The interpretation of agreements is a well-established phenomenon in any legal system. Whenever the parties' intentions are drafted through a written agreement, its literal meaning should prevail; only in cases where there is ambiguity in such meaning should extrinsic evidence be sought in an attempt to determine the parties' intention from the various potential literal meanings.

This was the practice in Israeli case law until the mid-1990s, when the Supreme Court, then headed by Judge Professor Aharon Barak, ruled that there was no "clear meaning" to any words or drafting, and that in any controversy or interpretation, parties may adduce extrinsic evidence to support their interpretation. When interpreting the agreement, the court was expected to give attention simultaneously to the words of the agreement and to the extrinsic evidence or surrounding circumstances.

This case, also known as Apropim, caused a significant change in the approach to the interpretation of legal documents. Certainty was exchanged for a sense that the result of an interpretation was based not on the words and their plain meaning, but on the creativity of the parties. It appears plausible for parties to 'invent' various intentions or interpretations, and to support such intentions with colourful extrinsic evidence that may attract and catch the mood of a specific judge.

This case caused multiple lawsuits and flooded the Israeli courts with imaginative interpretations of contracts, all of which attempted to influence the judge to adduce extrinsic evidence and persuade him or her that the language of the agreement should bear a slightly different meaning from its literal meaning.

The Apropim resolution led to an intensive debate in the Israeli legal community and governed the sphere of interpretation for more than a decade. It took several decisions of the Supreme Court under Judge Dr Yoram Danziger to revert to the 'old' rules of interpretation - namely, that words should have their simple and linguistic meaning and that extrinsic evidence may be adduced for interpretation purposes only in cases of real ambiguity.

This turnaround was finally settled by legislation enacted in March 2011 (Section 25A of the Law of Contracts (General Part) 1973), which states that: "if [a party's] intention is definitely expressed by its language, the agreement will then be interpreted pursuant to its wording and language."

For further information on this topic please contact Yoram L Cohen at Yoram L Cohen Ashlagi Eshel Law Offices by telephone (+972 3 693 1900), fax (+972 3 693 1919) or email ([email protected]).