The UK Supreme Court has also given an important ruling on how the courts should interpret commercial contracts. This was the case of Arnold v Britton. The Supreme Court confirmed the existing legal position that the court aims 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”. That meaning, the Supreme Court said, has to be assessed in light of the natural and ordinary meaning of the clause in question, the surrounding circumstances and commercial common sense.
Where the Supreme Court extended the existing legal position was in its judgment on the interplay between the “natural meaning” of the clause and the use of “commercial common sense”. The Supreme Court emphasised that the natural meaning of the words was paramount. Commercial common sense should not be used to undervalue the importance of the language used by the parties. Also, commercial common sense should not be used as a reason to reject the natural meaning of the words used in a clause simply because it appears to be a very imprudent term for one of the parties to have agreed. However, the less clear the words are, the more the court will be willing to depart from their natural meaning and substitute a meaning based on commercial common sense.
The ruling is a helpful reminder for those involved in contract drafting or contract disputes on the principles of contractual interpretation. Where the natural meaning of the words is clear, commercial common sense has no place. It is clear from the ruling that freedom of contracting prevails and that a court will be slow to interfere with the agreement reached between the parties, and will not step in merely to rectify a bad bargain.