June 24th, 2024 by James Goudie KC

In CANTOR FITZGERALD v YES BANK ( 2024 ) EWCA Civ 695 the Court of Appeal, at paras 33 and 34, reaffirms the principles to apply in construing a contract, in that case an engagement letter. The Court is required to consider the ordinary meaning of the words used in the context of (1) the words used in the context of the contract as a whole and (2) the relevant (i) factual and (ii) commercial background. This excludes prior negotiations. The objective is to identify the parties, but in an objective sense, That is what (i) a reasonable person (ii) having all the background knowledge which would have been available to the parties would have understood them to be using in the contract to mean. Interpretation is an iterative process. Rival interpretations should be tested against (i) the provisions of the contract and its commercial consequences.

The Court of Appeal reiterated the first of the points emphasized by Lord Neuberger in ARNOLD v BRITTON ( 2015 ) AC 1619  at 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. The exercise of interpreting a provision involves identifying what the parties meant through the eyes of a reasonable reader and … that meaning is most obviously to be gleaned from the language of the provision. Unlike commercial common sense and the surrounding circumstances , the parties have control over the language they use in the contract. And … the parties must have been specifically focussing on the issue covered by the provision when agreeing the wording of that provision.”

At para 57 the Court of Appeal stated that whilst (i) previous negotiations and (ii) statements of subjective intent are inadmissible, evidence may be adduced as to the genesis and aim of a contract as an aspect  of the admissible factual matrix.

Comments are closed.