This article focuses on a few (by no means all) of the learning points or reminders raised during the contract law update as a reminder of some key principles to consider when dealing with contracts in the TMT sector.
Key learning points:
- Do not rely on terms being implied into a contract: Neither should you assume that a court would interpret the contract as you intended in the absence of clear and express provisions. If you wish to include a particular principle in a contract, you should:
- clearly and expressly include provisions dealing with such principles in the contract;
- check to make sure the contract contains no contradictory terms; and
- consider using narrative language and worked examples to supplement legal drafting if it would help a third party (e.g. a judge) to interpret what has been agreed by the parties.
- Be clear as to what is intended when a party must act in “good faith”: The principle of “good faith” does not have a settled meaning under English law. If you introduce an obligation on the other party to use good faith, you should be clear exactly:
- what you mean by an obligation to use good faith (e.g. would it simply require a party to deal honestly or would the party be expected to sacrifice any of its personal/commercial interests?); and
- which provisions are impacted by the obligation to use good faith.
- Ensure consistency of terminology across all contractual documents: Whilst an easy trap to fall into (especially when different people are working on different sections of the contract), a lack of consistency throughout a contract can create confusion which could potentially result in expensive litigation. You should:
- check all documents prior to entering into a contract to ensure that the contract and schedules are consistent and use the same terminology throughout (e.g. defined terms);
- where applicable, ensure that the language of any acceptance certificates mirrors or cross-refers to the acceptance provisions of the contract;
- whilst useful specify the order of precedence of the contractual documents, don’t rely on an “order of precedence” provision as means of resolving contractual inconsistencies; and
- avoid using too many different documents in the contract – the more documents that make up the contract, the more chance there is that inconsistencies will arise.
- If you wish to exclude liability, make the exclusion of liability absolutely clear: As a general legal principle, in the event of any ambiguity of a contractual provision, a court will interpret the provision against the person seeking to rely on it. If you wish to exclude your liability for certain types of losses, you should:
- be absolutely clear as to what liabilities you are seeking to exclude;
- remember that exclusions of liability may be construed in the context of the other provisions of the contract; and
- consider the likelihood that the exclusion of liability may be deemed unenforceable under the Unfair Contract Terms Act 1977 or the Unfair Terms in Consumer Contracts Regulations 1999.
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