A recent English High Court case* provides a reminder of some of the key principles affecting the interpretation of written contracts where their meaning is otherwise unclear or ambiguous.
It has been said in an earlier legal authority that the exercise involves “a unitary process to ascertain what a reasonable person with all the background knowledge reasonably available to the parties at the time [of conclusion of the contract] would have understood the parties to have meant”.
So the question is not what one or both of the parties intended their contract to say or themselves thought that it meant, but what an objective observer would understood their contract to have meant.
Equally inadmissible is evidence of what may have been said in pre-contract negotiations, essentially because of the risk of this being used to evidence what one or other party intended to agree, rather than focusing on how they recorded their concluded agreement in their written contract.
Separately it has been said in another legal authority that “When interpreting a contractual provision, one can only take into account facts or circumstances which existed at the time that the contract was made, and which were known or reasonably available to both parties”.
So one does not take into account facts or circumstances known to only one of the parties. But one can take into account facts or circumstances not in fact known by one or both of the parties, as long as a reasonable observer would have expected and believed these to have been known by both parties.
Further, it has been said that “in this exercise [of contractual interpretation] the court can give weight to the implications of rival constructions by reaching a view as to which construction would be more consistent with commercial common sense”.
But there is no scope for the application of commercial common sense where the parties have used unambiguous language. In such a case, the court must apply the clear effect of that language.
A number of legal authorities have cast doubt on the so-called “presumption against surplusage”, namely the parties being presumed to have intended that each and every provision of their contract should have had some specific effect.
This is a reflection of what has been said to be “a lawyer’s desire to make sure that every conceivable point has been covered”, so that not all contract terms will necessarily have been intended to have some particular effect.
A different issue is a situation where, albeit the language used is clear an unambiguous, nevertheless something has gone wrong with that language, in that it reflects a common mistake made by the parties in recording what in fact they agreed. This can lead to rectification of a contract. Here pre-contract negotiations are inadmissible where they evidence what the parties in fact agreed.
The various principles applied in dealing with the interpretation of written contracts may appear complex, but their common thread is to identify what a reasonable third party would have understood the parties to have agreed, not to weigh competing arguments from the parties as to what each maintains it intended to agree.
** JAK Property Jersey Ltd v Together Commercial Finance Ltd [2025] EWHC 2442 (Ch)
By Brian Perrot and Patrick Knox
Partner and Legal Director
