The ABCs of default

ABC was contracted to upgrade a Network Rail power supply. It was entitled to payment under a “total costs” provision, where Network Rail could make deductions for “disallowed costs”. When ABC failed to adhere to the contractual timetable, Network Rail understood this to be a “default” under the “disallowed costs” provision and made an application to the High Court for declaratory relief.

The High Court held that the term “default” means a breach of contractual obligations. ABC appealed the High Court’s interpretation on the basis that Network Rail also had to prove ABC was to blame for the breach of contract.

While accepting that the meaning of “default” should not be read in isolation, the Court of Appeal rejected ABC’s argument that Network Rail was required to establish an additional element of blame or culpability: Network Rail simply had to prove that ABC had failed to comply with its obligations under the contract.

In coming to its decision, the Court of Appeal said that there was nothing on the facts of the case that suggested “default” should be given a different meaning and ABC had failed to propose any realistic alternative (the concept of blame or culpability was too ambiguous for any court to decide whether a breach had taken place). The very fact that ABC struggled to do so suggested that the natural and ordinary meaning of “default” was the right one.

The Court of Appeal also pointed out that the allocation of risk was a balancing exercise between ABC and Network Rail and the court’s role was to interpret terms where they are unambiguous.

Judgment: ABC vs Network Rail