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

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

		The Rolls Building 7 Rolls Buildings Fetter Lane London EC4A 1NL
		14/01/2015

Mr. Justice Akenhead:

1. These proceedings relate to the Greater Gabbard Offshore Windfarm located approximately 12 nautical miles off the southern end of the Suffolk coast. In so far as this judgment refers to facts, they are based on the pleadings and they are not intended to be final or binding findings of fact.
2. The employer, GGOWL, employed Fluor Limited (Fluor), the claimant in the current proceedings, as the main contractor to provide and install the steel monopiles, (MPs) and transition pieces (TPs). These steel structures were very substantial. For instance, the MPs were some 65 meters in length, five to six meters in diameter and weighed 500 to 700 tonnes. Fluor sub-contracted the manufacture and supply of the MPs and TPs to a company now known as Shanghai Zhenhua Heavy Industry Company Limited (I will refer to it as "Shanghai") which was to manufacture them in the Shanghai area and then ship them to Holland. The MPs and TPs were manufactured initially in semi-circular form and then the two halves longitudinally welded together.
3. The current proceedings relate to the first three shipments of MPs and TPs, known as Shipments 1, 2 and 3, which arrived in Europe on 20 May, 29 June and 1 August 2009. Each shipment, it is said, was found to contain extensive welding defects of one form or another, all or at least a number of which are said to have involved cracking of the welding, in some instances significant in length and visible to the eye. Following initial inspections and testing, GGOWL issued non-conformance reports, (NCRs), numbered 6, 8 and 9 respectively to Shipments 1, 2 and 3 on 3 June, 29 July and 7 August 2009. It seems to be common ground that, following the discovery of the alleged defects, Fluor retained a variety of suppliers and sub-contractors and indeed deployed their own resources to carry out not only further and extensive testing but also remedial work. Without making any findings in relation to quantum, it seems likely that many millions of dollars worth of work and professional services were expended by Fluor in the May to November 2009 period and, so it is asserted, there had to be re-programming and deferment of vessel support services in relation to the actual offshore installation.
4. Fluor and Shanghai began to form the view that much of the testing and remedial work was unnecessary, that the defects were not breaches of contract and that therefore the additional testing and repair work was unnecessary and in effect additional work, for which they were entitled to additional payment from GGOWL. From about late September 2009 onwards, Fluor took the stance that it would install the MPs and the TPs, which broadly is what it then did over the following two years.
5. From about October 2009 onwards, representatives of Fluor and Shanghai are said to have met on a number of occasions with a view to reaching some agreement between themselves in relation to the problems raised by the actual or alleged defects and/or the consequences of the non-conformance reports. This resulted in two letters, dated 4 June 2010, being signed by them, one of which I will call the "Waiver" letter and the other the "Payment" letter. It is common ground, as I understand it, that these gave rise to binding agreements.
6. Keywords in the Waiver letter, albeit not the only important words, were at Paragraph 3 which said this:

"In consideration of said assignment and release by ZPMC, Fluor will and hereby does waive, release and relinquish any claim it has or may have against ZPMC for the additional costs and delays it suffered as a result of NCRs 006, 008 and 009 issued by GGOWL."

ZPMC is the entity I have called Shanghai.

7. Fluor commenced arbitration proceedings against GGOWL claiming compensation in relation to the problems associated with the welding of the Shipments 1, 2 and 3 MPs and TPs. An interim award in that arbitration decided that Fluor in effect had no viable claim based on the additional testing and remedial work done following or for or in connection with NCRs 6, 8 and 9, there also being a finding that the welding was contractually deficient. Fluor then settled the arbitration with GGOWL.
8. Fluor then issued its current proceedings against Shanghai in the TCC claiming something over $400 million in relation to the alleged welding defects. Fluor served its Particulars of Claim on 12th September 2014 and Shanghai served its Defence on 21st October 2014.
9. The Defence, it would be not unfair to say, concentrates upon the Waiver and Payment letters on the basis that, as it asserts, Fluor has abandoned or waived its claim in relation to welding defects. It sets out in some detail, in particular between Paragraphs 43 through to 80, its claim in relation to the Waiver and what it calls the "Warranty" agreement (I have called this the "Payment" agreement). This includes towards the end the assertion that Fluor is estopped from advancing the claims which it now seeks to advance on the basis, broadly, that as it is alleged, Fluor represented in meetings before 4 June 2010 that it would waive its claims against Shanghai, secondly, on the basis that statements were made during the course of those negotiations to the effect that, broadly, there would be no claim available such as is advanced now. In terms of its argument as to what it says the agreements between the parties meant, those are set out primarily in Paragraphs 76 to 79 of the defence and counterclaim. In particular in paragraph 79, Shanghai sets out what it says is the proper construction of the agreements of 4 June 2010 as follows:

"(1) ZPMC agreed to relinquish its claims relating to and as a consequence of the investigation, testing and repair work undertaken in relation to, and in response to, the Imperfections that had been identified in the welding in the MPs and TPs in Shipments I to 3;

"(2) Fluor agreed to waive, release and relinquish its claims relating to and as a consequence of the investigation, testing and repair work undertaken in relation to, and in response to, the Imperfections that had been identified in the welding in the MPs and TPs in Shipments 1 to 3 and in relation to delay;

"(3) The investigation, testing and repair work undertaken in relation to and in response to the Imperfections that had been identified in the welding in the MPs and TPs in Shipments 1 to 3 included the additional work carried out in China in relation to Shipments 4 to 8; and

"(4) The claims so waived, released and relinquished by Fluor included not only its own additional costs incurred in and as a consequence of carrying out the work (itself and through its various contractors and consultants) but also its liability to GGOWL."

The response of Fluor is in its Reply and at Paragraph 13 it asserts this:

"In fact, on a proper interpretation, the Joint Claim Letter and the Warranty Letter construed in the light of each other demonstrate that:

(a) each letter had a specific purpose;

(b) the waivers, releases and relinquishments referred to in the Joint Claim Letter were specific to, and a subsidiary part of, the joint claim dealt with in that letter;

(c) what was being waived, released and relinquished in the Joint Claim Letter was any claims that Fluor and ZPMC had against each other in respect of Extra contractual testing and remediation required by GGOWL;

(d) what was not being waived was any claim for actual defects under the Purchase Order;

(e) as a result, none of the claims advanced in these proceedings were covered by the Joint Claim Letter;

(f) on the contrary, the claims advanced in these proceedings fall within the scope of the extended warranty in the Warranty Letter, and were therefore claims of the sort expressly preserved by that letter."

10. Issue is taken on the estoppel arguments, but there is little, if any, specific pleading as to the content of the meetings relied upon, albeit that they are denied as such. Paragraphs 36 through to 41 set out what it says is the relevant background to the two letters of 4 June 2010, initially pleading at Paragraph 36 that the letters are clear on their face and no further factual matrix is needed in order to construe them. However in Paragraph 37 and following it says that, in so far as factual background is needed to aid interpretation, there are various relevant factual points set out in some detail in Paragraphs 37, 38, 39 and following. That is responded to by a Rejoinder served on 5 December 2014.
11. Shanghai now seeks a decision from the TCC that preliminary issues should be ordered in relation to the meaning and effect of the waiver and payment letters. The proposed preliminary issues are in the following terms:

"The meaning and effect of the Waiver and Warranty Agreement

"1. Properly construed, did the Waiver and Warranty Agreement have the meaning and effect contended for by ZPMC in paragraph 79 of the Defence and Counterclaim as alleged by ZPMC and denied by Fluor in paragraph 56 of the Reply to Defence and Counterclaim?

"2. Did the Waiver Letter deal only with claims 'up the line' as alleged by Fluor in paragraph 12(a) of the Reply to Defence and Counterclaim and denied by ZPMC in paragraph 4 of the Rejoinder?

"3. Are the parties to be taken to have understood that that there were, or there was a material chance that there were, weld defects unrelated to the 'Extra contractual testing and remediation required by GGOWL' as alleged by Fluor in paragraph 16 of the Reply to Defence and Counterclaim and denied by ZPMC in paragraph 6 of the Rejoinder?

"4. Did the Waiver Letter distinguish between:

(a) Fluor's claims in respect of 'Extra contractual testing and remediation required by GGOWL' (as defined in paragraph 11(a)(i) of the Reply to Defence and Counterclaim) and

(b) Fluor's claims for actual defects under the Purchase Order

and waive, release and relinquish only the former, as alleged by Fluor in paragraphs 13(c) and 13(d) of the Reply to Defence and Counterclaim and denied by ZPMC in paragraph 5 of the Rejoinder?

"5. Has Fluor waived, released and relinquished the claims pleaded in the Particulars of Claim?

Estoppel

"6. Is Fluor estopped from bringing the claims pleaded in the Particulars of Claim by virtue of the facts and matters pleaded in paragraph 80(1) of the Defence and Counterclaim?

In particular:

(a) Did Fluor make the representations alleged in paragraphs 57 and/or 61 and/or 69 of the Defence and Counterclaim and/or did it do so by the Waiver Letter?

(b) Did ZPMC act in reliance upon those representations as alleged in paragraph 80(1)(b)(i) to (iv) of the Defence and Counterclaim?

(c) Did ZPMC act to its detriment (as alleged in paragraph 80(1)(b)(i) to (iv) of the Defence and Counterclaim) such that it would be unconscionable to now permit Fluor to resile from the representations made?

(d) In seeking to answer Issue 6(c):

(i) Is it necessary for ZPMC to establish that its claims would have succeeded on order to establish detriment through having relinquished those claims?

(ii) Is it necessary for ZPMC to establish that the result of the arbitration would have been different if ZPMC had played a greater role in order to establish detriment though ZPMC's not having sought an active role in the management of the arbitration and the decisions taken in relation to the pursuit of the claim?

"7. Is Fluor estopped from denying that the effect of the Waiver Letter is that Fluor has waived its right to pursue the claims pleaded in the Particulars of Claim by virtue of the facts and matters pleaded in paragraph 80(2) of the Defence and Counterclaim?

In particular:

(a) Did Fluor make the representations alleged in paragraph 80(2)(c) of the Defence and Counterclaim?

(b) Was there a convention as to the meaning of the Waiver and Warranty Agreement as alleged by ZPMC in paragraphs 80(2)(c) and (e) of the Defence and Counterclaim?

(c) Did ZPMC rely upon those representations and/or that convention and act to its detriment in reliance upon them as alleged in paragraphs 80(2)(d) and (e) of the Defence and Counterclaim?"

12. The matter came before me in late October 2014 before the Reply and the Rejoinder was served and therefore before the pleadings were closed. I formed the view that it would be inappropriate to decide on whether there should be preliminary issues until the pleadings were closed. There was not much opposition to that and so the matter was re-listed for 17 December 2014 and, as I indicated earlier, the Reply and Rejoinder have since been served. Unfortunately due to other urgent business, I was unable to hear the renewed application in relation to preliminary issues. HHJ Raeside QC, the Senior Circuit Judge designated to deal with TCC matters in Leeds, was sitting in the TCC in London at that time and he heard the application. He adjourned the matter, having heard extensive argument, and in his judgment, of which there is now an approved transcript, he set out, and I do not need to add to it, an analysis about when it is appropriate to order preliminary issues referring to the TCC Guide and decisions of the courts, for instance, the decision of Arden LJ in Grahame Henry Bond v Dunster [2011] EWCA Civ 455, a Court of Appeal decision in James Daniel Lewis Greville v Marnie Louise Venables [2007] EWCA Civ 878 and in the Supreme Court Rossetti Marketing v Diamond Sofa. He sets out at paragraph 19 some preliminary views:

"The conclusions I have drawn on submissions made by counsel, which have been detailed and generally helpful and some substantial volumes of material, not all of which I have read but I have formed preliminary views to the extent I need to, are these:

(i) I am not concerned that this preliminary issue will delay the trial of the action or that the window of the time fixed at trial by Mr. Justice Akenhead will need to be extended or varied if I were to order preliminary issues. The present order made by Mr. Justice Akenhead has already made provision for a potential preliminary issue before the preparation of a fixed date for the trial of this action so delay ought not to be a factor. It seems to me this is the major matter and therefore exceptionally preliminary issues could last more than four days. One has to put that in context of how preliminary issues are decided as to contracts or indeed compromises. One applies the well-known West Bromwich v ICI and the seminal decision of Lord Hoffmann as formulated for all contracts and thereafter for compromise agreement in BCCI v Ali, in which only 'relevant' factual matrix is applicable. I acknowledge that the estoppel case will permit in addition to the representations common to the central contract case the further question of detriment to be decided.

(ii) Having said that, I am required to proceed with caution generally for all preliminary issues, in accordance with the authorities which I have cited. There are authorities from the Masters of the Rolls, the Lord Chief Justice (as now) and the Senior Judge of the Supreme Court. So far as the more recent pleadings ordered for a better assessment of the preliminary issues and the letter dated 8th December 2014 there has been some narrowing of factual matters.

(iii) However, my real concern can be summarised in this way; there may be matters which would not be resolved by these preliminary issues on a true and proper construction of this compromise agreement and/or estoppel. If that were the case there could be therefore matters which have not been compromised and thus could go to trial. This may cause further problems at a trial of this action, which is assigned to Mr. Justice Akenhead and my concern is not to burden the trial judge with having to then decide what is in and what is out of this compromise agreement, thus extending the time and complexity of this trial. Neither counsel has been able to show me on the initial pleadings what cause of action or claim may be decided at any preliminary issue. The Defendants say 90% and the Claimant illustrate it by reference to a single paragraph in the Particulars of Claim.

(iv) Having said that, I am satisfied that there is some real force in these preliminary issues. It seems to me one way to resolve this is to broaden the application as a matter of case management and ask the question whether liability should not be tried separately from quantum. It is possible by this means that the trial judge would get a better understanding of what, if anything, is outside this alleged compromise. With that in mind it strikes me that the correct course that I should take, not being the trial judge of this matter, is to return this to the trial judge who can then consider whether or not he thinks it sensible to keep the trial window for the preliminary issues inclusive of those issues of liability so as to get a better understanding as to what would be in and what would be out of these issues. This may result in more clarity of the effect of these preliminary issues that I have thus far been able to appreciate.

(v) My provisional conclusion is thus to adjourn this application to the trial judge for a further CMC in 2015 and reserve the costs. He will then make the necessary orders, having had a better opportunity to see what effect, if any, the preliminary issues may have on the trial of the action per se and in the context of a trial of liability and whether in due course there could be a saving on costs overall or real potential for settlement as opposed to the preliminary issue having the effect on burdening the trial of the action unnecessarily."

13. So the matter comes before me again today and I must decide whether it is appropriate to order preliminary issues. I have fixed a trial in mid-2016 for liability and quantum in any event, but I have set aside provisionally some time in May of this year, 2015, for the hearing of preliminary issues if the Court formed the view that preliminary issues should be a suitable way forward.
14. There is a very obvious attraction in ordering preliminary issues in relation to whether there has been a full and final settlement and/or waiver or abandonment of material claims. Obviously, if there has been in this case a full waiver of all the claims or a significant part of the claims that are advanced, then that would save time and money. If, however, it turns out that there was no material overall settlement, time will have been wasted and substantial expenditure will have been incurred. One advantage, rightly put forward by Mr. White QC, is that win, lose or draw on this preliminary issue, the parties, whether the winner or the loser in them, would be able to take commercial stock with a view to settling all or at least large parts of the case. There is undoubtedly some strength in that point. The real issue is whether this is something which can sensibly be done or there is a real risk that it will turn out to be abortive.
15. The court must ignore siren voices which offer what appears to be a very sensible solution because it is sometimes difficult at this stage in deciding whether there should be preliminary issues fully to understand all the potential ramifications. There has been reliance placed on a case which I think went up and down to the Court of Appeal almost 12 years ago, a case called Mostcash plc & others v Fluor Ltd [2002] BLR 411, in which preliminary issues were ordered in relation to whether there had been an effective settlement and the consequence of that was that ultimately it appears little or no time was saved and arguably a substantial amount of additional cost and resource resulted. So there are dangers in ordering preliminary issues at a time when the court will find it difficult to form any view about the strength or weakness of the case in addressing the scope of the settlement.
16. Mr. White QC has urged me to proceed on the basis that his clients have a strong arguable case. I think it would be quite wrong of me at this stage to hint, even if I could, whether I think there is a strong arguable case or indeed if there is a strong arguable defence to the assertion that the Waiver agreement or the Payment agreement letters were such as to produce the effect which either side asserts they did produce. All I can say at this stage is, having considered the pleadings, both sides' positions seems to be reasonably arguable. It may well be, however, that factual matrix will turn out to be very important in placing the words used by the parties in the context which they might well be found to have understood them in the period leading up to the agreement and during the negotiations. The court is going to have to go into that in consideration of the estoppel pleadings in any event.
17. Mr. Brannigan QC in challenging the application that there should be preliminary issues says that the matter will be complicated by what he says is evidence which will have to be considered, in particular that relating to what had happened before the NCRs were issued. There has been reliance in the pleading, and indeed it may be common ground, that from three months or more before Shipment 1 there were investigations, testing and remedial work in Shanghai in relation to the welding of some of the MPs and/or TPs before they were shipped. There were, I am told, communications between the parties about alleged defects and it may well be that there is a substantial history there, at least the key elements of which I assume have been pleaded primarily by Fluor, in particular in their Reply in Paragraph 37 and following.
18. He says that one needs to look at the discussions which the parties had leading up to the agreement letters of 4 June 2010. If one is going to look at the factual matrix at all, and it is clear that the factual matrix will have to be considered because Shanghai put it forward as material and there are pleaded issues about it, one will need to consider the context in some considerable detail the history and the mutual knowledge of the parties as to what had happened before the shipments and before the NCRs as well as what had been happening since the Shipments arrived in Holland. For instance, where it is pleaded in the Defence that at the various meetings representatives of Fluor indicated that they agreed that the parties would waive their "claims against each other", there would have to be cross-examination as what if any was the mutual appreciation of what that might mean. When they talk about their "claims against each other", was it simply a case claim based on and specifically linked to NCRs 6, 8 and 9 or was some distinction ever being made, of which both parties were both mutually aware, as to whether there was in effect a separate claim by Fluor potentially against Shanghai for straight breach of contract. Let me put it another way, and I am not beginning to form any view (as I cannot) as to what was factually understood, it may be argued that the focus of these discussions was on NCRs 6, 8 and 9. It would be said by Fluor that there is some support for that because there are specific references to NCRs 6, 8 and 9 in the Waiver letter and issues may arise as to whether or not if it was "agreed" that the parties would waive all or just those claims against each other and there would have to be cross-examination about that, and that will have to be put in context.
19. Mr. White QC properly refers to the fact that most, but not all, of the factual matters relied upon as relevant factual matrix by Fluor would be admitted for the purposes of any preliminary issues. However, I do not think that that necessarily helps the matter because, even if the basic facts are admitted, the witnesses are still going to have to be asked, in the light of mutual conversations and so on that were had, what they understood they were talking about in terms of what claims were being waived, if any, as discussed at these various meetings. There is a substantial amount of factual background and factual context which will have to be put.
20. Mr. Brannigan QC suggests that even on the preliminaries issues his clients would have to deploy expert evidence from one or probably more experts with a view to putting to the witnesses issues as to whether they could credibly hold the views that they did. I can see that some expert evidence might be required, but it would only be evidence primarily that would go to credibility. If a witness called by Shanghai who attended one of these meetings was to say that he did not understand there to be any breach of contract complaint made against Shanghai in respect of welding defects which were or might be Shanghai's responsibility, I can see that expert evidence, particularly as to the practice of specialist welders and manufacturers of MPs and TPs, might be material but it would primarily relevant about credibility, i.e. a view expressed by one of the attendees. The Shanghai attendees at these various meetings might have to be challenged on the basis that no one sensibly involved could conceivably have held that particular view. I am not convinced by any means that there would have to be expert evidence about whether each and every MP or TP which had been tested prior to June 2010 was defective as such, but one would need to be in a position to test what the witnesses said.
21. I am also not satisfied that the admissions for the purposes of the preliminary issues would necessarily assist because there are some facts which are not admitted. For instance, most of Paragraph 38 of the Reply is not admitted and there are elements such as Paragraph 37(g) which is not to be admitted for the purposes of the preliminary issues and various other matters. One of the problems of course arises if witnesses are being challenged about credibility but matters have been admitted by the lawyers. It does not necessarily go to the witnesses' credibility because the witness has no control over what has been admitted for the purposes of the preliminary issues, but it does then make it difficult for the court, to the extent that it is material, to make factual assessments. I have, with some reluctance, and after some considerable thought, formed the view that I am not satisfied sufficiently that this is an appropriate case for preliminary issues.
22. An additional problem is this, that one of the preliminary issues put forward, issue 5, was this: "Has Fluor waived, released and relinquished the claims pleaded in the particulars of Claim?" I spent some time before the hearing trying to analyse the different quantum claims that are made in the Particulars of Claim. They range from support, craneage, labour, logistical reports, weld repairs, NDT inspections, work of one or sort or another in Shanghai, remedial work on wells, scaffolding, inspection support, management in Holland and in Shanghai, vessels delay and standby claims and delay and disruption in effect to specialist subcontractors, such as electrical fit out, blasting, coating, commissioning, diving support, inter-array cables, and so on.
23. I am not saying, because I have not analysed it in this way, that the quantum has been as fully particularised as it might be, but it is clear that some of the quantum, perhaps a relatively limited part, relates to monies expended before the material NCRs were issued. Some of it relates to losses said to have been incurred after the waiver and payment agreements were signed on or about 4 June 2010. It would be extremely difficult I suspect without evidence as to those claims (not necessarily the quantification but broadly what was involved with them) to be able to form a view necessarily, depending on the finding as to what the waiver letter means, whether Fluor has waived, released and relinquished all the claims pleaded in the Particulars of Claim. Some may be easier than others and some may not be. There is a very real concern that, even if one had the preliminary issues, the court would not be able to answer issue 5 without necessarily some analysis of the claims themselves and that would then expand the preliminary issue hearing, it seems to me, in any event.
24. I am very conscious that, by refusing the application for preliminary issues, which has been very properly raised I hasten to say for consideration, this puts the parties in the position where there would have to be a trial on liability. I do think that there are some advantages in that. One is that there will be evidence about whether in truth there were defects, and by defects I mean defects for which Shanghai were sub-contractually liable. There may be findings, I do not know, that Shanghai was not liable at all for any of the alleged defects in which case that will be the end of the case. But if there are such findings, they may illuminate the consideration of what it was that was being settled in the Waiver agreement. Great concern has been expressed about the need then for Shanghai to deploy expert evidence and there is a real fear, which Mr. White has articulated, that many experts may have to be called. A substantial amount of analysis will be required of the many reports that have been exchanged.
25. Mr. Brannigan QC points out that, although many reports were produced for the purposes of the arbitration against GGOWL, as is very common in cases such as this, they, in American terms, "hunkered down" by the time that the experts produced their final joint statements. What I assume, this court having had extensive experience on welding defect cases, is that the experts will analyse the NDT reports, any reports on examination of welds and other types of testing that has been done for which the underlying reports already exist and will form views on that basis of whether or not there were defects for which Shanghai can be said to be culpable. Although there is a substantial amount of work to be done by Shanghai's experts, I would suspect strongly that much of the basic work has effectively been done, but that which has been done needs to be analysed. There may be still, I do not know, test parts of the welds which have been retained by way of sample which the new experts would want to look at and have further tests done on them. I know not about that, but I suspect, based on experience, that the exercise to be done by Shanghai's experts will not need to be as extensive as what appears to have been required for the Fluor/GGOWL arbitration. I know not in absolute terms about that, but my strong suspicion is that the exercise will not be as heavy or as difficult.
26. That then leaves the questions of whether or not there should be a liability only hearing. I am going to ask Mr. Brannigan to deal with this issue again. What he said is that, if there were no preliminary issues, his clients would be in favour of a liability hearing. He has put forward timetables for a hearing in (a) May 2015 and that is, and I think he would have to accept, wholly unrealistic, in (b) July 2015 less unrealistic, but still unrealistic; and in (c) October or November of this year. I have formed the clear view that, for a liability hearing, given that Shanghai would need to deploy its own experts and begin to formulate in detail an expert case, these dates do not give them enough time for there to be a hearing this year. I would certainly be prepared to consider a liability hearing earlier in 2016 than the June date I have otherwise allocated. I should give Mr. Brannigan the opportunity to come back because there was some confusion as to whether he was seeking to argue that he was only in favour of there being a liability hearing if it took place this year. If that is his position I should hear him on that.
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