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legal alert: Contract interpretation and uncertainty

04 Oct 2017

In Vinci Construction UK Limited v Beumer Group UK Limited [2017] EWHC 2196 (TCC), following an adjudicator’s decision, Vinci sought a declaration whether liquidated damages were enforceable under a construction contract, which did not adequately define sectional completion.


Summary of the facts


Vinci entered into a Sub-Contract with Beumer to carry out design, manufacture, installation and testing of baggage handling system works at Gatwick Airport.  The Sub-Contract comprised of the NEC3 Engineering and Construction Subcontract (Option A) and included Options X5 (sectional completion) and X7 (delay damages).


The Sub-Contract provided for sectional access to and completion of the works, including Section 5 (Baggage) and Section 6 (Remaining Works), and also provided for the payment of delay damages in the event a completion date was not achieved.
Delays to the works occurred, resulting in the parties entering into a settlement agreement that extended the sectional completion dates.


A dispute then arose regarding the sectional completion dates and delay damages provisions of the Sub-Contract. Beumer argued that the provisions were uncertain and therefore were unenforceable. The matter was referred to an adjudicator who agreed with Beumer.


Vinci subsequently applied to the court for declaratory relief as to the enforceability of the provisions relating to sectional completion dates and delay damages.


Vinci argued that the disconnection of existing baggage handling equipment did not fall within Section 5 (Baggage) as it was not part of the baggage system works and therefore it fell under Section 6 (Remaining Works). The Sub-Contract in relation to delay damages was therefore clear and enforceable.

Beumer argued that it was not clear whether the disconnection of existing baggage handling equipment fell under Section 5 or Section 6. But some of that work must fall under Section 6. As there was no certainty to the work included within each Section, the delay damages were unenforceable.


Decision


The judge found in favour of Vinci i.e. that the contractual provisions were operable and enforceable.
The judge stated that the parties clearly intended the works to be divided into sections for the purpose of access and delay damages (amongst other things). The parties had agreed different rates of delay damages in relation to Sections 5 and 6, therefore the parties must have had some understanding as to the work included in each section.


The Sub-Contract included a schedule which briefly listed work included in Sections 5 and 6 and included sufficient information for the court to determine the work that fell under each Section.


With regard to contract interpretation the judge stated that:

  • a contractual provision should be read in the context of the contract as a whole; and
  • in relation to the intention of the parties, it should take into account what a reasonable person with background knowledge would have understood.


Importantly, the judge also noted that “The courts are reluctant to hold a provision in a contract void for uncertainty, particularly where the contract has been performed”.

Conclusions


This case serves as a reminder as to how the courts deal with uncertainty in a contract and highlights how the court is reluctant to find a provision is unenforceable where a contract has been performed.
Parties making bespoke amendments to a contract should take care to clearly set out the meaning / scope of the provision to avoid the potential for such disputes.

 
 
 

Contacts


Sarah Wilson | Partner

Email:
sarah.wilson@watsonburton.com
Tel:
0345 9010930