Interpreting Contracts Across Jurisdictions in India — Europe Trade Era

Introduction

In a newly emerging multipolar world order, a promising development is the transformative phase in India’s trade relationship with Europe. The proposed Trade and Economic Partnership Agreement (TEPA) with the European Union and the recently concluded Free Trade Agreement with the United Kingdom aim to foster deeper trade and commercial engagement between the Indian subcontinent and Europe. As this leads to a surge in cross-border business transactions, there will be a growing demand for well-structured contracts between Indian and European entities. In this context, it becomes imperative to reflect on the differing legal cultures and interpretive approaches of English common law and civil law systems, to ensure contracts are drafted with greater clarity, intent, and foresight.

Contract theory and linguistic philosophy

A contract represents a fascinating intersection of private and public law. In Contract Theory, Stephen A. Smith argues that contracts exist within a hybrid legal structure: while they are grounded in individual autonomy, this autonomy is exercised within a framework established and regulated by public law.¹

In The Politics of Language, David Beaver and Jason Stanley advance the theory that the primary function of language is to foster human connection and enhance social cohesion.² A contract, which serves as the formal evidence of a relationship between individuals, can thus be seen as a manifestation of this foundational function of language. Consequently, a contract is inseparable from the words it contains; the language employed is not merely incidental but central to its legal and relational character. Accordingly, an informed engagement with the science and philosophy of language is indispensable to comprehending the interpretive approaches adopted across varied linguistic traditions and legal systems.

To begin with, when the parties to a contract do not share a common language, the very formation of consensus ad idem may be called into question, potentially undermining the validity of the contract. Common law systems may treat such misunderstandings as a ground for voiding the contract due to mistake, whereas civil law jurisdictions are more inclined to preserve the agreement by interpreting the parties’ intentions, even where mutual understanding is imperfect.³

It is also important to remember that even if the formation of the contract itself is not in question, the interpretation of words is often influenced by the cultural and cognitive background of the reader or listener, introducing what they refer to as framing or interpretive bias. For example, the term “reasonable endeavours” is understood and treated differently across UK and France.⁴ Ultimately, recognising the role of language as both a legal and cultural force is essential in addressing the challenges of contract interpretation across diverse jurisdictions.

These reflections on contract theory and linguistic philosophy lay the groundwork for understanding why it is important to understand the divergent approaches to interpreting contracts adopted by different legal systems. Language is not simply a neutral medium for expressing obligations — it is shaped by the epistemologies, cultural contexts, and legal traditions in which it is deployed. As such, the interpretive act itself varies depending on whether the legal system privileges textual fidelity, contextual nuance, or subjective intention. This theoretical foundation invites a closer examination of how common law and civil law systems operationalise these interpretive instincts in practice. The next section of this paper turns to that comparative analysis, mapping the doctrinal and evidentiary contours of contract interpretation across these traditions, and drawing lessons for Indian practitioners navigating transnational commercial engagements.

Common law and civil law approaches

The analysis of linguistic philosophy becomes particularly relevant when examining how common law and civil law systems differ in their approaches to contract interpretation. While both traditions assign significant weight to the intent of the parties, they diverge in how that intent is ascertained.

Under English common law, there is a strong emphasis on textual certainty. In Marley v. Rawlings⁵, the Court held that, in interpreting a contract, its task is to ascertain the intention of the parties by determining the meaning of the relevant words. This is done by considering the natural and ordinary meaning of the language, the overall purpose of the document, other provisions within it, the facts known or assumed by the parties at the time of execution, and principles of common sense, while disregarding any subjective evidence of a party’s intentions.

In Wood v. Capita Insurance Services Ltd.⁶, the Court underscored the importance of determining the objective meaning of the language chosen by the parties to express their agreement. To this end, it held that the contract must be read as a whole, with due regard to both textualism and contextualism as complementary tools of interpretation. In Sirius International Insurance Co. v. FAI General Insurance Ltd.⁷, the aim of the inquiry to interpret a contract is not to probe the real intentions of the parties but to ascertain the contextual meaning of the relevant contractual language.

It is for this reason that the courts interpret this language through the lens of a reasonable third party, often referred to as the notional reader, rather than by reference to the subjective understanding of the parties themselves.⁸ Importantly, there is almost little or no emphasis on the subjective intentions of the contracting parties. Extrinsic materials, such as pre-contractual e-mails or negotiations, are generally excluded from consideration when interpreting the meaning of contractual terms.⁹

Indian law too, has by and large evolved on the lines of English common law when it comes to matters of interpreting contracts. The Supreme Court in SAIL v. Gupta Brother Steel Tubes Ltd.¹⁰, held that the interpretation of a contractual clause must be rooted in the intent of the parties as reflected in the language of the contract. It reaffirmed that contractual provisions must be interpreted with due regard to the express terms and the nature and purpose of the agreement.

In contrast, civil law systems such as those of France, Germany and the Netherlands adopt a more contextual and purposive approach to interpretation. While the text of the contract remains important, courts in these jurisdictions are not confined to the four corners of the document. Instead, they may examine a broader range of materials, including pre-contractual negotiations, correspondence and the parties’ conduct, to determine their true intent.

German contract law emphasises the parties’ true intentionThe courts first seek evidence of a shared understanding at the time of contracting. Failing that, contracts are construed objectively from the perspective of a reasonable party in context. German law permits broad evidentiary input, including negotiations and conduct, to determine meaning, distinguishing it from the more restrictive, text-focused approach of common law systems. This results in a balanced, hybrid model of interpretation.¹¹

French contract law too, emphasises the parties’ common intention over literal wording (Article 1188 of the Code Civil) aiming to respect their true will, thus not being limited to the text of the contract and implying a subjective inquiry for determining intent of the parties. Under French law, subjective inquiry into contractual intent is permitted, but only to the extent that it reveals a common intention shared by the parties at the time of contracting. Any intention that was not mutual, not contemporaneous with the conclusion of the contract, or not objectively verifiable is excluded from consideration.

Article 1188 also provides however that courts must adopt the perspective of a reasonable person where shared intention is unclear. Article 1194 of the Code Civil permit courts to imply terms based on equity, usage, or statute, while Article 1192 prohibits distorting clear language. This framework balances subjective and objective elements, creating a hybrid model that enhances legal certainty, especially in complex or commercial contractual relationships.¹²

Dutch contract law emphasises reasonableness and fairness over strict textual interpretation. The courts prioritise the parties’ intentions and context, as reinforced by Haviltex judgment¹³, which mandates consideration of conduct, communication, and mutual expectations. Article 6:248(1) of the Burgerlijk Wetboek (BW) codifies this contextual approach. Courts may revise or dissolve contracts under Article 6:258 BW if unforeseen circumstances render performance unreasonable. Article 6:94 BW also permits judicial moderation of penalties. This model allows contract meaning to vary based on social and professional context, promoting a flexible, equitable approach over rigid formalism in long-term or evolving relationships.¹⁴

More recently, the Dutch Supreme Court has signalled a shift recognising the contracting parties’ freedom to determine the method of interpretation themselves, whether objective or subjective. This development allows parties operating under Dutch law to contractually agree on the interpretive framework that will govern their agreement, thereby qualifying or even departing from the default Haviltex¹⁵ approach.¹⁶

While the core principles of contract law across common law and civil law systems converge in many respects, a key distinction lies in the nature of admissible evidence used by courts to ascertain the parties’ intent. Common law jurisdictions typically prioritise an objective approach, often limiting the use of extrinsic evidence through doctrines such as the parol evidence rule, which excludes inquiry into extrinsic evidence when parties have chosen to reduce the contract in writing.¹⁷

Recommendations

In light of the growing legal and commercial convergence between India and various European jurisdictions, particularly in view of the proposed TEPA with the European Union and the recently concluded Free Trade Agreement with the United Kingdom, it is imperative that Indian legal practitioners adopt a sophisticated, comparative approach to cross-border contract drafting. The following recommendations are proposed to ensure legal clarity, enforceability and cultural coherence in contracts involving European counterparties:

Negotiate and agree upon the applicable law first

At the outset, it is crucial that the contracting parties reach a clear agreement on the law governing the contract, including its interpretation and enforcement. Where the parties choose a common law system, the emphasis shifts to the precision of the contractual language, with minimal concern that pre-contractual negotiations will influence interpretation. By contrast, in civil law jurisdictions, it becomes necessary not only to define the applicable interpretative framework but also to exercise heightened caution during negotiations, as extrinsic discussions and pre-contractual exchanges may bear significantly on how the contract is ultimately construed.

Determine and specify the interpretive method

Given the interpretive divergence between common law and civil law systems, Indian lawyers should advise clients to expressly identify the method of interpretation in the contract. Where Dutch law is chosen, the recent jurisprudence of the Dutch Supreme Court allows parties to stipulate whether an objective or subjective test is to be applied, thereby offering a valuable tool to align interpretive outcomes with the parties’ commercial intentions.

Draft clear governing law and jurisdiction clauses

Ambiguities in governing law and jurisdiction clauses can lead to protracted disputes and significant jurisdictional uncertainty. To mitigate such risks, it is essential that parties clearly articulate any distinctions they intend between the law governing the substance of the contract and the procedural rules applicable to dispute resolution. Where different legal systems are contemplated for different aspects of the contract, this must be expressly stated. Indian practitioners, in particular should draft these clauses with heightened precision, mindful of interpretive divergences across legal traditions and the implications for enforcement in cross-border settings.

Adopt linguistic precision and cultural sensitivity

The language of the contract must reflect not only legal accuracy but also cultural intelligibility. Lawyers should avoid unnecessary archaic, verbose, or formulaic drafting, particularly when engaging with civil law parties, who often favour more straightforward linguistic conventions. Where technical or potentially ambiguous terms are used, definitions should be incorporated directly within the contract.

Maintain robust records of negotiations

Although common law courts typically limit the admissibility of extrinsic evidence, civil law courts frequently refer to pre-contractual negotiations and conduct. Indian lawyers should therefore preserve comprehensive records of emails, term sheets, memorandum of understanding, and negotiation transcripts to support future interpretive clarity or dispute resolution proceedings.

Ensure cross-jurisdictional enforceability

Certain contractual clauses permissible under Indian law, such as termination-for-convenience clauses, may be rendered unenforceable under the mandatory provisions of foreign law. It is advisable to consult local counsel in the relevant jurisdiction to validate the enforceability of such provisions.

Align dispute resolution mechanisms with interpretive practices

When incorporating arbitration or forum selection clauses, lawyers should consider whether the dispute is arbitrable under both Indian and foreign law. Furthermore, the chosen seat of arbitration or jurisdiction should align with the preferred interpretive approach, as local interpretive traditions will govern any judicial review of the arbitral award or contractual provisions.

Incorporate recitals and purpose clauses

Purpose clauses and recitals, often overlooked in Indian contracts, play a significant interpretive role in civil law systems. Including a clear articulation of the parties’ objectives and the commercial context can aid courts in construing the contract consistently with the parties’ original intentions, especially in cases of ambiguity.

Conclusion

As India enters a new phase of transcontinental economic integration, contract law must evolve in tandem with the complexities of cross-border legal practice. The interpretive divergence between common law and civil law traditions, particularly regarding evidentiary admissibility, contextual reasoning and judicial discretion, presents both challenges and opportunities for Indian legal practitioners.

Contracts are not merely repositories of obligations but instruments of legal and commercial architecture. They must be constructed with a nuanced awareness of the legal cultures, interpretive conventions and linguistic subtleties that shape their enforcement. By integrating comparative legal insights, cultural literacy and linguistic precision into drafting practices, Indian lawyers can ensure that cross-border agreements are not only enforceable but also resilient, equitable and future ready.

Ultimately, the effectiveness of a contract lies not simply in technical accuracy, but in its capacity to bridge legal systems, anticipate contingencies, and preserve the parties’ shared intent across jurisdictions and over time. In a rapidly globalising legal order, such foresight is not merely beneficial, it is indispensable.