After having given it considerable thought, and after having carefully listened to our thought leader on plain language, Andrew Weeks, Michalsons have decided to dramatically minimise the use of capital letters for defined words in our contracts, if not do away with them altogether.
Reasons for minimising the use of capital letters
It’s ultimately a question of preference. Capitalising definitions is not wrong, and there are situations where they are useful or even necessary, especially in complex transactions involving multiple parties (which are not usually ‘consumer-facing’). In our experience capitalised definitions are frequently and unnecessarily overused in a redundant way – for example how many lenders or borrowers are there usually in a loan agreement? Is it really necessary to refer to Lender and Borrower? How many ‘effective dates’ does an agreement normally have? And so on.
Reasons for not using capital letters
These are some of our reasons for doing so:
- It follows the plain language principle that capital letters in mid-sentence create ‘visual hiccups’ (Garner) that hinder reading and understanding, and should be avoided as far as possible.
- There is generally less scope for ambiguity or misunderstanding if defined terms are always lower case in the text.
- inconsistency is a major factor in creating confusion, ambiguity and legal uncertainty: for example where the term is supposed to have an initial capital but because of carelessness or typo it does not. This kind of inconsistency is inevitable and very common.
- Sometimes it is unclear if the term is perhaps defined elsewhere. For example in an annexure or schedule. In our experience, a term like ‘Limit of Liability’ will appear in the text in one section where it has not been defined, and then appear as ‘Limit of liability’ or ‘limit of liability’ (or ‘limit of indemnity’ or ‘limitation of liability’ and various other permutations) in the same section, other sections or elsewhere in the same policy, with no apparent logic. In another section it will be defined, but referred to in lowercase or inconsistently.
- Interpretation problems and ambiguities generally occur most where common terms with a widely understood plain language meaning (such as ‘accident’ or ‘damage’) are given specific technical definitions that apply to one section or sub-section of a contract but not others.
Rather than use capital letters for defined words our approach is either to:
- remove the definition (if not strictly necessary, which it seldom is) and clearly ‘describe’ the intended application of a common word in a particular context rather than define it (in a formal legal sense); or
- change a definition to operate more like a condition or term that applies to that section only, without changing the meaning of the ordinary word and opening up potential interpretive loopholes; or
- if the term has to be defined, change it to something with some specific descriptive content rather than a common general meaning. For example change ‘Damage means…’ to ‘Fire-related damage means…’. Then, wherever ‘fire-related damage’ appears in the text, it cannot easily be interpreted in any other way in that context; or
- if you are going to use capitalised definitions then do so sparingly to give absolute clarity where common sense doesn’t necessarily do this. An alternative is to put crucial definitions in bold.
Ultimately, one needs to consider the context, the client, and the parties to the agreement.