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20 September 2018

Clarity is key to avoiding court claims

Issues often arise because the terms of a contract turn out to be unclear, or the contract doesn’t say what one of the parties had intended. It is an issue that frequently comes up for consideration by the courts, most recently in the Court of Appeal case of Bou-Simon v BGC Brokers LP in July 2018.

In some cases there may have been a mistake as to the nature of the contract or its terms.  It may be a mistake by one of the parties, or a failure to properly record what both parties thought they had agreed.  Sometimes that will be serious enough that it renders the contract void.  In some situations it may provide grounds for the courts to rectify the error.

Where there hasn’t been an obvious mistake, it may be possible to ask the courts to imply a term into the contract.  However, recent cases confirm that they are reluctant to do this.  They will not readily interfere with what has been agreed and documented by the parties.  A claim will only succeed if it is fair and reasonable and if, without it, the contract simply does not make sense.  It must also be clear what term should be included in order to make the contract work.  In fact it ought to be “so obvious that it goes without saying”. This position was re-affirmed in the Bou-Simon decision.

In assessing a claim, the Courts will look at what was intended at the time the contract was agreed, rather than applying the benefit of hindsight.  Crucially they will not imply terms into contracts in order to rescue parties from a bad bargain.

Care should be taken by anyone entering into a contract to make sure that it properly reflects all of the agreed terms and that there is no room for argument.  Otherwise they might find themselves bound by something unintended, even if the result is unfair.

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