Contractual interpretation

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Many contractual disputes centre on what the contract means. There is no simple set of rules to follow in respect of how contracts may be construed and interpreted. Much will depend on the individual facts of the case. However, over the years, a considerable body of case law (and some statutes) have evolved that have set some parameters and guidelines for the approach to be taken. These include those set out in the sections below.

The general principles and rules of contract interpretation

In 1998 in Investors Compensation Scheme v West Bromwich Building Society (ICS), Lord Hoffmann laid down a set of five principles that have now become the leading statement on the interpretation of contracts. In essence:

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it is an objective test as to what a reasonable person, having all the background knowledge reasonably available, would have understood the contract to mean at the time of contracting
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account can be taken of background knowledge and matrix of fact

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