Facts: Hide & Skin (H&S) were exporters of animal products. The buyers of these products often paid for them up to six months after purchase and, to finance their ongoing business, H&S needed a third party to provide advance payment for goods sold but not yet paid for. Oceanic arranged the necessary financial facility for a period of two years. The facility was subject to termination on six months notice. When Oceanic gave notice to terminate the facility, they argued that they were not obliged to give advance payments to H&S for money that would only be repaid by the purchasers after the facility had ended. H&S argued that they should be given advances right up to the end of the period of notice, even if the purchasers made repayments up to six months thereafter.
Issue: Whose interpretation of the agreement was correct?
Decision: The agreement had the meaning suggested by H&S.
Reason: Although interpreting the agreement in the way suggested by H&S might be disadvantageous to Oceanic, and might not be what Oceanic had subjectively intended, the courts construe the terms of a contract: firstly, by giving the words used their ordinary and natural meaning; secondly, by applying an objective (reasonable third party) test to ascertain the intended meaning of terms; thirdly, by resolving ambiguities in commercial agreements by preferring alternatives that avoid commercial inconvenience or nonsense; and fourthly, by basing the decision on the actual agreed terms in the contract rather than on any post-contractual behaviour of the parties. Applying these rules favoured the interpretation suggested by H&S.