Understanding the cultural and factual matrix of a contract is crucial to its interpretation. The purpose of interpretation is a straightforward one: to understand the intention of the parties and determining their legal rights and liabilities. However there are several jurisdictional approaches in cross-border transactions and given the multicultural composition of the various arbiters and the parties, the issue poses some interesting question than just understanding the intention of the parties. Most domestic jurisprudence will contain a set of guiding principles to be applied when deciding issues of contractual interpretation but there is considerable variation in approach in different jurisdictions. The dichotomy between legal traditions most often mentioned is the difference between the objective approach prevalent in the common law systems and the subjective approach in most civil law systems. Albeit so, two essential differences are the perspective from which the provision to be interpreted is considered, and the material that the court is permitted to consider in order to reach its decision. The subjective approached is aimed at finding out the actual intention of the parties by reference to whatever evidence is available, while the objective approach is focused on identifying the objective intention of the contracting parties as expressed by the words used in the contract. This approach gives pre-eminence to the contract document and permits only limited reference to other objective evidence of what the words used might convey to a reasonable bystander. However many common law jurisdictions have moved away from a strict interpretation of the text of a disputed provision to permit some consideration of the wider context of the contractual arrangements. Many years ago the English Courts open the doors to permit examination of factual matrix within which the contract was signed. In the Case of PRENN v SIMMONDS (1971) 1 WLR 1381 at 1381-1384 Lord Wilberforce held thus:
“ In order for the agreement … to be understood, it must be placed in its context. The time has long passed when agreements, even those under seal. Were isolated from matrix of facts which they were set and interpreted solely on internal linguistic considerations. We must … inquire beyond the language and see what the circumstances were with reference to which the words were used, and the object, appearing from those circumstances, which the person using them has in view”
This of line reasoning of applying the cultural and/or factual matrix was adopted by the Nigeria Court of Appeal, Abuja division recently in CA/A/200/2013 ATLANTIC NETWORK LTD v ABAWA NIG LTD delivered on the 19th day of April, 2016 wherein the Court held thus:
“ the court did not accept that the contract was awarded to Ericson Company as a result of Exhibit P… the court believes that the contract was awarded to Ericson company through the efforts of the plaintiff…”
It is instructive to note that the efforts of the plaintiff referred to in this case, is that the claimants influenced the award of a contract through political means, a complex telecoms contract the plaintiff had no expertise at all about, but the court sanctioned the enforcement of same seemingly on the premise that it is a culture in Nigeria that third parties can influence the award of contract through any means other than the laid down procurement guidelines. This much can be deduced from the Courts reasoning at Page 13 of the judgment that:
the record of appeal also does show indeed that the appellants said the respondents have connections in the corridors of power, the trial court did not make that up, see DW1’S statement on oath at page 92 of the record… the plaintiff and CSP Abdullayari Lafia (a former ADC to the Vice President) were in the corridors of power, they intimidated the 2nd respondent to transfer the ownership of his property situate at London as further payment….”
This decision is now on appeal to the Supreme Court, we await their attitude towards this reasoning. Similar developments have taken place in other common law jurisdictions, Notably Australia. Where the court looks at every extrinsic evidence to ascertain the intent of the parties, not just the documentary contract. However, two long-established areas of exclusion from admissible evidence are proving resistant to attack. The first is evidence of the parties’ pre-contract negotiations and their declarations of subjective intent (known in England as the exclusionary rule) and the second is evidence of the post-contract conduct of the parties (for example, in relation to implementation of the provision in question). Matters falling within these two heads are generally excluded from consideration by a court when interpreting a disputed provision. In contrast, a contextual approach , at its most extreme, involves looking at the contract as just one type of evidence of intent. In other words, a court or tribunal should be allowed to consider any extrinsic evidence that can potentially provide insight into the meaning of the provision intended by the contracting parties. Thus pre-contract negotiations and even post contract communications and conduct may be relevant.
Various policy reasons have been advanced to explain why the exclusions should remain. Such as the time and costs involved in sifting through the additional evidence relative to the parties’ use of selected pre and post communication to support arguments advanced in the case, the need for certainty and the protection of third parties who unaware of the contextual material, may understand a contractual term to mean something different. Another rationale often mentioned is the safety net provided by the fact that documents excluded in relation to a dispute on contractual interpretation may be admitted in evidence via the back door in support of alternative claims for rectification of the contract (in relation to pre-contract documents) estoppel by convention (in relation to post documents). Such legal arguments are commonly run in cases involving issues of contractual interpretation albeit on the premise that, in theory, a tribunal is supposed to ignore that material when making a decision on the interpretation issue.
Efforts have been made at an international level to agree on a common approach to interpretation. The United Nations Convention on the International Sale of Goods (CISG) contains provisions guiding the approach to be adopted in relation to interpretation of contracts subject to the CISG. Article 8 contains the default position that the contract is to be interpreted by reference to the intention of the parties. In determining that intent, consideration is to be given to all relevant circumstances of the case including the negotiations any practices which the parties have established between themselves, usages and subsequent conduct of the parties. Only if the common intention of the parties cannot be determined is the court or tribunal to have recourse to an objective approach, namely, the understanding that a reasonable person of the same kind as the other party would have had in the same circumstances. Several commentaries have opined that, in practice, the primacy given to the subjective approach should not be overestimated because of the difficulty in proving actual intention.
Whether the question of interpretation is to be approached on an objective or subjective basis, parties could make submission as to the relevance of extrinsic evidence to the ascertainment of the parties intentions. If admitted, the tribunal could decide what weight should be attached to the material when interpreting disputed contractual provision by reference to the appropriate test. Such an approach appears to meet the approval of certain members of the judiciary. In the New Zealand Case of Canterbury Gold International Ltd V Yoshimoto (2000) NZCA 350 at 76-77, Thomas J made the following comments when talking about the constraint imposed by the rule excluding evidence of pre-contract negotiations:
“ what I am suggesting is that the rule should not be treated as an absolute and rigid rule to the point where the court is called upon to impose an interpretation which does not accord with the parties’ actual intention. The objective basis would remain. But that basis would be enhanced by approaching the task of determining what the contract would convey to a reasonable person without artificially restricting the background knowledge available to the parties at the time they completed the contract…. It is not remotely suggested that such evidence be received without caution. Obviously, the evidence must be reliable. No doubt documentary evidence will tend to be more reliable than oral evidence. The reason usually given to justify the exclusion of prior negotiations is that the parties position will change with each passing communication until the final agreement which records a consensus. Those particular circumstances can be taken into account in determining the weight, if an to be given to the evidence of the prior negotiations.
The task of contractual interpretation – described as requiring the resolution of a tension between certainty and efficiency on the hand and accuracy or fairness on the other- is an exercise in judgment. A decision as to what it is relevant or helpful to consider in exercising that judgment is just another piece of the puzzle that should be left to the arbiter to decide on the facts.