Menu

Contract Interpretation: It’s all in the drafting

Print publication

04/11/2015

In the last edition of Disputes Matter we reported on the Supreme Court’s clarification of the correct approach to contract interpretation [1]. That approach has now been applied by the Commercial Court in Laird Resources LLP v Aumm Holdings & Ors [2], this time in the context of a commercial settlement agreement.

The claimant had provided long-running assistance to the defendants in the management of their real estate portfolio, including the creation of a trust to assist with the portfolio’s financing. He also held a one-third interest in the portfolio. When the relationship between the parties broke down, the matter was resolved by means of a deed of settlement and a parting of ways. Clause 2 of the settlement deed provided that capital receipts generated by the portfolio were to be paid into the trust and clause 2.9 provided that, in consideration of the claimant terminating his ongoing interest in the portfolio, the sum of £650,000 plus VAT was to be paid to him “notwithstanding whether… any sums as referred to… above [i.e. the capital receipts] has or have been received… by no later than 31 December 2014”. The settlement sum was not paid and the claimant issued these proceedings.

The claimant submitted that clause 2.9 imposed an unconditional obligation on the defendants to make the requisite payment, whereas the defendants argued that the obligation was contingent or conditional upon capital receipts having been paid into the trust.

Applying Arnold v Britton [3], the Commercial Court found that, although the relevant term of the settlement deed was a tough one for the defendants to have agreed to, as it imposed on them an obligation to pay the claimant even if they had not received trust monies with which to fund it, nevertheless it did impose that obligation – the wording of the contract was clear and its ordinary meaning could not be avoided.

WM Comment

Recent case law could not be more clear that the wording of a contract itself, and the ordinary meaning of that wording where that is plain and unambiguous, is paramount. Commercial common sense cannot be relied upon as a legal argument to undermine the obvious and natural meaning of contract drafting just because a bargain turns out to be bad for any party.

It’s all in the drafting. More than ever before, it is of vital importance that commercial parties make sure that their contracts say, and mean, exactly what they are meant to.

___________________

[1] https://www.walkermorris.co.uk/contract-king-says-supreme-court
[2] [2015] EWHC 2615 (Comm)
[3] [2015] UKSC 36

Contacts