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Case Digest: Clancy Docwra -v- E.ON Energy Solutions [2018] – the interaction between risk allocation conditions and the definition of “Sub-Contract Works”

In this case, the TCC considered risk allocation, scope of works and the interaction between the two and the judgment (or at least this digest) is critical reading for anyone involved in contract drafting and preparation. Although it concerned the interpretation of a sub-contract, the case of  Clancy Docwra Limited -v- E.On Energy Solutions Limited [2018] will impact upon all tiers of the supply chain.

Background and summary of the dispute

By way of brief factual background, Clancy Docwra Limited (“CDL”) were engaged as sub-contractors to E.On Energy Solutions Limited (“E.On”) to excavate trenches and then install UDHN pipework as part of a largescale residential re-development in central London.  A dispute arose between the parties regarding variations which boiled down to an issue as to the extent of the scope of works that fell within the definition of the Sub-Contract Works and, linked to that, whether or not CDL were entitled to a Variation; and the allocation of risk in respect of ground conditions. E.On argued that the correct interpretation of the Sub-Contract meant that the problematic ground conditions encountered were at CDL’s risk.  CDL argued that the ground condition risk was irrelevant here because the works that had been affected fell outside of the scope of the Sub-Contract Works and should properly be treated as a Variation.

The contract: tendering background and what was ultimately included

As is so often the case, CDL were invited by E.On to tender for the works via a pack which included a scope (by reference to other documents) and a draft Bill of Quantities to be priced up. The tender submission and negotiations followed the usual pattern: despite E.On categorially stating that no tender clarifications would be permitted, CDL submitted clarifications and phrases such as “included/excluded” and “allowed for/not allowed for” were used by the parties.  Ultimately, the parties entered a contract, in which the Sub-Contract Works were defined as “the works referred to in the Sub-Contract Agreement and described in the Numbered Documents”.

For reasons which are not made clear in the TCC Judgment, the parties also decided to include within the Numbered Documents various emails, at least one of which recorded an exchange between the parties which discussed who should be liable for “removal/breakout of obstructions in the trench”.  The email chain did not conclude in a consensus and yet was included within the Numbered Documents.

The way in which the Court considered and ultimately decided the case serves as a timely reminder to those who draft and compile contracts (and contract documents) to give proper consideration to the inclusion/exclusion of documents in the contract folder and also to the ranking of those documents.

Numbered documents vs Contract Conditions

The Sub-Contract contained an order of precedence clause pursuant to which the conditions (as amended by the schedule of amendments) outranked the Numbered Documents.

CDL’s case was that “the Sub-Contract Works” which they were obliged to carry out were defined by the Numbered Documents.  They further argued that none of the matters which had given rise to the dispute fell within the definition of “the Sub-Contract Works” and that those matters should properly be construed as a Variation giving rise to a claim for time and money.

E.On’s case was that the Sub-Contract (by the conditions as amended) placed the risk of unforeseen ground conditions on CDL, and that allocation was not altered by the Numbered Documents.

The TCC appeared to have no trouble in concluding that the correct place within the Sub-Contract to find the definition of ‘Sub-Contract Works’, was the Numbered Documents. Further, Mrs Justice Jefford accepted that “the Scope of Works document broadly defines the Sub-Contract Works…. However, what is evident is that the invitation to tender and the Scope of Works itself recognised that the tender might involve exclusions of types of work and risk and/or might deviate from the enquiry.” The Court also noted that the definition of Sub-Contract Works referred to “the Numbered Documents”, i.e., all of the numbered documents, rather than to one or more specific contract documents.  Notwithstanding the fact that “the documents appear in something of a jumble in the Numbered Documents”, the Court concluded that each document must have had some role to play and must have been included for a reason.

It was this logic that led the TCC to give weight to the clarifications/exclusions noted in the emails between the parties that were included in the Numbered Documents. These exclusions were found by the Court to effectively exclude certain works from the definition of Sub-Contract Works.

Use of the phrase “not allowed for”
As a brief but important aside, it is worth looking at paragraphs 57 – 58 of the TCC Judgment, in which the Court considered E.On’s submission that “CDL… had not allowed for the risk of breaking out” meaning that CDL had accepted liability for that risk but had made a pricing decision not to charge for it.  Mrs Justice Jefford noted that that argument did not make sense, preferring to find that the most natural interpretation of a statement that something is not included within the price, is that it is also intended to not be within the scope of works.

Anything not included is excluded

The Court found that, following on from this, since E.On had instructed CDL to carry out work that had been expressly excluded (i.e., breaking out obstructions), E.On had in effect instructed a Variation pursuant to clause 5 “because they were instructing an addition to the Sub-Contract Works.”

It is further worth noting that the Court stated that CDL should not have been expected expressly to state that if they were asked to do anything outside of scope, they would seek a Variation: that was a function of the contract and not something that CDL would be expected to spell out.  This makes it clear that in interpreting a contract to define a scope of works, the Court is more interested in finding out what was included, rather then searching for a list of express exclusions.

Is a well-drafted ground conditions liability clause guaranteed to allocate risk for ground conditions?

In short, no.  The Sub-Contract in this case included what is a fairly standard phrase:

“The Sub-Contractor is deemed to have visited the site and ascertained the nature of the site, access thereto, and all local conditions and restrictions likely to affect the execution of the works.”

The Court found that such a clause must be considered in the context of what the works actually were and ultimately found that the allocation of risk of ground conditions was irrelevant to the dispute at hand, because the works in dispute fell outside of the contractual definition of “the Sub-Contract Works”.  Put another way: a clause such as this cannot expand the scope of the agreed works.

The Court’s conclusion

CDL was successful in persuading the Court that the work in question fell outside of the scope of work (having been expressly excluded by the numbered documents) and should therefore be treated as a Variation. The TCC clarified that the ground risk allocation clause did not trump the definition of the Sub-Contract Works.

Lessons to learn

  1. Consider very carefully every document that you decide to include within your contract: what purpose does it serve, where does it feature in the ranked order of documents, could it cause any confusion etc.  Remember that evidence of pre-contract negotiations is admissible evidence in a contract interpretation case, but the Court will primarily focus on having loyalty to the text.  This means that once records of such negotiations are included within the contract documents (e.g., by the inclusion of an email) then they have greater contractual weight.

  2. Ensuring a clear and unequivocal definition of the scope of works is critical: the risk allocation within the contract conditions only applies to the scope of works and cannot be used to correct an error in the definition of that scope.  Define the Scope of Works by reference to specific documents, rather than by broad reference to all of the Numbered Documents.

  3. Remember older case law: Arnold v Britton [2015] “the worse their drafting, the more ready the court can properly be to deport from their natural meaning. That is simply the obverse of the sensible proposition that the clearer the natural meaning the more difficult it is to justify departing from it.”

  4. Take care to ensure consistency between contract conditions (whether or not amended by a Schedule of Amendments) and all other contract documents.  This requires close collaboration between your legal team and your construction professionals (PM, QS, design team etc).  Remember that conflicts are always cheaper to resolve before the contract is signed. 


The full Clancy Docwra Judgment can be read here. 

 

These notes have been prepared for the purpose of an article only. They should not be regarded as a substitute for taking legal advice.

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