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

Alstom Combined Cycles Ltd v. Henry Boot Plc [2001] EWHC Technology 428 (1st May, 2001)

Roger ter Haar Q.C. for the claimant in both actions (Lovells, Solicitors)
Stephen Furst Q.C. for the defendant in action HT 00/299 (Taylor Joynson Garrett, Solicitors)
Michael Bowsher for the defendant in action HT 00/300 (Manches, Solicitors)

The text of the Judgment of His Honour Judge Richard Seymour Q.C. is as follows:

1. By an agreement, called the Main Civil Works Contract ("the Main Contract"), dated 21 March 1994 and made between Alstom Combined Cycles Ltd. ("Alstom"), called at that time GEC Alsthom Combined Cycles Ltd., and Henry Boot Construction Ltd. ("Construction") Construction agreed with Alstom to carry out the principal works of civil construction at Connah's Quay Power Station in Clwyd, North Wales. The Main Contract incorporated the standard form Institution of Civil Engineers Conditions of Contract, 6^th edition, with amendments. In this judgment I shall call that standard form as amended "the Conditions". Latterly the person named as "the Engineer" for the purposes of the Main Contract has been Mr. A.J. Cort.
2. Construction is a subsidiary of Henry Boot Plc ("Boot"). Boot entered into a deed ("the Guarantee") dated 24 June 1994 with Alstom by which it provided a guarantee in support of the Main Contract.
3. Construction and Aegon Insurance Company (UK) Ltd. ("Aegon") entered into a bond ("the Bond") dated 23 May 1994 with Alstom in connection with the execution of the works the subject of the Main Contract. In this judgment I shall call those works "the Works".
4. A number of disputes have arisen between Alstom and Construction which have been referred to arbitration. Some awards have already been made and other arbitration proceedings are pending. It appears that Mr. Cort, as the Engineer for the purposes of the Main Contract, is continuing to consider the question whether extensions of time for completion should be granted in relation to certain sections of the Works.
5. The present actions were each commenced by a claim form issued on 2 August 2000. In each action Particulars of Claim were served on 11 August 2000. In action number HT 00/299 ("the First Action") Alstom claims payment by Boot under the Guarantee of a sum of £2,016,000. That sum is alleged to be due in respect of liquidated damages which Construction should have paid under the Main Contract for failure to complete particular sections of the Works by the dates specified for completion of those sections in the Main Contract. In the light of extensions of time granted by Mr. Cort since the commencement of the First Action, so I was told by Mr. Roger ter Haar Q.C., who appeared on behalf of Alstom, Alstom does not seek to recover more in the First Action than £1,620,000. Boot seeks a stay of proceedings in the First Action under the inherent jurisdiction of the Court essentially on the ground that the issues which it would be necessary to investigate in the First Action duplicate to a substantial extent issues already live in pending arbitration proceedings between Construction and Alstom. In action number HT 00/300 ("the Second Action") Alstom claims against Aegon payment of the sum of £2,016,000 under the Bond. Again the alleged foundation for the claim is that Construction should have paid liquidated damages under the Main Contract in respect of its failure to complete sections of the Works by the dates specified in relation to those sections in the Main Contract. Again Mr. ter Haar told me that, in the light of extensions of time granted by Mr. Cort since the commencement of the Second Action, the sum claimed against Aegon is limited to £1,620,000. Aegon seeks a determination under Part 24 of Civil Procedure Rules that, in the circumstances Alstom has no cause of action against Aegon. In the alternative, Aegon seeks a stay of proceedings in the Second Action on essentially the same grounds as those relied upon by Boot in support of its application in the First Action.

The relevant terms of the Main Contract

6. By clause 43 of the Conditions it was provided that:-

"The whole of the Works and any Section required to be completed within a particular time as stated in the Appendix to the Form of Tender shall be substantially completed as defined in Attachment E to these Conditions within the time so stated (or such extended time as may be allowed under Clause 44 or revised time agreed under Clause 46(3)) calculated from the Works Commencement Date."

Clause 44 of the Conditions made provision for the grant of extensions of time by the Engineer. By clause 44(1) Construction could apply to the Engineer if it considered that it was entitled to an extension of time. The other provisions of the clause which are material for present purposes were:-

"(3) Should the Engineer consider that the delay suffered fairly entitles the Contractor to an extension of the time for the substantial completion of the Works or any Section thereof such interim extension shall be granted forthwith and be notified to the Contractor in writing. In the event that the Contractor has made a claim for an extension of time but the Engineer does not consider the Contractor entitled to an extension of time he shall so inform the Contractor without delay.

"(4) The Engineer shall not later than 28 days after the due date or extended date for substantial completion of the Works or any Section thereof (and whether or not the Contractor shall have made any claim for an extension of time) consider all the circumstances known to him at that time and take action similar to that provided for in sub-clause (3) of this Clause. Should the Engineer consider that the Contractor is not entitled to an extension of time he shall so notify the Employer and the Contractor.

"(5) The Engineer shall within 28 days of the issue of the Certificate of Substantial Completion for the Works or for any Section thereof 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 with a copy to the Employer the overall extension of time (if any) to which he considers the Contractor entitled in respect of the Works or the relevant Section. No such final review of the circumstances shall result in a decrease in any extension of time already granted by the Engineer pursuant to sub-clauses (3) or (4) of this Clause."

7. Clause 47 of the Conditions was concerned with liquidated damages. Clause 47(2) made provision for liquidated damages where, as in the present case, the whole of the Works was divided into sections. Clause 47(5) was in the following terms:-

"The Employer may

1. deduct and retain the amount of any liquidated damages becoming due under the provision of this Clause from any sums due or to become due to the Contractor or
2. require the Contractor to pay such amount to the Employer forthwith.

If upon a subsequent or final review of the circumstances causing delay the Engineer grants a relevant extension or further extension of time the Employer shall no longer be entitled to liquidated damages in respect of the period of such extension.

Any sum in respect of such period which may already have been recovered under this Clause shall be reimbursed forthwith to the Contractor together with interest compounded monthly at the rate provided for in Clause 60(7) from the date on which such sums were recovered from the Contractor."

8. Clause 61(1) of the Conditions was in the following terms:-

9. Clause 66 of the Conditions made provision for the settlement of disputes. By clause 66(2) in the first instance any dispute was to be notified in writing to the Engineer. The clause went on:-

   "(3) Every dispute notified under sub-clause (2) of this Clause shall be settled by the Engineer who shall state his decision in writing and give notice of the same to the Employer and the Contractor within the time limits set out in sub-clause (6) of this Clause.

"(4) Unless the Contract has already been determined or abandoned the Contractor shall in every case continue to proceed with the Works with all due diligence and the Contractor and the Employer shall both give effect forthwith to every such decision of the Engineer. Such decisions shall be final and binding upon the Contractor and the Employer unless and until as hereinafter provided either

10. The Guarantee was, so far as is presently material, in the following terms:-

"1. The Guarantor HEREBY GUARANTEES that the Contractor will well and truly perform and observe all the obligations, terms, provisions, conditions and stipulations in the Contract mentioned or described or implied thereby on their part to be performed and observed according to the true purport intent and meaning thereof and if for any reason whatsoever and in any way the Contractor shall fail to perform the same then the Guarantor shall take over from the Contractor and shall forthwith perform and observe or cause to be performed and observed such obligations, terms, provisions, conditions and stipulations as aforesaid and shall be responsible to the Employer as surety for the Contractor for the payment by them of all sums of money, losses, damages, costs, charges and expenses that may become due and payable to the Employer either by reason or in consequence of any act, omission or default of the Contractor in the performance or observance of the Contract.

"3. The Guarantor's liability hereunder shall in no circumstances exceed the liability of the Contractor under the Contract.

"4. The Guarantor shall only be released and discharged from any or all of its obligations hereunder by a formal release and discharge in writing by the Employer. The latest time for the issue of such release and discharge shall be upon the issue of a Defects Correction Certificate in accordance with sub-clause 61.1 of the Conditions of Contract."

For the purposes of the Guarantee the expression "the Guarantor" meant Boot, the expression "the Contractor" meant Construction, the expression "the Employer" meant Alstom and the expression "the Contract" meant the Main Contract.

The Bond

11. The Bond was in a traditional form. In the Bond the three parties thereto, Construction, Aegon and Alstom were called, respectively, "the Contractor", "the Surety" and "the Employer". The Main Contract was referred to in the Bond as "the Contract". The amount of the Bond was £2,433,508. The relevant part of the operative section of the Bond was in these terms:-

"NOW THE CONDITIONS of the above-written Bond are such that if:

1. the Contractor shall subject to Condition (c) hereof duly perform and observe all the terms provisions conditions and stipulations of the said Contract on the Contractor's part to be performed and observed according to the true purport intent and meaning thereof or if
2. on default by the Contractor the Surety shall satisfy and discharge the damages sustained by the Employer thereby up to the amount of the above-written Bond or if
3. the Engineer defined in Clause 1(1)(c) of the said Contract shall pursuant to the provisions of Clause 61 thereof issue a Defects Correction Certificate then upon the date stated therein (hereinafter called "the Relevant Date")

12. Certificates of Substantial Completion in relation to various sections of the Works were issued on dates between 28 June 1995 and May 1996. In a letter dated 23 June 2000 to the Managing Director of Construction Alstom demanded payment of a sum of £2,406,000 "being the amount of liquidated damages that is now due to ALSTOM Combined Cycles Limited from you due to delays to Substantial Completion of your Works." A copy of that letter was sent to Boot under cover of a letter also dated 23 June 2000 which referred to the Guarantee and went on:-

"Therefore, if we do not receive such payment within the next 10 (ten) working days we will be looking to you for payment of the liquidated damages in accordance with Clause 1 of the Parent Company Guarantee."

Construction replied to the letter dated 23 June 2000 to it in a letter dated 28 June 2000 of which the material part read:-

"…It is a matter of record, of which you are well aware, that the various Engineers whom you have appointed to administer the Contract have all conspicuously failed to carry out their duties under clauses 44(3), 44(4) and 44(5) of the Conditions of Contract.

"Under such circumstances the right of the Employer to payment of liquidated damages is forfeit and our obligation reverts to one of completing the Works and the various Sections thereof within a reasonable time.

"As you will appreciate from the foregoing the right, under clause 47(5)(b), to which you refer can no longer be relied upon and we shall therefore not be making the payment you have requested."

Upon receipt of that letter Alstom wrote a letter dated 29 June 2000 to Boot calling upon Boot under the Guarantee to pay the sum of £2,406,000. That demand was repeated in a letter dated 7 July 2000.

13. In a letter to Aegon dated 3 July 2000 Alstom required it to pay the sum of £2,406,000.

The Defects Correction Certificate

14. On 15 August 2000 Mr. Cort issued a Defects Correction Certificate that:-

"In accordance with the Conditions of Contract, it is hereby certified that the Contractor has completed his obligations to construct and complete the Works to the satisfaction of the Engineer on the 15 August 2000."

The disputes referred to the Engineer

15. By a letter dated 11 August 2000 Construction referred to Mr. Cort a dispute as to whether Alstom had lost the right to claim liquidated damages. The grounds relied upon as leading to the conclusion that the right had been lost were:-

1. The breach is so widespread as to call into question the entirety of the extension of time provisions causing time to become "at large" in relation to the Project as a whole and each of the milestones. Hence, the obligation upon HBCL was to complete the Project (and each of the milestones) within a reasonable period of time. Furthermore, that time being at large, the Employer's right to deduct liquidated damages pursuant to Clause 47 is forfeit. Lastly, given the right to liquidated damages was forfeit pursuant to a substantial and serious breach of Contract by the Employer, it should not be able to recover general damages in lieu of liquidated damages for any delay in the completion of the Works or any milestone.



or

2. That the right to deduct liquidated damages in relation to any milestone must be dependant upon the Engineer having fully complied with the contractual requirements in relation to that milestone, pursuant to Clause 44 of the Contract. That no liquidated damages can be deducted in relation to any milestone until all contractually required reviews of time have been completed by the Engineer. Thereafter, liquidated damages could still be payable assuming there is any period of default in relation to any milestone."

16. In a letter dated 28 September 2000 Construction referred to Mr. Cort a dispute as to whether the Defects Correction Certificate was correct as to the date at which the Works were complete. The grounds for disputing the date were set out in the letter as follows:-

17. Construction has also, by a letter dated 28 September 2000 to Mr. J.C. Quinton, Commercial Director of Alstom, invoked in relation to the dispute which I have mentioned in the previous paragraph the procedure for arbitration in the Bond.

18. Before considering the applications for a stay of proceedings in each of the First Action and the Second Action it is necessary, logically, to consider the application of Aegon for summary judgment against Alstom. If that application succeeds the Second Action should be dismissed, rather than the subject of a stay or being left to continue in the usual way.
    
    
19. The basis upon which Mr. Michael Bowsher, who appeared on behalf of Aegon, put his submission that the claim of Alstom on the Bond could not succeed was that, on proper construction of the Bond, Aegon was discharged from all liability on the issue of the Defects Correction Certificate, and such certificate had been issued on 15 August 2000. He submitted that the language of the Bond was clear, and it mattered not that the Second Action had been commenced prior to the issue of the Defects Correction Certificate. Once the Defects Correction Certificate had been issued, according to Mr. Bowsher, it was as if the Bond had never existed. Mr. ter Haar on behalf of Alstom accepted that if it is subsequently found in the arbitration proceedings now pending that the Defects Correction Certificate should have certified that the Works had been completed at some date before the date of commencement of the Second Action any amount recovered in the Second Action will have to be repaid to Aegon, but he submitted that there is an obligation on Aegon as bondsman on an interim basis to pay a sum which was due as at the date of commencement of the Second Action, whatever may have happened since, and notwithstanding the commencement of arbitration proceedings to challenge the correctness of the date specified as the date of completion of the Works in the Defects Correction Certificate. Indeed, Mr. ter Haar's position in both actions really was that as at the date of the commencement of each the relevant defendant had no defence because Construction had no defence to a claim by Alstom for payment of liquidated damages. In fact, for reasons which are obscure, no proceedings have been commenced against Construction in which Alstom claims payment of liquidated damages. Mr. ter Haar did not seek summary judgment in either action, but he made it clear that, dependant upon the outcome of the applications before me, his client was likely to do so. His principal ground of opposition to the applications for a stay of proceedings in each action was that there was no overlap between the issues which might arise in these actions and any issues in the arbitrations to which I have referred because, in effect, there was no defence to the claim made in the First Action or to that made in the Second Action.
    
    
20. It is, I think, implicit in Mr. Bowsher's submission as to the proper construction of the Bond that his contention was that upon, and by virtue of the fact of, the issue of the Defects Correction Certificate, unless the Bond had ceased to be enforceable earlier for some other reason, it became null and void both prospectively and retrospectively. That, however, is not what the Bond said. The obligation did not become null and void upon the date of issue of the Defects Correction Certificate, but "upon the date specified therein". Given that the third condition of the Bond referred in terms to clause 61 of the Conditions it must be legitimate, it seems to me, to have regard to the terms of that clause in construing that condition. From clause 61(1) of the Conditions it is apparent that the date which the Defects Correction Certificate is required to specify is

"the date on which the Contractor shall have completed his obligations to construct and complete the Works to the Engineer's satisfaction."

While the Bond provided that upon the satisfaction of any of the conditions to which it was subject "this obligation shall be null and void", and thus appeared to be considering prospectively a time when the obligation would become null and void, at least in a case in which the Bond ceased to be valid as a result of the satisfaction of the third condition the relevant date would actually be a date in the past. In my judgment it is clear from the wording of the third condition in the Bond that the obligation created by the Bond only becomes null and void with effect from the date which should be specified in the Defects Correction Certificate as the date of completion of the Works prospectively. It would be a very strange result if a liability to pay under the Bond which had crystallised prior to the issue of the Defects Correction Certificate simply vanished because the Defects Correction Certificate had been issued, especially as under the Main Contract the Engineer had no power to decline to issue the Defects Correction Certificate, if otherwise it should be issued, on the ground that he wished to avoid the Bond becoming null and void. I do not think that the wording of the Bond compels that conclusion. Thus it seems to me that the point taken by Mr. Bowsher is not well-founded.

21. The provisions for arbitration in the Bond would only have a limited purpose if Mr. Bowsher's submission were sound, for Aegon would have been discharged upon any issue of a Defects Correction Certificate, whether the date specified in it were right or wrong, and if Construction wished to challenge the correctness of the date specified as the date of completion of the Works it could do so by following the procedure in clause 66 of the Conditions. This consideration seems to me to be a further significant indication that the construction of the Bond for which Mr. Bowsher contended is not correct. While the language of the Bond seems even more obscure than that of most documents of this kind, I consider that it is tolerably clear that, to make commercial sense of the third condition it is necessary to construe it as meaning that the obligation is to be taken as having become null and void on the date upon which, for the purposes of clause 61(1) of the Conditions, the Works were in fact complete, whether such date is arrived at by the Engineer by a correct application of clause 61(1) or as a result of arbitration proceedings. In the present case, therefore, the arbitration provisions in the Bond having been invoked, it is not at the moment possible to say what "the Relevant Date" is for the purposes of the Bond. However, if the Bond only became null and void on the date specified in the Defects Correction Certificate as issued by Mr. Cort on 15 August 2000, namely that date, it was not null and void as at the date upon which Alstom made its demand upon Aegon. It follows that the application of Aegon for summary judgment fails.

22. As I have indicated, Mr. ter Haar submitted, in reality, that neither Boot nor Aegon had any defence to Alstom's claim against it. If that is correct, it must mean, in my judgment, that it would not be right to stay proceedings. To do so in circumstances in which there was no defence would be to deny justice to Alstom. For it to be appropriate for me to grant a stay of proceedings in either the First Action or the Second Action there must, I think, be an arguable defence to the claim in the relevant action, and that defence, or at least one of the defences, if more than one is contended for, must raise issues which are already the subject of existing proceedings.
    
    
23. The applications before me were not countered by applications for summary judgment on behalf of Alstom, and it may be that Mr. ter Haar, had he been appearing on such applications would have wished to put forward arguments which he did not advance before me. I would not wish to express any concluded view as to the merits of Alstom's case in either the First Action or the Second Action without the benefit of full argument. However, it does appear to me that the submission made to me by Mr. Stephen Furst Q.C. on behalf of Boot that Boot is not bound to pay to Alstom under the Guarantee a sum representing liquidated damages unless Construction itself is obliged as against Alstom to pay such damages must be correct. It is right, as Mr. ter Haar submitted, that, although Construction has commenced arbitration proceedings in which it seeks to challenge Mr. Cort's decision that Alstom is not precluded from recovering liquidated damages, for the present the effect of clause 66(4) of the Conditions is that Construction bound by the decision of Mr. Cort. Mr. ter Haar submitted that both Boot and Aegon were similarly bound, because each was to be treated as being in an identical position to that of Construction. I do not think that that is right. Neither the Guarantee nor the Bond provided in terms that Boot, in the case of the Guarantee, or Aegon, in the case of the Bond, was to be treated at all times and for all purposes as in the same position, as against Alstom, as Construction. Under the Guarantee Boot agreed to answer for Construction's performance and observance of the Main Contract "according to the true purport intent and meaning thereof". That must, I consider, mean that it is open to Boot, if called upon under the Guarantee, to argue that some alleged breach of the Main Contract on the part of Construction is not a breach on true construction of the Main Contract. The first condition to which the Bond was subject also provided for discharge of the obligation created by the Bond if Construction performed the Main Contract "according to the true purport intent and meaning thereof". A similar point is therefore potentially open to Aegon. I accept the submission of Mr. Furst that clause 66(4) has no application so far as Boot is concerned, so that I consider that it would be open to Boot in the First Action to contend that Construction is not bound to pay liquidated damages to Alstom by reason of the failure of the mechanism in the Main Contract for dealing with extensions of time. I express no view as to the merits of that case. It is enough for present purposes that that case, whatever its merits, is the same as that which is going to be considered in the arbitration proceedings to which I have referred. The same point is, it seems to me, also available to Aegon, because, as Mr. ter Haar accepted, Alstom must prove, in order to succeed as against Aegon, that it has suffered loss, and it can only do that if it can show that it is entitled to liquidated damages from Construction which Construction has not paid.
    
    
24. Mr. Furst also relied upon the fact that it would, he submitted, be open to Boot to contend in its defence that the date specified in the Defects Correction Certificate as the date of completion of the Works should have been a date earlier than the date of the demand upon Boot upon which the First Action is founded, because, if that were right, Boot could say that it should have been released under clause 4 of the Guarantee before the alleged liability arose. Although his concession was made in the context of the position of Aegon, the logic of Mr. ter Haar's acceptance that, if the completion date specified in the Defects Correction Certificate is hereafter found to be incorrect, and a date prior to the date of the demand upon which the Second Action is based is found to be correct, Aegon would cease to be liable to Alstom, must also apply to Boot. It seems to me, therefore, that it is open to Boot to take such a point in its defence in the First Action. As I have already recorded, the question of the correct date to be specified in the Defects Correction Certificate is the subject of existing arbitration proceedings.
    
    
25. A further line of defence which Mr. Furst submitted was available to Boot was set-off. He submitted that sums which have yet to be quantified are due to Construction from Alstom as a result of previous arbitration proceedings. Mr. ter Haar contested that submission on the facts, because there was, apparently, a payment by Alstom to Construction in excess of sums certified as due under the Main Contract, and as a matter of construction of the Conditions. He submitted that on proper construction of clause 47(5) of the Conditions the mechanism provided for recovery of liquidated damages did not contemplate any set-off. Mr. Furst submitted that the question of whether, on the facts, any set-off was available to Construction was to be resolved in the arbitration proceedings to which I have referred.
    
    
26. For the reasons which I have given in the preceding paragraphs it seems to me that there are arguable defences available both to Boot in the First Action and to Aegon in the Second Action. The defences which I have considered are not necessarily the only defences available, but they have been put before me as raising issues which are already the subject of arbitration proceedings, and that on that account, so it was submitted, in order to avoid duplication and the risk of inconsistent findings, I should grant a stay of proceedings in each of the First Action and the Second Action. Each of Boot and Aegon has given an undertaking to be bound by the outcome of whichever arbitration or arbitrations potentially affect its position as against Alstom. In my judgment it would be right, proportionate and in the interests of justice to grant a stay of proceedings in each of the First Action and the Second Action until the later of the final resolution of whichever of the currently outstanding arbitration proceedings last reaches a conclusion. In practical terms all that turns potentially upon whether I accede to the applications to grant a stay of proceedings in the First Action and the Second Action is whether Boot and Aegon hold onto the sum pursued against them, £1,620,000, pending the resolution of the arbitration proceedings between Construction and Alstom, or whether Alstom holds it subject to a contingent requirement to repay the whole or some part of it. It is difficult to resist the conclusion that the commencement of the First Action and the Second Action, and the applications now before me, are but manoeuvres for advantage in a much larger war. I will hear Counsel as to the precise form of order which I should make in the light of my conclusion on the points of principle, as matters have moved on somewhat since the preparation of the draft orders put before me.