Interpretation clauses
Contract Law

Purpose

In England, legal documents such as contracts are construed according to known rules of construction. The reasons for this are based in public policy, namely that parties to a contract should be able to ascertain the meaning and legal effect of the document with a measure of certainty. This approach increases predictability of how a contract will be interpreted by a court, rather than the emphasis on open-textured notions of fairness affecting the legal force and effect of the document. The law favours promotion of certainty of legal effect by the application of canons of construction when interpreting of contracts, so that similar contracts and provisions are interpreted in a consistent manner.

Legal Effect

In commercial contracts, particularly professionally drafted contracts, these interpretation clauses may be included to express how the parties intend the contract to be construed or interpreted. These interpretation clauses may displace, alter or clarify the application of the canons of construction of contracts. It may be said in many cases that interpretation clauses do nothing to alter the usual rules of construction. Like any other clause in a contract, the interpretation clause must be interpreted as it appears in the contract. This means that where these clauses (which fall into the class of clauses referred to as ‘interpretation clauses’), must be construed in its own terms, within the context of the agreement that it appears – a clause that is worded differently is likely to have a slightly different legal effect and application.

Common Clauses

Having said that, provisions appearing in interpretation clauses commonly provide that:

1. Words in the contract that appear in the singular, also apply to the plural. So, a reference to ‘a shipment of goods’, would include ‘shipments of goods’.
2. A reference to a gender, applies to all genders. So, a reference to ‘he’ in a contract will also be taken to mean a reference to ‘she’ and probably an ‘it’ (although in the English language there are only two genders). An ‘it’ may be a legal entity which is not a natural person.
3. Words referring to ‘persons’, include references to legal persons, such as a company, unincorporated association, rather than just natural persons (i.e. human beings). Provisions such as these are usually redundant.
4. References to statutes and other laws, are taken to refer to amendments of those statutes or laws from time to time. This means that if statutes and other laws are amended during the course of the contract, those amended laws will be the relevant laws that must be complied with during the course of the agreement. In all likelihood, such a provision in a contract is redundant.
5. A reference to a party to the contract includes a reference to ‘successors in title and permitted assigns’. This means that if the contracting party conveys their interest in the contract (provided it is possible), the person to whom it sells is also bound by the agreement.
6. Headings to clauses in the agreement are for ‘ease of reference only’ and ‘do not affect the interpretation of this agreement’. This means that the headings to clauses are ignored when determining the legal effect of the agreement. This may have a significant affect on the construction of the contract and its legal effect.
7. The word ‘include’ will not be interpreted restrictively. This displaces the application of an important rule of construction, expressio unius est exclusio alterius, and may significantly alter the contractual obligations or liabilities that would otherwise be in force.

Whether or not an interpretation clause is required in any given contract at all, and whether particular provisions should be included effecting the agreement should be included depends on the type, nature and complexity of the agreement.