A reminder of clear and precise contractual construction
The substantive issue in this case was one of contract interpretation, turning on the facts, and providing a reminder that the language of contractual provisions should not be underestimated and ‘every word should pay its own way’1. In particular, it reminds us of the importance of ensuring a clear distinction between the scope of work, and additional works giving rise to a variation, and providing a clear pathway through the variation regime when a variation is triggered.
What happened in this case?
The parties executed an amended AS4902-2000 contract for the design and construction of a golf clubhouse with an access road and associated works, for an agreed Contract Sum excluding (amongst other things) the ‘Excluded Works’.
The court was required to determine whether certain works performed by the builder (the Appellant) fell within the meaning of paragraph ‘(u)’ of the definition ‘Excluded Works’, and therefore provided an entitlement to a variation and payment for performing the work ($700,000 plus GST).
The relevant paragraph of the definition of ‘Excluded Works’ was as follows:
“Notwithstanding any other clause, means the following works which do not form part of the Contract Sum and if required to be carried out, will constitute a variation under this Contract …(u) Any works required on the golf course and outside the construction boundary of the Site, including if those requirements are pursuant to the Development Consent;”
The builder maintained that the contested variations fell under paragraph (u) as they were outside the ‘Site’ and ‘pursuant to the Development Consent’. Conversely, the principal claimed paragraph (u) only referred to possible work the builder might be directed to do, by the principal, rather than existing obligations under the ‘Development Consent’.
The Court’s detailed linguistic analysis during the Appeal
The Court of Appeal of the Supreme Court of NSW held (unanimously) that the appeal be dismissed with costs. In providing its determination the Court restricted its interpretation of the above paragraph to the written Contract (as agreed between the parties), given the parties had recorded their bargain in a document and their intention could be imputed from the language in the document.
The Court undertook a detailed linguistic and grammatical analysis of the contract to ascertain its objective meaning, and emphasised the key question should be ‘what a reasonable person would have understood by the words used in the contract’.
In dismissing the builder’s appeal, the Court held:
- (the clause is to be read naturally and harmoniously with other clauses) the phrase ‘if required [to be carried out]’ is ‘contingent and future’ and naturally refers to a ‘possible’ obligation of the builder, rather than an ‘existing obligation’ upon execution, an approach harmonious with other provisions in the Contract;
- (the paragraph is to be read in the context of the clause) paragraph (u) must be viewed in the context of the whole of the Excluded Works definition which was generally comprised of events triggering a variation where works met a certain threshold, or where something ‘extra’ was required;(avoid an interpretation reflecting an unlikely intention of the parties) if the builder’s interpretation was accepted, the works would both be works mandated by the Development Consent, and Excluded Works, amounting to an absurdity given the works would then be performed as part of the Contract Sum, but would also give rise to a variation;
- (interpret phrases consistent with the contract) the phrase ‘notwithstanding any other clause’ does not remove the works from those included in the Contract Sum as such an interpretation would create an inconsistency with the remainder of the contract.
On the basis of the above it was held the builder was not entitled to charge more than the Contract Sum for performing the works in question.
What do you need to do?
Ensure:
- the scope of works and applicable contract sum payable is clearly defined;
- the scope of works is distinguished from additional works giving rise to a variation;
- a clear pathway through the variation regime is provided.
How can we help?
Our team of construction and infrastructure lawyers have significant expertise to assist you with drafting and negotiation of your project contracts to address the above issues and to assist with contractual interpretation disputes.
This article was written by Theo Kalyvas, Partner, Julie Charles, Senior Associate, George Yiannis, Solicitor and Josh Hanegbi, Law Graduate.
1R Dickerson, The Fundamentals of Legal Drafting (2nd ed, Little, Brown & Co, 1986).
