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

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT

		Royal Courts of Justice Strand, London, WC2A 2LL
		21st June 2010

 


Mr Justice Akenhead:

Introduction

1. This case raises a short and not unimportant issue of construction in relation to conditions precedent in the standard JCT contracts. The contract in this case incorporated the JCT Trade Contract terms (TC/C) 2002 edition with Amendment No 1:2003, albeit as will be seen below this was further amended by the parties.

The Facts

2. WW Gear Construction Ltd ("the Employer") is a Cyprus registered company which wished to develop a site in the middle of a roundabout directly on the south side of Westminster Bridge, No 1, Westminster Bridge Road, London SE1. The development was to include the construction of the Westminster Park Plaza Hotel. McGee Group Ltd ("the Contractor") is a ground works contractor which was retained by the Employer on or about 31 August 2007 to carry out excavation and other ground works for this development. The agreed Contract sum was £1,812,836.75. The Construction Manager named in the Contract was GC Project Management Ltd. The Contractor carried out work completing it in about May 2009 and the Employer made some payments. Disputes arose in relation to payments including the Contractor's claims for delay and disruption related loss and expense.
3. The Contractor made, as is usual, applications for payment, apparently starting in late 2007 continuing through to October 2009, and broadly on a monthly basis. The applications included requests or claims for payment for extended preliminary costs associated, apparently, with delay either to individual elements of the works (for instance extended preliminaries for capping beam works as from 30 November 2007) and to the works as a whole from about June 2008. For Application 18 which was said to summarise the position up to 29 March 2009, the Contractor referred in its summary to a "Loss & Expense Claim" being "As Attached". That claim, in the sum of £1,555,919.89, included for preliminaries which at least in part had previously formed the subject matter of monthly applications for payment; it included various other delay and disruption claims such as "Site Plant" as well as "Additional Head Office Direct Costs", "Additional Site Management Costs" and "Head Office Overheads & Loss of Profit". I am not in a position to make any findings as to whether or not any other notices, claims or applications were made by the Contractor in relation to loss and expense.
4. The Employer decided that it wished to refer to adjudication issues arising between the parties, including issues relating to the proper interpretation and application of extension of time and delay related loss and expense clauses in the contract. Dr John Ross was appointed adjudicator and in an adjudication decision dated 29 March 2010, running to 83 pages and various appendices, he decided in broad terms against the Employer on these issues. The Employer was not satisfied with this decision albeit that it has not sought to challenge the enforceability as such of the decision. Consequently, it has issued these proceedings for final declarations.

The Contract

5. The Contract documentation comprised Numbered Documents 1 to 9, which included Preliminaries and General Conditions. The Contract incorporated the standard Trade Contract (TC/C) albeit amended by the various provisions set out at Part A20 of the Preliminaries and General Conditions. In setting out the relevant clauses, I will refer to the amended conditions, albeit underlining those parts in the body of the clause which were the subject of the agreed amendments.
6. Relevant clauses were as follows:

(a) Clause 1.5

1. "The Construction Manager is not the agent of the Employer and has no authority under this Trade Contract to vary the Contract or the Works or to sanction any additional expenditure by the Employer or to change the Completion Period. Therefore no act, decision or instruction of the Construction Manager that will vary the Contract or the Works or alter the Ascertained Final Trade Contract Sum or change the Completion Period will bind the Employer unless and until that act, decision or instruction has been confirmed in writing by the Employer to be an act, decision or instruction of the Employer…"

(b) Clause 1.9.1

"The Trade Contractor shall carry out and complete the Works in compliance with this Trade Contract and with all instructions issued thereunder."

(c) Clause 2.1

".1 The Trade Contractor shall, at the Date of Commencement stated in the Appendix, enter upon the site of the Project and commence the execution of the Works…

.3 The Trade Contractor shall execute the Works in compliance with the Trade Contract Documents, and within the Completion Period stated in the Appendix (subject to any revision of that Period by the Construction Manager) and reasonably in accordance with the progress of the Project…"

(d) Clause 2.2.1

"If and whenever it becomes reasonably apparent that the commencement, progress or completion of the Works or any part thereof is being or is likely to be delayed, the Trade Contractor shall forthwith give written notice to the Construction Manager and to the Employer of the material circumstances including, insofar as the Trade Contractor is able, the cause or causes of the delay and identify in such notice any event which in his opinion is a Relevant Event as described in clause 2.5. Any written notice given under this clause will be separate from other correspondence and delivered by facsimile and post. It will be headed "this is Delay Notice No……." and will be numbered sequentially."

(e) It is unnecessary to set out verbatim the provisions of the other extension of time clauses, namely Clauses 2.2, 2.3, 2.4 and 2.5. They make provision for the Contractor to give particulars if practicable of the expected effects and extent of delay and for the Construction Manager upon receipt of any notice particulars and estimate of the expected delay to grant extension of time and revise the Completion Period in a fair and reasonable manner. In any event the Construction Manager is required after the expiration of the Completion Period and in any event not later than the expiry of 12 weeks after practical completion to grant fair and reasonable extensions having regard to any of the Relevant Events, irrespective of any notification. The Relevant Events included compliance with Construction Manager's instructions, late ingress to or egress from the site and any admitted breach or act of prevention on the part of the Employer or the Construction Manager.

(f) Provision was made by Clauses 3.19 and 3.20 of the Conditions for the Construction Manager to issue instructions requiring Variations. A mechanism was provided for the evaluation of such variations except that if instructions specifically said that Clause 3A was to apply the procedure was set up in effect to secure an agreed price and indeed extension of time in respect of that instructed Variation.

(g) Clause 4.11

".1 As a condition precedent to the Trade Contractor's entitlement to payment under clause 4.11.2, the Trade Contractor shall, on each date for application for Interim Payment, submit to the Construction Manager a detailed application setting out the amounts which the Trade Contractor considers to be due pursuant to clause 4.12 to 4.16…

.2 The Construction Manager not later than 21 days after the Date or Stage, whichever alternative is stated in the Appendix, shall issue an Interim Payment Certificate signed by the Construction Manager stating the amount due to the Trade Contractor from the Client…"

To be included in the gross valuation for any given Interim Payment Certificate, by Clause 4.13.2.2 were "any amounts ascertained under clause 4.21". Similarly Clauses 4.17 and 4.18 provided that in the final adjustment of the Trade Contract Sum such amounts were also to be included.

(h) Clause 4.21

"If the Trade Contractor makes written application to the Construction Manager stating that he has incurred or is likely to incur direct loss and/or expense (of which the Trade Contractor may give his quantification) in the execution of this Trade Contract… because the regular progress of the Works or any part thereof has been or is likely to be materially affected by any one or more of the matters referred to in clause 4.22; and if as soon as the Construction Manager is of the opinion…that the regular progress of the Works or of any part thereof has been or is likely to be so materially affected as set out in the application of the Trade Contractor then the Construction Manager from time to time thereafter shall ascertain the amount of such loss and/or expense which has been or is being incurred by the Trade Contractor; provided always that:

.1 the Trade Contractor's application shall be made as soon as and in any event not later than two months after it has become, or should reasonably have become, apparent to him that the regular progress of the Works or any part thereof has been or was likely to be affected as aforesaid, and such application shall be formally made in writing and fully documented and costed in detail, and it shall be a condition precedent to the Trade Contractor's entitlement under this clause 4.21.1 or clause 4.25 that the Trade Contractor has complied fully with all the requirements of this clauses [sic] including, for the accordance [sic] of doubt, the said time period of two months.

.2 the Trade Contractor shall in support of his application submit to the Construction Manager upon request such information as should reasonably enable the Construction Manager to form an opinion as aforesaid; and

.3 the Trade Contractor shall submit to the Construction Manager upon request such details of such loss and/or expense as are reasonably necessary for such ascertainment.

.4 The Trade Contractor shall not be entitled to direct loss and/or expense to the extent that the loss or expense or…other matters have been caused or contributed to by their Trade Contractor's negligence or the default."

(i) Clause 4.22 listed the matters which could give rise to a loss and expense claim under Clause 4.21; these included the late release of information, failure to give in due time ingress to or egress from the site, Variation instructions and "any impediment, prevention or default, whether by act or omission, by the Client or any person for whom the Client is responsible".

(j) Clause 4.25

"Save as otherwise provide [sic] in this Clause 4 the provisions of clauses 4.21 and 4.23 are without prejudice to any other remedies or rights of the Trade Contractor under this Trade Contract".

7. It was agreed between the parties that any disputes or differences between them were still being determined by legal proceedings in the TCC.

These Proceedings

8. The Employer seeks a final determination from this Court as to the true meaning and effect of Clause 4.21 and asserts in its Claim that as amended Clause 4.21 provided that a timely and detailed application would be a condition precedent to entitlement under that clause. It took issue with the adjudicator's decision in particular that part which decided that the condition precedent was "devoid of meaning" and of no effect. It seeks declarations in the following terms:

".1 On its true construction, the [Contractor] was required to comply with the provisions of Clause 4.21.1 as a condition precedent to its entitlement to make any such application, further or alternatively, to have such an application for loss and expense ascertained by the Construction Manager, further or alternatively to loss and expense

.2 In order to satisfy the condition precedent, the Defendant must establish that it provided sufficient information within the specified period whether or not it did so in relation to any given claim is a matter of fact to be determined in all the circumstances."

This second declaration was abandoned and not pursued by Counsel during oral argument.

9. Essentially, much of the argument between the parties has revolved around whether meaning can or should be given to the words "Trade Contractor's entitlement under this clause 4.21.1" on the basis that, at least superficially, there is no entitlement under that sub-sub-clause. The Employer argues that, as a matter of construction, what was clearly intended was a reference to Clause 4.21 in the round whilst the Contractor argues that conditions precedent are to be construed strictly and that, as the words are superficially meaningless, they should not be construed as barring the Contractor from a legitimate claim for loss and expense if the application therefor is not made within the period or periods set out in Clause 4.21.1. The Contractor prays in aid the Adjudicator's decision in this context which found this expression to be meaningless and that the condition precedent had "no teeth".
10. The Employer through its Counsel has expressly conceded that Clause 4.25, even as amended, does not operate to prevent the Contractor's claims at common law, including claims for damages for breach of contract, from being pursued even if Clause 4.21 as a whole has not been complied with by the Contractor. In my judgement, that was a proper concession to make.

The` Law

11. Reliance was placed by both parties on the House of Lords decision in Chartbrook Ltd and another v Persimmon Homes Ltd and another [2009] UKHL 38. Lord Hoffmann addressed important issues of construction which are germane to the current case:

"14.There is no dispute that the principles on which a contract (or any other instrument or utterance) should be interpreted are those summarised by the House of Lords in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896, 912-913. They are well known and need not be repeated. It is agreed that the question is what a reasonable person having all the background knowledge which would have been available to the parties would have understood them to be using the language in the contract to mean. The House emphasised that "we do not easily accept that people have made linguistic mistakes, particularly in formal documents" (similar statements will be found in Bank of Credit and Commerce International SA v Ali [2002] 1 AC 251, 269, Kirin-Amgen Inc v Hoechst Marion Roussel Ltd [2005] RPC 169, 186 and Jumbo King Ltd v Faithful Properties Ltd (1999) 2 HKCFAR 279, 296) but said that in some cases the context and background drove a court to the conclusion that "something must have gone wrong with the language". In such a case, the law did not require a court to attribute to the parties an intention which a reasonable person would not have understood them to have had. Para 11:

15. It clearly requires a strong case to persuade the court that something must have gone wrong with the language and the judge and the majority of the Court of Appeal did not think that such a case had been made out. On the other hand, Lawrence Collins LJ thought it had. It is, I am afraid, not unusual that an interpretation which does not strike one person as sufficiently irrational to justify a conclusion that there has been a linguistic mistake will seem commercially absurd to another: compare the Kirin-Amgen case [2005] RPC 169 at pp. 189-190. Such a division of opinion occurred in the Investors Compensation Scheme case itself. The subtleties of language are such that no judicial guidelines or statements of principle can prevent it from sometimes happening. It is fortunately rare because most draftsmen of formal documents think about what they are saying and use language with care. But this appears to be an exceptional case in which the drafting was careless and no one noticed.

22. In East v Pantiles (Plant Hire) Ltd (1981) 263 EG 61 Brightman LJ stated the conditions for what he called "correction of mistakes by construction":

"Two conditions must be satisfied: first, there must be a clear mistake on the face of the instrument; secondly, it must be clear what correction ought to be made in order to cure the mistake. If those conditions are satisfied, then the correction is made as a matter of construction."

23. Subject to two qualifications, both of which are explained by Carnwath LJ in his admirable judgment in KPMG LLP v Network Rail Infrastructure Ltd [2007] Bus LR 1336, I would accept this statement, which is in my opinion no more than an expression of the common sense view that we do not readily accept that people have made mistakes in formal documents. The first qualification is that "correction of mistakes by construction" is not a separate branch of the law, a summary version of an action for rectification. As Carnwath LJ said (at p. 1351, para 50):

"Both in the judgment, and in the arguments before us, there was a tendency to deal separately with correction of mistakes and construing the paragraph 'as it stands', as though they were distinct exercises. In my view, they are simply aspects of the single task of interpreting the agreement in its context, in order to get as close as possible to the meaning which the parties intended."

24. The second qualification concerns the words "on the face of the instrument". I agree with Carnwath LJ (at pp 1350-1351) that in deciding whether there is a clear mistake, the court is not confined to reading the document without regard to its background or context. As the exercise is part of the single task of interpretation, the background and context must always be taken into consideration.

25. What is clear from these cases is that there is not, so to speak, a limit to the amount of red ink or verbal rearrangement or correction which the court is allowed. All that is required is that it should be clear that something has gone wrong with the language and that it should be clear what a reasonable person would have understood the parties to have meant. In my opinion, both of these requirements are satisfied."

12. This is self explanatory. Whilst the Court does not readily accept that contractual parties have made a mistake in their written contracts, once it is clear that something has gone wrong with the language, the Court will seek as a matter of construction and interpretation to determine what the parties really meant; in doing so, as with all contractual construction exercises, the Court can as necessary have regard to the background to and context of the contract in question. If it is simply not possible to determine what was mutually intended from the wording, the background and the context, it may well be the case that the Court has to say that the parties have produced a meaningless term or contract as the case may be. The construction exercise however is to be distinguished from the circumstances which give rise to a claim for rectification. It is not suggested in the current case that rectification is required.
13. It is sometimes said and argued that conditions precedent which have the effect of otherwise excluding what would otherwise be perfectly valid claims or entitlements are to be construed strictly. For instance in cases such as Gilbert-Ash (Northern) Ltd Modern Engineering (Bristol) Ltd 1974 AC 689, various judges used words to the effect that the contractual language used to exclude rights of set off or other such common law or equitable rights must be "sufficiently clear" (see Lord Diplock page 716 H). However the basic rules of construction apply to all contractual terms. Thus, in Bremer Handelsgesellschaft Schaft v Vanden Avenne Izegem [1978] 2 Lloyds Rep 109, Lord Wilberforce said in relation to a particular clause [quoting Lane LJ in the Court of Appeal]:

"Whether this clause is a condition precedent or a contractual term of some other character must depend on (i) the form of the clause itself, (ii) the relation of the clause to the contract as a whole, (iii) general considerations of law."

14. There is no direct authority, at least to which the Court has been referred, on this particular form of contract. However, the un-amended form of wording is similar and comparable to that used in the earlier editions of the JCT contracts, both in their 1963 and 1980 editions. In London Borough of Merton v Stanley Hugh Leach Ltd (1985) 32 BLR 51, Mr Justice Vinelott was asked to consider a number of legal and construction issues in relation to the 1963 Edition of the JCT Standard form including various issues relating to loss and expense claims made under Clause 24 (1) of the contract conditions, which was the precursor to Clause 4.21 in the contract with which this case is concerned. Clause 24(1) stated:

"If upon written application to him by the Contractor the Architect…is of the opinion that the Contractor has been involved in direct loss and/or expense for which he would not be reimbursed by a payment made under any other provision in this Contract by reason of the regular progress of the Works or of any part thereof having been materially affected by [various listed factors such as late information] and if the written application is made within a reasonable time of it becoming reasonably apparent to him that the progress of the Works or any part thereof has been affected as aforesaid, then the Architect should either himself ascertain or instruct the Quantity Surveyor to ascertain the amount of such loss and/or expense…"

15. Mr Justice Vinelott went on to say at Page 95 looking at Clause 24 (1) and 11(6), the equivalent Variation related clause:

" The common features of Clauses 24(1) and 11(6) are first that both are "if" provisions, that is , provisions which only operate in the event that the contractor invokes them by making a written application, secondly, that if an application is made the architect must form an opinion whether the contractor has suffered direct loss and/or expense in the circumstances of the kind there set out, thirdly, that the written application must be made within a reasonable time after a stated event, and, fourthly, that the architect must then ascertain the amount of the loss or expense which is then added to the contract sum."

Although it must be borne in mind that the terms in the Merton case and the current case are somewhat different, the dicta of Vinelott J are illuminating.

The Construction in this Case

16. In simple terms, the issue has boiled down to whether the making of an application by the Contractor within the general and specific timescales set out in Clause 4.21.1 is a condition precedent to the recovery of loss and expense under that clause or whether the terms of that sub-sub-clause are meaningless. Ascertained loss and/or expense under Clause 4.21 is simply one of the adjustments to be made to the contract sum. Whilst some of the grounds in respect of which loss and expense are awardable under Clause 4.21 may well also reflect breaches of contract on the part of the Employer and give rise to an independent entitlement in damages on the part of the Contractor, Clause 4.21 is simply a contractual adjustment clause.
17. The main part of the Clause may be broken down to show that this is one of those "if" clauses referred to by Vinelott J in the Merton case.

(a) If the Trade Contractor makes a written application to the Construction Manager stating that he has incurred or is likely to incur direct loss and/or expense (of which the Trade Contractor may give his quantification) in the execution of this Trade Contract:

This makes it clear that the trigger for the operation of Clause 4.21 is the making of the application by the Contractor. The maxim is presumably that he or she who does not ask does not get. There is nothing in Clause 4.21 which suggests that the Construction Manager or the Employer has any obligation to ascertain loss and expense let alone adjust the contract sum for loss and expense which has not been applied for. Clause 4.21 is to be contrasted with the extension of time clauses which do impose ultimately upon the Construction Manager the obligation to extend time as required even if no notice, request or particulars are provided by the Contractor.

(b) because the regular progress of the Works or any part thereof has been or is likely to be materially affected by any one or more of the matters referred to in clause 4.22:

This makes it clear that the application should state in effect that the regular progress is or is likely to be affected by the various matters.

(c) and if as soon as the Construction Manager is of the opinion…that the regular progress of the Works or of any part thereof has been or is likely to be so materially affected as set out in the application of the Trade Contractor:

Whilst there is a given need for the Construction Manager to form an opinion as set out above, it is difficult to see in logic why the forming of an opinion is part of any precondition. Although the Construction Manager is said not to be the agent of the Employer, it would be an extraordinary state of affairs if the Construction Manager could decline to form an opinion so as to prevent the operation of this sub-clause. It matters not, so far as I can see, how one reaches this view but both Counsel accepted that one intellectually acceptable route was that the Court in its role as the ultimate dispute resolution body would have power to open up, review and revise the opinions of the Construction Manager, including its opinion that it would decline to do what is required to enable this clause to operate.

(d) then the Construction Manager from time to time thereafter shall ascertain the amount of such loss and/or expense which has been or is being incurred by the Trade Contractor:

This is self explanatory. Again, a refusal on the part of the Construction Manager to carry out the ascertainment exercise where there was a justified claim could not in practice be a bar to the Contractor's entitlement.

18. One then turns in a similar manner to analyse Clause 4.21.1:

(a) provided always that:

This type of wording is often the strongest sign that the parties intend that there to be a condition precedent. What follows such a proviso is usually a qualification and explanation of what is required to enable the preceding requirements or entitlements to materialise.

(b) .1 the Trade Contractor's application shall be made as soon as and in any event not later than two months after it has become, or should reasonably have become, apparent to him that the regular progress of the Works or any part thereof has been or was likely to be affected as aforesaid,

There is nothing particularly difficult or onerous in the Contractor making its application within either the general or specific timetables. The application is clearly that referred to in the body of Clause 4.21. Since the application must state that direct loss and/or expense has been or will be incurred because the progress of the Works has been or will probably be delayed, the long stop period within which the application must be made is two months after it has become or should reasonably have become apparent that the regular progress of the Works or any part was or was likely to be affected. It does seem however that the wording is such that the two month long stop period and indeed general periods run from one of two stages, namely either when it has become apparent or when it should reasonably have become apparent that the progress of the works was or was likely to be affected. There is no reason to construe this part of the sub-sub-clause in any way other than in effect giving the Contractor the option of making its application under Clause 4.21 at the later of the two alternative stages, if as a matter of fact they turn out to be different. Thus, the date when the regular progress of the Works was actually affected may well be later than the date when it became reasonably apparent that the regular progress of the Works was likely to be affected. Depending on the facts, it may be that the time for making any given application under Clause 4.21 can await a time when actual delay to the relevant part or the whole of the Works has materialised.

(b) and such application shall be formally made in writing and fully documented and costed in detail,

It is rightly accepted that the requirement for the application to be made "formally" adds very little if anything to the requirement that the application pursuant to Clause 4.21 must be in writing. Any such application must in substance be clearly made pursuant to Clause 4.21 albeit that it is not essential that any particular form of words is used. Whether the application is fully documented and costed in detail will be a matter of fact. I doubt very much whether the "detail" referred to is infinite detail. Given that Clauses 4.21.2 and 4.21.3 provide for the Construction Manager to request the Contractor and for the Contractor to provide further information and further detail, this presupposes that the further information and further detail has not already been provided.

(c) and it shall be a condition precedent to the Trade Contractor's entitlement under this clause 4.21.1 or clause 4.25 that the Trade Contractor has complied fully with all the requirements of this clauses [sic] 4.21.1 including, for the accordance [sic] of doubt, the said time period of two months.

The fact that there are two obvious drafting or typing errors in this part of the sub-sub-clause suggests a lack of attention in the drafting or checking of the draft. It is obvious that there is no specific entitlement under Clause 4.21.1 which is merely a proviso to the substantive part of Clause 4.21.1. Essentially, these words are superfluous because the drafting of the earlier parts of Clause 4.21 and 4.21.1 is sufficient in itself to establish the submission of a timely application as a condition precedent to the allowance to the Contractor of loss or expense. I have formed a very clear view in any event that there is an obvious mistake in this part of the sub-sub-clause and, simply as a matter of construction, what the parties clearly intended was to refer to that part of the overall clause which actually gives rise to an entitlement which is Clause 4.21. There is no other obvious clause to which the parties might otherwise have been referring. The whole context of Clause 4.21.1 itself is Clause 4.21 and it is obvious that the parties were intending to refer to Clause 4.21. In reaching this view, I have had regard to the Chartbrook case referred to above and the authorities quoted with approval by Lord Hoffman in his opinion.

19. It follows from the above that the requirement to make a timely application in writing is a precondition to the recovery of loss and/or expense under Clause 4.21. The Contractor simply has no entitlement to recover such loss or expense unless and until it has made such an application because it is the application which triggers the ascertainment process which leads to the adjustment of the Contract Sum. That is what the parties have agreed. The parties have preserved the Contractor's rights to claim in effect at common law for breach of express or implied terms of the Contract. However, the parties have also agreed through the proviso in Clause 4.21.1, as amended, that the application must be made in a timely manner and in any event no more than two months after either it has become or should reasonably have become apparent to him that the regular progress of the Works or of any part thereof had been or was likely to be affected. The timeliness and the two-month period can thus be seen to be related to either progress actually being affected or to a time when it was likely to be affected. It will therefore follow that upon a proper construction of Clause 4.21 including Clause 4.21.1 there is a condition precedent to the Contractor's entitlement to recover loss or expense which involves the submission of a written application within the time constraints set out in Clause 4.21.1. It is not an unduly onerous provision in any event.

Decision

20. It follows from the above that the Employer is entitled to a declaration that the Contractor was required to comply with the provisions of Clause 4.21.1 as a condition precedent to its entitlement to loss and expense under and pursuant to Clause 4.21.