England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE QUEEN'S BENCH DIVISION
(His Honour Judge Richard Seymour QC)

		Royal Courts of Justice Strand London WC2
		14th May 2002

Tuesday, 14th May 2002

1. LORD JUSTICE DYSON: This is an appeal from a decision by His Honour Judge Richard Seymour QC on a preliminary issue in relation to a question of construction arising under two contracts. Both contracts were made by subcontractors with Kier Regional Ltd ("Kier"). At the beginning of 2000, Kier entered into a main contract with Heathland (UK) Ltd ("Heathland") to undertake fitting out works at a health and fitness centre at New Writtle Street, Chelmsford, Essex. This work included the supply and installation of a swimming-pool, saunas and other associated works ("the swimming-pool works"); and the supply and installation of a number of glazed screens ("the glazed screen works"). Kier entered into a contract with Aqua Design and Play International Ltd ("Aqua") for the former, and with Fenlock Hansen Ltd, trading as Fendor Hansen, ("Fenlock") for the latter. Both subcontractors carried out work pursuant to their subcontracts. Heathland became insolvent on 10th October 1990, and did not pay Kier sums that were referable to the swimming- pool works and the glazed screen works. Relying on a provision which it contended was incorporated into the two subcontracts, Kier did not pay the corresponding sums to Aqua or Fenlock. It is these sums that Aqua and Fenlock claim in the proceedings that are before the court. This provision, which is condition 32.1 of the uncorrected version of the Subcontract Conditions for use with the Domestic Subcontract DOM\1 Articles of Agreement 1980 edition updated for use in conjunction with the JCT form of main contract (1998) and published by the Construction Confederation is in these terms:

"Notwithstanding anything to the contrary elsewhere in this Sub-Contract if the Employer is insolvent as defined in clauses 32.2, 32.3 and 32.4, the Contractor shall not be obliged to make any further payment to the Sub-Contractor of any amount which is due or may become due to the Sub-Contractor unless the Contractor has received payment in respect thereof from the Employer and then only to the extent of such receipt."

2. It is not in dispute that, if this condition was incorporated into the subcontracts, then Kier would be under no obligation to pay the sums claimed by Aqua and Fenlock. But there is disagreement as to whether it was incorporated. A preliminary issue was ordered to be tried as to whether the condition was incorporated. The judge held that it was not. Kier appeals. The point of construction is short, and ultimately not susceptible to elaborate argument.
3. I shall start with the Aqua subcontract. On 15th June 2000, Kier invited Aqua to tender for the swimming-pool works on the basis inter alia of Kier's own Particulars of Sub-Contract Form reference 8115a November 1999 which incorporated the DOM/1 form of subcontract for use with the Main Contract JCT 1998 and Kier's own "standard" amendments. These amendments included: (a) alterations to the wording of the conditions of the standard form of subcontract, deletions of part or the whole of certain conditions, and the introduction of entirely new conditions; and (b) alterations and additions to the Articles of Agreement.
4. The standard form of DOM/1 Articles of Agreement and conditions of contract had been amended by the Construction Confederation in 1998. As drafted, the conditions included condition 32.1. After the Articles and conditions had been printed, however, but before they were available for sale, the Confederation drafted and published a document entitled "Corrections-July 1998". These were corrections both to the Articles of Agreement and to the conditions of contract. One of the corrections was "clause 32 should be deleted". The note to this correction reads:

"During the drafting of the revisions to the Domestic Sub-Contract DOM/1, clause 32 was drafted and was the subject of discussions with representatives of the National Specialist Contractors Council and Specialist Engineering Contractors Group. Although both sub-contractor representative bodies no longer approved DOM/1 in its present form, it was agreed that clause 32 should be deleted. Due, however, to a printing error, this did not take place and clause 32 should therefore be deleted from the standard form."

5. Kier's "standard" amendments to the 1998 version of the DOM/1 Articles and conditions included most of the corrections that were published by the Confederation (as well as many additional ones too). But crucially, they did not include the deletion of clause 32.
6. There was no evidence before the judge as to any negotiations between Aqua and Kier over the terms and conditions of the proposed subcontract, although a small number of documents written between the date of the invitation to tender and the date when the subcontract was concluded were incorporated into the final subcontract documentation. But there is nothing in those documents that sheds any light on the issue before the court. Aqua duly submitted a tender, and on 10th August, the subcontract documents were signed. Kier's Form 8115a was incorporated into the subcontract in precisely the same terms as those on which Aqua had submitted its tender. So far as material, the Articles provided as follows:

"1.2The Sub-Contractor shall upon and subject to the Sub-Contract Documents and the provisions of the Main Contract carry out and complete the Sub-Contract Works shown upon and described by or referred to in those Documents.

1.3The Sub-Contract Conditions set out in "The Sub-Contract Conditions for use with the Domestic Sub-Contract DOM/1" including [b] Amendments 1 to 10 thereof inclusive and published by the Construction Confederation shall be deemed to be incorporated in Sub-Contract DOM/1 as executed by the parties hereto.

...

5.1The Sub-Contract Conditions shall have effect as modified by the amendments in the Particulars for sub-contract, form reference no.8115a."

7. So far as Fenlock was concerned, a similar tendering process took place. On 30th March 2000 Kier invited Fenlock to tender for the glazed screen works. The proposed subcontract documentation received by Fenlock from Kier included the same "standard" amendments to the standard DOM/1 Articles of Agreement and conditions of contract as those incorporated in the Aqua subcontract. The Fenlock subcontract was never signed. Although there were some negotiations between the parties over the Kier amendments to the standard DOM/1 Articles and conditions, the judge recorded that for the purposes of these proceedings, the parties had proceeded on the basis that a subcontract had been concluded between them on terms that, so far as material, were identical to those of the Aqua subcontract. In what follows, therefore, I shall refer only to Aqua, but what I say in relation to Aqua applies equally to Fenlock.
8. The judge said that the issue ultimately was whether the reference in Article 1.3 to "the sub-contract conditions for use with the domestic contract DOM/1 including amendments 1 to 10 thereof inclusive and published by the Construction Confederation" was a reference to the conditions without the corrections published by the Confederation, or whether it was a reference to the conditions subject to the corrections. The judge decided that it was a reference to the conditions subject to the corrections. He accepted the submissions of Mr Brannigan which have been repeated in this court. These included:

"... the word `published' meant `distributed, or made available to the public' and was to be distinguished from the word `printed'. He submitted that what had been `published' by the Construction Confederation was the Conditions with the Corrections, whereas the Conditions without the Corrections had only been `printed'."

9. The judge summarised the reasons for his conclusion at paragraph 21 of his judgment in these terms:

"I am satisfied that the submissions of Mr. Brannigan are well-founded. What, by Article 1.3 of the Aqua Sub-Contract, was incorporated into the Aqua Sub-Contract was the Conditions as published by the Construction Confederation. That meant, it seems to me, that it was the form of the Conditions in fact adopted by the Construction Confederation as at the date of the Aqua Sub-Contract and published, complete with any corrections, which was incorporated, not some other form. Mr Raeside's submissions proceed on the same basis, implicitly, if not explicitly, that in considering the Conditions the published corrections thereto are to be disregarded as being, as Mr Raeside put it in his skeleton argument, `standard amendments suggested by the Construction Confederation'. I just do not see how that can possibly be right. I therefore answer the preliminary issue in the negative.

On behalf of Kier, Mr Raeside submits that the judge was wrong for the following reasons. The judge failed to appreciate the significance of the tendering process in which Kier was indicating which of the corrections or amendments to the standard conditions and Articles of Agreement it was inviting Aqua to tender upon, and that these did not include the deletion of condition 32.1. He focused on the language of Article 1.3 to the exclusion of the other relevant Articles, namely Article 1.2 and 5. Article 1.2 made it clear that it was what Mr Raeside calls Kier's "bespoke" amendments to the uncorrected conditions of contract that were to apply. That is supported by Article 5. Thus, when regard is also had to Article 1.2 and 5, it is clear that the published conditions referred to in Article 1.3 must be the uncorrected conditions. Mr Raeside also submits that the judge attached too much weight to the word "published" by reference to dictionaries and grammar, as opposed to the way in which the parties must have intended the word to be used in the context of their own document.

On behalf of Aqua and Fenlock, Mr Brannigan submits that the judge reached the right conclusion for the right reasons. First, the reference to DOM/1 conditions "published by the Construction Confederation" was a reference to the conditions published by them, as opposed to a document printed by them but never distributed without correction. The conditions were only distributed with the corrections. Accordingly, the published conditions were the corrected conditions. The phrases "DOM/1 Form of Sub-Contract" (which appears in the Form 8115a) or "Domestic Sub-Contract DOM/1" (which appears in Article 1.3 of the conditions of the form of the subcontract) are, and should be, understood as referring to the standard conditions in their corrected form. Mr Brannigan seeks to support this submission by reference to the words "DOM/1" or "DOM/1 form" which were used by the parties during the course of their negotiations. He submits that it is clear that, in the context in which these words appear, these were references to the corrected standard forms. He also draws our attention to clause 19.6.3 of the main contract conditions (of which Aqua was deemed to have notice). This provides that Kier shall enter into a subcontract with a Specified Domestic Sub-Contractor on the "Standard Form of Domestic Sub-Contract DOM/1980 editions incorporating current standard amendments". Mr Brannigan submits that this must be a reference to the DOM/1 form of contract subject to the published corrections.

Secondly, Mr Brannigan submits that the judge was right for three reasons to reject the argument that it should be inferred from the bespoke amendments that the parties were referring to the uncorrected DOM/1 conditions. (a) The parties clearly and expressly agreed to include the DOM/1 conditions "published by the Construction Confederation" as further amended by them. The question of what conditions were published by the Confederation was independent of what the parties wished to make of those conditions. (b) The clear and obvious words used by the parties, in particular the use of the word "published", should take precedence over the suggested inference. (c) The basis of the suggested inference is that the only possible reason for including within the bespoke amendments corrections already set out in the correction sheet must be that the parties were intending to refer to the DOM/1 conditions excluding the corrections sheets. But that is not so: the corrections could have been included out of an abundance of caution, or because of a simple mistake. The evidence suggests that one of these latter reasons is the reason. Mr Brannigan relies on the fact that the signed Articles of Agreement are the DOM/1 Articles as corrected by the schedule of corrections and then further amended. Mr Brannigan's alternative submission is that the subcontract is ambiguous. It is unclear whether it incorporates the corrected or uncorrected conditions. Since Form 8115a and Article 5.1 were drafted by Kier, the contra proferentem rules should be applied and the ambiguity resolved against Kier.

I prefer the submissions of Mr Raeside. It is clear that the question of construction must be resolved by looking at the terms of the subcontract as a whole. I do not believe that the solution to the problem lies in a close analysis of the dictionary definition of the word "publish". The meaning of that word is plainly important, but it must be determined on the basis of what the parties intended it to mean, having regard to the context and terms of the agreement read as a whole: see per Lord Hoffmann in ICS Ltd West Bromwich Building Society [1998] 1 WLR 896, 912 H, and per Lord Bingham of Cornhill in BCCI v Ali [2001] UKHL/8 [2001] 1 All ER 961, 965 paragraph 8.

If the words of Article 1.3 are read in isolation, I accept that they are capable of referring either to the DOM/1 conditions in their corrected or in their uncorrected form. I can even accept, again if the Article is read in isolation, that the more natural interpretation is that they refer to the conditions in their corrected form. But they cannot be read in isolation. They must be read in context. In my view, if they are so read, it becomes clear that the words refer to the conditions in their uncorrected form. The express incorporation of Kier's form 8115a is critical. The opening words of that document are:

"Standard Amendments to the DOM/1 (incorporating Amendments 1, 2, 3, 5, 6, 7, 8, 9, 10) Form of Sub-Contract (Main Contract JCT 1998) Amend the following Clauses."

10. What follows is a long list of clauses which are to be amended by the deletion of existing words or substitution of new words, as well as some altogether new clauses. Two features of this document are of particular significance. First, all of the clauses which are amended are to be found in the uncorrected version of the conditions: there is no explicit reference at all to the corrections, or the clauses as corrected. Secondly, almost all of the corrections published by the Confederation are repeated verbatim in the form 8115a document. With two exceptions, every correction to the conditions is repeated in the Kier document. The first exception is the correction requiring the deletion of condition 32. The second is four small corrections to conditions 38A and 38B. But the whole of conditions 38A and B were deleted by the Kier document, and replaced by different clauses. The deletion of condition 32.1 was plainly a matter of considerable potential importance, as the facts of this case have demonstrated only too clearly.
11. If the conditions that were being amended by that document were the standard DOM\1 conditions in their corrected form, it is very odd indeed that the corrections should be reproduced at all. There was simply no point in doing so. All that was required was a statement to the effect that all of the corrections were to be incorporated save for the few that were to be excluded, and they could have been identified. It is not as if the parties were unaware of the corrections: they were methodically incorporated. In these circumstances, it seems to me that the obviously correct interpretation of the form 8115a document is that it was referring to the uncorrected conditions, and that the express inclusion of most of the corrections indicated the plain intention not to include those that were not so included.
12. In my opinion Mr Brannigan can derive no support from the use of the words "DOM\1" and "DOM\1 Form" in the negotiations. First, it is not certain that these were references to the corrected, rather than the uncorrected, conditions. But secondly, and more importantly, I do not consider that it is legitimate to have regard to the language used by the parties during their negotiations as an aid to the proper construction of their contract: see per Lord Hoffmann in ICS v West Bromwich Building Society at page 913 A-B. Nor is Mr Brannigan assisted by clause 19.6.3 of the main contract. If (as I would hold) the subcontract did not include all of the corrections, then it would seem that Kier was in breach of the main contract. But I do not see how that can affect the plain meaning of the subcontract.
13. I cannot accept that the methodical word for word reproduction in the Kier document of most, but not all, of the Confederation published corrections was done out of an abundance of caution or by mistake. If all of the Confederation's corrections had been reproduced verbatim, then that might have indicated (for the avoidance of doubt) that the "published" DOM\1 conditions referred to in Article 1.3 were the conditions as corrected by the Confederation. In that event, it might reasonably have been said that the verbatim reproduction of all the corrections would have indeed been out of an abundance of caution to make it absolutely clear that all of the corrections were incorporated. But that is not what happened here, since Kier did not reproduce every correction. The proposition that the inclusion of most of the corrections was for the avoidance of doubt as to the inclusion of all of them is palpably wrong. As for the possibility of mistake, in my judgment there is no basis for holding that the exclusion of the correction in relation to condition 32 was anything other than deliberate. The inclusion of condition 32 was of considerable benefit to Kier. The corrections minus the deletion of condition 32 were significantly different from the corrections including the deletion.
14. The foundation of the judge's reasoning was the meaning of the word "published". But in my view, he placed on that word a weight that it will not bear. When one examines Article 1.3 in the context of Articles 1.2 and 5 and the Kier standard amendments, it becomes clear that the parties intended the phrase "The Sub-Contract Conditions ... published" in Article 1.3 to refer to the uncorrected DOM\1 conditions.
15. I turn to the contra proferentem argument. I would adopt as a correct statement of the limits of this rule of construction the following short statement at paragraph 12-081 of Chitty on Contracts 28th edition:

"Another rule of construction is that a deed or other instrument shall be construed more strongly against the grantor or maker thereof. This rule is often misinterpreted. It is only to be applied in cases of ambiguity and where other rules of construction fail."

16. In my judgment there is no ambiguity in this case. For the reasons that I have given, the subcontract clearly includes condition 32.1 of the Standard DOM\1 Form of Sub-Contract.
17. I would allow this appeal.
18. LORD JUSTICE JONATHAN PARKER: I agree.
19. The appellant's submission that amendments made to the standard conditions are consistent only with the uncorrected version of the standard conditions being incorporated into the contract seems to me to be unanswerable. Further, the judge's interpretation of and reliance on the word "published" in Article 1.3 of the contract seems to me, with respect, to be misplaced. As I read it, the reference in Article 1.3 to the standard conditions as "published by the Construction Confederation" is wholly equivocal as between the uncorrected and the corrected versions of the standard conditions.
20. Nor, in my judgment, can the respondents gain any assistance from the so-called contra proferentem rule. Like my Lord, I can see no ambiguity in the contract, and accordingly there is in my judgment no scope for the application of the rule.
21. Accordingly, I too would allow this appeal.
22. LORD JUSTICE PETER GIBSON: I also agree that this appeal must be allowed. As we are differing from the judge, I add a few words of my own.
23. The question of construction to which the appeal gives rise is a short one. In Article 1.3 of the Articles of Agreement is the reference to "the subcontract conditions for use with the Domestic Sub-contract DOM\1, including Amendments 1 to 10 thereof inclusive and published by the Construction Confederation", a reference to the conditions as corrected by the Schedule of Corrections published by the Construction Confederation or a reference to the uncorrected conditions.
24. In determining that question of construction the court is concerned to ascertain the objective intention of the parties, and it does that by considering the contract as a whole against the relevant background of facts known to both parties. Where the judge went wrong, as I would respectfully suggest, is in looking too narrowly at the meaning of the word "published" such as one might obtain from a dictionary as distinct from looking to the meaning which the parties to the particular contract must be taken to have intended. That may or may not conform to the dictionary meaning. I do not say that the meaning held by the judge to be correct is not a possible meaning of Article 1.3 looked at in isolation, but I think that it is tolerably clear that, in the context in which the words in question are used, that is not the right meaning. Had it been the correct meaning, it would have been unnecessary for 16 of the 21 corrections in the Correction Schedule to have been repeated, as they are in Kier's own form 8115a. Of the remaining five corrections, four relate to two clauses wholly replaced by Kier with different clauses of its own wording and the final correction, that relating to clause 32, is left in solitary state: not repeated, not deleted, not amended. Given the evident care with which the corrections have otherwise been dealt with in form 8115a, I find it impossible not to regard that treatment of clause 32 as significant.
25. Mr Brannigan submitted that the repetition of the 16 corrections could be explained as being either inserted in an abundance of caution or included in error. It is, of course, possible that the former is the reason why an otherwise otiose provision is included in a contract. But the general rule requires the court to try to give each word used in a contract meaning and effect, and it would be surprising if the repetition of so many, but not all, of the corrections in the correction schedule as amendments was not intended to achieve more effect than merely to be extra cautious. As for error, Mr Brannigan rightly pointed to the fact that the amendments to the Articles of Agreement in form 8115a were in part unnecessary, as some amendments had already been made. But as was pointed out by my Lord, Jonathan Parker LJ, in the course of the argument, the amendments in form 8115a were those which had been notified to Aqua when invited to tender. The Articles of Agreement must have been amended at some time thereafter, but form 8115a was not altered to reflect that fact before being incorporated into the subcontract signed by Aqua. I regard that explicable oversight as not seriously detracting from Mr Raeside's argument that the only logical explanation for the repetition of so many of the corrections published by the Construction Confederation was that the reference to the subcontract conditions in Article 1.3 is to be construed as a reference to the uncorrected conditions.
26. As for the word "published", it is to be noted that uncorrected conditions had at their end the words "published by Construction Confederation". Those words in my view identify who are the publishers of the document in question. They identify the source of the document. I see no need to give them greater significance than that. The fact that the conditions are not sold without the inclusion of the correction schedule does not entail that the reference to the conditions published by the Construction Confederation must be taken to be a reference to the corrected conditions.
27. For these and the reasons given by my Lord, Dyson LJ, I would respectfully disagree with the conclusion of the judge. I too would allow the appeal, set aside the order of the judge and answer the preliminary issue in the affirmative.
Order: Appeal allowed. We make the orders which are sought in paragraphs 1, 2 and 3. (Order does not form part of approved judgment)