Investors Compensation Scheme Ltd v West Bromwich Building Society UKHL 28 is the most cited English contract law case, and one of the most cited contract cases today. It laid down that a contextual approach must be taken to the interpretation of contracts. Lord Hoffmann set out five principles for interpreting contracts.
- the reasonable person having all the background knowledge
- background ‘matrix of fact’ it includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man.
- The law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent. They are admissible only in an action for rectification, reasons of practical policy
- the meaning of words is not a literal meaning, but the one reasonably understood from the context
- words should be given their ‘natural and ordinary meaning’ reflects the common sense proposition that we do not easily accept that people have made linguistic mistakes, particularly in formal documents.
Read more about Investors Compensation Scheme Ltd V West Bromwich Building Society: Facts, Judgment, See Also
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