The Outer House case of Credential Bath Street Limited v Venture Investment Placement Ltd from 2007 illustrates the ongoing potential for divergence between approaches to interpretation of contracts north and south of the border.
When the tenants defaulted under a lease, the landlord (Credential Bath Street Ltd) raised an action to enforce the guarantee against the holding company, the guarantors. The Outer House was required to construe the clause in the guarantee which transferred liability to the guarantor. Lord Reed’s conclusion was that the landlord had failed to demand performance from the guarantor in terms of the guarantee clause before the deadline passed. Thus, the guarantor was not liable to the landlord.
In reaching this conclusion, Lord Reed (then in the OH) drew on both the “Hoffmann approach”, which considers the surrounding circumstances or factual matrix of the disputed provision, and the approach taken by the Inner House, which asks what the ordinary meaning is of the words. (The Hoffmann approach was famously advanced by Lord Hoffmann in Investor Compensation Scheme Ltd v West Bromwich Building Society  1 W.L.R. 896.)
Lord Reed emphasised that the meaning of a document is not the same as the meaning of its words. It is necessary to read the words in a contract in the context in which they were written (ie with regard to the surrounding circumstances). Nevertheless, he interpreted the disputed clause by asking whether the commercial background led away from the starting point “that one would ordinarily expect the parties to a formal document to have chosen their words with care, and to have intended to convey the meaning which the words they chose would convey to a reasonable person.” Thus, words should be given their ordinary meaning, unless the surrounding circumstances make it clear that an alternative reading was intended by both parties. Lord Reed also referred to Lord Hoffmann, to emphasise that where the ordinary meaning of the words makes sense in the context of the document and the factual background, then “the court will give effect to that language, even though the consequences may appear hard for one side or the other.”
Although Lord Reed attempted to use both approaches as complementary, the Inner House has recently emphasised the continuing differences between the two jurisdictions, in Multi-Link Leisure Developments Limited v North Lanarkshire Council. The Inner House indicated that the ordinary meaning of the words should be used, and that Lord Hoffmann's approach should not be assumed to be relevant in every case: "In any event, Lord Hoffmann’s observations were made in the context of commercial contracts, where this case is about a Scottish lease of heritable property. The man on the Jubilee line on his way to Canary Wharf has less to say to us in this context than the Scots conveyancer with whose mindset we are more familiar." (from Multi-Link Developments Ltd, at para 24).
As a footnote to the ongoing complexities of contractual intepretation, it is interesting to note that the unsuccessful party in Credential Bath Street v Venture Investment has now raised a second legal action. Rather than continuing to claim against the tenant in default, the landlords have turned to their legal advisers, claiming breach of professional duties. Last month, Lord Glennie allowed a proof before answer to establish whether or not Credential’s solicitors were indeed in breach of their contractual and delictual duties towards their clients: Credential Bath Street Limited v DLA Piper SCotland LLP. The client’s claims were robustly defended by the solicitors. Since the matter is going to a proof before answer, Lord Glennie declined to comment on the merits of the various arguments. The outcome of the next step will no doubt be awaited with interest by the profession as a whole.