Contract interpretationi Interpretation of contract terms
Interpretation of a document or a contract is the ascertainment of the meaning that the document would convey to a reasonable person having all the background knowledge (factual matrix) that would reasonably have been available to the parties in the situation in which they were at the time of the contract.
The law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent. Equally, the parties' subsequent conduct is not normally admissible. The court interprets terms in their context in both statutory and constitutional interpretation.
In resolving the ambiguity of language in a contractual term, it is relevant to consider whether a particular construal leads to a very unreasonable result, since the 'more unreasonable the result the more unlikely it is that the parties can have intended it, and if they do intend it the more necessary it is that they shall make that intention abundantly clear'. In commercial litigation, the court construes terms in light of business common sense, namely, 'in the way in which a reasonable commercial person would construe them'.ii Conflict of law
In commercial litigation, it is uncommon for a contract to cover more than one jurisdiction. In those circumstances, there is a need to determine which law governs the contract or any part of it. In Hong Kong, conflict of law is regulated by common law, which recognises the parties' freedom to contract. Thus, first, the court looks at the express terms of the contract to see whether the proper law was expressly provided for. In the absence of an express choice, the court considers whether, from the terms and nature of the contract, and from the general circumstances of the case, there are any other indications of the parties' intention.
If there is no indication of the parties' intention, the court goes on to consider the system of law with which the contract has its closet and most real connection. In practice, in the absence of an express choice of law clause, since the tests of inferred intention and close connection merge into one another, the courts tend to move straight to the test of close connection.