Skanska Rashleigh Weatherfoil Ltd v Somerfield Stores Ltd

A contractual reference to services being provided under the terms of an identified contract ordinarily incorporates the terms governing provision of those services, rather than merely identifying the services. The words must be construed objectively in their contractual and commercial context. Commercial common sense does not authorise the court to rewrite clear contractual language, although departure from the natural meaning may be justified where it produces a plainly ridiculous or unreasonable result. Terms inconsistent with a temporary arrangement may be excluded by implication where obviousness and necessity are satisfied. An appellate court may remit the identification of individual incorporated terms where that exercise depends on evidence or detailed analysis.

Somerfield invited Skanska to tender for maintenance services under a proposed three-year facilities management agreement. Before the long-term contract was finalised, the parties signed an August letter, headed subject to contract, providing for services during an initial period under the terms of the draft agreement while negotiations continued. It was common ground that the letter created a temporary contract. Ramsey J held that only terms necessary to define the services, together with certain broad terms, were incorporated. Somerfield appealed on the proper interpretation of paragraph 5, while Skanska supported the limited-incorporation approach. The central issue was whether the temporary arrangement incorporated most of the draft agreement’s terms or only a limited selection.

Appeal allowed. Lord Justice Neuberger gave the reasons, with Lord Justice Richards and Lord Justice Leveson agreeing. The matter was remitted to Ramsey J to determine which particular terms of the June FMA did not apply to the temporary arrangement.

1. Paragraph 2 of the August letter referred to the June FMA merely to identify the services. Paragraph 5, however, stated that Skanska would provide those services under the terms of the contract. The natural and primary meaning was that the June FMA’s terms governed the temporary provision of the services. The repeated reference to the June FMA and the different wording in paragraphs 2 and 5 reinforced that construction.
2. The court applied the objective contextual approach reflected in Mannai Investment Co v Eagle Star Life Assurance [1997] AC 749 and Investors Compensations Scheme v West Bromwich Building Society [1998] 1 WLR 912. Contractual language must be read as a whole, with regard to known surrounding circumstances and commercial common sense. Those considerations cannot be used as a licence to rewrite the parties’ agreement or to displace natural language merely because another result appears more commercially attractive.
3. The fact that the parties were still negotiating a three-year agreement did not prevent them from accepting the draft terms for a two-month interim period. The detailed payment and termination provisions were capable of applying during that period, particularly given the complexity of the services.
4. Terms of the June FMA inconsistent with the temporary arrangement or its duration were excluded. This involved implication, for which the requirements of obviousness and necessity were satisfied, an approach supported by Thomas (TW) and Co Ltd v Portsea Steam Ship [1912] AC 1, Hamilton and Co v Mackie and Sons [1889] 5 Times Law Report 677 and Modern Building Wales Ltd v Limmer Trinidad Ltd [1975] 1 WLR 1281.
5. Reasons for Somerfield’s position which were unknown to Skanska when the letter was made could not affect the objective construction. Skanska’s contemporaneous concern about unlimited liability was explicable by the different risks of a three-year and a two-month commitment.

• Court of Appeal (Civil Division): allowed the appeal and remitted the matter to Ramsey J to determine which terms of the June FMA were excluded from the temporary arrangement. [2006] EWCA Civ 1732
• High Court of Justice, Queen’s Bench Division: Ramsey J held that the incorporated terms were principally those necessary to define the services, together with certain broad terms. The judgment’s citation is not stated.