The Rent Review Specialist
Presumption of Reality
01/01/2014
It has long been recognised that too literal an approach is to be avoided in the interpretation of contracts.
The reason for that was explained thus by Lord Reid in Schuler AG v Wickman Machine Tool Sales Ltd [1974] AC 235: "No doubt some words used by lawyers do have a rigid inflexible meaning. But we must remember that we are seeking to discover intention as disclosed by the contract as a whole … The fact that a particular construction leads to a very unreasonable result must be a relevant consideration. The more unreasonable the result, the more unlikely it is that the parties can have intended it, and if they do intend it the more necessary it is that they shall make that intention abundantly clear."
On the same theme, in Antaios Compania Naviera SA v Salen Rederierna AB (“The Antaios”) [1985] AC 191, Lord Diplock famously stated 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."
The ways in which the process of interpretation can be made to accommodate such common sense have varied, with the battle lines being drawn between (a) those judges who are reluctant to allow the business common-sense of the contract to cause them to depart from the natural meaning of the words used; (b) those who strain the meaning of words in order to arrive at what they consider to be a commercial outcome that best expresses the perceived intention of the parties while avoiding absurdity; and (c) those who feel able to disregard or even rewrite the parties’ words to achieve the same effect.
In Westpac Banking Corporation v Tanzone Pty (2000) , the New South Wales Court of Appeal held that, literally construed, an indexation provision in a rent review clause produced such dramatic cumulative increases as to amount to an absurd result, and was able to construe the clause by reading in words that must have been accidentally omitted. In other cases, although it may be possible to detect absurdity, it may be less easy to divine what the parties must have intended their bargain to be instead.
The reason for that was explained thus by Lord Reid in Schuler AG v Wickman Machine Tool Sales Ltd [1974] AC 235: "No doubt some words used by lawyers do have a rigid inflexible meaning. But we must remember that we are seeking to discover intention as disclosed by the contract as a whole … The fact that a particular construction leads to a very unreasonable result must be a relevant consideration. The more unreasonable the result, the more unlikely it is that the parties can have intended it, and if they do intend it the more necessary it is that they shall make that intention abundantly clear."
On the same theme, in Antaios Compania Naviera SA v Salen Rederierna AB (“The Antaios”) [1985] AC 191, Lord Diplock famously stated 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."
The ways in which the process of interpretation can be made to accommodate such common sense have varied, with the battle lines being drawn between (a) those judges who are reluctant to allow the business common-sense of the contract to cause them to depart from the natural meaning of the words used; (b) those who strain the meaning of words in order to arrive at what they consider to be a commercial outcome that best expresses the perceived intention of the parties while avoiding absurdity; and (c) those who feel able to disregard or even rewrite the parties’ words to achieve the same effect.
In Westpac Banking Corporation v Tanzone Pty (2000) , the New South Wales Court of Appeal held that, literally construed, an indexation provision in a rent review clause produced such dramatic cumulative increases as to amount to an absurd result, and was able to construe the clause by reading in words that must have been accidentally omitted. In other cases, although it may be possible to detect absurdity, it may be less easy to divine what the parties must have intended their bargain to be instead.