All questions

Contract interpretation

Manx courts largely follow the common law of England and Wales when it comes to contract disputes and construction, including choice of law. The Isle of Man, however, is not party to and is not bound by any of the Rome Convention, the Luxembourg Convention or the Brussels Protocol. The Contracts (Applicable Law) Act 1992, which brings the above-mentioned Conventions and Protocol into Manx law, has not yet come fully into force. Therefore, there is some difference between the Isle of Man and England and Wales in that regard. That said, common law remains the leading authority in terms of determining these issues and this does not appear to cause the Isle of Man courts any difficulties.

The English case of The Spiliada sets out a seven-limb test for the courts to consider when seeking to assess the appropriate forum for dealing with a contract dispute. This seven-limb test and the principles expounded by Lord Goff in The Spiliada has been followed by the courts of the Isle of Man and now forms part of Manx law. Briefly, the seven-limb test requires the court to consider, when ascertaining the most appropriate forum for dealing with the dispute, the following:

  1. the forum with the most real and substantial connection to the case in point;
  2. which forum is the most convenient;
  3. which forum would be better in terms of cost;
  4. the availability of witnesses;
  5. the law governing the relevant transaction;
  6. the place where the parties carry on business; and
  7. would the parties obtain justice in another forum.

If the parties to a contract insert a choice of law clause or a court jurisdiction clause, then the courts in the Isle of Man will generally follow the same. Should there be no choice of law clause, the court will consider which jurisdiction the contract has the closest and most real connection to. This point has been considered by the Manx court in a number of cases including Bryan v. Waterman:

[I]t has to be construed liberally, or generously, and consistently with the assumption that the parties, as rational business parties, intended any dispute arising out of their relationship to be decided by the same tribunal and that if they had wished to exclude any issues from its scope they would have said so.

54. As a matter of English law, where parties have agreed a contract providing for the non-exclusive jurisdiction of the English court, there is a strong prima facie case that English jurisdiction is the correct one and that although the court has a discretion to depart from it, the court will do so only where there are overwhelming, or at least very strong reasons for doing so and it is not open to one of the parties to argue about the relative merits of fighting the case in the unchosen, as opposed to the chosen, jurisdiction on the basis of any factor which was foreseeable at the time the clause was agreed. The fact that proceedings may have started in the unchosen jurisdiction first is irrelevant because a party cannot rely upon its own disregard of the clause. A number of English authorities were cited to me in support of these contentions, including Antec International Ltd v. Biosafety USA Inc [2006] EWHC 47 at paragraph 7 per Gloster J. I do not understand it to be said that the law in the Isle of Man differs in this regard and the decision of Deemster Corlett at first instance in Excalibur Almaz Ltd v. Horie (24 August 2017) (at paragraph 36) indicates that strong reasons are required to justify departure from the application of the clause.

The issue was most recently considered in the case of Nectrus v. UCP & otrs, where the court determined that in light of the contract containing a non-exclusive jurisdiction clause of England and Wales, the Manx case would be stayed and it was not necessary to undertake a Spiliada analysis.

In the recent case of Kniveton v. Public Services Commission, the court was tasked with considering the interpretation of a settlement agreement and whether or not it excluded a pension claim being made or not. The court took into account the parties' knowledge and experience of negotiating and drafting contracts when assessing how the contract should be interpreted. The court determined that in considering the interpretation of the contractual clause in question it was necessary to consider what a reasonable person in the position of the parties would have understood the words in the clause to mean, taking into account and including the factual matrix.

The starting point for the court is to establish what the intention of the parties entering into the contract at the time was. This is evidenced by considering not only the words of the contract itself but also the documentary, factual and commercial context of the agreement. Although the court must examine the full background, it cannot look at prior negotiations or the parties' declarations of subjective intent. This means that the court cannot look to extrinsic evidence such as oral negotiations and exchanges of letters preceding the contract. This was confirmed in the case of DED v. DSC Limited.

In the case of FPA Limited (in liquidation), deemster Doyle helpfully quoted Lord Neuberger's summary of commercial contractual interpretation given in the UK Supreme Court in the case of Marley v. Rawlings. To paraphrase, Lord Neuberger stated that the Court needed to discern the intention of the parties from the meaning of the relevant words of the contract:

a. in light of:

i. the natural and ordinary meaning of those words;

ii. the overall purpose of the document;

iii. any other provisions in the document;

iv. the facts known or assumed by the parties at the time of the contract;

v. common sense; and,

b. ignoring subjective evidence of any party's intentions.