RWE Npower Renewables Ltd v J N Bentley Ltd

Commercial contracts must be interpreted objectively by reference to the contract as a whole and the background reasonably available to the parties. Where contractual documents contain an order of precedence, that mechanism applies only if a genuine ambiguity or inconsistency remains after the documents have been read together. The court should not construe each document separately and then manufacture an inconsistency by comparing the resulting interpretations. Shorthand descriptions in a contract document may be understood in the context of fuller specifications, programmes and other incorporated documents. On that approach, the contractual requirement for sectional completion included completing and testing the intake and the entire penstock pipeline.

RWE engaged J N Bentley Ltd under an NEC3-based contract for civil engineering works on a hydro-electric scheme. The contract incorporated several documents in an express order of precedence, including Contract Data Part 1, the NEC3 conditions, Works Information, Site Information and Contract Data Part 2.

A dispute arose over whether completion of Section 2 required completion and testing of the whole penstock pipeline and intake, or only the work necessary to allow the Hydro Plant to be installed. RWE had been unsuccessful in an adjudication and commenced Part 8 proceedings seeking declarations concerning the contractual meaning of Section 2. The central issue was whether the documents contained a genuine ambiguity requiring application of the contractual order of precedence.

1. Contractual interpretation. The court applied the objective approach applicable to commercial contracts. The question was what a reasonable person with the relevant background knowledge would have understood the parties to mean, adopting a commercially sensible construction where possible.
2. Effect of the order of precedence. Although the contract stated that its documents were to be read and construed together and specified an order of precedence, the precedence provision operated only where a genuine ambiguity or inconsistency remained between documents. It was impermissible to construe each document independently and compare the different results to create an ambiguity. The court had first to interpret the contract as a whole.
3. Section 2. The shorthand description of Section 2 in Contract Data Part 1 had to be read with the Works Information, the contractual programmes, the key dates and the contractor’s incorporated proposals. Those materials showed that the parties intended the penstock pipeline and intake to be completed and tested before Section 2 was complete. The differences between the relevant descriptions were not materially inconsistent. The pipeline-testing key date and the programmes were particularly strong indications of that intention.
4. Declaration. The court declared that completion of Section 2 required J N Bentley Ltd to complete and test the intake and the penstock pipeline. It deliberately made no declaration concerning other elements of Section 2 because those matters had not been fully argued. Completion of Section 2 was common ground to have occurred on 25 October 2012.

The judgment records that an adjudicator, Mr Wilmot-Smith QC, issued a decision on 25 January 2013. The court stated that it was not bound by that decision and determined the contractual construction issue in Part 8 proceedings.