Nicholas Dobson relays the costly tale of a single word in a banking contract
- Courts are required to consider the ordinary meaning of words used in the context of the contract as a whole and the relevant factual and commercial background, excluding prior negotiations.
- The aim is objectively to identify the intention of the parties, ie, what a reasonable person having all the background knowledge which would have been available to the parties, would have understood them to mean by using the language in the contract.
- Interpretation is an iterative process in which rival interpretations should be tested against the provisions of the contract and its commercial consequences.
Lewis Carroll’s Humpty Dumpty had no doubt about the meaning of words: ‘When I use a word… it means just what I choose it to mean—neither more nor less.’ For, as he saw it, it was simply a question of personal autonomy: ‘The question is… which is to be master—that’s all.’ However, unlike Humpty (who had the luxury of being a mere imaginative figment), those in the real world entering contracts regulated
