In the recent case of (1) Colas Limited (2) VolkerHighways Limited (3) AECOM Infrastructure & Environment UK Limited –v- Transport for London [2018] EWHC 831 (TCC) the TCC has once again applied the principles of contract interpretation established in Wood v Capita Insurance Services Limited [2017] UKSC 24 in order to determine the true meaning of a contract.

Summary of the claim

In 2013 Colas Limited, VolkerHighways Limited and AECOM Infrastructure & Environment UK Limited (together an unincorporated joint venture known as “CVU”) were appointed by Transport for London (“TfL”) as one of its framework contractors for highway maintenance works in London. In accordance with the terms of the Framework Agreement, the parties entered into a Call Off Contract which allowed TfL to instruct CVU via Task Orders to undertake Task Works, which included tasks such as highway resurfacing works.

Pursuant to the terms of the Call Off Contract, Task Works were to be priced based on the rates and uplifts stated in the Schedule of Rates agreed as part of the Framework Agreement except where there was no corresponding item within the Schedule of Rates.

When CVU tendered for the contract, it was known that CVU would need to obtain a permit pursuant to the statutory London Permit Scheme for any works which would impact on traffic flow on the highway.  The permit would be issued following an impact assessment in relation to the Task Works and would generally include restrictions on CVU’s working times.  

CVU’s claim was that the rates and/or uplifts stated in the Schedule of Rates were based upon the working conditions set out in the contractual service information, which it suggested did not include the permit restrictions.

CVU acknowledged that it had always known that it was required under the contract to obtain permits for individual Task Works and that those permits may restrict working times, but submitted that as it was not possible to set out those time restrictions in the contract, these were “known unknowns” that CVU was not required (nor deemed) to have priced within the Schedule of Rates.

On this basis CVU claimed that there was no corresponding item within the Schedule of Rates and accordingly it was entitled to submit different prices for  Task Works where a permit imposed time restrictions.

The Court was therefore asked to interpret the contract documents to determine whether the permit restrictions were included in the Schedule of Rates.

The Court’s approach

In embarking upon the task of interpreting the contract, Mrs Justice O’Farrell DBE referred to the “clear summary” of the applicable principles cited at paragraphs 10 to 13 of the judgment provided by Lord Hodge of Wood v Capita Insurance Services Limited[1]. This included the requirement to “ascertain the objective meaning of the language” having regard to “textualism and contextualism”.

In accordance with this approach, O’Farrell J first determined the working conditions that are specified in the contractual documents by reference to the objective language. This included consideration of the Preamble to the Schedule of Rates which included a list of items which the rates were deemed to include “unless expressly stated otherwise”. Items were identified within the Preamble which included permits, restrictions and limitations and constraints on CVU’s working.

Based on the objective reading of the language of the text, O’Farrell J dismissed CVU’s arguments that the wording did not make sense and instead she found that the wording of the contract was clear and “the rate for the work in the Schedule of Rates is deemed to include for the restrictions that might be imposed”.

In order to consider the contextualism of the provisions, O’Farrell J then turned to the “practical and commercial consequences of the rival constructions”. As part of this analysis it was accepted that the likely imposition of permit restrictions “introduces uncertainty as to the duration, scope and cost of the work required”; however, it was also acknowledged that this was a risk faced by all contractors engaged in the competitive tender process for the Framework Agreement and that the volume and spread of the work was such that both CVU and TfL faced an element of risk in agreeing  the rates in the Schedule of Rates.

The purpose of the Schedule of Rates was to provide consistency and certainty and it was therefore “a matter for each party to assess the risk associated with the permits issued… and to price those risks accordingly”.

Commentary

Whilst O’Farrell J acknowledged that the full extent of the permit restrictions that would apply to particular Task Works could not be ascertained based on the wording of the contract, the presence of a “known unknown” did not prevent the parties from agreeing terms which included this risk. This case reminds contracting parties that a party will be held to its agreement, including acceptance of a risk that may be difficult to assess and evaluate.

This judgment demonstrates how the principles of contract interpretation can be sensibly applied to give effect to the parties’ intentions and the importance of balancing the objective meaning of the text with the wider context of the contract.

In order to assist the Court in assessing the context of the interpretation, at the Court’s request the parties prepared an agreed statement of facts and used worked examples aiming to show the impact of the permit restrictions on CVU’s working.  In our experience this type of practical approach has been adopted in a number of recent cases and clearly is an exercise that the Court finds worthwhile in helping it readily to consider the relevant principles of contract interpretation.