The Supreme Court Adopts a Literal Approach to the Construction of a Commercial Contract

The leading judgement given by Lord Neuberger of the Supreme Court in the case Arnold v Britton and others [2015] UKCS 36 has provided important clarification of the role of commercial considerations when construing commercial contracts particularly in light of Rainy Sky SA v Kookmin Bank [2011] UKCS 50. Following the literal rather than the purposive approach, Lord Neuberger made clear that “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.”

The courts clarified that where wording is clear enough so that the literal meaning can be applied, such wording will be given its natural meaning whether or not the end commercial result is disastrous. Although the dispute related to the proper meaning of service charge provisions, the significance of the lordships majority decision is much wider in scope and extends to the construction of commercial contracts in general.

Ensuring careful attention is given to the language used in expressive the contracting parties’ intentions is a sure way to avoid costly litigation. The result is particularly crucial in the shipping industry were markets can be highly volatile and parties enter into long term agreements such as time charterparties.

This article has also been published by the Shipping & Trade Law Journal.