Abc Electrification Ltd v Network Rail Infrastructure Ltd

Under the ICE target cost conditions as amended by the NR 12 amendments, default in compliance with contractual obligations means breach of those obligations. Costs due to such a breach are Disallowed Cost without an additional requirement of blame or culpability. Contractual language must be assessed objectively in its full contractual and commercial context. Clear wording cannot be displaced by an alternative construction which introduces an undefined standard of culpability. Redundancy elsewhere in an amended standard form does not itself justify an unnatural construction. A target cost mechanism permits the parties to allocate the cost consequences of contractual breach to the contractor before calculating its pain or gain share.

Network Rail Infrastructure Limited, the employer, engaged ABC Electrification Limited, the contractor, under a novated and varied contract for railway power supply upgrade works. The contract incorporated the ICE target cost conditions with the NR 12 amendments. Payment depended partly on Total Cost, which excluded Disallowed Cost before the pain/gain share calculation.

ABC failed to complete the works within the contractual timetable. Network Rail categorised approximately £13.43 million as Disallowed Cost attributable to breaches of the contractor’s obligations concerning progress and completion. It brought Part 8 proceedings seeking declarations about the contractual definition.

Miss Joanna Smith QC, sitting as a Deputy High Court Judge in the Technology and Construction Court, granted declarations that Disallowed Cost included costs due to failure to comply with contractual obligations. ABC appealed. It abandoned its earlier argument that default required wilful or deliberate conduct and contended instead that default required blame or culpability beyond breach. The central issue was the meaning of default in clause 1(1)(j)(iii).

1. The appeal was dismissed unanimously. Default in clause 1(1)(j)(iii) meant failure to comply with the contractor’s contractual obligations. Disallowed Cost therefore included any cost due to such failure. The declarations granted below remained in force ([30], [55], [65], [69], [79]).

2. Construction required an objective assessment of the contractual language in its documentary, factual and commercial context. The exercise was unitary and iterative. Clear language remained important, although it had to be tested against the other provisions and the contract’s commercial consequences. The amended clause expressly linked default to identified contractual obligations, making breach of those obligations its natural meaning ([18]–[19], [31]–[34], [41]).

   Perar BV v General Surety & Guarantee Co Limited [1994] 66 BLR 72 supported that construction where default was similarly tied to the underlying contract terms. Authorities concerning differently worded provisions in other contractual settings did not govern the present clause ([35]–[40], [71]–[72]).

3. The proposed additional requirement of blame or culpability supplied no workable standard. It could not simply mean negligence, which was already a separate limb. There was no contractual basis for introducing an unspecified degree of personal culpability. Males LJ regarded that uncertainty as an overwhelming reason to reject the proposed construction. Coulson LJ agreed that it would produce an uncertain and uncommercial result ([46]–[48], [59], [63], [75]).

4. Redundancy did not justify departing from the clear wording. Overlap already existed between the negligence limb and the provisions concerning repair and rectification. Targeted amendments to a lengthy standard form could leave provisions unnecessary or duplicative. Although some provisions could have been amended more clearly, they were consistent with the adopted construction and could still confirm the treatment of particular costs ([44]–[45], [50]–[52], [64], [76]–[78]).

5. The target cost structure supplied no contrary requirement. The parties could agree that the contractor would bear the cost consequences of its own breach. Disallowed Cost was deducted before calculating the contractor’s share. That allocation promoted both performance and cost control and did not offend commercial common sense ([53]–[54], [73]–[74]).

6. It was unnecessary to decide whether the unamended negligence limb required the contractor’s proposed two-stage inquiry. The amended clause excluded costs resulting from negligence or contractual breach. The court upheld the declarations on construction, rather than determining the disputed cost assessment ([55], [68]–[69], [79]).

• Court of Appeal (Civil Division): In [2020] EWCA Civ 1645 , the court unanimously dismissed ABC’s appeal and upheld the declaratory order.
• High Court, Queen’s Bench Division, Technology and Construction Court: Miss Joanna Smith QC, sitting as a Deputy High Court Judge, granted judgment for Network Rail. By order dated 5 July 2019, she declared that Disallowed Cost included costs due to the contractor’s failure to comply with its contractual obligations, including obligations concerning commencement, progress and completion.