interpretation clauses

Purpose of Interpretation Clauses

In England, legal documents such as contracts are construed according to known rules of construction and interpretation. 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 reliance on open-textured notions of fairness affecting the legal force and effect of the document.

These rules of interpretation are one way which English common 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. In this way, when similar types of disputes arise which relate to how a contract will be interpreted, these known rules reduce the possibility that disputing parties would require to litigate their claims in order to know how the contract would be read and interpreted by a Court and the consequent legal effect which would flow from the likely interpretation.

Legal of Interpretation Clauses

In commercial contracts, particularly professionally drafted contracts, interpretation clauses are included to express how the parties intend the contract to be construed or interpreted. They may displace, alter, add to, clarify or simply restate the application of principles of construction of contracts. 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 which is worded slightly differently may well have different legal effect and application.

Common Interpretation 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, the contract expressly provides that 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;
8. references to legislation in the contract is to the amended or changed versions of the applicable legislation rather than the form of the legislation in force as at the time of the contract;
9. interpretation aids, such as references to clauses in the contract are references to clauses in the contract rather than some other document. This avoids repetitious use of the word "herein";
10. headings in the agreement are not to be used to interpret the legal effect of the contract.

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.

Also, the Interpretation Act plays a part in the interpretation of commercial contracts. For instance, s 17 provides that where there is a reference in a deed or contract to an Act of Parliament, and that Act is repealed or replaced, then the reference is to the new Act.

Interpretation clauses are sometimes included in the definitions clauses, or otherwise at the end of the agreement.