David Contract interpretation and implied terms: the current state of play

1
CONTRACT INTERPRETATION AND IMPLIED TERMS:
THE CURRENT STATE OF PLAY
Paul David
Barrister
Auckland


Introduction
This paper reviews and comments on the recent decisions in the highest courts in the
United Kingdom and New Zealand in which the common law rule excluding evidence of
pre-contract negotiations on questions of contractual interpretation has been considered. It
then considers Lord Hoffmanns recent re-formulation of the test for the implication of
terms in The Attorney-General of Belize and others v Belize Telecom Limited
1
(Belize)
and considers the possible effect of this decision in contract interpretation cases.
Principles of interpretation
Lord Hoffmanns formulation of the principles of contractual interpretation in Investors
Compensation Scheme Limited v West Bromwich Building Society
2
was quickly adopted
in New Zealand in Boat Park Limited v Hutchinson.
3
While the principles are expressed
to be a reminder of the modern approach to contractual interpretation,
4
the way in which
they refer to the discarding of old intellectual baggage, focus on the relevance of all
available background information to the interpretation exercise and explain that the
background may establish that a contract has gone wrong in its syntax or wording, has
lead to much debate both in and outside the courts over the nature of the exercise of
contractual interpretation. In particular, the extent of any policy or conceptual limits on
the use of evidence of background to assist in deciding on the meaning of a contract has
been much discussed. In this climate of increased interest and debate, it was inevitable
that the rule excluding evidence of pre-contract negotiations would come under scrutiny
in the higher courts.
The admissibility of prior negotiations
Historically, the common law has long set itself against the admission of evidence of pre-
contract negotiations on the question of determining the meaning of a contract. When
Lord Wilberforce explained the modern contextual approach to the interpretation of
contracts in Prenn v Simmonds,
5
that well established rule was maintained. In the

1
[2009] UKPC 10.
2
[1998] 1 ALL ER 98 (HL).
3
[1999] 2 NZLR 74.
4
The reformulation was expressed by Lord Hoffmann as being a reminder of the fundamental change in the law
relating to construction of contracts by the earlier decisions in Prenn v Simmonds [1971] 3 ALL ER 237 and 240
and Reardon Smith Line Ltd v Hansa-Tangen [1976] 3 ALL ER 570.
5
[1971] 1 WLR 1381.
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nineteenth century case of Inglis v John Buttery & Co,
6
Lord Blackburn referred to the
principle that the court is entitled to be placed in the position in which the parties stood
before they signed their agreement, but emphasised the inadmissibility of evidence of
negotiations:
Now, I think it is quite fixed - and no more wholesome or salutary rule relative to
written contracts can be devised - that where parties agree to embody, and do actually
embody, their contract in a formal written deed, then in determining what the contract
really was and really meant, a Court must look to the formal deed and to that deed
alone. This is only carrying out the will of the parties. The only meaning of adjusting
a formal contract is, that the formal contract shall supersede all loose and preliminary
negotiations - that there shall be no room for misunderstandings which may often
arise, and which do constantly arise, in the course of long, and it may be desultory
conversations, or in the course of correspondence or negotiations during which the
parties are often widely at issue as to what they will insist on and what they will
concede. The very purpose of a formal contract is to put an end to the disputes which
would inevitably arise if the matter were left upon verbal negotiations or upon mixed
communings partly consisting of letters and partly of conversations. The written
contract is that which is to be appealed to by both parties, however different it may be
from their previous demands or stipulations, whether contained in letters or in verbal
conversation. There can be no doubt that this is the general rule, and I think the
general rule, strictly and with peculiar appropriateness applies to the present case.
There are established exceptions to the rule where the negotiations can be used to prove a
background fact known to both parties, where they identify the subject matter of the
contract, or where they show that the parties used words in a particular unusual and
unconventional way between themselves in their negotiations and contract the private
dictionary cases. The Investors Compensation Scheme principles themselves, while
referring to the admissibility of all background information, expressly maintain the
exclusionary rule at (3) as a matter of practical policy.
In recent times, under the general impulse of the increased interest in the modern
approach to interpretation, the highest courts in New Zealand and the United Kingdom
have both considered the general exclusionary rule. The case against retaining the
exclusion has been set out in a range of academic and extra-judicial writing.
7

In Chartbrook Limited v Persimmon Homes Limited
8
the appellant asked the House of
Lords to overturn the established common law rule. The case concerned the meaning of a
clause in a development contract which provided for a formula for the price which was to
be paid to the land owner, Chartbrook, by the developer, Persimmon.
Chartbrook and Persimmon had entered into an agreement to develop a site in
Wandsworth, London. Persimmon was not able to purchase the land for development
outright and the contract aimed to provide for payment after the development had been
carried out. Persimmon was to obtain planning permission, enter into possession of the
land under a licence from Chartbrook, build a mixed residential and commercial
development and sell the properties on long leases. Chartbrook was to grant the leases as
directed by Persimmon. Persimmon would recover the proceeds of the sales of the leases
and pay Chartbrook a price for the land from the proceeds. After planning permission had

6
[1878] 3 Appeal Cases 552, 557.
7
See, eg Professor David McLauchlan, Contract Interpretation: What is it about? (2009) Sydney Law Review; Lord
Nicholls of Birkenhead, My Kingdom for a Horse: The Meaning of Words (2005) 121 LQR 577-591.
8
[2009] 1 AC 110.
David Contract interpretation and implied terms: the current state of play
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been obtained and the development built, a dispute arose over the price payable by
Persimmon to Chartbrook under the agreement.
The price under the agreement was made up of two basic components the total land
value (TLV) and a further payment referred to as an additional residential payment or
balancing payment (ARP). The TLV was straightforward. It was made up of three
components the Total Residential Land Value, the Total Commercial Land Value and
the Total Residential Car Parking Value. The TLV was arrived at by using an agreed
value per square foot in relation to land for commercial and residential development and
applying the value to the areas for which planning permission had been granted, and
applying an agreed value to the number of carpark spaces for which planning permission
was granted. The other element of the price the additional payment related to
residential development only. The definition of the ARP was as follows:
23.4% of the price achieved for each residential unit in excess of the Minimum
Guaranteed Residential Unit Value (MGRUV) less the costs and incentives.
The definition contained three concepts. A residential unit was a flat and the MGRUV
was defined to mean the Total Residential Land Value divided by the number of flats. The
costs and incentives were the additional expenses which Persimmon might incur in
inducing a person to purchase a flat (eg the expense of a fit out).
Chartbrook contended that the definition, which was outwardly uncomplicated, meant, on
the ordinary meaning of the language that to calculate the ARP you took the price
achieved for a flat, deducted the MGRUV and costs and expenses and calculated 23.4%
of the result. Adding ARP to the total land value produced a total figure of 9,168,427. In
the courts below, this approach to the clause was accepted on the basis that it reflected the
ordinary meaning of the formula in the clause (with Collins LJ dissenting in the Court of
Appeal).
Persimmon, on the other hand, contended that Chartbrooks construction was completely
at odds with the commercial purpose of the ARP. The idea of dividing the price into the
TLV and the ARP was to give Chartbook a minimum price for the land under the TLV
and allow for an increased payment by the payment of the ARP, if the market rose and the
flats sold for more than expected at the time of the contract.
At the time the parties entered into the transaction, it was expected that the flats would
sell for 200,000 or slightly more. The MGRUV for such a flat was 53,438 or 26.7% of
a price of 200,000. If the price of the flats was 228,000, the MGRUV would be 23.4%
of the price realised. The purpose of the ARP was to provide that Chartbook would
receive the amount by which 23.4% of a price higher than 228,000 exceeded the 53,438
MGRUV. In the commercial context, the aim was simply to pay the additional payment if
the flats sold for more than 228,000. To apply the clause, Persimmon argued, you deduct
the costs and expenses from the price received by Persimmon, calculate 23.4% of the
price, and the ARP is the excess of that figure over the MGRUV.
On Persimmons construction, the ARP was 897,051: on Chartbrooks construction it
was 4,484,862.
All members of the House agreed that, on the application of traditional construction
principles, the contention of Persimmon was correct. The price arrived at by applying the
formula in the manner advanced by Chartbrook and adding that sum to the TLV did not
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make commercial sense in the context. The agreement itself contained indications that the
ARP was to be an additional contingent payment. The formula, as Lord Walker pointed
out, was, in itself, ambiguous and not straightforward when analysed. The main point
which drove the outcome was that the interpretation of the formula based on the ordinary
use of syntax did not make commercial sense when the background was considered and
no rational commercial party would have entered into a transaction which had the effect
intended for by Chartbrook. On Chartbrooks approach, the ARP was payable in a manner
which meant that it was not really an extra payment at all. As a consequence, the clause
had to be interpreted in the manner put forward by Persimmon.
The previous negotiations
Persimmon also contended that the negotiations between the parties showed that the ARP
was only to apply if the project performed better than anticipated at the time of the
contract. In a letter written before the agreement was entered into, Persimmon, in offering
a payment for land value, said as follows:
the minimum guaranteed land values that you will receive for the respective elements
of the scheme, together with the percentage of sales revenue that you will also be
entitled to, if the project performs better than is currently anticipated
This was accompanied by a table reflecting the guaranteed or minimum sums Chartbrook
would receive which used 23.4% as a percentage of sales revenue and 53,333 for the
minimum value per plot. The correspondence between the parties which led up to the
final agreement showed to a reasonable person that they agreed to proceed on the basis
that Chartbrook would only receive the ARP if the project performs better than is
currently anticipated.
The exclusion of evidence of previous negotiations
Although he was able to decide the case on established principles, Lord Hoffmann
considered the important argument challenging the continued application of the rule
excluding the evidence of previous negotiations. While he acknowledged that there was
conceptually no limit to the evidence of the background that might be relevant to the
determination of the meaning of a contract, he held that, on policy grounds, there was no
proper basis to depart from the long established rule excluding evidence of previous
negotiations on a question of contractual interpretation. In reaching that conclusion, he
considered that the risk of injustice in excluding evidence of negotiations in particular
cases, where that material was relevant to the interpretation exercise, could be
appropriately addressed by the application of the principles of the law of rectification, or
estoppel by convention.
He discussed the well known decision in The Karen Oltmann
9
and concluded that this
was not truly about a private dictionary case, but rather was a case in which the private
dictionary authorities had been wrongly extended to allow for the illegitimate
consideration of previous negotiations. Lord Hoffmann considered that the same result
could have been reached on conventional principles or by allowing rectification.

9
[1976] 2 Lloyds Rep 708.
David Contract interpretation and implied terms: the current state of play
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Lord Hoffman would also have allowed Persimmon to rectify on the basis that there was,
objectively, a common intention as to the way in which the ARP would operate revealed
by the negotiations, notwithstanding the belief of Chartbrooks representatives that the
agreement as formulated reflected their subjective intention. Lord Hope and Lord Rodger
and Baroness Hale gave short judgments agreeing that the exclusionary rule should
remain for policy reasons and with the reasoning of Lords Hoffmann and Walker on the
construction of the agreement. Baroness Hale did, however, express the view that she
would not have found it quite so easy to decide that Persimmons construction was
correct without the evidence of previous negotiations which made the contractual
intentions crystal clear.
In summary, the House of Lords, while acknowledging the conceptual logic in admitting
evidence of negotiations where it can assist in the objective exercise of determining the
meaning of a contract, decided that removing the long established common law rule
remained a step too far on policy grounds.
The New Zealand position
In its decision in Vector Gas Limited v Bay of Plenty Energy Limited
10
(Vector), the
Supreme Court provided differing judicial perspectives on the correct way to approach the
interpretation exercise and on the admissibility of pre-contract negotiations. However, the
Court appears ready to accept that there should not be a general rule excluding evidence
of prior negotiations on a question of contractual interpretation.
This case concerned the interpretation of an agreement made by correspondence between
lawyers for commercial parties which was intended to preserve the position between the
parties on an interim basis pending the trial of a dispute concerning the supply of gas. The
crucial part of the correspondence which contained an offer which was accepted by BOPE
is as follows:
2 Without prejudice to its position, NGC is prepared to agree to continue to
supply gas based on the terms of the Agreement for Supply of Gas dated 10
October 1995 (the Agreement) pending determination of BoPEs proceeding,
or 30 June 2006, whichever is the earlier, provided that BoPE undertakes to:
2.1 file that proceeding on or before 31 October 2004: and
2.2 in the event that BoPE is unsuccessful in, or withdraws, that proceeding,
pay NGC on demand, for each GJ supplied, the difference between the
price set out in the Agreement and $6.50 per GJ, plus interest at the
Interest Rate set out in the Agreement.
(emphasis added)
When BOPE was unsuccessful in the proceedings referred to in the correspondence, the
question under the interim agreement was whether it had to pay the costs of the
transmission of the gas in addition to the price of the gas in the agreement.
The Supreme Court agreed as to the result BOPE had to pay the cost of transmission of
the gas on top of the price per gigajoule and allowed the appeal against the Court of
Appeals judgment and reinstated the High Court judgment. However, all members of the

10
[2010] 2 NZLR 444.
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Court gave judgments which set out different approaches to the question of interpretation
which arose.
The difficulty with the language in the offer was that it might suggest to the reasonable
reader that the price included the cost of supply or transmission. (This interpretation
was supported by the 1995 Agreement referred to in the offer.) This led the members of
the Court to consider the commercial background to the agreement and its purpose in a
conventional way and also to consider the possible relevance and admissibility of the pre-
contractual negotiations between the parties to the question of interpretation.
Justice Blanchard found that the full commercial background clearly indicated that the
agreement should be interpreted as requiring the payment of transmission costs on top of
the price per gigajoule. This was based on the implausibility of commercial parties
agreeing that a price would be paid by BOPE which was much lower than the price which
NGC could have obtained in the market for the gas which it would supply and which
BOPE would have had to undertake to pay if it had sought an injunction to be provided
with gas pending the hearing of the dispute. The only sensible commercial interpretation
given this general commercial background was one which provided that transmission
costs were payable in addition. His Honours view of the clause was merely reinforced
by examining the pre-contract negotiations. He saw no reason why those negotiations
should not be examined if they were relevant to establishing the objective background to
the contract which was known to both parties and the subject matter of the contract and
considered that these exceptions were applicable to the consideration of the question of
interpretation in the case. Justice Blanchard was content to leave the general admissibility
of previous negotiations for another day.
Justice Tipping provided a more detailed review of the approach to the question of
interpretation. The contractual context could be examined on any issue as to interpretation
and no ambiguity in the contract was required for this process to take place. He could see
no basis for any absolute bar on the admissibility of contractual negotiations provided the
content was not merely used to prove the subjective intention of the parties. Such material
was irrelevant to the objective exercise of contractual interpretation. He saw no reason
why both pre- and post-contract conduct
11
could not be admitted on a question of
interpretation, if it tended to establish a fact or circumstance capable of demonstrating
objectively what meaning the parties intended their words to bear. Such evidence would
also be admissible in order to establish an agreed private dictionary meaning for a term
used in the contract.
In applying the principles to the case, Justice Tipping found that the crucial phrase $6.50
per gigajoule did not have a plain and unambiguous meaning but rather that the
expression was ambiguous. He referred to the commercial reality as outlined by
Blanchard J, but primarily relied on the contents of the correspondence between the
parties lawyers in the negotiations to find that transmission costs had to be paid on top of
the price in the agreement.
Justice McGrath, by contrast, held that the meaning of the letter was plain in including the
cost of transmission in the price when it was read in the context of the background
including the 1995 Agreement. He again surveyed the developments in the approach to
the interpretation of contracts and the broader approach in the modern authorities to the

11
See, Wholesale Distributors Limited v Gibbons Holdings Limited [2008] 1 NZLR 277.
David Contract interpretation and implied terms: the current state of play
7
admissibility of background which may, in a strong case, persuade a court that something
has gone wrong with the language in the contract and lead to the Court adopting a less
likely, more commercially sensible, meaning. He expressed a preference for the general
rule that evidence of previous contractual negotiations is inadmissible save where it
establishes background facts known to the parties or is relied on to support a claim for
rectification or a claim that the parties have adopted by convention an agreed position on
the meaning of the agreement an estoppel by convention. He preferred the retention of
the established rule confirmed by the House of Lords in the Chartbrook decision and
agreed with the policy against the admissibility of that material identified by Mason J in
the Australian High Court decision of Codelfa.
12
On this basis he held that the
correspondence was inadmissible on the question of the meaning of the term as to price in
the agreement. While His Honour found that the context strongly suggested that
something had gone wrong with the language in the contract, his decision that the contract
should be interpreted as meaning that transmission costs are to be paid in addition to the
price for the gas was based on an estoppel by convention or assumed meaning established
by the correspondence leading up to the contract. The correspondence was admissible for
the purposes of establishing such an estoppel.
Justice Wilson expressed the view that, generally, an enforceable commercial contract
should be given its natural ordinary meaning. This was subject to certain exceptions. The
first was that if ambiguity in the contract could be established, this would permit the
admissibility of extrinsic evidence as an aid to interpretation. This extrinsic evidence
could include prior negotiations (and post-contract conduct) provided they were used to
establish shared contractual intention. Subjective statements by the parties as to
contractual intent could be relevant to the question of deciding on the objective meaning
of a contract. A second exception was that evidence could be called to show that the
natural ordinary meaning made no commercial sense. If such an absence of commercial
sense was established, a meaning which made commercial sense should be preferred. The
third exception was where the natural ordinary meaning was displaced because the parties
had acted on an assumed and agreed meaning or common understanding an estoppel by
convention. His Honour found that the language in the contract was not ambiguous when
reference was made to the agreement for supply referred to in the letter the price in the
letter included transmission costs. However, he held that this meaning made no
commercial sense for the reasons outlined by Blanchard J, so that the contract had to be
interpreted to mean that the price was exclusive of transmission costs. He also found that
the parties had assumed in their negotiations that the price did not include transmission
costs and that BOPE was bound by an estoppel by convention to that meaning. In
reaching those conclusions, he considered the pre-contract correspondence as a whole.
Justice Gault held that the correspondence overall could be considered because it
represented the parties gradual formulation of their agreement and was accordingly all
part of the contract entered into. On this basis the letter of 15 October read in the context
of all the correspondence by which the terms of the contract were settled, was to be
interpreted as meaning that the price did not include transmission costs.

12
Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 at p 352.
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Comment
Given the various approaches adopted by the Court in the case it is difficult to make any
general statement as to the position in relation to the admissibility of pre-contract
negotiations and it seems likely that the issue will have another day before the Court in
the right case. However, it seems reasonable to suggest that the position in New Zealand
is likely to be that such material can be admitted as part of the background to the
transaction where it can be shown to be relevant and that it will assist in establishing the
shared contractual intention.
Notwithstanding the possible admission of evidence of pre-contract negotiations, it is
important to keep in mind that the vast majority of contractual interpretation disputes will
be determined (as, indeed, both Chartbrook and Vector were) by the traditional principles.
The most common approach in the difficult cases is to examine the meaning of the
contract in the light of the commercial purpose established by examining the general
background. While this can be a difficult and uncertain process, it is well established. The
process involves testing interpretations of the contract provision in issue against what the
court determines is commercial reality or commercial common sense. The more unlikely
the result produced by a particular interpretation in the commercial sense, the less likely it
is that the parties intended it.
13

The implication of terms Lord Hoffmanns reformulation
No more necessity or officious bystanders?
Recently, Lord Hoffmann has provided a reformulation of the approach to the implication
of terms which seems destined to be adopted by other common law courts. In Belize the
Privy Council was concerned with the interpretation of a companys articles of
association. In giving the opinion of the Privy Council, Lord Hoffmann first addressed the
basis upon which a term can be implied into a contract in general terms and equated the
process with determining the meaning of the contract.
14

Belize Telecommunications Limited (BT) was formed to take over the public
telecommunications body in Belize. The aim was to allow the government of Belize to
sell out of BT but retain some control. The government kept a special share which gave
rights to attend shareholders meetings but no voting rights. The special shareholder had
the right to appoint two directors. The shares in the company were divided into B and C
shares. Two designated B directors could be appointed and removed by the majority of B
shareholders. Up to four designated directors could be elected and removed by C
shareholders. In addition to its right to appoint two directors as special shareholder, the
government could also appoint two of the C directors where it held 37.5% or more of the
C shares. The special shareholder had other rights if it held 25% or more of the C shares.
In this way, the structure of the company provided for graduated protection of the special
shareholder by reference to the economic interest which it held in the company.

13
See, the well known dictum of Lord Reid in Wickham v Schuler [1974] AC 235 at 251.
14
Justice Tipping described Lord Hoffmanns speech as illuminating in a footnote to his judgment in Dysart
Holdings Ltd v Nielsen [2009] 3 NZLR 160.
David Contract interpretation and implied terms: the current state of play
9
BT acquired the special share and the majority of the share capital (B and C shares) and
purported to appoint all eight directors. BT pledged its shares to the government to secure
borrowings to finance the purchase of the shares then defaulted. The government took
back a substantial number of the ordinary shares leaving BT with less than 37.5% of the
issued share capital in the C shares.
The question was whether the two special C directors appointed by BT could remain
members of the Board. As a result of the events, there was no holder of C shares with
more than 37.5% of the share capital in existence. There was no express provision for the
situation in the Articles. The appellants contended that a term should be implied into the
Articles of Association that any director appointed as a result of the specified
shareholding must vacate office, if there was no special shareholder with the required
shareholding in existence.
Lord Hoffmanns general observations on implication
Before deciding the case, Lord Hoffmann (at paras [16] to [27] of his opinion) made some
general observations about the process of implication. The theme of those observations
was that the process of implication is really an exercise in the construction of the
instrument as a whole. Lord Hoffmann observed:
It follows that in every case in which it is said that some provision ought to be implied
in an instrument, the question for the court is whether such a provision would spell
out in express words what the instrument read against the relevant background would
reasonably be understood to mean.
(emphasis added)
Lord Hoffmann also observed that while this question had been formulated in various
ways to provide for the established tests for the implication of a term the proposed
term must go without saying or be necessary to give business efficacy to the contract
the tests in the earlier cases should not be allowed to obscure the true nature of the
process of construing the agreement to see whether the particular term should be implied.
The essential question was to find out what a reasonable person would have understood
the agreement to mean.
Adopting this approach, the Board found that the Articles were silent on the situation
which had arisen. The Board of the company had, however, been structured to reflect the
level of interest of those participating in the company and the powers of appointment
given to the special shareholder were carefully formulated to reflect the economic interest
held at the time of the appointments. The Board held that, given the role of government
appointed directors and the policy of the government to require redemption of the special
share so that it could relinquish its influence over the conduct of the business, the Articles
could not reasonably mean that government appointed directors could remain in office
after the special share had ceased to exist. There was no difference if the special
shareholder continued to exist but no longer had the 37.5% shareholding that would
entitle it to appoint and remove special C directors. Where a change in shareholding
meant that the board of the company no longer reflected the appropriate shareholder
interests, a term should be implied that, when the relevant shareholding ceased to exist,
the directors appointed by reason of that shareholding should vacate their office.
Accordingly, the special C directors could no longer remain in office.
NZLS Intensive Current Issues in Civil Litigation
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This case could have been decided the same way on the established approach to the
implication of terms. The various established tests highlight the particular nature of the
process of implication and the reluctance of the courts to imply terms.
Lord Hoffmanns construction based formulation of the test for implication has had
something of a mixed reception,
15
but one senior appellate judge in the United Kingdom
observed in a subsequent case
16
that the analysis was likely to be as much referred to as
his passage in the construction of contracts in Investors Compensation.
In the same case, however, one of the members of the Court of Appeal, Rix LJ, referred
the Court to a dictum from Sir Thomas Bingham which might be said to summarise the
more stringent approach to the implication of terms:
The courts usual role in contractual interpretation is, by resolving ambiguities or
reconciling apparent inconsistencies, to attribute the true meaning to the language in
which the parties themselves have expressed their contract. The implication of
contract terms involves a different and altogether more ambitious undertaking: the
interpolation of terms to deal with matters for which, ex hypothesi, the parties
themselves have made no provision. It is because the implication of terms is
potentially so intrusive that the law imposes strict constraints on the exercise of this
extraordinary power.
17

Comment
Approaching the question of implication as a matter of deciding what the agreement, read
against the relevant background, would reasonably be understood to mean, can be seen,
unless care is taken, as providing for a more relaxed test which might more readily allow
a court to fill in, with a reasonable term, a part of an agreement where the parties have
chosen to remain silent. While Lord Hoffmann is careful to say that the most usual
inference where an agreement does not provide for a matter, is that nothing is to happen,
and the express provisions of the agreement are to operate, his formulation does remove
the warnings implicit in the wording of the tests in the earlier cases against implying a
term to arrive at a reasonable bargain.
The risk, when this approach to implication is allied to the modern approach to
construction, is that it may lead not to interpretation or implication, but to the re-writing
of a contract to produce a reasonable bargain. Maintaining an approach to implication
which clearly emphasises its distinct nature is probably best, but, where there is a
temptation to treat the process as part and parcel of interpretation, it is, perhaps, advisable
to keep some fundamentals in mind.
The common law retains an objective approach to arriving at the meaning of a
contract.
We should not readily conclude that parties have made linguistic mistakes in a formal
contract.

15
For a review of the potential implications of the approach, see, Recent developments in the law of implied terms,
Paul S Davies, 2010 LMCLQ 140.
16
See, Lord Clarke MR in Mediterranean Salvage & Towage Limited v Seamar Trading & Commerce Inc
(Mediterranean Salvage) [2009] EWCA Civ 531 at para 8.
17
See, para 17 of Lord Clarkes judgment. The passage comes from Phelps Electronique Grand Public SA v British
Sky Broadcasting Limited [1995] EMLR 472.
David Contract interpretation and implied terms: the current state of play
11
The usual position, if a contract makes no express provision, is that the parties did not
intend to provide for that matter.