UK: A Drafting Reminder: Remember The Recitals

"It is a true rule of construction that the sense and meaning of the parties in any particular part of an instrument may be collected ex antecedentibus et consequentibus: every part of it may be brought into action in order to collect from the whole one uniform and consistent sense, if that may be done."1

It is often the case that where commercial contracts include a recitals section preceding the operative provisions, the recitals will be among those sections of the contract that have been afforded the least consideration by the contracting parties during the drafting stages. There is a widely-held perception that the recitals are legally inconsequential, since their role is fundamentally 'scene-setting' in nature and they do not automatically form part of the operative, legally binding agreement between the contracting parties. However, when a dispute arises over contractual interpretation and a court or arbitrator is tasked with deciphering an ambiguous provision, the recitals may be brought into play as an aid to interpretation. They are, after all, clearly a part of the written contract in some way or other.

This article seeks to restate the importance of the humble recital, and to serve as a reminder that the recitals could be legally binding upon the contracting parties in certain circumstances, and that they could also play an important role in enabling a third party (crucially, a court of law or an arbitrator) to refer to relevant background information in order to discover the true intention of the contracting parties.

What constitutes a binding contract?

The four essential components of a binding contract under English law are offer, acceptance, consideration and intent to create legal relations. Provided each of these elements is satisfied, a binding contract will exist regardless of the form (written or oral) through which the contract comes into being. Despite such flexibility being afforded to the draftsmen, commercial contracts tend to follow a typical structure, comprising the following components (although not necessarily in the following order):

  • the preamble (often including the effective date and identifying the parties);
  • the recitals;
  • the definitions;
  • the interpretation clauses;
  • the operative provisions (also commonly referred to as the 'body', containing the key terms governing the rights and obligations of the parties);
  • the boilerplate (including force majeure, confidentiality, an entire agreement clause, severability provisions etc.); and
  • any schedules (adding detail to specific operative provisions).

This leads to the question of precisely which parts of the contract form the legally binding agreement, by reference to the express provisions as agreed between the contracting parties. If the answer to this question is not the contract in its entirety, then it should be clear where the legally binding rights and obligations begin and end.

What are the recitals?

Recitals are not compulsory, but are frequently included in commercial contracts to set out the background to the contract. There is no prescribed format for drafting the recitals, but they typically contain concise statements of fact, describing key circumstances and details relevant to the establishment of the contract. Expressions of intent and references to any related contracts may also be included. In some contracts, the advent of the recitals is helpfully indicated by introductory text which states "RECITALS". Contractual obligations should not be included in the recitals, but are more appropriately placed in the legally binding operative provisions. The same principle applies to key definitions.

The recitals can play a valuable role in helping third parties entering into, or reviewing, the contract later in time to understand the intention of the original contracting parties. The reality is that the commercial intent behind a written contract is not always readily apparent from the substantive provisions. Parties to a contract may be surprised to find that their carefully drafted provisions, which may have appeared unequivocal at the time of drafting, are in fact ill-equipped to address unforeseen issues which arise once the contract has taken effect. This is because the contract is likely to have been subject to protracted negotiations (as is often the case with complex commercial contracts), with the final wording representing a compromise reached between opposing commercial standpoints.

In contrast, the recitals section is fundamentally explanatory in nature and is, therefore, likely to be one of the few (comparatively) neutral sections of the contract, containing the clearest and most frank statements made by the parties in the course of their negotiations.

So where do the recitals end and the operative provisions begin?

The answer to this question is one of form rather than substance. It is common to find that the beginning of the substantive obligations is clearly signposted, for example with the following language:

"Now, THEREFORE, and in consideration of the mutual promises, terms and conditions stated herein, the parties do now AGREE as follows:".

However, such verbiage is not necessary and it is equally effective to say:

"The parties agree as follows" or "Now it is hereby agreed".

It is from this point that the heart of the contract, containing the legally binding rights and obligations between the parties, is set out. Whether there is clear language to this effect or not, it is important to look to the interpretation clauses which are usually found immediately following the definitions clause, which should stipulate which parts of the contract form part of, or are excluded from, the legally binding agreement. Schedules to the contract (which commonly contain further key terms of the contract) will often be expressly stated to be treated as part of the contract, and will therefore be given legal effect.

Where contracting parties include an interpretation clause in their contract but do not include specific reference to the recitals in such clause, it could be inferred from such omission that the parties have chosen to exclude the recitals from forming part of the legally binding sections of the contract. Where the parties do not include an interpretation clause at all, it might be assumed that the recitals are not intended to be legally binding. In either circumstance, the recitals might not be treated as having legal effect. However, this will not affect their admissibility in a dispute if the operative provisions are ambiguous.

Key definitions which are used throughout the operative part of the contract are more appropriately placed in the definitions section of the contract rather than in the recitals, given that the recitals might not have legal effect. This is not necessarily the approach adopted in practice, as is the case with the Association of International Petroleum Negotiator's (AIPN) 2012 model form joint operating agreement (AIPN JOA). In the AIPN JOA, the term "Contract" is defined in the recitals by reference to the underlying production sharing contract, government concession, license, lease or other instrument in respect of that particular JOA. "Contract" is then defined in the definitions section as "the instrument identified in the recitals to this Agreement including any extensions, renewals, and/or amendments".

To ensure key definitions are brought within the legally binding contract, a better approach could be to include the wording "as hereinafter defined" immediately preceded by the defined term in the recitals, thereby implicitly directing the reader to the definitions section in the operative part of the contract. In practice, however, it is unlikely that a court will disregard all references to defined terms in the recitals in construing the agreement.

What about the rules relating to pre-contractual negotiations?

Pre-contractual negotiations (evidence of which may be included in the recitals) are usually inadmissible as a tool of construction in contractual disputes. Under English law, there is a (rebuttable) presumption that a written contract is deemed to contain the entire agreement between the parties (the "exclusionary rule")2. However, pre-contractual negotiations may be admissible for the purposes of establishing facts relevant to the background of the contract3, such as the commercial purpose of the transaction. Information included in the recitals that could assist a court or an arbitrator to establish context could therefore be relied upon in a dispute.

The parties should be mindful of the application of an entire agreement clause. Such a clause is commonly found in commercial contracts and prevents any preceding statements or representations that are not expressly incorporated into the contract from having legal effect. To ensure that any relevant background information or representations contained in the recitals do not fall foul of an entire agreement clause, the recitals will need to be expressly incorporated into the agreement. An alternative approach could be to state that an entire agreement clause applies "unless the context otherwise requires". However, such qualifier is vague, and may not be desirable given that it may promote uncertainty. 

When are the recitals likely to be admissible?

Crucially, the recitals are subordinate to the operative provisions of a contract if there is no doubt as to the meaning of the express words of a contract. In this circumstance, the parties are governed entirely by the operative part of the contract and the recitals cannot be resorted to4. However, where there is ambiguity in the contract, a court may look to the recitals for evidence of the true intention of the parties, as well as for guidance as to how a disputed provision should be construed5.

For this reason, the importance of careful drafting of the recitals should not be dismissed. A well-drafted recital could influence a court or an arbitrator to favour one party's argument over that of the other. For example, consideration of whether a term should or should not be implied into a contract may be influenced by evidence in the recitals as to the intentions of the parties. In addition, if a court views a recital as manifesting a clear intention to act in a prescribed way, it may infer a covenant to so act6. The recitals should accurately reflect the factual matrix as they have been known to represent "agreed statements". Therefore, even if a statement in the recitals contains the acknowledgement of an established fact which both parties know at the time to be untrue7, such statement could nevertheless be binding on the parties in the event that the recitals are relied upon.

How can you ensure the recitals will be taken into consideration?

The recitals may so meritoriously set out the fundamental objectives of the contract that the contracting parties may seek to ensure that they will be taken into consideration under all circumstances, even where it may appear that the operative provisions are unequivocal. If this is the case, the parties should incorporate the recitals into the contract by including an express provision in the operative provisions (usually in the interpretation clauses) that the recitals are to form part of the contract. They will therefore be regarded as having legal effect8. A word of caution, should this approach be taken: the contracting parties should ensure that the recitals are consistent with the operative provisions of the contract to avoid issues concerning inconsistent interpretation, particularly if there are any obligations within the operative provisions that have been referenced or summarised in the recitals.

The AIPN's 2006 model form gas sales agreement states that its interpretation clause applies to "this Agreement, including the recitals and Attachments, except where expressly provided to the contrary: . . . in the event of a conflict, the provisions of the main body of this Agreement shall prevail over the provisions of the Attachments". The fact that there is no mention of the recitals in the second half of this provision suggests that it is assumed that the recitals will not take precedence over the operative provisions (except, as discussed earlier, where there is ambiguity) and that there is therefore little need to make an express statement to this effect.

Is it possible to exclude the effectiveness of the recitals completely?

As stated earlier, in the absence of any provision to the contrary, the recitals will not have legal effect where the contract is clear, but where there is ambiguity in the contract a court or an arbitrator may look to them to aid its interpretation as to the parties' intentions. The best way for contracting parties to ensure that the recitals will not need to be relied upon in a dispute is to use clear and unequivocal language in the operative provisions, and to ensure that the rights and obligations set out are capable of a single interpretation (and that such interpretation is the one intended). The parties can choose to expressly exclude the recitals from being legally binding and effective upon them, but this does not guarantee that they will be disregarded completely in certain disputes.

Conclusion

Whether the recitals may or may not have legal effect will depend on the construction of the particular contract, taken as a whole. The most significant effect attaching to the recitals is the potential for a court or an arbitrator to look to their content where a dispute arises over contractual interpretation as a result of ambiguity in the main body of the contract. Given their capacity to influence a court, contracting parties should think carefully about their reasons for including specific information in the recitals, the desired purpose to be served by each statement or representation and ultimately, whether these will have legally beneficial effects for either or both of the parties. Where included, the recitals should be viewed as legal provisions as opposed to merely introductory prose, and therefore drafted with the same level of thought and precision as the operative provisions of the contract.

Footnotes

1. Lord Ellenborough, C.J. in Barton v Fitzgerald (1812) 15 East 530

2. Prenn v Simmonds [1971] 1 W.L.R. 1381

3. In Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 A.C. 1101, the pre-contractual negotiations were found to constitute part of the background knowledge required to interpret a contractual term, and such evidence was therefore admissible.

4. Brett L.J in Leggott v Barrett (1880) 15 Ch. D. 306

5. Rust Consulting Ltd (In Liquidation) v PB Ltd (formerly Kennedy & Donkin Ltd) [2012] 1 All E.R. (Comm) 455. The court referred to the specific wording of the factual matrix set out in the recital, namely that under the terms of a separate agreement the defendant would "assume all of [Rust's] liabilities and obligations", as confirmation of the parties intentions.

6. Aspdin v Austin (1844) 1 QB 671

7. Prime Sight Ltd v Lavarello (Gibraltar) [2014] 2 W.L.R. 84

8. The parties can take comfort from the fact that where it is the recitals themselves that have introduced uncertainty into the agreement, the operative sections will prevail.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.