Ambiguities and contradictions in construction contracts

When the contract is unclear – how unclear provisions are interpreted

When the parties have different interpretations of the meaning of a provision in the contract documents, the courts use several principles of interpretation: the common intention of the parties, circumstances outside the text of the agreement, the wording, the structure of the agreement, background law, the rule of ambiguity and, ultimately, an overall assessment of reasonableness. There are a number of rulings from both the Supreme Court and the courts of appeal on this subject, which may be interesting to look at to gain an insight into how the interpretation can be expressed in the courts' grounds for judgment. Below are a couple of examples.

The Gotland ruling (NJA 2015 p. 3) is an example of when the Supreme Court interpreted a provision in the standard agreement AB 04. The client and contractor had signed an agreement for dredging work in Slite harbour on Gotland, and AB 04 was applicable to the contract. During the contract, the contractor encountered hard limestone that the dredger could not handle, which meant that the contractor had to carry out blasting work. The contractor demanded additional compensation for the blasting work. The case concerned the interpretation of the concept of professional assessment in AB 04, Chapter 1, Section 8, and the conditions that a contractor must take into account when there is a lack of information in the tender documentation. The Supreme Court ruled that all probable circumstances must be taken into account in the calculation, which, according to the Supreme Court, means that circumstances for which there is only an indication should not be taken into account. Nor should circumstances where the probability is as great for as against the circumstance be taken into account. In its reasoning for this conclusion, the Supreme Court referred, amongst other things, to the statement by the Construction Contract Committee that the purpose of the regulation was to contribute to the rational and cost-effective implementation of construction projects and that overly sparse tender documentation leaves more room for speculation, which can contribute to price-driving bids. Therefore, the tenderer should not have to calculate on the basis of a circumstance when the probability of its existence is approximately the same as its non-existence, but only when it is likely that the circumstance exists should the tenderer take it into account. With regard to the word "professional", the Supreme Court noted that the word was used with different meanings in different places in the standard agreement and could not be given a uniform meaning to be taken into account in the interpretation.

A court of appeal ruling from the same year (Göta Court of Appeal ruling of 22 December 2015 in case no. T 255-15) concerned, amongst other things, the interpretation of a provision in the parties' agreement stating that "excavated material" could not be placed closer than three metres from the top of the excavation. The contract in question was a construction contract for transmission lines and AB 04 applied. During the contract, a collapse had occurred in the excavation, and the parties had different opinions as to which party was responsible. The client referred, amongst other things, to the fact that the contractor had placed spoil less than three metres from the top of the excavation. There was information that the masses consisted of topsoil and vegetation, and one question that the Court of Appeal considered was whether the term "excavated masses" in this context included vegetation and topsoil. The Court of Appeal stated in its grounds for judgment that the term "excavated masses" as such did not clarify whether the term included topsoil and vegetation. Instead, the Court of Appeal held that guidance should be sought from the structure of the agreement and other terms and conditions, whereby it was established that topsoil, according to code BFE.21 in the quantity list, should be excavated separately and stored so that it is not mixed with other excavated material. The Court of Appeal considered that this wording strongly suggests that topsoil constitutes excavated material, and ruled that such an interpretation is not contradicted by the rest of the agreement and is not unreasonable.

Practical advice: Formulate your agreements as clearly as possible and define terms that you wish to give a specific meaning, using them as consistently as possible. Document all discussions and agreements during the negotiation phase and throughout the contract. Where there is a clear ambiguity in a contract term, consider whether there are any circumstances – such as established practice between the parties – that support or contradict a particular interpretation, whether it is possible to determine a particular meaning using common language, how a term is used in other contract terms, and consider which interpretation gives the most reasonable result (and thereby an even distribution of risk between the parties).

Ranking in the event of conflicting contract documents

According to AB 04/ABT 06, the contract documents complement each other, which means that the contractor's undertaking only needs to be set out in one place. But what happens in the event of conflicting information? In that case, a ranking rule applies – the document that is higher in the ranking prevails.

AB 04/ABT 06 Chapter 1, Section 3 contains this ranking. AB 04 has a more detailed ranking, whilst ABT 06 has a simpler structure. However, changes to these provisions are common, and for public clients it is particularly important to adapt the ranking for tenders in relation to the tender documentation.

If there is conflicting information in a group of documents (AB 04) or in the tender documentation (ABT 06), the information that results in the lowest cost for the contractor applies, unless the circumstances clearly indicate otherwise.

Practical advice: Check the ranking in your contracts and adapt it to your needs. For public clients – ensure that the tender is correctly ranked. Review all contract documents carefully to avoid conflicting information.

Adjustment of delay penalties

In a situation where the contract has been delayed, the parties have agreed on delay penalties and the contractor has no right to an extension of time, delay penalties shall, as a starting point, be paid to the client. However, according to AB 04/ABT 06, Chapter 5, Section 3, the delay penalty shall be adjusted to a reasonable extent if the client has put the project or part thereof into its intended use prior to completion. Adjustment shall also be made if the client has derived a not insignificant financial benefit from other use. A comment from the courts regarding this provision is that adjustment shall only be made in the event of actual use, which means that the fact that a client has been able to put a contract into use but has chosen not to do so means that adjustment is not applicable.

Adjustment may also be made in the event of unfairness under Section 36 of the Contracts Act, but the scope for this is limited. Circumstances that may be taken into account include, for example, the balance of power between the parties, the purpose of the penalty clause, industry practice, the reason for the delay, the interest in performance and the relationship between the size of the penalty and the actual damage.

Practical advice: Document carefully if and when the client takes the contract or parts of it into use. Calculate and document the financial benefit of any such use. When negotiating penalties, ensure that the penalty clause is reasonable in relation to the actual damage and remains within the level that is customary in the industry. Bear in mind that the burden of proof for adjustment lies, as a starting point, with the party claiming that adjustment should take place.

Current news and legal cases

AB 25 and ABPU 25: The new standard agreements have been submitted for consultation, with over 4,000 responses from approximately 200 respondents. There is no fixed timetable, but the launch is expected at the earliest in 2027.

The Swedish Competition Authority's report on price transparency for building materials: On behalf of the government, the Swedish Competition Authority has surveyed price transparency in the various stages of the building materials market and investigated how this affects pricing, competition and cost developments in the construction sector. The Swedish Competition Authority proposes several measures for public clients.

New rulings on abnormal cost increases: In Göta Court of Appeal case T 3368-24, the court ruled that it is not sufficient to investigate how a price index has developed – the contractor must be able to prove actual costs. In Örebro District Court case T 715-23, the contractor was granted the right to change the agreed price, and the district court found, amongst other things, that a cost increase of 3.6 per cent of the contract sum could be considered significant. Both judgments have been appealed.

Summary

Construction law is an area in constant development. Recent court cases clearly show that the courts place high demands on evidence and documentation. For those working with construction contracts, it is important to be proactive: ensure that your agreements are clear, document carefully and keep up to date with legal developments.

Do you have questions about how these issues affect your specific construction projects? Please feel free to contact one of our experts.