[ESSAY PRIZE] Should Courts Adopt the Same Approach When Interpreting Contracts and Statutes?

Abstract

When analysing contracts or statutes, modern courts in both fields draw on the same four interpretive elements – text, context, purpose, and objectivity – and combine them in line with broadly similar rules. This shared interpretive framework has led some academics towards the advocation of a ‘grand theory’ of legal interpretation, in which contracts and statutes are interpreted by essentially the same method. This essay argues against this interpretive monism, finding the theory to be based on a false presumption that because statutes and contracts are interpreted within a similar interpretive framework, that all interpretation should follow the same normative method. This is because contracts and statutes differ in their substantive constitutions: a contract derives its authority from private ordering, party autonomy and market reliance, while a statute derives its authority from democratic enactment, binding those who did not consent to it. Accordingly, the interpretive method appropriate to each must differ – or else interpretation would risk undermining the substantive purpose of enforcing a contract or a statute. 

This essay defends a source-sensitive account of interpretation, whereby courts may use similar interpretive tools in determining the true meaning of a contract or statute, but must weigh those tools differently according to the source of legal authority being interpreted. In contract, this calls for a market-conservative contextualism: context should explain bargains without improving them. In statute, it calls for democratic traceability: the meaning attached to legislation must remain traceable to what Parliament has enacted. The asymmetric doctrinal differences in the court’s treatment of extrinsic material and the differing scope for purposive reasoning in contract and statute provides a further basis on which this contrast is supported. Accordingly, there should be no fusion in the approach of courts to interpreting contracts and statutes: each instrument must be read in light of the authority that gives it legal force.

I. Introduction

The question of whether courts should adopt the same approach when interpreting contracts and statutes is particularly inviting, given the apparent similarities involved in both tasks: both concern disputed words, both require courts to attribute legal force to language, and both have moved away from a literalist approach towards a more contextual approach. Lord Hoffman’s formulation in Investors Compensation Scheme Ltd v West Bromwich Building Society, that interpretation applies the ‘common sense principles by which any serious utterance would be interpreted in ordinary life’, seems to invite a unified theory.[1] Lord Neuberger similarly suggested in Marley v Rawlings that the same general principles of construction apply across wills, contracts, and statutes, subject to particular rules.[2]

Yet the appeal of this convergence is grounded in a flawed presumption – that similarity of material equals similarity of authority. Contracts and statutes are not merely two species of legally-enforceable text, but are two distinct juridical acts. A contract is a legally-binding arrangement between legal persons which uses language to allocate risks, prices, responsibilities and future contingencies; while a statute is a public act of democratic authority which binds citizens irrespective of individual consent. As a result, their interpretation begs two separate questions: a contract asks what bargain the parties objectively made, while a statute asks what law Parliament enacted. Those two questions, while overlapping linguistically, diverge in their substance. 

This essay argues against what I will here describe as ‘interpretive monism’: the assumption that because all legal interpretation involves words indicative of an intention, all legal interpretation should follow the same normative method. In its place, I propose a form of source-sensitive interpretation, whereby courts may utilise a common interpretive framework – text, context, purpose, and objectivity – but must calibrate the balance of that framework to the source of legal authority being interpreted. In contract, the main concern is upholding market autonomy; in statute, it is democratic traceability. The result is not an indiscriminate separation of literalism and contextualism, as both contracts and statutes must be read contextually. The difference lies in what context is for, and how far it may legitimately move the interpreted away from the enacted or agreed words.

This argument will proceed in four stages. First, it will set out the position of English law, distinguishing the rhetorical convergence from the actual, operative doctrinal differences between the interpretation of contracts and statutes. Secondly, it will explain that divergence; assessing it as a reflection of the different authority of the instruments being interpreted – contracts as private agreements, statutes as democratic enactment. Thirdly, it develops the two corresponding disciplines of interpretation: market-conservative contextualism in contract and democratic traceability in statute, before finally arguing that these disciplines converge on textual restraint, but for different reasons. Courts should therefore share interpretive tools across contracts and statutes, but not a single interpretive method.

II. The Position of English Law: Rhetorical Convergence and Operative differentiation

Before discussing whether contracts and statutes should adopt the same method of interpretation, brief consideration ought to be given to whether the English courts have already converged on one. The practical reality is mixed, the mixture itself being significant.

At the level of articulated principle, convergence can be seen in a number of cases. Lord Hoffmann in Investors Compensation Scheme Ltd v West Bromwich Building Society stated interpretation was based on the ‘common sense principles by which any serious utterance would be interpreted in ordinary life’ – phrasing which suggests no tangible difference between the interpretation of private and public legal texts.[3] This view applied in a similar fashion by Lord Neuberger in Marley v Rawlings and Lord Hodge in Wood v Capita Insurance Services Ltd, both of whom characterised interpretation as a unitary exercise, balancing text and context to ascertain an objective meaning.[4] Together, these dicta suggest that contractual and statutory interpretation are two instances of the same method: how would a reasonable reader understand this legal text in its context?

This rhetorical convergence, however, is not reflected at the level of operative doctrine. The contractual exclusion of pre-contractual negotiations in Chartbrook Ltd v Persimmon Homes Ltd[5] has no statutory equivalent, and contrasts considerably with the permitted use of Hansard in Pepper v Hart.[6] This divergence is not accidental, but is rather reflective of the differing natures in which contracts and statutes are generated. Contractual negotiations are usually evidence of unresolved bargaining positions, not of the objective bargain finally being struck; whilst acts of Parliament are illustrations of the public legislative process through which the statute acquired authority.

A similar divergence appears when considering the relevance of purpose in contractual and statutory interpretations. In R (Quintavalle) v Secretary of State for Health, the House of Lords extended a 1990 act to cover a technique not contemplated at the time the statute was passed, as that interpretation was deemed to serve the statutory purpose.[7] A commercial contract would not ordinarily be extended in that way merely because, viewed retrospectively, the parties might sensibly have wished to cover the new case. Arnold v Britton is good evidence of this, where the Supreme Court enforced a service-charge clause according to its natural meaning despite harsh economic consequences, as the court’s role was to interpret, not correct, the bargain made.[8]

Other contrasts reinforce this point; rectification only applies to contract as only private parties may make a common mistake, Section 3 of the Human Rights Act 1998 belongs to statutory interpretation as Parliament has imposed a rights-compatible interpretive instruction upon legislation.[9] The implication of terms in contract is confined by necessity, not mere reasonableness, as opposed to statutory interpretation which can accommodate constitutional presumptions – in part due to the always-speaking principle and purposive application to new circumstances. 

The result is a diametrically opposed account of the judicial approach to contracts and statutes, where the courts narrate the issue as if the two were interpreted by a single method, but decide cases as if the opposite were true. A method whose unity is real should be visible in its application, not just in its self-description – and so the operative doctrine is more reliable.

III. The Strongest Case for Convergence – and Why It Fails

The convergence thesis starts from a rational common-ground: literalism in its most pure form is illogical in both contracts and statute, as words are given meaning by their context. Both contracts and statutes are read in their context, with attention to their purpose, and from an objective standpoint. Following on from this, both fields also reject subjective intention; contractual interpretation is not determined by an uncommunicated intention,[10] whilst in statutory interpretation the courts cannot realistically ask what Parliament subjectively intended due to the series of individual legislators who likely have different reasons for supporting the same text. These shared characteristics support what may be called the ‘grammar of modern interpretation’: text, context, purpose, and objectivity. 

The strongest version of interpretive monism runs from this shared grammar to a shared method: since all legal documents are utterances, and utterances are interpreted by reasonable readers in context, then the law of interpretation is the law of reasonable understanding. According to this view, differences between contractual and statutory interpretation is a matter of evidence (what context is admissible, what background knowledge is shared), rather than of an interpretive method. This is supported by Hoffmann’s extra-judicial writing, as he suggests there is no special technique for interpretation distinct from the ordinary linguistic understanding of utterances in context;[11] supporting the conclusion that whilst different materials may be available, the underlying method of interpreting contracts and statutes remains the same.

This argument has the strength of parsimony, but it understates what interpretation does. Interpretation does not just merely attribute meaning to words, but is the exercise of legal authority over persons through words. The legitimacy of the imposed meaning therefore depends of the institution or act from which the meaning derives; a fact neglected by the convergence theory. Lord Sales has recently put the point clearly in relation to statutes; arguing that statutory interpretation is a form of applied constitutional law whereby the interpretive method reflects assumptions about the relationship between courts, Parliament and the executive.[12] Language makes context and purpose unavoidable, but it does not determine how courts should choose between competing contextual and purposive accounts. 

This insight can be extended in the opposite direction: if statutory interpretation is applied constitutional law, contractual interpretation is applied market law. The court gives coercive effect to a legal act whose authority comes from a particular source – consent in contract, parliamentary enactment in statute. As a result of this, contract and statute consequently create different temptations for the court during their interpretation: in statute, it is to improve the law, in contract, it is to improve the bargain. A serious theory of interpretation must discipline both temptations, but given their fundamentally different natures, it cannot do so in the same way.

IV. Contracts: Market-Conservative Contextualism

A free-market account of contractual interpretation begins from the premise that contracts are market infrastructure: they allocate risk, price obligations, secure finance, and plan future conduct. They can only perform these functions because their language is treated, in advance, as a predictable settlement of legal consequences. The interpretive method courts adopt therefore matters beyond the dispute before them: it sets the terms on which future bargains are struck. 

The manner in which the law on contractual interpretation has developed reflects an uneasy attempt to manage this risk. Initially, ICS founded the modern contextual framework where interpretation was the meaning a document would convey to a reasonable person with the relevant background.[13] ‘Business common sense’ was then given prominence in Rainy Sky SA v Kookmin Bank;[14] which Arnold then warned against in cases of retrospectively rescuing a party from a bad bargain. Wood v Capita later sought to reconcile the cases by presenting interpretation as a unitary exercise where text and context are both considered, with their weight depending on the individual case.[15]

The reconciliation was doctrinally attractive, but incomplete; the description of a “unitary exercise” correctly tells courts that text and context must both be considered, but it does not always tell them how to rank those consideration where context wildly displaces a text’s ordinary meaning. The better formulation of this would be what I describe as ‘market-conservative contextualism’, which resolves the problems of Wood’s ‘unitary exercise’ by constraining contextual analysis to instances only where it explains the bargain (such as by identifying technical vocabulary, market practice, etc.) – but not improve it. Used in this way, market-conservative contextualism may resolve genuine uncertainty, whilst preventing contextual interpretation from becoming a tool to find what the parties should have agreed.

This distinction is especially important in market-standard contractual agreements, such as ISDA Master Agreements, LMA loan facilities or standard charterparties. In such cases, the context of the individual agreement is of limited significance, as the standardised forms are intended to bear a stable, transferrable meaning across many transactions.[16] In such cases, interpretation affects not just the litigating parties, but also future traders, lenders, insurers, and advisers who rely on standardised legal wording – meaning the individualised contextual reconstruction of any such forms would impose wide-ranging externalities on the wider market.

English law already polices this line through the limits it imposes on interpretation: Chartbrook allocates pre-contractual negotiations to a separate rectification claim,[17] while Marks and Spencer v BNP Paribas confines the implication of terms to strict necessity rather than mere reasonableness.[18] These boundaries are not merely pedantic features of the law; instead, they preserve interpretation as the identification of bargains rather than the construction of fairer ones.

The comparative point is that statutory-style purposive interpretation, would undermine this discipline if applied to the interpretation of a contract. The reasoning in Quintavalle may be appropriate for a public regulatory statute addressed to present and future technological conditions, but if applied to a service-charge clause or force-majeure provision, would risk distorting the original allocation of risk, price, and liability on the grounds of a court’s reconstruction of evident commercial purpose. This would subsequently undermine the certainty and reliability upon which the purpose of a contract – to guide future commercial relations – is grounded upon. The free-market position, however, is not anti-contextual (as previously discussed), but rather anti-paternalistic: it requires courts to make commercial contracts intelligible, but not better. 

V. Statutes: Democratic Traceability.

Conversely, statutory interpretation cannot be modelled on contractual interpretation as a statute does not draw its authority from those whose conduct it regulates. A contract binds parties because they have chosen to be bound by it; a statute binds those regardless of consent. This asymmetry in consent is significant as it makes publicity and accountability central; the legal meaning attributable to legislation must remain traceable to what Parliament enacted. This requirement may be called ‘democratic traceability’. 

Two doctrinal contrasts noted in Section II already illustrate this point: the difference in treatment of extrinsic material, and the role of purpose in both types of text. On the issue of extrinsic material, the position in Chartbrook where negotiations are inadmissible in the interpretation of contracts is differentiable against Pepper v Hart’s acceptance of Hansard being used in statutory interpretation due to the public need for statutes to represent the democratic will, and to ensure traceability into what Parliament intended to enact. Similarly, on the issue of purposive interpretation: Quintavalle held that statutory purpose may extend an Act to circumstances the legislature could not have foreseen;[19] while Arnold enforced a service-charge clause according to its natural meaning in spite of economically absurd consequences, as the contractual purpose was fixed by the bargain made.[20] This difference cuts to the core of their respective purposes; statutes are tools of governance addressed to changing circumstances, influenced by the ‘always-speaking’ principle,[21] while contracts are bargains stuck in a specific moment in time. 

The same ‘democratic traceability’ principle also extends to constitutional interpretation. It might be argued that democratic traceability is too rigid a theory due to the effects constitutional principles, common-law rights and developed legal norms have on the interpretation on the plain words of Parliament. Yet whilst this objection is important – it is not decisive. It does not show that courts may detach statutory meaning from enacted law, it merely suggests that constitutional principles can structure interpretation – but cannot become a device by which courts can substitute their preferred constitutional settlement for parliament.

The principle of legality articulated in ex p Simms makes the point clearest. Far from authorising courts to override Parliament, legality requires that Parliament confront the political cost of overriding a fundamental right by saying so plainly.[22] Section 3 of the Human Rights Act 1998 derives its interpretive force from Parliament’s own enactment – the very source of authority it directs courts to respect. Constitutional interpretation, on this view, is not a deviation from democratic traceability but an instance of it: it disciplines courts to insist on clear democratic authorisation before granting extraordinary legal effects, rather than to supply the policy judgement themselves.

The opposite risk is equally significant; a contractual-style interpretive method applied to statutes would sever Acts of Parliament from the process which gives it authority. A Chartbrook-style exclusion of extrinsic material would close off Hansard and confine the court to the literal text, treating a statute as if it were a private utterance addressed to consenting parties.[23] An Arnold-style refusal to update the meaning of a statutory provision would prevent them from evolving with society, subsequently undermining the always-speaking principle.[24] Democratic traceability, like its market-conservative equivalent, is therefore not anti-contextual, but is anti-self-authorising: it requires courts to construe legislation, not compose it.

VI. Same Tools, Different Discipline

The comparison between statutory interpretation and contractual interpretation creates an asymmetric picture; courts should use similar interpretive tools in both fields, but not the same approach. Whilst text, context, purpose, and objectivity are common to both; their weight and limitations are highly dependent on their legal source. 

In contract, text ought to have more weight because market actors rely on words to allocate risk; context is admissible because commercial language often requires a background understanding; purpose is significant because agreements exist to function. But these tools must remain disciplined by autonomy: the court’s task is not to rescue parties from their own commercial judgement. 

In statute, text also carries particular weight, but for a different reason: democratic law must be publicly ascertainable. Context is admissible because legislation operates within a wider legal framework, and purpose is significant because statutes are instruments of governance. But these tools must remain disciplined by traceability; the court’s task is not to conceal constitutional or political choice inside interpretive technique. 

The two fields converge on textual discipline, but not because they are the same. In contract, textual discipline protects market autonomy, whereas in statute, it protects democratic accountability. This convergence is methodological; and the underlying justification for both is different. 

VII. Conclusion: Against Interpretive Monism

Courts should not adopt the same approach when interpreting contracts and statutes, but should adopt a source-sensitive approach. While both contracts and statutes share a linguistic grammar, they differ in their institutional constitution: contracts speak through private authority, statutes through public authority; contracts organise private relations, statutes govern communities; contracts bind through consent, statutes bind without it. 

The temptation for the courts is structurally similar in both fields – in contract, to improve the bargain, and in statute, to improve the law – yet both should be resisted. Importing statutory-style purposive reasoning into commercial interpretation would dismantle the certainty on which markets are dependent upon; whilst importing contractual-style adherence to the literal meaning of a text into statutory interpretation would sever enacted text from the democratic process that gives it authority. Both therefore demand a discipline calibrated to its source; to do otherwise mistakes words for legitimacy.

[1] Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 (HL) 912 (Lord Hoffmann).

[2] Marley v Rawlings [2014] UKSC 2, [2014] AC 129 [19]–[23] (Lord Neuberger).

[3] ICS (n 1) 912.

[4] Marley (n 2); Wood v Capita Insurance Services Ltd [2017] UKSC 24, [2017] AC 1173 [10]–[13] (Lord Hodge).

[5] Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38, [2009] 1 AC 1101 [38]–[42] (Lord Hoffmann).

[6] Pepper v Hart [1993] AC 593 (HL) 634 (Lord Browne-Wilkinson). On the limits of Pepper v Hart, see Lord Steyn, ‘Pepper v Hart: A Re-examination’ (2001) 21 OJLS 59.

[7] R (Quintavalle) v Secretary of State for Health [2003] UKHL 13, [2003] 2 AC 687 [9], [21] (Lord Bingham).

[8] Arnold v Britton [2015] UKSC 36, [2015] AC 1619 [17]–[23] (Lord Neuberger).

[9] Human Rights Act 1998, s 3.

[10] Chartbrook (n 5) [14]–[15].

[11] Lord Hoffmann, ‘The Intolerable Wrestle with Words and Meanings’ (1997) 114 SALJ 656; see also Lord Hoffmann, ‘Language and Lawyers’ (2018) 134 LQR 553.

[12] Lord Sales, ‘Modern Statutory Interpretation’ (2017) 38 Statute Law Review 125, 125–26.

[13] ICS (n 1) 912–13.

[14] Rainy Sky SA v Kookmin Bank [2011] UKSC 50, [2011] 1 WLR 2900 [21]–[30] (Lord Clarke).

[15] Wood v Capita (n 4) [10]–[13].

[16] See generally Sir Kim Lewison, The Interpretation of Contracts (7th edn, Sweet & Maxwell 2020) ch 1; Gerard McMeel, The Construction of Contracts: Interpretation, Implication, and Rectification (3rd edn, OUP 2017) ch 1.

[17] Chartbrook (n 5) [38]–[42].

[18] Marks and Spencer plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd [2015] UKSC 72, [2016] AC 742 [18]–[24] (Lord Neuberger).

[19] Quintavalle (n 7) [9], [21] (Lord Bingham).

[20] Arnold (n 8) [17]–[20] (Lord Neuberger).

[21] On the always-speaking principle, see Quintavalle (n 7) [9] (Lord Bingham); F A R Bennion, Bennion, Bailey and Norbury on Statutory Interpretation (8th edn, LexisNexis 2020) s 14.1.

[22] R v Secretary of State for the Home Department, ex p Simms [2000] 2 AC 115 (HL) 131 (Lord Hoffmann).

[23] Chartbrook (n 5); cf Pepper v Hart (n 6).

[24] Arnold (n 8); cf Quintavalle (n 7).