British
and Irish Legal Information Institute
Freely Available British and Irish Public Legal Information
[Home] [Databases] [World Law] [Multidatabase Search] [Help] [Feedback]
Scottish Court of Session Decisions
You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> SSE GENERATION LIMITED AGAINST HOCHTIEF SOLUTIONS AG AND ANOTHER [2018] ScotCS CSIH_26 (10 April 2018)
URL: http://www.bailii.org/scot/cases/ScotCS/2018/[2018]_CSIH_26.html
Cite as: 2018 SL 579, [2018] ScotCS CSIH_26, [2018] CSIH 26
[New search] [Printable PDF version] [Help]
Page 1 ⇓
1
FIRST DIVISION, INNER HOUSE, COURT OF SESSION
Lord President
Lord Menzies
Lord Glennie
[2018] CSIH 26
CA162/12
OPINION OF LORD CARLOWAY,
the LORD PRESIDENT
in the reclaiming motion of
SSE GENERATION LTD
Pursuers and Reclaimers
against
HOCHTIEF SOLUTIONS AG AND ANOTHER
Defenders and Respondents
Pursuers and Reclaimers: Moynihan QC, Barne QC; CMS Cameron McKenna Nabarro Olswang
LLP
Defenders and Respondents: McBrearty QC, Richardson QC; Clyde & Co.
10 April 2018
Introduction
[1] This is an action of damages arising out of the collapse of a tunnel designed and
constructed as part of a hydro-electric scheme by the defenders for the pursuers at Glendoe,
Fort Augustus, between 2006 and 2008. At a basic level, the case is simply about which
party should bear the cost of repair; the employer who instructed the work or the contractor
who designed and built the tunnel. However, the litigation has proceeded along more
intricate lines. A major dispute has arisen about whether the collapse was as a result of a
Page 2 ⇓
2
defect in the design or construction. If it was, a further question is whether the selection of
an optional clause (M) in the standard form NEC Engineering and Construction Contract
(2nd ed), effectively converted what would otherwise be a contract requiring the contractor to
design and build something which was fit for its purpose into one which obliged the
contractor only to use reasonable skill and care in the design aspects of the work.
[2] The head race part of the tunnel (HRT) ran for a distance of 6.2kms from a reservoir
formed at the head of Glen Tarff, some 600 metres above the turbine. The tailrace tunnel
(TRT) is a further 1.9kms in length and discharges the water from the reservoir into Loch
Ness on its south eastern shore. A significant feature of the engineering of the HRT was that
it is built through the Conagleann Fault Zone (CFZ) at a depth of some 260m. The CFZ is a
tear in the ground caused by an ancient earthquake. It is an area in which rock conditions
for tunnelling could be anticipated to be difficult.
[3] In about April 2009, not long after the completion of the tunnel, there was a major
collapse in the vicinity of the CFZ, about 2kms from the reservoir. This caused a complete
blockage over a distance of some 70m, with debris sloping down towards the turbine for a
further 600m. After considerable, and latterly cool, communings between the parties, the
defenders declined to carry out remedial works without being paid. The pursuers
instructed the Royal BAM group to construct a 605m bypass tunnel and associated works.
This ultimately cost about £137 million; a sum not far removed from the original contract’s
£126 million price estimate.
[4] There was a preliminary issue, which was resolved at a debate, on whether the claim
was relevant, standing the existence of, or a contractual provision for, a joint insurance
policy in respect of contractor’s risks (being risks other than those of the employer (infra)).
The commercial judge held ([2015] CSOH 92) that the claim was relevant notwithstanding
Page 3 ⇓
3
the existence of the insurance. He did so without the advantage of the various Opinions in
the UK Supreme Court in Gard Marine & Energy v China National Chartering Co (the “Ocean
with the benefit of that judgment.
[5] Much of the argument in the principal appeal centred upon the proper construction
of the contract; notably whether the collapse was a contractor’s risk. Such a risk included
loss or damage to the works which was due to “a defect which existed at take over”. Central
to that issue was whether the commercial judge was correct in his analysis of what
constituted a defect. He held ([2016] CSOH 177) that no defect existed, partly on the basis
that the defenders escaped liability because of the terms of Option M. These excluded
liability for defects due to the contractor’s design if he proved that he used reasonable skill
and care to ensure that his design complied with the “works information”.
[6] The pursuers contended that the contract provided that the defenders were obliged
to correct any defect, no matter what its cause might have been, at least up until the expiry
of the defects correction period, which occurred some two years after take over. The design,
it was said, had not complied with the works information, which, it was argued, specified a
tunnel with a design life of 75 years. The defenders had, in addition, not complied with part
of the design; notably a requirement to counteract the potential for the “erosion of erodible
rock” and to install support commensurate with specific classes of rock. The defenders had
not discharged the onus on them, in terms of the contract, to prove the use of reasonable
skill and care, especially given their failure to adduce testimony from their leading
engineering geologist, namely David Taylor, who had made the crucial decisions on tunnel
support in situ following excavation.
Page 4 ⇓
4
[7] The defenders adopted the reasoning of the commercial judge on his interpretation
of the contract and the discharge of the onus of proof. Although it had been accepted at the
proof that, as a generality, the defenders were liable to correct defects, the pursuers had not
demonstrated that a defect in the design had ever existed. At the centre of this argument
was the contention, which the judge accepted, that the design involved a holistic joint
process whereby the parties agreed the condition of the rock, and the measures required to
ensure adequate support for the tunnel, at the time of excavation and thereafter during a
series of pre-watering up inspections.
[8] The reclaiming motion raised a number of subsidiary issues, including whether the
commercial judge’s reasoning was adequate and whether he could consider, and attach
significant weight to, documents (including reports), which had not been spoken to by their
authors. The judge’s award of almost all of the expenses, including those of an 84 day proof,
also came under challenge.
[9] The defenders cross appealed not only on the insurance issue, but also on the
commercial judge’s failure to award damages for the pursuers’ breach of contract in not
allowing them to carry out the remedial works. They contended that the judge erred: (i) in
awarding the pursuers damages on account of the scheme not being operable following the
collapse (low availability damages); (ii) in requiring the defenders to repay monies awarded
upon Adjudication; and (iii) in his assessment of quantum of hypothetical damages, had the
pursuers been successful in their principal case.
The contract
The core clauses
[10] Critical to the resolution of the litigation is a proper understanding of the structure of
Page 5 ⇓
5
the contract. In order to describe this, it is necessary to quote substantial parts of both the
contract and the associated works information and design documents. In terms of Schedule
Part 1 (Contract Data Part One), the contract’s conditions included the core clauses and inter
alia Option M of the standard form NEC Engineering and Construction Contract (2nd ed)
(reprint May 1998)1. The “works” were defined as those described in the “works
information” and all the documents incorporated in the contract’s Schedule Part 3. Under
the heading “2. Contractor’s Main Responsibilities” it was provided that:
“The contractor’s liability for defects due to his design that are not listed on the
defects certificate is limited so far as he proves he used reasonable skill and care to
ensure it complied with the works information”.
[11] The completion date was initially set at 28 February 2009. The defects date was
104 weeks after completion. Notwithstanding that the limitation on liability for defects
under heading 2 applied only to those not included on the defects certificate, which was to
be issued before the defects date, the broader terms of Option M were then set out. These
are that the contractor was, apparently as a generality:
“not liable for defects in the works due to his design so far as he proves that he used
reasonable skill and care to ensure that it complied with the works information”.
[12] The Core Clauses, which were in 9 parts, included the following:
“1.
General ...
Identified and defined terms 11
11.2 ... (4) To provide the works means to do the work necessary
to complete the works in accordance with this contract ...
(5) Works information is information which ...
specifies and describes the works ...
and is
1 Some of the words in the contract and the works information (infra) were capitalised or italicised.
This formatting has been removed to ease reading.
Page 6 ⇓
6
in the documents which the contract data states
it is in ...
(13) Completion is when the contractor has
done all the work which the works information
states he is to do by the completion date and
corrected notified defects which would have
prevented the employer from using the works
(15) A defect is
a part of the works which is not in accordance
with the works information or
a part of the works designed by the contractor
which is not in accordance with ...
the contractor’s design which has been
accepted by the project manager.
(16) The defects certificate is either a list of defects ...
notified before the defects date which the contractor has not
corrected or ... a statement that there are none.
...
The project manager and the supervisor 14
14.1 The project manager’s or the supervisor’s acceptance of a
communication from the contractor or of his work does not change
the contractor’s responsibility to provide the works or his liability for
his design.
…
2.
The Contractor’s main responsibilities
Providing the Works 20
20.1 The contractor provides the works in accordance with the
works information.
The Contractor’s design 21
...
21.2 The contractor submits the particulars of his design as the
works information requires to the project manager for acceptance. A
reason for not accepting the contractor’s design is that
it does not comply with the works information
...
The contractor does not proceed with the relevant work until the
project manager has accepted the design.
Page 7 ⇓
7
...
21.5 The contractor’s liability to the employer for defects due to his
design that are not listed on the defects certificate is limited to the
amount stated in the contract data …
...
Take over 35
35.1 Possession of each part of the site returns to the employer
when he takes over the part of the works which occupies it.
Possession of the whole site returns to the employer when the project
manager certifies termination.
...
4.
Testing and Defects
Tests and inspections 40
...
40.4 If a test or inspection shows that any work has a defect, the
contractor corrects the defect ...
...
Correcting defects 43
43.1 The contractor corrects defects whether or not the supervisor
notifies him of them. The contractor corrects notified defects before
the end of the defect correction period. If the project manager and the
contractor agree before the end of the defect correction period, the
defect correction period is extended. The defect correction period
begins at completion for defects notified before completion and at the
expiry of the mobilisation period for other defects ...
43.2 The supervisor issues the defects certificate at the later of the
defects date and the end of the defect correction period.
...
45.1 If the contractor has not corrected a notified defect within its
defect correction period, the project manager assesses the cost of
having the defect corrected by other people and the contractor pays
this amount.
...”.
[13] There then followed certain bespoke clauses particular to this contract:
“46.1 (Clause Z2.2) The contractor’s obligations for the correction of
defects does not include repairs, adjustments, replacement or
maintenance as a result of normal wear and tear or degradation in the
Page 8 ⇓
8
performance of the works as a result of the employer’s failure to
operate or maintain the works in accordance with the operations
maintenance manuals.
If the employer cannot use the whole or part of the works due to a
defect which arises after completion and before the defects date, the
defects date is extended by a period equal to the period during which
the employer, due to the defect, is unable to use the whole or part of
the works …
46.2 (Z2.3) If part of the works is repaired or replaced due to a
defect which arises after completion and before the defects date, the
defects date … is delayed by a period equal to the period between
completion and the date when the part has been repaired or replaced.
…
Latent Defects
46.4 (Z3.1) Notwithstanding the issue of the defects certificate, the
contractor makes good at his own cost and expense and with all
possible speed any defect which appears or occurs during the period
of … twelve years following completion ... provided the defect is not
caused by normal wear and tear …
Upon receipt of written notice of such a defect the contractor without
unnecessary delay submits for acceptance by the employer his
proposals to remedy the same at no cost to the employer. Upon
receipt of the acceptance of the employer to the contractor’s proposals
… the contractor … implement his proposals as accepted with all due
speed.
If the contractor fails to submit his written proposals … the employer
may employ and pay other persons to design and carry out the
necessary remedial work … and the contractor is liable for all costs
and expenses in connection with such remedial work …
…
Availability guarantee (Z6)
48.1 Between completion and the defects date the employer
assesses the station availability monthly and notifies the contractor.
48.2 The contractor pays the amount of low availability damages
stated below at the end of each of the first four half year periods. The
availability standard and amounts for low availability damages are as
follows: ...
The total of the availability damages does not exceed £1,000,000,
which shall be the sole and final remedy for the event described in
this Clause Z6.
...”.
Page 9 ⇓
9
[14] Returning to the core clauses, the contract continued:
“6.
Compensation Events
Compensation events 60
60.1 The following are compensation events.
...
(14) An employer’s risk event occurs.
...
Limitation of liability Z11
80. Neither the contractor, nor the employer excludes or limits any
liability to each other for personal injury ... to the extent that such
injury results from the negligence or wilful default of itself, its
servants, agents or sub-contractors.
... the total liability of each of the contractor and the employer ... to the
other does not exceed the applicable financial limit for each category
of liability as follows.
... in the case of all liability for loss of or damage to the other party’s
property (except the works, plant and materials and equipment) ...
GBP 10,000,000 ...
In the case of any other liability under the contract ... liability is
limited to the tendered total of the prices.
Neither the contractor nor the employer are liable to each other for
indirect or consequential damages and/or loss of profit except as
provided for in the conditions of contract.
8.
Risks and insurance
Employer’s risks 802
80.1 The employer’s risks are
Claims ... which are due to ...
negligence ... by the employer ...
a fault of the employer or a fault in his
design.
Loss of or damage to the works ... due to
war ...
2 The insertion of the clause above resulted in there being two clause 80s.
Page 10 ⇓
10
Loss of or damage to the parts of the works
taken over by the employer, except loss or
damage occurring before the issue of the defects
certificate which is due to
a defect which existed at take over
an event occurring before take over which is
not itself an employer’s risk ...
...
Other employer’s risks stated in the contract
data.
The Contractor’s Risks 81
81.1 From the starting date until the defects certificate has been
issued the risks which are not carried by the employer are carried by
the contractor.
Repairs 82
82.1 Until the defects certificate has been issued ... the contractor
promptly replaces loss of and repairs damage to the works.
Indemnity 83
83.1 Each party indemnifies the other against claims ... due to an
event which is at his risk.
83.2 The liability of each party to indemnify the other is reduced if
events at the other party’s risk contributed to the claims ...
Insurance cover 84
84.1 The contractor provides the insurance stated in the Insurance
Table ...
84.2 The insurances are in the joint names of the parties and
provide cover for events which are at the contractor’s risk from the
starting date until the defects certificate has been issued.
INSURANCE TABLE
Insurance against
Minimum amount of cover or
minimum limit of indemnity
Loss of or damage to the works,
plant and materials.
The replacement cost, including
the amount stated in the contract
data for the replacement of any
plant and materials provided by
the employer.
...
Page 11 ⇓
11
Insurance policies 85
...
85.2 Insurance policies include a waiver by the insurers of their
subrogation rights against directors and other employees of every
insured ...
85.4 Any amount not recovered from an insurer is borne by the
employer for events which are at his risk and by the contractor for
events which are at his risk.”
[15] It is worth observing that Option M appears in the following form, which includes a
heading, in the NEC 2 contract’s secondary options section:
“Option M: Limitation of the contractor’s liability for his design to reasonable
skill and care
The contractor’s design M1
M1.1 The contractor is not liable for defects in the works due to his
design so far as he proves that he used reasonable skill and care to
ensure that it complied with the works information.”
The works information
[16] There were three relevant elements to the works information.
[17] First, part 2 of section 1 (“General”) of Schedule Part 3 contained a “description of
the works”. The description began (para 2.1) by setting out the employer’s objective of
having a hydro scheme designed and constructed, which would provide, inter alia: “Reliable
service without the requirement for major refurbishment or significant capital expenditure
within the design life of the scheme”. The works were (para 2.2) the design, construction
and commissioning of the scheme, which was to have a capacity to generate 100 MW.
[18] Part 6 of section 1 dealt with the “Contractor’s Design”. It provided (6.1.1) that the
contractor was responsible for the design of all of the works. It described (6.2.1) the design
procedures, which were to be carried out in three phases viz.: concept design; preliminary
design; and detailed design. Each element required (6.2.1, 6.2.8.1) to be submitted “for
Page 12 ⇓
12
acceptance” to the pursuers’ project manager, namely (initially) Neil Sandilands. The
detailed design, once accepted, was to be “developed through construction detailing and
method statements” (6.2.8.4). Design documents could be “accepted, not accepted (returned
with comments) or accepted subject to comments” (6.2.10).
[19] Part 6 of section 1 contained the “Design Brief” which provided:
“6.3.1 Guaranteed Performance
The contractor designs a hydro scheme ... with a minimum guaranteed
performance. The performance criteria are detailed in the contract data
Part 1.
6.3.2 Design Life
The design life of the principal components are detailed below. The
components provide reliable service without requirement for major
refurbishment or significant capital expenditure for a period of time as
follows…
Civil Works 75 years.”
[20] Part 7 stated (again, para 7.5) that the “defects date” was 104 weeks after the issue of
the completion certificate. The contractor was to attend a defects inspection during the final
4 weeks before the defects date.
[21] Secondly, section 2 (“civil works”) of Schedule Part 3 referred to the HRT. Part 2
dealt with general requirements including tunnel design; specifically (para 2.3.1) support.
The assessment of support to the HRT was initially to be based on the Q-system, which
involved an arithmetical assessment based on numerical values attributable to various rock
conditions. Paragraph 2.3.1 continued:
“Following each excavation cycle the contractor maps the face, crown and sidewalls
to enable the classification of the ground in accordance with the rockmass
classification system. The contractor agrees the rockmass parameters with the
project manager and the support class is agreed prior to its installation ...”.
The contractor could (as in due course the defenders did) adopt an alternative comparable
system, subject to its acceptance by the project manager.
Page 13 ⇓
13
[22] Part 6 dealt specifically with the HRT. It was to be designed (para 6.1) to transport
water under pressure from the reservoir to the turbine. The initial concept was that the HRT
was to be lined throughout its length with shotcrete (sprayed concrete), except where a full
in situ concrete or steel lining was to be provided or as otherwise agreed with the project
manager. In due course, the proposal to have a completely lined tunnel, which formed the
basis for Part 6, was abandoned.
[23] Thirdly, there was Schedule Part 7, Appendix 6, being the defenders’ “design
statement”. This had been prepared by the defenders’ subcontractors, namely Pöyry Energy
JV (Pöyry), a Finnish company which had been engaged to design the civil works, including
the HRT. It had been part of the tender documentation compiled in 2004. It provided an
explanation for the changes which had involved a major departure from the original lined
tunnel design. It assumed (para 2.2.2.1) the installation of shotcrete (75mm thickness over
50% of the tunnel with no concrete invert) where the rock was determined to be class I or II
(infra). It was anticipated that shotcrete would be required over 90% of the HRT. A lining
corresponding to classes III and IV (150mm shotcrete over the whole tunnel with a concrete
invert) was predicted over the remaining 10%. It was stated (para 2.4) by the defenders that,
with the use of a tunnel boring machine (TBM), the HRT was feasible with 60% of the tunnel
left unlined (class I). This, it was said, would not compromise its required service life.
[24] The design of rock support (subsequently called the Pöyry Guidelines) was to be
carried out using the following procedures (para 2.4):
“Determine risk situations (geological scenarios) for which the rock support should
be designed ... [refer to reference ground conditions report];
Design a range of typical sections (one for each excavation class) covering foreseeable
risk situations;
Page 14 ⇓
14
Determine forecast for intensity of risk situations along tunnel length and hence for
distribution of excavation classes along the tunnel [refer to reference ground
conditions report];
Determine actual support requirements during the tunnel advance based on actual
conditions encountered, particularly with reference to the identified risk situations;
Adapt rock support based on actual rock conditions (eg adjusting the balance of
shotcrete and rock bolts, adjusting the thickness of shotcrete, adjusting rock bolt
length and pattern);
Observe the behaviour of the rock behind the face in order to judge the adequacy of
the initial support and any need for additional rock support and/or final lining (such
as shotcrete lining to prevent erosion of weak rock layers).”
[25] The design statement provided (para 2.6) information to the effect that general
reinforcement was required when certain conditions were encountered. These included
areas where rock was susceptible to erosion and in areas where long term stability could be
endangered by dynamic water pressure.
[26] The works information contained a substantial report (Sch Pt 3; Appdx 12) setting
out the defenders’ understanding of the relevant ground conditions. These were said in the
report (para 1 “Introduction”) to form part of “the agreement for the works”. In relation to
the HRT, the excavation classes were said (para 4.1) to be defined on Drawing D2013
appended to, and in chapter 7, of the report. The Drawing was of cross sections of the HRT
showing the rock support applicable to each class. Chapter 7 began with a foreword which
stated that:
“During construction, the support requirements will be decided at the face, based on
the actual conditions”.
The “actual conditions” were to be understood as encompassing any observation likely to
affect the stability of the unsupported excavation. The class was not primarily a statement
of rock mass but something which reflected “the type and quantity of support installed
3 see Appendix 1 to this Opinion
Page 15 ⇓
15
within the tunnel”. It was to be “considered as the adequate and sufficient response to a
particular or number of hazard situations”.
[27] The report (para 7.4) divided the “excavation classes” into four. Class I (unlined)
was “good rock condition” with no hazards other than small unstable wedges or slabs of
less than (<) 0.2m3. Typical rock properties included an absence of sheared zones or erosion
potential. Either no support would be needed or it would be limited to spot bolting and/or
local shotcreting to the roof. Class II (partially lined) was “fair to poor rock conditions”
involving a hazard of, amongst other things, block fall due to unstable wedges or slabs.
Rock properties would encompass “blocky rock structure with closely spaced joints” and
single shear zones with a thickness <10cms and “non erodible gouge”. This needed
“systematic support above the spring line” (the half way point on the vertical). Class III
(fully lined) was “poor rock conditions” involving an unstable roof and side walls,
moderately to highly weathered rock, subject to ravelling (tangling), “weak erodible rock, eg
sheared mica schist and quartz mica schist with high mica content”. Rock properties
included sheared zones, notably “unfavourable orientation of weakness zones”. Systematic
support over the full HRT perimeter was deemed necessary.
[28] Class IV (fully lined with steel) was “very poor rock conditions” with unstable roof
and side walls, moderately to highly weathered rock, subject to ravelling. Hazards were
“fault zones with erodible kakirite (dip <500 or width >0.5m)” and “Loose erodible gouge of
faults”. Typical rock properties would be “faulted zones”, “very unfavourable orientation
of weakness zones”, typically occurring where there were fault zones with weak kakirite
and strongly sheared zones. Kakirite had earlier been defined as “Material resulting from
rock faulting/shearing. Structure of loose material, with no or low cohesion. Characteristic
Page 16 ⇓
16
of young faults”. Systematic support over the full perimeter was necessary, with shotcreting
and bolting being considered insufficient to stabilize the excavation.
[29] The report had anticipated (para 8.3.1.2) that the presence of “highly weathered rock
at tunnel elevation, apart from the fault and sheared zones was … unlikely”. Generally,
high strength rock was predicted. Hence, it was thought (para 4.1) that, over the whole
length of the HRT, only 1.5% would need class IV support, 6% would need class III, 23.8%
class II and 68.7% class I (cf Sch Pt 7, Appdx 6 supra). As matters transpired (infra), no
class IV support, and only a very small section of class III support, was installed.
The design
[30] Two documents were said to constitute at least part of the detailed design. This
design was not part of the works information and its terms were therefore not part of the
formal contract, other than by reference. The first document was the HRT Rock Support
Methodology (RSM) (Drawing 152 DC 12 20 97 02 with attached comment sheet) which,
incidentally, showed (Fig 5)4 the CFZ at around chainage 2000 (the chainages being
references to the distance in metres from the reservoir rather than imperial measures). The
CFZ was thought to be some 115m wide. It was anticipated that it would contain
predominantly rock classes III (80%) and IV (20%) (see the text below Fig 5). Under a
heading “Water outflow & loss”, there was a statement (para 6.1.5) that “Erodible zones will
have to be shotcreted irrespective of the associated rock class”. Sometime after the
commencement of the excavation, the pursuers’ geology consultants, namely Jacobs (Jacobs
Gibb Ltd and Jacobs UK Ltd), had asked the defenders to clarify what was meant by
“erodible”, but no reply was forthcoming.
4 see Appendix 2 to this Opinion
Page 17 ⇓
17
[31] Part of the RSM was Table 115. This was described as a “Geotechnical risk
assessment after excavation”. It contained a reference to the hazard of “erosion of erodible
rock during operation”. Operation meant the period during which water would flow
through the tunnel under high pressure. At the turbine, the pressure would be 60 bar,
although only about 20 bar at the CFZ. The hazard involved a “high” risk requiring
countermeasures in the form of the “application of shotcrete if not already
covered/’protected’ by steel rib support”.
[32] The second document was the drawing D201, which had been referred to in the
ground conditions report (para 4.1 supra). It contained illustrations of a cross section of the
HRT showing what constituted the recommended support for each of the four rock classes.
Class I required two angled 2.2m rock bolts at, and 50mm shotcreting of, the crown. Mesh
was optional. Shotcreting could be reduced or omitted where good rock sections were
clearly identified. Class II involved four rock bolts at, and 50-80mm shotcreting of, the
crown. Mesh was compulsory. Shotcreting could be extended down the sidewall “as
required”. Class III showed eight rock bolts above the spring line, with 100mm shotcreting
throughout the circumference. The installation of a bolted steel plate to the crown was
optional. Class IV involved only two rock bolts but full circumference steel ribs at 1 – 1.25m
intervals. The 200mm shotcreting was also full circle with mesh. “Particular notes” on the
drawing stated:
“1. Rock supports be installed to the extent required to meet the rock conditions
encountered.
…
5. Rock support and surface treatment may be modified as considered
necessary to adapt to the actual geological site conditions at the work site.
5 see Appendix 3 to this Opinion
Page 18 ⇓
18
…
7. Rock support methodology/materials specification see 152 DC 11 50 97 02”
(supra).
The progress of the works
[33] The contract was signed on 22 and 28 December 2005. At a meeting between the
parties on 2 February 2006, it was agreed that they would each employ geologists on site to
agree the rock classification as the excavation proceeded. A similar decision was minuted at
a meeting of 24 May 2006. This method was put into practice by means of rock excavation
classification (REC) sheets6 devised by the defenders’ principal engineering geologist,
namely Mr Taylor. The REC sheet template referred expressly to the descriptions of
classes I, II, III and IV (supra). The template anticipated completion by marking particular
portions of the text and ticking boxes representing the geologist’s view of potential hazards,
typical phenomena and typical rock properties. The geologist’s view of the overall support
category would be recorded in a box on the sheet. There was a small section into which
comments could be inserted. The sheets were signed as prepared by Mr Taylor, confirmed
by the defenders’ subcontractors, namely Pöyry, and approved by the pursuers’
subcontractors, namely Jacobs. The sheets covered a variety of different tunnel lengths.
Their content was converted onto maps, each covering a 25m section of tunnel. The
commercial judge found (para [64]) that, throughout the excavation, no-one sought to alter,
or otherwise query, Mr Taylor’s assessment of the appropriate rock class and support.
[34] The excavation of the main tunnel had begun with the TRT, which was completed in
February 2007. Thereafter the HRT was excavated with the TBM passing through the CFZ
in late August 2007. Although the defenders had expected to encounter poor rock
6 see Appendix 4 to this Opinion
Page 19 ⇓
19
conditions in the CFZ (see supra), they did not notice any obvious signs of this. A minute of
a meeting on 9 September 2007 recorded by Angus Speirs, an engineer with Jacobs, noted
that indications of the CFZ were “imperceptible”. The requisite support was deemed to be
class I throughout almost all of the CFZ. Excavation of the HRT was completed in January
2008.
[35] At the proof, the pursuers focussed upon an REC sheet, dated August 2007, for
chainages 2117 to 21017 (ie in the vicinity of the CFZ). Although almost all of the rock class
descriptors ticked were class I or II, when it came to the general description of the rock mass,
it had been assessed as class III. The manuscript comments included:
“Some shear zones with QMS [quartz mica schist] kakerite (sic), local slab formation
& blockfall in sidewalls. Rotate CII support to LHS from CH2117-2107. Extend.
Shotcrete to maximum extents in shotcrete bay and backfill voids”.
The overall support category was given as CIIA; that is class II with an increased application
of shotcrete. On the equivalent mapping (for chainages 2125 to 2100)8, there was a drawing
of shears, some 1 to 1.5m apart, with blockfall having occurred prior to shotcreting. The
mapping showed a shear with a dip of <500 (it was 480). The rock mass description
contained a reference to follated rock with “closely jointed fresh QUARTZ MICA SCHIST,
mod weak to mod strong”. There was no note of kakirite on the mapping, despite the
reference to it on the REC sheet.
[36] The REC sheet for chainages 2084 to 20829, which had been revised in February 2008,
contained eleven ticks referable to the descriptors. Four were for class I, six for class II and
one (general rock description) for class III. There was reference to the area being
“moderately sheared”. The revised classification was class I.
7 see Appendix 5 to this Opinion
8 see Appendix 6 to this Opinion
9 see Appendix 7 to this Opinion
Page 20 ⇓
20
[37] An email from Mr Taylor to the TBM crew dated 28 August 2007 read as follows:
“Current conditions: Rock Class II. Now in anticipated fault zone so expect
deterioration at any time.
There have been a few areas where there are local zones of better looking rock (a
couple of metres wide). Whilst these superficially look like Class I conditions, they
are bounded by Class II and may cover potential wedges formed in the weaker
ground. Whilst we are in this fault zone, it would be prudent to maintain a
minimum of Class II support unless the rock quality unexpectedly improves over
many metres.”
[38] In January and February 2008, inspections of the HRT took place prior to “watering
up”. Pöyry prepared a report recommending the application of strips of shotcrete and mesh
to certain areas of erodible rock. Defects notice D033 (infra), which was issued on 26 June
2008, recorded that:
“A joint inspection of the [HRT] ... has identified areas where the rock support is not
in accordance with the agreed rock class and the support is considered to be
inadequate to ensure the long term stability of the rock. It is therefore not in
accordance with the Contractor’s design which has been accepted by the project
manager.”
A number of specific items were said to require attention, notably additional support
measures, particularly shotcreting and extra bolting, in a significant number of locations
specified in a “jointly agreed TBM HRT Rock Support Review”.
[39] On 11 March 2008, Prof Einar Broch, a geologist who had been engaged by the
defenders primarily to inspect the rock trap (a pit located in the HRT above the turbine),
reported that the rock mass conditions in the HRT were very good. No major weakness
zones had been observed. The zones described in the Pöyry report were small and none of
these could cause a serious collapse. Prof Broch regarded the support measures, which had
been recommended in the report, as being more than good enough for a tunnel that was
basically designed and built as “unlined”.
Page 21 ⇓
21
[40] Take over inspections occurred in October 2008. The pursuers had noticed certain
items lying in the invert. Mr Speirs had expressed a concern about the condition of the
lower side wall. He was reassured by Pöyry and the defenders that, if erosion occurred, it
would not adversely affect the stability of the tunnel. Defects notice D041 was issued on
10 November 2008 as a result of the joint pre-watering up inspection. This recorded that one
of the many defects, “whereby the construction was not in accordance with the Contractor’s
design accepted by the Project Manager”, was:
“3. Significant voids were evident below the tunnel invert at several locations
where weak and/or sheared rock had been eroded by the water flushing exercise
carried out to clean the tunnel invert.”
[41] Defects notice D044, dated 17 December 2008, again listed numerous areas of
outstanding work including filling “with concrete pits and voids in tunnel invert”.
Nevertheless, the pursuers issued the completion certificate to the defenders on
18 December 2008. This meant that the defects date would be 18 December 2010.
The collapse
[42] Efficiency tests, which were required before the scheme could be connected to the
National Grid, were carried out in January 2009. Some time in about late May or early June,
and again on 10 July, 2009, odd readings began to appear at the pursuers’ control room in
Perth. These might have indicated a loss of water pressure at the turbine. They were
initially put down to calibration errors. It was accepted that, in hindsight, had they been
acted upon, matters might have turned out differently. The scheme was officially opened by
HM the Queen on 29 June 2009, when the turbine had initially failed to start. The following
day, thumping noises over a period of two hours were heard by Jacobs’ engineers. There
had been a progressive collapse of the tunnel from 12 April 2009.
Page 22 ⇓
22
[43] In early August 2009, judges from the Saltire Society were visiting. The parties
noticed a sediment plume of discoloured water being discharged from the TRT into Loch
Ness. The following day, the scheme did not achieve its operating load of 100 MW. It was
only at 80 MW after 25 minutes. The turbine was shut down. The pursuers arranged a
meeting at Perth on 6 August, by which time those involved had become “shell-shocked”.
Divers were sent down to inspect the tunnel at the reservoir end; but the problem was not
there. There was a note in the pursuers’ records stating “give direct to Hochtief now? – Neil
says no”. However, Neil (Mr Sandilands), informed the defenders of the problem later that
day, when defects notice D053 was issued. This was in the following terms:
“There has been an increase in headloss in the [HRT] ... resulting in [the pursuers]
not being able to run the generating plant at its rated 100 MW output and deciding to
shutdown the generating plant yesterday, 5 August 2009 ... in order to prevent
further damage to the tunnel.
The support to the tunnel on part of its length would appear to be inadequate.
The [pursuers intend] to empty the tunnel to permit inspection and the project
manager will write to you giving details of arrangements and inviting you to attend
the inspection”.
[44] Dewatering and inspection of the HRT took place. Rock falls could be heard. Minor
collapses had occurred, but the major one was discovered some 2kms from the reservoir.
An inspection from the other end of the HRT revealed some 600m of debris running up to a
complete blockage. It was initially thought that the blockage was some 270m long, but this
was later discovered to be erroneous; the final figure being some 70m.
[45] Although initial relations between the parties remained amicable, this soon changed.
By letter dated 31 August 2009, the pursuers, under reference to defects notice D053,
instructed the defenders to proceed with remedial works in terms of clause 43.1 of the
contract. The defenders refused to do so unless payment for the remedial works was to be
made.
Page 23 ⇓
23
[46] By September 2009, it was accepted by both parties that the appropriate remedy was
the construction of a bypass tunnel. By letter dated 25 September 2009, the defenders stated
that they did not consider that they had any liability or obligation to carry out remedial
works at their own expense. The letter continued:
“We do however wish to emphasize that we are ready to repair the collapse as we
are obliged to according to clause 82.1 ...”.
The defenders referred to clause 61.3; arguing that the collapse constituted loss of, or
damage to, the works taken over by the employer. Accordingly, the event was an
employer’s risk under clause 80.1 and a compensation event under 60.1(14). The cost of
repairs fell to be reimbursed under the employer’s property insurance. Under clause 83.1,
the defenders were entitled to be indemnified by the pursuers and compensated for all costs
due to the occurrence. The defenders said that there were no defects in the works noted at
the time of the take over and no evidence of any defect for which the defenders were
responsible. The parties’ positions have hardly changed ever since.
[47] On 27 October 2009, defects notice D055 was issued. This notified collapses and
block falls in the HRT from the reservoir to the blocked zone and continued:
“Ch 2150 – Total collapse, debris fills tunnel to crown; rendering tunnel inaccessible
over a length of approximately 270m.
Ch 2420-2735 – Massive in-tunnel debris, not filling the tunnel completely, from the
collapse that starts at Ch 2150”.
There were three references to voids and shears in the HRT in the area down towards the
turbine. The areas identified outwith the blocked zone would, in due course, form part of
the pursuers’ claim for “secondaries”.
Page 24 ⇓
24
The repair works
[48] On 12 November 2009, the defenders offered to construct the bypass tunnel,
provided that this was on a cost reimbursable (Option E) basis. This was not accepted. In
late November 2009, the pursuers invited the Royal BAM group to tender for the bypass
tunnel. An estimate of £30 million was initially provided. On 7 December 2009, the
pursuers sent a letter to the defenders requiring them to provide a programme for the
remedial works and to agree to 50/50 cost sharing until liability could be determined. On
14 December 2009, the defenders declined this offer. On 18 January 2010, the pursuers
notified the defenders that they intended to appoint BAM to undertake the recovery project.
They formally appointed them to do so in March 2010. In January 2011, a supplementary
agreement was reached between the pursuers and the BAM, with a revised estimate of
£85.7 million. Meantime, the pursuers had issued defects notice D058 regarding secondary
defects. On 28 October 2011, the pursuers authorised a total of £137 million to be spent on
the remedial project. The works were completed in August 2012, when the scheme began
generating the required amount of energy; producing £20 million of annual revenue.
The Adjudications
[49] On 7 June 2011 the defenders referred the issue of responsibility for the collapse of
the HRT to Adjudication. In a decision dated 24 November 2011, the adjudicator (Robert
Galbraith QC) addressed, first, the issue of the standard of care imposed on the defenders.
The adjudicator concluded (para 45.3) that:
“... the Contract provides that for [the defenders] to escape liability [they] must
establish … that [they] ‘used reasonable skill and care’ to ensure that in choosing the
rock support … [they] complied with the Works Information.”
Page 25 ⇓
25
[50] The adjudicator considered, secondly, whether the defenders had used reasonable
skill and care. He noted (para 53.1) that it had been agreed (in the Works Information) that
the determination of the support requirements was to be based on the conditions
encountered as the HRT advanced. He found (para 53.13) that:
“That is how [the defenders] carried out the decisions as to rock support. Their
decisions, using the [defenders’] classification system, were being checked by Jacobs
(for the [pursuers]) using the Q system … I conclude that the tunnel support within
the collapsed area … was in accordance with the Works Information.”
The RSM was appropriate and had been properly applied on site. Accordingly, he also
concluded (para 54.3) that:
“the tunnel support within the collapsed area … was in accordance with the
Contractor’s Design as accepted by the Project Manager”.
In an interesting passage, the adjudicator ended (para 56.13) his analysis of this issue as
follows:
“Of course, the contractual responsibility remained upon [the defenders], but there
seems little doubt that, as a matter of fact, the decisions taken at all material times
were decisions that commanded the support of all the professionals (including the
[pursuers]/Jacobs) on site. In such circumstances … [the defenders have] established
that [they] carried out [their] functions in mapping and producing the RECs, and
choosing the rock support categories, and confirming those in subsequent
inspections, with reasonable skill and care.”
[51] The adjudicator turned, thirdly, to whether the collapse had been a defect or a
compensation event. He found (para 57.1) that:
“... the rock support works as designed and constructed did not constitute a Defect
for the purposes of Clause 11.2(15). It is true that a collapse subsequently occurred.
However, that was not because there was a Defect for the purposes of the Contract.
It occurred simply because there are inherent risks of rock falls and collapses in
unlined tunnels. These are part of the risks that the Parties are aware of when the
price is being negotiated. The incidence of such rock falls and collapses can be
greatly reduced by using a fully lined tunnel, but this would cost far more than an
unlined tunnel.”
Page 26 ⇓
26
He held that there was no defect which existed at take over “since the rock support specified
and installed was appropriate for the purposes of the contractual terms”. The damage,
which occurred after the works had been taken over, was an employer’s risk. The
adjudicator also held that the secondaries, being claims relative to areas of the tunnel
unaffected by the collapse, were not defects.
[52] A second adjudication proceeded before a different adjudicator (Richard
Fernyhough QC) who issued a decision on 26 June 2015. This ordered the pursuers to pay to
the defenders €339,356.31 and £28,248.81 in respect of costs incurred by the defenders in the
recovery project during the period from 5 August to 31 December 2009; all in terms of the
indemnity in clause 83.1, being costs “due to the collapse”. The costs were primarily those
of making the site safe, carrying out investigations, holding meetings and drawing up
outline remedial proposals (see para 46). The defenders had claimed much greater sums
amounting to €1,194,401.24 and £582,128.86, including legal and expert fees as well as their
own staff costs. A large proportion of those were disallowed on the basis that the causal
connection between the collapse and the costs had been broken when the defenders ceased
to be involved in the remedial project. Thereafter the work carried out by the defenders had
been as a consequence of commercial decisions, which were made in their own interests and
not effectively caused by the collapse, in order that they could defend themselves against
future claims.
Selected testimony at the proof
[53] Much of the proof was taken up with testimony about whether the defenders, and in
particular Mr Taylor, had been negligent in the assessment of the required support or in
their application of the RSM and drawing D201 criteria. In order to assess the commercial
Page 27 ⇓
27
judge’s findings in this area, it is necessary to delve some depth into the testimony of the
experts.
Prof Andrew Sloan
[54] Prof Sloan was the principal expert witness for the pursuers. He was a director of
Donaldson Associates. Prof Sloan visited the site on 14 August 2009, shortly after the
collapse, and again on 16 September 2009. In his report, dated August 2011, he concluded
that the collapse was centred on the CFZ; the presence of which had been “clearly”
referenced in the contract materials. The defenders had identified erodible rock in shear
zones within this fault, but they had failed to support and protect them in the manner
required by the works information and design. The defenders’ failure to install sufficient
support had been directly responsible for the collapse.
[55] During operation, the action of the water in the HRT had eroded rock from multiple
shear zones. The erosion had been progressive and ultimately involved a large volume of
material, including blocks of rock that had been bounded by the shear zones. Upon
dewatering, a huge and catastrophic collapse of the ground above the tunnel had occurred.
A void of 2,374m3 existed to a height of 60m directly above the tunnel at the point of
collapse.
[56] As a generality, site conditions had been suitable for an unlined tunnel, but careful
geological investigation and tunnel support had been required to ensure that the ground
conditions were recognised and dealt with appropriately. The RSM had not provided a
detailed explanation of how the excavation classification system ought to have been
implemented. No details had been given linking the collection of data to the selection of
support. The observations of actual conditions were to be given equal weight. The design
Page 28 ⇓
28
had not complied with the works information. It had assumed that the width of the CFZ
would be 5m, but this was contradicted by the information in the works information which
suggested it was 115m wide.
[57] There was a fundamental difference between rock classes I and II on the one hand,
and III and IV on the other; the latter having the potential to erode either immediately after
excavation or under operational conditions. Any rock described as having the attributes of
“erodible kakirite”, “weak erodible rock” ought to have been classified as either III or IV. To
be defined as III, any fault of shear zone had to be of a thickness of less than 0.5m wide with
a dip of <500. The only differentiating factors between classes III and IV was that, for
class IV, the width of any fault zone required to be >0.5m and the dip <500. In some 56 areas
the defenders had not, from their own data, identified the correct excavation class in
accordance with the design.
[58] There had been a significant amount of erodible rock in the collapsed zone and
frequent shear zones had been recorded over the full width of the CFZ. Although the
mapping had used class III terminology to describe these zones, the defenders had assigned
and installed only class I and II support. The works information and design required every
shear zone to be supported by the application of shotcrete over the full perimeter, as the
minimum class III support. The shear zones were not provided with class III or IV support,
because an assumption had wrongly been made that the performance of the rock would be
controlled by the dominant, and not the worst, recorded excavation class. In summary, it
had been apparent that the defenders had identified erodible rock that, based on their own
records, should have been attributed to class III. They had failed to do this.
[59] The February 2008 Pöyry design statement had recorded erodible rock at 11 out of
17 areas which they had inspected. It stated that the HRT, particularly the invert, had not
Page 29 ⇓
29
been inspected in detail. Twelve of the 17 areas referred to signs of deterioration,
bulging/squeezing, and shear zones. Two out of the 17 were referred to as “a big bad zone
with lots of weak material”. In four of the areas, over-break or wedge failures had been
identified. Many of the locations should have been identified as class III.
[60] The joint inspection of the HRT in October 2008 had noted unprotected sheared and
weathered rock that could erode under operational conditions. The pursuers had expressed
concerns about this. It had been explained that the agreed site approach was not to
shotcrete the lower sides of the tunnel walls. If erosion had occurred, it was said that it
would not significantly affect the stability of the tunnel. The defenders had therefore been
aware that there was rock which was susceptible to erosion but had been left unprotected.
[61] In the area of the collapse (chainages 2121 to 2050), the tunnel had been inadequately
supported. The requirements of the works information and the design had not been met.
Erodible rock was present and had eroded at multiple locations. Class III or IV support
should have, but had not, been installed. At chainages 2117 to 2101, there had been
evidence of faulting, using the criteria of erodible rock. The REC sheet had mentioned
kakirite and erodible rock over quite a length. This had not been reproduced in the
mapping. The REC sheet findings indicated class III. The assessment of this area as class II
had been caused by the absence on the mapping of erodible rock. The mapping had not
identified any need for class IV support. In parts it would have been class III. The extent of
erodible rock had been underestimated, albeit with hindsight. There was not enough
evidence to recommend class IV support, only class III. Erring on the side of caution meant
that class IV should have been installed, although class III would have stopped the erosion
and could have prevented the collapse. A collapse might still have occurred, but not one of
the same magnitude.
Page 30 ⇓
30
Prof Håkan Stille
[62] Prof Stille had been instructed by the pursuers for the purposes of the litigation. He
had produced a report dated 22 October 2014. He had considered the RSM to be
appropriate for the expected geological conditions. There were ambiguities in the indicators
for defining classes in the RSM. The proposed support for the HRT in respect of the
different classes had been adequate, provided proper action was taken regarding the risk of
under-supporting the wall below the spring line and where there was erodible rock and
gouge material.
[63] In a second report dated 27 May 2015, Prof Stille stated that the contract had not left
responsibility for determining support to an engineering judgment at the tunnel face.
Rather, the support to be installed depended upon the actual hazard situation. If the hazard
was present, then the contractor had to classify and support the rock accordingly. The REC
sheet system had been adequate, but it contained ambiguities and had been susceptible to
subjective assessment. The worst case had to govern the selection of the level of rock
support. The assessment of an overall support category should have focused on the weakest
link. Although minor erodible zones and shears in otherwise good rock may not have
required shotcrete, the risk of instability due to erosion depended not only on the width of
the erodible zones, but on other factors, including the orientation and configuration of the
shears. The detailed design did not directly quantify the extent of erodible rock or gouge to
be considered as requiring support. The REC sheets had not done so either.
[64] The RSM had stated what was required when the rock had been classified as poor, or
very poor. In the absence of written instructions or method statements, the contract had to
Page 31 ⇓
31
be interpreted as meaning that all erodible rock, regardless of its thickness, should have
been shotcreted, as being either class III or IV.
[65] The support for chainages 2117 to 2101 ought to have been class IV due to the
presence of the fault zone with kakirite, sheared joint surfaces and large over-breaks. The
HRT had been inadequately supported between chainages 2125 to 2050. The class identified
on the REC sheets did not accord with the design. The collapse had been caused by slaking;
that is to say the gradual disintegration of the rock when saturated. The appropriate action
would have been to cover all sheared mica schist, and quartz mica schist with high mica
content, with shotcrete either as class III or IV. This was what was stated in the RSM
(para 6.1.5).
[66] The Taylor email of 27 August 2007 suggested that the classification system,
including that on the REC sheets, had been for the purpose of identifying hazards during
excavation only. It was necessary to have two systems; one for excavation and one for
operation.
[67] At the time of the Pöyry inspections in February 2008, there had been a lot of
disintegration of material, especially in the invert. Steel plates had been put down;
suggesting that the bottom was not stable. If there were a problem with the bottom, there
was a problem with stability in general. The indication was that there was slaking, and the
risk of erosion. It should have been supported, as Pöyry had shown in the drawings, with
strip or 3600 support.
Arild Palmström
[68] Dr Palmström had been engaged by the defenders for the purposes of the litigation
as an expert geological engineer. He had produced a report which praised the use of the
Page 32 ⇓
32
Glendoe classification system, which (as distinct from the Q-system) had been created
specifically for the tunnel. The “design as you go” method was commonly used and had
great benefits in construction time and cost. At no point, in the area of the CFZ, had the
observable conditions merited class III or IV support. “No altered or crushed rock, shear or
fault zones with clay or clayish or earth-like materials (kakerite (sic)) are shown in the maps
or on the REC Sheets” in that area and “no instability was observed during the 14 months
before watering up” (para 7.2). Dr Palmström repeated this in a later “reply” report. In the
several inspections during this period, neither Mr Taylor nor Pöyry nor Jacobs had
discovered anything significant in the vicinity of the CFZ.
[69] In relation to the reference to kakirite at chainages 2117 to 2101:
“… David Taylor did not … think that this occurrence of kakirite, ... was ... so
important ... he has … ticked out the class [III] or class [IV] in the individual
classification. ... [H]e has seen some clay in one or maybe more joints, but ... this clay
had not very much importance”.
Dr Palmström accepted that his statement in his original report about the absence of kakirite
had been erroneous. It should have referred to “kakirite of importance”. Mr Taylor was an
experienced engineering geologist and, if he had seen kakirite of some importance, he
would have ticked it off on the REC sheet.
[70] An unlined tunnel should not be considered complete until it had undergone testing
by watering up and dewatering. After it had been operated for about a year, a tunnel
should be dewatered and inspected. A rock mass, which could erode through the effects of
running water, had to be protected sufficiently to eliminate the risk to stability. It would be
within class III or IV.
[71] Something must have caused the collapse. What it had been was unknown. The
collapse could have occurred in the manner described by Dr Rolf Wilhelm, viz.:
Page 33 ⇓
33
“What can be identified ... are however several smaller shear zones separated by
alternating layers of intensely folded weak mica schist layers, very strong quartz
schists, quartzite and thick bands of quartz. The local rock mass is therefore very
heterogeneous, intensely folded and locally sheared”.
There were two shears on the mapping and the “moderately strong” quartz mica schist
required some explanation. Mr Taylor’s email of 28 August 2007 had recognised the
presence of the CFZ and that had been contradicted by the minute noted by Mr Speirs.
[72] The revised REC sheet for chainages 2084 to 2082 (supra) was “very strange”.
Table 11’s reference to “Erosion of erodible rock during operation”, requiring the
countermeasure “Application of shotcrete”, was a hazard during operation and required
class III or IV support. However:
“this is …the theoretical part of it, but we have also talked about judgment and
experience. So why it was not used in the collapsed zone must have been because ...
– if they saw signs of this, it was not judged at class [III]. ... [T]here were at least two
experienced engineering geologists, one from Jacobs and one from [the defenders],
looking at this section. There were geologists who had seen the conditions at the
surface, they knew that the [CFZ] was there. None of these people did ever discover
that you had conditions which could give a collapse. That’s the reason why they
didn’t classify it as class [III]…
… [T]he REC sheet is … a help to identify and make documentation of the things
they have observed, but in addition, ... more important, is the judgment done by ...
experienced people”.
Even if certain features, which indicated rock with a propensity to erode, had been
discovered, what was being looked for were features large enough to cause a collapse.
[73] Material that was sheared and had a high mica content had the potential to cause a
collapse. If Pöyry had been asked to reconsider erosion potential, and they had not looked
at a particular area, this had been, using counsel’s words, a “missed opportunity”. If the
mapping was right, there had been no clear evidence that class III or IV support should have
been applied.
Page 34 ⇓
34
Prof Mathias Müller
[74] Prof Müller was the defenders’ senior design manager on hydropower projects until
2012. He had been design co-ordinator for the project. The detailed design had consisted of
the set of drawings and explanatory documents prepared by the sub-contractors, approved
by the pursuers and issued for construction. However, observation and selection, adaption
and adjustment of rock support were still required both during and after excavation. The
design process continued until the works were accepted as completed by the pursuers. The
agreed design procedure had included taking the six steps in the Pöyry design statement
(Sch Pt 7; Appdx 6, para 2.4) and developed in the RSM.
[75] It was, in general, essential to assess how the rock mass would behave in water.
There was no doubt that the geotechnical technicians had properly assessed the rock mass
“on the spot”. Table 10 had referred to the excavation hazards in the TRT, whereas Table 11
had included hazards during empounding and operation. Table 11 was a risk handling
matrix used during the tender negotiations, listing every risk that might have come up. In
general, the risks of the HRT had been identified as low; otherwise the parties would not
have agreed to an unlined tunnel. Erosion had, in general, been considered to be a low risk,
but it might have been found in particular stretches. The rock’s stability due to hydraulic
loading would have been considered. Pöyry had included a paragraph in the RSM on water
inflow/outflow and potential erosion. They had been well aware of the purpose of the
tunnel and of the need to cope with such loading.
[76] The Pöyry design statement of February 2008 had been created after Prof Müller had
left the site. The inspection team must have walked the length of the tunnel; otherwise they
could not have specified the sections for re-examination. The statement recorded that the
whole HRT, particularly the invert, had not been inspected in detail. That would have been
Page 35 ⇓
35
because of puddles and steel plating over the invert. The document indicated that they had
walked, or driven along, the whole tunnel, but certain areas were inspected in order to test
the negative effects of high water pressure.
Dr Ernst Büchi
[77] Dr Büchi was an independent consulting geologist and tunnelling expert with his
own company, namely GEO 96, based in Switzerland. He had been instructed by the
defenders. In October 2014, he had produced a very long report covering many aspects of
the case. He considered that the defenders could not have predicted the actual geology in
the vicinity of the blocked zone from the information available at the time. The CFZ had not
been detected in the HRT. The defenders’ experience had been that class I or II support was
reasonable and appropriate, even in a predicted fault zone. The mapping of the conditions
encountered did not indicate a risk of a major collapse. The pursuers had confirmed the
adequacy of the mapping. The inspections had not shown any warning signals. The
collapse had been a “geological accident”.
[78] Dr Büchi commented in his witness statement that the situation as mapped at
chainages 2050 to 2120 was typical of what had been found generally in the tunnel. That for
chainages 2905 to 2825 was similar, with local overbreaks causing minor rock falls during or
after excavation.
[79] Dr Büchi’s initial report said that the collapsed area was only 8 to 10m long. The
bypass tunnel had been of excessive length. The majority of the secondary remedial work
had been unnecessary. Some minor repair and maintenance work after dewatering was to
be expected. In general, the secondaries were not defects and posed no threat to stability.
The remedial works had taken too long. The downstream access tunnel (DAT) had not been
Page 36 ⇓
36
required. The concrete invert had been inappropriate and constituted a change in the
project. The most reasonable solution would have been to tunnel through the blockage,
which would have shown a collapsed crown section of only 8 to 10m. Alternatively, a much
shorter bypass tunnel could have been constructed.
Prof Einar Broch
[80] Prof Broch had been instructed by the defenders. He had given evidence in the
Adjudication about whether the REC sheets had been used just for the purposes of
providing temporary rock support after excavation and not for the permanent operation.
He had said:
“Yes, and that is what it is, nothing more, nothing less.
...
This is mapping the situation in the tunnel during construction. Nothing more and
nothing less.”
Knowing that the tunnel was going to be watered, a decision had to be made on the level of
permanent support, but that was a different stage. The level during excavation was
typically the contractor’s responsibility. Long term stability was typically the client’s or the
owner’s responsibility. These were two separate steps, which is why the tunnel had been
inspected and a report produced in October 2008. On several occasions, the HRT had been
inspected by the pursuers and their engineers, as well as the defenders, with a view to
asking what was to be done with it prior to watering up.
[81] In evidence at the proof, Prof Broch repeated that construction was a matter for the
contractor, whereas operation was for the employer; at least in Norway. In February 2008,
the parties had been specifically considering erosion potential during operation. Further
REC sheets were prepared and some were amended. Prof Broch had inspected the HRT on
Page 37 ⇓
37
11 March 2008. He had reported on 30 April 2008 that the rock mass was very good; it being
one of the driest tunnels he had ever inspected. No major weakness zones had been
observed. Those in the Pöyry report had been small and none could cause serious collapse.
The support measures recommended by Pöyry had been more than good enough for a
tunnel that was designed and built as unlined.
[82] At chainages 2117 to 2101 there were records of sheared rock, mica, kakirite and
other matters. However:
“... at what volume? How much? It has just been ticked off. It doesn’t mean that
there’s a lot of this or that. It only indicates that it has been observed. The
professional geologists there were responsible for making the necessary support.
They have come to a conclusion that the rock is safe enough or the rock mass in the
perimeter is safe enough based on what they have seen.”
The Pöyry inspection in February 2008 had been the first after the completion of the
excavation. There was a record of erodible areas, but “that’s not erodible rock”. There were
eroded shear zones. He had suggested that some concrete might have been used to fill
them. The decision had been taken not to do anything before watering up, but to wait and
inspect it carefully at the first dewatering. This was a typical unlined tunnel approach.
Fallouts during dewatering is part of the unlined design. That is why there is a rock trap
and an agreed dewatering. There had been very careful mapping of the CFZ area. There
had been no indication whatsoever, as agreed by everyone involved, that anything was
going to happen. There was nothing in what had been exposed to indicate that there could
be a major fall out.
[83] In his report of May 2015, Prof Broch had expressed disagreement with the views of
Profs Sloan and Stille, in that it was his view that the design process continued right up until
the point of watering up. What the defenders had been doing during construction had been
not merely implementation, but carrying out a fundamental part of the design process. The
Page 38 ⇓
38
test at watering up and dewatering would inform the decisions about the sufficiency of
support. The performance of the tunnel would be reviewed. A risk had been taken in
February 2008 when some local problems were seen, but that was part of the construction of
an unlined tunnel. Any unlined tunnelling system necessarily had a greater residual risk of
rock fall than a fully lined system. An unlined tunnel was a trade-off between speed and
cost on the one hand and risk on the other. The employer accepted slightly more risk in
return for substantial cost and pound savings. The only way in which the risk could have
been eliminated would have been to line the tunnel fully with heavy support. Even then,
there was always a residual risk of localised collapse.
Hot Tubbing (concurrent evidence session involving Drs Martin Smith, Büchi and
Palmström and Profs Stille, Eivind Grøv, Sloan and Broch)
[84] The session on whether the collapse could have been foreseen commenced with
Prof Grøv stating that an area of potential weak rock mass had been seen but “maybe not
appraised correctly” during the excavation and inspection phases. This did not mean that
the collapse could have been foreseen. If someone had foreseen a collapse, “they would
have done something more than what was actually done”. Many of the indicators for a
collapse had been observed and recorded. Prof Stille said that, theoretically, the collapse,
that is the slaking (disintegration of rock) or higher than anticipated load, could have been
foreseen. If lack of support could have been recognised, the collapse could have been
foreseen. Evidence of poor rock existed. The section of the tunnel in the CFZ had been
under supported.
[85] Dr Palmström said that the mapping had been of good quality. It was easy to
understand what had been observed. The tunnel had been inspected several times. Areas
Page 39 ⇓
39
where additional support was required had been identified. A progress report had said that
the CFZ had been imperceptible. None of the experienced people involved had observed
any signs indicative of the potential for a “great collapse”. Dr Büchi said that, listening to
the argument about shears and slaking, the whole tunnel ought to have been lined. Those
observing the tunnel had been aware of a minor risk and had accepted that risk. The
collapse could not have been foreseen.
[86] Prof Broch said that the collapse could have been foreseen, if the clear signals during
operation in April/May had been understood. A total collapse could have been prevented.
Dr Smith, who was the Science Director of the British Geological Survey, referred to signs of
the CFZ from the bore hole drilled prior to excavation. Prof Sloan thought that the
difference between the CFZ and the rest of the HRT had been identifiable during excavation.
[87] Prof Stille said that he understood Mr Taylor’s email to mean that there was unstable
ground at chainages 2101 to 2117. Pöyry had recommended a strip solution in certain areas.
There were mica schists, which would slake, connected to sheared mica schist. There was
some overbreak and some class II rock requiring additional support.
[88] Dr Büchi said that the rock mass in the CFZ was all class I or II. None would have
required III or IV. The overbreak was minor. The rock was weak and thus erodible because
of the presence of shears, which reduced cohesion and allowed water penetration.
Prof Sloan said that the presence of mica did not of itself mean that rock was erodible.
Prof Stille agreed with Prof Broch on cohesion and water penetration. Weak erodible rock
was defined in the contract as “sheared mica schist and quartz mica schist with high mica
content”. That type of rock would fall into pieces when submerged.
[89] Prof Broch did not know if mica schist, and quartz mica schist with a high mica
content, had been present at chainages 2050 and 2121. Dr Smith said that the mapping
Page 40 ⇓
40
demonstrated that it had been present. A shear had also been recorded. Prof Grøv agreed
and said that this had required class III support. Prof Stille also agreed; but whether the
support should have been class III depended upon whether the support related to
excavation or operation. Prof Sloan said that it had been clear from Mr Taylor’s email that
there was quartz mica schist in the CFZ area where the collapse had occurred. There had
been a reference to kakirite too. There was no doubt that the faulting and the influence of
the CFZ had been recorded in the mapping.
[90] In relation to the required level of support to prevent the collapse, Dr Büchi said that
it was evident, from the shotcreting of the lower sidewalls and the invert, that what was
being considered had not just been safety but the final lining. Those mapping and
inspecting the tunnel had recognised the rock as erodible. The REC sheets had showed
erodible rock as class III, but this was only one of ten parameters. There was nothing to say
that a particular area had to have class III support. Dr Palmström agreed. It was a matter of
judgment. Prof Broch emphasised the combined nature of the mapping. It had been done
by a very experienced engineering geologist. It had involved a general evaluation of the
whole information available. The defenders, and the other “parties”, had been fully aware
that this was going to be a watered up tunnel and what was being talked about was long
term stability.
[91] The commercial judge posed the question: do the experts agree that an engineering
judgment had to be exercised based on the actual conditions that were encountered?
Prof Broch and Drs Büchi and Palmström said “yes”. Prof Grøv said judgment had to be
exercised twice. Prof Stille said “yes, of course”, but the geologists had to follow the
contract. Prof Sloan agreed that judgments had to be made, but the design had mandated a
Page 41 ⇓
41
process of implementation by attributing the conditions to a specific class. Once that had
been done, the level of support had been mandatory.
[92] In exercising judgment, Prof Sloan had seen no evidence of a rigorous joint mapping
exercise. Table 11 had set out the hazards during excavation and for long term stability.
The only consideration regarding the latter had been erosion. Prof Stille agreed. Table 11
was very important, where it stated that erodible rock had to be covered. There was no
judgment involved. Prof Grøv agreed with both. Dr Palmström said that the multiple
inspections had been carried out with a view to looking at possible slaking and erodible
rock. Dr Büchi said that, at the time of contracting, there were appreciable risks and that, if
detected, the parties had to act in accordance with the design. When erodible rock was
detected, it was at least class III, despite the presence all other factors. The mandatory
element came from para 6.1.5 of the RSM. Irrespective of class, erodible rock had to be
shotcreted. Prof Broch had been the only expert who had been in the tunnel before the
collapse. In March 2008 he, and Mr Taylor, had been taken to locations which, from a long
term perspective, could be dangerous based on the mapping of the previous February. They
had been looking at long term stability.
[93] Turning to whether any of the experts felt able to criticise the judgments taken in the
tunnel, Prof Broch said “no”. Dr Büchi agreed that the rock was class I or II. Dr Palmström
recognised that it was difficult without seeing the actual conditions. He did not think that
he could, with hindsight, reach a conclusion on what had been done by experienced
geologists who had been working in the tunnel for a long time and had documented their
findings in the REC sheets and mapping. Prof Grøv said that the only clue from the collapse
zone was the mapping. He was unable to criticise what had been done.
Page 42 ⇓
42
[94] Prof Sloan took a different view. He did criticise the geologists on site. Having
walked through the TRT and HRT, he was of the view that there had been systematic
“under-realisation of the importance of erodible rock for the long term stability of this
tunnel”. There was a lack of attention to the consequence of leaving erodible rock exposed.
The defenders had been responsible for this. The erodible rock had been inadequately
protected and that had led to the collapse.
[95] Prof Stille had criticised the overall classification system, but he would not criticise
the geologists. There were eight indicators relating to different issues, but no rule about
how the overall excavation class should be assessed, based on those indicators. That was
left to engineering judgment. This was a fault. If the contract had stated that erodible rock
had to be covered, implementation did not involve an engineering judgment.
[96] On the level of rock support required to prevent the collapse, Prof Sloan thought that
360° shotcreting would have gone a long way to prevent a progressive collapse. The
appropriate level of support ought to have been class IV (shotcreting with steel ribs).
Prof Stille thought that the erodible material ought to have been covered with shotcrete to
prevent slaking. This was not enough, given that there would be a poor bond with the rock.
A lot of rock bolts would also have been required. This is what Pöyry had described as a
strip solution. The invert had to be shotcreted too, as erosion at the invert could
progressively move upwards and lead to a collapse. The lower parts of the walls had to be
covered. Prof Grøv thought that the logical answer was class IV for chainages 2117 to 2100.
Class III would not have been sufficient. Dr Palmström did not think class II would have
been enough. Class IV was on the safe side. Dr Büchi said that class IV support would have
prevented the collapse. Prof Broch could not answer the question.
Page 43 ⇓
43
[97] In their summaries, Prof Broch said that the parties had been aware of the CFZ and
had carried out careful planning in that area. The defenders had been paid for the work
which they had carried out. There was no reason for them to have avoided installing the
appropriate support. Careful observation of the operation of the tunnel had been needed,
because there was some level of risk in having an unlined tunnel.
[98] Prof Sloan said that, when he visited the tunnel, there had been significant collapses
because of erodible rock within shear zones. The Pöyry design statement had contained a
mandatory requirement to protect erodible rock. Its roots were in Table 11, which looked at
both short and long (75 year) term support. There had been a systematic failure by the
defenders to address adequately the presence of erodible rock.
[99] Dr Büchi said that the mapping had been agreed and there had been no mandate for
covering erodible material systematically with concrete. This had not been stipulated in the
contract and it was not what the parties had understood at the time. During mapping, there
had been no clear evidence of the presence of the CFZ. Several shear zones had been seen,
but these had fallen within class I or II. There had been no indication of a need for class III
or IV support.
[100] Prof Stille considered that there had been no systematic fault in the classification
system. There were some 20 areas in which the rock had deteriorated. These areas were
similar in type to the CFZ. The REC sheets did not cover the requirement in the RSM that all
erodible rock should be covered. The ambiguities in the REC sheets and the unclear
objectives were the reason for the erroneous decision not to cover weak erodible rock.
[101] Dr Palmström said that the engineering geologists had encountered the anticipated
stability problems in the CFZ. None of the rock had been class III or IV. Several inspections
Page 44 ⇓
44
had been made after excavation and dewatering. The tunnel had been tested with water for
almost a year. Some joints with erodible rock had been seen, but these were small features.
[102] Prof Grøv said that the rock classification system had its weaknesses. It had not
included certain important parameters and was missing a clear procedure on how to decide
rock class. Engineering judgment should only be used when the situation fell outwith the
system.
[103] Dr Smith said that the CFZ could be seen on the surface and its existence had been
evident in the data sources. It would have presented a significant zone of weakened rock
where it intersected with the HRT between chainages 2050 and 2021. The mapping showed
distinctive features, such as increased quartz mica schist, intense foliation, fractures in the
form of shears, kakirite and overbreaks. The CFZ had caused the collapse. He felt unable to
comment on why the CFZ had not been recognised “for what it was”.
The commercial judge’s Opinions
Joint insurance
[104] The commercial judge concluded that the provision for joint insurance did not
displace the parties’ liabilities to each other under the contract. He accepted that the
authorities generally favoured joint insurance displacing contractual liability, but whether
that was so would depend upon the particular terms of the contract in their context.
Clause 83.1 expressly stipulated that each party undertook liabilities to each other. There
was no exclusion of liability (cf Co-operative Retail Services v Taylor Young Partnership [2002] 1
WLR 1419 (“CRS”)). There was no reason to justify overriding clause 83.1 and to give
primacy to the insurance clause 84. The requirement for a joint policy was based on
considerations of utility and prudence.
Page 45 ⇓
45
[105] If liability were excluded, clauses 83.1 and 80 (Z11 version) would be redundant.
There would be no need for provisions governing liability if there was no right to sue.
Clause 85.2 had waived the subrogation rights against the parties’ directors and employees,
but not in respect of the parties themselves. As was set out in Keating on NEC 3 (1st ed) (at
para 9-029), it is unlikely that clause 84 would displace a contractor’s liability for negligence.
Clause 85.4 maintained the underlying risk allocation. Clauses 83.1 and 2 implied that each
party bore the risk of their own negligence.
[106] In CRS (supra) it had been said that a stipulation for joint insurance carried with it an
implied term which prevented one party suing the other. There was no such implied term
in this case. It was not required for the purpose of business efficacy and it ran contrary to
the contractual terms. There was no irrebuttable presumption excluding liability simply
because joint insurance was in place. “That would tend to merge the law of insurance with
the law of contractual interpretation” (para [87] ).
Merits
[107] The commercial judge heard evidence over some 6 months, primarily focused partly
on whether the defenders had been negligent in their performance of the contract, and hence
whether Option M might be applicable, and partly on quantum of damage. This focus was
reflected in the issues which the judge identified as being key. These were (Opinion
para [5]): why did the collapse occur; could it have been foreseen; were the defenders to
blame; were the pursuers also partly to blame; were the remedial works reasonable and
necessary? He classified the core of the dispute as lying in a deceptively simple issue
regarding whether the defenders had misclassified the rock and thereby failed to install the
correct support.
Page 46 ⇓
46
[108] The short answer (para [147]) for the cause of the collapse was that “there was not
enough support: poor rock conditions coincided with insufficient shotcrete and rockbolts”.
There were formidable difficulties in providing a longer answer, because there had been no
full investigation of the cause of the collapse. It had ceased to be a priority once the
pursuers had decided to construct the bypass. The most likely explanation was as follows
(para [152]):
“(1) The CFZ consists of interconnected faults of thin single shears with good rock
in between.
(2) The weak rock deteriorated and lost its strength when submerged ...
(3) The flowing water washed out areas of erodible rock.
(4) The erosion progressed and opened up larger seams.
(5) The eroded material was progressively deposited as sediment over a
significant length of the HRT.
(6) The HRT lost stability and the tunnel collapsed.
(7) Dewatering caused further erosion.”
[109] The pursuers’ submission was summarised as being that a defect had existed at take
over and that therefore, in terms of clause 80.1, the risk was a contractor’s event. The
scheme could not provide the reliable service specified in clause 6.3.2 of the works
information. It did not conform to the accepted design, because the defenders had failed to
install the requisite level of support to prevent the erosion of erodible rock during operation.
This submission was rejected (para [163]) because Option M:
“placed an important brake on liability. [The defenders] did not guarantee the
works. Instead, [they] accepted the familiar and lesser obligation of ‘reasonable skill
and care’.”
If the pursuers’ interpretation were correct, the defenders would have had an overarching
obligation to provide a tunnel suitable for its purpose. This would have imposed strict
Page 47 ⇓
47
liability and effectively robbed Option M of its meaning. It would also make some of the
other provisions, regarding repair and maintenance, redundant.
[110] There had been no mandatory requirement to shotcrete all erodible rock (cf Table 11
supra). Rather (para [167]):
“The engineering geologists had to exercise judgement in considering the integrity of
the tunnel. It was a holistic exercise. They had to assess the presence of any erodible
material, together with the dip direction, orientation and width of any faults.”
The contention that the defenders had failed to exercise reasonable skill and care was
rejected. The rock classification had been carried out jointly at the face. This was stipulated
in the works information, drawing D201, the ground conditions report and the design
statement. The parties had “clearly agreed the approach” (para [171]) whereby the
engineering geologists would jointly determine questions of both rock classification and
support.
[111] Several factors were taken into account (para [174]) in determining that the defenders
had exercised reasonable skill and care, viz.: (1) mapping was a difficult exercise; (2) the
defenders’ experts had described the standard of mapping as of good or top quality; (3) the
TBM crew had said that Mr Taylor was an experienced engineering geologist who diligently
performed his role, took extra care at the CFZ, but had seen nothing. The fact that he had
noted weak rock on some REC sheets, reflected the care which he had taken. The judge was
satisfied with Mr Taylor’s judgment that no further support had been required. After all
“why go to the trouble of identifying such features and then decide to do nothing about
them?”; and (4) Jacobs and Pöyry had agreed with Mr Taylor’s classification. Many
experienced professionals had scrutinised the tunnel both during and after the excavation.
None of them had seen any faults that might have threatened stability. None of them had
recommended the installation of a higher level of support.
Page 48 ⇓
48
[112] The defenders, Pöyry, Jacobs and the pursuers had all inspected the HRT on a
“metre to metre basis” in 2008, but had only uncovered minor issues, which had been
resolved prior to watering up. According to a report by David Fawcett, who was described
(para [181]) as a distinguished tunneller: “There is no recorded evidence of passing through
any feature that would potentially cause the catastrophic collapse that has occurred.” The
pursuers’ contention, that the REC sheets had been defective because they had only
addressed the hazards during excavation but not operation, was rejected. This had been a
“startling proposition”. After all, “why would [the defenders] construct a tunnel with no
thought to its long-term stability?” In short, the defenders had exercised reasonable skill
and care (para [187]). The pursuers’ case had been founded upon hindsight. Even if the
pursuers had established liability, they had not proved that class III support, for which they
were contending, would have been enough to avoid the collapse. The experts had agreed
that only class IV support would have done so.
[113] Clause 82.1 created a stand-alone regime. The defenders had breached this, from
August to December 2009, by failing to carry out remedial works. However, because the
collapse was an employer’s risk event, this had had a minimal impact on the pursuers’ loss.
They would still have required to bear the costs of the recovery project. It did mean, in
relation to the counterclaim, that, on the basis of the principle of mutuality, the defenders
could not sue the pursuers for a breach of that obligation.
[114] The pursuers had not been contributory negligent in failing to grasp the significance
of the odd readings from April 2009. The scheme had been a complex one and, even by
August 2009, it had not been in a steady (stable operational) state. Testing was still taking
place. It was understandable for the pursuers to have attributed rogue readings to
instrumentation errors. The signs had been confusing, with the scheme returning to full
Page 49 ⇓
49
output after each blip. The specialists, Andritz, had observed the odd readings, but had not
advised the pursuers of any urgent action required.
Damages
[115] The commercial judge adopted the general principle regarding action taken in an
the recovery project had been “largely reasonable” (para [200]), taking into account
(para [202]) a number of factors, viz.: (1) the pursuers had had to act quickly to recover their
asset; (2) the pursuers had acted on the advice of professional consultants; (3) BAM, like the
defenders, had only been prepared to contract on the basis of reimbursable costs (Option E);
(4) the pursuers had instituted an exacting costs monitoring regime involving consultants
and auditors; (5) the remedial works had evolved over the course of the recovery project;
(6) no one had wished to put the scheme back into operation without being sure that it was
fit for purpose; and (7) it was not appropriate to compare the price of the original works
with those of the recovery project.
[116] A bypass tunnel (BPT) had been the correct solution, having regard to the
uncertainty about the size of the collapse, the extent of the void and the stability of the rock.
Tunnelling through would have carried a risk to safety. The BPT had not been placed too
far away, nor had it been too long. It had been reasonable to include a Downstream Access
Tunnel (DAT), because of the benefits it yielded in relation to ventilation, access and safety.
The Health and Safety Executive had insisted on the installation of a concrete invert. This, in
any event, had reduced construction time and cost. Although it had not achieved its object
of allowing the BPT to be excavated from both ends, it had allowed for the quick removal of
Page 50 ⇓
50
silt and debris and permitted repair of the secondaries without interference to the BPT
works.
[117] The defenders had relied on John Hunter to demonstrate the excessive nature of the
remedial works, which he had estimated ought to have cost only £30.5 million. However,
the commercial judge rejected his evidence as Mr Hunter had, in contrast to the pursuers’
experts, failed to appreciate fully the initial uncertainty, the scale and sequencing of the
works and the rigour of the pursuers’ cost monitoring. Overall, BAM had made a profit of
only 2 to 3%. Mr Hunter had accepted that he had placed excessive reliance on the annual
costs reference work (Spon’s) and on a comparison with a nearby tunnelling project.
[118] The pursuers had not pressed their claim in respect of defects in areas of the tunnel
unaffected by the collapse. It was rejected in any event for 4 reasons. First, no such defects
had been noticed in 2008. Secondly, after the pursuers had issued a defects notice (D058) in
March 2010, which had stated that there was insufficient tunnel support at 31 locations,
attempts to identify these in April 2010, by the defenders, Donaldsons, who were the
pursuers’ consultants on the recovery project, Jacobs and BAM, had all been unsuccessful,
although it later transpired that this was because the chainages painted on the tunnel had
been incorrect. Once the features had been discovered, the view of the defenders’ senior
design manager, Thomas Becker, was that they did not look like defects. Thirdly, Prof Broch
had inspected the tunnel in January 2011. He had taken the view that what were alleged to
be defects were either rock features, which could be left unsupported, or minor rock falls,
which were to be expected on a first dewatering. Dr Bodo Billig, the defenders’ head of
geotechnics, had looked at each defect and had identified 28 as requiring no work and 74
requiring minor works at the first maintenance period. None posed a risk to stability.
Page 51 ⇓
51
[119] The recovery work had been carried out within a reasonable time, other than in
relation to the first three months, when productivity had been poor. The report by
Mr Fawcett had described the work as progressing “extremely slowly”. A deduction
required to be made to reflect this poor productivity (see infra).
[120] In terms of the contract, if the scheme failed to achieve certain targets in the two year
period after completion, the defenders were bound to pay “low availability damages” to the
pursuers for loss of revenue (clause 48.2, Z6). This was subject to a £1 million cap. This
amount was awarded to the pursuers, although further submissions were required on
whether the £1 million cap applied to the construction of the DAT.
The counterclaim
[121] The defenders’ counterclaimed for £9.6 million. This consisted, first, of loss of profit
of £3.1 million, which the defenders would have made, had they carried out the recovery
project under clause 82.1 or, in response to the defects notices, clause 43.1. Secondly, there
was a claim for £6.5 million, being the costs which they averred that they had incurred in
terms of management time and payments to experts, lawyers and consultants in the
monitoring of the repair works, the conduct of the adjudications and this litigation. The
commercial judge held that any loss of profit suffered by the defenders had been caused by
their own breach of the repairing obligation under clause 82.1. Any costs incurred were not
due to physical damage to the tunnel.
Conclusions and decrees
[122] The commercial judge summarised (para [260]) his conclusions as follows:
“(a) The contract imposed a duty on [the defenders] to exercise reasonable skill
and care in the construction of the scheme.
Page 52 ⇓
52
(b) [The defenders] had discharged that duty.
(c) The ground conditions were worse than [the defenders] had observed,
however, and the support proved insufficient to prevent the collapse.
(d) Class IV support was required to prevent the collapse.
(e) The collapse was not due to a defect that existed at take over. Accordingly, it
was an employer’s risk event.
(f) There was no contributory negligence. [The pursuers were] not at fault in
respect of the odd readings and the output swings from April to August 2009.
(g) [The defenders] breached their obligations by not returning to repair the
tunnel.
(h) In consequence, (i) [the pursuers] were entitled to instruct BAM to carry out
the recovery project, and (ii) [the defenders] were not entitled to recover any sums in
terms of the counterclaim.
(i) ... the costs of the recovery project [were] reasonable, subject to a deletion of
the claims in respect of the “secondary tunnel defects” and the dam bottom culvert
[frozen pipe]. [A sum ought to be deducted] to reflect low productivity in the early
months of the project.
(j) [Low availability damages should be awarded to the pursuers].”
[123] Having heard the parties further, the commercial judge held that the defenders were
obliged to reimburse the €388,720.27 and £32,357.98, which had been paid in terms of the
adjudication awards. The capped amount of £1 million for low availability damages would
be awarded in respect of the defenders’ breach of clause 82.1. Had the pursuers succeeded,
£107,617,830.94 would have been awarded in respect of the recovery project. This consisted
of £129,818,563.94 being the sum paid to BAM, plus the pursuers’ management time of
£1,338,267.76, less deductions of: (a) £533,345.76 in respect of low productivity (although this
sum was precisely that for management costs requiring to be deducted from BAM’s account
according to Mr Hunter); (b) £1,005,655 in respect of disallowed culvert (frozen pipe)
repairs; and (c) £22 million in respect of the cost of repairs to the secondaries. Interest at the
rate of 4% per annum from the date of citation was awarded as the claim was one for
damages and not payment under the contract.
Page 53 ⇓
53
[124] The defenders were entitled to the expenses of the action, because they had
substantially “vindicated their position”. A deduction of 5% was made to reflect the success
of the pursuers in respect of the adjudication awards, the low availability damages and their
successful resistance of the counterclaim. Time had been taken up enquiring into a matter
where there had been a lack of candour on the part of the defenders in relation to their true
intent in relation to the remedial works
Submissions
Pursuers
Principal Appeal
Overview
[125] The pursuers adopted their written Note of Argument, without exception, but
presented an oral submission with a markedly different content. This summary attempts to
consolidate the grounds of appeal, the Note and the oral submission. In the Note, the
pursuers’ claim was based on three primary grounds: (i) a failure to correct defects
(clauses 43, 45 and 46); (ii) a failure to replace or repair loss and damage (clause 82.1); and
(iii) an indemnity for a contractor’s risk (clause 83.1). The parties were agreed on record that
the defenders had been contractually obliged to correct defects. If there was a defect, the
next issue was how the contract allocated responsibility for it.
[126] In their oral submission, the pursuers’ central contention was that, despite the
presence of several “rabbit holes”, there was a clear route governing liability. The pursuers
had alternative cases. The first (ground of appeal 1) was that the commercial judge had
erred in his approach to the provisions on defect correction, by regarding Option M as
Page 54 ⇓
54
overarching. Secondly (ground 8), if Option M operated as a brake on liability, the judge
had erred in holding that the defenders had discharged the onus of proof.
[127] The facts could be stated in eight propositions: (1) the tunnel had been procured to
provide reliable service for 75 years; (2) the collapse had been due to a failure to provide
enough support and had been caused by erosion, which was a hazard highlighted in
Table 11; (3) there was no evidence that those who had designed and installed the support
had considered Table 11; (4) erosion had been observed prior to watering up, but had been
carried over to the first maintenance inspection; (5) there was no evidence that measures to
counter that erosion had been considered; (6) the obligation on the defenders had been to
provide the works. The defenders had an obligation to inspect and to correct any defects at
their own cost for at least two years after take over (completion); (7) the defenders had
refused to correct them at their own cost; and (8) given that breach, the defenders were liable
to pay damages of at least £107 million, or £126 million if the pursuers’ argument about the
secondaries were correct. If the court agreed with these eight propositions, liability followed
and there was no need to consider the rabbit holes of: (i) causation; (ii) contributory
negligence/fault; (iii) joint insurance; and (iv) Option M.
[128] The contractual structure could be described in five propositions: (1) the defenders
were obliged to correct all defects; (2) the source of the obligation was in clauses 20.1 and
43.1; (3) there was an express provision that, if the defenders failed to correct a defect, the
pursuers could engage another to do so and recover the costs (clauses 45.1 and 46.4); (4) the
obligation under clause 43.1 subsisted until the defects date, which was two years after
completion. There was no distinction in the contract between the position prior to take over,
in December 2008, and the ensuing two years. If the tunnel, on inspection within the two
year period, was not performing satisfactorily, it was for the defenders to remedy that, at
Page 55 ⇓
55
their cost; and (5) the defenders had used Option M not just as a limitation on liability, but
as a means to create a right to carry out the work and to be paid for it.
Option M and defects (Ground 1)
[129] The commercial judge erred (at para [260(a)]) in his interpretation of the contract,
and in particular Option M. Clauses 20.1, 40.4, 43.1, 45.1, 46.4, 60.1 and 80.1 obliged the
defenders, at their expense, to correct any defect, irrespective of whether it had been caused
by a failure to exercise reasonable skill and care. The judge had not considered clause 20 or
section 4. He had found that there was an obligation on the defenders only to exercise
reasonable skill and care in the design of the scheme, but that was not what the contract
said. The proper starting point was to ask whether there was a defect. If the answer to that
was no, then whether reasonable skill and care had been exercised was irrelevant. The
pursuers attached to Option M the same interpretation as was given in the Guidance Notes
to NEC2 (1995).
[130] The contract was arranged in such a way that the actions of the parties were defined
precisely (Guidance Notes, “Clarity and Simplicity”). The basic obligation on the contractor
was to provide the works (clause 20.1). This included testing and making good defects
(Guidance Notes, on clause 20.1). The issue of the defects certificate signified the end of
most of the obligations. There was unlimited liability for defects specified in the certificate;
ie those identified in the first two years. There was then a limitation on liability for defects
which had not been identified; ie latent defects emerging after two years. The Guidance
Notes said (para 21.5) that the contractor’s liability could be limited to an amount stated in
the contract data or by the inclusion of Option M. Option M was thus dealing with a
limitation on compensation. The limitation applied only after the issue of the defects
Page 56 ⇓
56
certificate (ibid, under reference to clause 43.2). The contractor’s liability to compensate,
rather than to correct, applied only after the issue of the certificate.
[131] Loss and damage occurring after take over, except in so far as relating to a prior
existing defect, was an employer’s risk. The point of take over was significant in terms of
section 8, which dealt with indemnity and insurance; but take over had no relevance to
section 4, because the obligation to correct was the same before and after take over.
Clause 40.4 provided that, if a test or inspection showed a defect, the contractor had to
correct it and repeat the test. The defects date was 104 weeks after completion. The
contractor had to attend an inspection within the final four weeks.
[132] On Option M: (1) there was a distinction between compensating and providing or
completing the works; (2) Option M qualified the liability to pay compensation, but not the
obligation to provide or to complete the works; (3) the contract spelled out the actions which
were required and their financial consequences. In the period down to the defects date, if
the contractor did not do the work, the costs could be recovered from him (clause 45.1).
Clause 46.4 extended the period to 12 years; (4) recognising Option M as a defence to a
failure to correct defects was to turn the provisions in section 4 on their head; (5) the
pursuers’ meaning was the one given in the Guidance Notes and was consistent with the
pragmatic analysis in CRS (supra); (6) where there was to be additional payment for work,
the contract said so expressly (clause 60.1). It was a shield and not a sword. It was a defence
to liability and not an entitlement to payment; and (7) there were express extensions to the
employer’s risk at clause 80.1.
A defect at take over (Ground 2)
[133] The commercial judge erred (para [260(e)]) in holding that a defect had not existed at
Page 57 ⇓
57
take over. His findings (paras [147] and [152]) showed that there had been a defect, as
defined in clause 11.2(15), at take over. On 6 August 2009, the pursuers had issued defects
notice D053, stating that the support to the tunnel appeared to be inadequate. Eight years
later, the Lord Ordinary concluded that that was correct. An instruction had been issued on
31 August 2009, asking the defenders to proceed with the remedial works. They refused
and were therefore in breach of contract.
[134] The commercial judge had addressed section 8, by asking whether there had been a
defect at take over. He had not addressed the route 1 argument based on clause 20.1 and
section 4. The judge held that the brake, that was engaged by Option M, meant that there
was no defect in the first place. The correct approach was to ask: first, whether there was
any defect at all; secondly, when it came into existence; and, thirdly, how the contract
addressed the defect? In terms of clauses 80.1 and 81.1, loss and damage occurring before
the defects certificate, which was due to a defect which existed at take over, was a
contractor’s risk.
[135] The commercial judge found that the cause of the collapse was the absence of
adequate support. The HRT was therefore not going to give reliable service. There was a
failure to meet that standard. Similarly, and more specifically, the erosion and the slaking
meant that there was potential instability, and for that reason also the HRT was not going to
provide reliable service. The HRT thus failed to meet the requirements of the works
information. Insufficiency of support, as at take over on 18 December 2008, was a defect. If
the collapse was classified as loss and damage, as distinct from a defect, it was still a
contractor’s risk.
[136] The parties were agreed that the contract between them was a fitness for purpose
contract with an exception; that being Option M. Option M was a limitation of liability
Page 58 ⇓
58
clause. It did not reduce the scope of the work or alter its nature. During the period up to
the defects date, the employer could ascertain whether the design was adequate for the
design period. For an unlined tunnel, that required the employer to put the tunnel into
operation in order to try it out. When the tunnel had been subjected to testing on a trial and
error basis, it had failed.
[137] At take over, there was an expectation that the outstanding defects notice would be
dealt with under clause 43. Defects notice D041 said that voids in the invert were to be filled
with concrete and remedial action was to be taken during the first dewatering. This
indicated that there was a section 4 defect at take over, namely that erodible material had
not been protected, in breach of the contractor’s design. It was also a breach of the works
information, as the support had not been adequate.
[138] The requirement to design a tunnel to last for a period of 75 years had not been
qualified by Schedule Part 7. The defenders had not led any evidence that some other
period had been agreed. If the pursuers had inspected the tunnel in May 2010, and
observed cracking which was consistent with a threat to stability, they would have
concluded that the tunnel would not last 75 years. The question was not whether, in the
abstract, the tunnel had been designed to last 75 years, but rather whether at the point of the
defects inspection, it would be likely to last that period.
[139] If the support in the tunnel required to be upgraded (ie class III rather than II) the
contractor would be paid for the increase in the level of support. The parties anticipated
periodic payments up until, and beyond, the completion date; the long stop being the
defects date in December 2010. A change in the percentage length of each class of support
would constitute a compensation event under clause 60.1(12), regardless of when the
variation occurred or the circumstances giving rise to the variation. The contractor was not
Page 59 ⇓
59
paid to correct a defect. An increase in the level of support was not regarded as the defect,
but rather as a change in design.
An event (Ground 3)
[140] The pre-watering up inspections were an event within the meaning of clause 80.1.
The collapse was due to the failure properly to address the risk of erosion that was observed
in certain sections of the tunnel. The collapse was accordingly a contractor’s risk. The
commercial judge had not considered this.
Option M reprise (Ground 4)
[141] The Lord Ordinary had given Option M too wide an interpretation. It only applied
to defects caused by the failure of the contractor’s design. It did not apply to a defect
attributable to a failure to implement that design. The design, if properly implemented,
would have resulted in the installation of class IV support. There had been a failure in that
regard. A failure to comply with Table 11 was not a defect in the design. The design
included Table 11.
Onus of proof (Ground 8)
[142] The commercial judge had erred (paras [157-8]) in holding that the defenders had
discharged the onus of proof stipulated in Option M. The defenders’ chief decision-maker,
Mr Taylor, had not given evidence. The defenders had lost contact with Mr Taylor. The
pursuers had been in contact with him, but he could not speak to them because of a
confidentiality agreement. A standoff had ensued. Several others, who had been involved
in the tunnel, had not given evidence. Jacobs’ geologists had not been called, nor had their
contract supervisors. The author of Pöyry’s RSM had not given evidence, nor had those
Page 60 ⇓
60
who had signed the REC sheets. None of those who had taken any of the decisions on the
level of support had been called. Instead, a number of experts had been asked to look at
documents, with a view to telling the court what their authors had seen, thought or done.
[143] Although, when all the evidence was out, onus seldom mattered (Salt International v
Scottish Ministers 2016 SLT 82 at para [45]), there remained situations in which it was a
Lothian Buses [2014] CSIH 12 at para [19]).
[144] It was not known what those, who had made the relevant entries in the REC sheets,
had understood by “erosion”. It was not known whether they had considered Table 11. The
REC sheets, which had been used for the HRT and the TRT, had been identical to one
another, except for the header and footer. It was not known what the individuals looking at
the REC sheets had been thinking about when they had been taking decisions in the HRT as
opposed to the TRT.
[145] There were two shears with a gradient of <500 marked on the mapping for one
section (chainages 2125-2100) of the blocked zone (2121-2050). In terms of the RSM, this
required class III or IV support. On the equivalent REC sheet (2117-2101), there was a record
of kakirite, which also required class IV support. It was not known why class III and IV
support had not been installed. In the absence of the decision takers, the court could not
Reasonable skill and care (Grounds 5, 9 and 10)
[146] The commercial judge made a significant number of errors of fact. He stated
Page 61 ⇓
61
(paras [180]-181]) that none of the experienced tunnelers had seen any signs of a fault that
might have threatened tunnel stability. None had recommended the installation of a higher
level of support. That was wrong. At chainages 2990 to 2895, which had been described as
the “big bad zone”, multiple shears had been noted. Pöyry had raised the need to apply
shotcrete to erodible zones, independent of the rock classification. In January 2008 they had
proposed that they return to confirm that the design requirements had been understood.
They had recommended the installation of 3600 support in areas (chainages 2117-2107)
where erosion had been observed. The judge found that Pöyry had inspected the tunnel on
a metre by metre basis in 2008. In fact, only certain parts, and not the CFZ, had been
inspected. They had not examined the collapsed zone (2121 to 2050). The part of the tunnel,
where additional support had been required, involved rock conditions of a similar nature to
the collapsed area. The failure to inspect the CFZ had been, in the words of Dr Palmström, a
“missed opportunity”.
[147] The commercial judge, in stating that there had only been minor issues, which had
been resolved prior to watering up, had been thinking of defects notice D033 in June 2008.
He had forgotten about defects notice D041 of 10 November 2008. In that, the pursuers had
recorded significant voids below the tunnel invert, where weak and/or sheared rock had
been eroded. There was erodible rock at a number of locations on the lower side wall. The
pursuers had been concerned about material in the lower part of the tunnel deteriorating.
The decision to leave this section exposed had been inconsistent with the Pöyry
recommendation.
[148] The critical words in the RSM were the references to fault zones with erodible
kakirite and a shear with a dip of <500 angle to the horizontal. The mapping (chainages 2117
to 2101) had showed a shear of <500; so the area required class IV support. The REC sheets
Page 62 ⇓
62
showed the presence of kakirite and shear zones with quartz mica schist. The overall
support category was inexplicably assessed at class IIA. Those on the ground may not have
complied with Table 11 because the REC sheet template did not remind them to do so.
There was a prima facie case, based on a combination of the mapping and the REC sheets,
that class IV support ought to have been installed.
[149] The parties had originally believed that the CFZ was between chainages 2075 and
1960 and not between 2117 and 2101. The email from Mr Taylor, dated 24 August 2007, had
suggested that the CFZ was between chainages 2070 and 1960. The TBM crew engineer had
received an email from Jacobs dated 18 July 2007, stating that the CFZ was anticipated
between chainages 1850 and 2200. This differed from Mr Taylor’s email. Both Mr Taylor
and Jacobs had been signatories to the REC sheet for chainages 2117 to 2101. There was a
conflict about where the CFZ was. The RSM had depicted the CFZ at chainage 2000. It had
been anticipated that there would be large continuous areas of disturbed rock, but this was
not what was noted. Rather, there were veins of faulting, interspersed with good rock. That
was the pattern which Dr Wilhelm had ultimately recognised. Table 11 contained the
reference to the hazard of erosion during operation. This criterion had not been contained
within the REC sheets. If the sheets were to be the sole guide to long-term support, they
ought to have contained all the criteria, including those in Table 11. The commercial judge
had made no finding that any engineer had considered the content of Table 11 as part of any
holistic exercise.
[150] The defenders had failed to prove reasonable skill and care because: (1) the REC
sheets for the HRT did not refer to Table 11; (2) no witnesses mentioned Table 11 as a
consideration; (3) the defenders had put forward contradictory positions in relation to
Page 63 ⇓
63
Table 11, including the proposition that it did not relate to the protection of erodible rock;
and (4) the REC sheets dealt only with excavation and not the second phase of operation.
[151] According to Prof Broch at the Adjudication, the REC sheets simply identified the
support to be used when the tunnel was being excavated. After that, someone would come
along and make a decision about the long-term support. If that were so, Table 11 was not
relevant to the first phase of the work. The commercial judge considered only what
individuals may have seen. He overlooked the evidence that the TBM crew and others may
not have appreciated what they were looking at.
[152] The commercial judge had failed to take into account that there was a two stage
process at which the REC sheets were completed. There was the initial excavation, followed
by a consideration of operational matters. Prof Stille noted that it would not be unusual to
take one approach to the excavation of the tunnel and another to the permanent support.
The RSM considered rock stability during excavation. It did not consider stability in
conditions of hydraulic load. That was why Pöyry had returned to inspect the tunnel and
consider erosion. In the absence of evidence that Table 11 and the erosion in the invert had
been considered properly, negligence was established.
[153] Jacobs had specifically asked the defenders to clarify what had been meant by
“erodible” in the RSM, but the defenders had not done so. The commercial judge had failed
to conclude that constructing tunnels, in the absence of a proper definition of an
acknowledged hazard, was not consistent with the exercise of reasonable skill and care. The
experts were agreed that erodible rock was present in the HRT. The judge failed to give
adequate reasons about reasonable skill and care based upon his own rhetorical question:
“Why go to the bother (sic) of identifying such features and then decide to do nothing about
them?”
Page 64 ⇓
64
Risk and indemnity (No ground)
[154] The pursuers advanced indemnity as an alternative route (1A) to success. In terms of
clause 82, the defenders were required to replace and repair loss and damage. Clause 83
provided an indemnity in respect of the costs. The two routes ended up at the same point; a
damages claim for the refusal to carry out remedial work, and the indemnity. When there
was loss and damage attributable to a defect which existed at take over, that was a
contractor’s risk, whether or not, in terms of that clause, the contractor was obliged to
correct it. Clause 83 provided an indemnity, depending on whether the event was a
contractor’s or an employer’s risk. Option M did not convert what would otherwise be a
contractor’s risk into an employer’s risk.
[155] The joint insurance only applied to contractor’s risks (clause 84.2). If the defenders
were correct, the use of reasonable care would not only result in an indemnity in their
favour, but the event would also fall outwith the scope of the insurance. If the pursuers
were correct, the provisions worked in a sensible way. First, the contractor would do the
work straight away. If it was a contractor’s risk, both parties would have access to the
insurance monies to fund the works. The insurance claim was expected to yield a maximum
of £27 million.
Inadequacy of reasons (Ground 6)
[156] The commercial judge’s reasoning was short and omitted discussion of key legal and
factual disputes. The judge required to address the principle issues of law and fact (Dingley
v Chief Constable, Strathclyde Police 1998 SC 548 at 554 to 556; McLeod’s Legal Representative v
Highland Health Board 2016 SC 647 at paras 91-96). The parties had required to spend a
significant length of time going through the evidence at the hearing of the reclaiming
Page 65 ⇓
65
motion, which highlighted that the judge’s reasoning was deficient. The judge ought to
have recorded the principal evidence upon which he relied. An opinion should make clear
the basis upon which facts have been found. When a finding had been made on disputed
evidence, the opinion ought to explain the basis for that. The judge’s Opinion was stripped
back and bereft of the critical evidence. Only if adequate reasons had been given, could the
question, of whether the court of first instance had been “plainly wrong”, be answered. An
appellate court could interfere with factual conclusions if there has been a demonstrable
at para 67). The judge had failed to give adequate reasons for his central findings.
Reliance on documents not spoken to (Ground 7)
[157] The joint minute had agreed that certain documents were what they bore to be, but
that did not mean that their contents could be taken as true and accurate (McEwan v Lothian
Buses (supra) para 3). The commercial judge erred in proceeding on the assumption that the
REC sheets and the mapping were true and accurate. He wrongly took into account the
conclusions of two documents, which had not been spoken to by their authors viz.: the
minutes of the meeting noted by Mr Speirs; and the report by Mr Fawcett. The person to
whom this report had been put (the pursuers’ later project manager) had disagreed with it.
Dr Wilhelm’s evidence, that the mapping showed the criss-crossing of the shears and thus
the mechanism of the collapse, went without comment by the judge. Instead, he used the
conclusions of a witness who had not given evidence.
[158] An expert could not give evidence on what specific terms marked on the REC sheets
meant, or what factors were taken into account in making the notations. The defenders had
been unable to elicit the evidence, which they required to do, because the pursuers had not
Page 66 ⇓
66
called the witnesses to speak to the documents. There were numerous examples of witness
testimony contradicting the documents. Where a whole raft of witnesses had, without
explanation, not been called, it was inappropriate to ask experts to give the primary
evidence.
Causation (Ground 11)
[159] The commercial judge’s conclusion about causation was irrelevant. There was no
requirement to prove that the exercise of reasonable care would have led to the installation
of a particular type of support, which would have prevented the collapse. If the collapse
had been due to a defect, which the defenders were obliged to repair, there was no need to
prove causation. If the collapse was a contractor’s risk, then the pursuers were entitled to
the indemnity under clause 83.1. The defenders were liable irrespective of causation. If the
pursuers required to prove causation, they had done so.
Secondaries (Ground 12)
[160] The commercial judge had erred in holding that the secondaries were not defects.
Donaldsons had drawn up a list of 114 areas where erosion had occurred. Jacobs had
recommended that there be extensive work done in these areas. The judge had excluded the
cost of this work, which was about £21 million, from the damages calculation.
[161] Caution was a factor which could be taken into account in determining what was
reasonable (see Governors of the Hospitals for Sick Children v McLaughlin & Harvey [1987] 19
Con LR 25 at 105). Whether the secondaries were a defect in their own right was
immaterial. Having had to carry out extensive repair work, the defenders had to be prudent
and eliminate the risk of erosion elsewhere. Dr Billig had conceded that 65% of the
secondaries required remedial attention. If this work required to be done, then the cause
Page 67 ⇓
67
constituted a defect. Dr Billig had referred to 74 of the 114 secondary features being those
which he would have expected to occur following a first dewatering. Although they posed
no immediate risk to stability, they ought to have been, and were, dealt with in order to
avoid any future risk.
Clause 82.1 damages (Ground 13)
[162] The commercial judge had erred in not awarding the pursuers greater damages in
respect of the defenders’ breach of clause 82.1. If the defenders had been obliged to carry
out repairs at their own expense, the pursuers were entitled to the full cost of those repairs
as damages. The measure of damages was the difference between the costs incurred and the
sum which would have been paid to the defenders had they carried out the repairs. The
judge erred in holding that there was no evidence on this matter. The defenders’ evidence
was that the sum which they would have claimed was £28,729,000, plus a profit of
£3,102,470. The total was the amount that ought to have been deducted from the total paid
to BAM in computing the damages. It was accepted that the weakness in this argument was
that the evidence from Mr Hunter concerning the £31 million had been discredited.
Expenses (Ground 14)
[163] The commercial judge had erred by awarding the defenders 95% of their expenses.
There was no rational explanation for this and, in particular, for isolating the evidence about
the defenders’ lack of intention to repair the works as the sole matter justifying a discount.
The defenders had been unsuccessful on a number of other issues, including: (a) the
counterclaim; (b) the allegation that the pursuers were in breach by failing to give the
defenders an opportunity to carry out the repairs; (c) contributory negligence; (d) the
reasonableness of the remedial works; and (e) the quantification. About 40% of the proof
Page 68 ⇓
68
had been occupied by issues on which the defenders had been unsuccessful. But for these
issues having been raised, the proof could have been concluded in one court term. The
relevant principles were set out in William Nimmo & Co v Russell Construction Co (No. 2) 1997
SLT 122. The judge was “plainly wrong”. The pursuers had suggested an allocation of
50/50 on the basis that the defenders had succeeded in their defence on fairly narrow
grounds. It could have been put much more shortly.
Conclusion
[164] Accordingly, the reclaiming motion ought to be allowed and decree pronounced
either for £125,963,845.56, being the repair costs less amounts for inefficient working and the
repair of the culvert, or a sum which would be £22 million less in respect of the secondaries.
Paragraph 3 of the commercial judge’s interlocutor of 2 February 2017 should be recalled.
The court should sustain the pursuers’ second, third, fourth and fifth pleas-in-law, with the
fourth being confined to the first conclusion.
Cross Appeal
Joint insurance (Ground 1)
[165] On the assumption that the event was a contractor’s risk and thus covered by
insurance, the authorities (CRS (supra)) established that, where joint insurance excluded
claims between the parties following an insured event, it did not exclude liability for breach
of a distinct obligation to repair the damage caused (see also the “Ocean Victory” (supra)).
The existence of an all risks policy was not an answer to a refusal by a contracting party to
carry out his obligations. The defenders’ breach in refusing to carry out repairs was not an
insured risk. The duty under the contract was to correct and not to compensate (CRS (supra)
at para 6). The balance between the parties in CRS could be found in the present contract.
Page 69 ⇓
69
The pursuers stood to lose £20 million per year as a result of the tunnel collapse, because the
contract generally excluded claims for consequential losses. The contractor took the risk of a
defect occurring, but his liability was limited to the low availability sum. The employer
would have no claim for compensation, but he could insist that the contractor carry out
repair work (CRS (supra), at paras 48 and 73).
[166] Joint insurance was irrelevant to a claim based on a breach of the obligation to
correct a defect. There was a distinction between a contractual scheme, which curtailed
recovery irrespective of the cause of the loss, and a contractual provision which backed up
other obligations enforceable against the other party by other means. The joint insurance in
the “Ocean Victory” had been comprehensive, exclusive and applied irrespective of the cause
of the loss (ibid para 114). That was not the position in this case. The parties had anticipated
a shortfall (clause 85.4) to be allocated to the party on risk. The defenders’ interpretation
read a qualification into clause 85.4 which was not there.
[167] The contract clauses were of a different nature to those in the “Ocean Victory” (supra).
The remedies under the contract were not exclusive. The defenders’ approach attempted to
qualify the indemnity in clause 83, by reading into it that a contractor’s risk would not be
included because of the existence of joint insurance. The insurance provision was intended
to support obligations which remained enforceable. The insurance provision provided a
supplementary fund, akin to that in Surrey Heath BC v Lovell Construction (1990) 48 BLR 108
(at 121).
Clause 82.1 (Ground 2)
[168] The commercial judge had correctly construed clause 82.1. The defenders were not
entitled to refuse to carry out the remedial works until they had been paid, or payment was
Page 70 ⇓
70
agreed, if they considered that the collapse was prima facie an employer’s risk event. The
purpose of clause 82.1 was to secure the prompt repair of damage, not to delay the works
until any dispute were resolved (Thomas, Keating on NEC3 at para 9-019). The contractor
would bear the initial financial outlay. The adjudication clause (clause 92) provided that,
pending the resolution of the dispute, the parties were bound by the instructions given.
[169] The pursuers had not been in breach of their obligations in issuing an ultimatum to
the defenders, nor was there a break in the causal chain between the defenders’ breach and
the loss. It was only after the defenders had given the impression, that they did not intend
to carry out the works, that the pursuers began to explore the possibility of having someone
else carry it out. Had the defenders not breached their obligation, no ultimatum would have
been issued.
Counterclaim (Ground 3)
[170] The commercial judge was correct to reject the counterclaim on the principle of
mutuality. Caution should be exercised when artificially dividing up obligations (Inveresk v
Tullis Russell 2010 SC (UKSC) 106, at para 43). Had the defenders carried out the recovery
project, the pursuers would have paid them, had the collapse been an employer’s risk event.
When the defenders refused to carry out the works, the pursuers had paid BAM. Since the
defenders were in breach of clause 82.1, they could not claim the costs of shadowing
somebody else who was performing what was their own obligation. This applied to both
loss of profits and the monitoring of the remedial works. For the litigation and adjudication
costs, it was not possible to predict what the dispute would have been between the parties,
had the defenders not breached clause 82.1.
Page 71 ⇓
71
[171] The causal chain between the defenders’ loss and the collapse of the HRT had been
broken by the pursuers instructing BAM and by the defenders’ decisions to shadow the
remedial works, to adjudicate twice, and to conduct this litigation. These were all voluntary
commercial decisions which were not the direct and natural consequence of the collapse.
The collapse required to be the effective cause (ENE Kos I v Petroleo Brasileiro (No. 2) [2012] 2
AC 164, at para 12).
[172] The defenders had not proved quantum of their loss. They were not entitled to rely
on the evidence of Mr Hunter. The commercial judge found him unreliable. The defenders
had failed to prove that the £9 million claimed was reasonable or was causally related to
carrying out any work.
Adjudication award (Ground 4)
[173] There was an automatic right to be refunded an adjudication award, if the original
payer was successful in a subsequent litigation (Aspect Contracts v Higgins Construction
[2015] 1 WLR 2961, at para 23-24, 32). The commercial judge was correct in holding that,
having determined that no sums fell due to be paid under the counterclaim, the pursuers
were entitled to repayment of the adjudication awards.
Low availability damages (Ground 5)
[174] There was evidence of a period of delay due to the defenders’ refusal to carry out the
investigations. Had the defenders acted properly, the investigations would have been
finished by mid-December 2009, whereas they had not even commenced until then. The
defenders were not entitled to claim under the indemnity, as the principle of mutuality
meant that they could not recover what had been caused by their own breach.
Page 72 ⇓
72
Quantum: The relevant starting point (Ground 7)
[175] The commercial judge proceeded on the agreed basis that he would deal with
quantum on a headline basis. Thereafter the defenders had declined to participate in any
discussion. The parties had been asked to agree the level of costs, but agreement not been
possible. The parties’ experts had met to identify costs. Disputed costs had been set out in a
joint statement. The judge had deducted the sum of disputed costs (approx. £533,000) from
the total which he would have awarded.
[176] The pursuers had proved the case to the requisite standard, taking into account that
the parties had engaged in a proof to identify the key issues of principle. The commercial
judge was entitled to take a top down approach to quantum, having rejected the evidence of
Mr Hunter, which proposed the opposite. The judge required to look at the reasonableness
of the repair work, which was what he did. Axa Insurance UK v Cunningham Lindsey United
Kingdom [2007] EWHC 3023 was distinguishable.
Downstream access tunnel (Ground 8)
[177] The DAT had not only been an acceleration measure. It had also brought benefits in
terms of ventilation, access and safety. There had been a duty on the pursuers to mitigate
their loss by repairing the tunnel as soon as possible, even if an early repair would cost more
(Governors of the Hospitals for Sick Children v McLaughlin & Harvey (supra). The issue did not
require to be determined, given that it was incorrect to describe the sole purpose of
constructing the DAT as mitigating loss of profit. The ability to clear the full 600-metre tail
of the collapse did accelerate the works, despite the fact that it did not shorten the time to
build the BPT by allowing drilling from both ends. The reasonableness of the works had to
Page 73 ⇓
73
be assessed by reference to the circumstances prevailing at the time and not with the benefit
of hindsight (Shepherd Homes v Encia Remediation (2007) 110 Con LR 90, at para 478).
Operation of the scheme (Ground 9)
[178] The commercial judge had erred: (1) in finding that the signal for needle valve
opening had not been transmitted to the control room in Perth; and (2) in addressing
contributory negligence, but not “fault” under clause 80.1. Whether “fault” was a higher or
lower standard than negligence was irrelevant. For there to be fault, the defenders required
to point to a contractual duty incumbent on the pursuers to complete the operational notes
(clause 83.2). Fault was different from “default” (cf City of Manchester v Fram Gerrard (1974)
6 BLR 70). A breach of duty involved some form of legal obligation (Norrie: “Fault” in Stair
Memorial Encyclopaedia, Vol 5, paras 252-254).
[179] There was no duty on the pursuers to prepare operational notes and therefore no
fault in failing to do so. The responsibility for giving the pursuers the relevant information
lay with the defenders. They had provided 52 lever arch files; none of which had contained
any entry relating to needle valve opening. The purpose of the operational notes had been
to distil the key matters that the pursuers’ operators might need. The pursuers’ employee,
namely Claire McConnell, who had been asked to prepare the notes, would have had to
have shown more insight than the defenders in order to discern that the valve readings
ought to have been included and that the readings observed by the defenders’
subcontractors, Andritz, had required immediate action to shut down the plant.
[180] The defenders’ argument proceeded on the false assumption that, had they been
asked, Andritz would have told the pursuers something that would have caused them to
take action by 7 May 2009. During testing on 4 May 2009, Andritz had observed a needle
Page 74 ⇓
74
valve opening of 86% and had done nothing about it. The commercial judge found that the
pursuers should be excused for failing to notice that the needle valve opening reading was
86%, because of the chaotic conditions. The tunnel was not in a “steady state” of operation
during the testing. It was understandable for the pursuers to attribute rogue observations to
instrumentation errors.
[181] There was no basis to find that, if the problem had been discovered by 8 May, the
cost of the recovery work would have been only £5 million. That figure was premised on
assumptions which were rejected by the commercial judge. It assumed that it would have
been possible to tunnel through, if the collapse had been smaller. Even Prof Broch and
Dr Palmström had accepted that a BPT had been reasonable. The possibility of tunnelling
through failed to take into account the dangers in doing so. It presupposed that the collapse
in the crown of the tunnel was only 8 to 10m, whereas the judge found that it was
somewhere between 10 and 71m long.
[182] The commercial judge rejected Mr Hunter’s evidence, partly because he had
assumed too much certainty. Mr Hunter did not have the relevant expertise. The judge
rejected his methodology for calculating that the remedial works would have cost only
£7.5 million in August 2009. He had used the same methodology to arrive at the sum of
£5 million as an estimate for the works in May 2009, based on Dr Büchi’s best guess.
Defenders
Principal Appeal
Overview
[183] The defenders maintained that there was no merit in the pursuers’ construction of
Option M (grounds of appeal 1 and 2).
Page 75 ⇓
75
[184] First, the words required to be given their ordinary meaning. “Not liable for defects”
referred to the liability to correct defects under sections 4 and 8. Option M turned the
contract into one where there was no liability for design, if reasonable skill and care were
exercised. Section 4 made the fitness for purpose character of the original contract plain.
The onerous nature of that was accentuated by the addition of the 12 year defects liability
period; hence the need for, and the purpose of, Option M. Option M stated that the
contractor was not liable for certain defects; not that he was not liable for compensation due
to defects arising after the 12 year latent defects period. If Option M was a limitation arising
only after the end of the latent defects period, it was meaningless. There was no liability of
any kind after that (clause 46.5).
[185] Secondly (ground 4), the choice of what support to install had been part of the
design. It was a holistic exercise of judgment, taking account of the observed conditions. It
was part of the process set out in the contractor’s design and accepted by the project
manager. The judgments were evidenced by the REC sheets, which were referred to within
the accepted design documents.
[186] Thirdly, on onus of proof (grounds 5 to 10), the pursuers’ general complaint, that the
defenders had not called the necessary witnesses, was bound to fail. It was only an
exceptional case that ought to be determined on the basis of onus. The commercial judge
had heard a wealth of evidence on which he was entitled to reach his findings in fact. At the
forefront was the finding that all the design decisions taken in the tunnel had been approved
by Jacobs. This finding impacted on many different aspects of the case, including the
pursuers’ ability to establish a defect in design, onus and reasonable skill and care. The
judge’s reasons (ground 6) were adequate.
Page 76 ⇓
76
Option M and defects (Ground 1)
[187] The contractual analysis should not be based simply on the documents, but on the
evidence about what everyone had done. The accepted design referred to a process. The
meaning of design was informed by the evidence which explained the working of the
process at each stage. The commercial judge had correctly understood the contractual and
design documents in light of the evidence.
[188] The responsibility for the design rested with the defenders (clause 14). An essential
element of design was choice (Hudson: Building and Engineering Contracts (13th ed), at
para 378). The project manager had accepted not merely a document, but a process. If
everything that happened in the tunnel were left out of the equation, and the design were
simply what was contained in the documents, all that would exist would be the drawing
D201 and the RSM. These simply provided a menu of options.
[189] This was a re-measurement contract. If there were an increase in the class of
support, the contractor would be paid for that. If the re-measurement was less than the total
estimate of £129m, less would be payable. There had been no incentive on the defenders to
provide less support. There was an economic benefit to the pursuers in decreasing it.
[190] The project manager had certified the tunnel as complete for safe operation in
December 2008. The design was accepted by this process. The contractor had done all that
the works information had required by the completion date. Defects under section 4 were
shortcomings; loss and damage under section 8 in contrast were fortuitous. There were
separate regimes for each aspect.
[191] In describing both the obligation to correct defects and the obligation to pay for
correction, the word “liable” was used. It was the same word as that used in Option M. In
the case of latent defects, the contractor submitted proposals to remedy the defect. If the
Page 77 ⇓
77
contractor failed to remedy the work, the contractor was “liable” for the costs of employing
another. On the pursuers’ version, there was a period during which both regimes would
operate. The pursuers’ suggestion that Option M limited liability beyond the latent defects
period was not well-founded, since there was no liability at all at that stage.
[192] If an upgrade were required, that amounted to a defect; a defect in design being
something that was not in accordance with what ought to have been proposed. If, following
dewatering, a defect had been detected, the obligation to correct it would continue, subject
to Option M. If what had been installed was class IIA, and it should have been class III, that
was a defect.
[193] Section 8 dealt with risks and insurance. This was a different regime from defect
correction. Loss and damage after take over was an employer’s risk, unless it was due to a
defect which existed at take over. There was no such defect and, in any event, Option M
operated to exclude liability. The pursuers were treating them as alternative routes to arrive
at the same conclusion, but they were not the same. The commercial judge would have
awarded loss and damage and not the cost of correcting a defect.
[194] The heading to Option M in the NEC contract was “Limitation of the contractor’s
liability for his design to reasonable skill and care”. There was no reference to defects. The
standard form was intended to be suitable for parties entering into a design and build
contract. It was unsurprising that Option M was the clause which achieved its object as part
of a standard menu. It was not possible to get anything simpler than a statement that the
contractor was not liable for defects. Option M took priority over section 4 because the
standard form already contained section 4. The drafters had provided an easy way of
converting the contract for the purpose of design, rather than construction; the latter
remaining on a fitness for purpose basis.
Page 78 ⇓
78
[195] The alternative construction denuded Option M of any real purpose in a design
situation, unless a contractor was prepared to accept that the contract remained one of
fitness for purpose. The effect of Option M was that it cut through section 4. The exception
in clause 80.1 tied sections 4 and 8 together. Loss and damage to the works taken over by
the employer would be an employer’s risk, except where it was due to a defect which
existed at take over. The contractor was not liable for loss and damage due to defects which
existed at take over, where the defect was non-negligent.
A defect at take over (Ground 2)
[196] The onus of proving that a defect existed remained with the pursuers. The fact that a
design life had been stipulated did not mean that the life of the works was guaranteed (MT
32, 44-45). It would have to be demonstrated that what had been done in design terms could
not, or was not going to, produce a scheme which would function for that period. That was
not the case here. In any event, the 75 year period had been varied in terms of Schedule
Part 7, para 6, which applied it only to concrete structures. The tunnel was not such a
structure. There was no design life for the civil works in general. The commercial judge had
erred in holding that there was a design life of 75 years.
An event (Ground 3)
[197] The pursuers’ attempt to classify the pre-watering up inspections as an “event” was
contrived. The inspections were part of the works. They were not contractually significant,
unless it could be demonstrated that they involved a defect.
Page 79 ⇓
79
Option M reprise (Ground 4)
[198] Even if it was accepted that the design was not a process but the content of
documents, the latter said only that support was to be installed to the extent required to
meet the conditions encountered. The judge found that the defenders had installed that
support. There was no disconformity between such implementation as the design required
and the implementation which was carried out. If what had been decided in the tunnel
were not part of the design in contractual terms, it was in practical terms. Option M limited
liability for all design, not simply design which had been accepted in terms of the contract.
[199] Everyone knew that they were contracting for an unlined tunnel using the
observational method and that a risk remained. The pursuers had tried to make the contract
work by engaging with one of the world’s top contractors, namely the defenders, and one of
the world’s top consultants, that is Jacobs. The risk remained but it could not fall upon a
party who could only do what was agreed in light of what could be observed.
Onus of proof (Ground 8)
[200] Once evidence had been heard, questions of onus rarely arose (Salt International v
Scottish Ministers 2016 SLT 82, paras [45]-[49]). Cases which fell to be decided upon onus
had to be exceptional (“The Popi M” (supra); Dingley v Chief Constable, Strathclyde Police
[201] The pursuers’ complaint ignored the significant body of evidence to which the
commercial judge had regard. The judge gave (para [174]-[177]) four reasons, which formed
the basis for his conclusion that reasonable skill and care had been exercised. None of the
experts, with the exception of Prof Sloan, had been prepared to impugn the decisions taken
in the tunnel. The judge had seen the primary evidence of mapping and the REC sheets. He
Page 80 ⇓
80
had heard the testimony of what others had made of this. He rejected (para [187]) the
pursuers’ contention that the defenders had not exercised reasonable skill and care on the
basis that it had been founded upon hindsight. All of the points which had been raised by
the pursuers in their submission had been made to the judge. Hills v Niksun (supra) was
distinguishable. When all of the evidence, notably that of the experts, based on all of the
detailed primary evidence, was looked at, it could not be said that the judge did not have
evidence that entitled him to reach the conclusion that reasonable skill and care had been
exercised.
[202] The commercial judge had not just been faced only with expert evidence. He had
heard from the members of the TBM crew who had spoken to the process carried out in the
tunnel, the work of Mr Taylor and the role of Jacobs. They had described the care taken by
Mr Taylor and what could be seen in the tunnel. Mr Sandilands spoke about the role which
both Jacobs and Pöyry had played. The judge had heard from others who had inspected the
tunnel, notably Prof Broch. Prof Müller, the defenders’ design co-ordinator, spoke to the
RSM, the REC sheets and the risks which had to be taken into account.
[203] In their pre-proof preparations, the pursuers had asked the defenders if there was
any objection to them speaking with Mr Taylor. There had been none. One condition had
been that the pursuers provide the defenders with Mr Taylor’s details, since they had lost
contact with him. The pursuers did not do so.
Reasonable skill and care (Grounds 5, 9 and 10)
[204] There was no merit in the individual points taken by the pursuers. The pursuers
founded on the evidence of Dr Wilhelm, but he was giving evidence with the benefit of
hindsight. He was explaining that, although the shear zones on the mapping would not
Page 81 ⇓
81
explain the collapse, they must have been interconnected above the HRT. He did not say
that the collapse could have been anticipated. The commercial judge listened to the
pursuers’ submission on precisely this point and made positive findings that nothing could
have been seen in the tunnel.
[205] In his email of 28 August 2007, Mr Taylor had recognised that, during the time when
the TBM crew were in the CFZ, it would be prudent to maintain a minimum class of
support, even although the rock conditions, superficially, may have looked like class I.
There was nothing in this that involved missing something indicative of a potential collapse.
The commercial judge rejected the idea that Mr Taylor’s reference to specific hazards during
excavation meant that the REC sheets had failed to address long term risk. The judge was
entitled to take into account the fact that no problems had been encountered when the TBM
had passed through the CFZ.
[206] The REC sheet for chainages 2084 to 2082 had a majority of ticks that were either
class II or III; yet the overall class was I. This area had been only 2 metres wide. There was
no evidence that it could have caused the collapse.
[207] Mr Speirs’ minute of the meeting on 9 September 2007 supported the commercial
judge’s conclusion that there had been nothing to be seen in the CFZ. The document, which
was agreed as being what it bore to be, had been referred to by Mr Sandilands. It was there
for the judge’s consideration.
[208] Simply because kakirite was recorded on mapping, and ought to have been
mentioned on the REC sheets, did not mean that class IV had been required. Merely
because the mapping and the relative REC sheet were not identical, did not mean that they
were inconsistent. The alternative explanation was that, as part of the holistic exercise, any
kakirite had been so minimal that it did not create an issue about the support level.
Page 82 ⇓
82
Everyone would have seen the reference to kakirite and none had suggested that there
ought to have been class IV support. The REC sheets and the mapping were agreed to be
what they bore to be. That did not mean that they were true and accurate. It was up to the
commercial judge to determine that. He was not just given them and asked to reach a
conclusion based on what he could see. He had the testimony of those who had described
them. Prof Broch had investigated the locations described by Pöyry. He had found no
major weakness zones and considered that the support measures were more than good
enough.
[209] The reference to chainages 2117 to 2101 was another isolated attempt to undermine
the exercise of judgment at one location. The commercial judge held that the Pöyry findings
had been minor. Those in the HRT had inspected not just the areas focused by Pöyry, but
also the whole of the tunnel. The suggestion, that if Pöyry had inspected the whole tunnel
the result would have been different, was destroyed by the finding that there was nothing to
be seen.
[210] In relation to the dip of <500, even Prof Sloan had not categorised this area as class IV.
Dr Büchi had explained that, although there might have been some areas which pointed
towards class III, that did not mean that the overall rock mass should be classified as such.
The classification was a summary of all aspects. Dr Büchi did not consider that the mapping
and the REC sheet meant that the area should be class IV overall. The commercial judge’s
use of the rhetorical question: “Why go to the trouble of identifying such features and then
decide to do nothing about them?” was based on the evidence of Dr Büchi and Prof Sloan’s
report.
[211] The commercial judge found that Table 11 did not place a mandatory obligation on
the defenders to shotcrete all erodible rock. The pursuers’ contention, that class III or IV
Page 83 ⇓
83
support was required whenever the defenders discovered erodible rock, was indicative of a
painting by numbers approach. If the pursuers were correct, determination of overall class
would have been reduced to a mechanistic process, dependent on the worst feature ticked.
The process was, on the contrary, a holistic exercise of engineering judgment. There was
positive evidence in favour of the conclusion that the risks stated on Table 11 had been taken
into account. Just because the REC sheets contained no express reference to Table 11, did
not mean that the issues raised in it had not formed part of the engineering judgment.
[212] The evidence did not support the pursuers’ contention that there was a two-stage
system involving, first, excavation and, secondly, operation. The commercial judge referred
to the pursuers’ contention that the REC sheets had only addressed hazards during
excavation as “startling”. He posed the rhetorical question: “why would the defenders
construct a tunnel with no thought to its long term stability?” In the email, Mr Taylor had
simply been explaining the dangers during excavation. The judge was entitled to find that
the proposition was startling because of two tracts of evidence. First, Prof Müller had said
that everything had been covered in the REC sheets. Everybody had known that they were
engaged in building a hydro-electric tunnel. Everyone had known whether they were in the
HRT or the TRT. It was obvious that, when building a pressurised tunnel, account had to be
taken of that element. Secondly, Dr Wilhelm had said that working safety was an issue
during construction, but rock classification had to take into account overall stability during
operation. The judge had heard that the defenders, Jacobs and Pöyry, who had inspected
the tunnel in January and February 2008, were actively looking for problems. Prof Broch
had inspected the tunnel. The proposition, that all of these people were only considering
health and safety during excavation, was absurd. Dr Büchi spoke to the REC sheets dealing
with operational matters, including erosion. Even if Prof Broch had supported this theory at
Page 84 ⇓
84
the Adjudication, he was only one witness and he had not been involved until after the
February 2008 inspection. The Pöyry guideline, which required observation of the
behaviour of the rock behind the face, should be regarded not as a two-stage process, but as
part of a ongoing process of checking and revising. The judge took it to be consistent with
the defenders’ position that it included taking into account operational risks. The extremity
of the pursuers’ position was that, in building a hydro-electric tunnel, the defenders, Jacobs,
Pöyry and Prof Broch had not considered the effects of flowing water under pressure. The
lack of a response to the query from Jacobs about the definition of erosion was only one of
many factors involved in the judge’s decision. There was no evidence to suggest that the
parties had had any difficulty in understanding the meaning of erodible rock.
Paragraph 6.1.5 of the RSM was not now founded upon.
[213] The commercial judge made very detailed findings about the 2008 inspections.
Prof Broch had observed the tunnel only 13 days after the Pöyry inspection. He had looked
at the locations described by Pöyry and had walked the parts of the tunnel in between.
There had been joint inspections thereafter, when Mr Speirs had expressed a concern about
the lower side wall, but had been reassured that, if erosion occurred, it would not affect the
stability of the tunnel. The argument, that Pöyry would have noticed something in the
collapsed zone and recommended installing something major, ignored the judge’s findings
in fact that: (1) there was no problem to be seen in the tunnel; and (2) the issues which gave
rise to Pöyry’s recommendations had been minor and all had been resolved prior to
watering up. The Pöyry report had given rise to defects notice D033, which had been
“closed off”.
[214] The pre-watering up inspection had been to clean out the tunnel to make sure there
was nothing in it which could flow down and damage the turbine. It was not an inspection
Page 85 ⇓
85
of the geology or support installed. The erosion noticed in October 2008 was not the same as
that which had been noticed earlier, given the closing off of defects notice D033. What was
noted was what had been expected by way of rockfall. This was consistent with defects
notice D041, which recorded a significant quantity of gravel, sand and silt in the rock trap. It
noted the presence of significant voids below the invert, where weak and/or sheared rock
had been eroded by the water flushing exercise. Defects notice D044 had recognised what
required to be done and that it was appropriate to hold off remedying the defects until the
first dewatering. The witnesses had stated that there were no concerns about the watering
up on 27 November 2008. The points raised by the pursuers were all miniscule matters that
had to be looked at in the context of an 84 day proof. The commercial judge heard them and
made nothing of them. Looking at them on the printed page, it was readily understandable
why he reached that view. If the judge did not give the pursuers’ points greater prominence
in dismissing them, that reflected their inherent weakness. It cannot be said that he was
plainly wrong.
Risk and indemnity (No ground)
[215] There was no separate submission.
Inadequacy of reasons (Ground 6)
[216] Although he had summarised his reasoning adequately, the commercial judge must
appellate court was bound to assume that a judge has taken into account the whole of the
1947 SC (HL) 45 at 61; and Housen v Nikolaisen [2002] 2 SCR 235 at para 72). It was entirely
appropriate for the judge to summarise and marshal points at an appropriate level of
Page 86 ⇓
86
generality, with a view to focusing the issues and not getting lost in the detail (McLeod’s
Legal Representative v Highland Health Board (supra), para [93] ). Read as a whole, the judge’s
Opinion was far from being an oracular pronouncement (McLeod’s Legal Representative
(supra) at para [91]; citing Dingley v Chief Constable Strathclyde Police (supra) at 555).
Reliance on documents not spoken to (Ground 7)
[217] The commercial judge’s findings on the mapping and REC sheets did not proceed on
an assumption that they were true and accurate, but on the basis of the evidence. The TBM
crew had referred to the sheets having been completed by Mr Taylor in consultation with
Jacobs. Mr Sandilands had expressed his view on the importance of the REC sheets and
Jacobs’ signature binding the pursuers. The experts had spoken to the high standard of
mapping.
[218] The commercial judge had been entitled to take into account the terms of the minute
noted by Mr Speirs and the report from Mr Fawcett. The former had been referred to by
Mr Sandilands and the latter by his successor, Mr Brand. Mr Brand had referred to
Mr Fawcett’s role.
Causation (Ground 11)
[219] It was a curiosity that causation was a miscellaneous ground of appeal, when it was
so crucial. The experts were generally agreed that only class IV support would have
prevented the collapse, yet no one had suggested the use of class IV at any point in the
tunnel. The only class III that was ever installed was at chainage 2120, where increased
shotcrete had been installed. The pursuers had maintained that at least class III should have
been installed. The commercial judge accepted the preponderance of the evidence, notably
that given during the hot tubbing, which favoured the conclusion that only class IV would
Page 87 ⇓
87
have prevented the collapse. The judge accepted the evidence of four out of the six experts.
That was not something which could be regarded as “plainly wrong”.
[220] It was not enough simply to say that the defect consisted of insufficient support. The
pursuers had to point to the defect by reference to the observational method. The pursuers
required to prove that the loss and damage had been due to a defect which existed at take
over. There had to be a causative link between the defect and the loss and damage. This
issue was no different in connection with the correction of defects under section 4, where the
pursuers were seeking the cost of having the defect remedied. The pursuers had to establish
that these costs were those for remedying the defect and not for remedying a lack of
support. Demonstrating that the collapse would have been prevented had the defenders
installed the support necessary to avoid that collapse, did not identify what, or where, the
defect was. The pursuers had to be able to say that the defenders had to incorporate class IV
support at the point of collapse. If the obligation was only to shotcrete erodible rock, the
collapse would have happened anyway.
Secondaries (Ground 12)
[221] The commercial judge found that the secondaries did not constitute defects.
Attempts had been made to locate the secondary defects, but Prof Broch, who had inspected
the HRT in January 2011, had concluded that they were all either rock features which could
be safely left unsupported or minor rock fallouts which might be expected on a first
dewatering. Dr Billig’s analysis was that none posed a risk to stability. Although at one
point Dr Billig had said that he had not thought about the operation of the tunnel, it was
clear that he was considering its load carrying capacity. He had discussed erosion, which
necessarily involved operation.
Page 88 ⇓
88
[222] The commercial judge had recorded that the point about the secondaries had not
been pressed by the pursuers, although it was now. On 13 April 2010, the defenders,
Donaldsons, Jacobs and BAM, had all gone into the tunnel to find the faults recorded in the
defects notice D058. They had failed to do so. Even after the problem about the revised
chainages had been resolved, Mr Becker, who had been one of the defenders’ staff, had
testified that the features did not look like defects. The evidence was all consistent with
minor rock fallout.
[223] The contention that it was reasonable for the pursuers to repair secondary defects,
given the nature of the collapse, was a view which might be taken from an economic
standpoint but it was misconceived from a legal perspective (Governors of the Hospitals for
Sick Children v McLaughlin & Harvey (supra)). The defenders were not liable for the
secondary features because they were not defects.
Clause 82.1 damages (Ground 13)
[224] The argument that, because the defenders had said that they could repair the tunnel
for £30 million, they should get the difference between that and the actual cost of repair,
ignored the fact that the £30 million figure had been based on the discredited evidence of
Mr Hunter.
[225] The commercial judge had erred in finding that the defenders had been in breach of
clause 82.1. He ought to have found that the pursuers had placed unlawful pre-conditions
on the defenders. The pursuers had insisted upon a concrete invert, the DAT and BPT.
They had wanted this work carried out as quickly as possible in order to mitigate their loss
of profit. They were attempting to impose an ultimatum that the design for the remedial
Page 89 ⇓
89
works had to incorporate three specific aspects. The pursuers would not have allowed the
defenders to have complied with clause 82.1.
Expenses (Ground 14)
[226] The commercial judge’s decision constituted a reasonable exercise of discretion.
Success was a relative term and great latitude was allowed in defining it (McLaren: Expenses,
p 22; Gye & Co v Hallam (1832) 10 S 512). In general, awards would not normally be made
for different aspects of a proof. McLaren post-dated the introduction of the tender system
(Heriot v Thomson (1833) 12 S 145).
[227] The starting point was the “vindication of rights”. The cost of litigation should fall
capable of determination according to rigid rules. It was ultimately a matter of discretion
(Howitt v W Alexander & Sons 1948 SC 154, at 157). Where there was divided success, there
could be many permutations (ibid at 158; McFadyen ed.: Court of Session Practice at para L103).
If there were distinct, severable branches and the parties had been successful in different
ones, this could be described as divided success (ibid).
[228] The pursuers’ award for low availability damages, which took up no time in
evidence and minimal time in submissions, was a very small percentage of the sum sued for.
It involved a minor skirmish in the context of the case as a whole. It was a Pyrrhic victory in
circumstances where the real success was on the part of the defenders (ibid; D Macdonald &
Bros v Cosmos Decorators 1969 SLT (Sh Ct) 9 at 10). If the sums which the pursuers had been
awarded had been offered pre-proof, the litigation would still have gone ahead. The fact
that the defenders could have tendered was a factor to be taken into account, not in
Page 90 ⇓
90
determining the question of success, but in the modification of any award (Sidlaw Industries
v Cable Belt 1979 SLT (Notes) 40, at 41).
[229] The deduction of 5% from the defenders’ expenses was a proper exercise of his
discretion. The 5% discount was not de minimis. It represented a very significant amount of
money.
Cross Appeal
Joint insurance
[230] The commercial judge had erred in holding that clause 84 did not preclude a claim
by the pursuers against the defenders for loss and damage due to a contractor’s risk. By
entering into clause 84, the parties had agreed that they would look only to the insurance
monies in respect of risks falling within the policy. There was a longstanding rule that an
insurer could not, by way of subrogation, sue one co-insured in the name of another
(Commonwealth Construction Co v Imperial Oil (1977) 69 DLR (3d) 558 at 561; Petrofina (UK) v
Magnaload [1984] QB 127; Stone Vickers v Appledore Ferguson Shipbuilders [1991] 2 Lloyd’s Rep
288; and National Oilwell UK v Davy Offshore [1993] 2 Lloyd’s Rep 582). Since CRS (supra), it
had been clear that the rule was founded on contract. A term fell to be implied into the main
contract (Hopewell Project Management v Ewbank Preece [1998] 1 Lloyd’s Rep 448; CRS at
paras 48-50; Scottish & Newcastle v GD Construction (St Albans) [2003] Lloyd’s Rep 809; The
Board of Trustees at the Tate Gallery v Duffy Construction [2007] Lloyd’s Rep 758).
[231] An implied term could not withstand express language to the contrary (Tyco Fire &
Integrated Solutions (UK) v Rolls-Royce Motor Cars [2008] Lloyd’s Rep 617 at 76). If an
underlying contract envisaged continuing liability on the part of one co-insured to another,
even within the sphere of the cover provided by the joint policy, subrogated claims would
Page 91 ⇓
91
not necessarily be precluded (ibid at 77). In the “Ocean Victory” (supra) the Court of Appeal
and the majority of the United Kingdom Supreme Court concluded that the principle was
best viewed as resting on the natural interpretation of, or implication from, the contractual
arrangements giving rise to the co-insurance (ibid at para 114). The commercial judge erred
by having regard to, and giving weight to, contractual terms which he considered to point
against the joint insurance provision precluding litigation.
[232] Even the minority in the “Ocean Victory” (supra) had acknowledged that, where it
was agreed that insurance would inure to the benefit of both parties, they could not claim
against each other in respect of an insured loss. There was a well-established rule to that
effect. The distinction between the majority and the minority was whether the joint
insurance meant that there was no liability at all between co-insured, or whether the liability
was satisfied by the joint insurance provision. That was not in issue in this case.
[233] In a situation where a party had failed to take out insurance, as provided for by the
joint insurance clause, the risk would fall where it fell. The possibility of an insolvent
insurer was remote and could not be a factor within the contemplation of the parties. The
parties had not anticipated a shortfall, as they had agreed that the insurance was to be for
replacement cost. If a party failed to take out insurance, the effect of the joint insurance
provision in the contract was the same (Scottish & Newcastle v GD Construction (supra), at
para 28). The rest of the contractual provisions could be read consistently with the joint
insurance provision. The commercial judge erred in concluding that certain terms were
inconsistent with the purpose of clause 84.
[234] If the pursuers’ submission was correct, it would render clause 83 redundant. Under
clause 84, the insurance was taken out for a defined period. In contrast, the indemnity
under clause 83 was wide ranging, and included employer’s risks. It would allow for the
Page 92 ⇓
92
recovery of potentially substantial deductibles, which could arise. The inclusion of
clause 85.2 had been a “belt and braces” approach; to the make it clear that there was no
possibility of recovery against directors or employees either. There was no relevance to the
lack of any express waiver, and the commercial judge erred in taking that into account. The
judge’s decision deprived the parties of the protection of the implied term on the basis of
minor inconsistencies with different contract terms. Those terms could have been
reasonably interpreted as applying to different contractual obligations (Reed: Construction
All Risks Insurance (2nd ed), para 20-049).
[235] The effect of clause 84 should be viewed in the context of a coherent regime in
relation to liabilities. Where the contractor failed to correct defects, the employer was
entitled to recover the cost. The position was different in relation to loss and damage. The
responsibility for them depended upon whether the risk was that of the employer or the
contractor. The distinction between defects and loss and damage had a commercial
rationale. The contractor was responsible for carrying out the works so that they were free
from defects. He was therefore, subject to the provisions of Option M, responsible for
repairing them at his own cost. The position was different in relation to loss and damage,
which was fortuitous and could be insured against.
Breach of clause 82.1 (Ground 2)
[236] The commercial judge erred in holding that the defenders had been in breach of
clause 82.1 and prevented from counterclaiming successfully. The purpose of clause 82.1
was to prevent wrangling about payment until any repair had been completed. In order to
oblige the contractor to carry out the repairs, the employer required to present a prima facie
argument that the event had been a contractor’s risk. At the stage at which the defenders
Page 93 ⇓
93
had been called upon to carry out the repairs, the pursuers had not been able to present such
a prima facie position. The defenders had been entitled to rely upon the indemnity and insist
on payment. Clause 82.1 had to be read with clauses 60 and 80. The defenders’ position, as
set out in the letter of 25 September 2009, had been that they were ready to mobilise to carry
out the repairs in terms of clause 82.1. In terms of clauses 61.3 and 80.1, the cost of repair fell
to be reimbursed.
The counterclaim (Ground 3)
[237] There were two elements to the counterclaim. First, there was indemnification under
clause 83.1 for costs which were due to an employer’s risk. These included the immediate
investigation of the collapse, the monitoring of the remedial works carried out by the
pursuers, the costs of the Adjudications, the cost of litigation and the management time
expended on dispute resolution. Secondly, there was the defenders’ entitlement to carry out
the repairs themselves. The commercial judge’s finding that the defenders’ costs had not
been incurred due to the collapse was wrong. The test was whether the collapse had been
an effective cause of the costs (ENE Kos I v Petroleo Brasileiro (No. 2) (supra), at para 12). It
had to be an effective cause, but it did not need to be the only cause. The legal costs and
management time were caused by the collapse. The Adjudications were a direct
consequence. The pursuers had raised this litigation in order to displace the results of the
Adjudication. The indemnity provided for the recovery of the costs of this litigation;
recognising that any modification by the court would break the causative link.
[238] The defenders’ obligation under clause 82.1 was not reciprocal to the pursuers’
obligation to indemnify. The costs to be indemnified, such as those of the Adjudications and
the litigation, bore no relation to clause 82.1. The defenders’ costs in successfully vindicating
Page 94 ⇓
94
their position were not dependent on clause 82.1. The authorities on mutuality were well-
known (Bank of East Asia v Scottish Enterprise 1997 SLT 1213, at 1216, citing Turnbull v McLean
(1874) 1 R 730, at 738). Each obligation by one party was not necessarily the counterpart of
breach was not entitled to insist on the other party performing his counterpart obligations,
but caution should be taken to avoid splitting the contract artificially (Inveresk v Tullis Russell
Papermakers (supra), at para 43).
Repayment of the second adjudicator’s award (Ground 4)
[239] The commercial judge erred in obliging the defenders to repay the sums under the
second Adjudication. The sums fell entirely within the indemnity. The second adjudicator
had effectively permitted the defenders to enforce the indemnity under clause 83 on the
basis that these were costs which were due to an employer’s risk event. The pursuers had
argued that the defenders required to repay the sums as they had not effectively been
caused by the collapse. The argument had now evolved into an adoption of the judge’s
reasoning that the defenders were not entitled to payment because of their breach of
clause 82.1. The defenders had been entitled to retain the payment by the pursuers under
the adjudicator’s award as they had not breached clause 82.1. If there had been a breach of
clause 82.1, the payment fell into the category of costs which the defenders were entitled to
recover anyway, irrespective of their breach of clause 82.1.
Low availability damages (Ground 5)
[240] The commercial judge erred in awarding the pursuers low availability damages of
£1 million under the terms of the bespoke clause 48.2. Clause 80 (Z11) provided that there
was no liability for indirect consequential loss, ie loss of profit. Clause 48.2 was an exception
Page 95 ⇓
95
to that general position, but it required to be read in conjunction with the indemnity in
clause 83.1. If the reason for the plant operating below the low availability standard had
been the collapse, and the collapse was an employer’s risk, the defenders were strictly liable
under clause 48.2, but were then entitled to the indemnity under clause 83.
[241] The pursuers’ claim had not been based on the defenders’ breach of clause 82.1, but
on the fact that the plant had been unavailable for many months. The commercial judge
treated it as a free standing claim, which did not depend upon any defect or breach of
contract. By the time of the By Order, the argument had shifted to focus on the low
availability damages as a consequence of the breach of clause 82.1. The judge awarded
damages because of the defenders’ refusal to return and carry out the recovery project in
breach of clause 82.1. If there had been no breach of clause 82.1, the entitlement to the low
availability damages fell away.
[242] Even if there had been a breach of clause 82.1, there was no evidence to substantiate
the low availability damages. The pursuers would have required to plead and prove that a
part of the two year delay had been due to a breach of clause 82.1. The pursuers’
retrospective attempt to tie the damages to a breach of clause 82.1, as distinct from 48, did
not work, because the evidence was not there.
Quantum (Ground 6)
[243] The commercial judge erred in concluding that the hypothetical sum, to which the
pursuers would have been entitled, amounted to in excess of £107 million. All the pursuers
had done was lead evidence of the money which had been expended on the remedial works.
They had sought to attribute that sum (£129 million) to various heads of claim and to
establish the reasonableness of the works carried out. The pursuers had not led evidence of
Page 96 ⇓
96
a causal link between the collapse and the sums which had been expended. The only
evidence had been that the remedial works had been reasonable, that a total of £129 million
had been spent on the works, and that certain deductions had been made by the judge on
the basis that the defenders could not possibly have been liable for those.
[244] The pursuers’ head of finance had given evidence about the pursuers’ accounting
systems. He had not carried out any exercise to ascertain which costs had been a
consequence of the collapse and which were not. The pursuers’ cost expert had provided a
detailed assessment of the costs of the recovery project. He had expressly said that he had
not looked at causation. The pursuers’ witnesses on monitoring had simply checked to see
whether the projected costs had been accurately forecast. The pursuers had contracted for
the remedial works on a costs plus a percentage basis; ie Option E. It did not follow that
each and every cost had been connected to the works carried out. The commercial judge
had erred in adopting a “top down” approach by starting with the sum claimed by the
pursuers and deducting sums which could never be attributed to the defenders (AXA
Insurance UK v Cunningham Lindsay United Kingdom (supra) at 276-287).
Downstream access tunnel (Ground 8)
[245] The commercial judge erred in allowing the costs of the DAT to be recovered. The
purpose of the DAT was to allow tunnelling from both ends, to speed up the works, and to
reduce the time that the plant was out of operation. Recovery of the costs of the DAT would
cut across clause 48.1, which provided the only remedy for loss of profits. Clause 80 (Z11)
prevented any claim for consequential loss. The pursuers were entitled to take a commercial
decision to try to get the plant up and running as quickly as possible, but the terms of the
Page 97 ⇓
97
contract had to be applied in determining whether they were entitled to recover that from
the defenders.
Operation of the scheme (Ground 9)
[246] The commercial judge erred in rejecting the argument that the pursuers’ operation of
the plant had been an employer’s risk event. The pursuers ought to have noticed that the
needle valves had been opening beyond their normal parameters. The judge erred in fact in
finding that the needle readings had not been relayed to Perth. The signals had been
relayed, although they did not produce an audible alarm. The judge did not consider what
the consequences, of the needle valve signal being available in Perth, had been.
[247] The pursuers had been provided with a large number of maintenance and operating
files by the defenders. To make the information manageable, the pursuers had produced
operational notes. The notes were incomplete in relation to needle valve openings. Claire
McConnell, who had been responsible for preparing them, had accepted that they ought to
have said something about them. If information on the normal parameters had been in the
notes, the engineers would have noticed the developing trend. Acting with reasonable
diligence, they would have become aware of the collapse by April or May 2009. The extent
of the collapse would have been far less, and the cost of remedying it would have been
correspondingly less.
[248] Clause 83.2 provided for a proportionate reduction if events were contributed to by
the party seeking the indemnity. The commercial judge had characterised this as
contributory negligence, but it was really an issue of causation. If part of the pursuers’ loss
had not been related to the contractor’s risk event, but to their operation of the plant, there
ought to have been a proportionate reduction. Clause 80.1 provided that, included within
Page 98 ⇓
98
employer’s risks, were costs due to his negligence or fault. The failure to update the
operational notes had amounted to negligence, failing which, at least fault. Fault involved a
lesser degree of culpability than negligence (City of Manchester v Fram Gerrard (supra) at 90;
Thomas: Keating on NEC 3 at para 9-007).
[249] It was not possible to give a precise quantification of the level of collapse in April or
May 2009. Dr Büchi had said that the extent of the collapse had increased each time the
plant had been operated. He had tried to estimate the total rockfall in April or May. In the
face of a lesser collapse, the appropriate remedy would have been to tunnel through at a cost
of just over £5 million. The pursuers had led no evidence to challenge either the theory
about the collapse being a lesser one, or the ability to tunnel through or the cost of that.
Decision
Principal Appeal
Interpretation of the contract and a defect at take over
[250] There can be little doubt that the collapse of the HRT resulted in loss of, or damage
to, the works. The first question of contractual interpretation is whether, irrespective of
whether that loss or damage was caused by a defect, the defenders were obliged to replace
the loss, or to repair that damage, under the terms of clause 82.1, given that it was caused
before the issue of the defects certificate, due 2 years after take over. It is clear that the
defenders were indeed obliged to do this. Their refusal to do so was a breach of contract
(see infra).
[251] The second question involves identifying who was responsible for paying for any
replacement or repair to the loss and damage. That turns on where the risk lay. It would
rest with the pursuers unless the loss and damage was due to a defect which existed at take
Page 99 ⇓
99
over in terms of clause 80.1. The cost of any replacement or repair incurred by the defenders
would, other than in the event of such a defect, be subject to indemnification by the pursuers
under clause 83.1.
[252] The third question is whether the collapse of the tunnel occurred because of a defect
which existed at take over; that is to say that either a part of the works was not in accordance
with the works information or a part of the works designed by the defenders was not in
accordance with the contractor’s design as accepted by the project manager (clause 11.2(15)).
This requires an analysis of each of these two elements.
[253] On the first element, the works information contains a general description of the
works (Sch Pt 3, sec 1, para 2.1). It was to be a hydro scheme providing reliable service
without the requirement of major refurbishment or significant capital spending within the
design life of the scheme. The design life for the HRT, which was a component of the civil
works, was 75 years (ibid para 6.3.2). This was not qualified by paragraph 6 of Schedule
Part 7, which did limit the life of some components but not the general requirement.
[254] The general requirement involved the creation of a tunnel with a 75 year design life.
That requirement did not guarantee such longevity. It meant merely that the design was
one which, if properly implemented, ought to have produced an HRT which lasted that long
Neuberger at paras 30 and 32). If what was constructed was not capable of lasting for the
design period, it would not be in accordance with the works information. If that were so,
there would be a defect in terms of the contact (clause 11.2(15)) and a failure to provide the
works in terms of the works information (clause 20.1).
[255] MT Højgaard (supra) involved a requirement that wind turbines have a design life of
20 years. There was a two year period in which to give notice of a defect. It was said, no
Page 100 ⇓
100
doubt correctly, that this enabled the employers to use that time to inspect the turbines and
to detect any such defect. That is not dissimilar to the contract between the parties.
However, the defect in MT Højgaard was a miscalculation of the capacity of connectors in the
original design. The design as built could not have lasted for the stipulated life span. That
is different from a situation in which it is accepted, apparently by all, that the defenders’ (or
rather Pöyry’s) design for an unlined tunnel (ie the HRT RSM and Drawing D201, infra)
ought to have lasted for the 75 year period, at least in the ground conditions then
understood to exist and as set out in the relative report (Sch Pt 3; Appdx 12 supra). Since
what is under consideration is design life, it is only if an inconsistency between the design
(as accepted) and the potential 75 year life can be found that a defect can be said to have
existed.
[256] The commercial judge did not directly address the question of whether there was a
defect of this nature. His findings in fact are indicative of a fault existing at take over in that,
as the judge held (para [147]), the support provided was “not enough”; “poor rock
conditions coincided with insufficient shotcrete and rockbolts”. Given the actual state of the
rock, the HRT could not have survived for 75 years, or even 1 year, in the conditions which
in fact existed. The question then is whether the HRT can be said to be disconform to the
works information (ie the design life) by virtue of its (very) early collapse. The evidence,
beyond the occurrence of the collapse, does not support a contention that what was
designed was not capable of lasting the required 75 years. On the contrary, once the parties
had agreed upon an unlined tunnel, the general consensus of the experts and others was
that what was proposed and accepted was appropriate.
[257] In terms of the works information, the detailed design (RSM and Drawing D201, see
infra) was to be “developed through construction detailing and method statements” (Sch P 3,
Page 101 ⇓
101
sec 1, para 6.2.8.4). The contractor was to map the HRT to enable the rock mass classification
system to operate (ibid, section 2, para 2.3.1). This was expanded with the terms of the Pöyry
design statement (Sch Pt 7; Appdx 6) which used this system. It was Pöyry who had said
that, with the use of the TBM, the HRT was feasible, with 60% unlined, without
compromising the design life (ibid para 2.4). What was to be constructed, using this design,
ought to have lasted for the required period despite its early collapse. The submission that
the works, as designed and built, were disconform to the 75 year requirement in the works
information must therefore be rejected.
[258] Before the second element can be considered, it is necessary to decide precisely what
the contractor’s design was. The contract makes it clear that the design was something
which was to be “accepted” by the project manager (clause 21.2; Sch Pt 3, sec 1, Pt 6,
paras 6.2.8.1 and 6.2.8.4). What was accepted was the HRT RSM, (Drawing D152 etc) which
included Table 11, and Drawing D201, which detailed the rock support appropriate for
specified rock conditions. The contractor’s design was that contained in those documents,
each of which was accepted by Mr Sandilands. What occurred in the HRT as the TBM
progressed, with the preparation of the REC sheets and the mapping, was an exercise in the
implementation of that design. The REC sheets and mapping may have been “approved”
by Mr Sandilands, but they were not “accepted” as required by the contract. It is the
contract which must govern the relationship between the parties, irrespective of what those
in the tunnel thought they were doing in “approving” the defenders’ proposed tunnel
support. The later actings of the parties during the performance of the contract cannot assist
in its construction (Whitworth Street Estates v Miller [1970] AC 583, Lord Reid at 603). No
question of waiver or personal bar was raised. The contract makes it clear (cause 14.1), in
Page 102 ⇓
102
any event, that acceptance of a communication from the contractor or of his work does not
alter the contractor’s responsibility to provide the works or his liability for his design.
[259] In order to succeed in proving the existence of a defect on this second element, the
pursuers now rely solely on a contention that there was erodible rock that was not
shotcreted as it should have been in terms of Table 11; that being part of the design. The
commercial judge held (para [152]) that the collapse occurred because weak rock
deteriorated when submerged. Erodible rock was washed out and larger seams were
created. It may be assumed, from the judge’s finding, that some erodible rock had not been
shotcreted, although it does not follow that the erodibility of the rock was visible or
detectable by the geologists on site. The judge was careful to point out that the mechanism
of the collapse involved the deterioration of the rock, after it had been submerged, prior to it
becoming erodible. It should also not be assumed that whatever rock had become erodible
had not been shotcreted. The hazard of shotcrete cracking and being washed away was also
recognised in Table 11 (hazards during operation).
[260] The issue essentially boils down to a legal, and not a factual, question of whether
there was a mandatory requirement to shotcrete every area of erodible rock, however
unimportant the area might have seemed to an experienced geological engineer on site.
Although there may again have been a tendency on the part of the commercial judge to
interpret the contract terms by looking at how they were operated in practice, he rejected (at
para [167]) the contention that Table 11 had required the shotcreting of all erodible rock for
several reasons. One critical one was that, if it had done so, it ran counter to the other
contractual provisions which called for the exercise of engineering judgment on site. This is
a reference to: (a) clause 6.2.8.4 of Contractor’s Design (Sch Pt 3, sec 1), which stated that the
accepted design was to be developed through construction detailing and method
Page 103 ⇓
103
statements; (b) the provisions (ibid, sec 2 para 2.3.1) requiring the contractor to map the
tunnel after excavation and to agree the “rockmass parameters ... and the support class”
with the project manager; and (c) the Pöyry design statement (the Pöyry Guidelines) (Sch
Pt 7; Appdx 6, para 2.4) which required the contractor to determine the “actual support
requirements during the tunnel advance based on actual conditions encountered,
particularly with reference to the identified risk situations”. The latter was a reference to
one identified in the RSM, including the erodible rock hazard mentioned in Table 11.
[261] Neither Table 11, nor any other contractual document, stipulates that all erodible
rock required to be shotcreted. Table 11, as it was no doubt correctly described by
Prof Müller, was a “risk-handling matrix ... used ... during the tender negotiations”. It was
part of the RSM; being page 35 of some 38 pages. It comes at the end of a section of text
headed “6.5 Hazard control Tunnel/General Guidelines” which “suggests” methods of
dealing with hazards. It is a table which identifies a number of hazards, including the
detachment of wedges, cracking of shotcrete, scouring of the lining and “the erosion of
erodible rock during operation”. It specifies countermeasures; being shotcreting in the case
of identified erosion. However, it is tolerably clear, when the whole of the RSM is read, that
it is not prescriptive. It is, as it states, a guideline with suggested countermeasures to meet
predicted general hazards. It is not entirely clear that the specific hazard of erodible rock is
covered by the text or, if it is, what is suggested as a remedy.
[262] The commercial judge’s approach to Table 11 is correct. It is simply not established,
from looking at the contractual documents, that all erodible rock required to be shotcreted.
In the circumstances, the case, based on an short passage in a table forming a relatively small
part of the totality, is not made out.
Page 104 ⇓
104
[263] It is only once it has been determined that there was a defect at take over (ie if the
above analysis is incorrect) that consideration requires to be given to the fourth question of
whether the limitation on the contractor’s liability for defects due to his design in: (i) the
description of the contractor’s main responsibilities; and (ii) the similar but more general
provisions of Option M, apply in a manner which removes any liability for defects if the
contractor proves that he used reasonable skill and care to ensure that his design complied
with the works information. Both of these provisions limit the liability of the contractor to
pay damages for loss which occurs as a result of a defect in the works due to the contractor’s
design. They affect liability, which is determined by section 8 of the contract (Risks and
Insurance). The effect of Option M is to qualify clause 80.1, by providing the contractor with
a defence of reasonable skill and care even when the loss or damage occurs because of a
defect which existed at take over. Clause 80.1 is the only provision in the contract which
apportions the risk of liability between the parties for a catastrophic failure of the type that
occurred.
[264] The allocation of risk or liability for damages is separate from the question of who
should carry out work to correct defects and bear the initial cost of doing so. Section 4
(Testing and Defects) makes it clear that the contractor is obliged to correct a defect
(clause 40.4), irrespective of its cause during the defect notification period (clause 43.1). If
the contractor fails to do so, the employer can assess the cost of correction by another and
the contractor must pay this amount (clause 45.1). This provision allows an employer to
take payment for any remedial work, in lieu of the contractor carrying out the work, if the
contractor is unwilling or unable to do so.
[265] The obligation on the contractor to correct defects is qualified by the bespoke clauses,
including clause 46.1, which provides that he is not obliged to carry out repairs which are a
Page 105 ⇓
105
result of normal wear and tear, and clause 46.2, which provides for the defects date to be
delayed. In terms of clause 46.4, the parties agreed that the contractor would have an
obligation to correct defects “at his own cost and expense and with all possible speed” for a
period of 12 years after the issue of the defects certificate. If the contractor failed to perform
this obligation, the employer could recover the cost of employing others to carry out the
work, in the same way as is provided for under clause 45.1.
[266] Both the general and the bespoke provisions are silent on the question of who is
ultimately liable for the cost of the repairs. That is not surprising, given that section 4 deals
with “testing and defects”, and not the allocation of risk. Where an employer’s risk event
occurs, the contractor is obliged, under the terms of section 4, to return to site, to correct the
defect and to bear the cost of doing so. This is reinforced by the terms of clause 82.1, which
require the contractor to carry out repair works promptly, before the issue of the defects
certificate. If the contractor refuses to return, the employer may claim the cost of the repair
from the contractor. However, if the event is ultimately found to be an employer’s risk, the
contractor is entitled to be indemnified by the employer for the costs incurred as a
consequence (clause 83.1).
[267] The general description of the contractor’s main responsibilities provides that
liability for defects due to his design, which are not identified prior to the defects date, will
be limited so far as the contractor can prove that he used reasonable skill and care to ensure
that the design complied with the works information. This is consistent with Option M
which, when read with clause 80.1, provides that loss or damage to the works taken over by
the employer and occurring before the issue of the defects certificate, which is caused by a
defect which existed at take over, will be the contractor’s risk unless the contractor can
establish that he used reasonable skill and care. The defenders’ liability for identified and
Page 106 ⇓
106
unidentified defects, which give rise to loss or damage to the works, are both limited to the
exercise of reasonable skill and care.
[268] The structure of the contract is then that the contractor is obliged to correct all defects
notified prior to, or specified in, the defects certificate. This is regardless of whether the
defects were caused by fault and negligence in the design. This is clear from the provision
(clause 45.1) which permits the employer to recover the cost of having a defect corrected by
another from the contractor. Normally, the employer would only be at risk once the defects
certificate has been issued and then only for defects not specified in that certificate.
However, the bespoke provisions of this contract (clause 46.4) provided that the contractor
must make good at his own cost and expense any defect in the civil works appearing during
the period of 12 years after completion (take over).
[269] Section 8 allocates liability to pay for loss or damage as a result of a defect in the
works following take over by the employer. That loss will be an employer’s risk, unless it
occurred before the issue of the defects certificate and was due to a defect which existed at
take over. In that event, the contractor will bear the liability for the loss and damage, unless
he can show that he exercised reasonable skill and care in ensuring that the design complied
with the works information. If the contractor is obliged to correct a defect which was an
employer’s risk event, he will be entitled to the benefit of the indemnity to recover his costs
and outlays.
[270] After the twelve year period, the defender is no longer obliged to correct defects.
During the period between take over and the issue of the defects certificate, any loss or
damage caused by the works is governed by clause 80.1. Following the issue of the defects
certificate, any loss or damage to the works is an employer’s risk event.
Page 107 ⇓
107
[271] On the hypothesis that the pursuers had demonstrated that the 75 year design
requirement had not been complied with, that would have to have been because of a defect
in the accepted design (presumably ultimately a failure to line the tunnel throughout the
CFZ). If they had proved that there had been a failure to shotcrete erodible rock, the failure
would have been one in implementing the accepted design (on the hypothesis that it
required this precaution). This would still fit into the description of a defect due to the
contractor’s “design”, which is unqualified by reference to the wording which defines a
defect. It is not suggested that those carrying out the support work in the HRT failed to
comply with Mr Taylor’s requirements. What he designated by way of HRT support is
properly classified as part of the contractor’s design when considering Option M.
Clause 11.2(15) refers to a defect occurring where a part of the works designed by the
contractor does not accord with the accepted design. The defenders thus escape liability for
a defect, even if it existed at take over, if they can prove (as in the event they did (infra)) that
they used reasonable skill and care in the design of the HRT.
[272] Although the point was not pressed, for completeness, the pre-watering up
inspections did not constitute an “event” within the meaning of clause 80.1. They were
simply part of the works themselves.
Burden of proof
[273] The incidence of the burden of proof is only significant if a judge at first instance is
unable to reach a concluded view on the facts, having heard the evidence (Thomas v Thomas
1947 SC (HL) 45, Lord Thankerton at 54). In the vast majority of cases, such a view can be
reached notwithstanding the absence of direct testimony on a particular matter. As has
often been said, onus seldom matters once the evidence is out (eg Salt International v Scottish
Page 108 ⇓
108
Lord Reid at 22).
[274] One curious, albeit by no means unique, feature of this case is that what might
otherwise have been regarded as the crucial testimony on the issue of negligence, notably
but not exclusively that of Mr Taylor, was not adduced by the defenders, upon whom the
onus lay. There was no material produced to suggest that Mr Taylor could not be found and
duly cited to appear at court. It must be assumed that the decision of the defenders not to
call him was a deliberate one, even if the precise reason for that is not known to the court. If
the defenders had had any difficulty in tracing Mr Taylor, they could have sought the
court’s assistance, especially in circumstances in which the pursuers knew of his
whereabouts.
[275] Where an incident occurs and the party upon whom the onus lies does not lead his
protagonist, there can be no doubt that the court can draw an inference adverse to that
party’s interests from that absence. The court would be entitled to find that the matter upon
which that person was peculiarly able to speak, in this case the exercise of due skill and care
in the HRT, had not been proved. The court could thereby hold that the other party’s case
was thus made out (see eg Binnie v Rederij Theodoro 1993 SC 71, LP (Hope) at 87). In this
context, there is considerable force in the pursuers’ submission that the absence of
Mr Taylor, and indeed the Jacobs and Pöyry geologists, ought to have been fatal to the
defenders’ case on this issue.
[276] However, as a generality, where there is some evidence pointing to a particular fact,
a judge will normally be expected to decide whether that fact has been proved in the
absence of an important, or even the central, witness or witnesses. Deciding a case on onus
is the exception rather than the rule. It ought to be regarded almost as a last resort when
Page 109 ⇓
109
some such evidence is present. A judge has a duty to decide the case on the evidence
adduced and to avoid doing so on the basis of onus if there is some evidence which does
Lord Brandon at 955). The issue in this case is whether, albeit that the commercial judge
would have been justified in deciding the case in favour of the pursuers on the basis of onus,
he was bound to do so. The answer to that is in the negative.
[277] The absence of Mr Taylor must certainly be regarded as significant. It could have
been regarded as determinative. However, there was evidence before the commercial judge
about what Mr Taylor had done, when assessing the geological conditions in the tunnel, and
about the care and attention which he had paid to his task. In particular, there were his REC
sheets and mappings, which were completed in some detail and spoken to by others. There
was, quantum valeat, the testimony from the TBM crew about the care which Mr Taylor took
and some evidence from several witnesses about his general level of skill and care. Most
significant, there was the fact that none of the other experienced engineering geologists, who
were in the HRT before its collapse, criticised Mr Taylor’s judgment on site. In addition,
there was testimony from several, albeit not all, of the experts to the effect that Mr Taylor’s
assessment of the necessary rock support could not be faulted.
[278] The pursuers were able to point to questions arising from the form and content of the
documents produced which, they submitted, could only have been answered by Mr Taylor.
These will each be analysed on their individual merits (infra). Suffice it to say, this was not a
case in which the facts could not be determined in the absence of Mr Taylor. It was not a
case in which there was no evidence of what he had found and what he had decided. That
evidence came from the content of the documents produced and spoken to by witnesses.
There was testimony from which an inference could be drawn that reasonable skill and care
Page 110 ⇓
110
which there was no evidence at all of the considerations upon which a decision had been
based. Here, there was evidence of what had, at least apparently, been seen and taken into
account when making the decisions on rock support.
Reasonable skill and care
[279] The determination of whether the defenders exercised reasonable skill and care may
be classified as one of law. It is nevertheless heavily dependent upon findings of primary
fact in relation to: (i) the rock mass observed, or observable, in the HRT; (ii) the bases upon
which decisions regarding support in the HRT were to be made; and (iii) the decisions
which were made in the HRT.
[280] The court must bear in mind the limitation of its jurisdiction to reverse findings in
fact, having regard to the dicta in the trio of cases in the United Kingdom Supreme Court
influence how the traditional approach outlined in Thomas v Thomas 1947 SC (HL) 45 (Lord
Thankerton at 54) ought to be perceived.
[281] Findings of primary fact can only be interfered with by an appellate court where the
judge at first instance can be shown to have been “plainly wrong”. That much is clear. This
has been interpreted as meaning that the judge must have reached a decision which no
reasonable judge could have reached (Henderson v Foxworth Investments (supra) Lord Reed at
para 62) or that his decision cannot reasonably be explained or justified (ibid at para 67). As
“The court does not understand Lord Reed to be seeking to depart from the familiar
and long-settled approach of the Scottish courts hitherto in appeals on matters of
Page 111 ⇓
111
fact. Although some of the wording … might, if looked at in isolation, be taken to
suggest an approach redolent of the high test applicable in cases of judicial review, it
is clear from Lord Reed’s careful analysis of the dicta in Thomas v Thomas that what
he was doing was explaining in more modern language the meaning of ‘plainly
wrong’. This is consistent with his observation in McGraddie v McGraddie (para 5)
that: ‘While the law is not in doubt, its application has been inconsistent’”.
[282] Although the matter may have become one of some controversy in recent years at
least in the Inner House of the Court of Session, an appellate court can more easily reverse a
judge at first instance when what is under review is not a finding of primary fact but an
inference (or secondary fact) drawn from the primary fact or facts (cf Housen v Nikolaisen
delivering the Opinion of the Court, at para [60]). It may do so with even greater confidence
if what is under consideration is the application of the law to the facts, whether primary or
inferential (see generally the analysis in “Appellate courts: Parts 1, 2 and 3” 2015 SLT (news)
125, 130 and 138).
[283] On the one hand, the advantages enjoyed by a judge at first instance in having seen
and heard the witnesses should not be underestimated. Furthermore, an appeal court must
have due regard to the limitations of the appeal process with its “[narrow focus] on
particular issues as opposed to viewing the case as a whole” (McGraddie v McGraddie (supra)
Lord Reed at para 33, citing Housen v Nikolaisen (supra) at para 14; see also Royal Bank of
Scotland v Carlyle (supra) Lord Hodge at para 22). On the other hand, the considerable
benefits of a three (or more) judge bench in terms of differences in view, varieties of legal
background and dialogue should not be overlooked (see Appellate courts: Parts 1, 2 and 3
(supra) at 127). The position of the Court of Session as a unitary court hearing reclaiming
motions from Outer House judges exercising delegated functions is also an important
Page 112 ⇓
112
consideration in assessing the scope of the peculiarly Scottish appellate jurisdiction (ibid).
The Inner House is not a separate appellate court as may be found in other jurisdictions.
[284] With these cautionary words borne firmly in mind, it is not possible to conclude that
the commercial judge has erred in finding that the defenders did exercise reasonable skill
and care.
[285] In the appellate process, the pursuers have founded upon very specific examples,
which they maintain demonstrate negligence. The pursuers’ submissions in relation to the
deficiencies, which were said to have existed in the manner in which the design was
implemented (or continued) in the HRT, have, once more, considerable force. It is incorrect
to state, as the commercial judge did, that none of those in the tunnel had recommended the
installation of a higher level of support at particular locations. At the time of the inspections
in January and February 2008, Pöyry had recommended additional support in certain areas.
Nevertheless, the judge was correct in his critical finding that no-one had identified a fault
that presented a threat to the HRT’s stability. The problems which had been identified by
Pöyry had been dealt with in the “closing off” of defects notice DN033, dated June 2008.
[286] Although Dr Palmström did agree with counsel that there had been a “missed
opportunity” in October 2008, when concerns had led to defects notice D041, this does not
advance matters, given that what was happening at that stage was not a study of the rock
mass by engineering geologists but an inspection to see that there was no dangerous debris
which might damage the turbine during watering up. Subject to what follows in relation to
the reliance on documents not spoken to by their authors, the judge was entitled to found
upon what Mr Fawcett had written in his report dated 16 April 2010 viz.: “There is no
recorded evidence of passing through any feature that would potentially cause the
Page 113 ⇓
113
catastrophic collapse that has occurred”. He was equally entitled to found upon Mr Speirs’
minute of 9 September 2007 that signs of the CFZ were imperceptible.
[287] The pursuers have undoubtedly pointed to features of the rock in the vicinity of the
collapse which, at least to a non-expert eye, may appear to provide strong clues about what
had occurred and why. The commercial judge’s assessment of the cause of the collapse is
not under significant challenge. Dr Wilhelm’s reconstruction in hindsight (supra) paints a
dramatic picture, which was broadly accepted by the judge, of submerged weak rock
deteriorating, erodible areas being washed out, opening up larger interconnected seams and
ultimately causing a catastrophic loss in stability.
[288] The pursuers were able to point to what was recorded at chainages 2117-210110 about
the findings of kakirite and the references to particular angled shears in the blocked zone at
chainages 2121-2050. They founded upon to the ticks on the REC sheet for chainages 2084 to
208211. They were able to pose the question of why these areas were not provided with class
III or IV support given the terms of the RSM; notably Table 11. However potentially
objectionable the questions and inadequate the answers may have been, the defenders’
experts, notably Drs Büchi and Palmström, did provide a response to these questions. It
was, in essence, that, given Mr Taylor’s expertise, having specifically noted these features,
he could not have thought that they were of such significance as to require an increased
level of support. The judge was entitled to rely on this explanation and on the undisputed
fact that, at the time of excavation at least, none of the other engineering geologists from
Pöyry or Jacobs disagreed with Mr Taylor’s assessments of rock mass and support.
10 Appendix 5 to this Opinion
11 Appendix 7 to this Opinion
Page 114 ⇓
114
[289] The pursuers were able to question whether those inspecting the tunnel at the
excavation stage had considered Table 1112, given that it did not feature expressly on the
REC sheets13. They were able to suggest that the operation of the tunnel under hydraulic
pressure was not what Mr Taylor and his fellow geological engineers had in mind when
deciding upon the level of support. The evidence of Dr Broch at the Adjudication pointed to
this as a possibility, at least on a Norwegian model. Notwithstanding these points, the
commercial judge was entitled to hold that, the contention that operational circumstances
had not been considered during excavation, was a “startling proposition”. He was entitled
to rely on Prof Müller and Dr Wilhelm in this regard, since they had testified that those on
the ground had been thinking about the operation, and not just the excavation, of the HRT.
The terms of Mr Taylor’s email of August 2007 did not suggest otherwise. The judge was
entitled to reject the pursuers’ contention that what was being carried out was a two stage
process of, first, excavating a tunnel which was safe in plain air conditions and, only then,
considering separately operational concerns. No-one involved in the construction of the
tunnel spoke to such a plan and it was not reflected in the contract documents.
[290] The commercial judge did not require to make an express finding that Table 11 had
been considered, given his general findings about the approach of Mr Taylor and the other
engineering geologists on site. There was no reason to suppose that the geologists had been
unaware of the central documents in the works information and detailed design. Mr Taylor
must have been aware of them, given the form of the REC sheets, even if the wrong Table
was referred to in the template of the HRT sheet. The language used to identify the rock
class was consistent with awareness of the terms of the relevant documents. The term
12 Appendix 3 to this Opinion
13 Appendix 4 to this Opinion
Page 115 ⇓
115
“erodible rock” did not require a definition. It seems to have been generally understood.
The judge was correct to hold, as was indeed the case (supra) that Table 11 did not contain a
requirement that all erodible rock required to be shotcreted. The various experts were
generally, but not unanimously, agreed that the RSM was appropriate to determine rock
class. The judge was entitled to hold that what had been envisaged by the works
information and the accepted design was a method whereby an engineering judgment was
to be made at the face of the excavation in relation to support at particular locations.
[291] Given that this process was being overseen by both Pöyry and Jacobs, it is a
reasonable conclusion that what Mr Taylor was doing was making a decision which, at least
as the parties must have thought at the time, accorded with the contract. It did not involve
“painting by numbers”, or a “mechanistic” or “tick box” approach. Just because there was
some erodible rock or kakirite observed, or a shear of just under 500 recorded, did not mean
that 3600 shotcreting was automatic. The judge was entitled to pose the rhetorical question
of why the engineers should record rock conditions in such a detailed manner and then do
nothing about them; thus assuming the answer that they had taken all these matters into
account when making engineering judgments based on the totality of the rock mass
observations at the particular locations. The general absence of criticism of the engineering
judgments, once accepted, was all but a fatal blow to the case of negligence, and warranted
the judge rejecting the testimony of Prof Sloan on this point.
[292] The inspections in October and November 2008 had led to defects notices DN041 and
DN044. It is true that there were concerns about debris and voids in the invert, where rock
had been eroded, but the commercial judge did not consider that the problems identified
had involved major issues affecting stability, as distinct from matters which could be dealt
with at the stage of dewatering in due course. Again, given the absence of any engineering
Page 116 ⇓
116
geologist stating at the time that there were identifiable features which could lead to a
collapse, this was a finding which he was entitled to make, notwithstanding the power of
the submission to the contrary.
[293] The pursuers advanced an argument that it was possible that the defenders had not
appreciated exactly where the CFZ14 had been located on the HRT chainages. There may
have been a difference of opinion on this at one point, but Mr Taylor had made his own
views clear on where the CFZ would lie and what the related dangers for the TBM crew
were. His location was broadly accurate. The significant fact, and one which the
commercial judge was entitled to find on the evidence, was that there was no sign of the
CFZ, as the TBM progressed through its anticipated location, such that additional support
measures were required. The judge was entitled to find that the experienced TBM crew did
know what they were doing and could identify different rock classes, even if Dr Smith
thought that they might have been ignorant of the true conditions.
[294] The proposition that Pöyry had not examined the CFZ in January and February is
not supported by the evidence. Their inspections had led to the very substantial defects
notice D033 covering the relevant area. Even if they had failed to examine particular areas,
the evidence of Prof Broch made it clear that, on his inspection/walk-through of the HRT,
there was nothing significant which could have been found which would have predicted a
major collapse.
[295] In conclusion, it cannot be said that the commercial judge was “plainly wrong” in
concluding that the defenders had exercised reasonable care in relation to their design of the
HRT and in determining, at the face, how it was to be implemented. His decision can
reasonably be explained and justified on this central aspect of the proof.
14 see Appendix 2 to this Opinion
Page 117 ⇓
117
Adequacy of reasons
[296] A judge requires to provide reasons for a judgment in a contested litigation in order
to demonstrate that justice has been done, and has been seen to have been done. The parties
are entitled to know how the judge has decided their case. This will normally involve
setting out the facts which have been admitted or proved and, where there has been a
dispute, the evidential basis for the facts found. The legal issues raised by the parties have
to be identified, usually in the form of a succinct summary of the submissions made. The
manner in which these issues have been resolved requires to be explained. This ought, if
possible, to be done in a concise manner which will be understandable, not just to the
lawyers involved in the litigation but also, at least, to the well informed reader of reasonable
intelligence, and the parties themselves. As was said in MacLeod’s Legal Representatives v
Highland Health Board 2016 SC 647 (Lord Brodie, delivering the Opinion of the Court, at
para [93]):
“the summarising and marshalling of points at an appropriate level of generality
with a view to focusing what is relevant to a resolution of the issues and not getting
lost in detail is an important judicial skill.”
[297] Regard must be had to the different potential readers; primarily the parties, but also
other interested persons, where the point is one of public and/or legal interest, and any
appellate court (ibid). A process of recording the evidence and submissions verbatim should
be avoided in favour of a considered selection of what is relevant, important, concise and
coherent. Although a judicial opinion will often require to be more structured and detailed
than those of administrative tribunals, the standard in the latter, which requires that the
reasons given must at least “leave the informed reader and the court in no real and
substantial doubt as to what the reasons for it were and what were the material
Page 118 ⇓
118
considerations which were taken into account in reaching it” (Wordie Property Co v Secretary
of State for Scotland 1984 SLT 345, LP (Emslie) at 348), is a valuable starting point for any
assessment of adequacy.
[298] The commercial judge adopted a style which ought to be regarded as a sound
example of how a written Opinion at first instance ought to be composed in a case of this
considerable magnitude. It must be borne firmly in mind that, although a judge’s reasoning
must always be adequate, the parties are entitled not only to that reasoning, but also to a
decision within a reasonable time. In this case, the judge made avizandum on 22 April 2016
and advised the case by the end of the year. Given that he would have had many other
cases to decide and duties to perform during that period, that was a remarkable
achievement where the parties had, as the judge observed, lodged 73,000 documents and
there were transcripts of testimony given over many months to be poured over. The judge
commented, not unreasonably, that it was unfortunate that the parties had been unable to
narrow the scope of the proof and at least to have lodged an agreed chronology and a list of
issues. The less parties assist the court in focusing the issues of fact and law, the more
difficult it is for the judge to reach a reasoned decision and to do so within a reasonable
time.
[299] On the issues at proof, the commercial judge produced 72 pages of text, together
with an appendix containing drawings and photographs which illuminate his writing. He
set out, in limine, the structure of his Opinion in separate sections which make it clear to the
reader exactly what is being dealt with at the particular point. He identified the general
issues in an introduction. He provided a chronology of events, starting with the scheme and
going on to describe the contract, the construction, its collapse and the recovery project. He
had specific sections on why the tunnel collapsed, the witnesses and burden of proof,
Page 119 ⇓
119
whether (in relation to the works information or the design) there was a defect at takeover
and reasonable skill and care. He dealt separately with whether the defenders ought to have
returned to site, contributory negligence, causation, the costs of recovery and individual
heads of damages, before considering the counterclaim and ending with clear conclusions.
[300] In each of these sections the reasoning of the commercial judge is generally clear and
concise. It leaves the reader in no doubt about what his reasons for reaching a particular
view were. That is not to say that the reasoning is as clear as it might have been on all the
points raised, or that it might have been more expansive in certain areas, but it meets the
legal test. At no point does it take on the character of an oracular pronouncement (Dingley v
Chief Constable, Strathclyde Police 1998 SC 548, LP (Rodger) at 554 quoting from Davie v
Magistrates of Edinburgh 1953 SC 34, LP (Cooper) at 40). It should be borne in mind that the
proof was transcribed instantly by “Live-Note”. There was no need for a detailed rehearsal
of what all the witnesses had said, even if some detail has been necessary in the context of
the reclaiming motion, given the specific focused criticisms of the judge’s approach to
particular aspects of the evidence. The court has not found the absence of such a rehearsal a
significant disadvantage in determining the reclaiming motion.
Reliance on documents not spoken to
[301] The Civil Evidence (Scotland) Act 1988 provides that:
“2(1) …
(a) evidence shall not be excluded solely on the ground that it is hearsay;
(b) a statement made by a person otherwise than in the course of the proof shall
be admissible as evidence of any matter contained in the statement of which
direct oral evidence by that person would be admissible; and
(c) the court…, if satisfied that any fact has been established by evidence in those
proceedings, shall be entitled to find that fact proved by the evidence
notwithstanding that the evidence is hearsay.”
Page 120 ⇓
120
“Statement” includes “any representation (however made or expressed) of fact or opinion”
(ibid s 9).
[302] In terms of the joint minute, it was agreed that a number of specific witness
statements would be treated as “evidence in the cause”. It was then provided that:
“3. Save to the extent that evidence to the contrary has been heard or it is
otherwise agreed, it is to be presumed that:
(i) all productions and electronic documents are what they bear to be ...”.
[303] One of the purposes of the abolition of the prohibition against hearsay in civil
proceedings was to permit the use of documents as evidence in the absence of oral
testimony from their authors. It may be that, in certain circumstances, a judge will attach
little weight to a statement when the maker is available to testify, but that is a matter for
judgment. Hearsay, in the form of a document not spoken to by its author, is admissible as
proof of fact and it is for the judge at first instance to assess its weight. Where there is
evidence, oral or otherwise, to contradict it, the content may be rejected, but the opposite
may equally be the case. The hearsay may be accepted as more credible and reliable in the
face of contrary testimony, depending upon the circumstances.
[304] Where it is agreed that a document is what it bears to be, the content of the
document is evidence in causa. If the provenance of the document points to the accuracy of
the content, that content may be preferred to other evidence, including testimony. Thus,
where it is accepted that the REC sheets and the mapping were “what they bear to be” and
various witnesses spoke to the accuracy of Mr Taylor’s work, the content of these documents
can be accepted as true and accurate even in the absence of their author. Both parties appear
to have proceeded on that basis, at least for certain purposes. Similar considerations apply
to Mr Taylor’s emails and to Mr Speirs’ minute. The commercial judge could have decided
Page 121 ⇓
121
to discount the content of the minute, on the basis that Mr Speirs had not been called, but he
was not bound to do so and ought only to have done so if there was some reason to call its
content into question.
[305] The report from Mr Fawcett falls into the same evidential category. It was open to
the commercial judge to take into account what an expert in tunnelling had reported, in the
context of the other evidence, and to use it to support the conclusions which he ultimately
reached. It was for the judge to determine whether the absence of its author, notably for the
purposes of cross-examination, was of significance in all the circumstances.
defenders’ bus driver which described the relevant road accident. It is not entirely clear
from the Opinion (paras [3]-[4]) whether this document was one of those which was agreed
by joint minute as being “what it bore to be”. The Opinion states (paras [4] and [18]) that
there was “no agreement ... about the evidential status of the document”, but if that were so,
the purpose of mentioning the terms of the joint minute would be obscure. If it had been so
agreed, it would have become a hearsay statement whose evidential value would have to
have been weighed in the balance and not automatically excluded. As it transpired
(para [18]), no one spoke to the provenance of the document and it is not surprising that it
was not regarded as material. That is not the position in this case.
[307] In any event, neither the content of Mr Speirs’ minute nor the conclusion of
Mr Fawcett’s report were contradicted by Dr Wilhelm’s ex post facto reconstruction of the
collapse. The absence of visible features indicative of a potential collapse is not inconsistent
with the occurrence of the collapse as a result of the unseen interlinking of shears above the
crown of the HRT. Equally, in relation to the evidence of Dr Broch and Prof Sloan and that
concerning the DAT, the weight to be given to the various adminicles, including the hearsay
Page 122 ⇓
122
provided by the experts, remained matters for the commercial judge to assess. Once again,
it cannot be affirmed that his assessment was “plainly wrong”.
Causation
[308] For reasons similar to those already given in relation to the commercial judge’s
findings on reasonable skill and care, he was entitled to hold that the use of such skill and
care would not have prevented the collapse. He found (para [260]) that only the installation
of class IV support would have done so. The pursuers had only said (paras [165] and [195])
that class III ought to have been provided in the exercise of such skill and care. As the
pursuers submitted, this may not matter in a situation in which the defenders were
ultimately liable to meet the costs of correcting any defect. However, for the reasons already
given, that is not what the contract said. The inescapable consequence is that, at least in so
far as the pursuers rely upon a breach of contract based on a failure to shotcrete erodible
rock, they have failed to prove that the collapse was caused by that breach and hence the
essential link between the breach and the loss or damage.
Secondaries
[309] Whether the secondaries were defects was primarily a matter of fact, albeit in a
contractual context. The commercial judge provided several reasons for concluding that the
areas identified by Prof Sloan were not defects. First, no-one had identified them as such in
2008. This was a point of some force. Any defects as were identified would have been
recorded in defects notice DN033, which was closed off, or DN041 or DN044 in November
and December 2008. Secondly, the judge accepted the evidence of Mr Becker that, when he
looked at the relevant areas some time after April 2010, the features could not be classified
as defects. Thirdly, he accepted the evidence of Prof Broch, who had looked at the areas in
Page 123 ⇓
123
January 2011, that the features were either rock falls, which could be left unsupported, or
expected minor rock falls. Fourthly, he accepted Dr Billig, who was more or less to the same
effect in relation to an absence of any threat to stability. The judge’s conclusion here can
reasonably be explained and justified.
[310] The pursuers maintain that they were entitled to adopt what might be described as a
precautionary approach to the features and argue that, if the areas required repair, they
ought to recover any cost of doing so. However, this claim is that the features constituted
defects requiring correction in terms of the contract. If the tunnel was stable, despite the
existence of these features, there was nothing which could constitute a defect in terms of the
contract and this part of the claim would be bound to fail.
Clause 82.1 damages
[311] The ingenuity of relying on the defenders’ assessment of the cost of repair at
£30 million or thereby, and arguing that therefore the pursuers could claim the balance
between that and the sums paid to BAM as the measure of their loss by virtue of the
defenders’ failure to do the work in breach of clause 82.1, is immediately acknowledged, but
it must as quickly be dismissed. The evidence of Mr Hunter, which had vouched the
£30 million figure, was rejected by the commercial judge for reasons which were not
challenged. That left, as the only evidence of the costs of repair, that presented by the
pursuers. In the absence of any acceptable evidence that the costs would have been less
than those reasonably incurred by instructing BAM, the commercial judge was bound to
hold that such costs would have been the same, had the defenders themselves carried out
the work.
Page 124 ⇓
124
[312] Conversely, the commercial judge was entitled to the view that the pursuers had not
placed unlawful conditions on the defenders by insisting upon a concrete invert, the DAT
and a BPT. Each of these aspects of the recovery project was justified by the evidence. The
invert was a requirement of the Health and Safety Executive. The DAT was to yield benefits
in terms of ventilation, access and safety, even if it did not achieve the objective of driving
the BPT from both ends. The BPT had been agreed as the sensible solution, given the
obvious dangers involved in driving through the collapsed zone. The judge readily justified
his approach in these areas.
Expenses (ground 14)
[313] An award of expenses is a matter for discretionary judgment by the court of first
instance. Appeals, at least when dealing only with expenses, are “severely discouraged”
(Caldwell v Dykes (1906) 8F 839, LP (Dunedin) at 840) and entertained only in very
exceptional circumstances such as where, for example, some obvious miscarriage of justice
has occurred (Charles Rogers & Sons v G & H Mullen 1957 SLT 23, Lord Mackintosh at 25).
The court will only interfere where the court at first instances has taken into account
something which it ought not to have done, left a material matter out of account or reached
a decision which was “plainly wrong” (Ramm v Lothian and Borders Fire Board 1994 SC 226,
LJC (Ross), delivering the Opinion of the Court, at 227).
[314] One matter which does requires to be taken into account is the incidence of success,
given that the general rule is that expenses should follow the result. In a damages claim,
that is usually measured in a straightforward way by determining whether the pursuer has
succeeded in obtaining an award in his favour; a defender being in a position, if concerned
about expenses, to lodge an appropriate tender. Where, as here, the pursuers had secured a
Page 125 ⇓
125
substantial award of around £1.5 million, that ought normally to be used as a starting point
and the absence, as here, of any tender would be an important matter (ibid), albeit that an
award of expenses may be refused or modified if the successful party’s evidence or conduct
has been unsatisfactory (ibid at 228). The approach of the sheriff, rather than the sheriff
principal, in D Macdonald & Bros v Cosmos Decorators 1969 SLT (Sh Ct) 9 is the norm (see also
Howitt v Alexander & Sons 1948 SC 154 and William Nimmo & Co v Russell Construction & Co
(No. 2) 1997 SLT 122, Lord Morison, delivering the Opinion of the Second Division, at 122).
The court does not normally engage in an exercise of deducting portions of expenses in
accordance with its view of how much time was taken up in dealing with a point which
turned out to be of no value or effect (ibid). That approach may, however, not be followed
strictly in a case of particularly long duration.
[315] Even when a party has been successful, in the manner described, expenses may be
refused or modified and a contra award may be appropriate in all the circumstances (Howitt
v Alexander & Sons (supra), LP (Cooper) at 158). In this case the commercial judge took the
view that almost the entire proof (and the case in general) had been taken up with matters
upon which the defenders were successful. It may be surprising that the judge made an
award almost entirely in the defenders’ favour, given that the pursuers had achieved some
success, not only in securing an award, but also in discreet areas; notably in resisting the
defenders’ own pleas of contributory negligence and in the counterclaim and quantification.
However, the judge was undoubtedly in the best position to assess those matters (Ramm v
Lothian and Borders Fire Board (supra) at 229). Even if it may be said that the judge could have
expressed it in more expansive terms, the reasoning which he gives, and which is broadly
consistent with the nature of the pleadings and the extent of the proof, is readily
understandable and justifiable. The deduction of 5% may seem very small in relative terms
Page 126 ⇓
126
(representing only about 2½% of the total expenses of both parties) but, as was submitted, it
may amount to a considerable sum.
[316] Having regard to all the circumstances, there is no material error in the commercial
judge’s decision on this issue.
Cross appeal
Joint insurance
[317] The obligation was for the defenders to provide insurance in the joint names of the
parties in respect of (amongst other things) loss of, or damage to, the works caused by
events which were at their risk prior to the issue of the defects certificate (clause 84). All
risks, which were not those of the pursuers (typically claims due to the pursuers’ fault or
negligence (clause 80.1)), were carried by the defenders (clause 81). The insurance would
encompass damage to the tunnel, whether caused by the contractors, third parties or other
external factors. In the same part of the contract as the provision regarding insurance was
that relating to indemnity. Each party required to indemnify the other against claims due to
an event which was at that party’s risk (clause 83.1), with the liability reduced if the events
were contributed to by the other’s risk (clause 83.2).
[318] If the tunnel collapse had been due to a breach of the contract on the part of the
defenders, the pursuers’ argument was that they could sue the defenders for the resultant
loss, even although the defenders may have insured themselves and the pursuers in respect
of that loss. The practical consequence of this could be that the pursuers would recover a
sum equivalent to that which their insurers had already paid out (or were liable to pay) to
them and which they would presumably be obliged to return. The circularity of this does
not pose a problem in practical terms if the basic principle that insurance is res inter alios acta
Page 127 ⇓
127
were to be applied. Any pointless litigation could be marked by an appropriate award of
expenses. The insurmountable difficulty with this straightforward approach, however, is
the highly persuasive authorities which dictate otherwise where the insurance is joint.
decided after the commercial judge’s Opinion. It refused the appeal from the judgment of
the Court of Appeal, which the judge had considered. Although the judgments of the UK
Supreme Court are obiter on this point, it was not contended otherwise than that a joint
insurance clause precluded an action for damages covered by that insurance. Both the
majority and the minority considered that this was because, as a matter of construction,
there was a resultant implied term in the contract to that effect (Lord Toulson at paras 139-
144, Lord Mance at para 114; Lord Sumption at para 99).
[320] The commercial judge’s view (para [81]), that there was no reason in this case to give
primacy to the insurance clause (clause 84) over the indemnity provision (clause 83), is
correct. Taking out a joint insurance policy had utility and was prudent, but there was no
reason to suppose that it would supplant liability. The presumption in CRS (supra, Lord
Hope at para 65), that there is an implied term in a contract preventing litigation between
the parties, where there is joint insurance, can be rebutted having regard to the terms of the
contract. That is the situation with this contract. There was certainly no necessity to imply
such a term for the purposes of business efficacy. CRS (supra) turned, at least in part, on the
use of the term “liable” in section 1 of the Civil Liability (Contribution) Act 1978 (not
applicable to Scotland) and on the fact that the liability on the contractors had been
expressly excluded. The situation is different when the contract envisages that one co-
insured may be liable to the other in damages within the cover provided by the policy (Tyco
Fire v Rolls-Royce Motor Cars [2008] Lloyd’s LR 617, Rix LJ at para 77).
Page 128 ⇓
128
Breach of clause 82.1
[321] Clause 82.1 required the defenders to replace the loss of, and to repair damage to, the
works. It did not restrict itself to loss or damage due to a defect as defined. It is an
obligation to replace and repair, whatever the reason for the loss or damage. There can be
little doubt that the collapse of the tunnel resulted in loss or damage to the works. The
defenders were bound to replace or repair the damage. They did not do so; indeed they
refused to do so and were thereby in breach of this important contractual provision. That
breach occurred irrespective of where the risk fell, in terms of clause 80.1, so far as the
provisions for indemnity (clause 83.1), and hence payment, were concerned.
[322] The defenders’ counterclaim is predicated on the proposition that they were entitled
to carry out the works and that the pursuers had prevented them from doing so. However,
from the commercial judge’s findings in fact, it cannot be concluded that this was so. The
pursuers had instructed the defenders to carry out remedial works by letter dated 31 August
2009 under reference to defects notice DN053. The response from the defenders, in their
letter of 25 September 2009, had been that they were “ready” to repair the collapse, as they
had recognised that they were required to do so in terms of clause 82.1. However, it was the
defenders who had imposed a condition, which was not stipulated in the contract, that the
pursuers should agree to pay for the remedial works in advance; ie before the issue of risk
could have been determined. Furthermore, they had insisted in their letter of 12 November
2009 that they should be paid on a cost reimbursable basis. They refused to proceed on an
interim 50:50 cost sharing basis.
Page 129 ⇓
129
[323] In these circumstances, the commercial judge correctly determined that the
defenders could not found on clause 82.1 to claim loss of profits in circumstances in which
they had refused to perform their obligation under that same clause.
The counterclaim
[324] The claim for loss of profit fails for the reasons given in relation to mutuality of
obligations under clause 82.1. The defenders had refused to carry out the repair work and
had not been prevented from doing so.
[325] The indemnity provision of clause 83.1 relates inter alia to costs due to an event
which is at the party’s risk. In this case the risk event was loss of, or damage to, the works
under clause 80.1 (not falling within the exception). The question becomes one of whether
the costs claimed are due to the tunnel’s collapse. It is not disputed that the collapse has to
be the “effective”, as distinct from a “but for”, cause (ENE Kos I v Petroleo Brasileiro (No. 2)
[2012] 2 AC 164, Lord Sumption at para 12).
[326] The defenders’ monitoring of the BAM works was not, as the commercial judge
correctly held, effectively caused by the tunnel’s collapse. The defenders did not require to
monitor the works because of the collapse. They elected to do this for their own purposes;
no doubt with an eye to potential litigation. Similarly, the defenders’ decisions to refer some
of the issues to two adjudications were not caused by the collapse. They were voluntary acts
made in order to secure payment of sums, of the type now claimed, and to obtain a
provisional view on liability. The defenders’ expenses in this litigation are not effectively
caused by the collapse but by the pursuers’ act in deciding to sue them.
[327] For the reasons essentially given, albeit in short form, by the commercial judge, the
counterclaim fails.
Page 130 ⇓
130
Repayment of the second adjudicator’s award
[328] If an adjudicator has made an award, which is later determined by the court to have
been wrong, it follows that the sum must be repaid (Aspect Contracts v Higgins Construction
[2015] 1 WLR 2961, Lord Mance at paras 23-24). That is the position here where the court
has determined that the sums awarded under clause 83 ought not to have been awarded
given the breach of clause 82.1.
Low availability damages
[329] Clause 48 provided that, if the scheme was not operating after completion, the
contractor was required to pay certain sums to compensate for “low availability” up to a
ceiling of £1 million. As the commercial judge determined, this sum was due under this
clause. However, if it was caused by the tunnel collapse, the pursuers would be liable to
compensate the defenders for this under clause 83.1. The delay, or at least a significant part
of it, which produced these damages, was not caused by the collapse but by the defenders’
failure, in breach of their obligation under clause 82.1, to proceed “promptly” with the
recovery project. As was submitted, the investigations ought to have been completed by
mid-December 2009 but they had not even commenced until then. There may not have been
a precise calculation of the damage sustained as a result of the delay but, as the judge held, it
“vastly exceeded” the £1 million cap.
Quantum (and DAT)
[330] The commercial judge explained that, in his assessment of damages, he had adopted
506) viz.:
Page 131 ⇓
131
“The law is satisfied if the party placed in a difficult situation by reason of the breach
of a duty owed to him has acted reasonably in the adoption of remedial measures,
and he will not be held disentitled to recover the cost of such measures merely
because the party in breach can suggest that other measures less burdensome to him
might have been taken.”
It does not now appear to be disputed that the pursuers did pay the sums claimed to BAM
as part of the recovery project. There is no reason to suppose that the pursuers were other
than business-like in their approach to the contract with BAM, albeit against a background
of wishing to ensure that the tunnel did not collapse again. The judge held, as a matter of
fact, that the pursuers had acted on the basis of professional advice and had instituted an
exacting costs monitoring regime. The BAM contract, which was under Option E, was the
only basis upon which the defenders themselves would have contracted. In these
circumstances, it is not possible to fault the judge’s conclusions on reasonableness.
[331] The pursuers required to establish, not “causation”, but that what they had done had
been reasonably required to put them back in the same situation as if the collapse had not
occurred. That was established in terms of the commercial judge’s general findings on how
the pursuers had approached the recovery works. It was sufficient to prove the actual costs
of these works, especially given that the judge had also found that BAM’s profit margin had
been very limited, and that they were reasonable.
[332] The decision to complete the works with dispatch was one aspect of the pursuers’
decision making which the commercial judge held was reasonable in the circumstances.
Whether or not loss of profit was allowable in terms of the contract, the pursuers were
entitled to proceed in a manner which kept their on-going losses to a reasonable minimum.
It may be that the defenders, and their witnesses, were of the view that the DAT was
unnecessary, but the judge was entitled to the view that it formed part of the necessary
Page 132 ⇓
132
remedial works and brought benefits in terms of ventilation, access and safety. Its
construction did not fall under the £1 million cap in clause 48.1.
Operation of the scheme
[333] The absence of operational notes dealing with the needle valve opening parameters
did not amount to a fault (or negligence) on the part of the pursuers. The obligation to
explain how to operate the scheme rested on the defenders but, apparently, none of the
52 files provided by the defenders referred to needle valve openings.
[334] The failure to act upon the needle opening readings cannot be classified as a fault
either. The experts on site, namely Andritz, had not reported any problem requiring urgent
action. The commercial judge, having heard the evidence of this matter from experts on
both sides, had preferred the testimony of the pursuers’ experts that it was understandable
that no action would be taken on the unusual readings given that testing was ongoing and
the scheme returned to full output after the unusual readings occurred. It cannot be said
that he was plainly wrong.
Conclusion
[335] In the result, the court ought to refuse the reclaiming motion and the cross appeal
and adhere to the commercial judge’s interlocutor of 2 February 2017.
Page 133 ⇓
133
APPENDIX 1
Page 134 ⇓
134
APPENDIX 2
Page 135 ⇓
135
APPENDIX 3
Page 136 ⇓
136
APPENDIX 4
Page 137 ⇓
137
APPENDIX 5
Page 138 ⇓
138
APPENDIX 6
Page 139 ⇓
139
APPENDIX 7
Page 140 ⇓
140
FIRST DIVISION, INNER HOUSE, COURT OF SESSION
Lord President
Lord Menzies
Lord Glennie
[2018] CSIH 26
CA162/12
OPINION OF LORD MENZIES
in the reclaiming motion of
SSE GENERATION LTD
Pursuers and Reclaimers
against
HOCHTIEF SOLUTIONS AG AND ANOTHER
Defenders and Respondents
Pursuers and Reclaimers: Moynihan QC, Barne QC; CMS Cameron McKenna Nabarro
Olswang LLP
Defenders and Respondents: McBrearty QC, Richardson QC; Clyde & Co.
10 April 2018
[336] I have had the considerable advantage of having read in draft the opinions of both
your Lordship in the chair and Lord Glennie. This should enable me to address the difficult
issues in this case with much greater brevity than would otherwise have been the case. I am
particularly grateful to your Lordship in the chair for your clear and accurate summary of
the contractual terms, the factual background, the evidence before the commercial judge and
the submissions before this court, which I adopt in its entirety.
Page 141 ⇓
141
[337] The power station and associated tunnels, and the headrace (HRT) and tailrace (TRT)
tunnels, were taken over by the employer on 18 December 2008. The defects date was stated
to be 104 weeks after completion date. By 12 April 2009 a catastrophic collapse had occurred
in a substantial section of the HRT, which resulted in the closure of the power station for a
protracted period, and significant and costly remedial works. The power station did not
begin to generate electricity again until August 2012.
[338] The collapse therefore occurred about four months after take over, and well before
the expiry of the defects period. In order to answer the question “Where does the risk for
the collapse lie?”, it is necessary to look in the first place to the terms of clause 80.1, which
specifies the Employer’s risks. The fourth main bullet point of this clause includes among
Employer’s risks:
“Loss of or damage to the parts of the works taken over by the Employer, except loss
or damage occurring before the issue of the Defects Certificate which is due to
a Defect which existed at take over.”
It follows that the collapse of a part of the HRT after take over by the Employer would be an
Employer’s risk unless it was due to a Defect which existed at take over.
[339] Clause 11.2(15) provides, as follows:
“A Defect is
a part of the works which is not in accordance with the Works Information or
a part of the works designed by the Contractor which is not in accordance
with
the applicable law or
the Contractor’s design which has been accepted by the Project Manager.”
The pursuers argue that the collapse of part of the HRT was due to a Defect which existed at
take over, under two limbs – (1) that this was a part of the works which was not in
accordance with the Works Information, and (2) that it was a part of the works designed by
Page 142 ⇓
142
the Contractor which was not in accordance with the Contractor’s design which had been
accepted by the Project Manager.
Limb one – not in accordance with the Works Information
[340] The HRT was a principal component of the civil works. The Works Information
provided (at para 6.3.2), under the heading “Design Life”, that it should provide reliable
service without requirement for major refurbishment or significant capital expenditure for
75 years. It collapsed after four months. The commercial judge found (at para [147]) that the
short answer to the question “Why did the tunnel collapse?” was that there was not enough
support: poor rock conditions coincided with insufficient shotcrete and rock bolts. The
commercial judge gave further detail at para [152]. The simple argument for the pursuers
was that this amounted to a Defect because it was a part of the works which was not in
accordance with the Works Information. There was no suggestion, either in evidence before
the commercial judge or in submissions to this court, that there was any intervening event
after take over which might have caused or contributed to the collapse. The Defect, namely
the non-conformity with the Works Information, must have existed at take over. The
collapse in the HRT is therefore excluded from the Employer’s risks in terms of clause 80.1,
and becomes a Contractor’s risk in terms of clause 81.1.
[341] I am persuaded that the pursuers’ analysis in this respect is correct, and that the
collapse of part of the HRT is indeed a Contractor’s risk. I have been hesitant to reach this
conclusion, partly because of the time spent in evidence and submissions before the
commercial judge, and in arguments before this court, on other issues and alternative
arguments. Can the point be as simple as this? I am mindful of Lord Glennie’s observation
that the question has to be asked, and must be answered, not in the real world but in the
Page 143 ⇓
143
world of contractual interpretation; and I am equally mindful of all the recent guidance as to
the correct approach to the interpretation of commercial contracts – eg Arnold v Britton
Insurance Services [2017] AC 1173, to name a few. However, I am not persuaded that the real
world and the world of contractual interpretation are always necessarily to be treated as
parallel universes. Where a contract provides that the principal components of a scheme
will provide reliable service without requirement for major refurbishment or significant
capital expenditure for 75 years, and one of those components suffers a catastrophic collapse
within about four months of take over requiring significant capital expenditure, the
application of the principles of contractual interpretation may result in the same answer as
might be given in the real world.
[342] I do not suggest that para 6.3.2 provided a warranty that the HRT would in fact last
for 75 years without major refurbishment or significant capital expenditure. The Employer
had the benefit of the 104 week defects period from take over to determine whether the HRT
did have a design life of 75 years. That, it seems to me, is consistent with the approach taken
by the UK Supreme Court in MT Højgaard v E.ON Climate & Renewables UK Robin Rigg East
[2017] UKSC 59. The assessment of whether the component had the requisite design life fell
to be made at the defects date, and did not require to be made before then. By that date, it
was abundantly clear that the HRT did not have a design life of 75 years, as it had already
suffered a catastrophic collapse.
[343] It is, I think, important that the assessment falls to be made at the defects date, and
not before. Your Lordship in the chair appears to rely (at paras [255] to [257]) on the general
consensus of the experts that, at the stage of design (or perhaps on the basis of what they
Page 144 ⇓
144
saw before take over, or on the basis of the ground conditions understood to exist at the time
of the design) that the design ought to have lasted for 75 years. That involves the exercise of
foresight and judgment in assessing what may occur in the future. In the present case, no
foresight is required; at the defects date one has the benefit of hindsight. The HRT had
clearly collapsed.
[344] Lord Glennie has given a fuller analysis of this limb of the pursuers’ argument; I find
myself in complete agreement with his analysis and conclusion on it. I agree that the loss or
damage to the works by virtue of the collapse of a portion of the HRT was at the
Contractor’s risk.
Limb two – not in accordance with the Contractor’s design which has been accepted by
the Project Manager
[345] It must be kept firmly in mind that in order to constitute a Defect under this limb
there must be a disconformity between the part of the works being considered and the
Contractor’s design which has been accepted by the Project Manager (emphasis added). I
am in complete agreement with your Lordship in the chair (at para [258] above) that the
Contractor’s design which was accepted by the Project Manager was the HRT RSM, which
included Table 11, and that what occurred in the HRT as the TBM progressed, with the
preparation of the REC sheets and mapping, was an exercise in the implementation of that
design. The distinction between “approval” by Mr Sandilands and “acceptance” for the
purpose of clause 21.2 is important.
[346] One of the hazards identified in Table 11 for the HRT was “erosion of erodible rock
during operation”. The Table assessed the level of risk before and after mitigation
measures. This hazard was assessed as having a risk rating of 9 and to be a high risk before
Page 145 ⇓
145
mitigation measures. The countermeasures specified to deal with the hazard were
“application of shotcrete if not already covered/’protected’ by steel rib support”. The risk
after the specified countermeasures had been implemented was reduced to 3, and was
assessed as being low. This was the relevant part of the Contractor’s design which was
approved by the Project Manager. It obliged the Contractor to apply shotcrete to erodible
rock if this was not already covered or protected by steel rib support. The Contractor did
not fulfil this obligation. The commercial judge found that the HRT collapsed because there
was not enough support: poor rock conditions coincided with insufficient shotcrete and rock
bolts (paras [147] and [152]). As your Lordship in the chair observes (at para [259]) it may be
assumed from the commercial judge’s findings that some erodible rock had not been
shotcreted.
[347] The question of whether the presence of the erodible rock ought to have been
detected by those operating the TBM, or by the geologists on site at the time of excavation, is
not in my view relevant at this stage. It may be relevant to the issue of Option M and
whether this affects the Contractor’s liability (on which see below), but it is not relevant to
the issue of whether a “limb two defect” existed. The Contractor’s design which had been
accepted by the Project Manager obliged the Contractor to apply shotcrete to erodible rock if
this was not already covered or protected by steel rib support, and it is clear from the risk
ratings in Table 11 that this was an important element of that design. It was not fulfilled.
The HRT as implemented was therefore a part of the works designed by the Contractor
which was not in accordance with the Contractor’s design which had been accepted by the
Project Manager. I agree with Lord Glennie that the pursuers have made out their limb two
argument, and that on this basis too the loss or damage to the works by virtue of the
collapse of a portion of the HRT was at the Contractor’s risk. I adopt Lord Glennie’s
Page 146 ⇓
146
reasoning in relation to limb two, and in particular his treatment of points (a) – (e) in
paragraph [166] of the commercial judge’s Opinion, set out at paragraphs [382] to [388] of
Lord Glennie’s Opinion.
Option M
[348] If Option M applies, it provides a limitation on the Contractor’s liability for Defects
in the works due to his design, so far as he proves that he used reasonable skill and care to
ensure that it complied with the Works Information.
[349] As discussed above, the cause of the collapse was found by the commercial judge to
have been insufficient shotcrete and rock bolts being provided where there were poor rock
conditions. This was part of the implementation of the design, not part of the design itself.
To this extent, I agree with your Lordship in the chair at paragraph [258]. However, your
Lordship goes on to express the view (at para [271]) that what Mr Taylor designated by way
of HRT support is properly classified as part of the Contractor’s design when considering
Option M. I do not agree with this. Option M is concerned with Defects – that is, Defects as
defined in clause 11.2(15). As discussed with regard to limb two above, it is important to
keep in mind that in order to constitute a Defect there must be a disconformity between the
part of the works being considered and the Contractor’s design which has been accepted by
the Project Manager. What Mr Taylor designated by way of HRT support was never
accepted by the Project Manager for the purpose of clause 21.2. Although Mr Sandilands
may have indicated his informal approval, this could not amount to formal acceptance for
this purpose. Anything arising from Mr Taylor’s designation by way of HRT support was
part of the implementation of the design, but it was not part of the design accepted by the
Project Manager. It was therefore not a Defect in the works due to the Contractor’s design
Page 147 ⇓
147
covered by Option M, and the limitation of liability provided by Option M does not apply to
it.
[350] The finding by the commercial judge that there was insufficient shotcrete and rock
bolts provided where there were poor rock conditions places the cause of the collapse as a
failure of implementation. Whilst this might be categorised as a “defect” in ordinary
parlance, it is not a Defect in the works due to the Contractor’s design, so Option M does not
apply.
Burden of proof
[351] I agree with everything that your Lordship in the chair says at paragraphs [273] to
[278] above. I have nothing to add, except to observe for completeness that the decision of
the Second Division in HBJ Claimants v Glasgow City Council 2017 SLT 1135, in so far as
relating to the burden of proof, depended on the particular circumstances of that case, in
which no expert evidence was led by the employers and the tribunal reached a conclusion
having complained that it did not have sufficient evidence to enable it to do so. In an
unusual case such as that, the burden of proof may remain of importance, but it is not of
significance in the present case. The fact that Mr Taylor did not give evidence was perhaps
surprising, and was significant, but there was sufficient evidence from other sources to
enable the facts to be determined in the absence of Mr Taylor’s evidence.
Reasonable skill and care
[352] On the view I have taken, it is not necessary to address the issue of reasonable skill
and care. However, I find myself in complete agreement with the views expressed by your
Lordship in the chair at paragraphs [279] to [295]. I agree that it is not possible to conclude
Page 148 ⇓
148
that the commercial judge erred in finding that the defenders did exercise reasonable skill
and care. However, for the reasons given above, I do not consider that this has any
relevance in determining the issues before this court.
Adequacy of reasons, and reliance on documents not spoken to
[353] I am in complete agreement with your Lordship in the chair in respect of each of
these chapters (paras [296] – [307] ).
Causation
[354] I regret that I disagree with the views expressed by your Lordship in the chair
regarding causation at paragraph [308]. The commercial judge dealt with causation shortly,
at paragraph [195] of his Opinion. His reasoning has some relevance to a claim based on a
failure to exercise reasonable skill and care, but I do not consider that it is applicable to a
situation where the collapse was due to a Defect which existed at take over, either under
limb one or limb two. I agree with Lord Glennie (at para [376]) that no causation point
arises in respect of a limb one defect, or, if it does, it is readily answered in favour of the
pursuers. With regard to limb two, I agree with Lord Glennie’s reasoning at
paragraph [390]. The cause of the collapse was the coincidence of poor rock conditions with
insufficient shotcrete and rock bolts. I consider that the pursuers’ pleadings were sufficient
to cover this, and I am not persuaded that their claim founders on the rock of causation.
Secondaries, clause 82.1 damages and expenses
[355] I am in complete agreement with everything that your Lordship in the chair says at
Page 149 ⇓
149
paragraphs [309] to [316], and there is nothing useful that I can add in relation to these
topics.
Cross Appeal
Joint insurance
[356] Both your Lordship in the chair and Lord Glennie reject the defenders’ cross appeal
on this point. I agree. I am persuaded by Lord Glennie’s careful reasoning on this point,
and for the reasons which he gives I consider that the joint insurance point does not assist
the defenders.
Breach of clause 82.1
[357] For the reasons which your Lordship in the Chair gives at paragraphs [321] to [323] I
agree that there is no merit in the defenders’ arguments in this regard.
Other matters
[358] I am in complete agreement with the views expressed by your Lordship in the chair
in relation to the remaining issues, namely the counterclaim (paras [324] – [327] ), repayment
of the second adjudicator’s award (para [328] ), low availability damages (para [329]),
quantum (and DAT) (at paras [330] – [332] ), and the operation of the scheme (paras [333/4]).
There is nothing that I wish to add in respect of any of these matters.
Conclusion
[359] For these reasons I consider that the reclaiming motion should be allowed and the
cross appeal refused. I see no reason to depart from the approach to quantification taken by
Page 150 ⇓
150
the commercial judge in his Note dated 31 January 2017. I would consider that an award
should be made in favour of the pursuers under four heads:
(1) £107,617,830.94 in respect of costs of the recovery project, as set out by the
commercial judge in para 6 – 8 of his Note;
(2) £1,000,000 by way of low availability damages;
(3) £32,357.98 in respect of part of the adjudicator’s award; and
(4) €388,720.27, also in respect of part of the adjudicator’s award.
For the reasons explained by the commercial judge at para 10 of his Note, interest should be
awarded at the rate of 4% per annum from the date of citation until the date of decree
pronounced by this court in respect of head 1, and thereafter at the rate of 8% until payment;
and at the rate of 4% from the date of citation until 2 February 2017 in respect of heads 2, 3
and 4, and thereafter at the rate of 8% until payment. I would reserve all questions of
expenses, both before the commercial judge and before this court.
Page 151 ⇓
151
FIRST DIVISION, INNER HOUSE, COURT OF SESSION
Lord President
Lord Menzies
Lord Glennie
[2018] CSIH 26
CA162/12
OPINION OF LORD GLENNIE
in the reclaiming motion of
SSE GENERATION LTD
Pursuers and Reclaimers
against
HOCHTIEF SOLUTIONS AG AND ANOTHER
Defenders and Respondents
Pursuers and Reclaimers: Moynihan QC, Barne QC; CMS Cameron McKenna Nabarro
Olswang LLP
Defenders and Respondents: McBrearty QC, Richardson QC; Clyde & Co.
10 April 2018
Introduction
[360] I am grateful to your Lordship in the chair for having set out so comprehensively the
facts, the evidence and the arguments pertaining to this Reclaiming Motion, as well as the
relevant contract terms. I readily adopt those parts of your Lordship’s Opinion.
[361] I find myself in agreement with your Lordship on most of the issues arising for
decision by this court. In particular I agree with your Lordship’s resolution of the issue
Page 152 ⇓
152
which was at the centre of the dispute between the parties, namely the impact of the
decision to include Option M. In the course of the hearing before this court both parties
presented their arguments on this issue on the premise that there was a potential conflict
between, on the one hand, a strict liability regime contained within clauses 43 and 46.4
(absolute obligation to correct defects notified or discovered by certain dates) and clause
82.1 (absolute obligation to replace or repair loss or damage to the works occurring before
the defects date); and, on the other, the proviso in Option M to the effect that the contractor
was not liable for Defects in the works due to his design if he could prove that he used
“reasonable skill and care” to ensure that his design complied with the Works Information.
As your Lordship demonstrates, there is no such conflict. The obligation to correct defects
(clauses 43 and 46.4) and the obligation to replace or repair loss or damage to the works
(clause 82.1), and in each case the obligation, in default of so doing, to pay the employer the
cost of him having done the work himself, is essentially a practical means of ensuring that
when defects are identified or loss or damage occurs they are immediately rectified by the
contractor and/or at his expense. The ultimate liability for such defects, loss and/or damage,
however, is determined in accordance with the allocation of risk under clauses 80.1 and 81.1;
and the effect of incorporating Option M is to convert the contractor’s liability for the
occurrences which are at his risk from one of strict liability to one which is qualified by
reference to a test of reasonable skill and care.
[362] However, I differ from your Lordship on the question whether the collapse of the
tunnel was due to a Defect which existed at takeover. I consider that the collapse of the
tunnel was indeed due to a Defect existing at takeover. Further, I consider that that Defect
was not due to the contractor’s design of the works but rather to the implementation of that
design. In those circumstances Option M is not engaged, and the defence of having used
Page 153 ⇓
153
reasonable skill and care to ensure that the design complied with the Works Information is
not available to the contractor. It follows from this, in my opinion, that the collapse of the
tunnel was a contractor’s risk in terms of section 81.1 of the contract; and the defenders are
liable to the pursuers for the costs of repairing the tunnel. On that basis I would allow the
reclaiming motion.
[363] In what follows I shall explain why I have come to that view. In addition I propose
to say a few words about the joint insurance point on which, though I agree on the outcome,
I differ from your Lordship’s reasoning.
The Defect Issue
[364] I start by putting the issue in some sort of context. The question whether the collapse
of the tunnel was due to a Defect arises because of the terms of section 8 of the contract,
“Risks and insurance”. Clause 80.1 defines “Employer’s risks” under a number of bullet
points and sub-bullet points. The reference to a Defect in this connection is in the fourth
main bullet point. Read short, with a focus on this particular part of the clause, clause 80.1
reads as follows:
“80.1 The Employer’s risks are
…
Loss of or damage to the parts of the works taken over by the Employer,
except loss or damage occurring before the issue of the Defects Certificate
which is due to
a Defect which existed at take over,
…”
Clause 81.1 deals with contractor’s risks and provides that from the start of the works until
the Defects Certificate has been issued, risks which are not carried by the employer are
carried by the contractor.
Page 154 ⇓
154
[365] The works, including the tunnel, were taken over by the pursuers in December 2008.
The take over certificate was issued on 18 December. The tunnel began to collapse shortly
thereafter, and finally collapsed within about six months of that date, that is to say some six
months into the period of about two years between take over and the issue of the Defects
Certificate. The collapse happened, and the loss or damage occurred, therefore, within the
period covered by that provision. And since no work had been done on the tunnel since it
was taken over by the pursuers, it must follow that whatever the problem was which caused
the tunnel to collapse, that problem already existed at take over, even though it took a few
months to become manifest and work itself out.
[366] But the question which has to be asked for the purposes of the fourth main bullet
point under clause 80.1 is this: was the collapse due to a “Defect”? If not, that part of clause
80.1, which acts by way of an exception to employer’s risk, is not engaged; and there would
be no doubt that the collapse was an employer’s risk event. At first blush, and in the real
world, to ask whether the collapse was due to a defect might sound like a silly question. If a
tunnel costing well over £100m and designed to last for 75 years or thereabouts collapses
within the first six months after hand over, there was obviously something wrong with it; it
was defective; there was a defect. How could there be any doubt about it? But the question
has to be asked, and must be answered, not in the real world, but in the world of contractual
interpretation; and, specifically, in the context of this contract, in which the term “Defect” is
a defined term.
[367] The definition of Defect is to be found in Section 1, “General”. Clause 11 sets out a
list of “Identified and defined terms” and gives their meanings. Defined terms are given
capital initials. “A Defect” is a defined term and its meaning is given in clause 11.2(15):
“(15) A Defect is
Page 155 ⇓
155
a part of the works which is not in accordance with the Works
Information or
a part of the works designed by the Contractor which is not in accordance
with
the applicable law or
the Contractor’s design which has been accepted by the Project
Manager.”
The first bullet point under this definition (“a part of the works which is not in accordance
with the Works Information”) was, for convenience, referred to in argument as a limb one
defect (or a first limb defect), while the second was referred to as a limb two (or second limb)
defect. It is convenient to adopt this terminology.
A limb one defect: 75 year design life?
[368] The contract comprises a number of documents listed in paragraph (1) of the Form of
Contract. In addition to the Form of Contract itself, and Schedule Part 1 (the “Contract
Data”, containing both the bespoke and incorporated numbered contract terms), those
documents include Schedule Part 3 (Works Information) and Schedule Part 7 (Works
Information for the Contractor’s design). Schedule Part 3 (Works Information) is the “Works
Information” referred to in the first main bullet point under clause 11.2(15). It may be that
Schedule Part 7 is also part of that “Works Information”, but nothing turns on this since I
agree with your Lordship (in para [253]) that nothing in Schedule Part 7 qualifies the
relevant part of the Works Information in Schedule Part 3. Schedule Part 3 (Works
Information) is divided into a number of sections. Within Section 1 (“General”), part 2
contains a general description of the works. Para 2.1 includes, among the employer’s
objectives for the development of the scheme, “reliable service without the requirement for
major refurbishment or significant capital expenditure within the design life of the scheme”.
Page 156 ⇓
156
Part 6 deals with “Contractor’s Design” and covers matters such as design responsibility,
design procedures and design development. Within para 6.3 (headed “Design Brief”), para
6.3.1 requires the contractor to design a hydro scheme with a minimum guaranteed
performance according to certain Performance Criteria detailed within the Contract Data,
while para 6.3.3 sets out the specifications to be followed in respect of plant, materials,
equipment and practices. Of particular relevance here is para 6.3.2, headed “Design Life”,
which provides as follows:
“6.3.2 DESIGN LIFE
The design life of the principal components associated with the scheme are detailed
below. The components provide reliable service without requirement for major
refurbishment or significant capital expenditure for a period of time as follows:
Plant
40 years
Civil Works
75 years”
It was not in dispute between the parties that the Head Race Tunnel (“HRT”) was one of the
principal components associated with the hydro scheme.
[369] It is convenient at this point to consider the meaning and effect of such a provision.
One question is whether it is to be read as a 75 year warranty for the Civil Works. That
question was discussed in MT Højgaard v E. ON Climate & Renewables UK Robin Rigg East
[2017] UKSC 59 which concerned a contractual requirement that wind turbines had a design
life of 20 years. As in the present case, there was a two-year period after hand over within
which the turbines could be inspected and defects detected. Lord Neuberger, with whom
the other Justices agreed, considered (at para 32) that it was unnecessary to decide whether
that requirement amounted to a warranty that the foundations would have a lifetime of 20
years. His preferred interpretation was that the 20 year design life requirement “did not
guarantee that the foundations would last 20 years without replacement, but that they had
Page 157 ⇓
157
been designed to last for 20 years without replacement” (see para 30). Such an
interpretation meant that the contractor complied with his obligations if he handed over the
works in such a condition; and the employer had the whole of the two year defects period
within which to determine whether the Works did in fact have a 20 year design life. Mr
Moynihan QC, for the pursuers, adopted that approach. He did not argue that para 6.3.2
imported a warranty or guarantee that the HRT would last 75 years without major
refurbishment or significant capital expenditure. But he did argue, consistently with the
approach in MT Højgaard, that para 6.3.2 was an assurance that the tunnel would be handed
over with a design life of 75 years. That assurance was self-evidently not satisfied, since
within the two year period after hand over the tunnel had completely collapsed.
[370] There is one further point to make in respect of para 6.3.2 of the Works Information
in Schedule Part 3. There appears to be no universally recognised definition of “design life”,
though a number of law and business dictionaries suggest that it refers to the period of time
during which the relevant part of the works (in this case the tunnel) can be expected to
function properly without major repairs. In the present case it is not necessary to search in
the abstract for a definition of design life, since para 6.3.2 provides its own definition:
(reading from the second sentence) the component (ie the tunnel) is to provide “reliable
service without requirement for major refurbishment or significant capital expenditure for a
period of time as [specified]”, ie for 75 years. This repeats the wording in para 2.1
(Employer’s Objective) quoted above. Although para 6.3.2 appears under the general
heading Design Brief, the requirement for a design life of 75 years is not concerned only
with elements of pure design; it cross refers to the broader requirement for reliable service
during that period. What the employer is entitled to expect under this provision is that at
hand over the tunnel will be designed and built to a standard where it can be expected that
Page 158 ⇓
158
it will provide reliable service for 75 years without requiring major refurbishment or
significant capital expenditure. It is not enough that, according to the preponderance of
expert evidence, the design was suitable for a tunnel expected to last without major
expenditure for that period, or that the tunnel “ought to have lasted for the 75 year period,
at least in the ground conditions then understood to exist and as set out in the relative
report” (adopting your Lordship’s summary of the position in para [255]). Implementation
of that design, having regard to the ground conditions actually encountered, is also directly
relevant. If it is discovered during the two year defects period before issue of the Defects
Certificate that the tunnel did not have a design life of 75 years, then that part of the works is
not in accordance with the Works Information and there is a Defect within the definition of
defect in clause 11.2(15).
[371] The pursuers’ argument is simple and attractive. The HRT, as built, did not have a
design life of 75 years. It did not even last six months. It was therefore not in accordance
with the Works Information of which paragraph 6.3.2 forms part. That is sufficient to
constitute a limb one Defect. I find that argument compelling.
[372] The commercial judge made no specific finding on whether there was a Defect
within the first limb of the definition in clause 11.2(15) of the contract. This was because he
proceeded on the basis that Option M “placed an important brake on liability”. With respect
to the commercial judge, this is to confuse two separate points. Option M only operates as a
brake on liability for Defects in the works due to the contractor’s design. Proof that the
contractor used reasonable skill and care does not mean that there is not a Defect; rather it
establishes that although there is a Defect, it is not one for which the contractor is liable. So
the question of whether or not there is a Defect has to be answered separately from the
Page 159 ⇓
159
subsequent question of whether it is one for which the contractor is excused liability because
he can show that he used reasonable skill and care.
[373] Fortunately, however, in his conclusions on why the tunnel collapsed (at paragraphs
[147] -[152]), the judge makes findings of fact which clearly establish, at least on balance of
probabilities, the cause of the collapse. At paragraph [147], the judge finds that the tunnel
collapsed “because there was not enough support: poor rock conditions coincided with
insufficient shotcrete and rockbolts”. At paragraph [152] the judge describes the most likely
mechanism of the collapse: weak rock deteriorated and lost its strength when submerged;
the flowing water washed out areas of erodible rock; the erosion progressed and opened up
larger seams; and, ultimately, the tunnel lost stability and collapsed. If, therefore, it is
necessary to make detailed findings as to what it was which caused the tunnel to collapse,
the judge’s explanation of the collapse as set out in those paragraphs provides all the
material needed to justify the conclusion that the problem was insufficient support
(shotcrete and/or rockbolts) in way of areas of poor rock conditions. (Those poor rock
conditions, or weak rock, are often described as “erodible rock”, a term which, as your
Lordship points out (at para [290]), did not require a definition but was generally
understood as a reference to a type of rock which was particularly susceptible to erosion on
contact with water.) But in truth, for the purposes of establishing a limb one Defect under
reference to the required 75 year Design Life (paragraph 6.3.2), in circumstances where the
tunnel collapsed within six months of hand over and without there having been some
intervening the event (after hand over) capable of damaging the integrity of the tunnel, it is
not necessary to do more than point to the fact of the collapse within that time and without
any other credible explanation.
Page 160 ⇓
160
[374] For those reasons, expressed perhaps at undue length, I have come to the conclusion
that the pursuers have made good their case that the cause of the collapse was a Defect
which existed at take over, in that a part of the Works, viz the HRT, was not in accordance
with the Works Information, viz the requirement for a tunnel with a design life of the 75
years. In those circumstances, and subject to Option M as discussed in the following
paragraph, the loss or damage to the works by virtue of the collapse of the tunnel was at the
contractor’s risk.
[375] It still remains to be considered whether the defenders are relieved from liability by
the terms of Option M, which provide that the contractor is not liable for Defects in the
works due to his design so far as he proves that he used reasonable skill and care to ensure
that it complied with the Works Information. I can, however, deal with this point briefly.
As your Lordship explains at paras [256]-[257] , on the judge’s findings there was no defect
in the design as such. The evidence does not support the contention that the tunnel, as
designed, should not have lasted the required 75 years. What appears to have gone wrong
was in the implementation of that design, probably in the failure to identify (at the rock face
in the tunnel) rock conditions requiring Class III and Class IV support, resulting, as the
judge found, in insufficient support being provided to areas of erodible rock. It is
unnecessary to ask whether that rock identification, or mis-identification, reflects a want of
reasonable skill and care – the judge has found that it did not, and I agree with your
Lordship that we cannot interfere with his findings of fact on this issue. But all that is
irrelevant unless the Defect was a Defect in design. It was not. The Defect was not one of
design but rather implementation of that design. It was that failure in implementation of the
design which resulted in the fact that the tunnel on hand over did not have a design life of
Page 161 ⇓
161
75 years. Option M therefore does not come into play at all. It does not relieve the
defenders from liability.
[376] I should briefly mention the question of causation. The judge dealt with it at para
[195] . He proceeds on the basis that the pursuers’ complaint was that the defenders had not
installed at least Class III support in the areas of erodible rock. He finds, on the evidence,
that only Class IV would have prevented the collapse. I come back to consider this (below)
in connection with the limb two Defect, but this line of reasoning has no application to the
limb one Defect, viz failure to provide the Works with a tunnel which met the requirement
for a 75 year Design Life. Had it met that requirement, it obviously would not have
collapsed within six months of hand over. No causation point arises in respect of this
category of Defect; or, if it does, it is readily answered in favour of the pursuers.
A limb two defect: part of the works not in accordance with Contractor’s accepted design?
[377] Your Lordship deals with this point at paras [258]-[262]. I entirely agree with your
Lordship that the contractor’s design “accepted” by the project manager was the HRT RSM,
which included Table 11. What happened thereafter in the tunnel was, as your Lordship
describes it, “an exercise in the implementation of that design”. Accordingly, for present
purposes, the question to be asked is whether part of the works (these being works which
were designed by the contractor) were not in accordance with the contractor’s design as set
out in the HRT RSM, including Table 11.
[378] A copy of Table 11 is helpfully attached as Appendix 3 to your Lordship’s Opinion.
It is not, therefore, necessary to set out its terms in any great detail here. The structure of the
Table is to identify hazards likely to be encountered in the HRT; to assess the severity of the
risk associated with such hazards before mitigation measures are taken; to identify
Page 162 ⇓
162
appropriate “countermeasures”; and to re-assess the risk on the assumption that such
countermeasures have been taken. One of the hazards identified, at the bottom of the Table,
is “erosion of erodible rock during operation”. That risk was assessed with a risk rating
score of 9, representing a risk at the top end of a band (coloured in yellow) described as
“high risk”. The countermeasures identified to deal with that risk were: “application of
shotcrete if not already covered/ ‘protected’ by steel rib support”. On the assumption that
such countermeasures would be taken, the risk was reassessed as “low” (coloured in green).
[379] As your Lordship accepts (at para [259]), it may be assumed from the findings of the
judge that some erodible rock had not been shotcreted. Whether this was because certain
sections of rock were not identified as being erodible when in fact they were, or whether it
was because a decision was taken on inspection in the tunnel that shotcreting was not
necessary at that particular point, is of no consequence in my opinion. I should not be taken
as concurring in your Lordship’s understanding (expressed in that same paragraph) that
rock only became erodible after its initial deterioration. If that were the position, it would
mean that no erodible rock as such was ever exposed in the tunnel during the course of
construction, a proposition which I do not understand to be established either from the
evidence or from the findings made by the judge. The encouragement (whether mandatory
or otherwise) in Table 11 to protect erodible rock during construction by shotcreting or steel
support would be meaningless if erodible rock did not yet exist, or, if it did, was neither
visible nor detectable during the course of construction. It is safe, in my opinion, to proceed
upon the assumption that erodible rock existed and was detectable in the area of the
subsequent collapse and was, for whatever reason, not shotcreted or supported in any other
way.
Page 163 ⇓
163
[380] On this basis, the question is whether the absence of shotcrete or other support in
areas of erodible rock was in accordance with the HRT RSM, and more particularly Table 11,
that being the relevant part of the contractor’s design accepted by the project manager. That
is a question of fact to which, in my opinion, there can be only one answer: No.
[381] In my opinion the question does not ultimately turn on whether there was a
“mandatory requirement to shotcrete every area of erodible rock, however unimportant the
area might have seemed to an experienced geological engineer on site” to use your
Lordship’s formulation in para [260]. That would be the correct test if the question was
whether the defenders were in breach of contract by failing to shotcrete particular sections of
erodible rock within the tunnel. But the question here is a subtly different one, relating not
to breach but to the allocation of risk. All that has to be asked for this purpose is whether
there was a Defect as defined in section 11.2(15); and that turns on the question of whether
the works as carried out were or were not “in accordance with” the accepted design. If they
were not in accordance with that accepted design, because of the absence of shotcreting or
other support in way of erodible rock, then there was a Defect as defined in section 11.2(15)
and the works were in that respect at the contractor’s risk.
[382] At para [166] of his Opinion, the judge identified what he described as “formidable
difficulties” with the pursuers’ approach to this question. I shall deal with them in turn
(only the first five are still relevant).
[383] The first point made by the judge was that this provision in Table 11 ran counter to
the overwhelming weight of the other contractual provisions which call for the exercise of
engineering judgement in the tunnel. That seems to me, with respect, to merge the design
stage with that of implementation of the design. The design had been agreed and accepted:
erodible rock was to be shotcreted if not otherwise protected. The implementation stage
Page 164 ⇓
164
required the exercise of engineering judgement in identifying which rock was erodible and
required to be dealt with in this way. The fact that engineering judgement was to be applied
at that implementation stage does not detract at all from the fact that the design itself, as
agreed and accepted, specified what measures were to be taken to minimise the risk from
the presence of erodible rock.
[384] I should add, since the point was pressed hard in argument by Mr McBrearty QC for
the defenders, that I see little force in the argument that this was but one isolated provision
in a technical document. It was in fact the provision which identified what steps were to be
taken if erodible rock was encountered. But even if it were but one isolated provision, that
would not mean that it would fall to be disregarded. It was part of the accepted design. A
similar argument was raised and rejected in MT Højgaard at para 49.
[385] The judge’s second point was that the term “erodible rock” was vague and required
interpretation at the face. So be it. There would be a need at the face during the course of
construction to identify erodible rock, but this was all part of the process of implementing
the accepted design. Erodible rock, once identified during the course of this process, ought
to have been shotcreted in accordance with Table 11.
[386] Thirdly, the judge thought that if the pursuers’ argument was correct then
determination of the “overall excavation class” on the REC sheet should have been a
mechanistic process depending upon the worst feature ticked. This may be correct, but the
REC sheets, both in their design and use, were devised as part of the implementation of the
accepted design and were subservient to it.
[387] Fourth, the judge thought that if the argument was correct then the pursuers would
have had to pay for a far greater level of support than that which was actually installed.
That may be right, but so what? They had agreed and, through the project manager,
Page 165 ⇓
165
accepted the design which, in Table 11, required a specified level of protection to be given to
erodible rock. That was something which would have to be paid for. Better to pay for the
appropriate level of support than to risk a collapse within the tunnel.
[388] Fifthly, the judge commented that, if the pursuers were correct, it would not have
been possible to have an unlined tunnel in similar geology – the classification would
inevitably have resulted in a lined tunnel. That is not entirely correct. There might well
have been a requirement for a section of the tunnel to be fully or substantially lined, but this
would only apply to that part of the tunnel passing through the CFZ. There is no reason to
suppose that other stretches of the tunnel, both upstream and downstream, would have had
to be fully lined. They were not in fact fully lined and the issue about “Secondaries”, dealt
with by your Lordship at paras [309]-[310], would seem to suggest that this was not in fact a
problem.
[389] For these reasons I am persuaded that the pursuers have made out the case that there
was a Defect under this head. The absence of shotcreting or other protection in areas of
erodible rock meant that that part of the works was not in accordance with the contractor’s
design accepted by the project manager. The Defect was not one of design; rather it was in
implementing the design agreed between the parties and accepted by the project manager.
[390] This leads on, again, to the question of causation. The judge makes a finding, at para
[195] , that Class III support (ie full circumference shotcrete) would not have been enough to
avoid the collapse; only Class IV support (increased shotcrete, together with steel arches)
would have prevented it. On that basis he concludes that the pursuers have failed to
establish that this Defect was causative of the collapse. There is, to my mind, a problem
with this line of reasoning. It appears to proceed on the assumption that all that was
required by the pursuers was Class III support. But this is not correct. In the first sentence
Page 166 ⇓
166
of that paragraph the judge identifies the pursuers’ case as being that the defenders should
have installed “at least class III support” (emphasis added). In an earlier paragraph (para
[165] ) the judge identifies the pursuers’ case as being that the defenders “should have
installed class III or IV support wherever it found erodible rock”. Although the pleadings
are opaque on this point, it appears that the judge did not understand the pursuers’ case to
be limited to the use of Class III. Nor did Table 11 confine itself in this way; it required
shotcreting “if not already covered/ ‘protected’ by steel rib support” (ie Classes III and IV as
appropriate). There is no reason to suppose that if the erodible rock had been treated in this
way the collapse would not have been avoided. There is certainly no finding to this effect
by the judge. In my opinion the causation point should be answered in favour of the
pursuers.
Conclusion on Defects
[391] For the reasons set out above, I consider that the pursuers have established their case
on Defects under both limbs. Neither being a Defect in design, Option M has no application.
It follows that in terms of clause 80.1 and 81.1 the collapse was at the defenders’ risk and
they are liable for the cost of repairs.
The joint insurance issue
[392] At paras [317]-[320] your Lordship in the chair in effect adopts the reasoning of the
judge on the joint insurance issue and rejects the defenders’ cross appeal on this point.
Although I concur in rejecting the cross appeal on this point, I differ from Your Lordship as
to the reasons for doing so; and, since the point is of some importance, I should explain my
reasons.
Page 167 ⇓
167
[393] As your Lordship notes in para [317], the defenders were obliged in terms of clause
84 to provide insurance in the joint names of the parties in respect of (amongst other things)
loss of or damage to the works caused by events which were at their risk prior to the issue of
the defects certificate. The defects certificate is issued at the defects date (104 weeks after
completion of the works) or at the end of the last defects correction period, whichever is
later (clause 43). Accordingly, damage to the tunnel as a result of the collapse, which
occurred within six months or so after completion, would fall within this category,
provided, of course, that the cause of the collapse was at the defender’s risk. The allocation
of risk is dealt with in clauses 80.1 and 81.1. So far as material to the present issue, once the
works had been taken over by the pursuers (which they had been), they were at the
pursuers’ risk unless, among other things, the loss or damage occurred before the issue of
the defects certificate and was due to a defect existing at take over; in which case they were
at the defenders’ risk. In respect of loss of or damage to the works (ie the tunnel), the
insurance cover was to be for the full replacement cost.
[394] Clause 85 required the insurance policy taken out by the defenders to include a
waiver of the insurer’s rights of subrogation against the insured’s employees. Although this
provision did not itself stipulate for the policy to contain a waiver of subrogation in claims
against the insured themselves, the policy in fact taken out by the defenders, and
presumably accepted by the Project Manager on behalf of the pursuers (clause 85.1), did in
fact contain such a waiver of subrogation rights against the insured.
[395] In terms of clause 83.1, each party agreed to indemnify the other against claims,
proceedings, compensation and costs due to an event which was at that party’s risk.
[396] Since the insurance required to be taken out under clause 84 was only to cover loss
and damage due to events which were at the defenders’ risk, the defenders’ argument has to
Page 168 ⇓
168
assume, contrary to their primary case, that the tunnel collapse was indeed due to an event
which was at their risk. On that hypothesis, their argument is straightforward. Where
parties have agreed to enter into a joint insurance in respect of risks of loss and damage to
the works, in the event of such loss or damage they must look to the insurance policy for
redress and cannot bring claims against one another in respect of that damage. They rely on
a long line of English cases, culminating in the judgments in the House of Lords and the
United Kingdom Supreme Court in CRS and the Ocean Victory respectively, to the effect that
the existence of a joint insurance provision normally gives rise to an implied term to that
effect.
[397] The matter was argued at debate on the basis of the parties’ pleaded cases. It
appears at that stage (though no such distinction was drawn in the argument before this
court) to have been accepted on behalf of the defenders that the joint insurance argument
did not respond to the claim brought by the pursuers under the Defects provisions in
clauses 43 and 46.4, and (possibly) did not respond to the claim under clause 82.1: see paras
joint insurance did preclude a claim by the pursuers for an indemnity under clause 83.1.
The judge rejected that argument. He held, in short, that an implied term of the sort
contended for would render clause 83.1 redundant (paras [81]-[82]); he pointed to the
absence from the contract of a requirement for a waiver of subrogation rights in respect of
the parties themselves (para [83]); and he attached importance to the terms of clause 85.4
which provided that amounts not recovered from the insurer should be borne by the parties
according to where the risk lay (para [84]). In summary, he held (para [87]) that an implied
term of the sort contended for by the defenders was not necessary for the purposes of
business efficacy and would do violence to the language selected by the parties; there was
Page 169 ⇓
169
no irrebuttable presumption that parties had no liability to one another simply because a
joint names policy is in place and to hold otherwise would be “to merge the law of insurance
with the law of contractual interpretation”.
[398] As the judge recognised at para [79], the thrust of the authorities is strongly in favour
of joint names insurance displacing contractual liability. That is confirmed by the judgments
of the Supreme Court in the Ocean Victory, which was decided after the judge reached his
decision in this case. Although none of the relevant cases are Scottish, and the observations
of the various judges on this point are all obiter, I agree with your Lordship in the chair that
the reasoning on this point is compelling and of high authority and should be followed in
Scotland.
[399] Although, as already observed, the judge noted that the thrust of the authorities is
strongly in favour of joint names insurance displacing contractual liability, it is nonetheless
worth pausing to note the reasons for this and the strength of that presumption. The Ocean
Victory involved an appeal by hull insurers (as assignees of claims by owners and demise
charterers) against a finding by the Court of Appeal that time charterers were not in breach
of a safe port warranty in the charter party. That appeal was dismissed unanimously by the
Supreme Court. However the members of the court also expressed views on the effect of a
provision in the demise charter for joint insurance. On this point they were divided.
[400] Lord Toulson (with whom Lords Mance and Hodge agreed) categorised the question
of whether the contractual scheme precluded a claim for the insured loss as one of
construction (para 139). He continued:
“The question in each case is whether the parties are to be taken to have intended to
create an insurance fund which would be the sole avenue for making good the
relevant loss or damage, or whether the existence of the fund co-exists with an
independent right of action for breach of a term of the contract which has caused that
loss.”
Page 170 ⇓
170
He relied (at para 140) upon the decision in CRS for the proposition that:
“… it cannot have been the parties’ intention that parties who were jointly insured
under a contractor’s all risks policy could make claims against one another in respect
of damage covered by the insurance, or that the insurers could make a subrogated
claim … and that the court would if necessary hold that there was an implied term to
such effect…”.
Lord Toulson approved the reasoning of Mr Recorder Jackson QC in Hopewell Project
Management v Ewbank Preece [1998] 1 Lloyd’s Rep 448 at 458, noting that such an implied
term presupposed that the party relying on it had not prevented recovery under the policy.
The insurance arrangements provided not only a fund but also a term for the avoidance of
commercially unnecessary and undesirable disputes (para 144).
[401] Lord Mance made additional observations (at para 114) to the effect that the
principle was best viewed as resting on the “natural interpretation of or implication from the
contractual arrangements giving rise to such co-insurance”, citing Lord Bingham in CRS at
para 7. He thought it “inconceivable” (para 119), that:
“… anyone contemplated that the co-insurance to be arranged could give rise to
successive payments of the same sum to different parties, with the second of such
payments going to reimburse insurers for the first”.
He concluded (at para 122) that the reason why there was no claim against the party in
default was not that such a claim existed but was discharged by receipt of payment from the
insurers, but rather that:
“… under a co-insurance scheme like the present, it is understood implicitly that
there will be no such claim.”
[402] Lord Sumption, with whom Lord Clarke agreed on this point, took the same view on
this general principle. He explained (at para 98) that in the case of joint insurance, or
insurance taken out pursuant to a term of the contract for the benefit of one of the parties
Page 171 ⇓
171
thereto, the collateral benefits rule (often expressed in the maxim that insurance is res inter
alios acta or, loosely translated, none of his business) had no application since the insurance
“manifestly is the wrongdoer’s business”. He expressed the general principle in this way (at
para 99):
“It is well established, and common ground between the present parties, that where
it is agreed that the insurance shall inure to the benefit of both parties to the contract,
they cannot claim against each other in respect of an insured loss. Co-insurance is
the paradigm case. … What is less clear is its juridical basis. … The better view,
which was endorsed by the House of Lords in [CRS], paras 61-65 (Lord Hope of
Craighead), is that it is an implied term of the contract of insurance and/or of the
underlying contract between the co-insureds pursuant to which their interests were
insured. The implication is necessary because if the co-insureds are both insured
against the relevant loss, the possibility of claims between them is financially
irrelevant. It would be absurd for the insurer to bring a subrogated claim against a
co-insured whom he would be liable to indemnify against having to meet it. …”
Thus far there is no difference between what he says and the views of the majority.
[403] What is important for present purposes, and this is the reason for citing these
passages, is to note the strength of the presumption. Words such as “inconceivable” and
“absurd” suggest the need for powerful contra-indicators if such a term excluding
contractual liability is not to be implied.
[404] I should mention at this point that Lord Sumption went on (in para 100) to raise a
different question directed to identifying the basis for the rule. He said this:
“When we say that one co-insured cannot claim damages against another for an
insured loss, is that because the liability to pay damages is excluded by the terms of
the contract, or is it because as between the co-insureds the insurer’s payment makes
good any loss and thereby satisfies any liability to pay damages?”
He went on to give an illustration of why that point might be significant. He concluded that
the correct analysis would depend upon the particular terms of the particular contract and
that the answer would not necessarily be the same in every case. In the course of argument
in this case the court was told that there was here a significant shortfall between the amount
Page 172 ⇓
172
of the insurance proceeds payable under the policy and the actual cost of the repairs to the
tunnel. This case may therefore provide an illustration of a situation in which the question
raised by Lord Sumption might be critical. It may also illustrate the need to consider what
other qualifications there might be to the general principle adumbrated in the decided cases:
for example, what is the position if, through the fault or neglect of one or other party, the
insurance is not taken out in the terms agreed in the contract; or if insurers are entitled to
avoid liability; or if the agreed insurance proves inadequate to cover the amount of the loss?
However, there are no pleadings on this matter, nor was any evidence led on it; and neither
side sought to develop the argument in any detail. In those circumstances it would not be
appropriate for this court to enter into a detailed discussion of this point and it is, in any
event, unnecessary to do so since the joint insurance point can be disposed of on other
grounds.
[405] For present purposes, what is important is the recognition that the general principle
exists and is based upon the proper construction of the contractual arrangements between
the parties or an implied term thereof; the difference is one of expression only and is
immaterial. It should be noted that the principle does not depend, as was thought at one
time, upon any consideration of circuity of action; and, since it does not depend upon
considerations of circuity, it must in my view now be recognised that the question whether
the contractual documents or the policy of insurance contains a waiver of rights of
subrogation is irrelevant to its existence.
[406] The judge accepted the existence of the principle that joint names insurance generally
displaced contractual liability but recognised, correctly, that whether it applied in the
present case depended upon the terms of this particular contract. He considered that it did
not apply for the reasons summarised above. I differ from the judge on this point.
Page 173 ⇓
173
[407] The first of the reasons given by the judge was that, so he thought, the implication of
such a term ran counter to clause 83.1 and would effectively render clause 83.1 redundant. I
find this difficult to understand, since clause 83.1 extends well beyond loss and damage of
the types covered by the insurance clause (clause 84); provides for mutual indemnities
whereas the insurance clause is concerned only with loss and damage occurring as a result
of events at the defenders’ risk; and is not time restricted to the same extent as the insurance
clause.
[408] Secondly, the judge relied upon the absence in clause 85 of any waiver of
subrogation rights as against the other party to the contract; but as he himself had made
clear (in paras [20]-[21]), the policy itself, which was entered into as a matter of agreement
between the parties, did contain such a waiver of subrogation rights. And further, as I have
sought to explain, the existence or otherwise of a waiver of subrogation rights is irrelevant to
the application of the principle now that it is recognised that it arises as an implied term of
the contract rather than out of the need to avoid circuity of action.
[409] As to the judge’s third point, namely that under clause 85.4 it is provided that the
amounts not recovered from insurers shall be borne by the parties in accordance with the
allocation of risk under the contract, there is scope for the application of that provision in
respect of items such as deductibles; it is not a pointer against implication of the joint
insurance term. It is possible too that that clause would be apt to cover a situation such as
that contemplated by Lord Sumption in the passage referred to, where the insurance does
not for whatever reason answer to the full amount of the claim, but this does not detract
from the general presumption as to the existence of the implied term; and, in any event,
there are no averments (and there has not been any evidence) as to amounts not recovered
from the insurers on which clause 85.4 would bite.
Page 174 ⇓
174
[410] In my opinion, none of these three factors relied on by the judge, taken individually
or together, point to an intention to exclude the implied term to the effect that joint names
insurance excludes contractual liability.
[411] Accordingly, there is in my view force in the defenders’ argument that had the claim
been brought simply on the basis of a claim for damages for breach of contract leading to the
collapse of the tunnel and/or on the basis of a claim for an indemnity pursuant to clause
83.1, it could have been met by the defenders by relying upon the implied term identified in
the cases arising from the agreement between the parties to effect insurance in joint names.
[412] However, this does not assist the defenders in the present case. The claim advanced
under clause 43.1 and 46.4 is in respect of the failure by the defenders to correct Defects
and/or, in default of so doing, to pay the pursuers the costs of carrying out the work
themselves. Similarly, the claim under clause 82.1 is in respect of a failure by the defenders
to replace and repair loss and damage to the works. These are claims for failure to comply
with specific provisions requiring the defenders to carry out repair or reinstatement works
similar to those discussed by Lords Hope and Rodger on a hypothetical basis in CRS (at
paras 49 and 71 respectively). The implied term arising from the provision for joint
insurance would not prevent the pursuers succeeding in these claims for the simple reason
that the joint insurance required to be taken out pursuant to clause 84 was insurance against
loss or damage to the works and did not cover breach of contract by the defenders in failing
to carry out specific obligations under the contract. Had the defenders in fact corrected the
defects in accordance with clause 43.1 or, as the judge correctly found that they ought to
have done, replaced and repaired the damage to the works in accordance with clause 82.1,
or had they paid the pursuers the cost of carrying out such work in default of doing it
themselves, they might have sought to recover their costs of so doing from the pursuers
Page 175 ⇓
175
pursuant to clause 83.1. But that would have been on the basis that, as they would have had
to contend, the relevant risk lay with the pursuers – and that would not have been covered
by the joint insurance which only answers to events at the defenders’ risk.
[413] For these reasons I consider that the joint insurance point does not assist the
defenders and, albeit for different reasons, I too would dismiss the cross-appeal on this
point.
Disposal
[414] In my opinion the reclaiming motion should be allowed on what I have called the
Defect Issue and the cross-appeal refused.
[415] So far as concerns the consequences of this, the judge dealt with the financial
consequences in his Note of 31 January 2017. He indicated that if, contrary to his own view,
the defenders were liable for the collapse of the tunnel because that collapse was a
contractor’s risk event, then he would have awarded the pursuers the sum of
£107,617,830.94 in respect of the cost of the recovery project: see paras 6-8 of that Note. I see
no reason to depart from this assessment. I would award interest on this sum on the same
basis as the judge, namely at the rate of 4% per annum from the date of citation until the date
of the decree pronounced by this court, and thereafter at the rate of 8% until payment. That
sum is in addition to the £1,000,000 awarded by the judge as low availability damages and
the sums of €388,720.27 and £32,357.98 paid by the pursuers under the second adjudicator’s
award which the judge held to be recoverable by them: see paras (1) and (2) of the
interlocutor dated 2 February 2017. On those sums I would award interest at the rate of 4%
per annum from the date of citation until 2 February, being the date of the decree
pronounced by the judge, and thereafter at the rate of 8% until payment.
Page 176 ⇓
176
[416] I would reserve all questions of expenses. Although the appeal on the expenses
point (as a discrete point) is to be refused, if the appeal on the Defect Issue succeeds then
expenses both in this court and before the judge will be at large.