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Flashcards in Implication and Interpretation Deck (19):

Court must act on its objective understanding of what a document means - informed by relevant evidence, but not by parties subjective intentions.

Lovell & Christmas Ltd v Wall (1911)

FACTS: Pl sought inj to stop Def (former Dir) carrying on business in Liverpool. Relied on agreement under seal, that wouldn't set up in the area as a "provision merchant" for specified time. Did trading as margarine manufacturer make def a provision merchant?


Cozens-Hardy MR - "It is for the court to construe a written document. It is irrelevant and improper to ask what the parties, prior to the execution of the instrument, intended or understood."

Four corners doctrine - from words alone to suffice. Saved time and expense? Promoted predictability.

But Prenn v Simmonds [1971] ...


Prenn v Simmonds [1971]

Lord Wilberforce disclaimed the idea that agreements could be wholly isolated from the “matrix of fact” in which they were set.

Said more in

Reardon Smith v Hansen-Tangen (1976)

HELD - L Wilberforce: "No contracts are made in a vacuum. The "surrounding circumstances" can be illustrated but not defined.

Reasonable person would have thought in mind of situations of the parties thought within the same "factual matrix".

Parol evidence rule similar - contract must be studied in objective terms, but the matrix of fact.


Investors’ Compensation Scheme Ltd v West Bromwich Building Society (1998)


Negligent advice to investors - which rights assigned to ICS (Investors' Compensation Scheme). The relevant form excluded from the assignment “any claim (whether sounding in rescission for undue influence or otherwise)”. ICS and investors understood differently, claims against BS overlapped. Investors argued "any claim" included claim for damages, ICS argued "any claim sounding in rescission" so claim for damages not included.

HELD - ICS correct - clause badly drafted - must be read “any claim sounding in rescission (whether for undue influence or otherwise)". L Lloyd dissented - impermissible to take words within brackets and place them outside, thereby altering their sense.

Hoffman - wanted to read clause against its plain meaning. Old legal interpretation discarded: Principles summarised:

1) meaning a doc would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties at the time.

2) Background may include anything which would have affected the language as understood by reasonable man

3) Law excludes from admissible background previous negotiations of parties and declarations of subjective intent. Only for rectification.

4) Meaning to reasonably man not the same as meaning of words as in dictionaries. Is against the relevant background would reasonably understood to mean. Allows to choose between ambiguous meanings of words and even conclude that parties must have used wrong words or syntax.

5) Don't easily accept people made linguistic mistakes in formal documents. But if something seems so law doesn't require attribution to parties of intention they plainly could not have had. - I.e. L Diplock in Antaios - "must be made to yield to business common sense".



Exemption clauses and legal interpretation -

McKendrick thinks Hoffman too sweeping in discarded legal rules. Contra Proferentem principle to read against party relying on clause - they kept hiding things in exemptions. UCTA 19777 - judges thought the Act provided regular and leg ratified means of controlling the clauses. But still applies.


Denning on the rise and fall of contra proferentum -

George Mitchell (Chesterhall) Ltd v Finney Lock Seeds Ltd (1983)

"The big concern said, “Take it or leave it”. The little man had no option but to take it. The big concern could and did exempt itself from liability in its own interest without regard to the little man. It got away with it time after time."

Because of Freedom of Contract. "Secret weapon to stab the idol in the back... the trust construction of the contract."

"Out of winter came Spring" - UCTA 1977. Now Act subjected to test of reasonableness, didn't need all the judicial contortions.


McKendrick - relationship between Hoffman's statements and old caselaw. Which to overrule?

Bank of Credit and Commerce International SA v Ali (2000)

Hoffman provides his view:

May not matter - precedent has limited role in interpreting contracts.

FACTS: Collapse of BCCI - N signed release of all claims might have against it. HL - did it extend to a claim not known to law at the time? "Stigma damages" - N now arguably entitled.

HELD: Didn't extend to stigma damages- Hoffman dissented, that N's general release meant "business" - not leaving deliberate gaps. All claims barred.

How can "reasonably man" test be affected by authority? And his use of authority provided no facts - the remarks of the judges however general must be read in context.


Hoffman - "Matrix of Fact" includes "anything which would have affected the way in which the language of the document would have been understood by a reasonable man".

Could submerge proceedings with evidential detail to muddy waters, beyond many people's financial means.

Hoffman said meant "no conceptual" limits. Commentators think negotiating positions and subjective intent are excluded from matrix of fact.

Wilberforce in Prenn v Simmons 1971 - parties' positions during negotiation changing - only the final document records a stable consensus. Hoffman rebuts in

Chartbrook Ltd v Persimmon Homes Ltd (2009)

Negotiations raise practical questions different from those created by other forms of background. Whereas surrounding circumstances are objective facts which will usually be uncontroversial, statements in course of precontractual negotiations will be drenched in subjectivity.


Fourth paragraph, Hoffman - re meaning of words - allows too much power to courts against principle of certainty.

Going against "mistakes" -

Where the court upholds the agreement in fact made, rather than discovering and enforcing one which would have been a better agreement, it does a great service to the value of certainty. Makes people more cautious when constructing a contract.

By reference to context, not improvement of contract.


Implication - 4 types:

(1) Implication from custom
(2) Implication from presumed intention (“terms implied in fact”)
(3) Implication from the parties’ legal relationship (“terms implied in law”)
(4) Implication from statute.


Smith v Wilson (1832)

1000 rabbits meant 12,000 rabbits. Exception to parol evidence rule - oral evidence can be admitted to show contract should be construed in accordance with local custom.

Matrix of fact, also local context lead to conclusion.


Implication from custom

Hutton v Warren (1836)

FACTS: Tenant said after notice to quit was custom of country to entitle him to an allowance for cost of seed and labour in ploughing and sowing before he went.

HELD - upheld.

Parke B - extrinsic evidence of custom admissible - underlying presumption that parties didn't mean to express in writing the whole of their agreement, but contracted by reference to known usage. Doesn't mean that it operated unless agreement expressly excluded it. Applied unless agreement expressly or impliedly excluded it.


Implication from presumed intention - terms implied in fact:

The Moorcock (1889)

FACTS: Pl to pay for use of cargo facilities, obvious that was low water. Vessel damaged, defs didn't own river bed.

HELD - defs gave no warranty or representation re riverbed, but impliedly represented that they had taken reasonable care to make sure it was safe.

AC - same implication in form of term rather than representation. Necessary to give business efficacy to contract as parties, reasonable business men, must have intended it to have. Pl couldn't have known anything re the river bed.

Business efficacy - must have intended their contract to work.


Reigate v Union Manufacturing Co (1918)

Officious bystander test.

Term won't be implied just because would e reasonable:

FACTS: 7 year agency agreement, whether agency might be terminated at any point through one party ceasing to do business. Specified 2 grounds to terminate contract. HELD - Scrutton LJ - refused to imply a term, they would have disagreed about it and they contractually recorded the extent of their agreement.

"A term can only be implied if it is necessary in the business sense to give efficacy to the contract... an implied term is not to be added merely because the court thinks that it would have been reasonable to have inserted it in the contract."

Officious bystander test.


Shirlaw v Southern Foundries (1939)

FACTS: MD of SF. Contract to hold post for 10 years, but was taken over by another Co, replaced him. He sued.
HELD: AC - dismissed appeal against award - contract contained implied term that company's articles wouldn't be altered to create the right to dismiss Mr S. Appeal to HL unsuccessful.

MacKinnon LJ - thought if parities had been asked at outset, would have agreed.

Implied terms are those "so obvious that it goes without saying... but the test is less strict than first seems.


Attorney General of Belize v Belize Telecom (2009)

FACTS: 2 Dirs sat on board of BT. Power to appoint in shareholder, who had power to dismiss. But now no one had the requisite share-holding. Could articles of association allow for termination of directors tenure of office once special shareholding ceased to exist?

HELD - PC, Lord Hoffmann, considered this implication correct. Otherwise defeated overriding purpose of the machinery of appointment and removal of directors - that the board reflected the appropriate shareholder interests.

HELD - Interp and imp were one and same proves, based on court's objective construction of what the parties must be deemed to have meant.

"The court does not make a contract for the parties, nor improve it. It will interpret and apply the contract which the parties have made fore themselves..."

Business efficacy - to mean that person considers the different construction which would frustrate the business purpose of the parties.

"goes without saying" - is that the reasonably person would understand it to mean X.

Quotes Lord SImon in BP Refinery:

"(1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that 'it goes without saying' (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract".


Implication by law - contract as of a certain class, and that normally found in those contracts. By necessity.

No need to find that parties would have agreed the term had their attention been drawn to it.

Liverpool City Council v Irwin (1976)

FACTS: Council owned block of flats. Defs were tenants. No complete tenancy agreement between parties but "Conditions of Tenancy" - list of obligations. No express obligations - had been vandalised etc. Rent strike, so council aimed for possession. Counterclaim for damages and block maintenance.

HELD: CFI - possession order granted, defs received £10 damages as council in breach of implied and statutory covenants. AC - reversed - council not in breach of covenant. HL - council in breach of implied covenants to do what was reasonable in maintenance of flats.


Wilberforce: Liverpool City Council v Irwin 1976:

"The form states he accepts the tenancy. On landlords side is nothing. Contract partly, not wholly, stated in writing. To complete it and give it a bilateral character, necessary to take account of actions and circumstances.

This is an implied letting, implied covenant for quiet enjoyment - necessary for the letting. Demise useless without staircase or lift, implied easements to use the stairs, lifts, rubbish chutes...accompanied by an obligation other than Occupiers Liability Act 1957 - safety of facilities. Test of necessity. Essentials of tenancy of flat are the lift etc.

3 accepted situations where terms can be implied - implication from custom, and in fact - to make contract work. Otherwise may not work in accordance with parties intentions. Then implication in law - manifestly incomplete, must necessarily be supplemented.

But here a stated necessity (maintenance of flat) falls short by secured by not unconditional means (reasonable maintenance).

Term shouldn't go beyond what is necessary - therefore necessity, and what is reasonable.


Scally v Southern Health and Social Service Board (1992)

FACTS: 40 years service to become eligible for state pension - to buy additional years at favourable rate. Failed to notify employees of that right. HELD: HL - term properly to be implied, necessary because if no obligation on employer, employees might have no way of knowing about a right created for their benefit.

Lord Bridge - necessity, not reasonableness, but distinction between business necessity, and search on wider considerations, for a term which law implies as necessary of a contractual relationship.


Crossley v Faithful & Gould Holdings Ltd (2004

Employee resigned on mental health grounds, backdated resignation for tax as advised by employer. So Lost entitlement to benefits under employer's insurance scheme - employer breached implied term to take reasonable care for his economic wellbeing.

HELD: AC rejected - too broad to be implied generally into contracts and too burdensome. Dyson LJ - "necessity is elusive and protean" - preferable to recognise reasonableness and balancing of competing policy considerations.

Law won't accept jurisdiction to supply default clauses. But Belize - implication on presumed intention of parties now an extension of contractual interpretation - sundered from implication in law. Becoming more like where courts determine duties in tort.