Recitals Agreement

Whether or not the recitals may have a legal effect depends on the design of the contract as a whole. The main effect associated with recitals is the potential of a court or arbitrator to pay attention to their content when a dispute over the interpretation of the contract arises due to ambiguities in the main part of the contract. Given their ability to influence a court, the parties should carefully consider their reasons for including specific information in the recitals, the desired purpose of any statement or representation and, ultimately, whether it will have legal benefits for one or both parties. To the extent that it is intended, recitals must be considered legislation, contrary to preliminary prose, and are therefore drafted with the same level of thought and precision as the operational provisions of the treaty. An agreement between the owner of Blackpool FC (BFCP) and an external investor provided that proceeds from the development of part of the stadium would be shared by the parties after deducting all investments greater than the amounts invested by the parties under the agreement. When the contract was concluded, the parties expected that the final phase of the development would be funded by a third party. But to everyone`s surprise, Blackpool FC joined the Premier League and, as a result, BFCP had sufficient means to complete the development itself. BFCP submitted that the amounts it had invested in development should be deducted from the revenues that were to be distributed among the parties. Context or substantive considerations – this type of clause describes the fact or event that led to the transaction. This may include items such as sales, trademark or patent licenses. Recitals relating to related transactions – in the preamble to the treaty, it is possible to add more than one recital if several agreements are concluded simultaneously.

Recitals of an agreement or „substantive provisions” are generally explicitly referred to as non-binding. They aim to highlight the economic context of the agreement and thus contribute to the proper reading of the rights and obligations of the parties in the main part (or „operational provisions”) of the agreement. The Court of Appeal disagreed. In a recital of the agreement, it was specified that deductions on investment income related to the financing of the final development phase should only be applied if the financing was provided by a third party. In addition, all the evidence showed that the parties had not envisaged that any of them would be able to finance the final phase and that the contract should be interpreted on that basis. The 2006 AIPN-Model-Form gas sales contract states that its interpretive clause applies to „this agreement, including recitals and annexes, unless expressly provided otherwise: . . .

In the event of a conflict, the provisions of the main body of this agreement prevail over the provisions of the annexes.” The fact that the recitals of the second half of this provision are not mentioned suggests that the recitals will not prevail over the operational provisions (except, as noted above, in case of ambiguity) and that there is therefore no need to make an explicit statement to that effect.

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