Contract Drafting

Posted Wednesday 18th October 2017

Poor contract drafting to blame for dispute

The recent decision of the High Court in (Gee Dee Nominees Pty Ltd v Ecosse Property Holdings Pty Ltd [2016] VSCA 23 (4 March 2016)) highlights the risks involved in poordrafting of legal documents and using template documents that are not suitable for the required purpose.

The case concerned the construction of a lease whereby the subject land was leased for a term of 99 years. 
The lessor wished to sell and the lessee wished to purchase the leased land for a consideration of $70,000 but they were precluded from doing so because of town planning restrictions.

The contracting parties, therefore, sought to achieve a similar result to a sale, by amending a standard
form instrument oflease, with the rent for the entire 99 year term ($70,000) being paid upon entry into the lease.
The parties agreed to an amendment to clause 4 of the Lease, which contained certain words from the original template struck out, and replaced with:

“4. [The Lessee] will pay all rates taxes assessments and outgoings whatsoever which during the said term shall be payable by the tenant in respect of the said premises. ”

The majority of the Court noted that: “Clause 4 of the agreement is ambiguous…the clause can be read as imposing on the lessee an obligation to pay all rates etc; it can also be read as confining that obligation to those that are payable by the tenant.

To resolve the ambiguity, the Court turned to the commercial purpose that the parties sought to be achieved by entering into the lease.   

The Court held that the stated purpose of the transaction in clause 13 of the Lease was to, as far as possible, replicate a transfer of title, with the effect that that the lessee would assume the position of owner, including all of the owner’s liabilities (such as a liability to pay rates, taxes and outgoings).
As a result, the Court found in favour of the landlord.

In his judgement, Justice Gageler noted:

Clause 4 can only be so construed for what it is:  a clumsily tailored variation of an ill-fitting off-the-shelf precedent.  To bring linguistic and grammatical precision to its construction would be to burden the clause with more weight than its jumble of words will bear
Such comments are particularly relevant to the present legal environment, in which parties may easily download from the internet “off the shelf” template documents, but often have little knowledge about whether they are:

  • Fit for the purpose for which they are to be used;
  • If required to be amended, whether such amendments are consistent with the remainder of the document or cause unintended consequences that may not be apparent to one or more of the parties.

Parties exposing themselves in this way incur much greater risks of finding themselves fighting expensive and protracted legal battles or unintended consequences or liabilities (such as tax liabilities).  There is no substitute for practical commercial legal advice in relation to the preparation of contract documents.

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