Clear drafting and measured risk acceptance | Feature

Contracts sit on the coronary heart of each industrial transaction. However key phrases are sometimes agreed in haste or glossed over totally within the hope that nothing will go mistaken. My expertise, each in personal apply and in-house, is that stakeholders typically take consolation in ‘getting the deal achieved’ and assume the finer factors won’t ever be examined. Latest case regulation, nevertheless, gives a well timed reminder that when issues do go mistaken, the courts will flip to the contract. Until the language is ambiguous, they are going to be reluctant to deviate from what was agreed. 

Some latest key choices underscore the significance of clear drafting and measured threat acceptance.

In Zaha Hadid Ltd v Zaha Hadid Basis [2024] EWHC 3325 (Ch), the Excessive Courtroom thought of whether or not a commerce mark licence settlement that allowed solely the licensor to terminate – and appeared indefinite – was enforceable. The licensee argued that the settlement should comprise an implicit termination proper; in any other case, it amounted to an illegal restraint of commerce.

The courtroom was unequivocal: the contract was unambiguous and the absence of mutual termination rights didn’t invalidate the settlement. Nor was the association robotically thought of a restraint of commerce. This can be a reminder that courts are unlikely to rescue events from the implications of phrases they’ve signed as much as. The lesson for attorneys is straightforward: if a celebration needs the precise to terminate, it wants to barter for it.

EE Ltd v Virgin Cellular Telecoms Ltd [2025] EWCA Civ 70 is one other instance of the courts sticking to contractual language. Virgin had breached an exclusivity clause by diverting clients to different networks, inflicting EE to lose anticipated income. Sadly for EE, the contract contained a large exclusion clause for lack of anticipated income. EE argued that implementing this would depart it with nearly no treatment, which couldn’t have been the events’ intention. However the Courtroom of Attraction disagreed, holding that the clause was clear and enforceable. Even vital industrial unfairness isn’t any cause for courts to ignore a plainly worded clause. For attorneys, this highlights the necessity to think about the sensible results of exclusions and limitations within the context of the enterprise relationship.

In Tata Consultancy Companies Ltd v Disclosure and Barring Service [2024] EWHC 1185 (TCC), the Excessive Courtroom tackled the excellence between wasted expenditure and lack of income. The contract excluded claims for lack of income, so TCS sought to get better ‘wasted expenditure’ as a substitute. The courtroom discovered that TCS’s declare was successfully for anticipated financial savings, which it categorised as lack of income – and subsequently excluded. Claimants can not relabel lack of income as wasted expenditure to sidestep exclusion clauses. It additionally reinforces the necessity to draft exclusions with care and to grasp how future claims might be framed.

Topalsson GmbH v Rolls-Royce Motor Automobiles Ltd [2024] EWCA Civ 1330 provides additional nuance. The dispute centred on how legal responsibility caps work together with set-off rights. The Excessive Courtroom initially utilized Topalsson’s counterclaim for unpaid charges earlier than making use of the legal responsibility cap. The Courtroom of Attraction, nevertheless, discovered that the set-off ought to be utilized after the cap. This distinction in method resulted in a considerable monetary influence. The judgment additionally confirmed that curiosity for late cost was outdoors the legal responsibility cap. Business practitioners ought to observe the significance of rigorously contemplating the order of set-off and the drafting of legal responsibility and curiosity clauses, notably in high-value contracts.

Costcutter Supermarkets Group Ltd v Vaish and Anor [2024] EWHC supplied one other precious reminder: legal responsibility caps don’t robotically apply to claims for unpaid invoices. The contract capped legal responsibility at 5 occasions the service cost paid within the prior yr – on this case, zero. The shopper argued that this meant Costcutter’s declare was capped at nothing. The Excessive Courtroom rejected this, distinguishing between claims for breach of contract (secondary obligations) and first obligations, reminiscent of paying for items. Solely the clearest language would enable a celebration to flee paying money owed totally, and the contract fell brief. The message for attorneys is obvious: if a legal responsibility cap is meant to use to main obligations, the contract should spell this out within the plainest phrases.

Lastly, in King Crude Carriers SA & Ors v Ridgebury November LLC & Ors [2024] EWCA Civ 719, the Courtroom of Attraction confirmed {that a} social gathering can not rely by itself breach to keep away from a cost obligation. The customer failed to offer documentation to open an escrow account after which argued that no deposit was due as a situation precedent had not been fulfilled. The courtroom rejected this try. This judgment is unsurprising, however a helpful reminder that contractual circumstances can’t be manipulated to excuse non-performance the place the non-performance is self-induced.

These instances all present the courts’ reluctance to deviate from the phrases of a contract, irrespective of how commercially harsh the end result. For attorneys advising purchasers – whether or not in-house or in personal apply – the message is straightforward:

Be thorough in drafting. Contract clauses ought to replicate what the events are genuinely prepared to enroll to.
Problem industrial optimism. If a enterprise shopper suggests ‘we will stay with that time period’, ask whether or not they can actually stay with it if one thing goes mistaken.
Contemplate the lifetime of the contract. Too usually, contracts are signed after which forgotten till there’s a dispute. Encourage purchasers to frequently evaluate key provisions, particularly round legal responsibility and termination.
Look ahead to ambiguity. The courts might interpret unclear language in opposition to the drafter, however they won’t rescue events from a nasty discount if the language is obvious.
Bear in mind industrial actuality. The enterprise context issues, however solely as much as the purpose that it’s captured within the contract.

As industrial attorneys, we have now a twin function: to advise on threat and to assist be sure that what’s written down matches what is absolutely agreed. Latest case regulation reminds us that the contract is king – and phrases matter.

Winona Chan is authorized counsel at Aldermore Financial institution plc, London