Rules for the commercial contract interpretation
1. General rules
1.1.
The ultimate aim of interpretating a provision in the contract is to determine what
the parties meant by the language used which ascertaining what a reasonable
person would have understood the partis to have meant (Lord Neuberger).
1.2.
The relevant reasonable person is one who has all the background knowledge
which would reasonably have been available to the parties in the situation in which
they were at the time of the contract (Lord Hoffman in the Investors Compensation
Scheme case).
1.3.
If the language of a provision leads clearly to a conclusion that one or the other
approach is correct, the Court must give affect to it, however surprising or
unreasonable it might be.
1.4.
But if there are two possible approaches, the Court is entitled to reject the one
which is unreasonable and, in a commercial context, the one which flouts business
common sense (Lord Reid in the Wickman Machine Tools Sales Ltd v Schuler AG
[1974]).
1.5.
The business sense is that which businessmen, in the course of their ordinary
dealings, would give the document (Lord Halsbury in Glynn v Margetson & Co.
[1893]).
2. Particular rules
2.1.
The mere fact that a term in the contract appears to be particularly unfavorable to
one party or the other is irrelevant (Lord Hoffman in Chartbook).
2.2.
The more unambiguous the language of the contract, the more literally the Court
ought to construe it. However, the more equivocal the language of the contract,
the more common business sense and reasonableness will be considered by the
Court (Lord Bridge).
3. Buyers’ position
3.1.
The Paragraph [2] was just a preamble where some general rights and
corresponding obligations were stated. It was not intended to identify the scope
of the Paragraph [3] as it was even placed before it.
3.2.
As long as there are different interpretations, the one should be applied which is
more sensible and reasonable in the common business sense. The fact that
Buyers would intentionally reject the possibility for compensation in case of
insolvency is unlike and no reasonable businessmen would do it.
*3.3
The Court upheld the Buyer’s positions that bank’s interpretation lacks the
commercial sense.