England and Wales High Court (Technology and Construction Court) Decisions

---

You are here: BAILII >> Databases >> England and Wales High Court (Technology and Construction Court) Decisions >> Ens Ltd v. Derwent Cogeneration [1997] EWHC Technology 372 (15th February, 1997)
URL: http://www.bailii.org/ew/cases/EWHC/TCC/1997/372.html
Cite as: [1997] EWHC Technology 372

---

[New search] [Help]

---

Ens Ltd v. Derwent Cogeneration [1997] EWHC Technology 372 (15th February, 1997)

IN THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION

TECHNOLOGY AND CONSTRUCTION COURT

BEFORE HIS HONOUR JUDGE RICHARD HAVERY Q.C.

Between	ENS LIMITED	Plaintiff
	and
	DERWENT COGENERATION	Defendant

 

Case number 1996 ORB 903

1996 ORB 1527

 

Dates of Trial: 29th/30th/June 1998 1st/2nd/6th/7th/8th/9th/13th/14th/15th/16th/23rd/July 1998

Date of Judgment: 15th January 1997

Christopher Thomas Q.C.and Ian Pennicott for the Plaintiffs ( Solicitors: Norton Rose )

1. Richard Fernyhough Q.C and Sarah Hannaford for the Defendants ( Solicitors : Cameron Markby Hewitt )

JUDGMENT

INTRODUCTION

1. This action arises out of a turnkey contract for the construction of a cogeneration plant, which I shall call the Derwent plant, at Spondon, Derby. A cogeneration plant is a plant for the production of electrical energy and of steam. The plaintiffs, whom I shall call Ebasco, were the turnkey contractors. The defendants, whom I shall call DCL, were the purchasers. The plant consisted basically of these items. There were four gas turbine driven electrical generators. The electrical energy generated by those generators was fed into the national grid. The hot exhaust gases from those gas turbines were used to generate steam, the relevant plant being known as heat recovery steam generators or HRSG. The steam so generated was exported to an adjacent chemical plant owned by Courtaulds Ltd, whom I shall call Courtaulds, principally for the purposes of Courtaulds' chemical process plant and the generation by Courtaulds of electricity for use in their own plant. Any surplus steam, not exported to Courtaulds, was used (as the sole source of power) to drive a steam turbine driven electrical generator whose electrical output was also fed to the national grid. The return that DCL would get from its investment in the cogeneration plant was thus twofold: by sale of electrical energy to the electricity utilities and by sale of steam to Courtaulds.

2. On the instructions of DCL, Merz and McLellan, consulting engineers, prepared a specification for tenderers. On the 9th December 1991 DCL, party to a joint venture with Courtaulds, Mission Energy Services Ltd and Southern Electric Plc, invited tenders for design and construction of the cogeneration plant on the basis of the Merz and McLellan specification. Mission Energy Services Limited, which I shall call "Mission", features largely in this case as agent of DCL. Whenever I shall refer to Mission in this judgment, it will be to Mission in its capacity as agent for DCL.

3. Ebasco were the successful tenderer. In February 1992 Ebasco provided to DCL a proposal priced at £106,500,000. Negotiations then took place between DCL and Ebasco with the object of reducing the price. In consequence, on 27th March 1992 Ebasco provided an amended proposal. On 14th April 1992 the contract was signed. The price was agreed at £97,071,428 for a plant that would perform in accordance with the March proposal. No specification was agreed at that time. The specification was finally agreed in December 1992. The state of affairs on the signing of the contract has been called "financial closure".

4. The contract provided that Ebasco should, and Ebasco did, establish in favour of DCL letters of credit as security for the performance of obligations of Ebasco under the contract. On 26th January 1996 DCL drew down £2,025,000 under one of the letters of credit. On 1st October 1996 DCL drew down a further £1,405,000 under the same letter of credit. Ebasco claims that those monies were drawn down wrongfully, in breach of contract, negligently and, in the case of the former draw-down, fraudulently. Ebasco claims damages and an account of those monies drawn down by DCL. Ebasco also has a claim in respect of unpaid invoices and interest. DCL denies liability and further alleges numerous defects in the plant said to justify the draw-downs. Particulars of those defects are set out in 109 items in a Scott Schedule. DCL also has a counterclaim for damages in respect of those defects.

5. I have before me for determination certain issues which have been ordered to be heard as preliminary issues. The issues in question are listed in the Appendix to this judgment. Although some of the facts relating to those issues may bear upon the allegations of fraud, fraud is not included in the preliminary issues.

6. The areas of factual dispute with which I am concerned on the hearing of these preliminary issues are four in number, namely

2. (1) The bunding of the neutralization tanks;

3. (2) The capacity of the demineralized water storage tanks;

4. (3) The performance of the cooling tower; and

4. The unpaid invoices.

7. I first consider the conditions of the contract relevant for present purposes.

8. The contract provided for the contractor to provide to the purchaser letters of credit of two kinds, called Performance letters of credit and DLP letters of credit. By Clause 7.1(i), the contractor was to provide to the purchaser a letter of credit or letters of credit, called Performance letters of credit, as security for the due performance by the contractor of the terms of the contract, until the commencement of the last defects liability period or (if later) until any dispute or difference between the purchaser and the contractor outstanding at the date of such commencement had been resolved. Each Performance letter of credit was for an amount equal to 15 per cent. of the contract price. No draw-down was made on the Performance letters of credit.

9. By Clause 7.4(i), the contractor was to provide to the purchaser a letter of credit or letters of credit, called DLP letters of credit, for an amount equal to 5 per cent. of the contract price effective from the commencement of the last Defects Liability Period until the expiration thereof or (if later) until any dispute or difference between the purchaser and the contractor outstanding at the date of such expiration had been resolved.

10. The draw-downs were made under the DLP letters of credit.

11. Clause 11.1 provided, so far as material, as follows:

5. "The Contractor is responsible on a full turn-key basis for, and shall exercise skill, care and diligence in, the design, supply, construction, installation, testing, commissioning and completion and, during the Defects Liability Period, making good of defects in, a nominal 210 MW combined heat and power plant, ... in accordance with the provisions of the Contract and to a professional engineering standard, such that the plant will be fit and sufficient for its intended purpose as evidenced by or reasonably to be inferred from the Specification. ..."

12. Clause 11.9 of the Contract provided as follows:

6. "(a) The Purchaser shall during the progress of the Works have power to order in writing from time to time:-

7. (i) the removal from the Site of any materials which, in the reasonable opinion of the Purchaser, are not in accordance with the Contract;

8. (ii) the substitution of proper and suitable materials; and

9. (iii) the repair, correction or removal and proper re-execution (whichever appears to be most reasonably appropriate), notwithstanding any previous test thereof or interim payment therefor, of any work which in respect of materials or workmanship is not, in the reasonable opinion of the Purchaser, in accordance with the Contract.

10. (b) In case of default on the part of the Contractor in carrying out such order promptly and in any event within 15 working days of receipt thereof or, if the order is not capable of being carried out within 15 working days of receipt thereof if the Contractor is not diligently proceeding to carry out the order by taking active effective and continuing steps to do so and the order is not in fact carried out within a reasonable period of time after receipt thereof, the Purchaser shall be entitled to employ and pay other persons to carry out the same and all Costs and expenses consequent thereon or incidental thereto shall be recoverable from the Contractor by the Purchaser or may be deducted by the Purchaser from any monies due or which may become due to the Contractor."

13. By Clause 11.10 the Contractor warranted to the Purchaser that the works would be designed and specified with the skill and care to be expected of appropriately qualified and experienced professional designers with experience in the design of works of a similar type, nature and complexity to the Works; subject to a proviso that certain specified items were not designed specifically for incorporation in the Works.

14. Clause 22 provided for inspection and testing of plant during its manufacture and/or after its delivery, and for the making good or repair by the Contractor at his own cost of any plant which the purchaser, after inspection, examination or test thereof, should decide was defective or not in accordance with the contract.

15. Clause 25 provided that if, in respect of any part of the Works not yet taken over, the Purchaser should at any time decide that any work done, plant supplied or materials used by the Contractor or any sub-contractor were defective or did not fulfil the requirements of the contract, the Contractor must make good the defects at his own expense, failing which the Purchaser might do so at the cost of the Contractor.

16. Clause 27 provided for Mechanical completion, which was defined in Clause 1.1 as meaning that a Section of the Works had been completed mechanically and structurally and put in a tight and clean condition in accordance with the Performance Tests Protocol and was ready for the carrying out of the Performance Tests. Clause 27 provided for the making of Mechanical Completion Certificates in respect of Sections of the Works. Clause 27.2 provided that if the Purchaser was satisfied that the Section of Works had reached Mechanical Completion he should, within 10 working days after receipt of the Contractor's notice under Sub-Clause 27.1 (Reaching Mechanical Completion), issue a Mechanical Completion Certificate to the Purchaser; if the Purchaser was not so satisfied he should notify the Contractor in writing of any defects and/or deficiencies. If the Purchaser notified the Contractor of any defects and/or deficiencies, the Contractor should then correct such defects and/or deficiencies at its sole cost and with due diligence and despatch. Sub-clause 3 provided that neither the issue of the Mechanical Completion Certificate nor the achievement of Mechanical Completion should release the Contractor from any of his obligations under the Contract or be proof that any such obligations had been adequately fulfilled.

17. Clause 28.1 provided for the carrying out of Performance Tests within a stipulated period after Mechanical Completion. Clause 28.6 provided, subject to certain other provisions, that if a section failed to pass its Performance Tests the Contractor should pay or allow to the Purchaser liquidated damages of an amount proportional to the shortfall in performance of the plant.

18. Clause 29.1 provided that when each section of the Works had passed its Performance Tests and complied with all Applicable requirements (defined as certain legal requirements and requirements of a similar nature) and the Contractor had made training available to the Purchaser's personnel, the Purchaser should issue to the Contractor a taking-over certificate. The Purchaser should be deemed to have taken over the section on the date so certified. By Clause 29.2, upon the issue of the taking-over certificate the risk of loss or damage to the section passed to the Purchaser and the Purchaser took possession of the section.

19. Clause 29.3 provided as follows:

11. "The Contractor shall rectify or complete to the reasonable satisfaction of the Purchaser within the time stated in the Taking-Over Certificate any outstanding items of work or Plant noted as requiring rectification or as incomplete in a completion item list to be prepared by the Purchaser in consultation with the Contractor. In the event the Contractor fails to do so, the Purchaser may arrange for the outstanding work to be done and the Cost thereof shall be certified by the Purchaser and deducted from the Contract Price by the Purchaser pending satisfactory rectification and/or completion."

20. Clause 30.2 provided:

12. "The Contractor shall so execute the Works that each Section shall be complete and pass the Performance Tests applicable thereto within the Time for Completion attributable thereto."

21. Clause 32.1 provided:

13. "In these Conditions the expression "Defects Liability Period" means the period of 12 months calculated from the date of issue of the Taking-Over Certificate in relation to Section 1 under Clause 29 (Taking-Over) and the date of commencement of the successful 30 day reliability run in relation to Section 2."

14. The reliability run is provided for in a protocol which I mention below.

22. Clause 32.2 provided, so far as material, as follows:

15. "The Contractor shall be responsible for making good by repair or replacement with all reasonable speed at his expense any defect or in or damage to any part of the Works which may appear or occur during the Defects Liability Period and which arises either:

16. (a) from any defective materials, workmanship or other breach of the Contract by the Contractor; or

17. (b) from any act or omission of the Contractor done or omitted during the period."

23. Clause 32.5 provided as follows:

18. "If any such defect or damage be not remedied within a reasonable time, the Purchaser may proceed to do the work at the Contractor's risk and expense provided that he does so in a reasonable manner and notifies the Contractor of his intention so to do. The Costs reasonably incurred by the Purchaser shall be deducted from the Contract Price or be paid by the Contractor to the Purchaser."

24. Clause 32.9 provided as follows:

19. "If any defect of the kind referred to in Sub-Clause 32.2 (Making Good Defects) shall appear in any part of the Works within a period of 3 years after the date of the taking-over of such part of the Works the same shall be made good by the Contractor at his expense by repair or replacement at the Purchaser's option provided that the defect was caused by the gross misconduct of the Contractor as defined below and the defect would not have been disclosed by a reasonable examination prior to the expiry of the Defects Liability Period..

20. "Gross misconduct" does not comprise each and every lack of care of skill but means an act or omission on the part of the Contractor which implies either a failure to pay due regard to the serious consequences which a conscientious and responsible contractor would normally foresee as likely to ensue or a wilful disregard of any consequences of such act or omission."

25. Clause 40.2 provided that except in the case of Liquidated Damages and in the case of certain claims by the Contractor,

21. "neither the Contractor nor the Purchaser shall be liable to the other howsoever arising, whether by way of indemnity or by reason of any breach of the Contract warranty or of statutory duty or by reason of tort (including but not limited to negligence) or undertaking of any account or otherwise for any loss of profit, investment, revenue, return, use, operating time, contract production, opportunity or goodwill, cost of capital, cost of replacement power, increased cost of operation or maintenance, claims of customers or third parties, or for any other indirect or consequential or special or incidental damage whatsoever that my be suffered by the other, provided always that nothing in this Sub-Clause 40.2 shall prejudice either party's rights in relation to or under any indemnity contained in the Contract."

26. Clause 40.3 limited the liability of the Contractor to the Purchaser to the Contract price.

27. By Clauses 40.6 and 40.7 it was provided:

22. 40.6 The Purchaser and the Contractor intend that their respective rights, obligations and liabilities as provided for in these Conditions shall be exhaustive of the rights, obligations and liabilities of each of them to the other arising out of, under or in connection with the Contract or the Works, whether such rights obligations and liabilities arise in respect or in consequence of a breach of contract or of statutory duty or a tortious or negligent act or omission which gives rise to a remedy at common law. Accordingly, except as expressly provided for in these Conditions, neither party shall be obliged or liable to the other in respect of any damages or losses suffered by the other which arise out of, under or in connection with the Contract or the Works, whether by reason or in consequence of any breach of contract or of statutory duty or tortious or negligent act or omission.

Overriding Effects

23. 40.7 Each and every provision of this Clause 40 shall take precedence over any other provision of the contract

28. I must also mention Clause 44, since it is referred to in the argument of Mr John Blackburn QC, for Ebasco. Clause 44 provided in certain circumstances for the Purchaser to terminate the Contract, to enter the site and expel the Contractor therefrom, and to complete the Contract. The circumstances in question were the abandonment of the Contract by the Contractor, suspension by the Contractor of the Works without reasonable excuse, and failure on the part of the Contractor to execute the Works in accordance with the Contract or to proceed with the Works with due diligence or to carry out his obligations under the Contract so as adversely to affect the carrying out of the Works. Any of those circumstances were referred to in Clause 44.1 as a "default".

29. Clause 7.4(i) of the Contract provided that the DLP letters of Credit should be in the form set out in Schedule 2 Part II to the conditions. That form provided for draw-down upon presentation of a certificate certifying that the amount of the drawing represented amounts due and owing to Derwent Cogeneration Limited ("Owner") as a result of Ebasco (UK) Limited's ("Esbasco") default of certain obligations under the Contract, which default had not been cured by Ebasco after notice thereof and within the applicable time period provided in the Contract.

30. Mr Blackburn argued initially that the certificate could not properly be given unless the circumstances of Clause 44.1 applied, since, he submitted, that Clause gave an exhaustive definition of the contractual meaning of default. He recognised the difficulties of his argument, and so do I. I reject it.

31. It is common ground that a taking-over certificate in respect of Section 1 (the Auxiliary Boiler and all associated Works) was issued on 26th March 1993. It is common ground that a taking-over certificate in respect of Section 2 (the rest of the Works) was issued on 3rd March 1995. The plaintiffs allege, but the defendants do not admit, that the reliability test was successfully completed on 8th February 1995 and that the defects liability period in respect of Section 2 of the Works commenced on 9th January 1995.

32. Clause 28.2 of the contract provided that performance tests should be carried out in accordance with the procedures and under the operating conditions specified in the Performance Test Protocol. That protocol constituted Schedule 5 to the contract. In relation to Section 2 of the Works, it provided that performance testing should include reliability and availability tests and capacity and heat rate test. It provided that the reliability test required 21 days of operation. The protocol provided for further tests, not required for the passing of the performance tests.

33. I have not heard argument on the question when the defects liability period in respect of Section 2 commenced. Possibly the reason for the defendants' non-admission was to do with the discrepancy, in relation to the reliability test, between the reference to 21 days of operation in the protocol and 30 days in Clause 32.1. However that may be, the defects liability period in respect of Section 2 of the Works cannot, I think, have started after the date, 3rd March 1995, of issue of the relevant taking-over certificate.

DRAW-DOWN

34. On 18th January 1996 Mission wrote to Ebasco warning them that defects, apparently listed on a page originally attached to the letter, were to be made good by others in accordance with Clause 32.5 of the contract (Delay in Remedying Defects). On 25th January 1996 DCL gave notice to Ebasco of their intention to draw £2,025,000 under the letter of credit as Ebasco had failed to remedy defects in accordance with Clause 32 of the contract within the period allowed for in the contract. The certificate presented to the bank was dated 26th January 1996. Ebasco's default as referred to in that certificate was simply "default on the part of Esbasco of certain obligations under the contract".

35. On 1st October 1996 DCL gave notice to Ebasco of their intention to draw £1,405,000 under the letter of credit on the grounds that Ebasco had failed to remedy defects under Clause 32 of the contract within the period allowed for in the contract. The certificate presented to the bank was dated 1st October 1996. It referred to Ebasco's default simply as default of certain obligations under the contract. The warning letters and the certificates were signed by Mr Brian Purchas. Mr Purchas is employed by Mission as Engineering Development Manager (UK Business). He acted, and continues to act, as the Project Manager and Project Executive for the Derwent Cogeneration Power Plant Project. He is also an alternate director of DCL.

36. The sum of £2,025,000 drawn down in January 1996 was for expenses said by the defendants to have been incurred as follows:

£

24. Cooling tower 194,906.46

25. Demineralization tanks 768,622.49

26. Neutralization tanks 1,060,813.06

27. Those amounts in fact add to £2,024,342.01.

37. Mr Purchas said that the sum of £1,405,000 drawn down in October 1996 was for various Scott Schedule items which he was unable to identify. No particulars of them have been put before me.

38. Mr Patrick Twigg QC, for DCL, submitted that the DLP letters of credit were security for the due performance by the Contractor of all the terms of the Contract. In relation to the Performance letters of credit, the expression in Clause 7.1(i) "as security for the due performance by the Contractor of the terms of the Contract" was, he submitted, unlimited in its scope, and Clause 7.4(i) should be read in the same way in relation to the DLP letters of credit.

39. Mr Blackburn, on the other hand, submitted as follows:

28. 1. The Contract imposes numerous obligations as to the quality and performance of the Plant during the execution of the Works and gives the Purchaser a series of remedies.

29. 2. The issue of the Taking Over Certificate under Clause 29 is, however, a watershed. After Taking Over, the Purchasers' remedies are restricted to Clause 29.3, Clause 32 and Clause 44. It is plain from Clause 32.9 that, after Taking Over and the expiry of relevant Defects Liability Periods, the Contractor is not exposed to a general action for breach of contract for defects in the Works.

30. 3. The function of the Performance Letter of Credit under Clause 7 of the Conditions is to provide the Purchaser with security for the discharge of the Contractor's secondary obligations in the period prior to Taking Over. As a matter of construction, the intention of the parties was that the Performance Letter of Credit should be replaced by the DLP Letter of Credit, the function of which is to provide security for the discharge of the Contractor's secondary obligations caused by a breach of the Clause 32 primary obligations.

40. Those submissions of Mr Twigg and Mr Blackburn are not mutually inconsistent. The question is, what were the defendants' rights at the times they made the draw-downs.

41. Clause 32 provides for the contractor's liability, and the Purchaser's remedy, in respect of defects in or damage to any part of the Works which may appear or occur during the Defects Liability Period and which result from a breach of contract committed at any time by the contractor or from any act or omission of the contractor done or omitted during the Defects Liability period. In my judgment, the meanings of the words "appear" and "occur" include "reappear" and "recur". But those words do not apply to any overt defects existing before the Defects Liability Period and persisting into that period. The reason is obvious. The contract contemplates that any such overt defects will have been rectified, or apparently rectified, either before taking-over, or under the provisions of Clause 29.3. Clauses 11.9, 22, 25 and 28 provide the mechanism to enable the purchaser to ensure that there are no overt defects at the time of taking-over, save any which fall within Clause 29.3.

42. In my judgment, the effect of Clause 32.9, especially in the context of Clause 40.6, is to relieve the contractor from liability to the purchaser in respect of defects in the works which appear more than three years after taking-over, and to limit the contractor's liability to cases of gross misconduct on his part where such damage appears within three years of taking-over but after the end of the Defects Liability Period.

43. The contract does not expressly provide for the contractor's liability where there is an overt defect which existed before taking-over but was somehow allowed to persist thereafter. In my judgment, it is clear that the contractor is not liable in such a case. Taking-over is, to use the expression of Mr Blackburn, a watershed.
44. The contrary construction would fly in the face of Clause 40.6. The Court of Appeal passed upon a substantially identical clause in Strachan and Henshaw v Stein Industrie (UK) (1997) 87 BLR 52, holding that its clear meaning and effect should not be cut down even if that meant that a contractual right would become worthless (see p.71H of the report).
45. Mr Twigg made a further point, that DCL were entitled to make a draw-down under the DLP letters of credit in reliance on the provisions of Clause 11.9 of the contract, since it was during the progress of the Works that Mr Purchas had made his various demands for rectification work to be carried out by Ebasco. Works were defined as all plant to be provided and all work to be done by the contractor under the contract. Since works required under a list of outstanding work said to be attached to the taking-over certificate of 3rd March 1995 remained outstanding, the progress of the Works was not complete.
46. I reject Mr Twigg's argument. Clause 29.3 clothes the purchaser with limited rights in respect of works in such a list which the contractor fails to carry out, namely to carry out the outstanding work himself and to deduct twice the estimated value of such work from the contract price. Unlike Clause 11.9 it does not entitle the purchaser to all consequential and incidental costs and expenses or to recover them from the contractor. If it had been the intention that the purchaser should have such an entitlement, I can see no reason why that should not have been stated in Clause 29.3. That suggests that no such entitlement was intended, especially given the provisions of Clause 40.6. Moreover, it would be arbitrary and unreasonable for the obligations of the Contractor in relation to the entire works to be extended by the inclusion of a list, however small, in the taking-over certificate. I conclude that the purchaser's rights under Clause 11.9 cease when the taking-over certificate is issued.
47. Much of Mr Twigg's argument that the defendants had the right to draw down the monies was devoted, in effect, to the proposition that the letters of credit had been as good as cash to the defendants. He submitted that these were interlocutory proceedings and that in interlocutory proceedings the defendants cannot, in the absence of bad faith, be prevented from drawing down the monies, nor can the bank be prevented from paying the monies to the defendants. I reject his submission that these are interlocutory proceedings. The question whether the defendants could have been enjoined from drawing down the monies is, in my judgment, irrelevant. I do not doubt that neither they nor the bank could have been so enjoined in the absence of proof of bad faith. But the plaintiffs did not attempt to enjoin the defendants or the bank.

BUNDING OF NEUTRALIZATION TANKS

48. I come now to consider the individual areas of factual dispute: first, the bunding of the neutralization tanks.
49. The water used for generating the steam has to be in a high state of purity. It is first clarified and filtered; it is then demineralized. The demineralization is done by a process of deionization, using resins. The process is a process of ion exchange, which removes all the dissolved solids from the water, trapping them on the resins. There are cation and anion exchange units; their resins require periodic regeneration by sulphuric acid and caustic soda respectively. The concentrations of acid and alkali used for regeneration were 4 per cent. The regenerants remove the trapped solids, producing effluents containing the salts removed from the water and excess acid or alkali.
50. In order to allow for the discharge of the effluents to drain, it is necessary to neutralize them; that involved, in this case, putting them into a condition where their pH was in the approximate range 6 to 9. To effect that purpose, the effluents were passed into neutralization tanks. There were two such tanks. Before passing to the drains, the neutralized effluent was passed from the neutralization tanks to large tanks on Courtaulds' premises called Dorr-Oliver tanks where it was mixed with other kinds of effluent.
51. As the plant was initially operated, acidic effluent from the regeneration process was passed to the first neutralization tank; as regeneration progressed, the alkaline effluent eventually reached the neutralization tanks when the first tank was almost full. Thus most of the alkaline effluent went to the second tank. Operation was subsequently modified so that the alkaline effluent could be used to achieve a greater degree of neutralization of the acid effluent. Neutralization was also carried out by passing into the effluent in the tanks concentrated (47 per cent.) caustic soda and concentrated (96 per cent.) sulphuric acid.
52. Her Majesty's Inspectorate of Pollution, incorporated into the Environment Agency for England and Wales when the latter came into existence on 1st April 1996, was one of the organisations from which, prior to April 1996, DCL required approval for the proposed plant. In the chemical process industry it is usual to differentiate between process tanks and vessels and storage tanks and vessels. The HMIP authorisation required the effective use of bunds around storage tanks; it did not require bunding around process tanks.
53. There was a dispute whether the neutralization tanks were process tanks. Frank P Lees, the author of what was by common consent a major textbook entitled "Loss Prevention in the Process Industries", expressed in that book the opinion that neutralization is a unit process.
54. The weight of the evidence was that the neutralization tanks were process tanks. Mr Rolf Clayton, a chemical engineer called by the plaintiffs to give expert evidence, expressed the view that the neutralization tanks were not storage tanks since there was no need to store effluent; in fact, there was good reason to dispose of the effluent as soon as possible so that the neutralization tank was available to receive the spent regenerant from the next regeneration. Moreover, he could think of no good reason why effluent should be stored in the tank once the neutralization process had been completed. That seems to be perfectly good common sense. Mr Stephen Wenham, an Environmental Protection Officer employed by the Environment Agency called by the defendants to give evidence, accepted that neutralization tanks were process tanks.
55. Dr John Heathcote, a geologist with experience in hydrogeology called by the defendants to give expert evidence, accepted that the neutralization stage was an essential part of the process of the plant; the following further exchange took place in the course of his cross examination:

1. Now, there is no doubt at all, is there, that the neutralisation tanks are an essential part of the process of the plant?

31. A. Yes, because without the neutralisation process the effluent cannot be discharged, and if the effluent cannot be discharged, the plant cannot operate.

32. Q. Whether or not the these neutralisation tanks ought to have been bunded there is no doubt at all, is there, that they are process tanks?

33. A. They are tanks in which the chemical reaction of neutralisation occurs and if that is deemed to call them process tanks, then they are process tanks."

43. Mr Twigg invited me to accept the views of Mr Paul Thorne, a process engineer who gave expert evidence on behalf of the defendants. He said he would describe the neutralisation tanks as storage tanks which have a process function. I reject that description. The purpose of the tanks is clearly to neutralize the effluent, not to store it. It is the storage, not the process, that is incidental. I am satisfied that the tanks were process tanks.
44. As I have said, the defendants' invitation to tender was based on a design specification prepared for the purpose at their instance by Merz and McLellan. The Merz and McLellan specification, though it contained specific provision for the bunding of chemical storage tanks, did not require any neutralization tank to be bunded.
45. Mr Clayton said that on the basis of the great majority of ground-level neutralization tanks serving demineralization plants installed in this country it was his opinion that bunding of such tanks was not usual industrial practice.
46. The defendants argued that special circumstances prevailed which should have led to the bunding of the neutralization tanks. Mr Twigg submitted that with reasonably foreseeable operational errors or plant failures there were times when the tanks were liable to be filled with 96 per cent. sulphuric acid or 47 per cent. caustic soda. The small storage tanks of those solutions required bunding, and he asked rhetorically why the much larger neutralization tanks should not require bunding. There was evidence that DCL's operators had on two occasions allowed 96 per cent sulphuric acid to be pumped into the tanks, which were designed to receive such acid only after the tanks were substantially full of the effluent. The operators had then attempted to neutralise the acid by pumping in a balanced quantity of 47 per cent. caustic soda. Those two chemicals mutually reacted, generating a huge amount of heat and causing some damage to the tanks. In one of the incidents, there was a leakage of concentrated acid from a valve and a mixing line connected to one of the tanks. The acid was washed away with water. Whether any environmental damage occurred does not appear.
47. Whether a tank ought to be bunded, in the absence of a statutory requirement, must depend on the extent of the perceived damage caused by a leak coupled with the probability of the occurrence of such a leak. 96 per cent. sulphuric acid and 47 per cent. caustic soda are potentially polluting substances. The defendants put before me no quantification or estimate of the probability of a leak of normal effluent or of concentrated acid or alkali, nor was there put before me any comparison of the probability/damage factors prevailing at the Derwent plant against those factors prevailing at other plants where neutralisation tanks are not bunded. Mr Clayton referred to some studies which suggested what he described as very, very low probabilities of serious leaks occurring.
48. I conclude that it was not necessary to bund the neutralisation tanks. HMIP did not require it. The Merz and McLellan specification did not require it. It is not general practice to bund neutralisation tanks. There is no evidence to suggest that these neutralisation tanks had a greater propensity than any other neutralisation tanks to cause pollution or other damage by the absence of bunding. Ebasco were not in breach of contract in supplying neutralisation tanks that were not bunded.
49. At a Board meeting of DCL held on 22nd June 1995 and attended by Mr Purchas, the board approved an initial budget of £300,000 to build a new neutralisation tank to provide a 100 per cent. back-up to the existing system on the grounds that the performance of the existing neutralisation tanks was unsatisfactory and their capacity was apparently inadequate. Mr Purchas accepted in cross-examination that that decision had nothing whatever to do with bunding. Mr Purchas commissioned Stone and Webster, a firm of engineers, to undertake a detailed study and to make recommendations as to what remedial work was required in order to ensure a reliable supply of demineralized water to the plant that would match the obligations relating to the supply of steam set out in DCL's steam contract with Courtaulds Ltd. Stone and Webster, in their report submitted in August 1995, recommended that a new neutralisation system be installed which together with the existing neutralisation system would provide two 100 per cent. systems. The report did not require the new tank to be bunded, though it did require it to be enclosed by raised curbing. In late August 1995 DCL contracted with Stone and Webster to design, engineer, procure and manage the construction of a new neutralisation system with an "in service" target date of 1st December 1995, that being the latest date by which full steam supply to Courtaulds had to begin. On 22nd September 1995 DCL placed an order on McDonald Engineering Limited for the supply of a neutralisation tank for completion by 1st December 1995.
50. There is a paper dated 13th October 1995 which I am satisfied was prepared by Mr Purchas for the Board of DCL which states:

34. "A recent review of the planning consents for the project has revealed that the existing neutralisation tank should have been surrounded by a containment bund. A simple calculation shows that to install a bund is impracticable because it would need to be over 7 metres high and there is inadequate space in which to install it. We therefore intend to write to Ebasco informing them of their breach of the planning consents and advising them that the cost of a new neutralisation tank will therefore be back-charged to them."

64. On 25th October 1995, Mr Purchas on behalf of Mission wrote to Mr Joseph LaFemina, who was Ebasco's project manager for the cogeneration plant, in the following terms:

35. "I enclose for your attention a copy of the relevant clauses of the planning consent, for the Derwent Cogeneration project, dealing with the bunding requirements for hazardous chemicals, and in particular sulphuric acid and caustic soda. The bunding requirements set out in the planning consent were known to Ebasco at the time of the design of the plant in 1992.

36. "The neutralization tanks receive regeneration waste from the water treatment plant; this waste varies from 4% sulphuric acid to 4% caustic soda, and the pipework between the tanks receives 96% sulphuric acid and 47% caustic soda, at the injection nozzles, during the neutralisation process. These tanks therefore clearly require bunding as per the requirements set forth in the planning consent.

37. "The two neutralisation tanks installed by Ebasco are not bunded. To install a bund sufficient to contain the contents of a single tank would require a bund wall in excess of 5 metres high, owing to the space constraint in the area. It can be argued that because the tanks are coupled together by common pipework systems the bund should be sized to contain the contents of both tanks (i.e. 560 m3). This would require a bund wall 8 metres high. The installation of a bund wall of even 5 metres in height, is completely impractical because of space constraints, and would also necessitate the complete shutdown of the power station.

38. "Since the neutralisation system supplied by Ebasco does not comply with the legal requirements outlined in the planning consent, and modification of the existing system is not possible we require Ebasco to supply and install a new neutralisation system that does comply with the legal requirements that Ebasco accepted as contractual obligations.

39. "We require Ebasco to respond to this letter within seven days, acknowledging the contractual obligation and proposing the timely installation of a new neutralisation system. If we do not receive a positive response with seven days we will undertake the work ourselves and back-charge the costs to Ebasco in accordance with the terms of the construction contract."

40. Mr Purchas then enquired of Mr Wenham, of the National Rivers Authority, whether the existing tanks required bunding. He faxed a letter to Mr Wenham on 31st October 1995 referring to their telephone conversation of the same morning, asking Mr Wenham to advise by return whether the tank (sic) should be bunded, offering him a site visit to review the existing installation and enclosing a description of the tanks. That description reads as follows:

41. "The two neutralisation tanks are each 280 m3 in capacity, 4.5 m diameter and 15 m in height.. The tanks are constructed of mild steel with an internal flake glass lining, and are interconnected together.

42. "The tanks receive effluent regeneration waste from the water treatments plant; this waste varies from 4% sulphuric acid to 4% caustic soda. Typically one tank will be 95% full, after a 5 hour regeneration cyle, with dilute acid with a pH of between 0.9 and 1.2. The second tank will contain a smaller quantity of dilute caustic soda with a pH of between 13.0 and 13.5.

43. "The liquid in the tanks is then neutralised by the direct injection of 96% sulphuric acid or 46% caustic soda, as appropriate, until the pH is between the discharge consent limit of 6.0 and 9.0. The liquid is then discharged to Courtaulds. The time for neutralisation and disposal is between 2 and 3 hours.

44. "At full water treatment plant capacity, the neutralisation tanks will commence receipt of a batch of regenerant effluent waste every eight hours on a continuous basis; consequently the tanks can contain effluent for more than 20 hours in any 24 hour period."

45. That description does not state that the tanks are storage tanks.

65. As to Mr Purchas's statement that the waste varies from 4 per cent. sulphuric acid to 4 per cent. caustic soda, those figures in fact represent the concentrations of acid and alkali respectively used to regenerate the resin, though they may represent momentary peaks of concentration in the tanks. The evidence of Professor George Solt, a chemical engineer called as an expert witness by Ebasco, was that the injection of acid for regeneration was carried out in two stages: in the first stage, it was at a concentration of 1 per cent.; in the second stage, at 4 per cent. He calculated that the maximum concentration of acid in the tank would be 1 per cent.: that occurred at the end of the regeneration. Whatever the peak level of acid concentration in the tank, he said it would persist only momentarily. The experts were agreed that the average concentration of acid in the tank was 0.75 per cent., but that under possible maintenance or fault conditions the degree of acidicity or alkalinity of the contents of the tanks might exceed that existing during normal operation. They were also agreed that the neutralisation tanks would contain effluent for anything from 10 hours and typically 15 to 21 hours out of each 24 hours.

66. Mr Wenham made a site visit on 3rd November 1995; on that occasion, Mr Purchas indicated to Mr Wenham that in his view the neutralisation tanks ought to be bunded and that he had specified bunding for the new tank. He asked Mr Wenham to confirm that view in writing. Mr Wenham wrote back on 6th November 1995:

46. "The existing neutralisation tanks are to be replaced due to acid damage of the linings. Therefore this Authority will not require these tanks to be bunded. However, the new neutralisation tank ... will require bunding".

67. Mr Purchas then sent to Mr Wenham a fax of which neither the original nor any copy is to be found. Mr Purchas was cross-examined as to the contents of that fax:

47. Q. What did the fax say?

48. A. Now you are really going to put me on the spot, Mr Blackburn. As far as I can remember - and it is a very distant memory, I have to say - I think I asked - I think I asked Mr Wenham to actually respond to the original letter I had sent him which he had not actually done.

49. Q. Was the reason because Mr Wenham's letter was not sufficiently damning of Ebasco for your liking?

50. A. No, not really. It was just that it had not addressed the points that I had asked him. He had said, "Bund the new one but do not bother to bund the other ones, because you are going to take them out of service.". I said, "Well, please assume we are not going to take them out of service, and tell me whether they should be bunded or not."

51. Mr Wenham replied to that fax on 15th November 1995 as follows:

52. "I refer to my previous letter and your subsequent fax communication regarding further information on the above topic.

53. "It is the understanding of this Authority that the existing neutralisation tanks store effluent of pH values ranging between 0.9 and 13. This effluent is potentially highly polluting and the general comments made in response to the planning applications in 1993, that all oil and chemical storage tanks should be bunded, obviously apply in this case. Additionally if the Authority had been informed of the precise nature of the contents of these particular tanks then specific reference regarding bunding these would have been made.

54. "If your company intends to continue to use these tanks they must be bunded ..."

55. So far as Mr Wenham could recall, Mr Purchas' s missing fax described the tanks in the manner indicated in Mr Wenham's letter, namely that they stored effluent of pH values ranging between 0.9 and 13.

68. It is abundantly clear on the evidence that the lack of bunding was not the true reason why Mission required Ebasco to supply and install a new neutralisation system. In my judgment, for the reasons I have given above, it was also not a valid reason.

DEMINERALIZED WATER STORAGE TANKS

69. I turn now to the demineralized water storage tanks. The question here is whether, on the true construction of the contract, the capacity of each of the two demineralized water storage tanks to be provided under the contract was required to represent, at normal usage rates, 8 hours storage or 24 hours storage.
70. The contract is ambiguous in that respect. The specification of December 1992 states at p.41, in a section entitled "Project Description" and subtitled "Off Normal Operations"

56. "While it is impossible to list all conceivable off normal operation conditions the plant may experience the following can be easily accommodated.

.....

57. "Water Treatment Plant Out of Service - the two (2) demineralized water storage tanks provide a minimum of 24 hours of storage each at normal usage rates....

58. "Loss of Courtaulds Cooling Water Supply - Each demineralized water storage tank provides a minimum of 24 hours process make-up water ..."

59. The same specification at p.4 stated

60. "The plant design criteria will include the following drawings which will be developed to be issued for construction (Revision O) status. These drawings will be issued to Derwent for review and approval."

61. There followed a list of drawings which included a plot plan M-MD1101 and a water balance diagram M-MD5101. The relevant versions of those drawings are both dated 21st August 1992. The plot plan shows the 2 tanks, and expressly states the capacity of each to be 1900 m3. The water balance diagram shows that the cogeneration plant uses water at the average rate of 209.7 m3 per hour. The figure of 1900 m3 thus represents a storage capacity at average usage rates of 9 hours for each tank.

71. Ebasco's tender of March 1992 was likewise ambiguous. It contained the same words under the section "Project Description" as I have quoted above from the specification of December 1992. It also contained a list of equipment which showed 2 demineralized water tanks with a capacity of 500,000 gallons each, 53 feet in diameter and 32 feet high. Those dimensions represent a gross volume of 528,000 US gallons; 500,000 US gallons represents 1892.7 m3.

72. The contract makes provision by Clause 4.1 for the order of precedence which the various contractual documents are to take in the event of ambiguity. Clause 4.1 reads:

62. "Unless otherwise provided in the Contract, in the event of any ambiguity or conflict between any of the documents forming the Contract, the order of precedence shall be as follows:-

63. the form of Agreement

64. the Conditions

the Schedule

65. the Specification (including the drawings annexed thereto and such other documents as are referred to therein)

the Tender

66. If the Purchaser or the Contractor finds any ambiguity or conflict between any of the documents forming the contract, he shall immediately give notice to the other specifying the ambiguity or conflict."

67. Unfortunately, Clause 4.1 does not help in this case. The Specification (including the drawings) is itself ambiguous. It takes precedence over the Tender, which is again ambiguous in the same way.

73. Mr Twigg relied on Clauses 13.3 and 14.1 of the Contract. Clause 13.3 reads:

68. "Approved drawings shall not be departed from except as provided in Clause 26 (Variations). The approval of or failure to approve drawings by the Purchaser shall not operate to absolve the Contractor from the due performance of his obligations under the Contract, nor operate to vary those obligations in any manner."

69. The drawings in question were indeed approved before the specification of December

1992 was agreed. Clause 14.1 reads, so far as material:

70. "Notwithstanding approval by the Purchaser of drawings, samples, patterns, models or information submitted by the Contractor, the Contractor shall be responsible for any errors, omissions or discrepancies therein ..."

74. In my judgment, neither of the above clauses assists in resolving the ambiguity.

75. Mr Twigg submitted that the plain English words should take precedence over the drawings and list of equipment since the latter required a calculation to produce a figure for the storage capacity of the tanks in hours. There was no reason to expect the defendants to carry out such a calculation. That brings me to the factual matrix.

76. The Merz and McLellan design specification stated

71. "Three treated water storage tanks shall be provided with a total minimum usable capacity of 24 hours of normal usage".

77. The plaintiffs' initial tender proposal of February 1992 contained, in the section headed Project Description - Off Normal Operations, precisely the same wording as in the corresponding sections of the March 1992 and December 1992 documents, save that the reference in the later documents to the 2 demineralized water storage tanks was a reference to the 3 demineralized water storage tanks. Thus, the February tender proposal followed the Merz and McLellan specification save that the word "each" was included in two places. It contained an equipment list showing 3 demineralized water tanks of 500,000 gallons each, 53 feet in diameter and 32 feet in height. In order to reduce the price of the plant, the parties negotiated a reduction in the number of tanks from three to two. That reduction was reflected in the March tender proposal and in the December specification. In the March tender proposal the amendments from three to two were in manuscript both in the text and in the equipment list.

78. Mr Twigg drew attention to the word "minimum" in the Merz and McLellan specification, but I think it is of no significance in the context of the present dispute. All it means is that the contractor should not be bound to provide precisely that capacity: it is a minimum. In a situation of competitive tendering, as this undoubtedly was, it is obvious that a contractor would not be expected to offer substantially more capacity than necessary.

79. I have no doubt, in the light of the Merz and McLellan specification, that the object of the parties and the aim of the transaction were initially that a minimum of 24 hours storage capacity should be provided at an economic cost. Thus a capacity of approximately, though not less than, 24 hours of normal usage was objectively to be expected.

80. There is no suggestion that the size of the tanks was re-negotiated. When the number of tanks was reduced by negotiation from 3 to 2 a capacity of approximately, though not less than, 16 hours of normal usage was objectively to be expected. If I ignore for the moment Mr Twigg's point that there was no reason to expect the defendants to carry out a calculation, I resolve the ambiguity in the contract accordingly.

81. As to Mr Twigg's point, he submitted in support of it that there was no evidence why the defendants should have performed the calculation. There was no evidence that such a check is routine or normal engineering practice. The defendants' evidence was that plot plans are not typically used for determining the capacity of tanks.

82. Mr Twigg's argument is, I think, based on the unstated premise that when the defendants read the wording of the tender specifications of February and March 1992 or of the final contract specification of December 1992 they would have no reason to think that it was, or might be, a mistake. In fact, that wording departed so far from the Merz and McLellan specification that, assuming that the defendants noticed that departure when they read the wording, they must immediately have been put on inquiry. I thus reject Mr Twigg's submission. I conclude that on its true construction the contract provided for two demineralized water storage tanks each having a capacity of 8 hours of normal usage.

83. I am satisfied on the evidence of Mr Richard Fong, a project engineer working for Ebasco, that the provisions that each tank should have a capacity of 24 hours were drafted by him by mistake. He intended the total capacity to be 24 hours. He was inclined to think that the error was that of his typist. In my judgment, it is more likely that it was caused by a mental aberration on his part. Not only did I find Mr Fong to be an honest witness, but I consider it inherently likely that the intention was to follow the Merz and McLellan specification, rather than to provide three times the minimum specified by them. That is borne out by the equipment list. It is true that the provisions in question were the subject of further negotiation and the total capacity was reduced. Mr Twigg submitted that it was not credible that, if it had been an error, it would not have been noticed before December 1992. He submitted that if the word "each" in the February proposal was an error, then there was a further error once it had been amended in the form of the March proposal, namely that the phrase "minimum of 24 hours", relating both to the water treatment plant being out of service and the loss of Courtaulds' water cooling supply, was inconsistent with the 2 tanks of 8 hours storage each that Ebasco maintained that they intended to supply. The March proposal, on the correct description of Ebasco's own case, should have specified a minimum of 16 hours make-up water, not 24. So Ebasco's case must be that their description of water storage capacity was wrong in two respects in the March proposal despite being altered by Mr Fong and checked by Mr Cesar Seoane, who was then Ebasco's Senior Supervising Engineer, Mechanical Engineering.

84. Mr Twigg submitted that the only reasonable interpretation of the events was that Ebasco, and in particular Mr Fong and Mr Seoane, consciously intended to provide 24 hours of storage in each tank or at least were ambivalent as to the amount of storage offered. I reject that submission. I accept Mr Fong's and Mr Seoane's evidence that they did not notice the error even though the specification went through several drafts: there was also a draft of July 1992 (though after March 1992 the relevant passage was not altered).

84. A meeting was held at Lyndhurst, New Jersey from 21st to 23rd October 1992 for the purpose of reviewing and finalising the design of the plant. Representatives of Ebasco, Mission, Mission Operation and Maintenance Inc, Courtaulds, Southern Electric plc, Ewbank Preece (a firm of engineers) and Stone and Webster Engineering Limited were present. At that time Mr Purchas represented Ewbank Preece.

85. He was involved with the development of the plant from August 1992 in various roles: first with Ewbank Preece, DCL'S Advising Engineers; and then in July 1993 he left Ewbank Preece and joined Mission's parent company, Mission Energy, as engineering Manager. Initially, Ewbank Preece reviewed the July 1992 version of the technical specification for the plant prepared by Ebasco. Subsequently, Ewbank Preece's role included reviewing and commenting on Ebasco's drawings, undertaking quality assurance audits of Ebasco's site construction organisation, attending meetings and assisting in the preparation of monthly reports to the DCL Board of Directors.

86. Mr Purchas personally received copies of drawings including the plot plan M-MD1101 and the water balance diagram M-MD5101 for the purpose of considering them prior to the meeting. He had engineers working for him; his job was to put all their comments together and send them to Mission, which is what he did. Mr Purchas somewhat reluctantly accepted in cross-examination that Ewbank Preece had the information from which they could calculate the storage capacity of the tanks in hours. In spite of Mr Purchas's evidence, surprising from an engineer with long experience, as he is, that half a million US gallons meant absolutely nothing to him, it is perfectly obvious that Ewbank Preece could readily have calculated that capacity from the documents I have mentioned. However, Mr Purchas said that he did not think that Ewbank Preece ought to have made that calculation in the ordinary course of their commission, because he thought those parameters, including the tank capacity, had already been agreed.
87. One of the documents considered at the Lyndhurst meeting was Ebasco's specification of the make-up demineralizer system. On p.3 of that specification it is stated that the make-up demineralizer system shall consist of three trains each designed to produce 650 gallons (ie US gallons) per minute net to service, and that the demineralized water shall be discharged to purchaser's two times 500,000 gallons (ie US gallons) storage tanks. On other, uncontroversial, evidence, I find that there were three trains or lines operating in parallel, and regeneration takes 6 hours in an 18-hour cycle; in every 18 hours the line produces demineralized water for 12 hours and then regenerates for 6 hours. On one copy of the same page there is a manuscript calculation showing a storage capacity of 12.5 hours of demineralized water. I am satisfied on the evidence of Mr Purchas coupled with the internal evidence of the document that that calculation was written down by Mr Larry S Flashberg, who represented Mission Operation and Maintenance Inc at the meeting. The calculation is a simple one. 660 US gallons per minute represents 39,600 gallons per hour. Mr Flashberg rounded that figure up to 40,000 and divided it into 500,000. Thus each of the two tanks has a capacity equivalent to the production capacity of one line operating for 12.5 hours.
88. Mr David Howard gave evidence before me on behalf of the defendants. He was an engineer. In 1986 he was appointed by his then employers, Courtaulds, Site Services Manager responsible for the operation, maintenance and project work for the central services of the Courtaulds site including operations relating to steam, water, electricity, gas, effluent, and cooling. He represented Courtaulds in the joint venture to build the Derwent cogeneration plant. In June 1993, he was seconded to Mission and appointed Plant Manager of the Derwent station. In November 1994, he joined Stone and Webster Engineering and ceased to be concerned with the Derwent cogeneration plant. Mr Howard considered Ebasco's proposal of July 1992 on behalf of Courtaulds, and prepared a written note of his comments. In that note, he wrote:

72. "It is noted that 24 hours supply of demin water is held on site. This seems unnecessary. Provided that the W.T.P." (that means water treatment plant) "has two separate 100% streams including allowance for regenerations, storage should only be needed to cover the duration of a regen. The present situation has only 20 minutes of storage at full steam output, and while we would not advocate going to such extremes I would have thought that the W.T.P. manufacturers could still guarantee supplies with, say, 12 hours storage which saves a tank".

73. It appears from an equivocal answer in his cross-examination that he obtained the figure of 24 hours from the Merz and McLellan specification. In his witness statement, he said, in relation to his comments, that the information provided to him was quite limited and it did not include heat or water balances. He went on to say that one particular area of concern was the supply of treated water to the plant. He would expect a high degree of redundancy in the water treatment plant so that parts of that system could be shut down for maintenance without affecting the reliability of steam production. He continued as follows:

74. "This maintenance would be additional to the normal operational requirements of the plant for regeneration. At the time I commented on the specification, my assumption was that the water treatment plant would include two streams each sized to provide 100% of nominal capacity so that part of the water treatment plant could be shut down for maintenance while the remainder carried on the duty cycle. For the DCL plant, 100% capacity would be the total maximum volume of steam under the Steam Supply and Services Agreement plus that required for steam injection plus a margin for blowdown and other losses - a total of about 300 tonnes per hour per stream. For a plant which included two streams each sized to provide 100% of nominal capacity, water storage of 12 hours capacity would in my mind be sufficient.

75. I later found out that Ebasco's design provided for three 50% streams. In these circumstances, at least 48 hours of water storage would be needed to provide sufficient water reserves."

89. Mr Howard's conclusion is not sensible. He said in evidence, and indeed as an approximate statement it was not in issue, that each line operates 12 hours on, 6 hours off. That means that regeneration of the resin occupies a period of 6 hours in every period of 18 hours. For the remaining 12 hours in that period of 18 hours the line produces demineralized water for the HSRG Plant. If there are two lines each capable of producing water at 100 per cent. of the required rate while it is not in regeneration mode, and if one line is down for maintenance for 18 hours or more, then in every period of 18 hours 6 hours worth of demineralized water has to come from the storage tanks. If there are three lines each capable of producing demineralized water at 50 per cent. of the required rate while it is not in regeneration mode, and if one line is down for maintenance for 18 hours or more, then in every period of 18 hours the lines will be regenerating for 6 hours each, representing a loss from each line during regeneration of 50 per cent. of the requirements of the plant, so that again 6 hours' worth of demineralized water has to come from the storage tanks in every period of 18 hours. (If one takes the figures of 100 per cent. and 50 per cent. as representing averages over the 18-hour cycle, then on the basis of one line being out, 6 hours' storage is sufficient however long the line is out).

90. Mr Howard said in cross-examination that he believed the source of his figure of 48 hours was the July specification.

91. Mr Howard did not recall raising the question of the storage capacity of the demineralized water tanks at any time while he was Plant Manager between June 1993 and November 1994; nor did he recall it being raised by Mission in the person of Mr Paul Pappin, Mission's Project Executive, or by any of the consulting engineers

92. Mr Howard saw the numbers on the plot plan which indicated the proposed capacity of the demineralized water storage tanks. He was interested in the number of hours' capacity, as is evident from what I have said above, and he took an interest in the numbers on the water balance drawings. He accepted that the calculation of number of hours capacity was very simple. He gave the following further evidence in cross-examination:

76. Q. You see, if, as you say, you were expecting 48 hours' treated water storage to be provided by Ebasco, and that is what you are saying, is it not?

77. A Yes, that is right.

78. Q. It necessarily follows that you did not do as you have just said, that simple and obvious calculation; the answer is obviously yes?

A. That is right.

79. Q. But it also follows, does it not, that it was quite obvious that the tanks with the capacity shown on Ebasco drawings were not big enough?

80. A. As I say, I did not carry out the calculations, so I cannot comment on that.

81. Q. Would you not accept that out of all the able engineers present in Lyndhurst in October 1992, it would have been immediately apparent that the tanks shown on the drawings were not big enough to give 48 hours' storage?

82. A. I am sorry, what is your question again?

83. Q. If it had been the expectation of those present in Lyndhurst at the design review meeting in October 1992 that the tanks for the demin storage would have 48 hours' capacity, it would have been immediately apparent that the drawings did not show tanks which were big enough?

84. A. That seems a reasonable statement to make, yes. It does not need an engineering qualification to see that.

85. Q. It may not do, but it certainly would be obvious to Ewbank Preece and Stone & Webster; yes; is that a fair comment or not?

86. A. I think it - I would not have expected to use the plot plan as a source of sizing and capacity for tanks.

87. Q. You are not going to give me an answer?

88. MR TWIGG With respect, that is a perfectly valid answer to the question.

89. MR BLACKBURN: Equally, you knew, did you not, where the demin tanks were going to be?

90. A. Yes, I was aware of their location.

91. Q. You knew and everybody knew that they were underneath or one of them was underneath some cables?

A. Yes.

Q. 132 KV cables?

92. A. Yes, that is right.

93. Q. And the question had been raised as to whether those cables would clear the tanks?

94. A. I believe so, yes.

95. Q. And it was quite obvious to everybody and everybody knew, did they not, that the tanks and those locations could not be bigger, could not be taller?

96. A. It was not something that I considered at the time.

97. 93. Mr James Schoonmaker, a Senior Engineer employed by Mission, was present at the design review meeting held at Lyndhurst, New Jersey on 20th to 23rd October 1992. He had with him a team of advisers including Mr Flashberg and Mr Purchas. He gave the following evidence in cross examination:

98. Q. Before the design review meeting, you had had, I think, an opportunity of reviewing Ebasco's drawings?

A. Yes, sir, I did so

99. Q. Now, I do not imagine that you, yourself, reviewed all the drawings, did you; perhaps you did?

100. A. I cannot remember specifically at this point of time. I would have tried to review as many as possible.

101. Q. Had you, before the design review meeting, also had an opportunity of looking at Ebasco's specifications?

A. Yes, sir.

102. Q. Those specifications included, I think, the proposed specifications for Ebasco's own purchase contracts?

103. A. I do not remember that at the moment, no, sir.

104. Q. You do not. Now, would I be right that as far as Mission were concerned you were the most senior person attending the design review meeting?

105. A. That is correct.

106. Q. And I think it follows from your earlier answers that before that meeting took place Mission had done as much as could be done to evaluate Ebasco's drawings and specifications?

107. A. Yes, sir, that is correct.

108. Q. And would I be right that you yourself were in control of that process?

109. A. Yes, I think that is - I only hesitate to say how much control there was, but I was the most controlling person, certainly.

110. Q. Did you give particular people particular tasks in that process?

111. A. I assigned or requested people to support me based upon their skills or based upon what I believed they could do for the process, rather than assigning them specific duties. For instance, I would not tell Mr Flashberg what he should review; I just asked him would he please review for operational considerations.

112. Q. Yes and that is obviously what one would expect leading up to a big meeting of that sort, there would be - and there was - as comprehensive a review of the material as was possible?

A. Yes, sir.

113. Q. It was not only Mr Flashberg, was it; you had other Mission engineers on your team?

114. A. I believe that, yes, I had Mr Jennings on the team at that time.

115. Q. And also you had the advantage, did you not, of advice and input from representatives of Stone & Webster?

116. A. Yes, sir, that is correct.

117. Q. And we must not forget that you also, in the period leading up to that meeting, had advice from Mr Purchas?

118. A. Yes, I am sorry, I cannot remember the specific dates that Mr Purchas, as an employee of Ewbank Preece, joined us, but I believe he was advising -

119. Q. He was present at the design review meeting itself, was he not?

120. A. I do not remember that, no, sir. He may have been, I do not remember.

121. Q. The records appear to indicate that he was.

A. Fine.

122. Q. But one would expect that all the people on your team would report to you with their observations on Ebasco's material, that is what happened?

123. A. Yes, sir. The reporting, the time period that we had for reporting was maybe less than exhaustive, but I certainly did have input from all of those people."

124. And then later on:

125. Q. You see, it is necessary that I suggest to you that it is really unbelievable that all these parties reviewing this material could possibly have failed to say either before the design review meeting or at any later date: "Look here, Ebasco, you are not providing the agreed amount of treated water storage." Do you follow me?

A. I follow you.

126. Q. Is that not a fair point?

127. A. It is a reasonable conclusion. You are asking for my testimony and in that regard I do not remember being advised by anyone that they noticed an exception. I did not notice an exception."

94. Mr Schoonmaker was cross-examined about the mechanical equipment list. The relevant parts of his cross-examination are as follows:

128. Q. And there is no doubt at all, that you in Mission received this mechanical equipment list?

129. A. I have no reason to doubt it. I do not have specific memory of this list....

130. Q. Can I try again. This list which you and I have looked at, contains, does it not, important technical information?

A. It does.

131. Q. Would you not agree with me that it is more than probable that you in Mission reviewed this list?

132. A. I am not sure what "more than probable" means but it is probable that I reviewed the list; yes, sir, I think I can agree with that.

133. Q. Thank you very much. Now, on that premise you must have seen the description of the demineralised water tanks, half million gallon tanks?

134. A. Your conclusion is inescapable, but I have no specific memory of that, but, yes.

135. Q. You tell us, do you not, and we have already seen this in your witness statement, that a half million gallon tank at normal usage rate would provide eight-hour storage?

136. A. I know that now, yes, sir.

137. Q. You know that now?

138. A. At the time that we were reviewing these I would not have had occasion, and I do not remember having had occasion to calculate what half a million gallons was in terms of time. Whether it could have been eight hours or 24 hours, or some other timeframe I do not have memory of that.

139. Q. Now was it not the fact that later, prior to the design review meeting in October, that you received from Mr Flashberg a report on the demineralised system?

140. A. I received - I believe that I received some communications from Mr Flashberg relative to a variety of topics; the specific form of those communications, I do not remember. We talked about a good number of items and he may have done some of that in writing.

141. Q. One of the matters which Mr Flashberg reported to you was whether these tanks could be safely sited beneath the 132 KV high level cables which passed across the site?

142. A. Again, I do not remember Mr Flashberg bringing that up. That was certainly a topic that was discussed during this time period.

143. Q. All right, we will see in due course, but is it also not the case that Mr Flashberg reported to you what he had calculated the storage capacity in terms of time of the demin tanks was?

144. A. I do not remember that sir."

95. Mr Schoonmaker was also cross-examined about the plot plan and the water balance diagram:

145. Q. On that basis this drawing gave you, did it not, a value of 209.7 which divided into the 1,900 cubic metres capacity shown on the plot plan, enabled you to determine the amount of hours of treated water storage which was being proposed?

146. A. I agree that the information is there to allow me to do that. I do not remember doing that.

147. Q. But you must have done, must you not, in the process of reviewing these proposals, in advance of the design review meeting?

148. A. Mr Blackburn, we would typically review the plot plan in terms of vehicular access and fire safety; and maintenance accessibility, not typically for the purpose of looking at the capacity of the water storage tank. Had the water storage tank been on here I may have noticed it, but, I am sorry, I just did not notice it. I did not perform the simple calculation that you point out."

149. Having regard to the evident shortfall in Mr Schoonmaker's memory, I reject the implication in his evidence that he remembered that he had not performed the simple calculation mentioned.

96. I conclude that the storage capacity of the demineralized water tanks was considered by Mr Schoonmaker of DCL and by his team of advisers including Mr Purchas, Mr Howard and Mr Flashberg. I am satisfied that Mr Flashberg made a calculation of the capacity of the tanks which showed that it was far below 48 hours. I accept Mr Howard's evidence that if it had been the expectation that the tanks would have 48 hours' capacity, it would have been immediately apparent to those present at Lyndhurst that the drawings showed tanks that were not big enough.

97. I think that Mr Schoonmaker was right to accept that it was reasonable to conclude that it was unbelievable that he or his advisers could possibly have failed to say that Ebasco were not providing the agreed amount of treated water storage (sc, if they had thought that the agreed amount was 48 hours). At any rate, I conclude that neither Derwent nor their advisers did think that the agreed amount was 48 hours.

98. The first complaint about the alleged shortfall appeared in a letter dated 28 July 1995 from Mission to Ebasco, written by Mr Purchas. That letter reads as follows:

150. "We attach a copy of page 41 of Ebasco Technical Specification dated December 1995 in which it stated the capacity of each demineralized water storage tank is sufficient to provide 24 hours storage at normal usage rates. The normal water usage rate of the Derwent plant is in excess of 200 m³/hr, which means that the capacity of each tank should be at least 4,800 m³.

151. As you are no doubt aware, the demineralized water storage tanks installed at site are only 1,858 m³ each in capacity and the relevant System Description and Operating Instruction (SDOI) states that each tank has a capacity equivalent to 8 hours storage at normal usage rates.

152. Having checked through our own files having made enquiries of the personnel who have been intimately involved in the project since 1992 we can find no record of an agreement to reduce the size of these tanks and certainly no negative variation order has been issued to Ebasco as a result of the significant cost saving made by the supply of smaller than specified tanks.

153. Would you please, therefore, supply documentary evidence showing that a formal agreement exists with ourselves for the reduction in the size of these tanks or submit your proposals for the timely installation of additional tanks to increase the site storage capacity of demineralized water to that stated in your specification. We would point out that approval by Mission Energy Services Limited of site layout drawings does not relieve Ebasco of their contractual obligation to supply a plant in accordance with the specification. The only documentary evidence we will accept is written correspondence specifically agreeing to a reduction in the size of these tanks.

154. In light of the recent spate of failures of the water treatment plant and its associated neutralisation system the inadequate storage capacity for demineralized water has been highlighted as a critical issue. Your urgent response to this letter is, therefore, requested."

99. It is notable that the SDOI referred to in the letter dates from December 1992. Its states on page 1-8, paragraph 1.4.2:

155. "The demineralized water storage tanks (MU-TK-01A & B), each with a capacity of 1850 m³ (488,000 US gallons) are sized to satisfy maximum plant requirements in the event of disruption of demineralized water production (approximately 14 hours)."

156. Mr Purchas knew perfectly well that Ebasco would not find any formal agreement for the reduction in the size of the tanks, since there was none. There never had been an agreement to supply tanks with 48 hours capacity; and the reduction from 24 hours to 16 hours was negotiated before the contract was signed.

100. On 7 August 1995 Ebasco replied as follows, Mr LaFemina writing the letter:

157. "Pursuant to your letter BP/Ebasco/003 dated 28 July 1995 wherein you requested information regarding storage capacity of the Demineralized Water Storage Tanks, Ebasco offers the following response:

158. In accordance with MESL Request for Proposal prepared by Merz & McLellan, Ebasco submitted a proposal in February 1992 which included drawings M-1000 A "Site Plan" and M-1001A "Plot Plan", copies attached. Please note these drawings show three (3) Demineralized Water Tanks with capacity in accordance with our proposal.

159. Additionally, in accordance with the Merz & McLellan RFP, Ebasco proposed the following equipment locations.

l Fuel Oil Tanks located northeast of the site bounded by the Courtauld's plant fence, the Derby main railroad and the River Derwent.

l Cooling Tower located west of the plant in coal storage yard.

l West Plant perimeter road directly east of coal yard railroad line.

l South Plant perimeter road located between coordinates 34,340 M and 34,360 M.

160. Subsequent to our proposal submittal, there were intense negotiations between MESL and Ebasco to lower the project capital cost to ensure project viability. Additionally, after Contract signing, meetings were held between MESL, Courtaulds and Ebasco wherein further equipment locations and plant space constraints were identified. The net result of the above is depicted on drawings MD-1001 "Site Plan" revision 0 and MD-1101 "Plot Plan" revision 0 both issued August 1992, copies attached which were forwarded to MESL. You will note the following salient changes that were reviewed and agreed to by MESL and Courtaulds:

l Fuel Oil Tanks relocated to Coal Yard west of plant.

l Warehouse deleted and Cooling Tower relocated south of power block.

l Water Treatment consolidated, second level added to Water Treatment/Control Building to house plant Main Control Room and relocated east of power block.

l South plant perimeter road moved north 4 meters in accordance with EME clearance requirements for existing 132 KV buried line.

l West plant perimeter road moved east 3 meters to retain existing water treatment building warehouse (was to be demolished).

l Demineralized Water Tanks reduced from 3 to 2 and capacity reduced to 1900 M³ and relocated south of South Perimeter Road under EME 132 KV transmission lines.

161. Further, equipment size and layout was reviewed in detail with MESL, Courtaulds and Stone & Webster during our 21 and 22 October 1992 Design Review Meeting. The Demineralized Water Tank sizing was specifically reviewed as detailed in MESL action item list issued 2 December 1992 copy attached. Please refer to item 2.01 wherein Ebasco was requested to review height and diameter of tanks with EME and obtain their approval for tank location relative to their 132kV overhead transmission lines.

162. Based on the above, it is readily evident that MESL was fully cognizant of and approved the changes in storage capacity of the Demineralized Water Tanks.

163. We agree that we erred in not correcting the tank capacity in the December 1992 revision of our proposal, however, the tank capacity was listed in the "Upset Conditions" section which was inadvertently bypassed.

164. After reviewing the above, please advise should you have any further questions or comments."

165. Mr Purchas replied on 27 September as follows:

166. "We have reviewed your letter of the 7 August 1995, Ref- ED-222-N, and the documents attached thereto, and note that no written correspondence or agreed minutes of meetings exist to substantiate your claim that the size of the tanks was approved by Mission Energy Services Ltd, (MESL); action item 2.01 of the design review meeting in October 1992 refers only to the position of the tanks relative to the 132 kv overhead wires, not the capacity of the tanks.

167. We do not agree, therefore, with your statement that MESL was full cognizant of, and approved changes to, the number of hours of storage capacity provided and the size of the tanks.

168. The final specification submitted by Ebasco and approved by MESL is dated December 1992. It post-dates, and therefore supersedes any earlier drawings and incorporates all agreements reached prior to its issue. Your claim that this document is in error with regard to the capacity of the demineralised water storage tank is therefore without merit.

169. This letter, and our earlier letter of 28 July 1995, are a formal claim under clause 32 - Defects Liability of the contract and we require Ebasco to supply demineralised water storage tanks equivalent in capacity to 48 hours of normal usage. We require a response from you, within two working days of your acceptance of a contractual liability to supply the tanks and we require the tanks to be installed and in service, within six months. We believe this to be a "Reasonable Period" as defined in contract clause 32.5 - Delay in Remedying Defects. If we do not receive a positive response within two working days we will undertake the work ourselves and recover the cost from Ebasco."

101. I regard the last sentence as disingenuous. On 22 September Mr Purchas had, on behalf of DCL, placed an order with another company, McDonald Engineering Limited, for the construction of, inter alia, 2 demineralised water storage tanks. Mr Purchas said in cross-examination that if Ebasco had offered to do the work DCL would have passed over the contract that he was already putting in place. I do not think that he expected Ebasco to accept his unreasonable ultimatum within two days.

102. Mr Schoonmaker, who was the only witness called on behalf of DCL who was party to the negotiations of March 1992, expressed lack of recall of their details, observing, in relation to the tanks, that the sterling amount involved was comparatively small. He gave no evidence that he believed that Ebasco were ever offering a demineralized water storage capacity of 72 hours or 48 hours. The nearest he came to that was a sentence in his witness statement stating that he believed that three tanks of 24 hours capacity each was a sufficient amount of water storage. He said that reducing the overall storage to 16 hours is something that he would have thought about very carefully.

103. I am satisfied that DCL were not misled by Mr Fong's mistaken drafting, even if they noticed the error at all before 1995. I thus conclude that the true construction of the contract, as I hold it to be, is in accordance with the justice of the case.

104. Moreover, the size of the demineralized water tanks is not something that appeared or occurred during the defects liability period nor is it mentioned in the completion list made under clause 29.3 of the contract. Thus it could not in any event justify the draw-downs that were made.

COOLING TOWER.

105. I now come to consider the cooling tower. The steam turbine has a condenser designed to reduce the back pressure of the steam, thereby improving the performance of the turbine. The condenser is kept cool by water which is itself cooled by the cooling tower. The defendants' complaint is that the cooling tower was designed to extract heat from the condenser cooling water at a rate of some 135,060 kilowatts, but achieved only about 77 to 80 per cent. of that rate.

106. The rate of extraction of heat can be calculated from the rate of flow of water and its fall in temperature as it passes through the cooling tower. Both those quantities can be measured. The defendants rely on a report by Mr Simon Mills, employed by Davenport Engineering Company Limited, who were commissioned by Mission to carry out a test of the cooling tower. Mr Mills was employed by Davenport as their Chief of Test and was experienced in testing cooling towers. He gave evidence before me.

107. Mr Mills carried out his tests on the basis of the British Standard, BS4485, Part 2 of 1988 entitled Water Cooling Towers: Methods for performance testing. However, he departed from that standard in some respects.

108. In measuring flow, Mr Mills used a pitot tube. At a particular point in the water pipe, he inserted the pitot tube and measured the flow at each of 20 locations across the diameter of the pipe. Such a succession of 20 measurements is called a traverse. Mr Mills followed the normal practice of averaging the results to give the total flow in the pipe at that point. The positions where the measurements in the traverse are taken are selected so that the average of the measurements does not need to be a weighted average. At the same point in the pipe, two traverses are normally done, one along each of two mutually perpendicular diameters of the pipe.

109. When he carried out his tests on 30 April 1995, Mr Mills measured the flow of water at 34815 US gallons a minute. The measuring point was close to a junction in the pipe, where the flow of the water would be expected to be uneven. His pitot tube readings showed that that was the case. He said that he was not very happy with those readings. Accordingly, he carried out a further measurement at a more suitable point on 11 May. He obtained a value of 34116 gallons a minute. In his evidence he said that he considered that he thereby confirmed the earlier reading, since the two readings were within 2 percent. of each other. He said that the operating conditions on 11 May were identical to those prevailing on 30 April. He added:

170. "The level of water in the pond which I measured on 30 April and on 11 May were both at the same level. Therefore, the pump being a constant volume machine which will be affected by the level of water in the pond, was pumping the same amount of water around".

110. At the time of the test, Mr David Griffiths was employed by Davenport as Technical Manager. He was on site initially for two days to help Mr Mills to establish the test facility. He was an engineer with experience about cooling towers, and he gave expert evidence on behalf of the defendants. He said that it did not matter that the measurement of flow was taken 11 days after the other measurements, since the system had a fairly constant water flow. Mr Seaone gave evidence that the flows are not constant:

171. Q. Why is it that you express the view that it is unacceptable to take flow measurements two weeks after the cooling tower test was carried out?

172. A. Because things are not the same. They cannot be the same two weeks later than when the cooling tower was tested. The temperatures are different, the flows are different, the load in the plant is different; that requires a different amount of auxiliary cooling water going through. In certain cases, the auxiliary water temperature is controlled by a control valve. So that reduces the flow or increases the flow."

111. The British Standard provides by Clause 7.3.1 that the duration of the test must be such as to enable steady state conditions to be achieved. Readings must be taken during the hour in which conditions are steadiest. The recommended number of readings of waterflow each hour is 12. That means 12 traverses. In fact, the flow rate of 34815 US gallons per hour was obtained from only one traverse and the rate of 34116 from only 2 traverses. I thus conclude that the conditions of the test, whichever reading of flow be adopted, were far removed from those required by the British Standard. Whilst that does not destroy, it greatly reduces, the value of the test as evidence of the performance capability of the tower.

112. Mr Mills measured the temperature of the re-cooled water in a culvert leading from the sump of the cooling tower basin. The water was not well mixed. There was some variation in the temperature of the water from the east to the west side of the culvert. Mr Mills attributed that to uneven air flow as between the three cells of the tower. He used six probes containing temperature sensors for platinum resistance thermometers. Those probes were located at three levels to take into account any horizontal stratification of the water. Two probes were at the top level, two at the middle and two at the bottom.

113. The British Standard requires that where various streams of different temperatures combine, the point of measurement should be located to ensure complete mixing without stratification. If stratification is evident, the weighted average water temperature shall be determined by a survey of a selected section using simultaneous temperature and waterflow measurements at each point.

114. The point is that to obtain temperatures which are of use for thermodynamic calculations it is necessary, where there is imperfect mixing, to weight each temperature reading by reference to the rate of flow of water to which it relates.

115. Mr Mills did something different. As I understand his evidence, he carried out a survey of the waterflow and temperature in the sump of the cooling tower, and from the results of that survey he calculated the weighted average temperature at each of the six general locations where he intended to place the thermometer probes for the purposes of the test. He then found an exact position for each probe where that probe gave a reading of temperature equal to the temperature which he had calculated as the local weighted average. What was recorded for the purposes of the test of the efficiency of the cooling tower was the readings of the six thermometers, not, as I understand it, weighted according to the flow of water; not, at any rate, weighted according to the flow existing at the time of measurement, as required by the British Standard. It is clear that the temperature readings, which are shown in appendix 2 to Mr Mills's report, are in each case simply straight averages of readings taken by the same thermometer at 7-second intervals over a period of 5 minutes. They are not weighted, nor are the averages shown weighted averages.

116. Mr Mills obtained an average temperature of 19.99^oC for the re-cooled water. The average temperatures and the ranges shown by the six individual probes were: (1) 19.68^oC [19.56 to 19.79]; (2) 19.76^oC [19.60 to 19.87]; (3) 19.65^oC [19.51 to 19.76]; (4) 20.75^oC [20.62 to 20.95]; (5) 20.33^oC [20.25 to 20.54]; and (6) 19.83^oC [19.69 to 20.00]. The relative locations of the individual probes were not stated. If the readings are accurate, they show imperfect mixing.

117. Mr Richard Jaciewicz gave expert evidence on cooling towers on behalf of the plaintiffs. He was a chemical engineer with experience of water cooling towers who has contributed to BS4485 Part 2. In 1992 the British Standards Institution awarded him the Distinguished Service Certificate for contributions to the development of British Standards. He said

173. "2 out of 6 temperature sensors read consistently about 1^oC higher than the remaining 4 sensors. This is an improbable occurrence and is likely to be the result of equipment error".

174. I found Mr Jaciewicz to be a knowledgeable and fair-minded expert witness. I find that the two sensors in question may well have been reading about 1^oC high. If so, the average of 19.99^oC would fall to about 19.66^oC. For the stated rate of flow of water that would indicate a greater degree of efficiency than that estimated by Mr Mills. Doing the best I can with the written expert evidence of Mr Griffiths and Mr Jaciewicz, it seems that the increase in efficiency would be about 3.6 percentage points. In arriving at that figure, I have used method (c) adopted by Mr Griffiths in appendix Q to his report. Different methods lead to slightly different results.

118. Mr Mills's average figure for the temperature of the re-cooled water entering the condenser was 19.72^oC. He accounted for the small drop in temperature from 19.99^oC as being due to heat flow through the 300 foot length of piping between the basin of the cooling tower and the condenser. Although the magnitude of that temperature drop was called into question, I find it credible in the absence of contrary evidence.

119. The temperature of the water as it enters the condenser is not directly relevant to the calculation of the efficiency of the cooling tower. Its relevance is this. The plant has a monitoring and control system called a distributed control system ("DCS"). That system produces records of, inter alia, the temperature of the re-cooled water entering the condenser. The average temperature so recorded during the period of the test was 18.74^oC, i.e. approximately 1^oC lower than that measured by Mr Mills. The thermometers used by Mr Mills had been calibrated, though their accuracy was called into question. There was no direct evidence as to the accuracy of the temperatures measured by the DCS. However, the temperature of the cooling water at the condenser outlet as measured by the DCS, namely 33.06^oC, was closely similar to that measured by Mr Mills at 33.13^oC. The 13 individual readings given at 5 minute intervals during the hour of the test ranged between 32.92^oC and 33.20^oC but differed from the corresponding readings of Mr Mills only by amounts varying between -0.01^oC and +0.15^oC. I consider that those two sets of readings are mutually corroborative. Thus the evidence of the DCS as to the temperatures at the condenser inlet must also carry weight.

120. If the average temperature, properly weighted, of the re-cooled water at the cooling tower sump were indeed 1^oC less than Mr Mills' figure, and his results were otherwise correct, then the efficiency of the tower would be about 90 per cent.

121. The British Standard allows for the fact that tests of the efficiency of a cooling tower when carried out in accordance with its terms are reproducible only within 5 per cent., and provides that a tower should be deemed acceptable if the evaluated result from the test equals or exceeds 95 per cent. of the design capability.

122. Mr Seaone made the point that Mr Mills' report showed an impossible figure, for if it were correct the condenser would not have been able to achieve the performance necessary to enable the steam turbine to achieve anything like the output it did achieve. The plant would therefore have failed its performance tests, which it did not. He said this:

175. "I have been a condenser designer in my first job. I always look at condensers from curiosity. Anyhow, the back pressure from that condenser, when you take into account the loads, the temperatures and all that is correct, was always equal or lower than what was designed for in that particular condition. In no way I ever thought that that cooling tower could be short; I still do not think the cooling tower was short."

176. The reference to a lower back pressure implies an excess over required performance.

123. The plaintiffs cast doubt on the Davenport report on the ground that Davenport had a financial interest in representing the performance of the tower to be inadequate. I find that Mr Mills carried out the tests honestly and, though they were seriously flawed in the way I have indicated, he did the best he could in the circumstances.

124. The British Standard provides that certain matters relating to the testing of a cooling tower should be agreed between the purchaser and the supplier. Those matters include details of the test methods, instruments, procedure, selection of test personnel, including the person appointed to control and coordinate the test, the location of measurements, the instrument used for the measurement of water temperature (that preferred by the standard being the mercury-in-glass thermometer), and the method of measurement of inlet water flow.

125. None of those things were agreed between Mission and Ebasco, nor were Ebasco represented at the tests, since they were not made aware of them in advance.

126. On 12 June 1995 Mission sent to Ebasco a copy of the Davenport report, asking Ebasco for their proposal how to rectify the findings by no later than 23 June 1995. Ebasco replied on 27 June 1995, suggesting that a test of the cooling tower be carried out by an independent licensed testing agency. They offered to stand behind their guarantee regardless of the results of such test, on terms that if the cooling tower passed the test Mission would bear the costs. Mission did not accept that suggestion.

127. If the object be to arrive at the truth, it is unfortunate that the defendants not only failed to give Ebasco an opportunity to cooperate in carrying out the tests, but also compounded that failure by declining Ebasco's suggestion of an independent test. No such test is now possible since the tower has been modified. That leaves me in the position of having to assess the evidence of a seriously flawed test. The evidence of the test, such as it is, does suggest that the performance of the tower was less than 95%. But the rate of flow of water should have been properly measured at the time when the other measurements were taken; it was never properly measured, there having been only two traverses even on the second occasion. I am not satisfied that the rate of flow of water was substantially the same on 11 May as it was on 30 April. I am not satisfied that the proper weighted average temperature of the re-cooled water was determined. Moreover, I am impressed by Mr Seaone's strong conviction that the cooling tower was entirely adequate for its purpose.

128. I should mention the question of air flow through the cooling tower. The water is cooled by letting it fall through air drawn upwards by fans. The questions arose whether the air flow was obstructed by outside buildings and by the cladding of the cooling tower and whether the fans were adequate in the circumstances. The evidence on this point was inconclusive. Whilst I am satisfied that the air flow was adversely affected by the switchgear building, which was placed close to the cooling tower, I am not satisfied that the air flow was inadequate. Mr Griffiths thought that the tower was adequate thermally, and given the design air flow would have performed within the specification. Given the test results, the only reason, he said, must be air starvation.

129. The effect on air flow of the proximity of the switchgear building does, in my judgment, lend some support to the defendants' case that the cooling tower was underperforming. Nevertheless, on the totality of the evidence I am not satisfied that the performance of the cooling tower fell short of its specification. On the other hand, I am by no means satisfied that it complied with it. I am unable to make a finding on the point.

130. The causes of action relied on by the defendants in relation to the cooling tower have varied from time to time. Initially there was reliance on a letter dated 26 March 1992 from Ebasco to Mission representing to or advising Mission that the following performance specification would be achieved by the cooling tower:

Flow 36,000 US gpm

177. Water in 82.58F [that should read 85.28]

Water out 60.80F

Wet bulb 46.40F

178. 3 Cells 241 bhp/cell

179. Those figures are said to indicate a cooling tower capable of rejecting 130,060 kW at those specified temperatures and flow rates.

131. That was apparently a specification contained in a sub-contract between Ebasco and its sub-contractor for the cooling tower, GEA Thermal-Dynamic Towers Inc. The claim on the basis of misrepresentation and advice was not pursued. In my judgment, it would have been bound to fail having regard to the provisions of clause 40.6 and to the decision of the Court of Appeal in Strachan and Henshaw.

132. In his final submissions Mr Twigg revived the misrepresentation point. I reject it.

133. By amendment, the following plea was added:

"Pursuant to its obligations in respect of the design and supply of the plant, in or about August 1992 the plaintiff prepared and sent specification DER ME005 to the proposed cooling tower manufacturer, GEA, and to the Defendants. The Plaintiff's Specification specified a cooling tower that should achieve the following:

l Flow 36,000 US gpm

l Water in 86.40^oF (30.22^oC)

l Water out 60.80^oF (16^oC)

l Wet bulb 46.40^oF (8^oC)

l Three cells each at 238.1 bhp/cell

180. . These figures indicate a cooling tower capable of rejecting 135,060 kW at the above specified temperature and flow rates."

134. It is not expressly pleaded that that specification constituted a term of the contract.

135. Mr Twigg also made submissions under the heading 'Contract obligations: performance of contract as a whole or of its constituent elements, in particular the contract specification and performance to specification 005'.

136. That heading appears, rightly in my judgment, to distinguish between the contract specification and specification 005. I have heard no submissions why specification 005 is said to be a contractual specification as between Ebasco and DCL. The submissions that follow the heading merely refer to 'the Specification'. The specification is defined in the contract as the specification of the Works annexed to the contract including any modifications made under clause 26 (variations); and it is clear from Clause 4.1 of the contract that that includes such documents as are referred to in the specification. Although the contractual specification makes reference to the cooling tower my attention has not been drawn to any reference therein to specification 005. All but two of the defendant's submissions on the point are based on a tacit, but in my judgment false, treatment of specification 005 as part of the contractual specification. The two exceptions are these. First, reference was made to clause 11.1, the material part of which I have quoted above. The contractor's responsibility is to supply, etc, a nominal 210 MW combined heat and power plant in accordance with the provisions of the contract and to a professional engineering standard, such that the plant will be fit and sufficient for its intended purpose as evidenced by or reasonably to be inferred from the specification. Second, reference was made to clause 11.10; it was said that Ebasco were in breach of the obligation to design and specify the works with skill and care by failing, in various stated ways, to ensure that the parameters which they had set for the cooling tower were met.

137. In my judgment, any shortfall in the performance of the cooling tower may be relevant to the question whether a professional engineering standard was met or whether skill and care were exercised. The decision of such a question may therefore depend upon the burden of proof. Such questions may still be live questions given the issuance with the taking-over certificate of the list of outstanding items. But they are not questions that I have to decide on the hearing of these preliminary issues. It has not been shown at the hearing of these preliminary issues that there was any shortfall in the performance of the plant that was contractually specified. The plant passed all its performance tests. No performance test for the cooling tower was provided for in the contract.

138. The defendants also pleaded that the defendant, after first expressing its concern to the plaintiff on the performance of the cooling tower in February 1995, by a letter dated 3 March 1995 required the rectification of the cooling tower by 30 April, failing which it considered itself entitled to arrange for the work to be carried out at the plaintiff's cost and expense. The taking-over certificate of 3 March 1995 refers to what is said to be an attached completion item list. Mr Twigg however did not rely on Clause 29.3 of the contract. Mr Blackburn submitted that the pleading placed the alleged defect firmly within Clause 29.3 and outside the scope of Clause 32. On that basis DCL's contractual remedy was to withhold from the contract price 200% of the cost of remedying the defect. Consequently, as a matter of law, it was not open to DCL, he submitted, to use a Clause 29.3 complaint to attach the DLP letter of credit under clause 32.

139. Mr Blackburn's submission was, I assume, made on the basis that the defendants' pleading was inconsistent with the proposition that any defects in the cooling tower appeared or occurred during the defects liability period. It is, indeed, inconsistent with the proposition that the alleged defects appeared or occurred after 3 March 1995; but it is not inconsistent with the proposition that the defects appeared or occurred after 9 January 1995, the date when according to the plaintiffs pleading (not admitted by the defendants) the defects liability period commenced.

140. I summarise as follows my conclusions in relation to the cooling tower:

181. 1. No required performance of the cooling tower was specified in the contract.

182. 2. The alleged shortfall in performance of the cooling tower is not capable in itself of constituting a breach of contract on the part of Ebasco.

183. 3. DCL were not entitled to draw down monies on the letter of credit on the ground of this alleged breach of contract.

184. 4. The defendants will have to account for the monies drawn down. The burden will be on them to do so and they have failed to satisfy me that there was a shortfall in performance of the cooling tower. For the avoidance of doubt, that issue having been determined on the hearing of these preliminary issues will not be revisited at the subsequent hearing of the action.

185. 5. Any claim or defence which depends upon establishing that the cooling tower was, or was not, capable of complying with specification 005 will fail for lack of proof.

UNPAID INVOICES.

141. Ebasco claim £371,838.15 to be due under the following invoices recording applications for payment made pursuant to Clauses 35.1 and 35.2 of the contract:

186. Invoice No. Date Amount (£) VAT (£) Total (£)

DTCL-95-3529-01 25/1/95 100,000 17,500 117,500.00

DTCL-95-3529-02 25/2/95 77,240 13,517 90,757.00

DTCL-95-3529-03 1/12/95 139,218 24,363.15 163,581.15

Total £371,838.15

142. Invoice 01 represented an application for a site monthly installation progress payment for reaching contractual Milestone 231.

143. Invoice 02 represented an application for £37,240 in respect of completion of Milestone number 230, performance test, and for £40,000 as a site monthly installation progress payment for reaching Milestone 232.

144. Invoice 03 represented an application for completion of Milestone event 248 in respect of variation order number 16: Fire System Enhancement.

145. As a defence to the claim in respect of the invoices the defendants plead that a negative variation order was requested by Ebasco in respect of roads, fencing gates and drains which were in Ebasco's original scope of work but which Ebasco was unable to carry out because Courtaulds' operating plant was in the way. The defendants claim that the value of the variation order was not agreed, but that they have arranged for the work to be done at a cost of £40,823.05 excluding VAT, and that they are entitled to withhold that amount from Ebasco.

146. On 14 June 1994 Mission wrote to Ebasco stating that they urgently needed a take-out price from the contract sum for the following items:

187. (a) Roads and kerbs on the northern extremity of the site.

188. (b) S/W drainage for the above.

189. (c) Fencing to include gates as shown on attached sketches.

147. The plaintiff's sub-contractors sent to the plaintiff the following day their quotation for proposed savings for roads and fencing to be omitted in relation to the North Road alongside the power station. The items included surfacing, kerbing, drainage, fencing and gates. The total sum of those omissions was £14,453.55. A figure of £38,205.90 was quoted for returning in 1995 to carry out the works in question.

148. On 16 June 1994 Ebasco wrote to Mission stating that Ebasco's firm take-out price to Mission for the roads, kerbs, drains, fencing and gates in question was £14,453.55. On 5 August 1994 Mission put forward the sum of £20,229.35 as a basis for negotiation. The figure was itemised and included road works, drainage works, kerbing, fencing and gates. That was the only figure put forward by Mission that appears in the correspondence that has been drawn to my attention. Mr Robert Trachimowicz, resident engineer employed by Ebasco on the Derwent cogeneration project, gave evidence that on 9 March 1995 he met Mr Pappin of Mission to discuss the issue. They agreed to split the difference 50-50. There was before me a contemporaneous note in Mr Trachimowicz's hand saying 'Also discussed Luke Road issue. Paul/Joe agreed to split 50-50 on price on table'.

149. Mr Trachimowicz calculated the agreed figure at £17,332.45, that being the half way point between £14,435.55 and Mission's tabled figure of £20,229.35. Evidently Mr Trachimowicz had taken the figure of £14,435.55 for £14,453.55, I assume by mistake.

150. On 23 June 1995 Mr LaFemina of Ebasco wrote to Mr Pappin confirming the agreement that the cost figure for the reduction in scope for the roads and fences along the north edge of the plant was £17,332.45, and requesting the issuance of a variation. On 19 July 1995 Mr Purchas of Mission replied to Mr LaFemina stating:

190. "Our understanding is that the sum of £17,332.45 was agreed as the price for the reduction in scope for only the roads to the north of the plant. We suggest that a further meeting between our representative (sic) is necessary to resolve this issue".

191. Mr Trachimowicz responded on 21 July 1995 enclosing copies of correspondence between the parties and explaining how the figure of £17,332.45 had been arrived at.

151. No subsequent correspondence has been drawn to my attention.

152. Mr Purchas gave evidence that the value of the variation order had not been agreed with Ebasco. He appears not to have had first-hand knowledge of the matter. No other witness was called by the defendants to give evidence on the point.

153. It is abundantly clear both from the correspondence and from the evidence of Mr Trachimowicz that the agreed sum of 17,332.45 covered the whole of the relevant omissions.

154. As to invoice 03, the existence of variation order number 16 is not in issue. DCL's case is twofold:

192. (1) That the work to be undertaken under the scope of variation order number 16 was not completed; and

193. (2) That there were deficiencies in the fire protection system which were to be rectified under the variation order which were such that the system posed a health and safety risk to personnel and the defendant was instructed to undertake the works by the Health and Safety Executive. Consequently, the work to be undertaken under the variation order ought to have been within the original scope of works pursuant to Clauses 6.1, 11.1, 11.11 of the conditions of contract and the defendant was therefore not liable to pay the invoiced sum or any sum in respect of the variation order.

155. As to the second point, Mr Trachimowicz explained in evidence that it was decided in September 1994 to link the fire protection systems of the cogeneration plant with Courtaulds' fire system, and Courtaulds set out a list of enhancements which they required. Mr Trachimowicz sent a list of those enhancements to Mr Pappin, Mission's Project Executive, together with a quotation in the sum of £156,000 to carry out the work. Negotiations followed, and it was agreed that the cost of two of the enhancements would be borne by Ebasco resulting in a reduced price of £139,218. A letter of 9 November 1994 from Ebasco to Mr Pappin of Mission stated the price of £139,218 as being valid for 30 days, and requested a contract variation in accordance with Clause 26 of the contract if DCL found that revised proposal acceptable. The variation is in the documents before me. It is expressed to be for the agreed sum of £139,218 payable in one instalment on satisfactory completion of the additional works. It is signed on behalf of DCL by Mr Pappin, and on behalf of Ebasco by Mr Joseph LaFemina as signifying his agreement to the instruction.

156. The evidence in support of the defendant's case was given by Mr Purchas. I am not satisfied that he had any personal knowledge of the matter. Mr Pappin was not called to give evidence. I found Mr Trachiomowicz to be an honest and reliable witness and I accept his evidence, supported as it is by the documents. I reject the defendant's second point.

157. As to the defendants' first point, that the work was not completed, I am satisfied on the evidence of Mr Trachimowicz and the documents that the work was signed off as being complete on 5 December 1995 on behalf of Ebasco, Ebasco's sub-contractor Wormald Engineering ("Wormald") and by Mr Robert Oliver Cotton on behalf of Mission. The signing off certificate contained three conditions, however. Mr Trachimowicz's evidence was:

194. "I recall that three conditions were attached to the signing off certificate. These all related to items of work which Wormald Engineering were unable to complete because they involved linking the DCL fire protection system up with the Courtaulds' fire protection system. Oliver Cotton conceded that Wormald did not have to do this work, I suspect because Courtaulds were happy to do the work themselves when it was convenient for them. The areas of work which Wormald Engineering were unable to complete included fitting the auxiliary boiler fire alarm system into the Courtaulds' system and tying the trouble alarm system into Courtaulds' main control room.

195. I recall that it was agreed that DCL would carry out this final wiring to ensure that the two systems were linked. I do not know whether this has occurred."

196. Mr Cotton gave evidence before me. He said he was not authorised to accept the work, but only witnessed the tests. There was put to him a document dated 6 December 1995 emanating from Wormald which stated with reference to three outstanding points 'Mission to sort'. Mr Cotton said that he did not recall that there was any agreement that Mission would sort out those items.

158. I accept Mr Trachimowicz's evidence, which is borne out by the contemporary documents. Whatever Mr Cotton's authority or lack of it, it is clear that he witnessed the acceptance tests. As to the three outstanding items, he did not deny that they were properly left to Mission.

159. I reject the defendants' first point.

160. There is also a general defence that DCL are entitled to withhold the above sums and more under Clause 29.3 of the contract given that there is outstanding work under the completion list. That is a separate point which is not the subject of these preliminary issues.

SET OFF.

161. The plaintiffs have submitted that the defendants are not entitled to set off their counterclaim against the plaintiff's claim. If all the issues between the parties had been heard at one and the same hearing, there can be no doubt that the court would give a judgment reflecting a mutual set off between any sums found due on the claim and any sums found due on the counterclaim. In my judgment, the position is no different where, as here, preliminary issues have been ordered to be heard. I shall not give a money judgment at this stage. The occasion for any set off is when judgment is given upon determination of all the issues.

JUSTIFICATION OF DRAW-DOWN ON OTHER GROUNDS.

162. The defendants have argued, without citing authority, that the draw-downs, when made, can as a matter of law be justified on grounds other than those relied on at the time. Apart from the possible implications of fraud, which are not presently before me for consideration, that argument appears to me to be correct. However it is, I think, unnecessary for me to decide the point now. I should prefer to hear fuller argument.

BURDEN OF PROOF.

163. In the claim for damages (paragraphs 23 and 29 of the re-amended statement of claim) the burden lies on the plaintiff to establish its case that the plaintiff was not in default of its obligations under the contract.

164. The plaintiffs put forward claims for money had and received which are not now pursued, since the defendants have conceded that they have to account for the monies drawn down. In my judgment, on the taking of such account the burden lies on the defendants to justify the draw-down. In Cargill International SA -v- Bangladesh Sugar and Food Industries Corporation [1998] 1 WLR 461, a case where sellers, Cargill, had given a performance bond to the defendant buyers, Staughton LJ said at page 471 E,F 'I regard the law as providing that the Bangladesh Sugar and Food Corporation cannot keep the money, except to the extent that it can establish loss from a breach of contract by Cargill'. It is true that Potter LJ said at page 470 E,F with reference to the bond: 'It achieves the effect of an early payment against loss or possibility of loss without the need to resort to litigation, and if it is sufficient (or more than sufficient) to compensate the buyer, it places the onus of challenge and recovery upon the seller'. From the context, it is clear that Potter LJ was there referring not to the burden of proof but to the burden of instituting and conducting proceedings and possibly enforcement.

CONCLUSIONS.

165. I conclude:

197. (1) The defendants were not entitled to draw down monies on the ground that the neutralization tanks were not bunded;

198. (2) The defendants were not entitled to draw down monies on the ground that the capacity of the demineralized water tanks fell short of the contractual requirements;

199. (3) The defendants were not entitled to draw down monies on the ground that the performance of the cooling tower fell short of the contractual requirements;

200. (4) The plaintiffs are entitled to the amount claimed in respect of the unpaid invoices, subject to a possible deduction of £17,332.45, upon which I shall hear counsel.

166. It is unnecessary at this stage for me to decide the defendants' general defence against the claim in respect of the unpaid invoices, since its factual basis will be determined at the final hearing.

167. I have not answered all the numerous questions contained in the list of preliminary issues, but I think that I have answered all except those that in the event have proved of academic interest only. If, however, counsel wish to submit that I have omitted to decide some point of immediate practical importance, I shall hear them.

APPENDIX

LIST OF ISSUES

Recital

201. For the avoidance of doubt, it is agreed by the parties that:

202. 1. These preliminary questions do not seek to determine the plaintiff's claims under Paragraph 16(g) and 22A to 22BBB of the RASOC nor, by reference to those claims, the claims under Paragraphs 23 to 31 of the RASOC and under Paragraphs (2)(a), (b) and (d) to (I) of the Prayer;

203. 2. If the claims relating to:

204. i. the demineralised water storage tanks, under section C below; and/or

205. ii. the bunding of the neutralisation tank under section D below; and/or

206. iii. the performance of the cooling tower under section E below,

207. are not finally determined by the decisions on these preliminary questions, then the issue as to whether or not the defendant has suffered a loss which is recoverable from the plaintiff (i.e. issues as to measure of loss and causation of damage) remain to be decided as the trial of the action.

a. The Letter of Credit

208. The following facts are agreed by the parties:

(1) The letter of credit referred to in Paragraph 14 of the Re-amended Consolidated Statement of Claim (the RASOC) is the DLP Letter of Credit referred to in Clause 7.4(I) of the Contract and its terms are as pleaded in Paragraph 15 of the RASOC.

(2) The Contract and its terms are as pleaded in Paragraph 3 and 4 of the RASOC and Paragraph 4 of the CDCC.

(3) At no time has the defendant deducted any sum alleged to be payable by the plaintiff to the defendant in any certificate under Clause 35.5 of the Contract.

(4) At no time has the defendant certified any default under Clause 44.1 of the Contract.

(5) The defendant received the plaintiff's letters of the 28th September 1995 (Paragraph 31 of the Consolidated Defence and Counterclaim - CDCC), the 7th November 1995 (Paragraph 41 of the CDCC and 21st July 1995 (Paragraph 59 of the CDCC).

Issues

1. Are the Contract and the DLP Letter of Credit to be construed either:

a. as pleaded by the plaintiff in Paragraph 16 (a) to (f) of the RASOC or

b. as pleaded by the defendant in Paragraph 20 of the CDCC

c. in some other and if so what way?

2. On the construction of the Contract and the DLP Letter of Credit found in answer to question 1, and given in particular the facts agreed at (3) and (4) above, were the January and October Certificates made wrongfully in breach of the terms of the Contract and/or the DLP Letter of Credit?

3. On the basis that the DLP Letter of Credit required the defendant to certify that the amount of the drawing

a. represented amounts due and owing to the defendant

b. as a result of the plaintiff's default of certain obligations under the Contract

c. which default had not been cured by the plaintiff after notice thereof

d. within the applicable time period provided in the Contract and given the terms of the Contract, as agreed in recital A(2) above were:

209. (i) the alleged costs of remedying alleged defects under Clause 32 of the Contract and/or

210. (ii) the alleged loss, damage and increased costs for which the plaintiff is alleged to be liable pursuant to Clause 11.9, Clause 32.5 and/or general principles of the law of contract and/or misrepresentation within the requirements of a and b above notwithstanding that such alleged costs, loss and damage had not been included in Certificates under Clause 35.5 and/or Clause 44.1?

211. 4. If the answer to question 3 is no, was the defendant entitled under the Contract and the DLP Letter of Credit to certify the matters certified in the January and October Certificates?

212. 5. If question 4 arises and the answer is no, is the plaintiff entitled to the remedies claimed at (2) (a), (b), (d) to (h) of the Prayer to the RASOC?

6. Does

213. a. the fact that there is no express provision in the Contract entitling the plaintiff to the return of monies paid under the DLP Letter of Credit and/or

b. the existence of the entire agreement clauses in the Contract (Clauses 40.5 and/or 40.6)

214. (i) provide the defendant with a defence to the plaintiff's claims pleaded at Paragraph 22A, 24 and 30 of the RASOC that the defendant has had and received the sums of £2,025,000 and £1,405,000 of the plaintiff's money to its own use?

215. (ii) prevent the plaintiff from claiming an account of the monies drawn down as pleaded at paragraphs 24(A) and 30(A) of the RASOC?

216. 7. Is the plaintiff entitled either to damages (to be assessed) or the return of the moneys paid under the DLP Letter of Credit on the 26th January 1996 and the 1st October 1996 as claimed in paragraphs 23, 24, 29 and 30 of the RASOC and paragraph (2) of the Prayer?

B The Unpaid Invoices

217. The following facts are agreed by the parties:

218. (1) Pursuant to Clause 35.1 and 35.2 of the Contract the plaintiff made applications for payment and issued Invoices in the sum of £371,838.15 in respect of Milestones 230, 231, 232 and 248 as pleaded in Paragraph 10 of the RASOC.

219. (2) No interim certificate in respect of the Invoices was issued by the defendant within 21 days of receipt of the plaintiff's applications for payment or at all.

220. (3) No sums have been paid by the defendant in respect of the Invoices.

Questions

221. 8. Has the defendant wrongfully and in breach of Clause 35.3 of the Contract failed to issue an Interim Certificate in respect of the Invoices?

222. 9. Has the defendant wrongfully and in breach of its obligations under the Contract failed to pay to the plaintiff the sums payable in respect of the Invoices or is the defendant not liable to pay the plaintiff the sums claimed in the invoices and entitled to withhold such sums on the grounds pleaded in Paragraph 16 of CDCC?

223. 10. Is the plaintiff entitled to the remedies pleaded at Paragraph 13 and (1) of the Prayer to the RASOC?

C. The Demineralised Water Storage Tanks

Questions

11. Was the agreement between the parties that the plaintiff would supply:

224. i. 2 tanks each with a 24 hour storage capacity as pleaded by the defendant; or

225. ii. 2 tanks each with an 8 hour storage capacity as pleaded by the plaintiff; or

226. iii. some other number of tanks and/or capacity, and if so what?

12. On the assumption that the terms of the December specification are set out at paragraph 24 of the CDCC:

227. i. Is the plaintiff entitled to rectification of the Contract as pleaded by the plaintiff in paragraph 12 of the plaintiff's amendment response to item 1 of the Scott Schedule?

228. ii. Is the defendant estopped by convention from denying that the tanks should have been constructed as pleaded by the plaintiff at paragraph 11(ii) of the plaintiff's amended response to item 1 of the Scott Schedule?

229. iii. Is the defendant estopped from a claim by reason of the provisions of the Contract referred to in paragraph 17 of the plaintiff's amendment response to item 1 of the Scott Schedule?

13. Was the plaintiff in breach of its obligations under the Contract in respect of demineralised water storage tanks as pleaded in paragraph 33 of the CDCC and denied at paragraphs 13, 14, 15 and 16 of the plaintiff's amended response to item 1 of the Scott Schedule?

14. If the answers to 12(i), (ii) above are each "no", or alternatively the answer to question 13 is "yes", do Clauses 40.2 or 40.6 of the Contract exclude the defendant from any right to recovery as pleaded?

D. Lack of Bunding around the Neutralisation Tank

Questions

15. On the true construction of the Contract and the planning consents and permissions, was there a contractual requirement that the neutralisation tanks be bunded?

16. Was the Plaintiff in breach of the Contract when it designed and built the neutralisation tanks without a bund?

17. If the answer to 15 or 16 is "yes", do Clauses 40.2 or 40.6 of the Contract exclude the right to recovery of loss?

E. The Cooling Tower

Questions

18. Did the letter of 26 March 1992 constitute an actionable misrepresentation as pleaded at paragraphs 46 to 52 of the CDCC and denied at paragraphs 2 to 5 of the Plaintiff's amended response to item 3 of the Scott Schedule?

19. Was the performance of the cooling tower supplied by the plaintiff inadequate as pleaded at paragraph 53 to 55 of the CDCC and denied in paragraph 44 of the RDC?

20. If the answer to 19 is "yes", was the Plaintiff in breach of its obligations under the Contract as pleaded at paragraph 61 of the CDCC and denied in paragraph 46 of the RDC?

21. If the answer to 18 and/or 20 is "yes", do Clauses 40.2 and/or 40.6 exclude the right to recovery of loss?

F. Consequential Orders

Questions

22. Is the defendant entitled, as of right, to set-off any liability under the plaintiff's Claim relating to the calls on the Letter of Credit and/or the unpaid invoices against the sums counterclaimed in the CDCC and Schedule of Defects/Scott Schedule?

23. If the answer to 22 is no, does the Court have a discretion to permit and/or order such a set-off?

24. If question 23 and the answer is yes:

a. what are the principles which govern the exercise of such discretion; and

b. should such discretion be exercised in favour of the defendant?

25. If the Court finds that the defendant is liable to the Plaintiff under 7 and/or under 11 above whether by way of damages or otherwise, should the defendant be ordered to pay such sum either:

a. to the plaintiff; or

b. into Court until Final Judgment or further order; or

c. to the account of the parties' Solicitors or to a joint account in the names of the parties to be held pending final determination of the action or further order?

26. If the answer to 25 is (a), does the Court have power to order the plaintiff to increase the value of the Letter of Credit by the sum which the Court has ordered be paid by the defendant to the plaintiff, and if such power exists, should such an order be made?

 

 

---

© 1997 Crown Copyright