Did a 'priority of documents' clause apply?
RWE v BENTLEY [2013]
The Court held that it did not need to look at a ‘priority of documents’ clause because it only applied where there was an ambiguity or discrepancy that remained once the Court had interpreted the contract in the usual way.
Facts:
- As is very often the case, the parties entered into a contract which brought together various documents to form the whole agreement. Most typically commercial contracts consist of a minimum of two parts, the contract terms and the supporting schedules. In this case the contract included what was called a ‘Contract Data Part 1’ document and a ‘Works Information’ document.
- There was a Priority of Documents clause (sometimes referred to as an Order of Precedence clause) setting out what the priority of the different documents should be if two or more were in conflict or were inconsistent. This stated that the Contract Data Part 1 would prevail over the Works Information.
- R maintained that certain pipelines had to be complete for the elements described in section 2 of the works (“Section 2”) to be complete. It argued that the contract was clear on this and had to be construed as a whole. It was therefore unnecessary to look at the priority of documents provision.
- On the other hand B argued there were clear and largely irreconcilable differences between the Works Information and the Contract Data Part 1. It claimed that the Contract Data Part 1 only required completion of such of the pipeline as was necessary to allow Section 2 to be installed, whilst the Works Information required completion of the pipelines to allow Section 2 to be tested and commissioned. Hence, the Works Information called for the pipelines to be fully completed whilst the Contract Data Part 1 did not.
- The matter went to adjudication which was decided in favour of B and which found that the Contract Data Part 1 document should take precedence over the Works Information.
- R then took the matter to the Technology and Construction Court.
Decision:
- The Court said this was a matter of contractual interpretation and that based on established principles, it needed to “determine objectively what a reasonable person with all the background knowledge reasonably available to the parties at the time of the contract would have understood the parties to have meant and … to adopt the more rather than less commercial construction”.
- It then went on to say that as the contract was to be construed in the usual way by reference to all the documents forming part of the contract, it was only if there was an ambiguity or discrepancy between two or more contract documents that it was necessary to have regard to the order of precedence, "If it is possible to identify a clear and sensible commercial interpretation from reviewing all the contract documents which does not produce an ambiguity, that interpretation is likely to be the right one; in those circumstances, one does not need the 'order of precedence' to resolve an ambiguity which does not actually on a proper construction arise at all".
- The Court preferred R's argument and, although there were differences between the two descriptions of Section 2, it said there was no material ambiguity that needed the Court to rely on the priority of documents clause.
Points to Note:
- ‘Priority’ clauses are often included as part of the contractual ‘boilerplate’ provisions with little thought. Different authors take different approaches. Some prefer to give priority to the main contract terms over the schedules, possibly because the contract terms have been carefully drafted and considered by lawyers, whilst the schedules may have been drafted by non-lawyers. This approach is regarded as a ‘back-stop’ to safeguard against the schedule drafters agreeing something stupid. However, in our view this is a protection against laziness or, maybe, just sheer lack of time or because of the cost. Perhaps it is because the lawyers don’t really understand the schedules? Whatever the reason it seems to be a recipe for disaster. If anything, it encourages a distancing by, or of, lawyers from being involved in the drafting or checking of absolutely crucial and integral parts of the contract. Lawyers are doing less than half a job if they only focus on the main contract terms or are only allowed to do this.
- Instead, it is a fundamental part of any good lawyer’s role to ensure that all parts of the contract work together and do not contain inconsistencies. Obviously this is something of an ideal but, we would suggest, ensuring consistent use of language and that the contract works as a whole will pay dividends many times over in the longer term in terms of minimising scope for confusion and resulting disputes.
- Other contract drafters prefer to give priority to the schedules. This is often the case with standard form contracts which need to be modified to take into account the specific commercial details of individual deals, where such details are set out in the schedules or some type of order form. Sometimes specifically agreed changes to a standard contract are documented in a schedule so that they can be easily identified. If in such circumstances priority is given to the schedules, at least this has a degree of good sense to it.
- Ultimately, we would like to see a greater willingness to do away with priority clauses altogether. It has to be better to ensure that the contract documents are entirely consistent rather than trying to work out the parties’ intentions from a confusing collection of provisions contained in different documents, all of which form part of the contract.
- This decision shows that such priority clauses are of limited value when disputes come before the Courts and that they will try to avoid the conclusion that there is a direct conflict wherever possible.