M J Antony: Signing on dotted lines

Bulky tender documents scare away honest bidders, help the greedy ones and breed corruption.

If you read all the terms and conditions on the back of the ticket, you will miss the boat, said an English judge. We face this predicament while we are offered the standard form contracts for housing loans, cars or buying shares. The deeds are getting longer and more complex with time. The situation is often ‘nightmarish’, according to the recent judgment of the Supreme Court in Vijay Constructions vs State of Kerala.

The state government invited tenders for constructing part of a national highway. The advertisement inviting tenders contained several conditions, one of which was that there would be no arbitration if a dispute arose. The contractors who were selected for the work had to agree to another document which contained a set of terms. On top of that, the Ministry of Surface Transport had told all the state public works departments dealing with national highways that they should follow a standard contract clause for appointment of arbitrators.

 

When disputes arose, and the contractors sought arbitration, the state government denied that there was any arbitration clause in the agreement. The notice inviting tenders specifically said that there would be no arbitration and all disputes would be settled by civil courts. The High Court agreed with this contention. But the Supreme Court held that the High Court was wrong.

The contract in this case was a bundle of documents which contained the notice inviting tenders, printed contract forms, cyclostyled amendments and annexure including tender schedule, plans, additional special conditions and the like. Such documents created confusion. The Supreme Court said: “The result is that several years after completing the work, parties are still trying to find out what the agreed terms and conditions are and whether there is a specified dispute resolution process by way of arbitration. On account of such confusion, several efficient and honest contractors stay away from participating in such tenders. The vagueness and confusion give unwarranted discretion and freedom to officers, leading to corruption and nepotism. Clear, simple and straight forward agreement is the need of the hour. Tens of thousands of engineering contracts are being entered all over the country every day in regard to infrastructural works, without the necessary clarity, leading to avoidable disputes and considerable strain on the exchequer.”

Badly drafted contracts create a “lush green field for generating disputes,” said the judgment. “It helps greedy and unscrupulous contractors to make bloated imaginary claims. It enables rule-minded or corrupt officers to play havoc with honest and bona fide contractors.”

The best form of agreement is where all the relevant clauses/terms are incorporated in a single document with several sections dealing with different aspects/subjects, avoiding any overlapping.The advice of the court to contracting parties is to avoid the use of multi-layered agreements, with several printed annexure, each with cyclostyled amendments, typed and hand-written additions and deletions.

When there is inconsistency in the words or their interpretation, the standard form of contracts in print should give place to the written corrections or amendments. This is because, ‘the written words are the immediate language and terms selected by the parties themselves for the expression of their meaning. The printed words are a general formula adapted equally to their case and that of all other contracting parties on similar occasions and subjects’.

The entire confusion in this case, according to the court, arose on account of using outdated printed forms and also adding, deleting and modifying the terms and conditions contained in several distinct documents which are made annexure to the formal agreement. The terms and conditions of the contract will have to be gathered from the Articles of Agreement, notice inviting tenders for works, conditions of contract, the Madras Detailed Standard Specifications of 1930 vintage, and Special Conditions and Additional Special Conditions. Some documents are standard forms with blanks filled in hand. Standard forms which contain provisions for several contingencies, most of which are inapplicable or redundant were used, without making any effort to edit the various documents and have a consolidated agreement.

However, the ground reality is that parties who enter into multi-crore-rupee agreements do not want to take risks and they invariably seek the help of the best law firms. They, in turn, do not want to take any chance or lose the confidence of their clients. The result is a bundle of spiral-bound volumes which impresses the parties but are ‘nightmares’ for the judges and dreams of holidays in the sun for the lawyers.