Business common sense in contract terms.

The Supreme Court has held that business common sense should prevail when interpreting contract terms. How does this affect your terms? In Rainy Sky S.A. & Ors v Kookmin Bank [2011], the UK Supreme Court held that where language used in a contract has more than one potential meaning, it is generally appropriate to adopt the construction that is most consistent with business common sense.

In that case, the key issue between the parties concerned the proper construction of two paragraphs in a Bond document. The second paragraph of each Bond provided that Rainy Sky was entitled to “repayment of the pre-delivery instalments” upon their “rejection of the vessel…termination, cancellation or rescission of the Contract…”. The third paragraph of each Bond stated that, in consideration of each Rainy Sky’s agreement to make the pre-delivery instalments, Kookmin Bank undertook to pay “all such sums due to you under the Contract”. Kookmin Bank argued that “such sums” referred only to the limited circumstances referred to in the second paragraph, which did not include where repayment was triggered by an insolvency event. Rainy Sky argued that “such sums” simply meant any sums however they may became repayable.

Contrary to the view taken by the Court of Appeal, the UK Supreme Court agreed with Rainy Sky, and concluded that the long line of case law in this area had established that the Court’s task was to determine what a reasonable person, who had all of the background knowledge reasonably available to the parties at the relevant time, would have understood the parties to have meant by the words that they used.

The question for the Court was the role to be played by considerations of business common sense in determining what the parties meant. The Court held that where the terms of the contract were clear and unambiguous, effect would be given to them without any consideration of business common sense, even if the result is improbable. However, where there were two possible constructions of the language used (as would often be the case), the construction that was most consistent with business common sense would generally be adopted. It will therefore often be the case that, where a contractual dispute has arisen, considerations of business common sense will come into play.

Therefore if you face, or potentially face a situation where the application of business common sense may need to apply in respect of the construction of the language used in a contract term or in conflicting contract terms, then you need to contact our office for advice

The Battle of the Forms

When you have a Battle of the Forms, which form wins? .......

For a contract to be formed there must be agreement. However, before agreement is reached there may often be an exchange of correspondence containing offers and counter-offers. Sometimes agreement is reached by conduct (for example by starting work on site), and it is then necessary to determine what was the counter-offer that had been accepted by that conduct. This process is often referred to as the Battle of the Forms.

The standard position is that the last counter-offer that was in existence before acceptance by conduct took place was the offer that was accepted by the conduct. This standard position was reinforced again in the recent 2011 Court of Appeal case of Tekdata Interconnections Ltd v Aphenol Ltd where it was concluded that the standard position as outlined above would apply unless the parties’ previous conduct clearly showed that their common intention was that some other terms should prevail.

So that all seems very simple then - but as we all know it is often extremely difficult to determine which is the last counter-offer that was actually in place.

In fact this is a matter that has taxed many of the great legal minds through the years – and those great legal minds (unfortunately) often reach totally different conclusions. So it is obviously preferable not to put yourself into a position where the matter needs to be referred to a third party to decide upon in the first place.

Therefore if you face, or potentially face a Battle of the Forms situation, you need to ensure that your position is protected, and if you need any advice regarding this matter or any related issue, you should immediately contact our office.

BIM - Building Information Modelling

Building Information Modelling (BIM) is the way forward, but what about your intellectual property rights?.........

BIM is the process of creating and managing information, usually in a three-dimensional (3D) computer model. The government may soon require the use of BIM on all of its major projects, and it is recognised as being the way forward for the construction industry. However, BIM may bring with it certain legal challenges and one of the most obvious of these is the question of intellectual property rights.

When BIM is used to its full extent, it is likely that there will not only be one 3D model produced but there may be several models. Each of these models may have sensitive information embedded by different consultants or specialists, and the models may be co-ordinated together by an ‘information model manager’.

The question then is who owns the co-ordinated model and the intellectual property rights contained within it.

This entire area is a minefield of conflicting rights, and, depending upon the wording of any agreements reached, it may be that the intellectual property rights in the combined model may be invested in more than one party.

Clearly this is an area that will become more important as the use of BIM increases, and if you have any queries about how the use of BIM may affect your intellectual property rights, you should immediately contact our office.