Construction (Interpretation)

• Lord Napier and Ettrick v Kershaw [1999] – Lord Steyn set out several key principles:

  • Loyalty to the text of a commercial contract, instrument, or document read in its commercial setting is the paramount principle of interpretation.

  • Words ought therefore to be interpreted in the way in which a reasonable commercial person would interpret them.

    • This is more likely to give effect to the intention of the parties.

  • McKendrick questions if this is fair given many commercial people consult lawyers.

• Four Corners Rule:

  • Lovell & Christmas v Wall (1911) - plaintiff sought an injunction to prevent the defendant, its former director, from carrying on business in Liverpool as a manufacturer of margarine. Turned on interpretation of ‘provision merchant.’

    • Held it is irrelevant and improper to ask what the parties, prior to the execution of the instrument, intended or understood.

    • Lord Cozens-Hardy MR explained that “construe the document according to the ordinary grammatical meaning of the words used therein”.

    • Everything that could properly be taken from a document would appear from its words alone, provided only that they were properly interpreted

• The Rule has Gradually been Erroded

  • Prenn v Simmonds [1971] - Lord Wilberforce disclaimed the idea that agreements could be wholly isolated from the “matrix of fact” in which they were set. “No contracts are made in a vacuum”

    • This can still be objective: the intention which reasonable people would have if placed in the situation of the parties.

  • Investors’ Compensation Scheme v West Bromwich Building Society [1998] – Lord Hoffman summarised principles

    • 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

    • 2) Matrix of fact 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) Excluding...

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