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

2. SWW should pay JFS £220,781 in respect of amounts due under the Contract, together with interest of £59,195. (This was a net figure resulting from adjustments to the contract price of £1,223,586 on account of provisional sums (-£10,000), contingencies (-£58,265), sums paid (-£1,019,972) and sums awarded for variations (£208,740).

6. I say the Specification must be interpreted with common sense. I find that commonsense requires that any maximum condition described must be held to exist, for the purposes of the contract, for whatever reasonable period of time the Parties had in contemplation. It is difficult to be precisely sure what that period might be, but I find, from the evidence and on the balance of probabilities, that the worst conditions were known, or ought to have been known to both Parties, as likely to exist for the duration of heavy rainstorms. As to what that might amount to, it would not, as a matter of common sense, be the longest period of rain known to the records, nor would it have been the duration of an April shower. I find as a fact that a reasonable period to allow for the purposes of the contract would have been two to three days, that being a period that could have been observed by inspection of the Site Log Books as a typical period during which colours were high. It is also a period which I find, as a matter of fact from general knowledge in the public domain, to be a reasonable assessment of the likely maximum length of an occasional long period of rain in that part of Devon. That the actual colours recorded in the log book were above the values I have found to be the values agreed in the contract I find to be irrelevant, the values in the Contract being the values agreed between JFS and SWW for contract purposes.
 

Fibre in the Water

7. Fibrous material was an aspect of the raw water which occupied the attention of the hearing. From the evidence, I am satisfied that fibres and material made of fibres became trapped in the Adsorption Clarifiers.

8. I cannot accept that anyone concerned with this project can have been surprised that there should be particles of peat and similar organic material in a river whose source includes substantial run-off from peat beds. That there would be peaty fibre in the River Erme must have been, or ought to have been, self evident to all concerned.

9. It is clearly a feature of the Adsorption Clarifier that it will trap particles which are of effective dimension comparable with its medium and that, because of the forward washing technique, it will not reject them. They will stay with the medium to become permanently resident within the Clarifier. What effect they have upon the operation of the Clarifier is, perhaps another matter. Furthermore, particles whose effective dimensions are smaller than the medium but comparable with the elective dimension of the slots or perforations of the discharge arms of the Clarifier will tend to lodge in those slots or perforations and thus restrict flow through the Clarifiers. With no reversal of flow, they are unlikely to be dislodged.

10. I have difficulty in separating my practical opinion from what I find to be the balance of the evidence, but it is perfectly clear that, to avoid trapping, in the Adsorption Clarifier, particles of such a size that they will not be rejected in the washing process. It is necessary to ensure that no such particles are present in the water entering.

11. I have said that it was self-evident that there would be peaty matter in a river which has peat beds as a source. I have to say that, regardless of the state of the River Erme, commonsense and the ordinary experience of everyday life must suggest that one cannot assume that the water in a river will be free of solid matter. Even if that were not to be an acceptable view, I would find that both Parties were aware, or ought to have been aware, of the presence of solid matter in the River Erme: first because they had ample opportunity to observe it; secondly because the presence of fibre in the tank on the moor was known to SWW's personnel and must have been reasonably clear to the JFS representative who considered the provision of the river intake screen; finally because, unless there was at least a reasonable likelihood of solid material, there would have been no need for an intake screen at all.

12. It has been difficult, however, to assess precisely how effective was the original tank containing limestone chippings, which was in place, on the moor and adjacent to the river, when the Contract first was let. From the evidence of SWW personnel, that it required regular clearing of deposits, I find that it was more likely than not to have been effective in the removal of fibre.

13. The Parties appear to have agreed, when the river intake screen was provided, that no further screening or straining was necessary. That could have been a correct view only if the effective dimension of the river intake screen had been such as to exclude particles of size capable of being trapped in the Adsorption Clarifier. Had the original arrangement been retained, whereby the screened river water passed through or across the limestone chippings before going forward to the works, then it seems at least probable that fibre would continue to have been separated as before. The disadvantage of that arrangement would have been a continuing need for labour to clear the tank (although labour would be needed at some stage to clear strainers). In the circumstances, it was absurd to seek to omit the strainers which JFS had agreed to supply. Much of the difficulty experienced by both JFS and SWW may be attributed to that hap'orth of tar. Moreover, the replacements appear, from the evidence, to have been unsatisfactory. In any event, there was evidence that they have not continued in use.

14. I do not deal with the tank in great detail, because its removal was not by JFS. SWW decided to remove it and arranged to do so. In passing, although nothing turns on the point, I should mention a school of thought which suggests that limestone beds have a secondary effect in tending to stabilise the pH of acidic waters passing over or through them.

Fundamental Breach

15. SWW's first head of claim is that the works provided by JFS were fundamentally unfit for their purpose. A complete failure of consideration. SWW say that they are no better off for the Works, indeed they say they are worse off. Further, they say that the technique of upward flow adsorption clarifiers, followed by filtration, adopted by JFS, is inherently incapable of treating the water abstracted from the River Erme.

16. In their pleading, SWW claim that they are entitled to be recompensed fully for all they have spent on the Works, whether with JFS, with DHV, in providing the services of their own staff, on site and at their head office, and with others. They go further and ask for the full price of a replacement works using a different and superior method. That would be to recover twice, in effect, and would be contrary to principle. I will not discuss in detail the way in which SWW's entitlement in the event of a fundamental breach of contract would be calculated, because I have not been able to find for SWW in respect of this part of their claim.

....

17. Mr Hyde [JFS's expert] has made proposals to reduce the velocity through the adsorption clarifiers by adding additional plant. I look at the various experts' contentions elsewhere, but the essence of his opinion is that, insofar as the Watercombe works is deficient, that is a matter of degree, capable of being remedied by the provision of additional equipment and, I therefore deduce, capable of being remedied by the Award of a corresponding sum.

18. I am quite content to accept the evidence of Professor Ives and of Mr Clayton, that a dissolved air flotation plant would be an attractive solution. I understand that it would be appropriate, in the light of the private arrangements between SWW and the manufacturer of their preferred plant that such a plant be built. Once having addressed the question as to whether the JFS plant was fundamentally incapable of the required performance and found that it was not, however, I ought not concern myself further with the question of whether or not there may be better solutions to the problems of water treatment at Watercombe. The question I have to address becomes one of whether the JFS plant at Watercombe, even if fundamentally capable of performing, did in fact perform according to the specified requirements and, if it did not, what must be done to enable it to do so.

19. Mr Hyde's report suggests that the plant is not able to perform adequately at some levels of duty, particularly when the colour in the raw water is high, and his proposals provide, as I have said, for additional equipment to meet the actual duty. I have to accept his view that the plant does not perform as it should under all conditions, because that is clearly common ground between the experts of both sides.

....

Completion and consequences

20. Both SWW and JFS claim very substantial sums in respect of work and attendance on site for a prolonged period. Each has provided a great deal of information relating to their accounting for the period between the time when the basic plant became used to provide drinking water and the termination of the Contract. It would not be going too far to say that, with SWW's claim for the value of a complete replacement of the works, these claims for work and attendance are the most important commercial amounts I have to consider.

21. For SWW to succeed, I hold that I have to be satisfied that their involvement was a necessary consequence of a breach by JFS and that it was not attributable to anything else. SWW's view, as expressed by Mr Hope, is that, once one accepts that the works was a complete failure and that there was a complete failure of consideration, all expenditure, in any way associated with the Watercombe works, becomes a liability of JFS. That is an extreme proposition but I do not find it necessary to consider it closely, because, although I have found JFS to be in default, I have not accepted that there was a complete failure of consideration. It follows that I have to determine whether or not there is a sufficient connection between the default of JFS and the additional costs incurred by SWW to justify liability on the part of JFS. Before doing so, however, I have to consider the implications of the provisions of the Contract itself, and in particular the provisions for damages in respect of delay and the way in which the Parties dealt with those provisions in practice. I also have to consider what actually happened on site to cause SWW's extended involvement.

22. Similarly, for JFS to succeed in their claim for additional involvement, I would have to be satisfied that it resulted directly from some default of SWW. It is the view of JFS that their continuing involvement resulted from additional work instructed by the Engineer, from the quality of the water which was not, they say, as predicted, and from deficiencies in equipment supplied as free issue by SWW, notably the original instrument provided for control.

23. The essential difficulty I have is this: the balance of evidence is that the works as constructed were inadequate. That is what Mr Hyde says and I accept it. The other experts do not disagree about that, although they disagree as to how best to make matters right. It follows that, whatever JFS or SWW did, and however long they stayed on site tinkering with adjustments to the plant or the control system, they would not achieve the desired performance. If that is right, then it is at least arguable that both SWW and JFS remained on site as a result of their failure to appreciate the true nature of the problem.

24. Moreover, the Contract itself provides for liquidated damages in respect of delay. There is a limit prescribed in the Contract. There has been discussion in learned articles as to whether such limitation has the effect of putting a ceiling upon damages which may be awarded for delay or whether it enables the dissatisfied client to claim damages at large once the agreed period is over. In a matter such as that of the present reference, however, two factors have to be considered. The first is the words in which the limit is expressed. The second is whether damages for delay are appropriate in circumstances where damages are to be awarded for a deficiency which should have been put right.

25. To clarify the point, I consider, for illustration only, the hypothetical case where a plant is built and fails to perform as required. For simplicity, let it be only the controls that do not work. Let that be that it requires continual attendance, whereas a correctly performing and automatic plant would have required no material degree of attendance at all. Let it be that it would last for, say, twenty-five years.

26. Now, on the face of it, the owner might say that he was obliged to keep three shifts of men exclusively for the plant and seek damages corresponding to twenty-five years of such attendance, possibly £60,000 per year or more, depending on the calculation of wages and overheads. A total of £1,500,000. Yet a complete control system for the works might cost much less. The principles of mitigation of loss would oblige the owner to adopt the cheaper course and install the control system.

27. When should he do so? The answer to that, again dictated by the principle of mitigation, must be at the earliest reasonable opportunity.

28. Now, to apply those principles to an example like that of the present, where there is a specified period of liquidated damages for delayed works, it seems at least arguable that the time for the owner to say "enough is enough" and to seek recourse from the contractor for his default, must be at the end of the period specified. In other words, that is the time to take the necessary steps to rectify the matter or to seek damages for the deficiency, rather than to allow the deficiency to continue indefinitely and claim time related damages in respect of it. Of course, there may be practical difficulties in rectifying the matter on the instant and a question as to whether or not prudence dictates that preparations be in hand before the expiry of the period.

29. If I am right, then, in a contract where the contractor's provision is deficient, there comes a time when the extended entitlement of the buyer changes from an entitlement to the agreed time-related damages and becomes an entitlement to something else. That something else is unlikely to be continuing time-related damages at large if the alternative of compensation for the deficiency is available. The precise timing may depend, in a particular case, upon the predictability of failure, upon assurances which may be given by the contractor and upon the time required to execute any remedial work.

30. I invited further representations about this after the hearing. I did so by outlining much of what I have written above, under this heading. The Parties were kind enough to provide me with further argument from Mr Stimpson and from Mr Boulding. There is no reconciling their arguments.

31. Accordingly, I now find as follows:

32. The works were not completed on time. Nor were they completed within the period allowed by extensions of time, either as granted by the Engineer or as Awarded in this my Award. JFS were therefore liable for damages in respect of the delay, as provided in the Contract.

33. There came a time when the works were sufficiently complete for SWW to decide to reduce the rate of liquidated damages. On the evidence, I find that was to deal with the fact that the works had been taken into beneficial service with some deficiencies which remained. I interpret the events as meaning that SWW reappraised their estimates of loss. JFS appear to have accepted that, as well they might. I do not accept that it was a position from which SWW could later resile. Had they reserved their position in some way, then a different conclusion might have been drawn. but I have not been persuaded that they did so.

34. There was a provision in the Contract for a limited period during which damages for delay would apply. SWW say that was merely a period during which damages were limited and that, after that period, their damages became at large. That is an issue of principle much discussed among construction professionals but I have to deal only with the Contract between SWW and JFS. The wording of the Contract is clear. There is a limit to damages for delay, the Contractor's liability for delay is limited to a delay of up to 52 weeks.

35. Were I to have found otherwise, I would have had great difficulty in determining what, if any, costs were attributable to the default of JFS. I would have been in a similar position with the costs claimed by JFS in their counterclaim. That difficulty arises from the basis of the time-related claims made by both Parties, which I find to be of the post hoc propter hoc kind, both based on a total cost approach without sufficiently clear evidence of causation. I recognise that such an approach is not impermissible, but I hold that it is necessary to establish the impracticability of any other approach before a global method may be adopted to deal with such balances as cannot otherwise be explained.

36. Other provisions are made for damages in respect of poor performance of the works. I have not considered those provisions because SWW seek compensation which would provide them with a fully operational works, meeting the performance criteria.

.....

A Fully Operational Works

....

37. SWW's preferred alternative, however, had been priced on a number of occasions. Mr Boulding's point about the partnering arrangement was well taken and, on the evidence, I find that some of the developments go beyond the standards JFS were contracted to meet. It is not my task to endorse the DAF process or to approve Mr Hyde's extensions. My task is to arrive at a figure which properly will compensate SWW for the shortfall in the Watercombe plant. That I do by considering the value of what must be done to provide SWW with a works, at Watercombe, which will do what JFS originally agreed to do.

38. One way of arriving at an answer is to consider the Dissolved Air Flotation proposals canvassed by SWW. For the avoidance of doubt, I am not contemplating making a decision that a Purac Plant (Purac are SWW's preferred DAF supplier) should or should not replace the JFS Plant.

39. I look at the Purac figure as a possible guide to the value I should put upon one kind of practical alteration to the plant that would meet the requirements of the specification. For that reason I have not considered matters such as decommissioning and contingencies (except, as will be seen, that allowances were made, as I find, by Purac in 1996). I cannot now deal with hypothetical contingencies and I have to recognise that SWW are perfectly entitled to take the compensation and do nothing. The various proposals and options which SWW have discussed with Purac range over a wide compass of prices. That is a matter for SWW. If 1 am to use Purac's figures as my guide it is the lowest practical figure which SWW and Purac say will meet SWW's original requirement that I must consider.

40. Mr Read says that, in 1996, Purac offered two alternatives, based (as was the original Contract) on the Red Book. He summarises them at [paragraph] 5.6.23 in his report as:

41. Although the proposal made by Mr Hyde is an attractive one, it would depend for its success upon the Parties continuing in a relationship which I find to be irretrievably broken down, at least in the context of this project. I have to decide, on the evidence, whether Mr Hyde's estimate of the remedial works to be provided is to be preferred to the Purac approach adopted by Mr Read. I have not been satisfied that the practicality of Mr Hyde's method has been demonstrated, principally because there is no supporting information to show that a practical contractor can be found who would be able to complete the project for the sums he suggests. Specifically, however, I have not found it necessary to decide in principle whether or not the water from the River Erme is capable of being treated by the Adsorption Clarifier method, albeit at velocities other than those of the present plant.

42. Now, leaving to one side the matters of variations and of time-related damages. the simple position is that SWW are entitled to a plant which will perform according to the specification at the price agreed with JFS. The Purac price cited by Mr Read is the amount of additional money required to put SWW in the position they were entitled to expect for the original JFS price. If JFS pay damages to that amount, then SWW are placed in the position they would have been were it not for the default of JFS. On that basis, and on the evidence I have seen, I find the correct amount to be paid by JFS to SWW to be £1,189,807".

43. On the evidence I have heard and the documents I have seen, I find that JFS agreed with SWW to provide a plant which met certain requirements, set out in the specification. I have said why I find Appendix A (as amended to take account of water of colour up to 150^o Hazen) of that specification to set out the water quality parameters to which JFS had to design the plant and with which the plant was required to deal.

44. I am satisfied that the water parameters occasionally exceeded those of Appendix A. From the documents, I am not satisfied that JFS were required to meet all the requirements of the specification in respect of water of colour between 115^o Hazen and 150^o Hazen. JFS expressed reservations about that and SWW accepted what JFS said at the time. Nor am I satisfied that the plant was required to treat water of colour between 150^o Hazen and 300^o Hazen in any identifiable quantity. The variation, which introduced progressive reduction in flow followed by shut down, I find to have been a protective or precautionary measure. On the documents, I find neither party to have intended that the plant should perform normally at colours beyond 150^o Hazen. By normally, I mean in accordance with the specification. Whether the water produced would be otherwise acceptable is another matter. On the evidence, whatever their mental reservations, I find the Parties must be taken to have intended that the flows be adjusted to protect the general quality of the output, even if that meant severe restrictions of flow. No doubt the precise algorithm (mathematical procedure) for reducing the flow would have to be developed in service.

45. As to the range between 115^o Hazen (or 114^o Hazen - I find the difference to be, for the purposes of this award, de minimis) and 150^o Hazen, I find that JFS expressed reservations in their reply as to the quantity of chemicals that would be used and as to the frequency of filter and clarifier cleaning that would be required. They agreed to treat the water, to the standard set out in the specification, but subject to those reservations.

46. On the evidence, I find that, in the event, the plant was not capable of treating the full amount of water to 114^o Hazen in accordance with the specification. The reasons for that have been discussed, the main reason has to do with the quality of the floc produced by the treatment process with the water of the River Erme and the velocity through the clarifiers. That may have been a surprise to SFS, to SWW and to the Engineer, but I do not find the possibility to have been beyond their contemplation.

47. It was a distinguished American Jurist who said "In the case of a binding promise that it shall rain tomorrow, the immediate legal effect of what the promisor does is that he takes the risk of the event, within certain defined limits, as between himself and the promisee. He does no more when he promises to deliver a bale of cotton ... The only universal consequence of a legally binding promise is that the law makes the promisor pay damages if the promised event does not come to pass." (Holmes, The Common Law 1881). I am not sure that would be a proper basis on which to determine matters in the present reference (there is a question about consideration in the matter of the rain), nor is it my task to analyse the law - I have no authority to do so - but it illustrates the point.

48. In the present reference, SWW were entitled to a works that performed correctly, JFS accepted, within certain defined limits, the risk that the works would not perform correctly. There is a shortfall in the performance of the works. I have not found the reasons for the shortfall to be of a kind which would excuse JFS their obligations, that is to say release them from their promise. There must be, therefore, a remedy in damages.

49. As to the amount of damages, I find that to fall into two categories. There was a specified period during which SWW were entitled to liquidated damages, in an agreed sum, for the delay in completing the plant. That sum was changed by SWW. What JFS would have done had SWW not changed the sum cannot now be determined. I find that the changed sum in respect of liquidated damages was communicated between the Parties in circumstances which make it more likely than not that they agreed to the new amount. JFS remained on site and continued with a variety of work. In the premises, I do not accept that there was no consideration for what Mr Stimpson argues as mere forbearance. The decision to accept reduced damages was one made by SWW after careful consideration and consultation with their legal department, I am not prepared, on the evidence I have, to ignore it.

50. The second category of damages is compensation for the inadequacy of the plant supplied. I hold that I have to consider the correct value of damages under this heading in one of three ways: one would be related to the shortfall in actual performance and the value of product lost; an alternative would be related to the value of the work that would be required to put the plant right, the third alternative would be to determine the difference in value between the works as executed and works adequate for the task.

51. I have insufficient evidence to permit me to form a view as to the first option and neither party has canvassed the point. I hold, therefore, that I must set it out of my mind and I do so. As to the two remaining alternatives, I have the assessment of Mr Hyde as a guide to the value of extending the works to the degree he considers necessary and I have the various figures submitted by SWW as to the prices they have been given for a quite different process.

52. On the balance of the evidence, I am satisfied that it would be correct to award SWW the difference in price between works which would perform in accordance with the specification at the specified flows and the actual works as they stand. I recognise that SWW's estimates and evidence are based upon a different operating principle and I have considered whether that entitles SWW to recover both the price of the existing works and the full value of new works in addition. So to award would require me to find the works as they are fundamentally incapable of performing, even if extended and modified and I do not so find on the evidence. However, had I found that there had been a complete failure of consideration and had I directed JFS to give SWW their money back, I would not also have awarded to full price of a new works as damages. Only the increment, if any would have been due.

53. I should say that, in considering the compensation to which SWW are entitled, I do not express a technical opinion as an engineer, my professional knowledge and experience has been used in this context only insofar as is necessary for me to understand and consider the submissions of the Parties and their experts, to arrive at a finding as to liability and to quantify the damages. The principle I have adopted does not require me to decide whether dissolved air flotation is or is not superior to the adsorption clarifier process, either in general terms or in the circumstances of the reference.

54. Nor do I warrant that expenditure of the amount awarded in damages necessarily will enable the present works to be sufficiently extended. (Although, on the figures, that would be in line with Mr Hyde's view, he says it can be done for less, but I do not find that sufficiently proved.) I have accepted Mr Hyde's technical evidence, on the balance of probabilities, as to the feasibility of upgrading the process. I consider the dissolved air process only as a way of assessing the value of a works for SWW's purpose so that I may evaluate the damages in terms of a shortfall."

(b) Whether SWW's purported termination of its contract with JFS by its letter dated 20th June 1994 amounted to a repudiatory breach of contract which JFS accepted by its letter to SWW dated 1st July 1994?

(c) JFS's claim for interest for the late payment by SWW of the balance of the contract price;

(d) The consequences of the Arbitrator's alternative finding that the contents of Appendix A to the contract amounted to a representation, or a holding out, by SWW as to the actual parameters to be found in the water from the River Erme and that in all the circumstances of the contract between SWW and JFS, JFS was entitled to rely upon the information in Appendix A.

(b) At what date was SWW entitled to damages for breach of contract and how much interest under section 19A of the Arbitration Act 1950 is SWW entitled to in respect of such damages?

(c) Variation 250/38: the Colour Monitor;

(d) Whether SWW was entitled to the costs of the repetition of tests under Clause 33.5 of the Contract;

(f) [Not pursued];

(g) Whether SWW was entitled to the on costs in the Purac quotation.

(b) in finding that the works were not fundamentally incapable of the required performance;

(c) in failing to consider SWW's claim for interest under section 19A of the Arbitration Act 1950 on the Award of damages;

(d) in failing to award interest under the said section on the Award of damages;

(e) in failing to set off the damages owed by JFS to SWW against monies due to JFS under the contract and, in consequence, in awarding interest to JFS on such monies when the set off exercise produced a cash balance in favour of SWW;

(f) in finding that SWW was liable under the contract for the shortcomings of the Analaq streaming current detector for monitoring;

(g) [Not pursued];

(h) in failing to award the costs of the repetition of tests under Clause 33.5 of the Contract;

(i) [Not pursued];

(j) in failing to award the oncosts on the Purac quotation despite awarding damages to SWW on the basis of that quotation.

7. The Respondent commenced the works in accordance with the said instruction. The Engineer granted two extensions of time, namely ....

8. In breach of the said clauses the Respondent failed to complete the Works so that a Taking-Over Certificate could be issued by 4th September 1990. Thereafter, in further breach of the said Clauses, the Respondent failed repeatedly throughout 1991, 1992, 1993 and to June 1994 (as pleaded in paragraph 9 below) satisfactorily to complete Taking-Over tests.

9. By reason of the Respondent's said failure satisfactorily to complete Taking-Over tests (together, jointly and severally, with the Respondent's breaches of contract pleaded in paragraph 10 below) the Claimant gave notice to the Respondent on 3rd May 1994 that if it failed to pass further Take-Over Tests scheduled for 6th May 1994 Claimant would treat the Contract as having been repudiated by the Respondent. Thereafter the Respondent failed the said tests and by letter dated 20th June 1994 the Claimant terminated the Contract on the grounds that the Plant was fundamentally incapable of performing in a manner which would enable Taking-Over Tests to be achieved and subsequent Performance Tests to be successfully carried out in accordance with the specified requirements of the Contract.

10. The Claimant avers that the Respondent repeatedly failed to pass the Taking-Over Tests because the Plant as designed and constructed by the Respondent was fundamentally incapable of performing in a manner which would enable Taking-Over to be achieved and subsequent Performance Tests to be successfully carried out in accordance with the specified requirements under the Contract. In particular there were serious failures of the Plant during testing in each of the three critical areas of water quality, plant throughput and continuity of operation. In the premises the Claimant contends that the Respondent was in breach of the terms of the Contract pleaded above.

11. By reason of the Respondent's said failure to pass Taking-Over Tests the Claimant claims liquidated damages for delay of £7046 per week or part thereof from 4th September 1990 to the said date of termination of the Contract of 20th June 1994 (amounting to £1,395,108) pursuant to Clause 15.1 of the Red Book as amended and Clause 8.1 of Tender Schedule CB (pleaded above at paragraphs 5.14 and 5.78 respectively). Alternatively the Claimant claims unliquidated damages in the like sums in respect of the said delays to the said date of termination of the Contract.

12. Further by reason of the Respondent's numerous failures to pass the Taking-Over Tests the Claimant is entitled, pursuant to Clause 33.5 of the Red Book as amended (pleaded at paragraph 5.22 above), to its expenses in respect of the repetition of tests. In the alternative and by reason of the Respondent's said repudiation of the Contract, the Claimant avers that it is entitled to all sums pertaining to the repetition of tests by way of damages.

13. By reason of the Respondent's said breaches of Contract the Claimant has suffered loss and damage in addition to damages for delay.

31. After the audit, JFS issued "Proposals for Completion" dated 12th May 1992 which were based on the conclusions of the audit and prepared in consultation with the Engineer and SWW. This involved major changes to the Plant which resulted in JFS no longer implementing their Contract design but the designs of the Engineer and SWW when work recommenced on 15th May 1992.

32. By a letter dated 3rd June 1994, the Engineer ordered a second suspension of the Contract.

33. By letter dated 20th June 1994, SWW wrongfully, and in breach of Contract, purported to terminate the Contract. By the nature of the letter, SWW intimated that they no longer intended to be bound by the Contract. By a letter dated 1st July 1994, JFS accepted SWW's repudiatory breach of Contract.

34. Save insofar as the same are consistent with paragraphs 3-33 above, paragraphs 3 to 9 of the Points of Claim are denied.

SWW Claims

35. As to paragraph 10 of the Points of Claim, it is denied that the Plant designed and constructed by JFS was fundamentally incapable of performing in a manner which would enable Take-Over Tests and Performance Tests to be carried out. It is denied there were any serious failures of the Plant with regard to the water quality, plant throughput and continuity of operation. JFS is unable to plead further to these allegations until SWW give full particulars thereof identifying, inter alia, each serious failure alleged.

36. (a) As to paragraph 11 of the Points of Claim, it is denied that SWW is entitled to liquidated or unliquidated damages as claimed. As stated at paragraph 28, JFS was delayed by matters which entitled it to an extension of time up to Construction Completion on 17th February 1991 and therefore no monies are due by way of liquidated damages.

(b) Alternatively, the Variations issued after the extended Construction Completion date of 4th September 1990 put time at large and therefore JFS had no further liability to pay liquidated damages. Accordingly, JFS's obligation as to the time for completion became an obligation to complete in a reasonable time; an obligation with which JFS complied by achieving Construction Completion by 17th February 1991.

(c) Alternatively, if, which is denied, liquidated damages are due to SWW these are limited to the sum of £58,885 pursuant to the agreement set out in SWW's letter dated 4th April 1991, which sum SWW deducted from the amounts owing to JFS. SWW are therefore estopped from recovering liquidated damages greater than £58,885; alternatively by the letter dated 4th April 1991 SWW waived their rights to liquidated damages over and above the sum of £58,885.

(d) Alternatively, if, which is denied, SWW are entitled to liquidated damages in excess of £58,885, JFS's maximum liability in respect thereof is for the period from 4th September 1990 to 17th February 1991 (ic 23 weeks (2 £7,046 per week) less a deduction in respect of SWW having beneficial use of the Plant and the Plant being manually operable from 11th September 1990.

(e) Alternatively, if, which is denied, liquidated damages are applicable up to the completion of Take-Over Tests (and not limited by reference to the date of Construction Completion), JFS's liability in respect thereof is limited to a period of 20 weeks (ie 52 weeks minus 32 weeks) or alternatively to a period of 52 weeks, pursuant to Contract Schedule 8 Part 1 of the Conditions of Contract, subject to a deduction aforesaid in respect of SWW's prior beneficial use of the Plant.

(f) Alternatively, if, which is denied, SWW are entitled to unliquidated damages for alleged delay in completion, JFS put SWW to strict proof of the quantum thereof.

(g) Further and in any event, JFS contend that SWW failed in their duty to mitigate any loss allegedly suffered as a result of.JFS's alleged failure to complete on time.

37. No admissions are made as to paragraph 12 of the Points of Claim. JFS is unable to plead further to the allegations of failure to pass Take-Over Tests until such time as SWW identify which Take-Over Tests are referred to and exactly in what respect it is alleged that each such Take-Over Test failed. In particular, JFS require SWW to comply strictly with the terms of paragraph 1 of the Arbitrator's First Order for Directions. Further, and in any event, it is not admitted that SWW are entitled to any sums relating to the costs of the repetition of the Take-Over Tests pursuant to Clause 33.5 of the General Conditions of Contract, as amended by the Special Conditions, or otherwise. In the alternative, if, which is denied, SWW are entitled to the cost of the repetition of the Take-Over Tests, JFS put SWW to strict proof of the quantum thereof.

38. JFS deny that they are in breach of contract as alleged in paragraph 13 of the Points of Claim. JFS have asked SWW to identify which breaches of contract are referred to in this paragraph and await full particulars thereof.

39. No admission is made as to the damages allegedly suffered in paragraph 13(1) of the Points of Claim.

40. Paragraph 13(2) of the Points of Claim is denied. In particular, it is denied that the Works are of no benefit whatever to SWW. The Plant has been operating to produce treated water since 11th September 1990. Until discovery of documents herein, JFS is unable to plead further to this allegation but JFS will rely on the fact that the Plant was seen to be operating most recently on Tuesday 14th November 1995 when the Arbitrator visited the Plant. JFS also rely on paragraph 13(4) of the Points of Claim wherein it is admitted by SWW that SWW has been operating the Plant.

41. JFS deny paragraph 13(3) of the Points of Claim. In particular, it is denied that the Plant is of no use or benefit and fails to comply with design requirements, guarantees and warranties under the Contract. Until such time as SWW provide particulars of which design requirements, guarantees and warranties with which the Plant is alleged not to comply, JFS cannot plead further to these allegations. If, which is denied, SWW is entitled to the cost of replacing the Plant together with the cost and expense of removal of the alleged defective Plant,

(a) JFS puts SWW to strict proof of quantum thereof, and

(b) SWW's entitlement is limited to the cost of a replacement plant which is, in all respects, identical to that which JFS were required to design and construct in accordance with the parameters laid down by SWW and/or the Engineer in the Contract Documents and/or during the course of the Works, and

(c) SWW's damages are limited to any increase in costs of the replacement plant over and above the Contract Price, as varied, agreed with JFS, and

(d) SWW must give credit for the benefit received by them since 11th September 1990 in operating the Plant as presently designed and constructed by JFS, and

(e) JFS contend that SWW has failed in its duty to mitigate its loss by failing to take steps immediately after purportedly terminating the Contract to have a replacement plant designed and constructed.

42. It is denied that SWW are entitled to the costs and expenses claimed in paragraph 13(4) of the Points of Claim. Alternatively, if, which is denied, SWW are entitled to such costs and expenses, JFS put SWW to strict proof of the quantum claimed.

43. It is denied that SWW have suffered the loss claimed in Paragraph 13(5) of the Points of Claim."

55. I have approached questions of interest on what I believe to be a practical basis. Because this arbitration commenced before the commencement of the Arbitration Act 1996 and because, prior to that act, the practice was not to award compound interest, I have not done so."

"Once having addressed the question as to whether the JFS plant was fundamentally incapable of the required performance and found that it was not, however, I ought not concern myself further with the question of whether or not there may be better solutions to the problems of water treatment at Watercombe. The question I have to address becomes one of whether the JFS plant at Watercombe, even if fundamentally capable of performing, did in fact perform according to the specified requirements and, if it did not, what must be done to enable it to do so."

"...I have considered whether that entitles SWW to recover both the price of the existing works and the full value of new works in addition. So to award would require me to find the works as they are fundamentally incapable of performing, even if extended and modified and I do not so find on the evidence. However, had I found that there had been a complete failure of consideration and had I directed JFS to give SWW their money back, I would not also have awarded its full price of a new works as damages. Only the increment, if any would have been due."

2. (Directed to the arbitrator) to state his reasons for not awarding interest to JFS after 28 November 1996 or pursuant to clause 39.5 of the contract.

56. For present purposes it is only necessary to say, as Mr Littman fully accepted, that the authorities established that an arbitrator or umpire does not misconduct himself or the proceedings merely because he makes an error of fact or of law. Similarly the power of remission under section 22 has never been exercisable merely on the basis that the arbitrator or umpire has made such an error. Prior to the passing of the Act of 1979, the only occasion upon which an error of fact could be used to justify the intervention of the court was when it appeared on the face of the award. This power of intervention has been abrogated by section 1(1) of the Act of 1979. Similarly the only occasions upon which an error of law could be used to justify the intervention of the court was where it appeared on the face of the award or where the question of law was raised by a special case stated for the opinion of the court. Again this power of intervention has been abrogated by section 1(1) of the Act of 1979 although a new right of appeal on questions of law has been created. This was the right which Mr Moran sought to exercise, but for which he failed to obtain leave from Lloyd J., a decision from which he is unable to appeal.

57. We stress this aspect in order to make it clear to all who are connected in and with arbitration that neither section 22 nor section 23 is available as a backdoor method of circumventing the restrictions upon the court's power to intervene in arbitral proceedings which have been created by the Act of 1979.

58. Returning to the complaint of inconsistency, we doubt whether, as such, inconsistency between one part of an award and another could ever constitute or evidence misconduct on the part of an arbitrator. The overwhelming likelihood is that it would merely constitute or evidence error of law or of fact or of both and these do not amount to misconduct. Halsbury's Law of England, 4th ed., vol. 2 (1973), para. 622, suggests the contrary and cites Ames v. Millward (1818) 8 Taunt. 637 as authority. But that was a case not of misconduct, but of error of law upon the face of the award at a time when this was a ground for setting aside."

...

".... we think that a distinction has to be drawn between the award itself - the operative or decisive part of the award - and the reasons for that award. Inconsistency of reasoning may betray an error of fact but it is in the nature of arbitral proceedings that this must be accepted by the parties. Alternatively it may betray an error of law. That may give rise to an appeal, but it has no other operative effect...."

....

"... the main consequence of the failure of the Analaq device... was that process deficiencies were masked. .... From the evidence... I find that JFS (and indeed SWW and their Engineer) were, to use a vernacular expression, floundering about. They were wasting their time. They were wasting their time because of the deficiencies of the devices and the control method prescribed by SWW in their specification. What JFS had contracted to do was made impossible by the imposition of the Analaq."

...

3.2 Subject to the express provisions of the Contract, all work carried out by the Contractor under the Contract shall be carried out with sound workmanship and materials, shall conform to good engineering practice and shall be to the reasonable satisfaction of the Engineer.

3.3 Subject as aforesaid, the Plant as completed by the Contractor shall be in every respect suitable for the purposes for which it is intended.

4. PROVISION OF WORK, FACILITIES, SERVICES OR INFORMATION BY THE PURCHASER

4.1 If the Contract provides that the Purchaser shall execute any work or provide any Materials, facilities or services which are necessary to permit the execution and completion of the Works by the Contractor then, subject to any express descriptions thereof, such work, Materials, facilities or services shall be
 

2. that the parties elected that issues of this kind should be dealt with as matters of variation (lines 1862-1864) and that what JFS did was a variation or is to be treated as a variation (lines 1865-1884).

59. Both SWW and JFS claim very substantial sums in respect of work and attendance on site for a prolonged period. Each has provided a great deal of information relating to their accounting for the period between the time when the basic plant became used to provide drinking water and the termination of the Contract. It would not be going too far to say that, with SWW's claim for the value of a complete replacement of the works, these claims for work and attendance are the most important commercial amounts I have to consider.

60. For SWW to succeed, I hold that I have to be satisfied that their involvement was a necessary consequence of a breach by JFS and that it was not attributable to anything else. SWW's view, as expressed by Mr Hope, is that, once one accepts that the works was a complete failure and that there was a complete failure of consideration, all expenditure, in any way associated with the Watercombe works, becomes a liability of JFS. That is an extreme proposition but I do not find it necessary to consider it closely, because, although I have found JFS to be in default, I have not accepted that there was a complete failure of consideration. It follows that I have to determine whether or not there is a sufficient connection between the default of JFS and the additional costs incurred by SWW to justify liability on the part of JFS. Before doing so, however, I have to consider the implications of the provisions of the Contract itself, and in particular the provisions for damages in respect of delay and the way in which the Parties dealt with those provisions in practice. I also have to consider what actually happened on site to cause SWW's extended involvement."