When a court or tribunal interprets your carefully crafted contract, it doesn’t ask your opinion. It reviews the written terms to analyse ‘what a reasonable person having all the [parties’ then] background knowledge… would have understood… the language in the contract to mean‘.
As they are not mystics, the courts interpets the words used as the best evidence of what you intended [read more]. Your meaning for each clause is ascertained in the light of the rest of the contract, its purpose [read more] as well as facts known (or knowable) when the contract was signed. But two elements are critical:
- the natural and ordinary meaning of the words in the clause
- commercial common sense.
Tip 1: read each clause carefully and check you know what you think it means before you sign
Tip 2: check that each clause has a clear purpose and you understand it, especially boilerplate provisions aka ‘the small print at the back’.
Common sense is secondary
In Arnold v Britton the Supreme Court reiterated its approach to commercial common sense. It said that commercial common sense:
- ‘should not be invoked to undervalue the importance of the language of the provision which is to be construed’ because the parties have control over their language (which they do not have over commercial common sense)
- should not be ‘invoked retrospectively’ to save the parties from a bad or disastrous bargain
- is only relevant to the extent of how parties or reasonable outsiders would have perceived matters at the time the contract was made
- while important when interpreting a contract, the court should be ‘very slow to reject the natural meaning of a provision’.
Common sense is therefore secondary to an interpretation of the words and their purpose.
Tip 3: use words precisely to improve the chance you will be understood as you intend – add background or illustrations to assist the court.
In Wood v Capita the UK Supreme Court had to interpret a clause which it said was ‘not precisely drafted’ and was ‘avoidably opaque’. It said ‘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 negotiations ended.’
Tip 4: seek accuracy, brevity and clarity in your contract terms.
Lord Neuberger said that interpreting a contract was not a route which allowed the courts to save people from their own mistakes:
Experience shows that it is by no means unknown for people to enter into arrangements which are ill-advised, even ignoring the benefit of wisdom of hindsight, and it is not the function of a court when interpreting an agreement to relieve a party from the consequences of his imprudence or poor advice. Accordingly, when interpreting a contract a judge should avoid re-writing it in an attempt to assist an unwise party or to penalise an astute party.
Tip 5: don’t expect the court to come to your rescue.
Case: Arnold v Britton & Ors  UKSC 36; Wood v Capita Insurance Services Limited  UKSC 24