Clifford Chance
Contractual interpretation: shades of grey - June 2015
19 June 2015
The principles for interpreting commercial contracts are easy to state but sometimes much harder to apply in practice. The two elements that go into the mix are the words used and the context in which the words were used. The most difficult issue is where the balance between these elements should fall: when should the words outweigh the context, and when should the context overwhelm the words? After a period in which context appeared to be king, the Supreme Court may now have signalled a reversal of this position, placing greater emphasis on the words.
Key issues
- The Supreme Court has stressed the importance of wording over context when interpreting a contract
- Courts should respect parties' contractual autonomy by accepting the natural meaning of the parties' words
- Courts should interpret contracts, not re-write them
- Commercial common sense should only override the natural meaning of the words in rare cases
