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...