Contract: Interpretation of Commercial Contracts

Interpretation of Commercial Contracts

I have previously discussed issues in relation to the interpretation  of contracts in several posts. A recent judgment of the Bombay High Court,  Novartis v. Aventis Pharma, enumerates the principles of interpretation of  commercial contracts. The decision itself is available here. I will not go into the facts and the reasoning in this post; but will only highlight the  principles which the Court derived from the authorities on the
interpretation of commercial contracts. The relevant cases which the Court  considered in forming these principles are Vimalchand Jain v. Ramakant  Jajoo, 2009 (5) SCALE 59, RNRL v. RIL, 2007 (Supp.) Bom CR 925, Durham v.  BAI, [2009] 2 All ER 26 etc. The four principles listed in paragraph 203 of
Durham v. BAI by Justice Burton were approved by the Bombay High Court (per  Anoop Mohta J.). These principles are as follows [citations omitted]:

1. Ordinary Meaning. There is a presumption that the words used  should be construed in their ordinary and popular sense. The reasoning  behind this is that the parties to a commercial contract must be taken to
have intended, as reasonable men, to use words and phrases in their commonly  understood and accepted sense. Importantly, the object of the inquiry is not  necessarily to probe the 'real' intention of the parties, but to ascertain  what the language they used in the document would signify to a properly  informed observer.
2. Businesslike Interpretation. A commercial document should be construed in accordance with sound commercial principles and good business   sense, so that its provisions receive a fair and sensible application. If a  'detailed semantic and syntactical analysis of words' used in a commercial contract would lead to a conclusion counter to business common sense, it  must be made to yield to business common sense.
3. Commercial Object. The commercial object of the clause being construed, and its relationship to the contract as a whole, are relevant in resolving any ambiguity.
4. Construction to avoid unreasonable results. In cases where the wording of a clause is ambiguous, and one reading produces a fairer result than the alternative, then the more reasonable interpretation should be
adopted.

Source: Law and Legal Developments