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Why proofread contracts?

25/02/2012

Contracts often contain cross-references to commercial schedules or other clauses which contain important elements of the deal.  Sometimes in negotiations, items in those schedules are left blank pending technical advice.   If contract is signed with blank schedule items, the operative clause is ambiguous or meaningless.  Here is an example.

In The State of NSW v UXC Limited, UXC Ltd was contracted to replace a computer network. The contract required disputes to be referred for expert determination.  The expert’s decision could not be appealed unless it exceeded a certain limit specified in a schedule. By oversight, the schedule was left blank.

UXC asserted that the blank in the schedule should be read as either $nil (because no amount was specified) or $250,000 (in line with discussions during negotiations).  However, the Court interpreted the contract in a different way.  It held that the blank should be read as unlimited.  Effectively, there was no limit on the damages that the determining expert could award against UXC. The slip cost UXC $2.6 million.

The clear lesson is that all cross-references and schedules must be double-checked. A simple omission can lead to calamitous results.

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One Comment leave one →
  1. Michael Wright permalink
    15/03/2012 9:59 am

    Similar issues bedevil annexure entries dealing with liquidated damages for delays in completion, viz Silent vector Pty Ltd t/as Sizer Builders v Squarcini (among others) and the issue of “Nil” vs. “N/A”

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