Genuine ambiguity only: when are post-contract actings relevant to interpretation?

Summary

The Court of Session has reaffirmed the well-established principle that a court will not, generally, look to post-contract actings as an aid to construction of a contract. In Scottish Ministers v Scot Roads Partnership Project and others [2022] CSOH 19, Lord Clark held that the ‘ambiguity’ required to make post-contract actings potentially relevant was not to be equated with there being ‘difficulty’ in construction. What was required was a word or phrase which could in fact be understood in more than one way. That the parties disagreed as to the interpretation of a contractual term was not the same as there being a “genuine ambiguity” in the meaning of that term.

Background

The decision arises out of a dispute concerning the M8, M73, and M74 motorway improvement project (“MIP”). The MIP works were originally contracted for by way of a design, build, finance, and operate (“DBFO”) agreement, and a sub-contract known as the New Works Agreement.

Following slower progress of the MIP works than required by the construction programme, the employer (the Scottish Ministers), the contractor (Scot Roads, the first defender), and the sub-contractor (a joint venture of the second and third defenders) then entered into an Agreement for General Settlement (“AGS”).

Claims were subsequently made by Scot Roads under the DBFO, and a dispute arose as to the effect of a particular term of the AGS. Clause sixth provided:

“In consideration of this Agreement and sums due thereunder being paid to [Scot Roads] and [the sub-contractor], the [sub-contractor] and [Scot Roads] waive the right to all claims of any nature whatsoever (other than those which may flow from a Scottish Ministers Change or a Qualifying Change in Law) which the [sub-contractor] and/or [Scot Roads] may have at the date of this Agreement or in the future against or in respect of the Scottish Ministers and/or the Company relating to the New Works.”

The Scottish Ministers contended that the effect of clause sixth was to waive (with limited exceptions) all pecuniary claims under the DBFO. Scot Roads, meanwhile, argued that only claims arising out of circumstances pre-dating the AGS were waived, and so its claims (arising out of circumstances post-dating the AGS) were unaffected.

Issue

The parties’ principal dispute concerns the proper construction of clause sixth (or whether it should, in the alternative, be rectified). The case requires to go to a proof before answer for that matter to be resolved. However, Lord Clark allowed a debate on two discrete issues. One of those issues was whether the conduct of the parties after the AGS was entered into was relevant for the purposes of construing the terms of the AGS.

Scot Roads made certain averments in its pleadings, including averments that the AGS was seen by the parties as a temporary remedy to allow the DBFO to survive and continue to operate and averments in relation to the parties’ relationship after the AGS was entered into. It argued that such averments were relevant because, while the general rule was that post-contract actings were irrelevant, there was an exception to this rule where there was an ambiguity in the contract. All parties agreed that the wording of clause sixth did not mean what it said (albeit they disagreed on what it was meant to say). This, Scot Roads argued, meant that there was obvious and accepted ambiguity. Evidence of what happened after conclusion of the AGS was therefore relevant. It could be used both as a guide as to what the parties mutually thought the agreement was intended to achieve, but also as “the best evidence of, and the best illustration of, the inequity that may result from [the Scottish Ministers’] construction”. That a particular construction was unconscionable and inequitable therefore made it an unlikely construction.

The Scottish Ministers submitted that as a matter of law, post-contract actings are not relevant to the interpretation of a contract term. As well as referring to numerous authorities, they noted that this proposition had been urged on the court in this litigation at an earlier stage by Scot Roads (see [2019] CSOH 113).

Decision

Lord Clark began by noting that it was well established under Scots law that the general rule was that post-contract actings were not relevant to construction. While Scot Roads was correct that some case law may support the argument that post-contract actings could be referred to in instances of ambiguity, this was of limited application. An ambiguity in this context was not to be equated with a ‘difficulty’ of construction. Rather, there needed to be a word or phrase that could actually be understood in more than one way. Lord Clark noted that such “genuine ambiguities” are rare and that “[w]hat tends to occur in a contractual dispute about meaning is not precisely what the word or phrase means, but how it is to be understood in the particular context”.

In this case it had been argued that the words “in the future” in clause sixth was a highly ambiguous phrase. Lord Clark disagreed. In his view there were no words or phrases in the clause that could, applying the concept of ambiguity in its proper sense, have more than one meaning. In the circumstances, the post-contract actings of the Scottish Ministers were not relevant.

Lord Clark also made it clear that where commercial common sense was invoked as an interpretation tool (as Scot Roads had sought to do in their submissions), it was commercial common sense at the time the contract was entered into that fell to be considered (albeit this would include foreseeable consequences). There was no authority for the proposition that post-contract actings could be taken to illustrate what the parties had in mind as regards commercial common sense.

Comment

This latest in a long line of decisions from the Court of Session demonstrates the court’s restrictive approach to the exercise of contractual interpretation. Only where a word or phrase in a contract genuinely attracts more than one meaning will there be an ‘ambiguity’ that allows a party to adduce evidence of post-contract actings as an aid to interpretation. The mere fact that parties disagree as to meaning, however, is not the same as the word or phrase objectively having more than one meaning. That parties will have limited recourse down the line to prove that the contract means what they say it does, makes it all the more important that contractual terms are drafted clearly at the time. This is especially the case where, as here, the contract in question is a settlement agreement waiving some (or on the Scottish Ministers’ case, all) of a party’s claims.