Common sense principals of contract interpretation (and how we've been using them all along)

(Published in (2003) 23(2) Oxford Journal of Legal Studies 173-196)

Adam Kramer

Abstract—This article proposes to take seriously Lord Hoffmann’s influential restatement of the rules of contractual interpretation. Consequently, it seeks to investigate the ‘common sense principles by which any serious utterance would be interpreted in ordinary life’, with the aid of theoretical insights from psycholinguistics, pragmatics and the philosophy of language. Such an investigation provides a principled explanation for some of the key features of our legal rules of interpretation, such as the objective principle and the importance of the factual matrix and the parties’ reasonable expectations. It is shown that the intended meaning of a contractual document goes far beyond the ordinary linguistic meaning of the document, and even far beyond the information that crossed the drafter’s mind. The common sense principles are then used to explain some key cases on the interpretation of contracts.

1. Introduction

The 1997 decision in Investors Compensation Scheme v West Bromwich Building Society included a restatement by the House of Lords of the principles of contract interpretation, Lord Hoffmann (speaking for the majority of the House of Lords) stating that a ‘fundamental change’ had overtaken the principles for interpreting contractual documents. [1] Those principles, he said, have now been assimilated into ‘the common sense principles by which any serious utterance would be interpreted in ordinary life’. [2]

In this article I propose to take Lord Hoffmann seriously, examining how we interpret ordinary serious utterances in order to discover exactly what these common sense principles are, and how they can be applied to the interpretation of contractual documents. Part of this investigation shadows work that has already been done by psychologists, philosophers and linguists, [3] work with which Lord Hoffmann was almost certainly familiar. [4] As well as outlining in brief the basic common sense principles of interpretation, they will be used to explain a few key contractual interpretation cases. [5] Indeed, we will see that, thanks to our judges—a group of amateur but experienced psychologists, philosophers and linguists—the common sense principles are already well reflected by our existing law.

2. The Meaning of Communications and Other Actions

Interpretation is the discovery of the meaning of something, but what is meaning? A natural phenomenon can have a meaning—sometimes called a ‘natural meaning’—and can be interpreted by gleaning an understanding of the phenomenon (its causes and operation) so as to draw conclusions from its existence, for example ‘spots mean measles’ and ‘smoke means fire’. [6] Phenomena brought about by rational beings (this rationality being an important assumption on the interpreter’s part) may have been initiated deliberately (another assumption on the interpreter’s part). [7]   In such cases, the purpose that rational agent intended to achieve is a part of the natural meaning, and interpretation is then a matter of guessing what the actor believed about the world and hence to what end the phenomenon was intended to be a means. [8]

When the actor’s apparent purpose is communication, then (it appears) the actor designed and performed the actions being interpreted for the particular purpose of their being interpreted. The meaning that is gleaned from communicated phenomena, which we will call utterances, is termed the ‘nonnatural meaning’—the meaning discovered by recognition of the fact that the communicator intended it to be discovered. [9] In such cases the interpreter ceases to be a detached observer and becomes involved in a more interactional process of interpretation.

Interpretation in cases of communication is no less a pragmatic process involving presumptions and hypotheses, since without telepathy the interpretation remains a project of guesswork built upon the assumption that the utterance is a rational means to an end. However what is special about nonnatural meaning is that the communicator meets the interpreter half-way. Essentially, the two parties cooperate in the joint venture of trying to get the interpreter to recognise what the communicator is trying to communicate. Providing the communicator and the interpreter can share the same method of interpretation, the interpreter can merely apply the method of interpretation and be confident of gleaning the meaning that the communicator intended her to glean. [10] A shared method allows a single jointly salient meaning to be identified from any utterance.

A code is one type of interpretative method, and languages are the ready-made and widely known codes that can be used to interpret utterances. By applying a linguistic code to oral signs (phonemes) and written signs (letters, accent marks and punctuation marks) the interpreter can discover a single salient meaning, [11] although even communication through codes is a pragmatic process. [12] As will become clear, despite their reliability, linguistic codes are inadequate for the communication of sufficiently precise meanings by way of sufficiently short utterances, being insufficiently precise and efficient at encoding meaning. In fact we need to, and do, use a pragmatic process to augment the linguistic code. [13] The process of pragmatic inference harnesses the information provided by the context of the utterance in order to make communication more economical. Communicated meaning is thus ‘an amalgam of linguistically decoded material and pragmatically inferred material’. [14] Convention is what makes the whole process work, by fixing which language and which method of pragmatic inference will be used, and thus ensuring that the same interpretative method is used by both the communicator and the interpreter. [15]

3. The Objective Principle of Interpretation

Before the ordinary principles of everyday interpretation are discussed further, it is important to make the point that (without telepathy) the best that the interpreter can hope for is to discover the apparently intended meaning of the communicator. As a matter of practical compromise, each communicating party must rely upon the other’s successful fulfilment of his or her role in the communication (be it the design of the utterance or the utterance’s interpretation). [16] Thus an interpreter must presume that the communicator has optimally designed the utterance to be interpreted (since otherwise she cannot infer that the meaning gleaned from the utterance was intended), [17] and a communicator must presume that the interpreter will correctly apply the shared method of interpretation. The apparently intended meaning is thus meeting point for successful communication, but in our society, this practical inter-reliance (which is characteristic of all joint ventures) attracts responsibility. Where parties have voluntarily embarked upon a venture, they are held responsible for the consequences of culpable failure to carry out their role. [18] The consequences of this in communication are that a communicator is responsible for the consequences of his failure to correctly (reasonably) design the utterance so as to appear to mean what he intends to mean—that responsibility manifests itself as his being responsible as if he had intended the apparently intended meaning. [19] Also an interpreter is responsible for the consequences of her failure to correctly (reasonably) interpret the utterance so as to discover the apparently intended meaning. [20] Overall then, the important question seems to be whether both the causing and the discovery of the failure in communication were solely within the power of one party. [21] Collectively these principles are called ‘the objective principle’, and they are present both in the common sense principles of interpretation and, consequently, in legal rules of contract interpretation. [22]

It should be noted at this point that this article is concerned with the question of what the law treats a communication as meaning. The posterior questions of what the law does with the apparently intended meaning are questions for elsewhere, and are not related to or governed by the common sense principles of everyday interpretation. [23]

4. Beyond the Text: the ‘Matrix of Fact’

As mentioned earlier, our shared method of interpretation that makes communication possible is a sophisticated process of pragmatic inference. This process allows a more extensive meaning than the linguistic meaning to be gleaned from an utterance, and, given that the communicator designs the utterance accordingly, allows a meaning more extensive than the linguistic meaning to be communicated. [24] But how can this work? Since an utterance is only a set of words, what more can be extracted from the utterance than the linguistic meaning?

The answer is provided by Lord Justice Steyn (as he then was): ‘[d]ictionaries never solve concrete problems of construction. The meaning of words cannot be ascertained divorced from their context.’ [25] If the interpreter only processes the text, she can get little more than the linguistic meaning of the text out of the interpretative process. However, by harnessing, and then processing, more information than merely the text, more meaning can be extracted at the other end of the interpretative process.  The other information is the ‘context’ (meaning ‘with the text’). Contextual information about the communicator and the world allows the interpreter to deduce the communicator’s purposes, and the communicator’s beliefs about the world and the way it normally works. As we shall see, such information is important in supplementing or replacing the text’s linguistic meaning.

Of course, the communicator does not have control over context and so does not design the context directly; however, he designs the text given the context within which it will be understood. [26] Thus the text allows the communicator to incorporate the context or, alternatively to exclude parts of the context or to change them (by disabusing the interpreter of assumptions as to the communicator’s beliefs or purpose).

In contract law, it is now well-established that the context is important in interpreting documents, such context being most often referred to by the label ‘matrix of facts’. [27] The context has also been referred to as the ‘surrounding circumstances’, ‘relevant circumstances’, ‘factual background’, and by the elegant statement that the court must ‘place itself in thought in the same position as the parties to the contract were placed, in fact, when they made it’. [28] Lord Hoffmann in the ICS case described the relevant contextual information as:

and described Lord Wilberforce’s phrase ‘matrix of fact’ as:

This definition of the factual matrix (absolutely anything…) is rightly without any fixed boundary; [30] the context, alongside the text itself, is part of the relevant source-material that is the utterance, and so anything in the context that was used by the communicator in his design of the utterance should be used by the interpreter in her interpretation of it.

Consequently, it is clear that the contextual information, to be relevant, must be shared. An interpreter will only process contextual information that the communicator knew since only that information will have been used in designing the utterance (and conversely, a communicator will not factor into his design any contextual information that the interpreter does not have since she will not be able to interpret it). In Lord Hoffmann’s words in BCCI v Ali: ‘[i]t would be contrary to basic principles of construction for the meaning of a document to be affected by facts which were known to one party but not reasonably available to the other’. [31] This mutuality is an important limitation on the relevant contextual information. [32] Henceforth, such mutually held information (knowledge, beliefs, assumptions) will be referred to as ‘mutual context’. [33] Personal common ground is mutual context that is inferred from the communicaters’ shared experiences, for example the meaning given to a word in a previous negotiation or elsewhere in the document in question. Communal common ground is mutual context that is inferred from the communicaters’ membership of the same community, for example the language of the English, the dialect of lawyers, and the usual purposes and ways of doing things of builders. [34]

It should also be observed that the nature of commercial contractual documents may in some ways restrict, and in other ways enlarge, the mutual context that an interpreter will use to find the apparently intended meaning: (1) Because contractual documents are written, they cannot make use of body language or voice modulation. (2) Because contractual documents are designed to be read and re-read at a different time and place to those at which they were drafted, there will be less mutual context concerning the location and immediate circumstances of the communication than there would be in the case of an oral communication. This also means, however, that other parts of a document (part of the mutual context), earlier or later, are highly relevant in interpreting a particular clause, since the document can be re-read and considered at leisure.  (3) Some contractual documents (such as bills of lading, letters of credit, leases, standard forms and collective bargains) are designed to be read by third parties. In such cases a communicator could only use information known to all the audience in designing his meaning. Therefore, in cases in which an interpreter does not appear to be the only intended audience for an utterance, the interpreter should employ in her interpretation only information that is mutual to all the apparently intended audience. [35] The judge should not be considered a part of the apparently intended audience for the purposes of limiting the relevant mutual context, however, since the judge has, through his ability to hear evidence, all the mutual context that the parties have. (4) Most contractual documents are not drafted by the communicator and interpreter, but by their lawyers. Even though the parties still attribute the communication to the principal rather than the lawyer—it is the principal who is bound to the contract—the use of lawyers means that interpreters and communicators can attribute certain of lawyers’ knowledge and techniques to each other; specifically knowledge of legal terminology and the technique of precise and careful writing. [36] In addition, personal exchanges between the parties that were not brought to the attention of the lawyers will not be part of the intended mutual context.

A final point of relevance concerns the law’s approach to personal mutual context. Pre-contractual negotiations are part of the surrounding circumstances that are used to design, and hence interpret, the apparent (i.e. objectively determined) meaning of a document, unless the document is intended to be seen by third parties not privy to the negotiations. [37] There is a legal rule that prohibits the admission of evidence of pre-contractual negotiations, which rule is thus inconsistent with the common sense principles of everyday interpretation. [38] Unless this restriction can be justified on policy grounds, it should be abolished as it artificially limits the process of pragmatic interpretation (through the use of mutual context), and thus prevents contracts being given the meaning that they were intended to take. [39]

5. Pragmatic Inference, Normality and Reasonable Expectations

Given the textual and contextual information, circumscribed by the requirement that such information be mutual, how, then, does the pragmatic method identify the single apparently intended meaning? Given a linguistic meaning that is salient in a particular community, how does the interpreter decide to what extent the interpreter was intended to use inference to replace that linguistic meaning, and to what extent the interpreter was intended to use inference to supplement that linguistic meaning? In so replacing or supplementing, what shared standard must be used to incorporate the contextual information and fill the apparent gaps?

The processes of replacement and supplementation of the linguistic meaning are discussed below at sections 7 and 8. It is not self-evident which common standard is used to come to mutually predictable inferential conclusions to the above inquiries, but intuition suggests that we use the same standard in non-natural (purposive) interpretation that we use in natural (causational) interpretation. When looking for natural meaning, one decides that smoke means fire and spots mean measles because smoke usually means fire and spots usually mean measles. Similarly, interpreters of nonnatural meaning make an assumption of normality, and use it infer what the communicator meant.

They are aided by a body of information as to the way things are normally done (normal beliefs, purposes, goals and ways of using language) that forms part of the mutual context of the parties. In Lord Hoffmann’s words, ‘We use words in daily life against a background of knowledge which we assume that our listeners share and we need not therefore specifically mention.’ [40] It seems that the application of these norms to the specific situation of the communicator is what we call, in contract law, the ‘reasonable expectations of the parties’. As Reiter and Swan observe, ‘The notion of “reasonable expectations” is not an empty concept. What gives it content is the fact that all contracting behaviour occurs in a particular social context.’ [41] Reasonable expectations will be discussed further at the end of section 7.

Thus far we have seen that an interpreter makes an assumption of rationality, an assumption that the communicator intends to communicate, an assumption of optimal design and an assumption of normality (combined with knowledge of the way things are normally done and what people normally want—the reasonable expectations of the parties). In looking for the apparently intended meaning there are two main raw materials at the interpreter’s disposal. The first is the text. Assuming optimal design, and using the norms of communication, the interpreter can infer how much of the linguistic meaning of the text was part of the meaning that was intended to be communicated—usually most of it (discussed further in the next section). The second main material, is the apparent purposes of the communicator, itself inferred from the assumptions of rationality and normality and the mutual context—what would a normal person in the communicator’s shoes intend? Assuming that the communication is intended to further the communicator’s goals, knowing the communicator’s goals enables the interpreter to make assessments of what the communicator is likely to have intended. As Hoffmann LJ (as he then was) observed: ‘[L]anguage is a very flexible instrument and, if it is capable of more than one construction [i.e. is ambiguous], one chooses that which seems most likely to give effect to the commercial purpose of the agreement’. [42] Given these materials, the interpreter must infer what meaning was intended, in other words how and how far the communicator intended the linguistic meaning to be replaced and supplemented.

Of course, the interpreter can never be sure that the communicator means what a normal communicator would have meant, just as she can never be sure that smoke means fire—guesswork is an unsure business—however the interpreter of nonnatural meaning has an advantage over the interpreter of natural meaning. This advantage can be found in the cooperative nature of the process of communication that gives rise to the objective principle, such that the mutually known norms of behaviour (the matrix of fact leading to reasonable expectations) provide a common default position around which the parties can communicate. If the communicator does not have the usual beliefs, purposes, goals or ways of using language, then he should make that clear to the interpreter, and the fact that the utterance is designed around the assumption of normality makes the correctness of that assumption self-fulfilling. Indeed, this makes for efficient communication since, by definition, the communicator will usually intend what he is taken to intend and will not need to disabuse the interpreter of any assumptions as to his beliefs or purposes. Hence, if I promise to buy a car but need it for a particular journey, or I do not want it to have wheels, or I want it delivered upside down as I am going to use it in a work of art, then I must say more than that I promise to buy the car. If I want it delivered in a reasonable time, or with the wheels on, or delivered the right way up, then I need not say more because the usual purpose and things that I can be expected to take for granted actually accord with my intended meaning. [43]

6. The Limits of the Presumption in Favour of the Linguistic Meaning

The linguistic meaning (or ‘textual meaning’, ‘literal meaning’ or ‘timeless meaning’ [44] ) of an utterance is the meaning discovered by application of the linguistic code that is conventionally used in a particular community. Linguistic encoding is an efficient and reliable way of communicating: efficient because languages have evolved for the sole purpose of facilitating communicating, and reliable because, since everyone in a society learns their language, mutual knowledge of a large body of linguistic norms can be reliably inferred on very little evidence (if you hear a couple of words of correct English you can assume that the speaker knows the language). For this reason, it is normal to intend a linguistic code to be applied to discover the meaning of one’s utterance, and hence an interpreter will normally assume that the linguistic meaning of an utterance was intended.

This presumption in favour of the linguistic meaning being intended has limits. The first limitation arises because linguistic norms, being conventional and standardized tools for use by many, are necessarily both imprecise and uncertain (ambiguous or vague). In addition, whilst linguistic meaning can only be conveyed expressly, pragmatic inference allows information to be conveyed impliedly by reading between the lines (nuance, connotation, irony, things that go without saying). As a result of these inefficiencies and inadequacies, linguistic meaning is the intended meaning only as far as it goes. In many situations the linguistic meaning will be incomplete (ambiguous, vague or by omitting coverage of a topic) in a way that it does not appear that the communicator intended to be incomplete. In such cases there is (what I call) an implied licence to pragmatically infer material on top of the linguistic meaning. This licence to infer, and the supplementation of the linguistic meaning in cases in which it is incomplete, are discussed in the next section. It should be noted, however, that it is never patently perceptible that the linguistic meaning falls short of the intended meaning—it depends upon extrinsic evidence as to the mutual context in order to determine the purpose and expectations of the communicator, and hence the extent of the intended meaning. Consequently, the commonly espoused rule that restricts pragmatic inference and the use of extrinsic evidence to cases of clear and unambiguous linguistic meaning cannot be justified. [45]

The second qualification to communicaters’ support for the linguistic meaning stems from the fact that people sometimes make mistakes in drafting. In addition, there will often be a rival linguistic code that the parties appeared to intend to govern their utterances; we call this a dialect. In both of these cases the linguistic meaning was not the meaning that was intended by the communicator, and so the interpreter must use pragmatic inference to discover the intended meaning. Thus it can be said that the linguistic meaning is only prima facie the intended meaning of an utterance.

Subject to these two wide-ranging qualifications, the linguistic meaning is the apparently intended meaning of an utterance, and contract law agrees that the starting point for ascertaining the meaning of a contractual document is its linguistic meaning, also known as the ‘grammatical and ordinary sense’, [46] the words’ ‘ordinary and popular sense’ [47] and the ‘natural and ordinary meaning’. [48] In the words of Lord MacMillan,

The presumption in favour of the ordinary meaning is, thus, both a common sense principle of everyday communication and a principle of contractual interpretation. [50]

7. The Use of Pragmatic Inference to Supplement the Linguistic Meaning

The interpreter will need to supplement the linguistic meaning in four types of situation, the first two of which are:

An example of how the process of pragmatic inference works in such cases can be found by looking at the case of The Karen Oltmann, heard before Kerr J in 1976. [51] In that case a two year charterparty permitted an option to redeliver the vessel to be exercised by the charterers ‘after 12 months’ trading’. Linguistically, this phrase is ambiguous, [52] as it could denote either that early redelivery is permissible at any time after 12 months’ trading (the defendant charterers’ contention), or that early redelivery is permissible only at the specific point of time marked by the passage of 12 months’ trading (the plaintiff shipowner’s contention). Significantly, no normal contractor would be ambivalent as which way this important issue is resolved, and so clearly the intended meaning goes beyond the ambiguous linguistic meaning. In such cases there is an implied licence to supplement the linguistic meaning through pragmatic inference to the extent that it appears that the utterance’s meaning was intended to go; here an implied licence to disambiguate.

The next step is to determine what it would be normal to intend by the words ‘after 12 months’ trading’ in the circumstances. One relevant factor, particularly in the interpretation of carefully designed utterances such as commercial documents, is the so-called Choice Principle. [53] This principle, following from the assumption of optimal design, allows the interpreter to draw conclusions from the communicator’s selection of particular words and grammatical constructions instead of others. Even though the charterparty could have been drafted to indicate either meaning more clearly, [54] Kerr J was rightly persuaded that the omission of the words ‘at any time’ before the words ‘after 12 months trading’ made it apparent that the parties intended to refer to a specific instance and not a period of time beginning after 12 months. [55] This is persuasive for two reasons. The first is that, as Kerr J observed, it is common in charterparties to include the words ‘at any time’ when that is what is meant. [56] Since the parties would have mutually known this (allowing for the specialist knowledge that the parties’ lawyers bring to them), the failure to include these words is an important indication that the parties did not intend their meaning. The second reason for the persuasiveness of the omission is that it would have been simpler to include such words to point to the charterers’ contended meaning than it would be to use extra words to point to the shipowners’ contended meaning. The omission to do either points more strongly towards the shipowners’ contended meaning being intended.

In addition, evidence of pre-contractual negotiations (which is admissible here) shows that the parties had ascribed a particular meaning to the words. Although this did not amount to an estoppel, [57] it did amount to the parties having a ‘common meaning’ since they had ‘negotiated on an agreed basis that the words bore only one of the two possible meanings’, specifically the meaning argued for by the shipowners. [58] This means that the parties’ personal (as opposed to communal) mutual context allows them to select one of the meanings as salient since they had used the words in that sense in relevant earlier communications. The parties in such a case have a personal dialect (as discussed in the next section) and usually, as here, this overrides any other considerations or any more general assessment as discussed above. Here, however, the personal dialect confirmed the meaning that pragmatic inference would otherwise have reached through the Choice Principle—the charterparty was intended to give the charterers an option to redeliver the vessel at the point of time upon the passing of twelve months’ trading and no later, as Kerr J correctly found.

The other two types of situation in which the linguistic meaning requires supplementation provide more room for interpreter error:

Unlike in cases of deixis or ambiguity, it is not always clear in these categories of case whether, and to what extent, the intended meaning extends further than the linguistic meaning. In other words, it is not always clear to what extent a licence to supplement can be implied.

A famous example of a vagueness arose in Arcos v Ronaasen, heard by the House of Lords in 1933. [60] In this case two contracts for the sale of a quantity of Russian timber, c.i.f. the River Thames, were concluded. Since a wrongful rejection of the documents by the buyer, the staves had lain on an open wharf exposed to rain. Six months after delivery, in a falling market, the buyers sought to reject the goods on the grounds that they did not conform to the contract description, which specified that the staves should be ½ inch thick (as well as specifying a length for the staves, and a range within which the breadth of the staves must fall). The goods were not measured at the time of delivery, but when the umpire inspected the goods after some nine or ten months’ exposure to the elements on the wharf, it was found that the staves were mostly over the required ½ inch thickness (although over 75% were less than 1/16 inch over). The umpire found (or at least the House of Lords interpreted his statements as finding [61] ) that although when delivered the staves had been thinner than at the time of inspection, still they had been mostly over ½ inch thick.

The problems in this case arise from the vagueness of the linguistic meaning of the word ‘inch’. Distance can be either infinitely precise or more or less approximate. As the precision required by users varies (although in no situation requiring infinite precision, which is impossible to achieve) the convention as to meaning of the word ‘inch’ has never come to mean any more than ‘about an inch’. In everyday conversation the intended meaning may be equally as vague as the linguistic meaning; where nothing turns on precision, the communicator may not mind the vagueness. With commercial contractual documents, though, the mutually appreciated desire for certainty without subsequent clarification cannot be achieved by an agreement that is as vague as the linguistic meaning of ‘inch’. Consequently, there is an implied licence for the interpreter to supplement the linguistic meaning to provide precision to the degree that it appears that the intended meaning exhibits. [62]

During the arbitration of the Arcos dispute, the umpire concluded that the shipped staves were ‘commercially within and merchantable under the contract specification’. Lord Buckmaster in the House of Lords was of the opinion that ‘the fact that the goods were merchantable under the contract is no test proper to be applied in determining whether the goods satisfied the contract description’. [63] Lord Buckmaster is correct that, in general, conformity to contract description should not be measured by merchantability or fitness for purpose which, after all, satisfies a quite independent contractual term. However, the umpire’s formulation will be correct for many cases. Where the commercial purpose is known in advance, and here the purpose of making cement barrels from the staves was part of the mutual context at the time of contracting, [64] the interpreter is entitled to conclude that the normal reason for specifying the thickness is the instrumental one of ensuring that the staves are usable for the vendor’s stated purpose. Of course, the specification should not be rendered nugatory and is not merely a guideline, but where it is vague (as it will always be), where goods conforming to specification would satisfy a known purpose, [65] and where the specification is not so precisely defined as to suggest that more precision is desired than a purposive interpretation will allow, [66] then the  purposively interpreted meaning will reasonably appear to be the intended meaning. If so, the agreement was for staves that were about ½ inch thick but in any case of a suitable thickness for making cement barrels, and thus the goods conform. If the communicator does not intend the normal, and therefore default, meaning, then he must disavow it by specifying a margin within which the thickness must fall, as he did with regard to the staves’ breadth. No such disavowal can be found here.

Lord Atkin was of the opinion that ‘if the seller wants a margin he must and in my experience does stipulate for it’ [italics added] and therefore the contract was for staves of ½ inch thick, permitting only ‘microscopic deviations’ (in Lord Warrington’s words, deviations ‘so slight as to be negligible’). The important part of this statement is the italicised part. If, as Lord Atkin seems to believe, there is a trade practice or reasonable expectation amongst commercial traders or the drafters of commercial contracts that, unless a margin is stipulated, specifications are strict with only microscopic deviations permissible (since, after all, the parties are commercial adversaries at arm’s length), this would form part of the communal mutual context and would inform the reasonable interpretation of the contract. [67] It would then be necessary to decide what size of deviation is ‘negligible’—which itself depends upon the specific case and upon norms that were not presented in evidence (since in some industries a literally ‘microscopic’ deviation may be significant), and is not an easy matter once the aid to construction that is communicator’s purpose has been abandoned. The allowance for microscopic deviations is surely not justified on the grounds that de minimis non curat lex, but rather on the grounds that a literally perfect tender is impossible and therefore could not be required even where precision is paramount, in other words on the grounds that this is what was agreed. Of course, if the trade practice or societal expectation assumed by Lord Atkin was not proven, the Arcos decision is simply incorrect.

The other type of supplementation occurs when, without the indication that deixis, ambiguity or vagueness provide, nevertheless there is something that would normally go without saying. The more primary, or core, a piece of information is, the less likely it is to go without saying; [68] secondary information, or detail, on the other hand, is more reliably inferred (being related to expressed primary information) and is less efficiently expressed (being less likely to be important and so less worth the costs in speaking or drafting time that come with linguistic encoding).

A brief example of such supplementation can be found in the case of BCCI v Ali. [69] The appeal involved a release by Mr. Naeem of his former employer BCCI’s liability for ‘any or all claims whether under statute, Common Law or in Equity of whatsoever nature that exist or may exist’, and whether that release extended to the dismissed employee’s claim for stigma damages (available after Mahmud v BCCI [70] )—a claim that neither party were or could have been aware at the time of contracting. The House of Lords were agreed that, even though the purpose of a release is to ‘wipe the slate clean’, [71] a normal party intending to release literally all claims (which is the linguistic meaning of the phrase) would have been clearer about that drastic intention. In other words, it would be normal to intend qualifications to the linguistic meaning and such qualifications had not been disavowed; thus there was an implied licence to supplement by inferring such qualifications.

The House was divided, however, as to the particular qualifications that would be normally intended to go without saying in the circumstances of the case. The House were all agreed that, given that (as was mutually known) the release was signed upon the termination of Mr. Naeem’s employment, it would be normal to intend the release only to apply to claims arising out of that employment (indeed the liquidators conceded this point). The majority of the House also held that if normal parties had intended such a ‘remarkable’ result as to exclude claims of which they were unaware (such as the claim for stigma damages) then they would have used clearer words. [72] Lord Hoffmann, in contrast, believed the words to be as clear as they could have been in intending to preclude the implication of qualifications, and believed that the lack of a dispute between the parties meant that there was no further limit that would be normally intended and so could be inferred. [73] He was impressed by the mutually obvious lack of a commercial purpose that the agreement would have if it did not apply to claims of which the parties were unaware, since there were no claims of which they were aware. [74] Lord Hoffmann’s position is certainly persuasive, but ultimately the issue is one of fact. The important thing is that, although disagreeing on the answer, the judges agreed on the question of construction and the principles to be applied to that question. [75]

As well as qualifying expressed terms, as in Ali, the information that goes without saying usually adds to the expressed terms, often on the grounds that the information would be reasonably expected. If I book a room in a hotel and pay for it, it is clear that the contract has been breached if I am given a room without a bed, even though linguistic meaning of the word ‘room’ does not include any reference to its contents and is not (in this respect) ambiguous or vague. [76]   Such intended implied secondary information is ubiquitous, as Barry Reiter and John Swan demonstrate:

8. The Use of Pragmatic Inference to Replace the Linguistic Meaning

Sometimes the communicator will (apparently) intend part of the linguistic meaning to be actually replaced by meaning from another source, rather than merely supplemented. Most usually, this will occur in cases of dialect—whereby a variation of a language has been used by the parties themselves (what the law calls a ‘course of dealing’) or is in use by a community of which the parties are members (what the law calls ‘custom’, ‘trade usage’ or ‘scientific terms’). Whenever words in an utterance could take a dialectual as well as the basic linguistic meaning, the interpreter must decide, given the mutual context, which meaning it would be more normal to intend. [78] Unless the parties have expressly defined a personal meaning for the term, [79] the balancing will depend upon which meaning is more likely to have been intended given the communicator’s apparent purpose, as well as whether the dialect is apropos to the  topic or situation of the utterance. In The Karen Oltmann, discussed above, the meaning of ‘after 12 months’ trading’ that the parties had used in pre-contractual negotiations provided a personal meaning that, in a contract to which the negotiations were pursuant, it would be normal to continue to intend in the absence of disavowal. [80] Standard trade clauses and legal terms of art make up particular dialects used by the legal community. These dialects are apposite to the need for precision and certainty in commercial documents, and their mutual knowledge is easily inferable among the legally-trained, thus there should be a strong presumption that the specialist meaning of such clauses or terms is intended to displace the linguistic meaning. [81]

Another situation in which the linguistic meaning is not intended is where the presumption of optimal design is rebutted and it is reasonably apparent that the communicator made a mistake in drafting the text. A good example is provided by the case of Mannai Investments Co. Ltd. v Eagle Star Life Assurance Co. Ltd. [82] In that case, a tenant served notice to quit, giving the required six months notice, but put the wrong break date in the notice—the date that the tenant wrote was one day too early. Although the notice made good linguistic sense, it made so little sense of the purposes of a normal communicator in the tenant’s position (since with the wrong break date the notice would serve no purpose) that the House of Lords, in effect, held that the presumption of optimal design had been rebutted and the interpreter should have known that the communicator had made a mistake. [83]  Consequently, the reasonably apparent meaning of the notice was as a notice to quit with the correct break date. Rebutting the presumption of optimal design involves deciding that it is more likely that a mistake was made than that the linguistic meaning was intended. Relevant to the likelihood of a mistake is the nature of the document in question (mistakes are unlikely in commercial contracts, but more likely in badly drafted ones [84] ) and the nature of the potential mistake (mis-spellings, omissions of words, malapropisms or other types of slip of the tongue or pen are all common types of mistake). [85]

9. What Crossed the Communicator’s Mind

The main criticism of the interpretative approach outlined in this article is likely to be that much of the material pragmatically inferred by the common sense principles cannot be intended because it never crossed the communicator’s mind. [86] If we accept the objective principle, we can restate that criticism in the following way: it is fictional to say that a particular meaning reasonably appears to have been intended when it does not even appear to have crossed the communicator’s mind.

This assertion that a particular meaning does not appear to have crossed the communicator’s mind is correct, but the criticism misses the point; even the linguistic meaning of an utterance never crosses the communicator’s mind. The process by which formulate our thoughts into words is non-conscious, like a habit or reflex, [87] and, at most, the skeleton of the linguistic meaning crosses the communicator’s mind. We harness the mutual context, and disavow it when necessary, without it crossing the ‘front’ of our mind. [88] We intend to communicate precise and certain ideas, but they are best described by principles or purposes, rules or impressions, than by strictly defined ideas, which is one reason why pragmatic inference works so well, and why linguistic meanings have remained vague. ‘Crossing our minds’ simply does not make sense as a description of how we in fact communicate. [89] Although we may not foresee a particular case, we intend the result in that particular case because we intend the rules that can be applied to provide that result. [90] In this way, the meaning of a communication is dynamic; its content is as much procedural as substantive. Meaning thus extends as far as the application of the rules extends.

To take Wittgenstein’s famous example of supplementation, ‘Someone says to me: “Shew the children a game.” I teach them gaming with dice, and the other says “I didn’t mean that sort of game.” Must the exclusion of the game with dice have come before his mind when he gave the order?’ [91] It goes without saying that influences that are normally seen as harmful or corrupting would not be intended to be included, given the speaker’s apparent purposes and values, unless the speaker expressly says otherwise. [92] It could be said that it is the speaker’s reasonable expectation that dice games not be taught. Nevertheless, Wittgenstein is correct that the possibility of a dice game would not cross my mind.

Thus, whether or not something crossed the mind of the contracter is irrelevant to the question of whether it was part of the intended meaning. The relevant inquiry of an interpreter is whether the particular something can be found in the world of principles (such as background reasonable expectations) that the contracter intended, the limits of that world being found in the boundaries of the implied licence to supplement. A communicator does intend that which he would have intended if he had thought about an issue, since if we know what he would have intended then that means that the principles that the communicator intended cover the issue.

10. When Interpretation Fails: Uncertain Utterances and Incomplete Intentions

There are two types of situation in which the interpreter will be unable to discover an intended meaning on a particular issue: the first is where the intended meaning (rather than merely the linguistic meaning) is incomplete. This occurs when it is not reasonable to think that the communicator intended anything on the particular issue, when:

Because of the interpretative tools held within the mutual context—the purpose of the parties, the normal way of doing things, the reasonable expectations of the parties—serious cases of incompleteness of intended meaning are likely to be rare. However, because the interpretative tools held within the mutual context are themselves vague, it is likely that most contracts are incomplete, at least with respect to their minute details. [94] In such cases, if the incompleteness does not render the contract unworkable, and provided the parties intended there to be a binding agreement, the court may uphold what is left of the agreement. [95] If the contract is upheld and the incomplete feature of the agreement is at issue, then the court will have to decide the case on principles external to the agreement in order to uphold the facility of contracting. [96] When the incompleteness is serious enough that there is not enough of