commercial & contracts bodenheimer herzberg legal

Many business disputes revolve around differences of opinion as to the correct interpretation of a contract. Some of these fact patterns could have been avoided had the contract been drafted in a more diligent way. This said, it is impossible even for skilled businesspeople and lawyers, to foresee everything that can happen unexpectedly in a business relationship. Consequently, interpretative issues can always arise, even with the most carefully prepared contracts.

The methodology to be applied to contract interpretation issues varies from jurisdiction to jurisdiction.

Many jurisdictions seek to explore the parties’ true intentions, at the expense of disregarding the wording of a contract which may not reflect what the parties actually meant to say. English law has traditionally been hostile to these “purposive” approaches but has moved towards accepting purpose-based analytical methods over the last couple of decades.

Notable differences persist from jurisdiction to jurisdiction when it comes to the issue of whether gaps in a contract can, should or must be filled by looking at the parties’ true, or even hypothetical, intentions. Another issue lacking an internationally convergent approach is whether the parties’ conduct prior to or even subsequent to the conclusion of a contract is to be taken into account when interpreting the contract. Article 8(2) of the CISG contains a corresponding provision; domestically, many jurisdictions – especially Anglo-Saxon ones – are more reluctant to look at parties’ conduct in interpreting contracts.

An important rule of interpretation that applies both in civil law and common law jurisdictions, although not always with the same scope of application, is contra proferentem. According to this rule, any ambiguity in a contractual clause must be resolved in the disfavour of the party that drafted and/or suggested the clause.