Arnold v Britton: So What?

The recent Supreme Court ruling in Arnold v Britton [2015] UKSC 36 appeared to
reverse the growing trend of expectation that a court would imply business
common sense into interpreting a contract, as had been found in the earlier
Supreme Court case of Rainy Sky SA v Kookmin Bank [2011] UKSC 50. To what
extent should Arnold v Britton affect contract drafting and associated civil
litigation? With particular reference to cases subsequent to Arnold v Britton where
business common sense has been applied, what factors should potential litigators
take into account before seeking refuge behind the business common sense
gates?

Date of submission: 15 September 2016

Dr Peter Fields BSc LLB LLM LPC PgDip(Bar)

University of Law
Contents

Introduction ................................................................................................................ 3
I. The path to Business Common sense ...................................................................................... 5
1. Moving to a Rainy Sky .................................................................................................................... 5
2. What if the meaning is unclear and/or there are two possible meanings of the language used? ... 7
3. How did Rainy Sky influence cases before Arnold and what happened afterwards? ..................... 8
4. Just how has Arnold changed things?............................................................................................. 9
II. Is the ratio in Arnold v Britton really different to that in Rainy Sky v Kookmin? ..................... 10
1. Facts of Arnold ............................................................................................................................. 10
2. How different is the ratio in Arnold compared to Rainy Sky? ...................................................... 12
III. What practical effect will Arnold have going forward ............................................................. 16
1. Why did the Arnold judgment get the response that it did? .......................................................... 16
2. Could interpretation be governed by the same rules as implication.................................... 18
3. So, what are the future implications of Arnold? ........................................................................... 19
4. The case for submitting a factual matrix .................................................................................. 20

Conclusion.................................................................................................................21
Appendix 1: Illustration of Cases Citing Rainy Sky Pre and Post-Arnold ........................................ 22
Appendix 2: Illustration of Cases Citing Arnold.................................................................................. 26
Bibliography ......................................................................................................................................... 29

2|31
TITLE: The recent Supreme Court ruling in Arnold v Britton 1 appeared to reverse the
growing trend of expectation that a court would apply commercial common sense into
interpreting a contract, as had been found in the earlier Supreme Court case of Rainy Sky
SA v Kookmin Bank 2. To what extent should Arnold affect contract drafting and associated
civil litigation? With particular reference to cases subsequent to Arnold where business
common sense has been applied, what factors should potential litigators take into account
before seeking refuge behind the business common sense gates?

Executive Summary: The ratio behind the decision in Arnold v Britton was that the purpose of
interpretation in a contract dispute is to identify what the parties have agreed and not what the
court thinks they should have agreed [and] that a judge should avoid re-writing in an attempt to
assist an unwise party. However, there remain practical circumstances, particularly where the
wording is unclear or ambiguous, where a court can still be expected to apply business common
sense in interpretation. The contrast can be illustrated when considering the interpretation of a
contract where the wording is clear and unambiguous but the result is overwhelmingly unfair
and it is equally clear that no-one with business common sense would ever have agreed if they
had been clear that was what was intended. Set against a situation where the wording of a term
could have two potential meanings and either interpretation would lead to an unfair result, if
ambiguity is argued, then a court can still decide to rectify the wording because it was
ambiguous. This leads to the practical conclusion, and probably unintended consequence, that
arguments might start to revolve around potential alternative meanings, rather than true
intention, in order to unlock the gate to business common sense.

Introduction
3
The Supreme Court judgment in Arnold v Briton (Arnold) created a flurry of articles
pronouncing that the trend towards interpreting meaning of contracts to reflect commercial
common sense (e.g. as established in Prenn v Simmonds 4 and refined in Rainy Sky SA v Kookmin
5
Bank (Rainy Sky)) had come to an end. The initial response generally appeared to be that
Arnold had re-established the need for a court to focus on the established literal meaning of words
and that any hope that a judge might assist a claimant (for it is normally the claimant who finds
themselves needing to plead business common sense) had been reduced if not eliminated.

1
Arnold v Briton [2015] SC 36
2
Rainy Sky SA v Kookmin Bank [2011] 1 WLR 2900
3
ibid
4
Prenn v Simmonds [1971] 1 WLR 1381
5
ibid

3|31
Prior to Arnold, there had been a growing acceptance of the principles espoused by Lord
Hoffmann in Chartbrook Ltd.v Persimmon Homes Ltd.6 that

there is nota limit to the amount of red ink or verbal rearrangement or correction
which the court is allowed. All that is required is that it should be clear that
something has gone wrong with the language and that it should be clear what a
reasonable person would have understood the parties to have meant.
Here, Lord Hoffmann was effectively endorsing a consistent thread of legal thought that had been
developing over more than 100 years including, at its start, Lord Blackburns judgment in River
7
Wear Commissioners v Adamson that it is necessary to see what is the intention expressed by
the words used from the imperfection of language [by inquiring further] according to the
circumstances with respect to which they were used.

Lord Hoffmann had earlier set out the principles of interpretation in Investors Compensation
Scheme Ltd.v West Bromwich Building Society 8 (ICS), that required ascertaining the meaning
which the document would convey to a reasonable person having all the background knowledge
available to the parties at the time of the contract, including absolutely anything which would
have affected the way in which the language would have been reasonably understood at that time.
Lord Hoffmann also made it clear that the law excludes, from the admissible background, the
previous negotiations of the parties and their declarations of subjective intent. Furthermore, the
permissible background may not merely enable the reasonable man to choose between the
possible meanings of words which are ambiguous but also enable them to conclude that the parties
must, for whatever reason, have used the wrong words or syntax (per Mannai Investments Co. Ltd.
v Eagle Star Life Assurance Co. Ltd.9).

However, alongside these principles set out in ICS, Lord Hoffman did not move away from the
fundamental position that words should be given their natural and ordinary meaning (as
restated in Arnold). Lord Hoffman strongly believed that: this reflects the common sense
proposition that we do not easily accept that people have made linguistic mistakes, particularly in
formal documents 10 but that, if the background allows you to conclude that something must have
gone wrong with the language, the law does not require judges to attribute to the parties an
intention which they plainly could not have had.

6
Chartbrook Ltd. v Persimmon Homes Ltd.[2009] 1 AC 1101, 1114, para.25
7
River Wear Commissioners v Adamson [1877] 2 AC 743, at 763
8
Investors Compensation Scheme Ltd. v West Bromwich Building Society [1998] 1 W.L.R. 896, at 912(H)
9
Mannai Investments Co. Ltd. v Eagle Star Life Assurance Co. Ltd. [1997] A.C. 749
10
Investors Compensation Scheme Ltd. v West Bromwich Building Society [1998] 1 W.L.R. 896, at 913(D)

4|31
With the rules of interpretation having evolved over so long a period, practical questions must
now include How different, if at all, were the circumstances in Arnold? and What, if any, are
the required changes to the approach going forward?. The judgment in Arnold also lends itself to
revisiting the question of whether implying a term into a contract is fundamentally different to
interpreting the meaning of the words that explicitly exist. This is because the rules of implied
terms may give rise to practical differences in approach if it can be argued that interpretation is
really just another variation along a spectrum of approaches that can lead a court to determine
what the parties actually intended when they formed their agreements. Alongside this question of
implied terms is the practical question of whether rectification can be pleaded in order to provide
for pre-contractual documents to be admissible. As such, it is important for any litigant to
appreciate that there are other options that it may be possible to consider apart from asking a court
to interpret the meaning of the words in a contract.

I. The path to Business Common sense

1. Moving to a Rainy Sky

In order to consider how, if at all, Arnold differs from Rainy Sky, it is necessary to look at some
detail behind the evolution of the rules of interpretation that led to Rainy Sky.

Lord Hoffmans statement of the principles in ICS was a balanced position that effectively said
that, if the natural and ordinary meaning is clear, taking into account the full background
knowledge at the time, a court should not try and interpret the words in any other way unless the
resulting apparent intention is one that the parties simply could not have had.

This position had been set out more forcefully by Lord Diplock in Antaios Compania Naviera S.A.
v Salen Rederierna A.B. 11, where he said:

I take this opportunity of re-stating that if detailed semantic and syntactical analysis
of words in a commercial contract is going to lead to a conclusion that flouts
business common sense, it must be made to yield to business common sense.
This reference to yielding to business common sense has been made in a number of notable
cases leading up to Arnold. The problem is that, in itself, the ratio set out by Lord Diplock did not
expand, as Lord Hoffmann did in setting out his principles of interpretation in ICS, and note that
this assessment of business common sense should take into account the full background available
to all parties at the time of the agreement and should be an assessment of business common

11
Antaios Compania Naviera S.A. v Salen Rederierna A.B. [1985] A.C. 191 at 201

5|31
sense as it would have been then and not with the benefit of hindsight or changes in knowledge
or perception that might exist at the time of making a judgment.

In considering the very precise set of conditions that must govern the intervention of common
sense, it must also be acknowledged that there are some deals that are entered into willingly and
with full knowledge, which an outsider might subjectively say that doesnt make business sense.
In these circumstances, the party who has agreed to the term that appears to lack business
common sense, may have agreed for a reason that is specific to their circumstances at the time but
hidden from external view. Such circumstances could include e.g. a connection with some other
contract; a defensive reason where the real benefit is excluding a competitor; a subjective
emotional reason; a different personal perception of risk or internal ambition etc., such that the
true rationale for agreeing is hidden from the reasonable man. This highlights the risk that arises
when trying to ask the courts to use business common sense as a factor for interpretation when,
most often, they are in no real position to judge what made sense to the parties at the time. This is
one of the key practical aspects that led Lords Neuberger, Sumption, Hughes and Hodge (Lord
Carnwath dissenting) to draw the conclusions that they did in Arnold.

Now considering Rainy Sky, Lord Clarke set out his ratio by concurring with the principles set out
in judgments in Pink Floyd Music Ltd. v EMI Records Ltd.12; Mannai Investment Co Ltd. v Eagle
Star Life Assurance Co Ltd.13; Investors Compensation Scheme Ltd. v West Bromwich Building
Society 14; and Chartbrook Ltd. v Persimmon Homes Ltd.15. He concluded that the ultimate aim of
interpreting a provision in a contract is to determine what the parties meant by the language
used16. He went on to say that this involves ascertaining what a reasonable person would have
understood the parties to have meant. He added that this reasonable person must have all the
background knowledge which would have been available to the parties in their situation at the
time of the contract. This element of Lord Clarkes judgment highlights (and consolidates) the
consistency in decisions made leading up to Rainy Sky.

Lord Clarke also acknowledged the irrelevance of the partys subjective intentions and that it is
also irrelevant whether a term is particularly unfavourable to one party or another 17. This builds

12
Pink Floyd Music Ltd. v EMI Records Ltd. [2011] WLR 770, at para. 17
13
Mannai Investment Co Ltd. v Eagle Star Life Assurance Co Ltd. [1997] A.C. 749
14
Investors Compensation Scheme Ltd. v West Bromwich Building Soc. [1998] 1 WLR 896 (at 912F-913G)
15
Chartbrook Ltd. v Persimmon Homes Ltd. [2009] 1 A.C. 1101, paras. 21-26
16
Rainy Sky SA v Kookmin Bank [2011] 1 WLR 2900, at para.14
17
Rainy Sky SA v Kookmin Bank [2011] 1 WLR 2900, at para.19

6|31
 18
on what Lord Hoffmann said in Chartbrook in that a term may have been agreed in exchange
for a concession elsewhere in the transaction or, indeed, it may simply have been a bad bargain. In
either event, if the meaning is clear, the impact and magnitude of the outcome on either party is
irrelevant. Anticipating the comparison between Rainy Sky and Arnold, this fundamental position
is absolutely confirmed and upheld in Arnold.

2. What if the meaning is unclear and/or there are two possible meanings of the language
used?

Lord Clarke said, again referring back to the evolutionary path that led to Rainy Sky and, in
particular, Lord Hoffmans principles in ICS, that, in considering two possible constructions, the
court must consider the language used and ascertain what a reasonable person, with all relevant
background knowledge available to parties at the time, would have understood to have meant. If
there are two possible interpretations, the court is entitled to prefer the construction which is
consistent with business common sense 19. In the forthcoming comparison between Rainy Sky
and Arnold, this is a key point i.e. that business common sense can be used but only when the
meaning is genuinely ambiguous or otherwise unclear. To reinforce this point, Lord Clarke
20
referred to Co-operative Wholesale Society Ltd. v National Westminster Bank plc where the
court regarded the result as being a most improbable commercial result but, even though
improbable, as the language in the clause was unambiguous, the court determined that the
meaning had to stand. Lord Clarke summarised this by confirming that, where the parties have
used unambiguous language, the court must apply it. Spoiler alert: this is exactly what happened
in Arnold.

With reference to a more recent case, in drawing to his conclusion in Rainy Sky, Lord Clarke
stated that the approach to the problem of being presented with alternative linguistically and
practically valid constructions was correctly summarised by Lord Justice Longmore in Barclays
Bank plc v HHY Luxembourg SARL 21. The ratio here, endorsed by Lord Clarke, was that where
alternative constructions are available one has to consider which is the more commercially
sensible and, where neither interpretative outcome appears to follow common sense, the correct
approach is to adopt the more commercial construction. To illustrate the practical application of
this principle in the Rainy Sky case itself, Lord Clarke concludes with the statement: Of the two

18
Chartbrook Ltd. v Persimmon Homes Ltd. [2009] 1 A.C. 1101, para 20
19
Rainy Sky SA v Kookmin Bank [2011] 1 WLR 2900, at para.21
20
Co-operative Wholesale Society Ltd.v National Westminster Bank plc [1995] 1 EGLR 97
21
Barclays Bank plc v HHY Luxembourg SARL [2011] 1 BCLC 336, paras 25 and 26

7|31
arguable constructions [ ], the buyers construction is to be preferred because it is consistent with
the commercial purpose of the bonds in a way in which the banks construction is not.

3. How did Rainy Sky influence cases before Arnold and what happened afterwards?
In order to assess the influence that Rainy Sky might have had on subsequent judgments, a simple
measure could be argued to be the number of cases that cite Rainy Sky as forming part of their
ratio or refer to Rainy Sky in their judgment. This number could also be expressed as a rate of
occurrence (e.g. judgments per month). If, according to this measure, the influence or Rainy Sky
was measured before and after Arnold, this would provide an indication of the impact of the
judgment in Arnold on the practical application of the judgment in Rainy Sky. As such, an analysis
was carried out of all cases that had cited (ie Applied, Followed, Considered or Mentioned) Rainy
22
Sky in the period pre-Arnold and post-Arnold from the date of Rainy Sky (2 November 2011) .
In addition, an analysis of the number of cases citing Arnold since the judgment (10 June 2015)
was also carried out. Table 1 (below) sets out the results of this analysis.

Table 1: Citations of either Rainy Sky or Arnold 23

Citations of Rainy Sky Rainy Sky Citations Arnold Citations

or Arnold Total Pre-Arnold Post Arnold
Applied 26 25 1 7
Followed 25 25 13
Considered 11 11 4
Mentioned 281 276 5 63
ALL 343 337 6 87

What appears clear is that, until Arnold, Rainy Sky citations seemed to be running at an average of
around 8 citations per month. Since Arnold, the occurrence of citations of Rainy Sky has dropped
to less than 0.5 per month and these are mainly just Mentions. In contrast, the rate of citations of
Arnold is running at around 7 per month. Although there is a possibility that this analysis may be
affected by the way that cases are identified as being cited (e.g. the alternative possible
referencing of a judge saying Rainy Sky was considered in Arnold), the analysis still provides
prima facie support for the assertion that Arnold has, indeed, replaced Rainy Sky in being the go
to case for consideration of the interpretation of contracts where the meaning of words is not
clear.

22
(Online: Westlaw Cases > Rainy Sky SA v Kookmin Bank, Supreme Court, 02November 2011 > Case Analysis >
All Cases Citing; at 25/08/2016).
23
Source: Westlaw. Case Search, Case Analysis 25 August 2016

8|31
Nevertheless, behind this, to get a practical understanding of the impact, it is necessary to look in
more detail at the circumstances of the Rainy Sky citations and those following Arnold. At a
practical level, the question remains whether the ratio in judgments post-Arnold would have
changed the outcome of those cases that might have referred to Rainy Sky had the Supreme Court
judgment in Arnold not existed.

4. Just how has Arnold changed things?

An illustration of the purported influence of Rainy Sky (and other prior cases dealing with similar
issues of interpretation and construction) can be seen in the article by Pilling24 where it is
suggested that Rainy Sky facilitated the decision in MT Hojgaard a/s v EON 25. Here, rather than
being an issue of the meaning of individual words, the issue was a conflict between the meaning
of clear phrases in different parts of the contract that, individually, were unambiguous but,
considered together, presented a potential conflict of outcomes if both phrases were considered to
be valid. In this case, one part of the document specified that MT Hojgaard (MTH), the
supplier was required by the client (EON), the customer, to comply with an external
construction specification (referred to as J101) and also to provided that the design would last 20
years. However, there was an error in the requirements of J101 (which was not the responsibility
of MTH) that led to the design starting to fail after 4 years. The question of liability here was
whether the requirement for the design to last 20 years was overruled by the fact that MTH was
required by EON to use a standard (J101) that was flawed.

Although Pilling26 took the MTH case to illustrate the influence of Rainy Sky in allowing a
judgment to take into account business common sense in construction and to differentiate how
the outcome may have been different post-Arnold, the MTH case was not strictly about
interpretation but about conflict between unambiguous individual clauses in an agreement.

As such, in coming to his judgment in MTH v EON, Lord Jackson, with reference to guidance
given by Lord Mance in Re Sigma Corp 27, confirmed that,

When there is tension between different provisions within contractual documents,

[] the resolution of a construction issue is an iterative process. It involves checking
each of the rival meanings against the other provisions of the document and
investigating its commercial consequences.

24
Pilling B. A turning tide? New Law Journal Vol.165 Issue.7665, p18-19
25
MT Hojgaard a/s v EON [2015] EWCA Civ 407
26
ibid
27
Re Sigma Corp (in administrative receivership) [2009] UKSC 2

9|31
It is clear that this approach, whilst considering commercial consequences, is of a different nature
to that in Rainy Sky with regard to interpretation of meaning of a single clause, sentence or word.

28
Nevertheless, in MTH v EON , Lord Jackson did also refer to Rainy Sky and restated Lord
Clarkes observation that, if there are two possible interpretations of a provision, the court is
entitled to prefer the construction which is consistent with business common sense. However, in
forming his judgment, did not refer back to Rainy Sky. Instead, his decision was based on
consideration of whether supplying a product with a design life of 20 years was the same as
providing a warranty that the product would last 20 years. For logical reasons, unrelated to Rainy
Sky, Lord Jackson concluded that it was not the same and the appeal by MTH was allowed.

29
This misguided linking of the ratio in MTH v EON to that in Rainy Sky by Pilling is an
illustration of the power of the perception of the relative strength of business common sense
when, in practical reality, its application remains limited to those areas set out by Lord Hoffmann
(amongst others) where the meaning of a word or sentence is not clear.

In order to shed more light on the practical question of if/how Arnold has changed things, a more
detailed analysis of the ratio in cases pre and post Arnold was carried out. The results are
tabulated in Appendix 1 and discussed in the next section of this report.

II. Is the ratio in Arnold v Britton really different to that in Rainy Sky v
Kookmin?
1. Facts of Arnold

In order to get a practical sense of the background context of the Arnold judgment, it is helpful to
review the basic facts of Arnold. These are usefully summarised by Pilling 30. Summarising even
further, this case was between the lessees and lessor of chalet plots in a caravan park and
concerned the service charge provisions. The contentious provision was the payment by the
lessee of an amount said to relate to

a proportionate part of the expenses and outgoings incurred by the Lessor in the
repair, maintenance, and renewal of the facilities of the estate and the provision of
services hereinafter set at the yearly some of 90 [] for the first year []
increasing thereafter by 10% for every subsequent year or part thereof

28
MT Hojgaard a/s v EON [2015] EWCA Civ 407, para.85
29
Pilling B. A turning tide? New Law Journal 165:7665, p18-19
30
ibid

10 | 3 1
The Lessees argued that their obligation was to pay a proportionate part of the expenses
incurred by the Lessor but that this was to be subject to a cap of 90 in the first year with the cap
increasing by a compound 10%. The Lessor argued that the provision did not imply a cap and that
the lessees were obliged to pay a contribution of 90, increasing by a compound 10% every
subsequent year. In order to get a sense of the magnitude of this difference in interpretation, it is
useful to refer to the table produced by Lord Carnwath, the dissenting judge, in Arnold 31:

The resulting figures (rounded) for annual service charges at each such years:

Triennial Annual [Actual Inflation]

1974 90 90 90

1980 109 159 219

1985 132 257 310

1988 145 342 350

2000 212 1,073 557

2012 311 3,366 794

2072 1,900 1,025,004 N/A

[The last column shows for purposes of comparison the equivalent figures implied by actual
inflation, arrived at by increasing the initial 90 by the recorded price increases over the period
from 1974 to each of the selected years.]

This table compares the annual charge for the situation where the rate increases from the starting
point by 10% every three years (the Triennial column, around 3.3% per year; as existed with a
number of the leases on the site but not those of the claimants); the charge if the rate went up by a
compound 10% every year (as with the Claimants); and increases in the charge if the original 90
was a true reflection of costs and these costs went up by inflation. The mathematics behind this
table show the simple power of compound interest which, in this case, meant that the appellant
Lessees, with a compound increase of 10% per year, were looking at an annual charge of
1,025,004 per year at the end of their lease (in 2072) whereas the tenants with an increase of
10% every three years would be facing a charge of only 1,900 per year.

Applying a business common sense approach, but not taking into account all the circumstances,
as required in Lord Hoffmans principles in ICS, Lord Carnwath concluded that no-one would
have entered into such an agreement if they thought that the service charge would rise to over

31
Arnold v Britton [2015] UKSC 36, para.100

11 | 3 1
1million/year by the end of the lease. However, Lords Neuberger, Sumption, Hughes and Hodge
did not agree with this position and their ratio is key to understanding why, if at all, the ratio in
Arnold should be considered to be different to that in Rainy Sky and, from this, what practical
differences, if any, should be anticipated post-Arnold.

In Arnold, it was accepted that the less clear the relevant words in an agreement were, the more
the court could depart from their natural meaning. However, it was concluded that commercial
common sense was relevant only to the extent how matters could have been perceived by parties
(or by reasonable people in the position of the parties) at the time and in the circumstances of that
the agreement was made. Despite the fact that it is common for parties not to read everything in
their contracts or not to consider what common sense is, or even that current business
conditions may change in unpredictable ways, it was stated explicitly that it was not the function
of the court to relieve a party from the consequence of imprudence of poor advice. Far from
being different to the ratio in Rainy Sky, this was, in essence, the dicta of both Lord Hoffmann, in
33
Chartbrook 32, and Lord Clarke, in Rainy Sky , and is why Arnold is shown in court reports as
having Followed the ratio in Rainy Sky.

2. How different is the ratio in Arnold compared to Rainy Sky?

It has been established, above, that, post-Arnold, the rate of citations of Rainy Sky has dropped by
95% and the rate of citations of Arnold has risen to be around the same rate as Rainy Sky
previously was. Whilst being a simple statistical observation, this gives rise to two possible
situations i.e. the ratio in Arnold has supplanted that in Rainy Sky AND is different; or that the
judgment in Arnold captures the Rainy Sky ratio without modifying it but, perhaps, adding an
additional element.

Analysing the practical impact of Arnold, attention is drawn to the fact that the one dissenting
judge, Lord Carnwath, held that there was a reason to substitute a business common sense
34
meaning for the natural meaning of the words used in the disputed provision. Liddiard,
provided a dissection of how Lord Carnwath tried to insert his version of business common sense
into the disputed provision in Arnold. The main problem was that there was no real evidence in
the fact matrix to support any assertion that, at the time, the parties must have meant something
other than the meaning of the actual words used. In other words, the lack of ambiguity was the

32
Chartbrook Ltd.v Persimmon Homes Ltd. [2009] 1 A.C. 1101, para.14
33
Rainy Sky SA v Kookmin Bank [2011] 1 WLR 2900, para.21
34
Liddiard, S.Ambiguity, mistake and Rainy Sky over Oxwich Bay

12 | 3 1
undoing of Lord Carnwaths attempts to rewrite what the contract actually said. This is not at odds
with the ratio in Rainy Sky.

The point made by Liddiard is also reflected, from the perspective of the majority judges, by John
de Waal QC 35. This reinforces the point that the overall reasoning the court was making in Arnold
was that one has to start with the language, and if it is clear and not ambiguous, then the parties
are taken to have agreed the bargain has apparently been made; commercial common sense only
comes into play if there is an identifiable problem with the drafting, not if there is a problem with
the outcome. This is also entirely consistent with the reasoning in Rainy Sky.

However, despite these articles subtly concluding that Arnold does not actually change the
validity of Rainy Sky, the tone in which they are written gives the sense that, somehow, the
insertion of business common sense (under the rules of Rainy Sky) was out of control and
provided the courts with unwarranted powers to change contracts if there was an argument that the
36
agreement did not make business common sense . In suggesting that the decision in Arnold
emphasises the importance of the actual words used in the contract, this implies that this was not
the case before. However, as can be seen from the analysis above, again, this is perfectly in line
with Rainy Sky.

37
Radcliffe concludes that many people would have agreed with Lord Carnwaths judgment in
trying to rescue someone from the consequences of signing an agreement that, whilst clearly
written, resulted in an outcome that can only be described as manifestly unjust. However,
Radcliffes conclusion is otherwise identical to the articles, already mentioned, in confirming, yet
again, that commercial common sense will, except in the most extreme circumstances, play
second fiddle to the clear wording of the agreement.

There is again the familiar suggestion that, whilst the decision in Arnold may not represent new
law, it would herald a more consistent and, therefore, more predictable approach. Radcliffe 38 cites
a case (Wood v Sureterm Direct Ltd.& Capita Insurance Services Ltd. 39) that she argues followed
Arnold in that it favoured an interpretation of an indemnity clause based on the language of the

35
John de Waal QC, Hardwicke Chambers 12 Oct 2015 Arnold v Britton and Commercial Common sense
36
A good illustration of this is the article from CMS Cameron McKenna (Pendell, G et al, Contractual interpretation:
supremacy of natural and ordinary meaning) that concludes that Lord Neubergers approach in Arnold may herald
the start of a trend away from the increasingly commercial construction of contracts towards a more traditional
black letter analysis of contracts
37
Radcliffe, A in Courts will not rescue parties to a disastrous bargain
38
ibid
39
Wood v Sureterm Direct Ltd.& Capita Insurance Services Ltd. [2015] EWCA Civ 839

13 | 3 1
contract despite the fact that interpretation made the contract wholly uncommercial for the
buyer. However, on looking at Wood v Sureterm Direct, it is clear that this judgment was based
simply on the fact that the words could not be interpreted any other way and, once more, supports
the position that, perhaps Rainy Sky and Arnold are really not that different.

With an eye on the practical implications of the Arnold decision, the analysis set out above would
lend support to the view that the widely held perception that Rainy Sky allowed for the courts to
reach a broad view as to what the parties intentions must have been and to insert these into a
contract, no matter what the words, appears to be incorrect. Connal QC provides a final
illustration of how this apparent myth is spread 40:

At the highpoint of judicial thinking, influenced by cases such as Chartbrook and

Rainy Sky, an observer might have thought that the words could largely be ignored
and that the goal was to reach a broad view of what the parties intentions must have
been. Neither the words nor potential corrections to the words were of much
significance.

The analysis carried out in this dissertation does not support Connal QCs contention that the
actual words used can largely be ignored. On the contrary, judgments only ever seem to rely on
implied business common sense when the natural meaning of the words is genuinely
ambiguous or just does not fit with the full background knowledge that the parties must have had
at the time the agreement was made. This raises the question of whether the reported trend of
increasing reliance on the broader view of commercially sensible intentions ever really existed or
whether this has never actually been the case.

Looking for evidence to support this assertion, further analysis was carried out on all the cases
since Rainy Sky that cited the ratio of Rainy Sky in their judgment. Referring to Table 1, above, as
at 24 August 2016, Rainy Sky has been cited 343 times. Of the citations, 281 were just where
Rainy Sky was mentioned. The remainder involved the Rainy Sky ratio being Followed or
Applied. In order to illustrate more precisely how Rainy Sky influenced the cases that followed,
both pre- and post-Arnold, the essence of the specific ratio of each of these key cases is set out in
Appendix 1.

40
Connal QC, R. Craig Has the Rainy Sky Dried Up? Arnold v Britton and Commercial Interpretation (Edinburgh
Law Review, Dec 2015, 20(1) pp.71-76

14 | 3 1
These cases show that a key common and recurring element of Rainy Sky is that business common
sense is only inserted by a court when the meaning of one or more disputed clauses in an
agreement are ambiguous or conflicting and/or the meaning based purely on the words is not
practically valid. There are absolutely no examples where a valid meaning of words has been
overwritten by common sense in order to change the outcome that would otherwise have resulted
from the interpretation of the normal meaning of words.

In all cases citing Rainy Sky, where key words had no valid or practical meaning, the objective of
the court, as clearly set out by Lord Hoffman in ICS, was to determine what the parties meant by
the language they had used, and that involved ascertaining what a reasonable person would have
understood them to have meant. A reasonable person was one who had all the background
knowledge reasonably available to the parties at the time. The application of the Rainy Sky ratio in
the seven cases that cite Rainy Sky post-Arnold is entirely consistent with the application before
Arnold was decided (see Appendix 1, section 2).

Now looking at all of the key cases post-Arnold that actually cite Arnold as being Applied or
Followed, totalling 14 in number, a similar analysis has been carried out (as for the Rainy Sky
analysis above) and this is set out in Appendix 2. A summary of the incidence of the main
elements of the applied ratio is set out in Table 2 below:

Table 2: Common Elements of ratio in all key cases citing Arnold (as at 28 August 2016)

Key Element of Ratio Cases

If no ambiguity, take natural ordinary Honeyrose Bakery Ltd.41
meaning or common useage at the Cosmetic Warriors Ltd.42
time. If there meaning is unclear or Ennismore Fund Management Ltd.43
Carillion Construction Ltd. 44
impractical, can consider business
Flanagan 45
common sense as basis for R. (on the application of Robert Hitchins Ltd)46
interpretation. LSREF III Wight Ltd.47
Vitol E and P Ltd.48

41
Honeyrose Bakery Ltd.v Lola's Kitchen Ltd.[2015] EWHC 1856
42
Cosmetic Warriors Ltd.v Gerrie [2015] EWHC 3718
43
Ennismore Fund Management Ltd.v Fenris Consulting Ltd. [2016] UKPC 9
44
Carillion Construction Ltd.v Woods Bagot Europe Ltd. [2016] EWHC 905
45
Flanagan v Liontrust Investment Partners LLP [2015] EWHC 2171
46
R. (on the application of Robert Hitchins Ltd) v Worcestershire CC [2015] EWCA Civ 1060
47
LSREF III Wight Ltd.v Millvalley Ltd. [2016] EWHC 466
48
Vitol E and P Ltd.v Africa Oil and Gas Corp [2016] EWHC 1677

15 | 3 1
 Identify intention by reference to Derreb Ltd. 49
understanding of reasonable person Hayfin Opal Luxco 3 SARL 50
with background knowledge available Carillion Construction Ltd.51
Riverside Park Ltd.52
to the parties, focusing on meaning of
Oran Pre-Cast Ltd. 53
relevant words in their documentary, Walsh 54
factual and commercial context

The apparent ratios in the cases citing Arnold appear to be exactly the same as for those in Rainy
Sky. In addition, although perhaps not statistically significant, in 6 out of the 14 cases since
Arnold, the infamous business common sense was actually implied although, as with the Rainy
Sky citations, this was only done when the natural meaning of the words had to be rejected
through ambiguity or lack of practical meaning.

Given the media comments that Arnold would change how cases were considered, it is surprising
to find that there is virtually no difference between the ratios applied in those cases citing Arnold
and those earlier cases citing Rainy Sky. In fact, there is actually an increase in the number of
references to tests for business common sense in those cases citing Arnold in their ratio. Although
there are fewer cases, with 24 being reviewed, there is a consistent reference to the test of whether
the ordinary meaning of the words used is valid and, only if not, is the test of business common
sense used. This approach is nicely packaged in the principles espoused by Lord Hoffmann in
ICS that the test should be that of the understanding of a reasonable person with the background
knowledge available to the parties.

This analysis seems to confirm that very little, if anything, has changed since Arnold and the tests,
as applied in Rainy Sky are alive and well.

III. What practical effect will Arnold have going forward

1. Why did the Arnold judgment get the response that it did?

Having looked at the influence of Arnold v Britton, as set out above, there does not appear to have
been much, if any, impact that can be seen to be different to the influence of Rainy Sky. However,
this does not mean that the judgment, in itself, might not influence cases going forward. This

49
Derreb Ltd.v White [2015] UKUT 667
50
Hayfin Opal Luxco v Windermere Plc [2016] EWHC 782
51
Carillion Construction Ltd. v Woods Bagot Europe Ltd. [2016] EWHC 905
52
Riverside Park Ltd.v NHS Property Services Ltd. [2016] EWHC 1313
53
Oran Pre-Cast Ltd. v Oranmore Precast Ltd. [2016] EWHC 1846
54
Walsh v Hall [2016] EWHC 1759

16 | 3 1
raises the question of what elements of Arnold are distinctive and may give rise to practical effects
on future judgements and preparation for claims.

55
In his judgment in Arnold v Britton , Lord Neuberger highlighted a number of key points that
appeared to be written as a warning for any future claimants (emphasis added):

para.17: The reliance placed in some cases on commercial common sense and
surrounding circumstances should not be invoked to undervalue the
importance of the language of the provision which is to be construed.[]
Unlike commercial common sense and the surrounding circumstances, the
parties have control over the language they use in a contract.

para.18: [the less clear the words are] the more ready the court can properly be to
depart from their natural meaning.[.]However, that does not justify the court
embarking on an exercise of searching for, let alone constructing, drafting
infelicities in order to facilitate a departure from the natural meaning.

para.19: commercial common sense is not to be invoked retrospectively. The mere fact
that a contractual arrangement, if interpreted according to its natural language,
has worked out badly, or even disastrously, for one of the parties is not a reason
for departing from the natural language.

para.20: The purpose of interpretation is to identify what the parties have agreed, not
what the court thinks that they should have agreed.

para.41: there is no principle of interpretation which entitles a court to re-write a

contractual provision simply because the factor which the parties catered for
does not seem to be developing in the way in which the parties may well have
expected.

Whilst it can be argued that these points are essentially repeating Lord Hoffmanns principles in
ICS, and are entirely consistent with the ratio in cases citing Rainy Sky, there is no doubt that Lord
Neuberger gave them great emphasis. Despite the fact that there appears to have been little impact
so far, it is probably Lord Hoffmanns emphasis that has resulted in the perception that Arnold has
put a stop to attempts to claim business common sense when it is not allowed by the established
principles of interpretation. However, it is clear that this is nothing really new under the Rainy
Sky. The practical consequence of this is that, in drafting contracts, solicitors will continue to need
to focus on avoiding ambiguity but, perhaps more importantly, encouraging their clients to
consider the assumptions behind each element of a supposed agreement and extrapolating possible
future outcomes to assess the consequences if the business assumption turns out to be wrong.

55
Arnold v Briton [2015] SC36 paras.17-20, 41

17 | 3 1
 2. Could interpretation be governed by the same rules as implication

In his judgment, Lord Neuberger went back a lot further than Rainy Sky, ICS or Chartbrook and
refers to The Moorcock 56, where Bowen LJ had observed that:

in all the cases where a term had been implied, it will be found that . . . the law is raising
an implication from the presumed intention of the parties with the object of giving the
transaction such efficacy as both parties must have intended that at all events it should
have.
and also Reigate v Union Manufacturing Co (Ramsbottom)Ltd.57 where Lord Justice Scrutton had
added that :

a term would only be implied if it is such a term that it can confidently be said that if
at the time the contract was being negotiated, the parties had been asked what would
happen in a certain event, they would both have replied: Of course, so and so will
happen; we did not trouble to say that; it is too clear.
These long established principles primarily relate to implying terms into a contract, however, they
share a common purpose with the requirement for interpretation in that, whatever was written in
agreement, has subsequently been considered not to capture clearly the intentions of the parties.
This does raise the question of whether the rules of implied terms should be considered alongside
the rules of interpretation or, indeed, effectively combined to provide a grand principle for
clarifying the intentions of the parties.

This concept of treating interpretation in a similar way to implied terms was actually
supported by Lord Carnwath (dissenting) in Arnold 58 proposing another permissible route to the
same end is by the implication of terms necessary to give business advocacy to the contractand
referring to the principles set out in Attorney General of Belize v Belize Telecom Ltd.59. These
principles are also set out more recently in Marks & Spencer Plc 60:

a term would be implied into a detailed commercial contract only if that were
necessary to give the contract business efficacy or so obvious that it went without
saying; that the implication of a term was not critically dependent on proof of an
actual intention of the parties when negotiating the contract but was concerned with
what notional reasonable people, in the position of the parties at the time at which
they had been contracting, would have agreed; and that it was a necessary but not
sufficient condition for implying a term that it appeared fair

56
The Moorcock [1889]14 PD 64, 68
57
Reigate v Union Manufacturing Co.(Ramsbottom) Ltd. [1918] 1 KB 592, 605
58
Arnold v Briton [2015] SC 36,para.112
59
Attorney General of Belize v Belize Telecom Ltd. [2009] 1 WLR 1988, para.22
60
Marks & Spencer Plc v BNP Paribas Securities Services Trust Co.(Jersey) Ltd. [2015] UKSC 72

18 | 3 1
This aspect of fairness was one of the key reasons given by Lord Carnwath for his support of the
claimants in Arnold and he appeared to argue that, if fairness could be used as justification for
implying a term, it made sense that it also be used in interpretation to clarify the intention of the
parties.

Lord Neuberger addressed Lord Carnwaths point (re treating interpretation in a similar way to
implying terms) 61:

I accept Lord Carnwath JSCs point in para.71 to the extent that in some cases it
could conceivably be appropriate to reconsider the interpretation of the express
terms of a contract once one has decided whether to imply a term, but, even if that is
right, it does not alter the fact that the express terms of a contract must be
interpreted before one can consider any question of implication.

However, with Lord Carnwath being the only dissenting judge to espouse support for fairness as a
reference point for judgment, it is unlikely that future judgements will allow fairness to become
a key justification for interpretation and any attempts by barristers or solicitors to pursue this
approach are likely to fail.

As emphasised by Lord Neuberger, what will almost certainly remain going forward, and is
common to both interpretation and implication of terms, is that these are both only necessary
when the words used in their normal and ordinary meaning do not give enough certainty about the
intentions of the parties at the time.

3. So, what are the future implications of Arnold?

A number of articles have been written considering the future implications of the Arnold decision.
These seem to focus on the key point i.e. if the terms are clear and meaningful in the context of
the agreement, there is virtually no chance of persuading the court to insert business common
sense even if the outcome of those clear words is extreme and damaging to one or other of the
parties 62.

Tarnya 63 goes a bit further and sets out some clear practical advice on drafting contracts in a way
to mitigate any need to interpret the meaning of words. As a checklist, if all her points were

61
Arnold v Briton [2015] SC 36, para .22
62
Clark, Paul in Drafting after Arnold v Britton (2015) The Conveyancer and Property Lawyer 5, 373-378
63
Tarnya Pilgrim in The Ronseal approach to contracts: "it does exactly what it says on the tin": courts will not re-
write a bad bargain (Landlord & Tenant Review 03/02/2016)

19 | 3 1
included, they should remove ambiguity. Some of the key measures (to avoid the situation when
a court decides they need to interpret) seem fairly obvious but, nevertheless, at a practical level,
are still good advice. These include looking for conflicts and ambiguities when the entire
document is taken as a whole; where possible, use short sentences and simple words and avoid
jargon; and take great care with mathematical formula.

However, the point missing is the what if? question i.e. what if, despite every effort to ensure
clarity of intent, some event occurs that, within the clear meaning as set out, results in a
manifestly unfair position for one of the parties. The article doesnt say it but, if this happened, the
result of the emphasis and profile of Arnold is that there will be little or no chance of persuading
the court that the agreement should be reinterpreted simply to avoid this unfairness. As a result,
solicitors and barristers would spend their time more wisely not focussing on the fairness of the
outcome but on the factual matrix to build a comprehensive picture of what the parties intended.
Only if they can make a convincing case for the ambiguity of the words written can they then
consider submitting a fair (i.e. business common sense) outcome supporting the required legal
interpretation.

4. The case for submitting a factual matrix

One way of looking at the issue presented by the difference in positions held by Lord Neuberger
and Lord Carnwath in Arnold is that this is a battle between the black letter strict meaning of
words and the fairness of the outcome. This can be described as a battle between formalism and
64 65
contextualism in relation to interpretation . Tan sets out an approach to providing a
coherent framework and analyses Arnold trying to reconcile the different approaches taken
between Lord Neuberger and Lord Carnwath. This difference seems to revolve around whether
you are of the view that an outcome that could be perceived to be profoundly unreasonable or
unfair (and is arguably surprising or unanticipated) should be corrected (i.e. contextualism) or
whether you are rigid in your adherence to the rule that, if the meaning is clear, then that is what
the parties must be assumed to have intended despite the existence of a substantially unfair
outcome (i.e. formalism).

64
Tan, Zhong Xing, (Beyond the Real and the Paper Deal: The Quest for Contextual Coherence in Contractual
Interpretation (2016) 79 The Modern Law Review 4, p 623654 ) carefully analysed this battle where the point is
made that the divide between these two approaches is really a contest between rival interpretations attempting to
make the most coherent sense of the available text and the context surrounding the document.
65
ibid

20 | 3 1
Learning from this, a practical outcome of Arnold could be the evolution of a protocol whereby, in
any case where a party tries to persuade the court to reinterpret, there is a requirement to set out
the fact matrix in a way that makes it clear whether any of the key criteria set out in ICS, Rainy
Sky and Arnold are met. This would save a lot of time and could reduce the need for a court to
review the same arguments again and again only to conclude that, if the words are clear, in the
context of the agreement as a whole, and the meaning of the words in issue is practical, the court
has no power to reinterpret the meaning in order to deliver a fairer outcome.

Conclusion

Citations of the judgment in Arnold have already replaced those of Rainy Sky (Table 1, above) and
there is a widespread perception that Arnold has reduced the probability that a court might choose
to interpret or construct terms in a way that provides an outcome consistent with business
common sense. This perception may well cascade down and influence initial judgments in lower
courts. However, careful analysis of the Arnold judgment, when set alongside those of the Rainy
Sky judgment, shows that there is no real difference in the principles behind the ratio. If there is a
difference, it is in the emphasis that Lord Neuberger gave to the importance of focusing on the
ordinary meaning of words and only implying business common sense when the words either
conflict or failed to have meaning. Consideration of cases decided post-Arnold confirms that there
has been little real effect on judgments and it appears highly likely that these post-Arnold cases
would have been decided in exactly the same way for exactly the same reasons had Rainy Sky still
been the primary reference point.

The, perhaps unsurprising, message is that, if you are drafting, make sure that you mean what you
say and you say what you mean and that the context and usage of words is absolutely clear. If a
dispute arises, in assessing whether you have a potential claim (or defence), the best practical
advice is to construct a factual matrix and consider every aspect of the documentation and whether
it supports your claim. If the words are unambiguous and have meaning (in the context of the
agreement) but the outcome is still surprising and unwelcome, this analysis shows that you would
be better off trying to seek a mediated outcome rather than to persuade a court to reinterpret the
meaning to deliver what might, in hindsight, have been a preferred outcome or, in other words,
business common sense.

*** ends ***

21 | 3 1
Appendix 1: Illustration of Cases Citing Rainy Sky Pre and Post-Arnold
ILLUSTRATION OF KEY CASES CITING RAINY SKY
SECTION 1: POST-RAINY SKY, PRE-ARNOLD
[F] = Followed
Type CASE
F Chalabi v Agha-Jaffar [2011] EWCA
Civ 1535
F PT Thiess Contractors Indonesia v PT
Kaltim Prima Coal [2012] EWHC 690
(Comm)
F CGIS City Plaza Shares 1 Ltd.v Britel
Fund Trustees Ltd.[2012] EWHC 1594
(Ch)
F Napier Park European Credit
Opportunities Fund Ltd.v
Harbourmaster Pro-rata CLO 2 BV
[2014] EWCA Civ 984
F Cohen v Teseo Properties Ltd
[2014] EWHC 2442 (Ch)
[A] = Applied
Ratio from Rainy Sky
Faced with two possible constructions of a
commercial document. In such circumstances
the more commercially sensible solution was
to be preferred, particularly if it was the
solution which had commended itself to the
commercial judge
Even if the CDA could fairly bear the
meanings suggested by both parties, then the
construction urged by K would be preferred
because it enabled both [documents] to be
read together without inconsistency.
The more probable purpose of the [words]
was to identify building by reference to the
physical status or location rather than by
reference to their ownership from time to
time. That interpretation was most consistent
with business common sense
The court should seek to discern the
commercial intention and the commercial
consequences from the terms of the contract
itself, and that fed in to the process of
deciding whether a particular word or phrase
was in reality clear and unambiguous. Where
possible, the court should test any
interpretation against the commercial
consequences. That was part of the iterative
exercise of interpretation. It was not merely a
safety valve in cases of absurdity.
The contract was poorly drafted and
accordingly it was particularly important to
have regard to business common sense in
drawing inferences as to the parties' intentions
expressed in the contract. Business common
sense strongly favoured C's interpretation.
22 | 3 1
F TBAC Investments Ltd.v Valmar Works The notice did contain many errors: [] Yet
Ltd.[2015] EWHC 1213 (Ch)
A RGI International Ltd.v Synergy
Classic Ltd.[2011] EWHC 3417
(Comm)
A Premier Foods Group Services Ltd.v Any suggestion that a purposive construction
RHM Pension Trust Ltd. [2012]
EWHC 447 (Ch)
A Yafai v Muthana [2012] EWCA Civ
289
A Entrust Pension Ltd.v Prospect
Hospice Ltd.[2012] EWHC 1666 (Ch) the single unitary one described in Rainy Sky
A Stratford on Avon DC v David Wilson Where there were two possible interpretations
Homes Ltd.[2012] EWCA Civ 1911
those errors were minor, because they would
not create any doubt in the mind of a
reasonable recipient as to the purpose of the
notice.
If "investor" was construed in the narrow and
limited manner suggested by S then there
were other provisions of the agreement that
would be rendered unworkable or insensible.
S's construction of clause 5.2 also flouted, and
should be made to yield to, business common
sense.
was only permissible where a literal
interpretation flouted business common sense
should be rejected, Investors
Compensation and Rainy Sky SA v Kookmin
Bank [2011] UKSC 50, [2011] 1 W.L.R. 2900
It was sufficiently clear from the terms of the
partnership deed that the property had been
acquired by Y as his separate property and
had not thereafter become an asset of the
partnership. Even if that interpretation was
susceptible to qualification in the light of
commercial considerations, those relied on by
the judge were not adequate for that purpose
(see paras 28-33 of judgment).
The exercise of construction was ultimately
SA v Kookmin Bank [2011] UKSC 50, [2011]
1 W.L.R. 2900,
of the clause 4 indemnity covenant in the
s.106 agreement, the court was entitled to
prefer the one that was consistent with
business common sense. It was not
consistent with commercial common sense
that it should also extend to liability under an
indemnity covenant by deed given after P had
parted with all interest in the land while
failing to give an indemnity covenant to P2 as
part of the deal.
23 | 3 1
A Actavis Group hf v Eli Lilly & Co
[2013] EWCA Civ 517
NYK Bulkship (Atlantic) NV v Cargill
International SA [2014] EWCA Civ
403
SECTION 2: CITATIONS OF RAINY SKY - POST-ARNOLD
F Capital Print & Display Ltd, Re
[2015] EWHC 1647 (Ch)
F Honeyrose Bakery Ltd.v Lola's Kitchen The supplier's case that there was a temporal
Ltd.(t/a Lola's Cupcakes)
[2015] EWHC 1856 (QB)
The extent of E's solicitors' agreement to
accept service was to be determined
objectively in the same way as a commercial
contract. The ultimate aim was to determine
what the parties meant by the language used,
which involved ascertaining what a
reasonable person with the background
knowledge reasonably available to the parties
would have understood the parties to mean,
In those circumstances it was entirely
reasonable to expect them to have an
understanding of each other's corporate
structures.
The language of the proviso, the charterparty
as a whole and the commercial context all
pointed to the conclusion that the carve-out
was of sufficient width to be applicable and to
prevent C from claiming that the vessel had
been off-hire. The acts and omissions of both
T and X led to that conclusion. The outcome
gave effect to the familiar division between
owners' and charterers' spheres of
responsibility
Although the Deputy Registrar appeared to
refer to the subjective intention of R, it was
clear from his judgment that he had applied
the correct test for determining the objective
intention of the parties in accordance
with Rainy Sky SA v Kookmin Bank [2011]
UKSC 50, [2011] 1 W.L.R. 2900, Rainy
Sky followed
limitation of two months on the right of the
customer to manufacture products itself was
hopeless. Clause 6.2 manifestly meant what it
said, Rainy Sky SA v Kookmin Bank [2011]
UKSC 50 and Arnold v Britton [2015] UKSC
36, followed
24 | 3 1
F Mortgage Express v Countryside
Surveyors Ltd.[2015] EWCA Civ 1110
F Larkfleet Ltd.v Allison Homes Eastern Interpretation of a written contract required
Ltd.[2016] EWHC 195 (TCC)
F FSL-9 PTE Ltd.v Norwegian Hull Club Construing the liberty to apply the clause
[2016] EWHC 1091 (Comm)
A Buckinghamshire v Barnardo's
[2015] EWHC 2200 (Ch)
A Oran Pre-Cast Ltd.v Oranmore
Precast Ltd.[2016] EWHC 1846
(IPEC)
The proper approach to the construction was
summarised in Rainy Sky SA v Kookmin Bank
[2011] UKSC 50, [2011] 1 W.L.R. 2900. The
aim was to determine what the parties meant
by the language they had used, and that
involved ascertaining what a reasonable
person would have understood them to have
meant. A reasonable person was one who had
all the background knowledge reasonably
available to the parties at the time of
contract, Rainy Sky followed.
identifying the intention of the parties by
reference to what a reasonable person with all
the background knowledge available to the
parties would have understood them to be
using the language in the contract to
mean, Chartbrook Ltd.v Persimmon Homes
Ltd.[2009] UKHL 38 and Rainy Sky SA v
Kookmin Bank [2011] UKSC 50 followed
consistently with business common sense they
had done so.
Although it might be commercially sensible
for CPI to be used, that was not a
"replacement" of RPI in the ordinary sense of
the word. There was no justification for
reaching any other conclusion, Rainy Sky SA v
Kookmin Bank [2011] UKSC 50 applied
The reasonable person with all the
background knowledge of the parties'
situation would have understood them to have
meant that the release would cover all known
and foreseeable claims connected with D3
leaving the company, in order to resolve all
matters between them and provide them with
a clean slate, Rainy Sky SA v Kookmin Bank
[2011] UKSC 50, [2011] 1 W.L.R.
2900 and Arnold v Britton [2015] UKSC 36,
[2015] A.C. 1619 applied
25 | 3 1
Appendix 2: Illustration of Cases Citing Arnold
ILLUSTRATION OF KEY CASES CITING ARNOLD
[F] = Followed [A] = Applied
Type CASE
F Honeyrose Bakery Ltd.v Lola's
Kitchen Ltd.(t/a Lola's
Cupcakes) [2015] EWHC 1856
(QB)
F Cosmetic Warriors Ltd.v Gerrie
[2015] EWHC 3718 (Ch)
F Derreb Ltd.v White [2015]
UKUT 667 (LC)
F Hayfin Opal Luxco 3 SARL v
Windermere VII CMBS Plc
[2016] EWHC 782 (Ch)
F Ennismore Fund Management
Ltd.v Fenris Consulting
Ltd.[2016] UKPC 9
Context & Ratio from Arnold
The supplier's case that there was a temporal
limitation of two months for the customer to
manufacture products itself was hopeless. Clause
6.2 manifestly meant what it said, Rainy Sky SA v
Kookmin Bank [2011] UKSC 50 and Arnold v
Britton [2015] UKSC 36, followed
Articles of association were a statutory contract
between members and the company. They were to
be construed in accordance with the ordinary
principles that applied to the interpretation of any
contract, and in a manner tending to business
efficacy because they were business documents
On its true construction the word "vendor" did not
extend to the vendor's personal representatives. It
was intended to be personal to the vendor. The
court had to identify the parties intention by
reference to the understanding of a reasonable
person with the background knowledge available
to the parties, focusing on the meaning of the
relevant words in their full commercial context
It was impossible to conclude that, if asked at the
time of contract, the parties would have adopted
the additional wording suggested by the claimant.
That uncertainty was fatal to the contention that the
alleged mistake could be corrected by construction
or additional wording could be implied,
Chartbrook, Philips Electronique Grand Public SA
v British Sky Broadcasting Ltd.[1995] E.M.L.R.
472 and Arnold v Britton [2015] UKSC 36
The reference to "net investment losses" [] had
to refer back [] so as to mean net investment
losses attributable to the investment advice given
by the fund manager. Applying Arnold v Britton
[2015] UKSC 36 there was no justification for
ignoring [sentences]. They were not inconsistent
with the overall purpose of the agreement, and a
reasonable person in the position of the parties
would have given them their ordinary meaning,
26 | 3 1
F Carillion Construction Ltd.v
Woods Bagot Europe Ltd.
[2016] EWHC 905 (TCC)
F Riverside Park Ltd.v NHS
Property Services Ltd.[2016]
EWHC 1313 (Ch)
A Flanagan v Liontrust
Investment Partners LLP [2015] agreement and side letter; the notice period was
EWHC 2171 (Ch)
A R. (on the application of Robert Since the unilateral undertaking was not a bilateral
Hitchins Ltd) v Worcestershire
CC [2015] EWCA Civ 1060
When interpreting a contract, the court had to
identify the intention of the parties by assessing the
meaning of the relevant words in the light of such
factors as commercial common sense and
surrounding circumstances. However, reliance on
those factors was not to be invoked to undervalue
the importance of the language of the provision to
be construed, Arnold v Britton [2015] UKSC 36,
followed. Moreover, the court could only take into
account facts or circumstances which existed at the
time the contract was made and it should be very
slow to reject the natural meaning of a provision
simply because it appeared to be imprudent from
the point of view of one of the parties
When interpreting a written contract, the court had
to identify the intention of the parties by reference
to what a reasonable person having all the
background knowledge which would have been
available to the parties would have understood
them to be using the language in the contract to
mean, Arnold v Britton [2015] UKSC 36 followed.
In the instant case, the reasonable person would
conclude that the lease did not incorporate the
partitioning into the definition of "premises".
There was no ambiguity in the language of the
precisely six months. Even if there had been
ambiguity, commercial common sense
considerations meant that it had been reasonable to
stipulate a fixed period
commercial contract but a unilateral deed with the
status of a public document, appropriate
adjustment had to be made to the principles of
contractual interpretation in Arnold v Britton
[2015] UKSC 36.. However, since it was
enforceable as a contract and had been entered into
in connection with a commercial development, the
principles remained applicable in their essential
features
27 | 3 1
A LSREF III Wight Ltd. v
Millvalley Ltd. [2016] EWHC
466 (Comm)
A Vitol E and P Ltd.v Africa Oil
and Gas Corp [2016] EWHC
1677 (Comm)
The reference in the restructured swap to the 1992
master agreement had been a mistake, but as a
matter of construction it could not be concluded
that the parties' objectively expressed intention had
been for the restructured swap to be governed by
the 2002 master agreement. It could not be said
that something had gone so wrong with the
language that there was a clear mistake that
required correction. On the face of the documents,
there was no ambiguity, no syntactical difficulty in
construing the language used and the reference to
the 1992 form could not be said to be such a
commercial nonsense as to make it absurd for the
parties to refer to it.
The first consideration was the natural
interpretation of the words "commencement of
drilling" Their natural meaning was the physical
penetration of the seabed, being spudding. That
was to be distinguished from preparations for
drilling. Drilling was not a momentary process, so
it was perfectly sensible to speak of when drilling
started

A Oran Pre-Cast Ltd.v Oranmore The reasonable person with all the background
Precast Ltd.[2016] EWHC 1846 knowledge of the parties' situation would have
(IPEC) understood them to have meant that the release
would cover all known and foreseeable claims
connected with D3 leaving the company, in order
to resolve all matters between them and provide
them with a clean slate, Rainy Sky SA v Kookmin
Bank [2011] UKSC 50, and Arnold v Britton
[2015] UKSC 36,

A Walsh v Hall [2016] EWHC
1759 (CH);
The issue was what a reasonable person with the
background knowledge of the parties would have
taken them to mean by the language used in the
agreement. The reasonable person would have
concluded that the agreement provided that the
ensuing order would contain a paragraph obliging
the defendants to make payment. That accorded
with the wording of the agreement and with
commercial common sense.

28 | 3 1
 Bibliography
Case-Law
Actavis Group hf v Eli Lilly & Co [2013] EWCA Civ 517
Antaios Compania Naviera S.A. v Salen Rederierna A.B. [1985] A.C. 191
Arnold v Britton and others [2015] UKSC 36
Attorney General of Belize v Belize Telecom Ltd. [2009] 1 WLR 1988
Barclays Bank plc v HHY Luxembourg SARL [2011] 1 BCLC 336
Carillion Construction Ltd.v Woods Bagot Europe Ltd.[2016] EWHC 905 (TCC)
CGIS City Plaza Shares 1 Ltd.v Britel Fund Trustees Ltd.[2012] EWHC 1594 (Ch)
Chartbrook Ltd.v Persimmon Homes Ltd. [2009] 1 A.C. 1101
Chalabi v Agha-Jaffar [2011] EWCA Civ 1535
Cohen v Teseo Properties Ltd.[2014] EWHC 2442 (Ch)
Cosmetic Warriors Ltd.v Gerrie [2015] EWHC 3718 (Ch)
Co-operative Wholesale Society Ltd.v National Westminster Bank plc [1995] 1 EGLR 97
Derreb Ltd.v White [2015] UKUT 667 (LC)
Ennismore Fund Management Ltd.v Fenris Consulting Ltd.[2016] UKPC 9
Entrust Pension Ltd.v Prospect Hospice Ltd.[2012] EWHC 1666 (Ch)
Flanagan v Liontrust Investment Partners LLP [2015] EWHC 2171 (Ch)
Hayfin Opal Luxco 3 SARL v Windermere VII CMBS Plc [2016] EWHC 782 (Ch)
Honeyrose Bakery Ltd.v Lola's Kitchen Ltd.(t/a Lola's Cupcakes) [2015] EWHC 1856 (QB)
Investors Compensation Scheme Ltd.v West Bromwich Building Society [1998] 1 W.L.R. 896
LSREF III Wight Ltd.v Millvalley Ltd.[2016] EWHC 466 (Comm)
Marks & Spencer Plc v BNP Paribas Securities Services Trust Co (Jersey) [2015] UKSC 72
Mannai Investments Co. Ltd. v Eagle Star Life Assurance Co. Ltd. [1997] A.C. 749
MT Hojgaard a/s v EON [2015] EWCA Civ 407
Napier Park European Credit Opportunities Fund Ltd.v Harbourmaster Pro-rata CLO 2 BV
[2014] EWCA Civ 984
NYK Bulkship (Atlantic) NV v Cargill International SA [2014] EWCA Civ 403
Oran Pre-Cast Ltd.v Oranmore Precast Ltd.[2016] EWHC 1846 (IPEC)
Prenn v Simmonds [1971] 1 WLR 1381
Premier Foods Group Services Ltd.v RHM Pension Trust Ltd. [2012] EWHC 447 (Ch)
PT Thiess Contractors Indonesia v PT Kaltim Prima Coal [2012] EWHC 690 (Comm)
R. (on the application of Robert Hitchins Ltd) v Worcestershire CC [2015] EWCA Civ 1060
Rainy Sky SA v Kookmin Bank [2011] 1 WLR 2900

29 | 3 1
Re Sigma Corp (in administrative receivership) [2009] UKSC 2
RGI International Ltd.v Synergy Classic Ltd.[2011] EWHC 3417 (Comm)
Reigate v Union Manufacturing Co (Ramsbottom) Ltd.[1918] 1 KB 592
Riverside Park Ltd.v NHS Property Services Ltd.[2016] EWHC 1313 (Ch)
Stratford on Avon DC v David Wilson Homes Ltd.[2012] EWCA Civ 1911
TBAC Investments Ltd.v Valmar Works Ltd.[2015] EWHC 1213 (Ch)
The Moorcock [1889] 14 PD 64
Walsh v Hall [2016] EWHC 1759 (CH);
Wood v Sureterm Direct Ltd.& Capita Insurance Services Ltd.[2015] EWCA Civ 839
Vitol E and P Ltd.v Africa Oil and Gas Corp [2016] EWHC 1677 (Comm)
Yafai v Muthana [2012] EWCA Civ 289

Articles

Clark, Paul, Drafting after Arnold v Britton (2015) The Conveyancer and Property Lawyer 5,
373-378

Pilling, Benjamin, A turning tide? Are the courts returning to a more traditional approach to the
construction of contracts 165 New Law Journal 7665, p18-19

Tan, Zhong Xing, Beyond the Real and the Paper Deal: The Quest for Contextual Coherence in
Contractual Interpretation (2016) 79 The Modern Law Review 4, p623654

Online resources
Connal, R Craig QC, Has the Rainy Sky Dried Up? Arnold v Britton and Commercial
Interpretation, Edinburgh Law Review, Dec 2015, vo. 20, No. 1 : pp. 71-76
(doi: http://dx.doi.org/10.3366/elr.2016.0323); accessed 29 August 2016

de Wall QC, John, Arnold v Britton and commercial common sense (Hardwick Chambers,
Insights Articles 12/10/2015) <http://www.hardwicke.co.uk/insights/articles/arnold-v-britton-and-
commercial-common-sense> accessed 28 August 2016

Liddiard, Simon, Ambiguity, mistake and Rainy Sky over Oxwich Bay (Berwin Leighton
Paisner Article 11/08/2015) <http://www.blplaw.com/expert-legal-insights/articles/ambiguity-
mistake-rainy-sky-oxwich-bay> accessed 28 August 2016

Pendell, Guy; Ashley, Phillip; Ghandi, Kushal Contractual interpretation: supremacy of the
natural and ordinary meaning (CMS Cameron McKenna 17 July 2015) <http://www.cms-
lawnow.com/ealerts/2015/07/contractual-interpretation-supremacy-of-the-natural-and-ordinary-
meaning?> accessed 28 August 2016

30 | 3 1
Radcliffe, Alex, Courts will not rescue parties to a disastrous bargain (Cooley LLP, The Inhouse
Lawyer 9 October 2015) < http://www.inhouselawyer.co.uk/index.php/legal-briefing/courts-will-
not-rescue-parties-to-a-disastrous-bargain/ > accessed 29 August 2016

Tarnya Pilgrim The Ronseal approach to contracts: "it does exactly what it says on the
tin":courts will not re-write a bad bargain (Landlord & Tenant Review 03/02/2016)
http://www.penningtons.co.uk/news-publications/latest-news/the-ronseal-approach-to-contracts-it-
does-exactly-what-it-says-on-the-tin-courts-will-not-re-write-a-bad-bargain/ accessed 28 August
2016

31 | 3 1