Investors Compensation Scheme Ltd v West Bromwich Building Society [1997] UKHL 28 is the most cited English contract law

English contract law

English contract law is a body of law regulating contracts in England and Wales. With its roots in the lex mercatoria and the activism of the judiciary during the industrial revolution, it shares a heritage with countries across the Commonwealth , and the United States...

 case, and one of the most cited contract cases today. It laid down that a contextual approach must be taken to interpretation of contracts. Lord Hoffmann set out five principles for interpreting contracts.

1. the right meaning is what the document conveys to a reasonable person
2. this includes everything in the "matrix of fact", or relevant background circumstances
3. prior negotiations are excluded from this (a point which has been much criticised since)
4. the meaning of words is not a literal meaning, but the one reasonably understood from the context
5. the meaning should not contradict a common sense view of what a contract required

Facts

Investors were given negligent advice by their financial advisers, building societies and solicitors and had claims for breach of statutory duty. The Securities and Investments Board (now under the FSA) started a compensation scheme. To get compensation, investors contracted with the Investors Compensation Scheme to assign their claims. ICS would then sue on the investors' behalf. The claims were assigned, excluding "Any claim (whether sounding in rescission for undue influence or otherwise)" against a building society which would abate sums otherwise owed to that society. The question was whether ICS, and not the investors, had a right to claim damages and rescission against the building societies.

Judgment

Lord Hoffmann stated,

See also

Interpretation generally

• Thake v Maurice
  Thake v Maurice
  Thake v Maurice [1986] QB 644 is an English contract law case, concerning the standard of care that must be exercised by surgeons in performing operations.-Facts:...
  
  [1986] QB 644
• Rearden Smith Lines Ltd v Hansen Tangan [1976] 1 WLR 989
• Proforce Recruit Ltd v The Rugby Group Ltd [2008] EWCA Civ 69
• Chartbrook Ltd v Persimmon Homes Ltd
  Chartbrook Ltd v Persimmon Homes Ltd
  Chartbrook Ltd v Persimmon Homes Ltd [2009] is an English contract law case concerning interpretation of contracts. It creates a so called "red ink" rule, that there is no limit to verbal rearrangement that the court may deploy to give a commercial sensible meaning when construing a contract in...
  
  [2008] EWCA Civ 183

• Principles of European Contract Law
  Principles of European Contract Law
  -Definition:The Principles of European Contract Law is a set of model rules drawn up by leading contract law academics in Europe. It attempts to elucidate basic rules of contract law and more generally the law of obligations which most legal systems of the member states of the European Union hold...
  
   Article 5-102 (a) preliminary negotiations are relevant to interpretation and so is (g) good faith
  Good faith
  In philosophy, the concept of Good faith—Latin bona fides “good faith”, bona fide “in good faith”—denotes sincere, honest intention or belief, regardless of the outcome of an action; the opposed concepts are bad faith, mala fides and perfidy...
  
   and fair dealing.

Interpretation of exclusion clauses and contra proferentem

Contra proferentem

Contra proferentem is a doctrine of contractual interpretation which provides that an ambiguous term will be construed against the party that imposed its inclusion in the contract or, more accurately, against the party who imposed it. The interpretation will therefore favor the party that did not...

• Canada Steamship Lines Ltd v The King [1952] AC 192
• Hollier v Rambler Motors (AMC) Ltd
  Hollier v Rambler Motors (AMC) Ltd
  Hollier v Rambler Motors Ltd [1972] 2 QB 71 is an English contract law case, concerning the incorporation of terms into a contract and the contra proferentum rule of interpretation. It shows an example of a very hostile interpretation of exclusion clauses.-Facts:Walter Hollier took his Rambler car...
  
  [1972] 1 All ER 399
• Wallis, Son and Wells v Pratt and Haynes [1911] AC 394
• Andrews Bros (Bournemouth) Ltd v Singer and Co Ltd [1934] 1 KB 17
• Rutter v Palmer [1922] 2 KB 87
• Gillespie Bros v Roy Bowles Ltd [1973] 1 QB 400, 415, Lord Denning, ‘judges have… time after time, sanctioned a departure from the ordinary meaning. They have done it under the guise of ‘construing’ the clause. They assume that the party cannot have intended anything so unreasonable. So they construe the clause ‘strictly’. They cut down the ordinary meaning of the words and reduce them to reasonable proportions. They use all their skill and art to that end.’

• The Raphael [1982] 2 Lloyd’s Rep 42
• Ailsa Crag Fishing Co Ltd v Malvern Fishing Co Ltd [1983] 1 WLR 964
• Darlington Futures Ltd v Delco Australia Pty Ltd (1987) 61 ALJR 76, refused to differentiate.
• Dorset CC v Southern Felt Roofing Ltd (1989) 48 Build LR 96
• Schenker & Co (Aust) Pty Ltd v Malpas Equipment and Services Pty Ltd [1990] VR 834, 846
• EE Calendonia Ltd v Orbit Valve Co Europe [1993] 4 All ER 165, 173, Hobhouse J
• The Fiona [1994] 2 Lloyd’s Rep 506
• Shell Chemicals UK Ltd v P&O Roadtanks Ltd [1995] 1 Lloyd’s Rep 297, 301.

• Bank of Credit and Commerce International SA v Ali [2001] UKHL 8, Lord Hoffmann [60] (dissenting), the Canada Steamship doctrine ‘is a desperate remedy, to be invoked only if it is necessary to remedy a widespread injustice.’
• HIH Casualty and General Insurance Ltd v Chase Manhattan Bank
  HIH Casualty and General Insurance Ltd v Chase Manhattan Bank
  HIH Casualty and General Insurance Ltd v Chase Manhattan Bank [2003] UKHL 6 is an English contract law case, concerning misrepresentation.-Facts:...
  
  [2003] UKHL 6