When judges and lawyers are faced with the unenviable task of constructing ambiguous contracts, as is often the case in commercial disputes, a tension frequently arises between the literal wording of the disputed clause and the meaning ascribed by the context in which it was enacted. Wood v. Capita Insurance Services Ltd concerned a dispute over rival constructions of a remarkably opaque indemnity clause. The Supreme Court took the opportunity to revisit the balance to be struck between text and context and to put to bed lingering questions as to whether Arnold v. Britton had tilted the scale toward a textual reading and away from the contextual approach most recently emphasised in Rainy Sky SA v. Kookmin Bank.

The shift to purposive construction

While the tension between text and context has been recorded for at least the past two centuries, for most of this history judges applied a strict literal approach. The watershed moment in the shift to the purposive approach accepted today was Lord Hoffman’s speech in Investors Compensation Scheme Ltd. v. West Bromwich Building Society, which, borrowing from Lord Wilberforce, asserted the importance of the “matrix of facts” in divining the meaning of a disputed clause.

The next major development came in Rainy Sky, wherein the Supreme Court, in reasons authored by Lord Clarke, appeared to adopt a two-stage approach to construction. First, the court would look to the text of the clause. If it is unambiguous, the court will apply it as it is written. If it gives rise to competing constructions, the court is entitled to prefer the interpretation that accords with business common sense.

Jul-Sep 2017 issue

Peters & Peters Solicitors LLP