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10 Cards in this Set
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Lovelland Christmas Ltd v Wall (1911)
Four Corners Rule - 'plain and ordinary meaning of words' rule |
Ifthere is one principle more clearly established than another in English law itis surely this: It is for the court to construe a written document. It isirrelevant and improper to ask what the parties, prior to the execution of theinstrument, intended or understood(Cozens-HardyMR). Defendant had been a director of a limited companyformed for carrying on the general business of provision merchants. Asubstantial part of the profits of that company was derived from themanufacture and sale of margarine by two subsidiary companies. On theamalgamation of that company with plaintiff company, who were carrying on the businessof provision merchants, defendant entered into an agreement to become adirector of plaintiff company for a period of five years, and that he would notat any time, solely or jointly, directly or indirectly carry on or be engagedor concerned or interested in the business of a ‘provision merchant’ within aprohibited area, save on behalf of plaintiff company. Defendant having ceasedto be a director of plaintiff company, threatened to carry on and be engaged,concerned and interested within the prohibited area in the exclusive businessof manufacturing margarine and of selling the margarine so manufactured towholesale or retail dealers therein. Plaintiff company claimed an injunction torestrain defendant from so acting; and alternatively, to have the agreementrectified on certain grounds: Held (1) the manufacturing and selling bydefendant of margarine would not be a breach of the agreement; and there was noground for rectification thereof. (2) It is irrelevant and improper to ask whatthe parties prior to this deed intended or understood (Cozens-Hardy MR). outlines the literal approach to contractual interpretation. Within that case, Lord Cozens-Hardy MR explained that “It is the duty of the court ... to construe the document according to the ordinary grammatical meaning of the words used therein”. This literal approach is best explained in that when interpreting a contract, the court will look exactly to the normal meaning of the words, regardless of the intention of the parties
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Jeffriesv Archer [2010]
Four Corners Rule |
Theclaimant and the defendant entered into an agreement to incorporate a company,'Holdings', for the purpose of acquiring another company, 'Engineering'.Engineering was the owner of an industrial site which the defendant wanted toacquire. In order to finance Holdings, the claimant and the defendant, as thesole directors and shareholders of Holdings entered into an agreement wherebythey made two director's loans to the company, the claimant's loan being sixtimes the value of the defendant's. The agreement stated that neither loan wasto be repayable until after company refinancing as defined in cl 3(g) of theagreement. Company refinancing meant that 'the company is able to repay [theclaimant's] loan in full ... which shall be conclusively proven by eithershareholder producing an unconditional offer from a commercial lender of a loanto the company of an amount equal to the outstanding amount'. Clause 9 provideda get-out clause for the claimant enabling the claimant to sell its shares inHoldings to a third party. Clause 9(a) was to cease to apply forthwith uponcompany refinancing. In due course, the claimant and the defendant startednegotiations with a bank in order to raise a loan to repay the claimant. A loanwas negotiated in respect of Engineering but not in respect of Holdings.Relations between the parties deteriorated and the defendant informed theclaimant that she did not agree with the refinancing of the company. Theclaimant attempted to utilise cl 9 of the agreement. The defendant contendedthat as company refinancing within the definition had taken place, cl 9 was nolonger applicable. The claimant brought a claim seeking relief in respect ofimplementation of the get-out clause. The trial was as to liability only. The defendant submitted, inter alia, that the conditions of the companyrefinancing had been met so that the claimant had no rights under cl 9 at thetime he had sought to invoke them. The claimant submitted, inter alia, that theloan was in favour of Engineering and not of Holdings and that as the words'the company' in cl 3(g) referred to holdings only, it could not be said thatcompany refinancing within the definition had taken place. The claim would be allowed. The words of a contract should be interpreted in their grammatical andordinary sense, unless it was necessary to construe them differently in orderto avoid some absurdity, inconsistency or repugnancy (see [25] of thejudgment). In the instant case, the expression 'thecompany' was not defined in the agreement; however, as a matter ofconstruction, Holdings and only Holdings was 'the company' referred to. Thepurpose of cl 3(g) was to provide a straightforward means of demonstratingconclusive proof of ability by Holdings to repay the claimant's loan. If suchproof was to be demonstrated the terms of cl 3(g) had to be strictly adheredto. A loan to Engineering did not qualify as a loan to Holdings and therefore theclaimant was not precluded from exercising his rights under cl 9 (see [22] and[26] of the judgment).
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InvestorsCompensation Scheme Ltd v West Bromwich Building Society [1998]
exceptions to four corners rule and plain and ordinary meaning rule - factual matrix |
FACTS Investors received negligent advice from their financial advisers, solicitors and building societies, including West Bromwich BS. They had claims intort and for breach of statutory duty. The investors had been encouraged by financiers to enter "Home Income Plans", which meant mortgaging their properties to get cash that they would put into equity linked bonds. They lost money when house prices and stocks fell. Under the Financial Services Act 1986 section 54 the Securities and Investments Board started the Investors Compensation Scheme Ltd,[1] where investors could be directly compensated for their losses, and ICS would try recoup the cost by suing the building societies on everyone’s behalf. Accordingly, to get the compensation investors signed a contract to assign their claims to ICS. But in section 3(b) of the claim form the assignment excluded ‘Any claim (whether sounding in rescission for undue influence or otherwise) that you have or may have against the West Bromwich Building Society’, so that investors could still sue on some claims individually. While ICS Ltd was suing, West Bromwich BS argued that ‘or otherwise’ meant that claims fordamages, as well as rescission, had not been assigned. ICS Ltd argued that the clause actually meant that claims for damages had been assigned, because ‘or otherwise’ referred to rescission based claims other than undue influence, but not damages.Evan-Lombes J held that the right to claim rescission had been retained but the right to claim damages had been assigned. Leggatt LJ overturned the High Court, and ICS Ltd appealed.HELD The House of Lords held by a majority that the right to claim rescission was retained by the investors, but the right to claim for damages had indeed been assigned. Construed in its context, the words ‘Any claim (whether sounding in rescission for undue influence or otherwise) that you have or may have against the West Bromwich Building Society’ in effect had meant 'Any claim sounding in rescission (whether for undue influence or otherwise)'. It followed that ICS Ltd could sue West Bromwich BS, and other building societies, to vindicate the investors' claims.
It laid down that a contextual approach must be taken to the interpretation of contracts. Lord Hoffmann set out five principles, so that contract should be construed according to,
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EstorLtd v Multifit (UK) Ltd [2009]
exceptions to four corners rule and plain and ordinary meaning rule - factual matrix |
The court determined the identity of the parties to a contract in theabsence of a written contract identifying them.The claimant (E) applied for declarations that there was no contractbetween itself and the defendant (M) and that the decision of an adjudicatorthat there was such a contract and that E should pay sums due under it, wasunenforceable. M counterclaimed, seeking summary judgment to enforce theadjudicator's decision. E was a holding company for a group of companies knownas 'the Ginger Group' (G), which owned or franchised a number of hairdressingsalons. E and G were run by an individual (K), who at one stage created anothercompany (W) for the purposes of setting up a new salon, the lease of thepremises in which it was to be located being held by E. A design company wasengaged to fit out the new salon, and that company sub-contracted most of thework to M. When relations between K and the design company soured, the designcompany left the job and M submitted a quote for completing the work. Kaccepted the quote, giving no indication as to which company he was acceptingit on behalf of. M completed the work, all payments being made by E. Oncompletion of the work K refused to settle M's invoice and the matter went toadjudication, the adjudicator finding that E was the employing party and thatit should pay certain sums to M. E submitted that there was no contract inwriting between itself and M and that the adjudicator's decision was thereforeunenforceable. Judgment for defendant. M's contract was with E. The court's task was to determine on thebasis of the facts who the parties objectively must be taken to have agreed theemploying party was, Investors Compensation Scheme Ltd v West Bromwich Building Society(No.1) [1998] 1 W.L.R. 896 applied.On that basis, considered objectively, the employing party was E. K had nevermade any hint or suggestion to M that it would have to enter into a contractwith either W or G. The quote clearly envisaged that K would fill in therequisite details on a credit facilities form, and the form clearly envisagedthat the employing party was intended to be, and would be, E. The form wassigned by K at a meeting with M at which E's name was discussed; no other partywas mentioned as a possible employing party; and the first payment was made byE before acceptance. All those factors pointed unequivocally towards a mutualintention that E should be the employing party. Moreover, there was no goodcommercial reason for K to provide E's details unless he intended E to be the employingparty.
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Antaios Cia Naviera SA v Salen Rederierna AB [1985]
business common sense approach |
A ship charterer discovered that the bills of lading were incorrect, but delayed withdrawal from the charter for 13 days. They now sought leave to appeal the arbitration award against them. Held: The court deprecated the use of the terms as to the purposive construction of a contract as opposed to the interpretation of a statute but ‘if a detailed semantic and syntactical analysis of a word in a commercial contract is going to lead to a conclusion that flouts business common sense, it must be made to yield to business common sense’.Leave to appeal an arbitrator’s award should be given only where there is a strong prima facie case that the arbitrator’s construction of the clause is wrong. Clear contradictions in lines of authority might justify an appeal but conflicting dicta were insufficient. Here the arbitrator had found the error non-repudiatory, and not covered by the relative clause. In any event any withdrawal should have been timely – in this case a maximum of two days.The House considered the methods and principles of the interpretation of a contract. Lord Diplock said: ‘if detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business commonsense, it must be made to yield to business commonsense.’
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Rainy Sky v Kookmin Bank [2011]
business common sense approach |
The Supreme Court confirmed the principle laid down in Wickman v Schuler that, if the words of a contract have ambiguous meanings, the court will interpret it in a manner that most accords with "business common sense". There is no requirement for a party to prove that the alternative interpretation is entirely unreasonable.
FACTS Rainy Sky was one of five ship-owning firms that ordered vessels from Jinse Shipbuilding Co, a South Korean shipbuilder, at a cost of US$33,300,000 per ship. The payment was to be made in five equal installments. The contract between Rainy Sky and Jinse permitted Rainy Sky to rescind the contract if various events occurred (such as late delivery or inadequate performance of the vessel, or loss of the vessel before delivery). It also obliged Jinse to refund the payments if it became insolvent, although, in this case, the contract would not automatically be rescinded. Jinse were required to provide the buyers with a performance bond, guaranteeing the repayment of the buyer's money. Jinse obtained such a bond from Kookmin Bank - however, the terms of the bond did not match exactly the terms of the contract, and the central issue in the court case was the interpretation of the bond.The bond stated (inter alia):"[2] Pursuant to the terms of the Contract, you [Rainy Sky] are entitled, upon your rejection of the Vessel in accordance with the terms of the Contract, your termination, cancellation or rescission of the Contract or upon a Total Loss of the Vessel, to repayment of the pre-delivery instalments...""[3] ...we hereby ... undertake to pay to you ... all such sums due to you under the Contract..."Rainy Sky had made two of the required payments when Jinse encountered financial difficulties and entered into an insolvency process. This triggered the requirement for it to repay the money, and, as it could not do this, Rainy Sky called on Kookmin Bank to honour the guarantee. Kookmin, however, claimed that it was under no obligation to make the payment, as the bond only covered "rejection of the vessel" and "termination, cancellation or recission of the contract", not the insolvency of Jinse. UKSC allowed the appeal. |
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British Crane Hire Corp v Ipswich Plant Hire [1975]
Trade Practice often used as a source of Implied Terms |
An owner's contractual conditions may beincorporated into a contract of hire on the basis of a common understandingbetween the parties that such conditions applied. P and D were both engaged inthe business of hiring out earth-moving equipment. D were also involved indrainage work on marshy ground and urgently requiring a crane, agreed to hiresuch a crane from P, terms of payment being agreed but no mention being made ofP's conditions of hire. P sent D a copy of such conditions which provided,inter alia, that the hirer would be responsible for all expenses arising out ofthe crane's use. Before D signed the form containing the conditions, the cranesank into the marsh through no fault of D and P claimed from D the cost ofrecovering the crane. Held, allowing P's claim, that P's conditions of hire applied since bothparties were in the trade and of equal bargaining power and on the evidence Dand P both understood that P's conditions of hire would apply.
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Attorney General of Belize v Belize Telecom[2009]UKPC 10 [2009]
Trade Practice often used as a source of Implied Terms |
A company's articles of association should be construed as providing byimplication that a director appointed by virtue of a specified shareholdingwould vacate his office if there was no longer any holder of such ashareholding.
(Belize) A company had been formed to manage telecommunications in Belize. The parties disputed the interpretation of its articles. Shares had been sold, but the company was structured so as to leave a degree of control with the government. It was argued that a term was to be implied requiring resignation of a director when the class of shareholdings he represented ceased to exist. Held: The implication of a term is an exercise in the construction of the contract as a whole. The background facts should have been admitted as evidence to interpret the articles in this particular situation: ‘The implication as to the composition of the board was not based upon extrinsic evidence of which only a limited number of people would have known but upon the scheme of the articles themselves and, to a very limited extent, such background as was apparent from the memorandum of association and everyone in Belize would have known, namely that telecommunications had been a state monopoly and that the company was part of a scheme of privatisation.’Lord Hoffmann said that the court ‘cannot introduce terms to make [a contract, statute or articles of association] fairer or more reasonable. It is concerned only to discover what the instrument means.’ and ‘It follows that in every case in which it is said that some provision ought to be implied in an instrument, the question for the court is whether such a provision would spell out in express words what the instrument, read against the relevant background, would reasonably be understood to mean. It will be noticed from Lord Pearson’s speech that this question can be reformulated in various ways which a court may find helpful in providing an answer – the implied term must ‘go without saying’, it must be ‘necessary to give business efficacy to the contract’ and so on – but these are not in the Board’s opinion to be treated as different or additional tests. There is only one question: is that what the instrument, read as a whole against the relevant background, would reasonably be understood to mean?’ |
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James Miller and Partners Ltd v Whitworth StreetEstates (Manchester) Ltd [1970]
Post Contractual Conduct is Inadmissible as Aid toInterpretation |
1.In construing a contract it is not proper to have regard to the conduct of theparties after the contract has been made. 2. Even if the proper law of anarbitration agreement is that of country X, if the parties submit to anarbitration according to the procedure applicable under the law of country Ythey will be confined to the latter law as to procedure. The defendants, aScottish company, entered into an agreement in the English standard form ofRIBA contract with the plaintiffs, an English company, to carry out some work onland in Scotland belonging to the latter. A dispute arose between the partiesand the person nominated for the purpose under the agreement (the President ofthe RIBA) appointed a Scots architect as arbiter. The arbiter in turn appointeda Scots solicitor to be clerk, and the clerk asked the plaintiffs whether therewere any points in "our procedure" upon which they wished to beadvised. Both parties instructed Scots solicitors and counsel and thearbitration proceeded. When the plaintiffs asked the arbiter to state a casefor the court, he refused to do so, as he was entitled to do so under Scotslaw. The plaintiffs then sought to compel statement of a case on the basis thatEnglish law applied. Held, allowing the defendants' appeal, (1) that in construing the agreement itwas not proper to have regard to the conduct of the parties after the contracthad been made, (2) (Lords Reid and Wilberforce dissenting) that the use of theEnglish RIBA form contract indicated an intention that English law be the properlaw of the agreement; (3) that the reference to the (English) Arbitration Act 1950 in the defendants applicationfor nomination of an arbiter did not constitute an acceptance by them ofEnglish law; and (4) that the parties had accepted by their conduct that thearbitration be subject to Scots law.
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(f)Special Rules of Interpretation forExemption Clauses: The ‘Contra Proferentem Rule’ ie ‘against the party seekingto rely on the term’
(g) Interpretation under the Unfair Termsin Consumer Contracts Regulations 1999 Regulation 7(2) “the interpretationwhich is most favourable to the consumer shall prevail’ |
Further Reading
Gee‘The interpretation of Commercial Contracts’ (2001) 117 LQR 358 McMeel‘The Rise of Commercial Construction in Contract Law’ [1998] LMCLQ 382 McMeel‘ Prior Negotiations and Subsequent Conduct’ 92003) 119 LQR 272 Staughton‘How do the courts Interpret Commercial Contracts?’ [1999] CLJ 303 |
