Commercial contracts often contain a number of different parts such as a formal instrument of agreement, schedules returned by the contractor, general terms and conditions, technical specifications, key performance indicators, drawings, policies and annexures, etc. Often, clauses in one part of the contract refer to clauses in another part (cross-referencing). During the drafting process, clauses may be inserted into or deleted from parts of the contract. This may change the clause numbering and cause cross-references to refer to different clauses than were intended. Alternatively, a drafter might intend to fill in a blank item in a schedule before the contract is finalised but then fail to get around to it in the rush to negotiate and finalise the contract. As a result, the meaning of the clause referring to that blank item might be difficult to determine.

For all of these reasons, it is essential that all cross-references are checked before the contract is entered into. Despite this being a simple and inexpensive task, contracts are frequently encountered with cross-references that have not been checked and are incorrect. Such contracts are confusing and may lead to costly and time-consuming disputes.

The case of The State of NSW v UXC Limited [2011] NSWSC 530 provides an example of the risk where cross-references in a contract are not checked. In that case, the NSW Registry of Births, Deaths and Marriages (Registry) and UXC Limited (UXC) entered into a contract (Contract) for UXC to replace the Registry's core computing system. The Contract provided that if a dispute arose, it was to be referred to an expert for determination.

A dispute arose between the Registry and UXC. The Registry asserted that UXC breached the Contract, that the Registry had the right to terminate the Contract, and that it was entitled to a significant sum of damages. UXC asserted that the Registry did not have the right to terminate the Contract. The dispute was referred to an expert for determination. The expert determined that UXC had breached the Contract, the Registry had a right to terminate the Contract, and that the appropriate sum of damages was approximately $2.6 million.

When the Registry brought proceedings in the Supreme Court of New South Wales seeking to recover the damages awarded by the expert, UXC asserted that the award was not binding. The Contract provided that any expert determination would be final and binding unless the amount awarded exceeded "the amount specified in (the) Agreement Details" (Specified Amount). The Agreement Details did not specify any amount, which was undoubtedly an oversight by the drafters of the Contract.

UXC asserted that the Specified Amount should be taken to be either zero (because no amount was specified) or $250,000 (which was referred to during the tender process as an appropriate amount but which did not ultimately appear in the schedule). If UXC had been successful in either assertion, it would have been able to avoid having to pay the $2.6 million in damages, because the award would have been non-binding.

Justice Ball found against UXC. He found that because no amount was specified in the Agreement Details, there was no limit as to the Specified Amount. In other words, any award of damages made by an expert would be binding, regardless of the amount of the award, provided the determination was carried out in accordance with the Contract. For UXC, this meant that the $2.6 million damages award was binding.

This is an interesting decision particularly as it did not reflect the intention of the parties, which is the usual goal of a court when attempting to resolve contractual uncertainty or ambiguity. Clearly, the parties intended that if damages awarded by an expert exceeded a certain amount, the award should not be binding. Unfortunately, the Contract did not reflect this on its face. As a result, the seemingly small omission to insert the figure '$250,000' into the relevant schedule item had the effect of causing UXC to be bound by a $2.6 million damages award where it otherwise would not have been bound.

Checking cross-references and schedules is an extremely important task which contract drafters must, but often do not, undertake. As illustrated by the UXC case, failure to undertake this task may have a significant adverse effect.

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