The courts sometimes have to determine the meaning of a contractual term. In doing this the judges try to discover what the parties appeared to intend the contract to mean. The task of ascertaining the intention of the parties has to be approached objectively. Thus the courts must seek ‘the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract”. This was the position of the court in the case of Investors Compensation Scheme Ltd v West Bromwich Building Society (1998).

The courts start by presuming that the parties intended what they said, so that their words must be construed as they stand. The meaning of a documents must be sought in the document itself. At the same time the court will look at all the circumstances surrounding the making of the contract which would assist in determining how the language of the document would have been understood by a reasonable man.

According to Lord Hoffmann, the modern approach to construction is ‘to assimilate the way in which (contractual) documents are interpreted by judges to the common-sense principles by which any serious utterance would be interpreted in ordinary life’. Where possible, words will be given their natural and ordinary meaning.

Occasionally, the precise words used may appear to have an absurd meaning. So the rule that words must be given their ordinary and natural meaning is liable to be departed from where that meaning would involve an absurdity or would create some inconsistency with the rest of the contract.

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