Arbitrary And Capricious Review: Contract Interpretation

The 'Arbitrary and Capricious' standard of review is employed to assess whether an agency's decision is grounded in reasoned analysis and supported by evidence. In the context of contract interpretation, it evaluates whether the interpretation made by a party or agency is rational and consistent with the terms of the contract.

This standard is applied when a contract grants discretion to a party (often an administrative agency) to interpret its terms and conditions. It is used to ensure that the interpretations are not unreasonable or devoid of any factual basis.

• Rational relationship between facts and conclusions
• Consistency with the contract's express terms
• Consideration of relevant factors and precedential interpretations

• Ensure that contract terms are clearly defined to avoid varied interpretations.
• Document reasoning behind contract interpretations to provide a basis for defending against arbitrary claims.
• Be prepared to present evidence that supports the interpretative choices made regarding contract terms.

The 'Arbitrary and Capricious' standard is more deferential than the 'de novo' standard, which allows courts to analyze issues without considering lower court decisions. It is also less forgiving than the 'substantial evidence' standard that allows for more substantial inquiry into agency decisions than merely checking for rationality.