The courts have provided vital clarity as to when extrinsic
evidence can be used to interpret contractual wording. The
specialist commercial lawyers at Bahamas law firm Parris Whittaker are highly experienced
in advising commercial clients on their contractual clauses and disputes.
A noteworthy ruling1 from the UK’s Court of Appeal, which has important persuasive authority on the courts in The Bahamas, takes a common-sense approach to a particular issue in contractual interpretation.
What’s the background?
The case concerned a contract under which three dental surgeons in separate UK surgeries provided general dental services for the UK’s National Health Service (NHS). The contractual terms included, notably:
that the NHS could only terminate the contract if the dentists were in
default;
the contract could be amended or varied in writing and signed by both
parties; and
an ‘entire agreement’ clause – ie the contract constituted the entire
agreement between the parties in relation to the services provided.
The
dentists and the NHS later entered into a separate agreement by which the
dentists provided additional minor oral surgery for a fixed term of 12 months which
could be terminated with one month’s notice. When the 12-month period expired, the
contract continued by virtue of the parties’ continued conduct.
The
NHS then sought to vary a clause in the main contract and the parties signed a Contract
Variation Agreement Form (CVAF). However, the NHS later sought to terminate the
minor oral surgery services but the dentists said the CVAF was a variation of
the original contract and was legally binding, therefore those services could
only be terminated if the dentists were in default.
Lengthy
legal proceedings followed, and the Court of Appeal found in favour of the
dentists. The court disagreed with the NHS’s argument that the changes under
the CVAF were not detailed enough to be an effective variation of the main
contract.
The
court ruled that the variations were valid having been made in accordance with
the variation clause in the main agreement.
Extrinsic evidence
A
key element of the NHS’s argument was that the CVAF was ineffective because of
the purported uncertainty of key words within it.
The
court said that where there are ‘unconventional’ terms within a contract – particularly
if used in a particular economic sector, it was “lawful, indeed vital” to refer
to that extrinsic evidence to help define those terms if it’s otherwise not
possible to do so. The presence of an entire agreement clause in the relevant
contract did not preclude this.
Importantly,
such extrinsic evidence did not add to or alter the words used in the main
contract – it just explained what they meant.
The
court ruled that the ‘uncertain’ key words in the main contract were
unconventional in this context, so it was lawful to refer to extrinsic evidence
to determine their intended meaning. The
extrinsic evidence was the minor oral surgery agreement.
What does this mean?
Businesses should ensure their key words and key terms in their contracts are sufficiently certain so as to be clearly interpreted should a dispute arise. However, in circumstances where there is uncertainty – or a term is classed as ‘unconventional’ – extrinsic evidence could be used to help determine the meaning of specific wording.
Even if the contract includes an entire agreement clause, this does not exclude the possibility that extrinsic evidence can be referred to if necessary to interpret a clause. However, the best solution is to avoid the need to refer to extrinsic sources to interpret the contract and ensure the original terms are clear and unambiguous.
How can we help?
We
advise and represent a wide range of business clients in their contractual
obligations and in disputes concerning the terms of their contracts. If you have
any concerns in relation to your contractual duties or there is a potential
claim, contact the expert commercial lawyers at ParrisWhittaker for strategic
advice and representation.
1 NHS Commissioning
Board v Vasant and others [2019] EWCA Civ 1245
