Legal Drafting Tip: Conflict of Terms Provision

Tuesday, May 6, 2014       By Tilly Gray

“Conflict of terms” provision [1]

Where two or more agreements are entered into between the same parties, the possibility of a conflict of terms arises between those agreements. A “conflict of terms” provision is used to provide evidence of the parties’ intentions by identifying the one agreement whose terms will prevail in the event of any such conflict.

The provision in our firm’s Boilerplate Agreement is as follows:

If there is any inconsistency between the terms of this agreement and those in any [document contemplated by or delivered under or in connection with this agreement/of the other Transaction Documents], the terms of [this agreement/] will prevail. [The parties shall take any necessary steps to conform the inconsistent terms to the terms of [this agreement/].]

When drafting such a provision, you should

  • carefully consider
    • what terms and, therefore, which agreement should prevail
    • who the parties are to each of the prevailing and subservient agreements
  • ensure that the scope of the agreements over which the prevailing agreement will have paramountcy is well thought out and clearly described or defined (for example, by reference to an existing definition used in the agreement)
  • include the optional language regarding conforming inconsistent terms in each of the agreements that the prevailing agreement will have paramountcy over
  • refer to the “entire agreement” provision of each of the prevailing and subservient agreements, which will dictate the scope of each agreement, and determine whether there is a potential conflict in an agreement to which your client is not a party that you might want to address[2]

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[1] In his blog posting entitled Sources of Uncertainty in Contract Language, Ken Adams identifies six different sources of uncertainty in contract drafting, including conflicts.
[2] In One West Holdings Ltd v Greata Ranch Holdings Corp, 2014 BCCA 67 (CanLII), the limited partnership agreement (LPA), which was the prevailing agreement in the case, included an arbitration provision but the two subservient agreements did not. A property manager was a party to a property management agreement (PMA) and one of the subservient agreements, but not a party to the LPA. The question posed to the court was whether the property manager was bound to arbitrate in accordance with the LPA. On appeal, the court held that the property manager was bound to arbitrate because the property manager agreed that the LPA was part of the agreement by including a reference to it in the “entire agreement” provision of the PMA. While this case primarily focused on the entire agreement provision, the decision also demonstrates the confusion that can be caused by the interaction of the entire agreement and conflict of terms provisions if consideration is not given to the factors outlined above.