The purpose of a written contract is to formally set out the parties’ relationship, including any specific terms and conditions that are agreed. The terms of such an agreement are legally binding and so it is important that the language used is clear and unambiguous to avoid any uncertainty and the risk of future disputes. Whilst this may seem an obvious objective, the case of Integral Petroleum SA v Bank GPB International SA  EWHC 659 (Comm) highlights the problems that can occur from the inaccurate use of language.
The High Court heard an application for summary judgement for a counterclaim brought by the first defendant, Bank GPB International SA (the “bank”) against the claimant, Integral Petroleum SA (“Integral”). The bank’s claim was for the principal loan amount, plus any interest due pursuant to a Facility Agreement entered into by both parties. The bank claimed that each of Integral’s loans under the Facility Agreement had reached maturity date, and were therefore due for repayment.
Integral opposed the application, saying that these sums were not in fact due, as the bank had orally agreed to extend the maturity dates on the loans.
The bank’s response was that even if they had agreed to extend the maturity dates orally, Integral could not rely on this alone, as oral agreements to vary the Facility Agreement were not legally binding. The bank relied on the following clause within the Agreement:
“Any term of the Finance Documents may be amended or waived with the agreement of the Borrower or Lender in writing”.
The question for the Court was whether this clause should be interpreted as meaning either:
- A variation was not valid unless agreed in writing; or
- An oral variation was valid if evidenced in writing.
Given that the bank had applied for summary judgement, the High Court had to consider whether the evidence presented to them proved that Integral had no real prospect of success in defending the claim and that there was no other compelling reason for a trial to take place. .
In determining the meaning of an ambiguous clause within a contract, the Court is likely to consider the following matters:
- The natural and ordinary meaning of the language used;
- The factual context;
- The purpose of the clause and the whole contract; and
- Commercial common sense.
Having considered these matters, the Court held that in order to determine how the relevant clause should be interpreted, oral evidence and cross-examination would be required at trial. The bank’s application for summary judgement therefore failed.
This case is a stark reminder that even slightly “ambiguous language” can defeat the purpose of a contract for at least one of the parties and result in unnecessary, uncertain and costly litigation. Any written contract should be carefully reviewed, and the unclear or ambiguous use of language avoided. Avoiding the costs of a proper review of a contract may simply result in substantially more costs being incurred in litigating about contractual interpretation.
If you would like to discuss any of the matters above in more detail, please contact a member of the Litigation and Dispute Resolution Team.
The content of this article is for general information only. It is not, and should not be taken as, legal advice. If you require any further information in relation to this article please contact the author in the first instance. Law covered as at May 2022.