Background. The concept of materiality is used to qualify phrases that would otherwise be too strict. Obviously, it removes various immaterial elements from the scope covered by the phrase. It is often used in conditions precedent and warranties.
The qualification material balances out straightforward wording against the potential result if no qualification of materiality was used. Like reasonably, the scope of a materiality qualification would be determined by the party who carries the benefit of the related contract provision. This is usually the stronger contracting party. For example, if the completion of a project is subject to a condition that no material incompliances exist in respect of the project specifications, any doubt about the materiality of incompliances in the project results will be used by the strongest party to the project.
Inappropriate usage. Materiality qualifications are often inappropriately used, for example:
Supplier has not violated any material laws or regulations.
Q: What about persistent traffic speed violations by employees of the Supplier during work time?
Supplier has not violated any laws or regulations in any material respect.
Q: What is material?
Appropriate usage. A proper use would be:
Supplier has not violated any laws or regulations in a manner that must reasonably be expected to have a material adverse effect on Supplier’s business or financial condition.
If a party to an agreement defines materiality, for example in an interpretation guideline that applies across the entire contract, and does so by reference to an amount, be very keen that all references to material are capable of meeting the threshold.