I know, you’ve heard this over and over again here at Construction Law Musings: courts in Virginia will interpret a contract strictly and in a manner that gives meaning to its unambiguous terms.
A recent case out of the Eastern District of Virginia federal court, White Oak Power Constructors v. Mitsubishi Hitachi Power Systems, reinforces this point. The basic facts of the case relevant to this discussion and the Court’s opinion are these. Old Dominion Electric Cooperative (ODEC) hired White Oak Power Constructors (White Oak) to build a natural gas power plant. The contract between ODEC and White Oak provided for liquidated damages for delay and also contained a risk of loss provision making ODEC responsible for certain losses or damages due to property damage at the plant. I highly recommend that you read the facts of the case in full to get the details of the terms of these clauses.
Needless to say (or this case wouldn’t be the subject of a construction law blog), the project ran past completion date and liquidated damages were assessed to the tune of more than $50,000,000.00. The delay was alleged to have been caused in substantial part by property damage due to weather, fire, and ice among other causes.
In a creative piece of lawyering, Whlte Oak argued that because the delay was due to property damage, ODEC, and not White Oak, was responsible for any delay related costs (including liquidated damages) that were linked to the property damage. Of course ODEC did not agree.
After going through several cannons of Virginia contract interpretation, the Court determined among other things, that to have a liquidated damages provision in a contract that would then essentially be cancelled out by a risk of loss provision would be absurd. The Court also determined that the context and entirety of the contract rendered White Oak’s argument untenable, stating:
There is only one reasonable interpretation of the risk of loss provision: that Old Dominion’s liability for property damage under the risk of loss provision does not include corresponding “delay-related losses, damages, and costs.” Accordingly, the provision is unambiguous, and the court may enforce its interpretation as a matter of law. Because the language of the contract is unambiguous, the court does not need to consider extrinsic evidence.
In sum, the Court looked at the contract and enforced its unambiguous provisions despite some wonderfully creative arguments from White Oak. This case further cements the maxim that Virginia law will not seek to go beyond the contract where the terms are unambiguous. Further, you should always seek counsel from an experienced construction attorney when analyzing the terms of a construction contract, hopefully prior to entering into that contract.
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