A written contract is designed to accurately represent the specific agreement between the parties, in a way which is not open to interpretation. In rare cases, ambiguity is preferable, but on the whole it is best to avoid ambiguity to reduce the potential for disputes.
Despite this aim, sometimes a dispute may arise over what a clause meant. Often this happens when a party discovers that it had not anticipated the negative effect a clause might have, and seeks to argue it was not intended to have that effect.
In these cases, the wording of the clause is scrutinised, against the factual background. Where there are two possible meanings, the court may prefer the meaning which makes commercial sense and reject the other meaning, and in these cases the ambiguity within the wording can actually be helpful.
But a 2015 case showed that, where there really is only one possible interpretation, the court is not at liberty to alter the wording of the clause, even if the clause makes no commercial sense. In these cases, the importance of having correctly drafted the clause so that it meant what it was intended to mean comes to light.
That case was Arnold v Britton & Ors  UKSC 36. The court was faced with a service charge clause, in a set of residential leases, which quite clearly said that the charge would increase by 10% per annum on a compound basis. There was no, or very little, ambiguity, looking at the wording used.
But this seemed absurdly high and a terrible bargain for the lessees, who had clearly been ill advised or never made aware of the risks of the clause. The leases were 90-year leases, and within the lessees’ lifetimes the service charge would be at risk of increasing far in excess of inflation.
The court had to decide whether it was permitted to alter the wording of the clause so that it made commercial sense, or whether it was tied to construing the clause in line with its ordinary, literal meaning.
The court decided, in the end, that, given there was no, or very little, ambiguity in the wording used, it was not at liberty to alter the wording. It had to apply the literal meaning, despite the negative effect on the ill-advised lessees.
Had the lessees read and understood the clause, they would probably have changed it so that it read that the service charge would increase in line with the increase in the costs of providing the services, and that the increase was subject to a maximum of 10% per annum. That would have made commercial sense, and may well have been the intention. But the clause did not say this, and the lessees were not able to rely on the court to change the wording for them.
The court may take account, when interpreting a clause, of evidence of why the clause was drafted in the way it was drafted: it will look at the facts behind why the clause said what it said. Where there are two possible meanings, it is entitled to prefer the meaning which is consistent with business common sense. But if the clause was simply badly drafted, or not read by one party, and has but one meaning, the court may not alter it so that it makes commercial sense.
And it’s not just the phrasing of a contract which can have significant impact on its interpretation. Even basic misuses of punctuation or incorrect grammar can have serious implications.
A missing comma, or a comma in the wrong place, for example, can totally change the meaning of a sentence, leading to a terrible bargain being made by one party.