Rock, paper, scissors


In the playground, disputes over priority and precedence were often settled by a game of rock, paper, scissors. The rules of the game and identification of a winner were either known or readily understood: paper wraps rock, rock blunts scissors, scissors cut paper. If only the game of contractual interpretation was so simple.

Construction contracts are often made up of several documents, usually from a number of different sources. Inconsistencies and contradictions may occur between the separate documents. If the parties have included a clause establishing which documents will take precedence in the contract where any ambiguities arise, surely that would settle any questions?

A recent case has suggested that parties may not blindly rely on a contractual priority clause to establish which contractual provision will prevail where an inconsistency arises.

In RWE Npower Renewables Ltd v JN Bentley, the parties were in dispute over delays to completion of the Black Rock Hydro Scheme in Scotland. In particular, RWE alleged that JNB had failed to complete the pipeline works to testing and commissioning stage on time and wished to levy liquidated damages against JNB. JNB argued that RWE was not entitled to delay damages and relied on separate provisions of another contract document, which, they argued, provided that completion of the pipeline works only required completion to the stage that would allow the hydro plant to be installed.

The contract contained a clause which provided for the order of precedence of the contract documents. The court considered the meaning and effect of that clause in determining the relevant completion provisions under the contract and made the following observations as to the correct approach:

  • It is necessary to determine objectively what a reasonable person with all the background knowledge reasonably available to the parties at the time of the contract would have understood the parties to have meant. In doing so, one is looking to adopt the more commercial construction rather than less.
  • When understanding a contract which is made up of a number of documents, it is necessary to look at all the contract documents to determine the meaning on any given topic; what may appear initially as ambiguities between provisions may resolve themselves on analysis of the contract as a whole.
  • The precedent clause under consideration stated that all the documents “are deemed to form and be read and construed as part of the Agreement”. These words meant that the contract remained one which was to be construed in the usual way by reference to all the documents forming the contract. It was only where there was an ambiguity or discrepancy between two or more contract documents that it would be necessary to consider the order of precedence.
  • It was incorrect to carry out an initial construction exercise on the separate contract documents and “compare the results” to see if any ambiguities could be discerned.
  • If a sensible commercial interpretation can be determined from reviewing all the contract documents which does not produce an ambiguity, that interpretation is likely to be the right one. If that is the case it will not be necessary to consider the order of precedence of the contract documents because there is no real ambiguity to resolve.

The court decided that once reviewed as a whole, there was no ambiguity as to what was required to complete the pipeline works. Read as a whole, the contract provided that the pipelines were to be tested and commissioned before they could be said to be complete.

An order of precedence clause may not have the final “rock, paper, scissors” effect that you may think. If a sensible interpretation which gives commercial effect to the intentions of the parties can be discerned from the contract documents as a whole, that is the interpretation which will be adopted.

View by date:

View by author:

Would you like to hear more?