QUEEN'S BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT
Rolls Building, Fetter Lane, London, EC4A 1NL
B e f o r e :
(Sitting as a High Court Judge)
|Shanghai Zhenhua Heavy Industry Co., Ltd (formerly known as Shanghai Zhenhua Port Machinery Co., Ltd
(instructed by Roberta Downey of Hogan Lovells) for the Claimant
Mr Andrew White QC, and Mr Iain Munro (instructed by Mr Adam Harris of Pinsent Masons) for the Defendant
Hearing date: 2 February 2018
Crown Copyright ©
Overall Summary of the figures awarded in the Quantum Judgment
|Para||Head of claim||Amount|
|334||Fluor management in Vlissingen and Camberley||$41,679|
|592||ECA costs (Ibsoe/ABS)||$2,776,014|
|598||ECA costs (MDMC)||$405,979|
|Para||Head of claim||Amount|
|334||Fluor management in Vlissingen and Camberley||£44,182|
|540||Counterclaim damages the settlement||£13,825,000|
|Para||Head of claim||Amount|
|167||Shipment No 2 - the counterfactual case||4,586,611|
|302||MP related costs||150,488|
|334||Fluor management in Vlissingen and Camberley||141,356|
|592||ECA costs (Ibsoe/ABS)||3,779|
||Head of claim||Amount|
|CA $||ECA costs||CA$7,259|
The claim for overheads
(a) whenever a company incurs a direct cost, it does not do so in a vacuum, at no cost to itself: it generally incurs head office costs - commonly known as overhead - in doing so;
(b) that overhead cost is just as much a cost of the relevant event as the direct costs; and
(c) it is a cost which should be directly recoverable.
"[13.63] Overheads are similar to preliminaries in that they constitute expenditure on support services and general running costs. Whereas preliminaries refer to particular expenditure on the site and contract works, however, overheads are the costs of running the contractor's operation as a whole, including for example the rental of the contractor's buildings and general support staff costs. That overheads can properly be claimed in principle is beyond doubt. If a project is delayed the contractor's overheads continue unaffected while his turnover will be reduced. If he would have been able to undertake other work during the period of delay which would have gone some way towards paying for his overheads, he can claim for the loss involved. In addition, he may have had to devote staff time to dealing with disruption or delay, and if he can show that the staff would otherwise have been gainfully employed that may also form part of a claim.
[13.64] The primary obstacle faced by the contractor is the need to establish these lost opportunities. He must show, in other words, that he would have been able to undertake other work, or that his staff would have been otherwise profitably employed. If he cannot, he faces the argument that the costs would have been incurred in any event being in the nature of overheads and that they are therefore not 'losses'. It may also be difficult for a large contractor to show convincingly that delay on one project has actually affected his ability to take up other opportunities."
"[13.68] Where the contractor has, because of the employer's default, had to replace an item of plant, to introduce a new item of plant to complete the works, or to use plant in connection with the works for longer than he would otherwise have done, he is entitled to recover the costs he has incurred in doing so. If the plant has been hired, it is the increased hire costs which are recoverable. Where the plant belongs to the contractor, the position may be more complex. He may recover the loss he has suffered because he has been unable to deploy it elsewhere, or hire it out for gain, but this is again subject to a need to prove a particular opportunity which has been foregone. Otherwise, the claim will be limited to any depreciation in value of the plant which has resulted from the intensified or prolonged use."
"463. This is of some importance when one comes to consider the loss of head office overhead and profit related to delay because that will generally not be incurred until the actual delay beyond the original contractual completion date begins to accrue.
. . .
543. Considering these various authorities, the following conclusions can be drawn:
(a) A contractor can recover head office overheads and profit lost as a result of delay on a construction project caused by factors which entitle it to loss and expense.
(b) It is necessary for the contractor to prove on a balance of probabilities that if the delay had not occurred it would have secured work or projects which would have produced a return (over and above costs) representing a profit and/or a contribution to head office overheads.
(c) The use of a formula, such as Emden or Hudson, is a legitimate and indeed helpful way of ascertaining, on a balance of probabilities, what that return can be calculated to be."
(a) The sum due to Fluor in euros, 7,165,740, together with accrued interest, is to be netted off against the amount of the bond, 23,409,750, as at 21 March 2014.
(b) The balance is to be converted into sterling as at 21 March 2014.
(c) The balance of the bond money, in sterling, is to be subtracted from the sum awarded in sterling, £15,033,681.
(d) The resultant balance in sterling is to carry interest at the appropriate rate until final date of payment.
(e) Interest up to 21 March 2014 at the appropriate rate is to be added to the sums disbursed in sterling from the applicable start dates. This amount is to be added to the judgment sum.
(f) The sum awarded in US dollars, $5,893,591, together with accrued interest at the appropriate rate up to the final date of payment, is to be paid in US dollars.
(g) The sums awarded in the other currencies, together with accrued interest at the appropriate rate up to the final date of payment, are to be converted into sterling at the final date of payment.
This approach ensures that the court is not awarding interest on interest which, as ZPMC pointed out, was a consequence (unintended) of adding accrued interest on the payments in sterling at step (c) which I did in the draft judgment which was handed down on 5 February 2018. Since that was an error, I have corrected it.
Interest the rate
(a) Fluor Corporation's 2011 borrowing cost (3.375%), which was the rate of interest on a 10 year bond that it issued in 2011.
(b) The borrowing rate which could be achieved by a company in Fluor's position, but supported by a substantial parent with the attributes of Fluor Corporation. This was said to be 5.2% in the US market, and slightly less in the UK market.
(c) Fluor's inter company borrowing rate of 6%.
"Had Fluor Limited sought itself to borrow in the markets on the basis of a parent company guarantee from Fluor Corporation then it would obviously have benefitted to a substantial extent from Fluor Corporation's own credit worthiness. I have spoken to Fluor Corporation's Treasury Department, which is responsible for bond issuing on behalf of Fluor Corporation (including those identified above) which has confirmed my view that Fluor Limited's cost of borrowing in such circumstances would be very likely to represent the Fluor Corporation rate plus a premium to represent the fact that Fluor Limited rather than Fluor Corporation would be the principal borrower, and the Fluor Corporation guarantee would only be available after unsuccessful attempts at recovery from Fluor Limited. In order to ascertain what this premium might have been, I have been provided by the Fluor Treasury Department with publicly available records (from Moody's, the ratings agency) of average rates payable on bonds issued by borrowers with a credit rating of Baa between January 2009 and now (which I exhibit as Exhibit MRJ 19). This is a rating one tier below that held by Fluor Corporation throughout the relevant period and until August 2017 (namely, A3). Taking the average of the interest payable by such borrowers throughout the period relevant to Fluor Limited's losses (June 2009 to December 2017) equates to a rate of 5.2% which I believe to be a reasonable estimate of Fluor Limited's likely cost of borrowing with a parent company guarantee."
(a) in relation to sums in sterling, a rate of 5.4% up to the end of 2012, and from 1 January 2013 to date of payment, a rate of 5.0%; and
(b) in relation to sums in US dollars, I propose to do the reverse: up to the end of 2012 the rate will be 5.0%; thereafter it will be 5.4%.
Interest the court's jurisdication
"Subject to rules of court, in proceedings (whenever instituted) before the High Court for the recovery of a debt or damages there may be included in any sum for which judgment is given simple interest, at such rate as the court thinks fit or as rules of court may provide, on or any part of the debt or damages in respect of which judgment is given, or payment is made before judgment, for all or any part of the period between the date when the cause of action arose and-
(a) in the case of any sum paid before judgment, the date of the payment; and
(b) in the case of the sum for which judgment was given, the date of the judgment."
"There is still no provision in the Act for debts paid late but before the inception of proceedings. Nor is there provision for compound interest."
In that passage Lord Hope was referring the long running controversy about the power of the court to order interest as damages where a debt was paid late but before the start of proceedings.
Interest the rate for sums spent in euros
Interest the period