CA 2024 002410 - [2025] EWCA Civ 1374

There is no need to set out the principles of contractual construction in any detail again here. They are very well known and were fully explained by Lord Neuberger MR in Arnold v Britton [2015] UKSC 36, [2015] AC 1619 at [15]-[23] and by Lord Hodge JSC in his judgment in Wood v Capita Insurance Services Ltd[2017] UKSC 24, [2017] AC 1173 at [10] - [15]. As Mr de la Piquerie submitted that the judge in this case applied the six factors set out by Lord Neuberger PSC at [15] in Arnold v Britton, I should set them out, however. He held that the meaning of the relevant words must be assessed in the light of: “(i) the natural and ordinary meaning of the clause, (ii) any other relevant provisions of the leases [contract], (iii) the overall purpose of the clause and the lease [contract] itself, (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 intention.”

It is also important to keep in mind what Lord Hodge stated at [11] in Wood v Capita at which he refers to passages from both Rainy Sky and Gan Insurance to which Mr Jackson referred us:

“11.

Lord Clarke elegantly summarised the approach to construction in Rainy Sky at para 21f. In Arnold all of the judgments confirmed the approach in Rainy Sky (Lord Neuberger paras 13-14; Lord Hodge para 76; and Lord Carnwath para 108). Interpretation is, as Lord Clarke stated in Rainy Sky (para 21), a unitary exercise; where there are rival meanings, the court can give weight to the implications of rival constructions by reaching a view as to which construction is more consistent with business common sense. But, in striking a balance between the indications given by the language and the implications of the competing constructions the court must consider the quality of drafting of the clause (Rainy Sky para 26, citing Mance LJ in Gan Insurance Co Ltd v Tai Ping InsuranceCo Ltd (No 2) [2001] 2 All ER (Comm) 299 paras 13 and 16); and it must also be alive to the possibility that one side may have agreed to something which with hindsight did not serve his interest: Arnold (paras 20 and 77). Similarly, the court must not lose sight of the possibility that a provision may be a negotiated compromise or that the negotiators were not able to agree more precise terms.”

These principles are also reflected in the Network Rail case to which Mr de la Piquerie referred us. Carr LJ (as she then was) with whom Males and Coulson LJJ agreed, stated as follows:

“[41] Having identified the natural and ordinary meaning of the word ‘default’ in the Contract (both alone and in its immediate context in cl 1(1)(j)(iii)), I turn to consider the wider context, the exercise which lies at the heart of ABC’s challenge. As the authorities identify, any contractual clause, however clear, is not to be read in a vacuum. Its meaning has to be assessed in the light not only of its natural and ordinary meaning but also any other relevant provisions of the contract, the overall purpose of the clause and the contract, the facts and circumstances known or assumed by the parties at the time that the document was executed and commercial common sense (within the confines set out above). . . .”

Lord Hamblen JSC (with whom Lord Hodge DPSC, Lord Kitchin and Lord Sales JJSC agreed) also summarised the principles of construction more recently at [29] of Sara & Hossein Holdings Ltd v Blacks Outdoor Retail Ltd [2023] UKSC 2, 1 WLR 575, in the following way:

“. . .

(1)

The contract must be interpreted objectively by asking what a reasonable person, with all the background knowledge which would reasonably have been available to the parties when they entered into the contract, would have understood the language of the contract to mean.

(2)

The court must consider the contract as a whole and, depending on the nature, formality and quality of its drafting, give more or less weight to elements of the wider context in reaching its view as to its objective meaning

(3)

Interpretation is a unitary exercise which involves an iterative process by which each suggested interpretation is checked against the provisions of the contract and its implications and consequences are investigated.”

In relation to ambiguity, Mr de la Piquerie also referred us to Napier Park European Credit Opportunities Fund Ltd v Harbourmaster Pro-Rata CLO 2 BV [2014] EWCA Civ 984 at [36] per Lewison LJ, with whom Floyd and Longmore LJJ agreed:

“I do not therefore agree with Mr Snowden that commercial considerations have no part to play in deciding whether a particular interpretation is or is not ambiguous. Moreover, to say that ambiguity or unambiguity is the governing factor may be to miss the point. As Lord Sumption observed in Sans Souci Ltdv VRL Services Ltd [2012] UKPC 6 at [14]:

“It is generally unhelpful to look for an “ambiguity”, if by that is meant an expression capable of more than one meaning simply as a matter of language. True linguistic ambiguities are comparatively rare. The real issue is whether the meaning of the language is open to question. There are many reasons why it may be open to question, which are not limited to cases of ambiguity.””