Interpretation under the Principles of European Contract Law

The approach suggested by the Principles of European Contract Law in relation to interpretation is to attempt to give effect to the intention of the parties, whether or not this accords with the literal meaning of the words used. In this the Principles are taking a similar approach to that currently adopted by the English courts, as outlined in the previous section. In determining the parties’ intentions, if the intention of one party can be established, and the other party could not have been unaware of that intention, then the first party’s intention will prevail. If it is not possible to establish the parties’ subjective intentions, then the contract is to be given the meaning that «reasonable persons of the same kind as the parties would give to it in the same circumstances».

Article 5.102 sets out some of the circumstances which should, in particular, be taken into account in interpreting the contract. These include preliminary negotiations, and the conduct of the parties, «even subsequent to the conclusion of the contract». In contrast, English law does not, as we have seen in the previous section, generally take account of preliminary negotiations, or of subsequent words or conduct, in interpreting an agreement. «Good faith and fair dealing» are also to be considered, which again are not commonly part of the English law approach. Otherwise, the matters set out in Art 5.102 are predictable, and include the circumstances in which the contract was concluded, the nature and purpose of the contract, previous interpretation and practice by the parties the meaning given to terms and expression in the «branch of activity concerned» and the previous interpretation of similar clauses. Finally, «usages» (presumably meaning «customs») should be considered.

The contra proferentem rule is to be applied to a contract term which has not been individually negotiated, and, where there is a conflict between individually negotiated terms and other terms, preference should be given to those individually negotiated. Thus, the Principles operate to control to a limited extent standard term contracts. Terms are to be interpreted in the light of the whole contract.

Finally, an interpretation which renders a contract lawful is, unsurprisingly, to be preferred to one that would not. Article 5.107 suggests the approach to be taken where there are linguistic discrepancies between different language versions of a contract.

Overall, therefore, the Principles suggest an approach similar to that currently adopted by the English courts, but drawing on an even wider range of circumstances when trying to determine the parties’ intentions, and placing the contract «in context». The availability of the criterion of «good faith and fair dealing» would give a broad discretion not generally available to English courts.

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