BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
TECHNOLOGY AND CONSTRUCTION COURT (QBD)
Strand, London, WC2A 2LL
B e f o r e :
|CLEVELAND BRIDGE UK LIMITED||Claimant|
|- and -|
|SARENS (UK) LIMITED||Defendant|
Ms Bodnar (instructed by Freeths LLP) for the Defendants
Hearing date: 13/14 March 2018
Crown Copyright ©
Deputy Judge Miss Joanna Smith QC:
The Statements of Case
5. "The Subcontract formed on or around 11 to 17 November 2014 in substantially the terms set out in documentation signed by CBUK and handed to Sarens on 11 November 2014 (together with enclosures as previously sent by CBUK to Sarens on 5 June 2014)".
6. "An email from Mr Render of Sarens to Mr Osborne of CBUK on 17 November 2014 identified that the only outstanding matter (as to which the parties were not in agreement and did not subsequently conclude any agreement) concerned the position in relation to liquidated damages and a corresponding cap thereon".
The principles to be applied when identifying whether a term has been agreed by the parties and, if so, the proper interpretation of that term
(i) In determining whether a term forms part of a contract (or indeed whether the parties have reached agreement at all), it is necessary to look at the whole course of the parties' negotiations (see Chitty on Contracts 32nd Edition at 2-027 and Air Studios (Lyndhurst) Ltd t/a Air Entertainment Group v Lombard North Central plc  EWHC 3162, per Males J at -);
(ii) In looking at the chronological documents I am not concerned with the subjective state of mind of the parties, but with arriving at an objective conclusion as to whether the parties intended to create legal relations (see Arcadis Consulting (UK) Ltd v AMEC (BSC) Ltd  EWHC 2509 (TCC) per Coulson J at );
(iii) In seeking to arrive at an objective conclusion, I am required to place myself into the same factual matrix as that occupied by the parties (Great North Eastern Railway Ltd v Avon Insurance Plc  EWCA Civ 780, per Longmore LJ at 28). This will involve asking how a reasonable man, versed in the business, would have understood the exchanges between the parties (Bear Stearns Bank plc v Forum Global Equity Ltd  EWHC 1576 (Comm) per Andrew Smith J at );
(iv) In examining the exchanges to see what, if anything, has been agreed, I should be looking for (i) a proposal (or offer) from one party (A) which is capable of being accepted by the other party (B) and (ii) acceptance by the party (B) to whom the proposal was made. In determining the first of these questions, the correct approach (consistent with the objective approach identified in the preceding paragraph) is to ask whether the offeree (B) (having the knowledge of the relevant circumstances which the offeree had) acting reasonably, would have understood the offeror (A) to be making a proposal to which he intended to be bound in the event of an unequivocal acceptance (Crest Nicholson (Londinium) Ltd v Akaria Investments Ltd  EWCA Civ 1331 per Sir John Chadwick at ).
(v) A contractual acceptance has to be a final and unqualified expression of assent to the terms of the offer. Conduct may amount to an acceptance if it is clear that the offeree did the act in question with the intention of accepting the offer. This is however an objective test and the conduct must be clearly referable to the offer and, in the absence of knowledge of the offeree's reservations, not reasonably capable of being interpreted as anything other than acceptance (Day Morris Associates v Voyce  EWCA Civ 189 per Black J at ). Silence or inactivity by a party in response to an offer will not generally amount to an acceptance (Keating on Construction Contracts 10th Edition at 2-048).
(vi) It is open to the court to decide that a contract was formed in a manner that is not contended for by either party (Spartafield Ltd v Penten Group Limited  EWHC 2295 (TCC) per Mr Alexander Nissen QC at  and Arcadis Consulting (UK) Ltd v AMEC (BSC) Ltd  EWHC 2509 (TCC) per Coulson J at );
(vii) Events occurring after an agreement was made are admissible in the context of the objective exercise of determining whether a particular term was agreed, despite not being admissible for the different exercise of construing the terms of an acknowledged agreement (GNER v Avon Insurance Ltd  EWCA Civ 780 per Longmore LJ at );
(viii) As to the interpretation of a term, the law was recently restated by Lord Hodge in Wood v Capita Insurance Services Ltd  UKSC 24 at -: "The court's task is to ascertain the objective meaning of the language which the parties have chosen to express their agreement". This is to be done against the relevant factual background known to the parties at or before the date of the contract but excluding evidence of prior negotiations.
The Formation of the Subcontract
The June Email Exchanges and the first iteration of the Subcontract
"The Subcontractor shall execute, complete, maintain and remedy defects in the Subcontract Works in accordance with the Subcontract and to the reasonable satisfaction of CBUK and the Client.
The Subcontractor shall be deemed to have full knowledge of the provisions of CBUK's Contract with the Client (other than details of prices) particulars of which are included in Part 1 of the Appendix. An un-priced copy of CBUK's Contract with the Client will be made available at CBUK's Darlington Office for inspection by the Subcontractor on request.
Save where the provisions of the Subcontract otherwise require the Subcontractor shall so execute, complete, maintain and remedy defects in the Subcontract Works so that no act or omission of the Subcontractor in relation thereto shall cause or contribute to any breach by CBUK of any of its obligations under CBUK's Contract with the Client, and the Subcontractor shall save as aforesaid assume and perform all the obligations and liabilities of CBUK under CBUK's Contract with the Client in relation to the Subcontract Works.
The Subcontractor hereby acknowledges that any breach by him of the Subcontract may result in CBUK committing breaches of and becoming liable in damages under CBUK's Contract with the Client and may occasion further loss or expense to CBUK in connection with CBUK's Contract with the Client and all such damages, loss and expense are hereby agreed to be within the contemplation of the parties as being probable results of any such breach by the Subcontractor.
The Subcontractor shall indemnify CBUK against every liability which CBUK may incur to any other person whatsoever and against all claims, demands, proceedings, damages, costs and expenses made against or incurred by CBUK by reason of any breach by the Subcontractor of the Subcontract".
"10. Liquidated damages payable by CBUK
10.1 Under the CBUK's Subcontract - £10,000 / per day".
The September Meeting
The October correspondence and the second iteration of the Subcontract
"10.0 Liquidated damages payable by CBUK
10.1 Limited to 10% of the agreed subcontract price"
"10.0 Damages payable by CBUK
10.1 Liability for damages shall be limited to 10% of CBUK's price. (Subcontractor's damages shall be limited to 10% of the Subcontract Price). Subcontractor's liability shall only apply if the subcontracted works over-run the Main Contract Programme period of 2 weeks"
Events in November 2014 and the final iteration of the Subcontract
"2. Clause 1(c) We are deemed to have knowledge of CBUK contract with Costain and it forms the third item in the order of precedence of the documents after the Appendix and CBUK standard conditions. Have Sarens seen a copy?
3. Clause 1(c) There is an uncapped total liability (mainly insurance would cover this) but a capped amount on liquidated damages at 10%, i.e. £96,363.44 which can be applied. Discussed later. (This reference to "discussed later" is clearly a reference to the fact that the point arises again later in the comments).
15…Part 1 Section 10 Liquidated damages limited to 10% of the agreed subcontract price. I would suggest that each structure is limited if possible with an understanding of how damages are applied (daily rate). This may be clear from the CBUK s/c with Costain."
2(a) The Subcontractor shall commence the Subcontract Works on site on the date instructed by CBUK in writing and shall thereafter proceed with the Subcontract Works with due diligence and without delay in such manner and sequence to avoid hindrance to the progress of others and to ensure timely completion of the CBUK's Contract with the Client…
2(b)Subject to Clause 2(c) the Subcontractor shall complete the Subcontract Works within the period stated in Part 8 of the Appendix and shall comply with such other requirements relating to the programme therein. Part 8 of the Appendix provided that "Labour and cranes will be provided to achieve the programme/schedule included in the enquiry document sections 2 to 7 inclusive".
7(a) The Subcontract Works shall only be taken over by CBUK when the Subcontract Works have been completed and the whole of the works under CBUK's contract with the Client has been carried out to the written satisfaction of the Client.
15. Notwithstanding the date or dates of execution hereof this Subcontract shall take effect from the date identified in the Appendix Part 4.2 (namely 4 June 2014).
16. Any terms and conditions, whether arising out of the Subcontractor's quotation, tender, acceptance of this Subcontract, correspondence or otherwise, which either expressly or by implication are contrary to or at variance with the conditions of this Subcontract shall be deemed null and void and of no effect unless specifically agreed otherwise by CBUK in writing.
19. It is hereby agreed and declared that the terms and conditions set out in this Subcontract and the other documents expressly referred to in the Appendix together with these Conditions shall constitute the whole contract and understanding between the parties hereto.
"10.0 Liquidated damages payable by CBUK
10.1 Limited to 10% of the agreed subcontract price"
I shall now refer to these provisions simply as "Paragraph 10".
"10.0 Liquidated damages payable by CBUK
10.1 Limited to 10% of the agreed subcontract price"
"Following our discussion on Friday, attached are the clause 10 liquidated damages sections from the Heysham and Thorley Lane projects. To be able to sign the contracts we need a sentence stipulating the rate of application i.e. 1% per week to a maximum of 10%. This should also apply to any other pending contracts."
a. Attached to the email was an extract from the third iteration of the Subcontract and, in particular, Paragraph 10. Next to the wording at 10.1 was written, in hand: "To be applied at 1% per week up to a maximum of 10%". This was the first time that a specific rate of liquidated damages had been identified. There is no detailed evidence before the court as to the "discussion" to which the email refers.
"We discussed the subject of damages last Friday with Richard Selby on the phone and the suggestion of 1% per week to a max of 10% was not acceptable.
We explained that there was not a one size fits all solution that both of us would find acceptable, and by leaving it open then we would need to demonstrate the costs imposed on us.
We thought that had been acceptable but apparently not.
Damages are only there to give an incentive to complete the works in accordance with the agreement, and as such they need to be at a level which means that if you need to employ some additional resources/overtime to achieve a programme, then you consider it is worth it.
Please remember we have already agreed to limit this to 10% of the value.
If we look at Thorley as an example then your proposal would mean that damages on Thorley could be imposed at £400/week. This would give little incentive to work say a weekend or longer days, but the overrun could result in significant costs to ourselves and the main contractor. Therefore the damages should be at a level which is equitable for both of us.
Similarly, I see it would be inequitable for us to charge £96000 on Heysham for a one day overrun (it was never the intention that this would be the case).
Can I suggest that as Thorley will be over this week we ignore.
As far as Heysham is concerned 2% per week for 5 weeks.
Future jobs will be agreed at the time…Can somebody come back to me".
"10.0 Damages payable by CBUK
10.1 Liability for damages shall be limited to 10% of CBUK's price. (Subcontractor's damages shall be limited to 10% of the Subcontract Price)"
What did the Parties agree in the Subcontract as to damages and when?
Sarens' Primary Case: the Subcontract was formed when Sarens commenced work in respect of Folly Bridge on or before 10 November 2014
(i) If I am to have regard to a series of contracts, I cannot concentrate on one only, as Ms Bodnar invites me to do. I must look beyond the Thorley Lane Subcontract to other subcontracts and, in particular, the Crewe Green and Pudding Mill Lane Subcontracts. This exercise clearly establishes that while the Crewe Green Subcontract makes no reference to "liquidated damages", the Pudding Mill Lane Subcontract is in exactly the terms of the Heysham Subcontract. In the circumstances, the suggestion that the wording in the Heysham Contract is an historic quirk of language is unsustainable, as is any suggestion that there was a consistency of approach in all other contracts which involved agreement that there should be a general cap on delay damages, as opposed to a cap on liquidated damages.
(ii) Further and in any event, in inviting me to conclude that the parties never intended to make a distinction between the Heysham Subcontract and the Thorley Subcontract, Ms Bodnar is forced to rely on CBUK's internal emails of 10 and 11 November 2014 setting out what was said at the September Meeting. I have already decided that I cannot have regard to the September Meeting for reasons I have given and these internal emails are in any event inadmissible to the exercise of interpretation that she invites me to undertake.
(iii) I agree with Mr Lixenberg that Ms Bodnar's submissions on this point at times strayed into the territory of reliance upon inadmissible documents for the purposes of construing the terms of the Subcontract. I also have some sympathy with his submission that Ms Bodnar appeared to be contending that the parties had made a mistake in referring to liquidated damages in the Subcontract. Ms Bodnar disavowed any such suggestion and there is, of course, no claim for rectification in the Defence.
CBUK's Case: the sub-contract was formed by 17.11.14
(i) the third iteration of the Subcontract amounted to an offer to contract on the terms set out therein. It was provided in advance of the detailed email of 12 November 2014 explaining CBUK's stance on Sarens' outstanding comments. The terms of the offer included at Paragraph 10: "10. Liquidated Damages payable by CBUK 10.1 Limited to 10% of the agreed subcontract price".
(ii) that offer was accepted:
a. on or about the same time, when Sarens continued to carry out the works; or
b. on 17 November 2014 when Mr Render indicated (by his email) his acceptance of all of the terms set out in the Subcontract with the exception of the damages provision; or
c. after 17 November 2014 when Sarens continued with the works to Folly Bridge thereby indicating by its conduct its acceptance.
"In circumstances where works have been carried out, it will usually be implausible to argue that there was no contract. In G Percy Trentham v Archital Luxfer Limited  1 Lloyds Rep 25 Steyn LJ said:
"One must not lose sight of the commercial character of the transaction. It involved the carrying out of work on one side in return for payment by the other side, the performance by both sides being subject to agreed qualifying stipulations…The judge analysed the matter in terms of offer and acceptance. I agree with his conclusion. But I am , in any event, satisfied that in this fully executed transaction a contract came into existence during performance even if it cannot be precisely analysed in terms of offer and acceptance. And it does not matter that a contract came into existence after part of the work had been carried out and paid for"
This case was cited with approval by Lord Clarke in RTS, who noted the fact that the transaction was performed on both sides "will often make it unrealistic to argue that there was no intention to enter into legal relations and difficult to submit that the contract is void for vagueness or uncertainty".
(i) In the email of 10 November 2014, commenting on the second iteration of the Heysham Subcontract, it seems to me that Mr Render is seeking to make it clear that a provision limiting "liquidated damages" to 10% of the agreed subcontract price does not go far enough. He wants to have "an understanding of how damages are applied (daily rate)". Looked at objectively, this is unsurprising where, absent such understanding, an agreement as to a 10% cap (without more) is largely meaningless and certainly incomplete. It could potentially mean that in the event of one day's delay, CBUK could claim 10% of the Subcontract price as damages from Sarens, something which neither party can possibly have intended.
(ii) In his emailed response on 12 November 2014, Mr Earl on behalf of CBUK does not accept this requirement saying that "what we have agreed for this clause is simple, clear and unambiguous". The Subcontract provided to Sarens on 11 November 2014 retains Paragraph 10 unchanged.
(iii) Against the background of the emails of 10 and 12 November 2014, the email of 17 November 2014 from Mr Render makes it clear that he cannot agree to Paragraph 10 without a proper understanding as to the rate of application of liquidated damages. Hence his proviso that "to be able to sign the contracts" this is required.
(iv) The wording of the handwritten note next to Paragraph 10.1 is important in this regard. It is not merely an additional feature that Sarens seeks but a continuation of the provision already there, addressing how that provision is to be applied and thereby giving it a proper meaning: "Limited to 10% of the agreed subcontract price to be applied at 1% per week up to a maximum of 10%" (emphasis added).
(v) Accordingly, in my view, the email of 17 November did not amount to an acceptance of the terms of Paragraph 10, although it is clear that Paragraph 10 was by then the only matter on which the parties had not reached agreement.
(vi) Indeed, it is clear from CBUK's response on 18 November, that it did not regard the 17 November email to be an unqualified acceptance of Paragraph 10: when Mr Underwood talks about leaving the position "open" he is clearly talking about the provisions of Paragraph 10. His words "We thought that had been acceptable but apparently not" (emphasis added) in this context can only be a reference back to the email of 17 November by which it is his understanding that Sarens has made it clear that the "open" position is not sufficient.
(vii) Mr Underwood's express reminder that "we have already agreed to limit this to 10%", takes matters no further. Against the background set out above, it refers only to an agreement between the parties as to an element of the damages provision which (Sarens clearly believed) did not go far enough to give rise to an effective operable liquidated damages regime. Looking at the exchanges objectively, CBUK understood that this was Sarens' position and that it required an agreement as to the mechanism to be applied.
Sarens' Secondary Case: the parties agreed a term specifically addressing liquidated damages
(i) The offer was made in CBUK's email of 18 November 2014: "As far as Heysham is concerned 2% per week for 5 weeks";
(ii) That offer was accepted by conduct, when Sarens continued to work on site.
(iii) This agreement is in writing and so does not fall foul of the provisions of clause 16 of the Subcontract.
(i) By the email of 18 November 2014, CBUK offered to accept a term for payment of liquidated damages at a rate of 2% per week for 5 weeks. This was a counter-offer, made in response to Sarens' proposal in its email of 17 November 2014. Mr Mitchell's somewhat vague evidence at paragraph 35 of his statement to the effect that "The 1% a week for 10 weeks was not agreed but the parties settled on a rate of 2% per week for 5 weeks as proposed by Don Underwood on 18 November 2014" is inadmissible in the context of this objective exercise.
(ii) In circumstances where work had been going on since 10 November 2014, it is very difficult to see the continuation of work on the part of Sarens as a clear acceptance of this counter-offer. It is certainly very difficult to regard that continued work objectively as being plainly referable to the counter-offer and I do not accept that it was. By this stage, Sarens had been on site without a mechanism for liquidated damages being agreed for 8 days. Indeed Sarens had completed the Thorley Project without ever having agreed a mechanism for liquidated damages (as is clear from the 18 November 2014 email).
(iii) On 2 December 2014, in an email which is admissible for the purposes of looking to see whether an agreement was reached, as alleged, Mr Render proposed a yet further qualification to the damages provision, namely that CBUK would apply the 60 day holiday on damages they had with Costain before invoking the 2% rate of liquidated damages per week. Mr Underwood's response was that this should be discussed "on thurs when both of you can explain why you believe this would be reasonable".
(iv) Viewed objectively, it does not seem to me that Sarens intended this new qualification to signal an acceptance of CBUK's offer of a 2% rate, as Ms Bodnar argued, and nor would the reasonable contractor in CBUK's shoes have understood it in this way. At most, it appears to me to have been a counter-proposal to accept the 2% rate if CBUK applied a 60 day holiday to that rate. CBUK's response focuses on the 60 day holiday not because (as Ms Bodnar submitted) it was now understood that the 2% rate had been agreed, but rather because that is the quid pro quo that Sarens is now advancing in return for its agreement to the 2% rate. CBUK makes it plain that this new proposal would have to be justified as reasonable before it could be agreed. I reject the submission that the 60 day holiday was a new proposed term which stood alone in its own right.
(v) The proposed Thursday meeting never took place and it is common ground that there was no further discussion of the matter.
Summary of Conclusions on the agreement between the Parties
The Law on Estoppel
Estoppel by representation in relation to Sarens' primary case
Estoppel by representation and/or by convention in relation to Sarens' secondary case
The Subcontract Agreement
The 12 November 2014 Email
The 18 November 2014 email
Remaining Declarations sought by CBUK in the alternative
(i) The Subcontract identifies the works to be carried out by Sarens as "the Subcontract Works". The scope of these works (as noted in paragraph 1 of Part 3 to the Appendix) is identified in the introduction to the Enquiry Documents and includes six individual bridges.
(ii) Pursuant to clause 2(b) of the Subcontract Sarens was required to complete the Subcontract Works within a specified period ("within the period stated in Part 8 of the Appendix") and had to comply with "other requirements relating to the programme therein". There was no express requirement for Sarens to complete each individual part of the works (i.e. each bridge) by a particular date.
(iii) Part 8 of the Appendix does not identify any final date for completion, providing instead that "labour and cranes will be provided to achieve the programme/schedule included in the Enquiry Document" and that exact timings and durations "may be revised as the works progress". The Enquiry Documents contained only indicative programmes.
(iv) On balance, therefore, and looking for the moment at the Subcontract in isolation, it seems to me that if there was a provision for liquidated damages, the parties intended it to operate in the event of a failure to complete the Subcontract Works (all of the works) in the required period, which can only mean by the end of the period envisaged for completion of all six bridges (or three in the circumstances which actually eventuated). This reading is further supported, it seems to me, by the provisions of clause 2(c) which provide for "an extension of time for completion of the Subcontract Works", and not for an extension of time in respect of individual elements of those works.
(v) Pursuant to clause 1(c) of the Subcontract, Sarens is deemed to have full knowledge of the Costain Contract, which is also expressly incorporated by virtue of Part 5 of the Appendix at paragraph 2. The terms of the Costain Contract are therefore relevant in the context of construing the provisions of the Subcontract.
(vi) I have set out clause 1(c) of the Subcontract earlier in this Judgment but in broad terms it makes provision for Sarens to assume and perform CBUK's obligations and liabilities to Costain under the Costain Contract, and for recovery of loss and expense incurred by Costain in connection with the Costain Contract.
(vii) As to the relevant provisions of the Costain Contract, I gratefully adopt the summary given by the Adjudicator in the Decision at paragraph 41 (where he refers to the Costain Contract as the subcontract):
(i) "The Contract Data Part 1 included a subcontract starting date of 6 January 2014, and access dates for site erection of each of the six bridge structures from 4 September 2014 through to 5 July 2015, as well as a completion date for the whole of the subcontract works of 24 June 2015;
(ii) Within the same Contract Data Part 1, delay damages for completion of the whole of the subcontract works (that is CBUK's works) were fixed at £10,000 per day;
(iii) The subcontract Meeting Minutes, forming part of the subcontract, identified Key Dates "for completion…structural steel" for three of the bridges ranging from Folly Railway Bridge (24 September 2014), Lune West Bridge (13 April 2015) and Beaumont Bridge (24 June 2015). I note here that clause 25.3 provides an exclusive remedy for failure to meet the Condition stated for a Key Date by the date stated as the cost incurred by the employer in carrying out the work or employing others to do so. There is no entitlement to delay damages, whether liquidated or unliquidated.
(iv) The subcontract did not include secondary option X5, Sectional Completion, and there were therefore no delay damages for individual bridges".
(viii) I add to this analysis that insofar as delay damages were concerned, the Costain Contract also provided that "Clause X7.1 is to be deleted and replaced with: The Subcontractor pays delay damages at the rate stated in the Subcontract Data from the date calculated by addition of 60 calendar days from the Subcontract Completion Date until the earlier of: Completion and the date on which the Contractor takes over the subcontract works".
(ix) The terms of the Costain Contract and the provisions of clause 1(c) of the Subcontract appears to me to make it tolerably clear that the parties can only have intended any liquidated damages/10% cap to apply to a delay in completion of the Subcontract Works, given that the important date in the Costain Contract in the context of delay was the final completion date and not the individual "Key Dates".