Interpretation Literal approach Advantages (i) No need to hear elaborate evidence making the process speedier and less expensive. (ii) Clarity and predictability (iii) Limited judicial role - role of court to sanction, not make, the contract Disadvantages (i) Unrealistic to divorce process of interpretation from context (ii) Failure to capture intention of parties (if document poorly drafted) ICS principles - the exclusory rule Rationale - points made by Lord Bingham, writing extra-judicially (i) Avoidance of uncertainty and unpredictability (ii) Dealings of this type are shifting so evidence of them would be unhelpful (iii) One-sided impressions might undermine the objective approach to interpretation (iv) Sophisticated negotiators would be tempted to lay a paper trail of self-serving documents leading to greater complexity and increased litigation expenses (v) Interested third parties cannot be guaranteed access to negotiation history Criticism - points made by Lord Nicholls, writing extra-judicially (i) Although usually unhelpful, such negotiations may occasionally be helpful so they should not be automatically excluded - should only exclude when unhelpful (ii) Prior negotiations are admissible e.g. for purposes of proving formation of contract and in an action for rectification. Parties usually claim both interpretation and rectification i.e. they say 1st properly interpreted the contract has the meaning they claim it has and 2nd if this is not correct the court should change the words in the contract to achieve the meaning that they favour. That means judge knows about negotiations as counsel use them on rectification point, makes it hard to ignore when interpreting contract (iii) Courts are used to deciding how much weight to place on admissible evidence so it is unlikely that greater expense, delay and complexity would result Note that the exclusionary rule is not followed in Civilian law e.g. Principles of European Contract Law (2000), Article 5.102 and UNIDROIT's Principles of International Commercial Contacts (2010), Article 4.3 Affirmation of the rule in Chartbrook Lord Hoffmann: "statements in the course of pre-contractual negotiations will be drenched in subjectivity and may, if oral, be very much in dispute .... [the exclusionary rule is] justified in the more general interest of economy and predictability in obtaining advice and adjudicating disputes. O'Sullivan comments on the treatment of the exclusionary rule in Chartbrook: "As Baroness Hale confessed, "I would not have found it quite so easy to reach this conclusion had we not been aware of the agreement which the parties had reached on this aspect of their bargain during the
negotiations which led to the formal contract. On any objective view, that made the matter crystal clear." Yet the one, highly controversial, exception to the Investors Compensation contextual approach is that, "the law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent". This is surprising given that the admissible background otherwise includes, "absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man." The inadmissibility of prior negotiations is usually justified on the