This book sought to inform practitioners, scholars and students alike. In a world in which jurisdictions are no longer isolated normative orderings, and where both traders and consumers engage in contractual relationships beyond national borders daily, obtaining a better understanding of local judicial practices of interpreting contracts is indispensable. After all, as pointed out at the outset of this book and in the chapter by Remus Valsan on the law and economics of contract interpretation, contracts are necessarily incomplete, and few breach of contract disputes do not involve at least a disagreement as to the nature of the performance that the contract requires of the parties.

This volume's comprehensive comparative study advances our understanding of contract interpretation in European private law in three respects: it enriches the conventional conceptual framework for the methods of contract interpretation; it challenges the presumptive dichotomy of common and civil law jurisdictions; and it provides a finer-grained analysis of the role of standards of ‘good faith’ in contract interpretation. Below, we will explain and offer examples of the ways in which this volume realises these three innovations. We will conclude with observing to what extent there can be said to exist a ‘common core’ of contract interpretation in European private law.

ENRICHING THE CONCEPTUAL FRAMEWORK: DISTINGUISHING AIMS AND MODALITIES OF INTERPRETATION

Legal scholarship ofter distinguishes the methods of interpretation employed in different jurisdictions in terms of a single spectrum ranging from the textual to the more contextual. However, the national reports and comparative analyses presented in this volume call for a finer-grained theoretical framework. Indeed, a two-dimensional matrix recognising both the aims and modalities of interpretation methods is capable of revealing more nuanced differences and similarities between jurisdictions.

First, the aim of judicial contract interpretation involves what a court seeks to uncover; the means of interpretation involves how that aim is to be achieved. The national reporters’ Opening Remarks show that we may distinguish three aims. The first involves the meaning of the contractual terms that the actual parties factually intended (‘actual intentions’).

Guy is the director of ‘Meat ‘n’ Bones’, a meat processing company. Bernard runs a professional animal farm. Guy and Bernard conclude a contract according to which Bernard will supply Guy every week with 5,000 kilos of meat products, described in Clause 14 as ‘animal waste and animal carcasses intended for human consumption’. Both agree that six months after concluding the contract, Bernard will start making his weekly deliveries. Six months have passed, and Bernard has by now delivered his first shipment of 5,000 kilos of meat products. However, Meat ‘n’ Bones refuses to pay Bernard the full purchase price that they initially agreed on. Guy explains that between 2,000 and 2,500 kilos of the delivery consists of animal waste that is not intended for human consumption, which he says is useless to the operations of Meat ‘n’ Bones. This, Guy maintains, is contrary to Clause 14, in which the qualification ‘intended for human consumption’ applies to both ‘animal waste’ and ‘animal carcasses’. Bernard is baffled. He understands Clause 14 to mean that the qualification ‘intended for human consumption ‘ only applies to ‘animal carcasses’ and not also to ‘animal waste’. To him, Clause 14, therefore, includes all animal waste: both waste intended for human consumption and waste that is not. Moreover, Bernard is able to show that immediately after the conclusion of their contract, Guy had contacted Bernard, informing the latter that he filed a request for a government permit to store and process animal waste not destined for human consumption at the Meat ‘n’ Bones plant, including animal protein, rendered fats and pet food. Additionally, Bernard can also present evidence showing that days before he delivered the first shipping, Guy's request was denied. The fact that Guy filed this request, Bernard argues, shows that Guy had the same understanding of Clause 14 as Bernard had.

Assume that the language of Clause 14 is ambiguous. Also assume that the fact that Meat ‘n’ Bones filed and informed Guy of the request above shows that Guy shared Bernard’s interpretation of Clause 14.

‘Goldwater’ operates a beer brewery and ‘Carryon’ operates a road haulage company. The two companies enter into a contract in January 2012 in terms of which Carryon agrees to transport Goldwater’s beer to a wholesale depot located 50 kilometres away. Clause 8 of the contract governs the collection of the beer by Carryon. It provides: ‘Goldwater will make the beer available to Carryon at the brewery premises located at [details of the address].’ In February, Carryon‘s driver arrives at the brewery and finds that the crates of beer that he is to collect are located on the fourth floor of the brewery. He will be unable, without assistance, to move the crates to the ground floor and load them on to the haulage vehicle. When he asks for assistance, he is told that none is available due to redundancies at the brewery. Carryon's driver leaves the brewery without collecting the beer. Carryon refuses to perform, arguing that Goldwater should have made the crates available at the front entrance of the brewery. Goldwater disagrees. It made the beer available at its premises, as was agreed in Clause 8 of the contract. It, therefore, raises an action against Carryon for breach of contract. Carryon disagrees with Goldwater's reading of Clause 8. It argues that Goldwater and Carryon have an ongoing business relationship and that under every previous contract between them, Goldwater consistently made the crates of beer available at the front entrance of the brewery. Clause 8, Carryon concludes, must be understood in the light of these facts.

Assume that the previous contracts between Goldwater and Carryon were identical in all significant respects. Also assume that the contract does not specify on which floor the crates are to be collected and that there is no local trade custom relevant to the matter at hand. To what extent may the manner of performance of the previous contracts between Carryon and Goldwater be given weight in the interpretation of Clause 8 of the 2010 contract?

INTRODUCTION

This chapter contains Opening Remarks written by each national reporter describing the interpretative process in their legal system. The editors asked these to be prepared with specific aims in mind.

First, the Opening Remarks perform the function of ‘setting the scene’ for the more detailed answering of questions which is to follow. To this end, reporters were asked to discuss more general matters relating to contract interpretation that they believed the reader should know about their legal system in advance. Starting with a country-specific introduction helps the reader to understand the answers to the questions better.

Second, they provide reporters with an opportunity to inform the reader of the cultural particularities of their respective legal systems without being confined by the parameters of questions and cases. It compensates for the reporter's experience that the inescapable presumptions of the questionnaire have a restrictive effect on her or his answers.

Third, allowing the reporters to clarify matters that the questionnaire would otherwise prevent them from doing advances the reliability of the output of the comparative analysis. Again, one of the comparatist's most likely pitfalls is the need for comparability and comprehensibility accidentally covering up the subtler differences and peculiarities. After all, if different reporters add different details that are not directly relevant to the question at hand, their reports would contain incomparable data. Nevertheless, the fact that comparability is not the objective of this chapter does not prevent consideration of the differences and similarities between the key characteristics of contract interpretation that the various opening remarks address. Therefore, the editors conclude this chapter with several comparative observations in which they focus specifically on the nature, aims, and means of contract interpretation.

CROATIA

In the Croatian legal system, the general provisions of contract law on interpretation of contracts are laid down in Arts. 319 – 321 of the Civil Obligations Act (COA). Because the COA is based on a monistic system, it sets the rules on interpretation for all types of contracts, both contracts characterised as civil law ones and those characterised as belonging to commercial law.

‘Murray’ is a company that manufactures crystal vases. It has entered into a contract with ‘OnTrack’, an operator of cargo transportation by container freight trains. Clause 4 of their contract provides that Murray will be responsible for delivering its goods to ‘Distribution Warehouse 10, at the local freight train station.’ Murray delivers a consignment of goods to Distribution Warehouse 10. OnTrack refuses to ship them, however, explaining that delivery at a freight train terminal means delivery up to the actual container terminal. There the goods will be loaded into the appropriate containers. In fact, Murray delivered the goods to the entrance of the Distribution Warehouse, which is at least 800 metres away from the actual container terminal. The nature of the goods in question makes carriage of them, even over short distances, a complex task. Murray disputes OnTrack's view. It argues that Clause 4 of the contract is very clear on the issue of where the goods were to be delivered. It raises an action against OnTrack for breach of contract. OnTrack contests this action. It argues that Clause 4 must be read in light of the fact that it is a local custom of trade that goods are delivered up to the container terminal.

Assume that there is indeed, as OnTrack argues, a local custom of trade that goods are delivered by the manufacturers to the container terminal. How much weight is the court likely to give to this local custom of trade in interpreting Clause 4?

KEY ISSUES

This case maintains the focus on transport contracts which was seen in Case 8. The context is again the sale of goods, and the dispute concerns the interpretation of contractual clauses governing the way in which goods are to be delivered by the manufacturer to the cargo transportation company. The parties have differing interpretations of the terms of the contract which govern the location where goods are to be placed before collection by the cargo transportation company. This time there is a local custom of trade that goods should be delivered to a certain location.

‘Premier’ is the owner of numerous retail units in a local shopping centre. At present, it leases two units to two jewellers. It decides to lease a third unit for 15 years to ‘Jewellers King’, a company also operating a retail jewellery sales business. Clause 12(d) of the lease contract with Jewellers King provides: ‘With regard to any of its retail units, Premier shall not lease any such unit – other than Jewellers King's unit and two other units only – for a use entailing the retail sale of jewellery.’ Within 19 months of entering into the lease contract, Premier grants a lease of one of its other retail units to a fourth jeweller. Jewellers King is infuriated. It argues that Clause 12(d) prohibits Premier from granting another lease at the shopping centre to a jeweller. Premier is surprised. It argues that the phrase ‘two other units only ‘refers to two units in addition to the three units that it is already leasing to Jewellers King and the two other jewellers. In effect, it concludes, under Clause 12(d) it is therefore permitted to let up to a total of five jewellery retail units. Jewellers King disagrees. It argues that the phrase ‘two other units only’ is a reference to the two units that were already let to jewellers. Hence, since Jewellers King was the third jeweller to lease one of Premier's retail units, the total number of three jewellery retail units had been reached. Premier was thus prohibited from leasing any more retail units to other jewellers. Premier stands firm. In order to support its reading of Clause 12(d), it refers to the fift hrecital of the preamble of the lease contract, which reads: ‘Whereas Premier intends to let no more than a total of five units at the shopping centre for the purposes of the retail sale of jewellery ‘. Therefore, Premier argues, Clause 12(d) cannot be interpreted as having the effect that it is in breach of the lease contract by letting a fourth retail unit to a jeweller.

• 1 [Preamble] Assume that the language of Clause 12(d) is ambiguous.

CASE 1: JEWELLERS KING

‘Premier’ is the owner of numerous retail units in a local shopping centre. At present, it leases two units to two jewellers. It decides to lease a third unit for 15 years to ‘Jewellers King’, a company also operating a retail jewellery sales business. Clause 12(d) of the lease contract with Jewellers King provides: ‘With regard to any of its retail units, Premier shall not lease any such unit – other than Jewellers King's unit and two other units only – for a use entailing the retail sale of jewellery.’ Within 19 months of entering into the lease contract, Premier grants a lease of one of its other retail units to a fourth jeweller. Jewellers King is infuriated. It argues that Clause 12(d) prohibits Premier from granting another lease at the shopping centre to a jeweller. Premier is surprised. It argues that the phrase ‘two other units only’ refers to two units in addition to the three units that it is already leasing to Jewellers King and the two other jewellers. In effect, it concludes, under Clause 12(d) it is therefore permitted to let up to a total of five jewellery retail units. Jewellers King disagrees. It argues that the phrase ‘two other units only’ is a reference to the two units that were already let to jewellers. Hence, since Jewellers King was the third jeweller to lease one of Premier's retail units, the total number of three jewellery retail units had been reached. Premier was thus prohibited from leasing any more retail units to other jewellers. Premier stands firm. In order to support its reading of Clause 12(d), it refers to the fift hrecital of the preamble of the lease contract, which reads: ‘Whereas Premier intends to let no more than a total of five units at the shopping centre for the purposes of the retail sale of jewellery’. Therefore, Premier argues, Clause 12(d) cannot be interpreted as having the effect that it is in breach of the lease contract by letting a fourth retail unit to a jeweller.

• 1 [Preamble] Assume that the language of Clause 12(d) is ambiguous. What role, if any, may the preamble play in corroborating Premier‘s interpretation of Clause 12(d)? Would it make a difference if it involved not a preamble but another Clause in the contract?

‘Print Master’ is a large print and fax machine seller. It enters into a five-year outsource contract with ‘Premium Phone Services’ (PPS), which is operating a call centre. Under this agreement, PPS provides to Print Master inbound and outbound call centre services for the purpose of order taking and customer service. This contract also includes a so-called service level agreement, under which PPS is to execute frequent monitoring of the service quality provided by PPS’s call centre agents to Print Master's customers. Clause 16(k) provides: ‘Premium Phone Services will conduct bi-weekly randomly augmented service quality tests and send the results of these tests to Print Master within 24 hours.’ One month after concluding the outsource contract but before either PPS or Print Master have undertaken any performance, PPS transfers its rights in the agreement to another call centre operator, ‘Magnificall’, in response to a downward turn in the market. A month after all parties involved validly documented the transfer and Magnificall started its call centre services, Print Master contacts Magnificall and protests that Print Master only received a report on Magnificall's quality tests twice in the last month. Magnificall dismisses the complaints and argues that under Clause 16(k) it is obliged to conduct quality tests and send these reports only once every two weeks. It refuses to conduct these tests more ofter since that would bring about considerable costs. Print Master contends that ‘bi-weekly’ means twice a week, not once every two weeks. The transfer agreement was silent on this matter. The issue also never came up between Print Master and PPS. In support of its reading of Clause 16(k), Print Master presents evidence at the formation of the outsource agreement, which shows that both Print Master and PPS agreed that that said quality tests would be conducted twice per week.

Assume that Clause 16(k) is ambiguous, and the evidence offered by Print Master indeed indicates without doubt that Print Master and PPS both intended Clause 16(k) to mean that said quality tests would be conducted twice per week.

‘Imperial Real Estate’ owns a small food court and lets spaces to various vendors. It enters into a lease agreement with ‘Botanical Fruits’, a store which sells fruits and fruit juices. The mall already includes a vegetable vendor. Because Imperial strives for the biggest possible variety of products sold in its small shopping mall, the director of Imperial requires that Clause 8 of the lease contract reads: ‘Botanical Fruits will abstain from selling: … (g) any vegetables or vegetable products.’ Botanical Fruits accepts. Soon after Botanical Fruits opens business, Imperial discovers that Botanical Fruits is selling aubergines, tomatoes and cucumbers, as well as juices containing these products, in large quantities. After warning Botanical Fruits numerous times that, under Clause 8(g) of the lease contract, the latter is to cease selling aubergines, tomatoes and cucumbers immediately, Imperial holds Botanical Fruits in breach of its obligations and terminates the lease contract. Botanical Fruits disagrees that it breached its contractual obligations and contests the termination of the contract. As Botanical Fruits tried to tell Imperial recently, botanically speaking, cucumbers are ripened ovaries of a flowering plant, and botanical experts therefore classify aubergines, tomatoes and cucumbers as fruits. Imperial had heard Botanical Fruits‘ arguments before but found them simply preposterous. In ordinary, common language for everyday purposes, Imperial contends, aubergines, tomatoes and cucumbers are considered vegetables.

• 1 [ Technical and Ordinary Meaning] Assume that both Imperial and Botanical Fruits are correct; the technical, botanical meaning of ‘vegetables’ excludes aubergines, tomatoes and cucumbers, and the common or ordinary meaning of ‘vegetables’ includes these items. What relative weight will be attached to both the technical or ordinary meaning play in the interpretation of Clause 8(g)?

• 2 [ Expertise] Would your answer to Question 1 be different if Imperial had many decades of experience in the food retail industry, and its director had an academic background in botanical studies?

KEY ISSUES

The case concerns a dispute between a landlord and tenant in the context of a lease within a small food court.

INTRODUCTION

Thank you for agreeing to write a national report for the Common Core of European Private Law study on the Interpretation of Commercial Contracts. We are delighted to be working with you in this unique, international research project. To allow for a substantial, consistent and comprehensive comparative legal analysis, it is vital that all national reports have the same focus, address the same issues and do so in the same manner. That is why we kindly ask you to carefully study and closely follow the instructions in this document. These instructions include both general Common Core standards and guidelines specifically for the Interpretation of Commercial Contracts project. They cover both the answering of the questionnaire and formatting issues.

The following documents should be treated as forming integral parts of these instructions:

• – ‘The Approach:’ an explanation of the overall approach of the Common Core of European Private Law, by the Project's editors, Ugo Mattei and Mauro Bussani. Please pay particular attention to the sections on ‘Method – The Cornell Project’ and ‘Method – Legal Formants’;

• – ‘Instructions about how to answer the questionnaires’: Appendix to ‘The Approach’ covering general Common Core standards for national reports. Take particular account of the distinctions of ‘operative rules’, ‘descriptive formants’ and ‘meta-legal formants’.

THE APPROACH

THE GENERAL ‘COMMON CORE-APPROACH’

The method of the Common Core of European Private Law is ‘factua’ ; what is compared are not doctrinal systems but, rather, the most likely outcome, the so-called operative rules, that would be applied in specific hypothetical cases in the various legal systems. This analysis is informed not merely by legal rules, but by any element in the legal system that may determine or influence the legal outcome, hence by any relevant ‘legal formant’. Moreover, the Common Core approach makes use of questionnaires. These contain hypothetical problems, based on which the most likely solutions in the respective national legal systems are compared.

THE SPECIFIC APPROACH OF THE INTERPRETATION STUDY

When applied to the comparative study of the Interpretation of Contracts, the general Common Core approach entails the following.

‘Bingham’ is a company specialising in the development of industrial machinery to help businesses become more economically efficient. Bingham enters into a contract with ‘Peel’ in terms of which Bingham develops a custom-made machine that rationalises Peel’s production of copper wire which it sells to the construction industry. Clause 2 provides that, in return, Peel is due to pay a purchase price consisting of both a modest initial sum for the development of the machine and an additional 35% of the profits made by Peel by using the device over the next five years. Bingham and Peel have agreed to use a method by which they calculate the 35% of the profit – there is no dispute on this point. After Peel has paid the initial sum and Bingham has manufactured and delivered the machinery, time passes, and Bingham hears nothing from Peel. Bingham contacts Peel on several occasions throughout the next year. The answer from Peel is always the same: Peel has chosen not to use the machine. Therefore, Peel reasons, there is no profit from which to calculate Peel’s payment of 35% to Bingham. Bingham is very unhappy about this, having calculated the overall profit from the transaction assuming the use of the machine by Peel. In fact, as matters stand, Bingham contends, this will be a losing contract. Bingham further argues that, even though there is no clause in the contract which binds Peel to make use of the machine, Peel must be understood to have, in effect, taken it upon itself to pay more than merely the initial sum. To this end, Bingham had instructed an independent accountant to produce a report which estimates the amount of profit which would have been earned had the machine been used. In addition, Bingham continues, because Peel made the promise to pay 35%, Bingham was justified in expecting Peel to actually use the machine. Finally, Bingham concludes, it is simply not fair to interpret Clause 2 as Peel advocates.