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Taking precedence – Court of Appeal rules on when to consider contractual order of precedence clauses

The recent Court of Appeal case of RWE Npower Renewables Ltd v J N Bentley Ltd[2014] EWCA Civ 150 provides a useful lesson on how the courts will decide on contractual obligations where such rights and obligations are contained in a number of documents.

Essentially, this case makes clear that order of precedence clauses will not, on their own, be enough to determine such rights and obligations when a conflict arises where the same obligations are described differently in various contractual documents.

The Court of Appeal held that such agreements should be reviewed as a whole and the contractual documents considered as complementing each other in order to express the parties’ contractual intentions.

The facts

J N Bentley Ltd (“Bentley”) was engaged by RWE Npower Renewables Ltd (“RWE”) to undertake civil engineering works in Scotland relating to a hydro power scheme.

The contract comprised eight documents, with obligations for completing the relevant work set out in two of these documents – the "Contract Data Part 1" and the “Works Information". Each document described the obligations for completing the works in slightly different ways.

When a number of delays to the work occurred a dispute arose between the parties in relation to how the completion date for the relevant work should be determined. The order of precedence clause provided that the Contract Data Part 1 document should take precedence over the Works of Information document.

Bentley argued that there were irreconcilable differences between the definitions of completion in the two documents, therefore the court should completely disregard the Works Information document and consider only the Contract Data Part 1 document.

RWE, on the other hand, argued that the order of precedence clause should only be considered where there was a clear and irreconcilable inconsistency. The contract should therefore be considered as a whole, by reviewing all of the documents forming the agreement, rather than disregarding an entire document because there was some divergence. 

Court of Appeal agreed with the arguments of RME, and unanimously dismissed Bentley’s appeal of the High Court’s decision. The Court made the following observations:

  • Contract documents should as far as possible be read as complementing each other and therefore as expressing the parties' intentions in a consistent and coherent manner.
  • Only in a case of a clear and irreconcilable discrepancy would it be necessary to resort to the contractual order of precedence
  • In resolving potential discrepancies, one should obtain such assistance as one can from the other parts of the contract and interpret the contract as a whole
  • Even if there is a clear and irreconcilable difference, one should only look at the order of precedence in relation to the discrepancy - it is not a case of choosing one entire clause over another

Final thoughts

This case is an important reminder that when a contract is formed of more than one document, an order of precedence clause will not, on its own, determine how the relevant rights and obligations are decided.

The subordinate document will not be struck out in its entirety; rather the courts will try to make sense of the contract by reading the documents together as setting out the commercial intention of the parties. The order of precedence clause will only come into play where there is an irreconcilable difference between the various documents.

Thus where having an agreement which is set out across a number of documents cannot be avoided, important obligations, such as the timing for completion of work, should, where possible, be contained in one document, or at the very least related or similar provisions should be kept in one document.

The documents which make up the agreement should always be carefully reviewed before the agreements are in agreed form in order to ensure there is consistency between the documents.

This article was written by Vanessa Barnett.

For more information contact Vanessa on +44 (0)20 7203 5228 or vanessa.barnett@crsblaw.com