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Contract Draftsman Can’t Foresee Every Eventuality – but Judges Can Fill the Gaps

housesIt is impossible, when drafting a contract, to foresee every possible eventuality that may arise in the future. However, as a Court of Appeal decision showed, judges have the power to insert implied terms so as to fill in any gaps in deficient contracts and give common sense effect to the underlying intentions of the parties.

The case concerned a contract whereby the owner of two adjoining terraced houses had employed a builder to refurbish, alter and extend the properties. The project was delayed by more than a year after the local planning authority took the view that the works would involve substantial demolition of the buildings’ rear wall and that conservation area consent was therefore required.

The works eventually continued after planning consent was obtained for a revised scheme, but the builder claimed that it was entitled to a 53.2-week extension of time under the terms of the contract. That was disputed by the owner, who launched proceedings. The contract did not specify whether it was the builder or the owner who bore responsibility for obtaining all consents required to bring the project to fruition.

Following a preliminary hearing, the owner and the builder were both unhappy with the outcome and appealed and cross-appealed respectively. The Court ruled that a term should be implied into the contract that required the owner to use all due diligence in obtaining the required consents. Such a provision made commercial common sense and was required to achieve business efficacy.

As neither the owner nor the builder had any control over the planning process or its outcome, the Court found that it would be going too far to require the owner to ensure that the necessary consents were in place. The implied term achieved a reasonable balance of risk between the contracting parties. Further issues in the case would be resolved in the light of the Court’s ruling.



 
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