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There have been some interesting developments on contracts in the last year or so. Understanding how a court will approach an agreed contract is vital to understanding how to put a contract together. This blog will hopefully lead you through some of the thought processes.

 

Why interpret a contract? 

Contracts are not necessarily clear on the face of them, or after signing there may be ambiguities. If circumstances arise which were unexpected, the contract may not deal with them precisely.

The court’s job is to understand what the parties meant to agree to when they signed. The court does this by looking at the intention of the parties and deciding what they have agreed, or often what they meant to agree.

The court asks what a reasonable person would have understood the parties to have intended. That may well be a very different intention to what the parties actually intended, but that is irrelevant.

 

Oh, I deleted that

Perhaps a contract went through many drafts before being signed. Can a court then look back through those deletions to see what previous versions said?

The short answer is not really, the long is answer is maybe.

Deletions are generally only going to be looked at by a court if a court cannot fully understand what was meant by the final draft of the clause, or perhaps where there is ambiguity.

Since a case which came out earlier in 2016, the court has decided that they can use them to make decisions on contractual construction, which was also in a situation where the language was ambiguous.

 

Is “all” best, or is “best” all?

“Best” is best.

The courts decided in 1997 that “all reasonable endeavours” is a lower standard than “best endeavours”. All reasonable endeavours would not include something which would put the individual in a less advantageous position financially. More recently in 2016, the court decided that all reasonable endeavours required you to keep on taking steps until there no more reasonable steps to take.

We cannot exactly say that either are a particularly satisfactory definitions, and if you want someone to do something specific then perhaps that should be agreed when the contract is signed.

 

Discretion

Contractual discretion is used in a number of places, from employment contracts through to commercial contracts. Discretion is a good tool to use when making a decision, but it does not mean you can do whatever you want.

A discretion can be challenged where it has been exercised in a capricious, arbitrary or perverse way.

More recently in 2016 the court has decided that where a discretion has been shown to be unreasonable, the burden falls on the other party to show that the decision making process was reasonable. That was decided in an employment case, and whether that remains solely under employment law is a matter for another judgement.

Useful links:

Employment Contracts