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Interpretation of Contracts and the Admissibility of Pre-Contractual Negotiations

Ewan McKendrick

(2005) 17 SAcLJ 248

This essay examines the general rule that pre-contractual negotiations are not admissible in evidence when interpreting a contract. It does so in the light of Lord Hoffmann’s recent restatement in Investors Compensation Scheme v West Bromwich Building Society [1998] 1 WLR 896 of the principles that are applicable when seeking to interpret a contract. The scope of the general exclusionary rule is examined, as well as its rationale. Given the adoption by the modern courts of an approach to interpretation which seeks to give a commercially sensible construction to the clause in dispute, it is suggested that the justification for excluding pre-contractual negotiations from evidence appears suspect. They may in fact provide very good evidence of the issue which is at stake between the parties and, to that extent, should be admissible in evidence unless they relate to the subjective state of mind of the negotiating parties. However, caution must be exercised by judges in order to ensure that the evidence is relevant, reliable and does not add unduly to the cost of the litigation.