REUTERS | Lee Jae-Won

Clarity in contract drafting: say what you mean

In Perriam v Wayne and Daly, the Technology and Construction Court (TCC) considered a deed of variation that “would win no drafting prizes for precision or clarity”. Not only did it transpose the names of various parties, it also “struggled to convey the essential agreement reached between the parties”.

In trying to work out what the parties had meant, the TCC decided it could and would consider “absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man.”

Varying formal agreements

The parties to complex legal documents (in this case, a lease) sometimes need to alter their original agreement by a deed of variation. It is important to ensure that the terms of any such deed matches (and can be read alongside) the underlying documents. This applies to construction and engineering agreements (and some settlement agreements) just as much as it applies to leases.

Muddying the waters

The deed of variation in this case appeared to muddy the waters rather than clarify matters. It concerned office premises in Leeds, where the freehold was being sold and the seller wished to sell with existing sitting tenants. However, to induce them to stay and to extend their lease, the seller had to offer the tenant revised terms.

A particular problem was the defective condition of the windows in part of the premises. The deed of variation, dated April 2007, provided that the:

“…obligations of the tenant in the lease shall be varied so that there is no continuing obligation to repair… the external windows in the premises.”

The landlord also agreed to release guarantors of the lease from their obligations from 17 November 2007 “save as to any antecedent breach”.

Not long after the parties had dated the deed, the incoming landlord (the purchaser) discovered that the tenant was in a poor financial position. The tenant went into liquidation in the following year. The purchaser claimed against the guarantors of the lease for the cost of repair to the windows.

The problem was that the parties, on the one hand, released the guarantors from their obligations under the lease save for antecedent breaches, but on the other hand they had varied the lease so that there “is” no continuing obligation to repair the windows. Exactly when did that obligation cease?

Investors Compensation Scheme

The court drew on earlier authority, including the Investors Compensation Scheme case in the House of Lords, to conclude that it could look at (as mentioned above):

“…absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man…”

While this might appear to let in a very wide description of background information, the court said that such a risk had to be taken.

In fact, it drew the conclusion that the background to the provisions was that the tenant clearly obtained a valuable benefit in return for extending the lease and this would be a complete release from its obligations in respect of the windows. Any other breach arising prior to the date of the deed of variation was still actionable, but the position in relation to the windows was different. The intention was that the tenant, and therefore the guarantors, would immediately escape liability for their present condition. That clause in question said nothing about saving for “antecedent breaches”.

Not a case of less is more

Obviously, clearer wording would have assisted the parties. This was certainly not a case of “less is more”. If anything, the deed of variation said too little. If the seller had intended a complete release, clear words will usually be needed. However, in this case the court was able to infer from the background to the transaction what the parties really meant.

So, while according to Thomas Jefferson:

“The most valuable of all talents is that of never using two words when one will do.”

…sometimes, one word will not do.

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