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Amendments to standard form contracts – how are ambiguities resolved?

In J Murphy & Sons Limited v Beckton Energy Limited the contracting parties amended the standard form FIDIC Yellow Book.

A recent decision highlights why care should be taken in amending standard form contracts and how the court may look at deleted terms to try to ascertain the parties’ intentions.

In J Murphy & Sons Limited v Beckton Energy Limited the contracting parties amended the standard form FIDIC Yellow Book. Standard form clauses 2.5 and 3.5 provided for the engineer to determine sums which may be due to the employer under any clause of the contract before such sums were claimed. However, the parties amended clause 8.7 (dealing with liquidated and ascertained damages) and clause 4.2 (the ability to call on an on-demand performance bond) to remove the standard form’s reference to clause 2.5. When the contractor was in delay the employer claimed liquidated damages (circa £8m) and tried to call on the bond. The contractor claimed the call was improper given that the engineer had not determined the sums claimed. On the one hand the parties had agreed all sums due were subject to determination; but on the other hand they had seemingly agreed not to require that determination for a claim for liquidated damages and a call on the bond. Who was right?

The court allowed the call on the bond without the engineer’s determination. In reaching that decision the court looked at the words that had been deleted to assist it in determining what the parties had intended. This followed a Court of Appeal decision in Narandas-Girdhar v Bradstock where it was held to be permissible to consider deleted wording to ascertain the parties’ intentions if there was an ambiguity in the wording which remained. On that basis the court in Murphy found that the parties had expressly agreed that the claim for liquidated damages was relatively straightforward to calculate and was a self-contained and stand-alone provision which had been agreed to operate outside of the requirement for the engineer’s determination.

When amending standard form contracts care should be taken to ensure that where provisions are deleted the remaining provisions are properly cross-referenced. If this is not done, and the contract as a whole is subject to ambiguity, then the court may have to resolve that ambiguity which may involve looking at the terms which have been deleted to ascertain what the parties intended.