In the recent case of Honeyrose Bakery Ltd v Lola’s Kitchen Ltd , the High Court applied the Supreme Court’s decision in Arnold v Britton , to a dispute relating to the exclusivity provisions of a supply agreement for cupcakes. Both cases centred around the weight that should be placed by the Court on commercial sense when interpreting contractual provisions.
The Honeyrose case concerned an agreement for the supply of cupcakes by Honeyrose Bakery to Lola’s Kitchen (trading as Lola’s Cupcakes). The agreement stated that Honeyrose would manufacture 20% of the forecasted volume increasing to 100% over a 2 month period. A further provision stated as follows:
“For the avoidance of doubt [Lola’s] may manufacture the products itself.”
Honeyrose argued that the wording was ambiguous and that it should be construed as meaning that Lola’s right to manufacture was during the initial 2 months only. Honeyrose requested that the court consider pre-contractual information to give meaning to the words.
The court disagreed that the wording was ambiguous and refused to add the wording requested by Honeyrose. In reaching its decision, the court carefully applied the five points relating to contractual interpretation that Lord Neuberger set out in Arnold:
- Commercial common sense shouldn’t undervalue the importance of the language used in a contract;
- The worse the drafting of a contract, or the less clear the wording is, the more readily the court can depart from the natural meaning of the words used, but it should not search for inaccuracies to facilitate such a departure;
- Commercial common sense should not be invoked retrospectively – it is only relevant to the extent it would or could have been perceived by the parties (or reasonable people in the position of the parties) at the date that the contract was made;
- A court should be slow to reject the natural meaning of words used, simply because it appears to be a very imprudent term for a party to have agreed – the purpose of interpretation is to identify what the parties have agreed, not what the court thinks they should have agreed; and
- Only those facts which existed at the time that the contract was made, and which were known or reasonably available to both parties, should be taken into account.
It is clear then, that when the court is weighing up commercial common sense and the plain language used in a contract, the balance should tip towards the latter. An unambiguous contract will not be redrafted by the court simply because it is a bad bargain. The case highlights the importance of clear drafting.
For more information about how to avoid ambiguous wording on your contracts or to find out more about how the Commercial & Technology team can help you please contact Sarah Williamson on [email protected] or Laura Wainwright on [email protected] or call 0118 952 7247.
Consistent with our policy when giving comment and advice on a non-specific basis, we cannot assume legal responsibility for the accuracy of any particular statement. In the case of specific problems we recommend that professional advice be sought.