Ground risks revisited

The default position at common law is that the risk for unforeseen ground conditions or ground risk lies with the contractor. That default position can be displaced where the allocation of ground risk is expressly dealt with under the contract.

Whilst ground risk is addressed in some of the standard form building contracts, such as NEC and FIDIC, the JCT and SBCC forms of contract are silent on this issue. It is then sometimes the case that bespoke amendments are made to the JCT and SBCC forms to deal with the issue, but that can then bring with it difficulties around interpretation and which party ultimately has to bear ground risk, as was seen in the recent case of Clancy Docwra Ltd ("CDL") v E.ON Energy Solutions Ltd ("EON") [2018] EWHC 3124.

Background

CDL was appointed by EON as a sub-contractor under an amended JCT form of sub-contract to excavate trenches and install pipework for an underground district heating network as part of the Barts Square development in central London. The sub-contract works had proceeded and it appeared that payments had been made and extensions of time awarded by EON to CDL for issues relating to unforeseen ground conditions. In the event a dispute arose and EON took the position that ground risk was a matter for CDL. The dispute proceeded through adjudication and then made its way to court.

In the court proceedings CDL advanced two main lines of argument, those being that either the sub-contract when properly interpreted did not impose ground risk on them; or that the sub-contract should be rectified as there had been a mistake as to the allocation of ground risk. It is the first line of argument which is of interest.

The court's decision

The starting point for the court was to interpret the sub-contract, the focus being the terms of the sub-contract itself. Whilst it was the case that ground risk had featured in tender discussions and pre-contract correspondence, some of the exchanges had been incorporated into the sub-contract as numbered documents. These numbered documents were described as "a diffuse collection of documents relating to a wide range of matters", including such things as drawings, e-mails and meeting notes.

There were also bespoke amendments to the JCT form of sub-contract, covering such issues as (a) CDL being deemed to have inspected and examined the site and to have satisfied itself before the date of the sub-contract as to the nature of the ground, the sub-surface and sub-soil; (b) CDL not being entitled to any extension of time or to any additional payment on the grounds of any misunderstanding or misinterpretation of any matter falling with (a), or CDL failing to discover or foresee any risk, contingency or other circumstance (including, without limitation, the existence of any adverse physical conditions or artificial obstructions) influencing or affecting the sub-contract works; (c) CDL not being released from any of the risks accepted or obligations undertaken by it under the sub-contract on the ground that it did not or could not have foreseen any matter which might affect the execution of the sub-contract works; and (d) EON not warranting or representing that any information it provided to CDL was accurate, reliable or complete.

EON's case was then that the bespoke amendments (a) to (d) above allocated the ground risk to CDL, which allocation was not altered by any of the numbered documents forming part of the sub-contract. The court did not agree with EON.

The court considered it fundamental to ascertain what CDL had contracted to do, which was to undertake the sub-contract works. The sub-contract works were defined by reference to the numbered documents. The numbered documents included tender clarifications where CDL set out what work was included and what was excluded. For example, soft spots and breaking out rock were excluded. The argument by EON that excluded in this context meant excluded from the price only and that the risk remained with CDL was not accepted by the court.

How the sub-contract works were defined was therefore given primacy. The court noted that it would not make sense for the bespoke amendments (a) to (d) to operate in relation to matters which were not part of the sub-contract works and CDL was not contracted to carry out. The starting point was what the parties had agreed was the scope of the sub-contract works and the bespoke amendments applied to that scope.

Lessons

The case highlights the potential pitfalls in how contracts are compiled. Parties should be careful to consider what documents are incorporated into a contract, and what the effect of any incorporation is.

Further, the bespoke amendments which were considered in this case are of a fairly typical nature and parties may have been forgiven for thinking that they had the effect of transferring all ground risk. That was not the case in the circumstances here and even though the documents which were incorporated comprised almost a random collection of material and were not collated into a logical order, they were still given effect so as to define the sub-contract works and transfer the ground risk to the employer.]