Construction contracts are frequently complex documents that incorporate a number of individual documents and specifications which taken together set out the standards to which the contract works must be carried out. In the recent case of 125 OBS (Nominees1) v Lend Lease Construction (Europe) Ltd [2017] EWHC 25 (TCC), the court was asked to interpret a number of contractual documents in order to determine which of (what was contended to be) two competing contractual standards of workmanship, governed the standard of work to be undertaken by the contractor.

The facts

The defendant contractor was engaged under a bespoke JCT Standard Form of Building Contract with Contractor's Design 1998 Edition to design and build a 26 storey tower on the site of the former London Stock Exchange in the City of London. The building was to be clad in 300 tonnes of toughened glass panels.

Following completion, 17 of the glass panels spontaneously broke. In order to minimise the risk of the glass breaking the contract had required the glass to go through a process known as "heat soaking" in accordance with European Standard EN 14179 2005. That process involved a carefully managed process of heating the glass panels to 280°C and maintaining that temperature for at least two hours before being cooled. Nevertheless, the European Standard envisaged that there would still be breakages at the rate of 1 panel per every 400 tonnes.

The contract also contained an express term to the effect that the glass panels would have a service life of 30 years.

The claimant employer rejected the contractor's suggestion that the panels be left in place and that a protective canopy be installed in order to protect pedestrians from falling glass and engaged a third party company to re-glaze the building.

The employer then sought damages for the cost of carrying out the required remedial works as well for compensation paid to tenants of the building and local business for loss suffered as a result of falling glass. It was alleged that the contractor had breached a number of discreet contractual obligations and that the contractor had, inter alia, failed to:

  • comply with its duty to heat soak the glass in accordance with the EU Standard EN 14179 2005 (Section 33G and H11/440);

  • ensure that all materials supplied complied with specified standards set out in the contract (Section 34G(a));

  • supply materials of good quality and a curtain walling system that was fit for its intended purpose (clause 8.1.1 and Section 90G); and;

  • supply curtain walling that had a service life of "no less" than 30 years (Section 33G).

The defendant argued that:

  • it had fully complied with the contractual requirement that the glass panels be heat soaked;

  • the building contract did not contain any other separate and distinct technical requirement preventing the glass from breaking. Indeed, the contractor argued that the residual risk that glass panels would break even after heat soaking reinforced supported that conclusion and highlighted the need of clearly imposing additional obligations if they were required. The obligation to heat soak the glass did not deprive the requirement for a service life of 30 years as there were other reasons why that might not be so;

  • by opting for heat soaked glass knowing that there was a residual risk of breakages, the employer was responsible for that risk from the date of practical completion.

The decision

The judge held that:

  • On its natural and ordinary meaning, the contract imposed several and discrete obligations in addition to the obligation to heat soak. There was no inconsistency between the obligation to heat soak the glass and the obligation requiring a service life of "no less" than 30 years. The contract imposed separate and distinct obligations on the contractor. It was required to both heat soak the glass and ensure that the glass had a service life of no less than 30 years;

  • The contractor was in breach of contract for failing to heat soak 35% of the glass;

  • By reason of that breach, the contractor was also in breach of the requirement to supply glass with a service life of 30 years;

  • If the glass had been heat soaked, the failure rate would have been less than that experienced on site;

  • The contractor was also in breach of its duties to supply glass of a satisfactory quality and a curtain walling system that was fit for its intended purpose. To be of a good quality it needed to be heat soaked in accordance with the terms of the contract. The purpose of the contract was to provide a curtain walling system that had a design life of no less than 30 years. The installed glass failed to satisfy that test. However, the court pointed out that if it had been shown that the glass had been heat soaked but that it had still failed, there would have been a breach of this separate requirement. Irrespective of whether the glass had been heat soaked, the rate of failure in the glass panels was so high that it led to the conclusion that the glass was not of a satisfactory quality and the at the curtain walling system was not fit for its intended purpose;

  • The contractor was liable for losses associated with the necessary remedial works. The court regarded as reasonable the costs associated with replacing the glass. The use of a protective canopy at such a prestigious location was not considered reasonable. The contractor was also liable for the costs of settlements paid to third parties. The court encouraged reasonable settlements. A claim would have to be obviously hopeless for a settlement to be considered unreasonable. The losses claimed were not too remote.

Conclusion

This is another decision in which the court was tasked with the job of interpreting the meaning of complex contractual arrangements for the purpose of determining whether it imposed a series of stand-alone obligations or whether it imposed a single primary obligation.

Often contracts contain provisions which either provide a hierarchy in the event of inconsistency, or state that obligations are qualified by others. However, where a contract is silent as to whether what appear to be separate obligations impose distinct obligations or whether one term qualifies another the court seeks to identify "what a reasonable person having all the background knowledge which would have been available to the parties would have understood them to be using the language in the contract to mean".

The court starts by focussing on the words used. It will have regard to the natural and ordinary meaning of the words used, the meaning of any other relevant provisions of the contract, the purpose of the words in question, the overall purpose of the contract, the facts and circumstances known or assumed by the parties at the time the contract was entered into (excluding evidence of any subjective intentions) and have regard to commercial common sense. The judge described the task as being an iterative process.

In the Court of Appeals' decision in MT Højgaard A/S v E.ON, the court concluded that individual clauses of the contract were in conflict and could not be reconciled. Accordingly, the requirements of one clause were said to override obligations elsewhere in the contract. Nevertheless, the judge cited the observation of the observation of the Court of Appeal that:

"[79] It is not unknown for construction contracts to require the contractor (a) to comply with particular specification and standards and (b) to achieve a particular result. Such a contract, if worded with sufficient clarity, may impose a double obligation upon the contractor. He must as a minimum comply with the relevant specifications and standards. He must also take such further steps as are necessary to ensure that he achieves the specified result. In other words, he must ensure that the finished structure conforms with that which he has warranted. ….

[80] The question which I must address is whether the agreement negotiated between [the parties] is a contract of that character."

In this case (which was reported just before the Supreme Court's decision in MT Højgaard A/S v E.ON (2017) overturning the decision of the Court of Appeal), the court placed heavy reliance on the natural and ordinary meaning of the words used and found no difficulty in concluding that he various obligations imposed distinct obligations on the contractor. Those individual requirements were not inconsistent with each other.

Together with Supreme Court's decision in the MT Højgaard A/S v E.ON, the courts are now adopting a more literal approach towards the interpretation of contracts. Parties to complex construction contracts, need to be alive to the fact that the court may not hesitate in concluding that a contract imposes several distinct contractual requirements. Should it be intention of a contractor that one contractual standard should prevail over others, that fact should be expressly stated. Conversely, should an employer wish to impose a fitness for purpose obligation along with other provisions requiring compliance with other, perhaps lower standards, then care should be taken to make it clear that the lower standards represent minimum requirements and do not affect the primary obligation to ensure that the works carried out are fit for their intended purpose.