REUTERS | Beawiharta

What does the future hold for contract interpretation?

I’m reading a futurology book at the moment. The author says that the way to predict the future is to understand the causes of events by reference to underlying influences.

He says that politicians (and other powerful people) do not control the world as much as we think. Many of the decisions that they make are the inevitable result of these underlying influences.

One example is geography. Maritime nations have always tended to trade internationally and to prosper because of that trade. Demographics is another underlying influence. Population reduction (and an aging population) in developed countries will influence events and social trends in those countries, resulting in politicians and others inevitably and predictably making certain decisions.

I wonder if the same thing is true in the law, especially in our common law system of precedents. It is said that “a good lawyer knows the law but a great lawyer knows the judge”. Knowing the judge (in the respectable sense) is about predicting the result of disputes or the trends in the law which will ultimately govern the relationship between contracting parties. But do our judges really develop the law, or do commercial or social trends make their decisions inevitable? If the latter, then judges who are not in line with the trend will be appealed against or will find their judgments sidelined by future decisions.

People only appeal if they are unhappy. Unhappiness in this context is often about a perceived unfairness. Unfairness (at least in the mind of the aggrieved) is thought of as objectively measurable in line with current thinking. (Or the trend in current thinking.)

One area where this is happening today is the extent to which pre-contractual negotiations can be used to understand contractual arrangements between the parties.

One of the latest cases widens this debate: Oceanbulk Shipping v TMT considered whether without prejudice negotiations could be used as an aid to the construction of a resulting settlement agreement. (They can). In this case Lord Clarke said:

“I see no reason why the ordinary principles governing the interpretation of a settlement agreement should be any different regardless of whether the negotiations which led to it were without prejudice. … As I see it, the process of interpretation should in principle be the same, whether the negotiations were without prejudice or not. In both cases the evidence is admitted in order to enable the court to make an objective assessment of the parties’ intentions.”

Significantly, he added:

“The parties entering into such negotiations would surely expect the agreement to mean the same in both cases.”

In an article on the case Simon Willis observes that:

Oceanbulk is another example of collateral damage to established principles caused by the ‘modern approach to construction’. Supporters of that approach are likely to regard the decision as a further step in the right direction. Others, who consider the perceived benefits of such an approach to be outweighed by the additional uncertainty and cost of resolving contractual disputes, will take a different view.”

Is this a question of supporters and detractors, or is there an underlying commercial trend, which the futurologist would say is inevitable (if not always predictable)?

If that is right, the appeal cases will keep on coming until the law aligns with the trend.

Leave a Reply

Your email address will not be published. Required fields are marked *