it against the proferens (the party seeking to rely on the clause) i.e., it is interpreted in the way ‘least favourable’ to the interest of the party who had imposed it. Life Association of Scotland v Foster (1873) 11 M. 351 A person entered into a contract of life insurance They did not know they was suffering from a disease at the time of contracting – thus declared to the insurance company that they were in good health Clause in contract stipulating that if any untrue statements were made, all sums paid out were forfeited This clause was relied on by the insurance company, who refused to pay out upon the person’s death  Rectification What if the terms of the contract are not those that were agreed? ss8-9 Law Reform (Miscellaneous Provisions) (Scotland) Act 1985 a document intended to express or to give effect to an agreement fails to express accurately the common intention of the parties to the agreement at the date when it was made – s8(1)(a) [the court] may order the document to be rectified in any manner that it may specify in order to give effect to that intention – s8(1) Protection for third parties – s9