What happens when your contract lacks clarity? How will the English courts interpret it?
In Mott MacDonald v Trant Engineering, the judge reminded contract writers and users of these principles by which they work out what your contract words actually mean:
- if the words are not ambiguous, then the courts must apply them
- if the words are unclear, the courts can depart from the natural meaning to what a reasonable person would conclude the words meant (at the time of contracting)
- if the words could be construed in different ways, the court will prefer the construction consistent with business common sense
- in striking a balance between interpretations, the court must consider the quality of the drafting of the clause and the agreement in which it sits
- the court cannot reject the natural meaning of the words even if it appears that agreeing to that wording was imprudent.
Some parts of a contract require extra care in their interpretation – because of the significant impact they have on the rights and remedies available to the parties. One of those areas is exclusion clauses – which remove any liability for specific acts, specific types of loss or after a specific time period.
As with all drafting, exclusion clauses must be clear and unambiguous ie be susceptible to one meaning only. Exclusion clauses should be written so they cannot be misunderstood.
If an exclusion clause is intended to remove liability from a wrongdoer for deliberate breach of that contract, this requires very clear words or strong language.
The more radical the breach the clearer must the language be if it is to be covered
What should you do?
As the court acknowledges, ‘it will be a rare contract where no criticism can be made of the quality of the drafting… complexity and professional input are not a guarantee… of clarity‘.
Task 1 is to read your contracts and check that you understand them. Ask your contract writers to aim for maximum clarity ie so that terms cannot possibly be misunderstood.
Task 2 is to check your understanding matches that of the other contracting party. Ask questions to ensure you have not misinterpreted the terms. Ask what a clause is meant to do.
Task 3 is to think through what you would like to happen if your relationships turns sour and agree who bears what risks and costs. This is key to drafting effective limitation and exclusion clauses that won’t end up being debated in court.
Cases: Mott Macdonald Ltd v Trant Engineering Ltd  EWHC 754 (TCC); Suisse Atlantique Societe d’Armement Maritime SA v N V Rotterdamsche Kolen Centrale  1 AC 63