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Lloyd's Maritime and Commercial Law Quarterly


David McLauchlan *

This article challenges the orthodox view that, in adjudicating upon contract interpretation disputes, the task of the courts is to determine the parties presumed intention and that evidence of the parties’ actual mutual intention, usually to be found in their communications in the course of negotiating the contract, is irrelevant and inadmissible as an aid to interpretation. It is argued that, in any event, little of substance is left in the rule excluding evidence of prior negotiations once it is accepted that such evidence is admissible to prove that relevant background facts were known to the parties and that the safety devices of rectification and estoppel are alternative means of enforcing an agreed meaning. The courts are highly unlikely nowadays to give a meaning to contractual terms that is inconsistent with a clearly proven consensus of the parties.

1. Introduction

A high proportion of the contract disputes that come before the courts involve issues of interpretation. These disputes also tend to be the most intractable. Very often the facts are complex,1 large sums are at stake and the “right” answer, which may hinge on “minute differences in wording”,2 is far from obvious. Inevitably, therefore, judges regularly disagree as to the meaning of the words, indeed sometimes even a single word, in dispute.3 Another feature of the great majority of these cases is that at the time of formation the parties did not contemplate the situation that later arose, let alone give any thought to the effect of the relevant words in that situation. There is no question, therefore, of their having formed any intention as to the meaning of the words. Accordingly, the court can only seek to resolve the dispute by reference to the parties’ presumed intention. As Thomas J has pointed out:4
* Professor of Law, Victoria University of Wellington; Honorary Professor, TC Beirne School of Law, The University of Queensland. This is a revised version of a paper delivered at the Obligations V conference held in Oxford on 14-16 July 2010. Thanks to Charles Rickett for his comments.
1. For a recent example, see The Movie Network Channels Pty Ltdv. Optus Vision Pty Ltd [2010] NSWCA 111.
2. Sir Robert Goff, “Commercial Contracts and the Commercial Court” [1984] LMCLQ 382, 385.
3. See, most recently, Kookmin Bank v. Rainy Sky SA [2010] EWCA Civ 582; [2010] 1 CLC 829.
4. Attorney-Generalv. Dreux Holdings Ltd (1996) 7 TCLR 617 (NZCA), 632. In the more recent case of Gibbons Holdings Ltdv. Wholesale Distributors Ltd[2007] NZSC 37; [2008] 1 NZLR 277, [96], his Honour said, inter alia: “The doctrine [of presumed intent] has necessarily had an impact on the way judges and lawyers approach contractual interpretation in general. Aware that in many, if not most, cases the parties did not, because of unforeseen events, have an actual intention in respect of the particular clause in issue, the doctrine permits judges and lawyers to arrive at an interpretation without compromising the basic premise that the contract must not be interpreted subjectively. The presumed intent is imputed to the parties. Inevitably, and understandably, judges and lawyers come to impute an intention to the parties without questioning the process. The imputation becomes a habit of thought or attitude of mind”.


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