Case law: court can give own interpretation to agreement where contractual terms are unclear

By: Fanny Marshall

Date: 19 June 2009

Businesses are advised to ensure that their contracts are clearly drafted, rather than risk expensive litigation leading to an outcome that neither party intends, following a recent Court of Appeal ruling.

The issue arose in a dispute between two parties to a property development contract, each of whom preferred their own interpretation of a provision that had not been clearly drafted. The judge who heard the case initially rejected both parties’ interpretations, but refused to give his own interpretation. As a result, the meaning of the agreement was not resolved.

The Court of Appeal, however, stated that the judge should have given his own interpretation. It said that, if an agreement could be interpreted in a way that made it enforceable and effective, a court should prefer that interpretation to any interpretation that would result in the agreement being declared void. The court also said that an interpretation which produces a result that the parties are likely to have agreed is preferable to an improbable result. In applying these principles to this case, the court gave a ruling that put the parties in a position to avoid further delay and costly litigation.

Businesses can avoid litigation altogether if their contracts are well drafted, and should not expect that a badly drafted agreement will be declared void.

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