Enter your keyword

Court clarifies how to interpret commercial contracts in dispute

Businesses will benefit from a clear summary of the rules the court will apply when interpreting commercial contracts in the event of a dispute, following a recent ruling in Scotland.

A local authority alleged breach of contract following issues about the quality and servicing of vehicles leased from a supplier company. In deciding the dispute the court gave useful guidance on the principles to be applied when interpreting a commercial contract:

• the aim of the court in construing a commercial contract is to ascertain objectively the aim of the parties;
• for this purpose, the court must put itself in the position of a reasonable person in possession of all background information reasonably available to the parties at the time the contract was entered into;
• when unambiguous language has been used in a contract, the court will normally give effect to that language;
• when there are two possible interpretations, the court will prefer that which makes the most commercial sense.

These principles show that the courts will try to give words in a contract their natural meaning, whether commercially sensible or not but, if words are ambiguous, it will then look to commercial common sense to work out what the parties intended them to mean.

Recommendation

Parties negotiating contracts should ensure contract clauses clearly and unambiguously say exactly what the parties intend at the time. If in doubt, take specialist legal advice.

Case ref: Allied Vehicles Limited v Glasgow City Council [2013] CSOH 192

Jonathan Waters is the founder of Helix Law. Before qualifying as a Solicitor he worked in industry and in investment banking for over a decade. He was also the Partner in charge of Commercial Litigation, Employment Law and Property Litigation at Stephen Rimmer LLP. Jonathan has wide experience of helping and advising businesses to avoid or to deal with commercial disputes and in particular construction disputes.

This article is written to raise awareness of the issues it discusses and it may not be updated after it is first written, even if the law changes. It is not intended to be legal advice and cannot be relied on as such. Helix Law is not responsible or liable for any action taken or not taken as a result of  this article. If you think the matters set out affect you and you wish to apply them to your particular circumstances then we are happy to give you free initial telephone advice. 

Contact Helix Law on 01273 761 990 or email: [email protected]