People entering the building.

The meaning of (commercial) words

21 January 2013

Arguing over the meaning of words is an archetypal lawyerly activity and one which litigators accustomed to disputes over contractual construction know all too well.

Yet the rules by which this familiar 'battle of meanings' is played out have never been more hotly contested.  

The relative simplicity of the ancien régime, under which the court generally looked squarely (and only) at the written contract, fell away with Lord Hoffmann's liberating charge in the mid-1990s. This emancipation paved the way for the court to determine contractual meaning in the context of the broader factual matrix - standing in the shoes of a reasonable person having all the background knowledge reasonably available to the parties (save, that is, for knowledge of pre-contractual negotiations).

There followed an inexorable movement away from a literal reading of contractual words, to a broader interpretation of contracts underlying commercial deals. This widened field of play has inevitably added complexity and controversy to the exercise. How should text be weighed against context? When should a business common sense interpretation save an otherwise bad bargain? When does purposive interpretation morph into judicial creationism? It is little surprise that these questions are increasingly raised in the appeal courts, often collecting dissenting judgments as they go.  

But, would we really want it any other way? Opponents point to uncertain results, drawn out and costly litigation, and the dangers of judicial red ink – objections which are all liable to be overstated. In most cases the words used will, quite rightly, be wholly or largely determinative - and an ability to look beyond the instrument in question will not deter the court from reaching that view. But, as Lord Hoffmann has told us, words are only ever signposts as to meaning. Arbitrarily excluding everything or anything, including pre-contractual negotiations (although that argument can wait for another day), from judicial scrutiny is to prevent the court from considering those signposts against the lie of the commercial land.

Whilst the signposts will mostly point closely to the correct meaning, a truly commercial court needs the power to adjust them when they have been blown off course, whether by a drafting slip or by a failure of foresight. This latitude to interpret commercial agreements in their proper commercial context is surely no more, and no less, than modern-day commercial court litigants expect.

What is also often overlooked is how well equipped litigators and judges are to do this. The weighing of relevant evidence and the reaching of an objective view is at the heart of what we do.  There is no more reason to doubt the ability of practitioners and courts properly to engage in that process on issues of contractual construction as there is on any other disputed point that falls to be resolved.

Construction issues can be finely balanced, and may be hard to grapple with.  They require difficult judgment calls, on competing evidence, as to a given state of affairs at a particular moment in time. They are hotly disputed and produce conflicting determinations. But isn't that what dispute resolution is all about? The court is to be commended for moving away from rules that shy away from these difficulties, and for embracing a flexible and pragmatic approach that tackles these problems head on. In so doing the court has stepped up to the plate of resolving hard commercial cases commercially.