Interpretation of Contracts and “Commercial Common Sense”: Do Not Overplay This Useful Criterion

11 Sep 2017

The broad notion of “commercial common sense” is prominent in the modern law governing the interpretation of written contracts. For example, in Prenn v Simmonds (1971), 2 Lord Wilberforce said that a suggested interpretation could be tested by considering whether it would “correspond with commercial good sense”. Lord Steyn said in Mannai Investment Co. v Eagle Star Life Assurance (1997): “Words are … interpreted in the way in which a reasonable commercial person would construe them.” 3 In the “Rainy Sky” case (2011), the Supreme Court held that: “If there are two possible constructions, the court is entitled to prefer the construction which is consistent with business common sense and to reject the other.” 4 Furthermore, Lord Neuberger in Arnold v Britton (2015) 5 placed “commercial common sense” within the list of relevant factors to be applied during the process of interpretation (see Section II for the full quotation). Most people will instinctively nod approval to these important judicial statements. But to what, precisely, are they assenting? It is the aim of this paper to explain both the growth and versatile operation of commercial common sense 6 (CCS) within the law concerning interpretation and to take stock of the concerns expressed by some judges that this notion should not be overplayed.