7. Correcting mistakes by construction

The approach to language is informed by business common sense.

It follows that, if the court considers that the parties have used the wrong words or syntax to express their meaning, it may adopt an interpretation that departs from the conventional meaning of their words.

8. Diminishing role for strict interpretation

The Investors Compensation Scheme approach also applies to categories of contract that were once construed more strictly against one party, such as guarantees or indemnities.

In Egan v Static Control Components (Europe) Ltd [2004] EWCA Civ 392 the appellant (E) appealed against a decision that he was liable under a guarantee for all the debts of his company up to GBP 150,000. E was a director of a company (TBS), to which the respondent (S) supplied components. E had entered into a number of guarantees with S whereby he had agreed to guarantee TBS's debts. TBS was placed into administrative receivership owing S GBP 111,883.82. There had been substantial trading after the signing of the 1999 guarantee; however, the bulk of the debt related to goods supplied before the signing of the 1999 guarantee. S brought proceedings to recover the debt. E argued that he was only liable for TBS's debts after the signing of the 1999 agreement on the basis that para.1 stated that E was responsible for all goods that might be supplied and that that referred only to his liability for future debts. The court below held that para.1 was capable of being interpreted in the way argued for by E but could also be construed so that E was liable for all of TBS's debts, including pre-existing debts. The court looked at the surrounding circumstances and held that the guarantee was intended by both parties to extend to the whole of the trading debt both before and after the signing of the 1999 guarantee. E appealed but the appeal was dismissed.

The court held that the principles in Investors Compensation Scheme Ltd v West Bromwich Building Society applied to the construction of guarantees. Guarantees were to be interpreted by looking at what a reasonable person would think having regard to all the background knowledge which would reasonably have been available to the parties at the time the contract was entered into. The background knowledge or matrix of fact in the instant case included the previous dealings between the parties, the previous guarantees and the pre-existing debt. The background facts showed that the amount of the guarantee had been increased to reflect TBS's debts and that an agreement was reached so that existing debts could be paid by instalments. Once those facts were borne in mind, it was clear that a reasonable person would, despite the tension in para.1, view the guarantee as extending to existing and future debt, Prenn v Simmonds applied.

However, a stricter approach may still be applied to clauses which purport to exclude rights or remedies which arise by operation of law (Harvey v Dunbar Assets Plc [2013] EWCA Civ 952).