Citation: [2020] EWCA CIV 1645
A contractor appealed against a judge’s interpretation of a contract made with Network Rail for works to upgrade the power supply to a railway line. The contract incorporated terms of the Civil Engineers Conditions of Contract, Target Cost Version, First Edition (the ICE conditions) and subject to standard amendments used by Network Rail, known as “Network Rail 12” (the NR 12 amendments). Under the contract, the contractor was entitled to payment based in part on the “total cost” which excluded “disallowed cost”. The dispute was over the definition of Disallowed Cost and the meaning of default which stated: “any cost due to negligence or default on the part of the Contractor in his compliance with any of his obligations under the Contract and/or due to any negligence or default on the part of the Contractor’s employees, agents, sub-contractors or suppliers in their compliance with any of their respective obligations under their contracts with the Contractor”. The contractor had not completed the contract works in accordance with the contractual timetable, and Network Rail sought to deduct £13.43 million as disallowed costs.
The contractor argued that the word “default” connoted fault in the sense of blame or culpable behaviour on the part of the contractor in carrying out his obligations under the contract. Whereas Network rail argued that ‘default’ should be read as it means, or includes a failure to fulfil a legal requirement.
The Court of Appeal held that the word “default” in the contract meant a failure to fulfil a legal requirement. There was no basis for introducing any qualification such as to import a requirement for the breach of contract to carry an unspecified degree of personal blame or culpability (or conduct) on the part of the contractor. The judge explored the true interpretation of the clause which referred to “Disallowed Cost”, in the light of four key factors:
the meaning of the language used (the Court said it was clear and unambiguous).
the clause in its contractual context, i.e., as against the background of the contract as a whole (the Court stated that there was no proper basis for concluding that the parties must have intended the word ‘default’ to carry a different meaning from its ordinary and natural meaning);
the purpose of the contract (the Court stated that the fact that the contract was a target cost contract was irrelevant to its approach to interpretation); and
commercial common sense (the Court rejected ABC’s argument that, as a matter of commercial common sense and/or commercial reality, the word ‘default’ cannot have been intended to cover any failure by ABC to comply with its contractual obligations, no matter how small and insignificant).
Accordingly, the Court of Appeal dismissed the appeal.
Marcus Taverner QC and William Webb represented the Appellant.
Piers Stansfield QC represented the Respondent.
