Partenreedesei Karen Oltmann v Scarsdale Shipping Co Ltd (The Karen Oltmann): 1976

The parties disputed the application of the word ‘after’ in a break-clause in a charter party which provided that ‘Charterers to have the option to redeliver the vessel after 12 months’ trading subject giving 3 months’ notice’. By their negotiations the parties had shown a clear intention to treat the word ‘after’ in the sense of ‘on the expiry of’ and not ‘at any time after the expiry of’. Counsel for the owners had sought general liberty to refer to the parties’ negotiations by reason of the ambiguity of the contract.
Held: Applying Prenn v Simmonds the court rejected this argument, and also an attempt to make the same point by way of estoppel by representation. The court was unable to discern any distinct representation to that effect.
Kerr J said: ‘ Take Prenn v Simmonds [1971] 1 WLR 1381 as an example. The issue in that case was whether the reference to profits in the contract meant the profits of the holding company only or the consolidated profits of the whole group. If in the course of the negotiations one party had made anything in the nature of a representation to the other to the effect that references to profits were to be taken in one of the senses and not in the other, and the other party had thereupon negotiated on this basis, then extrinsic evidence to establish this representation would in my view be clearly admissible. Similarly, if it had been contended that the parties had conducted their negotiations on an agreed basis that the word ‘profits’ was used in one sense only, although in the contract it was capable of having two senses, and the contract had been executed on that basis, then I do not think that the court would be precluded by authority from admitting extrinsic evidence to see whether or not this agreed basis could be established. Both these situations would be a long way from the attempts made in Prenn v Simmonds and Arrale v Costain [1976] Lloyds Rep 98, to adduce extrinsic evidence to try to persuade the court that one interpretation of the contract was in all the circumstances to be preferred to the other. I think that in such cases the principle can be stated as follows. If the contract contains words which , in their context, are fairly capable of bearing more than one meaning, and if it is alleged that the parties have in effect negotiated on an agreed basis that the words bore only one of the two possible meanings, then it is permissible for the Court to examine the extrinsic evidence relied upon to see whether the parties have in fact used the words in question in one sense only, so that they have in effect given their own dictionary meaning to the words as the result of their common intention. Such cases would not support a claim for rectification of the contract, because the choice of words in the contract would not result from any mistake. The words used in the contract would ex hypothesi reflect the meaning which both parties intended.’ and ‘However, on the basis that the word ‘after’ in cl.26 is capable of bearing two meanings as a matter of construction, I do not think that there is any authority precluding the Court from examining the pre- charter-party exchanges in order to see whether the owners can make good their contention that the parties were in agreement in using this word in only one of its two senses, and having in effect both given it the same dictionary meaning to the exclusion of the other meaning. Having then considered the pre-charter-party exchanges on this basis I fined that this contention is established. In these circumstances it seems to me that the charterers cannot now depart from this common meaning by asserting that this word has the opposite meaning in the charter-party.’
Kerr J
[1976] 2 Lloyds Rep 708
England and Wales
AppliedPrenn v Simmonds HL 1971
Backgroun Used to Construe Commercial Contract
Commercial contracts are to be construed in the light of all the background information which could reasonably have been expected to have been available to the parties in order to ascertain what would objectively have been understood to be their . .

Cited by:
CitedChartbrook Ltd v Persimmon Homes Ltd and Another ChD 2-Mar-2007
The claimants had entered into an agreement with the defendant house-builder for the development of a site which the claimants had recently acquired. The structure of the agreement was that the developer would obtain planning permission and, under . .
CitedProforce Recruit Ltd v The Rugby Group Ltd CA 17-Feb-2006
The parties to a contract disputed the meaning of the phrase ‘preferred supplier status’ in a service cleaning agreement. The Court was asked whether an otherwise unarguable case on construction could be saved from being struck out by reference to . .
CitedChartbrook Ltd v Persimmon Homes Ltd and Others HL 1-Jul-2009
Mutual Knowledge admissible to construe contract
The parties had entered into a development contract in respect of a site in Wandsworth, under which balancing compensation was to be paid. They disagreed as to its calculation. Persimmon sought rectification to reflect the negotiations.
Held: . .

These lists may be incomplete.
Updated: 15 July 2021; Ref: scu.251165