An interpretation dispute is a conflict regarding the interpretation of a contractual provision. Many international disputes do not revolve around bad faith, but around interpretation. In our practice, we see entrepreneurs litigating for months over what they believed they had clearly agreed upon. With a few techniques, you can prevent these disputes already in the contract phase. Clear definitions and consistent terminology make contracts internationally enforceable.
What is the legal problem?
International contracts are often drafted in a language that is not the native language of at least one party. Different legal systems apply different rules of interpretation. Common law judges look primarily at the text; civil law judges also weigh intent and context. What seems clear to the drafter is interpreted very differently by the counterparty or a judge.
What does the law say?
Under Dutch law, the Haviltex standard (Supreme Court 13 March 1981, NJ 1981/635) and the DSM-Fox standard (Supreme Court 20 February 2004, NJ 2005/493) apply: judges weigh objective text, party intent, and reasonable expectations. For commercial contracts between professional parties, the text carries more weight. Under English law, interpretation follows from the Investors Compensation Scheme (1998) and Arnold v Britton (2015): primarily textual.
Article 8 of the Vienna Sales Convention contains its own rules of interpretation based on what the counterparty would reasonably have understood in the same circumstances. UNIDROIT Principles (Articles 4.1-4.8) provide international rules of interpretation that are often followed in arbitration.
What risks do companies face?
Unclear performance obligations lead to quality disputes. Vague deadlines allow for delay. Ambiguous liability clauses are interpreted contra proferentem to the detriment of the drafter. Undefined key concepts lead to battles over interpretation. In international relations, cultural differences can make interpretation even more complex, resulting in costly proceedings.
Practical example from our practice
We represented a Dutch supplier in a dispute with a Spanish client regarding what "timely delivery" entailed. The contract used ETA, ETD, and delivery date interchangeably. The inconsistency led to over a year of arbitration. Upon renegotiation, we incorporated a definition chapter: "Delivery" defined as transfer at the agreed Incoterm point, linked to FCA Rotterdam, and a clear measurement method. Subsequent disputes were settled within a few weeks by referring to the definitions.
What can you do?
Start every contract with a definition chapter. Use defined terms consistently. Avoid synonyms and jurisdiction-specific concepts. Combine with an entire agreement clause, a language priority rule, and appendices for technical specifications. Provide for a rule of interpretation that is not automatically applied against the drafter under Haviltex and DSM-Fox. See also our article on The role of good definitions in contracts.