Introduction
Both last year and the year before, this presentation focussed on what had become an ongoing controversy concerning the principles of law that should be applied to the exercise of construing a contract. A judicial and academic debate had developed concerning when, and to what extent, it was legitimate to have regard to evidence of matters which were extrinsic to the contract which a court or an arbitrator had to construe on the basis that such material was relevant “background” (1). Comments had been made by Lord Hoffman to the effect that an agreement had to be construed in its context and that “the background which might be relevant was absolutely anything which might assist the court in the task of construing the agreement” (2). This comment was seized upon by some commentators and Justice Thomas in the New Zealand Court of Appeal, to justify a broader approach to contractual interpretation which would allow very general reference to extrinsic material to assist in arriving at the meaning of the contract. In past seminars I have outlined the reaction to the interpretation of Lord Hoffman’s comments and explained how Lord Hoffman himself had placed those comments in their context in a subsequent case. The overall result had been to restate an orthodox approach to the interpretation of contract and retain accepted limits on reference to extrinsic evidence as an aid to interpreting the contract. The spectre which seemed to have arisen of commercial cases concerning the construction of contracts being bedevilled by the need to consider a wide range of evidence falling outside the contract to arrive at a “fair” interpretation of the contract has largely receded. In the past year there have been a number of cases (as there will be in any year given the fundamental role of contractual obligations in our lives) where the basic principles of contractual interpretation have been applied. In the cases the courts have emphasised the need to concentrate on the central task of construing the agreement reached by the parties objectively in accordance with the natural and ordinary meaning of the words which the parties have used in their agreement. Comments in Potter v Potter(3) This emphasis on orthodoxy is underlined by the Court of Appeal in Potter v Potter. This decision contains clear statements to the effect that extrinsic material should not be referred to, save in particular limited circumstances and will not be admissible other than to resolve ambiguities. The case concerned the interpretation of a property sharing agreement entered into by de facto partners. The couple agreed to purchase a home and orchard business together. Before settlement, as many couples do, they entered into a property sharing agreement. One of the parties provided the whole purchase price. The parties separated. The property was sold. The main question was whether the party, who had provided the full purchase price, could claim to be entitled to an interest under a resulting trust over half the purchase price or, claim to be entitled to repayment of half the purchase price on the basis the agreement was a loan. The agreement provided that: I, John, will:
(a) Provide the half share purchase price payable by Louisa for a half share of Inlet Road in consideration of Louisa entering into this agreement……
1. See the papers - The Construction of Commercial Contracts (2002) and Construing Commercial Contracts - The background, the Purpose or the words? (2003)
2. See ICS Limited v West Bromwich [1998] 1 WLR 896
3 [2003] 3 NZLR 145
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