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Tracking changes to the Agreement: Be careful!

Discussion in 'Jukwaa la Sheria (The Law Forum)' started by ngoshwe, Mar 5, 2010.

  1. ngoshwe

    ngoshwe JF-Expert Member

    Mar 5, 2010
    Joined: Mar 31, 2009
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    Tracking changes in negotiating commercial documents: Solicitor and client responsibility

    In Thiess Pty Limited v FLSmidth Minerals Pty Limited [2010] QSC 6, the Supreme Court of Queensland (Australia) considered solicitors' responsibilities when marking up changes to documents during negotiations.
    Disputes arose from a major construction contract. Each party was represented by very experienced solicitors. After months of negotiations, the parties entered into a settlement deed. Two of the parties also entered into a separate side deed. An issue subsequently arose in relation to the effect of a limitation clause in the side deed, which limited one party's potential liability to the limit of its indemnity under a primary policy of insurance, notwithstanding that there was an excess policy that would otherwise have been available.
    During the negotiations, the parties and their solicitors reviewed, amended and circulated various versions of the documents. Clients emailed the other side's solicitors, at any time of the day and in quick succession (as is usual in fast high-level negotiations). The traditional separation between client-client and solicitor-solicitor communication was not always observed.
    The limitation clause was initially included in the settlement deed. About five weeks before execution, the clause was moved to the side deed and amended in a material way. In the next version of the side deed that was emailed from the solicitor proposing the amendment to the other solicitor, the whole of the limitation clause was marked up, on the basis that it was a new clause in the side deed, and the changes from the previous version of the clause (as it appeared in the settlement deed) were not specifically identified by the mark up. A covering email explained some of the changes to the document but not all of them. Negotiations continued for another five weeks before the documents were finally executed and both sides proposed further amendments to the limitation clause, although the material change remained.
    Thiess commenced proceedings against FLSmidth seeking rectification of the side deed. Thiess complained that the changes to the previous version of the limitation clause were not identified, which was a representation that there had been no change from the previous draft.
    Both parties called conflicting expert evidence on the proper professional practice required of a solicitor in identifying changes in documents.
    The trial judge held that the new clause contained a markedly different commercial element to the overall settlement and in those circumstances, Thiess's solicitor "could have expected" that the amending solicitor would draw attention to the change.
    Even though a party is represented and advised by experienced commercial lawyers in arm's length negotiations between parties of equal experience and resources, lawyers need to be diligent and prudent in amending and circulating draft documents in mark up.

    The usual practice is for parties to rely on mark up alone, and to use covering comments as persuasion rather than for commentary or explanation. In this case, the solicitor explained some of the amendments (but not all of them) in the covering email. The lesson for practitioners from this case is to be wary of relying on mark up alone in unusual circumstances, such as this case where, in a single amendment, a clause was being pasted from another document and amended in a material way.