In this case, Popplewell J usefully summarised the principles regarding applying commercial common sense when interpreting a contract. He said as follows:
- Reliance on commercial common sense and surrounding circumstances should not be invoked to undervalue the importance of the language of the contract;
- The less clear words are, the more ready the court can properly be to depart from their natural meaning. However, the court should not search for "drafting infelicities".
- Commercial common sense is not to be invoked retrospectively. Just because a contract has worked out very badly for one of the parties, that is not a reason to depart from the natural language.
- The court can't take into account a fact or circumstance which was known by only one of the parties.
- Where a defined term is used, the court will often start with the defined meaning, but not always: "It is a common experience that defined terms are not always used consistently by contractual draftsmen throughout a commercial contract". Even without inconsistency, "it does not follow that effect must always be given to the defined meaning. If, as is well known, parties sometimes use defined terms inappropriately, it follows that they may have done so only once, in the provision which is being interpreted".
It may be that, by testing against the commercial consequences and the background facts, the court may conclude that the parties did not intend the defined term to bear the defined meaning. It was said that this was no less so where the contract has been drafted by lawyers.
Accordingly, the judge concluded that prior observations by judges that the court should only fail to give effect to the use of a defined term if absurdity is established were not consistent with the reasoning of the Supreme Court in Rainy Sky v Kookmin (see Weekly Update 39/11).