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The Terms of a Contract1) Interpreta*on
Literal Interpreta,on
- This does not deal with the inten/on of the par/es, but what the
meaning of the words they have used is. – Lord Denning (Rickman v
Carstairs).
Objec,ve Interpreta,on
- We are not focused on what the par/es intended in their minds, but
what the words of the contract would convey to a reasonable person
with the same background knowledge.
- This is an objec*ve test; the court is concerned to iden/fy the inten/on
of the par/es by reference to "what a reasonable person having all the
background knowledge which would have been available to the par*es
would have understood them to be using the language in the contract
to mean".
Reasons for objec*ve rule:
1) No single inten/on exists
2) There has to be an objec/ve understanding of inten/ons because they
will be interpreted differently subjec/vely.
The factual Matrix:
- The factual matrix is the background to the contract.
- The 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. - Khan v Khan [2007] EWCA Civ 399
The exclusionary rule:
, - The law excludes from the admissible background the previous
nego,a,ons of the par,es and their declara,ons of subjec,ve intent.
The meaning of the document:
- The meaning which a document (or any other uHerance) would convey
to a reasonable man is not the same thing as the meaning of its words.
- The meaning of words is a maHer of dic/onaries and grammars; the
meaning of the document is what the par*es using those words against
the relevant background would reasonably have been understood to
mean.
Business Common sense
- The ‘rule’ that words should be given their ‘natural and ordinary
meaning’ reflects the common sense proposi/on that we do not easily
accept that people have made linguis/c mistakes, par/cularly 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 aHribute to the par/es an inten/on
which they plainly could not have had.
- Pink Floyd Music v EMI Records [2011] 1 WLR 770
LiDman v Aspen Oil (Broking) [2005] EWCA Civ 1579:
Facts:
- A term in a lease provided that either party could terminate the lease by
giving six months’ no/ce.
- It included the proviso that, “in the case of a no/ce given by the
landlord, the tenant shall have paid the rents hereby reserved.”
Facts:
- The proviso, as it stood, was “a nonsense.”
- The word “landlord” should be interpreted to mean “tenant.”
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