Exclusionary principles

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  In Investor Compensation Scheme Ltd v West Bromwich Building Society, Lord Hoffman set out the modern approach to interpretation contract within five principles, drawing a great deal of influences from Lord Wilberforce judgment in the case of Prenn V Simmonds (1). The third principle is the exclusionary rule:

  �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.�

This rule is a long standing principle in English law, which states that evidence of prior negotiations between the parties cannot be admitted when the courts look into interpretation of the meaning of a contract.  The rule is controversial and for which the debate requires a �gentle stir�.

In the case of Chartbrook v Persimmon Homes Limited, the House of Lord was invited to reconsider exclusionary rule applicability in the �interest of greater clarity and fairness� (2). Instead the House of Lord chose to dismiss the debate and reaffirm the exclusionary principle.  This decision maybe viewed as the only correct path to follow in light of rules of interpretation created by Lord Hoffman in the case of Investor Compensation Scheme Ltd v West Bromwich Building Society, which have provided a clear framework from which courts are able to interpret contracts.  

An understanding of history of exclusionary rule is required in order to appreciate the discussion of judgments in the case of Chartbrook. In the words of Lord Hoffman to abandon the exclusionary rule would be to depart from long and consistent line of authority, the binding force of which has frequently been acknowledged�.

Historically the nature of adherence to exclusionary principal has been strict. In the case of Miller V Miller, it was held that consideration of correspondence between the parties before marriage, when interpreting marriage contract is dangerous (3). The strictness approach was further applied by House of Lords in the case of Inglis v John Buttery & Colo (4).

(1) Prenn V Simmonds [1971] I WLR 1381.

(2) Chartbrook v Persimmon Homes Limited [2009] UKHL 38.

(3) Miller V Miller (1822) 1 Sh App 309 at 317.

4) Inglis v John Buttery & Colo (1878) 3 App Ca 552.

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Lord Blackburn justified this approach by stating �where parties agree to embody, and do actually embody their contract in a formal written deed, then in determing what the contract really and really meant, a court must look at the formal deed and to that deed alone.� After all the function and purpose of formal contract is to �put an end to the disputes which would inevitably arise if the matter were left upon verbal negotiation or upon mixed communings partly consisting of letters and partly of conversations.�

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Literal approach was historically adopted by the courts in regard to interpretation of contracts:  the four corner rule. The final written agreement is said to reflect the true

nature of the parties express intentions in regard to the legal obligations which they impose on each other. The approach was objective and not subjective. If intention of the parties were to be considered, then the final written word purpose of carrying out the �will of parties� would be defeated. The strict approach in regards to exclusionary principle continues to be applied even in the face of ...

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