Contracts: Battle of the Terms

Contracts are often hotly negotiated, involving numerous rounds of offer and counter offer. While there is undoubtedly a commercial advantage to both parties negotiating the best possible deal, if the parties are not careful, these rounds of offer and counter offer may lead to inconsistent terms within the same contract. Naturally, a dispute will then arise as to which of the terms should prevail.

Alexander v West Bromwich

This was a problem that the High Court was confronted with in the case of Alexander v West Bromwich Mortgage Company Ltd [2016] EWCA CIV 498. This case concerned a dispute over inconsistent terms within a mortgage contract.

The terms of the contract were formed by the lender’s standard conditions, but also incorporated terms from a mortgage offer letter. The offer letter contained a condition whereby if there was an inconsistency in terms, the offer letter would prevail. This was inconsistent with the lender’s standard terms and conditions, which stated that they were the definitive terms of the contract.

A dispute subsequently arose between the borrower and the lender over the right of the mortgage company to vary the interest rate. The lender argued that their standard terms and conditions allowed them to vary the interest rate within a certain band. However, the borrower relied upon the offer letter, which stated that the interest rate would be fixed. The borrower argued that these terms were inconsistent, and as per the wording of the offer letter, the terms of the offer letter should prevail.

The dispute was first heard in the High Court, where the lender prevailed. The High Court decided that the terms of the offer letter and standard terms and conditions were not inconsistent as they could be read as modifying or qualifying one or the other. The borrower appealed to the Court of Appeal.

Court of Appeal

On appeal, the Court of Appeal overturned the decision of the High Court. The Court of Appeal found that the conditions were in fact inconsistent as they could not be reasonably read together, and the practical effect of the standard terms and conditions would be to change the contract.

The Court of Appeal highlighted that the correct approach when faced with an inconsistency clause is to approach the inconsistency without any pre-conceived assumptions, so one should not strive to avoid or to find inconsistency. As these clauses were indeed inconsistent, the Court of Appeal found that the original conditions, as contained within the offer letter, prevailed.

This case is a useful reminder to all parties that it is incredibly important to review contractual documentation when concluding a contract. This is particularly so if the contract has been subject to a prolonged period of negotiation. If a party wants clarity that a particular term has been effectively incorporated into a contract, then as the Court of Appeal identified in its decision, it would be wise for the party to ensure that that particular term is included in a special conditions document, which is specified to have priority.

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Are you in dispute of the terms of a commercial agreement? If so, call our experienced Commercial Litigation solicitors in Leeds, WakefieldBradfordManchester and London on 0113 2449931.