Explanation of agreements

If you have watched the latest season of the Netflix series The Crown, you will undoubtedly remember the scenes in which Thatcher crosses out the word ‘sanctions’  and all the other alternatives presented to her. Ultimately she agrees to ‘signals’. If I count correctly, she rejects ten alternatives to the word ‘sanctions’, including ‘proposals’, ‘measures’, ‘actions’, ‘controls’ and ‘protocols’.

All that wrangling over words and text, which at first sight seem to have essentially the same meaning, may seem rather over the top to the non-lawyer. Even so, virtually all lawyers are keen to choose the right words and formulate the right sentences. Agreements written by non-lawyers, once in the hands of a lawyer, are often mercilessly rewritten which regularly causes some irritation to the other party. Are these lawyers simply creating their own work? Or does it serve a genuine purpose?

Barring exceptions where a lawyer takes things too far, the parties benefit from an agreement that is as clear and unambiguous as possible. By writing precisely what the parties intend, you reduce the risk of discussions arising later about the interpretation of the agreement.

If the parties interpret the written words differently at a later date, it is up to the court to decide what the parties meant.

In the famous Haviltex ruling of 1981, the Supreme Court held that when interpreting a written agreement it is not enough simply to look at the linguistic meaning of the text, but also what meaning the parties gave to the text and what they could reasonably expect from each other.

In such a case, the court must establish what the parties meant, based on the agreement and other circumstances. The court therefore does not merely need to consider the actual text of the agreement. Funnily enough, that can actually also result in only significance being given to the linguistic meaning of the agreement.

The Haviltex formula is extremely useful in agreements between unequal parties, where, for example, one of the parties is assisted by a lawyer and the other is not, or for the interpretation of agreements where arrangements between the parties have only been laid down in outline.

However, the Appeal Court of Amsterdam held in a recent ruling on a particular case that significance had to be given only to the linguistic meaning of the agreement. The case involved a business takeover between two professional parties, each of whom was represented by a whole team of lawyers. Furthermore, it concerned a very extensive and detailed purchase agreement of no fewer than 190 pages, which had been negotiated at considerable length. These circumstances meant that what had been specifically written down may only be interpreted linguistically.

Where exactly the tipping point lies is difficult to predict. But parties always benefit from the clearest possible agreement. After all, if there is no difference of opinion, nothing needs to be explained.