Dennis Brand takes a look at what needs to be considered when constructing a contract?
When considering the construction or interpretation of a contract, consideration should always be given to the following aspects:
- the true meaning of words;
- the intention and meanings...not the form and literal meaning of the words;
- trust, goodwill and good faith;
- extrinsic evidence, custom and business practice;
- clause titles and headings.
In addition to these points, consideration should also be given to the terms or conditions that might be implied.
Many of us come from countries that have legal systems which are based on common law and statute. Although parties in these countries are generally free to enter into contracts on terms that they agree between themselves, they do so against the background of common law and statute. This may restrict the effect of certain contractual provisions or imply certain terms into a contract.
In the UK, examples of these are the Supply of Goods and Services Act 1982, which concerns the transfer of ownership in goods and the supply of services; and the Unfair Contract Terms Act 1977. The latter, in relation to clauses in the contract that attempt to exempt or limit legal liability or impose unreasonable provisions, may render those provisions or even the entire contract void.
With regards to construction contracts and subcontracts generally, probably the most important of the issues that arise during their performance concern the implied terms in relation to goods, materials and workmanship. In respect of goods and materials to be supplied under a contract, there is generally an implied condition or term that they must be reasonably fit for their intended purpose, whether or not that is a purpose for which they are commonly supplied.
If disputes on this point are to be minimised or avoided, it is important, that the contract states the purpose for which the goods or materials are required. If the contractor is to be held liable in respect of any such implied condition, it is also necessary that the employer shows they relied on this implied term.
With regards to workmanship, there is generally an implied term that the supplier of the service will carry it out with reasonable care and skill. The level of care and skill of course depends upon the type of service to be provided.
There are three main implied terms that concern the quality of work in relation to a construction contract. These are:
- that the goods or materials supplied under the contract are of merchantable quality;
- the goods or materials supplied are reasonably fit for the purpose for which they are being acquired subject to the requirement of the employer's reliance;
- that the supplier will carry out the service involved with reasonable skill and care.
When considering the position of implied terms in the UAE, as it is a civil law jurisdiction one must consider the subject of contract formation and preparation, which is governed by Federal Law No 5 of 1985 (The Civil Code).
Article 258 provides that the criterion in the construction of contracts concerns intentions and meanings rather than words and form. The primary rule is that words have their true meaning and may not be construed figuratively unless it is impossible to give their direct meaning. This could not be stated more clearly.
To reinforce the point, The Civil Code includes two other provisions of particular importance that are relevant to the interpretation of a contract:
- Article 259 provides that there shall be no scope for implications in the face of clear words;
- Article 260 provides that words should be given effect to rather than ignored; if it's impossible to give effect to the words, they shall be ignored.
Again, Articles 259 and 260 are clear statements. It has been said that the provisions of Articles 258, 259 and 260 are potentially confusing, however the courts appear to have no difficulty with them. As a result, when determining the meaning and effect of contracts the main consideration of the UAE courts is one of intentions and meanings not words and form.
The five-point test
Although in the UAE the decisions of foreign courts are purely of persuasive authority and generally only those decisions of foreign courts based within the region are noted, the English case of Davy Offshore v Emerald Field Contracting (1991) 55 BLR 1 should be noted. In that case the court defined in very clear terms what may be described as a basic five-point test for a term to be implied in a contract.
This test is particularly helpful when one sees all too frequently contracts where the 'less is more' rule has unfortunately been only too rigorously applied. The five-point test concerning an implied term is that:
- the term must be reasonable and equitable;
- it must be necessary to give business efficacy to the contract, so no term will be implied if the contract is effective without it;
- it must be so obvious that it "goes without saying";
- the term must be capable of clear expression;
- it must not contradict any express term of the contract.
Notwithstanding that, in the UAE foreign case law can best be described as a persuasive authority only. The five-point test from the Davy Offshore case complements The Civil Code provisions concerning contract interpretation.
Dennis Brand is senior legal advisor with Berrymans Lace Mawer. Email: email@example.com Tel: +971 4 359 9939