When and officious bystander tests are examples

When contracting parties’ agree on what is written
in the contract, however, disagree on the meaning, this is where interpretation
may be guided by two different approaches. As mentioned previously the
objective approach gives priority to the external facts of the words whereby the
will has been objectively expressed.1On
the other hand, the subjective approach to interpretation gives precedence to
the ‘will of the parties.’ This consists of the principle of party autonomy
where legal obligations come from, and are justified by, the free will of the
individual.2
The business efficacy and officious bystander tests are examples of subjective
tests whereby they do not require a ‘reasonable person’ but instead ask the
parties themselves what they would have accepted. This would make the final
ruling more accurate. It means the courts can give effect to the written
content of parties’ contracts instead of giving their own interpretation and
making the contract for the parties’. Many contract law regimes use both
subjective and objective methods of interpretation. I would argue alongside
Catherine Valcke,3
that contractual intention as objective intention is unstable and theoretically
weaker than subjective intention. The conceptual looseness of objective
intention can be seen to be the reason for the traditional prominence of
literalism and the parol evidence rule in English contract law.4
The literal approach keeps the Sanctity of contract and party autonomy which is
good to an extent. In the Principles of European Contract Law5
there is a whole chapter (chapter 5) on interpretation however it is only a
small 7 sections long.6 It
illustrates my argument that it is difficult to achieve consistency in contractual
interpretation in commercial contracting due to such little guidance being
provided to the courts, there is no rigid rules the courts can refer to in
helping them make a judgement even on a European scale.

The remains of literalism have now been pushed aside
by a series of cases in the House of Lords which institutes the prevalence of
the purposive approach.7 8 9 Lord
Hoffmann stated “Almost all the old intellectual baggage of ‘legal’
interpretation has been discarded.”10 The
purposive approach is a modern version of the mischief rule. Lord Hoffmann’s
re-statement certainly promotes a more purposive approach to the interpretation
of contracts.11
The Supreme Court and court of appeal took different stances on Rainy Sky SA v Kookmin Bank.12
It can be argued that the Supreme Court in this case does not take into
consideration whether, in a system that supposedly champions freedom of
contract, they should be the arbitrators of what is commercially reasonable or
absurd.13
It can be argued that the Supreme Court was attempting to avoid an absurd
result by interpreting the case in a form that most accords with business
common sense. Alas, this is another example of the courts failing to give effect
to the written content of parties’ contracts and have attempted to make the
contract for the parties through giving their own meaning in interpretation.
The courts have failed to achieve consistency once again.

We Will Write a Custom Essay Specifically
For You For Only $13.90/page!


order now

It is submitted that by placing emphasis on
commercial common sense such as in Rainy sky14
certainty is lost. Arnold v Britton15
is the Supreme Court’s most recent exploration of the issues raised by the
interpretation of contracts.16
Lord Neuberger places a big emphasis, which I agree with, on the autonomy of
the parties to the contract. When entering into a contract parties must be free
to accept the risks which lie in forming a contract with another party and must
take responsibility in balancing the risks with the benefits they gain. I would
argue that Lord Neuberger is not attempting to make a big change in the courts
approach to interpretation whereby his approach is very similar to that of
which was rejected by the Supreme Court in in the Court of Appeal
in Rainy Sky.17
He argues that the courts should not be in a position of ‘searching for, let
alone constructing’ or ‘departing from the natural meaning’ of a contract.18
He rightfully argues that the courts cannot go looking for problems in a
contract and re-write the contract to fix these issues; the issues found in a
contract have no relevance to the issue of interpretation. 19
It is clear that the better argument to achieve certainty and most importantly,
consistency in approach, is through the courts respecting parties’ contractual
autonomies by accepting the natural meaning of the words the parties placed in
the contract. Courts should only interpret contracts, not re-write them. The context
of a contract should not be important at all, only the wording itself should. Only
in very rare cases should commercial common sense override the natural meaning
of the words. As per Lord Neuberger it is not the function of the court
interpreting a contract to relieve a party from the consequences of imprudence
or poor advice.20
Overall the most decisive argument is made here by Lord Neuberger whereby if
the courts take a more hands off approach and instead place emphasis on the
freedom of contracts then there will be a much better consistency in the courts
approach to contractual interpretation.21 The
impact this will have on businesses would be extremely positive whereby they would
better understand the courts approach to interpretation thus implementing better
contractual negotiations with other parties and ensuring the terms they accept are
correct and beneficial for them.

One of the strongest statements I have read in my
research was made in US Bank Trustees Ltd
v Titan Europe22
whereby Mr Justice Snowden stated,

If…
the court concludes that the language used is unambiguous, then the court must
apply it, even though some other result might be thought more commercially reasonable,
and even if it gives a result that is commercially disadvantageous to one of
the parties. The court’s function is to interpret the contract, not to rewrite
it.23

I believe this statement is the key to achieving
consistency. If it becomes the standard then the courts would avoid interfering
in making the contract for those parties’, instead opting to respect the written
content of parties’ contracts. Understandably mistakes do happen
such as the instance in BNY Mellon Corporate
Trustee Services Ltd v LBG Capital No
1 plc,24
in these instances I would argue that the courts should provide some form of
leniency however overall if there is more consistency in their approach then
businesses will understand the courts position on interpretation therefore
invest more in forming their contracts correctly with clearer terms. The Courts
“must seek to discern the commercial intention and the commercial consequences
from the terms of the contract itself.”25 26 Interpreting
is certainly not uncomplicated. When the commercial intentions are obvious,
creating a contract may pose no problem, however given the task of interpreting
the contract and the problem of having to balance the meaning of the words to
the commerciality of the outcome can be difficult.27 Lord
Neuberger’s statements in the Arnold28
case justify my argument that the courts should respect party
autonomy and should not interfere in making parties’ contracts; instead they ought
to only interpret what is stated thus overall increasing certainty English
contract law. This essay should have demonstrated the importance of clear and
unambiguous drafting of the contract between parties and how the courts should
give effect to the written content of parties’ contracts and should refrain
from making the contract for those parties’ to overall increase consistency in
their decisions.