Recently, a subcontractor in the UK was relieved of adverse ground conditions risk, despite contract amendments that sought to allocate that risk to the subcontractor- and it all hinged on an analysis of appendices to the contract. Appending documents to a contract without giving due consideration to how they work with the main contract terms is a risky business. While often it is important for such documents (often technical) to be included in a contract, parties need to turn their minds to any potential inconsistencies, ambiguities or misunderstandings that should be addressed prior to signing the contract.
Common practice in the industry It is common for contracts to include appendices containing additional documents relevant to the contract. In the construction industry, P&G Specification, Site Plans, Drawings & Specifications as well as Contract Price composition information are all commonly appended to a contract. Anything appended to the contract becomes part of the contract and therefore is legally binding on the parties. To mitigate the risk of inconsistencies in the contract, parties will often include a ‘priority clause’ which sets out the order of precedence for the contract documents. Usually the main contractual terms take priority, with more technical documents being of lower priority. Parties rely on a priority clause to resolve any possible inconsistencies between information and terms found in different parts of a contract. The issue is that a priority clause doesn’t come into play if no inconsistency is found in the first place. The risk of appended documents has recently been demonstrated in cases in the UK which serve as a reminder of the need for contracting parties to be careful in New Zealand. What the law has to say The principles of contract interpretation have been well laid out in cases over the years. Contractual terms are to be read in the light of the contract as a whole and its overall purpose. When interpreting a contract, the court seeks to determine the parties’ intention by reference to “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….in their documentary and factual context”1 On applying this legal principle, courts have shown themselves to be slow to find inconsistencies in a contract. As a result, priority clauses, while helpful in providing some ‘order’ in a contract, are rarely applied by the courts. This means that a term or condition buried in a ‘lower priority’ contract document will be given effect, so long as the meaning is not inconsistent with higher priority documents. Recent UK case law In Clancy Docwra Limited v E.ON Energy Solutions Limited2 (CDL v E.ON), CDL was a subcontractor carrying out trenching works in Central London. It discovered a number of underground objects requiring additional resources and work to excavate. A dispute arose as to who bore the risk of unforeseen adverse ground conditions. CDL argued that addressing adverse ground conditions was outside the scope of the subcontract works, as spelled out in the tender clarification documents appended to the subcontract. E.ON, the contractor, argued that the risk of unforeseen adverse ground conditions lay with CDL under the main conditions