Contract Supervision 5: Mistake and Terms
II (Interpretation; Rectification)
Casebook
McKendrick TCM Chapter 11: Interpretation
INTRODUCTION
Interpretation matters from a legal drafting angle; post-Canada Steamship [1952],
lawyers must be careful when drafting exclusion contracts. Hobhouse J per EE Caledonia
Ltd v Orbit Valve Co Europe [1993] – courts assume commercial contracts drafted with
legal advice therefore courts will apply case law directly.
EVOLUTION: LITERALISM TO CONTEXTUALISM
Lovell and Christmas Ltd v Wall [1911] per Cozens-Hardy MR – language of the contract
alone except eg wrt trade terms or technical terms – may then call in industry experts
or else courts will apply four corners approach.
Turning point: Prenn v Simmonds [1971] HL – context key – must look at ‘matrix of facts’.
Reardon Smith Line Ltd v Yngvar Hangsen-Tangsen [1976] per Lord Wilberforce – No
contracts are ‘made in a vacuum’.
Lord Hoffman’s Restatement:
Investors Compensation Scheme v West Bromwich Building Society [1998] 1 WLR 896
1. Interpretation – what document would mean to ‘reasonable person’ with ‘all the
background knowledge which would have reasonably been available to the
parties [at the time]…’
2. Background = ‘matrix of fact’; this ‘includes absolutely anything’ which could
reasonably affect interpretation of contract.
3. Negotiations excluded: only allowed in rectification action
4. Words’ dictionary meaning is not the same as what document would convey to
reasonable person eg wrt ambiguity
5. ‘Natural and ordinary meaning’ – rebuttable presumption against mistake
Therefore, ‘any claim’ actually = ‘any claim sounding from recission’
Scope of Lord Hoffman’s Principles
Builds on Prenn; not truly revolutionary. However, how can dicta of even Lord Hoffmann
set aside old SC/HL/PC cases like Canadian Steamship?
Objective nature of the test –
Factual matrix: clarified in BCCI v Ali [2001] UKHL 8 – not ‘no limit’ but ‘no
conceptual limit’ wrt may be relevant
II (Interpretation; Rectification)
Casebook
McKendrick TCM Chapter 11: Interpretation
INTRODUCTION
Interpretation matters from a legal drafting angle; post-Canada Steamship [1952],
lawyers must be careful when drafting exclusion contracts. Hobhouse J per EE Caledonia
Ltd v Orbit Valve Co Europe [1993] – courts assume commercial contracts drafted with
legal advice therefore courts will apply case law directly.
EVOLUTION: LITERALISM TO CONTEXTUALISM
Lovell and Christmas Ltd v Wall [1911] per Cozens-Hardy MR – language of the contract
alone except eg wrt trade terms or technical terms – may then call in industry experts
or else courts will apply four corners approach.
Turning point: Prenn v Simmonds [1971] HL – context key – must look at ‘matrix of facts’.
Reardon Smith Line Ltd v Yngvar Hangsen-Tangsen [1976] per Lord Wilberforce – No
contracts are ‘made in a vacuum’.
Lord Hoffman’s Restatement:
Investors Compensation Scheme v West Bromwich Building Society [1998] 1 WLR 896
1. Interpretation – what document would mean to ‘reasonable person’ with ‘all the
background knowledge which would have reasonably been available to the
parties [at the time]…’
2. Background = ‘matrix of fact’; this ‘includes absolutely anything’ which could
reasonably affect interpretation of contract.
3. Negotiations excluded: only allowed in rectification action
4. Words’ dictionary meaning is not the same as what document would convey to
reasonable person eg wrt ambiguity
5. ‘Natural and ordinary meaning’ – rebuttable presumption against mistake
Therefore, ‘any claim’ actually = ‘any claim sounding from recission’
Scope of Lord Hoffman’s Principles
Builds on Prenn; not truly revolutionary. However, how can dicta of even Lord Hoffmann
set aside old SC/HL/PC cases like Canadian Steamship?
Objective nature of the test –
Factual matrix: clarified in BCCI v Ali [2001] UKHL 8 – not ‘no limit’ but ‘no
conceptual limit’ wrt may be relevant
