A recent English Court of Appeal case has confirmed that the courts will try to make sense of a contract by reading contract documents together as setting out the commercial intention of the parties. An order of priorities clause will only be referred to in the event of an irreconcilable difference.
Construction contracts often incorporate a number of documents which can result in internal inconsistencies leading to a dispute. If internal inconsistencies exist a party should give effect to the contract as a whole, endeavouring to reconcile conflicts using the common law rules of construction. If a difference remains then an “order of priority” clause may provide for certain documents to prevail.
The use of such a clause was considered in the recent Court of Appeal decision of RWE Npower Renewables Limited v J N Bentley Limited1 which was an appeal of Mr Justice Akenhead’s decision in the Technology and Construction Court.
A dispute had arisen under an amended NEC3 Engineering and Construction Contract incorporating Option B and secondary options X5 and X7 providing for sectional completion and liquidated damages.
The dispute was the extent of JNB’s obligation to complete certain pipelines for Section 2 of the works. The ‘Contract Data Part One’ document required completion of “such” of the pipelines as would be “necessary”to allow hydro plant to be installed. Whereas, the ‘Works Information’ document required the pipelines to be fully completed.
An order of priority clause had been included in the contract agreement which stated “the following documents are deemed to form and be read and construed as part of this Agreement in the following order of precedence...”.
JNB argued that the two documents contained irreconcilable differences so that the priorities clause engaged, meaning that the Section 2 work required was determined by ‘Contract Data Part One’ (i.e. only part of the pipelines). RWE did not agree and commenced court proceedings seeking a declaration that the pipelines had to be fully completed and tested.
RWE submitted that if the contract was construed as a whole then it did not contain an internal inconsistency requiring the priorities clause to be engaged. JNB argued that it was necessary to refer to the priorities clause because there were clear and largely irreconcilable differences.
Mr Justice Akenhead agreed with RWE that it was unnecessary to refer to the priorities clause because“...this is a contract which is to be construed in the usual way by reference to all the documents forming part of the contract. It is only if there is an ambiguity or discrepancy between one or more contract documents that one then needs to have regard to the order of precedence” and issued a declaration that JNB had to complete and test all the pipelines for Section 2.
JNB appealed and the Court of Appeal unanimously dismissed the appeal on the basis that the contract documents should be read as complementing each other as far as possible and “only in the case of a clear and irreconcilable discrepancy would it be necessary to resort to the contractual order of precedence”.
This case is a useful reminder that it is unnecessary to refer to a priorities clause if the documents can be read together as expressing the parties’ intentions in a clear and sensible way. Only if an irreconcilable discrepancy remained would it be necessary to utilise the priorities clause and, even then, precedence is only to be considered for the discrepancy and is not to be used to choose an entire clause or document over another.