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Rules of Construction
Last updated: 08-Jul-2015

Hollier v Rambler Motors (AMC) Ltd [1972] 2 QB 71 per Salmon LJ:

…rules of construction are merely our guides and not our masters; in the end you are driven back to construing the clause in question to see what it means.

George Mitchell (Chesterhall) Ltd v Finney Lock Seedy Ltd [1983] 1 All ER 108, part of Lord Denning’s judgment under the heading ‘The secret weapon’:

Faced with this abuse of power, by the strong against the weak, by the use of the small print of the conditions, the judges did what they could to put a curb on it. They still had before them the idol, ‘freedom of contract’. They still knelt down and worshipped it, but they concealed under their cloaks a secret weapon. They used it to stab the idol in the back. This weapon was called the ‘true construction of the contract’. They used it with great skill and ingenuity. They used it so as to depart from the natural meaning of the words of the exemption clause and to put on them a strained and unnatural construction. In case after case, they said that the words were not strong enough to give the big concern exemption from liability, or that in the circumstances the big concern was not entitled to rely on the exemption clause. If a ship deviated from the contractual voyage, the owner could not rely on the exemption clause. If a warehouseman stored the goods in the wrong warehouse, he could not pray in aid the limitation clause. If the seller supplied goods different in kind from those contracted for, he could not rely on any exemption from liability. If a shipowner delivered goods to a person without production of the bill of lading, he could not escape responsibility by refer-ence to an exemption clause. In short, whenever the wide words, in their natural meaning, would give rise to an unrea-sonable result, the judges either rejected them as repugnant to the main purpose of the contract or else cut them down to size in order to produce a reasonable result.

Per Lord Hoffmann in his dissenting speech in Bank of Credit and Commerce International SA v AH [2001] UKHL 8; [2001] 2 WLR 735:

57. It was however unusual, even in the 19th century, for commercial documents to be interpreted according to rules of construction. The quest for certainty, which still dominated the construction of wills and deeds, was thought less important than the need to give effect to the actual commercial purpose of the document. There was however one remarkable example in the 20th century of a rule of construction being evolved by the courts in a commercial context. This was the rule for construing exemption clauses. But the purpose was different from that of most of the rules applied to wills and deeds. It was not to promote certainty of construction but to remedy the unfairness which exemption clauses could create. As Mr Allen [counsel for Mr Naeem] also contended for a rule of construction on grounds of fairness, I think that the story of the rise and fall of the rule of construction for exemption clauses may be instructive.

In Polypearl Ltd v E.On Energy Solutions Ltd [2014] EWHC 3045 (QB) by Behrens J at para 32:

The general principles of construction are now very well known. The principles are set out in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 at 912F-913G; Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38; [2009] 1 AC 1101 at [14]-[15] and [21]-[25] and Rainy Sky SA v Kookmin Bank [2011] UKSC 50, [2011] 1 WLR 2900 at [21]-[30] and may be summarised:

(1) the ultimate aim of interpreting a contractual provision is to determine what the parties meant by the language used, which involves ascertaining what a reasonable person would have understood the parties to have meant;

(2) the reasonable person is one who has all the background knowledge which would reasonably be available to the parties in the situation they were at the time of the contract;

(3) where a term of a contract is open to more than one interpretation, it is generally appropriate to adopt the interpretation which is most consistent with business common sense;

(4) poorly drafted contracts do not attract a different approach, but the poorer the quality of the drafting, the less willing the Court should be to be driven to semantic niceties to attribute to the parties an improbable or unbusinesslike intention;

(5) however where the parties have used unambiguous language, the court must apply it.


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