Background:

The University of Warwick (Warwick) contracted Balfour Beatty Group Ltd (Balfour Beatty) under an amended JCT 2011 D&B to design and construct the National Automotive Innovation Centre (the Centre). The works were split into 4 sections. Balfour Beatty took possession of each of these sections on the 20 April 2015. However, the dates for completion specified for each section varied – section 1-3 were to be completed by April 2017 but section 4 had a later completion date of July 2017. Warwick was entitled to recover liquidated and ascertained damages (LADs) in circumstances where Balfour Beatty did not achieve Practical Completion, with different rates of LADs applied per section.

The argument brought before the adjudicator in the first instance turned on what constituted Practical Completion. If sectional practical completion was possible, then the LADs clause for each section would be operative and Balfour Beatty would be liable to pay such damages. However, Balfour Beatty argued that only completion of the Works as a whole constituted Practical Completion under the amended JCT. This was because the parties amended the definition of “Practical Completion” to “a stage of completeness of the Works or a Section which allows the Property to be occupied or used”. Although this appears cut and dry, this definition was uncertain because “Property” itself was defined to mean “the property comprised of the completed Works”. These two definitions do not sit well together and therefore cast doubt on whether sectional completion was even possible. If there could be no sectional completion, then the LADs provision relating to each section was inoperable, because it was not possible to separately achieve Practical Completion of a section prior to Practical Completion of the whole of the Works.

Decision:

On 2 May 2018, the adjudicator found in Balfour Beatty’s favour, stating that Practical Completion could not be sectional because the only time that the Centre could be occupied and used was when all 4 sections had achieved Practical Completion. This was further supported by the ordinary and natural meaning of the words, namely the definition of Property referring to the Works alone suggesting that it was “not possible to achieve Practical Completion of any Section in isolation from the other Sections”.

The TCC has come to a different decision. In doing so, they have followed the principles of contract interpretation as set out in Chartbrook Ltd v Persimmon Homes Ltd[1] and confirmed by Lord Neuberger in Arnold v Britton[2]. The approach taken should be to “identify the intention of the parties” at the time that the contract was entered into. This should be done using commercial common sense, such that “a reasonable person having all the background knowledge which would have been available to the parties would have understood them to be using the language in the contract to mean”.

Implications:

Although the court has shown a willingness to depart from the literal meaning where ambiguous drafting caused uncertainty in this particular case, it remains bound by the maxim of contract interpretation that it must follow the plain and ordinary meaning of the contract, and that it will not rescue a party from a bad deal.

The published form of JCT Design and Build contract provides a simple definition of Practical Completion, whereas the parties in this case had agreed lengthy amendments to the definition. This case is a stark reminder that any amendments to a standard form contract must be made with care and a full understanding of their implications. It was highly relevant to the judge in reaching his judgment that the Contract Particulars contained completion dates that varied by section and LADs provisions which levied different quanta of damages for different sectional defaults. It appeared clear that the parties were trying to suggest that the whole of the Works need not be complete for an individual section to be considered complete and capable of occupation, otherwise such differences need not have been negotiated.

This particular analysis shows us how fact-sensitive the maxims of contract interpretation are and how strongly they are rooted in the factual matrix and contractual negotiations of each party.

Practical Tips

  • Ensure consistency between each of your amended definitions when bespoke drafting.
  • Ensure that priority between each documents is clearly set out in the conditions of contract section and that each schedule and the Contract Particulars are rigorously checked for inconsistencies, tautologies and uncertainty.
  • Don’t assume that an amendment which appears to be ‘common-sense’ or ‘obvious’ is either of those – check and double-check that it actually achieves your stated objective.

[1] [2009] UKHL 38

[2] [2015]AC 1619

We have extensive experience advising on the JCT suite, construction and commercial contracts and would be happy to advise you further. Justin Mendelle heads up the Construction team. Juli Lau is an Associate in the Commercial Contracts team at Sharpe Pritchard. Alexandra Bellis is a Trainee Solicitor at Sharpe Pritchard.

This article is for general awareness only and does not constitute legal or professional advice. The law may have changed since this page was first published.