James is a Partner and Head of the Dispute Resolution team and primarily handles commercial…View Profile View all
There have been two recent, apparently conflicting, decisions in the courts about the interpretation of agreements. In the first, the Supreme Court did not apply commercial common sense whilst in the second, the High Court did. Can the apparently irreconcilable be reconciled to give guidance to businesses?
The answer is yes!
In the first case the court was faced with interpreting a service charge clause in a lease. The court decided that the wording and the natural meaning of the clause were clear and that a reasonable reader of it would conclude that the tenant had a service charge to pay and that the clause provided a mechanism for calculating it. Even though by 2072 the charge would be over £550,000 per year, it did not justify going against the natural meaning of the clause.
In the High Court case the judge applied commercial common sense. He acknowledged that he ought to give words their natural meaning however surprising or unreasonable the result, but in this case the words were ambiguous; the meaning would be either absurd or too unlikely in the context of the commercial background. He was thus able to interpret the contract applying business common sense.
The message is that the courts will apply the natural meaning of a clause, no matter if it gives an unreasonable result, if the wording is clear, but if the wording is ambiguous, the courts will apply business common sense as part of the interpretation process.
Speak to James Staton on 01274 377651 for further guidance.