It’s what they do, their prime job, but is there a problem, a lacuna in the logic? Courts adjudicate on contracts, but how good are their tools for doing so? Is there a fault in their methodology? If there is, the answers that they come up with will be wrong. If that’s so, it will affect every business and person in the country.
The best exposé of what the courts do is this:
The methodology is not to probe the real intentions of the parties but to ascertain the contextual meaning of the relevant contractual language. Intention is determined by reference to expressed rather than actual intention. The question therefore resolves itself in a search for the meaning of language in its contractual setting. That does not mean that the purpose of a contractual provision is not important. The commercial or business object of a provision, objectively ascertained, may be highly relevant: see Prenn v. Simmonds [1971] 1 W.L.R. 1381, 1385b, per Lord Wilberforce; Reardon Smith Line Ltd. v. Yngvar Hansen-Tangen (trading as H. E. Hansen-Tangen) [1976] 1 W.L.R. 989, 996, per Lord Wilberforce. But the court must not try to divide (sic) the purpose of the contract by speculating about the real intention of the parties. It may only be inferred from the language used by the parties, judged against the objective contextual background. It is therefore wrong to speculate about the actual intention of the parties ……… The question is whether the prima facie meaning of the word is displaced by the context of this policy. It can only be displaced in one of two ways. First, it may be displaced if the prima facie meaning turns counter to the commercial purpose, objectively ascertained, of the clause or policy…… There is no discoverable single purpose which could serve to displace the prima facie meaning of “persons.”
DEUTSCHE GENOSSENSCHAFTSBANK -v- BURNHOPE & ORS. (Lord Steyn)
This is a perfectly workable methodology for analysing single contracts but creaks when it comes to a complex of contracts that has an overall purpose that may not be present in each of them. The problem here is that the court may not be able to divine any intention when focusing in upon one particular contract, and certainly not the overall intention of the deal being done. A bit like asking the purpose of a cog in a complex clock, focus too closely and you miss everything. And the result of this? Well select the wrong cog and the whole clock will not work.
See also a real-life example of this (that I recently wrote about) in the New Law Journal.