Agreeing Contracts and Avoiding Legal Ambiguity

Two recent cases illustrate the sense in taking advice on avoid contract disputes and commercial litigation from clumsy and imprecise language and latent ambiguities in legally binding documents and formation of contracts. Businesses frequently take a commercial view on risk when entering commercial arrangements. Whether this is sensible depends largely in our view on the level of risk that would be taken on if something were to go wrong. Indeed, it is frequently said that contracts are only required when something goes wrong, whether that is the relationship turning sour or commercial circumstances change for a party and they instruct lawyers to ascertain whether there is a weakness in the legal arrangements that would entitle them to assert pressure to obtain better commercial terms. There is no substitute for ensuring that the legal meaning is clear.

In the first case of Gordon Russell (UK) Ltd. v Warwick, Court of Appeal [2006] EWCA Civ 1851, a company which produced three different quotations for the supply of bespoke furniture was pleased to find that it was successful in securing the contract. However, the ‘accepted’ quotation included an erroneous clause allowing payment to be made after the customer had ‘signed off’ the delivered furniture. The prior quotations had included standard terms and conditions which provided for payment at the end of the month following the month of invoice.

The case was argued all the way to the Court of Appeal, which judged that the third quotation was an invitation to contract, not a contractual offer as such, so the standard terms and conditions did apply.

The second case of Aliant Telecom v Rogers CRTC 2006-45 was a Canadian case in which a million dollars rested on the meaning implied by the placement of a single comma in a contract. The contract concerned included a clause saying that it would ‘…continue in force for a period of five (5) years from the date it is made, and thereafter for successive five (5) year terms, unless and until terminated by one year prior notice in writing by either party’.

The question that arose was whether or not the second comma meant (as is usual) that the beginning and end of the sentence should be read together – in which case notice could be given at any time – or not. In the latter case, notice could only be given to end the contract at the end of a five-year term. The adjudicator ruled that the meaning was that notice could be given at any time. An appeal on that judgment is being launched.

Contract documents like any other legal instrument should be carefully drafted in plain English and properly record the agreement struck by the parties to the contracts to avoid disputes. Commercial litigation often ensues on ambiguous contracts and

Both of these cases could have been avoided had the contractual terms been considered carefully and amendments been made to remove the areas of potential doubt in the contracts.