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Saturday, Jul 2nd 2022

The ACP Legal Association

  • OHADAC and ACP Legal

    The partisans of this project, called OHADAC (Organisation for the Harmonisation of Business Law in the Caribbean), decided to meet within the framework of the association ACP Legal, to help interested Caribbean States to implement the project.

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  • OHADAC in brief

    This brochure has been published by the ACP Legal Association.

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OHADAC PRINCIPLES ON INTERNATIONAL COMMERCIAL CONTRACTS

Article 4.1.1

In claris non fit interpretatio

1. When the conditions or terms of a contract are clear, they will be interpreted according to their literal meaning.

2. A contract term will not be considered clear if it is capable of different meanings or, in the light of the context of the contract, it is inferred that such a term or expression is due to a manifest mistake.

1. The General problem of contract interpretation in OHADAC legal systems

Rules on contract interpretation give rise to one of the most arduous questions in treating contract from a comparative point of view, as pointed out below in comment to article 4.1.2. Nevertheless, all systems distinguish and provide different solutions to two aspects that are generally included in the generic concept of “contract interpretation”. The first question concerns the meaning or sense given to contract clauses. The interpretation of the contract, which is the subject of Section 1 of Chapter 4 of these Principles, corresponds to this operation in the strict sense. The second question concerns the filling in of gaps in the contract when a provision or obligation necessary for the contract to work has been omitted by the parties. In this case these will be rules of “integration” or “construction” of the contract, dealt with in Article 4.2.1.

Therefore, the interpretation of the contract in the strict sense involves attributing meaning to express contract clauses. There are two approaches or comparative models available to resolve this issue, and both are represented in Caribbean legal systems.

The first approach is based on continental or civil law tradition and seeks to determine the meaning of contract clauses from a subjective postulate consisting in determining the true common intent of the parties, which prevails over the literal meaning of contract clauses (Articles 1.156 of the French Civil Code; 1.619 of the Colombian Civil Code; 1.156 of the Dominican Civil Code; 946 of the Haitian Civil Code; 1.519, 1.597 and 1.604 of the Guatemalan C; 1.851 of the Mexican Civil Code; 2.496 of the Nicaraguan Civil Code; 1.132 of the Panamanian Civil Code; 1.233 of the Puerto Rican Civil Code; 945 of the Saint Lucian Civil Code). This principle is also present in some characteristic canons of interpretation (1.619 of the Colombian Civil Code; 1.594 of the Guatemalan Civil Code; 1.163 of the Dominican and French Civil Code; 953 of the Haitian Civil Code; 1.578 of the Honduran Civil Code; 1.852 of the Mexican Civil Code; 2.498 of the Nicaraguan Civil Code; 1.134 of the Panamanian Civil Code; 1.235 of the Puerto Rican Civil Code; 952 of the Saint Lucian Civil Code), which reduce the generality of contract clauses, so that goods or cases that are different from those on which the parties intended to contract cannot be considered as included. This subjectivistic trend is clearly maintained in the Proposals for Reform of the French law on obligations of 2013 (Article 96), although it is more obviously shifting towards a rule for objectifying the parties' intention, which is done based on a “reasonable“ criteria when intention cannot be inferred, while subjective and intentional interpretation appears more as a principle. This is the orientation followed by the majority of harmonised international texts [Articles 8 CISG; II-8:101 DCFR; 5:101 PECL; 4.1 (1) UP].

The second option, characteristic of the Anglo-American model, gives preference to objective and grammatical signs and focuses on the sense of the terms used by the parties. The severity of this strict interpretation of contractual terms (four corners doctrine) is fundamentally based on the parol evidence rule, which prevents the parties from presenting declarations and evidence extrinsic to the contract to modify, alter or modulate what the terms say. However, formalist severity of grammatical interpretation of traditional English law has experienced significant changes in recent times. US law has progressively relaxed towards an interpretation model more open to subjective elements, as suggested by Section 201 (2) of the Restatement (Second) and the very application of Article 8 CISG by North American courts. English law itself has also been eased, due above all to the increasing significance of context and background of the contract. This development has been emphasised since the decision of the House of Lords in Investors Compensation Scheme Ltd v West Bromwich Building Society (1998, 1 WLR 896), where Lord Hoffmann set out several principles to be require consideration of all elements of context to interpret contract terms and even to determine their own ambiguity. He also declared that that the parol evidence rule is disregarded in English law.

The objectivistic focus progressively adopted by civil law systems, combined with the reduction in the interpretative formalism of common law have, therefore, recently enabled a convergence which, although it does not definitively reconcile the two legal systems, at least facilitates the proposal of uniform rules that could be shared in essence by all legal traditions within the OHADAC area.

2. Scope of the “in claris non fit interpretatio” principle

Whatever the general option adopted to guide the interpretation of ambiguous contractual terms, all legal systems have one thing in common related to the scope of the principle and summarised in the rule “in claris non fit interpretatio”. To a certain extent, the interpretation of contractual terms is necessary only when their meaning is not obvious or manifestly clear. If terms are clear and unambiguous, there is no room to think about interpretation (first paragraph of Article 4.1.1).

From a strictly linguistic point of view, it must be pointed out that in actual fact, clear terms do not exist and all meanings necessarily depend on context. However, from a legal viewpoint, this mentioned principle plays a significant role in order to achieve legal certainty; so that if contract clauses are clear, univocal and not contradictory, courts and arbitrators must observe their meaning and must not allow the parties to distort them through contradicting contextual evidence.

This principle has been expressly included, with slight differences, in the various Caribbean legal systems (e.g. Article 52 Cuban Civil Code). French case law (e g. decisions of the Cour de Cassation on 15 April 1982 and 14 December 1942) opted for a stricter approach favouring a literal meaning of a “clause claire et précise” (clear and precise clause), stated in Article 97 of the Proposals for Reform of the French law on obligations prepared by the Ministry of Justice in 2013. The rule in the Spanish Civil Code [Article 1.281, shared by the Mexican Civil Code (Article 1.851), Guatemalan Civil Code (Article 1.593), Nicaraguan Civil Code (Articled 2.496), Honduran Civil Code (Article 1.576), Panamanian Civil Code (Article 1.132) and Puerto Rican Civil Code (Article 1.233)] seems to recognise more easily the prevalence of contextual circumstances that put the true intent before the written terms. However, it must be stressed that such codes usually require an “evident” intent that is contrary to the written text; that is why it actually fits in the exception by mistake or manifest lapsus linguae included in Article 4.1.1 (2) of these Principles.

The proposed rule does not follow then the literal interpretative approach, which for a long time characterised English law and inspired many Caribbean systems, particularly those of the Caribbean islands. In fact, under the most traditional approach in English law, grammatical interpretation is not limited to the sense of words in ordinary language (primary language), but recognises the possibility for the parties of using a specialised language or tongue (secondary language). In such cases, when a term might have an ordinary meaning and a different sense in a specialised jargon this term is not clear in the sense of Article 4.1.1 (2) and therefore the principle included in Article 4.1.1 (1) will not be applied.

Although under English law, after the decision of the House of Lords in Investors Compensation Scheme Ltd v West Bromwich Building Society (1998, 1 WLR, 896), “contextualised” interpretation of contract prevails, it is uncontroversial that context cannot became a pretext to correct clear and precise contract terms [BCCI v Ali, National Bank of Sharjah v Dellborg (2001), 2 WLR, 731]. The aim does not differ from the principle set out in civil law systems. The difference lies in that civil law systems are apparently more inclined to consider contextual aspects reflecting the parties' intent in order to consider ambiguity of terms. In any case, both legal cultures can lead to inevitable divergences to decide if a term is clear, as stated in Article 4.1.1 (1), or ambiguous, as considered in Article 4.1.1 (2), but such divergences are inevitable regardless of competent courts and do not prevent the rule included in Article 4.1.1 from being shared by all legal systems represented in the OHADAC territory.

Otherwise, both in civil and in common law there are exceptions for lapsus calami, which are expressions apparently clear but that entail manifest mistakes in the light of the circumstances of the contract. While civil law systems solve these cases through the prevalence of the true intent of the parties, English law provides the recourse to action for rectification from equity law. Although there are different ways, whose availability is not prejudged by the Principles, both are compatible with exception included in paragraph 2 of Article 4.1.1.

Commentary

Article 4.1.2

General criterion of interpretation

1. Contracts and statements of the parties will be interpreted according to the meaning that a reasonable person of the same kind as the parties would give them in similar circumstances.

2. In particular, in the interpretation of a contract and the statements of the parties, the following circumstances will be considered:

  1. The intent of a party, insofar as that intent was known or should or could have been known by the other party.
  2. The concurrent circumstances at the conclusion of the contract and during its execution.
  3. Commercial usages and practices between the parties.
  4. Commercial usages and the meaning of contractual terms in the trade concerned.
  5. General usages in international trade.
  6. The object of the contract.
  7. Business common sense.

1. Principle of objective interpretation

Article 4.1.2 is perhaps one of the most innovative rules in these Principles and tries to harmoniously reconcile contract interpretation systems of civil and common law orders within the Caribbean. Although final results of the interpretative process are not substantially different, the two legal approaches start from opposite postulates.

In civil law texts a rule on objective interpretation similar to Article 4.1.2 seems admissible, but only as a subsidiary rule to the general rule that prefers the determination of the true intent of the parties. Thus it has been translated into article 8 CISG, in force in Colombia, Cuba, USA, Honduras, Mexico, Netherlands, Dominican Republic, Saint Vincent and the Grenadines and Guyana. Article 8.1 CISG states as the interpretation principle the intent of a party insofar as “the other party knew or could not have been unaware what that intent was”, that is the same criterion included in sub-paragraph a) of Article 4.1.2 (2) of these Principles. Only in the absence of this criterion, Article 8.2 CISG establishes a principle of objective interpretation similar to that established in Article 4.1.2 (1) of these Principles. The same rules are observed in Article 96 of the Proposals for Reform of the French law on obligations of 2013, as well as in Articles 4.1 (2) UP; 5:101 (3) PECL; II-8:101 (2) DCFR; and 58 CESL.

The interpretation criteria have been inverted in the proposed regulation in order to meet the need to draft a rule that is also acceptable to Caribbean common law systems, particularly for countries where English law is applied. This is because the interpretative principle under English law does not seek to establish the true intent of the parties, but it is “objectivist”, as far as interpretation of contract terms prevails over the presumed intent of the parties. And yet, the wording of Article 4.1.2 (1) coincides with one of the interpretative principles stated by Lord Hoffmann in the Investors case. In this case, by adjusting the tradition of literal interpretation characteristic of past English law, the first interpretation criterion emphasised is no longer the meaning of what was expressed by a party, but the meaning that a reasonable person knowing the context and background of the contract would give them at the moment of conclusion.

The generic formula of Article 4.1.2 allows, however, the convergence of the English interpretative approach as well as that of the civil law systems, having regard to the list of criteria which the courts and arbitrators can use to achieve an objective interpretation based on reasonable considerations according to Article 4.1.2 (2). Indeed, although the interpretative criterion of contracts based on reasonable considerations is an objective one, it is also a contextualised interpretation, which requires placing such an ideal person in the same context as the parties at the moment of the contract's conclusion. Contextual precision enables courts and arbitrators to take into consideration, among others, criteria referring to the knowledge by one party of the intent of the other party and particularly to give relevant value to this intention according to the civil law tradition. As considered in the following paragraph, such an option is likewise compatible with the current sense of English case law.

Moreover, the proposed reversal of these rules avoids the need for additional rules such as included in Article II-8:101 (3) (b) DCFR, which tries to prevent the known intent of a party from harming a third party with contractual rights who ignores such an intent in good faith. It also avoids the undesirable extension of subjective or intentional interpretation where the contract is written in standardised or general terms, whose interpretation should be objectified under the uniform meaning that general users of such contracts would give them.

2. Contextual elements to be considered

Article 4.1.2 (2) includes a set of contextual and circumstantial elements to be considered in contract interpretation according to the rule included in Article 4.1.2 (1). The role of these contextual elements can vary depending on the legal culture of judges or arbitrators. Thus, it is easy to presume that in civil law systems, traditionally in favour of basing the interpretation on the true intent of the parties, subjective circumstances related in sub-paragraphs (a), (b) and (c) may have more weight than merely objective contextual elements set out in subsequent sub-paragraphs. On the contrary, under a more objectivistic culture characteristic to common law, it is reasonable that objective elements are more valuable. However, in comparative case law theoretical differences do not necessarily have practical reflection, as far as both approaches tend to converge.

The first interpretative criterion, set out in sub-paragraph (a), attaches importance to intent of the parties known or cognisable at the moment of contract's conclusion. As mentioned above, it is a seminal principle in civil law systems (it is expressly included in Article 52 of the Cuban Civil Code), but it is also admissible in current English contract law, at least as a contextual element to determine the meaning of written terms (Article 947 of the Saint Lucian Civil Code). As pointed out, especially in Investors, it is said that context or background in the wide sense plays a crucial role in interpretation of ambiguous and unclear contract terms, so that it is possible to consider any circumstance both subjective and objective (“absolutely anything”), which could affect the understanding of contract terms by a reasonable person. In principle, under the English approach, context is essentially objective, but the development of English case law shows the possibility of considering intentional or subjective contextual elements. Leading cases as such Krell v Henry (1903), which establish the arguments for frustration of contracts in English law, demonstrate the significance of parties' intent in relation with a contract whose cause or purpose becomes frustrated. In this well-known case, renting of rooms and balconies to see the procession after the coronation of King Edward VII were frustrated due to the monarch's illness. Frustration of contracts was only justified as far as the lessee's intention was or should be known by the lessor. Other precedents, such as Prenn v Simmonds (1971, 1 WLR 1381), did not prevent English judges from taking into account elements clearly referred to the common intent of the parties as a part of the context of a written contract.

This principle enables judges and arbitrators to consider as relevant elements, the circumstances that are used to determine the parties' intent, such as preliminary negotiations between the parties. It is expressly considered in Articles 4.3 (a) UP, 5:102 (b) PECL and II-8:102 (1) (a) DCFR, are crucial in civil law systems insofar as it clarifies the parties' true intent. Although under English law, the parol evidence rule at first stigmatises the possibility of having recourse to preliminary negotiations as an interpretative canon, it must be stressed that, in line with the contextual interpretation approach of the Investors case in the broad sense, case law tends to consider them as an important interpretative element: e.g. Decisions of the Court of Appeal (Civil Division) of 17 February 2006 (Proforce Recruit Ltd v The Rugby Group Ltd) and of 18 December 2006 (The Square Mile Partnership Ltd v Fitzmaurice McCail Ltd) and decision of the High Court of Justice of 22 May 2007 (Great Hill Equity Partners II LP v Novator One LP & Ors). More recent precedents point to this trend, although exceptionally or prudently [Chartbrook Ltd v Persimmon Homes Ltd (2009, 1 AC 1101); Oceanbulk Shipping and Trading SA v TMT Asia Ltd (2011, 1 AC 662)]. It is also remarkable the half-heartedness of the Privy Council in dealing with the appeal in Yoshimoto v Canterbury Golf International (2001, 1 NZLR, 523), where preliminary negotiations were openly considered as an interpretative canon (2004, NLZR 1).

More generally, sub-paragraph (b) of Article 4.1.2 (2) enables judges and arbitrators to consider any contextual circumstance existing at the time of conclusion or performance of contracts. This principle, phrased in a general manner in Articles 52 of the Cuban Civil Code and 947 of the Saint Lucian Civil Code, also encompasses acts of the parties' behaviour, whether at the time of the contract's conclusion or subsequently, during performance. These subjective circumstances are expressly mentioned in Articles 1.577 of the Honduran Civil Code; 2.497 of the Nicaraguan Civil Code; 1.133 of the Panamanian Civil Code; 1.234 of the Puerto Rican Civil Code; Section 202.4 Restatement (Second) on Contracts; Section 2-208 UCC, as well as in Articles 4.3 (c) UP; 5:102 (a) PECL; II-8:102 (1) (b) DCFR; and 59 CESL. French case law also permits the consideration of consequent behaviour of the parties to interpret their common intent (decision of the Cour de Cassation (1re civ) of 13 December 1988). Its relevance in common law is justified by the same reasons as in the case of preliminary negotiations, on the ground of the recent rise in “contextual” interpretation. Particularly, the “non venire contra factum proprium” doctrine, characteristic in civil law systems, can be considered when interpreting contract obligations. Certainly, under English law the temporal precision of the “context” to be taken into account points exclusively to the time of conclusion and not to subsequent acts, whose invocation would be contrary to the “parol evidence rule” [James Miller & Partners v Whitworth Street Estates (Manchester) Ltd (1970), AC 583; Prenn v Simmonds (1971), 1 WLR 1381)], but this limitation, as well as the parol evidence rule itself, is nowadays at the centre of legal debate in England and contradicts other precedents prone to consider subsequent conduct of the parties as a relevant contextual aspect [Barrier Wharfs Ltd v W Scott Fell & Co Ltd (1908), 5 CLR 647, 663); Hide & Skin Trading Pty Ltd v Oceanix Meat Traders Ltd (1990), 20 NSWLR 310, 327]. In any case, English law does not prevent judges and arbitrators from considering subsequent behaviour or declarations as a source of new contracts capable of complementing or modifying original contracts or to base the “estoppel” argument.

Previous contracts and practices between the parties are also part of subjective context capable to be considered to interpret ambiguous terms included in a new contract between the parties and to determine the sense that a reasonable person would give to that contract in the same circumstances. The criterion in Article 4.1.2 (2) (c) of the Principles is expressly included in Articles 1.622 of the Colombian Civil Code, and in Articles 4.3. (b) UP, 5:102 PECL; II-8:102 (1) (c) DCFR; and 59 CESL.

Besides this subjective context, other objective elements can clarify contractual terms. Particularly, apart from practices and trade usages between the parties considered in sub-paragraph (c), trade usages in the commercial or economic branch where the contract fits [sub-paragraph (d) of Article 4.1.2 (2)] and general international trade usages [sub-paragraph (e) of Article 4.1.2 (2)] can be taken into account. It is a widespread canon within civil codes in some Caribbean countries (Articles 436 of the Costa Rican Commercial Code; 1.159-1.160 of the Dominican and French Civil Code; 1.599 of the Guatemalan Civil Code; 949-950 of the Haitian Civil Code; 1.582 of the Honduran Civil Code; 1.856 of the Mexican Civil Code; 2.502 of the Nicaraguan Civil Code; 1.138 of the Panamanian Civil Code; 948 and 948 of the Saint Lucian Civil Code) and unanimously included in the international texts on contract law harmonisation [Articles 4.3 (e) y (f) UP; 5:102 (e) and (f) PECL; II-8:102 (1) (d) and (f) DCFR; 59 CESL]. Its objective character also facilitates its application in common law systems. Likewise in English law trade usages are recognised as an interpretative element both in statutes [Sections 14 and 55.1 of the Sale of Goods Act of 1979, reproduced in Sections 55 of the Sale of Goods Act (Ch 15.18) of Montserrat; Section 55 of the Sale of Goods Act (Ch 393) of Antigua and Barbuda; Section 55 of the Sale of Goods Act (Ch 337); Section 55 Sale of Goods Act (Ch 83:30) of Trinidad and Tobago; Section 56 Sale of Goods Act (Ch 261) of Belize; Section 54 Sale of Goods Act of 1895 of Jamaica] and in case law, like in the USA [Sections 219-223 of the Restatement (Second) on Contracts and Section 1-205 UCC]. In English case law, consideration of trade usages is based on the “implied terms” doctrine, particularly “by custom”, insofar as they are clear and of common knowledge, even regardless of their predictability or actual consideration by the parties [Comptoir d'Achat et de Vente Belge SA v Luis de Ridder Ltd (1949), AC, 293; Henry Kendall & Sons v Lillico & Sons Ltd (1969), 2 AC 31 (HL)]. However, it is obvious that practices between the parties or particular usages have less weight insofar as subjective context plays a more modest role than objective context under the interpretative tradition of common law.

The nature and object of the contract are common interpretative criteria in Caribbean civil law systems (Articles 1621.I of the Colombian Civil Code; 1.158 of the Dominican and French Civil Code; 1.595 and 1.597 of the Guatemalan Civil Code; 948 of the Haitian Civil Code; 1.581 of the Honduran Civil Code; 1.855 of the Mexican Civil Code; 2.501 of the Nicaraguan Civil Code; 1.137 of the Panamanian Civil Code) and in international texts [Articles 5:102 (c) PECL; II-8:102 (1) (e) DCFR; and 59 CESL]. In English law, the scope of this objective criterion is less adapted to the tendency of English law to refuse “typical” contracts. However, the increasing specialisation of English contract law moderates such a postulate, while the complexity of international trade for its part has toned down the principle of “typicality of contracts” in civil law systems. Moreover, the principle of “non-typicality of contracts” does not prevent judges and arbitrators from taking into consideration, as a significant contextual element, the aim, purpose or cause of a determined contract and even the contract's denomination by the parties. Therefore, the reference to the “object” of the contracts instead of its ambiguous and equivocal “nature” is preferable and fits better within the principles of contract law in all the legal traditions represented in the Caribbean.

Finally, sub-paragraph (g) of Article 4.1.2 (2) establishes a generic rule that in fact coincides with the criterion of reasonableness that governs the objective interpretation rule in Article 4.1.2 (1). Using a general expression, this Article refers to “business common sense”. This reference is inspired by Articles 4.8 and 5.1.2 UP, but in this case such Articles refer to the contract's integration and not to interpretation in the strict sense. Its meaning is also the same as the reference to “reason” in Articles 6:2 and 6:248 of the Dutch and Suriname Civil Code. On the contrary, most of the civil law systems treat this general interpretative principle using more undetermined and axiological notions, such as good faith or equity [Articles 1.603 of the Colombian Civil Code; 1.519 of the Guatemalan Civil Code; 925 of the Haitian Civil Code; 1.546 of the Honduran Civil Code; 6:2 and 6:248 of the Dutch and Suriname Civil Code; 956 of the Saint Lucian Civil Code]. The same option is followed by Articles 5:102 (g) PECL; II-8:102 (1) (g) DCFR; and 59 CESL. Likewise, equity is the principle that justifies, more precisely, the interpretative canon in some civil codes, which points to interpret ambiguous terms according to the reciprocity of interests in onerous contracts and to the minimum transfer of assets or rights in gifts (Articles 1.857 Mexican Civil Code; 1.585 Honduran Civil Code; 2.505 Nicaraguan Civil Code). The preference for a less axiological objective criterion, such as the “business common sense”, instead of the “good faith” principle tries to adapt more easily to the difficulty in traditional English law for accepting good faith as an instrument to interpret and especially to integrate contracts. However, especially in the light of the most recent English case law, “business common sense” and “good faith” may be considered as at least convergent criteria. Indeed, whereas admission of good faith in English law is controversial in relation with pre-contractual obligations and pre-contractual responsibility, it is an interpretative criterion that offers some doubts when it deals with contents of the contract and interpretation of the obligations that parties must perform. Whereas the decision of the English High Court in Yam Seng Ltd v International Trade Corporation Ltd [(2013), EWHC 11 (QB)] and the decision of the Supreme Court of Belize in Bella Vista Development Co Ltd v AG (Carilaw BZ 2009 SZ 14) seem to admit good faith as an interpretative criterion, the decision of the Court of Appeal in Mid-Essex Hospital Services NHS Trust v Compass Group UK [2013 EWCA Civ. 200] significantly limits its scope without disavowing it radically. Hence it seems more reasonable to make a reference to a more objective criterion, such as “business common sense”, which being admissible by all legal families can actually lead to results similar in essence. However, as inferred from the last decisions quoted, parties can opt to include in their contract a generic clause of conduct or of contract interpretation according to good faith standards, the enforceability of which will be more easily recognised by English courts.

Commentary

Article 4.1.3

Contra proferentem principle

Unclear terms will be interpreted in the most adverse sense for the party who has written them.

1. Canons of interpretation

Article 4.1.3 is the first of a set of rules that establishes the so-called “canons of interpretation”. This is a set of specific legal rules characteristic in civil codes from Roman tradition (contrary to BGB and Germanic legal systems), which obey guidelines in interpreting unclear contract terms. To some extent, these canons objectify interpretation, avoiding in some ways the difficulty to determine the “true intent” of the parties, although they are not absolutely mandatory for the courts insofar as, in civil law systems, when judges do not apply them there is no right for the parties to appeal against the decision (e.g. in France decisions of the Cour de Cassation of 6 March 1979, 19 January 1981 and 19 December 1995). In English law, as well as in common law systems, these interpretative principles are also applied by courts and, like in civil law systems, they are considered as mere guidelines but not rules of law stricto sensu.

Articles 4.1.3 to 4.1.7 stipulate canons of interpretation widely accepted in comparative law and, particularly, in Caribbean legal systems. Other canons, of divergent and controversial application, which obey principles that are no longer relevant in current business, have been excluded

For example, the principle of “favor debitoris” is expressly included in some civil codes (e.g. Articles 1.624 of the Colombian Civil Code and Articles 1.602 and 1.603 of the Guatemalan Civil Code). However, it is not an uncontroversial principle in common law and in other civil law systems and it is not present in current codifications of both national and international contract law. Moreover, this principle does not fit with international business requirements, insofar as it provides a contract imbalance with inadequate economic and legal reasons.

Likewise, it seems reasonable to omit the subjective canon of interpretation that limits the generic sense of contractual terms according to the true intent of the parties, insofar as it is a canon characteristic of civil law systems that can be applied under the general criteria included in Article 4.1.2 and it is omitted in most recent contract law systems.

Canons referring to restriction of “inclusio unius, exclusio alterius” principles which can be found in some civil codes of Roman tradition (Articles 1.623 of the Colombian Civil Code; 1.164 of the Dominican and French Civil Code; 1.601 of the Guatemalan Civil Code; 954 of the Haitian Civil Code; 1.584 of the Honduran Civil Code; 2.504 of the Nicaraguan Civil Code; 953 of the Saint Lucian Civil Code) are not considered either as they have clearly fallen into disuse in current contract law.

2. Contra proferentem principle

In contrast, Article 4.1.3 set up one of the most widespread canons of interpretation in comparative contract law and accepted unanimously by Caribbean systems, which obeys the ancient aphorism “verba chartarum fortius accipiuntur contra proferentem” (a contract is interpreted against the person who wrote it) that has been transplanted into some civil codes within the Caribbean (Articles 1.162 Dominican and French Civil Code; 1.600 Guatemalan Civil Code; 952 Haitian Civil Code; 1.583 Honduran Civil Code; 2.503 Nicaraguan Civil Code; 1.139 Panamanian Civil Code; 951 Saint Lucian Civil Code).

English law also shares the convenience of this principle [Hollier v Rambler Motors (AMC) Ltd (1972), 2 WLR 401; Lancashire County Council v Municipal Mutual Insurance Ltd (1997, QB 897, 910); Oxonica Energy Ltd v Neuftec Ltd (2008), EWHC 2127]. However, application of this rule in common law practice must get around a conceptual obstacle derived from the “parol evidence rule”, which might limit necessary evidence for identifying the eventual proposer or writer, although such evidence is admitted when based on objective facts that are known by the parties. The application of the contra proferentem rule is actually confirmed in Caribbean Commonwealth territories, as demonstrated in the decision of the Supreme Court of Jamaica in Ammar & Azar Ltd v Brinks Jamaica Ltd (Carilaw JM 1984 SC 35).

Moreover, this rule has been successfully incorporated into the most recent texts (e.g. Article 101 of the Proposals for Reform of the French law on obligations of 2013), as well as in all international texts on contract law harmonisation (Articles 4.6 UP; 5:103 PECL; II-8:103 DCFR; and 65 CESL.

The rule is related to interpretation of unclear terms that have been written by only one of the contract's parties, so that they will be interpreted in the most favourable sense for the party who has not participated in their wording. The aim of this rule is, on the one hand, to promote clarity and precision in writing contracts and, on the other hand, to protect the party who has not participated in the drafting. Although the rule is inherent to consumer and adhesion contracts, in current trade practice it governs even in cases of balanced relationships between proferens and adherens. Likewise, although its application characterises contracts subject to standard terms it is also possible in case of individually negotiated contracts provided the party that drafted the contract can be identified.

Commentary

Article 4.1.4

Favor negotii

Unclear terms will be interpreted in the sense most favourable to give effects to them and to all terms of the contract.

The principle of “favor negotii” or of interpretation “in favorem negotii” is a canon of interpretation generally accepted in comparative law. The principle of contract preservation implies that in case of ambiguity, the interpretation which leads to enforceability of contract terms must be preferred over the interpretation which leads to unenforceability. At the same time, the interpretation which leads to the wider enforceability of the contract as a whole must be preferred.

This interpretative canon is well known in many Caribbean civil codes (Articles 1.620 Colombian Civil Code; 1.157 Dominican and French Civil Code; 1.596 Guatemalan Civil Code; 947 Haitian Civil Code; 1.579 Honduran Civil Code; Article 1.853 Mexican Civil Code; 2.499 Nicaraguan Civil Code; 1.135 Panamanian Civil Code; 1.236 Puerto Rican Civil Code; 946 Saint Lucian Civil Code). It has been maintained in Article 100 of the Proposals for Reform of the French law on obligations of 2013 as well as in the recent texts on international contract law harmonisation (Articles 4.5 UP; 5:106 PECL; II-8:106 DCFR; and 63 CESL.

Under English law, the traditional approach in case law defends that contract interpretation must not be influenced by legal result or presumed enforceability. However, this approach seems modified in the light of recent precedents [Lancashire County Council v Municipal Mutual Insurance Ltd (1996), QB 897; BCCI v Ali (2002), 1 AC, 251, 269; Financial Ombudsman Service v Heather Moor & Edgecomb Ltd (2009), 1 All ER 328], and common law case law actually demonstrates that the interpretation most favourable to enforceability must be preferred among all equally plausible interpretations. Moreover, the preservation of contract principle is evident in the criteria used by English courts for deducing “implied contract terms”, which reinforces the “favor negotii” principle. Finally, it must be stressed that the role of canons of interpretation is not rigid and the principle must be related to other interpretative rules, especially to the general rule of Article 4.1.2. Therefore, it can be concluded that this interpretative canon is perfectly acceptable in Caribbean legal systems inspired by common law and English law [e.g. NV Handel Smits v English Exporters Ltd (1955), 2 Lloyd's Rep. 517].

Commentary

Article 4.1.5

Interpretation of the contract as a whole

1. Contractual terms will be interpreted in the light of the entire contract, giving to the particular terms the meaning most in accord with the other terms of the contract.

2. Individually negotiated contractual terms will prevail over terms that have not been individually negotiated.

The “systematic” interpretation of the contract as a whole also obeys generally accepted canons of interpretation that meet the basic requirements of contract consistency. Contract terms cannot be considered outside the context of the contract itself.

The principle in Article 4.1.5 is found in most of the Caribbean civil codes (Articles 1622.I of the Colombian Civil Code; 1.161 of the Dominican and French Civil Code; 1.598 of the Guatemalan Civil Code; 951 of the Haitian Civil Code; 1.580 of the Honduran Civil Code; 1.854 of the Mexican Civil Code; 2.500 of the Nicaraguan Civil Code; 1.136 of the Panamanian Civil Code; 1.237 of the Puerto Rican Civil Code; 950 of the Saint Lucian Civil Code). It has been also considered in Articles 99 of the Proposals for Reform of the French law on obligations of 2013; 4.4 UP; 5:105 PECL; II-8:105 DCFR; and 60 CESL. Likewise, this rule is consistent with current principles of common law and English law, because it fits in perfectly with the contextual interpretation of contract terms prevailing in existing case law, without prejudice to the parol evidence rule and other idiosyncratic interpretation criteria under common law. Moreover, the “whole contract rule” has been stated by many precedents since Bettini v Gye (1876, 1 QBD 183, 188). Among the most recent precedents, the following may be cited: Riverside Housing Association Ltd v White (2007, 4 All ER 97, 110); Bindra v Chopra (2008, 11 ITELR 312); Multi-Link Leisure Developments Ltd v Lanarkshire Council (2010, UKSC 47); Re Sigma Finance Corporation (2010, 1 All ER 571).

Conversely, the rule in Article 4.1.5 (2) of these Principles establishes a canon of interpretation which is not usually considered in national statutes or codes (with the exception of isolated cases such as Article 672.3 of the Guatemalan Civil Code or Article 728 of the Honduran Civil Code), but obeys a clear trend in current contract law, as Articles 5:104 PECL, II-8:104 DCFR and 62 CESL demonstrate. The rule that consists in giving priority to individually negotiated terms over standard terms is actually in line with the meaning of the general rule in Article 4.1.2 of these Principles.

In case of contradiction between an individually negotiated term and a standard term, prevalence of the first type of term is based on the true intent of the parties (subjective criterion), that is, following the interpretative criteria set out by Lord Hoffmann in the Investors case. This interpretation of contract terms is based on the understanding that a reasonable person in the same situation as the parties would have, given that both parties would reasonably give preferential enforceability to terms individually negotiated and agreed over standard and general terms that have not been negotiated. This principle is already clear in cases such as Glynn v Margetson (1893, AC 531) and Taylor v John Lewis Ltd (1927, SC 891, 898).

However, under certain conditions, this interpretation could imply an exception to the “last shot rule” characteristic in English law, in cases where once some contractual terms have been individually negotiated a party would have sent to the other party general terms that could be complementary in some cases, but are contradictory, in others, to individually negotiated clauses.

Commentary

Article 4.1.6

Linguistic discrepancies

Where a contract is drawn up in two or more language versions, in case of discrepancy between the versions, and if the parties have not agreed to a prevailing version, the version in which the contract was originally drawn will prevail.

Article 4.1.6 of these Principles states a specific and singularly relevant canon for interpretation of international contracts. The diversity of language versions of the same contract easily leads to contradictions between them, which are inherent in any translation and especially in legal translation given its particular difficulties.

The contracting parties may indicate the prevailing or authentic version in case of contradiction between different language versions. In the absence of such agreement, it is necessary to provide reasonable criteria for objectively determining the prevailing version. Current texts on international contract law harmonisation consider this question, opting unanimously for making the original language version prevail, presuming that other version has been translated from the original one (Articles 4.7 UP; 5:107 PECL; II-8:107 DCFR; and 61 CESL). The rule is quite reasonable and has been followed in these Principles.

This is in any case an interpretative principle that judges and arbitrators must balance depending on the context and circumstances of the contract. There is also the possibility of being unable to prove which version is the original version of the contract. In this case, evidential restrictions of the parol evidence rule could be an obstacle in common law if they are applied too restrictively. If the original version cannot be determined, judges and arbitrators should resolve linguistic contradictions according to other interpretative rules included in these Principles. As a last resort, they can ignore the contradictory terms and their object will be determined in accordance with the rules concerning the filling in of gaps and omissions of the contract. In some cases, particularly when contract obligations have not yet been performed, the impossibility of integrating resulting gaps on fundamental questions can lead to the declaration of the nullity of the contract or of the obligations involved.

Commentary

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OHADAC principles on international commercial contracts.pdf