BL-2023-MAN-000072 - [2025] EWHC 2442 (Ch)

Mr Hodge on behalf of JAK, and Mr Demachkie on behalf of Together were each agreed that the law on contractual interpretation was definitively established by the trio of Supreme Court cases on the subject, namely Rainy Sky SA v Kookmin Bank [2011] UKSC 50; [2011] 1 WLR 2900, Arnold v Britton and others [2015] UKSC 36; [2015] AC 1619 and Wood v Capita Insurance Services Ltd [2017] UKSC 24; [2017] AC 1173.

Mr Hodge and Mr Demachkie sought to rely upon a number of specific passages from these cases. However, I propose to adopt the helpful summary of the relevant principles as set out by Birss LJ in Adaptive Spectrum and Signal Alignment Inc v British Telecommunications plc [2023] EWCA Civ 451 at [18] to [20], where, having referred to these three Supreme Court cases, he went on to say:

“[18] There is no need to review these authorities or any others at any length. The guiding principle is that the task of the court is a unitary exercise involving an iterative process to ascertain the objective meaning of the language used by the parties to express their agreement (Wood v Capita at [10] per Lord Hodge). Or putting the same thing another way, it is a unitary process to ascertain what a reasonable person with all the background knowledge reasonably available to the parties at the time would have understood the parties to have meant (taken from Britvic Plc v Britvic Pensions [2021] EWCA Civ 867 at [29] (per Sir Geoffrey Vos MR).

[19] A further aspect is that in this exercise the court can give weight to the implications of rival constructions by reaching a view as to which construction would be more consistent with commercial common sense (Wood v Capita at [11] per Lord Hodge), nevertheless it is important to see that this applies when there actually are rival constructions to consider (see Britvic, particularly Coulson LJ at [57] and Nugee LJ at [70]). It is much harder (one might say impossible) to weigh up implications against the meaning of clear language. That is because, as Lord Hodge also pointed out in [11], there is always the possibility that a party might have accepted something which with hindsight did not serve its interest.

[20] A different issue, and not relevant in this case, is a situation in which clear language might be overridden because something has just gone wrong with the language (see Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38 and also Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 at 93D-E about not attributing to the parties an intention which they plainly could not have had).”

As to the use of business or commercial common sense as an aid to interpretation, the high watermark in the three Supreme Court cases that I have referred to is, almost certainly, Rainy Sky SA v Kookmin Bank (supra). However, as Mr Hodge highlighted on behalf of JAK, it is important to note what Lord Clarke JSC, with whom the other members of the Court agreed, said in the latter case in this regard at [21] and [23]:

“21.

… 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.” [My emphasis].

…

23.

Where the parties have used unambiguous language, the court must apply it. This can be seen from the decision of the Court of Appeal in Co-operative Wholesale Society Ltd v National Westminster Bank plc [1995] 1 EGLR 97.”

Further, as Lord Neuberger JSC made clear in Arnold v Britton (supra) at [19], commercial common sense is not to be invoked retrospectively. As he put it:

“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. Commercial common sense is only relevant to the extent of how matters would or could have been perceived by the parties, or by reasonable people in the position of the parties, as at the date that the contract was made.”

In support of his contention that the Development Services Agreement is not an admissible aid to construction of clause 13 of the Deed of Postponement, Mr Hodge relies upon what was said by Lord Neuberger JSC in Arnold v Britton (supra) at [21]:

“When interpreting a contractual provision, one can only take into account facts or circumstances which existed at the time that the contract was made, and which were known or reasonably available to both parties. Given that a contract is a bilateral, or synallagmatic, arrangement involving both parties, it cannot be right, when interpreting a contractual provision, to take into account a fact or circumstance known only to one of the parties.”

Mr Hodge latched onto the final words of this passage, and the observation that it cannot be right to take into account a fact or circumstance known to only one of the parties. Whilst this is a point that I will return to, Mr Hodge’s essential point is that the evidence suggests that Together did not have a copy of the Development Services Agreement until after the terms of the Deed of Postponement had been agreed, and the relevant documentation had been signed, albeit that a copy thereof had been obtained by the time of the formal execution of the Deed of Postponement.

However, I consider this to be an unduly restrictive approach that reads too much into the wording used by Lord Neuberger JSC towards the end of the passage that I have referred to and takes such wording out of context. Earlier in the passage, Lord Neuberger had referred to “facts or circumstances which existed at the time that the contract was made, and which were known or reasonably available to both parties”, and this is consistent with earlier authorities such as, for example, the exposition of the relevant principles of the modern law of interpretation by Lord Hoffmann in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 at 912-913. When considering the admissible background for the purposes of interpretation, he said:

“Subject to the requirement that it should have been reasonably available to the parties and the exception to be mentioned next, it includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man.”

As Mr Demachkie points out, extending the admissible background to facts reasonably available to the parties, even if not actually known by them, is consistent with the objective approach to the exercise of contractual interpretation. I consider that the position is accurately reflected in the observation of Hildyard J in Challinor v Juliet Bellis & Co [2013] EWHC 347 (Ch) at [277], where he said that the admissible background is limited to the “knowledge a reasonable observer would have expected and believed both contracting parties to have had”.

A further difference of approach as between Mr Hodge on behalf of JAK, on the one hand, and Mr Demachkie on behalf of Together, on the other hand, relates to the approach of the court to surplus language.

Mr Hodge drew my attention to the proposition of the law set out in Lewison on Interpretation of Contracts, 8^th Edition, at paragraph 7.24, namely: “In interpreting a contract all parts of it must be given effect where possible and no part of it should be treated as inoperable or surplus.”

Mr Hodge developed his submissions by reference to Re Strand Music Hall Company Limited (1865) 35 Beav 154, at 159, where Sir John Romilly MR observed that: “The proper mode of construing any written instrument is to give effect to every part of it, if this be possible, and not to strike out or nullify one clause in a deed, unless it be impossible to reconcile it with another and more express clause in the same deed.”

In addition, Mr Hodge referred to Welsh Water v Corus UK Limited [2007] EWCA Civ 285, which involved a consideration as to whether the parties had intended a particular provision to have contractual effect, or whether the relevant provision was merely recording or declaratory of a particular state of affairs. At [13], Moore-Bick LJ observed that what, in his view, pointed most strongly to the conclusion that the parties intended the relevant provision to have contractual effect was the very fact that they chose to include it in the relevant contract.

These authorities are relied upon by Mr Hodge in support of the proposition that the presumption must be that parties to the Deed of Postponement intended clause 13 to have contractual effect, that is in providing that the priority otherwise provided for by the Deed of Postponement should not apply in the particular circumstances of the JAK Loan Agreement determining first, rather than intending that clause 13 should simply record, “for the avoidance of doubt”, that the debt provided for by the JAK Loan Agreement should be payable without any subordination to the Together Loan so far as payment, as opposed to enforcement of security was concerned.

However, Mr Demachkie, on behalf of Together, referred me to Lewison (supra) at 7.28 et seq, where reference is made to other authorities that question the utility of a presumption against surplusage. Thus, for example:

Having regard to the authorities as a whole, I consider that I must exercise caution in applying any presumption against surplusage, and whether any such presumption is to be applied must depend upon a careful consideration of the particular provision, its wording and its context within the particular contract.