Network Rail has won a £13m contract dispute that centred on the meaning of the word “default”.
The issue arose after Network Rail engaged ABC Electrification Ltd to carry out some major works.
Under the contract, ABC was entitled to payment based on the total cos which was defined to exclude “disallowed cost”.
ABC had not completed the contract works in accordance with the contractual timetable, and Network Rail sought to deduct £13.43 million as disallowed costs.
The relevant clause in the contract said that disallowed cost included “any cost due to negligence or default on the part of the Contractor in his compliance with any of his obligations”.
ABC argued that the word “default” meant fault in the sense of blame or culpable behaviour on the part of the contractor.
The case went all the way to the Court of Appeal, which ruled in favour of Network Rail.
It held that the natural and ordinary meaning of “default” as used in the contract meant just what it said, namely a failure to fulfil an obligation, in this case, a failure on the part of ABC to comply with any of its obligations under the contract.
There was no basis for introducing any qualification such as personal blame or culpability on the part of the contractor.
Any contractual clause, however clear, was not to be read in a vacuum.
Its meaning should be assessed in the light of any other relevant provisions of the contract; the overall purpose of the clause and the contract; the facts and circumstances known or assumed by the parties at the time it was executed; and commercial common sense.
There was nothing arising out of the wording of other provisions of the contract, the overall context of the contract or the commercial background that suggested any interpretation of default other than the natural and ordinary meaning.
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