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To read or not to read? Deleted words and departures from standard forms

Two recent decisions have provided a good opportunity to re-examine an old debate. In interpreting contracts, to what extent is it legitimate to look at words that the parties have deleted in order to construe the remaining words?

Background to the debate – a divergence of authority

This is a debate in which there has long been two competing schools of thought. The first school maintains that reading the deleted words is impermissible. The court is concerned to construe what the parties have agreed, not that which has not been agreed. By deleting particular words or clauses, the parties have removed them from the contract for any and all purposes, and considering deletions would violate the general prohibition on considering previous negotiations. The first school can point to a number of high authorities, several rather vintage although some more recent, that support those propositions.

The second school of thought holds that, particularly where parties have used a standard form, regard can be had to provisions that have been deleted as part of the surrounding circumstances in which the remaining clauses fall to be construed. Deletions can provide helpful guidance as to the parties’ intentions. It is unhelpful and unrealistic to pretend that the deleted words are not there at all

The divergence of authority and the tensions between the two schools of thought have been expressly recognised by the courts for over 50 years. That has been particularly the case with first instance judges faced with the unenviable task of plotting a safe course between the hazards thrown up by the conflicting authorities.

Narandas-Girdhar v Bradstock

The significance of Narandas-Girdhar v Bradstock lies in the Court of Appeal’s approval of a previous first instance summary of the relevant principles.

The proceedings arose out of the claimant’s attempt to have an IVA set aside on the grounds that it had always been conditional upon the acceptance of his wife’s IVA. In fact, a clause that made the IVA conditional upon the approval of his wife’s IVA had been deleted by an amendment that made no reference to it being conditional. The claimant argued that the judge was wrong in law in paying regard to the wording that was removed by the amendment in arriving at a conclusion about its purpose.

The Court of Appeal disagreed. It approved Christopher Clarke J’s summary of the principles in Mopani Copper Mines v Millennium Underwriting. It held that, while it is generally illegitimate to have recourse to deleted words, there are two wide ranging exceptions to that general rule:

  • Deleted words in a printed (that is, a standard) form may resolve the ambiguity of a neighbouring paragraph that remains.
  • The deletion of words in a contractual document may be taken into account, for what (if anything) it is worth, if the fact of deletion shows what it is the parties did not agree and there is ambiguity in the words that remain.

J Murphy & Sons v Beckton

For the construction practitioner, if Narandas is worth noting as a statement of general principle from the Court of Appeal, then J Murphy & Sons v Beckton serves as a useful reminder of how these principles can work in practice.

In these proceedings, the claimant contractor sought to prevent the defendant employer from making a call on an on-demand performance bond. The contract was based on the FIDIC Yellow Book.

  • Clauses 2.5 and 3.5 set out a process by which, if the employer considered it was entitled to “any payment” under the contract, the engineer was to make a determination of any such entitlement.
  • Clause 4.2 set out a process by which the employer was to give written notice of its intention to make a demand under the bond.
  • Clause 8.7 imposed an obligation on the contractor to pay delay damages.

Those clauses differed from the unamended FIDIC Yellow Book conditions in two material respects:

  • The employer’s right to call on the bond under clause 4.2 was not expressly linked to clause 2.5.
  • The obligation to pay delay damages in clause 8.7 was not expressed to be “subject to clause 2.5”.

In finding for the employer, a key strand in Carr J’s reasoning was to contrast the clauses as agreed with their unamended counterparts in the standard form. She held that the employer’s right to delay damages was not conditional upon an engineer’s decision. While she accepted that it was by no means determinative of the issue, she reasoned that the:

“…selected deviation from the standard form is consistent with the parties’ intention being not to make [the Employer’s] right to claim liquidated damages subject in any way to Clauses 2.5 and 3.5.”

Similarly, she relied on the fact of the departure from the standard form in deciding that the right to call on the bond was not conditional upon a prior engineer’s determination:

“On the facts here the parties expressly rejected the standard FIDIC Yellow Book form of wording which expressly restricted the employer’s right to calling on the Bond only when the Engineer had made a determination. That is relevant factual matrix.”

Conclusion

The Court of Appeal’s approach in Narandas is a particularly welcome one. By expressly approving the summary in Mopani Copper Mines (which has been treated by practitioners as the best distillation of the relevant principles), the court has avoided the uncertainty and opportunity for debate that can arise where principles are refined, recast or even simply rephrased. At the same time, now that the Mopani Copper Mines’ summary has the weight of Court of Appeal authority, the opportunities for parties to raise unmeritorious arguments as to the complete prohibition on considering deletions before any tribunal, and before adjudicators in particular, should be limited.

The decision in Beckton serves as a useful reminder of how powerful submissions based on the significance of deletions can be. The authorities are unanimous in recognising that deletions or amendments can be a most unreliable aide to construction. A provision may have been deleted because it was considered unnecessary, internally inconsistent, or even by mistake. Agreeing to delete something does not mean that the parties have positively agreed the converse.

However, in practice, whether a contractual provision has been struck through on its face, altered by a schedule of amendments, or simply constitutes a departure from the standard form wording on which it is based, suggestions as to what the parties have not agreed can have a powerful effect on informing the decision-maker’s view as to the meaning of that which remains and thus on the issue of contractual interpretation that falls to be decided.

Keating Chambers Tom Coulson

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