[1a] In Rainy Sky SA v Kookmin Bank [2011] 1 W.L.R. 2900, Lord Clarke JSC said, at paragraph 14:

'The principles have been discussed in many cases, notably of course, as Lord Neuberger of Abbotsbury MR said in Pink Floyd Music Ltd v EMI Records Ltd [2010] EWCA Civ 1429, para 17, by Lord Hoffmann in Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749, passim, in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896, 912 f -913 g and in Chartbrook Ltd v Persimmon Homes Ltd (Chartbrook Ltd Part 20 defendants) [2009] AC 1101, paras 21–26.

Taking these in turn but: (1) setting out larger extracts/passages (compared to those expressly referred by Lord Clarke JSC in the quote above); and (2) leaving Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749 until last, as the extracted parts are lengthy:

(1) In Pink Floyd Music Ltd v EMI Records Ltd [2010] EWCA Civ 1429, Lord Neuberger MR in the Court of Appeal said, at paragraph 16 to 22:

'16. Each of the declarations granted below raises a question of interpretation of a provision in a commercial contract. The answer to such a question does not simply depend upon the words used in that provision: it is also dependent on the other provisions of the contract, on commercial common sense, and on the surrounding circumstances (or the matrix of facts) at the time the contract was made. Accordingly, when construing a provision in a commercial document, one should not carry out “a detailed semantic and syntactical analysis of the words used” — per Lord Diplock in The Antaios II [1985] AC 185 , 201.

17. The ultimate aim of interpreting such a provision is to determine what the parties to the contract meant by it. And that involves ascertaining what a reasonable person would have understood the parties to the contract to have meant. In that connection, we were referred, in particular, to passages in the speeches of Lord Hoffmann in Mannai Investments Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749, passim, Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896, 912F-913G and in Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC 1101, paras 21-26.

18. Those well known and important passages demonstrate that while one may proceed on the prima facie assumption that the words at issue mean what they naturally say, they cannot be interpreted in a vacuum. The words must be interpreted by reference to what a reasonable person (who is informed with business common sense, the knowledge of the parties, including of course of the other provisions of the contract, and the experience and expertise enjoyed by the parties, at the time of the contract) would have understood by the provision. So construed, the words of a provision may have a meaning which is not that which they may appear to have if read out of context, or the meaning which they may appear to have had at first sight. Indeed, it is clear that there will be circumstances where the words in question are attributed a meaning which they simply cannot have as a matter of ordinary linguistic analysis, because the notional reasonable person would be satisfied that something had gone wrong in the drafting.

19. In both Investors Compensation [1998] 1 WLR 896 and Chartbrook [2009] 1 AC 1101, Lord Hoffmann made it clear that there is a fundamental difference between interpretation and rectification: the difference arises from the fact that in a claim for rectification, the court can take into account, and in an appropriate case can give effect to, the negotiations between the parties, whereas it cannot do so on an issue of interpretation. This case is concerned with interpretation, so what was said in negotiations is irrelevant and thus inadmissible...

20. Further, as Lord Hoffmann also made clear in Investors Compensation [1998] 1 WLR 896, there is a difference between cases of ambiguity, which may result in giving the words a meaning they can naturally bear, even if it is not their prima facie most natural meaning, and cases of mistake, which may result from concluding that the parties made a mistake and used the wrong words or syntax. However, he emphasised the court does “not readily accept that people have made mistakes in formal documents” — Chartbrook [2009] 1 AC 1101, para 23. He also pointed out in paragraph 20, that, as the court, and therefore the notional reasonable person, cannot take into account the antecedent negotiations, the fact that the natural meaning of the words appears to produce “a bad bargain” for one of the parties or an “unduly favourable” result for another, is not enough to justify the conclusion that something has gone wrong. One is normally looking for an outcome which is “arbitrary” or “irrational”, before a mistake argument will run.

21. Accordingly, before the court can be satisfied that something has gone wrong, the court has to be satisfied both that there has been “a clear mistake” and that it is clear “what correction ought to be made” (per Lord Hoffmann in Chartbrook [2009] 1 AC 1101, paras 22-24, approving the analysis of Brightman LJ in East v Pantiles (Plant Hire) Ltd (1981) 263 EG 61, as refined by Carnwath LJ in KPMG LLP v Network Rail Infrastructure Ltd [2007] Bus LR 1336).

22. To the same effect, Chadwick LJ said in City Alliance Ltd v Oxford Forecasting Services Ltd [2001] 1 All ER Comm 233, para 13 (in a passage cited with approval in Lediaev v Vallen [2009] EWCA Civ 156, para 68) that the court cannot “introduce words that the parties have not used” into a contract unless “satisfied (i) that the words actually used produce a result which is so commercially nonsensical that the parties could not have intended it, and (ii) that they did intend some other commercial purpose which can be identified with confidence.'

(2) In Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896, Lord Hoffman said he had reached the conclude that the judge's approach was to be preferred, but would '...preface my explanation of my reasons with some general remarks about the principles by which contractual documents are nowadays construed' (912F). Lord Hoffman then said, at 912f -913g:

'I do not think that the fundamental change which has overtaken this branch of the law, particularly as a result of the speeches of Lord Wilberforce in Prenn v. Simmonds [1971] 1 W.L.R. 1381, 1384-1386 and Reardon Smith Line Ltd. v. Yngvar Hansen-Tangen [1976] 1 W.L.R. 989, is always sufficiently appreciated. The result has been, subject to one important exception, to assimilate the way in which such documents are interpreted by judges to the common sense principles by which any serious utterance would be interpreted in ordinary life. Almost all the old intellectual baggage of "legal" interpretation has been discarded. The principles may be summarised as follows.

(1) Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.

(2) The background was famously referred to by Lord Wilberforce as the "matrix of fact," but this phrase is, if anything, an understated description of what the background may include. Subject to the requirement that it should have been reasonably available to the parties and to the exception to be mentioned next, it includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man.

(3) The law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent. They are admissible only in an action for rectification. The law makes this distinction for reasons of practical policy and, in this respect only, legal interpretation differs from the way we would interpret utterances in ordinary life. The boundaries of this exception are in some respects unclear. But this is not the occasion on which to explore them.

(4) The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean. The background may not merely enable the reasonable man to choose between the possible meanings of words which are ambiguous but even (as occasionally happens in ordinary life) to conclude that the parties must, for whatever reason, have used the wrong words or syntax: see Mannai Investments Co. Ltd. v. Eagle Star Life Assurance Co. Ltd. [1997] A.C. 749.

(5) The "rule" that words should be given their " natural and ordinary meaning" reflects the common sense proposition that we do not easily accept that people have made linguistic mistakes, particularly in formal documents. On the other hand, if one would nevertheless conclude from the background 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. Lord Diplock made this point more vigorously when he said in Antaios Compania Naviera S.A. v. Salen Rederierna A.B. [1985] A.C. 191, 201:

"if detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business commonsense, it must be made to yield to business commonsense."

If one applies these principles, it seems to me that, the judge must be right and, as we are dealing with one badly drafted clause which is happily no longer in use, there is little advantage in my repeating his reasons at greater length. The only remark of his which I would respectfully question is when he said that he was "doing violence" to the natural meaning of the words. This is an over-energetic way to describe the process of interpretation. Many people, including politicians, celebrities and Mrs. Malaprop, mangle meanings and syntax but nevertheless communicate tolerably clearly what they are using the words to mean. If anyone is doing violence to natural meanings, it is they rather than their listeners.'

(3) In Chartbrook Ltd v Persimmon Homes Ltd (Chartbrook Ltd Part 20 defendants) [2009] AC 1101, Lord Hoffman said, at paragraphs 21–26:

'21. When the language used in an instrument gives rise to diffculties of construction, the process of interpretation does not require one to formulate some alternative form of words which approximates as closely as possible to that of the parties. It is to decide what a reasonable person would have understood the parties to have meant by using the language which they did. The fact that the court might have to express that meaning in language quite different from that used by the parties ("12 January" instead of "13 January" in Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749; "any claim sounding in rescission (whether for undue influence or otherwise)" instead of "any claim (whether sounding in rescission for undue influence or otherwise)" in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896) is no reason for not giving effect to what they appear to have meant.

22 In East v Pantiles (Plant Hire) Ltd (1981) 263 EG 61 Brightman LJ stated the conditions for what he called "correction of mistakes by construction":

"Two conditions must be satisfied: first, there must be a clear mistake on the face of the instrument; secondly, it must be clear what correction ought to be made in order to cure the mistake. If those conditions are satisfied, then the correction is made as a matter of construction."

23 Subject to two qualifications, both of which are explained by Carnwath LJ in his admirable judgment in KPMG LLP v Network Rail Infrastructure Ltd [2007] Bus LR 1336, I would accept this statement, which is in my opinion no more than an expression of the common sense view that we do not readily accept that people have made mistakes in formal documents. The first qualification is that "correction of mistakes by construction" is not a separate branch of the law, a summary version of an action for rectification. As Carnwath LJ said, at p 1351, para 50:

"Both in the judgment, and in the arguments before us, there was a tendency to deal separately with correction of mistakes and construing the paragraph 'as it stands', as though they were distinct exercises. In my view, they are simply aspects of the single task of interpreting the agreement in its context, in order to get as close as possible to the meaning which the parties intended."

24 The second qualification concerns the words "on the face of the instrument". I agree with Carnwath LJ, paras 44—50, that in deciding whether there is a clear mistake, the court is not confined to reading the document without regard to its background or context. As the exercise is part of the single task of interpretation, the background and context must always be taken into consideration.

25 What is clear from these cases is that there is not, so to speak, a 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. In my opinion, both of these requirements are satisfied.

26 ... To say...that it requires "rewriting", or that it "distorts the meaning and arithmetic of the definition" is only to say that it requires one to conclude that something has gone wrong with the language - not, in this case, with the meanings of words, but with the syntactical arrangement of those words. If however the context drives one to the conclusion that this must have happened, it is no answer that the interpretation does not reflect what the words would conventionally have been understood to mean.'

(4) In Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749, Lord Hoffmann gave a judgment, along with Lord Goff, Lord Jauncey, Lord Steyn and Lord Clyde. Lord Goff and Lord Jauncey dissented.

Before considering how the law was formulated, it is worth noting the essential facts. There were 2 leases for offices in Jermyn Street, between the same 2 entities. Each of the leases contained clause 7(13), which contained a right to terminate the lease at the end of the 3rd year ('Break Clause'). To exercise the Break Clause, the tenant had to serve a notice on the landlord: '...such notice to expire on the third anniversary of the term commencement date...'. In due course, the tenant served 2 notices on the landlord, each stating 'Pursuant to clause 7(13) of the lease we as tenant hereby give notice to you to determine the lease on 12 January 1995.'. Before the House of Lords, it was agreed that the third anniversary of the commencement date was actually 13 January 1995, not the 12 January 1995. The question was: 'whether notwithstanding this mistake the notices were effective to terminate the leases?' (Lord Hoffman, 773F)

Lord Hoffman started stating that, 773G to 774B:

'This might seem a straightforward question, particularly when it is remembered that such notices, operating, as they do, unilaterally to alter the rights of the parties, must comply strictly with the terms of the lease....And yet...the case is by no means straightforward. The clause does not require the tenant to use any particular form of words. He must use words which unambiguously convey a particular meaning, namely an intention to terminate the lease on 13 January.'

He then referred to Hankey v. Clavering [1942] 2 K.B. 326 ('Hankey'), '...where the notice to quit said "21 December" instead of "25 December," (774B). In Hankey, Lord Greene MR held that this dating error rendered the notice bad, despite Lord Greene M.R. conceding, at pages 328 and 330 that: (1) "the whole thing was obviously a slip" on the part of the landlord; and (2) the notice being defective,"however much the recipient might guess, or however certain he might be" that it was a mere slip. As Lord Hoffman noted (774B), 'So even if the recipient was certain that the landlord actually wanted to terminate his tenancy on the right date, which was 25 December, so that the necessary intention was unambiguously communicated, the notice was bad', concluding that 'One is bound to be left with a feeling that something has gone wrong here. Common sense cannot produce such a result; it must be the result of some rule of law. If so, what is that rule and is it correct?' (774C)

Addressing what was the law, Lord Hoffman said, at 774C:

'I propose to begin by examining the way we interpret utterances in everyday life. It is a matter of constant experience that people can convey their meaning unambiguously although they have used the wrong words. We start with an assumption that people will use words and grammar in a conventional way but quite often it becomes obvious that, for one reason or another, they are not doing so and we adjust our interpretation of what they are saying accordingly. We do so in order to make sense of their utterance: so that the different parts of the sentence fit together in a coherent way and also to enable the sentence to fit the background of facts which plays an indispensable part in the way we interpret what anyone is saying. No one, for example, has any difficulty in understanding Mrs. Malaprop. When she says "She is as obstinate as an allegory on the banks of the Nile," we reject the conventional or literal meaning of allegory as making nonsense of the sentence and substitute " alligator" by using our background knowledge of the things likely to be found on the banks of the Nile and choosing one which sounds rather like "allegory."

Mrs. Malaprop's problem was an imperfect understanding of the conventional meanings of English words. But the reason for the mistake does not really matter. We use the same process of adjustment when people have made mistakes about names or descriptions or days or times because they have forgotten or become mixed up. If one meets an acquaintance and he says " And how is Mary? " it may be obvious that he is referring to one's wife, even if she is in fact called Jane. One may even, to avoid embarrassment, answer "Very well, thank you" without drawing attention to his mistake. The message has been unambiguously received and understood.

If one applies that kind of interpretation to the notice in this case, there will also be no ambiguity. The reasonable recipient will see that in purporting to terminate pursuant to clause 7(13) but naming 12 January 1995 as the day upon which he will do so, the tenant has made a mistake. He will reject as too improbable the possibility that the tenant meant that unless he could terminate on 12 January, he did not want to terminate at all. He will therefore understand the notice to mean that the tenant wants to terminate on the date on which, in accordance with clause 7(13), he may do so, i.e. 13 January.

Why, then, do cases like Hankey v. Clavering [1942] 2 K.B. 326 arrive at a different answer? I want first to deal with two explanations which seem to me obviously inadequate. First, it is sometimes said that the examples which I have given from ordinary life are concerned with what the speaker meant to say. He may subjectively have intended to say something different from what he actually said and it may be possible, by the kind of reasoning which I have described, to divine what his subjective intentions were. But the law is not concerned with subjective intentions. All that matters is the objective meaning of the words which he has used.

It is of course true that the law is not concerned with the speaker's subjective intentions. But the notion that the law's concern is therefore with the "meaning of his words" conceals an important ambiguity. The ambiguity lies in a failure to distinguish between the meanings of words and the question of what would be understood as the meaning of a person who uses words. The meaning of words, as they would appear in a dictionary, and the effect of their syntactical arrangement, as it would appear in a grammar, is part of the material which we use to understand a speaker's utterance. But it is only a part; another part is our knowledge of the background against which the utterance was made. It is that background which enables us, not only to choose the intended meaning when a word has more than one dictionary meaning but also, in the ways I have explained, to understand a speaker's meaning, often without ambiguity, when he has used the wrong words.

When, therefore, lawyers say that they are concerned, not with subjective meaning but with the meaning of the language which the speaker has used, what they mean is that they are concerned with what he would objectively have been understood to mean. This involves examining not only the words and the grammar but the background as well....'

After considering the case of Doe d. Cox v. Roe, 4 Esp. 185, where a notice to quit which referred to 'The Waterman's Arms' could be read as the 'The Bricklayer's Arms', Lord Hoffman continued (775G):

The immediate point...is that the fact that the law does not have regard to subjective meaning is no explanation of the way Hankey v. Clavering [1942] 2 K.B. 326 was decided. There was no need to resort to subjective meaning: the notice would objectively have been understood to mean that the landlord wanted to terminate the tenancy on the day on which he was entitled to do so.

I pass on to a second explanation which also seems to me inadequate. Lord Greene M.R. said, at pp. 329-330, that because such notices have unilateral operation, the conditions under which they may be served must be strictly complied with. I have already said that this principle is accepted on both sides. But, as an explanation of the method of construction used in Hankey v. Clavering, it begs the question. If the clause had said that the notice had to be on blue paper, it would have been no good serving a notice on pink paper, however clear it might have been that the tenant wanted to terminate the lease. But the condition in clause 7(13) related solely to the meaning which the notice had to communicate to the landlord. If compliance had to be judged by applying the ordinary techniques for interpreting communications, there was strict compliance. The notice clearly and unambiguously communicated the required message. To say that compliance must be strict does not explain why some other technique of interpretation is being used or what it is.

A variation of this explanation is to say that the language of the notice must be strictly construed. But what does it mean to say that a document must be "strictly" construed, as opposed to the normal process of ascertaining the intentions of the author? The expression does not explain itself. If it operates merely by way of intensification, so that the intention must be clear, unambiguous, incapable of misleading, then I think that the notice in this case satisfied the test at that level. Likewise, as Lord Greene M.R. acknowledged when he said that the whole thing was obviously a slip, did the notice in Hankey v. Clavering. So the concept of strict construction does not explain the decision.

A more promising clue to the explanation is Lord Greene's statement, in two places, that the notice must "on its face" comply with the terms of the lease. What does "on its face" mean? Clearly, the face of the document is being contrasted with the background, in law sometimes called the "extrinsic evidence," against which the language is ordinarily construed. But Lord Greene cannot have meant that the document must always be read without any background, because (even if, which I doubt, it were conceptually possible to interpret the use of language without the aid of any background) cases like the Cox case, 4 Esp. 185, show that some background, at least, can be used. It appears, therefore, that Lord Greene is referring to some principle whereby background can be used to show that a person who speaks of The Waterman's Arms means The Bricklayer's Arms, but not that a person who speaks of 12 January means 13 January. What principle is this?

It is, I think, to be found in an old rule about the admissibility of extrinsic evidence to construe legal documents. In its pure form, the rule was said to be that if the words of the document were capable of referring unambiguously to a person or thing, no extrinsic evidence was admissible to show that the author was using them to refer to something or someone else. An extreme example is in In the Goods of Peel (1870) L.R. 2 P. & D. 46, in which the testator appointed "Francis Courtenay Thorpe, of Hampton . . . Middlesex" to be his executor. There was a Francis Courtenay Thorpe of Hampton, Middlesex. He was however only 12 years old and his father Francis Corbet Thorpe, of Hampton, Middlesex, was an old friend of the testator. Lord Penzance said, at p. 47, that these facts were inadmissible: "The testator makes use of a description which applies in fact to one person, and not to any other." A variation on this rule was In re Fish; Ingham v. Rayner [1894] 2 Ch. 83 in which the testator left his residuary estate to his "niece Eliza." He had no niece called Eliza but his wife had an illegitimate grandniece called Eliza, to whom the evidence of their relationship showed that he must have intended to refer, and also, as it happened, a legitimate grandniece called Eliza. The Court of Appeal said that the estate went to the legitimate grandniece and that evidence of the relationship between the testator and the illegitimate grandniece was inadmissible. Lindley L.J. said, at p. 85:

"where the person most nearly answering the description is the legitimate grandniece of the testator's wife . . . no evidence can be admitted to prove that her illegitimate grandniece was intended."

On the other hand, if there was no one to whom the description accurately applied, there was said to be a "latent ambiguity" and evidence of background facts which showed what the testator must have meant, notwithstanding that he had used the wrong words, was admitted.

Let us compare this rule with ordinary common sense interpretation of what people say. If someone has gone to great pains, well in advance, to secure tickets for himself and a friend for a Beethoven concert at the Royal Festival Hall by a famous visiting orchestra on 13 January and says to the friend a week earlier "I'll see you at the Festival Hall concert on 12 January" it will be obvious that he is referring to the concert on 13 January. According to the old rules of construction, the law will agree if there is no concert at the Festival Hall on 12 January. In that case there is a latent ambiguity. But if there is a concert on that date (Stockhausen, say, played by a different orchestra) he will be taken to have referred to that concert.

This extraordinary rule of construction is, as it seems to me, the only explanation for the decisions in Hankey v. Clavering [1942] 2 K.B. 326 and Cadby v. Martinez, 11 A. & E. 720. The Cox case, 4 Esp. 185, was distinguished by counsel in the Cadby case, at p. 723, as involving a latent ambiguity: there was no Waterman's Arms in Limehouse, so evidence that the landlord would have been understood by a reasonable tenant as intending to refer to The Bricklayer's Arms was admissible. But Midsummer 1837, or 21 December 1941 (in Hankey v. Clavering) or 12 January 1995 (in this case) are all real dates to which the notices could have referred. Therefore evidence of background which showed that a reasonable recipient would have understood the person giving the notice as having intended to refer to a different date had to be disregarded. The effect is that apart from the exceptional case in which the date is obviously impossible on the face of the notice (as in Carradine Properties Ltd. v. Aslam [1976] 1 W.L.R. 442) the intention which the notice would convey as to date has to be determined without regard to the terms of the lease (or anything else) as background. There is an artificial assumption that the reasonable recipient does not know what would be the correct date. On this basis, the interpretation of the notices as referring to the wrong dates and therefore being invalid is, of course, inescapable.

It is clear that this rule of construction has been applied to the interpretation of notices for at least 200 years ...It is, however, highly artificial and capable of producing results which offend against common sense...

I think that the rule is not merely capricious but also, for reasons which I need not develop at length, incoherent. It is based upon an ancient fallacy which assumes that descriptions and proper names can somehow inherently refer to people or things. In fact, of course, words do not in themselves refer to anything; it is people who use words to refer to things. The word "allegory" does not mean a large scaly creature or anything like it, but it is absurd to conclude, as judges sometimes do, that this is not an "available meaning" of the word in the interpretation of what someone has said. This is simply a confusion of two different concepts; as we have seen, a person can use the word "allegory," successfully and unambiguously, to refer to such a creature.'

Turning then categories of documents, Lord Hoffman said:

(1) Wills - 'The rule as applied to wills, which restricts the use of background in aid of construction, reflects a distrust of the use of oral evidence to prove the background facts. The people who could give evidence about the background to a will would in most cases be members of the family interested in the outcome of the case and until 1843, persons with an interest in the litigation were not even competent witnesses. No doubt the exclusion of background makes, in a somewhat arbitrary way, for greater certainty in the sense that there is less room for dispute about what the background was and the effect which it has upon the intention to be attributed to the testator. But, as the cases mournfully show, this certainty is bought at the price of interpretations which everyone knows to be contrary to the meaning which he intended.' (at 779A)

(2) Documents needing higher level of certainty - for instance bankers' commercial credits 'There are documents in which the need for certainty is paramount and which admissible background is restricted to avoid the possibility that the same document may have different meanings for different people according to their knowledge of the background. Documents required by bankers' commercial credits fall within this category. Article 13(a) of the Uniform Customs and Practice for Commercial Credits (1993 revision) says (echoing Lord Greene M.R.'s phrase in Hankey v. Clavering) that the documents must " upon their face" appear to be in accordance with the terms and conditions of the credit. But the reasons of policy which require the restriction of background in this case do not apply to notices given pursuant to clauses in leases. In practice, the only relevant background will be, as in this case, the terms of the lease itself, which may show beyond any reasonable doubt what was the intention of the person who gave the notice. There will be no question of the parties not being privy to the same background—both of them will have the lease—and no room for dispute over what the relevant background is.' (at 779C)

(3) commercial contracts - 'In the case of commercial contracts, the restriction on the use of background has been quietly dropped. There are certain special kinds of evidence, such as previous negotiations and express declarations of intent, which for practical reasons which it is unnecessary to analyse, are inadmissible in aid of construction. They can be used only in an action for rectification. But apart from these exceptions, commercial contracts are construed in the light of all the background which could reasonably have been expected to have been available to the parties in order to ascertain what would objectively have been understood to be their intention: Prenn v. Simmonds [1971] 1 W.L.R. 1381, 1383. The fact that the words are capable of a literal application is no obstacle to evidence which demonstrates what a reasonable person with knowledge of the background would have understood the parties to mean, even if this compels one to say that they used the wrong words. In this area, we no longer confuse the meaning of words with the question of what meaning the use of the words was intended to convey.

(4) notices - in light of the law on above 'Why, therefore, should the rules for the construction of notices be different from those for the construction of contracts? There seems to me no answer to this question.' (at 779H) He continued 'All that can be said is that the rules for the construction of notices, like those for the construction of wills, have not yet caught up with the move to common sense interpretation of contracts which is marked by the speeches of Lord Wilberforce in Prenn v. Simmonds [1971] 1 W.L.R. 1381 and Reardon Smith Line Ltd. v. Yngvar Hcmsen-Tangen [1976] 1 W.L.R.989. The question is therefore whether there is any reason not to bring the rules for notices up to date by overruling the old cases.' (at 780A)

Lord Hoffman stated, at 780B:

'There can, I think, be no question of anyone having acted in reliance on the principle of construction used in Hankey v. Clavering [1942] 2 K.B. 326. The consequence of such a construction is only to allow one party to take an unmeritorious advantage of another's verbal error, an adventitious bonus upon which no one could have relied. In this respect, the case for rejecting the old authorities is at least as strong as it was in Sudbrook Trading Estate Ltd. v. Eggleton [1983] 1 A.C. 444, in which this House overruled cases going back to the early 19th century on the construction of contracts for sale at a valuation.

Nor do I think that a decision overruling the old cases will create uncertainty as to what the law is. In fact I think that the present law is uncertain and that only a decision of this House, either adopting or rejecting the Hankey v. Clavering rule of construction, will make it certain. So, for example, in Carradine Properties Ltd. v. Aslam [1976] 1 W.L.R. 442, 444, Goulding J. said that the test for the validity of a notice was: "Is the notice quite clear to a reasonable tenant reading it? Is it plain that he cannot be misled by it?" and he went on to say that the reasonable tenant must be taken to know the terms of the lease. This test was approved by the Court of Appeal in Germax Securities Ltd. v. Spiegal (1978) 37 P. & C.R. 204, 206 and, as will be apparent from what I have already said, I think that it was the right test to adopt. It is, however, absolutely impossible to reconcile the application of such a test with the decision in Hankey v. Clavering, in which no reasonable tenant who knew the terms of the lease could possibly have mistaken the landlord's meaning. It is therefore not surprising that in Micrografix v. Woking 8 Ltd. [1995] 2 E.G.L.R. 32 Jacob J. felt free to dismiss Hankey v. Clavering as " much distinguished" and to ignore it, or that Rattee J. in Garston v. Scottish Widows' Fund and Life Assurance Society [1996] 1 W.L.R. 834 should be puzzled as to why the Court of Appeal in this case considered, as I think rightly, that they were bound by Hankey v. Clavering.'

Lord Hoffman concluded:

'In my view, therefore, the House should say unequivocally that the test stated by Goulding J. in Carradine Properties Ltd. v. Aslam [1976] 1 W.L.R. 442 was right and that Hankey v. Clavering and the earlier cases should no longer be followed. The notice should be construed against the background of the terms of the lease. Interpreted in this way, the notice in the present case was valid and I would therefore allow the appeal.' (780F).

While not listed by Lord Clarke JSC in Rainy Sky, the following cases are of importance:

(5) In Re Sigma Finance Corp (In Administration) [2010] 1 All E.R. 571 (Supreme Court). Lord Mance (with whom Lords Hope, Scott and Collins concurred) said, under the heading 'The Law', at paragraphs 9 to 11:

'9. The principles upon which a court should interpret a document such as the present are not in doubt. They have been reviewed and restated by the House of Lords in a series of cases: Charter Reinsurance Co Ltd (in liq.) v Fagan [1997] A.C. 313, Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] A.C. 749, Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 W.L.R. 896 and Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38. In Charter Reinsurance (above) Lord Mustill underlined the danger of focusing too narrowly on a critical phrase (in that case, a phrase defining the term “net loss” as meaning “the sum actually paid by the reinsured in settlement of claims”), saying ( [1997] A.C. 313 at 384G–H) that:

“This is … an occasion when a first impression and simple answer no longer seem the best, for I recognise that the focus of the argument is too narrow. The words must be set in the landscape of the instrument as a whole. Once this is done the shape of the policy and the purpose of the terms … become quite clear”

Adopting that approach, the House concluded that the words “actually paid” were in context intended not to introduce a pre-condition of prepayment by the insurer to the original insured, but to ensure that the reinsurers' liability was measured precisely by reference to any settlement of liability as between the insurer and insured. Later (at 387D) Lord Mustill said that the principle that the liability of a reinsurer is wholly unaffected by whether the insurer has in fact satisfied the claim under the inward insurance is one which:

“can undoubtedly be changed by express provision, but clear words would be required; and it would to my mind be strange if a term changing so fundamentally the financial structure of the relationship were to be buried in a provision such as clause 2, concerned essentially with the measure of indemnity, rather than being given a prominent position on its own.”

10. In Investors Compensation Scheme ([1998] 1 W.L.R. 896 ) at 912G–913F, Lord Hoffmann summarised the development of the principles of contractual interpretation in this well-known passage:

“The result has been, subject to one important exception, to assimilate the way in which such documents are interpreted by judges to the common sense principles by which any serious utterance would be interpreted in ordinary life. Almost all the old intellectual baggage of ‘legal’ interpretation has been discarded. The principles may be summarised as follows:

(1) Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.

(2) The background was famously referred to by Lord Wilberforce as the ‘matrix of fact’, but this phrase is, if anything, an understated description of what the background may include. Subject to the requirement that it should have been reasonably available to the parties and to the exception to be mentioned next, it includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man.

(3) The law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent. They are admissible only in an action for rectification. The law makes this distinction for reasons of practical policy and, in this respect only, legal interpretation differs from the way we would interpret utterances in ordinary life. The boundaries of this exception are in some respects unclear. But this is not the occasion on which to explore them.

(4) The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean. The background may not merely enable the reasonable man to choose between the possible meanings of words which are ambiguous but even (as occasionally happens in ordinary life) to conclude that the parties must, for whatever reason, have used the wrong words or syntax. (see Mannai Investments Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749 ).

(5) The ‘rule”’ that words should be given their ‘natural and ordinary meaning’ reflects the common sense proposition that we do not easily accept that people have made linguistic mistakes, particularly in formal documents. On the other hand, if one would nevertheless conclude from the background 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. Lord Diplock made this point more vigorously when he said in Antaios Compania Neviera S.A. v Salen Rederierna A.B. [1985] A.C. 191 , 201:

‘… 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.’”

In the present case the focus is on the general nature of the business involved—apparent from the document itself—and upon the scheme and wording of the security trust deed read as a whole. As in Miramar Maritime Corp v Holborn Oil Trading Ltd (The Miramar) [1984] A.C. 676 (per Lord Diplock at 682A–F), so here the document is one which would be expected to have a consistent meaning as between all parties to whom it applied. I therefore also agree with Lord Collins' supplementary remarks on the approach to interpretation.

'11. I pay tribute to the speed with which the courts below have addressed the issue, and the meticulous attention which they have given it. Ultimately, Sales J. and the majority in the Court of Appeal were persuaded in favour of interested party A's case by the consideration that the last sentence of cl.7.6 had a clear natural meaning, and that there was nothing in its language (particularly in the phrase “so far as possible”) to affect the operation of that meaning in the circumstances which arose. The trustee's obligation during the realisation period was to continue to discharge Sigma's debts as and when they fell due, so long and so far as such payment was possible using cash or other realisable or maturing assets; and the reference to such debts being discharged “on the due dates therefor” was inconsistent with party B's argument in favour of pari passu distribution of available assets between creditors whose debts fell due during the realisation period.'

(6) In Prenn v Simmonds [1971] 1 WLR 1381, the issue was one of construction/interpretation of the definition of 'profits available for dividend' for the purposes of making available an option to purchase some shares in a company, contained in an agreement dated 6.7.60 between Mr Prenn and Dr Simmonds (1383E). Lord Wilberforce said, from 1383H—1385D:

'In order for the agreement of July 6, 1960, to be understood, it must be placed in its context. The time has long passed when agreements, even those under seal, were isolated from the matrix of facts in which they were set and interpreted purely on internal linguistic considerations. There is no need to appeal here to any modern, anti-literal, tendencies, for Lord Blackburn's well-known judgment in River Wear Commissioners v. Adamson (1877) 2 App.Cas. 743, 763 provides ample warrant for a liberal approach. We must, as he said, inquire beyond the language and see what the circumstances were with reference to which the words were used, and the object, appearing from those circumstances, which the person using them had in view. Moreover, at any rate since 1859 (Macdonald V. Longbottom, 1 E. & E. 977) it has been clear enough that evidence of mutually known facts may be admitted to identify the meaning of a descriptive term.

But the respondent's counsel contended for even greater extension of the court's interpretative power. They argued that later authorities have gone further and allow prior negotiations to be looked at in aid of the construction of a written document. In my opinion, they did not make good their contention. A modern authority in this House, which the respondent invoked, is Hvalfangerselskapet Polaris Aktieselskap V. Unilever Ltd. (1933) 39 Com.Cas. 1 where it was necessary to interpret the words "entire production." There, as here, there was a claim for rectification in the alternative so that a great deal of evidence of matters prior to the contract was called. But the speeches give no support for a contention that negotiations leading up to the contract can be taken into account: at most they support the admission of evidence to establish a trade or technical meaning (not in question here) and, of course, they recognise the admissibility of evidence of surrounding circumstances. But they contain little to encourage, and much to discourage, evidence of negotiation or of the parties' subjective intentions.

I may refer to one other case, to dispel the idea that English law is left behind in some island of literal interpretation. In Utica City National Bank v, Gunn (1918) 118 N.E. 607 the New York Court of Appeals followed precisely the English line. Cardozo J. in his judgment refers, at p, 608, to "the genesis and aim of the transaction " citing Stephen's Digest of the Law of Evidence and Wigmore on Evidence. Surrounding circumstances may, he says, "stamp upon a contract a popular or looser meaning" than the strict legal meaning, certainly when to follow the latter would make the transaction futile." It is easier to give a new shade of meaning to a word than to give no meaning to a whole transaction." The whole judgment, as one may expect, combines classicism with intelligent realism.

So I think the respondent gains little support from authority. On principle, the matter is worth pursuing a little, because the present case illustrates very well the disadvantages and danger of departing from established doctrine and the virtue of the latter. There were prolonged negotiations between solicitors, with exchanges of draft clauses, ultimately emerging in clause 2 of the agreement. The reason for not admitting evidence of these exchanges is not a technical one or even mainly one of convenience, (though the attempt to admit it did greatly prolong the case and add to its expense). It is simply that such evidence is unhelpful. By the nature of things, where negotiations are difficult, the parties' positions, with each passing letter, are changing and until the final agreement, though converging, still divergent. It is only the final document which records a consensus. If the previous documents use different expressions, how does construction of those expressions, itself a doubtful process, help on the construction of the contractual words? If the same expressions are used, nothing is gained by looking back; indeed, something may be lost since the relevant surrounding circumstances may be different. And at this stage there is no consensus of the parties to appeal to. It may be said that previous documents may be looked at to explain the aims of the parties. In a limited sense this is true: the commercial, or business object, of the transaction, objectively ascertained, may be a surrounding fact. Cardozo J. thought so in the Utica Bank case. And if it can be shown that one interpretation completely frustrates that object, to the extent of rendering the contract futile, that may be a strong argument for an alternative interpretation, if that can reasonably be found. But beyond that it may be difficult to go: it may be a matter of degree, or of judgment, how far one interpretation, or another, gives effect to a common intention: the parties, indeed, may be pursuing that intention with differing emphasis, and hoping to achieve it to an extent which may differ, and in different ways. The words used may, and often do, represent a formula which means different things to each side, yet may be accepted because that is the only way to get "agreement" and in the hope that disputes will not arise. The only course then can be to try to ascertain the "natural" meaning. Far more, and indeed totally, dangerous is it to admit evidence of one party's objective - even if this is known to the other party. However strongly pursued this may be, the other party may only be willing to give it partial recognition, and in a world of give and take, men often have to be satisfied with less than they want. So, again, it would be a matter of speculation how far the common intention was that the particular objective should be realised. In the present case, Lord Denning M.R. seems to have taken into account Dr. Simmonds' anxiety (as testified by a witness) to protect himself against unilateral decisions by Mr. Prenn: and an argument pressed on us was that, if Mr. Prenn's interpretation (i.e. that only the holding company's profits were relevant) was correct, Dr. Simmonds would, in this matter on which he felt so anxious, in some respect at least, be completely in Mr. Prenn's hands, for Mr. Prenn could decide just how much, or how little, of the subsidiaries' profits were to be passed to the holding company. I cannot see how any of this can be admissible, because, I repeat, I cannot see how it is helpful. Given the fact of Dr. Simmonds' anxiety, the whole question is how far does the agreement meet it: how can we know, except by interpreting the agreement, how far Mr. Prenn was willing to meet him or how far Dr. Simmonds decided to take what he could get? Even the argument that Mr. Prenn's interpretation would put Dr. Simmonds in his hands, though apparently attractive, I find to be dangerous: a man in Dr. Simmonds' position - a professional man - entering into relations with the source of finance and benefits to come, might decide, in his own interest, that if he could not get all the protection he wanted, the risk of partial protection was one to accept; that Mr. Prenn had to be trusted to act fairly. To say that the clause had this result is not to say that it was futile or frustratory: it is to say that a better clause could, with hindsight, in Dr. Simmonds' interest have been drawn. But the court cannot construct such a clause out of the material given.

In my opinion, then, evidence of negotiations, or of the parties' intentions, and a fortiori of Dr. Simmonds' intentions, ought not to be received, and evidence should be restricted to evidence of the factual background known to the parties at or before the date of the contract, including evidence of the "genesis" and objectively the "aim" of the transaction.

(7) In Reardon Smith Line Ltd v Hansen-Tangen (The Diana Prosperity) [1976] 1 WLR 989, the issue was whether a charterparty could reject vessel that was tendered to the charterparty, rejecting on the basis the vessel did not comply with its contractual description, because it was built in a different location/yard and labelled a different hull number. Lord Wilberforce said at 995D to 997:

'The contract is in the English language and (clause 40) is to be construed in accordance with English law. But it has been sought to introduce, as an aid to construction, a considerable amount of evidence as to Japanese usages and practice, some of which was in fact taken into account by the Court of Appeal. To decide how far this is legitimate one must make a distinction. When it comes to ascertaining whether particular words apply to a factual situation or, if one prefers, whether a factual situation comes within particular words, it is undoubtedly proper, and necessary, to take evidence as to the factual situation. Thus once one has decided what is meant by “Yard No. 354,” or “to be built at a Yard” it is proper by evidence to establish the characteristics of particular yards, the numbering used at those yards, and the “building” which may have been done, in order to answer, yes or no, the question whether the contractual requirements have been met. There is no difficulty, in law, about this part of the case.

It is less easy to define what evidence may be used in order to enable a term to be construed. To argue that practices adopted in the shipbuilding industry in Japan, for example as to sub-contracting, are relevant in the interpretation of a charterparty contract between two foreign shipping companies, whether or not these practices are known to the parties, is in my opinion to exceed what is permissible. But it does not follow that, renouncing this evidence, one must be confined within the four corners of the document. No contracts are made in a vacuum: there is always a setting in which they have to be placed. The nature of what is legitimate to have regard to is usually described as “the surrounding circumstances” but this phrase is imprecise: it can be illustrated but hardly defined. In a commercial contract it is certainly right that the court should know the commercial purpose of the contract and this in turn presupposes knowledge of the genesis of the transaction, the background, the context, the market in which the parties are operating. I give a few illustrations. In Utica City National Bank v. Gunn (1918) 118 N.E., 607; 222 N.Y. 204 the New York Court of Appeals had to consider the meaning of “loans and discounts” in a contract of guaranty. The judgment of Cardozo J. contains this passage, at p. 608:

“The proper legal meaning, however, is not always the meaning of the parties. Surrounding circumstances may stamp upon a contract a popular or looser meaning. The words ‘loans and discounts’ are not so clear and certain that circumstances may not broaden them to include renewals. They often have that meaning in the language of business life. To take the primary or strict meaning is to make the whole transaction futile. To take the secondary or loose meaning, is to give it efficacy and purpose. In such a situation, the genesis and aim of the transaction may rightly guide our choice. Wigmore on Evidence, vol. IV, para. 2470, Stephen, Digest of Law of Evidence, art. 91, subds. 5 and 6.”

In Prenn v. Simmons [1971] 1 W.L.R. 1381 it was necessary to construe “profits available for dividend.” The judgment in that case, following Cardozo J., relied upon the commercial background of the objective aim of the transaction to give meaning to that phrase.

In Wickman Machine Tool Sales Ltd. v. L. Schuler A.G. ([1974] A.C. 235) the critical word was “condition.” Their Lordships interpreted this word (unusually) in the light of a special business situation.

It is often said that, in order to be admissible in aid of construction, these extrinsic facts must be within the knowledge of both parties to the contract, but this requirement should not be stated in too narrow a sense. When one speaks of the intention of the parties to the contract, one is speaking objectively - the parties cannot themselves give direct evidence of what their intention was - and what must be ascertained is what is to be taken as the intention which reasonable people would have had if placed in the situation of the parties. Similarly when one is speaking of aim, or object, or commercial purpose, one is speaking objectively of what reasonable persons would have in mind in the situation of the parties. It is in this sense and not in the sense of constructive notice or of estopping fact that judges are found using words like “knew or must be taken to have known” (see, for example, the well-known judgment of Brett L. J. in Lewis v. Great Western Railway Co. (1877) 3 Q.B.D. 195.

This proposition can be illustrated by some authoritative judgments. In Hvalfangerselskapet Polaris Aktieselskap Ltd. v. Unilever Ltd. (1933) 39 Com.Cas. 1 the different emphasis placed by individual members of this House on knowledge, Lord Atkin not referring to it (p. 3), Lord Russell of Killowen mentioning it as an element (p. 19), Lord Macmillan distinguishing between objective and subjective elements (p. 25), seems to show that mutual knowledge of extrinsic circumstances, while relevant, is not an essential condition of the admissibility of factual evidence.

Particularly interesting are the speeches in Charrington & Co. Ltd. v. Wooder [1914] A.C. 71, the question being what was meant by “fair market price.” Viscount Haldane L.C. uses once more the expression “circumstances which the parties must be taken to have had in view” (p. 77). Lord Kinnear, after explaining that the term had no fixed meaning, said at p. 80 “Words of this kind must vary in their signification with the particular objects to which the language is directed” and continued, at p. 80:

“… it may be necessary to prove the relation of the document to facts; and I take it to be sound doctrine that for this purpose evidence may be given to prove any fact to which it refers, or may probably refer …”

And Lord Dunedin, at p. 82:

“… in order to construe a contract the court is always entitled to be so far instructed by evidence as to be able to place itself in thought in the same position as the parties to the contract were placed, in fact, when they made it - or, as it is sometimes phrased, to be informed as to the surrounding circumstances.”

I think that all of their Lordships are saying, in different words, the same thing - what the court must do must be to place itself in thought in the same factual matrix as that in which the parties were. All of these opinions seem to me implicitly to recognise that, in the search for the relevant background, there may be facts which form part of the circumstances in which the parties contract in which one, or both, may take no particular interest, their minds being addressed to or concentrated on other facts so that if asked they would assert that they did not have these facts in the forefront of their mind, but that will not prevent those facts from forming part of an objective setting in which the contract is to be construed....'

[1b] For example:

(1) In Re Coroin (No 2), McKillen v Misland (Cyprus) Investments Limited [2013] EWCA Civ 781, Arden LJ dealt with where a contractual provision is expropriatory in nature, stating that it should operate only where there is satisfactory clarity. Arden LJ said, at paragraphs 65 to 67:

'65. In addition, cl.6 of the shareholders’ agreement and the pre-emption provisions in the articles set out circumstances in which members may lose the right to their shares. They are, therefore, expropriatory in nature. Given the ambiguity in the meaning of the phrase “becomes enforceable”, the court should in my judgment prefer the narrower meaning. This approach is consistent with the earlier decisions of this court on construing articles of association of a company restricting the transfer of shares laid down in: Re Smith and Fawcett Ltd [1942] Ch. 304 at 306 and Greenhalgh v Mallard [1943] 2 All E.R. 234 at 237: see, for example, per Lord Greene M.R. in the first of the cases cited:

“[When using their power under the articles to reject a share transfer, the directors] must have regard to those considerations, and those considerations only, which the articles on their true construction permit them to take into consideration, and in construing the relevant provisions in the articles it is to be borne in mind that one of the normal rights of a shareholder is the right to deal freely with his property and to transfer it to whomsoever he pleases. When it is said, as it has been said more than once, that regard must be had to this last consideration, it means, I apprehend, nothing more than that the shareholder has such a prima facie right, and that right is not to be cut down by uncertain language or doubtful implications. The right, if it is to be cut down, must be cut down with satisfactory clarity. It certainly does not mean that articles, if appropriately framed, cannot be allowed to cut down the right of transfer to any extent which the articles on their true construction permit.”

66. In his judgment in Re Coroin (No.1) at first instance [2011] EWHC 3466 (Ch) at [73]–[74], the judge held that he would not take this principle too far, and that the court would be bound to enforce any clause which it was satisfied cut down a shareholder’s rights. However, I do not read these observations as departing from what this court has previously held.

67. In my judgment, the authorities reflect the basic principle that rights of property should not be taken away by a side wind and without warrant. There is nothing to indicate that the wider view of “becomes enforceable” should be taken. Indeed, the high level of specificity in cl.6.6 can be said to support a meaning which covers the situation in which security is actually enforceable.'

In Galapagos Bidco Sarl v Kebekus and other companies [2023] EWHC 1931 (Ch) ('Galapagos'), these passages were referred to in argument at paragraph 112, on the meaing of a certain clause, clause 17. Later, Trower J said in Galapagos, at paragraphs 114 to 116:

'On the view I take of clause 17.4, I do not think that very much turns on what is essentially a difference in emphasis. The concept of satisfactory clarity reflects Arden LJ's citation with approval (at [65]) of what Lord Greene MR had said in Re Smith v Fawcett [1942] 1 Ch 304 in relation to a shareholder's right to deal freely with their shares:

that right is not to be cut down by uncertain language or doubtful implications. The right, if it is to be cut down, must be cut down with satisfactory clarity.

However, this does not mean that ambiguity should be resolved against taking away rights of property per se. The question which matters is which construction is more consistent with business common sense. Where an agreement such as the ICA regulates the relationship between creditors, business common sense may well point to a construction which preserves the rights of the senior creditors as against the junior creditors, even if in so doing the junior creditors are no longer able to enforce their claims against the debtor or receive the benefit of security to which they would otherwise be entitled.

This points up the reason why the provisions of clause 17 do not take away rights in the sense referred to by Arden LJ in the first place. The rights of the holders of the HYNs to initiate enforcement and receive any proceeds from the operation of the payment waterfall have always been restricted by their ranking. I consider that the release provisions, which have always formed part of the bundle of rights and obligations constituting the HYNs, fall some way short of operating in a manner that might be regarded as taking away a property right in the context contemplated by Arden LJ.'

(2) In Triple Point Technology v PTT [2021] AC 1148 ('Triple Point'), the Supreme Court gave some (modest) guidance on the interpretation of clauses which exclude or limit liability. Helpfully, Waksman J in Drax Energy Solutions Ltd v Wipro Ltd [2023] EWHC 1342 (TCC) summarised what Lord Leggart said in Triple Point (and an earlier case of Nobahar-Cookson v Hut Group [2016] EWCA Civ 128), as well as Waksman J's own view, under the heading 'Interpretation of clauses which exclude or limit liability', at paragraphs 37 to 43 inclusive:

'37. The leading decision on this subject now is that of the Supreme Court in Triple Point Technology v PTT [2021] AC 1148 . One of the points at issue here concerned a clause which limited the liability of the contractor to the contract price. However, that limitation did not apply to any liability of the contractor resulting from "fraud, gross negligence, negligence or wilful conduct…" This was in a context where the underlying cause of action could only be breach of contract. The question was whether the word "negligence" here meant a breach of the contractual duty to take reasonable care and skill, as the claimant contended, or whether it was to be interpreted more narrowly so as to mean some other breach of duty of care in tort which did not give rise to a coterminous breach of the contractual duty. This was the position of the contractor. If correct, the claim for £14 million would have a cap of about £1 million.

38. Lord Leggatt, with whom the other Justices agreed, considered that in context, the word "negligence" here clearly had the former wider meaning and therefore the claim was not subject to the limitation. He did not consider that the construction contended for by the contractor was even a possible interpretation. However, he went on to say that even if it had been:

"106 …a further reason for giving the word "negligence" its straightforward and ordinary legal meaning is that clear words are necessary before the court will hold that a contract has taken away valuable rights or remedies which one of the parties to it would have had at common law (or pursuant to statute).

107 The approach of the courts to the interpretation of exclusion clauses (including clauses limiting liability) in commercial contracts has changed markedly in the last 50 years. Two forces have been at work. One has been the impact of the Unfair Contract Terms Act 1977, which provided a direct means of controlling unreasonable exclusion clauses and removed the need for courts to resort to artificial rules of interpretation to get around them:… The second force has been the development of the modern approach in English law to contractual interpretation, with its emphasis on context and objective meaning and deprecation of special rules of interpretation encapsulated by Lord Hofmann's announcement in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896, 912 that "almost all the old intellectual baggage of legal interpretation has been discarded".

108. The modern view is accordingly to recognise that commercial parties are free to make their own bargains and allocate risks as they think fit, and that the task of the court is to interpret the words used fairly applying the ordinary methods of contractual interpretation. It also remains necessary, however, to recognise that a vital part of the setting in which parties contract is a framework of rights and obligations established by the common law (and often now codified in statute). These comprise duties imposed by the law of tort and also norms of commerce which have come to be recognised as ordinary incidents of particular types of contract or relationship and which often take the form of terms implied in the contract by law. Although its strength will vary according to the circumstances of the case, the court in construing the contract starts from the assumption that in the absence of clear words the parties did not intend the contract to derogate from these normal rights and obligations."

39. Accordingly, while the modern approach is not to employ some special rule of interpretation when dealing with exclusion or limitation clauses, the fact that this is what the relevant provision does may still have a contextual role to play when considering what the parties are to be taken to have intended objectively.

40. On the facts of Triple Point, Lord Leggatt found that the operation of the limitation clause in question, if "negligence" was construed according to the contractor's interpretation, would be a "substantial departure" from what would otherwise be the normal position; that is, because of the effect of the clause reducing the claim from £14 million to £1 million.

41. A similar approach had been taken earlier, by Briggs LJ (as he then was) in Nobahar-Cookson v Hut Group [2016] EWCA Civ 128. Here, the Court of Appeal adopted a narrow interpretation of a clause which required a claim made under the share sale agreement to be notified within 20 days of the buyer "becoming aware of the matter". This was in circumstances where there was an ambiguity as to the correct interpretation of that phrase. He said this:

"18. In my judgment the underlying rationale for the principle that, if necessary to resolve ambiguity, exclusion clauses should be narrowly construed has nothing to do with the identification of the proferens, either of the document as a whole or of the clause in question. Nor is it a principle derived from an identification of the person seeking to rely upon it. Ambiguity in an exclusion clause may have to be resolved by a narrow construction because an exclusion clause cuts down or detracts from the ambit of some important obligation in a contract, or a remedy conferred by the general law such as (in the present case) an obligation to give effect to a contractual warranty by paying compensation for breach of it. The parties are not lightly to be taken to have intended to cut down the remedies which the law provides for breach of important contractual obligations without using clear words having that effect:…

19. This approach to exclusion clauses is not now regarded as a presumption, still less as a special rule justifying the giving of a strained meaning to a provision merely because it is an exclusion clause. Commercial parties are entitled to allocate between them the risks of something going wrong in their contractual relationship in any way they choose. Nor is it simply to be mechanistically applied wherever an ambiguity is identified in an exclusion clause. The court must still use all its tools of linguistic, contextual, purposive and common-sense analysis to discern what the clause really means. In the Seadrill Management case Moore-Bick [LJ] described the principle as, 'essentially one of common sense; parties do not normally give up valuable rights without making it clear that they intend to do so…

21. For those legal reasons I approach the issue as to the construction of clause 5.1 upon the basis that there remains a principle that an ambiguity in its meaning may have to be resolved by a preference for the narrower construction, if linguistic, contextual and purposive analysis do not disclose an answer to the question with sufficient clarity."

42. At paragraph 29, Briggs LJ said that as a matter of language, the provision before him was not clear and

"The natural meaning of the language is by no means so clear as to preclude serious consideration of the commerciality or otherwise of rival interpretations or, for that matter, to preclude recourse to the principle that ambiguous exclusion clauses should be construed narrowly."

43. He therefore found that the narrow interpretation, which meant that notice had been given in time, should be preferred.'

[2a] Rather than simply set out paragraphs 29 and 42 from Arden LJ's judgment Re Golden Key Ltd [2009] EWCA Civ 636, it might be helpful to set out some paragraphs preceding paragraph 29 and 42 (respectively) from Arden LJ's judgment:

(1) Arden LJ said, under the heading 'Approach to interpretation', from paragraphs 25 to 29 (so far as is material):

25. It goes almost without saying that what the court has to do in this case is find the true interpretation of the contractual documents and that the court is not entitled to rewrite the contractual documents, or more precisely to write some provision into the contractual documents, to reflect some provision that the court considers that it would have been reasonable for the parties to have agreed or to reflect some provision that the court considers would have made more commercial sense. But that leads to the question as to the weight to be given to the commerciality of a particular interpretation.

26. In his skeleton argument, [counsel for Party A] submits: “Recourse to the ‘commercial expectations of the parties’ is meaningless, since there is no evidence as to the expectations of the parties other than the contents of the documents under consideration.” (para. 58). It is well-known that the court is not concerned with the subjective intentions of the parties: see Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 (“the ICS case”). I thus read the reference in [counsel for Party A's ] submission to commercial expectations of the parties as a reference to what objectively was their commercial aim. This submission raises the very question that I identified in the preceding paragraph.

27. In his famous speech in the ICS case, Lord Hoffmann set out the modern approach to the interpretation of documents. The first principle is that “Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in a situation in which they were at the time of the contract.” (page 912). Lord Hoffmann does not explicitly refer to the need to have regard to what objectively is the aim of the transaction, but he approved the speech of Lord Wilberforce of the House of Lords in Prenn v Simmonds [1971] 1 WLR 1381. In his speech in that case, with which the other members of the House agreed, Lord Wilberforce makes it clear that, if it can be shown that a particular interpretation would further the parties' intention, the court should take that into account. Accordingly, this court must have regard to the parties' aim, objectively ascertained, as part of the process of interpretation, if that aim can be ascertained.

28. In my judgment, this must be the case even if (as here) there is little evidence as to the circumstances surrounding the parties' agreement to the transaction other than the terms of the transaction itself. Even in that event, the court must consider whether the objective aim can be ascertained from the documentation. (Moreover, when the issue of interpretation arises as to documentation to which, as here, parties adhere at different points in time, the commercial aims as shown by the documentation are for obvious reasons of practicality of particular significance.) To that end, unless the contrary appears, the court must assume that the parties to a commercial document intended to produce a commercial result, and the court must thus take into account the commerciality of the rival constructions, if that commerciality can be identified. The commerciality of a particular construction may be a crystallising factor in its favour where it is implausible that parties would have intended any other result.

29. The line between giving weight to the commerciality of a provision and writing a provision into an agreement can become a fine one when the court finds that there are deficiencies in the drafting of the contractual documents. There are cases where the documentation simply leaves the parties' intentions as to what should happen in a foreseeable set of circumstances quite unclear. This is particularly liable to happen in what might be called multi-dimensional documentation because of the sheer number of permutations that those who negotiate and draft the documents have to take into account. The court can spend a great deal of time immersed in the detail of lengthy contractual documents searching for clues. That task has to be carried out but if, despite a thorough search, the position is still unclear, and more than one meaning is properly available, the right approach is surely to give greater weight to the presumption that the parties must have intended some commercial result than to the textual clues if the latter yields an uncommercial result....'

(2) Arden LJ said in paragraphs 41 and 42 (so far as is material):

'41...the approach of this Court in [Whistlejacket Capital Ltd [2008] EWCA Civ 575] is striking. The court paid particular attention to the commerciality of the rival contentions. For the reasons given in [26] and [27] above, in my judgment that is the correct approach that we should take on this question of interpretation arising in this case.

'42. While the judge's interpretation is a possible interpretation, the objections to it on the grounds of lack of commerciality are substantial and it is necessary to examine whether some other interpretation is reasonably open on the wording to avoid the uncommerciality identified. One candidate is the first sentence of section 5 of the terms of issue which provides that the [commercial paper] shall be redeemed on the occurrence of the [Mandatory Acceleration Event]. If the acceleration takes effect from this event, the uncommerciality of the judge's interpretation may be capable of being avoided.'

[2b] In Re Sigma Finance Corp (In Administration) [2010] 1 All E.R. 571 (Supreme Court), Lord Mance (with whom Lords Hope, Scott and Collins concurred) said, at paragraphs 12:

'In my opinion, the conclusion reached below attaches too much weight to what the courts perceived as the natural meaning of the words of the third sentence of cl.7.6, and too little weight to the context in which that sentence appears and to the scheme of the security trust deed as a whole. Lord Neuberger was right to observe that the resolution of an issue of interpretation in a case like the present is an iterative process, involving “checking each of the rival meanings against other provisions of the document and investigating its commercial consequences” ([2009] B.C.C. 393 at [98], and also [115] and [131]). Like him, I also think that caution is appropriate about the weight capable of being placed on the consideration that this was a long and carefully drafted document, containing sentences or phrases which it can, with hindsight, be seen could have been made clearer, had the meaning now sought to be attached to them been specifically in mind ([100]–[101]). Even the most skilled drafters sometimes fail to see the wood for the trees, and the present document on any view contains certain infelicities, as those in the majority below acknowledged (Sales J., [37]–[40], Lloyd L.J., [44], [49]–[52] and [53], and Rimer L.J. [90]). Of much greater importance in my view, in the ascertainment of the meaning that the deed would convey to a reasonable person with the relevant background knowledge, is an understanding of its overall scheme and a reading of its individual sentences and phrases which places them in the context of that overall scheme. Ultimately, that is where I differ from the conclusion reached by the courts below. In my opinion, their conclusion elevates a subsidiary provision for the interim discharge of debts “so far as possible” to a level of pre-dominance which it was not designed to have in a context where, if given that pre-dominance, it conflicts with the basic scheme of the deed.'

[2c] Lord Clarke JSC in Rainy Sky SA v Kookmin Bank [2011] 1 W.L.R. 2900 went on the state he preferred the approach of Sir Simon Tuckey over that of Patten LJ in the judgments of the Court of Appeal below.