The UK Court of Appeal has considered how to approach priority clauses where a contract contains conflicting terms. In so doing, it overturned the earlier High Court ruling on this issue. In this case, the contract was a mortgage which incorporated terms from two separate documents – the offer letter and the standard conditions. The mortgage contract included a priority clause which provided that the terms of the offer letter would prevail over the standard conditions in the event of inconsistencies. The mortgage company varied the interest rate in accordance with the standard conditions. The claimant argued that these conditions were at odds with the terms of the offer letter which should prevail under the priority clause. The High Court held that priority clauses should be given effect only in the case of a “clear and irreconcilable discrepancy”. Here, there was no inconsistency between the two documents. They could simply be read as modifying or qualifying each other. The priority clause had no effect. The Court of Appeal disagreed and overturned this ruling. The court held that an assessment of whether there was inconsistency in the contract should be made without any pre-conceived assumptions, so a court should not strive to avoid or find inconsistency. The Court of Appeal held that the offer letter and the standard terms were inconsistent. They did not merely modify or qualify each other. Accordingly, the priority clause had full effect and the offer letter prevailed.
The differing approaches of the High Court and the Court of Appeal mean there is some uncertainty around the approach to be taken to priority clauses – should they be given effect where there is inconsistency (as per the Court of Appeal) or should they be avoided where possible by adopting a consistent interpretation of the conflicting terms as a whole (as per the High Court). In light of this, reliance on priority clauses is best avoided. Those drafting contracts should ensure that all terms and documents work together and avoid any inconsistencies or ambiguities. It is still worth including a priority clause but there is little certainty at the moment around whether such a clause will be given its intended effect.