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Commercial Common Sense in Contractual Interpretation: Further Views from the Inner House

Document Cited in Related
Vincent
Pages423-429
Author
DOI10.3366/elr.2017.0439
Published date01 September 2017
Date01 September 2017
INTRODUCTION

In recent years there have been a number of cases in both Scotland and England where the use of commercial common sense in interpreting commercial contracts has been discussed.1 Hoe International Ltd v Andersen and Another 2 is the latest offering by the Inner House on the issue. In this case the court made some controversial comments on the use of commercial common sense in interpreting commercial contracts.

 THE FACTS

The defenders had sold a company, Speyside Distillers Co Ltd, to Hoe. A claim was made against Speyside by another company, Chalmers, which appeared to be in breach of a warranty given by the defenders in terms of the share purchase agreement (“SPA”) providing for the sale of Speyside. Following intimation of the claim against Speyside, Hoe issued a notice to the defenders purporting to intimate a breach of warranty. The SPA made provision for such notice. The issue for the court was whether the notice sent by Hoe was valid in terms of the SPA to intimate the breach of warranty.

The defenders took issue with (i) the content of the notice and (ii) the manner in which it was served. The SPA provided that:

the [defenders] are not liable for a claim… unless [Hoe] has given the [defenders] notice in writing of such claim…, giving reasonable details of all material aspects of such claim… known to [Hoe], including [Hoe's] bona fide estimate of the amount thereof and detailing [Hoe's] calculation of the loss alleged to have been suffered by it.3

The SPA further provided that Hoe was to notify the defenders in writing as soon as reasonably practicable of any claim.4 Notices were to be delivered personally or sent by pre-paid first class post or recorded delivery. Notices were to be sent to the defenders' solicitors, marked for the attention of “MH”.5

The notice sent by Hoe stated that it constituted notice as required by the SPA. The notice enclosed a copy of the correspondence that had been received from Chalmers' solicitors and the enclosures that had been sent with that correspondence. The notice was sent by DX, marked for the attention of “SC”.6

COMMERCIAL COMMON SENSE IN THE INTERPRETIVE EXERCISE

In order to determine whether the notice was valid the court had to interpret the SPA, which contained the notice provisions. The bench comprised Lord Drummond Young, Lord Menzies and Lord Malcolm, with Lord Drummond Young delivering the opinion of the court. He noted that the Lord Ordinary had treated as definitive the principles of contractual interpretation summarised by Lord Neuberger in Arnold v Britton (“Arnold”).7 That, in the Inner House's view, was an oversimplification of what was said in Arnold. Lord Drummond Young noted that the discussion in Arnold was not about the general principles that applied to commercial interpretation but a discussion of particular elements that were relevant to the problem before the court in that case, which was an unusual case.8 Indeed, Arnold represented an example, perhaps rare, of a clause which had “true mathematical uncertainty”.9 The Inner House were of the view that Lord Neuberger's comments in Arnold were directed towards the relatively extreme case where it is argued that rewriting of a clause is required and not with the ordinary case of construction of a clause containing a degree of ambiguity. The court opined that for the proper approach to ordinary cases of contractual interpretation regard should be had to...

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