Amsterdam Centre for Insurance
Studies (ACIS)
The influence of European instruments of
harmonisation on the construction of contracts
in maritime law
Prof. dr. Marc Hendrikse
1
11 September 2014
Construction of a contract in maritime practice (1)
• Words in contracts are often not as clear as they seem at first
sight. In commercial practice interpretation/construction
disputes regularly lead to juridical procedures. In this lecture I
will try to answer the question what the influence is of
European instruments of harmonisation - like the Principles of
European Contract Law (PECL) and the Draft Common
Frame of Reference (DCFR) - on the
interpretation/construction of contracts in maritme practice.
However both instruments have an (somewhat) academic
character - they have interesting, practical provisions relating
to the subject of the interpretation/construction of contracts.
Construction of a contract in maritime practice (2)
• First of all two more general aspects of
interpretation/construction of contracts will be dealt with
because this knowledge is very useful for understanding the
argumentation in the second part of this lecture.
• In that part of the lecture the focus is on the influence of
European instruments of harmonisation on the
interpretation/construction of contracts in maritime practice. A
comparative law approach will be used to make the
possibilities of these instruments visible. Attention will be paid
to English contract law and also – but on a very limited scale
– to Dutch and German contract law.
Construction of a contract in maritime practice (3)
‘’Interpretation’’ or ‘’construction’’? Both the
PECL and the DCFR use the word
‘interpretation’. See art. 5:102 PECL: ‘’ ''In
interpreting the contract, regard shall be
had, in particular, to: (..)’’ and art. 8:101 para
1 DCFR: ‘’A contract is to be interpreted(..).’’
Construction of a contract in maritime practice (4)
• In literature one defends that ‘’ ‘Construction’ is a term of a
wider scope than ‘interpretation’. While the latter is concerned
only with ascertaining the sense and meaning of the subjectmatter, the former may also be directed to explaining the legal
effects and consequences of the instrument in question.
Hence interpretation precedes construction, but stops at the
written text.’’ See Margetson (Ph.D thesis2008, p.24. See also
Guest 2012 (Chitty on contracts), nr. 12-041 and McKendrick
2010 (Goode on Commercial Law) , p. 98. However, E. Peel,
Treitel on The Law of Contract, London: Sweet & Maxwell
2011, p. 207 on which page the word ‘construction’ and
interpretation’ seems to be used at random.
Construction of a contract in maritime practice (5)
• However I realise that that there is no
communis opinio about the reach of both
terms, I shall use both words in the
meaning given by Margetson – who refers
to Black’s Law Dictionary - to prevent
discussions about the exact meaning of
the terms ‘interpretation’ and construction’.
Construction of a contract in maritime practice (6)
• In case of a construction dispute about a provision
in a contract in maritime practice the arbitrator
may use the 2-phases construction-model to solve
the construction dispute. In 2010 I presented this
model to solve construction disputes in insurance
contract law. See NTHR 2010-3, p. 95. However, I
see no restrictions to use this model to solve
construction disputes in maritime contract law
because the basis of this model lies in general
contract law.
Construction of a contract in maritime practice (7)
• In the first stage one shall have to examine if the
provision in the contract is clear, unclear, or
incomprehensible. ‘Clear’ means in this case that
there is only one construction of the provision in
question possible. ‘Unclear’ signifies in this
framework that there are two or more
constructions of the provison in question possible.
‘Incomprehensible’ means in this case that it is
impossible to reduce any construction.
Construction of a contract in maritime practice (8)
•
•
The grammatical construction of the provision is important but not decisive.
The arbitrator also has to pay attention to possible other relevant
circumstances. See for instance art. 5:102 PECL (relevant circumstances)
in which is provided that ''In interpreting the contract, regard shall be had, in
particular, to: (a) the circumstances in which it was concluded, including the
preliminary negotiations; (b) the conduct of the parties, even subsequent to
the conclusion of the contract; (c) the nature and purpose of the contract;
(d) the interpretation which has already been given to similar clauses by the
parties and the practices they have established between themselves; (e) the
meaning commonly given to terms and expressions in the branch of activity
concerned and the interpretation similar clauses may already have
received; (f) usages; and (g) good faith and fair dealing’’.
Construction of a contract in maritime practice (9)
• It is possible that a grammatically totally clear
provision in a contract may lead to more
constructions in the light of some relevant
circumstances as for instance usages and
the meaning commonly given to the provision
in question in the branch of activity - in our
case maritime practice – concerned.
Construction of a contract in maritime practice (10)
•
•
The continuation in the second stage of the 2-phases construction-model depends on the
result of the assessment in the first stage.
In case the first phase assessment has produced one construction the case is simple: the
construction in question will be followed.
•
In case the first stage examination has resulted in two or more constructions – so the
provision is unclear – the matter is more difficult. The arbitrator has to choose one of the
possible constructions of the provision. An important question is if the arbitrator has the
possibility to apply the contra proferentem rule, especially when it concerns a contract
which has been closed between two non-consumers which is for instance the case in
maritime practice. The possibility of applying the contra proferentem-rule in case of a
contract in maritime practice is the subject of the end of this lecture
•
In case the first phase assessment has not produced any result the arbitrator has an even
greater problem. While this situation does not happen very often in practice I will pay no
attention to this problem.
Construction of a contract in maritime practice (11)
•
The speech of Lord Hoffmann in the case Investors Compensation Scheme Ltd vs.
West Bromwich Building Society, [1997] UKHL 28 makes clear that in English
contract law the ‘’literal’’ approach is not (any more) the leading approach to the
construction of contracts. The arbitator shall not only have to pay attention to the
meaning of the words but to the – in the words of Lord Hoffmann – ‘’meaning which a
document would convey to a reasonable man having all the background knowledge
which would reasonably have been available at the time of the contract.’’ The
conclusion is: (..) a judge must always look to the extraneous circumstances (..) no
matter how clear the words may seem at first glance.’’ See J. Turner, EJCCL 2013-1,
p. 29. The conclusion is further that according to English case law an arbitrator has to
pay attention to relevant circumstances in het first stage of the 2-phases constructionmodel but there is no statutory provision on this topic.
The situation in Germany and The Netherlands is more or less the same as the
situation in England.
Construction of a contract in maritime practice (12)
• According to § 133 BGB the grammatical meaning of a word
in the provision which has to be construed is not decisive in
Germany. § 157 BGB provides that contracts have to be
construed in a way as the principle of good faith – with
respect to relevant usages - requires. Both provisions involve
a combination objective and subjective construction of
contracts. Interesting is the explicit reference in § 157 BGB to
usages as a relevant circumstance in in the first stage of the
2-phases construction-model. In case of a commercial
contract § 346 HGB provides in addition that commercial
usages are a relevant circumstance when construing a
commercial contract.
Construction of a contract in maritime practice (13)
• The present Dutch Civil Code does not contain
any provisions on the construction of contracts. In
the Dutch Supreme Court–case Haviltex, HR 13
March 1981, ECLI:NL:HR:1981:AG4158, it was
held that an arbitrator has not only pay attention to
the grammatical meaning of the words in the
provision which has to be construed, but also to
relevant circumstances as for instance the social
position of the parties and the legal knowledge
which might be expected from the parties.
Construction of a contract in maritime practice (14)
•
The PECL and the DCFR both have – in contradistinction to Dutch, English and
German Law – an extensive relevant circumstances scheme.
Art. 5:102 PECL (relevant circumstances) provides that ''In interpreting the contract,
regard shall be had, in particular, to: (..) (c) the nature and purpose of the contract;
(..) e) the meaning commonly given to terms and expressions in the branch of activity
concerned and the interpretation similar clauses may already have received; (f)
usages and (g) good faith and fair dealing’’.
Art. II-8:102 para 1 DCFR provides: ‘’ In interpreting the contract, regard may be had,
in particular, to: (..) (c) the interpretation which has already been given by the parties
to terms or expressions which are the same as, or similar to, those used in the
contract and the practices they have established between themselves; (d) the
meaning commonly given to such terms or expressions in the branch of activity
concerned and the interpretation such terms or expressions may already have
received; (e) the nature and purpose of the contract; (f) usages; (g) good faith and
fair dealing.’’
Construction of a contract in maritime practice (15)
• The cited relevant circumstances are very important for maritime law
practice. First of all - see the circumstance mentioned under c
(PECL) and e (DCFR) - maritime law is a part of commercial law in
which area of law the emphasis lies - in contradistinction to civil law
in which area of law the emphasis lies on the individual interests of
the parties involved - on the general interest of an efficient and
effective commercial traffic which starting-point combines well with
an more objective (abstract) construction of contractual provisions.
In maritime practice one uses frequently expressions and terms with
a specific meaning. It is important to take account of this special
meaning when construing provisions of a maritime contract - see
under e (PECL) and d (DCFR). The same might be said about - see
f (both PECL and DCFR) - 'usages'.
Construction of a contract in maritime practice (16)
•
Do the relevant circumstances schems of the PECL and DCFR have surplus value in comparison
with Dutch, English and German law on the topic of relevant circumstances in the first stage of the
2-phases construction-model?
The first advantage of the relevant circumstances schemes of the PECL and DCFR is that there
will be less uncertainy about the question which circumstances are of importance when construing
contractual provisions than it is the case under Dutch, English and German law because are very
precise and extensive. Dutch and English law do not have a statutory scheme on this topic at all
and the German statutory scheme is limited and not very precise.
The second advantage of both schemes is that because in maritime practice one uses frequently
expressions and terms with a specific meaning it is in my opinion a practical approach to start with
looking if there is such a meaning instead of – what is the case in English law - giving the words
in the charterparty their ordinary meaning but that evidence may be admitted to show that the
parties intended to construe the word(s) in a special or technical sense.
Construction of a contract in maritime practice (17)
§ 305c of the German BGB provides - in my own words - that in case
the first stage examination has resulted in two or more constructions –
so the provision in the contract is unclear – the provision has to be
construed against the user of this provision. This legal provision applies
to all contracts.
Art. 6:238 para 2 of the Dutch Civil Code – which is an implementation
of art. 5 of the EEC Regulation on unfair terms in consumer contracts
1993/13 of 5 April 2013 - is comparable with the German legal provision
but the reach of this provision is limited to consumer contracts. There
are some cases in which it is held that a construction against the user
of the provision is also possible in case of a non-consumer contract but
that is no rule but at most a point of view.
Construction of a contract in maritime practice (18)
Is it possible to apply the contra proferentem-rule in case of
a non-consumer contract under English Law? Guest says
in Chitty on Contracts on this point: ‘’(..) If a carrier gives
two notices, limiting his responsibility in cases of loss of
goods, he is bound by that which is least beneficial to
himself. (..) And if an instrument is made in terms so
ambiguous as make it doubtful whether it is a bill or note,
the holder may, as against the maker of the instrument,
treat it as either at this election.’’ Guest 2012, nr. 12-085.
Construction of a contract in maritime practice (19)
•
The ratio of the contra proferentem-rule is for example explained by Evershed M.R. in
the case John Lee & Son Grantham Ltd vs. Railway Executive, [1949] 2 All E.R. 581,
583: ‘’We are presented with two alternative readings of this documents and the
reading which one should adopt is to be determined, among other things, by a
consideration of the fact that the defendants put forward the document. (italics, MLH).
They have put forward (italics, MLH) a clause which is by no means free from
obscurity and have contended (…) that it has a remarkably, if not an extravagantly,
wide scope, and I think that the rule contra proferentem should be applied.’’ It is
important to ascertain that Evershed M.R. speaks of ‘put forward’ instead of
‘make/made’. Therefore it does not matter if the party which has put forward the
provisions has made the provisions itself. When for instance a party put forward
standard terms which contain an unclear provision this provision will be construed
against that party although this party has not made the provision itself
Construction of a contract in maritime practice (20)
• The PECL contain a contra proferentem-point of view which applies
to all contracts. Art. 5:103 PECL provides: ‘’Where there is doubt
about the meaning of a contract term not individually negotiated, an
interpretation of the term against the party who supplied it is to be
preferred’’ It is important to ascertain that the PECL contain not a
contra proferentem-rule but a contra proferentem-recommendation
which is a consequence of the words ‘’ an interpretation of the term
against the party who supplied it is to be preferred (italics, MLH)’’.
Art. II-8:103 para. 1 provides the same as the PECL-provision on
this topic: ‘’ Where there is doubt about the meaning of a term not
individually negotiated, an interpretation of the term against the party
who supplied it is to be preferred.’’
Construction of a contract in maritime practice (21)
• How to apply the contra proferentem-rule
when a broker is in the case? This
question is very important for mercantile
practice because brokers play an
significant role in the process of
commercial contracting by for instance
preparing contract documents.
Construction of a contract in maritime practice (22)
• In marine insurance practice the matter is clear: “While it is the case
that the contra proferentem principle normally works in in the
assured’s favour, in many situations, particularly contracts placed at
Lloyd’s the wording may have been prepared by the broker.
Evidence is admissible to show who in fact was responsible. As the
broker is the agent of the assured, the contra proferentem principle
is not applicable in the usual way and any ambiguity will in those
circumstances be construed against the assured and in favour of the
insurer’’. See R. Merkin, Colinvaux’s Law of Insurance, London:
Sweet & Maxwell 2010, p. 124. Hence decisive is the following
criterion: on behalf of whom acts the broker?
Construction of a contract in maritime practice (23)
• In maritime law literature there is – in so far as I can overlook – no
attention for this matter. Applying the above mentioned criterion from
marine insurance law to shipping law involves that one has to
examine on behalf of whom the broker acts when preparing the
wording of the documents of the shipping contract. In the bare boat
charter practice for example one sees often that that an
agent/broker on behalf of the owner concludes a contract between
the owner and the charterer, the contract document has been
provided with a vignette of the company of the broker and the broker
has prepared the wording of the contract. In such case every
ambiguity in the contract will be construed against the owner
because the broker acts on behalf of the owner.
Construction of a contract in maritime practice (24)
• Applying art. 5:103 PECL and Art. II-8:103 para. 1
involves more or less the same solution. Because
the broker has put forward the provisions of the
contract (“supplies”) en negotiations about the
contract provisions seldom take place (“not
individually negotiated”) every ambiguity in the
contract will be construed by preference against
the owner because the broker acts on behalf of
the owner.
Construction of a contract in maritime practice (25)
• Do the PECL and DCFR have surplus value in comparison
with Dutch, English and German law on the topic of contra
proferentem? In my opinion the surplus value is present but
not at all aspects of construction contra proferentem.
First of all one can ascertain that although a construction
contra proferentem can be applied to all contracts under both
the regime of the PECL and the DCFR it is not a rule but only
a recommendation.
Surplus value can be found in the schemes when applying the
contra proferentem recommendation in cases in which a
broker prepares the contract provisions.
Construction of a contract in maritime practice (26)
•
Conclusion
•
The topics dealt with in this lecture have made clear that the PECL and DCFR have some
surplus value in comparison with Dutch, English and German law on the topic of
construction of contracts in maritime practice.
Although I recognise the advantages of both schemes on this topic I prefer provisions on
construction of maritime contracts in international conventions for the following two
reasons.
First of all one can ascertain that both schemes are academic experiments which are not
applied in international practice.
•
•
Secondly, a international convention dedicated to (an aspect of) maritime contract law is
more appropriate to take account of the special circumstances of maritime practice. This is
important for instance on the topic of relevant circumstances in the first stage of the 2phases construction-model.