A Court of Session decision in the case of Patersons of Greenoakhill Limited v Biffa Waste Services Limited highlights the significance of getting contract clauses right first time. This case demonstrates that cost implications to businesses can potentially be significant when mistakes in drawing up clauses in commercial contracts are made.

Patersons operated a landfill site and also had a controlling shareholding in a waste collection business. Biffa sought to purchase the waste collection business.

Patersons proceeded with this transaction on the basis that Biffa would deliver an agreed annual minimum of waste to the Patersons' landfill site. The terms of this agreement were principally laid out in two contracts. Biffa were unable to meet their minimum waste targets and were therefore in breach of the Tipping Agreement. The ensuing Court of Session action centred on the interpretation of one clause within the Agreement.

Patersons argued that the terms of the disputed clause meant that Biffa should compensate Patersons for the shortfall in the annual target not only in the year Biffa failed to meet it, but also for every subsequent year until the agreement terminated.

Conversely, Biffa argued that they only had to make up the shortfall in the year they did not meet the target.

Whilst Lord Hodge agreed that the terms of the clause did clearly and unambiguously state Biffa were to make up the shortfall for every subsequent year until termination, he ultimately found against Patersons.

Lord Hodge was not convinced both parties had intended Biffa to compensate Patersons in this way, but that instead a mistake had occurred in the drafting of the clause. This decision:

• confirms the court's ability to look beyond contractual terms, and consider all relevant circumstances when interpreting a clause
• emphasises the importance of accurate drafting of contract clauses, and that simply because a clause is clear and unambiguous it will not always apply

When drafting contracts it is important for parties:

• to agree heads of terms
• use definitions where appropriate
• to ensure that the terms of the contract are proof read prior to signing

For more information on commercial contracts or Court of Session actions please contact our court of session team.