Is literal interpretation of contracts reasonable?

Construction contracts can be hopelessly difficult documents to understand and interpret. It is an everyday 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 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 QC had to decide 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 AG 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.