Author: Justin Mendelle and Tola Odedoyin
It is common for parties to a construction contract to apportion risk and limit liability by specifying the damages that one party will be obliged to pay to the other in the event of a breach.  However, it is by no means straightforward to always capture commercial intentions with precise legal drafting, as demonstrated by the fact that the Court of Appeal took a different view to the High Court.

This case once again illustrates the risks associated with poorly drafted clauses and the impact this can have on recoverability.


On 7 November 2011, the claimant, The Royal Devon and Exeter NHS Foundation Trust (the “NHS Trust”), entered into a contract with the defendant, ATOS IT Services UK Limited (the “Contractor”) for the provision of information management services (the “Contract”) for a period of five years with a total contract price of £4,939,207.00.  In 2016, unhappy with the performances of the system, the NHS Trust terminated the Contract and sought damages for wasted expenditure to the sum of approximately £7.9 million.  The Court had to consider the meaning and effect of the caps on liability.

The Contract contained within clause 8.1.2(b), a provision which sought to cap the Contractor’s liability for breach of all defaults under the Contract, with such limits not exceeding the amount stated in Schedule G.  Paragraph 9 of Schedule G provided:

“9.2:     The aggregate liability of the Contractor in accordance with sub-clause 8.1.2 paragraph (b) shall not exceed:

9.2.1:   for any claim arising in the first 12 months of the terms of the Contract, the Total Contract Price as set out in section 1.1; or

9.2.2:   for claims arising after the first 12 months of the Contract, the total Contract Charges paid in the 12 months prior to the date of that claim.

Paragraph 9 of Schedule G was a bespoke amendment negotiated between the parties and did not form part of the standard form contract.

The NHS Trust argued that the liability provision in paragraph 9.2.2 of Schedule G was not capable of being construed because it is “not clear whether there is a single cap calculated by reference to a claim or whether there is a separate cap for each claim that arises. Multiple caps for each claim arising is inconsistent with the concept of a cap”. Accordingly, the NHS Trust argued that the cap should be declared unenforceable.  The Contractor argued that the liability provision was valid and enforceable: the cap was to be determined by the timing of the first default, or in the alternative, there were two caps, the first cap applying to any claim arising in the first 12 months of the Contract and the second cap applying to any claims arising after the first 12 months.

The issue facing the Court was whether the wording in paragraph 9.2.2 was so uncertain and ambiguous, that it would render the liability provision unenforceable.

First Instance Decision in the Technology and Construction Court

HHJ O’Farrell did not agree with the arguments raised by the NHS Trust and found that clause 9.2.2 was enforceable.  In coming to her decision, she noted that the court is concerned primarily with ascertaining whether the intention of the parties would be readily understood “by a reasonable person, having all the background knowledge which would have been available to the parties.”  She went on to say that “the starting point is clause 8.1 which clearly states that the parties have agreed to limit their respective liabilities under the Contract. The wording of clause 8.1.2(b) indicates that the parties intended to impose a financial cap on the total liability of either party for all Defaults” and “although the language used in paragraph 9.2 is not helpful”, there was a clear intention between the parties to have a cap on liability. In her view, there was a singe cap on liability, which was dependent on the timing of the claims.

The NHS Trust appealed, abandoning its previous argument relating to the unenforceability of paragraph 9.2, and instead submitted that the TCC got it wrong when it suggested there was one aggregate cap for liability as opposed to two separate caps on liability.

Decision in the Court of Appeal

The Court of Appeal allowed the NHS Trust’s appeal on the basis that HHJ O’Farrell had erred in her findings that there was one aggregate cap for liability as opposed to two separate caps.

In coming to that decision, LJ Coulson considered which of the alternate views of the liability provisions made the most common sense.  On a proper construction of the provision, he found that “the language of paragraph 9.2 points emphatically towards there being two separate caps.”  He concluded that this made the most sense since paragraph 9.2.1 provided a higher cap on liability because the Contractor was carrying out high value work within the first 12 months, whereas paragraph 9.2.2 provided for a lower cap on liability due to the Contractor doing lower value work in years 2, 3, 4 and 5.  The court observed that there was “nothing surprising about this arrangement”.

The Court of Appeal considered that “the natural meaning, and the meaning which yields the least bizarre consequences” of clause 9.2 was the interpretation that provided “a high cap for defaults occurring in the first year and a separate, lower cap for defaults occurring in subsequent years”.  This they considered, made the most commercial common sense and was therefore to be preferred.


Liability clauses are often fiercely negotiated, with multiple versions of complicated provisions going back and forth between the parties. This case once again shows that a lack of clarity can have adverse consequences, leaving both parties to a contract uncertain as to the legal effect of bespoke drafting. Practically, one should always work through multiple scenarios to ensure that everyone has a shared understanding of what is being agreed – the drafting should then ‘simply’ implement that understanding.


Author: Tola Odedoyin and Justin Mendelle

We continue our look back at some of the more interesting or lesser reported cases from last year – in the spotlight this week, GB Building Solutions Limited (GB) v SFS Fire Services Limited (SFS).


In 2009, GB Building Solutions Ltd (the main contractor) was engaged as a design and build contractor for an office development in Manchester. It engaged SFS Fire Services Ltd (the sub-contractor) to design and install the development’s fire prevention sprinkler system.  Both parties entered into an amended JCT 2005 design and build sub-contract.  Due to an apparent fault with the water sprinkler system, flooding at the site caused damage, with GB claiming in excess of £600,000 for losses incurred as a result of the flood.

Clause 6.6.1 of the sub-contract conditions contained within it, a provision which stated that the joint names insurance policy that applied to GB would also name SFS as an insured.  The joint names insurance policy would cover SFS up until the Terminal Date.  In bringing its claim, GB claimed that the flooding occurred after the Terminal Date and therefore SFS was liable for the losses suffered.  In contrast, SFS raised a defence stating that because the meaning of practical completion under the sub-contract is to be given the meaning of practical completion as defined within the schedule of modifications, the flooding therefore occurred before the Terminal Date.  A dispute arose concerning the correct interpretation of when practical completion was considered to have occurred, for the purpose of ascertaining whether the flood occurred before or after the Terminal Date.

The key clauses from the sub-contract in relation to this dispute centred on the definition of practical completion, as this confirmed when the transfer of risk moved from the main contractor to the sub-contractor.  Within the standard sub-contract conditions, clause 6.1 defined the Terminal Date as:

the date of practical completion of the Sub-Contract Works or, in respect of a Section, of such works in the Section as determined in accordance with clause 2.20” (emphasis added).

Clause 6.1 reads as the Terminal Date being when the sub-contract works are practically complete in accordance with clause 2.20 that the main contractor and sub-contractor have to go through in order to confirm practical completion of the sub-contract works has been achieved.  However, the design and build sub-contract conditions as modified by the schedule of modifications defines “Practical Completion” as:

the issue of the Certificate of Practical Completion pursuant to the Main Contract.” (emphasis added)

The issue for the court, was whether the undefined definition of practical completion in clause 6.1 could be interpreted to mean the same as the defined term in the schedule of modifications and what effect that would have.


The court agreed with the arguments raised by GB, pointing out that the uncapitalised definition of practical completion in clause 6.1 could not be taken to mean the same as the capitalised definition of “Practical Completion” under the schedule of modifications.  Despite SFS raising the argument that the schedule of modifications takes precedence over the sub-contract conditions and therefore the definition of practical completion in clause 6.1 should be given the same meaning as in the schedule of modifications, the court opposed this interpretation of the clause and concluded that practical completion was achieved when the sub-contract works were practically complete under clause 6.1.

HHJ Davies acknowledged that whilst there was some ambiguity presented by the bespoke amendments to the JCT standard form document in providing two contrasting definitions of practical completion, the usual tools of contract interpretation apply.  Specifically, relying on the recent case of Wood v Capita Insurance Services Limited, he stated that “the court’s task is to ascertain the objective meaning of the language which the parties have chosen to express their agreement.”  In saying this, HHJ Davies considers interpreting “such provisions may be particularly helped by considering the factual matrix and the purpose of similar provisions in contracts of the same type” and the “iterative process by which each suggested interpretation is checked against the provisions of the contract and its commercial consequences are investigated.”

In reaching his judgment, HHJ Davies was content that there was no ambiguity between the two phrases as “they are not the same”, accepting the claimant’s submission that “it would have been perfectly easy to have amended clause 6.1 so that it defined the Terminal Date as “the date of Practical Completion”, if that had been intended,” but because that was not what had been intended, it was understood that each clause “simply applies in different circumstances.”  As such, he concluded that the flooding occurred after the Terminal Date and therefore the risk transferred to SFS.


It’s easy to say but difficult to achieve – say what you mean! Far too often, both clients and lawyers are guilty of over-complicating matters, drafting convoluted clauses or provisions which are inconsistent with each other. The advice is straightforward – aim for simplicity and always seek to phrase things in the most clear and logical way possible.

As 2018 kicks off, we thought we’d take a look back over a few of the key decisions from last year – this is the first in our series. In MT Højgaard A/S v E.On Climate and Renewables UK Robin Rigg East Ltd and another [2017] UKSC 59, the Supreme Court, in a significant judgment for the construction industry, allowed E.ON’s appeal and restored the first instance decision of Edwards-Stuart J in the Technology and Construction Court.


E.ON appointed MT Højgaard A/S (“MTH”) under a contract dated 20 December 2006 to design, build and install two offshore wind farms. Unfortunately, some of the turbines developed significant faults shortly after construction was completed and costly repairs were necessary.

This litigation concerned who should be liable for the costs of those repairs and involved a detailed examination of the documents and obligations that formed the contract between E.ON and MTH. The basis of the dispute was whether or not MTH was under a fitness of purpose type obligation which was contained in a technical schedule in the contract. This had the effect of a warranty that the turbine component would not fail within a certain timeframe (20 years). This was despite obligations on MTH elsewhere in the contract to exercise reasonable skill and care and to comply with an international standard (J101) – which as it turned out, was erroneous and even if met, was insufficient to ensure the standard in the technical document was achieved.

E.ON’s tender documents included a set of Employer’s Requirements, which in turn had a set of Technical Requirements within them. It was clear from the Technical Requirements that E.ON wanted a design which would ensure the wind turbines would last for 20 years without the need for repair or refurbishment. The Technical Requirements also stated that the successful contractor would have responsibility for identifying any changes which needed to be made to the designs to ensure that they met a higher fitness for purpose threshold. These references indicated that these requirements were a minimum for the contractor to comply with. J101 was also a required standard to be met in the design and build project.

MTH submitted a tender based on these requirements, which E.ON accepted. The parties subsequently entered into a binding contract for MTH to ‘design, fabricate and install the foundations for the proposed turbines’. The Employer’s Requirements (including the Technical Requirements) and J101 formed part of the contract.

Once MTH had completed the works, it was discovered that there was an inaccuracy in J101, which meant that significant remedial works were required to MTH’s works. MTH did not consider that they should be liable for the cost of these works, as they had complied with the international standards and did not accept that the Technical Requirements placed them under a fitness for purpose obligation.


The Supreme Court concluded that MTH was liable for breaching the fitness for purpose obligations, which obliged them to deliver foundations that would have a minimum life of 20 years. This was in spite of the fact that (i) the mistaken variable (J101) was an industry standard that E.ON themselves had requested (ii) E.ON accepted the tender on the basis of the design that MTH had submitted and (iii) the design obligation on MTH was stated to be one of reasonable skill and care.


This is potentially an enormously significant decision for the construction industry. From an employer’s perspective, the case gives clear support for the position that if the technical requirements (properly incorporated into the contract) contain fitness for purpose obligations, then notwithstanding reasonable skill and care obligations elsewhere in the contract, the contractor will be required to meet the higher standard.