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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 >> Bernhard's Rugby Landscapes Ltd v. Stockley Park Consortium Ltd [1998] EWHC Technology 326 (22nd April, 1998)
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Cite as: [1998] EWHC Technology 326
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Bernhard's Rugby Landscapes Ltd v. Stockley Park Consortium Ltd [1998] EWHC Technology 326 (22nd April, 1998)
In the High Court of Justice Official Referees' BusinessBefore: His Honour Judge Humphrey LLoyd QC
Between:
BERNHARD'S RUGBY LANDSCAPES LIMITED Plaintiff
and
STOCKLEY PARK CONSORTIUM LIMITED
Defendant
Case number: 1995-ORB-1406
Date of Judgment:
22 April 1998
1. This was the trial of some
12 preliminary issues concerning the interpretation of contracts for civil
engineering work. The contracts were similiar to (but not the same as)
the ICE conditions, 5th ed., eg a Construction Manager was appointed and
not an Engineer. The issues primarlily related to the effect of clause
68 of the Conditions (whereby the Construction Manager was to give decisions
on disputes over which the English courts were to have jurisdiction) and
whether or not the Construction Manager was required to decide disputes
or to issue a Final Certificate under clause 60(3). Other issues concerned
the time for action under clause 44 (extensions of time) and 52 (valuation
of variations) as well as whether certain terms were to be implied and
the meaning of clause 60(6) (failure of Construction Manager to certify).
The upshot of each issue appears from the judgment and the answers given
to the issues are set out at the end.
Nicholas Dennys QC and Kim Franklin for the plaintiff (Solicitor: Winward Fearon & Co)
Christopher Thomas QC and Adrian Williamson for the defendant (Solicitor: Cameron McKenna)
2. The text of the judgment approved by
His Honour Judge Humphrey LLoyd QC is as follows:
JUDGMENT
Index:
1) Background
1. Some of the background to this action was described in the judgment that I gave on 7 February 1997 (82 BLR 39). The plaintiff is a landscape contractor which in 1985 tendered for and was awarded a contract for work on the construction of a new golf course at a very large reclaimed landfill site at Stockley Park in the London Borough of Hillingdon. The work formed part of a comprehensive development to create not only a golf course but also (by others) a "club house, district park, amenity sporting and recreational facilities, science and commercial park comprising multi-purpose general and light industrial buildings related to high technology operations including laboratories and training facilities, .... ancillary offices and/or warehouse buildings with ancillary offices, bank, clinic and day care centre, restaurant, public house, shops, lake, amenity sporting and recreational facilities". The developer of the golf course was Trust Securities Holdings Ltd (TSH). It retained Schal International Ltd (then called Tarmac Schal Ltd) as its Construction Manager (Schal) and other consultants as design team leader, reclamation consultants, golf course architects and landscape architects under a contract dated 20 December 1984. The terms of that Construction Management Agreement (CMA) included the following:
2.1 The Construction Manager shall not commence the Services in respect of any of the Phases unless and until he has received the Client's written instruction to proceed with the same. The issue of such an instruction is a condition precedent to any liability or obligation of the Client to the Construction Manager in respect of each Phase arising out of or in connection with this Agreement.
2.2 The Client hereby appoints
the Construction Manager and the Construction Manager hereby agrees to
perform the Services fully and faithfully in the best interests of the
Client and upon the terms and conditions set out in this Agreement. If,
in the performance of the Construction Services, the Construction Manager
has a discretion exercisable as between the Client and a Trade Contractor,
the Construction Manager shall exercise his discretion fairly.
....
2.4 The Construction Manager warrants to the Client that he has exercised and that he will continue to exercise in the performance of the Services all the skill, care and diligence to be expected of a properly qualified and competent manager experienced in carrying out work of a similar size, scope and complexity to the Development. Save where the Construction Manager has a discretion exercisable as between the Client and a Trade Contractor, the Construction Manager shall strictly comply with all instructions and directions given to him by the Client on any matter whatsoever connected with the Development.
2.5 The Construction Manager shall be deemed to have full knowledge of the provisions of the Trade Contracts and shall be deemed to be aware of and to have taken full account of all the undertakings and warranties, both express and implied, on the part of the Client which are embodied in the Trade Contracts. The Construction Manager undertakes to the Client that he has performed and that he will continue to perform the Services in such manner and at such times so that no act, omission or default of the Construction Manager in relation thereto shall constitute, cause or contribute to any breach by the Client of any of its obligations under the Trade Contracts.
3. Construction Manager's Personnel
3.1 The Construction Manager shall forthwith appoint the person named in Schedule 1 Para F hereto to direct and control the overall performance by the Construction Manager of the Services. Such person or any replacement approved by the Client pursuant to Clause 3.4 from time to time shall have full authority to act on behalf of the Construction Manager for all purposes in connection with this Agreement and shall represent the Construction Manager (accompanied as necessary by any of the persons referred to in Clause 3.2) at meetings with representatives of the local authority or any other statutory body which has any jurisdiction in relation to the Development."
3. Notwithstanding anything
to the contrary contained elsewhere in this Agreement:-
(ii) The Construction Manager has no authority to approve any design carried out by any Trade Contractor or to approve the quality of materials or the standards of workmanship where and to the extent that the Trade Contract requires that such approval is a matter for the opinion of the Design Team Leader without, in either case, the prior written approval of the Design Team Leader.
(iii) The Construction Manager shall not grant any extension of time to any Trade Contractor nor shall he agree to accept any financial claim of any kind whatsoever pursuant to the terms of any Trade Contract without having first consulted the Design Team Leader and having taken due account of its comments and without having first reported on the same to the Client.
(iv) The Construction Manager has no authority to issue any certificate whatsoever (including, but without limitation, interim and final certificates and certificates of practical completion and making good defects) to any Trade Contractor unless the same has been duly signed by the Design Team Leader.
(v) The Construction Manager has no authority to issue any instruction or give any approval or do any other thing pursuant to a Trade Contract which would or might alter the cost of the Development to the Client by more than £1,000 in respect of any one such event without first referring the matter in writing to the Design Team Leader and to the Client, with his comments. The Design Team Leader shall notify the Construction Manager in writing within 3 clear working days of receipt of any reference from the Construction Manager of his approval or disapproval thereto. If the Design Team Leader shall fail to notify the Construction Manager as aforesaid within 3 clear working days, the Design Team Leader shall be deemed to have given its approval thereto. Provided always that the sum of all such alterations made without the express written approval of the Design Team Leader shall not exceed the sum of £5,000 in any one month. And provided further that the Construction Manager shall immediately copy all instructions, approvals and other things issued or given by him pursuant to a Trade Contract to the Design Team Leader.
(vi) The Construction Manager shall have no authority to give any notice of default pursuant to any condition of the Trade Contract that provides for the determination of the employment of a Trade Contractor by the Client, without having first consulted the Design Team Leader and the Client."
4. BRL submitted a tender in July 1985 and, on 1 August 1985, a revised tender which was effectively accepted by a letter of intent from Schal dated 28 August 1985. BRL started work on 9 September 1985. This Contract was number 3010. Under it work was to be finished within 67 weeks i.e. by 27 December 1986. Its value was about £800,000. The formal contract documents were executed under seal by BRL and TSH and dated 5 December 1985. The contract incorporated conditions based upon the ICE Conditions, 5th edition, but a number of the ICE Conditions were not used and others substantially altered. There was no Engineer but instead Schal was named in the contract as the Construction Manager and as such had many of the powers usually given to the Engineer under the ICE Conditions. I shall refer later to the contract conditions relevant to the issues which I have now to decide.
5. The progress of BRL's work was largely dependent upon the completion by another contractor of its work and upon TSH for providing the site and access to various parts of it. The contract required the topsoiling of certain sections to be completed within the first 8 weeks and the remainder within the 1986 season. The site was split into about 19 areas which were shown on the clause 14 programme. According to BRL its progress overall and within every Section and area was held up by various acts and defaults on the part of TSH. Although BRL maintain that it was entitled to extensions of time and the recovery of additional costs, its work was not completed by the end of 1986 and it was not finished until 1990. In 1987 TSH entered into a further contract (3160) with BRL for the modification of work previously carried out. Contract 3160 was executed along with Contract 3010. Contract 3160 was to be completed by 12 May 1988. In January 1989 Contract 3010 was novated whereby the rights and obligations of TSH were transferred to the present defendant, SPCL, a company which had not been incorporated in 1985. The formal contract documents for Contract 3160 had not been executed at the time of the novation of Contract 3010 and accordingly were executed between BRL and SPCL. Contract 3160 was completed in October 1989, 17 weeks late. (Maintenance certificates were issued on 27 November 1990 for Contract 3160 and on 7 November 1991 for Contract 3010). Contract 3160 was closely connected with Contract 3010 so that for most purposes there is no point in distinguishing between them, although they were treated separately. (It is part of BRL's case that contract 3160 was a variation of contract 3010.)
6. Clause 66 of the ICE Conditions was not used. Instead clause 68 provided:-
(2) The English Courts shall have jurisdiction over any dispute or difference which shall arise between the Employer or the Construction Manager on his behalf and the Contractor arising out of or in connection with the Contract or the Works. The Contract shall be governed by and shall be construed in accordance with English Law.
(3) The Courts shall, without prejudice to the generality of their powers, have power to direct such measurements and/or valuations as may in their opinion be desirable in order to determine the rights of the parties and to ascertain and award any such sum which ought to have been the subject of or included in any certificate and to open up, review and revise any certificate, opinion, decision, requirement or notice and to determine all matters in dispute which shall be submitted to it in the same manner as if no such certificate, opinion, decision, requirement or notice had been given."
8. On 8 February 1996 the plaintiff applied to amend the statement of claim. The defendant thereafter submitted that the action had been brought prematurely since the contractual procedures had not been complied with and in any event since Schal had not yet dealt with the claims further time was required to allow the parties to ascertain the true issues in the case. On the hearing of the adjourned summons for directions on 16 February 1996 the defendant indicated that it intended to strike out the statement of claim and accordingly leave to amend the statement of claim was given as sought by the plaintiff but without prejudice to the defendant's right to apply to strike it out provided that any application to do so was made within the next 14 days. Contingent directions were also given including one which required the parties to make up their minds within 28 days whether they intended to have any question as to whether the action was prematurely brought determined as a preliminary issue.
9. On 29 February the defendant issued its summons to strike out the writ and statement of claim and accordingly on 5 March 1996 time for service of the defendant's defence was extended until after the determination of that application. The defendant's summons not only attacked the statement of claim as amended but also sought to have the action dismissed or stayed on the grounds of non-compliance with clause 68. The summons for directions was adjourned until 28 June 1996, when the defendant's application was heard by His Honour Judge Bowsher QC. He had time only to hear argument on the defendant's application that the action should be dismissed outright or stayed for non-compliance with the procedure set out in clause 68. He declined to do so as he considered that the application was inappropriate and that the issues should have been raised as preliminary issues and not by way of summary application. He dismissed the application with costs and adjourned consideration of the remainder of the applications, including an application to serve a substituted statement of claim which had been made on 20 June 1996. They came back before me on 17 January 1997 when BRL applied to serve a revised version of its amended statement of claim. I gave leave to serve that pleading subject to certain conditions (see 82 BLR 39). It was served on 21 February 1997. On 11 July 1997 I gave leave to serve an amended substituted statement of claim (ASSOC). This was done on 5 September 1997. An amended defence and counterclaim was served on 7 October 1997.
10. On 17 October 1997 I ordered that the issues raised by SPCL as to "jurisdiction", ie those relating to the meaning and effect of clause 68, together with certain issues of law (concerning the existence of some terms which BRL had pleaded were to be implied in the contracts and issues about BRL's claims for financing charges) should be agreed between counsel and heard at a trial commencing in January 1998. This judgment is therefore concerned with those issues. They are as follows.
2. Were any new and/or amended claims introduced into the proceedings by amendment of the Statement of Claim after 24.10.95 which had not been previously referred to the Construction Manager under Clause 68(1)?
3. In respect of any claim identified at 2 above, does the Court in the circumstances have jurisdiction to entertain that claim?
4. If the answer to questions 1 and/or 3 is affirmative, have the present proceedings been brought (in whole or in part) in breach of Clause 68?
5. If the proceedings have been brought in breach of Clause 68 should the Court grant the Defendant the relief sought so as to decline jurisdiction over the whole or any part of the claim and, if so, with what effect?
6. Did the contractual machinery break down? If so, when and with what effect?
7. If the contractual machinery had broken down by 24.10.95, did BRL reactivate the same and/or waive such breakdown, and, if so, with what effect?
8. What was the legal effect (if any) of the Certificates described as "Final Certificates" issued on 10.7.96?
9. What is the legal effect (if any) of the extensions of time granted by Schal on 2.10.96?
10. Are the terms pleaded in paragraphs 17(1), (2), (10) and (11) of the Amended Substituted Statement of Claim terms of the Contracts?
11. Is BRL entitled, in principle, to recover financing charges as special damages for Schal's failure to certify or is Clause 60(6) an exclusive remedy for such failure [if established]?
12. Is BRL's claim for financing charges whether under Clause 60(6) or for breach of the Contracts restricted to financing charges upon the shortfall, if any, between the sums applied for and the sums certified and paid?
12. In addition to the evidence contained in the chronological bundles of correspondence which provide virtually all the material necessary for decisions on the issues, I heard evidence from two witnesses called by SPCL. Mr David Hazelton LLB (Hons), FRICS, MCIOB is currently an Associate Director of Schal. From April 1991 he was appointed by Tarmac to be Commercial Manager on the Stockley Park Project, but he said that he was not present on site whilst BRL's work was being carried out. He was directly involved in the steps taken between late 1991 and early 1994 to finalise BRL's account. However during 1993 and 1994 he was engaged only part time at Stockley Park and between November 1994 and May 1995 he had no active involvement in Stockley Park. From May 1995 to November 1995 his involvement was limited to passing on knowledge of BRL's final account in order to assist those then considering BRL's submissions of May 1995. From November 1995 he resumed active involvement and was responsible for the issue of Final Certificates on 10 July 1996. SPCL's second witness was Mr Michael Jagger, ARICS, a claims consultant, who examined Bernhard's final account and claim submission from the end of May 1995 to December 1995. He had been brought in by Mr Malcolm Bairstow, Managing Director of Schal, to assist Schal whilst at the same time carrying out work on another of Schal's projects which was the subject of litigation (see G9/28 for Mr Jagger's note of his meeting of 30 May 1995 with Mr Dickens.) He had no further contact after December 1995 and thus was not asked to provide any assistance to Schal in the work that it did in 1996 on BRL's case.
13. BRL called Mr R. J. Taylor, its Managing Director, and Mr Robin Thain, the principal of the Thain Partnership which initially provided merely the financing charges calculations for BRL's April 1992 submission and, later, BRL’s statement of final account on the 3160 Contract dated November 1993. Subsequently Mr Thain prepared, with the assistance of Mr Taylor, BRL’s May 1995 Submission in respect of Contract 3010 and an updated (May 1995) version of the November 1993 Submission for Contract 3160, as well as the October 1995 Delay Schedules and accompanying charts sent to Schal with BRL's letter of 4 October 1995 (G1/207). His firm also produced Schedule I to BRL's May 1995 submission for the 3010 contract (which set out the variation account) and Schedule II which set out BRL’s 3010 loss and expense claim. Schedules A - F of the May 1995 submission for that contract were produced as a series of narratives to explain the delays and to show how each area was affected. Mr Thain said that some minor alterations were made to Schedules A and F after their first submission in May 1995 which did not affect the substance of the claims for extensions of time nor did they change the reasons given for the periods of delay.
14. In his final submissions Mr Christopher Thomas QC for SPCL criticised the evidence of Mr Taylor as being evasive and coy about when precisely Mr Thain became involved and what his firm did. I found Mr Taylor's evidence to be entirely credible and open; the apparent shortcomings to which Mr Thomas referred were plainly due to the time that has elapsed since the events in question. In addition to the extent that there was any conflict between the evidence of Mr Taylor and that of Mr Hazelton, I prefer that of Mr Taylor. However with the exception of the evidence of Mr Hazelton relating to what he did and did not do, much evidence given in cross-examination was not directly relevant to the issues which I have now to decide although it may well be of value to other issues.
15. In 1987 it is clear that Schal had decided that BRL was entitled to an extension of time in respect of contract 3160 until October 1987. It is not necessary to go into the circumstances which gave rise to BRL's claims. It is sufficient to chart the general course of the presentation of those claims to Schal from 1989 and how they were thereafter dealt with by BRL and by Schal.
16. In July 1989 BRL wrote to Schal with a statement of its case. On 4 August 1989 (G1/0.21), Mr Dickens, the project manager for Schal, replied to BRL's letters. In his letter he said:-
4. We have however been frustrated
in making any worthwhile assessment through lack of information from yourselves
to allow a fair settlement to be recommended to the client which is in
accordance with the Conditions of Contract.
5. Meanwhile it is our present
intention that you will certainly not be able to demonstrate an extension
anywhere near, and certainly not beyond October 1989, and you should make
every effort to complete the works before that date to avoid onerous consequences."
19. On 15 August 1989 BRL wrote to Schal (E1/35) to record agreements on the areas on which Schal had not worked (G1/000.22).
20. Substantial completion of contract 3160 took place on 18 August 1989. In September 1989 Mr Taylor of BRL had a meeting with Mr Dickens and Mr Alan Green of Schal and Mr Strachan Mitchell of Arup Associates (the Design Team Leader and architect). As a result he wrote at length on 22 September 1989 (G1/000.24) recording that Schal wanted to see BRL's actual costs. Mr Taylor also recorded in the letter which was addressed to Mr Dickens that Schal had had
6. At the end of our meeting,
it was agreed between us and Mr Green (you had already left) that there
was nothing further that you immediately required in order to make some
substantial progress on the question of extension of time (subject possibly
to a further meeting with us before the date of the next valuation) and
that there was nothing further that you required (with the possible exception
of further copy invoices in relation to plant) in relation to the quantification
of our claim for extra payment."
7. From what we have already
said you will have concluded that we do require you to justify you in full
any claims for time or money which you still wish to pursue.
8. We would suggest that a
logical starting point would be the measured work account including variations
and dayworks. The suggestion is made in the interests of narrowing the
scope for disputes without in any way condoning your continuing failure
to give proper notices or keep proper records available to us.
9. Given the way in which
you have chosen to present your claim, you have no alternative, it seems
to us, but to substantiate each and every amount claimed for plant, either
as part of the measured work account or as part of your delay/disruption
claim. Whether this requires a "history of resources" is up to you. All
we can say is that we shall not accept a calculation that assumes that
all of your plant costs are automatically recoverable one way or another.
10. Given your failure to give
proper notices etc, we hardly think your claim for interest bear scrutiny.
We do not intend to become involved in it unless you formally declare a
dispute under clause 68. In that case our duties would extend beyond those
we presently have to exercise."
27. It does not appear that much happened in the ensuing months (see BRL's letter of 3 January 1992 - G1/17A). A meeting scheduled for 21 January 1992 was converted by Mr Hazelton into an internal meeting so BRL were excluded from it (G1/017E). However on 17 January 1992 (G1/018) Mr Taylor for BRL submitted interim figures for the final account, to which Mr Hazelton replied on 22 January 1992 indicating that he was dealing with it. Mr Hazelton then changed tack, for on 28 January 1992 (G1/018C) he wrote to BRL stating that a "prompt submission of your final account in the required detail and with full back-up is a prerequisite to any meaningful discussions ..."
28. BRL expressed their disappointment with Mr Hazelton's attitude on 3 February 1992 (G1/018D) but produced its final account statement and further documentation in apparent compliance with clause 60(5)(c) on 22 April 1992 (G1/019 and G3/001). Schal acknowledged receipt of the final account on 27 April 1992 and told BRL that it would be examined in detail (G1/023). The letter also proposed that a working team should meet "to identify areas of agreement and isolate areas of dispute and to consider the trade contractor's entitlement to any further extension of time for completion." (BRL also sent copies of the letters to SPCL but at a later date - 2 June 1992 (G1/026). On 2 June 1992 BRL called for a reply (G1/027), failing which it intended to issue proceedings.) It is material that although Mr Hazelton said that he found the April 1992 account of little help, he did not write to ask, for example, for more information about the labour and plant records, since he did not apparently inherit any comparable records which would have enabled him to verify the dayworks claimed and to assess new rates under clause 52 of contract conditions. It seems that Schal did not during the progress of the works use its powers under the contract to require contemporary records to be kept.
29. Schal also sent BRL's letter to the defendant on 27 April 1992 (G1/025). In the letter Mr Hazelton sought approval from Mr Vander Meersch, of SPCL, to sending the documentation to the defendant's solicitors, McKenna & Co. Since Mr Hazelton accepted that SPCL could have done so itself, his request suggests that Schal thought that under clause 7(iv) of the CMA it was obliged, once it had made its assessment of the amount due to BRL, to clear it with SPCL and its solicitors before issuing any final certificate.
30. On 5 June 1992 Schal replied to BRL's letter of 22 April 1992 (G1/028). It said that the material supplied by BRL "falls some considerable way short of your obligations under clause 60(3) of the conditions of the contract" and that "your document and letter of 22 April 1992 is not considered to be your final account as required by, and described under clause 60(3) of the Conditions of Contract." It then set out its assessment of the final account which resulted in a figure of £1,945,183, i.e. a figure slightly lower than the amount certified (gross) in the certificate of 27 September 1991. Schal invited BRL to submit "a fully detailed descriptive document laying out your entitlement and cost compilation details" in respect of certain specific items and amounts which totalled £1,704,553 (inclusive of a loss and expense claim of £946,049 and a claim for financing charges of £485,579). Schal then went into some detail in relation to some of the items (including BRL's claims for additional spading costs, "loss and expenses" and financing charges) and made it clear that the claims were rejected and that no payment would be made in respect of a number of them. By this time, as Mr Hazelton said in cross-examination, Schal had decided that no further extensions of time could be given until the value of the measured work was known. However Mr Hazelton also accepted that Schal ought to have made clear what further information was required in respect of items such as Trade Change 52 (assessed at £59,650). (But I doubt whether the call for more details if genuine was necessary since this valuation did not change.)
31. Although Mr Hazelton said that he was unaware of it, the effect of Schal's letter of 5 June 1992 was thus to create or to recognise disputes between BRL and Schal as to a number of matters including:
(2) whether therefore Schal were entitled to call for further information as envisaged by clause 60(3), and
(3) in any event why certain claims were rejected at that stage.
33. On 18 September 1992 BRL reported to Schal the results of its investigations of the matters raised in Schal's letters of 5, 24 and 30 June 1992 (G1/44), and said that it wished to resolve contentious items - a reference which Mr Hazelton in evidence said was to no more than matters of discussion. In my judgment BRL was quite right - by this stage the correspondence had passed beyond what might have been the ordinary course of discussion and negotiation into areas of actual difference. In the letter they also provided a very large number of details and substantiation, particularly of daywork sheets. The letter was acknowledged by Schal on 28 September 1992 (G1/51) and on the same day it sent a copy of that letter to McKenna & Co (G1/52). On 28 October 1992 (G1/54) Mr Hazelton circulated to a number of people including Mr Vander Meersch of SPCL (and Mr O'Hanlon at McKenna & Co) the draft of a reply (dated 28 October 1992) to BRL's letters of September (G1/55). Strangely, it was not then sent in that form and when it was sent (much later - see G1/73) there were interesting variations which may have emanated from SPCL or McKenna & Co. Such action is in my view consistent only with a realisation by Schal that it was now faced with the possibility of a serious dispute with BRL and legal advice was needed. I do not accept Mr Hazelton's assertion that Schal was still then in reality acting as Construction Manager settling a final account and not in relation to any dispute. Somebody who is merely negotiating a final account with a trade contractor like BRL does not normally need to submit a draft reply to specialist solicitors for their comments (see also Mr Jagger's note of his meeting with Mr Dickens in 1995: G9/28). Schal had stated (G1/58):
35. On 25 November 1992 Mr Taylor wrote to Mr Vander Meersch informing him that they were getting on with the analysis of further information (G1/066).
36. An internal briefing meeting was held on 2 December 1992 and on 9 December 1992 Schal eventually replied to BRL's letters of September on the lines of the draft of 28 October (G1/073). In the meantime on 8 December 1992 Mr Vander Meersch wrote to Mr Taylor (G1/072) indicating that no extension of time would be justifiable. Mr Taylor replied on 10 December 1992 (G1/077) in which he told Mr Vander Meersch that the reasons for the refusal of an extension of time had not been explained to BRL. In my view Mr Taylor was right since Schal had not told BRL that the value of the measured work had first to be established. I do not accept that Mr Hazelton told him in 1992 or 1993 that he was not going to deal with the claims for further time. On 14 December 1992 BRL replied promptly to Schal's letter of 9 December 1992 (G1/079).
37. On 27 January 1993 Schal sent BRL a list of matters indicating what was agreed and not agreed. BRL replied on 1 February 1993 (G1/090). Further correspondence ensued which clearly indicated a difference between the parties at least on variations and dayworks. On 28 April 1993 a meeting was held between BRL and Schal (attended by a representative of Ove Arup & Partners) at which many of the items in dispute on the final account for contract 3010 were discussed (see G1/134-139). The contemporaneous note at G1/139 records that Schal were to write on the question of extension of time. On 29 April 1993 BRL followed up the discussions of that meeting and provided Schal with further information (G1/140). On 10 June 1993 Certificate No.51 (G1/145) was issued in respect of contract 3010 which produced a gross valuation of £2,057,884 (subject to a contra-charge of £3,929 and sums previously paid of £2,035,565).
38. On 15 October 1993 (G1/151) Schal informed BRL that it was still assessing several areas of the account "in the absence of a detailed final account by yourselves". The letter enclosed "the first batch of details". It also said that further details would be submitted covering dayworks and other matters e.g. payments made by preliminaries. On 11 November 1993 BRL submitted a statement of final account in respect of contract 3160 (G1/165, G3/076).
39. On 8 December 1993 (G1/169) BRL provided further information regarding contract 3010 in response to Schal's earlier letters of October and November. In it BRL complained that Schal was apparently reopening agreements reached during the progress of the work. In this it was entirely correct. I accept Mr Taylor's account. Mr Hazelton was plainly going back on what had been agreed between BRL and Mr Alan Green.
40. On 12 April 1994 (G1/180) Schal wrote to BRL with a revised schedule of dayworks. Schal said that it demonstrated duplications. Nothing thereafter happened for some months as BRL had turned to Mr Thain for assistance, but in any event Schal's personnel were no longer readily available.
41. On 9 May 1995 BRL wrote to Schal with a new submission intended to expand and amplify the final account submitted in April 1992 (in respect of contract 3010). However BRL concluded that letter (G1/189) as follows:-
11. We note that the 3010 contract
does not put a specific period of time on you as Construction Manager to
state your decision in writing nor does it give a period of time after
which if you fail to give your decision in writing we as Contractor are
entitled to commence proceedings against the Employer. In view of all the
circumstances and also the time which has elapsed since the service on
you of the statement of final account in April 1992 we take the view that
a period of 4 weeks is reasonable for you to make and deliver your decision
based on the enclosed submission. Accordingly we hereby put you and the
Employer on notice that in the event that we do not receive your decision
within 4 weeks of today's date or in the event that any decision given
by you is in our view incorrect we will immediately commence proceedings
against the Employer." (G1/189, G4/001, G5/001)
12. We note your intention
to commence proceedings, should you not receive notice of a determination
from ourselves within 4 weeks. We can advise you that our assessment will
undoubtedly take longer than 4 weeks.
13. Having requested this information
in our letter of 27 January 1993, we consider your imposition of a 4 week
response time as unreasonable."
45. Schal replied to BRL's letter of 25 May 1995 on 2 June 1995 (G1/203) but only to inform them that there would be a meeting "to discuss your submission and that we shall be writing to you further after that meeting". (The letter was drafted by Mr Jagger - G9/001.) Mr Hazelton said that neither he nor anybody else from Schal took any notes of the meeting arranged to discuss BRL's submissions with SPCL and which was, significantly, attended by McKenna & Co so that the merits of the claim could be discussed (see also G9/28 - Mr Jagger's meeting note to which I have already referred). I find the lack of notes strange. Mr Jagger could not account for it. This was an important meeting and it is almost incredible that neither Schal nor anybody else on behalf of SPCL kept a record of it. However the absence of a record is not in itself perhaps strictly relevant to any of the issues of fact. Thereafter Mr Jagger together with Mr Hazelton and Mr Dickens carried out a detailed analysis of BRL's documents but, it seems from Mr Hazelton's point of view, only to identify the points of difference, rather than to find out the disputes that required to be decided. The work was done on a part-time basis in June and July 1995, but few records of it survive. Indeed records of the work done by Schal are remarkably small. The results of Mr Jagger's work were used in Schal's interim account of December 1995. From Mr Jagger's evidence it is clear that since he had to start from scratch the work took much longer than it would have done had Mr Hazleton or Mr Dickens been made available, for, as Mr Jagger said in his witness statement:
47. On 4 October 1995 BRL wrote to Schal (G1/207). In the letter BRL informed Schal that it would be writing to SPCL to ask them whether they had nominated solicitors to accept proceedings. It continued:-
50. On 19 October 1995 Schal sent a reply (G/215 - again drafted by Mr Jagger) in which they set out a large number of requests for further details of the measured work section of BRL's submission. Next, on 20 October 1995 SPCL informed BRL (G1/218) that it had not submitted claims in accordance with the contract conditions. On 23 October 1995 (G2/580) Schal sent Arups copies of BRL's claim submissions of May 1995 and sought its views "in due course". Although Mr Hazelton thought that Arups would have been asked for its views when the BRL submissions were first received there is no evidence of this happening such as a covering letter or any response or even an acknowledgement from Arups. I therefore conclude that the first occasion on which Arups were sent these submissions (and thus BRL's claims) was in October 1995. On 23 November Mr Jagger sent Mr Hazelton a lever arch file with his findings which he had prepared "working from your base document of 21/8/95". The index page survives showing that the file contained over 200 pages. Mr Jagger's notes establish clearly that his work had resulted in an evaluation of Bernhard's claim submissions to have been made by Schal, and even though there were a number of matters that he could not himself resolve, a definitive evaluation could have been made by Schal in October 1995. Mr Jagger said that the file contained an evaluation of the claim for an extension of time. He said that he was unaware that any of his evaluations would be referred to SPCL or SPCL's advisers, although more than one of Schal's documents so indicated (see for example G9/157) and Mr Jagger's memorandum to Mr Hazelton (G9/23) stated: "Whilst McKennas have referred to enhanced and over-generous rates, I have not made reductions...".
51. On 24 October 1995 the writ and statement of claim were issued and served. Pursuant to an order made on 4 December 1995 a defence was served on 14 December 1995 in which the defendant took points which are the subject of the present preliminary issues. On 19 December 1995 Schal wrote to BRL (G1/230):-
14. We would confirm that at
this point we are unable to arrive at the issue of a final certificate,
as we consider that further information is reasonably required by ourselves
in order to verify the sum to be included in the final certificate.
15. In order to assist you
in the compilation of this information, and to afford to you the opportunity
to view our assessment to date, we enclose the following:-
(B) Text details of our views to date on your submission.
(C) List of further information required.
(D) Copies of the relevant correspondence and documents referred to.
16. Whilst it is the case that
the information requested by Schal is in the main set out in the Submissions
served on you in May 1995 or alternatively is information which one would
expect a reasonably competent Construction Manager resident on site to
accumulate during the course of the Contract, we have no objection to providing
the information to you again or assisting you to understand your liability
in this matter. Accordingly we enclose copies of two sets of Responses
to the requested information together with copies of letters which we have
sent as a matter of courtesy to Schal International Limited but without
prejudice to the fact that they no longer have any functions to perform
in relation to the administration of either of the Contracts. It is clear
that Schal have lost some documents including some of their own letters
and some of their own CMI's and where missing documents have been requested
and we are able to assist you we have supplied copies.
17. In the light of your failure
and/or refusal to administer the Contract in accordance with its terms
we have now commenced Court proceedings. We are advised that you do not
now have any function to perform under the 3010 Contract whether as Construction
Manager or otherwise and that you are not now obliged or indeed entitled
to purport to carry out any further functions as Construction Manager under
the terms of the Contract. It follows that you are not entitled to purport
to issue a Final Certificate or, indeed, any further Certificates or to
purport to make any further determinations under the terms of the 3010
Contract and we expressly reserve all our rights in this regard.
...
18. No doubt you will be advising
the Employer in relation to its liability in those proceedings. We have
no objection to providing the Employer with the further information requested
by you if it assists it in appreciating the full extent of its liability.
We will be writing to the Employer separately forwarding to them that information
and as a matter of courtesy to you enclose the same for yourselves. It
is, however, forwarded to you without prejudice to our contention that
you have no further formal functions to perform under the terms of the
3010 Contract.
19. We have confined our responses
to the information specifically requested notwithstanding that you have
erroneously sought to suggest that some of the items claimed in relation
to Contract 3010 have been paid by the Employer pursuant to separate contracts
(notably preliminary Contract No. 1500) and notwithstanding that in other
cases you have alleged that claims are duplicated or, alternatively you
have arbitrarily reduced hours shown on Daywork sheets or simply rejected
claims out of hand without requesting further information. All these disputed
items will be formally dealt with as part of the High Court proceedings
if the Employer adopts your stated position regarding its own liability.
20. We are frankly surprised
that so much elementary documentation appears to be missing from your files
and no doubt this has contributed to your failure to properly administer
the Contract while you were Construction Manager. Specifically we are surprised
that you have had to request copies of Daywork sheets, copies of CMI's
and even some of your own correspondence. More critically your 'assessment'
has ignored a 'Daywork Reconciliation' and a 'Daywork Summary' both prepared
by Schal to reconcile the Daywork sheets with specific instructions. These
are important documents and our claims are generally consistent with them.
It is not open for you now to seek to suggest that Daywork sheets have
been wrongly allocated to instructions where those Daywork sheets were
allocated to the relevant instructions by you in your own documents."
54. On 12 February 1996 (G2/247) Schal wrote to SPCL about letters dated 13 February 1996 (G2/258) which it sent to BRL. In that letter it listed the items in dispute on both Contracts 3010 and 3160. In respect of Contract 3010 Schal informed SPCL that BRL had not in its letter of 18 January 1996 dealt with Schal's rejections of BRL's claims in respect of site overheads, labour and plant costs, temporary works, head office and profit, or bonds. Schal informed SPCL that it proposed to set up a series of meetings and envisaged that at least some of the work would be completed within four weeks (in relation to the investigation of BRL's extension of time). In its letter of 13 February 1996 Schal sent BRL its "initial comments on the further information provided" with BRL's letter of 18 January 1996 (G2/241). It continued: "as will be seen large areas of disagreement exists between as to your entitlement to further monies and for extension of time". BRL replied on 27 February 1996 (G2/261) in which it proposed that meetings should take place on a "without prejudice" basis with Schal as agent for the employer and not as Construction Manager with a view to a resolution of the matters in dispute.
55. Although Schal maintained that it had no authority to act as agent for SPCL, meetings were arranged on the basis that SPCL and Schal considered that Schal was continuing to act as Construction Manager (G2/275, 276 and 277). On 3 April 1996 Schal sent a fax to SPCL (G2/278) in which it stated that it was
21. Bernhard's would now appear
to wish to partake in our determinations.
22. We would be pleased to
receive your instructions as to whether you wish us to arrange a schedule
of meetings with Bernhard's, with a view to arriving at a position whereby
the points at issue can be discussed, the necessary evidence and back up
produced, by Bernhard's, and if found satisfactory, being recorded as agreed
items by ourselves."
23. You would appear to be
confused as to your duties and obligations as Construction Manager and
our position as the Employer under the above mentioned contracts.
24. You clearly have misconstrued
my letter of 1 March, together with other copy correspondence, as an instruction
as to how you should proceed in resolution of the above. As you are well
aware, the on-going dispute with BRL has been made manifest by a series
of recent actions:
- Your attempts to resolve the issues culminating in your interim assessment of 12 January.
- The lack of responses by BRL following your request for further information.
- Their attempt to pursue the dispute through litigation.
25. The various contracts between
all of us are clear as to your position in the resolution of disputes.
26. That BRL have found it
appropriate to discuss their final account with you is welcomed. It does
not, however, relieve you from assessing their requests on the merits of
their case(s) presented. Clearly both parties must perform in seeking
to determine any resolution and it is for you to judge as to whether, in
this case, BRL have any coherent, logical or timeous claim.
27. That you should ask me
to interfere in this process I find inappropriate. That I should ask you
to perform within a reasonable time-frame, I consider to be in the best
interests of BRL and ourselves. That time-frame should, I believe, be judged
objectively and not tailored to suit what you perceive to be your role
in the litigation. That I find ourselves in a potentially expensive legal
action I find wasteful and unnecessary.
28. I therefore ask that you
complete your determination with the appropriate degree of urgency. Obviously
you should take into account representations, if any, from BRL which could
help in reaching a satisfactory outcome, but I believe it entirely up to
you to judge the value of further meetings with BRL."
29. The certificate is accompanied
by details of our determination, which takes into account information presented
by yourselves during 1995, and 1996, and information given at and after
our meetings in May 1996.
30. The issue of this certificate
is in accordance with the timetable agreed between ourselves, taking into
account the over run in the supply of information by yourselves after our
meetings in May.
31. In respect of the value
of the works executed, it is our computation that Bernard's Rugby Landscapes
Limited, owe a sum of £292,205.11 to Stockley Park Consortium Limited.
This sum is computed as the addition of the calculated sum owed of £288,275.18,
plus the contra charge deducted during the currency of the project of £3,929.93.
33. Our computation in relation
to Contract 3010 is contained within two lever arch files. The larger of
the files contains our summary and details of our determination. The smaller
of the files contains our computations in respect of prolongation.
34. In respect of the contract
completion date it is the opinion of Schal International Limited, that
the revised date for completion is 11 May 1989. A certificate to that effect
issued under clause 44, and signed in accordance with clause 2(3) is being
prepared and will be forwarded to you."
35. This company reserves all
its rights, including its position as to whether or not the "decisions"
so reached were properly made.
.... "
59. Schal thereafter informed SPCL that it was not its intention to "enter into dialogue with BRL further in this matter unless instructed to do so" (G2/567).
60. On 6 September 1996 SPCL wrote to BRL (G2/569):
36. By clause 60(3) the following
sums were to be paid by you to us within 21 days of 10 July:
Contract £sum
3010 292,205.11
3160 14,486.43
37. We hereby demand payment
of those sums without further delay.
38. Given the current state
of litigation between us, we ask whether, pursuant to clause 68, it is
your intention to dispute the certificates in question. Any such dispute
is, in the first instance, to be referred to and settled by the Construction
Manager pursuant to clause 68(1).
39. We, for our part, reserve
all of our rights whether under clauses 60 and 68 or otherwise in respect
of the final certificates but would remind you that the existence of any
dispute does not relieve you of your obligation to make payment in accordance
with clause 60(3)."
40. Please take this letter
as formal notice that these Certificates are disputed by Bernhard's Rugby
Landscapes Limited.
41. Since these Certificates
were issued by the Construction Manager after detailed consideration of
our claims lasting over 12 months, and after receiving our detailed submissions
both orally and in writing, we see no point whatever in referring the dispute
over the Certificates back to the Construction Manager under Clause 68(1)
as you suggest. Such a course would be a pure formality since the Construction
Manager would be bound to simply repeat his decision that his Certificates
were correct. It is inconceivable that he would take any other course.
Further, you will recall that, on 28th June 1996, His Honour Judge Bowsher
Q.C. dismissed your application to the effect that in the light of alleged
non-compliance with Clause 68, the action commenced by us was premature.
It remains our view that the contractual machinery for the resolution of
disputes contained in Clause 68 has broken down and there is now no point
in attempting to apply it.
42. But even more fundamentally,
now that the action is in being, no point would be served by attempting
to activate the contractual machinery. This would merely waste further
time and cause additional expense. Surely this is not what you wish.
43. We have no intention of
paying the sums found to be due to your clients by the Construction Manager
since we dispute that these sums are due. If you wish to pursue recovery
of those sums, as you are entitled to, you can do so my making a counterclaim
in the present proceedings. Surely this is the simplest and most cost effective
way of having all the disputes between the parties arising out of these
two contracts determined at the same time."
The Issues
Issue 1: Upon a true construction of Clauses 68(1) and 68(2), and in the circumstances, does the Court have jurisdiction to entertain the claims set out in the original Writ and Statement of Claim?
63. As a consequence of my observation about the formulation of the issues and the arguments presented I shall deviate slightly in that I shall deal with part of Issue 1 - that relating to "in the circumstances" - when I consider Issues 4, 5, 6 and 7. Similarly, I shall consider the relationship between the claims prior to 24 October 1995 and as set out in the original Writ and Statement of Claim and those which were introduced by way of amendment when I come to consider Issue 2. I now consider Issue 1 solely in relation to the true construction of clauses 68(1) and (2).
64. By agreement Mr Christopher Thomas QC presented SPCL's case first in relation to all issues. He submitted that the parties had agreed on a method for the resolution of their disputes by the Construction Manager and unless and until that means had been exhausted or the contractual machinery had broken down the court should decline jurisdiction. It was only if and when the dispute was settled by the Construction Manager would there need to be resort to the courts. Mr Christopher Thomas QC relied in particular on Babbage v Coulborn (1892) 9 QBD 235. In that case a lease had provided that the defendant, the tenant, was
44. There are two ways in which
the respondents seek to uphold the grant of a stay. First, on the ground
that the dispute is between parties ‘to an arbitration agreement to which
this section applies’, and that the dispute between them is ‘in respect
of any matter agreed to be referred’, within the meaning of s 1 of the
1975 Act, so that the court is obliged to stay the action. Secondly, because
this is an appropriate case in which to exercise the inherent power of
the court to stay proceedings brought before it in breach of an agreement
to decide disputes in some other way. Whilst proposing both solutions Mr
Pollock QC for the respondents showed little warmth for the second; no
doubt because it offered his clients a remedy which was discretionary,
in contrast to the mandatory stay under s 1. Nevertheless, I am satisfied
that this is the correct route, and that the court not only possesses a
discretion to grant a stay in such cases such as the present, but also
that this is a remedy which ought to be exercised in the present case.
45. First, as to the existence
of the power to stay proceedings in a case which comes close to s 1 of
the 1975 Act, and yet falls short either because of some special feature
of the dispute-resolution clause, or because for some reason an agreement
to arbitrate cannot immediately, or effectively, be applied to the dispute
in question. It is true that no reported case to this effect was cited
in argument, and in the only one which has subsequently come to light,
namely Etri Fans Ltd v NMB (UK) Ltd [1987] 1 WLR 1110, the court
whilst assuming the existence of the power did not in fact make an order.
I am satisfied however that the undoubted power of the court to stay proceedings
under the general jurisdiction, where an action is brought in breach of
agreement to submit disputes to the adjudication of a foreign court, provides
a decisive analogy. Indeed until 1944 it was believed that the power to
stay in such a case derived from the arbitration statutes. This notion
was repudiated in Racecourse Betting Control Board v Secretary of State
for Air [1944] Ch 114, but the analogy was nevertheless maintained.
Thus, per MacKinnon LJ ([1944] Ch 114 at 126):
70. Mr Thomas also referred to and relied on in the course of his argument on a number of issues two cases which should be mentioned at this point. First, in Norwich Union Life Insurance Society v. P&O Property Holdings Ltd [1993] 1 EGLR 164 the plaintiff had sought a declaration from the court as to the meaning of certain terms in an agreement under which such disputes were to be referred to a "nominated arbiter". Sir Donald Nicholls V.-C. said at page 165:
...
(then at page 167) "Miss Williamson also submitted there was a distinction to be drawn between a case where the arbitrator or expert has jurisdiction to decide a matter and a case where the arbitrator or expert has been given exclusive jurisdiction to decide a matter. Only in the latter case will the court decline to intervene in advance of a determination. The difficulty I have with this submission is that in the normal way, when agreeing to refer a matter to a third party for his decision, parties must intend that he and he alone should decide the matter. It is, I suppose, theoretically possible to have a case where the parties intend that the expert's jurisdiction shall cover certain matters, but so that this should not exclude the court's jurisdiction to decide some of those matters as well. That would be a very strange and unusual arrangement. Clear language would be required before a court could safely conclude that the parties intended the expert's jurisdiction to be of this non-exclusive character. That is not this case."
72. Secondly, in Drake & Scull Engineering Ltd v McLaughlin & Harvey plc (1992) 60 BLR 102 His Honour Judge Bowsher QC held that the court would grant a mandatory injunction to secure compliance with the order of an adjudicator made under the standard form DOM/1 and that it was not necessary to wait for an award of an arbitrator. Judge Bowsher QC at page 111:
(2) The court has no jurisdiction until a condition precedent to the right of action has been satisfied; or
(3) A party proceeds in breach of an arbitration agreement or as part of the court's extended jurisdiction.
46. Assume, however, that the
parties have in addition agreed certain of the principles upon which the
accountants should value the shares. For example, that the goodwill of
the company's business shall be valued at three times the net profits over
the past three years. If it can be shown that the accountants have valued
the goodwill on a different basis (as to which there may be evidential
difficulties which are mentioned by Dillon LJ in Jones v. Sherwood Computer
Services plc at p.284) the court will set aside the valuation. It is
not a valuation to which the parties have agreed.
47. On the other hand, even
in cases in which the parties have agreed principles of valuation, their
application may involve questions of judgment which they have left to the
decision of the accountants. In the last example, the question of what
counts as "net profits" may be something on which different accountants
could hold different views. Here again, as a matter of substantive law,
the court will not interfere. As a matter of contract, the parties have
agreed that "net profits" are to be whatever the accountants honestly consider
them to be.
48. So in questions in which
the parties have entrusted the power of decision to a valuer or other decision-maker,
the courts will not interfere either before or after the decision. This
is because the court's view about the right answer to the question are
irrelevant. On the other hand, the court will intervene if the decision-maker
has gone outside the limits of his decision-making authority.
49. One must be careful about
what is meant by "the decision-making authority". By "decision-making authority"
I mean the power to make the wrong decision, in the sense of a decision
different from that which the court would have made. Where the decision-maker
is asked to decide in accordance with certain principles, he must obviously
inform himself of those principles and this may mean having, in a trivial
sense, to "decide" what they mean. It does not follow that the question
of what the principles mean is a matter within his decision-making authority
in the sense that the parties have agreed to be bound by his views. Even
if the language used by the parties is ambiguous, it must (unless void
for uncertainty) have a meaning. The parties have agreed to a decision
in accordance with this meaning and no other. Accordingly, if the decision-maker
has acted upon what in the court's view was the wrong meaning, he has gone
outside his decision-making authority. Ambiguity in this sense is different
from conceptual imprecision which leaves to the judgment of the decision-maker
the question of whether given facts fall within the specified criterion.
The distinction is clearly made by Lord Mustill in Regina v. Monopolies
and Mergers Commission, ex parte South Yorkshire Transport Ltd [1993]
1 WLR 23 at page 32.
50. Likewise until 1979 an
arbitrator was entrusted with decision-making authority (in the sense I
have described) on questions of fact but not on questions of law. Of course
he often had to decide questions of law for the purpose of his award, but
he had no power to decide otherwise than in accordance with what the law
actually was and therefore the award could be set aside by the courts for
error of law. Since the Arbitration Act 1979, of course, the arbitrator
has true decision-making authority on questions of law as well, subject
to a limited right of appeal.
51. These are the principles
upon which a court will decline as a matter of substantive law from intervening
in a matter which the parties have agreed to submit to the decision of
a third party. It does not follow, however, that because the court will
intervene to correct a decision-maker who has gone outside his authority,
it will declare in advance what the limits of that authority are. The reason
for this reluctance is not one of substantive law but procedural convenience.
It is because in advance of the decision, the true meaning of the principles
upon which he has to decide is usually a hypothetical question. It is hypothetical
because it will only become a live issue if one of the parties thinks that
the decision-maker has got it wrong. It is always possible that he may
get it right and therefore wasteful and premature to come to the court
until he has made his decision. The practice of the courts is not to decide
hypothetical questions: see Re Barnato [1949] Ch. 258."
.....
52. The principles which I
have tried to describe are illustrated by the decision of the Vice-Chancellor
and Court of Appeal in Norwich Union Life Insurance Society v. P &
O Property Holdings Ltd [1993] 1 EGLR 164. The plaintiff had entered
into an agreement to fund a development by the defendants. Certain obligations
were triggered by the arrival of what the funding agreement called "the
completion date." This was defined as the date "established pursuant to
clause 6 as being the date on which the development has been completed
in accordance with the design documents." The procedure set out in clause
6 was the prima face the completion date was the date of practical completion
certified by the developers’ architect under the construction agreement.
But the plaintiff’s architect could make representations as to why it should
be a later date and if he and the developers’ architect were unable to
agree, the matter was to be referred for determination to "the nominated
arbiter", an agreed independent person. The plaintiff issued an originating
summons asking the court to determine, first, what standard of completion
was meant by the words "the development has been completed" and secondly,
exactly which drawings came within the term "design documents." It moved
for an interlocutory injunction to restrain the nominated arbiter from
making a determination until these matters had been decided.
53. The Vice-Chancellor dismissed
the motion on the grounds that on the true construction of the agreement,
the question of what amounted to "completion" and which were the "design
documents" were within the decision-making authority of the nominated arbiter.
The court’s intervention, whether before or after the decision, was therefore
excluded by what I have called the rule of substantive law. This court
affirmed the Vice-Chancellor’s decision for the same reasons.
I contrast Norwich Union with the present case, in which Mercury has agreed to a determination in which "the principles to be applied by the Director shall be those set out in [Condition 13]." It has not entrusted to the Director the decision-making authority as to what those principles are, except in the trivial sense I have mentioned, namely that the Director will have to form a view about what they mean in order to make a determination. So Mr Charles concedes that if the Director misconstrues those principles, the court can set aside his award. There is a dispute as to whether all the matters on which the originating summons seeks a declaration raise questions of construction. Mr Charles says that some involve questions of judgment within the remit of the director and therefore excluded from judicial intervention by the rule of substantive law. But this is an application for summary striking out of the originating summons. Mr Charles concedes that one issue at lest (marginal costs against average costs) raises an arguable point of pure construction and it seems to me impossible to say at this stage that the other declarations plainly and obviously involve matters within the decision-making authority of the Director.
54. In my judgment therefore
we are concerned solely with the principle of procedural convenience. What
are the factors relevant to whether or not it is just and convenient to
entertain the application for declarations at this stage? First, is the
question hypothetical in the sense that it will arise only if the Director
disagrees with Mercury’s view on construction? Unusually in this case we
know exactly what, in the absence of a Damascene conversion, the Director
will decide. He has not only expressed his view in the 1993 determination
but adhered to that view in affidavits filed in opposition to the originating
summons. Nor does it stop there. Mercury has the right not only to the
determination of the Director in accordance with the principles of Condition
13 and not otherwise but also the right that before such determination,
BT shall negotiate in good faith. How in practice can such a negotiation
be conducted unless the ground rules are established? To say that one must
await the Director’s determination (which is only made after negotiation
has failed) is in practice to destroy any value in the right to require
BT to negotiate. Mr Charles says that the parties are not bound to make
an agreement in accordance with the principles of Condition 13 and therefore
do not need to know what they mean in order to be able to negotiate. This
seems to me completely unrealistic. Any negotiations must be against the
background of what the Director is likely to decide if they fail.
55. Secondly, is this a case
in which a party is seeking to escape from the consequences of having agreed
to a particular form of decision-making? As it is conceded that the rule
of substantive law does not apply, there is no question, as in Norwich
Union, of asking the court to decide a question which the parties have
agreed to submit to the decision-maker. The parties have not agreed to
submit the construction of Condition 13 to the decision of the Director.
Nor is there any question of trying to avoid the procedural consequences
of having agreed to a particular form of decision-making. Mercury does
not want to have the questions of construction decided in advance because
the decision-making process may create evidential obstacles to having them
decided afterwards. It wants them decided in advance simply because it
is commercially more sensible than going through a fruitless negotiation
followed by a predictable determination before being able to demonstrate,
if it is right, that the Director has made a determination according to
principles other than those to which it agreed. In my judgment, to strike
out the originating summons on the ground that the parties agreed to a
determination by the Director is, in the application of a principle of
fairness and commercial convenience, to grasp at the shadow of pacta sunt
servanda while allowing the substance to escape.
56. To my mind, therefore,
the question is simply whether there are factors which in the present case
should lead the Court to conclude that, notwithstanding the bargain the
parties made, it would be just to allow the proceeding to continue."
77. Secondly, Mr Dennys submitted that clause 68 distinguished between two classes of dispute: those which arose before and those which arose after completion. If the Construction Manager gave his decision in relation to the former then it was binding on the parties until completion of the works. However, the decision of the Construction Manager given after completion was not final and binding on either the employer or the contractor. Clause 68(3) did not in any way fetter the powers of the court to adjudicate on all matters in dispute, as if no such decision had been given. Accordingly, clause 68 was not an arbitration agreement nor was it strictly a "dispute resolution procedure". The recourse to the courts was not conditional upon either party making a specific challenge to a decision nor did the decision have to contain any particular level of particularity. The absence of such provisions indicated that the court would have jurisdiction.
78. Mr Dennys submitted that clause 68 was not a Scott v Avery clause because it did not affect the BRL’s right of action or SPCL’s liability in respect of matters arising under the contract. There was nothing in clause 68 which stated that the contractor’s right of action was dependent upon a decision of the Construction Manager. Furthermore, the courts would not imply that the terms of the contract should not be enforced until an arbitration should have been conducted and an award made except in rare cases (see for example, Hardwick Game Farm v Suffolk Agricultural and Poultry Producers Association [1964] 2 Lloyd's Rep 227 at page 273 and Mustill & Boyd at page 161). Although contract conditions might have been modelled on the ICE conditions, clause 68 did not follow the standard two-stage process leading to an engineer’s decision which is set out in clause 66 of the ICE conditions. Mr Dennys emphasised, with reason, that "clause 68 is not clause 66". It was therefore to be distinguished from Enco Civil Engineering v Zeus International Development and indeed Tarmac Construction Limited v Esso Petroleum Limited (1996) 83 BLR 65 (where clause 66 had been modified to provide for an engineer’s decision within three months which became final unless challenged with litigation within a further three months).
79. Whatever might be the true interpretation of the contract it was now too late for SPCL to dispute the jurisdiction of the court. If SPCL had wished to do so then it ought to have followed the procedure set out in RSC Order 12, rule 8 which provides:-
82. As for the suggestion that I had determined the point on the Scott v Avery argument, Mr Dennys referred to this part of my judgment at 82 BLR 58B:-
84. Mr Dennys also argued under this head as to whether the final certificate was in the circumstances a clause 68 decision but for reasons already given I shall deal with this later.
85. Mr Thomas in reply submitted, amongst other things, that BRL's case on Order 12, rule 8 was wrong: no authority has been cited in support of the argument that Order 12, rule 8 was the only way of taking the point. If BRL were right, the same argument would apply equally to a Section 4 application. Order 12, rule 8 was concerned with the physical jurisdiction of the Court over the parties (as in a case where a defendant beyond the seas is sued) not with holding the parties to their bargain. In any event, SPCL took the Clause 68 point from their initial defence onwards, being in agreement with BRL at that stage that the reference to Court was to be "thereafter". They then applied to strike out on the basis that the proceedings were brought in breach of Clause 68, and Judge Bowsher held that the point should properly be decided as a preliminary issue.
Decision on Issue 1
86. If Issue 1 is to be given its literal meaning then in my judgment then it is right that a defendant in the position of SPCL ought to have acted under Order 12, rule 8. There is apparently no authority on the meaning of Order 12, rule 8 but in my judgment it is quite plain. Although Order 12, rule 8 is primarily concerned with irregularities of a kind mentioned in Order 12, rule 7 it applies to an objection to jurisdiction "on any other ground". Those words are wide and clear. Furthermore, amongst the matters expressly provided for in Order 12, rule 8(1) is that the defendant may make an application to the court for:-
88. In my earlier judgment of February 1997 I set out my reasons why there can be no doubt that clause 68 is intended to require the party first to seek the decision of the Construction Manager. The only question is whether that step must be taken before the court has jurisdiction over the dispute or difference, as provided by clause 68(2). There is no express connexion between the procedures set out in clause 68(1) and the jurisdiction provided in clause 68(2). Clauses of this kind are common in the construction industry. (It is accepted that the court would have jurisdiction in the event of a failure to decide.)
89. There would be little point in requiring disputes or differences to be referred to the Construction Manager under clause 68(1) if at any time an action could be started in the courts in respect of the same dispute or difference. It is perfectly true that clause 68(2) does not expressly refer to disputes or differences which survive the Construction Manager’s decision, nevertheless, I consider that, reading clause 68 as a whole, the clear intention to be inferred from sub-clauses (1) and (2) is that there shall first be a reference to and settlement by the Construction Manager since a settlement by the Construction Manager of that dispute or difference might either result in both parties accepting the decision whereby the dispute or difference would come to an end or it might enable the parties then to reach an agreement to resolve the dispute or difference, with the same effect.
90. Is this result altered if the decision is given after completion? It is certainly clear that a decision given before completion is final and binding. The necessary inference must be that the courts should not intervene over the dispute or difference before completion of the works. For reasons which I give below that is not to say that an action could not be started before completion but the court would not normally intervene so long as the decision remained final and binding. However I consider that Mr Dennys is right in his submission that the clause 68(1) only confers "finality" (which must be considered to be virtually tautologous with "binding") during the currency of the works leaving the parties after completion free to commence an action in respect of the cause or causes of action the subject of the dispute. The concluding words of clause 68(3) are not determinative: they simply declare that the court having jurisdiction is to reach a decision on the dispute or difference without regard to any certificate, opinion, decision, requirement or notice. In other words the function of the court is not limited (as it is sometimes) in reviewing a decision of an independent third party but is required to look at the dispute ab initio.
91. In my judgment the approach of Hoffmann LJ in Mercury Telecommunications is highly instructive and illuminating and is to be followed. John Barker Construction Ltd v London Portman Hotel Ltd (1996) 83 BLR 35 is consistent with it. Mr Recorder Toulson QC said (at page 45E):
57. If a decision was invalid,
it would then be necessary to decide whether the appropriate course would
be merely to declare the decision invalid, or whether the contractual machinery
had broken down to the point that justice required the court to determine
the substantive question what was a fair and reasonable extension."
93. It therefore follows that clause 68(2) is in part merely declaratory namely, the tribunal competent to resolve disputes or differences which are not or will never be final and binding will be the English court. Further, the court will always have jurisdiction but, following Enco and Channel Tunnel it would normally either stay any proceedings (but not thereby recognising that it has not got jurisdiction or declining jurisdiction) or otherwise suspend them in an appropriate case (where they had been commenced prior to completion) until the decision of the Construction Manager was known. Mr Dennys is of course correct in his submission that the clause is strictly not a Scott v Avery clause, particularly after completion. Any proceedings that may be necessary will be brought in respect of the original cause of action. The limitation period will begin to run from the date the cause of action arises and not from the date when the dispute or difference is not settled by the decision of the Construction Manager. The wording of the clause is not the same as that in Scott v Avery and although its effect in practice may well be equivalent to that of a Scott v Avery clause it does not mean that the court does not have jurisdiction until a decision has been given by the Construction Manager.
94. The answer to that part of Issue 1 with which I am currently dealing is therefore in the affirmative.
Issue 2: Were any new and/or amended claims introduced into the proceedings by amendment of the Statement of Claim after 24.10.95 which had not been previously referred to the Construction Manager under Clause 68(1)?
95. Mr Thomas submitted that the only claims that Schal had been required to consider were those presented in May 1995; those sent after the writ was issued were a wholesale substitution so that new claims were introduced after 24 October 1995. He maintained that it was not for SPCL to undertake a minute comparison of the present pleadings with BRL's previous claims, and that it was sufficient that Schal have had submitted to them only the claim as it existed in October 1995 (and that under Clause 60, not Clause 68). However Mr Thomas did identify the allegations of misrepresentation and the claim for rectification as apparently central to BRL's case, as well as the claims for breach of contract based on the implied terms, and argued that they had not been submitted to Schal as disputes. The whole allegation of "what is the contract" had also changed subsequent to the May/October 1995 submissions. The "new" claims all fall within the ambit of Schal's jurisdiction under clause 68(1): see Ashville Investments Ltd v. Elmer Contractors Ltd [1989] 1 QB 488.
96. Mr Dennys submitted that SPCL had not identified those claims which are said to be new claims introduced after the date of the proceedings. However it would be a pointless exercise to do so since deviation in points of detail or level of "verification" did not mean that a new claim has been introduced. A new claim means the same as a new cause of action. What constitutes a new cause of action in any individual case can be difficult even though in Letang v. Cooper [1965] 1 QB 232 Diplock L.J. defined a cause of action as "a factual situation the existence of which entitled one person to obtain from the Court a remedy against another person".
97. Mr Dennys argued that the suggestion that misrepresentation and rectification are "new claims" in the context of the reference for a Clause 68 decision is a misconception. For example the spading and transitioning claims have remained the same since they were first put forward as claims for a variation (which they still are). The claims were rejected. The factual situation was fully outlined at least by May 1995. The only change has been in the introduction of a new legal basis for those claims in the alternative. In other words the same set of facts are said to give rise to a claim for misrepresentation as an alternative to a claim in contract or for breach of contract. The claim for misrepresentation represents an alternative legal basis for maintaining claims which have always been part of BRL's submission, and, indeed, pre-dated the April 1992 submission. The claim for rectification relates mainly to the date for completion of the 3160 works. It was discussed at the meetings in May 1996 (G2/401). Schal clearly rejected any basis for such claim by re-asserting, in their final account and extension of time statement, the original dates for completion of Contract 3160 (G8). The Substituted Statement of Claim was prepared to overcome the objections to the original Statement of Claim, see the earlier judgment at pages 50 H-I and 51 E-G. It is not a new claim and it does not represent a new claim in any sense.
Decision on Issue 2
98. A decision on this issue is not perhaps strictly necessary unless, contrary to my other views and BRL's submissions, the court does not now have jurisdiction over all BRL's claims whenever they arose, eg now that completion has taken place. The issue presupposes that the court only has jurisdiction over disputes which have or could have been referred to the Construction Manager and decided by it.
99. The words "any dispute or difference" in clause 68(2) are clearly to be given a wide meaning. They will cover all causes of action or claims for ancillary relief or remedy which fall within the opening part of clause 68(1). In my judgment it would be contrary to the natural meaning of those words and to commonsense to exclude from the jurisdiction of the court a dispute merely because it was not in form the same as that originally submitted. The test to be applied is a pragmatic one: what is the essential dispute? It should not matter if the legal basis of the dispute changes provided that it remains essentially the same dispute. It is not to be supposed that the party which identifies the dispute and refers it to the Construction Manager will have taken legal advice and be certain of its ground in law before doing so. Many disputes on analysis turn out to have been based on a misunderstanding of the party's legal rights the correction of which results in a decision in that party's favour. Suppose a contractor refers as a dispute a claim to recover expenditure on the basis that an instruction for a variation was given late and in breach of contract. It is rejected by the Construction Manager. In the ensuing proceedings the claim is presented in the alternative as one for the recovery of the expenditure on a proper valuation of the variation. The breach is not made out but the contractor's alternative approach is correct. Is the contractor now to have its claim dismissed by the court on the grounds that there is no jurisdiction to give judgment for the true value of the variation simply because that approach had not been mentioned in the original reference, especially bearing in mind the Construction Manager's obligations under clause 52? Is it necessary to go back to the Construction Manager for another decision? What is to happen to the action in the meantime? A sensible interpretation of a provision such as clause 68 does not require repeated references to the Construction Manager and repeated recourse to the courts. There may of course be cases where the essential dispute is so tightly defined and is thus not capable of later expansion, eg a dispute as to extension of time alone which is not presented as a necessary precursor to a claim for prolongation costs. The latter might well not be justiciable although in every case it will be "a matter of fact and degree" (as well as of the interpretation of the contract where its terms are not to the same effect as clause 68).
100. It is in my judgment clear that, following Schal's letter of 5 June 1992 (G1/028) in which there was, amongst other things, an outright rejection of many of BRL's claims, the essential disputes between BRL and Schal (and indeed SPCL) were:
2. what were BRL entitled to be paid.
102. In my view the claims for rectification and misrepresentation are "in connection with" the contract (see Ashville v Elmer) and therefore would have fallen with the ambit of the Construction Manager's jurisdiction under the contract. However that perhaps serves to demonstrate the weakness in SPCL's case for it cannot be right that if proceedings were properly launched after a decision by the Construction Manager it would nonetheless be necessary to return for a further decision should it be necessary to reformulate the dispute. I note that the CMA does not apparently permit the Construction Manager to decide a claim for rectification or misrepresentation under clause 68.
103.
The answer to issue 2 is therefore: No.
Issue
3: In respect of any claim identified at 2 above, does the Court in
the circumstances have jurisdiction to entertain that claim?
104. Mr Thomas accepted that if the answer to issue 2 were in the negative then Issue 3 did not arise. However since I have not yet considered all "the circumstances" the answer to this issue should technically be deferred although subject to the limitations that I have imposed on my investigation of Issues 1 and 2 it follows for those reasons already given that the answer is : Yes.
Issue 4: If the answer to questions 1 and/or 3 is affirmative, have the present proceedings been brought (in whole or in part) in breach of Clause 68?
105. If this issue stood alone it might be taken to mask one of the principal areas of argument, namely that BRL had not or was not entitled to invoke clause 68 as it had not yet satisfied the requirements of clause 60 and that the final certificate was a decision under clause 68. It is therefore convenient at this stage to deal with "the circumstances" which I left over in my consideration of issues 1-3 and first to set out the relevant clauses of the contracts (which were similar to but not precisely the same as those in the ICE conditions):
(2) No such variation shall
be made by the Contractor without an order by the Construction Manager.
All such orders shall be given in writing provided that if for any reason
the Construction Manager shall find it necessary to give any such order
orally in the first instance the Contractor shall comply with such oral
order. Such oral order shall be confirmed in writing by the Construction
Manager as soon as is possible in the circumstances. If the Contractor
shall confirm in writing to the Construction Manager any oral order by
the Construction Manager and such confirmation shall not be contradicted
in writing by the Construction Manager forthwith it shall be deemed to
be an order in writing by the Construction Manager. No variation ordered
or deemed to be ordered in writing in accordance with sub-clauses (1) and
(2) of this Clause shall in any way vitiate or invalidate the Contract
but the value (if any) of all such variations shall be taken into account
in ascertaining the amount of the Contract Price.
(ii) his assessment of the time within which he would execute the work;
(iii) the length of any
extension of time to which he might be entitled by virtue of Clause 44;
(b) The Contractor and the Construction Manager shall thereupon take reasonable steps to agree the value and/or the time and/or the extension of time and/or the payment schedule. Any agreement so reached on any of these matters shall be binding on the Contractor and if the matters referred to in items (i) to (iv) of sub-clause (a) are agreed he shall then execute the variation. The Contractor will incorporate within his monthly Statement Instalments (if any) agreed hereunder.
(c) If agreement cannot be reached within a reasonable time as determined by the Construction Manager on all or any of the matters set out in sub-clause (a) above the Construction Manager may order the Contractor to proceed with the variation and the provisions of Clause 52 will apply thereto or he may order the Contractor not to proceed to execute the variation in which case the Contractor will have no claim whatsoever in respect of any matters agreed or otherwise.
(d) The Construction Manager may instruct the Contractor before or after receipt of any notice under sub-clause (a) of this Clause to execute the variation or proceed with the order without agreement, in which case the provisions of Clause 52 will apply thereto.
(2) Save where the provisions of Clause 51 (2A) apply if the nature or amount of any variation relative to the nature or amount of the whole of the contract work or to any part thereof shall be such that in the opinion of the Construction Manager or the Contractor the conditions under which any other item of work are by reason of such variation substantially varied either the Construction Manager shall give to the Contractor or the Contractor shall give to the Construction Manager notice before the varied work is commenced or as soon thereafter as is reasonable in all the circumstances that such other items of work should also be valued under sub-clause (1) of this Clause and the Construction Manager shall fix the value of such other items of work as in the circumstances he shall think reasonable and proper.
(3) The Construction Manager may if in his opinion it is necessary or desirable order in writing such that any additional or substituted work shall be executed on a daywork basis. The Contractor shall then be paid subject to Clause 51(2A) for such work at the rates and prices and under the conditions contained in the "Schedule of Dayworks carried out incidental to Contract Work" issued by the Federation of Civil Engineering Contractors current at the date of the execution of the Daywork.
58. The Contractor shall furnish
to the Construction Manager such receipts or other vouchers as may be necessary
to prove the amounts paid and before ordering materials shall submit to
the Construction Manager quotations for the same for his approval.
59. In respect of all work
executed on a daywork basis the Contractor shall during the continuance
of such work deliver each day to the Construction Manager an exact list
in duplicate of the names, occupations and time of all workmen employed
on such work and a statement also in duplicate showing the description
and quantity of all materials and plant used thereon or therefor (other
than plant which is included in the percentage addition in accordance with
the Schedule under which payment for daywork is made). One copy of each
list and statement will if correct or when agreed between the Construction
Manager and the Contractor be signed by the Construction Manager and returned
to the Contractor. At the end of each month the Contractor shall deliver
to the Construction Manager a priced statement of the labour material and
plant (except as aforesaid) used and the Contractor shall not be entitled
to any payment unless such lists and statements have been fully and punctually
rendered. Provided always that if the Construction Manager shall consider
that for any reason the sending of such list or statement by the Contractor
in accordance with the foregoing was impracticable he shall nevertheless
be entitled to authorise payment for such work either as daywork (on being
satisfied as to the time employed and plant and materials used on such
work) or at such value therefor as he shall consider fair and reasonable.
(b) If the Contractor intends to claim any additional payment pursuant to any Clause he shall give notice in writing of his intention to the Construction Manager as soon as reasonably possible after the happening of the events giving rise to the claim. Upon the happening of such events the Contractor shall keep such contemporary records as may reasonably be necessary to support any claim he may subsequently wish to make.
(c) Without necessarily admitting the Employer's liability the Construction Manager may upon receipt of a notice under this Clause instruct the Contractor to keep such contemporary records or further contemporary records as the case may be as are reasonable and may be material to the claim of which notice has been given and the Contractor shall keep such records until otherwise instructed by the Construction Manager. The Contractor shall permit the Construction Manager or his authorised representatives to inspect all records kept pursuant to this Clause and shall supply him with copies thereof as and when the Construction Manager shall so instruct.
(d) After the giving of a notice to the Construction Manager under this Clause the Contractor shall as soon as is reasonable in all the circumstances send to the Construction Manager a first interim account giving full and detailed particulars of the amount claimed to that date and of the grounds upon which the claim is based. Thereafter at such intervals as the Construction Manager may reasonably require the Contractor shall send to the Construction Manager further up to date accounts giving the accumulated total of the claim and any further grounds upon which it is based.
(e) If the Contractor fails to comply with any of the provisions of this Clause in respect of any claim which he shall seek to make then the Contractor shall be entitled to payment in respect thereof only to the extent that the Construction Manager has not been prevented from or substantially prejudiced by such failure in investigating the said claim.
(f) The Contractor shall be entitled to have included in any interim payment certified pursuant to Clause 60 such amount in respect of any claim as the Construction Manager may consider due to the Contractor provided that the Contractor shall have supplied sufficient particulars to enable the Construction Manager to determine the amount due. If such particulars are insufficient to substantiate the whole or any part of the claim the Contractor shall be entitled to payment in respect of such part of the claim as the particulars may substantiate to the satisfaction of the Construction Manager.
(2) Any error in description in the Schedules or omission therefrom shall not vitiate the Contract nor release the Contractor from the execution of the whole or any part of the Works according to the Drawings and Specifications or from any of his obligations or liabilities under the Contract.
60. (1) The Contractor
shall submit to the Construction Manager on or before the 19th day of each
calendar month a statement (in such form if any as may be prescribed in
the Specification) showing:-
(b) the estimated contract value of the Permanent Works properly executed up to the nineteenth day of the calendar month in which it is submitted; and
(c) a list of any goods or materials delivered to the Site for but not yet incorporated in the Permanent Works and their value up to the nineteenth day of the calendar month in which it is submitted; and
(d) a list of any goods or materials listed in the Appendix hereto which have not yet been delivered to the Site but of which the property has vested in the Employer pursuant to Clause 54 and their value and
(e) instalments (if any) agreed under Clause 51(2A) and any other amounts agreed by the Construction Manager and the Contractor to the extent that the same relate to costs incurred by the Contractor up to the nineteenth day of the calendar month in which it is submitted or, where not agreed with the Construction Manager the estimated amounts to which the Contractor considers himself entitled in connection with all other matters for which provision is made under the Contract including any Temporary Works or Constructional Plant for which separate amounts are included in the Schedules hereto;
(2) On the 10th day of
the month following the submission of the Contractor's statement the Construction
Manager shall issue an Interim Certificate (signed in accordance with Clause
2(3)) to the Employer stating the amount properly due to the Contractor
from the Employer and shall send notification thereof to the Contractor
and the Employer shall pay to the Contractor (after deducting any previous
payments on account) within 21 days from the issue of such Certificate:-
(b) such amounts (if any) as the Construction Manager may consider proper (but in no case exceeding the percentage of the value stated in the Appendix hereto) in respect of (c) and (d) of sub-clause (1) of this Clause which amounts shall not be subject to a retention under sub-clause (4) of this Clause.
(3) Not later than 3 months
after the date of the Maintenance Certificate the Contractor shall submit
to the Construction Manager a statement of final account and supporting
documentation showing in detail the value in accordance with the Contract
of the work done in accordance with the Contract together with where appropriate
or applicable all further sums which the Contractor considers to be due
to him under the Contract up to the date of the Maintenance Certificate.
Within 3 months after receipt of this final account and of all information
reasonably required for its verification the Construction Manager shall
issue the final certificate (signed in accordance with Clause 2(3)) stating
the amount which in his opinion is finally due under the Contract up to
the date of the Maintenance Certificate and after giving credit to the
Employer for all amounts previously paid by the Employer and for all sums
to which the Employer is entitled under the Contract up to the date of
the Maintenance Certificate the balance if any due from the Employer to
the Contractor or from the Contractor to the Employer as the case may be.
Such balance shall subject to any deductions which the Employer is entitled
to make be paid to or by the Contractor as the case may require within
21 days of the date of the certificate.
....
(6) [The text is set out later]
(7) There shall be omitted from any certificate the value of any work done goods or materials supplied or services rendered with which the Construction Manager may for the time being be dissatisfied and for that purpose or for any other reason which to him may seem proper he may by any certificate delete, correct or modify any sum previously certified by him.
(b) if in the final certificate he shall delete or reduce any sum previously certified in respect of work done goods or materials supplied or services rendered by a Nominated Sub-contractor which sum shall have been already paid by the Contractor to the Nominated Subcontractor the Employer shall reimburse to the Contractor the amount of any sum overpaid by the Contractor to the Sub-contractor in accordance with the certificates issued under sub-clause (2) of this Clause which the Contractor despite compliance with Clause 59B(6) shall be unable to recover from the Nominated Sub-contractor.
(9) Every certificate issued pursuant to this Clause shall be sent to the Employer and at the same time a copy thereof shall be sent to the Contractor."
110. SPCL's case was simple: BRL's claim was being litigated in defiance of Clause 68(1). In part Mr Thomas referred to NHRA v. Derek Crouch Construction [1984] 1 QB 644 at page 674:
112. Mr Dennys submitted that these issues required answers to the following questions:
(2) Has a reasonable time elapsed for the adjudication of that dispute?
(3) Has the dispute been adjudicated?
(4) Has SPCL mounted an effectual challenge to any failure to comply with the process?
Decision on Issues 1 (in part), and 4
114. It follows from my earlier conclusions that the answers are in favour of BRL. First, as I have already found, there were disputes from 1992 at the latest as to the matters essential to BRL's claims under each contract; to how much more time were BRL entitled (if any); and what was the amount payable. Schal for its own reasons (or those of SPCL) decided not to recognise the reality of the situations and called for more information instead of acting under the contracts. It is rare that more detail cannot be sought on contracts as complex as these but to declare that what has been received is not good enough does not mean that the time for issuing a final certificate has not arrived. I have however examined the documents submitted to Schal by BRL and I am satisfied that they provided Schal with "a statement of final account and supporting documentation" and "all information reasonably required for its verification". Absolute verification is not required under clause 60(3); if that had been required then there would have been provisions for audit. The words "reasonably required" show that Schal was expected to use its experience in assessing what had been submitted. In my judgment Mr Hazelton failed to demonstrate satisfactorily or at all what was missing that would have prevented Schal from issuing a final certificate in 1992, 1993 or 1995. What his evidence did however show was that he failed to take up BRL's offers and that he failed to make his own inquiries of those better placed than himself (including other consultants). Perhaps this may have been due to his lack of experience in administering a contract of this nature for he had never before been required to act under such a contract in the role of Construction Manager. Certainly during the course of his evidence before me he adopted an argumentative and, at times, evasive attitude which is not normally to be found in a person discharging contractual responsibilities. I am also satisfied that in 1996 when Schal was ostensibly trying to arrive at an independent decision Mr Hazelton was giving instructions to land surveyors to try to destroy parts of BRL's case (see G9/120-125). If he was typical of those employed by Schal then Schal do not appear to have discharged its undertaking in clause 2.4 of the CMA:
Issue 10 - Paragraph 17(11) of the ASSOC
116. It is convenient to digress to deal with the implied term pleaded in paragraph 17(11) of the ASSOC:
118. In support of its proposed term BRL relied on the following factors:
(2) A view expressed by SPCL's solicitor, Mr O'Hanlon, against a background of a detailed working knowledge of the contract and the matters in issue, that a reasonable period would be "something in the order of three months".
(3) Three months was the amount of time sought by SPCL for the adjournment of the summons for directions heard on 16 February l996. This time was sought on the grounds that, inter alia, it would allow Schal time to make a final ascertainment following receipt of the information contained in BRL's letters of 18 January l996.
(4) In the circumstances
of this case, three months between issue of final certificate and the giving
of a clause 68 decision would be more than generous since:
(b) during that time BRL had furnished Schal with detailed information and discussed the same with Schal during the course of meetings and subsequently;
(c) in such circumstances it would be artificial to suggest that Schal would require a further three months or more in which to issue a clause 68 decision.
120. In the circumstances of this case I cannot see that Schal required more than three months, allowing for the fact that contact with BRL had ceased and the need to recall Mr Hazelton and any others connected with the contract. In my judgment Schal ought to have given its decision within three months. (This is the same period as that used by Mr Thomas in his submissions under issue 6.)
121. Certainly I see no reason why the decision should not have been given within five months; Schal's letter of 9 October 1995 appears to confirm this (G1/213). In addition in my view Schal's assessments issued in June 1996 (G7) were not materially different from those made in December 1995 (G6) and these were ready in September 1995. Schal could therefore have given essentially the same decisions as they released the following year. In my judgment, since by October 1995 BRL had again written a letter before action to SPCL, it was incumbent on Schal to explain why more time was needed and to make it clear how much more time it reasonably required to give a decision. Schal's letter of 19 October 1995 requesting further details looked like, and in my view was, yet another stalling manoeuvre.
122. In summary therefore Issue 4 will be answered in the negative since (1) Schal had ample opportunity to determine an extension of time and a final valuation by mid-June 1992; (2) disputes then existed which could still have been resolved had Schal acted under the contract; (3) by 1995 BRL was entitled to refer the disputes for decision under clause 68; (4) Schal ought to have decided those disputes within three months; (5) Schal did not do so nor did SPCL intervene to require it to do so or challenge BRL's rights under clause 68, so that BRL was entitled to commence this action.
Issue 5: If the proceedings have been brought in breach of Clause 68 should the Court grant the defendant the relief sought so as to decline jurisdiction over the whole or any part of the claim and, if so, with what effect?
123.
I do not think that I shall do either party a disservice if I do not repeat
their submissions since they were essentially the same as those that I
have already rehearsed. Similarly the main answer to this issue is in the
negative for reasons which have already been given. The only relief to
which SPCL might be entitled is a stay of the proceedings or part of them
pending reference to the Construction Manager. If contrary to those reasons
the action was brought in breach of clause 68(1), eg no dispute existed
or insufficient time was given for Schal to make its decision then since
the court has jurisdiction the action would not be dismissed or stayed
since it would be futile to do so. Schal has now given as full a consideration
to the dispute as it is likely to and there is no reason to suppose that
any useful purpose would be served by acceding to SPCL's submission, except
of course further to delay the resolution of BRL's claim which has plainly
been SPCL's intention from the outset of these proceedings. I adopt the
reasoning of Hoffman LJ in Mercury and adapt what he there said.
We know exactly what, in the absence of a Damascene conversion, Schal will
decide. It has not only expressed his view in 1992 and subsequently but
has adhered to that view in 1996. In my judgment, to dismiss or to stay
these proceedings on the ground that the parties agreed to a decision by
Schal, is, in the application of a principle of fairness and commercial
convenience, to grasp at the shadow of pacta sunt servanda while allowing
the substance to escape.
Issue
6: Did the contractual machinery break down? If so, when and with what
effect?
124. Mr Thomas contended that although the concept of breakdown of contractual machinery appears in certain cases (Sudbrook v. Eggleton [1983] 1 AC 444 and John Barker v. Portman Hotels (1996) 83 BLR 31) there is very little authority as to what constitutes such breakdown. He submitted that the concept meant that the machinery should become irretrievably incapable of operation: eg in Croudace Limited v. London Borough of Lambeth (1986) 33 BLR 20 (although he said that if "the Architect" had there been appointed the apparent breakdown would have been averted).
125. Mr Thomas said that the relevant machinery began with clause 60(3). Its operation involved the following steps: (1) Not later than 3 months after the issue of the Maintenance Certificate, BRL were to submit to Schal:
127. Mr Thomas submitted that the machinery did not break down primarily because Schal had never received from BRL the information required for the purposes of issuing a certificate under clause 60(3). Alternatively if there had been a dispute in May 1995 Schal had not been allowed a reasonable time to reach a decision on it before the commencement of the proceedings. SPCL's case was that in April 1992 BRL had submitted an inadequate statement of final account for Contract 3010 (G1/19 and G3/1-75) and in 1993 it did the same for Contract 3160 (G1/165 and G3/76-110). Schal had called for further information which had not been provided or provided only in 1995 when BRL submitted further and different statements albeit purportedly under Clause 68 (G1/189-191 and 193) and followed them up in October with further material under 3010 and 3160 (G1/207-211). Schal could not have dealt with that material before the issue of the writ. Mr Thomas also relied on BRL's description of the May 1995 submissions in its original and subsequent statements of claim as final accounting machinery.
128. For BRL Mr Dennys submitted that contractual machinery for the issue of certificates may break down (1) because the time-table laid down by the contract is not observed; (2) because the certifier misconceived his function; (3) because the certifier shows that he is no longer capable of acting fairly and impartially. In support of (2) and (3) he referred to Hudson's Building & Engineering Contracts, 11th Edition, Chapter 6, Section 5 but prudently emphasising the concise and helpful summary at page 821 since the editor's exposition of the authorities illustrates that some have more to do with the perceived justice of the case than the application of principle. It seems to me that (1) is covered by the discussion in Hudson under the heading "Refusal of Certifier", where the editor refers to the judgment of Goddard LJ in Panamena Europea Navigacion v. Frederick Leyland & Co. Ltd. (1943) 76 Lloyd's Rep. 113 at page 127:
131. In addition to clauses 60(3) and 68 Mr Dennys drew attention to clauses 44 (extensions of time), and 51 (variations). Under clause 44 extensions of time should be granted at the latest within the period of review after the completion of the works as provided by clause 44(4) (and Schal did not purport to do so until 1996). This extension of time in itself will be a reconsideration of the extensions already given. Since the works were completed in 1989 and 1990 the time-table of clause 44 broke down.
132. Clause 51 provided its own machinery for the ascertainment of the valuation of variations. Either before the work is executed, or shortly thereafter, the valuation falls to be carried out on the principles provided by clause 52 in the absence of any agreement. Clause 52(1) made it clear that it is for the Construction Manager to identify a reasonable rate. Rather, as part of the clause 60(3) final accounting process, Schal looked to BRL, well after the completion of the works, to justify the valuation of variations which had already been included in the interim certificates. This ought not to have happened. Clause 52(4) provided for the contractor to challenge the Construction Manager's valuation. The Construction Manager ought then to instruct the contractor to keep such contemporary records etc. as may be necessary. Again, there was no evidence that Schal required such records to be kept. If those provisions are not complied with then by clause 52(4)(e) Schal must nevertheless certify payment in the absence of such records, but may, if prejudiced in that valuation, reduce the valuation to the extent that it could not properly ascertain the costs. The machinery follows the pattern of the scheme of standard forms and is designed to ensure that a proper valuation is made at the time the work is executed, and that any records that the Construction Manager requires, are kept. If the contractor were dissatisfied with the interim valuation then a dispute will arise at that stage and can be referred to the Construction Manager. Clause 51(2A) set out a procedure for establishing extensions of time for certain variations but this also was not followed, eg in relation to Trade Change 52, or under clause 60(1)(e).
133. Clause 60(3) did not therefore exist in a vacuum. Before the final account stage is reached, the variations claim ought either to have been: (1) The subject of agreement; or (2) The subject of a direction to keep records; (3) The subject of an assessment within a reasonable rate by Schal; and (4) Any dispute as to value should by then have become apparent, and if necessary resolved by Schal. What Schal purported to do in this case was to use its own failure to follow the appropriate procedure for valuation as an excuse for not producing the final certificate. If it had operated the contractual machinery properly then any differences should have settled or at least defined either before or at the time the final certificate is given so the amount certified would represent: "The amount which in his (Schal's) opinion is finally due under the contract." It therefore followed that except in relation to the matters extraneous to the valuation process, there ought to be no need to refer any dispute after the date of the final certificate, because the matters will have been dealt with either before or by the issue of the certificate. In relation to all these matters Schal are then functus officio.
134. Applying this approach to the facts BRL's claims for variations should have been largely assessed during the course of the project. The level of detail required to "verify" the final account was conditioned by the agreement and the lack of a requirement for records required to be kept contemporaneously. The reason why Schal required the level of detail that it did, and why its final account determination took so long, was because those considering the account, ie principally Mr Hazelton, had not been involved during the progress of the project and therefore had no or very limited knowledge of it; Schal had not followed the contract procedure and therefore required documents which, if they were necessary, ought to have been kept by Schal at the time; and Schal acted on erroneous advice given by McKennas by sending the letter of 20 December 1989 (G1/0.030). The errors were: (1) in requiring "evidence" of the events relied on in support of the claim for an extension of time and in requiring BRL "to fully demonstrate cause and effect" in respect of the extension of time claim and the claim for additional expense; (2) in suggesting that it was appropriate to reach agreement as to a fair basis of payment on the Clause 60 claims rather than certifying the appropriate value no agreement having previously been made; (3) in assuming that there is an obligation to keep records where these have not been asked for; (4) in purporting to reverse the onus in proof and in requiring the claim to be put forward in a way other than that in which it has been presented; Schal's obligation was to adjudicate the claims presented, not require them to be presented in another form (see John Barker v. London Portman Hotel (1996) 83 BLR 35 at page 51 A-C); (5) in assuming that Schal cannot make an assessment in 1989 without evidence; (6) in asserting that the lateness in completion was BRL's responsibility, before any proper assessment had even been attempted.
135. BRL's extension of time claim had not been considered at all, even though accepted as valid, between 1989 and 1995. Again, Schal's personnel who considered this claim were in some instances appointed after the proceedings were started. BRL's prolongation claim was not considered separately from the variation claim. Schal consistently rejected the claim beyond the sums allowed in its interim valuation.
136. In addition Mr Dennys submitted that Schal had misconceived its function in a number of respects. No certifier had been identified. Those responsible for investigating the claim had changed during the course of the project and Mr. Hazelton, who signed the certificate on behalf of Schal, was not involved before 1991 or throughout the course of 1995. Secondly, Schal failed to keep clearly in its mind the distinction between its duties as agent and its duties as certifier since it tried to negotiate and agree sums as part of the final accounting process (which had not been previously agreed under Clause 51) in an attempt to compromise those items; it offered sums in settlement of individual items of the claim; its representatives attended meetings with the Employer to discuss the claim; it sought to agree with the Employer a "strategy" (G1/197); it sought its client's approval of the final account and forwarded it to the Employer's solicitors for comment (G/125); it took advice from the Employer's solicitors (G1/218A); it adopted McKennas' draft letter as their own (G1/0.39). Schal's representatives themselves appear to have been confused as to its role: see the exchange between Schal and the Employer at G2/278 and 281. It was also clear from an early stage that Schal had no intention of accepting parts of the claim.
Decision on Issue 6
137. In my judgment Mr Dennys's analysis of the contractual machinery of these contracts is correct. The purpose of clause 44, clause 51 and 52, and clause 60 is for the parties to the contract to receive from the Construction Manager its views as to the effect of delaying events and variations on the parties' rights and obligations in terms of time and money. This issue is really about whether SPCL has a defence to BRL's claim on the grounds that it is for Schal to determine an extension of time or the value of a variation or to issue a certificate or to make a decision and no action can be maintained until the document has been issued. BRL contend circumstances have arisen which entitle it in law to disregard the absence of the relevant document and it is now for the Court to do what Schal should have done.
138. A breakdown of the contractual machinery occurs when without material default or interference by a party to the contract, the machinery is not followed by the person appointed to administer and operate it and, as a result, its purpose is not achieved, and is either no longer capable of being achieved or is not likely to be achieved. It can for most practical purposes be equated to interference by a contracting party in the process whereby the other is deprived of a right or benefit, eg the failure of an employer to re-appoint an administrator or certifier on the resignation of the previously appointed person, or where that person fails or is unwilling to do his duty and the employer will not take steps to rectify the position: see Panamena. Non-compliance with the machinery by the administrator is not in itself sufficient: the effect must be that either or both of the parties to the contract do not in consequence of the breakdown truly know their position or cannot or are unlikely to know it. Either is then free to have its position established by the appropriate means available: litigation or arbitration (preceded, if the contract so requires, by recourse to adjudication or the like). If the true position is or can be established by other contractual means then the breakdown is likely to be immaterial even where the result of the breakdown is that one party does not obtain the contractual right or benefit which would or might otherwise have been established by the machinery, eg the issue of a certificate, provided that the true position can be restored by the operation of other contractual machinery.
139. As is now common, the Construction Manager was a corporate body. However the contract required opinions to be formed and decisions to be taken on the basis of knowledge of the facts relating to the performance of the contract by BRL and the exercise of professional skill and judgment in assessing those facts. In my view BRL was entitled to expect that Schal would appoint and retain an identifiable employee to form those opinions and to take those decisions throughout the currency of the contract, and, if it were necessary to replace that person, then the replacement would be fully briefed by his predecessor or would have access to him so as to maintain so far as practicable consistency. (SPCL had similar expectations as set out in clause 3.1 of CMA.) Mr Hazelton's evidence did not establish that this was done.
140. However I do not consider that Mr Dennys was right in so far as his submission suggested that Schal should not act as a negotiator or heed the wishes of the Employer. The role given to Schal under the contract was, as is customary, to safeguard the interests of the Employer and it could quite properly negotiate or seek to negotiate amounts or other matters to which the contractor might be entitled (both because the contract envisaged agreement between the contractor and the Construction Manager and because it is customary to do so) and for that purpose and in any event for any other purpose (including obtaining the Employer's views on disputes or matters potentially in dispute) it could quite properly elicit the Employer's attitude whether at meetings or otherwise, provided it maintained independence and impartiality when forming opinions or reaching decisions affecting either party. Meetings are often held with contractors and there is no reason in principle why meetings should not be held with employers and their advisers. Some standard forms expressly recognise and require this common practice. However particular care has to be taken if legal advice is proferred by a party's adviser for it might be based on a partial understanding of the facts or otherwise be wrong. It is usually prudent to inform the other party of it before acting on it.
141. Of more consequence is that, unknown to BRL, certain constraints were accepted by Schal by the CMA on the exercise on the authority given by the contract according to which it was apparently unfettered. Those in clause 7 of the CMA ought to have been reflected in the contract or otherwise disclosed to BRL at the tender stage and certainly before contract, namely those in clause 7. In particular Schal had no authority to grant any extension of time or to agree to accept any financial claim without having first consulted the Design Team Leader and having taken due account of its comments and without having first reported on the same to the Employer (clause 7(iii)), or to issue any certificate whatsoever unless it had been signed by the Design Team Leader (clause 7(iv), or to issue any instruction or give any approval or do any other thing which would or might alter the cost of the development to the Employer by more than £1,000 without first referring the matter in writing to the Design Team Leader and to the Employer with its comments (clause 7(v)). The opening words of clause 7 have the effect of overriding clause 2.2 so that Schal could not by way of a decision under clause 68 have given more time or money without first clearing it so that there was a material fetter on Schal's powers under the contract. In my view the existence of these constraints (although not it seems the requirement to consult the Design Team Leader) did affect Schal's attitude towards the performance of its obligations under the contract of a "certifying" nature. In my view Schal was required to be and was unduly subservient to the wishes of SPCL and this coloured its approach to BRL. Schal therefore placed itself in a position which conflicted with or was not consonant with its responsibility to implement the contracts according to their terms and which in my judgment led it to doing what it thought SPCL wanted, as a result of which the contractual machinery was not operated as it ought to have been operated.
142. Thus clause 44 (1) requires the Construction Manager to receive from the contractor
(4) The Construction Manager shall upon the issue of the Certificate of Completion of the Works or of the relevant Section review all the circumstances of the kind referred to in sub-clause (1) of this Clause and shall finally determine and certify to the Contractor (such certificate to be signed in accordance with Clause 2(3)) the overall extension of time (if any) to which he considers the Contractor entitled in respect of the Works or any relevant Section. No such final review of the circumstances shall result in a decrease in any extension of time already granted by the Construction Manager pursuant to sub-clauses (2) or (3) of this Clause."
146. Mr Hazelton suggested that it was not possible for an extension of time to be given on 3010 until the valuation of the measured work had been settled. Whilst I accept that in some cases it may be necessary to establish the extent of the work that falls within the scope of the contractor's obligation to complete by the original date for completion, so as, for example, to determine whether additional work truly added to the burden, I cannot accept that it was necessary for Schal to defer granting an extension of time until the final account had been prepared to its satisfaction, especially since BRL's entitlement to an extension had been recognised as early as August 1989 (G1/0.21). Indeed in 1996 it was able to deal with both at the same time and Schal did not then have essentially any more information than it had in 1989 or 1990. It is clear from the evidence of Mr Jagger and Mr Hazelton that the assessment made in 1996 used facts which were known to Schal's own personnel during the course of the project and that the extension of time then made was not in any way dependent on establishing the extent or value of the measured work. Furthermore it was clear from Mr Hazelton's account that Schal had no difficulty in taking account of what he considered to be omissions in or reductions from the scope of the works. These were seeding, sludging, spading and transitioning but all of these had been left incomplete in 1990 and completed by others and their omission had not prevented completion and maintenance certificates being issued. The reasons why there were no determinations on either contract as to the measured work therefore lay more in questions of valuation than scope and in Schal's reluctance to express a view on these questions which I find both inexplicable and in terms of the contract inexcusable, especially since it had been accepted that BRL was entitled in principle to a further extension of time. They do not here justify Schal's inaction since the contract is clear: there has to be a final review under clause 44(4). This provision therefore expressly requires the Construction Manager to do what Vinelott J said in Stanley Hugh Leach Ltd v London Borough of Merton (1985) 32 BLR 51 at page 93 was the duty of an architect:
148. In my view Mr Dennys was clearly right in his submission that if the powers available to require a contractor to keep records (eg under clause 52(4)(c)) are not exercised at the time when they should be used, then it is not open to call for them at a later stage. He was also right in submitting that the contractor cannot be required to produce proof of his case such as the production of a critical path network. A decision has to be made on the basis of the information that is available.
149. Without a determination under clause 44 no view could of course be formed of BRL's claim for prolongation expenses so that in that respect alone the final account could not be completed since without an extension of time it would not be possible for a final valuation to be made pursuant to clause 51(2) (and clause 51(2A)(c)) or for the terms of clause 52(4) to be implemented fully, in particular clause 52(4)(f).
150. I do not accept that Schal could not have issued a final certificate before May 1995. Clause 60(3) envisages a final certificate being issued not more than about six months after the issue of the Maintenance Certificate. The Maintenance Certificate for Contract 3010 dated 7 November 1991 took effect from 27 September 1991 and that for Contract 3160 took effect from 27 November 1990. Schal had an account from BRL for Contract 3010 by the end of April 1992 and ought therefore to have issued a final certificate by, say, the end of July 1992, by which time it had sufficient information from BRL to enable it to do so. It issued Interim Certificate 50 on 10 April 1993 and Interim Certificate 51 on 10 June 1993. BRL was right in its submission that Schal had through Mr Alan Green already reached certain agreements which Mr Hazelton later was to question. Schal also questioned BRL's records even though it had had the opportunity both to require them to be kept at the time and to examine them.
151. In any event Schal could and should have arrived at its assessment of the final account following BRL's account of April 1992. Mr Dennys was correct in his submission that clauses 51 and 52 require the Construction Manager to value variations as the work proceeds and that they provide a regime whereby if the Construction Manager make its views clear they will be accepted by the contractor and employer or resolved by agreement or if necessary by a decision at or before the time when the contractor submits the statement of final account, or, at the latest during the course of its consideration by the Construction Manager. It is not permissible simply to require the contractor to "do better" without explaining what further details are missing (see Schal's letter of 5 June 1992); an opinion has if necessary to be formed on the basis of the material available which will be not just that provided by the contractor but that available to the Construction Manager and the employer's other advisers.
152. Schal's conduct seems to me to have been calculated to string BRL along, perhaps even as early as 1989, because BRL's claims were thought to be unmeritorious and a nuisance. Certainly Schal's conduct thereafter appears to have been affected by McKenna's advice which was, as Mr Dennys said, erroneous in thinking that the contract required the contractor to prove its case fully by demonstrating cause and effect before an extension or further extension could be given when BRL's case had already been accepted in principle and when clause 44 provided for the Construction Manager to make its own assessment; in assuming that BRL had an obligation to keep records where there had been no requirement to do so; in thinking that no action should be taken to certify the value of variations where there was no agreement; and in suggesting that Schal did not have to act on BRL's claims until they had been presented in a form satisfactory to Schal instead of dealing with them as they stood. In addition Schal cannot have been unaffected by SPCL's trenchant views (see for example its letter of 22 May 1995).
153. In arriving at these conclusions I have borne in mind Mr Hazelton's professed wish to try to agree the account. It is of course entirely laudable that a person in the position of Schal should make every effort to reach agreements with a contractor and not to precipitate an avoidable dispute which might result from strict compliance with the contractual provisions such as clause 60(3). In most cases there will either be express or tacit consent from a contractor, at least initially, as here, to such a course. However it is clear that BRL reasonably and, in my judgment, rightly believed that it had provided Schal with all that it should have needed to make its assessment. Arriving at a final account by negotiation, if such were Schal's aim (about which I have considerable doubts), means that at least a detailed account should be issued to the contractor so that there could be some basis or agenda for discussion. That did not happen (since for example Schal's letter of 5 June 1992 did not provide details to demonstrate where the problems lay) nor does it seem that it was ever Schal's intention to do so. I found it particularly troubling that Schal took exception to BRL's presentation of the final account, for even though it was not set out in the conventional manner (even allowing for the nature of this schedule-type contract) it was not so peculiar that it was not possible to reconcile it with what Schal considered should have been done. It is not unknown for a person in the position of Schal to show the contractor how it ought to be done.
154. Meetings never took place. Certainly it was BRL's wish to resolve their claims by negotiation but it found itself either with a moving target or playing a game where the other side was moving the goal posts. In my judgment Schal ought to have valued variations under clauses 51 and 52 during the progress of the works and certainly by the date of the Maintenance Contract for Contract 3160 ie the end of 1990 (since by that time work on contract 3010 was also complete). The machinery under clauses 51 and 52 therefore broke down, but that breakdown was capable of repair had Schal discharged its obligations under clause 60(3) for that reason only the breakdown was immaterial for the purposes of this issue. In my judgment BRL had provided all the information that Schal reasonably required for the issue of a final certificate on Contract 3010 by mid-1992 and on Contract 3160 by mid-November 1993. Thereafter Schal should have issued such a certificate within three months and its failure to do so led to a breakdown of the machinery of clause 60(3). Schal was wrong to have treated BRL's account of 22 April 1992 as insufficient.
155. SPCL sought to say that BRL's presentation of its account in 1995 and the introduction then and on other occasions had the effect of reviving the timetable under clause 60(3), so that, to take the leading example, Schal was entitled to treat it as BRL's belated compliance with clause 60(3) (and to ignore BRL's explicit request for a decision under clause 68). There will be occasions when to recast a statement of final account will have to be considered as the definitive statement and superseding any previous statement (even though it may not or does not comply with the contract). That is not the case here. BRL understandably decided to seek advice (from Mr Thain's firm) as it was getting nowhere with Schal. However I do not see that the material presented in 1995 could be viewed as anything other than a fresh presentation of material the vast bulk of which had been in Schal's hands for a considerable time. In my view it is plain that the May 1995 submission was not a new set of claims, but as is quite usual, a contractor's considered representation of a case that had been rejected. Mr Hazelton said that it was not in the form of a proper final account. I have already indicated that he was right; a statement of final account under this contract ought to show the contract sum together with all the alterations of adjustment to it required by the conditions. However any competent Construction Manager ought by 1995 to have prepared a comparable document so that it would have easy to reconcile it with BRL's new account. Indeed I do not believe that Mr Hazelton (or even Mr Jagger who was unfamiliar with the project) had any real difficulty in getting to grips with it. Certainly by October Schal was in a position to say that the documents sent by BRL on 4 October 1995 would take 14 days to evaluate (G1/213). I do not read this letter as being confined to those documents and indeed by that time five months had passed since BRL had made its submission. Some capital was sought to be made out of certain changes made in 1995, eg those listed in an annexe to Mr Hazelton's statement. I place no significance on the revisions which had the effect of increasing the amounts sought. This is inevitable when a claim is reconsidered and where sums are time-related eg financing charges. Had Schal accepted the principle that BRL were entitled to recover in respect of the work carried out by a sub-contractor, Almonds, and its supposed costs there might have been some force in this objection. It is certainly not a reason for concluding that earlier accounts were deficient or for not dealing with the 1995 accounts. If the claim were new and unsubstantiated it could have been rejected without delay. So too the claim for a greater surface area. In my view there was nothing in the submissions in May or October 1995 which could not have been dealt with swiftly had Schal been minded to do so.
156. In any event there was also a breakdown of the machinery under clause 68. I have already found that in 1992 the disputes central to these proceedings in respect of Contract 3010 existed and the same finding in relation to Contract 3160 is to be made from the time when its final certificate was due; that they were referred to Schal in May 1995 and that they ought to have decided within three months. Both in the absence of any such contemporary explanation as to why more time was required and on the facts as they are known BRL was in my judgment right to treat the machinery of clause 68 as having broken down. Those facts include, for example, Schal's failure to send BRL's submissions to Arups until 23 October. BRL was not obliged to wait indefinitely before invoking the jurisdiction of the courts to resolve a dispute which Schal was patently not doing.
157. This is not a case in which the contractual machinery had been observed but tardily or incompletely when it might be possible to find that the machinery had not broken down - for example, if Schal had dealt with BRL's final account on contract 3010 by the time it came to issue Interim Certificates 50 or 51. But Schal did not do so and the evidence overall demonstrates a real and persistent failure or unwillingness by Schal to consider and to carry out its duties under the contract, which was adopted or acquiesced in by SPCL which amongst other things had received letters before action from BRL in 1992 (G1/027) and 1995 (eg G1/189). In my judgment the facts fall within the dicta in Panamena - of Goddard LJ:
159. For these reasons the answers to Issue 6 are:
2. The machinery of clause 60(3) broke down in that a final certificate was not issued within three months after 30 June 1992 for Contract 3010 and within three months after 15 November 1993 for Contract 3160.
3. The machinery under clauses 44, 52 and 60(3) broke down when no one was appointed to replace Mr Hazelton after he ceased to be responsible in 1994.
4. The machinery of clause 68 broke down in that no decision was given prior to the writ herein in respect of Contract 3010 or Contract 3160 pursuant to BRL's requests of 9 May 1995.
160. SPCL's case was that following the service of the writ during the early part of 1996, BRL was expressly operating the provisions of the contract and participated in meetings openly and not without prejudice or on a commercial basis or without derogating from arguments as to jurisdiction with a view to getting the final account agreed. This showed that the contractual machinery had not broken down but if it had then BRL had by participating in the meetings waived any such breakdown and/or reactivated the machinery.
161. BRL's case was that it had not reactivated the machinery. BRL's purpose in participating in the further exercise was precisely to avoid the present issues because it was suggested that the dispute might in some sense be narrowed. On what BRL now knows, this was never a realistic prospect.
Decision on Issue 7
162. After the issue of the writ SPCL maintained that the dispute might still be averted if Schal was allowed to arrive at its determination on the final account. BRL sensibly agreed to see if SPCL's optimism was justified. However it was made clear before me and in correspondence that BRL was not resiling from its position that the proceedings had been properly issued. On 27 February 1996 (G2/261) BRL wrote to Schal to inform it that it was prepared to meet it on a "without prejudice" basis. The commercial purpose of the proceedings was to achieve a settlement; if that could be done by Schal doing what it could and should have done earlier and if the result were satisfactory then BRL was content for there to be a temporary moratorium. However BRL agreed to this course on the basis that it did not accept that the proceedings were misconceived which was SPCL's position. Accordingly it participated in seeing whether in the time granted to SPCL to serve its defence Schal could arrive at acceptable conclusions. There is nothing in the correspondence or in the actions of BRL which justifies the contention put forward by SPCL and it is rejected. This issue will be answered: No.
Issues 8 and 9: What was the legal effect (if any) of the Certificates described as "Final Certificates" issued on 10.7.96?
What is the legal effect (if any) of the extensions of time granted by Schal on 2.10.96?
163. Mr Thomas submitted that these were binding on the parties until and unless any dispute and difference on them is referred under Clause 68(1), and depending on the dispute, referred and then decided until and unless that is challenged in Court under Clause 68(2) and (3). However he accepted that these issues might depend in part on Issues 6 and 7. Nevertheless Mr Thomas relied on documents such as paragraph 20 of BRL's Amended Substituted Statement of Claim re-served on 8 August 1997 as showing that BRL were expecting a final certificate and that therefore it had to accept it when (eventually) it was given:
61. Statement of Final Account
first served under cover of BRL's letter dated 22nd April 1992. The Statement
of Final Account was then revised and submitted under cover of BRL's letter
dated 9th May 1995 and supplemented by material served under cover of BRL's
letter dated 4th October 1995.
(2) 3160 Contract
62. Statement of Final Account
first served under cover of BRL's letter dated 11th November 1993. The
Statement of Final Account was then revised in April 1995 and submitted
under cover of BRL's letter dated 9th May 1995."
Decision on Issues 8 & 9
165. The short answer to these issues is that if the contractual machinery had broken down by the date of the writ then the documents purporting to be certificates or extensions of time are of no legal effect since thereafter BRL was entitled to have the questions decided by the Court and not by Schal. As I have found the resumption of discussions did not confer any authority on Schal which it did not then possess. Furthermore the legal effect of even a duly issued final certificate is subject to question since clause 60(7) provides:
Issue 10: Are the terms pleaded at paragraphs 17(1), (2), (10) and (11) of the Amended Substituted Statement of Claim terms of the Contracts?
165. Although the arguments overlap I shall consider in turn each of the terms contended for by BRL. They said to arise as a matter of construction of the 3010 contract, alternatively as implied terms of the contract (see paragraph 17 of the ASSOC).
Paragraph 17(1): "The Employer would co-operate with BRL so as to enable BRL to carry out the 3010 contract works in a regular and orderly manner and/or in accordance with the 3010 contract, the method statement and/or the Approved Programme and/or would not hinder and/or prevent BRL from doing so."
166. The references to the method statement and Approved Programme derive from the following provisions. Clause 14 of the conditions stated:
(2) Should it appear to the Construction Manager at any time that the actual progress of the Works does not conform with the approved programme referred to in sub-clause (1) of this Clause the Construction Manager shall be entitled to require the Contractor to produce a revised programme showing the modifications to the original programme necessary to ensure completion of the Works or any Section within the time for completion as defined in Clause 43 or extended time granted pursuant to Clause 44(2).
(3) If requested by the Construction Manager the Contractor shall submit at such times and in such detail as the Construction methods of construction (including Temporary Works and the use of Constructional Plant) which the Contractor proposed to adopt or use and such calculations of stresses, strains and deflections that will arise in the Permanent Works or any parts thereof during construction from the use of such methods as will enable the Construction Manager to decide whether if these methods are adhered to the Works can be executed in accordance with the Drawings and Specification and without detriment to the Permanent Works when completed.
(4) No such methods of construction shall be used by the Contractor without the prior written consent of the Construction Manager and the Contractor shall comply with the procedures contained in Schedule 'B' for obtaining the same. The Contractor shall not change the methods which have received the Construction Manager's consent without the further consent in writing of the Construction Manager which shall not be unreasonably withheld. The provisions of Clause 8(4)(b) shall apply to any information and calculations provided by the Contractor under this sub-clause.
(5) The Construction Manager shall provide to the Contractor such design criteria relevant to the Permanent Works or any Temporary Works designed by or under the direction of the Design Team Leader as may be necessary to enable the Contractor to comply with sub-clauses (3) and (4) of this Clause.
(6) Approval by the Construction Manager of the Contractor's programme in accordance with sub-clauses (1) and (2) of this Clause and the consent of the Construction Manager to the Contractor's proposed methods of construction in accordance with sub-clause (4) of this Clause shall not relieve the Contractor of any of his duties or responsibilities under the Contract.
5.2 Where the Contractor is required to provide programmes, drawings or other information in accordance with the provisions of the Trade Contract or to amplify his working methods, such programmes, drawings and information shall be submitted to the Construction Manager in the form of 1 reproducible and 5 prints of drawings and/or 6 copies of reports. Where approval is required under the Trade Contract, The Construction Manager will require 14 days from the submittal to the Contractor's Proposal.
...
5.3 The Contractor shall take note of the Master Network Programme No P8F dated 4.9.85 which shows the phasing of the project and schedule of construction activities.
...
5.7 Plant
.....
5.8 The Contractor may not start the Works in a given location until the area has been inspected and released for work by the Construction Manager. The period of notice required by the Construction Manager is 14 days.
....
5.18 The Contractor includes in his lump sum all costs involved with winter working or shut down and re-mobilisation as may be necessary."
170. BRL relied upon London Borough of Merton v Leach (1985) 32 BLR 51 where Vinelott J. accepted both terms contended for by the contractor, namely that the Employer:
(ii) would take all steps reasonably necessary to enable (the contractor) to discharge their obligations.
174. Terms such as that pleaded by BRL are regularly put forward, not always with regard to the criteria by which a term is to be implied in a contract. A term of the type admitted by SPCL arises as a matter of law for otherwise one contracting party might frustrate the performance of an obligation by the other contracting party where it was dependent on action being taken or not taken by the first party: see Mackay v. Dick (1881) 6 AppCas 251 at page 263, per Lord Blackburn; Luxor (Eastbourne) Ltd v. Cooper [1941] AC 108 at page 118, per Lord Simon; Mona Equipment Ltd v. Rhodesia Railways Ltd [1949] 2 All ER 1014 at page 1018, per Devlin J. It is important to note that Mackay v. Dick requires mutuality and concurrence, whereas an obligation to do anything to prevent the other party from performing its obligation or to hinder such performance is more in the nature of an obligation to refrain rather than positively to assist (see Barque Quilpé Ltd v. Brown [1904] 2 KB 264 at page 274, per Vaughan Williams LJ), as is the obligation to maintain the state of affairs in the common expectation of a party in so far as it lies within the power of a party to do so. Such a term may in practice impose a negative obligation on the first party, ie not to hinder or prevent, and in so far as it requires action it may also be described as one calling for co-operation. Appointing or re-appointing a contract administrator and, where that person is an employee, securing compliance with his employment contract fall into the latter category (see Perini). So too does the provision of access by a contractor to a sub-contractor where certain dates (as opposed to periods or visits) are contractual obligations (Shimizu). To extend it so as to require a truly positive obligation is less easy, ie an obligation positively to facilitate the performance of obligations which a party has undertaken to carry out.
175. BRL's term proposed requires SPCL "to enable BRL to carry out the 3010 in a regular and orderly manner...". Such a term goes further than the ordinary term as to co-operation, particularly since it stipulates that BRL should thereby be enabled "to carry out the 3010 contract works in a regular and orderly manner and/or in accordance with the 3010 contract, the method statement and/or the Approved Programme". The reference to "the 3010 contract" is unacceptably wide since as it stands it could cover matters which were entirely with BRL's risk and responsibility to perform. Clause 14 of the conditions requires the contractor to submit a programme and, if required, methods of construction. Another such requirement appears in section 5.0 of the specification. Clause 14(6) and paragraph 5.1 of the specification state clearly that the approval of the programme, consent to methods of construction and submission of a method statement do not affect the contractor’s obligations and liability. The method statement is devised by BRL, as is the Approved Programme. These provisions are thus directly inconsistent with the implied term suggested and could not therefore be implied in fact. They are certainly not so integral to the contractual relationship between SPCL and BRL that they could be implied in law, and would in any event be overriden by the contractual terms (cf Martin Grant & Co Ltd v Sir Lindsay Parkinson & Co Ltd (1984) 34 BLR 31). Even in terms of some obligation to co-operation, the term could not be implied. The degree of co-operation that is required depends in each case on the obligation undertaken and not on what is reasonable: see Chitty on Contracts 27th edition, paragraph 13-009. This contract places responsibility for compliance with the method statement and with the approved programme on BRL.
176. In my judgment there can therefore be no obligation on the employer under a contract incorporating conditions such as these to enable the contractor to carry out the works in accordance with any programme approved under clause 14, nor in accordance with any methods consented to under that clause, nor in accordance with the method statement or construction programme additionally submitted under the specification. Similarly there can be no obligation on the employer to enable BRL to carry out the works in a regular and orderly manner. A contractor has some latitude as to how and when the requisite operations and activities will be carried out and, provided that the contractor gets on with the work and complies with any contractual constraints on its execution, he is free to organise the works in such manner as he considers to be in his own best interests. It would place an employer in an impossible position if he were obliged to anticipate what those interests were, or indeed, to anticipate the contractor’s day-to-day management decisions as to how best the works should be organised. In my judgment the only term to be implied in law is that accepted by SPCL in paragraph 33 of its defence, namely,
Paragraph 17(2): "BRL were obliged and entitled to complete the 3010 Contract Works by 23rd December 1986."
178. BRL contend that, coupled with the duty to complete by the completion date, it had a right to do so. I do not think that there is really much difference between the parties since, although SPCL formally reject the term, rightly pointing to the express terms as to completion, Mr Thomas accepted that if BRL were obliged to complete the 3010 Works in accordance with the express terms of the 3010 Contract as to completion then it was also entitled to perform the 3010 Works in a manner consistent with this obligation.
179. In my judgment the term proposed is really no more than the conclusion familiarly expressed in the well known aphorism of Vaughan Williams LJ in Wells v Army & Navy Co-operative Society (1902) HBC (4th ed), Vol 2, at page 346 (1906 LT 764): "If in the contract one finds the time limited within which the builder is to do the work, that means, not only that he is to do it within that time, but it means also that he is to have that time within which to do it." In other words this conclusion is the working out, in the context of an obligation to complete by or within a specific time, of the usual term not to hinder or prevent performance of that obligation. In modern contracts such as the present there is rarely room for such a conclusion for they almost always contain an effective extension of time clause which, by dealing with a breach of contract such as an act of hindrance or prevention contrary to the implied term, negates the proposition that a contractor "is to have" the contract period within which to carry out the work for that cannot be so if time may be extended. In this contract clause 44(1) reads:
Paragraph 17(10): Schal would issue instructions pursuant to Clauses 7 and 13 of the Conditions and/or Clause 7 of the Specification Schedule B and/or as required for the proper execution of the 3010 Contract Works and/or in such time as to enable BRL to complete the 3010 Contract Works in accordance with the 3010 Contract.
181. Clause 7 of the conditions states:
(2) The Contractor shall give adequate notice in writing to the Construction Manager of any further drawings, specifications and/or instructions that the Contractor may require for the execution of the Works or otherwise under the Contract.
(3) If by reason of any failure or inability of the Construction Manager to issue at a time reasonable in all the circumstances drawings, specifications and/or instructions requested by the Contractor and considered necessary by the Construction Manager in accordance with sub-clause (1) of this Clause the Contractor suffers delay or incurs cost then the Construction Manager may take such delay into account in determining any extension of time to which the Contractor may be entitled under Clause 44 and the Contractor shall subject to Clause 52(4) be paid in accordance with Clause 60 the amount of such cost as may have been agreed between the Construction Manager and the Contractor or failing such agreement the amount of such cost ascertained by the Construction Manager as shall be reasonable. If such drawings, specifications and/or instructions require any variation to any part of the Works the same shall be deemed to have been issued pursuant to Clause 51."
7.2 The Land Reclamation consultant is responsible for the design of the soil profiles and Topsoil Construction Specification. He will supervise their implementation and upon his advice the Construction Manager will issue instructions relating to the section of the Works.
7.3 The Design Team Leader and Land Reclamation Consultant are responsible for the checking of the Contractor's submittals and methods for compliance with Specification however all such correspondence is to be channelled through the Construction Manager.
7.4 The Landscape Consultant has prepared the plans of the Soil profiles to be constructed over the site. The Design Team Leader, Construction Manager and Land Reclamation Consultant will monitor the Contractors' compliance with these drawings.
7.5 The ultimate owner of the area over which the Contractor is to perform the majority of his works will be the London Borough of Hillingdon who have employed Sir William Halcrow and Partners to act as their consultants.
186. Clause 13 of the conditions states:
(2) The whole of the materials plant and labour to be provided by the Contractor under Clause 8 and the mode manner and speed of construction and maintenance of the Works are to be of a kind and conducted in a manner approved of by the Construction Manager.
(3) If in pursuance of Clauses 5, 26(2)(b) or sub-clause (1) of this Clause the Construction Manager shall issue instructions or directions which involve the Contractor in delay or disrupt his arrangements or methods of construction so as to cause him to incur cost beyond that reasonably to have been foreseen or contemplated by an experienced and competent contractor at the date of execution of the Agreement then the Construction Manager shall take such delay into account in determining any extension of time to which the Contractor shall subject to Clause 52(4) be paid in accordance with Clause 60 the amount of such cost as may be agreed between the Construction Manager and the Contractor or failing agreement the amount of such cost, ascertained by the Construction Manager as may be reasonable. If such instructions or directions require any variation to any part of the Works the same may be deemed to have been given pursuant to Clause 51.
Issues 11 and 12: 11. Is BRL entitled, in principle, to recover financing charges as special damages for Schal's failure to certify or is Clause 60(6) an exclusive remedy for such failure [if established]?
12. Is BRL's claim for financing charges whether under Clause 60(6) or for breach of the Contracts restricted to financing charges upon the shortfall, if any, between the sums applied for and the sums certified and paid?
189. These two issues have clause 60(6) of the conditions in common. It reads:
191. Although the issues are framed as ones of principle it is necessary to note BRL's claim to see what is being claimed in the action. In paragraph 93 of the ASSOC BRL claim financing charges on sums claimed as special damages as follows:
(2) Financing charges on retention fund £22,831.00
(3) Financing charges on under-certification £610,647.00
(5) Financing charges on loss and damage £125,116.00
193. The pleading typically lacks both precision and clarity, particularly when read with the Schedules which set out interest calculations based on the amounts claimed by BRL from early dates, eg 1 December 1989, compounded monthly. However the general thrust of BRL's claim is plain in that it is a claim to recover as much interest as possible on the principal sums claimed.
Issue 11: Is Clause 60(6) an Exclusive Remedy?
194. In a careful argument Mr Dennys submitted that Clause 60(6) is not an exclusive remedy and that BRL is entitled to claim interest as special damages since BRL's claim was for damages for what were described as "underlying breaches" by SPCL, eg delay, disruption, failure to release retention etc (which thus included breaches which arise as a result of the failure by Schal to comply with its obligations). Mr Dennys referred to Hudson on Building Contracts, 11th Ed. at para 8-094 which states:
198. Mr Thomas submitted that clause 60(6) was the exclusive remedy and in so far as BRL's claims were irrecoverable under that clause 60(6) they could not, on BRL's pleadings, be recovered as special damages. Furthermore in so far as the financing charges are claimed as interest on damages, they were in any event irrecoverable. In President of India v. Lips Maritime [1988] AC 395 Lord Brandon had said at page 425:
Decision on Issue 11
200. In my judgment President of India v. Lips Maritime [1988] AC 395 puts it beyond doubt that where the loss of use of money falls within the first limb of Hadley v Baxendale then that loss, whether or not dignified by an appellation such as "financing charges" or more plainly as interest, is not recoverable at common law as damages for breach of a contractual obligation to pay money, whether the amount is characterised or quantified as a debt or otherwise (since a primary obligation if not performed becomes an obligation to pay damages in lieu). Parliament has acted to put right the anomaly by a series of statutes which empower courts and arbitrators to award interest. I see no reason to make a distinction between an obligation to pay and an obligation to issue a document such a certificate which triggers the obligation to pay where such an obligation is or is to be treated as a breach by the party making payment. Wadsworth v Lydall indicates that, exceptionally, damages may be recovered from breach of an obligation to pay money if the consequences of the breach fall within the second limb of Hadley v Baxendale. However in order to recover the plaintiff has to plead and prove that the case falls within that limb. This requirement is essential since in most commercial contracts the consequences of a failure to pay are losses which arise naturally in the usual course of things and are within the parties' ordinary contemplation. The observations of Neill LJ in President of India v Lips Maritime in the Court of Appeal (if they survive the decision of the House of Lords) do no more than state that proof may be achieved by an inference from other facts. I do not consider that Neill LJ was there saying that any facts relied as taking the case into the second limb have not to be pleaded and proved. In my judgment BRL has failed to plead any facts which take its case within the second limb and therefore it cannot on its present pleadings recover damages by way of financing charges for breach of SPCL's obligations or Schal's failure to certify.
201. It is conceivable that a contractor might in an exceptional case be able to sustain a claim for damages for being kept out of its money where the fundamental complaint is one for breach of contract on the basis that a party who fails to perform its primary obligation comes under an immediate secondary obligation to pay damages. However such a claim would have to satisfy the requirement of Wadsworth v Lydall and in practice finance charges would be unlikely to be recovered as damages until the defaulting party knew of and had a reasonable opportunity of verifying the whole or part of the damages claimed, just as statutory interest is not ordinarily awarded until the default is clear. Clause 52(4)(b) and following of the contract conditions draw attention to the importance of doing so in respect of claims for additional payment under the contract conditions the estimated amounts of which are also to incorporated in the contractor's monthly statements under clause 60(1)(e). It may be assumed that a similar attitude would be taken towards a claim for breach of contract which was not a claim which could be made under a contract condition and even though under this contract it was not to be included in a monthly statement. Thus it may be doubted whether therefore there would in practice be much advantage in pursuing such a claim, particularly if the contract provided a mechanism which if duly implemented entitled the contractor to recover rolled over finance charges (as clause 60(6) does: see Hobhouse J in The Secretary of State for Transport v Birse-Farr Joint Venture (1993) 62 BLR 36 at page 59 - 60). Indeed the ability to recover interest on interest (if already applied for) is another reason why I conclude that clause 60(6) is to be regarded as the parties' intention as what was to happen if Schal should fail to certify in respect of a matter which (subject to my decision on Issue 12) was included or was to be included in a monthly statement eg under clause 60(1)(e) and thus the Employer should have been notified of the amount. That is a desirable objective. On the other hand where BRL's claim is not one which could have been the subject of a monthly statement it is obviously still entitled to seek an award of interest pursuant to statute.
202.
The answer to issue 11 is that, subject to the answer to issue 12, clause
60(6) is an exclusive remedy for Schal's failure to certify.
Issue
12: Is BRL's Claim for Financing Charges Restricted to the Difference
Between Sums Applied for and Certified?
203. I have summarised issue 12 in this way since in so far as BRL's claim for financing charges is made for breach of either contract, apart from clause 60(6), it cannot in principle be restricted to financing charges upon the shortfall, if any, between the sums applied for and the sums certified as the difference between an amount applied for and certified is relevant only to a claim under clause 60(6).
204. BRL's case was that it was entitled to interest at the contractual rate for the period between when sums ought to have been certified and when they were certified pursuant to Clause 60(6). Whether there had been a failure was a question of fact. The observations of Hobhouse J in Secretary of State for Transport v. Birse-Farr (1993) 62 BLR 36 were not conclusive when at page 58 he said:
206. Mr Thomas submitted that the failure to pay which attracts interest was clear: it was a "failure by the Construction Manager to certify or the Employer to make payment in accordance with sub-clauses (2), (3) and (5) of... clause (60)". He argued that this provision presupposed that either the Construction Manager has under-certified the Contractor's application or the Employer has failed in whole or in part to pay the certified sum. The contractual regime was plain: the contractor submits an application under clause 60(1), setting out what is alleged due to him under headings (a) to (e); the Construction Manager certifies in accordance with these headings under clause 60(2); the Employer makes payment under clause 60(2). Thus Mr Thomas submitted that there cannot be a "failure" within the meaning of clause 60(6) unless the contractor has asked for some amount and the Construction Manager has failed to certify it. Conversely there can be no "failure" where no such amount is applied for at the time, but is included many years later in a Statement of Claim.
Decision on Issue 12
207. I do not consider that this issue is capable of the simple answer suggested by Mr Thomas, although undoubtedly that will be the answer given in the majority of cases. In this action the parties differ as to whether the contractual procedures for eliciting the details and the substantiation of claims have been followed either by BRL or by Schal. I have already indicated that Schal was obliged to make investigations during the course of the contract. Hobhouse J, rightly in my view, excepted situations in which there had been bad faith or improper motive. He also spoke of "failure" as not respecting and giving effect to the terms of the contract. In my judgment a finding of "failure to certify" is not necessarily limited to a misapplication or misunderstanding of the contract. To put another way the misapplication or misunderstanding must be placed in its context. The facts may therefore be important and determinative. If a person in the position of the Construction Manager were to recognise that a contractor was in principle entitled to payment under the contract then there might be failure for the purposes of clause 60(6) if no payment were certified because the contractor has not been asked to submit records or if the contractor was not told why the records submitted were insufficient (cf clause 52(4)(f)). Similarly if there had been such a failure to respect or to give effect to the contract as to constitute a breakdown of the primary contractual machinery it is hard to see why clause 60(6) should limit the contractor's recovery in circumstances where even if he had submitted an application no payment would have been certified.
208. In my judgment therefore the answers to Issue 12 are:
(2) the machinery of clause 60(3) broke down in that a final certificate was not issued within three months after 30 June 1992 for Contract 3010 and within three months after 15 November 1993 for Contract 3160.
(3) the machinery under clauses 44, 52 and 60(3) broke down when no one was appointed to replace Mr Hazelton after he ceased to be responsible in 1994.
(4) the machinery of clause 68 broke down in that no decision was given prior to the writ herein in respect of Contract 3010 or Contract 3160 pursuant to BRL's requests of 9 May 1995.
9. What is the legal effect
(if any) of the extensions of time granted by Schal on 2.10.96?
(2) Schal would give a
decision pursuant to Clause 68 within a reasonable time,
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