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n Journal of Contemporary Management - A new approach to the interpretation of contracts and the management of strategic corporate relationships
The paper sets out the most recent legal theory on the approach to be taken by courts to the interpretation of contracts, and examines how this approach has been applied in two recent decisions of the South African Supreme Court of Appeal and the United Kingdom Supreme Court. The new iterative approach to contractual interpretation emphasises reading language in context, as a means to achieve the contractual purpose, despite unclear contractual wording, giving preference to a business-like result.
However, legal theory of contractual interpretation disallows any reference the contracting parties' actual intentions and remains bound by the language used. Courts cannot rewrite what may turn out, in the light of changed (or unanticipated) circumstances, to be a bad bargain.
The paper examines inter-disciplinary connections between this legal theory and management studies on the substitutability/compatibility of formal contracts and relational contracts in the management of strategic relationships. Formal contracts are viewed as an inadequate, or even destructive, means to secure post-contractual cooperation between parties when adapting to changing environments. However, a recent empirical study has suggested that formal contracts can enhance post-contract cooperation when used to balance risk allocation and create trust and perceptions of fairness in strategic alliances.
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