Precise language is best guide to intention in contracts

The position that circumstances surrounding the construction of a contract can be relied on as a guide is difficult to defend, Lord Sumption writes

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May 11, 2017
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The construction of contracts can never be entirely free of artifice. One is, after all, concerned with the objective meaning of a document which will not necessarily correspond with the assumptions or the hopes or fears of either party. Such is the nature of bargaining.

The main artifice is that the parties understood what they were signing up to as completely as a judge armed with a mass of carefully analysed background information and the advantages of hindsight. But at least the language that the parties have agreed provides some foundation for a hypothetical reconstruction of their intentions.

However, rather more than 30 years ago, the House of Lords embarked upon an ambitious attempt to free the construction of contracts from the shackles of language and replace them with some broader notion of intention. This has commonly involved treating the background circumstances as an alternative guide to the parties’ intentions instead of a means of interpreting their language.

These attempts have for the most part been associated with the towering figure of Lord Hoffmann, the former law lord. More recently, however, the Supreme Court has begun to withdraw from the more advanced positions seized during the Hoffmann offensive to what I see as a more defensible position.

It is time to reassert the primacy of language in the interpretation of contracts. It is true that language is a flexible instrument. But let us not overstate its flexibility.

Language, properly used, should speak for itself and it usually does. The more precise the words used and the more elaborate the drafting, the less likely it is that the surrounding circumstances will add anything useful. The surrounding circumstances may well enable us to discover what the objective was, but not how far it has been achieved. Only the language can tell us that.

The draftsman, whether he is an amateur or a professional, has no way to tell the court what he really wants other than the deployment of words. The parties are the masters of their own agreement and anything which marginalises the role of words in the process of construction is a direct assault on their autonomy.

The late Lord Diplock was a man who liked to be right, even by the self-confident standard of Her Majesty’s judges. He once wrote a speech in an appeal on a question of contractual construction in which he said that although he thought that his colleagues were wrong, he proposed to agree with them. This, he said, was because the House of Lords was the final court of appeal. From this it followed that a contract must mean whatever at least three law lords said it meant. As a canon of construction, this seems less than helpful. I hope that in future we can do better for you than that.

Lord Sumption is a justice of the Supreme Court; this article is an extract from his Harris Society annual lecture at Keble College, Oxford, May 8, 2017

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