Ambiguity in clauses contained in agreements not only create uncertainty as to the party’s obligations in terms of the agreement, but can lead to disputes between the parties whereby it is left to the courts to apply the principles of interpretation of contracts in order to construe the terms of such agreements.

In a summary judgement application by The England and Wales High Court (Technology and Construction Court) (“TCC”) in the decision of Multiplex Construction Europe Ltd v Dunne^[1] the court had to interpret the terms of a suretyship agreement to determine whether the contract was one of indemnity thereby imposing primary obligations upon the surety, or a guarantee under which the surety’s liability is secondary, arising only where another person is in breach.

Multiplex appointed Dunne Building and Civil Engineering Ltd (“DBCE”) a company owned by Gordon Alan Dunne (“Mr Dunne”) as subcontractors for various construction projects. DBCE suffered severe financial problems and Multiplex agreed to advance DBCE a substantial sum of money to sustain its liquidity and cash flow. Multiplex, Mr Dunne, DBCE and DGL (the parent company of DBCE) concluded an Advance Payment Deed (“APD”) agreement, where Mr Dunne and DGL signed as surety and were jointly described as the ‘Guarantor’.

When DBCE and DGL went into administration Multiplex brought a claim for summary judgement for the recovery of the Advance Payment in the amount of £4million from Mr Dunne personally given that he had signed as ‘Guarantor’/surety under the APD agreement.

Looking at the objective meaning of the language used in the agreement the court held that the defendant was liable as primary obligor under the terms of the agreement. The use of the word “immediately” in clause 3.1 of the agreement played a crucial role in its determination that the clause imposes a primary obligation as it would be impossible to pay the Advance Payment “immediately” if some kind of accounting process was required to be done with DBCE. The court noted further that neither the heading ‘Guarantee’ or the use of the verb ‘to guarantee’ could be used to determine the nature of the obligation. The court also noted in passing that the contra proferentum rule (i.e. that any doubtful or ambiguous words are to be interpreted against the person who is responsible for the wording, or for whose benefit the words have been inserted) has a limited role to play when interpreting agreements concluded by commercial parities of equal bargaining power.

Agreements must be drafted in clear and plain language to enable parties to understand their respective obligations in terms of the agreement.

Author:

LERATO THINI, Associate, LNP Attorneys

[1] [2017] EWHC 3073 (TCC).