Contracts are complex beasts. Do priority clauses help you find your way through the jungle?

15th May 2015

Clauses stating which provisions trump others in the event of inconsistencies can be helpful, but the courts have indicated they will only turn to them when an inconsistency is clear and irreconcilable.

Contracts can be complicated beasts. As business lawyers, residential mortgages rarely cross our desks, but the principle applied in the High Court case of Alexander v West Bromwich Mortgage Co (2015) applies to the commercial contracts we work on regularly.

It is this: where contractual documentation contains a clause giving one provision precedence over another in the case of an inconsistency, the court will consider the overall construction and intention of the contract in interpreting which provision should prevail. It will be unwilling to adhere slavishly to the priority clause and will only resort to it in the case of a clear and irreconcilable discrepancy between two provisions.

Why would there be an inconsistency between provisions in the same contract? This is often the case where a standard set of terms and conditions, or a standard form contract are incorporated by a bespoke agreement. Take the buy-to-let mortgage in Mr Alexander’s case. The contractual documentation here incorporated both the lender’s offer letter to Mr Alexander, and its standard terms and conditions. It stated that in the event of a discrepancy between the two, the offer letter would prevail.

Mr Alexander seized upon this priority clause and tried to argue that the provisions in the standard terms allowing the lender to vary his interest rate did not apply. He tried to hold his lender to the payments set out in the offer letter.

The court found against Mr Alexander, noting that the relevant terms of the offer letter and the standard terms could be read as modifying or qualifying one another. There was not a clear and irreconcilable discrepancy and so the priority clause did not help Mr Alexander here.

The earlier Court of Appeal ruling in RWE Npower Renewable v J N Bentley (2014), which the judge in Alexander applied, also involved a contract which incorporated a separate standard document (in this case a commonly used engineering/construction contract known as NEC3). A priority clause was appropriate here too, but the case highlighted how the court will not be quick to turn to it. Rather, the contract as a whole was considered. Priority clauses were found only to apply in the case of clear and irreconcilable discrepancies between clauses.

If you would like to discuss any of the issues raised in this article, please contact Rebecca Anforth, head of our commercial law team, or Harry Perrin, author of the article.

The information provided in this article is for general information purposes only and does not constitute legal or other professional advice and cannot be relied upon as such. Any law quoted in this article is correct as at 15 May 2015. Appropriate legal advice should be sought for specific circumstances before any action is taken. Copyright © Murrell Associates Limited, May 2015.