It is a simple but important rule, that when drafting a contract, it is important that the terms are clear and not open to interpretation.
Unfortunately, it is remarkably common for this not to be the case, particularly where contracts are drafted without the assistance of solicitors. The danger of leaving a contractual term improperly drafted is that should one party default, the other party may find it difficult to enforce the terms of the contract as they believe them to be.
The approach that a court takes to the interpretation of an ambiguous term has been updated in a recent case.
Ace Paper Ltd v Fry and others [2015] EWHC 1647 (Ch)
In this case the High Court was asked to interpret whether an ‘invoice discounting agreement’ had been terminated by an exchange of letters between the parties. The Court decided that as the wording of the letters was genuinely ambiguous, the words could not be interpreted to be given their natural meaning. As an alternative the court took the approach that it should apply ‘business common sense’ to the interpretation of the letters.
This decision adds to the recent Supreme Court decision in Arnold v Britton and others [2015] UKSC 36.
It is now clear that while courts will generally attempt to interpret a contract clause to apply the natural meaning of the wording, if this is not possible, the court is free to look wider afield than just the natural interpretation of the words for assistance. In the context of commercial contracts, this will mean interpreting the contract commercially.
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