The case of Dooba Developments Ltd v McLagan Investments Ltd is a useful reminder of the need to think carefully when drafting legal documents and to consider how they will be interpreted if there is a dispute.
Dooba had entered into a development agreement with McLagan for the construction of an Asda superstore. There were four conditions that had to be satisfied before the agreement became unconditional. So that the agreement would not continue indefinitely, there were various right to terminate the agreement if the conditions were not satisfied. It was the interrelationship between these rights that was in issue.
The clause in dispute allowed either party to terminate the agreement 'if all of the Conditions have not been discharged in accordance with this Schedule by the Longstop Date'.
At the longstop date, some of the conditions had been met but others were outstanding. The agreement was therefore still conditional. Asda served notice under this clause to terminate the agreement. Dooba successfully argued before the High Court that the notice was not valid.
The question that the court had to consider was whether the words 'if all of the Conditions have not been discharged' meant that the right to terminate under the clause applied if and only if all four of the conditions remained undischarged (as contended by Dooba) or whether it meant that the right to terminate arose if any one or more of the conditions remained undischarged (as contended by Asda).
As a matter of grammatical logic the court said that the clause strictly applied to 'all of the conditions' and that the 'not discharged' qualified all of the conditions together so that even if one of the conditions had been discharged, the right to terminate did not arise. The court acknowledged that 'all' can mean 'any' when interpreting the clause, but it was not possible to apply that interpretation here.
When interpreting a contract, the court has to identify the intention of the parties by reference to what a reasonable person, having all the background knowledge which would have been available to the parties, would have understood them to mean. That meaning has to be assessed in the light of a number of factors including the natural and ordinary meaning of the clause and any other relevant provisions of the agreement. The court can take into account commercial common sense.
While commercial common sense might indicate that the parties would want a right to terminate if any of the conditions were undischarged at the longstop date, the court was not able to apply that interpretation to the development agreement. A key point in reaching this decision was that the preceding clause gave the parties separate rights to terminate if 'any of the Conditions' were not satisfied by the respective dates for discharging them. Given the difference in wording the court concluded that 'all' could not be interpreted as meaning 'any' in the disputed clause. The courts will assume that differences in wording have been included for a reason. It was this difference in wording that shut the door to a more purposive and common sense interpretation of the agreement.
The lesson is clear. When drafting documents you need consistency, clarity and careful attention to the details of what you are doing to avoid future disputes.
This document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given.