Abc Electrification Ltd v Network Rail Infrastructure Ltd

In construing a commercial contract, clear language ordinarily prevails unless the contractual and commercial context supplies a workable alternative meaning. The word default, where expressly linked to a contractor’s compliance with its contractual obligations, means failure to fulfil those obligations. It therefore includes breach of contract and does not require separate proof of personal blame or culpability.

Potential redundancy in other provisions, particularly in an amended standard form, does not justify departing from that meaning where the alternative construction is vague and the provisions are not inconsistent. A Target Cost Contract may validly allocate to the contractor the costs caused by its own contractual breaches.

ABC Electrification Limited was engaged under a Target Cost Contract incorporating the ICE Conditions as amended by Network Rail’s NR 12 amendments. Network Rail treated approximately £13.43 million of costs as Disallowed Cost, contending that they arose from ABC’s failures to progress and complete the works in accordance with the Contract.

In CPR Part 8 proceedings, the Technology and Construction Court granted declarations that costs due to ABC’s failure to comply with its contractual obligations fell within clause 1(1)(j)(iii). ABC appealed, submitting that default required fault in the sense of blameworthy or culpable conduct, rather than a breach for which no such blame was established.

The central issue was the proper construction of default in the definition of Disallowed Cost.

1. Appeal dismissed. The court upheld the declarations made below. In clause 1(1)(j)(iii), default on the part of the Contractor in his compliance with any of his obligations under the Contract means a failure to comply with those obligations: in other words, a breach of contract. A cost due to such a breach is Disallowed Cost.
2. The ordinary meaning of default was decisive when read with the words which expressly linked it to compliance with contractual obligations. The clause did not require an additional and unspecified degree of personal blame or culpability. Such a qualification could not be equated with negligence, which was already a separate limb of the provision, and supplied no workable standard.
3. The wider contractual context did not justify a different construction. The court accepted that the amendment could make some provisions redundant, but redundancy is an unreliable basis for an unnatural reading of a lengthy standard form amended by targeted changes. The identified clauses were not inconsistent with Network Rail’s construction, and ABC’s proposed alternative was uncertain.
4. The court treated Perar BV v General Surety & Guarantee Co Ltd [1994] 66 BLR 72 as a close analogy. Where default is tied to the terms of an underlying contract, it naturally denotes a failure to comply with those terms.
5. The Target Cost mechanism did not qualify the agreed allocation of risk. The parties were entitled to provide that the contractor bore costs caused by its own breach, and that allocation was commercially coherent because it incentivised both performance and cost control.

• Court of Appeal (Civil Division) — dismissed ABC’s appeal and upheld the declaratory relief.
• Technology and Construction Court — Miss Joanna Smith QC, sitting as a Deputy High Court Judge, granted declarations on 5 July 2019 that costs due to ABC’s failures to comply with its contractual obligations were Disallowed Cost.