SINOCHEM INTERNATIONAL OIL (LONDON) CO. LTD. v. MOBIL SALES AND SUPPLY CORPORATION.

In construing a commercial contract, the court must ascertain the meaning which a reasonable businessperson would give its language in context. Detailed semantic analysis must yield where it would attribute an improbable and unbusinesslike intention, provided the language can reasonably bear the commercially sensible construction.

A mutual contractual set-off clause which expressly concerns contracts between affiliates was construed to permit cross-affiliate set-off after the stated notice of default. It did not require a prior default by the contracting counterparty. Contra proferentem is a rule of last resort and does not displace construction by reference to the clause's business purpose.

Sinochem London sold crude oil to Mobil Delaware under a London contract. Mobil Delaware owed an unpaid balance of the price. It claimed a contractual set-off under clause 18 for debts allegedly owed by Sinochem Beijing, an affiliate of Sinochem London, to Mobil Hong Kong, an affiliate of Mobil Delaware, under separate Hong Kong contracts.

Longmore J gave Sinochem London summary judgment under CPR Part 24. Mobil Delaware appealed. The issue was whether clause 18 allowed cross-affiliate set-off after notice of the affiliate's default, or only after an additional default by Sinochem London under the London contract or another contract with Mobil Delaware.

1. Appeal allowed by a majority. Lord Justice Mance, with whom Lord Justice Thorpe agreed, held that clause 18 permitted Mobil Delaware to set off the notified indebtedness of a Sinochem affiliate to a Mobil affiliate against the price due to Sinochem London. No prior default by Sinochem London was required.

2. The clause had to be construed as a whole and in the light of its commercial purpose. Its opening reference to contracts between the parties or their affiliates made it natural to read the reference in event (I) to “this or any other contract” as including affiliate contracts. The inconsistent use of “party” elsewhere did not justify a construction that made affiliate set-off depend on a separate and potentially trivial default by the contracting party.

3. The restricted construction was capricious and commercially improbable. The language was reasonably capable of the wider construction, which gave practical effect to the evident purpose of protecting group companies against cross-affiliate indebtedness. The court was not rewriting the contract; it was identifying the meaning a reasonable businessperson would give the imperfectly drafted clause.

4. Contra proferentem did not decide the issue. It is a rule of last resort. Clause 18 was mutual and regulated satisfaction of payment obligations rather than operating as an exception clause.

5. Lord Justice Kennedy dissented. He considered the wording sufficiently clear to require a qualifying default by a party to the London contract before set-off could arise. The order granting summary judgment was therefore displaced, Sinochem London’s summary-judgment application was dismissed, and the contractual construction was determined in Mobil Delaware’s favour.

• Court of Appeal (Civil Division): Allowed Mobil Delaware’s appeal by a majority and dismissed Sinochem London’s CPR Part 24 application for summary judgment.

• High Court, Queen’s Bench Division (Commercial Court): Longmore J gave Sinochem London summary judgment for US$8,180,742.18, with interest and costs, on the narrower construction of clause 18.