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Trafficking words in today’s contract

Trafficking words in today’s contract

AS THE trend in the interpretation of contracts has changed from a textual to contextual basis over time, the impact on cost and certainty, among other factors has been significant, according to…

AS THE trend in the interpretation of contracts has changed from a textual to contextual basis over time, the impact on cost and certainty, among other factors has been significant, according to the NSW Chief Justice.

“Law is a fashion industry,” Chief Justice James Spigelman said in a speech on the contemporary interpretation of contracts at Clayton Utz’s ‘risky business’ conference in Sydney. “Over the last two or three decades the fashion in interpretation has changed from textualism to contextualism.”

According Justice Spigelman, “all lawyers, both practitioners and judges, are traffickers in words”. He said he recognised the days of literal interpretation are no longer in vogue, while purposive interpretation is now all the rage.

The changing trend is not exclusive to contracts either, the judge said. “In constitutional, statutory and contractual interpretation there does appear to have been a paradigm shift from text to context.

“Ideas which have found their origin in statutory interpretation have come to be applied in the interpretation of contracts ... Such convergence in approach also reflects changes in the broader intellectual milieu.”

One casualty of the shift in interpretation could have been commercial certainty, Justice Spigelman said.

“A significant concern is whether the change in the general style of contractual interpretation — from text to context — has undermined the desirable objective of ensuring commercial certainty.

“There is a real question whether the expanded scope of matters to which consideration can be given in the course of interpretation has so decreased the capacity of all relevant parties to rely on the words as to raise the level of uncertainty about the obligation to deliver the relevant bucket of money or of monies worth.”

Justice Spigelman said a major purpose of both commercial agreements and contract law as a whole is the allocation of risk between parties, often involving contingencies that cannot be anticipated. “Interpretation is the necessary means of determining how those risks were in fact allocated. Anything which increases the level of uncertainty about how words have performed that task, itself increases risk,” he said.

Apart from potential problems with certainty, the NSW chief justice also drew attention to the significant increase in the cost of legal dispute resolution that has resulted from an expanded scope of matters to be considered in the course of present day interpretation.

Justice Spigelman referred to the “particularly influential formulation” that Lord Hoffmann’s five-point scheme for contractual interpretation represents in the Investors Compensation Scheme case, including Lord Wilberforce’s ‘factual matrix’.

“The first step by Lord Wilberforce — taking into account the “factual matrix” — unquestionably expanded to a substantial degree the costs of litigation,” he said.

Justice Spigelman recalled the view of former English judge Sir Christopher Straughton, who said “of Lord Hoffmann’s ‘absolutely everything’ dictum, ‘it is hard to imagine a ruling more calculated to perpetuate the vast cost of commercial litigation’”.

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Trafficking words in today’s contract
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