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Start with Incorporation General Overview

Structure – different types of terms and the relevant law    

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Express terms – the law of contract interpretation Rectified terms – the law of rectification Incorporated terms – the law of incorporation Implied terms o Terms implied in fact – normal use of the law of “implication” o Terms implied by law – “regulated terms” Limitation and Exclusion clauses – could be “regulated terms” Representations – law of misrepresentation, Contract and Commercial Law Act 2017 ss 35, 37

Contract Construction . . . [C]onstruction’s role in the search for meaning is always to ascertain what a reasonable person who knows the context would understand the parties to have meant by the contract. The court stands in the shoes of the parties collectively, instilled with their common contextual knowledge. The court, by definition reasonable in its outlook, imbues those whose shoes it wears with that same reasonable view.” Ward Equipment Ltd v Preston [2017] NZCA 444 at [86]-[87] per Kós P Interpretation involves ascertaining the meaning of contractual words; construction refers to deciding their legal effect." Fashion Fabrics of Iowa v Retail Investment Corporation 266 NW 2d 25 (Iowa 1978) Interpretation, Implification and Rectification are methods of construction (i.e determining the legal effect)

Interpretation   

Change in approaches over time Certainty versus flexibility Courts have to strike a balance between commercial sense and intention whist achieveing a fair outcome.

Starts with Lord Hoffmann’s re-statement of the principles of contract interpretation in Investors Compensation Scheme v West Bromwich Building Society [1997] UKHL 28, [1998] 1 WLR 896 Three phases following ICS:

1. Enthusiastic use of context and commercial sense at Supreme Court level – 2010/2011

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Vector Gas Ltd v Bay of Plenty Energy Ltd [2010] NZSC 5, [2010] NZLR 444, Rainy Sky S A and others v Kookmin Bank [2011] UKSC 50, and Aberdeen City Council v Stewart Milne Group [2011] UKSC 56. -> leads to a concern that courts were giving too much weight to context and commercial sense, at the expense of the words of the contract

Vector Gas

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Dispute over contract providing for supply of gas from Vector Gas to Bay of Plenty Energy. Price of gas “$6.50 per gigajoule”. Two interpretations: o Exclusive of transmission costs ie buyer has to pay extra o Inclusive of transmission costs ie the price already covers transmission costs Court of Appeal (Bay of Plenty Energy Ltd v Vector Gas Ltd [2008] NZCA 338) o relatively traditional approach – contract does not say anything about extra transmission costs, so there are no extra transmission costs to be paid Supreme Court (Vector Gas Ltd v Bay of Plenty Energy Ltd [2010] NZSC 5, [2010] NZLR 444) o Five different judgments, agreed on the outcome but not the law or exactly how that outcome was achieved  Tipping, Wilson, Blanchard JJ: interpretation, McGrath J: estoppel by convention o Context: contract was an interim contract put in place to deal with a dispute about an earlier contract about the supply of gas. The price in the earlier contract was exclusive of transmission costs. o Commercial sense: compared to the price of gas, the interim contract, and any orders a court might make, the inclusive interpertation was a bad bargain for the purchaser

2. The re-affirmation of plain meaning in Supreme Court decisions – 2014/2015

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Firm PI 1 Ltd v Zurich Australian Insurance Ltd [2014] NZSC 147, Arnold v Britton [2015] UKSC 36 -> leads to a concern that, in light of these decisions, important cases from the previous phase were wrongly decided

Rainy Sky The language used by the parties will often have more than one potential meaning... If there are two possible constructions, the court is entitled to prefer the construction which is consistent with business common sense and to reject the other… [But] Where the parties have used unambiguous language, the court must apply it. Rainy Sky S. A. and others v Kookmin Bank [2011] UKSC 50 at [22] and [23]

Newbery v AA Insurance M decided in this phase

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The re-affirmation of plain meaning

Firm PI 1 M (extract) Arnold v Britton M (extract)

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Message from these cases: plain meaning is still very important and commercial sense will almost never be a stand-alone reason for departing from plain meaning

3. The reconciliation – 2017:

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New Zealand Airline Pilots’ Association Incorporated v Air New Zealand Ltd [2017] NZSC 111 and Wood v Capita Insurance Services Ltd [2017] UKSC 24 see paragraph 105 onwards..and [190] textual context -> extra-textual context -> commercial sense

Construction Toolbox 

Linguistic - looking at the words themselves

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Text – giving words meaning by reference to the broader context of the text in which they appear - ie reading the contract or statute as a whole

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Contextual – giving words meaning by reference to background information available at the time

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Purposive - giving words meaning by reference to the purpose of the contract - eg the commercial objective of the contract

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Consequential - giving words meaning by reference to the “outcome” or consequence

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Normative – giving words meaning by reference to a standard or norm – eg clear words are required to exclude liability for negligence

Sources of Dispute 

A mistake may arise from either a drafting error or a linguistic error - often dealt with through rectification

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Vagueness or uncertainty arises where a word or phrase has borderline cases

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Incompleteness may arise from either inadvertence or deliberate equivocation – ie where one or both parties have identified the issue ahead of entry into the contract, but prefer not to attempt to resolve it

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Ambiguity arises when the language used is capable of more than one meaning, either on its face or in context, and the court must decide which of the possible meanings the parties intended their words to bear

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A special meaning exists when the words used are linguistically capable of only one meaning or are wholly obscure but it is nevertheless evident from the objective context that the parties, by custom, usage or agreement, meant their words to bear a meaning which is linguistically impossible (for example, black means white), or represents a specialised and generally unfamiliar usage 

See Vector Gas Ltd v Bay of Plenty Energy Ltd [2010] 2 NZLR 444 (SC) at [33] per Tipping J...