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In the recent case of Network Rail Infrastructure Ltd v ABC Electrification Ltd  EWHC 1769 (TCC), England’s Technology and Construction Court had to interpret the term “default” in a construction contract which incorporated the terms of ICE Conditions of Contract Target Cost Version, First Edition (ICE Conditions), subject to a schedule of standard amendments used by Network Rail, known as N12 (N12 Amendments). The N12 Amendments added words into the definition of “Disallowed Cost” (as italicised and highlighted below). The Court rejected ABC’s argument that the word “default” in the definition meant “wilful and deliberate” failure to fulfil a legal requirement or obligation. It held that the natural and ordinary meaning of “default” is a failure to fulfil a legal requirement or obligation and there were no words in the definition or elsewhere in the Contract to indicate that by the word “default”, the parties were referring to a “wilful and deliberate” failure to fulfil a legal requirement or obligation.
Under the Contract, the Defendant contractor, ABC, was to be paid the “Total Cost” it incurred less any “Disallowed Cost”. Those terms were defined in the Contract as follows:
A dispute arose between the parties as to the meaning of “default” in the definition of “Disallowed Cost”, which word had been introduced as a result of the N12 Amendments. Network Rail argued that “Disallowed Cost” included any cost due to a failure by ABC to comply with its obligations under the Contract. ABC argued that “Disallowed Cost” included any cost incurred due to default on the Contractor’s part if, and only insofar as, the default constituted, a wilful and deliberate failure to comply with its obligations under the Contract.
The Court held that “Disallowed Cost” included any cost due to any failure by ABC to comply with its obligations under the Contract because:-
The judgment illustrates the importance of extremely careful drafting of contracts and when making amendments to standard form contracts. In this case, small changes made to the standard contract by the N12 Amendments, meant £13 million in deductions being made by the employer. The Court will give words used in a contract their natural and ordinary meaning, even if such interpretation works out badly for one of the parties. Here, the words used were clear and unambiguous and the Court could not find any basis to find that the parties must have intended the word “default” to carry a different meaning to its natural and ordinary one. If they had, they could have added additional words to that effect.
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