Judge Refuses to Save Contractor from Consequences of a Bad Deal

Railway Line 2Judges frequently apply commercial common sense in interpreting contracts – but that does not mean that they will employ hindsight to relieve one side or the other from the consequences of what turns out to be a bad deal. The High Court made that point in ruling on a railway infrastructure dispute.

A company had engaged a contractor to upgrade the power supply on two sections of a nationally important railway line. The contractor was entitled to recover the costs of the work from the company, but that did not apply to any costs that had arisen due to the contractor’s ‘default’. A dispute arose as to the true meaning of that single word in the context of the contract and, after the parties were unable to come to terms, the matter was referred to the Court for resolution.

The contractor argued that, when viewed against the background of other relevant clauses in the contract, the nature of the works and the intentions of the parties, business common sense dictated that ‘default’ had to mean a wilful and deliberate failure. It could not apply to all failures, no matter how small or insignificant.

The Court, however, preferred the company’s argument that the word referred to any failure to comply with a contractual obligation. In granting the company a declaration to that effect, the Court noted that the mere fact that the contract had worked out badly for the contractor did not mean that ‘default’ should be interpreted other than in accordance with its natural and ordinary meaning. However imprudent the contract may have been from the contractor’s point of view, it would be unprincipled to adopt an unnatural interpretation with the wisdom of hindsight.