Priority Clauses Do Not Always Take Priority In Contract Interpretation

The High Court has reminded us that when there are allegedly conflicting terms in a contract the court will analyse whether the terms can be sensibly read together before considering a priority clause.

In this case the claimant Mr Alexander had a "buy to let" mortgage granted by West Bromwich Mortgage Company Limited (the "Bank")1. The Bank had sent Mr Alexander an Offer of Loan which provided that the interest on the mortgage was fixed for a specified period of time after which it reverted to a variable rate. The variable rate was described as the same as the Bank of England Base Rate plus a premium of 1.99%.

Mr Alexander was also sent by the Bank Mortgage Conditions which stated:

"These Mortgage Conditions incorporate any terms contained in the Offer of Loan. If there are any inconsistencies between the terms in the Mortgage Conditions and those contained in the Offer of Loan then the terms contained in the Offer of Loan will prevail."

The Mortgage Conditions provided a list of circumstances in which the variable interest rate could be altered by the Bank.

During the time when the interest rate was variable the Bank informed Mr Alexander that it would be increasing the rate.

Before the High Court Mr Alexander argued that the Offer of Loan provided for rates to vary (after the fixed rate period) in accordance with the Bank of England Base Rate but not otherwise. The Mortgage Conditions purported to enable the Bank to vary the interest rate in other circumstances but this was inconsistent with the Offer of Loan and in the event of inconsistency the Mortgage Conditions provided that the terms of the Offer of Loan prevailed. Therefore the Bank was not entitled to increase...