managing uncertainty – how will the court interpret your contracts? andrew aglionby tamsin blow
TRANSCRIPT
Managing uncertainty – how will the Court interpret your contracts?Andrew AglionbyTamsin Blow
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Introduction
Points for
• Drafting
• Disputes
Courts now apply “Business Common Sense” in interpreting contracts
More open to imaginative interpretations
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Perar – the ordinary meaning of the words used
Perar BV v General Surety [1994] 66 BLR 72 (CA)
Contractor bond: “on default by the Contractors the Surety shall satisfy and discharge the damages sustained by the Employer”
Administrative receivership of contractor not an event of default under the bond.
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Rainy Sky – the Court’s idea of “business common sense”
Rainy Sky SA and others v Kookmin Bank [2012] UKSC 50
Two sets of contracts:
• Shipbuilding
• Bond
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Rainy Sky – bond term
Clause 2
“… you are entitled, upon your rejection of the Vessel in accordance with the terms of the Contract, your termination, cancellation or rescission of the Contract or upon a Total Loss of the Vessel, to repayment of the pre-delivery instalments of the Contract Price paid by you ...."
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Rainy Sky – bond term
Clause 3
“…In consideration of your agreement to make the pre-delivery instalments under the Contract, … we hereby, as primary obligor, irrevocably and unconditionally undertake to pay to you, your successors and assigns, on your first written demand, all such sums due to you under the Contract ..."
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Rainy Sky – contract term
Under the main shipbuilding contract Rainy Sky could recover pre-delivery instalments from the builder on insolvency without having to terminate.
Was this covered by the bond guarantee?
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Rainy Sky - interpretation
What does “such sums” mean?
Option 1: Literal meaning
Pre-delivery instalments as qualified in clause 2 due under the shipbuilding contract (i.e. termination, recession, cancellation or total loss)
Option 2: Purposive meaning
All pre-delivery instalments due under the shipbuilding contract
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Rainy Sky - result
Answer: Option 2
Purposive meaning – all pre-delivery instalments due under the
shipbuilding contract
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Rainy Sky – Where does this leave us?
“Business common sense”
• Where there is any ambiguity
• No need for more likely literal meaning to be absurd
Determining the commercial intention of the parties
• Knowledge of reasonable businessperson at time contract entered
into
• Relevant background
• Can you consider pre-contractual negotiations?
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What can you do about it?What the Court suggests
• Tell the Court what is intended
• State all eventualities a clause will encompass…
• …and all it will not
• Set out weak/strong negotiated positions so clear intention
Sounds good, but how does it really work?
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What can you do about it? Practical suggestions
• Careful drafting
• more likely to follow well drafted contract
• read drafts critically
• consider possible alternative interpretations
• Include explanatory schedules, equations, diagrams etc
• Give guide to intent
• include explanations in recitals
• Consider statement of intent
• Save pre-contractual negotiations
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Questions?
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Summary
Courts will use “Business Common Sense”
Opportunity to tell court what was intended
• in drafting
• in argument
Thank you
For more informationplease contact:
Andrew Aglionby Tamsin Blow
+44 (0) 20 7067 3479 +44 (0) 20 7067 3793 [email protected] [email protected]