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The recent TCC judgment in John Sisk and Son Limited (Sisk) v Capital & Centric (Rose) Limited (C&C) has demonstrated the importance of clear and consistent contract drafting, particularly in relation to the incorporation of contractors’ “schedules of derogation” or “schedules of clarification”.
Sisk v C&C – Background
Sisk and C&C entered into a JCT Design & Build Contract 2016 (as amended) (the Contract) on 20 May 2022. The works to be carried out included the design and construction of two new residential buildings, repairs and refurbishment of two listed mills and two further existing buildings together with external and other associated works. The dispute centred around which party was contractually responsible for the risks associated with the existing structures on the site and the ability of those structures to support the proposed works
A dispute was initially referred to adjudication to consider two issues: first the ground condition; and second the existing structure. The Adjudicator found in C&C’s favour, ruling that the responsibility for ground conditions and the existing structure was solely Sisk’s risk.
As a result of the Adjudicator’s decision, Sisk issued Part 8 court proceedings, seeking declaratory relief in connection with the allocation of risk under the Contract.
Risk allocation for the existing structures was set out in clauses 2.42.1 to 2.42.3 of the amended conditions. In summary, Sisk was stated to be responsible for risk in relation to the existing structures and ground conditions. However, clause 2.42.4 read “this clause 2.42 shall be subject to item 2 of the Clarifications“. The definition of Clarification was “the clarifications headed ‘Contract Clarifications’ contained within Volume 2, Appendix 2.9 of the Employer’s Requirements”. The Judge focused on this definition and whether there were any inconsistencies in the contract documents. The Judge ultimately disagreed with the Adjudicator’s decision that Sisk was solely responsible for the existing structures and ground conditions.
In particular, the Judge noted that the electronic version of the Contract included two clarification documents, the ‘Contract Clarifications’ and the ‘Tender Submission Clarifications’. Whereas, the paper version of the Contract only included one clarification document, the ‘Contract Clarifications’. The Judge had to determine what documents had been included within the Contract and what fell within the definitions of Clarifications.
This question had substantial implications on the parties’ liabilities. This was because item 2 of the Contract Clarification document provided that “the Employer is to insure that existing buildings/works”, whereas item 2.1.02 of the tender submission clarifications conversely stated that C&C would procure insurance “in line with JCT Option C”.
TTC judgment – pre-contractual negotiations
Both parties submitted evidence of pre-contractual negotiations to support their respective positions. The Judge, however, generally prohibited the parties from relying pre-contractual negotiations. It was considered that “evidence of pre-contractual negotiations is admissible to establish that a fact was known to both parties”. In this case, “any admissible evidence would need to be directed either to a particular known fact or to the general object of the contract”. The Judge decided that they had no proper basis to have regard to the pre-contractual negotiations as admissible evidence of the issues in dispute.
TCC judgment – Which contract documents?
The Judge also had to address the issue of what documents formed the Contract. C&C argued that the Contract definition of “Clarifications” included both the Contract Clarifications and the Tender Submission Clarifications. The Judge, however, rejected this argument, stating “…Section 2.9 referred to a Clarifications Document, not to a Contract Clarifications Document. The contract definition refers expressly to “the clarifications headed “Contract Clarifications” contained within Volume 2, Appendix 2.9 of the Employer’s Requirements”… this can only be referring to the specific contract clarifications worksheet which is “within” the Clarifications Document, rather than to the whole workbook…”
TTC judgment – Clarification definition
In light of the above, the dispute hinged on the fact that “contract clarification two” stated that “the Employer is to insure the Existing buildings/works. Employer also to obtain warranty from Arup with regard to the suitability of the proposed works. Employer Risk”. The Contract failed to provide definitions of Existing Structure Risk or Employer Risk. While it was difficult to see what risk had been allocated to C&C in the absence of sufficient definitions, the Judge objectively concluded that that C&C had accepted the contractual risk associated with the suitability of the existing structures, and that this risk solely fell on C&C, rather than Sisk.
Difference in ‘incorporating’ and ‘referring’ to a document
In this case, the conditions of contract were amended such that clause 2.42.4 was to be subject to the ‘Clarifications’, being contained within the Employer’s Requirements, a contract document. In the comparable matter of Workman Properties Ltd v Adi Building & Refurbishment Ltd [2024], the contract stated that Adi had examined the Employer’s Requirements and had agreed to accept full responsibility for any design. The Court had to consider whether paragraph 1.4 of the Employer’s Requirements meant that Workman had warranted to complete the design to the end of RIBA Stage 4, and whether this was capable of overriding Adi’s obligations. The Court concluded that the Employer’s Requirements were “nowhere near sufficient to require the other unequivocal contract provisions to be read as so heavily qualified”. The Employer’s Requirements therefore did not override the contractual terms here, and Adi remained responsible for ensuring the design was sufficient and adequate for construction.
In Workman, the contents of Employer’s Requirements were not capable of overriding conditions of contract. In Sisk, however, the fact the Employer’s Requirements had been directly referenced in the conditions of contract meant that the opposite was true (i.e. that the Employer’s Requirements outranked the conditions). Readers should note that simply incorporating a contract document within the contract may not have the intended impact, as opposed to expressly referring to the contract document in the conditions. Parties should therefore consider how the contract documents are to be utilised and referred to, and whether an order of precedence clause should be deployed to properly record the parties’ intentions with regard to the contract documents, especially where there may be inconsistencies between documents.
Michelmores’ comments – learning points
These cases highlight important learning points that parties should be mindful of when drafting definitions and incorporating documents into contracts:
- Construction contracts are commonly made up of agreements signed by the parties, which often refer to a set of underlying ‘contract documents’. The contract documents can include specifications, drawings and other particulars that will help define the scope of a party’s obligations. The terms of the contract should clearly identify and incorporate those documents. The parties should also check that any definitions contained in the contract documents align with the express terms of the contract. This can be particularly relevant where a party is using standard form contracts, such as a JCT contract, where pre-existing definitions may not match bespoke specifications and schedules.
- Should a dispute arise as to the interpretation of a contract, Judges may not readily consider pre-contractual negotiations between the parties, as this can only be done in limited circumstances. All information should therefore be included within the terms or in the relevant contract documents. This will minimise the risk of a dispute arising, or there being a need to refer to pre-contractual negotiations to resolve any dispute.
- Parties need to ensure that risk allocation and responsibility is clearly allocated. Where carve-outs are being used, no matter how limited, it is essential the accepted risks are clearly and correctly recorded. This is reinforced by the Judge’s comment that “the bespoke provisions illustrate how negotiations and agreements of such issues can lead to a final contract position of some complexity”. Such mistakes can cause unwanted headaches with the ‘losing’ party suffering additional unexpected costs and liabilities.
- Proper consideration should be given to the procurement and drafting of contracts. Contracts should be drafted with appropriate oversight (including legal input where necessary) which can help minimise the risk of such disputes arising. A modest expense up front in getting the drafting correct can avoid a costly mistake down the line.
Should you have any queries or need assistance with contract drafting or any dispute, please do not hesitate to contact Anna Wood (Partner) or Andrew Pratten (Associate) in Michelmores’ specialist Construction and Engineering team. With thanks to Charlotte Pottow (Trainee Solicitor) for her contributions to this article.
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