Developments in contract: Uncertain clauses

​​A brief summary of the principles, recent developments and practical tips relating to clauses that may be void for uncertainty.

Principles

  • Contractual terms may be void if they are too uncertain to be enforceable.

  • The court’s role is to give legal effect to what the parties have agreed. It recognises that parties will not necessarily record their agreements with “lawyerly precision” and, therefore, is reluctant to find that a contract or term is unenforceable for want of certainty.

  • The court will only find that a contractual term is too uncertain to be enforceable if it is legally or practically impossible for it to be so.

Recent developments

  • In the case of Openwork Ltd v Forte the Court of Appeal considered the extent to which it could give effect to a contractual term in circumstances where the detailed provisions were incomplete.

  • The case concerned a provision in a franchise contract which provided for the clawback of commission in certain circumstances. The issue was whether the clause was sufficiently certain to be enforceable even though it did not specify exactly how the amount of the clawback was to be calculated.

  • The Court of Appeal reviewed the recent authorities and held that the very fact that the parties had included the term in the contract made it plain that they intended it to have some effect.  It was clear what the intent of the parties was in including the term and the clause contained sufficient information to enable the court to extract the meaning upon which the court could act. Accordingly, the judge had been correct to find that the parties’ intention was for the clawback to be calculated on a straight-line basis over the relevant period.

  • The case emphasises again the court’s reluctance to find that a contractual term is void for uncertainty.

What this means

  • Contract drafters should carefully consider whether each clause of the contract contains enough detail to operate as intended. In cases of uncertainty, parties may find the court interpreting provisions for them, which could have unintended consequences.

  • Parties should beware allowing uncertain terms to be incorporated into contracts on the basis that they will have no effect. In those circumstances parties may find themselves bound by terms they would not have wished to include.

  • In the context of a dispute, parties should consider carefully before running an argument that a term is void for uncertainty. Such arguments rarely succeed and, where they do not, the court will impose its interpretation on the parties.

This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.