Construction Contracts Interpretation (FIDIC or Bespoke)
Apart from the internal contractual guidance offered by the Fidic (or bespoke) contract or subcontract concerned (e.g. in Fidic 2017 [red book] clauses 1.2 (interpretation), 1.4 (law and Language), 1.5 (Priority of Documents) etc), there are central legal rules of the country whose (Proper) law applies to the contract.
Such rules will usually be found in the case law in common law countries and in codes in civil law countries.
Before dealing with Bahrain, which is a civil law country, NCC shall first deal with England and Wales (and Scotland) which are common law countries:
In England, Wales (and Scotland), the law in relation to the interpretation of contracts generally (and not just construction contracts) has been summarised in six principles by Lord Hoffman in the House of Lords in the case of Investors Compensation Scheme v West Bromwich Building Society as follows:
“I do not think that the fundamental change which has overtaken this branch of the law, particularly as a result of the speeches of Lord Wilberforce in Prenn v Simmonds and Reardon Smith Line Ltd v Hansen-Tangen, Hansen-Tangen v Sanko Steamship Co, is always sufficiently appreciated. The result has been, subject to one important exception, to assimilate the way in which such documents are interpreted by judges to the common sense principles by which any serious utterance would be interpreted in ordinary life. Almost all the old intellectual baggage of ‘legal’ interpretation has been discarded. The principles may be summarised as follows.
Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.
The background was famously referred to by Lord Wilberforce as the ‘matrix of fact’, but this phrase is, if anything, an understated description of what the background may include. Subject to the requirement that it should have been reasonably available to the parties and to the exception to be mentioned next, it includes absolutely anything4 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. The law makes this distinction for reasons of practical policy and, in this respect only, legal interpretation differs from the way we would interpret utterances in ordinary life. The boundaries of this exception are in some respects unclear. But this is not the occasion on which to explore them.5
The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean. The background may not merely enable the reasonable man to choose between the possible meanings of words which are ambiguous but even (as occasionally happens in ordinary life) to conclude that the parties must, for whatever reason, have used the wrong words or syntax (see Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd).
The ‘rule’ that words should be given their ‘natural and ordinary meaning’ reflects the commonsense proposition that we do not easily accept that people have made linguistic mistakes, particularly in formal documents. On the other hand, if one would nevertheless conclude from the background that something must have gone wrong with the language, the law does not require judges to attribute to the parties an intention which they plainly could not have had. Lord Diplock made this point more vigorously when he said in Antaios Cia Naviera SA v Salen Rederierna AB, The Antaios:
‘… if detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business common sense, it must be made to yield to business common sense.”’
To these five principles, a sixth should now be added. In Re Sigma Finance Corp, Lord Mance, approving Lord Neuberger’s dissenting judgment in the Court of Appeal, said at :
“Lord Neuberger was right to observe that the resolution of an issue of interpretation in a case like the present is an iterative process, involving ‘checking each of the rival meanings against other provisions of the document and investigating its commercial consequences.’.”
In BCCI v Ali, Lord Bingham of Cornhill summarised the principles as follows:
“To ascertain the intention of the parties the court reads the terms of the contract as a whole, giving the words used their natural and ordinary meaning in the context of the agreement, the parties’ relationship and all the relevant facts surrounding the transaction so far as known to the parties. To ascertain the parties’ intentions the court does not of course inquire into the parties’ subjective states of mind but makes an objective judgment based on the materials already identified.”
Kingdom of Bahrain
Turning to the Kingdom of Bahrain (and indeed in the Codes of Kuwait, Oman and Qatar), the matter is dealt with rather differently: Articles 125 – 127 of part II of the Bahrain Civil Code provides as follows:
The Effects of a Contract
First: Interpretation and Determination of its Contents:
1. Construction of Contract:
(a) When the wording of a contract is clear, it cannot be deviated from in order to ascertain by means of interpretation the intention of the parties.
(b) When a contract has to be construed, it is necessary to ascertain the common intention of the parties and to go beyond the literal meaning of the words, taking into account the nature of the transaction as well as that loyalty and confidence which should exist between the parties in accordance with commercial usage.
In cases of doubt, the construction of a contract shall be in favour of the contracting party who may be prejudiced by enforcing the condition.
In particular, doubt shall be construed in favour of the debtor if performance of the condition creates an obligation binding upon him or increases its burden upon him.
All this shall be without prejudice to the provisions of Article 59.
2. Contents of Contract:
A contract is not only limited to its expressed conditions, but also as regards everything which according to law, usage and equity is deemed in view of the nature of the obligation, to be a necessary sequel to the contract, taking into consideration custom and usage, requirements of equity, nature of business, good faith and honesty.
It has been stated in writing by one leading GCC commentator that the interpretation of contracts in the above countries (civil and common law) are not radically different.