This is one of a series of articles in which we review the judicial interpretation of words, phrases and provisions that are commonly used in contracts. Mutatis mutandis is one of a number of Latin phrases that have been used in the language of law. It is often used, either in its Latin form or its English translation (with such changes as are necessary), as a drafting shortcut to import a provision of a contract into another context. While the general meaning and intent of the phrase is clear, there is a risk that some degree of ambiguity or uncertainty may arise in the meaning of the provisions that are imported into a new context on a mutatis mutandis basis. Accordingly, however tempting the shortcut is, it is important to consider how the imported provision will be translated into that new context and whether some further drafting is required to clarify its operation.
Mutatis mutandis - meaning
Although one of the more recognisable Latin phrases used historically in the law, there are very few cases in which the meaning of the term has been judicially reviewed. In the 1995 decision of the Supreme Court of New South Wales in Delnorth Pty Ltd v State Bank of New South Wales1 (Delnorth), Cohen J observed that there seemed:
to be no case in Australia which deals with the phrase when used in contracts.2
…that there should be necessary changes in detail to conform to a single vital change. The court should look to the main purpose of the contract in order to consider the extent to which it was to be changed.
In Delnorth the parties had entered into a licence agreement relating to the use of a piece of industrial equipment. A term of that agreement required compliance with certain clauses contained in a separate annexed lease of goods agreement that were applied on a mutatis mutandis basis. Cohen J held that one of the clauses imported from the lease agreement that required rent to continue to be paid following termination of the agreement if the goods were not returned to the lessor ,should be interpreted by substituting the references to “rent” with “licence fee”, on the basis that the licence fee should be ascertained in accordance with the licence agreement.
The provisions of the licence agreement considered in Delnorth assisted in the determination of the necessary changes required by expressly providing a translation for certain key terms from the lease agreement into the licence agreement, namely “lease” to “licence”, “lessor” and “lessee” to “licensor” and “licensee” respectively, and “rent” to “licence fee”.
Scope for confusion and uncertainty
In the recent case of Goldus Pty Ltd v Australian Mining Pty Ltd5 (Goldus), Parker J of the Supreme Court of South Australia held a “change of control” provision that formed part of a pre-emption clause in a joint venture agreement to be void for uncertainty. Although the term mutatis mutandis was not expressly included in the change of control clause, the court considered possible meanings that might be given to the change of control clause if the mutatis mutandis principle were applied.
The pre-emption clause in Goldus was drafted on the basis that if either joint venturer “wishes to” dispose of its interest in the joint venture it must give notice to the other of the “terms and conditions upon which it wishes” to dispose of its interest and, upon receipt of that notice, the other joint venturer has a 30 day option to purchase the interest on the terms set out in the notice. A sub- clause within the pre-emption provision further provided that a change of control of a joint venturer constitutes a disposal of their joint venture interest “in which circumstances the provisions of” the pre-emption provisions will apply.
Parker J reviewed the principles underlying contractual interpretation and uncertainty, citing the following observations by Barwick CJ in Upper Hunter County District Council v Australian Chilling and Freezing Co Ltd6:
… a contract of which there can be more than one possible meaning or which when construed can produce in its application more than one result is not therefore void for uncertainty. As long as it is capable of meaning, it will ultimately bear that meaning which the courts, or in an appropriate case, an arbitrator, decides is its proper construction: and the court or arbitrator will decide its application. The question becomes one of construction, of ascertaining the intention of the parties and of applying it. … So long as the language employed by the parties, to use Lord Wright’s words in Scammel (G) & Nephew Ltd v Ouston7 is not “so obscure and so incapable of any definite or precise meaning that the Court in unable to attribute to the parties any particular contractual intention”, the contract cannot be held to be void or meaningless. In the search for that intention, no narrow or pedantic approach is warranted, particularly in the case of commercial arrangements.8
In seeking to identify the meaning that should be given to the change of control provision, Parker J identified that the question was whether the words used in the change of control clause “can properly be read on a mutatis mutandis basis” to operate as a wide deeming provision.
The plaintiff argued that the provision operated so that if a change of control occurs with respect to a joint venturer, that joint venturer must offer to sell its joint venture interest to the other joint venturer in accordance with the pre-emption provision. The defendant contended, and Parker J agreed, that such interpretation would require the change of control clause to be read so as to deem that the joint venturer subject to the change of control:
- wishes to dispose of its joint venture interest; and
- wishes to dispose of that interest upon the terms that the person who has acquired control of the joint venturer determines.
Parker J observed that rather than serving as a pre- condition that must be satisfied before a joint venturer is entitled to dispose of its interest, it would instead impose a positive obligation on a joint venturer to make an offer to sell its interest in circumstances where it does not wish to do so. In addition, the terms and conditions of the offer to sell would be those selected by another party and may be very different to what the joint venturer itself would want.
His Honour concluded that while the court must construe commercial agreements broadly where that is possible and necessary to give effect to the parties’ bargain, it is apparent that the interpretation contended by the plaintiff would go a considerable distance beyond a mutatis mutandis modification of the pre-emption provision where a change of control occurs. His Honour goes on to make the observation that:
What is being sought by the plaintiff would extend substantially beyond a purposive interpretation of the words actually used and would amount to an impermissible rewriting of the [joint venture agreement] by the court.9
Accordingly, the court held that the change of control clause was void for uncertainty.
Conclusions and Practical Tips
The decisions in Delnorth and Goldus illustrate that the term “mutatis mutandis”, when used as a drafting device in a contract, is well understood by courts. However, it is by no means a magical incantation that can be used as a drafting shortcut without further analysis. While the general intent of the term is clear, and regardless of whether it is used in its Latin form or in its English translation “with such changes as are necessary”, a danger in using it as a drafting shortcut is that it may give rise to some degree of ambiguity or uncertainty as to the meaning of the imported provisions. In particular, the translation of a provision of an agreement into a different contractual context on a mutatis mutandis basis raises the question of what changes to the primary provision are necessary in order to apply it in the new context.
Prudence suggests that if a clause in an agreement is proposed to be drafted in this manner, the parties should carefully consider how the wording of the imported provision will fit into the intended operation of the clause. If some degree of translation is required to achieve the intended meaning of the clause, the parties should include appropriate interpretation provisions. Alternatively, if the translation on mutatis mutandis basis remains imprecise, the parties should draft the clause in a longhand form.