This Practice Note on the admissibility of surrounding documents when interpreting contracts considers what material (outside of the contract itself) may be admitted in evidence as an aid to interpreting a contract. It includes consideration of documents forming part of the same transaction, supplemental documents, earlier drafts, deleted words, previous agreements, published precedents and foreign law authorities. Contract interpretation—starting point—the contract itself Unless alleging mistake, fraud or misrepresentation, parties are bound by the documents which they sign, whether or not they have read those documents. Therefore, the starting point will always be the contract which has been signed by the parties. However, given the general guiding principles governing interpretation (see Practice Note: Contract interpretation—the guiding principles) it is clear that this is not limited purely to an analysis of the ‘four corners of the contract’ but that, where relevant, the background matrix of fact may also be considered. Issues commonly faced by lawyers advising clients on potential or actual contractual disputes, include: • what is the parol evidence rule and are there any exceptions to it?

This Practice Note considers the court’s approach when there is dispute as to which party’s terms and conditions govern their contract in a ‘battle of the forms’ scenario most commonly experienced in negotiations between commercial suppliers and buyers of goods who each want to conclude a contract on their own standard terms and conditions. When does a ‘battle of the forms’ scenario arise? A ‘battle of the forms’ arises where two parties enter into negotiations with the intention of entering into a contract but each attempts to conclude the contract on their own standard terms and conditions. In such a case, it will be necessary to determine: • if a binding contract has been entered into between the parties and, if so • which party’s terms and conditions have been incorporated into the contract, if any The scenario often arises in negotiations between commercial suppliers and buyers of goods who each want to conclude a contract on their own standard terms and conditions. Which party’s terms and conditions will

Claims for breach of contract often involve analysis of whether or not the term alleged to have been breached is one which allows the innocent party to: • terminate the agreement for breach and claim damages (or to affirm the contract, despite the breach, and claim damages), or • claim damages This will depend on whether the term in question takes effect as a condition or a warranty or whether the nature and consequences of the breach are sufficiently serious as to constitute a repudiation of the contract. This is the function of the ‘classification of terms’ in contract cases. For guidance on the distinction between terms and representations and when and how express and implied terms may be incorporated into a contract, see Practice Notes: • Contract interpretation—when is a statement a representation or a contractual term? • Contract interpretation—express terms in contracts • Contract interpretation—terms implied by fact • Contract interpretation—terms implied by law • Contract interpretation—terms implied by custom and usage What is classification of terms and why is it important? Contractual

This Practice Note considers what liquidated damages clauses are and briefly when and how they are used. It then focuses, in particular, on the court’s approach when determining whether a purported liquidated damages clause is, in fact, a penalty and therefore unenforceable; tracing the authorities through to how the question should be approached in light of the 2015 Supreme Court Makdessi/ParkingEye decision and considering, in particular, issues such as when contractual provisions for accelerated receipt, default interest, or positive incentives may be considered as a penalty. Consideration is also given to whether liquidated damages survive termination and their relationship with partial performance. What is a liquidated damages clause? A liquidated damages clause is a clause whereby the parties to a contract fix in advance a sum of money to be paid by the defaulting party to the innocent party in the event of a breach. The sum payable represents agreed damages (called liquidated damages) and is recoverable without the innocent party needing to prove the actual loss suffered. Liquidated damages clauses

Parties may often seek to specify that the entirety of their contractual relationship is governed by the written contract they have signed. This is what is known as an ‘entire agreement clause’. This Practice Note considers why they are used and some of the key issues relevant to their use, such as the relationship between entire agreement clauses and implied terms, misrepresentation, fraud and exclusion clauses, non-reliance statements and encompassing issues of evidential estoppel and contractual estoppel. For further information on interpreting the extent of parties’ contractual obligations, see Practice Notes: • The parol evidence rule in interpreting contracts • Contract interpretation—admissibility of surrounding documents and related content. What is an entire agreement clause? At its most basic, an entire agreement clause is one which states that the whole of the contractual relationship between the parties is governed exclusively by the terms set out in the parties’ written contract. This means that, when construing the contract, the court is confined to considering the 'four corners of the agreement' and that pre-contractual communications between

Express and implied contractual terms distinguished Contractual terms may be either express or implied: • express terms—are terms which are actually recorded in a written contract or openly expressed in an oral contract at the time the contract is made (or there may be a combination of written and oral express terms) • implied terms—are not stated in the contract but arise 'by implication' to reflect the intention of the parties at the time the contract was made. Terms may be implied by fact, law or custom For guidance on implying terms into contracts, see Practice Notes: • Contract interpretation—terms implied by fact • Contract interpretation—terms implied by law • Contract interpretation—terms implied by custom and usage Issues with express contractual terms Where terms are expressly agreed, issues can arise as to: • incorporation—what has been incorporated as an express term of the agreement, and • construction or interpretation—what the incorporated terms mean Where statements are made in the course of negotiations, but not effectively incorporated as express terms of the agreement,

This Practice Note on rules on interpreting contracts (agreements) (also known as construing or the construction of contracts and contractual terms) considers key cases (Rainy Sky v Kookmin, Arnold v Britton, Wood v Capita) and specific rules (or canons) of construction. It should be read in conjunction with Practice Notes: • Contract interpretation—the guiding principles • How to approach a contractual interpretation dispute—a practical guide The basic approach of contract interpretation as provided by Lord Hoffmann’s five principles in ICS v West Bromwich Building Society (see Practice Note: Contract interpretation—the guiding principles) is supplemented by general rules or guidelines (also known as 'canons of construction') which can be used to assist in ascertaining the meaning of a written contract. This Practice Note considers the most important of these guidelines, namely: • whole of the document relevant • commercial sense (business common sense) and avoiding an unreasonable outcome • cutting down rights and remedies • saving the document • consistency of terms • mistakes in the contract • contra proferentem principle • ejusdem generis principle • adjectives

This Practice Note considers implying terms into contracts by custom or usage. It considers how implied terms are not stated in the contract but arise ‘by implication’ to reflect the intention of the parties at the time the contract was made, the test for evidencing that a custom applies in an industry, what amounts to custom and usage and what might negate the implication of a term by custom into a contract. It also considers the difference between custom and trade usage and a specific course of dealings and how an entire agreement clause impacts a term implied by custom. Express and implied contractual terms distinguished Contractual terms may be either express or implied: • express terms—are terms which are actually recorded in a written contract or openly expressed in an oral contract at the time the contract is made. See Practice Note: Contract interpretation—express terms in contracts • implied terms—are not stated in the contract but arise 'by implication' to reflect the intention of the parties at the time the contract was made.

This Practice Note considers how contractual terms may be implied by fact. Implied terms are not stated in the contract but arise 'by implication' to reflect the intention of the parties at the time the contract was made. Express and implied contractual terms distinguished Contractual terms may be either express or implied: • express terms—are terms which are actually recorded in a written contract or openly expressed in an oral contract at the time the contract is made. See Practice Note: Contract interpretation—express terms in contracts • implied terms—are not stated in the contract but arise 'by implication' to reflect the intention of the parties at the time the contract was made. Terms may be implied by fact, law or custom This Practice Note considers those terms implied by fact. For guidance on terms implied by law, see Practice Note: Contract interpretation—terms implied by law. For guidance on those terms implied by custom and usage, see Practice Note: Contract interpretation—terms implied by custom and usage. How might terms be implied into a contract

This Practice Note considers implying contractual terms by law. It considers how implied terms are not stated in the contract but arise 'by implication' to reflect the intention of the parties at the time the contract was made, and how terms implied by law arise in contracts of a defined type and where the terms are not addressed in the contract itself. It also considers the test of necessity for implying terms into a contract and provides examples of terms implied by law. Express and implied contractual terms distinguished Contractual terms may be either express or implied: • express terms—are terms which are actually recorded in a written contract or openly expressed in an oral contract at the time the contract is made. For further guidance, see Practice Note: Contract interpretation—express terms in contracts • implied terms—are not stated in the contract but arise 'by implication' to reflect the intention of the parties at the time the contract was made. Terms may be implied by fact, law or custom For guidance on terms implied

Key questions for any dispute resolution lawyer when reviewing a contract in the context of a dispute will be: • what does the contract mean? • what are the parties’ respective rights and obligations under the contract? This Practice Note sets out the five principles of interpretation used by the courts to answer these questions, as formulated by Lord Hoffmann in 1998 in the leading case of Investors Compensation Scheme v West Bromwich Building Society ('ICS') and the further guidance provided in the subsequent Supreme Court decisions in Rainy Sky v Kookmin (2011), Arnold v Britton (2015) and Wood v Capita (2017), see further below. This Practice Note should be read in conjunction with Practice Note: Contract interpretation—rules of contract interpretation. Depending on the court in which your matter is proceeding, you may also need to be mindful of additional provisions—see below: Court specific guidance. ICS v West Bromwich Building Society—Lord Hoffman's guiding principles In 1998, in Investors Compensation Scheme v West Bromwich Building Society (the ICS case), Lord Hoffmann said: ‘Almost all

In addition to the guiding principles on contract interpretation provided by Lord Hoffmann in ICS (see Practice Note: Contract interpretation—the guiding principles), further rules have been developed as aids to contract interpretation. The starting point is the parol evidence rule, which restricts the admissibility of extrinsic evidence as a means of adding to, varying or contradicting a written agreement. For related guidance on issues of admissibility, see Practice Notes: • Contract interpretation—admissibility of surrounding documents • Contract interpretation—admissibility of pre-contractual negotiations and statements Parol evidence rule—what is it? The parol evidence rule provides that, where parties have a signed agreement, it is not generally permissible to adduce extrinsic evidence to: • show what the parties’ intention was in entering that agreement (Prenn v Simmonds) • contradict, vary or add to the terms of the written agreement—this extends to implied terms (Jacobs v Batavia) The parol evidence rule only applies in respect of written contracts. The parol evidence rule operates to exclude not only oral evidence, but all forms of