Essential Factors in Contract Interpretation in Common Law
Impacting the judicial process, there are
three aspects that might affect the contract interpretation approach: the
function of the lawyers, hierarchy of judges and understanding of parties. If any
of these is omitted or misused in the role they exercise toward a contract, the
construction of that agreement becomes more complicated. These ingredients are
necessary for, what is assumed as, complete justice.
1.
Attorneys’
Role
The
legal community might reconsider the ways that lawyers create ambiguity in
contracts, which could help courts to avoid looking at a number of agreement
disputes. As Lord Neuberger of Abbotsbury has stated, ‘often the skill of the
drafting lawyer is in producing obscurity, rather than clarity, so that two
inconsistent interests can feel satisfied with the result.’[1] Indeed, barristers in
Australia have been described as ‘expert at manufacturing ambiguities’, which obviously
causes other lawyers or the judges to have to work hard to interpret the
meaning of certain words.[2] As a result, it appears
that the role that lawyers play in contract-drawing is in certain cases an
essential factor in producing unclear wording, which comes to the attention of some
judges and ought to be addressed.
As
in the case of searching for the true intentions, however, it might difficult
to prevent attorneys from forming contracts in the way they consider to be in
their clients’ best interests. This suggests that judges might need to obtain
from the legislative broad powers to apply rectification on contracts that do
not observe their purposes (i.e. with clarity rather than deliberate
obscuration regarded as the intent). Courts could allow for the rewriting of
ambiguous agreements after consideration of the evidence of surrounding
circumstances. Lord Hoffmann’s principles could thus be used in this situation
to resolve lack of clarity in contract wording.
Nevertheless,
there are certain methods where attorneys might continue to affect the contract
construction disputes in the future, to which judges might pay attention. For
example, some lawyers include in commercial contracts a provision that
indicates that both parties ‘really mean that the agreement, as written, is
exclusive.’[3]
Following the ICS principles, a judge
cannot interpret the words or the contract, because of the exclusion provision.
In other words, the reason for construing a meaning in a commercial contract because
it contradicts common sense is not a matter in this specific agreement, where
the contract is exclusive. Codelfa
rule, meanwhile, would also not find reason to construe the contract, as long
as the words of the agreement were clear (in which case the judge would
reconsider the contract regarding the surrounding circumstances and common
sense). The Codelfa method seems to
be more cohesive than the ICS here, virtue
of reserving the importance of a contract’s written words.
2.
Court
Ranking
There might be a the possibility of the hierarchy of courts
in Common law societies preventing justice from prevailing if questionable
judgments arrive from a lower court, which is what might have transpired in the
Australian judicial system. If High Court judges disagree or agree with an
idea, other justices must follow them, as indicated in the following Australian
High Court statement:
Until this court embarks upon
that exercise and disapproves or revises what was said in Codelfa, intermediate appellate courts are bound to follow that
precedent. The same is true of primary judges, notwithstanding what may appear
to have been said by intermediate appellate courts. [4]
A low-ranking judge cannot dissent from the High Court
conduct if a similar case has been decided by it, even though if the inferior
decision is endorsed by Court of Appeal. Moreover, the High Court has a strict
approach in reconsidering its previous judgments in common law, although it is
more flexible when it comes to overruling its decisions in cases that involve
interpreting constitutional texts.[5]
A contrary view would assume that the court hierarchy enhances
coherence and justice in the judicial process. In fact, as long as the more
experienced justice is appointed in a higher court, the court system can mostly
be expected to work appropriately. Moreover, even if there were a ‘mistake’ in
the process, the court would generally adjust its method in the future,
whatever the individual cost. For example, it been claimed by some commentaries
that the High Court of Australia is ignoring the ICS principles and disallowing the lower courts from applying them,
even though it has used the principles in previous cases.[6]
Nevertheless, the common law Judiciary authorities do need
to combine flexibility with stability. As it is said in the common law legal
system, ‘The practice implies simultaneously that every past decision of a
superior court has made law, but that every present decision merely applies
pre-existing law’.[7]
Therefore, contradicting of High Court decisions by lower judges and the
failure to adopt a certain approach would cause the legal procedure to lose its
stability and cohesion, which might increase the prospective number of outcomes
in any particular case.
3.
Parties’
Understanding
Before
the parties enter into an agreement there is an obligation upon each of them to
observe intention, understanding the other party’s terms in order to initiate a
valid contract. The requirement of showing intent is stressed by May LJ, that
‘subjective intention or understanding, unaccompanied by some overt objectively
ascertainable expression of that intention or understanding or understanding,
is not relevant.’[8]
Entering into an agreement requires a clear understanding of the person’s
intent to start with, and parties should do their part in conforming to the
contract’s terms as a part of the agreement made.
It
might, however, be objected here that a common understanding of the indication of
all the words in a contract it an unreachable position, especially in
agreements with many terms. The terms and conditions of banks for opening new
accounts, for example, usually have many pages of provisions making it almost
impossible for a normal person to appreciate the meaning of each word. As
consequences, parties do not have to acknowledge the plain meaning of every
word in agreement documents.
Against
this, it appears obvious that if the courts were to allow claims about suspicions
of double meaning to be made over-easily, the judicial system would experience
difficulties. In other words, when people neglect to pay due attention to
intentions or fail to check the language of documents before signing contracts,
the number of cases regarding contract interpretation will increase. Parties
are thus bound to make an effort to know the plain meaning of every word they
put in the contract, so that consequently, in the ideal situation at least, there
would no dispute about the wording after the contract is enforced. In fact, the
parties must at least be aware of the objective intention of other parties
because this allows them to know ‘how they are entitled to interpret the conduct
of others.’[9]
Furthermore, as Mason J expressed in Codelfa,
the admissible evidence of background facts, which is the information that the parties
know before signing a contract, are included with the ‘objectivity of the “aim”
of the transaction’.[10] In the case of the person
opening an account, for example, he or she must be aware, in advance, of the
“natural” obligation upon him/her, by knowing the object of founding a bank,
for example.
II.
Islamic Opinion
An
alternative point of view, out of the common law environment, might enrich this
argument about the right approach in contract interpretation. After the world
financial crisis of 2007 and 2008, Islamic banks, institutions that adopt
Islamic law in dealing with monetary services, survived successfully with their
funds intact. As a result, many commentators advised the adoption of Islamic
conduct in finance in commercial contracts.[11]
However,
there is here also what could be seen as a similar argument about what the
judge should consider, the obvious meaning of the agreement’s words or the
intention of the parties by looking at facts surrounding the contract. In
practice, the courts that adopt the Islamic law prefer to go with the plain
meaning of the words unless evidence appears to against it.[12] In fact, one of the
reasons given for why it is not appropriate to consider the parties’ intention
when interpreting contract wording is that it is time-consuming, a reason
suggested above for not following ICS
principles in Australia.[13] For example, the judges
in Byrnes v Kendle described the
claims in Chartbrook v Persimmon Homes
Ltd that all negotiations before signing the contract should be considered
in the evidence of background facts as ‘rejected argument’.[14] We are minded of the
statement of Mason J in Codelfa that
‘an investigation of those matters would not only be time consuming but it
would also be unrewarding as it would tend to give too much weight to these
factors at the expense of the actual language of the written contract.’[15]
III.
Conclusion
To
sum up, there is a clear distinction between the Codelfa and ICS approaches,
which might allow to a comparative study to reach to significant result. Codelfa true rule was established in
1982, where the Australian High Court endorsed it, and still do, as they
observation in the judgment of Jireh.[16] Lord Hoffmann principles, however, appears to
be persuasive for England High Court. In
1998, in Investors Comp Scheme v West
Bromwich Buildings Soc, the principles, Lord Hoffmann’s, was founded and
adopt thereafter by many judges across common law countries.[17] As a consequence, because
there is approximately sixteen years between the two approaches, there would be
significant differences.
In
fact, from a focus on showing the differences between the two methods in
matters of defining the plain meaning, ambiguity and the value of transaction
purposes in contracts are highlighted. Therefore, in Codelfa it concluded that interpretation is conditioned with
consideration and search for whether the words of a contract have ordinary
meaning or it was ambiguous, then the agreement to be construed. On the other hand, Lord Hoffmann’s principles
indicates that judges directly regard the background facts without looking for
opacity in words, because all words have two meanings. Accordingly, commonsense
is not considered in Codelfa if there is no ambiguity, however, is highly
important to be included in surrounding circumstances when interpreting
according to ICS.
The essay also observes the elements that might
enhance or effect interpretation, which clearly shows the important of legal
practitioners, courts and parties. Obviously, when formatting a contract the
parties should not leave their role to revise the agreement terms before
signing, to their employees or lawyers. Moreover, attorneys must avoid the
words that have a lack of clarity, or explain it in agreement’s terms. If the two previous factors done their role,
therefore, courts, especially the High Court, might not need to get into
controversial position with its judgments. Furthermore, another jurisdiction
point of view in regard to which of the two conducts is most suitable in order
to reach complete justice, has being shown in this paper, which support the
last decision Australian High Court in Jireh.[18]
In
my opinion and from many of the authorities and comments cited, it appears that
Codelfa is the preferable approach in
contract construction in any court. The way Codelfa
conduct gives the written document its weight, by not modifying the clear
meaning of its wording, provides a stable position. Moreover, by adopting Codelfa rule, people in the commercial
sector, as well as other fields, are encouraged to pay more attention to the
language they use and the intentions of other parties, because the court will
not interpret the agreement unless there is an ambiguity, and which thus has
the advantage of decreasing pressure upon judges.
The ICS method, on the other hand, although
assumed to be more perfect in the purely legal aspect, is demanding of time and
costs that make it less practical in real life. Courts, for example, would
suffer from the increasing numbers of disputes regarding contract
interpretation, if judges were to follow ICS
principles in their decision making, because it demands that every case be gone
through for surrounding circumstances, regardless of the existence of
ambiguity.
[2] Peter G. Heffey,
Jeannie Marie Paterson and P. J. Hocker, Contract: commentary and materials (LBC information Services, 8th ed,
1998) at http://law.anu.edu.au/colin/Lectures/terms_in.htm .
[3] Morton Moskin, Commercial Contracts: Strategies for
Drafting and Negotiating (Aspen Publishers Online, 2002) 2-30.
[5] Mathew Harding and Ian
Malkin, ‘Overruling in the High Court of Australia
in common law cases’ (2010) Melbourne University
Law Review 520.
[6] As in Toll (FGCT) Pty Ltd v Alphaphamarm Pty Ltd
[2004] HCA 52, 40, also in Pacific
Carriers Ltd v BNP Paribas [2004] HCA 35.
[7] Tony Blackshield, Michael Coper, and George Williams (eds.), Companion
to the High Court of Australia [Electronic
Resources] (Oxford University Press,
2001).
[11] Ahmet Akgunduz, Studies in Islamic Economics: Islamic
Banking and Development (IUR Press, 2009) 11; Patmawati Ibrahim, Siti Arni
Basir and Asmak Ab Rahman, ‘Sustainable Economic
Development: Concept, Principles and Management from Islamic Perspective’ (2011) 24(3) European Journal of Social Science 337.
[12] Bha’a Audeen Alalaali, النظرية
العامة للعقود في الفقه الإسلامي و القانون [The General Theory of Contracts in
Islamic Law and Civil Law] (Dar Alshowaf, 2005) 198-199.
[16] Western Export Services Inc and Others v Jireh International Pty Ltd
[2011] HCA 45, 3-4.
[18] Western Export Services Inc and Others v Jireh International Pty Ltd
[2011] HCA 45.
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