07 December 2017 - Post by:Philippa Richards
The question of what “to the extent that” means was recently considered by the High Court in Zayo Group v. Ainger. In that case, the seller was liable under a sale purchase agreement for a warranty claim except “to the extent that” a provision (for a target company liability) was made in the accounts. Did that mean:
- that any relevant provision (however small/inadequate) made in the accounts, would preclude seller liability under the warranty? or,
- did the exclusion of liability only apply to the amount of the provision? In which case, the seller would have liability under the warranty for the amount by which the actual target company liability exceeded the provision.
As a matter of construction, on the particular contract in front of him, the judge decided that the answer was (1) i.e. any provision at all in the accounts would wipe out the seller’s liability. This meant that, in this instance, the words “to the extent that” could have been replaced by “if”. This passed the risk in the accounts, in this context, to the purchaser. Good news for the seller. Bad news for the purchaser.
What does this mean for you? This was a High Court decision, the point is obiter, some are surprised by this particular aspect of the judgment, and the decision was, as always, made on the facts of the particular case in front of the judge. Nevertheless, it does serve as a useful reminder of the possibility that, whether or not the draftsperson and negotiating team intend it, the phrase “to the extent that” in a contract might be interpreted to mean “if”.
You may therefore want to look at what your precedents say to see whether they cover the point expressly. The message is that if you want “to the extent that” to be used as a proportionate phrase, you need to be as sure as you can that this is objectively clear from the words in their context. One solution might be to use the phrase “if and to the extent that”. If it is not possible to agree to more expansive wording it may be a question of considering the provisions in the accounts carefully, and raising additional queries where necessary.