Recitals to a contract: what is the purpose of a purpose clause?
01 March 2017
In Toomey Motors v Chevrolet, the Commercial Court considered the legal effect of recitals to a contract. In this case the parties had described, by way of recital and in some detail, what they saw as the purpose of the agreement. This wording was referred to as the "purpose clause".
As a general rule, recitals may be considered as an aid to contractual interpretation, and can even contain operative provisions (see Aspdin v Austin (1844) 1 QB 671). But recitals will not modify or override clear provisions in the operative part of a contract (see Mackenzie v Duke of Devonshire (1896) AC 400).
In Toomey, the claimant unsuccessfully alleged that the purpose clause contained express operative terms. The court affirmed Aspdin and agreed, with caution, that it was possible for a recital to contain operative provisions, particularly where there was an obvious gap in the main body of the contract. However, here, the wording about the purpose of the agreement was merely an introduction to the detailed terms that followed. Following Mackenzie, the recital could not override the clear words found later in the contract. This was not a case where the recitals could be used to resolve ambiguity in the express terms. Moreover, a very general statement of the purpose of an agreement could not found specific express terms.
In rejecting an alternative argument relating to whether terms might be implied into the contract, the court did, however, hold, that the stated purpose of the agreement recorded in the recitals was relevant when considering the contract’s objective commercial coherence.
Toomey reminds us that innocent-looking recitals may assume unexpected prominence in a contractual dispute. It is also worth noting two obiter comments made by the court: firstly that it might be possible for recitals to provide the basis of an overarching duty to act in good faith; and secondly that a purpose clause that recites previous dealings might potentially increase the relevance of the parties’ previous course of dealing when interpreting the contract. These comments show that recitals have a role to play both when drafting and when litigating a contract.