Louis Peacock-Young on the risks of appending pre-contractual documents to construction contracts
In a recent decision, despite the use of a priorities clause and the insertion of general provisions allocating the risk of ground conditions to the subcontractor, exclusions contained in tender documentation appended to the contract were found to remain operative. This ruling, in Clancy Docwra Ltd vs E.on Energy Solutions Ltd, presents at first blush a surprising result.
E.on was contracted to install an underground district heat network at the Barts Square development in London and engaged Clancy Docwra as a subcontractor to excavate trenches and install heat network pipework.
During the work, Clancy Docwra encountered adverse ground conditions (consisting of underground brick walls and brick rubble) and, later, a concrete heading, which obstructed the proposed route for the pipework. E.on instructed the subcontractor to investigate the heading and to identify its contents and/or a route around it.
A dispute subsequently arose as to whether Clancy Docwra bore the risk of adverse ground conditions and whether it was entitled to be paid additional sums by E.On for the work required to overcome such conditions.
The temptation is for such appendices to be included without detailed review
The subcontract was based on the JCT Standard Building Subcontract with Subcontractor’s Design, 2011 edition. E.on relied on bespoke amendments that sought to pass the risk of ground conditions to subcontractor. Among other things, these “ground conditions clauses” stated that:
- Clancy Docwra was deemed to have inspected the site to have satisfied itself as to the nature of the ground, and in general to have obtained for itself all information regarding risks affecting the “subcontract works”
- It would not be entitled to an extension of time or any additional payment for the failure to foresee any risk affecting the subcontract works.
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Clancy Docwra relied on tender documentation appended to the subcontract as “numbered documents” that showed the tender had been based on a clear corridor for the pipework and did not allow for the breaking out of rock or dealing with obstructions. The numbered documents were defined as part of the subcontract works.
E.on in turn relied on a priorities clause in the subcontract which stated that in the case of inconsistency the subcontract documents (other than the numbered documents) would prevail over the numbered documents. E.on argued that the ground conditions clauses had priority over the tender documents relied on by Clancy Docwra.
The court agreed that the scope of the subcontract works was to be judged by reference to the tender documents appended to the subcontract. Accordingly, Clancy Docwra’s initial scope of works “did not include the matters that were specifically excluded by them from their scope of works as set out in their tender submissions”.
The ground conditions clauses in the contract applied to Clancy Docwra’s agreed scope of works and did not have the effect of extending that scope. The necessary starting point was the definition of the subcontract works. On this basis, there was no inconsistency.
An alternative claim by Clancy Docwra for rectification was dismissed by the court on the basis that there was no common mistake between the parties. Although E.on was aware that Clancy Docwra had intended to exclude ground conditions risk from the scope of works, E.on genuinely believed it had allocated these risks to the subcontractor through the ground conditions clauses.
E.on was aware of the exclusions relied upon by Clancy Docwra but had placed faith in the general wording of its bespoke amendments and a clause giving priority to those amendments. Yet the subcontractor escaped liability for ground conditions by reference to exclusions contained in tender documentation appended to the subcontract, which were taken to have defined the subject matter of the subcontract, narrowing the scope of the subcontract conditions. This highlights the sometimes unexpected outcomes that may arise where pre-contractual documentation is appended to a contract. Parties in similar positions should consider carefully whether the drafting of such bespoke provisions is adequate to extend the scope of the works required by the contract and/or to overcome qualifications contained elsewhere in the contract documentation.
The decision bears resemblance to the MT Hojgaard case determined by the Supreme Court in 2017. That case also involved the court giving effect to appendices to a contract in arguably surprising circumstances. The temptation in many projects, due to time or cost constraints, is for such appendices to be included without detailed review. The use of a priorities clause is unlikely to fully protect against the risks arising in such circumstances. These cases show that the court will strive to give full effect to all documents forming the contract, so the use of appendices must be carefully considered.