The allocation of risk for unforeseen ground conditions is often a key part of building contract and development agreement negotiations.
Employers will generally seek to shift this risk onto the contractor (as the expert whose skills the employer is relying on); whereas contractors will want more time and money if they encounter something not anticipated.
The decision in Clancy Docwra Ltd v E.ON Enery Solutions Ltd may have come as some surprise to E.ON.
Facts
E.ON appointed Clancy Docwra Ltd (CDL) as its sub-contractor to excavate some trenches and install underground heating pipework for a residential development in central London.
During the excavation works, CDL encountered unexpected brick walls and rubble which had to be removed. CDL claimed that it was entitled to additional time and money for this extra work.
The sub-contract contained terms which E.ON argued clearly allocated such risk to CDL, including terms that CDL:
- was deemed to have inspected the site and satisfied itself as to the extent, nature and difficulty of the Sub-Contract Works
- was not entitled to any extension of time or additional payment due to any failure to foresee any risk affecting the Sub-Contract Works
- shall not be released from any risk on the ground that any matter affecting the execution of the Sub-Contract Works could not have been foreseen
So far, so clear cut. Or is it?
Notably, each of the risk allocation clauses made specific reference to the “Sub-Contract Works”. In this case, the Sub-Contract Works were defined by reference to various Numbered Documents, including a list of exclusions which CDL had issued as part of its tender submission.
One such exclusion was “breaking out of obstructions”, which CDL therefore argued did not form part of the “Sub-Contract Works”. Consequently, the risk allocation clauses were irrelevant.
Judgment
The Court agreed with CDL.
Whilst the clear intention of the risk allocation clauses was to allocate risk of ground conditions to CDL, they only operated to allocate such risk in relation to the scope of the Sub-Contract Works. If the Sub-Contract Works did not extend to clearing obstructions, then the risk of such obstructions remained with E.ON.
The additional work was therefore a variation for which CDL would be entitled to more time and money.
Comment
It appears that part of E.ON’s downfall was its apparent failure to properly scrutinize the entirety of the sub-contract documents and appreciate the inter-relationship between the technical specification and the legal terms. The case demonstrates the need for those compiling contracts to take extra care in ensuring that there is no conflict between the legal and technical aspects of the documentation.
Read more on the case here.
