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Investors Compensation Scheme Ltd v West Bromwich Building Society

[1998] 1 All ER 98

Case summary last updated at 02/01/2020 10:12 by the Oxbridge Notes in-house law team.

Judgement for the case Investors Compensation Scheme Ltd v West Bromwich Building Society

HL expands the interpretation of contracts to “contextual objectivity” i.e. interpretation of persons, not words, including anything relevant to a reasonable person’s interpretation (CW). 
Lord Hoffman: He restated 5 principles of contract law: (1) objective intention i.e. what would the reasonable bystander with same background knowledge as the parties believe the intention to be; (2) The scope of context/background facts to be taken into account is wide. “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 that would have affected the way in which the language would have been understood by the reasonable man.”; (3) previous declarations of intent and previous negotiations are NOT admissible as relevant background facts (since parties are free to change their bargaining postures); (4) the courts are concerned with the “meaning of persons” i.e. the courts are not bound strictly by the words of the document and can conclude that the wrong syntax etc was used or the wrong words; (5) there is a presumption against irrationality i.e. unless we conclude that something “must have gone wrong” with the language used, we are to interpret the words within the “natural and ordinary meaning”. 

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