The Lingering Confusion and Uncertainty in the Law of Contract Interpretation

Abstract

The judgments of English courts regularly state that the principles governing contract interpretation are well established. On the surface this seems correct, particularly in view of the frequent endorsement of Lord Hoffmann’s restatement of the fundamental principles of interpretation in the Investors Compensation case. However, this article argues that closer scrutiny reveals a different picture. The principles are now being questioned or not applied as Lord Hoffmann intended, and in other respects the law is uncertain. Recent developments suggest that what Lord Steyn once described as the “shift towards commercial interpretation” has been halted, or at least curtailed. In other words, they are indicative of a desire to return to a more conservative approach to contract interpretation under which disputes should be resolved primarily on the basis of textual analysis with limited resort to external context, including considerations of commercial common sense. The author concludes by suggesting a principled way out of some of the current confusion and uncertainty that does not entail abandoning Lord Hoffmann’s principles and turning the clock back to a plain meaning rule under which ordinarily the only escape from a finding that the language of the contract is unambiguous is a ruling that absurd consequences will result.

Keywords: Contract, Interpretation

JEL Classification: K12