THE INTERPRETATION OF CONSTRUCTION CONTRACTS

Judgment Demolition Services Limited -v- Castle Vale Housing Action Trust, TCC 21 January

1999

The Issue Interpretation of contracts against the background of commercial common sense.

ImplicationThe court will often prefer the interpretation of a contract which yields to business

common sense.

Construction contracts can be hopelessly difficult documents to understand and interpret. It is an

every day occurrence on construction projects that there will be an argument concerning whether

work is included within the contract scope of work or is to be treated as a variation.

Such arguments will involve a detailed examination of the contract terms and conditions,

relevant specification clauses, descriptions contained in schedules of work or bills of quantities,

and the use of provisional sums. Where bills of quantities are used arguments concerning the

standard method of measurement will also be brought into play

All these components were in issue in the recent case between Demolition Services Limited and

Castle Vale Housing Action Trust Limited. Castle Vale engaged Demolition to demolish two

residential tower blocks. The work involved the stripping out of asbestos in the form of lagging

material and in the form of sheets made up as insulation barriers

During the demolition work asbestos containing materials were also discovered in the finishes to

some ceilings, walls and floors. This work involved the stripping and disposal of part of the

textured coating on all the ceilings throughout the blocks, on the walls of all the communal areas

and on the walls of some of the bathrooms and toilets of the flats. The asbestos was mainly in the

form of an additive to paint used in one of the paint layers in the wall and ceiling coatings.

Thermoplastic floor tiles containing small quantities of asbestos were also found on every floor

and landing

The discovery of these asbestos containing materials led the Contract Administrator to instruct

Demolition to suspend all dismantling work. Lengthy discussions with the Health and Safety

Executive followed and a revised method statement was finally agreed dealing with the

dismantling and removal of all finishing materials containing any asbestos. The debuilding

process which Demolition was planning to use to dismantle the structure of each block was

suspended until this stripping out work had been completed.

Demolition claimed an additional £300,000 in respect of both the suspension and the works

relating to removing the asbestos containing materials. Castle Vale, on the other hand, argued

that the work formed part of the asbestos removal work provided for in the schedule of works

and did not warrant any additional payment

His Honour Judge Thornton Q.C. had to decided whether Demolition was entitled to be paid

additional amounts and if so how that payment should be made

The schedule of works contained two key provisions which required the removal of asbestos

based materials present in the structure being demolished, and also required the contractor to

include for the identification and disposal of any asbestos, toxic waste and the like. A provisional

sum of £5,000 for additional asbestos removal described as defined work was also included.

Castle Vale relied on the literal meaning of the relevant contract provisions as showing that all

asbestos was to be removed as part of the work involved in the lump sum item for asbestos

removal. They argued that the provisional sum item was, in its contractual context, an obvious

mistake and should be ignored.

Judge Thornton considered that business commonsense should play an important part in his

interpretation of these provisions. He referred to the case of Miramar Maritime Corporation -v-

Holborn Oil Trading Limited;

"There must be ascribed to the words a meaning that would made good commercial sense if the

Schedule of Works were issued in any of these situations, and not some meaning that imposed

upon a contractor a financial liability of unknown extent that no businessman in his senses would

be willing to incur"

The case of Wickman Tools -v- Schuler A.G. was also quoted;

"The fact that a particular construction leads to a very unreasonable result must be a relevant

consideration. The more unreasonable the result the more unlikely it is that the parties can have

intended it, and if they do intend it the more necessary it is that they shall make their intention

abundantly clear"

Bearing these considerations in mind, Judge Thornton was satisfied that the contract limited the

asbestos disposal in question to asbestos in the form of sheets or lagging. The additional asbestos

found in the wall, floor and ceiling finishes was not included in that description. Furthermore it

followed from the Standard Method of Measurement that where the available information did not

enable the work to be fully described and accurately quantified, detailed provisions for the

creation of provisional sums for such work must be set out.

The asbestos removal referred to in the provisional sum, which was stated to be defined work,

was to be regarded as a reference to asbestos removal of a kind and quantity which enabled the

work to be planned and programmed, such that preliminaries could be priced in advance of

demolition work. This could not be done in respect of asbestos of the kind now in question, and

accordingly the additional payment fell to be valued in accordance with instructed variations

under the terms of the contract.