Commercial common sense – the latest

The decision of Lord Tyre issued in September 2014 was overturned on appeal to the Inner House at the end of last year (@SIPP Pension Trustees v Insight Travel Services 2016 SLT 131). The upshot in that instance was that full repairs under a commercial lease required to be paid for on termination of the lease, whether the landlord intended to carry them out or not. The case has wider implications, however, in relation to the extent to which the court will consider “commercial common sense”.

The high water mark for “commercial common sense” in Scotland was Grove Investments v Cape Building Products [2014] CSIH 43 which held (following many earlier precedents to the same effect) that in general, where a contractual provision is capable of more than one meaning, the court should adopt the meaning which best accords with commercial common sense.

Following Lord Tyre’s decision but prior to the appeal hearing, the Supreme Court issued the decision in Arnold v Britton [2015] AC 1619. The task of the court in interpreting such contracts has been distilled by Lord Neuberger as follows:

“The meaning has to be assessed in the light of (i) the natural and ordinary meaning of the clause, (ii) any other relevant provision of the lease, (iii) the overall purpose of the clause and the lease, (iv) the facts and circumstances known or assumed by the parties at the time the document was executed, and (v) commercial common sense, but (vi) disregarding subjective evidence of any party’s intentions”.

Applying the first of these tenets, the Inner House concluded that the ordinary and natural meaning of the words used in the lease meant that there was only one possible means of calculating the loss to the landlord on termination of the lease. It repeated the well known principle that the courts cannot correct a bad bargain or even an unfair one, or for that matter rewrite the parties’ agreement if unwisely entered into by one of them. The full decision can be read here.