Interpretation Clause
Outline
- Interpretation Clauses
- Interpretation Methods
1- Substantive Law
2- Evidence
- Types of Interpretation Clauses
- Review of examples
Interpretation clause:
- Elements relevant in understanding interpretation clauses
- Boilerplate/Standard terms, they are used frequently and copied from one contract and pasted
to another. So, as a contract drafter you look first if there as any template in the company of
the client that can be used for your client instead of writing it from the scratch.
- Less tailor made
- Approaches of the different legal systems towards the relevant principles (autonomy of the
parties, interference by courts in contractually binding instruments, standard of good faith,
fair dealing, reasonableness, and equity) are different.
- Most commercial contracts include an interpretation clause that sets out the rules of
construction that the parties intend to apply to the contract. The clause can often be the place
to look for significant concepts in a legal document. While there is temptation to simply cut
and paste, the provisions of this clause are often material to the contract. Hidden issues may
arise if this clause is not properly reviewed. The purpose of this clause is generally:
1- To provide certainty of understanding when interpreting the contract, to avoid a court
interpreting the contract in a way that is inconsistent with the parties' intentions
2- To avoid repetition of information when drafting a contract, making it easier to read
- A Standard Clause that specifies several rules of interpretation for a contract. This Standard
Clause has integrated notes with important explanations and drafting and negotiation tips.
- Elements to understand that clause.
- Boilerplate are standard terms; they are copied from one contract to another of the same
company or same professional.
- So how should it be drafted? So, we look first if whether any template in my workplace that
can be used. But it’s not always copied but usually it is.
1
, Interpretation Clause
Issues to be address for interpretation:
1- What is the contractual content? How will the content to be determined in cases of conflict?
2- If there are different interpretations by the parties, how is the content to be construed?
3- Are there other obligations than those agreed upon by the parties?
4- How the gaps will be filled?
5- Are contracts adaptable/adjustable in case of changed circumstances?
6- Are contractual rights to be enforced rigidly or are there mechanisms to correct the exercise
of those rights?
Methods of interpretation:
1- SUBSTANTIVE LAW CHARACTER: (Three theories)
Subjective: (civil law countries, because they apply the freedom of making a contract by
the parties).
o What is the common intention of the parties?
o Process of determination of the common intention of the parties
o Civil law countries (freedom of contract): examples: French Law (+ fair dealing);
Dutch Law (+ objective standards of conduct)
Objective:
o If there is any ambiguities or gaps, we need to find out what are the rights and
obligations, good faith, etc. It’s nothing to do with the intention of the parties.
o Switzerland.
Mix:
o In this theory we see if the common intention of the parties can be established
then we do it, but in case that is not provable then we move and apply the
objective theory.
o It does not mean that both the subjective and objective are applied at the same
time, but rather if the subjective one can be applied then we apply it and don’t go
further to the objective one, but in case the subjective cannot be applied then we
go further and try the objective one.
- Different approaches between the countries, and that because of the different assumption that
those countries have. But the results are almost the same with just small different details.
Example of Substantive law:
o CISG: Legal status of usages
2
Outline
- Interpretation Clauses
- Interpretation Methods
1- Substantive Law
2- Evidence
- Types of Interpretation Clauses
- Review of examples
Interpretation clause:
- Elements relevant in understanding interpretation clauses
- Boilerplate/Standard terms, they are used frequently and copied from one contract and pasted
to another. So, as a contract drafter you look first if there as any template in the company of
the client that can be used for your client instead of writing it from the scratch.
- Less tailor made
- Approaches of the different legal systems towards the relevant principles (autonomy of the
parties, interference by courts in contractually binding instruments, standard of good faith,
fair dealing, reasonableness, and equity) are different.
- Most commercial contracts include an interpretation clause that sets out the rules of
construction that the parties intend to apply to the contract. The clause can often be the place
to look for significant concepts in a legal document. While there is temptation to simply cut
and paste, the provisions of this clause are often material to the contract. Hidden issues may
arise if this clause is not properly reviewed. The purpose of this clause is generally:
1- To provide certainty of understanding when interpreting the contract, to avoid a court
interpreting the contract in a way that is inconsistent with the parties' intentions
2- To avoid repetition of information when drafting a contract, making it easier to read
- A Standard Clause that specifies several rules of interpretation for a contract. This Standard
Clause has integrated notes with important explanations and drafting and negotiation tips.
- Elements to understand that clause.
- Boilerplate are standard terms; they are copied from one contract to another of the same
company or same professional.
- So how should it be drafted? So, we look first if whether any template in my workplace that
can be used. But it’s not always copied but usually it is.
1
, Interpretation Clause
Issues to be address for interpretation:
1- What is the contractual content? How will the content to be determined in cases of conflict?
2- If there are different interpretations by the parties, how is the content to be construed?
3- Are there other obligations than those agreed upon by the parties?
4- How the gaps will be filled?
5- Are contracts adaptable/adjustable in case of changed circumstances?
6- Are contractual rights to be enforced rigidly or are there mechanisms to correct the exercise
of those rights?
Methods of interpretation:
1- SUBSTANTIVE LAW CHARACTER: (Three theories)
Subjective: (civil law countries, because they apply the freedom of making a contract by
the parties).
o What is the common intention of the parties?
o Process of determination of the common intention of the parties
o Civil law countries (freedom of contract): examples: French Law (+ fair dealing);
Dutch Law (+ objective standards of conduct)
Objective:
o If there is any ambiguities or gaps, we need to find out what are the rights and
obligations, good faith, etc. It’s nothing to do with the intention of the parties.
o Switzerland.
Mix:
o In this theory we see if the common intention of the parties can be established
then we do it, but in case that is not provable then we move and apply the
objective theory.
o It does not mean that both the subjective and objective are applied at the same
time, but rather if the subjective one can be applied then we apply it and don’t go
further to the objective one, but in case the subjective cannot be applied then we
go further and try the objective one.
- Different approaches between the countries, and that because of the different assumption that
those countries have. But the results are almost the same with just small different details.
Example of Substantive law:
o CISG: Legal status of usages
2
