Construction Matters – January 2015
Print newsletter13/01/2015

How do you make sure that the terms of one contract are incorporated into another?
It is not uncommon for parties to want to include the terms of one contract, […]
It is not uncommon for parties to want to include the terms of one contract, such as a framework agreement, into the terms of another contract, such as a sub-contract. But as the recent decision in Imtech Inviron Limited v Loppingdale Plant Limited [1] illustrates simply referring to the terms of the contract to be incorporated is not always enough.
Loppingdale Plant Limited (LPL) entered into a framework agreement for works to be carried out at Stansted Airport with the intention that all or part of the works would be subcontracted to the claimant (Imtech).
LPL issued purchase orders to Imtech which stated that their terms and conditions were to be “as per contract + Stansted Airport September 2012”. These terms were known as the September Conditions and provided that:
“These Terms and Conditions together with the Framework Agreement attached to these Terms and Conditions…together with the Purchase Order to be issued by LPL…and the Task Order to be issued to LPL…set out all the rights and obligations of the parties each to the other and no other terms or conditions shall be implied…”
Under the terms of the framework agreement, the parties were required to refer a dispute to adjudication as a condition precedent to litigation in the courts. They were also required to appoint one of three named adjudicators and to use the NEC adjudication agreement.
Imtech referred a dispute over non-payment of a sum in respect of an interim payment application. LPL claimed that the adjudicator did not have jurisdiction as he had not been properly appointed under the terms of the framework agreement.
The court found that, on the drafting of the contract, it was not clear that the parties had intended to incorporate the adjudication provisions from the framework agreement into the September Conditions, especially as they could not be incorporated without some degree of verbal manipulation (i.e. because the definition of “Parties” in the framework contract referred to parties who were not the parties to the subcontract).
Imtech was therefore not bound by the adjudication provisions in the framework agreement which in turn meant that the adjudicator had been properly appointed and had jurisdiction to decide the dispute.
Practical Tip
When seeking to incorporate the terms of one contract into another, particularly where the parties to the two contracts are not the same, care needs to be taken to ensure that the terms are properly incorporated.
It can clearly be attractive to make contracts “back to back”, but simply referring to another document may not be sufficient to show an intention to incorporate ALL the terms. There appears to be a clear distinction between incorporating substantive rights and obligations and incorporating provisions relating to dispute resolution of such substantive rights and obligations. Showing an intention to incorporate the latter is likely to require express specific wording in the new contract.
[1] [2014] EWHC 4006 (TCC)

What do you do if you can’t serve documents on the other side in the usual way?
Failure to serve a document effectively (i.e. in accordance with the Civil Procedure Rules (the […]
Failure to serve a document effectively (i.e. in accordance with the Civil Procedure Rules (the CPR)) can have disastrous consequences for a claim, but what do you do if you can’t serve documents on the other side in the usual way, either because you can’t find them or because they are being difficult about accepting documents?
The English courts have the power under CPR 6.15 and 6.27 to allow service by alternative methods or at a place other than the other party’s current residence or place of business. Over the last few years, the courts have shown that they are increasingly willingly to consider the use of social media and other forms of digital communication as an alternative method of service.
However, there has to be a “good reason” before the courts will allow alternative service. Previous examples of what the courts have accepted as “good reasons” include:
difficulty identifying the other party
In Blaney v Persons Unknown (unreported), Mr Blaney was seeking an injunction against an unknown person who was impersonating him on Mr Blaney’s blog using Twitter. There was no doubt that the respondent was actively using Twitter and as there was no way of easily identifying him beyond his Twitter handle, the High Court allowed service via Twitter.
difficulty serving an informal group
A university sought an injunction preventing a far-right group from trespassing on the university’s land. However, the group was not a recognised political group and had no office or organised infrastructure at which the papers could be served. The court allowed service of the papers via Twitter (as the group mainly used social media to organise their activities) as well as granting a further injunction which required one of the defendant’s to procure that the group’s (offshore) web hosting company posted the original injunction on the group’s website.
address for service unknown
In AKO Capital LLP & another v TFS Derivatives & others (unreported), it was believed that one of the defendants had left his last known address and so it was impossible to serve him in accordance with the CPR. The High Court permitted service of the claim form via Facebook on the grounds that it was possible to correctly identify the defendant from his profile picture and it could be established that the Facebook account was active (the defendant had recently accepted several friend requests).
attempts by the other side to evade service and any form of communication
Throughout the litigation, the defendant, Mr Whyte had attempted to evade service and any form of communication. The claimant were permitted to serve proceedings: (a) to Mr Whyte’s last known email address; (b) through Mr Whyte’s father who had been involved in the litigation; and (c) by leaving a voicemail on Mr Whyte’s mobile and sending him a text message to notify him of the hearing date, Ticketus LLP and another v Craig Thomas Whyte and others.
If you encounter difficulties serving documents on the other side, you should consider whether service can be effected by an alternative method. Remember, it is always better to seek the court’s permission before you serve by an alternative method rather than seeking retrospective permission which may be refused.

Will a loss of profit always be an indirect loss?
No, the starting point is that a loss of profit may be either a direct […]
No, the starting point is that a loss of profit may be either a direct or indirect loss. Whether the loss is direct or indirect will depend on the facts of each case. It will be a direct loss if, at the time the contract was entered into, it was likely to result from the breach in question. It will be indirect if there are special circumstances known to the contract breaker at the time of the contract such that a breach would be liable to cause more loss.
This was confirmed as the correct approach in the recent case of Polypearl Limited v E.On Energy Solutions Limited [1].
E.On and Polypearl had entered into two written agreements for Polypearl to supply certain cavity insulation products to E.On. Polypearl claimed that E.On had breached the agreements by failing to purchase a specified minimum amount of those products causing Polypearl to suffer (a) a loss of profits in the sum of £2,103,542 and (b) a loss of opportunity valued at £4,318,037.
However, the master agreement contained two clauses limiting the liability of the parties for breach of contract, which read as follows:
- 10.1 – Neither party will be liable to the other for any indirect or consequential loss (both of which include, without limitation, pure economic loss, loss of profit, loss of business, depletion of goodwill and like loss) howsoever caused (including as a result of negligence) under this agreement, except in so far as it relates to personal injury or death caused by negligence.
- 10.7 – Subject to the above, the aggregate liability of each Party under this agreement for any damage or direct loss howsoever caused (other than death or personal injury caused by the indemnifying party’s negligence) will…be limited to £1,000,000.
The court was asked to consider whether clause 10.1 excluded E.On’s liability and if not, whether clause 10.7 limited E.On’s liability to £1 million.
The court found that clause 10.1 was ambiguous. It was not clear from the drafting whether the words in brackets were intended to cover all loss of profit claims or only indirect loss of profit claims. The court held that the most likely (and often the only) damage that Polypearl would have suffered from E.On’s failure to meet the minimum purchase obligation would be a loss of profits and that the loss of profits in this case was therefore a direct loss of profit. The court found it unlikely that a business man would agree to exclude a direct loss of profit and that, following the rules of construction set out in Rainy Sky [2], it therefore made the most business sense, if clause 10.1 referred only to indirect losses of profit. Clause 10.1 did not therefore exclude E.On’s liability for Polypearl’s loss of profits.
Clause 10.7 on the other hand was clear and unambiguous; it clearly limited the liability of E.On “for any damage or direct loss howsoever caused” to £1 million.
Practical Tips
The burden of proof falls on the party seeking to rely on an exclusion or limitation of liability clause, which must show that the clause, on its true construction, covers the obligation or liability that that party claims it restricts or excludes.
The court will be reluctant to infer that a party has abandoned a legal right without clear, express words to that effect. As a loss of profits can be a direct or indirect loss, the parties need to be clear whether they want to exclude all loss of profit claims and that the drafting clearly reflects their intention.
Exclusions of liability are often hotly contested during contract negotiations, but ultimately it is in neither party’s interest to have an ambiguous clause that could lead to disputes once the contract has been entered into.
[1] [2014] EWHC 3045 (QB)
[2] Rainy Sky SA v Kookmin Bank [2011] UKSC 50 – in this case, the Supreme Court held that where the parties have used unambiguous language, then the court must give effect to it, no matter how unreasonable the result may seem. However, where two interpretations are possible, the court should usually prefer the interpretation which is most consistent with business common sense.