4.4.2 Construction

Even where there is no dispute as to whether a clause is incorporated, the parties may disagree as to what it was intended to mean. It will be necessary to try to construe the clause in order to give effect to it. The courts will adopt the approach of trying to assess objectively what the parties must be taken to have intended. If the contract is in the form of a written document, this will generally be regarded as very strong evidence of the parties’ intentions. The «parol evidence rule» will apply, with the effect that it will not normally be open to one of the parties to argue that some part of the written document should be disregarded, or interpreted in a way which is not consistent with its most obvious meaning. The Law Commission has doubted whether there is such a rule of law as the «parol evidence rule» - regarding it as being essentially a circular statement, to the effect that when it is proved that a written document was intended to set out all the express terms of an agreement, other evidence of what was intended will not be admissible. Nevertheless, as the Commission itself recognised since the «rule» has regularly been referred to by writers and judges, it provides a convenient shorthand for the approach to constructing contracts to which it applies. The rule, whatever its precise status, thus makes it very important for the parties to ensure that any written document forming part of the contract is clear and explicit as to the obligations which are being imposed on each side. The parol evidence rule is not, however, unchallengeable, and there are certain established exceptions to it.

Exceptions to the parol evidence rule include:

• Ambiguity

Where a word or phrase contained in the written document is ambiguous, other evidence may be given as to what was actually intended, as in Robertson v Jackson. The phrase in question was «turn to deliver» in relation to the unloading of goods at a particular port. The contract did not on its face give any indication of when the ship’s «turn to deliver» would arise. The court was prepared to allow oral evidence as to the custom applying in that port. This exception must now be considered in the light of the overall approach to construction taken in recent cases, such as Investors Compensation Scheme Ltd v West Bromwich Building Society, and discussed in the next section.

• Written agreement incomplete

If either or both of the parties can show that the written agreement was not intended to contain all the terms of the contract, then oral or other extrinsic evidence may be used to fill it out. In Allen v Pink, for example, the written document relating to the sale of a horse was little more than a receipt. It stated the price and the names of the parties, but contained no other terms. In the circumstances, the court was prepared to allow evidence of an oral promise as to the horse’s behaviour in harness. This case was fairly clear. It will be more difficult where the written agreement contains some terms. The court will have to consider objectively whether it appears to be complete, or whether it is more likely that the parties intended it to be supplemented by other obligations. The insertion of a clause to the effect that «this document contains all the terms of the contract» will presumably make it difficult to rebut the presumption that it is complete, and that any other evidence of additional terms should be excluded.

• Custom

Sometimes, a particular word or phrase is used in particular trade, market or locality, in a way which does not accord with its obvious meaning. In Smith v Wilson, evidence was allowed to establish a local custom to the effect that the phrase «1,000 rabbits» meant «1,200 rabbits». Custom may also be used to fill out an aspect of the contract on which the written document is silent. In Hutton v Warren, a custom as to allowances to be given to an outgoing tenant for seeds and labour used in the last year of the tenancy was held to be incorporated into a lease which contained no such provision. Parke B commented that:

It has long been settled that, in commercial transactions, extrinsic evidence of custom and usage is admissible to annex incidents to written contracts in matters with respect to which they are silent.

This use of custom overlaps with the use of custom to imply terms, which is discussed further below. Custom may not be used, however, where it is clearly contradicted by the terms of the contract. Where, for example, a charter provided that the expenses of discharging a cargo should be borne by the charterer, it was not possible to override this by showing a custom that the expenses should be borne by the owner of the ship.

• Starting or finishing date

Extrinsic evidence may be used to establish the date on which a contract is intended to start to operate. In Pym v Campbell, evidence was allowed as to an oral provision that the contract should not start to operate prior to the approval of a third party.

• Other exceptions

Where it can be argued that a written document was intended simply to record earlier oral agreements, but fails to do so accurately, extrinsic evidence may be allowed to prove this, and thus to «rectify» the written document. The parol evidence rule may also be circumvented by showing the existence of a collateral contract. An example of this is the decision in City of Westminster Properties v Mudd which has been discussed above. This is perhaps not a true exception, since it concerns not the interpretation of one contract, but rather a decision as to the priority between two inconsistent contracts. Finally, as we have seen earlier, a pre-contractual statement may become part of the contract if the courts feel that it related to something of great importance to one or other of the parties. This is perhaps best exemplified by the case of Evans v Andrea Merzario, where the statement that the cargo would be carried below deck was held to override the provision in the written contract allowing it to be carried on deck.