The Myth of the Mighty Order of Precedence Clause

In construction contracting, particularly in complex projects involving multiple technical documents, lawyers often rely heavily on Order of Precedence clauses to assert contractual dominance. These clauses are typically inserted into construction contracts to resolve inconsistencies between documents by establishing a hierarchy, for example, placing the formal contract above specifications or drawings. But how effective are these clauses in practice?

1. The legal reality: bluster vs. substance

While Order of Precedence clauses may appear powerful, English case law suggests that their practical effect is often overstated. Lawyers may invoke them to bolster their position, but English courts have been reluctant to apply them unless absolutely necessary.

In RWE Npower Renewables Ltd v J N Bentley Ltd [2013] EWHC 978 (TCC), Akenhead J made this clear:

“If it is possible to identify a clear and sensible commercial interpretation from reviewing all the contract documents which does not produce an ambiguity, that interpretation is likely to be the right one; in those circumstances, one does not need the ‘order of precedence’ to resolve an ambiguity which does not actually on a proper construction arise at all.” [at 24]

The English Court of Appeal confirmed this view in RWE Npower Renewables Ltd v J N Bentley Ltd [2014] EWCA Civ 15.

This means courts do not go hunting for inconsistencies. Instead, they apply well-established principles of construction to interpret the contract as a whole.

2. Principles of construction come first

Before an Order of Precedence clause can operate, courts will attempt to resolve any apparent inconsistency using principles such as:

1. Construing the contract as a whole
2. Reading provisions as qualifying each other
3. Avoiding capricious, unreasonable, inconvenient or unjust outcomes
4. Construing the contract fairly and broadly
5. Giving effect to the intention of the parties

These principles are not just theoretical. They are regularly applied in construction disputes, including those involving technical documents like Principal’s Project Requirements, design matrices and scope breakdowns, which are often incorporated by reference into the contract.

3. Equitable remedies may also apply

Even where an inconsistency appears irreconcilable, equitable doctrines such as implied terms and estoppel may operate to resolve the issue, again, without needing to invoke the Order of Precedence clause.

For example, if a party has consistently represented a particular interpretation of the contract and the other party has relied on it, estoppel may prevent the first party from asserting a contrary position later.

4. The RWE case: a practical illustration

In the RWE case, the dispute centered on whether Bentley was required to complete the entire penstock pipeline or just a portion sufficient for installation of the hydro plant. The contract contained an Order of Precedence clause, but the court resolved the issue by:

1. Reading the contract documents harmoniously
2. Considering the commercial context
3. Giving effect to the parties’ intentions

Only if the documents had contained a clear and irreconcilable discrepancy would the Order of Precedence clause potentially have come into play.

5. Lessons for contractors and consultants

1. Don’t be intimidated by legal bluster. Order of Precedence clauses may not be a silver bullet.
2. Get your own legal advice. Whether the clause applies depends on your specific circumstances.
3. Understand the full contract. Technical documents often form part of the contract and influence interpretation.
4. Document your negotiations and conduct. These may support implied terms or estoppel arguments.

Final Thoughts

Order of Precedence clauses may look powerful on paper, but in practice they are subordinate to the broader principles of contract construction and equity. Courts will strive to interpret the contract sensibly and fairly before resorting to hierarchy.

If you have questions about how Order of Precedence clauses apply to your project or contract, feel free to contact Tristan Cockman, Special Counsel.

This communication is sent by Kreisson Legal Pty Limited (ACN 113 986 824). This communication has been prepared for the general information of clients and professional associates of Kreisson Legal. You should not rely on the contents. It is not legal advice and should not be regarded as a substitute for legal advice. The contents may contain copyright.