The New Zealand Supreme Court and the UN International Law Commission: A Dialogue on Subsequent Conduct in the Interpretation of Contracts and Treaties

Written by Alberto Alvarez-Jimenez

 

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“The written word is unalterable”. F. Kafka. The Trial

The New Zealand Supreme Court (NZSC) in Bathurst Resources Limited v L & M Coal Holdings Limited recently explored the issue of evidence of subsequent conduct in the interpretation of contracts. Generally, the role of subsequent conduct is limited. In 2018, the United Nations International Law Commission (ILC) examined in detail the use of subsequent agreements and practice in the interpretation of international treaties under art 31(3)(a) & (b) and art 32 of the Vienna Convention on the Law of Treaties. The role of these subsequent agreements and practices can be significant. Despite the contrast between contracts and treaties, the ILC’s work can be valuable to the NZSC. This Perspective explores how.

Treaties & Contracts

Unquestionably, treaties and contracts differ. As Kenneth Keith showed, treaties are exercises of state sovereignty pursuing general goals, whilst contracts are generally expressions of free will for private purposes. Their interpretation also varies. Contracts must be interpreted at the time the parties entered into them, but treaties may also be interpreted in an evolutionary way. However, contracts and treaties create rights and obligations, which require interpretation and the interpretative processes have common grounds. 

Bathurst v L & M

The NZSC has embraced the objective approach to contract interpretation. It said in this decision: 

the proper approach is an objective one, the aim being to ascertain “the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.”

The application of the objective approach may also involve assessments of the parties’ subsequent conduct for it can constitute evidence of the meaning of the given contract. The NZSC offered some examples of subsequent conduct relevant for the purpose of interpretation: mutual conduct, or non-mutual conduct particularly that which is more likely to be pertinent to a claim of estoppel. 

To be admissible in the context of contractual interpretation, evidence of subsequent conduct must not needlessly extend the proceedings. Otherwise, the evidence will be excluded pursuant to Section 8 of the Evidence Act. No similar requirement exists in international law.

From the ILC to the NZSC

The ILC’s work could add layers to the NZSC’s dimensions of subsequent conduct:

  1. The ILC recognises that subsequent practice does not need to be joint conduct. Parallel conduct by the parties may be enough, although it must be a sufficient common understanding as to the interpretation of the treaty. A common understanding requires mutual awareness of such understanding.
  2. What if there is equivocal conduct? It will sometimes preclude the existence of an agreement, but interpreters should delve deeper into the analysis and evaluate if the treaty provision (or contract clause) accords discretion to the parties. If this is the case, what appears as equivocal conduct is not a conflict of perspectives on the content of the given provision but different exercises of the discretion the precept grants. Moreover, temporary differences of opinion do not mean that the difference is permanent and that no agreement exists. 
  3. The ILC also explores the issue of a difference of opinion which arises after a subsequent agreement on interpretation has been established under art 31. In the event of a common understanding based on subsequent practice, the ILC is of the view that the rejection by one party undermines the weight attached to the practice, but only after the beginning of the disagreement.
  4. The ILC also deals with the weight conferred to subsequent practice in the interpretation process, a topic Bathurst v L & M touches upon. The ILC states that weight depends on clarity, specificity, and repetition. Furthermore, the ILC uses the expression “whether and how” the practice is repeated. The ILC finds two standards regarding repetition. One is supported by the WTO Appellate Body, which demands a concordant, common and consistent subsequent practice. A second, more flexible standard is applied by the ICJ. The ILC prefers the latter, for there is no evidence that the Appellate Body’s approach is a well-established minimum threshold for a subsequent practice to be used under art 31.3(b). The NZSC could explore the criteria concerning weight and the standards on repetition.
  5. Finally, the ILC assesses the possible effects of subsequent practices under art 31. The first is to help interpreters identify the ordinary meaning of a particular term. The term might have different possible meanings with broader or narrower implications. An international court or tribunal may have preliminarily chosen one, and the use of subsequent agreements and practices under art 31 may confirm the choice made. Secondly, treaties may have a variety of objects and purposes. Additionally, there may be general objects and purposes of a treaty, but certain provisions may have also a specific object and purpose. The use of subsequent agreements and subsequent practice can help courts and tribunals clarify the object and purpose that is more relevant to the precept being interpreted. This analysis can equally apply to the assessment of the background knowledge in contract interpretation.

From the NZSC to the ILC

Subsequent conduct contradicting the party’s interpretation in judicial proceedings merits a comment. This class of non-mutual subsequent conduct was relevant in Bathurst v L & M but is rarely mentioned by the ILC, though it should have been. It is not subsequent practice under art 31(3)(a) or (b) but could only be so under art 32, which is not the appropriate fit for this practice. International courts and tribunals routinely assess it under art 31(1).

In summary, the ILC has made an important contribution to the conceptualization of subsequent practice within the interpretation of treaties, on which the NZSC and other domestic courts could draw on for the interpretation of contracts.

Alberto Alvarez-Jimenez
Alberto Alvarez-Jimenez
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A Colombian and Canadian national based in Aotearoa New Zealand, Dr Alberto Alvarez-Jimenez (he/him) is a Senior Lecturer at the University of Waikato. His interest in international law stems from his life experience in several continents. His research is interdisciplinary and includes: economics, political science, literature and art. It has appeared, among others, in AJIL, EJIL, JIEL and ICLQ. He speaks Spanish, English and French and enjoys architecture and music.

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