Cross-referencing, when done correctly, is a convenient way to link two connected clauses in a contract. However, when done incorrectly, it can cause ambiguity that results in clauses being rendered void or interpreted ways that contradict the parties’ intentions. In this article we look at the consequences of incorrect cross-referencing.

Cross-referencing is commonly used in commercial contracts. And whether it’s because of the addition or deletion of a clause during time sensitive negotiations or otherwise, more commonly than contract drafters would probably care to admit, cross-referencing errors find their way into documents.

There are multiple forms cross-referencing errors can take, ranging from incorrect clause references to referring to a clause that no longer exists or that is missing information. Where a dispute arises because of a cross-referencing error, it cannot be assumed that a court will simply correct the error, particularly where the error creates uncertainty or ambiguity. In these situations, a court may find the clause void for uncertainty or impose orders that contradict the intention of the parties.

The following cases highlight how cross-referencing errors can occur and the consequences of these errors.

Cross-referencing a clause that is missing information

In The State of NSW v UXC Limited [2011] NSWSC 530, the court examined a contract that included a dispute resolution process. The contract provided that, in the event of a dispute between the parties, expert determination was binding except where the sum determined exceeded “the amount specified in [the] Agreement Details” (Specified Amount). Unfortunately, the Agreement Details section of the contract did not set out the Specified Amount. After a dispute arose, the State of NSW, in accordance with the dispute resolution process set out in the contact, obtained an expert determination. The determination found that UXC had breached the contract and was liable for damages in the amount of approximately $2.6 million. UXC argued that the Specified Amount was either $0, because no amount was specified, or $250,000, the amount UXC submitted was agreed in the tender process. In either case, the expert determination would not be binding as the damages assessed by the expert exceeded both amounts.

The Court found that, as no amount had been set out in the contract, there was no limit to the Specified Amount. As such, any amount determined by the expert would not exceed the Specified Amount and therefore UXC was bound to pay $2.6 million in damages. The decision was made despite the fact the evidence suggested that the parties’ intended, during the tender process, to limit the Specified Amount to $250,000.

Cross-referencing a non-existent clause

In Hardesty and Hanover International LLC & Ors v Abigroup Contractors Pty Ltd [2010] SASC 44, the court examined a contract that included two separate dispute resolution procedures; one in the ‘general’ conditions and one in the ‘special’ conditions. The contract provided that the special conditions took precedence over the general conditions. Each dispute resolution procedure was unique and each purported to require strict adherence. The notice requirement in the special conditions referred to a clause in the contract that did not exist. When a dispute arose, Hardesty obtained two expert determinations pursuant to the special conditions. Abigroup argued the experts had no jurisdiction and therefore the expert determination was not binding. Hardesty commenced proceedings and sought $499,839.88.

The trial judge found the special conditions void for uncertainty as the notice requirement referred to a section that did not exist, therefore making it meaningless. As a result, the general conditions were applicable and, as these were not strictly followed as required by the contract, the experts did not have jurisdiction and their opinions were not binding on the parties.

On appeal Hardesty argued the special conditions were intended to refer to the procedures in the general conditions. The Court unanimously rejected the appeal highlighting that, if the parties intended for the general conditions to apply, the contract would have simply referred to the general conditions only.

How to avoid cross-referencing errors

The above cases show the importance of correctly cross-referencing in contracts. To ensure that your contracts avoid these problems, we recommend the following strategies:

  • use the ‘insert cross-reference’ feature in word processing applications rather than manually typing the cross-reference. This feature automatically updates all references to cross-referenced clauses where subsequent amendments alter the numbering of clauses and sections of the contract;
  • where multiple people are working on the same document (including the representatives of other parties), make sure everyone is aware of and adopts the cross-referencing convention that is used in the contract so that all amendments are uniform; and
  • once the final draft is agreed upon, always try and have someone independent proof read the agreement and double check that all cross-references refer to the correct clauses – in our experience this is especially important where contract drafters are being asked to turn around drafts quickly.

While none of the above solutions on their own are foolproof, using them in addition to paying close attention to detail will go a long way to ensuring cross-referencing errors do not pop up in your executed contract.