On appeal from: [2015] EWCA Civ 839.

This appeal considered the correct approach to contractual interpretation. Specifically, whether a court should first construe the term in question literally, before then asking whether business common sense or other considerations dictated a different interpretation. The Supreme Court unanimously dismissed the appeal. It held that a court must consider the contract as a whole, including the nature, formality and quality of its drafting, and thus reach an objective view on its meaning. Where there are rival meanings, the court can reach a view as to which construction is more consistent with business common sense. However, in striking a balance between the indications given by the language and the practical implications of competing constructions, the court must consider the quality of the drafting of the clause.

The Supreme Court held that the Court or Appeal’s interpretation of the clause at issue, Clause 7.11 of the contract, was correct. The appellant’s interpretation was unlikely, as the scope of warranty must be limited in some way, and the clause must specify against whom relevant actions could be brought. Equally, considering the context, the clause, breach of which gives rise to a liability unlimited in time, must be assessed in the context of the detailed and time-limited warranties in Schedule 4. In this case, it is not contrary to business common sense for the parties to agree wide-ranging warranties, which are subject to a time limit, and to agree a further indemnity, which is not subject to any such limit but is triggered only in limited circumstances, which were not met here.

For judgment, please download: [2017] UKSC 24
For Court’s press summary, please download: Court’s Press Summary
For a non-PDF version of the judgment, please visit: BAILII

To watch the hearing, please visit: Supreme Court Website (7 Feb 2017 morning session)