Relevance of words deleted from a draft contract
NARANDAS v BRADSTOCK (CA) [2016]
The question for the Court of Appeal ("CA") here was whether wording deleted from a contract during the course of the drafting and negotiation process could be taken into account to interpret the final form of the agreement in order to resolve an ambiguity in the words which remained.
Facts:
- Mr and Mrs Parekh were in serious financial difficulties and so they engaged a Licensed Insolvency Practitioner to put together a so-called Individual Voluntary Arrangement ("IVA") for each of them. During the course of the finalisation of the IVAs, certain modifications were put forward on behalf of some of the creditors.
- Subsequently, the final form of the IVAs had to be interpreted and the question arose whether the Courts were entitled to have regard to the wording that had been removed as part of the drafting process in order to interpret what the final version of the IVAs meant.
Decision:
- It was argued that once the parties to a contractual negotiation agreed to remove certain provisions of a draft and replace them, then those removed provisions fell out of account for the purposes of interpretation. The CA disagreed.
- It decided that the current state of the law is that, “if the fact of [a] deletion shows what it is the parties agreed that they did not agree and there is ambiguity in the words that remain, then the deleted provision may be an aid to construction, albeit one that must be used with care”.
- The wording of the final version of the IVAs was found to be ambiguous. The CA went on to say, “Faced with that level of ambiguity, it is entirely legitimate to have regard to what the modification removed…”.
Points to note:
- It is very hard to reconcile this case with other authorities such as Chartbrook v Persimmon Homes [2009] which was decided by the House of Lords (now the Supreme Court) and in which it was made clear that prior drafts are inadmissible as an aid to interpretation (the so called ‘exclusionary rule’). This latest case did not refer to the Chartbrook decision at all.
- Although not entirely clear from the judgment as to the precise facts, there were some comments that suggested that the ability of the Court to be able to take account of deleted words might depend upon the deleted words themselves appearing in the final agreed document (such as would occur when words that show in a pre-printed form are struck through). However, there are other comments which suggest that this ability to reference such deleted wording is not limited in this way.
- Generally speaking, prior drafts of documents are not admissible as evidence to aid the interpretation of an agreed and executed contract. This is justified on the basis that during the course of negotiations parties alter their position and reach compromises. It is also argued that by focussing just on the final agreed document, certainty is increased both for the parties and any interested third party who is trying to establish what an agreement requires. It is very difficult to reconcile this judgment with that principle and it is perhaps likely that this is a very exceptional case featuring, as it did, a somewhat distinct form of contractual arrangement. Whilst it does demonstrate that, in exceptional circumstances, previous drafts may legitimately be referenced to assist in the interpretation of the final form of the documentation particularly where the degree of ambiguity is considerable, in our view it would be unwise to place too much reliance upon this decision.