Constructing the contract – Beware the “dangling definition”

Barry Riley

A recent High Court case has dealt with the construction of contractual provisions, most specifically, how to deal with a “dangling definition” – in other words, a definition in a contract that is never used in any of the operative provisions.

In the case, it was clear that something had gone wrong with the language used throughout the contract, clearly due to an error made in the drafting process.

The court followed the old House of Lords approach, as set out in the famous Chartbrook case – “The Chartbrook Approach”. It restated that “the court has all the freedom it needs to construe a botched contract, so as to make it accord with what the court thinks the parties must have meant”.

The case also illustrates how strongly the courts will rely on the commercial purpose and the general context of the contract in question, to construe the effect of a contract as a whole.

This recent ruling also brought back memories of another famous case (Re Sigma Finance Corporation 2010) which focused on the “commercial context” – Judges will, in a dispute about the meaning of language, “strongly favour an interpretation that runs with the overall grain of the contract, rather than one that cuts across the grain”.

The moral of the story? ALWAYS check that there are no “rogue” definitions lurking in your contracts, and that every defined term has its use throughout the operative provisions.

Rayford Homes Ltd v Bank Of Scotland PLC and another (2011)

Barry Riley
briley@metcalfes.co.uk
DDI – 0117 9453 042

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s