16 September 2014

Two recent cases have provided a reminder of the importance of the choice of language used when drafting. In particular, the courts have looked again at the distinction between wording which is classed as 'mandatory' or 'directory'.

In the case of Friends Life Ltd v Siemens Hearing Instruments Ltd [2014] EWCA Civ 382 the tenant under a lease sought to terminate the arrangements by notice. The lease agreement between the parties stated that any such notice 'must be expressed to be given under section 24(2) of the Landlord and Tenant Act 1954'. Unfortunately the notice served did not state that it was given under this section. The Court of Appeal confirmed that the use of 'must' made the requirements set out in the lease agreement mandatory and held that the notice was invalid because it did not comply.

When seeking not to make provisions mandatory, the word 'may' is often used in place of the words 'shall' or 'must'. Such cases are classed as 'directory' as the wording is suggesting an action but leaves the party with the option to do something different.

However, you should not assume that all uses of 'may' fall into this category as the recent case of Greenclose Ltd v National Westminster Bank Plc [2014] EWHC 1156 (Ch) showed. This case concerned the interpretation of the ISDA Master Agreement 1992, a master service agreement used to govern off-exchange derivatives transactions. This stated, at s.12(a), that notice 'may be given in any manner set forth' and listed a series of means for giving notice. The party seeking to give notice did not follow one of these options and later argued the use of 'may' meant that these were only suggested methods for giving notice.

The Court disagreed and held that when 'may' is used in this way the only choice available is between the methods listed. This use of the word 'may' is mandatory in that the parties to the ISDA Master Agreement must choose from the limited list of permitted means of giving notice. Failure to do so would make their notice invalid.

Care should be taken when drafting agreements to use language that does not bind parties to a particular course where this is not intended. Equally, in interpreting existing arrangements, these cases serve to illustrate the importance of not only the words used but the form and context in which they are used.

Key contact

Brioney Thomas

Brioney Thomas Partner

  • Head of Transport
  • Asset Finance and Asset Backed Lending
  • Commercial

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