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The importance of clarity in contract

29-December-2014
29-December-2014 10:05
in Commercial and Chancery
by Admin

The decision of the Scottish Court of Session, Outer House on 18 November 2014 in the case of Dundee City Council and Others v D Geddes (Contractors) Ltd [2014] CSOH 164 serves as a reminder of the need for clarity and unambiguity in business contracts.

Facts

The claimant, Dundee City Council, carry out road maintenance and use stone chippings for this purpose.

The claimant accepted an offer from the defendant, D Geddes Ltd, for the supply of stone chippings.

The claimant used the stone chippings and within months there were wide-spread failures in the road surfaces.

Investigations revealed that the failures were attributable to the composition of the stone chippings.

The claimant sought damages in reliance on sections 14(2) and 14 (3) of the Sale of Goods Act 1979.

First, the court was required to determine a legal issue, namely the interpretation of a “poorly drafted” clause in the standard terms and conditions that aimed to restrict the defendant’s liability;

The Company will not entertain a complaint of any kind (except in special circumstances justifying delay) unless it is made in writing within twenty-four hours after the time of supply of the materials or goods of which a complaint is made or any materials or goods supplied by the Company should be defective or in any way not in accordance with contract liability shall be limited to the cost price of the material supplied. The Company is not under any circumstances to be liable for any loss or damage whether direct or indirect caused or arising by reason of the late supply or any fault failure or defect in any materials or goods supplied by them or by reason of the same not being the quality or specification ordered or by reason of any matter whatsoever.” [Paragraph 4]

The decision

The provision attempts to create a time bar restriction and limits and excludes liability. However, the limitation and exclusion aspects contradict each other.

The window for entering a complaint, twenty-four hours after the supply of the goods was described by Lord Woolman as an “extremely tight timescale”. Lord Woolman was of the opinion that the time restriction appeared to be “wholly unrealistic” as any defect in relation to the stone chippings would be latent rather than immediately obvious.

The exception of “special circumstances justifying delay” was also deemed uncertain. It could well apply in virtually every case yet the contrary could equally be said for a contract for the supply of stone chippings whereby a latent defect is not a special circumstance.

The lack of clarity in construction and the resulting difficulty of interpretation is most evident with the limitation and exclusion parts of the provision. Lord Woolman was unable to ascertain whether a complainant was entitled to recover the cost price of the defective chippings or if they were even entitled to any recovery at all. He described the two parts as “diametrically opposed to one another”. Any reconciliation or answer to this discrepancy was impossible.

Within Lord Woolman’s decision, he refers to Denning LJ in the English authority of Nicolene v Simonds [1953] 1 QB 543, 552 citing that the court will reject a clause if it “is so vague and uncertain as to be incapable of any precise meaning”.

Lord Woolman refused to eliminate any one of the two parts. He regarded each as being inter-dependent; to remove one part would remove all liability, to remove the other part would restrict liability. His basis for refusal was that it is not for the court to “innovate” on a contract by deleting its provisions and that any such deletion would have such an effect as to alter the parties intentions.

Outcome

Lord Woolman rejected the defendant’s submissions as to the provision’s validity and refused to give effect to the provision at all.

Conclusion

Careful drafting of contracts from the outset is of upmost importance. The court cannot provide recourse as it is unwilling to interfere with contractual provisions on a material basis. To do so would be an interference with the parties’ contractual intentions. An ineffectual provision will invariably leave a contractual party with a multitude of vulnerabilities.

 

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