Understanding legal documents can often prove to be difficult, particularly where the documents relate to a complicated transaction.
In simple terms (and the reality is that these things are rarely simple!) a Court when considering a legal document will consider what its meaning would convey to a reasonable person. A Court will consider the context of any specific provision (both insofar as the document itself is concerned and the background to the document) and will try to give effect to the intention of the parties (to give the document commercial efficacy). Interpreting a document literally will often be avoided where that would lead to unreasonable results.
These principles of interpretation were considered by the High Court in the recent case of Jones v Oven.
A landowner entered into two separate sale contracts (with one buyer) of parts of its farm. Each contract provided that the land retained by the owner following the sale wouldn’t be used in a way which interfered with the use and enjoyment of the land being disposed of.
The second sale contract contained a provision that if a barn on the land disposed of was demolished, a strip of land 4 metres in width would be transferred back to the original landowner.
By the time the barn came to be demolished, a dispute had arisen concerning the use of the retained land (by the original owner). The dispute extended to whether the restrictive covenants (stating the retained land wouldn’t be used in a way which interfered with the land which had been disposed of) should be imposed on the strip of land when transferred back to the original owner. Since the strip didn’t form part of the ‘retained land’ when the restrictive covenants were imposed (i.e. completion of the sales) a literal interpretation of the contract was that the covenants shouldn’t be imposed on the strip of land.
In the Court’s view, a literal interpretation of the contract would conflict with the purpose of imposing the restrictive covenants in the first place i.e. most of the farm / retained land would be bound by restrictive covenants but not all of it meaning the covenants might well be ineffective.
The purchaser in this case will obviously be happy with the outcome (given that more land will be burdened by the restrictive covenant than a strict interpretation of the sale contracts would have given rise to). The other side of the coin is that uncertainty can clearly be created if situations aren’t legislated for in legal documents, leaving the way open for disputes and, as in this case, provisions to be implied.
The moral is clear, complex situations should be thought through carefully and all outcomes (and the implications of them) legislated for clearly.
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