WHAT DO THE WORDS MEAN?

INTERPRETING A CONTRACT

Shy Jackson
7 November 2020

Introduction

“In point of fact, if not the meat and drink, then at least
staple diet, of the Commercial Court can be summed up
in one word – “Construction”. Commercial lawyers –
Solicitors, Barristers and Judges – spend a very
substantial part of their time interpreting contracts”

Lord Goff, Commercial Contract and the Commercial Court

(1984) LMCLQ 382

1
 Interpretation
The initial hurdle: Are the words so clear that they can
only mean one thing?

The courts will enforce the clear meaning of the words:

“Moreover, there is a danger, frequently warned

against in such cases, of the courts seeking to
remake contracts for the parties on the basis of
what the courts consider would have been
reasonable, or more sensible, for the contract to
have said” (ING v Ros Roca)

• The Courts will not change a bad bargain

Clear and unambiguous drafting

ING Bank NV v Ros Roca SA [2011] EWCA Civ 353

• Dispute about the fee for financial services

• Fee based on “EBITDA 2006” but transaction only took

place in 2007

• Difference in value over €5 million

• What does “2006” mean?

2
 Clear and unambiguous drafting
Trial Judge:

“Neither party spotted that this overlooked the possibility that 2006
might no longer be apposite at the time of the Transaction” but real
intention to use the same year, as it makes commercial sense”

Court of Appeal:

“The fact that no-one may have contemplated the actual transaction
being delayed beyond that time is not in itself a reason for rewriting
the agreed formula. ... it is hard to see why a straightforward
application of its language should be castigated as nonsense.”

Clear and unambiguous drafting

Court of Appeal:

“It does not matter, in my view, that Mr Fernandez may

not have been alive to the full significance of the point.
He clearly was surprised by the result of his calculation,
to the extent that he wondered if there was an error in
the spreadsheet. However, he and his superior decided
to ignore it to avoid "potential disruption", and they
allowed the discussions to continue on the basis of a
figure for transaction costs which they knew, or should
have known, to be wholly inconsistent with application of
EBITDA 2006.”

3
 Interpretation of the contract
The canons of construction:

• The document must be construed as a whole, a clause

must not be considered in isolation

• All parts of the document must be given effect where

possible

• Special terms prevail over standard printed terms and

specific provisions have greater weight than more
general ones

Interpretation of the contract

The canons of construction:

• Express terms exclude implying terms

• Contra proferentem

• Contract will be construed so far as possible so as not to

permit a party to take advantage of its own wrong

4
 The matrix
Prenn v Simmonds [1971] 1 WLR 1381

“In order for the agreement of July 6, 1960, to be

understood, it must be placed in its context. The time
has long passed when agreements, even those under
seal, were isolated from the matrix of facts in which they
were set and interpreted purely on internal linguistic
considerations.”

Moving away from the literal approach

Antaios Compania SA v Salen AB (The Antaios) [1985]
AC 191

"if detailed semantic and syntactical analysis of words in

a commercial contract is going to lead to a conclusion
that flouts business commonsense, it must be made to
yield to business commonsense.“

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5
 Moving away from the literal approach
Sirius International Insurance v FAI General Insurance
[2004] UKHL 54

“...the standard of the reasonable commercial person is

hostile to technical interpretations and undue emphasis
on the niceties of language”

• The risks of literalism - The tyrant Temures and his

promise that no blood would be shed if the Garrison of
Sebastia surrendered

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The (old) basics

ICS v West Bromwich Building Society [1997] UKHL 28

1. Interpretation is the ascertainment of 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.

2. The interpretation can take account of the factual

background (matrix of fact), which can be anything
which affects the understanding of a reasonable
man.

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6
 The (old) basics

3. Previous negotiations are inadmissible.

4. Meaning of a document is not the same as the meaning

of the words. The background may lead a reasonable
man to conclude that the parties used the wrong words
or syntax.

5. If the natural and ordinary meaning does not make

business common sense it must be made to yield to
business common sense.

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Pre-contract negotiations
Chartbrook v Persimmon Homes [2009] UKHL 38

• A licence to construct a mixed residential and

commercial development on Chartbrook’s land where
Persimmon received the proceeds of the sale and paid
Chartbrook based on two parts:

• Total Land Value; and

• Additional Residential Payment (the “ARP”)

• The ARP was the subject of the dispute

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7
 Pre-contract negotiations
Persimmon’s case:

• As a matter of interpretation, Chartbrook’s interpretation

produced an outcome that made no commercial sense

• To aid that construction of the clause, the Court should

take into account pre-contractual negotiations

• If that’s incorrect, a mistake had taken place and the

contract should be rectified

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Pre-contract negotiations
Lord Hoffmann:

• Chartbrook’s construction is “certainly in accordance with

conventional syntax”.

“I think that to interpret the definition of ARP in accordance

with ordinary rules of syntax makes no commercial sense.”

..., not unusual that an interpretation which does not strike

one person as sufficiently irrational to justify a conclusion that
there has been a linguistic mistake will seem commercially
absurd to another.”

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8
 Pre-contract negotiations
“...To allow evidence of pre-contractual negotiations to be used in aid of
construction would therefore require the House to depart from a long and
consistent line of authority, the binding force of which has frequently been
acknowledged.

... I do however accept that it would not be inconsistent with the English
objective theory of contractual interpretation to admit evidence of previous
communications between the parties as part of the background which may
throw light upon what they meant by the language they used.

The general rule,... is that there are no conceptual limits to what can
properly be regarded as background.”

The conclusion I would reach is that there is no clearly established case

for departing from the exclusionary rule.”

17

Pre-contract negotiations
Oceanbulk v TMT Asia [2010] UKSC 44

• Without prejudice discussions resulted in a settlement agreement

but claim brought for breach of settlement agreement

• What does “co-operate to close out the balance of 50% of the open
FFAs for 2008 against the market on the best terms achievable by
15 August 2008” mean?

• Representations made in without prejudice e-mails and meetings

explain the meaning, all about “sleeving”, a practice in that industry

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9
 Pre-contract negotiations
Trial judge:

• Evidence was potentially of significant value and crucial to

one party’s case

• Evidence was admissible even when on without prejudice

basis

Court of Appeal:

• Evidence is inadmissible - Without Prejudice protection is

more important

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Pre-contract negotiations
Supreme Court:

• Once there is agreement, evidence is admissible as part of the

factual matrix

“Nor is it in dispute that in those circumstances evidence of the

factual matrix is admissible as an aid to interpretation even where
the evidence formed part of the negotiations.“

• Without Prejudice rule has exceptions

• See also BGC Brokers v Tradition [2019] EWCA Civ 1927

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10
 Back to Interpretation
Rainy Sky v Kookmin [2011] UKSC 50

• Dispute about meaning of words in a bond:

“In consideration of your agreement to make the pre-

delivery instalments under the Contract and for other
good and valuable consideration (the receipt and
adequacy of which is hereby acknowledged), we hereby,
as primary obligor, irrevocably and unconditionally
undertake to pay to you, your successors and assigns,
on your first written demand, all such sums due to you
under the Contract.”

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Back to Interpretation
One view in Court of Appeal:

“If the language of the bond leads clearly to a conclusion

that one or other of the constructions contended for is
the correct one, the Court must give effect to it,
however surprising or unreasonable the result might
be. But if there are two possible constructions, the
Court is entitled to reject the one which is
unreasonable and, in a commercial context, the one
which flouts business common sense.”

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11
 Back to Interpretation
Another view in Court of Appeal:

“In this case (as in most others) the Court is not privy to the
negotiations between the parties or to the commercial and
other pressures which may have dictated the balance of
interests which the contract strikes. Unless the most natural
meaning of the words produces a result which is so
extreme as to suggest that it was unintended, the Court
has no alternative but to give effect it its terms. To do
otherwise would be to risk imposing obligations on one
or other party which they were never willing to assume
and in circumstances which amount to no more than
guesswork on the part of the Court.”

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The Supreme Court

“The exercise of construction is essentially one unitary
exercise in which the court must consider the language
used and ascertain what a reasonable person, that is a
person who has 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, would have understood the parties to have
meant. In doing so, the court must have regard to all the
relevant surrounding circumstances. If there are two possible
constructions, the court is entitled to prefer the
construction which is consistent with business common
sense and to reject the other.“

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 Recap
• The words used, in the context of the agreement

• As understood by a reasonable person

• With the background knowledge reasonably available to

the parties

• Having regard to all relevant surrounding circumstances

• If there are two possible meaning, can prefer what

makes commercial sense

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Who has commercial sense?

Skanska Rashleigh Weatherfoil v Somerfield [2006] EWCA
Civ 1732

"The court must be careful before departing from the natural

meaning of the provision in the contract merely because it
may conflict with its notions of commercial common sense of
what the parties may must or should have thought or
intended. Judges are not always the most commercially-
minded, let alone the most commercially experienced, of
people, and should, I think, avoid arrogating to themselves
overconfidently the role of arbiter of commercial
reasonableness or likelihood."

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13
 Who has commercial sense?
BMA v African Minerals [2013] EWCA Civ 416

“…first, that "commercial common sense" is not to be

elevated to an overriding criterion of construction and,
secondly, that the parties should not be subjected to
"…the individual judge's own notions of what might
have been the sensible solution to the parties'
conundrum". I would add, still less should the issue of
construction be determined by what seems like
"commercial common sense" from the point of view of
one of the parties to the contract.”

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Who has commercial sense?

S&T (UK) v Grove Developments [2018] EWCA Civ 2448

“However surprising it may seem to a judge, clause 2.29

of the contract requires no more than the giving of
notices in a specified sequence. Judges should not
generally impose their notions of commercial
common sense upon the parties to business
disputes. Provided that a scintilla of time elapses after
giving notice 2 and before giving notice 3, that is
sufficient. ”

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14
 The factual background
Rainy Sky v Kookmin:

“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”

What is that factual background, must parties actually know

it or is part of the objective exercise of interpretation?

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The factual background

Lehman Brothers v Exotix Partners [2019] EWHC 2380

• Dispute over the terms of a trade made over the phone

“…the question as to what knowledge or information is to

be treated as being 'reasonably available' to the parties
for the purposes of constructing the words they used
remains, to my mind, a particularly difficult one. … the
test of "reasonable availability" is not always easy to
apply and requires restraint in its application: and all the
more so given the almost unlimited information and
knowledge now available through the internet.”

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 The factual background
An earlier summary (Challinor v Juliet Bellis [2013] EWHC 347 (Ch)):

1. if no direct evidence, what knowledge a reasonable observer would have expected and believed
both contracting parties to have had and each to have assumed the other to have had, at the time
of their contract;
2. That includes specialist or unusual knowledge or knowledge to inferred, from the nature of the
actions they have in fact undertaken,
3. however, it does not include information that a reasonable observer would think that the parties
merely might have known: that would open the gate too far to subjective or idiosyncratic
speculation;
4. the fact that material is readily available or notorious may support an inference as to what the
parties actually knew;
5. but (subject to (6) below) where it is demonstrated that one or more of the parties did not in fact
have knowledge of the matter in question such knowledge is not to be imputed; nor is the test
what reasonable diligence would or might have revealed: in either case that would be
inappropriately to introduce impermissible concepts of constructive notice or a duty (actionable or
otherwise) to make inquiries or investigations;
6. the exception is that a reasonable person cannot be assumed to be in ignorance of clear and well
known legal principles affecting or incidental the contractual engagement in question.

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The factual background

“More generally in this context, it seems to me that the Court should
take care not to import notions of reasonable care and negligence
into questions of contractual construction. It is a slippery slope
between identifying what the actual context of a contractual
engagement was, and (by contrast) what parties exercising
reasonable care might reasonably have been expected to seek to
make enquiries about. The proposition that the admissible factual
matrix should include information "reasonably available" to the
parties is not, in my view, intended to impose or connote a duty
to enquire as to matters which on the basis of their shared
understandings did not merit inquiry. The contractual
intentions of careless parties should be honoured, and their
bargains should not be corrected by reference to what they would or
might have intended to do had they been less careless.”

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16
 Back to a literal approach
Arnold v Britton [2015] UKSC 36

• 1974 holiday chalet lease contained the following clause:

"To pay to the Lessor without any deductions …

a proportionate part of the expenses and outgoings
incurred by the Lessor … the yearly sum of Ninety
Pounds and Value Added tax (if any) for the first Year of
the term hereby granted increasing thereafter by Ten
Pounds per hundred for every subsequent year or
part thereof."

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Back to a literal approach

• Year 1 £90
• Year 2 £108.90
• Year 3 £119.79

• Year 25 £1,000 +

• Year 50 £10,000 +

• Year 99 £1,000,000 +

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17
 Back to a literal approach
Supreme Court:

“…the reliance placed in some cases on commercial

common sense and surrounding circumstances …
should not be invoked to undervalue the importance of
the language of the provision which is to be construed. The
exercise of interpreting a provision involves identifying what
the parties meant through the eyes of a reasonable
reader, and, save perhaps in a very unusual case, that
meaning is most obviously to be gleaned from the
language of the provision. Unlike commercial common
sense and the surrounding circumstances, the parties have
control over the language they use in a contract.”

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Back to a literal approach

“The mere fact that a contractual arrangement, if
interpreted according to its natural language, has worked
out badly, or even disastrously, for one of the parties is
not a reason for departing from the natural language.”

Contrast with The Antaios [1985]1 A.C. 191:

". . . if detailed semantic and syntactical analysis of

words in a commercial contract is going to lead to a
conclusion that flouts business commonsense, it must
be made to yield to business commonsense."

36

18
 More recently
Wood v Capita Insurance Services [2017] UKSC 24

• Dispute about a share purchase agreement

• Customers bought insurance for classic cars and made to pay

higher premiums than quoted

• Matter referred by Capita to FSA and led to payments of

£2.4m

• Indemnity relied upon as 2 year period for warranty claims

expired

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More recently
Indemnity
“The Sellers undertake to pay to the Buyer an amount equal to the
amount which would be required to indemnify the Buyer and each
member of the Buyer’s Group against all actions, proceedings,
losses, claims, damages, costs, charges, expenses and liabilities
suffered or incurred, and all fines, compensation or remedial action
or payments imposed on or required to be made by the Company
following and arising out of claims or complaints registered with
the FSA, the Financial Services Ombudsman or any other
Authority against the Company, the Sellers or any Relevant
Person and which relate to the period prior to the Completion
Date pertaining to any mis-selling or suspected mis-selling of
any insurance or insurance related product or service.”

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19
 More recently
The Supreme Court:

“In this case both Popplewell J and the Court of Appeal

have considered and weighed both the language of the
disputed clause 7.11 and the commercial considerations.
They have both started by examining the language
but have reached opposing conclusions. This
disagreement is not caused by any failure to apply the
correct principles but is, in my view, the result of an
opaque provision which, as counsel for each party
acknowledged, could have been drafted more clearly.”

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More recently
The Supreme Court:

“All of the parties to the SPA were commercially

sophisticated and had experience of the insurance
broking industry. …Business common sense is useful to
ascertain the purpose of a provision and how it might
operate in practice. But in the tug o’ war of commercial
negotiation, business common sense can rarely assist
the court in ascertaining on which side of the line the
centre line marking on the tug o’ war rope lay, when the
negotiations ended.”

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20
 More recently
The Supreme Court:

“The court’s task is to ascertain the objective meaning of

the language which the parties have chosen to express
their agreement. It has long been accepted that this is not
a literalist exercise focused solely on a parsing of the
wording of the particular clause but that the court must
consider the contract as a whole and, depending on the
nature, formality and quality of drafting of the
contract, give more or less weight to elements of the
wider context in reaching its view as to that objective
meaning.”

41

More recently
The Supreme Court:
“The recent history of the common law of contractual
interpretation is one of continuity rather than change. One
of the attractions of English law as a legal system of
choice in commercial matters is its stability and continuity,
particularly in contractual interpretation. …

From Capita’s standpoint the SPA may have become a

poor bargain, as it appears that it did not notify the sellers
of a warranty claim within two years of Completion. But it
is not the function of the court to improve their
bargain.”

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 Commercial sense
Merthyr (South Wales) Ltd v Merthyr Tydfil County Borough
Council [2019] EWCA Civ 526

"(a) Subject to paragraphs (b) and (c) below, on each Funding Date, the Company
shall deposit an amount equal to £625,000 (as adjusted pursuant to paragraphs (c)
and (d) below, the 'Quarterly Amount') into the Account.
(b) Subject to paragraphs (c) and (d) below, if on any Funding Date the Company fails
to pay all or part of the Quarterly Amount into the Account (the 'Missed Funding
Date'), the Quarterly Amount for the following Funding Date shall be equal to
£625,000 plus the outstanding amount payable on the Missed Funding Date.
(c) Subject to paragraph (d) below, if the Company fails to pay all or part of the
Quarterly Amount on two or more consecutive Funding Dates, the Quarterly Amount
shall increase on each subsequent Funding Date by an amount equal to the
aggregate outstanding amounts on each previous Missed Funding Date.
(d) If the Final Funding Date is a Missed Funding Date, the Company shall pay an
amount equal to Total ERA Sum less the amount standing to the credit of the
Account on the Final Funding Date by 30 June 2022 (the 'Funding Longstop Date')."

43

Commercial sense
“But just as there are degrees of naturalness of linguistic usage,
so too there are degrees of unreasonableness of result, ranging
from the merely imprudent or surprising to the obviously irrational
or absurd. In this case no question arises of rejecting the natural
meaning of a contractual provision since there are, as I have indicated,
no words in the agreement which have as their natural meaning, or
which expressly state at all, that the amount to be deposited on each
Funding Date ceases to be due if the company fails to pay it: the mining
company's case depends on implying such a provision. Furthermore,
the consequence of doing so would be to nullify the obligation created
by clause 4.2(a) to deposit money into the account on each Funding
Date and to treat the contract as taking away with one hand what it
gives with the other. Conceptually, let alone commercially, that is an
irrational intention to attribute to contracting parties.”

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22
 A Scottish perspective
Ardmair Bay v Craig [2020] CSIH 21

• £82m share purchase agreement for company that

provided vessels and emergency response and rescue
services to operators in the North Sea oil industry

• Alleged failure to disclose an ITT that would have shown

possible loss of the two biggest contracts – email issued
just before agreement signed

• Do “charter arrangements” cover the ITT?

45

A Scottish perspective
1. “First, a contract must be construed objectively. The
meaning of any particular provision is what a reasonable
person in the position of the parties would have
understood it to be. Indeed, no other approach would be
possible; a contract will have two or more parties, and it
is obvious that its meaning cannot depend upon the
subjective intention or understanding of any one of those
parties.”

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23
 A Scottish perspective
2. “Secondly, the words of a contract must be construed
contextually. Language is inherently ambiguous, and in
no serious intellectual field is it possible to reach a
sensible view on the meaning of a passage of text
without placing that passage in context.”

47

A Scottish perspective
3. “Thirdly, the provisions of a contract must be construed
purposively, that is, in such a way as to give effect to the
fundamental purposes of the contract; points of detail or
niceties of wording should not stand in the way of
achieving the contract’s basic purposes. What the basic
purposes are must obviously be determined on an
objective basis, and the context is relevant.”

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 A Scottish perspective
4. “Fourthly, in construing a contract, commercial, or
business, common sense may be important. …
The application of commercial common sense is a
relatively straightforward process, despite suggestions to
the contrary in some academic literature. It obviously
involves elements of general common sense as an aid to
practical reasoning, such as considering whether a view
is widely held by those with knowledge of the particular
field in question, and testing a proposition against its
converse, to discover whether the converse makes
sense; if it does not, that will usually support the
proposition.”

49

A Scottish perspective
“At a commercial level, the most important factor is
probably the use of elementary microeconomics (the
branch of economics that covers the behaviour of
individuals and businesses in their commercial dealings
with other persons). That will normally involve
consideration of the practice followed in a particular
trade, and the understanding held by people operating in
that trade, for example as to what is commercially
important or what would be regarded as commercially
undesirable.”

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25
 A Scottish perspective
“The most extreme problem with a totally literal approach to
construction occurs in cases where supervening events are
not readily foreseeable, especially the sort of events that are
sometimes described as “unknown unknowns”. …

”It is unrealistic to emphasize the parties’ control over the

language that they use in a contract. In cases of that nature,
an emphasis on a strictly literal approach may produce a
result that is arbitrary or disproportionate, which is plainly
undesirable as a matter of commercial common sense.
Alternatively, a highly literal construction may lead to
significantly longer contracts, a practice that is likely to
impose greater transaction costs on the parties than occurs at
present.”

51

Standard forms
Lamesa Investments v Cynergy Bank [2020] EWCA Civ 821

• Court of Appeal approved trial judge’s guidance but came to same

conclusion for different reasons, holding:

“a standard form is not context-specific and evidence of the particular

factual background or matrix has a much more limited, if any, part to
play” (stated in Re Lehman Brothers (No 8) [2016] EWHC 2417
(Ch))

“If one looks only at the black letter meaning of the words of the
proviso, I would accept that one might think … Accepting, however,
that the words are ambiguous, it is relevant to consider admissible
context and commercial common sense.”

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 Clash of the titans
The Rt Hon Lord Sumption: A Question of
Taste: the UK Supreme Court and the
Interpretation of Contracts, UK Supreme
Court Yearbook 2016-2017 Vol 8 pages
74-88

Leonard Hoffmann: Language and

lawyers, LQR 2018 553

53

A construction context
Grove v Balfour Beatty [2016] EWCA Civ 990

Meaning and effect of payment schedule:

Valuation Val Mansell Application Valuation Grove Certificate Payment made
no. month Submission Date to Date Issued by Grove by (30
Grove (3 working days) days from Val
date)
1 SEPT 19/09/2013 20/09/2013 25/09/2013 20/10/2013
2 OCT 17/10/2013 18/10/2013 23/10/2013 22/11/2013
… … … … …
21 MAY 21/05/2015 22/05/2015 27/05/2015 26/06/2015
22 JUN 18/06/2015 19/06/2015 24/06/2015 24/07/2015
23 JUL 16/07/2015 17/07/2015 22/07/2015 21/08/2015

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27
 A construction context
High Court:

“Had BB raised the issue it would no doubt have wished

to negotiate protective terms; and its failure to do so is
now seen as regrettable. But that is no sufficient basis
on which the Court could conclude that such a result is
commercially nonsensical. As Mr Nissen QC, for GDL
pointed out, it would have been commercially sensible
for GDL to have refused further interim payments as a
means of exercising pressure on BB to finish on time.”

55

A construction context
Lord Justice Voss (Court of Appeal):

“clear words would be required for such a construction

…. In reality, such a construction would mean that BB
would not be paid large sums for 2 or 3 years after the
last interim payment. That is an uncommercial
construction. There is no suggestion from the admissible
factual matrix that the financing and security risks had
been intended to pass in that way to BB after the
expected completion date. Grove’s submissions on
incentives to complete on time are all pure
speculation…”

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 A construction context
Lord Justice Jackson (majority):

“…this is a classic case of one party making a bad

bargain. The court will not, indeed cannot, use the
canons of construction to rescue one party from the
consequences of what that party has clearly agreed.
There is no ambiguity in the present case which enables
the court to reinterpret the parties' contract in
accordance with "commercial common sense",…”

57

Another construction case

Network Rail v ABC [2019] EWHC 1769 (TCC)

"any cost due to negligence or default on the part of the

Contractor in his compliance with any of his obligations
under the Contract and/or due to any negligence or
default on the part of the Contractor's employees,
agents, sub-contractors or suppliers in their
compliance with any of their respective obligations
under their contracts with the Contractor"

Highlighted words added to the ICE standard form

disallowed costs provisions

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 Another construction case
What does the word ‘default’ mean?

1. any failure to comply with obligations under the

contract; or

2. a willful and deliberate failure to comply with

obligations under the contract

59

Another construction case

Held:

• The words are clear and unambiguous and the

amendments suggest something additional was intended

• ABC’s interpretation requires words to be added

• Irrelevant that the word ‘default’ appears in the

termination clause heading

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 Another construction case
The purpose of the contract:

“…it would not be right to conclude that the mere fact that this is a
Target Cost Contract leads inevitably to the conclusion that the
parties agreed to share the risk of a breach of the Contract
provisions by the Contractor such that the word 'default' in clause
1(1)(j)(iii) must carry something other than its natural meaning.”

Commercial sense:

“…importing a requirement for costs to be 'significant' into this

provision would be likely to create ambiguity and not certainty. It
would not be consistent with the natural meaning of the words used
or with commercial common sense.”

61

And another example

Triple Point Technology v PTT [2019] EWCA Civ 230

2nd sentence
“The total liability of CONTRACTOR to PTT under the Contract shall
be limited to the Contract Price received by CONTRACTOR with
respect to the services or deliverables involved under this Contract.”

3rd sentence
“Except for the specific remedies expressly identified as such in this
Contract, PTT's exclusive remedy for any claim arising out of this
Contract will be for CONTRACTOR, upon receipt of written notice,
to use best endeavour to cure the breach at its expense, or failing
that, to return the fees paid to CONTRACTOR for the Services or
Deliverables related to the breach.”

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 And another example
Held:

• Sentence 3 does not cover delay, but imposes a cap for each
individual breach of contract
• Sentence 2 imposes an overall cap on the contractor's total liability

“I readily accept that it would be more logical and easier to

understand if sentence 3 had preceded sentence 2. But the
draughtsmen of this particular contract were not trying to make
life easy for the reader. In my view, this interpretation gives an
intelligible meaning to all the provisions of Article 12.3. This reading
of the clause should be preferred to the rival interpretation which
has been canvassed.”

63

And another example

4th sentence

“This limitation of liability shall not apply to

CONTRACTOR's liability resulting from fraud,
negligence, gross negligence or wilful misconduct of
CONTRACTOR or any of its officers, employees or
agents.”

What does negligence mean - The tort of negligence or

breach of the contractual duty of skill and care?

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32
 And another example
Held:

“The judge held that "negligence" in sentence 4 of Article 12.3

means the tort of negligence. It does not mean or include breach of
the contractual duty of skill and care. If "negligence" had that
broader meaning, sentence 4 would take away almost the entire
protection afforded by the cap. …In my view, the judge's
interpretation of the word "negligence" in sentence 4 of Article 12.3
is obviously correct. It fits with the language used and makes
commercial sense. Also, this interpretation of sentence 4 is
consistent with clause 7.4 of the licence agreement. In that clause,
the exceptions to the cap are expressly limited to freestanding torts
or deliberate wrongdoing.”

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Punctuation matters
BBC 23 July 2018 – The commas that cost companies millions

• A dairy company in the US city of Portland, Maine settled a court

case for $5m earlier this year because of a missing comma

• In 1872, an American tariff law including an unwanted comma cost

taxpayers nearly $2m (the equivalent of $40m today)

• Roger Casement, an Irish nationalist, was hanged in 1916 under the

1351 Treason Act. Guilt hinged on the wording of the 14th Century
Treason Act and the use of a comma

http://www.bbc.com/capital/story/20180723-the-commas-that-cost-
companies-millions?ocid=ww.social.link.email

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 Punctuation matters

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Punctuation matters

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34
 Punctuation matters

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Punctuation matters

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 Punctuation matters

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Punctuation matters

Lawyers give poor free legal advice

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 Commercial sense (and punctuation)
Compass Group v Mid Essex Hospital [2013] EWCA Civ 200

• Long term catering contract where performance was poor.

The Trust instructed its staff to “pull it to bits”

• Deductions for failures escalated in total from £3,500 to

£587,207:

• Out of date ketchup sachets - £46,320

• Lack of signature on cleaning schedule – £11,842.50
• One day out of date chocolate mousse – £84,540

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Punctuation

“The Trust and the Contractor will co-operate with each

other in good faith and will take all reasonable action as
is necessary for the efficient transmission of information
and instructions and to enable the Trust or, as the case
may be, any Beneficiary to derive the full benefit of the
Contract.”

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 Punctuation

“The Trust and the Contractor(1) will co-operate with

each other in good faith and(2) will take all reasonable
action as is necessary for the efficient transmission
of information and instructions and to enable the
Trust or, as the case may be, any Beneficiary to
derive the full benefit of the Contract.”

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Punctuation
The trial judge

• Wider interpretation makes commercial sense

Court of Appeal:

“The first sentence of clause 3.5 contains a jumble of different

statements, set out in an incoherent order. It has different
possible meanings, depending upon where one places the
caesuras and what imaginary punctuation one inserts.”

• Narrow interpretation makes commercial sense

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 How does it work in practice?
Examples:

• Endeavours clauses

• Concurrency

• Settlement

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Endeavours clauses
What is the difference?

“use reasonable endeavours”

“use all reasonable endeavours”

“use all reasonable but commercially prudent endeavours”

“use best endeavours”

CPC Group Limited v Qatari Diar [2010] EWHC 1535

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 Concurrency clauses
Attempts to deal with concurrency:

“Where in this clause 8.7 a cause is said to be an

Excusing Cause, save to the extent that some other
cause operates, the relevant financial effects of the said
cause shall be apportioned between the Trust or Trust
Party on the one hand and Project Co on the other, by
reference to the respective influence of each cause”

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Concurrency clauses
Attempts to deal with concurrency:

“No Completion Date shall be fixed later than that

previously fixed to the extent that any Relevant Event
(other than an act of prevention) operates concurrently
with any delay caused by a failure or breach of contract
by the Contractor.”

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 Concurrency clauses
Attempts to deal with concurrency:

“A delay is assessed as the length of time that due to a

compensation event, planned Completion is later than
planned, provided always that any delay is only treated
as being due to a compensation event if the
compensation event is the sole or principal cause of
delay.”

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Concurrency clauses
Attempts to deal with concurrency:

“ … and provided that… any delay caused by a

Relevant Event which is concurrent with another delay
for which the Contractor is responsible shall not be taken
into account…”

North Midland Building v Cyden Homes [2017] EWHC

2414 (TCC) and [2018] EWCA Civ 1744

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 Settlement clauses
• full and final settlement

• full and final settlement of all claims

• full and final settlement of all claims the employer or the

contractor have or may have

• full and final settlement of all claims the employer or the

contractor have or may have, whether currently
asserted, known or not

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Settlement clauses

“any and all claims, rights, demands and causes of action

(for the avoidance of doubt including but not limited to
applications for variations, extensions of time, loss and/or
expense, repayment of Liquidated and Ascertained
Damages, adjustments of the Contract Sum, interest and
costs) which the Contractor has or may have under or in
connection with the Contract, or otherwise.”

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 Settlement
BCCI v Ali [2002] 1 AC 251

• Employee seeking to pursue a claim having signed a

release:

“...in full and final settlement of all or any claims whether

under statute, Common Law or in Equity of whatsoever
nature that exist or may exist and, in particular, all or any
claims rights or applications of whatsoever nature that
the Applicant has or may have or has made or could
make in or to the Industrial Tribunal...”

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House of Lords
Majority

“The clause cannot be read literally. ...

This employee signed an informal release when he lost his job, in
return for an additional month's pay. The ambit of the release should
be kept within reasonable bounds.”

Minority

“...judicial creativity, bordering on judicial legislation, which the

application of that doctrine involved is a desperate remedy, to be
invoked only if it is necessary to remedy a widespread injustice”

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 Another settlement
Khanty-Mansiysk Recoveries v Forsters [2018] EWCA Civ 89

• A claim for fees from solicitors is settled

“This Agreement and the terms set out herein shall be in full and
final settlement of all or any Claims which the Parties have, or could
have had, against each other (whether in existence now or coming
into existence at some time in the future, and whether or not in the
contemplation of the Parties on the date hereof).”

• After settlement, claimant finds out that shares have never been
transferred and wishes to make a claim for negligence, seeking over
£70m in damages

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Another settlement
Held:

“As a matter of law, the possibility of a claim for the negligent

performance of professional services is plain enough. That in itself
distinguishes the case from BCCI v Ali….

The claim for professional fees was plainly a known claim. So, too,
were RGP's defences and counter-claims about the quantum of the
fees. The settlement agreement was clearly intended to go further than
the compromise of those claims, since it expressly referred to
"unknown" claims and claims not "in the contemplation" of the parties. If
it was not intended to cover the kind of claim now sought to be
advanced, what else could it have been intended to cover?”

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 Conclusions

“Everyone outside a court …recognises that words are imprecise

instruments for communicating the thoughts of one man to another” (Lord
Diplock in Slim v Daily Telegraph [1968] 2 Q.B. 157)

"…the conclusion reached below attaches too much weight to what the
courts perceived as the natural meaning of the words...I also think that
caution is appropriate about the weight capable of being placed on
the consideration that this was a long and carefully drafted
document…even the most skilled drafters sometimes fail to see the
wood for the trees…". (Lord Mance in Re Sigma Finance [2009] UKSC
2)

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In practice
• Standard form contracts are less likely to give rise to questions of
interpretation than bespoke drafting, unless amended

• Use clear and simple language, preferably short sentences

• Avoid cumulative drafting based on compromise, start again if

necessary

• Ask someone else to review the drafting

• The clear and literal meaning cannot be ignored but consider also
the commercial context

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 Questions?

“When I use a word,'

Humpty Dumpty said, in
rather a scornful tone, 'it
means just what I choose it
to mean — neither more nor
less.'

'The question is,' said Alice,

'whether you can make
words mean so many
different things.”

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Contact
Shy Jackson

T: + 44 (0)20 7418 7312

E: shy.jackson@pinsentmasons.com

For more information please visit:

www.pinsentmasons.com

www.out-law.com

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