ABSTRACT
What is contractual interpretation and how do courts carry it out? This short book examines these related and controversial questions. Much recent work on the subject has been prompted by Lord Hoffmann’s restatement of the principles of contractual interpretation in Investors Compensation Scheme v West Bromwich Building Society.1 As has been noted by many, despite the practical importance of interpretation in contract disputes, the subject was largely ignored by contract scholars prior to the Investors judgment. This might have been because of the belief that the subject could be reduced to a few simple ‘rules of construction’, the main rule being that words in the contract should be interpreted according to their plain, natural or ordinary meaning. Lord Hoffmann’s restatement has become a point of focus because he articulated a shift away from this simplistic approach in favour of contextual interpretation.2 This contextual method is variously described as involving reference to the ‘background’ or ‘factual matrix’ of the contract, or the ‘reasonable expectations of the parties’, or the ‘commercial purposes’ of the agreement or ‘business common sense’. These would seem to be just different ways of saying the same thing: that contractual interpretation is not just a process of unreflectingly grasping the plain meaning of the words of the contractual text and applying them to the facts of the dispute, but involves a wider examination of the contractual circumstances, which might include almost any information relevant
to understanding the agreement, with one or two notable exceptions. In short, contractual interpretation must now be understood as an inclusive rather than an exclusive process.
