Contract Interpretation in Norwegian Law: Key Principles and Methods

Interpretation of agreements constitutes a central part of contract law and involves determining the legal effects a concluded agreement has between the parties. The interpretation process becomes relevant when the parties have different perceptions of the contract's content or when questions arise that the parties did not consider when the contract was concluded. This article provides an overview of the central principles and methods for interpretation of agreements in Norwegian law.

What is contract interpretation?

The term contract interpretation in Norwegian law traditionally relates to a presumptively binding concluded agreement. It involves determining the contract's content or legal effects when the parties disagree about the understanding of the contract.

The interpretation process is important for several reasons:

• It is necessary to determine the rights and obligations of the parties

• It clarifies whether a breach of contract exists in case of disagreement about the content of the obligations

• It provides answers to questions that the parties did not consider when entering into the agreement

Basic principles of interpretation

The principle of objective interpretation

In Norwegian law, there is broad consensus that the goal of contract interpretation is to determine the contract's content based on what has been said or written, with the words understood according to correct and agreed language usage. This is called the principle of objective interpretation.

The principle implies that the ordinary meaning of the words reflects the parties' legitimate expectations about how the agreement should be understood. However, it does not mean that one is confined to a purely literal interpretation. The wording of the provision must be understood in light of purpose, real considerations, and other interpretive factors.

The parties' mutual understanding takes precedence

The principle of objective interpretation must give way if the parties at the time of entering into the agreement had a mutual understanding of the contract's interpretation, and this can be demonstrated. In such cases, this mutual understanding will always be decisive—regardless of the wording. This aligns with the principle of expectations since the parties' legitimate expectations in this case differ from what is expressed through the wording.

Interpretation in case of disagreement on content

When it is not possible to establish if the parties had a mutual understanding, one must start with the principle of objective interpretation. What is decisive then is not what might have been the parties' intent or meaning, but what can be said to have been the parties' legitimate expectations taking all circumstances into account.

The interpretation process and key interpretive factors

The wording as a starting point

Apart from cases where the parties have a mutual understanding of the contract's content, the starting point for interpretation is the ordinary meaning of the words according to customary language use in the context the contract pertains to. Especially where the wording is clear, the interpretative result indicated by the wording will normally be chosen by the courts.

The wording carries particular weight in:

• Commercial contracts between professional parties

• Corporate statutes

• Construction contracts based on tenders

Systematic interpretation

The systematic structure of the contract can be significant in interpreting the wording. This may apply to:

• Headings of a contract or specific contract provisions

• Understanding a "Preamble" in commercial contracts

• The systematic structure of the contract in general

When interpreting a specific provision included in a contract, it will often be natural to choose the interpretive alternative that best harmonizes with the other provisions in the contract.

Other central interpretive factors

Several other factors may be relevant in the interpretation:

1. Negotiations and preparatory work: Negotiations that preceded the agreement, meeting minutes, and preparatory work are important interpretive factors when the wording is unclear.

2. The factual background: What has occurred between the parties before the contract was concluded can shed light on the contract's content.

3. The parties' assumptions: Assumptions can provide insight into what one or both parties intended with the agreement. If the other party was aware of these assumptions, the interpretive alternative asserted by the "assuming party" may be chosen.

4. The purpose of the contract: The purpose of the contract carries significant weight. If one interpretive alternative can fulfill the purpose while the others cannot, this will be a strong argument for the alternative that can fulfill the purpose.

5. The compensation: The size of the compensation – whether it is low or high – may indicate how the service should be with regard to quantity and quality.

6. The content and form of the contract: If there is doubt between two interpretive alternatives and one is much more extensive and burdensome for the promisor than the other, this could be significant. Also, the form of the contract may be relevant.

7. Subsequent conduct: The parties' subsequent conduct can indicate what they meant by unclear words and expressions.

Filling in contracts

When the interpretation does not provide a clear answer, it may be relevant to undertake supplementation of the contractual relationship:

1. Rule-based supplementation: This involves supplementation with non-mandatory legislation, court-created rules, or general principles of contract law.

2. Concrete supplementation: This involves supplementation based on real considerations and considerations of reasonableness.

With unclear wording, the general rule is that the ambiguity should be interpreted against the one asserting an understanding contrary to the background law's solution. There must be clear indications in the agreement before deviating from the background law's solution.

The good faith standard

The good faith standard implies that a party who knows or should know that the counterparty places a different meaning on the agreement than himself, must accept that the other party's meaning is considered the basis. The justification is that when one party has acted contrary to the general loyalty requirement in contract law, it is reasonable that the consequence is that the counterparty's understanding is considered the basis.

The standard is subsidiary in relation to party-specific interpretive factors and rule-based supplementation. It is only when these do not provide a clear answer that the good faith standard is applied.

Conclusion

Interpretation of agreements is a complex process in which many different factors may play a role. The courts do not follow any mechanical procedure but make a concrete overall assessment where all relevant factors are weighed against each other. The goal is always to find the interpretive alternative that best matches the parties' legitimate expectations at the time of contracting.