Specialist in Business & Corporate and Commercial Contracts
An Upper Case – using defined terms in contracts
Two things lawyers are famous for: (a) bring pedantic; and (b) sprinkling their documents with apparently random Capital Letters. A recent case explains why!
A sub-contractor was engaged to fit a sprinkler system to a new office building being built in Manchester. They completed the works, but the sprinkler system went wrong and flooded the building, causing considerable damage. The main contractor claimed damages relying (in part, at least) on the fact that in their written contract the main contractor and the sub-contractor had agreed that any damage caused by the sprinkler system before “the date of practical completion of the Sub-Contract Works” would be paid for by the sub-contractor. After practical completion, any losses would be met by the main contractor.
The problem was that the contract defined “Practical Completion” (note the capital ‘P’ and capital ‘C’) as “the issue of a Certificate of Practical Completion pursuant to the Main Contract.” The builder argued that the Certificate of Practical Completion had not been issued, and therefore the sub-contractor was liable for the damage. The sub-contractor relied on the convention that capital letters are used in a contract to denote a reference to a defined term. Since, in the relevant clause the reference was to the date of practical completion (lower case ‘p’ and ‘c’), the words meant practical completion of the sub-contract works and did not refer to the defined term. The court agreed and found in favour of the sub-contractor.
In this case, the sub-contract was a variation of the standard JCT Design and Build Sub-Contract 2005, which highlights the risk when amending an existing contract or when borrowing useful clauses from one contract and pasting them into a different framework. The defined terms, typically set out in clause 1, are critical to any contract, and it is essential, before signing off, to make sure that defined terms have been used whenever they are appropriate, that they have been used consistently so that the definition is still applicable and that they have been denoted as defined terms by using capital letters, something all too often forgotten by business people putting together their own “simple” contracts.
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