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:
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.