Lloyd's Maritime and Commercial Law Quarterly
THE RISE OF COMMERCIAL CONSTRUCTION IN CONTRACT LAW
Gerard, McMeel*
Many commercial disputes, or at least those which are litigated, are ultimately resolved by judicial exegesis of the contractual words used by the parties. Such disputes can prove to be “as obstinate as an allegory on the banks of the Nile.1
It has become commonplace to observe that recent decades have witnessed a shift from literalist techniques of construction to a more purposive approach. This article charts the attitudes to this supposed dichotomy in three recent House of Lords’ authorities. It is argued that it is preferable to categorize the modern approach as the commercial (or common sense) approach to interpretation.2
The techniques now deployed—objective analysis, the contextual approach and the identification of commercial purpose—are critically evaluated.
Ascertaining the meaning of language deployed by contracting parties has long given rise to obstinate, often intractable disputes among lawyers. The degree of dissent provoked at each judicial level in three recent commercial disputes which all reached the highest tribunal are poignant evidence of that truism. This is often explained by reference to a supposed dichotomy between two rival schools of contractual interpretation. In the words of Lloyd, L.J.,3 such disputes are: “ … designed to separate the purposive sheep from the literalist goats.” Further, Lord Steyn has recently observed:4
… there has been a shift from strict construction of commercial instruments to what is sometimes called purposive construction of such documents. Lord Diplock deprecated the use of that phrase in regard to the construction of private contracts as opposed to the construction of statutes[5] …. That is understandable. There are obvious differences between the processes of interpretation in regard
* Barrister; Lecturer in Law, University of Bristol. This article was written while the author was a Visiting Fellow to the Buchmann Faculty of Law, Tel-Aviv University, and the holder of a scholarship from the Pegasus Trust. The generosity of both institutions is warmly acknowledged.
1. Mannai Investment Co. Ltd v. Eagle Star Life Assurance Co. Ltd [1997] A.C. 749, 774, per Lord Hoffmann, citing as authority, Mrs Malaprop. In fact the learned lady described her allegories as “headstrong”: Sheridan, The Rivals, Act III, Scene 3.
2. Unlike some commentators, I draw no distinction between interpretation and construction. Cf. E. W. Patterson “The Interpretation and Construction of Contracts” (1964) 64 Col.L.R. 833.
3. Summit Investment Inc. v. British Steel Corp. (The Sounion)
[1987] 1 Lloyd’s Rep. 230, 235. See also N. K. Meeson, “Purposive Sheep and Literalist Goats—The Return of the Goats” [1993] LMCLQ 476, discussing Marida Ltd v. Oswald Steel (The Bijela)
[1992] 1 Lloyd’s Rep. 615 (C.A.); subsequently reversed [1994] 1 W.L.R. 615 (H.L.); noted by N. Gaskell [1994] LMCLQ 342.
4. Mannai v. Eagle Star [1997] A.C. 749, 770; Cf. Deutsche Genossenshaftsbank v. Burnhope
[1996] 1 Lloyd’s Rep. 113, 124, per Lord Steyn: “… the shift during the last two decades …”. Contrast Investors Compensation Scheme Ltd v. West Bromwich Building Soc. [1998] 1 W.L.R. 896, 912, per Lord Hoffmann; “… fundamental change which has overtaken this branch of the law
5. Antaios Cia Naviera SA v. Salon Rederierna AB, (The Antaios) [1985] A.C. 191, 201.
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