Contracts are rarely void for uncertainty

Contracts are rarely void for uncertainty

A review of the case of Openwork Ltd v Forte

What happens if the overall effect of a contractual term is clear but the detailed terms are incomplete?

In Openwork Ltd v Forte [2018] EWCA Civ 783 (18 April 2018), the Court of Appeal considered, amongst other things, whether a contractual term was sufficiently certain in its effect to be operative and enforceable.

In light of this decision, which provides a useful summary of the law as it currently stands, here are the key points to consider.

A provision in a contract will only be void for uncertainty if the court cannot reach a conclusion as to what was in the parties’ minds or where it is not safe for the court to prefer one possible meaning to other equally possible meanings, while bearing in mind that what is in the parties’ mind is a legal construct and not an enquiry into subjective intent.

Generally, the Court should strive to give some meaning to contractual clauses agreed by the parties if it is at all possible to do so. In support of this, the following statements from earlier cases were all approved.

  • “…. it is clear that the parties both intended to make a contract and thought they had done so. Business men often record the most important agreements in crude and summary fashion: modes of expression sufficient and clear to them in the course of their business may appear to those unfamiliar with the business far from complete or precise. It is accordingly the duty of the Court to construe such documents fairly and broadly, without being too astute or subtle in finding defects, but, on the contrary, the Court should seek to apply the old maxim of English law, ‘verba ita sunt intelligenda ut res magis valeat quam pereat.’ [words are to be understood such that the subject matter may be more effective than wasted]. That maxim, however, does not mean that the Court is to make a contract for the parties, or to go outside the words they have used, except in so far as there are appropriate implications of law, as for instance, the implication of what is just and reasonable to be ascertained by the Court as matter of machinery where the contractual intention is clear but the contract is silent on some detail. “
  • “The object of the court is to do justice between the parties, and the court will do its best, if satisfied that there was an ascertainable and determinate intention to contract, to give effect to that intention, looking at substance and not mere form. It will not be deterred by mere difficulties of interpretation. Difficulty is not synonymous with ambiguity so long as any definite meaning can be extracted. But the test of intention is to be found in the words used. If these words, considered however broadly and untechnically and with due regard to all the just implications, fail to evince any definite meaning on which the court can safely act, the court has no choice but to say that there is no contract. Such a position is not often found. But I think that it is found in this case. My reason for so thinking is not only based on the actual vagueness and unintelligibility of the words used, but is confirmed by the startling diversity of explanations, tendered by those who think there was a bargain, of what the bargain was. I do not think it would be right to hold the appellants to any particular version. It was all left too vague. There are many cases in the books of what are called illusory contracts, that is, where the parties may have thought they were making a contract but failed to arrive at a definite bargain. It is a necessary requirement that an agreement in order to be binding must be sufficiently definite to enable the court to give it a practical meaning. Its terms must be so definite, or capable of being made definite without further agreement of the parties, that the promises and performances to be rendered by each party are reasonably certain.”
  • “The role of the court in a commercial dispute is to give legal effect to what the parties have agreed, not to throw its hands in the air and refuse to do so because the parties have not made its task easy. To hold that a clause is too uncertain to be enforceable is a last resort or, [….] , ‘a counsel of despair’”
  • “It would be a strong thing to declare unenforceable a clause into which the parties have deliberately and expressly entered … To decide that [the clause] has ‘no legal content’ …. would be for the law deliberately to defeat the reasonable expectations of honest men …”
  • “The conclusion that a contractual provision is so uncertain that it is incapable of being given a meaning of any kind is one which the courts have always been reluctant to accept, since they recognise that the very fact it was included demonstrates that the parties intended it to have some effect.”
  • “Where parties intend to create a contractual obligation, the court will try to give it legal effect. The court will only hold that the contract, or some part of it, is void for uncertainty if it is legally or practically impossible to give to the agreement (or that part of it) any sensible content.”

So, how do these judicial comments relate to the real world? Well, as can be seen, they all have similar sentiments, namely that the court will strive to find a meaning to a particular contractual term, even if vague.

Turning to the Openwork case itself, it related to a contractual term in which a financial advisor would have to pay back commission received from an investment company, where the investor had withdrew funds early from a three year investment. The vague words which caused the litigation were that: “The amount of initial commission clawed back relates to the amount invested, length of time invested and amount withdrawn,” but, unhelpfully, with no further explanation as to how the claw back would be calculated.

Nonetheless, the Court of Appeal had little hesitation (in approving the first instance decision) of a straight line calculation i.e. “if the funds are withdrawn on a particular day between the day after the investment and the day which falls three years after that date, the amount of the clawback is the proportion of the commission which reflects the time that has passed between those two dates.”

Our own experience is that the courts do indeed try very hard to give meaning to contracts which, at first sight, appear to be vague or contradictory. This approach will apply equally to “home-made” agreements as to documents drawn up between legal advisors. The starting point will usually be that words were intended to have some meaning, otherwise why include them at all? The likelihood that a court will ignore completely certain parts, or all, of a contract as being void for uncertainty is usually fairly remote. The Openwork case merely reinforces this position.

William Lawrence