Admissibility of pre-contractual communications in contractual interpretation and the requirements of personal bar.
In a Court of Session debate in Dragados (UK) Limited v DC Eifeket Aggregates ASlast month, Lord Braid considered whether pre-contractual communications between parties could be relied upon to effectively subvert the express terms of the contract. He also considered whether making multiple payments for construction materials which did not conform to the contractual specification could give rise to the defence of personal bar.
The case concerned a Supply Contract Agreement for the supply and delivery of armourstone for the Aberdeen Harbour Expansion Project. The contract specified a higher-grade Category A stone but during negotiations parties had only discussed the lower grade Category B stone. During the course of the contract, the defender supplied and invoiced for Category B stone, which the pursuer paid for. A dispute arose as to the pursuer's contractual entitlement to the superior stone.
The debate was concerned with the admissibility to proof of three elements of the defender's pleadings: the assertion that, properly construed, the contract was for the supply of Category B stone; that the pre-contractual negotiations had bearing on the meaning of the contract; and even where the contract had the meaning contended by the pursuer, the pursuer was personally barred from asserting it was due Category A stone. Notably, the contract contained express terms on the documents to which parties could refer in ascertaining the terms of the contract, that those documents comprised the entire agreement, and that neither party had relied upon any prior representation by the other.
Admissibility of pre and post-contract communications
On the admissibility of pre and post contractual communications, in his decision Lord Braid took into consideration the express terms of the contract but also confirmed that:
- The general rule is that there will be no regard to statements of parties made during negotiations to aid interpretation of the words used in the final contract, which alone expresses parties' consensus.
- In other words, such evidence is inadmissible if its purpose is to put a gloss on the contract.
- Evidence of subjective intention is not relevant to the objective meaning of the words of the contract.
- As a result, the defender's averments of what parties said pre and post contract are irrelevant and will be excluded from proof.
On personal bar, the defender contended that by paying the first thirteen invoices which specifically stated Category B stone had been supplied, the pursuer could reasonably be taken to have agreed to accept this grade. Additionally, the pursuer had taken no steps to correct the defender or to challenge any of the multiple documents submitted by the defender referring to Category B stone. The defender, it argued, had therefore reasonably relied on the position adopted by the pursuer and continued to deliver Category B stone. It was also argued that the pursuer "could not reasonably have supposed" that the defender was contracting for the supply of Category A stone and that it seemed "likely" that the pursuer hadn't known about the requirement for Category A stone.
Lord Braid accepted that it wasn't necessarily improper for a party to include in its case of personal bar reference to pre-contractual conversations or actions, but noted that "such a case would require to be properly pled".
His Lordship noted that as set out by Lord McFadyen in Ben Cleuch Estates Ltd v Scottish Enterprise, for a plea of personal bar to be successful, there must have been:
- A representation by A as to the existence of a certain state of fact;
- B must believe that representation and act in reliance on it to his prejudice; and
- The belief in the state of fact must be justified by the representation.
The defender's averments made no mention of any representation by the pursuer or a reliance on that representation by the defender. Nor did they mention that any representation gave rise to the belief that it was to supply Category B stone. It was not the pursuer's lack of objection to, or even payment of, the invoices that led the defender to believe the pursuer was condoning a breach of their contract to supply Grade A stone. The defender had already formed the belief about the supply of Category B stone and was complying with the contract as it saw it.
The contract also contained an express term that Category A was to be supplied; and it expressly stated that any failure of the pursuer to make enquires, issue instructions and the like, will not affect the defender's obligation to comply with the contract. In light of these facts, the defender's averments did not set out a relevant defence of personal bar and were excluded from proof.
This case serves as a useful reminder of what the court will look at when considering objective intention of the parties; and what must be pled to set out a relevant personal bar defence. The key lesson for contracting parties is to carefully check that the contract you sign does reflect the agreement you thought you were entering into.