The devil's in the detail: ground conditions clauses trumped by tender documentation

United Kingdom

A recent TCC decision highlights the risks of appending pre-contractual documentation to construction contracts. Despite the use of a priorities clause and the insertion of general provisions allocating the risk of ground conditions to the contractor, exclusions contained in tender documentation appended to the contract were found to remain operative.

Clancy Docwra Limited v E.ON Energy Solutions Limited

E.ON engaged Clancy Docwra Limited (“CDL”) as a sub-contractor to excavate trenches and install heat network pipework at the Barts Square development in London. E.ON were contracted to install an underground district heat network using the by-product heat of its locally based Combined Heat and Power Plant. During the work, CDL 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 CDL to investigate the heading and to identify its contents and/or a route around it. A dispute subsequently arose as to whether CDL 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 sub-contract between the parties was based on the JCT Standard Building Sub-contract with sub-contractor’s design, 2011 edition. E.ON relied on bespoke amendments to the sub-contract which sought to pass the risk of ground conditions to CDL as follows:

“2.1.7 The Sub-Contractor shall be deemed to have inspected and examined the site and its surroundings and to have satisfied himself before the date of the Sub-Contract as to the nature of the ground, the sub-surface and sub-soil; the form and nature of the site; the extent, nature and difficulty of the Sub-Contract Works; …. and in general to have obtained for himself all necessary information as to risks, contingencies and all other circumstances influencing of (sic) affecting the Sub-Contract Works.

2.1.8 Notwithstanding any other provision of this Sub-Contract, the Sub-Contractor shall not be entitled to any extension of time or to any additional payment, damages, or direct loss and/or expense on the grounds of any misunderstanding or misinterpretation of any matter set out in clause 2.1.7, or his failure to discover or foresee any risk, contingency or other circumstance (including, without limitation, the existence of any adverse physical conditions or artificial obstructions) influencing or affecting the Sub-Contract Works.”

CDL relied on tender documentation which had been appended to the sub-contract as “Numbered Documents” and which showed that 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 “Sub-Contract Works” were defined in the sub-contract as “the works referred to in the Sub-Contract Agreement and described in the Numbered Documents”.

E.ON in turn relied on a priorities clause in the sub-contract which stated, “if there is any inconsistency between the Sub-Contract Documents (other than the Numbered Documents) and the Numbered Documents […] those Sub-Contract Documents shall prevail”. E.ON argued that the ground conditions clauses quoted above had priority over the tender documents relied on by CDL. 

Ground conditions not included

The court agreed that the scope of the "Sub-Contract Works" was to be judged by reference to the tender documents appended to the sub-contract. Accordingly, CDL'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 CDL's agreed scope of works and did not have the effect of extending that scope. These clauses could not be interpreted as a warranty by CDL that it had satisfied itself that obstructions or other ground conditions risks would not arise or that it agreed to bear the risk of such conditions. That, "would have the effect that clause 2.1.7 allocated to CDL the risk of carrying out work which CDL had expressly excluded from the Sub-Contract Works:  it would have the effect of meaning that CDL had satisfied themselves in respect of the site for the purposes of carrying out works that were not part of the Sub-Contract Works.  And that would not make sense."

An alternative claim by CDL 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 CDL had intended to exclude ground conditions risk from the scope of works, E.ON genuinely believed that they had allocated these risks to CDL through the bespoke amendments to the contract conditions quoted above. 

Conclusions and implications

At first blush, this decision presents a surprising result. Despite bespoke amendments imposing the risk of ground conditions on the sub-contractor, and a clause giving priority to those amendments, the sub-contractor escaped liability for ground conditions by reference to exclusions contained in tender documentation appended to the sub-contract. This highlights the sometimes unexpected outcomes which can arise where pre-contractual documentation is appended to a contract. The tender documents in the present case were taken to have defined the subject matter of the sub-contract, thereby narrowing the scope of the sub-contract conditions.

The court’s findings as to rectification show that E.ON was well aware of the exclusions relied upon by CDL but had placed faith in the general wording of its bespoke amendments. Parties in similar positions should consider carefully whether the drafting of such bespoke provisions are adequate to extend the scope of the works required by the contract and/or to overcome qualifications contained elsewhere in the contract documentation. In the absence of clear wording, clauses which seek to allocate the risk of certain contingencies to one of the parties are likely to be interpreted within the boundaries of the scope of works defined by the contract. They will therefore be susceptible to the types of arguments made by CDL in the present case.

The present decision also bears resemblance to the MJ Hojgaard litigation determined by the Supreme Court last year (see our Law-Now on that case here). That case also involved the court giving effect to appendices to a contract in circumstances which were argued to be surprising and unexpected. The temptation in many projects, due to time or cost constraints, is for such appendices to be included without detailed review or consideration. The use of a priorities clause is unlikely to fully protect against the risks which arise in such circumstances. As these cases show, the court will strive to give full effect to all of the documents forming the contract and the use of appendices should be carefully considered. This underlines the importance of the role of the technical/commercial teams in reviewing any technical and commercial documents making up a contract.

References

MT Hojgaard AS v E.ON Climate and Renewables UK Robin Rigg East Ltd [2017] UKSC 59

Clancy Docwra Limited V E.ON Energy Solutions Limited [2018] EWHC 3124 (TCC)