Contract Containing a Priority Clause

The High Court has considered the effect of a priority clause in the interpretation of two allegedly conflicting contract terms. (Alexander v West Bromwich Mortgage Co Ltd [2015] EWHC 135 (Comm))

The High Court has considered the principles applicable when interpreting allegedly conflicting terms in a contract. A mortgage contract which incorporated terms from two documents contained a priority clause stating that the terms in the offer letter would prevail over the conditions if there were inconsistencies. 

The defendant sought to vary the mortgage rate pursuant to the conditions, which according to the claimant, conflicted with the terms in the offer letter. Relying on the priority clause, the claimant argued that the terms in the offer letter prevailed over the conditions so that the defendant could not vary the rate pursuant to the conditions.

The judge held that the terms were not inconsistent as the clauses could be read as modifying or qualifying one another. Applying the Court of Appeal’s approach in RWE Npower Renewables Limited v JN Bentley Limited [2014] EWCA Civ 150, he stated that “where the contract provides that one contractual document is to take precedence over another, it was only in the case of a clear and irreconcilable discrepancy that it would be necessary to resort to the agreed order of precedence.”

Priority clauses are commonly included where a contract incorporates various documents; this case should be a reminder to commercial law practitioners to ensure that all the terms incorporated into a contract are consistent with one another, as in the event of a dispute, a court is likely to consider the contract documents as a whole, and if it can, will construe them effectively on that basis, even if there is a priority clause.

Written by James Naylor

Partner, CG Naylor LLP.