Clarity is key in sectional completion arrangements

In Vinci Construction UK Limited v Beumer Group UK Limited [2017] EWHC 2196 (TCC), the Court had to consider whether the sectional completion provisions in a construction contract were sufficiently clear, such that the contractor could receive compensation from the sub-contractor for delay in completion of the works. This case serves as a reminder to carefully define each stage in a sectional completion arrangement. More generally, this case illustrates the legal principles applicable when determining whether a contractual term is void for uncertainty.

Background

Vinci Construction UK Limited (Vinci) was engaged to carry out construction works at Gatwick Airport. Vinci sub-contracted the design, manufacture, installation, testing and user training of the baggage handling system to Beumer Group UK Limited (Beumer).

The contract between Vinci and Beumer included a sectional completion arrangement. Section 5 “Baggage” had a completion date of 12 May 2015; Section 6 “Remaining Works” had a completion date of 27 May 2015. The contract provided for liquidated damages in case of delay.

Delays occurred and the parties entered into a settlement agreement to extend the completion dates of Sections 5 and 6 to 17 November and 14 December 2015 respectively.

Beumer argued that it was uncertain under the contract (as amended by the settlement agreement) which part of the project works fell within Section 5 and which fell within Section 6, meaning that associated completion dates and liquidated damages clauses were also uncertain and unenforceable.

The Dispute

It was common ground that the project works included:

  (i)        The baggage handling system works within the new pier building;

 (ii)       The baggage handling system works within the existing building required to make the new baggage system operational;

 (iii)       Beumer’s works in connection with the Airport Operation Readiness trials; and

 (iv)       Disconnection of the redundant baggage equipment but not including the strip out and removal of the same.

Both parties agreed that items (i) to (iii) above fell within Section 5. However, Vinci argued that item (iv) fell within Section 6, whereas Beumer argued that it was not clear or ascertainable whether item (iv) fell within Section 5 or Section 6.

Court’s Decision

The Court considered the following general principles:

(1)        When interpreting a written contract, the Court will ascertain the intention of the parties by reference to what a reasonable person, having all the background knowledge available to the parties, would have understood them to be, using the language in the contract.

(2)        In construing any particular term, the Court must have regard to the meaning of that term in the context of the whole contract and the words of each clause must be interpreted so as to bring them into harmony with the others.

(3)        The Court is reluctant to hold a term void for uncertainty, particularly where the contract has been performed.

(4)        If it is open to the Court to find an interpretation that will give effect to the parties’ intentions, then it will do so.

(5)        However, if the Court cannot reach a conclusion as to what was in the parties’ minds or where it is not safe for the Court to prefer one possible meaning to other equally possible meanings, the term will be void for uncertainty.

The Court observed that there was no definition of “Baggage” or “Remaining Works” in the contract. But Schedule 12 of the contract contained descriptions – a bullet form summary rather than detailed specification – of the project works. Section 5 could be summarized as “the works necessary to provide the new operational baggage system”; Section 6 could be summarized as “the works necessary to remove redundant facilities and provide associated infrastructure following completion of the new operational baggage system”.

The Court also noted that the parties negotiated separate rates of compensation for each of Section 5 and Section 6. The Court inferred that the parties must have had some understanding of the works within each section that would attract the agreed level of compensation.

On the facts, the Court held that the works falling within Section 5 and Section 6 were sufficiently identifiable and certain so that the associated completion date and liquidated damages were operable and enforceable.

Conclusion

This case demonstrates the Court’s reluctance to hold a contractual term void for uncertainty, particularly where the contract has been performed.  

For large construction projects, it is common to have sectional completion. Most of the time, the scope of works for each stage is considered to be technical and will only be drafted by construction professionals who are not lawyers. In order to ensure each stage is sufficiently clearly defined, employers may engage lawyers to review their contract documents if the project is complicated.

Key Contacts

Joseph Chung

Partner | Litigation and Dispute Resolution

Email or call +852 2825 9647