In the case of William Hare Ltd v Shepherd Construction Ltd [2009] EWHC 1603 (TCC) (25 June 2009), the court declined to incorporate amendments made to an Act before the contract was signed which were not specifically referred to in the contract.

The facts

William Hare contracted with Shepherd Construction in 2007 for fabrication and erection of steelwork for the ultimate benefit of Trinity Walk Wakefield Limited. The contract contained wording about insolvency which closely mirrored the language of the Insolvency Act 1986. However amendments had been made to the Insolvency Act in 2002 and these changes were not reflected in the terms of the contract.

Trinity become insolvent by a method introduced to the Insolvency Act 1986 by the 2002 amendments. Shepherd issued notices to William Hare withholding payments due on the basis that Trinity was insolvent.

William Hare argued that Trinity was not insolvent as defined by the contract (and therefore William Hare should be paid). Shepherd claimed it should not pay. It relied on the fact that it would go against common sense not to deem references to the Insolvency Act 1986 as including amendments made to the Act before the contract was signed. Shepherd said the contract with William Hare should be interpreted to reflect the 2002 Insolvency Act amendments.

The judgment

The court did not agree with Shepherd that references to the Insolvency Act 1986 'must' have included amendments made before the signature of the contract. It relied on the fact that applying the 2002 amendments to the Act into the contract would have required a substantial re-drafting of the clause in question because of the way in which it mirrored the language of the unamended Act. Therefore William Hare and Shepherd must have intended the clause to be as stated expressly in the contract, in the absence of any evidence relating to a mistake.

The companies also acknowledged that they were deemed to have known about the amendments to the Act, particularly given that they had been made five years before the contract was signed.

Practical considerations

To ensure that both past and future amendments to legislation are included in references to Acts and to catch all legislation referred to in the contract, best practice wording such as the below should be used in the "Interpretations" section:

"References to any statutory provision, enactment, order, regulation or other similar instrument shall be construed as a reference to the statutory provision, enactment, order, regulation or instrument (including any EU instrument) as amended, replaced, consolidated or re–enacted from time to time and shall include any orders, regulations, codes of practice, instruments or other subordinate legislation made under it." Insolvency legislation is often referred to in standard contract wording (especially termination clauses). Make sure that wording in standard templates is checked every couple of years. Also include general "sweeper" wording as a back stop.

Also remember:

  • the courts will expect commercial parties to be aware of changes to laws;
  • it is usually more practical to refer to legislation by name than mirror its language. References to legislation will incorporate changes to that legislation automatically (presuming that the best practice wording is used) rather than requiring parties to monitor changes to legislation and vary the contract wording; and
  • the courts are unwilling to interfere with the freedom to contract and will interpret clauses narrowly where the parties were sophisticated bodies, free to negotiate their terms.