- Compact Contract
The suspense is killing us - will the recitals show they’re out of time?
05 July 2017
In Russell v Stone the court considered the interpretation of standstill agreements and found that they operated to suspend, rather than extend, time for the purposes of limitation.
The Russells engaged Stone to manage a construction project. The project was beset by difficulties, for which the Russells blamed Stone. The parties entered into three standstill agreements, the third of which expired on 30 November 2016. On 1 December 2016, the Russells issued proceedings. Stone sought to strike out certain claims on the grounds that they were time-barred.
The court had to determine whether the standstill agreements operated to suspend or extend time. On the Russells’ case, if they had a period of, say, one month left of the limitation period when they entered into the standstill agreements, they still had a period of one month when the standstill agreement expired. On Stone’s case, the time for commencing proceedings finished when the third standstill agreement came to an end, on 30 November 2016 (i.e. the claim form was one day late).
The court considered the proper approach to the construction of recitals and their interaction with operative terms against the background of recent developments in the law on contractual interpretation (Wood v Capita). In principle, if the recitals and the operative provisions of an agreement are clear but they are inconsistent with each other, operative provisions must be preferred (Re Moon (1886)). However, the courts are now placing greater emphasis on factual background and the recitals are increasingly being considered to assist with contractual interpretation.
The court held that:
- Each standstill agreement prevented the parties from issuing proceedings during the currency of that agreement so the Russells could not legitimately commence proceedings before 30 November 2016.
- The operative provisions repeatedly referred to suspension of time: the only mention of extension was in the recitals. There was no inconsistency between the description in the recitals of the desire to have longer to issue the proceedings (i.e. to extend the time for doing so) and the mechanism of achieving that aim (i.e. to suspend time). If there had been an inconsistency, the operative provisions would take precedence over the recitals.
- The fact that the solicitors had based the third standstill agreement on a template which was premised on the principle of suspending time supported the Russells’ position (despite significant departures from the original).
- When the Russells entered into the third standstill agreement, they still had over three weeks to issue proceedings. If Stone’s position was correct and the Russells were out of time on expiry of the third standstill agreement, by entering into the agreement the Russells were running the risk of losing their right to bring the claims. The purpose of the standstill agreement was to preserve rights not to risk their loss.
Accordingly, the standstill agreements operated to suspend time for the purposes of limitation and the Russells had issued their claims in time.