27 May 2010

Best practices for drafting agreement: Supreme Court entails

Miffed by the inconsistent and agreement drafting by a Government department, the Supreme Court in a recently reported decision [M.K. Abraham & Co. v. State of Kerala, AIR 2010 SC 1265] has stated the principles of interpretation of contracts. The Court went on to hold that lengthy documents with various annexures forming part thereto led only to confusion and interpretation issues. Simplicity was the need of the hour and specially in the case of complex issues a single document evidencing the whole intent of the parties would better sub-serve the purposes. 

The Bench inter alia observed as under;

10. If a contract consists of a printed form with cyclostyled amendments, typed additions and deletions and handwritten corrections, an endeavour shall be made to give effect to all the provisions. However, in the event of apparent or irreconcilable inconsistency, the following rules of construction will normally apply :
(i) The cyclostyled amendments will prevail over the printed terms;
(ii) The type-written additions will prevail over the printed terms and cyclostyled amendments;
(iii) Hand written corrections will prevail over the printed terms, cyclostyled amendments and typed written additions. 
The above rules have evolved from the well known maxim of construction that “written, stamped or typed additions, when inconsistent with the printed terms, would normally prevail over the printed terms” and proceeds on the assumption that the printed form contained the original terms, and changes thereto were incorporated by the cyclostyled amendments, followed by changes by type-written additions and lastly the hand written additions. The logical explanation for such assumption is this: The printed form contains standardized terms to suit all contracts and situations. It is not drafted with reference to the special features of a specific contract. When such a standard form is used with reference to a specific contract, it becomes necessary to modify the standard/general terms by making additions/alterations/deletions, to provide for the special features of that contract. This is done either by way of an attachment of an annexure to the standard printed form, incorporating the changes, or by carrying out the required additions/alterations/deletions in the standard form itself. Such additions/alterations/deletions are done by typing/stamping/hand. We may refer to the following oft-quoted enunciation of the legal position by Lord Ellenborough in Robertson v. French [1803- 13] All ER Rep.350 with reference to printed form of contract with handwritten additions :
“....... that the words super added in writing are entitled, nevertheless, if there should be any reasonable doubt on the sense and meaning of the whole, to have a greater effect attributed to them than to the printed words, inasmuch as the written words are the immediate language and terms selected by the parties themselves for the expression of their meaning and the printed words are a general formula adapted equally to their case and that of all other contracting parties on similar occasions and subjects”. 
Another parallel principle that is equally relevant is that where the contract has several annexures/attachments, prepared at different points of time, unless a contrary intention is apparent, the latter in point of time would normally prevail over the earlier in point of time.
11. In this case, as noticed above, the contract consists of a type-written contract agreement between appellant and second respondent (which does not contain any terms and conditions, but which merely states that the contract is for execution of the described work as per the accompanying Articles of agreement, plan, specification and conditions of contract approved by the Project Director (S.E.), National Highway (ADB), Circle Adappally, Cochin) with several printed forms with cyclostyled additions as annexures and hand written corrections. The printed form of Articles of agreement has an attachment slip. The contract does not contain any hand written terms in regard to arbitration. The contract has printed clauses barring arbitration (clauses 24 and 24(a) of the Notice inviting Tenders for Works and a preamble clause and clause 3 in the articles of agreement). A cyclostyled slip signed by both parties containing the words “arbitration clause as per Ministry of Surface Transport’s letter No. RW/NH- 34041/3/94-DO-III dated 28.9.1994 will be applicable” is attached to the printed articles of agreement. By applying the well settled principles relating to construction of contract the following position will emerge: (i) the terms of the articles of agreement will prevail over the terms of Notice inviting Tenders for Works and (ii) the term contained in the cyclostyled attachment to the printed form of articles of agreement will prevail over the terms of the printed articles of agreement. Consequently, the contents of the attachment slip to the printed form of Articles of Agreement providing for arbitration will prevail over the bar on arbitration contained in the Notice inviting Tenders for Works and the articles of agreement. As a result, it has to be held that there is a provision for arbitration in regard to the disputes between the respective appellant and the respondents.
13. The use of multi-layered agreements, with several printed annexures, each with cyclostyled amendments, typed and hand written additions and deletions lead to confusion, uncertainty, delays in execution and apart from giving rise to avoidable disputes. Having a contract with different annexures dealing with the same issues with various attachments, in construction contracts (and some times insurance contracts) is a nightmare to anyone wanting to understand, implement or enforce them. Complicating contracts with several annexures and attachments with inconsistent, irrelevant, superseded or redundant provisions results in creating a lush dispute generating field. It helps greedy and unscrupulous contractors to make bloated imaginary claims. It enables Rule-Minded or corrupt officers to play havoc with honest and bonafide contractors. The best form of agreement is where all the relevant clauses/terms are incorporated in a single document with several sections dealing with different aspects/subjects, avoiding any overlapping. The difficulty arises if the same subject is dealt with in more than one section or in more than one document. Confusion and difficulties also arise using certain forms with conditions which were finalized and printed at an earlier point of time and using other sets of conditions which are finalized and printed at different subsequent points of time, without taking care to specify which of the earlier terms were deleted or modified. For example in this case, we have the 1959 terms that is Madras Detailed Standard Specifications forming part of the contract, and we have the general conditions of the Kerala Government which were modified from time to time in particular 1986 and we have the standard instructions of the Ministry of Surface Transport of 1994 which were applicable to National Highway Projects. The result is several years after completing of the work, parties are still trying to find out what the agreed terms and conditions are and whether there is a specified dispute resolution process by way of arbitration. On account of such confusion, several efficient and honest contractors stay away from participating in such tenders. The vagueness and confusion give unwarranted discretion and freedom to officers, leading to corruption and nepotism. Clear, simple and straight forward agreement is the need of the hour. Tens of thousands of engineering contracts are being entered all over the country everyday in regard to infrastructural works, without the necessary clarity, leading to avoidable disputes and considerable strain on the exchequer. With use of computers, with user friendly editing procedures with cut and paste facilities, it is fervently hoped that contract forms appropriate to the work would be prepared, to avoid redundancy, confusion, vagueness and inconsistency and to increase efficiency, expedition, reduction of disputes and saving of funds

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