The Gazette 1981

JULY-AUGUST 1981

GAZETTE

Judicial Attitudes to the Construction of Written Contracts or . . .for the want of a nail the ship was lost

by

Robert A. Pearse and David Tomkin Lecturers in Law, University College, Cork

T HE gradual divagation of English from Irish contract law is of considerable importance to practitioners in Ireland, who deal commonly not only with contracts subject to Irish law, but also with contracts which are subject to English law and which may be interpreted by English courts. The interpretation of written contracts in England has recently been the subject of judicial attention. The purpose of this article is to discuss and to elucidate the differing judicial approaches which have become apparent and to consider what application they might have in Ireland. 1. Commercial Contracts The tendency in construing commercial contracts in England may be inferred from the attitude of the House of Lords' recent decision in A.S. Awilco v. Fulvia Spa di Navigazione (The Chikuma) 1 in which articulation was given to the ideal at which courts should aim, in con- struing common form contractual clauses. It is, Lord Bridge said: to produce such a result that in any given situation both parties seeking legal advice as to their rights and obligations can expect the same clear and con- fident answer from their advisers and neither will be tempted to embark on long and expensive litigation in the belief that victory depends on winning the sympathy of the court. 2 The general approach which appears from both this case, and Photo Production Ltd. v. Securicor Transport Ltd., 3 again a recent decision of the House of Lords, is that the words of a written contract should be given their ordinary and natural meaning. In the Photo Production case the appellant company owned a factory, and in 1968 entered into a contract with the respondent company for the provision of security services there. During the course of the provision of these services an employee of Securicor lit a small fire, which got out of control, and resulted in a conflagration which

caused the respondents monetary loss to the amount of £ 6 1 5 , 0 0 0. The respondents sought to avoid liability relying on a widely drafted exclusion clause. The House of Lords, in allowing the appeal from the decision of the Court of Appeal, and upholding the decision of MacKenna J., indicated that the exemption clause was clear and unambiguous. It protected the respondent company from liability. The court rejected any "artificial" approach to the interpretation of the contract. It indicated that there was no justification for interfering with the terms freely reached by the parties. Referring to the Unfair Contract Terms Act 1977, Lord Wilberforce said: It is significant that Parliament refrained from legislating over the whole field of contract. After this act, in commercial matters generally, when the parties are not of unequal bargaining power, and when risks are normally borne by insurance, not only is the case for judicial intervention undemonstrated, but there is everything to be said, and this seems to have been Parliament's intention, for leaving the parties free to apportion the risks as they think fit, and for respecting their decisions. 4 It will be noted that this proposition is made subject to qualifications, and further qualifications were expressed in the speech of Lord Diplock, who, while stating that "parties are free to agree to whatever exclusion or modification of . . . obligations they please," 5 laid down the following exceptions:— (1) The agreement must retain the legal characteristics of a contract. (2) It must not offend against the equitable rule against penalties. (3) Exclusion clauses are to be construed strictly and the appropriate degree of strictness to be applied to the construction of exclusion clauses may properly depend on the "extent to which they involve depar- ture from the implied obligations." 5 (4) The reasonableness of exemption clauses is a relevant 129