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Court finds you can’t have your cake and eat it

A High Court case concerning an agreement under which the manufacture of cupcakes was outsourced to a company has underlined the legal principle that contracts are generally taken to mean what they say and that other evidence cannot normally be used to assist in their interpretation.

Richard Millard, Dispute Resolution Solicitor, explains that the dispute started with a simple contract where Honeyrose was contracted to manufacture and supply cupcakes for Lola’s Kitchen, as they could not manufacture enough cupcakes themselves. The contract stipulated that both parties would manufacture the cupcakes but that after two months it was expected that Honeyrose would make 100% of the forecast volume.

A separate clause however stated that Lola’s Kitchen could manufacture the cupcakes for itself.

Honeyrose argued that the true interpretation of these clauses when read together was that Lola’s Kitchen could only manufacture cupcakes for a period of 2 months at which point Honeyrose would manufacture 100% of the cupcakes. When Lola’s Kitchen continued to manufacture cupcakes after the 2 months had elapsed they were sued for breach of contract.

The Court disagreed with this interpretation and noted that Honeyrose’s interpretation of the agreement involved adding words which were not in the relevant clauses and would significantly restrict Lola’s Kitchens rights if those words were added.

It found that there was nothing ambiguous about the agreement. For that reason the Court need not look beyond the actual words used and it was not necessary to consider any other evidence regarding what the parties might have intended. The Court could not detect a mistake in the drafting of the contract and it was not possible to argue that it did not make commercial common sense.

Richard Millard explains “when interpreting a contract the Court identifies what the parties meant through the eyes of a reasonable reader. It will interpret a contract using the meaning that is most obviously to be gleaned from the language of the relevant clause of the contact. It takes the view that the parties must have been specifically focusing on the issue covered by the clause when agreeing the wording.

If the parties had meant the clause to have a different meaning then it is reasonable to assume that they would have ensured that the contract was written to reflect that meaning.

Only where the meaning is ambiguous may the Court then consider whether to depart from their natural meaning and look at what evidence exists as to what the parties intended to agree.”

This case highlights the importance to all businesses to ensure that the rights and obligations that each party is to have under a contract are expressed clearly to avoid disputes as to their meaning arising.

If you would like further contract advice please contact Richard Millard on 01908 689382.

Honeyrose Bakery Ltd. v Lola’s Kitchen Ltd. and Another [2015] EWHC 1856 (QB).