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A well intentioned debate.

Former Supreme Court Justices Lord Hoffman and Lord Sumption have been debating the extent to which judges should look behind parties' choice of words to determine their intended meaning. We consider the background to this debate and its likely impact on the newly formed Supreme Court.

"I don't know what you mean by 'glory,'" Alice said.
Humpty Dumpty smiled contemptuously. "Of course you don't—till I tell you. I meant 'there's a nice knock-down argument for you!'"
But 'glory' doesn't mean 'a nice knock-down argument'," Alice objected.
When I use a word," Humpty Dumpty said, in rather a scornful tone, "it means just what I choose it to mean—neither more nor less."

L. Carroll, Through the Looking-Glass (Raleigh, NC: Hayes Barton Press, 1872), p. 72.

The meaning and effect that the courts will give to parties' choice of words has been at the forefront of judicial and wider public debate over the past couple of years. There has been increased scrutiny of non-disclosure agreements following scandals in Hollywood and the voluntary sector – nevertheless we judged that the Oscar went to freedom of contract. While it remains to be seen how the newly composed Supreme Court will approach legal interpretation, two of the most senior former judicial figures have been debating the approach that should be taken.

I mean what I say...

Historically, the courts had developed a long list of rules, principles and maxims which they would apply when interpreting a legal document. These principles, often hiding behind latin monikers such as eiusdem generis, contra proferentem, and expresio unius est exclusio alterus were rigidly and formulaically applied. Ambiguities were to be resolved by dictionaries and grammars. The judge's role was to give effect to the words presented to him, no matter how absurd the result. In one Victorian case, a 12 year old boy was appointed as executor of a deceased's estate owing to the fact the testator had written the wrong middle name in his will (the boy, and his father shared the same first names, surnames and middle initial).1 Any consideration of the parties' intended meaning that was not immediately apparent from the words they used was ignored.

...and I say what I mean

This view softened over the twentieth century, and judges gradually started to consider factors beyond the dictionary definitions of the words before them. In 1985 Lord Diplock commented that 'if detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business common sense, it must be made to yield to business common sense.'2 If the parties' words were, on their face not commercially sound, the judge's role was to interpose a more commercially sound meaning. The dictionaries had fallen out of favour and judges began to apply the sort of interrogatory reasoning as deployed by Alice in our quotation above.

Lord Hoffman was the key proponent of this paradigm shift. In Investors Compensation Scheme Ltd v West Bromwich Building Society3 he commented that 'Alice, as a reasonable young woman, could not have realised [that by 'Glory' Humpty Dumpty meant 'a nice knock-down argument'] until he told her, but once he had told her, or if without being expressly told, she could have inferred it from the background, she would have had no difficulty in understanding what he meant.'4 Judges were not to be confined by dictionaries or principles, but should seek to determine what the parties meant by looking at other relevant factors, for example the commercial context of the agreement and the reasonableness of the result of a given interpretation.

Reversion to the mean(ing)

However, as well intentioned as this approach was, it was not without its shortcomings. It is a fundamental principle of English law that pre-contractual negotiations are generally inadmissible as evidence as to the parties' intent (with the exception of rectification cases). Equally inadmissible are parties' statements about the intended meaning. Alice does not have the luxury of asking Humpty Dumpty what he meant.

Lord Sumption (who is due to retired from the Supreme Court in December of last year), reflected in a polemical 2017 speech that '[he found] the belittling of dictionaries and grammars as tools of interpretation to be rather extraordinary...If we abandon [dictionaries and grammars] as the basic tools of construction, we are no longer discovering how the parties understood each other. We are simply leaving judges to reconstruct an ideal contract which the parties might have been wiser to make, but never actually did.'5 Lord Sumption effectively closed off Alice's line of questioning. If Humpty Dumpty said 'glory', it was not the role of the judiciary to look behind that even if it produced an uncommercial result.

Lord Sumption directed his comments squarely at Lord Hoffman, accusing him of having 'laid to one side the considered analyses of generations of careful contract lawyers.'6 Lord Sumption is particularly sceptical of the level of interjection of meaning that Lord Hoffman's approach would require: 'Lord Hoffmann does not spell out how we are to discover what else [the parties] meant if it was not what they said. But the only plausible answer to that question is that the parties are taken to have intended whatever reasonable people would have intended even if it is not a possible meaning of the words.'7 The logical conclusion of this approach is that judges would, 'reconstruct the commercial logic of the transaction' as Lord Sumption charged Lord Hoffman with doing in Chartbrook v Persimmon Homes Ltd.8 Lord Sumption argues that judges are not necessarily well placed to be the arbiters of commercial sense; Judges tend to approach disputes through the lens of justice and fairness, but 'fairness has nothing to do with commercial contracts...Commercial parties can be most unfair and entirely unreasonable, if they can get away with it.'9 The principle of freedom of contract necessitates that the courts will be prepared to uphold an unfair bargain.

A rebalancing towards a more restrictive approach to judicial interpretation was already being seen prior to Lord Sumption's speech.  In the 2015 case Arnold v Britton10, former Supreme Court president Lord Neuberger argued that 'the reliance placed in some cases on commercial common sense and surrounding circumstances...should not be invoked to undervalue the importance of the language of the provision which is to be construed. The exercise of interpreting a provision involves identifying what the parties meant through the eye of a reasonable reader, and, save perhaps in a very unusual case, that meaning is most obviously to be gleaned from the language of the provision.'11 While Lord Neuberger admitted it would sometimes be necessary to look beyond the language used by the parties, this was the exception and not the rule. Humpty Dumpty's words should, generally be taken at face value. Contrary to Lord Hoffman's view, there was little room for inquiry or inference apart from in the most exceptional of circumstances.

An expression of intent

Never one to be deterred, Lord Hoffman has offered a riposte. In a recent article,12 Lord Hoffman protests that Lord Sumption has misrepresented him.

He begins from the premise that words are given meaning by custom and convention i.e. by the rules of the game that the users of the language are playing. Commercial parties are, he argues, playing a 'game' against each other and their words must be read in light of the rules of that game To an extent these rules and conventions are recorded in dictionaries and grammars, but to another, possibly wider extent they aren't. While dictionaries will sometimes be of assistance, but at other times judges must also consider unwritten conventions and customs in the use of language by commercial parties in a given commercial context. It is wholly possible, commonplace even, for words to have a more expansive meaning than they would literally suggest. For example, one friend promising a lift to another friend to a rugby game they were both attending would normally be understood to include the promise of a lift home, even though that might not be expressly stated. Words and how they are used have meaning beyond their literal interpretation, and it is often impossible to glean this meaning (though it is widely understood) from dictionaries.

Lord Hoffman explains that he is not advocating abandoning dictionaries and grammars, but that judges must 'distinguish carefully between what appears to have been a mistake of language and a mistake about the world.'13 He observes that 'Lord Sumption believes that words used in a speech act have an "autonomous meaning". But this is a fallacy. Words have conventional meanings but you can only understand what they were used to mean if you know the context in which (i.e. background against which) they were used.'14 Nevertheless, Lord Hoffman rejects the view that he was seeking to import notions of 'fairness' or 'reasonableness' into commercial bargains. Rather, contrary to Lord Sumption's characterisation, '[judges] must give effect to what [the parties] appear to have used the language to mean, whether that would have been fair and reasonable or not.'15 Trying to impose 'autonomous' or 'natural and ordinary' meanings to words runs the risk that we 'go back to the dark ages of word magic.'16 Lord Hoffman's position is not logically inconsistent with that advanced by Lord Neuberger in Arnold v Britton. However they differ as to the frequency with which judges should be applying commercial reasoning when interpreting contractual language.

The Supremacy of Meaning

Lord Sumption's reply is hotly anticipated (he is giving the BBC's Reith Lectures in the Spring, which may provide a suitable platform) and despite his recent departure from the judiciary, his and Lord Hoffman's clashing of words will surely continue to resonate on the North side of Parliament Square.  The newly formed Supreme Court's approach will be of prime importance for all commercial parties – will the Court favour literal interpretations and contractual certainty, or will it apply a commercial pragmatic approach even if this does not reflect what the parties actually said?

In truth, we are likely to land somewhere in the middle. The Supreme Court is unlikely to want to be seen as rewriting commercial bargains or introducing ambiguity, but nevertheless is likely to strive for sensible and commercial outcomes. The commercial expertise of the Supreme Court is a key strength of England and Wales as a jurisdiction for dispute resolution. The appointment of Lady Arden and Lord Kitchin on 1 October 2018, both with strong commercial backgrounds further reinforced the Court's depth of experience.

Here at HFW we will be keeping a close eye on the debate, and as the most active law firm in the English commercial courts our ears are always close to the ground for the latest in judicial thinking.

For further information please contact the authors of this briefing:

Brian Perrott
Partner, London
T +44 (0)20 7264 8184
brian.perrott@hfw.com

Research undertaken by James Neale.

Footnotes

  1. In the Goods of Peel (1870) LR 2 P&D 46
  2. The Antaios [1985] AC 191
  3. [1998] 1 WLR 896
  4. Ibid. p.914
  5. Lord Sumption,  Harris Society Annual Lecture, Keble College, Oxford, 8 May 2017
  6. Ibid
  7. Ibid
  8. [2009] 1 AC 1101
  9. Harris Society Annual Lecture, Keble College, Oxford, 8 May 2017
  10. [2015] AC 1619
  11. Ibid p. 1628
  12. Lord Hoffman, 'Language and Lawyers' Law Quarterly Review October 2018
  13. Ibid.
  14. Ibid.
  15. Ibid.
  16. Ibid.

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