Interpreting a contract the German way

In BMT Marine and Offshore Survey Ltd v Lloyd Werft Bremerhaven GmbH [2011] EWCA 32 (Comm) (24 January 2011) Mr Justice Simon applied the German law of contractual interpretation to an insurance contract.  The relevant principles of interpretation in the German system can be found in sections 133 and 157 of the German Civil Code, governing Willenserklärungen (declarations of intent).  These provisions (and their application) are noteworthy as they are almost identical to those of the DCFR.  

Mr Justice Simon narrates at paras 21-27 of the decision that the first stage of interpreting a contract under German law involves determining whether there is evidence to demonstrate a common intention between the parties as to the meaning of the contractual provisions.  Only if no such common intention can be found will the court construe the contractual provisions in question objectively.  For this, it is necessary to consider all relevant circumstances, including the wording of the contract and its purpose, the pre-contractual negotiations, and the parties’ commercial interests, as part of the objective approach to interpretation.  The German courts thus employ a two-stage approach to interpretation: first, to seek out subjective intent and, secondly, to determine objective meaning in the light of negotiations and other extrinsic material.  Mr Justice Simon goes on to apply this approach to the facts of the case in hand and demonstrates the utility of taking evidence about parties’ pre-contractual negotiations and their intentions therein to help ascertain the meaning of the contract.  This example of the application of such an approach to interpretation is useful when considered alongside our Discussion Paper and provides useful food for thought as to how any reform to the Scots law of interpretation might be employed by the courts.