Commercial contracts can be complicated and when parties fail to see eye to eye, the Court may be tasked with interpreting the agreement. There are various principles which the Court will apply in that situation. In general, the Court will attempt to give effect to the intention of the parties, ascertained objectively. The Court will adopt the plain and ordinary meaning of specific words, by considering how a reasonable business person would understand the term. One of the common challenges is overcoming ambiguity where parties dispute how the agreement is to be performed. In that case the Court looks to the words and conduct of each party, to ascertain the objective intentions displayed. Parties may also attempt to resolve ambiguity through reliance on terms implied by reason of either fact, law or by dealing, custom or usage. There are varying requirements for terms to be implied in each of these instances. For example, terms implied by fact must be so obvious that it ‘goes without saying’, necessary to give business efficacy to the contract and capable of clear expression. In addition, terms implied by fact must be reasonable and equitable and cannot contradict express terms of the agreement. Finally, the parol evidence rule prohibits the use of extrinsic evidence to vary express terms, unless certain circumstances exist. Interpretation is based on the actual words in the contract. Contact M+E for guidance in constructing commercial contracts to avoid disputes.
