Arbitrators and the Interpretation of Contracts – Vol. 29 No. 4

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Author: Alan Scott Rau*

Published: September 2019

Arbitral Adjudication
Agreement to Arbitrate
Third Parties in Arbitral Proceedings
Applicable Law
Applicable Conflict-of-Laws System
Authority of the Arbitral Tribunal
Right to Determine Applicable Law
Jurisdiction and Powers of the Courts in Matters of Arbitration Generally
Contractual or Consensual Basis of Arbitration


I suspect that much of the work of “contract interpretation” calls merely for the deployment of what Stefan Vogenauer has termed “universal hermeneutic truths”—that is, the search for meaning by going no further than “common sense” and how language is “commonly and naturally deployed.” As we all use language, we all are accustomed to unraveling ambiguity, whether semantic (“what is the most natural meaning of this word”) or syntactic (“what is the most natural meaning of this sentence), as a matter of course.  It might well be thought, then, that for this inquiry, recourse to a “governing law” is simply otiose—after all, it merely calls on a court or an arbitrator to take note of simple “matters of fact,” or to apply “common sense,” or at most, to routinely apply familiar and “generally applicable rules of contract construction” often “not derived from any single national legal system.”

Where no definitive meaning can be derived from the contractual text alone—where there is no particular semantic “hook” on which meaning can immediately be hung, or perhaps, where the text of the agreement does not explicitly and immediately direct us to any conclusion with respect to intent—then the exercise becomes only marginally different.   Say the question is, “How do various clauses in the agreement fit together? Does one clause embrace the cases addressed by a second clause, or does each clause have a separate sphere of action?”

Here the interpreter has to identify some sort of “underlying narrative,” going to make up what was their “bargain in fact.” He does this not only

● by “worrying” the text of the agreement—much the way a dog “worries” a bone—but also,

● by looking to context and circumstances—the “customs and practices which the parties have come to consider as settled patterns of conduct—to help determine the “commercial meaning” of the language and the “framework of common understanding,” and in fact, by looking to

● the whole structure and purpose of the agreement: For, once we can identify the “sense of the transaction”—what the parties were about, what they were trying to do, what solution would be most congruent with their overall objectives—we can give content to the agreement by ensuring the “business efficacy” that the parties “must have intended” the transaction to have. Indefiniteness is then cured by little more than the exercise of practical wisdom.

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*Mark G. & Judy G. Yudof Chair in Law at the University of Texas at Austin School of Law. This paper is a revised and expanded version of a presentation made at the IBA 2018 Conference in Rome on October 11, 2018, as part of a panel devoted to the subject, “How Do International Arbitrators Interpret International Contracts?” I am grateful to Pierre Mayer and Andres Jana for inviting me to be part of this program and to my fellow panelists for their observations and contributions.