PT 2023 000474 - [2025] EWHC 2397 (Ch)

The principles of construction are uncontroversial. The court must strive to find the intention of the party or parties by interpreting the words used in their documentary, factual and commercial context. In Marley v Rawlings [2014] UKSC 2, Lord Neuberger made it clear, paragraphs 19 – 20, that the approach to interpretation is the same whether a document is a commercial contract or a will.

In Arnold v Britton [2015] UKSC 36 Lord Neuberger considered the natural meaning of a service charge clause of a holiday chalet. At paragraph 15 he explained the court’s approach to construction,

“When interpreting a written contract, the court is concerned to identify the intention of the parties by reference to “what a reasonable person having all the background knowledge which would have been available to the parties would have understood them to be using the language in the contract to mean”, to quote Lord Hoffmann in Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38, [2009] 1 AC 1101, para 14. And it does so by focussing on the meaning of the relevant words, in this case clause 3(2) of each of the 25 leases, in their documentary, factual and commercial context. That meaning has to be assessed in the light of (i) the natural and ordinary meaning of the clause, (ii) any other relevant provisions of the lease, (iii) the overall purpose of the clause and the lease, (iv) the facts and circumstances known or assumed by the parties at the time that the document was executed, and (v) commercial common sense, but (vi) disregarding subjective evidence of any party's intentions.”

In Towcester Racecourse Co Ltd v The Racecourse Association Ltd [2002] EWHC 2141 (Ch) 1, Patten J, obiter, accepted that the memorandum and articles of association of a company fall to be construed under the established rules for the interpretation of contracts. In that case nothing turned on express terms, but rather on what terms could be implied to give rise to the duties said to be imposed on the defendant.

Counsel for the third defendant submits that it is permissible for the court when taking into account the objective factual background, to have regard to documents such as the claimant’s memorandum. He relies in particular on the speech of Lord Hoffman in Investors Compensation Scheme v West Bromwich Building Society [1998] 1 WLR 896 at paragraphs 912H-913A. Subject to the requirement that it should have been reasonably available to the parties and with the qualifications stated by Lord Hoffman in BCCI v Ali [2002] 1 269, the documents and more generally the objective facts can encompass a wide range of material. It undoubtedly includes the claimant’s memorandum from August 2000 (Footnote: ⁵) and the amended articles, by special resolution dated 30 September 2014.

Counsel for the third defendant also made two other points. First, the court will generally favour a “commercially sensible construction” (Footnote: ⁶). In choosing between rival interpretations, the court should consider the reasonableness of the result, including which is the more (or less) commercial construction, per Rainy Sky SA v Kookmin Bank [2011] UKSC 50, Lord Clarke at paragraphs 29 to 30. Although as Lord Hodge observed in Wood v Capita Insurance Services Ltd [2107] AC 1173 at paragraph 13,

“ Textualism and contextualism are not conflicting paradigms in a battle for exclusive occupation of the field of contractual interpretation. Rather, the lawyer and the judge, when interpreting any contract, can use them as tools to ascertain the objective meaning of the language which the parties have chosen to express their agreement. The extent to which each tool will assist the court in its task will vary according to the circumstances of the particular agreement or agreements. Some agreements may be successfully interpreted principally by textual analysis, for example because of their sophistication and complexity and because they have been negotiated and prepared with the assistance of skilled professionals. The correct interpretation of other contracts may be achieved by a greater emphasis on the factual matrix, for example because of their informality, brevity or the absence of skilled professional assistance. But negotiators of complex formal contracts may often not achieve a logical and coherent text because of, for example, the conflicting aims of the parties, failures of communication, differing drafting practices, or deadlines which require the parties to compromise in order to reach agreement. There may often therefore be provisions in a detailed professionally drawn contract which lack clarity and the lawyer or judge in interpreting such provisions may be particularly helped by considering the factual matrix and the purpose of similar provisions in contracts of the same type. The iterative process, of which Lord Mance spoke in Sigma Finance Corpn (above), assists the lawyer or judge to ascertain the objective meaning of disputed provisions.”

Second, insofar as there is a tension between the primary document being construed, here the rules, and a document referred to in that document, here, for example, the federation rules, the primary document will prevail. Counsel referred to Modern Building (Wales) Ltd v Limmer and Trinidad Co Ltd [1975] 1 WLR 1281, Buckley LJ at 1289E-G. Although this is the description of the process where the court may read incorporated clauses with such modifications as may be necessary to make them apply to the contract, with the proviso that the court cannot remake the “bargain”.

In respect of the insolvency issues, there is an argument as to whether the rules are ultra vires. Counsel for the third defendant submits that the court will attempt to construe a document so that it is lawful: Great Estates Group Ltd v Digby [2011] EWCA Civ 1120, Toulson LJ at 98. This concept was pithily described by Lord Hamblen in Enka Insaat ve Sanayi AS v OOO “Insurance Company Chubb” [2020] UKSC 38 at paragraph 95,

“It is a well-established principle of contractual interpretation in English law, which dates back at least to the time of Sir Edward Coke (see Coke upon Littleton (1628) 42a), that an interpretation which upholds the validity of a transaction is to be preferred to one which would render it invalid or ineffective. In the days when Latin was commonly used in the courts, it was expressed by the maxim "verba ita sunt intelligenda ut res magis valeat quam pereat" - translated by Staughton LJ in Lancashire County Council v Municipal Mutual Insurance Ltd [1997] QB 897, 910, as "the contract should be interpreted so that it is valid rather than ineffective".”