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Clarity when drafting is key - a lesson from the High Court

View profile for Danielle Dyer
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It is a business person’s nightmare when the contract they thought was sound and wind proof turns out to be open for interpretation. The High Court gives a stark reminder for the need for clarity when drafting.

The recent case of Macquarie Capital (Europe) Limited v Nordsee Offshore MEG I GMBH [2019] EWHC (Comm) demonstrates how the Court approaches disputes involving the interpretation of words and terms expressed in an agreed contract. Macquarie Capital (Europe) Limited (‘Macquarie’) had been engaged by Nordsee Offshore (‘Nordsee’) for the supply of financial advisory services including raising equity and debt finance in relation to Nordsee’s windfarm development. Upon conclusion of the finance raising process Macquarie sought payment of their fees from Nordsee to the tune of €16 million.  

The dispute boiled down to the construction and interpretation of two defined terms; namely the ‘Project’ and the ‘Transaction’. Both of which were criticised by the Court for lacking clarity. The issue before the Court was whether the windfarm development and associated finance which had concluded fell within the definition of ‘the transaction’ as defined in the agreement.

Nordsee’s position was that the definitions of project and transaction should be interpreted narrowly due to the substantial changes both to wind farm and the finance structure, such that it no longer fell within the definition of project and outside the scope of the transaction. Whereas Macquarie argued that at the time that the agreement was entered in to, the intended project was not set in stone and the changes did not take it beyond the contemplation of the parties upon entering in to the agreement; therefore the development and associated finance as completed fell within the scope of the transaction and fees were payable.

How did the Court make its decision?

The Court based its decision on the well-established principles of contractual interpretation, in summary:

  • The Court must ascertain the “objective meaning” of the language used in the agreement.
  • The Court must consider the contract as a whole, as well as the wider context.
  • If there are two possible interpretations, the Court should implement the interpretation consistent with business common sense.

On this basis, the Court favoured a commercial common-sense interpretation and ordered that Nordsee was liable for Macquaries’ fees amounting to €16 million plus interest.

The lessons to be learned

  1. Parties should give particular consideration to options for terminating contracts when they are no longer needed, it is possible that if Nordsee terminated the agreement earlier it may have avoided the payment to Macquarie.
  2. Parties should strive for clarity when drafting contracts to avoid disputes, hefty litigation and having the Court make a decision on its interpretation.

If you would like more information in relation to this article, please get in touch with Danielle Dyer, a solicitor in BakerLaw’s Dispute Resolution team.

This article is not a definitive statement of the law. It is designed as a free update on the law at the time of publishing. It is not a substitute for legal advice on specific facts and circumstances. BakerLaw LLP and/or the writer accepts no liability or responsibility for reliance on this article and recommends that you seek independent legal advice on your specific circumstances prior to taking any steps.

 

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