The Construction of Commercial Contracts Part 3 | |||
1 | 2 | 3 | 4Reactions to Lord Hoffmann’s principlesA strong reaction to the dicta of Lord Hoffmann came from a leading commercial judge (now retired) - Sir Christopher Staughton. In an article entitled “How do the Courts Interpret Commercial Contracts” (12), the Judge was critical of the broad statement that “absolutely anything” can be regarded as background (or the matrix) which would have affected the way in which the language of the documents would have been understood by a reasonable man. He was most anxious that the background material be kept to that which could reasonably be examined in the event that there was true ambiguity in the contract. He pointed out that where a contract is made through an ordinary commercial process (which was not the case in the Investors Compensation Scheme case) then the background material which should be looked at is considerably narrower than “absolutely anything”. The Judge’s article sets out what he sees as the key principles which govern the construction of a commercial contract. He emphasised that the inquiry must focus on the language of the written contract used by the parties. In most commercial cases, the process of construing the agreement will begin and end with finding the intention of the parties from an intelligent reading of the English words used in their agreement. That, he emphasised, is what commercial parties expect the courts to do. Surrounding circumstances can be looked at in the event of ambiguity but that needs to be tempered by the imperative of keeping hearings to what is required to determine meaning. If the surrounding background is to be examined then it must be a background that is common all of to the parties. The Judge also referred to what he termed as the “unreasonable results rule”, as a key principle. In determining which of the two competing interpretations is to be preferred, the fact that one interpretation produces a very unreasonable commercial result is a relevant consideration. The basis of this rule is that two commercial parties would, it is presumed, have intended that their contract would produce, on an objective level, a reasonable commercial result (13). For Sir Christopher Staughton, the problem with Lord Hoffmann’s principles is that they can allow the background to be used to rewrite the contract to produce a result the judge thinks is fair. While he had no quarrel with the Mannai decision, if it is treated as the interpretation of a unilateral notice given under a contract, he said that he parted company with Lord Hoffmann if the principles in Mannai are to be allowed to come into play in interpreting commercial contracts. In the Bank of Credit and Commerce International SA (in liquidation) v Ali and others (14), the House of Lords considered the interpretation of a commercial release document. Lord Hoffmann (who was in dissent on the decision) moved to explain or qualify aspects of his general statement in Investors Compensation Scheme. In BCCI he said as follows:
For anyone who favours a more circumscribed approach to the question of construction these words are to be welcomed and were, no doubt, a reaction to the kind of criticism from commercial lawyers found in Sir Christopher Staughton’s article. It still, however, seems to be clear that, on the general principles set out by Lord Hoffmann and in the Boat Park decision, the background can be referred to even without ambiguity in the contract. The danger of the wide ranging approach would appear to have been noted by Justice Fisher in his judgment in Amcor Packaging (New Zealand) Limited v Forklift Rental Systems Limited (16). His Honour “balanced” the statement of Lord Hoffmann with a citation from the judgment of Justice Hardie Boys in Benjamin Developments Limited v Robert Jones (Pacific) Ltd (17), which highlighted the problem of using the background material to create ambiguity and resolve it by reference to that material when the contract is clear. Some recent New Zealand’s decisionsIn the New Zealand Courts, we have recently seen two cases concerning the construction of conditions precedent in development contracts. The two cases arise, it must be said, from contracts in which the parties did not clearly specify how conditions which were linked to consent processes under the Resource Management Act 1991 were to work. While the Boat Park/Investors Compensation principles were cited in both decisions in the New Zealand courts, there were mixed statements concerning the scope of the principles. In Valentines Properties Ltd v Huntco Corporation (18), the Privy Council overturned the High Court and Court of Appeal on the interpretation of a condition in a construction contract. The case concerned a clause in an agreement which made the agreement conditional upon approval by Valentines of the conditions imposed by the local authority within 5 working days of receipt of the conditions. Valentines received a consent with 14 conditions. It objected to 4 conditions and after 5 working days advised that the agreement was over. During that time, the developers had been negotiating the consent with the council and received a revised consent without the 4 objectionable conditions on the 6th working day after sending the original consent to Valentines. The developers claimed that the agreement was still on foot and sued for damages. The New Zealand courts found that the 5 day period had not begun to run until the objection and appeal process with the council had run. The Privy Council overturned these decisions, basically on a plain reading of the condition which had been agreed by the parties to promote speed and certainty. The Privy Council did not cite the Boat Park principles or examine any other points on the principles of construction which had been considered below, such as the relevance of subsequent conduct. The judgment is short and to the point and focuses on the words used in the commercial bargain. 12. [1999] CLJ 303 | |||
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