Contract drafting: Court of Appeal decision on incorporation of terms of contract and contract interpretation

• United Kingdom

• Construction and engineering

14-08-2015

Carbon Smart Ltd v Prevista Ltd

The importance of clearly setting out the requirements of each party in a formal contract has been emphasised in the recent case of Carbon Smart Ltd v Prevista Ltd [2015] EWCA Civ 668 where it was held that when entering into a contract the parties should be clear of any terms they believe to be incorporated into the contract, and not to rely on anything not clearly incorporated, even if the term relied upon was written down prior to the contract being signed.

Carbon Smart contracted with Prevista to provide environmental training to SMEs under a Service Level Agreement (the “SLA”). There were a number of “evidence requirements”, i.e. evidence that Carbon Smart was required to provide to Prevista of the work that it had carried out. Prevista claimed that Carbon Smart had breached this requirement and withheld payment of fees.

Carbon Smart and Prevista had a number of meetings, phone calls, and exchanges of emails regarding the Contract. One email explained that, discussing the evidence requirements in the Contract, “…workshop contents will have to be provided (ie [sic.] presentation slides etc)…” Presentation slides were not provided to Prevista, which lead to their claim for breach of contract.

The Court of Appeal held that the parties had intended that their relationship would be governed by the SLA and not by additional matters incidentally mentioned in discussions or emails before the contract was concluded.                  

The case demonstrates the importance of drafting clear, unambiguous clauses into contracts and not relying on statements made in correspondence; if a party wishes another party to be bound by a particular obligation this should be included in the contract.  One must be clear what  each party’s expectation is; if a client’s expectations are that certain documents shall be deliverable as a condition precedent to payment, this must be made clear in the contract terms.    Consideration should be given to whether a client requires a specific number of as built drawing on completion, certain other documents at different stages of construction, or documents in a particular format or software compatibility and those requirements should be clearly stated in the contract.  One should not rely on statements made in correspondence but should adhere to the principle ‘contract is king’.