England and Wales Court of Appeal (Civil Division) Decisions

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM
THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT
NEWCASTLE DISTRICT REGISTRY
H. H. JUDGE BEHRENS (sitting as Judge of the High Court)
[2011] EWHC 1947 (TCC)

		Royal Courts of Justice Strand, London, WC2A 2LL
		03/02/2012

Lord Justice Stanley Burnton :

Introduction

1. This is an appeal by Inframatrix Investments Ltd, the claimant in proceedings in which it claimed damages against Dean Construction Ltd for breaches of a construction agreement dated 29 July 2008 ("the agreement"), against the order of His Honour Judge Behrens, sitting as a High Court Judge, granting the defendant's application for summary judgment and dismissing the claimant's claim.
2. The appeal raises short points as to the interpretation and effect of a contractual limitation clause and its application to the facts of the present case. The judge held that the limitation clause barred the claim.

The agreement

3. The background to the agreement was set out by the judge at the beginning of his judgment, in which he referred to the claimant as "IIL" and to the defendant as "DCL":

"3. The claim relates to works carried out by DCL at IIL's unit at Delves Lane Industrial Estate, Consett, County Durham. The Project (as defined in Annexe A) consisted of the construction of Phase 1 of a camera factory.

4. IIL is a Company based in the British Virgin Isles. Mr Medhesh Al-Suhaim is its Managing Director.

5. A total of 7 contractors were employed for the project each of whom [was] on site for a different specified time. The works were carried out in sequence such that there was only one contractor on site at the time.

6. DCL were specialist roofing and cladding constructors. They were the third (or perhaps the fourth) contractor on site and were followed by a number of others including the contractor who fitted the windows.

7. In early 2008 Mr Al-Suhaim invited DCL to quote for roofing and cladding works at a proposed factory in Consett designed by Mammut Building Systems in Dubai. At the time Mr Al-Suhaim was advised by Solicitors Swinburn Maddison and engineers Peter Eaton Associates (Alan Wagstaff).

8. DCL's revised quotation of £61,225 was submitted to the Claimant's engineer, Alan Wagstaff, and subsequently accepted by Mr Al-Suhaim. The parties negotiated a formal contract."

4. In the agreement, the claimant was referred to as "the Client" and the defendant as "the Contractor". The recitals to the agreement were as follows:

"(1) The Client intends to proceed with the Project as described in Annex A

(2) The Client wishes to appoint the Contractor to act as Roofing and Cladding Contractor in relation to the Project on the terms and conditions set out in this Agreement.

5. The defendant's obligations were set out in clause 1. Its principal obligation was set out in clause 1.1:

"The Client appoints the Contractor to act as Roofing and Cladding Contractor in relation to the Project to perform the services set out in Schedule 1 ('the Services') and on the terms and conditions set out in this Agreement and the Contractor agrees to perform the Services exercising reasonable skill and carefully and faithfully in the best interests of the Client. Where in the performance of the Services, the Contractor seeks or is obliged to seek the Client's approval or agreement to any matter or thing, the giving or confirming of the same by the Client shall not in any way derogate from the Contractor's obligations hereunder."

6. Schedule 1 defined the Services to be provided by the defendant:

"1.1 Assume the role of Principle (sic) Contractor for the period during which the Services are provided

1.2 Erection of fall arrest netting

1.3 Erection of roof edge protection scaffold

1.4 Erection of access tower at one corner of the building

1.5 Supply and fixing of double skin trapezoidal roof sheeting including insulation

1.6 Supply and fix microrib composite panels to the walls. Fixed horizontal

1.7 Supply and fix trimline gutters and down corner pipe

1.8 Contractor will be responsible for ensuring that the building passes its air pressure test and correcting any defects relating to the cladding at no cost to the client.

1.9 Remove all scaffolding and clear all rubbish and surplus material from site.

1.10 Contractor to be responsible for the security of his materials and equipment on site."

7. It can be seen that the agreement distinguished the Project, which was the construction of an entire building, from the Services for which the Contractor was responsible, which were essentially the construction of the roof.
8. Clause 1.2 of the agreement was a warranty by the defendant that it would exercise reasonable skill care and diligence. Clauses 1.6 and 1.7 were as follows:

"1.6. The Contractor shall at all times keep the Client fully and properly informed on all aspects of the progress and performance of the Services and shall further provide the Client with all such other information in connection with the Project as the Client may reasonably require. The contractor will meet with the Client to report on the Services at least fortnightly, but with Project meetings monthly and in addition as and when the Client or the Project CDM Co-ordinator shall reasonably require.

1.7. The Contractor shall use reasonable professional skill care and diligence to inspect the Works in accordance with the requirements of Schedule 1."

9. The limitation clause was clause 17.4:

"17.4 No action or proceedings under or in respect of this Agreement shall be brought against the Contractor after:

(a) the expiry of 1 year from the date of Practical Completion of the Services or;

(b) where such date does not occur, the expiry of 1 year from the date the Contractor last performed Services in relation to the Project."

10. This was a very short limitation period, but it has to be seen in the context of the definition in clause 19 of the Construction Period for the entire Project as 8 weeks.
11. Clause 19 contained a number of definitions expressed to apply "where the context so admits". There was no definition of "Practical Completion" of the "Services", and no provision for that to be certified. There was a definition of Practical Completion as "practical completion of the construction of the Project as certified by Peter Eaton & Associates Ltd". "Services" were again defined as "the services to be performed by the Contractor as set out in schedule 1".

The facts

12. I can take the facts, which are not relevantly in dispute, from the judge's judgment:

"15. DCL carried out the work on site between November and December 2008. On 8^th January 2009 Mr Wagstaff visited the site and took the opportunity to carry out a visual inspection of the low level cladding. He sent DCL an e-mail in which he expressed the view that the workmanship was of poor quality and that little care had been taken with the fitting of the panels generally. He expressed the view that problems would occur with the pressure test. He identified 5 separate areas of defects and stated that when the obvious faults have been corrected he would carry out a full inspection including the high level gutters.

16. On 9 February 2009 Mr Beal (DCL's quantity surveyor) sent e-mails to Mr Wagstaff and Mr Al-Suhaim in which he asserted that the building was complete and had been accepted by Mr Wagstaff.

17. On 27^th March 2009 Mr Al-Suhaim sent an e-mail which referred to "a few technical issues … mainly by loud noise caused by vibration of the cladding panels"

18. On 5^th May 2009 Swinburne Maddison, the solicitors then acting for IIL wrote to DCL. Much of the letter deals with the moneys allegedly due to DCL. At that time some £47,315.50 had been paid and DCL were claiming the moneys outstanding. However the letter also makes a vague reference to "various snagging items that need to be resolved" without going into detail. Swinburne Maddison asked DCL to deal with the snagging items to an acceptable standard within two weeks.

19. DCL replied to this letter on 19^th June 2009. Much of the letter deals with the amounts allegedly due to DCL. However it also contains an assertion by DCL that all the work has been completed and that payment is due.

20. On 27^th July 2009 Swinburne Maddison wrote a further letter to DCL. The letter is headed "Without Prejudice". It is, however agreed between the parties that any privilege relating to the without prejudice status of any letters in the bundle has been waived. After dealing with various money issues the letter asserts that as the final inspection has not taken place there are a number of snagging issues. It criticises the workmanship and makes 4 specific allegations:

A recent air leakage test has failed

There is a water leak to the property

The side panels are vibrating in high winds as a result of poor quality workmanship and the fact that they do not appear to have been fixed to the steel structure correctly.

The general quality of the workmanship and finish is poor with general defects and snagging issues requiring rectification.

21. It is then pointed out that IIL has obtained independent reports in respect of the works and has been advised that remedial works would cost between £105,000 and £107,500. At that time IIL were willing to allow DCL to remedy the defects and Swinburne Maddison asked for a response within 10 days.

22. Mr Beal replied to this letter on 10^th August 2009. In the letter he made the point that the final inspection took place in December 2008 and that various snagging items were attended to in January 2009. He made the point that numerous other contractors have been on site since the completion of DCL's works and that DCL was not responsible for any of the 4 specific items alleged in the letter.

23. Between August 2009 and October 2009 DCL sent a number of chasing letters in respect of the outstanding moneys. IIL changed solicitors and instructed their present solicitors Tilly Bailey & Irvine LLP ("TBI").

24. On 2^nd October 2009 TBI sent DCL a letter in accordance with the Pre-Action Protocol. It enclosed a number of documents including a report from Building Inspection Services. It alleged that the workmanship has not been carried out to a reasonable standard. It referred to three quotations for remedial work in sums between £105,000 and £113,000 and also asserted that there was a loss of profits valued at £150,000 continuing at between £50,000 and £80,000 per month.

25. The letter pointed out that the Pre-Action Protocol provides for a meeting to take place within 28 days of the letter of response. It continued:

'Please note that although our client is willing if necessary to issue proceedings and to pursue these to trial, we are instructed that in order to see a swift resolution to this dispute our client would be willing to meet with you on a without prejudice basis as soon as possible in order to try to resolve outstanding issues.'

26. DCL instructed Crutes LLP ("Crutes") to act on their behalf. There was no formal response to the letter of 2^nd October 2009 prior to 17^th December 2009. It is, however, clear that there were informal discussions. On 17^th December 2009 TBI wrote a letter to Crutes in which they stated that IIL was willing to pay the sums in dispute into an escrow account. Those sums would only be paid on completion of remedial works described as substantial to the satisfaction of the cladding manufacturer's expert.

27. On 26^th February 2010 Crutes provided a detailed response to letters of 2^nd October 2009 and 17^th December 2009. It described the claim as "opportunistic and speculative". It made a number of detailed comments on the letter from the roofing contractor and the report from Building Inspection Services. It is not necessary to go into the details in this judgment. It points out that the Air Pressure Test was carried out 4 months after DCL left site and 6 months before the report was compiled. It points to the other contractors on site and the remedial work carried out after the initial e-mail from Mr Wagstaff.

28. In response to the letter of 17^th December 2009 it enclosed a schedule of the £17,565 then alleged to be due and to be placed in an escrow account. It made the point that DCL was willing to attend the site with IIL to identify any required remedial work and that DCL was willing to attend to such work. An independent expert would be present if necessary.

29. On 12^th March 2010 TBI replied to Crutes. They rejected most of the points made in the letter. However in what was described as "one final attempt to see this matter resolved" IIL was willing to agree to an onsite meeting. Mr Slater (IIL's expert) would be in attendance and it was suggested that DCL appoint its own expert.

30. The meeting duly took place on 31^st March 2010. It was attended by the parties, Mr Slater, Mr Franks (DCL's expert) and a representative from TBI. There is no contemporaneous file note of the meeting though there is a letter from TBI dated 1^st April 2010 which describes the meeting as "productive in some senses as there had been some acceptance that works were required". DCL had agreed to provide a report.

31. On 16^th April 2010 Crutes sent the report to TBI. In the covering letter Crutes made the point that the report was provided "on a strictly without prejudice basis at present until your client confirms that funds have been placed in an escrow account".

32. The report dated 15^th April 2010 was prepared by DCL with the assistance of Mr Franks. It contained a few relatively minor admissions but it did contain an offer to return to site to carry out some further investigative work and remedial work if necessary.

33. There was further correspondence between the parties. It is not in my view necessary to refer to it in detail. Suffice it to note that IIL did not accept the offer and did not permit DCL to return to site. On 21^st December 2010 Crutes repeated the offer to carry out the work but stated that the offer would lapse if proceedings were issued. The offer was not accepted. It may be that this was because Mr Al-Suhaim was in the end unwilling for DCL to return to site. In his witness statement he said :

"In the circumstances I was not prepared to allow DCL to carry out the limited scope of remedial works offered. The proposals gave me the impression that they wanted to hide the problems rather than repairing them all."

34. Eventually on 29^th December 2010 these proceedings were issued. Service was acknowledged on 7^th January 2011. There was no mention of a limitation point in the Acknowledgment of Service. An application was made to transfer the proceedings to the TCC. Thereafter on 1^st February 2011 Crutes indicated that the claim was barred by the provisions of clause 17.4. That point was repeated in the Defence."

The judgment below

13. Before the judge, the claimant contended that there had not been Practical Completion of the Services. The defendant disputed this, but contended that if there had not been Practical Completion of the Services then clause 17.4(b) applied. The claimant submitted that because the words "where such date does not occur" were in the present tense rather than the past tense, paragraph (b) only applied where Practical Completion is not going to be achieved, as where, for example, the owner abandons the Project. The judge rejected the claimant's interpretation. He held that if there had not been Practical Completion paragraph (b) applied.
14. The next question was whether the defendant had provided Services, as defined in the agreement, less than one year before the bringing of the claim. The defendant contended that it had last performed services in February 2009, when it completed the snagging items referred to in Mr Wagstaff's e-mail of 8^th January 2009. On this basis, the issue of proceedings in December 2010 was more than 10 months out of time.
15. The claimant contended that the meeting and inspection on 31 March 2010 were performances of Services. The judge summarised its contention as follows:

"43. Mr Winser contends that DCL performed services in relation to the Project on 31^st March 2010 when it attended the meeting on site on that date. He referred me in particular to Item 8 in Schedule 1 (which defines the Services to be performed under the contract). It will be recalled under that item DCL were to be responsible for ensuring that the building passes its air pressure test and correcting any defects relating to the cladding.

44. Mr Winser points out that in order to correct defects in the cladding DCL must assess the extent of the defects. This will be done by an inspection. The inspection on 31^st March 2010 was such an inspection and was accordingly the performance of a service in relation to the project. Equally the report of 15^th April 2010 containing, as it did, an offer to return to site was also the performance of a service under the Contract."

16. The judge accepted the defendant's contentions on this issue. He said:

"45. …. I agree with Ms Franklin that the inspection on 31^st March 2010 and the subsequent offers have to be seen in the context that they occurred. In the course of her submissions Ms Franklin made a number of points:

1. The meeting took place as part of without prejudice negotiations following a pre-action protocol letter sent by TBI to DCL in October 2009. Ms Franklin referred me to paragraph 5 of the Pre-Action Protocol which expressly contemplates that parties to a Construction dispute should normally meet as part of the protocol.

2. She accepted that any privilege relating to the negotiations had been waived with the result that it was open to the parties to refer to the meeting and the subsequent offer. However she submitted the meeting remained a "without prejudice" meeting. Accordingly the meeting did not prejudice or create rights under the contract. In particular it did not create a new date for time to start running for limitation purposes.

3. She pointed out that DCL's open position, as set out in the letter of 26^th February 2010 was an outright denial of liability.

4. She pointed out that the offer to carry out work contained in the report of 15^th April 2010 was rejected by Mr Al-Suhaim. If it had been accepted and further work had been carried out then no doubt there would have been a fresh limitation period in relation to that work.

46. To my mind these points are unanswerable. In my view the meeting and the subsequent offer were part of the without prejudice negotiations which were being conducted in accordance with the Pre-Action Protocol in an attempt to avoid litigation. They were not the performance of services under the Contract."

The submissions on this appeal

17. Essentially the parties repeated their submissions to the judge. In addition, Mr Evan-Tovey suggested that Practical Completion in clause 17.4(a) meant Practical Completion of the Project, by virtue of the definition of Practical Completion in clause 19.1. In my judgment, that submission, which was not made to the judge, is hopeless. Clause 17.4 refers to Practical Completion of the Services, not of the Project. The definitions in clause 19.1 apply only "where the context so admits", and in clause 17.4 it expressly does not so admit.
18. The claimant sought to rely on the principle of construction expounded in Alghussen Establishment v Eton College [1988] 1 WLR 587, i.e., that contractual provisions will so far as possible not be construed to give a party the benefit of its own wrong. However, the context of that case was very different. The plaintiffs contended that by their own breach of contract they had become entitled to a lease. The House of Lords, applying the canon of construction to which I have referred, rejected their claim. By contrast, the present context is that of a limitation clause, applicable only to the Contractor. In this case it can only have any relevance if the claimant contends that the defendant has been in breach of contract. In other words, this limitation clause only applies where it is alleged that the defendant has been in breach of contract. If he cannot rely on it, it has no effect.
19. In my judgment, clause 17.4 was intended to provide an easily ascertainable limitation period for a claim against the defendant. The question "Is the claimant entitled to bring proceedings?" should be easily answerable when it arises, and should not depend on an investigation of the merits of the claim. If there had been Practical Completion of the Services, the claimant had one year from its date to bring proceedings. If not, it had one year from the date when the defendant last provided Services as defined. The claimant contends that there had not been Practical Completion. If so, clause 17.4(b) applied.
20. The second issue is when the defendant last performed Services. I agree with the judge that one must consider the context in which the meeting and the inspection took place and the defendant's report prepared. Here, the defendant contended that it had completed its work under the agreement in February 2009. What took place in March 2010 were without prejudice discussions and steps to seek to avoid litigation, following service of a letter before claim. I cannot see how a without prejudice meeting and inspection, and a without prejudice report prepared by the defendant for the purpose of negotiations for a possible settlement, can be contractual services. It is not disputed that these were without prejudice communications. The fact that privilege was later waived could not convert these actions into contractual performance. The fact that so long had elapsed since the defendant had left the site adds support to the judge's conclusion.
21. It follows that I agree with the judge's decision. The defendant last performed Services under the agreement in February 2009. The proceedings were barred by clause 17.4. I would dismiss the appeal.

Lord Justice Aikens:

22. I agree.

Lord Justice Elias:

23. I agree that the appeal should be dismissed, essentially for the reasons given by Stanley Burnton LJ.
24. The limitation clause 17.4 is as follows:

"17.4 No action or proceedings under or in respect of this Agreement shall be brought against the Contractor after:

(a) the expiry of 1 year from the date of Practical Completion of the Services or;

(b) where such date does not occur, the expiry of 1 year from the date the Contractor last performed Services in relation to the Project."

25. Mr Evans-Tovey accepted that, whatever meaning was given to "practical completion" in paragraph (a), it had not occurred here. So on a natural reading of the words of paragraph (b), the provision inevitably came into play. Mr Evans-Tovey sought to avoid this by contending that the following italicised words should be implied into paragraph (b):

"where such date does not occur because time for occurrence is no longer expected to be achieved by the client .."

He contended that this is justified because it best reflects what the parties must have intended.

26. I do not accept that submission. The effect of adding these words is that time does not run until the claimant has accepted that the defendant need not supply further services. It means that the claimant can dictate the point at which time begins to run. I see no warrant for inferring that this must have been the intention of the parties. If the parties had meant the paragraph to be triggered only where the claimant had relieved the defendant of the obligation to provide services, it could have said so. In my judgment the words are plain and can be readily understood. They should be given their natural meaning. The implication of these additional words is neither necessary nor justified.
27. The only issue, therefore, is whether the defendant had performed services within the last year. Mr Winser rightly conceded that this must mean performing services pursuant to the contract. His submission was that the on-site meeting, inspection and production of a report at the end of March fell within the scope of the services which the defendant was required to provide under the contract. I am prepared to assume that if done in response to a direction from the claimant whilst the relationship was continuing, they could be so characterised. His next step is to assert that it should be assumed that these services were provided pursuant to the contract unless the defendant stated in terms that they were not being so provided. Here there was no such qualification. The mere fact that these various activities were said at all times to be "without prejudice" was insufficient to amount to an express denial. Furthermore, the fact that the services were also provided for other reasons, such as in order to comply with the pre-action protocol, was irrelevant. Provided the services were being performed at least in part because the defendant was required to supply them under the contract, that was enough to prevent time running.
28. I do not accept that argument either. The defendant was making it clear throughout that its agreement to go along with the claimant's proposals was entirely without prejudice to its rights. The argument of the claimant, if correct, does prejudice its rights. It means that by complying with the claimant's suggestions, the defendant lost the right to take advantage of the limitation clause. In my view the argument is unsustainable. The "without prejudice" wrapper precludes the claimant from asserting that these activities were being undertaken pursuant to the contract. The fact that privilege was subsequently waived with respect to the correspondence is irrelevant. It does not alter the fact that the activities were undertaken on a without prejudice basis, and it cannot retrospectively convert a non-contractual act into contractual performance.
29. It follows that more than a year had gone by since the defendant last performed services and therefore the limitation clause bites. I would dismiss the appeal.