Contract interpretation - informality of contract does not overturn text with obvious and clear meaning
The question
Where an informal, brief and home-made agreement has been drafted without lawyer input, will the ordinary rules of contractual interpretation apply?
The key takeaway
Where an agreement is informally drafted without the input of lawyers, the courts will still look to interpret the contract as a whole, giving the words used their natural and ordinary meaning in the context of the agreement, the parties’ relationship and all the relevant facts. Informality cannot be used as a trump card that can overturn wording that carries an obvious and clear meaning.
The case
Contra Holdings Ltd v Bamford [2023] EWCA Civ 374
The background
Following the death of Joseph Cyril Bamford, founder of the JCB group of companies (JCB Group) in 2001, negotiations took place regarding the future ownership of the JCB Group. Mark Bamford and his brother Anthony Bamford were principal beneficiaries of several Trusts which owned the JCB Group through shares and interests in principal holding companies.
Richard Bamford, CEO of Contra and second cousin of Mark and Anthony, provided advisory services to Mark in relation to the negotiations and in connection with multi-jurisdictional litigation related to the JCB Group. In June 2011, Anthony and Mark agreed, in principle, a settlement of all disputes.
The proceedings centred around an unsigned agreement (the Touch Agreement) between Mark and Contra (formerly Touch Worldwide Holdings Ltd) dated 1 July 2011 which the court took to be legally binding. The Touch Agreement was drafted by Richard and entered into by both parties without the assistance of external (legal or other) advisors.
The agreement included two express terms relating to two separate success fees. One was for the services provided up to and including the settlement in June 2011. This success fee was paid. A second success fee was due on completion of “Project Crakemarsh”. Project Crakemarsh referred to the proposed sale of the JCB Group. No sale of JCB Group took place in 2012 or subsequently.
Contra commenced proceedings against Mark for the payment of the unpaid success fee, claiming breach of the Touch Agreement. Contra claimed that the contract was to be interpreted (including on the basis of an implied term) to provide for payment of the second success fee if the divestment of the assets or the separation of the interests of Mark in the trusts took a different form than the anticipated sale of the JCB Group, arguing that the payment would also be due if the JCB Group was in some other form restructured rather than sold.
The court of first instance looked first at the express terms of the Touch Agreement and as a matter of textual analysis concluded that there was no doubt that payment of a “success fee on the completion of Project Crakemarsh” referred to the proposed sale of the JCB Group, and that there were no implied terms that would provide for the payment of the success fee without the sale of the JCB group. The court also bore in mind that the agreement was drafted by a professionally qualified person (Richard was a chartered accountant) who was capable of performing services, in relation to complex matters, worth several million pounds.
Contra appealed on the basis that the clear commercial purpose of the (informal) Touch Agreement was to reward Contra for achieving Mark’s long-held intention to separate his interests in JCB.
The decision
The Court of Appeal (CA) dismissed the appeal essentially on the same reasons identified by the court of first instance.
The CA pointed out that Contra’s claim was a breach of contract claim only, rather than a claim for rectification or estoppel and was solely based on the Touch Agreement. The Touch Agreement, while not drafted by lawyers was “nevertheless a logically structured and (largely) clear document”. The ordinary rules of contractual interpretation in the context of the relevant factual matrix applied to it and “informality is not a trump card that can overturn a text that carries an obvious and clear meaning. There are also degrees of informality, and the Touch Agreement was a careful, albeit brief, document, drafted by a qualified accountant”.
When carrying out the exercise of interpretation against the relevant factual matrix, the court did not consider that there was anything in the relevant factual matrix which detracted from the clear meaning of the language of the Touch Agreement.
On the question of implied terms, the court held that the Judge’s conclusions at first instance that the proposed implied terms were not sustainable either as a matter of obviousness or business efficacy were unimpeachable.
Why is this important?
An informal or home-made agreement will not automatically lead a court to overturn the natural and ordinary meaning of the words used. The CA did acknowledge that it is right that context may have greater than usual weight when interpreting a more informal document, but in this case the Judge at first instance had properly taken this into account. The express terms of the Touch Agreement did not, on their true construction, provide for payment of the success fee in circumstances where there had been no sale of the JCB Group. The terms sought to be implied by Contra were not necessary to make the contract work – neither so obvious that they went without saying, nor necessary to give the contract business efficacy.
Any practical tips?
For contracts of significant value (here the potential success fee was very substantial) that may well result in proceedings in the event of non-payment or lack of performance, ensure legal professionals are involved at the drafting stage.
This should assist with the parties’ deal being properly reflected in the written agreement, and provide a clearer and more certain outcome. The commercial purpose of the agreement should be stated (for example, in recitals) and ensure, in particular, that any payment triggers and terms are clear. A well drafted agreement, prepared with the benefit of legal advice, may make it more difficult to challenge on the basis that the context must be given greater weight when interpreting the wording (as a matter of contractual interpretation), that it does not properly record the parties’ deal (as a matter of rectification) or that certain terms must be implied into the agreement (as they are so obvious or are required to make the contract work properly).
Summer 2023