Getting your priorities in order - precedence clauses in commercial contracts

5 minute read
10 March 2014

The Court of Appeal case of RWE Npower Renewables Ltd v J N Bentley Ltd [2014] EWCA Civ 150 acts as a reminder to draftsman not to place too much reliance on these clauses and highlights the risks when all contractual documents are not properly reviewed before finalising agreements.


RWE engaged Bentley to carry out civil engineering works in relation to a hydro power scheme in the North of Scotland. The contract value was approximately £4 million. At some point during the works, various delays occurred and a dispute arose between the parties regarding when certain sections of the work should have been completed.

The timings for completing the works were set out in different documents. The key section of work in dispute was known as 'Section 2', which related to the construction of an intake, some penstock pipeline, a tailrace, a powerhouse and the Hydro Plant. Failure to complete all works for Section 2 within a certain time would, under the contract, result in Bentley paying liquidated damages to RWE.

The contract

The contract itself was set out in eight different documents, not all of which were drafted at the same time and some of which were "post-tender clarifications" documents. The network of documents making up the contract was therefore quite complex. The timings for completing the works were set out in two different documents:

  • the first document was called the "Contract Data Part 1" document;
  • the second was called the "Works Information" document. The order of precedence clause prioritised Contract Data Part 1 over the Works Information.

As you have no doubt guessed, the Contract Data Part 1 and Works Information documents described the obligations for completing works in slightly different ways. Contract Data Part 1 defined completion of Section 2 as "Completion, including the testing, of the intake, penstock pipeline and tailrace and the powerhouse (including building services) to allow Hydro Plant to be installed". The Works Information gave a similar definition but then listed all the works that needed to be finished before the Section was deemed 'completed'.

The parties' arguments

Bentley argued that the wording of Contract Data Part 1 meant that only enough penstock pipeline, tailrace etc needed to be installed to allow the hydro plant to be installed, and that it was not a completion requirement for all penstock pipeline, tailrace etc to be completed in full. Bentley also argued that there were irreconcilable differences between the definitions of completion in the two documents and therefore, as the order of precedence clause dictated, the court should disregard the Works Information drafting and regard only the Contract Data Part 1 document.

RWE argued that the differences were not irreconcilable. One should construe the contract as a whole and only deploy the order of precedence clause in the case of a clear and irreconcilable discrepancy.

The decision

At adjudication, the adjudicator agreed with Bentley and held that the two completion definitions were irreconcilable. In response, RWE issued Part 8 proceedings in the High Court and the High Court Judge disagreed with the adjudicator, finding in favour of RWE. Bentley appealed.

The Court of Appeal unanimously dismissed the appeal and agreed with the High Court Judge. In particular Lord-Justice Moor-Pick stated:

  • Contract documents should as far as possible be read as complementing each other and therefore as expressing the parties' intentions in a consistent and coherent manner.
  • Only in a case of a clear and irreconcilable discrepancy would it be necessary to resort to the contractual order of precedence.
  • In resolving potential discrepancies, one should obtain such assistance as one can from the other parts of the contract and interpret the contract as a whole.
  • Even if there is a clear and irreconcilable difference, one should only look at the order of precedence in relation to the discrepancy - it is not a case of choosing one entire clause over another.

Practical tips

This is another example of how clear drafting could have substantially reduced the risk and cost of litigation. Some practical tips to avoid this problem would be:

  • Include a precedence clause stating the order of precedence for the components of the agreement, but be aware that it might be ignored unless there is an irreconcilable difference.
  • Avoid setting out similar provisions in different contractual documents. Eg, keep all related provisions, such as project timescales or critical paths, under one set of provisions.
  • Make sure the lead draftsman has enough time before finalising the agreements to check through the entire agreement.
  • Where possible, avoid setting out the agreement over a large number of different documents.

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