A commercial agreement should not lightly be determined unenforceable simply because the parties set out the terms in an unclear manner.

The Supreme Court of Appeal, in Novartis v Maphil, dealt with whether a pharmaceutical drug manufacturer and a medical device supplier had concluded a contract. The court had to consider written documents, oral agreements and emails in the light of the principles of contractual interpretation which can be summarised as follows:

  • Written words in context

A court must consider all the facts surrounding an agreement including context in order to determine what the parties intended. The context of an agreement must be considered irrespective of whether the words of a contract are ambiguous. This involves one single exercise rather than one done in stages.

  • Commercially sensible construction

A court should generally favour a commercially sensible construction to commercial agreements because this is likely to give effect to the intention of the parties. Therefore words should be interpreted in a way that a reasonable and commercially-minded person would construe them.

  • Contractual terms are not always clear

A commercial agreement entered into by parties with the intention that it must be applied should not lightly be held to be unenforceable simply because the parties failed to express themselves as clearly as they might have done. Commercial agreements are often concluded in “crude and summary fashion” and it is therefore the duty of the court to construe such agreements fairly and broadly without going out of its way to find potential defects.

Following a consideration of written documents, the email chains and taking account of the oral arrangements made by the parties, the court applied these principles and found that a contract had been concluded.