In a recent case*, the court had to consider the interpretation of contract documents where there are ambiguities in the order of precedence (i.e. the priority of the contract documents).
The case involved a construction contract** for civil engineering works in relation to a hydro power scheme in the North of Scotland. The contract value was approximately £4 million. During the works, various delays occurred and a dispute arose between the parties regarding when certain sections of the work should have been completed.
The contract was made up of eight different documents, drafted at different times, some of which were ‘post-tender clarifications’ documents. The timings for completing the works were set out in two different documents:
- the first document was called the ‘Contract Data Part 1’ document;
- the second was called the “Works Information” document.
The order of precedence clause prioritised Contract Data Part 1 over the Works Information.
In an attempt to avoid confusion, the contract included a clause setting out the order of precedence (i.e. the priority) in which those contract documents should be read and construed.
The discrepancy between the completion dates set out in the two documents raised a question as to which document should take precedence.
In considering this question, the Court of Appeal decided that order of precedence clauses should only be relied on if a clear and irreconcilable discrepancy exists.
This case makes clear that order of precedence clauses will not, on their own, be enough to determine the parties’ rights and obligations when a conflict arises where the same obligations are described differently in various contractual documents.
The judge confirmed that:
- Contract documents should as far as possible be read as complementing each other and therefore as expressing the parties’ intentions in a consistent and coherent manner
- It will only become necessary to resort to the contractual order of precedence where a clear and irreconcilable discrepancy exists
- In resolving potential discrepancies, it is necessary to consider other parts of the contract and interpret the contract as a whole
- Even if there is a clear and irreconcilable difference, one should only look at the order of precedence in relation to the discrepancy
- It is not an opportunity to choose one entire clause or document over another.
This case serves as a useful reminder that it will be necessary to look beyond the documents at the top of the list within the order of precedence clause. Other contract documents are also important and where possible will be enforced. Only if an irreconcilable discrepancy remains would it be necessary to use the precedence clause and, even then, precedence is only to be considered for the discrepancy and should not be used to choose an entire clause or document over another.
In practical terms, the aim should be for the parties to a contract not to rely on an order of precedence clause to resolve discrepancies in the language of the contract but instead to properly analyse the contract and apply a commercial interpretation which is consistent throughout the contract documents.
Clear drafting can substantially reduce the risk and cost of litigation. Some practical tips to bear in mind when using a precedence clause:
- If you do include a precedence clause stating the order of precedence for the documents making up the agreement, be aware that it might prove to be redundant unless there is an irreconcilable difference between the contract documents
- In so far as possible, keep all related provisions, such as project timescales or critical paths, in one document
- Take time to review the agreement as a whole before finalising the contract.
- Wherever possible, avoid setting out the agreement over a large number of different documents.
For more information, email firstname.lastname@example.org.
*RWE Npower Renewables v JN Bentley Limited  EWCA Civ 150
** based on the NEC form of contract