Inadmissable evidence

Tony Bingham considered the case of Emcor Drake & Scull in ED&S vs Edingburgh Royal Joint Venture, Building 18 November. The judge, in that case, had to decide which party had design responsibility in circumstances where each side had “radically different views” as to the terms of the contract.

The facts of that case and the nature of the dispute are all too familiar. The failure of parties to a contract to express clearly the deal that they have reached often lies at the heart of disputes, particularly over design responsibility. Usually both parties know if the tenderer has included design and the extent of what has been included since it is highly relevant to pricing.

The problem does not occur at tender stage but rather at contract formation stage when the parties fail to record in the contract the true bargain reached, or inadvertently incorporate terms that contradict the deal, a common scenario when standard forms of contract are used that the parties may not be fully cognisant with. The problem that then arises is that English law prevents parties from referring to pre-contract tender discussions and negotiations as an aid to interpretation of the contract. In the ED&S case ED&S submitted evidence in court from the tender negotiations that it said made clear what the bargain was on design.

The judge correctly ruled such evidence inadmissible. Where there is real ambiguity in the contract, the law allows the judge to consider the “factual matrix” in which the contract was made, but not extrinsic evidence such as letters written during the tender period but not included in the contract documents.

This can give rise to contracts being interpreted in a way that fails to give effect to the true intent of the parties.

It’s no surprise that with such sloppy drafting disputes are common over where design responsibility begins

A good example of this can be seen from a recent adjudication where an adjudicator found that a subcontractor had full design responsibility despite the fact that during the tender period it was evident that the subcontractor had not allowed for carrying out any design. The standard form contract however imposed design responsibility on the subcontractor. Indeed, during the tender process the main contractor had invited the subcontractor to submit an alternative bid that included design. As it happened the contractor chose to accept the lower of the two bids, which did not include for design. During the course of the adjudication the subcontractor was not allowed to refer to his alternative bid as an aid to interpretation of the contract despite the fact this would have made clear the true bargain that had been struck.

Although on occasion one party may seek to take advantage and deliberately leave the contract ambiguous, more often than not one suspects that it is sloppy drafting, as in this case.

However, more deliberate drafting on occasions can also defeat the expectations of one of the parties to the contract. PFI projects are a particularly good example. In such cases the contracts often incorporate obligations via documents that one of the parties may never have seen and which often include onerous design obligations. Canny drafting can also import fitness for purpose obligations without using those words expressly. Excluding “design development” from the definition of a variation is another trick that many parties miss.

There is no surprise perhaps that with such canny or sloppy drafting disputes are common over where design responsibility begins and ends. Desperately, contractors and subcontractors faced with contracts that they believe do not reflect the “true agreement” resort to estoppel or waiver arguments concerning design responsibility or seek rectification of the contract. However, those running such arguments are usually drinking in the last chance saloon. The truth is that to avoid “fuzzy edged disease” one needs to give the contract a good read and ensure that it accurately reflects the bargain that was reached during the tender negotiations.