Last edited 09 Oct 2015

Construing a contract


[edit] Introduction

The same rules of construction apply to both simple contracts and contracts under seal.

The general rule is that whilst the court strives to give effect to the intention of the parties, it must give effect to that intention as expressed. That is to say it must ascertain the meaning of the words actually used and not try to interpret the motive or state of mind of the parties (see Inland Revenue Commissioners v Raphael and Prenn v Simmonds).

The courts must have regard to the ordinary meaning of words used unless they are technical or scientific. That being said the courts are concerned to ascertain the intention of the parties and not merely indulge in semantic exercises. In Lloyd v. Lloyd, Lord Cottenham stated:

‘If the provisions are clearly expressed, and there is nothing to enable the court to put upon them a construction different from that which the words import, no doubt the words must prevail; but if the provisions and expressions be contradictory and if there be grounds, appearing on the face of the instrument, affording proof of the real intention of the parties, then that intention will prevail against the obvious and ordinary meaning of the words. If the parties have themselves furnished a key to the meaning of the word used, it is not material by what expression they convey their intention’

In construing particular terms of a contract the whole of the contract must be considered. Further, if there is no ambiguity or uncertainty, then the court must give effect to the intention of the parties, however harsh.

In Trollope and Colls Ltd v North West Metropolitan Regional Hospital Board, the contract provided for three phases of work, phase 1 to be completed by 30 April 1969 and phase 3 to commence six months after the date of practical completion of phase 1 and to be completed on 30 April 1972, i.e a construction period of 30 months for phase 3. The completion of phase 1 was delayed by a period of 59 weeks, 47 of which were not the fault of the contractor. Practical completion of phase 1 was not achieved until 22 June 1972, leaving a construction period of only 16 months, rather than 30 months, for the completion of phase 3. The court took the view that the intention of the parties was perfectly clear from the wording of the contract and refused to relax the contractors' obligations by
implication of the term that the time for completion of phase 3 should be extended by the same period as the extension of time granted in respect of phase 1.

Where the parties have made manuscript deletions, additions or amendments to a printed form, in the event of any ambiguity in construing the document as a whole, the manuscript will be given greater weight than the printed terms (see Sutro & Co v Heilbut Symons and Co).

Where there is inconsistency between figures and words the court will have regard to the words before the figures (Saunderson v Pier).

If there is inconsistency between different parts of the same contract then, in the absence of an express term resolving the ambiguity, the courts will endeavour to give effect to that part of the contract which expresses the real intention of the parties (see Walker v Giles).

If the contract document or documents establish a clear intention, the courts adopt an interventionist approach to resolve any difficulties flowing from the actual words used by the parties. For example, Gwyn v Neath Canal Company:

'The results of the authorities is that, when a court of law can clearly collect from the language within the four corners of a deed or instrument in writing, the real intention of the parties, they are bound to give effect to it by supplying anything necessary to be inferred from the terms used, and by rejecting as superfluous whatever is repugnant to the intention so discerned’

In Mourmand v Le Clair, the parties expressed the repayment of a debt to be by instalments of 'seven’ on a particular day of the month; the court inserted the word 'pounds' after the word 'seven'. In Simpson v Vaughan a debtor gave an acknowledgment of debt that was stated to be 'for money borrowed which I promise never to pay'; the court struck out the word 'never'.

[edit] Parol evidence rule

Where it is clear that the parties intended the whole of their agreement to be set out in one document or a series of documents, the operation of the parol evidence rule will prevent the parties from relying on extrinsic evidence to try and amend the terms of their agreement. For example, evidence of negotiations that took place prior to the conclusion of the contract will not be admissible.

The parol evidence rule applies both to oral evidence and to documentary evidence, for example letters and minutes of meetings. It is not an absolute rule however and there are exceptions as the courts adopt a commonsense approach to the question of interpretation of contracts. In particular, if there is some uncertainty or ambiguity as to the intentions of the parties then the courts are prepared to look at what has been described as the matrix of a contract, that is to say the surrounding circumstances, background and commercial purpose of the agreement.

See Parol evidence rule for more information

[edit] Recitals

Recitals are the introductory statements in a written agreement or deed setting out a précis of the parties' intentions. Recitals usually appear in documents after the words 'whereas' and before the words 'now it is hereby agreed as follows', the latter phrase introducing the operative or main conditions of the agreement.

If there is any ambiguity or uncertainty arising from the operative or main conditions of the agreement the courts will look at the recitals in order to establish the intentions of the parties to the agreement. It is also important to note that the intentions of the parties as evinced by the recitals may be relevant to the court's consideration of whether or not to imply a term into the agreement.

[edit] Ejusdem generis

The ejusdem generis rule is a rule of construction which provides that where a contract condition or clause sets out a list of specific matters so as to create a common category and the specific matters are followed by general words, the courts will construe the general words restrictively so as to confine those words to the common category. For example, the phrase 'and all other deleterious materials' coming after a list of deleterious materials will be construed restrictively.

[edit] Contra proferentem

The Contra proferentem rule provides that if the wording of an agreement is ambiguous or uncertain, but not otherwise, the contract should be construed more strongly against the person whose words they are rather than the other party.

See Contra proferentem for more information

[edit] The Housing Grants, Construction and Regeneration Act

The Housing Grants, Construction and Regeneration Act 1996 (also known as the construction act) is intended to ensure that payments are made promptly throughout the supply chain and that disputes are resolved swiftly.

Provisions of the act include:

  • The right to be paid in interim, periodic or stage payments.
  • The right to be informed of the amount due, or any amounts to be withheld.
  • The right to suspend performance for non-payment.
  • The right to adjudication.
  • Disallowing pay when paid clauses.

The Act applies to all contracts for 'construction operations' (including construction contracts and consultantsappointments). If contracts fail to comply with the act, then the Scheme for Construction Contracts applies.

See Housing Grants, Construction and Regeneration Act for more information.

[edit] Find out more

[edit] Related articles on Designing Buildings Wiki