Textualism and Contextualism as Paradigms in Contractual Interpretation

Subject: Law
Pages: 11
Words: 2810
Reading time:
12 min
Study level: Bachelor

Introduction

In present-day realities, textualism and contextualism are viewed as two opposing principles of legal procedure. Textualism is understood as full compliance with the word of a legal document placed before a court of law.1 Contextualism, on the other hand, is the approach that places the highest value on the interpretation of a text for the purpose of finding its objective meaning viewing it in the circumstances in which it was created and signed.2 Before the 1970s, English law viewed contract cases using the rigid understanding of the text and emphasized the formal or literal meaning of what was said or written.3 After the establishment of the Unfair Contract Terms Act of 1977, courts were assigned with a new mechanism that allowed them to refer to reasonableness, which formalized the procedure for interpretation of the contract terms4. Despite the fact that the two approaches can both be applied simultaneously, there is still certain controversy as to whether or not such procedure should be authorized or practiced. This essay argues that textualism and contextualism are non-conflicting paradigms in the field of contractual interpretation through decisions of the judges supported with their rationale and statements of reputable practitioners proving the validity of such a method.

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Non-Conflicting Nature of Textualism

Argument

The mere definition of textualism that is given by judges and officials does not in its sense contradict the use of other paradigms and does not explicitly state that the use of such paradigms is forbidden. In fact, textualism only marks one understanding and practice applicable to contractual interpretation.5 Therefore, there is no limitation on the use of other paradigms for understanding contract language and using that understanding to build argument upon in the court of law. In addition, according to one of the famous constitutional principles of the British law, “everything which is not forbidden is allowed.”6 In application to the present argument, it may interpreted as any other practice that is not included in the definition textualism as contradicting or incompatible is essentially non-contradictory.

Evidence

Robert Scott, the professor of law at Columbia Law School has the following understanding of textualism, “the formal common law doctrine of contractual interpretation, such as the parol evidence and plain meaning rules.”7 Scott argues that parole evidence and plain meaning are the methods of controlling courts’ utilization of evidence. Plain meaning is the understanding of the text of a legal document by a regular English-speaking person who is competent enough to understand the text and is fully cognizant of the fact that he or she is reading a legal contract.8 In Scott’s version, textualism refers to using the plain sense of words in interpretation of contracts, while mentioning nothing about using other methods of interpretation. It authorises courts to read the textual meaning of contracts but does not state that they need to abstain from using other methods instead, before or after textual interpretation.

Another view of textualism is given by an acting barrister, Teresa Peacocke. According to her, in the UK, “merger clauses in a contract have a conclusive effect… and the court will presume the contract is fully integrated if it appears final and complete.”9 From this perspective, it is evident that if the text of the contract is plain, no other proof of its validity is required. However, the absence of such opens a field for interpretation, which gives a reason to believe that other paradigms, may be applied if the decision cannot be made using only textual approach. This is vividly illustrated by the case Bank of Credit and Commerce International SA v Munawar Ali.10 There Lord Nicholls of Birkenhead stated that when the provisions of the legal document fail to give comprehensive meaning which is drawn from the words of such provisions, the Court has to resort to interpretation of a context. In particular, Lord Nicholls was referring to the definition of general release that was the main point of miscommunication between the bank and Ali.

Due to the fact that general release was not properly described in the text of the contract, the term was, apparently, interpreted differently by each side, which made the court resort to searching and defining the term by itself to be able to pronounce a correct verdict. Here the contract in question was not plain enough and did not appear ‘final and complete’ as the textual approach presumes. The gap, which is created in such circumstances, forces the court to find extra-textual evidence in the legal environment outside the realm of the contract.11 Therefore, the textual approach alone judging from its definition and practical application does not cover the full extent of the contract interpretation in the court of law.

Counterargument

It may be assumed that the definition of textualism and its practical application does not require other paradigms because textual evidence and plain meaning will always remain primal and admissible unlike contextual one.12 It may also be argued that the case cited above shows that the commonly recognized and used meaning of words, even if it has not been specified is the most reliable source of evidence in the contract interpretation. This fact puts the textual evidence before contextual and ranges approaches by their degree of admissibility with the former being admissible to the full extent, while the latter is inadmissible at all and serves only as an argument-building component.13 Interchangeability and equality of the approaches may be seen as the main criteria for considering the possibility of non-contradiction, while the non-existence of forbidding remarks in the text may be a far reach.

Refutation

Applying textualist approach to defining whether or not there is a contradiction between the approaches seems natural because there text is a certain standard in the world of legal theory and practice. Legal texts has been produced for the purpose of eliminating bias and error in understanding.14 Building legal vocabulary is essential for any party entering the agreement.15 It is, however, an idealized situation where each party signs the contract having equal understanding since the knowledge of each party is different. Bank of Credit and Commerce International SA v Munawar Ali illustrated this fact and the significance of definition along with it. It is the definition of the word or concept that provides the basic understanding what it means and what it does not mean. Therefore, given the absence of strict disallowance of using extrinsic evidence when the plain text is non-existent and ambiguity is present speaks to the fact that usage of contextual approach after the textual one fails is not a contradiction and the two can be used together in the framework of a single case.

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Non-Conflicting Nature of Contextualism

Argument

The definition of contextualism, same as with textualism does not presuppose sole and unchallenged rule of context over the text. It does not deny the cruciality of a text capacity to determine the meaning of a contract for an informed person. Instead, it provides a solution for the cases when textual evidence fails to bring the sides adequate judgment. Essentially, the words and the nature of contextualism is a non-protesting one and rather additive, which gives a reason to assume there is no contradiction to the combined use of textualist and contextualist paradigms within one case.16

Evidence

Contextualism according to McMeel is a regard for extrinsic evidence and the decision made by court whether or not it can substantially improve and clarify the understanding of the sides’ intentions.17 Again, contextual paradigm does not imply the prohibition of any other approach, it simply states a regard, a mere consideration of the fact that probably there are other circumstances, which can be relevant to the case outside the realm of text. Another understanding of contextualism is based upon concentrating on the intentions of the parties that enter an agreement.18 Here Freedman and Smith state the nature of contextualism as an indicator that could help the court understand under what circumstances each party signed an agreement. In Oran Pre-Cast Ltd v Oranmore Precast Ltd and others19 the legitimacy of the compromise agreement was confirmed and the claims of infringement were dismissed due to the absence of textual or contextual evidence for such infringement.

Counterargument

One can argue that a regard for context means disregard for text due to the fact that viewing intention as a central factor would make plenty of room for interpretation of the text, and therefore only textual approach is usable. Since an intention cannot be measured, proved or disproved, threading that path means drifting away from solid evidence.

Refutation

Nothing in both definitions suggests that factual and textual evidence becomes irrelevant. They only imply that extrinsic evidence gains attention. Given that, there could be room for two approaches as demonstrated in Energy Venture Partners Ltd v Malabu Oil and Gas Ltd20, where on the basis of an oral agreement before written one it was ruled that it can be considered legal and binding even though the written one declared that no additions were needed. Seeing the context and the fact through a prism of context is what the nature of contextualism proclaims.

Contract Interpretation through a Combination of Textual and Contextual Approach

Argument

The main argument consists in the adequacy of a combined assessment of textual or linguistic facts and facts that lie beyond the text in a sense that it provides a higher degree of objectivity than any of the two can manage separately. Textual information gathered from the contract itself incorporates the initial meaning that the parties imbued with the document. The context, on the other hand, sheds light on the circumstances of the shift in the meaning of a contract for one of the parties, which have become the reason for inquiry and appeal. It is essential to grasp the combined wisdom that those approaches grant in order to produce an adequate verdict. This practice could save time and resources on appeals and further proceedings due to the fact that they represent a combination of methods rather than separate techniques.

Evidence

In Wood v Capita Insurance Services Ltd 21 the High Court ruled that Capita’s claim falls under indemnity on the basis of the textual interpretation. However, the Court of Appeal overruled that decision in light of a contextual evidence. The Capita then pleaded for being misled by the agreement’s textual information, which was dismissed by the court, as the false interpretation of the agreement does not make the contract non-binding. The disagreement then rose to the assumption that the Court of Appeal has overemphasized the textual information giving it the priority over the facts.

Lord Hodge passed the final judgment in the Supreme Court confirming that of the Court of Appeal. He used both textual and contextual information to support his decision. In addition, he appealed to the similar cases such as Prenn v Simmonds, 22 Investors Compensation Scheme Ltd v West Bromwich Building Society 23 or Rainy Sky SA v Kookmin Bank 24 where the Judge emphasised the meaning of sides’ understanding of the context in different time frames relevant to the contract. The appellant’s realization of the knowledge gap in the time of signing the contract and the time of finding the alleged discrepancy is crucial in defining the key facts to rely on for passing the right verdict. The case has passed through three levels of authority, which is extremely time-consuming for the sides and adds additional workload that could have been eliminated should the lower branches be equally aware of the possibilities that combined textual and contextual data can provide.

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Counterargument

It may have been argued that the lower courts were right in argumentation chosen for their verdicts. A similar case, Arnold v Britton, presided over by the Supreme Court has shown that the court used only textual evidence and appealed to the reasonable person argument to close the case dismissing the contextual evidence.25 Provided in this case the textual evidence was enough to pass a verdict and the appellant was clearly in possession of adequate knowledge of terms of the contract, Capita’s argument could have similarly been dismissed.

Refutation

The reason for the choice of such verbal form that the decision in Arnold v Britton was produced in was that the court found the textual argument the strongest. Thereby, it voiced the Judgment without any other evidence. However, this does not state that the Supreme Court had not considered contextual evidence, and, as Lord Hodge noticed, it is the duty of a court to be aware of all possible evidence.26 Additionally, Lord Bingham in his work has provided extensive evidence that courts have developed a firm standing on the use of contextual interpretation. However, it is solely in their power to exercise such a technique.27

Argument 2

The second argument in favour of the viability of the combined approach is that it provides a deeper consideration for both parties’ opinion on matters, which positively influences the quality of the produced verdict. A well-round and weighted outlook on a case does not seem to produce a negative effect. Additional knowledge and regard for intention is the material that would only benefit the case. Referring to one and mentioning another provides a reason to believe that they are not incompatible.

Evidence

The speech of Lord Wilberforce in Wickman Machine Tool Sales Ltd. v L. Schuler evidently demonstrates that the court considered both practices and features both the use of linguistic analysis and contextual meaning of the paragraph over which the case is built. In his argument, he insists upon both the literary meaning of the words in the clause under discussion and the other clauses that are inherent to the document that, as he mentions, needs to be considered holistically rather than as a list of separate and disconnected provisions.28 In addition, Stephen Davis in Khurana v Webster Construction Limited 29concluded that a sole word does give a sense of the general subject but does not reveal the whole scope of the problem and its understanding is thereby lies in the context. Thus, this illustrates the use of both approaches to help the cause of building a solid ground for a decision.

Counterargument 2

What is considered to be a collaborative effect of the two techniques may as well be called prioritizing one over another to choose the strongest rationale in order to build the final argument. Sir Geoffrey Vos argued that courts have a tendency to speculate on a meaning of words choosing the one they see best applied to the current business practice.30 That could be an observation that produces the conclusion of ongoing duality and absence of a clear preference for any of the technique in the process of decision making in the court of law.

Refutation

The preference or speculation are by themselves indicate the process of choosing, which shows the interconnection and the use of both techniques to produce a decision. The unavailability of choice would have been demonstrated if either textual or contextual analysis were inapplicable per se. Since they can and do apply in multiple cases enumerated above, then it is safe to assume that the choice is based on the strength of the argument in the particular case or its suitability. Thus, in Investors Compensation Scheme Ltd v West Bromwich Building Society,31 Lord Hoffman produced the five principles of reasonable contract interpretation, indicating that the word in itself is meaningful but people rarely incidentally misuse it in case of designing legally binding documents. It, therefore, forces the court to ascertain their meaning in the context to which they have been produced.

Summation

The adequacy and effect of the textual-contextual approach combination are vividly illustrated by multiple legal cases for a period of more than 30 years. The main arguments for contractual interpretation practice consist in the distinct nature of each of the methods that rather complement each other and serve a common cause by saving time, effort and giving a deep understanding of a case. Counterarguments were based on prioritization of one or another technique in the process of passing a verdict. They were refuted on the grounds of logic that underlines that the usage of both techniques in the same case does not imply the impossibility of their coordinated use.

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Conclusion

To conclude, the collaboration of textual and contextual paradigms in the field of contractual interpretation has produced an immense impact on the process and understanding of contracts. Despite the fact that judges usually rely on one over another with a shift to the contextual, a variety of approaches contributes to better decision making. The assumption that they are not contradictory is evidenced by the substantial amount of legal practice. The implications of this essay include the popularisation and close scrutiny of the two paradigms in relation to contractual interpretation. The initial hypothesis has been proven by two arguments supported by evidence that includes reputable opinion, research, and legal cases. The counterarguments were refuted in a proper manner.

Bibliography

Arnold v Britton [2015] UKSC 36, [2015] A.C. 1619;

Bank of Credit and Commerce International SA v. Munawar Ali, Sultana Runi Khan and Others [2001] UKHL 8, [2001] 1 All ER 961;

Berg, A “Thrashing Through the Undergrowth” [2006] 122 LQR 354;

Energy Venture Partners Ltd v Malabu Oil and Gas Ltd [2013] EWHC 2118;

Gilson, RJ Sabel, C, Scot, RE Text and Context: Contract Interpretation as Contract Design, 100 Cornell L. Rev. 23 (2014);

Slynn, G and Fairgrieve, D Judicial Review in International Perspective: Liber Amicorum in Honour of Lord Slynn of Hadley (Kluwer Law International 2000);

Investors Compensation Scheme v West Bromwich BS [1998] 1 All ER 98;

Khurana v Webster Construction Limited [2015] EWHC 758 (TCC);

Knutsen, E ‘Patchwork Contextualism in the Anglo-Canadian Law of Insurance Policy Interpretation: Implications for the Principles of the Law of Liability Insurance’ (Social Science Research Network 2015);

Lewison, K The Interpretation of Contracts (Sweet & Maxwell 2004);

Lord Bingham, “A New Thing under the Sun: The Interpretation of Contract and the ICS Decision” [2008] 12 ELR 374;

Lord Grabiner, “The Iterative Process of Contract Interpretation” [2012] 128 LQR 41;

Lord Nicholls, “My Kingdom for a Horse: The Meaning of Words” [2005] 121 LQR 577;

Mannai Investment Co Ltd v Eagle Star Assurance [1997] UKHL 19, [1997] AC 749;

McLauchlan, D “Common Intention and Contract Interpretation” [2011] LMCLQ 30;

McMeel, G The Construction of Contracts: Interpretation, Implication and Rectification (Oxford University Press 2007);

Michael Freeman and Fiona Smith, Law and Language: Current Legal Issues (OUP Oxford 2013);

Mitchell, C “Obligations in Commercial Contracts: A Matter of Law or Interpretation?” [2012] 65 CLP 455, 88;

Oran Pre-cast Ltd v Oranmore Precast Ltd [2016] EWHC 1846;

Peacocke, TR Different Approaches to Commercial Contract Interpretation in New York and in the UK (University of Edinburgh School of Law 2011);

Prenn v Simmons [1971] 1 WLR 1384;

Rainy Sky SA v Kookmin Bank [2011] UKSC 50, [2011] 1 WLR 2900;

Scott, R Text versus Context: The Failure of the Unitary Law of Contract Interpretation, in the American Illness: Essays on the Rule of Law (Frank H. Buckley ed., 2013);

Sir Geoffrey Vos, ‘Contractual Interpretation: Do Judges Sometimes Say One Thing and Do Another?’ (Chancery Bar, 2017). Web.

Smith, J and Thomas, J A Casebook on Contract (Sweet and Maxwell 2015);

Stone, R and Devenney, J The Modern Law of Contract (Routledge 2013);

Wickman Machine Tool Sales Ltd. v L. Schuler A.G., [1974] AC 235, [1973] 2 All ER 39;

Wood v Capita Insurance Services Ltd [2017] UKSC 24;

Footnotes

  1. Lord Nicholls, “My Kingdom for a Horse: The Meaning of Words” [2005] 121 LQR 577.
  2. Lord Grabiner, “The Iterative Process of Contract Interpretation” [2012] 128 LQR 41.
  3. Alan Berg, “Thrashing Through the Undergrowth” [2006] 122 LQR 354.
  4. David McLauchlan, “Common Intention and Contract Interpretation” [2011] LMCLQ 30.
  5. Kim Lewison, The Interpretation of Contracts (Sweet & Maxwell 2004) 231.
  6. Gordon Slynn Baron Slynn of Hadley and Duncan Fairgrieve, Judicial Review in International Perspective: Liber Amicorum in Honour of Lord Slynn of Hadley (Kluwer Law International 2000), 256.
  7. Robert Scott, Text Versus Context: The Failure of the Unitary Law of Contract Interpretation, in the American Illness: Essays on The Rule of Law 312 (Frank H. Buckley ed., 2013).
  8. Ronald Gilson, Charles Sabel, Robert Scot, Text and Context: Contract Interpretation as Contract Design, 100 Cornell L. Rev. 23 (2014).
  9. Teresa Rosen Peacocke, Different Approaches to Commercial Contract Interpretation in New York and in the UK, (University of Edinburgh School of Law 2011).
  10. [2001] 1 All ER 961.
  11. Catherine Mitchell, “Obligations in Commercial Contracts: A Matter of Law or Interpretation?” [2012] 65 CLP, 455.
  12. [1997] AC 749.
  13. [2016] EWHC 1846.
  14. John Smith and Joseph Thomas, A Casebook on Contract (Sweet and Maxwell 2015) 21.
  15. Eric Knutsen, Patchwork Contextualism in the Anglo-Canadian Law of Insurance Policy Interpretation: Implications for the Principles of the Law of Liability Insurance (Social Science Research Network 2015) 12.
  16. Richard Stone and James Devenney, The Modern Law of Contract (Routledge 2013) 17.
  17. Gerard McMeel, The Construction of Contracts: Interpretation, Implication and Rectification (Oxford University Press 2007) 155.
  18. Michael Freeman and Fiona Smith, Law and Language: Current Legal Issues (OUP Oxford 2013) 27.
  19. [2016] EWHC 1846.
  20. [2013] EWHC 2118.
  21. [2017] UKSC 24.
  22. [1998] 1 All ER 98.
  23. [1971] 1 WLR 1384.
  24. [2011] 1 WLR 2900.
  25. [2015] 1 AC 1619.
  26. ibid [12].
  27. Lord Bingham, ‘A New Thing under the Sun: The Interpretation of Contract and the ICS Decision’ (2008) 12 ELR 374.
  28. [1973] 2 All ER 39
  29. [2015] EWHC 758 (TCC).
  30. Sir Geoffrey Vos, ‘Contractual Interpretation: Do judges sometimes say one thing and do another?’ (Chancery Bar, 2017). Web.
  31. [1998] 1 All ER 98.