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Cite as: [1998] EWHC Technology 339

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Norwest Holst Construction Ltd v. Co-Operative Wholesale Society Ltd [1998] EWHC Technology 339 (17th February, 1998)

In The High Court of Justice Official Referees' Business

Before: His Honour Judge Thornton Q.C.

Between

Norwest Holst Construction Limited Applicant

and

Co-Operative Wholesale Society Limited Respondent

Case numbers: 1997 ORB 466-468 (inc)

Date of Hearing: 23rd December 1997

Date of Judgment: 17th February 1998

Mr. Bruce Mauleverer Q.C. and Mr. Marc Rowlands for the Applicant (Solicitor Fenwick Elliott, 353 Strand, London, WC2R OHS (Ref:PD/SH/aw[NORWSKEL]))
Mr. Michael Black for the Respondent (Solicitor Kershaw Abbott, Queen's Chambers, 5 Dalton Street, Manchester, M2 6FT (Ref: AK/PH/6910))

1. These applications were appeals from two awards of an arbitrator brought with the consent of both parties.

2. This judgment is concerned with 9 discrete appeals arising out of a building contract. The subject matter of each is set out in the appropriate section of the judgment.

3. The applications were dismissed with costs to be taxed and paid by the applicant.

4. The text of the judgment approved by His Honour Judge Thornton Q.C. is as follows:

 

INDEX - JUDGMENT NO. 2

SECTION TOPIC PARAGRAPH PAGES

 

PART A. INTRODUCTION

1 Introduction 229 - 256 3 - 13

PART B. REMEASUREMENT TOPICS

2 Electrical Remeasurement 257 - 310 13 - 34

PART C. DELAY AND LIQUIDATED DAMAGES

3 Delay Caused By CWS' Subcontractors 311 - 333 34 - 44

PART D. LOSS AND EXPENSE

4 Head Office Overheads 334 - 367 44 - 60

5 Plant Hire Charges 368 - 380 60 - 64

PART E. RETENTION AND DISCOUNT

6 Retention 381 - 396 64 - 69

7 Discount 397 - 415 69 - 76

PART F. CWS' CROSS-APPEALS

8 Loss And Expense 416 - 421 76 - 77

9 3-Weeks 422 - 429 77 - 80

10 Interest 430 - 440 80 - 82

PART G. CONCLUSION

11 Conclusion 441 83

SCHEDULE 4

 

JUDGMENT NO. 2

PART A. Introduction

1. Introduction

1.1 The Appeals

239. Following the handing down of Judgment no. 1 in this complex series of applications seeking judicial intervention in respect of the final award of the arbitrator in the arbitration between Co-Operative Wholesale Society Limited ("CWS"), the claimant in the arbitration and the respondent to this series of appeals, and Norwest Holst Construction Limited ("NHC"), the respondent in the arbitration and the appellant to this series of appeals, I heard the appeals brought by both NHC and CWS on 22nd December 1997. NHC did not pursue three of its grounds of appeal. CWS did not pursue one of its grounds of appeal. After the original originating motion setting out CWS' grounds of appeal had been issued, the arbitrator published a further award, as to interest, dated 27th October 1997. This award has led to a further ground of appeal by CWS, set out in a second notice of motion issued on 12th November 1997. This ground of appeal was not considered at all in Judgment no. 1. All eight grounds of appeal were argued at the hearing and are the subject of this judgment. Since this judgment and judgment no. 1 are so closely connected with each other, the two are to be read together and the paragraphs of this are numbered consecutively to those of the earlier judgment.

1.2 The Wording of the Questions of Law

240. In schedule 2 to Judgment no. 1, I set out a proposed formulation of the questions of law that arose in these appeals. This was a draft since the parties had neither undertaken this exercise themselves nor had they seen my formulation before receiving the judgment. My formulation was, with one minor proposed amendment, accepted by CWS but NHC has now put forward a proposed list of the questions of law it alleges arise from the grounds of appeal which are substantially differently worded from my wording. CWS contended at the hearing that, so far as some of the proposed questions of law formulated by NHC were concerned, they covered questions that went beyond the scope of the grounds of appeal. Although I initially expressed concern to Mr. Bruce Mauleverer Q.C., counsel for NHC, that there had been such a substantial redrafting of the questions of law, I subsequently realised that I had not accurately expressed some of the questions that were being argued by NHC and that it was preferable for a party to identify itself the questions of law it contended it was seeking to argue which were contended to arise out of the award. The parties have consented to any question of law arising out of the award being argued on appeal under section 1(3)(a) of the Arbitration Act 1979 and, in the first instance, it is for them to seek to define those questions. I have therefore accepted NHC's proposed draft of each question as my starting point but I have modified the wording whenever I have reached the conclusion, in the light of the arguments addressed at the hearing, that my wording more accurately reflects the question being argued. For several of the questions that were argued, it has been necessary for me to determine whether the nature of the question is such as to enable it to be argued as a question of law under section 1(3)(a) or whether, instead, I have no jurisdiction to consider the question since it raises a question of fact. I deal with the relevant arguments for and against my having jurisdiction and with the relevant authorities concerned with the law-fact dichotomy at the appropriate parts of this judgment where jurisdictional issues arise.

1.3 Is the Question "Was There Any Evidence to Support a Finding of Fact?" a Question of Law?

1.3.1 The Question Explained

241. There has always been difficulty in identifying what is and what is not a question of law. The problem of identification arises in an acute form when a party wishes to challenge findings of fact, whether they be primary findings or inferences from primary findings, or else wishes to challenge a finding of mixed law and fact and needs to undermine the factual content of such a finding if the overall challenge is to get off the ground. In some of the questions of law raised in this appeal, both parties seek to challenge findings of fact on at least one of these grounds.

242. Under the law and practice governing arbitral challenge prior to the introduction of the Arbitration Act 1979, when challenges had to be brought as part of the case stated procedure, a question of law included a question as to whether there was any evidence to support a particular finding of fact. Since an arbitrator could only state a case on a question of law, it might have been regarded as settled that the same question could be answered by the court under the procedure which replaced the stated case, namely an appeal on a question of law. However, doubt has been thrown on that by the judgments of the members of the Court of Appeal in The "Baleares". In that case, claimants in an arbitration claimed damages arising out of the late delivery of The "Baleares" which was being chartered on a voyage charter to carry propane which the charterers had contracted to buy at a certain price so long as they presented a vessel for loading by the due date. The charterers cancelled due to the owner's default and were awarded damages which were calculated on the basis of the additional price per tonne they had to pay their suppliers. The arbitrators' finding was to the effect that the market had risen by this sum from the price contracted for. The rise was caused by there being a restricted market for propane which had responded to the late delivery by rising rapidly. This rise was the loss that had occurred. The appeal was presented on the basis that on that finding, no loss had been established since, if the purchase price had risen, so must have the selling price and the charterers' loss in purchasing the cargo would have been off-set by their gain on reselling it. This argument was rejected by the Court of Appeal who reinstated the award, following a successful appeal to the judge from that award.

243. As Steyn L.J. saw the owners' case on appeal, the owners had raised the question of whether or not there was any evidence to support the finding of fact that there had been a loss. This argument was put forward with "little enthusiasm" but was never "formally abandoned". In those circumstances, Steyn L.J. considered whether it was still possible for an appellant to contend that an argument that there was no evidence to support a finding of fact was a question of law that can be raised on an appeal under section 1 of the Arbitration Act 1979 and concluded that it was not possible. However, Neill L.J., in a judgment with which Ralph Gibson L.J. agreed, concluded that the owners accepted the finding of fact that the charterers had suffered a loss and did not reach any conclusion as to whether or not a question of law included a question of whether there was any evidence to support a finding of fact. Neill L.J. concluded his judgment by making it clear that although he was impressed with the argument that it was inconsistent with the thrust and purpose of the 1979 Act to review an arbitrator's findings of fact where the object was to establish that there was no evidence to support the finding, he was not able, without further argument, to reach a final conclusion on the point. Thus, both because the argument that there was no evidence to support the relevant finding of fact was not in issue on the hearing of the appeal and because the majority of the court declined to reach a conclusion on the question, I accept NHC's contention that Steyn L.J.'s views on the jurisdictional question of the ambit of a question of law under section 1 of the 1979 Act were obiter. These views do, however, have considerable weight given both their provenance and their content.

244. Since I must decide whether or not the relevant questions are questions of law, I must reach a conclusion as to whether or not Steyn L.J.'s views represent the law and should be applied to the grounds of appeal that I am concerned with. Before doing so, I should first explore in more detail what is involved in a contention that there was no evidence to support a finding of fact. On careful analysis, such a contention can arise in several different ways. The different ways such a contention can arise are helpfully analysed in Mustill & Boyd's Commercial Arbitration, an extract from which is worth setting out verbatim:

"It is convenient to discuss the principles involved by reference to four examples:

(a) The arbitrator decides on the true construction of the contract, in the light of any relevant statute or rule of law, that upon the happening of a particular event a party was obliged to give notice thereof to the other party, in such a manner that it reached him in a reasonable time.

(b) The arbitrator decides, in the light of the oral evidence, that the event has happened, and that the party posted a notice thereof to the other party.

(c) There is no direct evidence as to the time when the notice was received, but the arbitrator infers from all the facts of which there was direct evidence, or from facts within his own knowledge properly taken into account, that it was received ten days after the happening of the event.

(d) The arbitrator decides that ten days was a reasonable time."

245. The authors, then analyse each category and conclude that category (a) is a pure question of law, since the construction of any document having legal effect is always regarded as a question of law, and categories (b) and (c) are pure questions of fact. As to category (d), which is usually referred to as giving rise to a mixed question of law and fact, the passage concludes:

"The real practical problems arise from category '(d)' which concerns the stage of the decision-making process at which the arbitrator puts together the facts and the law, to arrive at a conclusion.

Three situations can be distinguished-

1 The arbitrator finds facts A,B and C. The application of legal principle P would inevitably lead to a decision X, without the need for any further exercise of judgment on the part of the arbitrator.

2. The arbitrator finds facts A,B and C. The application of principle P would not inevitably lead to decision X. A careful arbitrator, acting judicially in the light of an accurate understanding of the law, might come to decision X or Y. In the event, the arbitrator arrived at decision Y.

3.The situation is the same as in example 2, but the arbitrator arrives at decision Z."

246. The authors conclude that example 1 gives rise to a question of law on the grounds that if a conclusion other than X has been reached, that answer must have flowed from a misunderstanding of the legal principle involved. This is also the case for example 3. As to example 2, any contention that the arbitrator had reached the wrong answer would fail since the court would not intervene, even if it would have reached a different answer, on the grounds that the answer given was not outside the range of reasonable answers open to the arbitrator. The question as to whether or not decision Y was correct is a question of law since the facts, as found, are being applied to the relevant legal principle, a process which is regarded, in most cases, as a question of law.

247. The conclusion to be drawn from this analysis is that there are four situations covered by the question as to whether a challenge to an arbitrator's findings of fact can raise a question of law. These are:

1. An allegation that the raw finding of fact was not supported by any evidence.

2. An allegation that the arbitrator invented evidence or relied on evidence that was never adduced before him in making the disputed finding of fact.

3. An allegation that inferences, made from raw facts, so as to lead to further findings of fact, could not, on any reasonable view, have been made.

4. An allegation that an application of findings of fact to the relevant legal principle has produced a result that no reasonable arbitrator could have reached because the facts in question could not lead to, or produce, the result arrived at. This allegation is made of a mixed finding of fact and law, the legal part of the finding being the application of the raw or inferred facts to the legal principle involved.

5. Although it is not clear from Steyn L.J.'s analysis, his view that findings of fact are no longer susceptible to review as questions of law would appear to cover all four of these situations. This is because he made them in the context not only of an argument that there was no evidence to support the finding that loss had been caused but also in relation to an argument that, on the basis of the findings of fact, no loss had been established.

248. The law on this topic is conveniently summarised in a passage in the speech of Lord Diplock in The Nema in which he discussed the meaning of the phrase "question of law". His analysis of this expression relies on the earlier decision of the House of Lords in Edwards v. Bairstow and the oft-quoted passage on this topic from the speech of Lord Radcliffe. Lord Diplock stated:

"... ever since the decision of this House 25 years ago in Edwards v. Bairstow, [the words 'question of law'] have been understood (at least where the tribunal from which such an appeal lies is not itself a court of law) as bearing the precise meaning as to the function of the court to which an appeal is brought that is stated in the classic passage to be found in the speech of Lord Radcliffe ...:

'If the case contains anything ex facie which is bad in law and which bears upon the determination, it is, obviously, erroneous in point of law. But, without any such misconception appearing ex facie, it may be that the facts found are such that no person acting judicially and properly instructed as to the relevant law could have come to the determination under appeal. In those circumstances, too, the court must intervene. It has no option but to assume that there has been some misconception of the law and that this has been responsible for the determination. So there, too, there has been error on point of law.'"

249. This passage shows that Lord Diplock was accepting that it was still the law under section 1 of the Arbitration Act that an erroneous application of findings of fact to the relevant legal principle was an error of law if no reasonable arbitrator could have applied the facts in the way they had been applied. Although this principle is nowadays always regarded as having been established by Edwards v. Bairstow, that case was concerned with the statutory procedure for review established for a statutory tribunal, the General Commissioners of Income Tax. However, the same result had been arrived at for arbitrations by the decision of the House of Lords in Tsakiroglou & Co. v. Noble Thorl GnbH, where the mixed question involved determining whether a c.i.f. contract had been frustrated. It was also arrived at by the Court of Appeal in relation to the then statutory prohibition on appeals on points of fact from official referees in Peak Construction (Liverpool) Ltd. v. Mckinney Foundations Ltd where the Court applied Edwards v. Bairstow to the relevant provision of the Rules of the Supreme Court. In that case, the Court of Appeal allowed an appeal from an official referee's conclusion that there had been no unreasonable conduct by an employer under a building contract and, in consequence, the contractor had not been caused delay by that unreasonable conduct. The Court of Appeal concluded that, in the light of the official referee's primary findings of fact, no reasonable official referee could have reached the conclusion that the employer had been reasonable.

250. It follows that the fourth of the situations summarised above is one which allows for an appeal on a question of law in an appropriate case. The reason why the first three situations might also allow for an appeal under section 1 of the 1979 Act is because Viscount Simmonds appeared to envisage this possibility in Edwards v. Bairstow when he stated:

"For it is universally conceded that, though it is a pure finding of fact, it may be set aside on the grounds which have been stated in various ways but are I think fairly summarised by saying that the Court should [allow the appeal] if it appears that the Commissioners have acted without any evidence or upon a view of the facts which could not reasonably be entertained ..."

6. These views were obiter in Edwards v. Bairstow which was a case involving a mixed question of law and fact. However, the Court of Appeal, in Tersons v. Stevenage Development Corporation, proceeded on the basis that a question of whether or not a finding of fact was supported by any evidence was a question of law. However, the Court also held that the arbitrator was not obliged to append the relevant evidence to the stated case so that the occasions, under the case stated procedure, when such an argument could be raised would be very rare, since the material which such an argument would require would not usually be available unless all the evidence was appended to the stated case.

251. There are, therefore, two questions to answer. The first is whether it was ever the law that a pure finding of fact could be challenged, by way of a question or point of law, on the grounds that there was no evidence to support it. The second is whether any possibility of such a challenge under the previous practice governing judicial review of arbitrator's awards has survived the enactment of the Arbitration Act 1979. The change in the law, if it has occurred, to shut out any possibility of an allegation that there was no evidence to support a finding of fact could only have occurred if the phrase "question of law" appearing in section 1 of the Arbitration Act 1979 has a more restrictive meaning than that phrase, or the equivalent phrases, had when used as part of the practice governing the case stated procedure, the statutory case stated procedures in relation to the General Commissioners of Income Tax in 1956 or appeals from official referees. In view of the reliance by Lord Diplock, in The Nema, on the speech of Lord Radcliffe in Edwards v. Bairstow as establishing the ambit of the phrase "question of law", it is clear that that phrase has the same meaning as the phrase "point of law", the phrase considered in Edwards v. Bairstow.

252. The suggested change in the ambit of the phrase "a question of law" arises from this passage in Steyn L.J.'s judgment in The "Baleares":

"... in the limited appellate jurisdiction of the Court under s. 1 of the Arbitration Act 1979 this concept [the power to review a finding of fact on the ground that there is no evidence to support it] has no useful role to play. It is inconsistent with the filtering system for the granting of leave to appeal which was created by the Arbitration Act 1979. In my judgment it has not survived the changes introduced by the reforming measure of 1979."

7. Steyn L.J. stated that he agreed with the views of Mustill & Boyd to the same effect set out in the first edition of their book and reiterated in the second edition. These passages point out that Edwards v. Bairstow was concerned with a mixed question of law and fact, that the tribunal's findings of primary fact were set out in the stated case and were relied on by the House of Lords and that the approach of the House of Lords was to treat, as the 'evidence' to be considered when seeing whether the conclusion of the tribunal was supportable, the text of the case stated by, or award of, the tribunal. Moreover, there appeared to be no reported case in which the court had intervened on this ground, its jurisprudential basis was never explored in the authorities where its existence was postulated and Terson's case, "the nearest approach [of a court treating a pure finding of fact as giving rise to a question of law]", was a case involving a mixed question of law and fact.

253. In view of the doubtfulness of the existence of an ability to attack primary findings of fact under the case stated procedure, the absence of any reported case where such an attack has succeeded, the use of the phrase "question of law" in section 1 of the Arbitration Act 1979 and the legislative purpose of that Act as explained by Lord Diplock in The Nema and Steyn L.J. in The "Baleares", I conclude that it is not possible to attack the primary findings of an arbitrator, whether they be pure findings of fact or inferences drawn from such findings, on the basis that there was no evidence to support them. It is, I think, significant, that the Arbitration Act uses the expression "question of law" in section 1 whereas the Arbitration Act 1950 did not when defining the case stated jurisdiction. Where the jurisdiction, as under the old law, was determined by the common law and by the use of a test based on the presumed intention of the parties, the boundaries of what could be included in a stated case were relatively flexible. Where, however, the statutory formula is, in terms, confined to a "question of law", it is necessary to take the meaning of that phrase from the Act and to determine its meaning from the legislative purpose and intention of the Act.

254. This leaves two further matters to be considered. The first is that any question of admissibility of evidence is a question of law. It is also a question of law whether the arbitrator, either generally or in the circumstances of a particular piece of evidence in a particular arbitration, was bound by any evidential rule which would be applicable to that situation in a court hearing. Thus, if an appropriate question of law arises and is answered to the effect that the arbitrator reached particular findings of fact in reliance on materials that he should have excluded from his consideration or by shutting out materials he should have considered, the court could intervene. Usually, it would answer the question of law that arises, assuming the threshold requirements of section 1 of the 1979 Act have been complied with. On some occasions, the erroneous reliance on extraneous evidence might amount to procedural irregularity. In such cases, which are unlikely to occur very often, the court would ordinarily remit the award for further consideration in the light of its views as to the admissibility or otherwise of the material in question.

255. The second matter concerns the situation where the arbitrator "invents" evidence and then makes findings of fact based on that non-existent evidence. NHC suggests that this might have occurred in this award. In such a situation, the appropriate relief to seek is for a remission or setting aside for procedural irregularity or misconduct. It is not correct to seek, additionally, to raise a question of law. The alleged mistake of the tribunal is not as to the legal reasoning used to formulate the findings in the award but to adopt a manifestly erroneous procedure in arriving at the primary findings of fact contained in the award.

256. It follows that my conclusions are:

1. The only findings of fact, or findings associated with findings of fact, that can be raised as questions of law are not findings of fact at all but are findings that no reasonable tribunal could have reached, namely findings that a particular legal principle was applicable.

2. A question as to whether particular evidence was admissible or should not have been excluded and as to whether the arbitrator was obliged to apply the normal rules of evidence to a particular situation are questions of law capable of arising under section 1 of the Arbitration Act 1979.

3 A question as to whether the arbitrator has invented evidence can only be raised as misconduct or procedural irregularity.

PART B. REMEASUREMENT TOPICS

2. Electrical Remeasurement

2.1 The Questions of Law Proposed by NHC

257. The questions of law that NHC contends arise out of these grounds of appeal are as follows:

"1. Was the arbitrator entitled to include in the Final Award as to the Ascertained Final Sub Contract Sum amounts in respect of uninstructed work in circumstances where he had made and published an Interim Award on 1st November 1996 which ruled, inter alia, that:

i) if changes were not instructed their value should not be included in the Ascertained Final Contract Sum;

and

ii) only work executed in accordance with the Sub- Contract Documents and the directions of the Contractor [was] allowable?

2. On a true construction of the Sub-Contract, are Prime Cost sums to be allowed in the Ascertained Final Contract Sum on the basis of:

i) actual cost; or

ii) the estimated cost?"

258. Question 1 falls into two parts. This emerged from NHC's submissions at the hearing. These two parts are as follows:

1. A consideration of the meaning of the phrase "uninstructed work etc." in paragraph 15.10 of the award. NHC argued that the arbitrator was using the phrase descriptively and was referring to work which had not been instructed. CWS argued that the phrase was being used as a convenient shorthand to describe work which NHC's expert had considered to be uninstructed but which the arbitrator considered to be instructed.

2. A consideration of whether the type of work included in the work described as "uninstructed" or "etc.", which had been valued as if it was either within the Sub-Contract Documents or had been directed, could conceivably have been either of these things.

8. It is also clear from NHC's submissions and from the reference, in the grounds of appeal, to paragraph 16.02(b) of the award that NHC's appeal is concerned not only with that part of the mechanical installation work which was described by Mr. Pickavance as "uninstructed" but also to that part of the electrical installation work which constituted a variation and which the arbitrator described as being "not 'authorised variations'".

259. In the light of the arguments presented by NHC in support of its contention that the relevant work should not have been remeasured and paid for, I will reformulate NHC's question 1 by adding a further question, which I will number question 1. This question is worded as follows:

"1. What did the arbitrator mean in referring to work as 'uninstructed work etc.' in paragraph 15.10 of the award?"

9. NHC's proposed questions 1 and 2 become questions 2 and 3 respectively. Question 2 is concerned with whether the type of work encompassed by the phrases "uninstructed work etc." and "not authorised variations" fell within the original scope of work or, alternatively, could properly be considered to have been "instructed" or "directed". The need to use both words arises because clauses 4 and 17 of the Conditions use the word "direction" whereas the interim award refers to "instructed work". The arbitrator cannot be criticised for his different terminology since it arose out of the terms of the relevant questions he was asked to answer in the interim award which were drafted for him by NHC.

260. NHC's proposed question 2 becomes question 3. This question was objected to by CWS as being a question not covered by the notice of appeal and, being a new ground of appeal, should not now be allowed to be argued.

2.2 Question 1

2.2.1 Introduction

261. This question is one of law since it involves both the construction and the ascertainment of the meaning of words in the award, which is a process involving the answering of a question of law. Questions of the interpretation of words found in documents having legal effect are always considered to be questions of law. However, CWS has a threshold objection to this question being considered rather than being answered "yes" without further argument. This is that since I have already answered this question "yes" in both the misconduct and further reasons applications, the question and my previous answer to it have created an issue estoppel in this subsequent appeal, brought as part of the same proceedings between the same parties. The proceedings are the same since they are concerned to achieve judicial intervention in relation to paragraph 15.10 of the award and both proceedings need an initial determination of this question.

262. I will first deal with CWS' objection to my answering this question at all. It can be seen that I dealt with the question of what the arbitrator was referring to by the phrase "uninstructed work etc." as part of both the remission application and that for further reasons.

2.2.2 Procedural Irregularity

263. In paragraphs 80 and 81 I found that:

"the arbitrator in using the expression 'uninstructed work" was using it as a convenient shorthand to describe work which Mr. Pickavance [NHC's expert] suggested in evidence was uninstructed but which, as the arbitrator found, was instructed."

10. This finding was one made in determining, as a ground for seeking a remission for procedural irregularity, that certain work was valued which should not have been. The particular part of the award relied on was:

"The valuation of 'uninstructed work' ...:

'I allow [CWS] the items of 'uninstructed work' etc. which Mr. Pickavance would wish to deduct." (paragraph 15.10)'".

11. This ground had been drafted in these terms by me as part of the process of distilling the grounds, evidence and arguments put forward by NHC as part of its application for remission of the award concerned with the remeasurement of the works on the more generally expressed ground that:

"The Arbitrator's Interim Award of 1st November 1996 concerns the approach to be adopted on this sub-contract to re-measurement and sets out the various issues and the Arbitrator's findings."

2.2.3. Application for further reasons

264. In paragraph 96 I made this finding:

"It is quite clear that the arbitrator is making a finding that the work which had been stated by Mr. Pickavance in his evidence and in his reports prepared for the hearing to be uninstructed work was, in fact, instructed work which fell to be valued as being additional to the original subcontract work. The used of inverted commas and the reference to work which had been compendiously referred to as "etc." show that the arbitrator was making a finding that: "work described as 'uninstructed work' was, in fact, instructed work". Thus, no question of law arises."

12. This finding was made in dismissing an application for these further reasons:

"The reason for the finding in paragraph 15.10 that CWS was entitled to monies in respect of 'uninstructed work' etc."

2.2.4 Conclusion

265. It is clear that it was an integral part of my findings made in dismissing both applications that the phrase "uninstructed work" was being used as a convenient shorthand reference to work which had been identified by Mr. Pickavance in his reports and had then been described by him as uninstructed. The arbitrator was making a finding, as I found, that that parcel of work was wrongly described as "uninstructed" and, in consequence, should be included in the remeasurement exercise being undertaken pursuant to clause 17.1 of the Sub-Contract Conditions because it was work which was properly within the ambit of that exercise.

266. An issue estoppel arises whenever a material issue has been determined conclusively between two parties as an essential part of the determination of a cause of action. A "cause of action" includes an application for relief from the court provided for by statute. Two such statutory causes of action were involved in my findings that I have already set out. These were, firstly, for an order for remission on the grounds of procedural mishap. This, in less technical language, was an application for an order whose effect would have been to open up and have reconsidered by the arbitrator his award after the award had become binding and final. The second cause of action was an application for an order that the arbitrator should provide further reasons for his award in circumstances where such an order can only be given when "a question of law" arises out of the award in issue. I found that these causes of action did not arise because, in the light of my finding as to the meaning of the words in question, there was no procedural irregularity, or basis for remission, and no question of law arose. In the context of NHC's grounds for remission and of appeal, it is clear that I was concerned with, and determining, the threshold question of the meaning of the award for both the mechanical and the electrical work.

267. NHC's answer to this argument was that the appeals with which I am now concerned were not before me on the earlier occasion and that, therefore, I cannot then have been taken to have decided any aspect of these appeals. However, "a material issue" is often a composite expression for a determination involving several interlocking questions. This is the case with the questions allegedly arising out of the remeasurement exercise. The first of these related questions is the meaning of the critical words found in the award, with which I am now concerned. This threshold question also arose, in a different but related context, in the determination previously of the two causes of action then in issue. Thus, although I was not concerned with the appeal on that occasion, I was concerned with an issue which also arises on this appeal. It follows that NHC's argument does not answer the contention that I am estopped from considering afresh the meaning of the relevant phrase in the arbitrator's award.

268. It must follow that an issue estoppel has already been created by my findings in relation to both causes of action. There can be little that is more conclusive than a finding that the basis for statutory relief has not been made out so that the court has no jurisdiction to consider whether or not to exercise its statutory discretion to intervene in the arbitral process. I am not entitled, therefore, to consider again the meaning of the phrase taken from the award as a prelude to a consideration of an application for judicial intervention in relation to that part of the award. It is worth recording that NHC did not put forward any new argument, other than that I was wrong in my earlier finding, relying instead on a recapitulation, through different counsel, of the argument addressed previously. The argument was put forward with both charm and deference by Mr. Mauleverer Q.C. but, for the reasons I have already given, I will not consider the argument further.

2.3 Question 2

2.3.1 The contents of question 2 analysed

269. Question 2 was also argued by CWS to have been answered by Judgment no. 1. Whether or not this was the case can only be determined by a careful consideration of the content of the question now sought to be argued by NHC. According to NHC, the arbitrator ruled in his interim award that any work shown to have been carried out on the "as fitted" drawings but not shown on the tender drawings, which included the schematic drawings which were submitted with the tender documents, was additional work which should only be remeasured and paid for if it had been the subject of an direction issued by NHC under clause 4 of the Conditions.

13. The arbitrator in his award valued mechanical work of this kind, which Mr. Pickavance had described as "uninstructed", and electrical work of this kind, which Mr. Pickavance had described as being "not authorised". The work described as "uninstructed" and "not authorised" by Mr. Pickavance was not shown on the tender documents and had not been the subject of a direction. The arbitrator wrongly valued the part of this work as a variation to the Works because he did not take "too rigid a stance where variations were not automatically approved by Ove Arup". He was wrong to adopt this approach to what constituted authorisation of additional work. It follows that this work should not have been remeasured as Sub-Contract work nor as directed variations to the Sub-Contract.

270. This series of contentions by NHC requires a number of questions to be answered. These are:

1. what was the nature of the work carried out by CWS which is the subject of this appeal?

2. what is the meaning of the answers to issues 10(a) and (c) given by the arbitrator in the interim award?

3. in the light of the answers to these questions 1 and 2:

(a) was the relevant work to be remeasured because it formed part of the Sub-Contract works?

(b) if not, was there any evidence of the relevant work having been directed?

(c) was the nature of any direction such as to qualify the relevant work for valuation and payment under clause 17.1 of the Conditions as work included in "any direction requiring a Variation"?

271. These questions are the questions which are encompassed by NHC's proposed question 2, are not all questions of law and are only capable of being seen to arise out of the award if further material is consulted in addition to the award itself. This material consists of a summary of Mr. Pickavance's evidence contained in CWS' closing submissions. This summary was contained in the material put before me during the earlier argument seeking a remission and further reasons and was referred to by me in Judgment no. 1. This material enabled me to identify the type of work which was referred to by Mr. Pickavance as "uninstructed work etc." and "not authorised" work and to understand NHC's argument that this work should not have been valued at all. Unless I was able to take into account this additional material, the questions I have identified as being encompassed by question 2 do not arise at all since, without it, I would be left with the bare finding in the award that the relevant work should be remeasured and valued, an apparent finding of fact which would be unchallengeable.

2.3.2 Issue estoppel

272. Whether or not I am able to formulate the questions at all depends on whether or not I am able to refer to the extraneous material I have referred to. If I am able to refer to this material and, in consequence, am able to formulate the questions arising out of question 2, I must then decide whether or not the questions are questions of law at all. However, so far as CWS's issue estoppel argument is concerned, it is clear that I have not yet answered the questions I have now formulated as arising out of question 2. The question I was previously concerned with, and arguably answered, was, in effect, whether it was a correct reading of the award to conclude that the arbitrator found that the relevant work was varied work which was uninstructed but should nonetheless be remeasured. I am now concerned with questions arising out of a different reading of the award, namely that the award determined that the work was instructed or directed.

2.3.3 The need for extrinsic evidence

273. In formulating the precise questions that arise, I must take into account that I declined to order the arbitrator to furnish further reasons in relation to this ground of appeal. It is unfortunate that NHC sought further reasons:

"for the finding in paragraph 15.10 that CWS was entitled to monies in respect of 'uninstructed work' etc."

14. I declined to order further reasons on the ground that paragraph 15.10 made no such finding. I concluded that the finding, albeit implicit in this paragraph, was to the effect that the work was instructed. What NHC now contend is that there was no evidence to support such a finding and that, even if the work was instructed, it fell outside the terms of the Sub-Contract and should not have been remeasured, given the terms of the interim award which defined the basis upon which the remeasurement was to be carried out.

274. These considerations involve me in having to decide a preliminary procedural question, namely what material, other than the award, may I consider in order to identify both the questions of law that arise out of the award and the arbitrator's answers to them. This procedural question was discussed by me in judgment no. 1, but in connection with the question of what material I might consider in connection with an application for an order that the arbitrator should provide additional reasons for his award. I am now concerned with the related but different question of what material I am able to consider in connection with the appeal itself. Admittedly, the same or a similar answer to this question is to be anticipated whether the question arises in connection with an application for further reasons, leave to appeal (where leave is required) or the hearing of the appeal. I must therefore consider in more detail what material, if any, I am able to look at in addition to the award itself. The nature of the material in question and the reasons for, and the context of, its introduction are clearly highly relevant.

2.3.4 Extraneous evidence - the procedural question identified

275. Section 1(2) of the Arbitration Act 1979 provides for an appeal "on any question of law arising out of an award" and section 1(5) allows reasons or further reasons to be ordered if it appears that the award "does not sufficiently set out the reasons for the award" so as to "enable the court to consider any question of law arising out of the award". These reasons should be provided "in sufficient detail" for that purpose. It is clear, therefore, that if the award does not itself allow the question of law which a party wishes to argue on appeal to be identified, the question does not arise out of the award. This would suggest that only the award and its accompanying reasons may be consulted by the court.

276. This was certainly the approach of Coleman J. in Foleys Limited v. City & East London Family & Community Services. In the course of refusing an application for leave to appeal questions of law allegedly arising out of an award in a construction arbitration, the judge, who was at the time the judge in charge of the Commercial list, stated:

"For the purpose of mounting this application, there has been put before the court a bundle of documents including not merely the award and the originating notice of motion and summons for leave to appeal but also the pleadings in the arbitration (including requests for further and better particulars, replies and so on), a witness statement by the respondents' expert on quantum, submissions in the arbitration by both parties, and a previous award which had been made in relation to which no relief is sought.

Mr. Stimpson [counsel for the appellants] informs me that it is not infrequently the practice in the course of applications for leave to appeal which are referred by this court to the official referees' court, for the court, upon the application for leave to appeal, to look at documents other than the originating motion, the summons and the award for the purpose of ascertaining whether leave should be given. I wish to make it absolutely clear that the Arbitration Act 1979 lays down a very specific procedural code for entertaining applications for leave to appeal. The jurisdiction provided under section 1 of the 1979 Act provides for the court to consider any question of law arising out of an award. For that purpose the court is to be provided with the award. If the award does not indicate in the reasons attached to it precisely the route which the arbitrator has followed from the submissions indicated in the award to the conclusion at which he has arrived, it is open to a party to apply under section 1(5) of the Arbitration Act for further reasons.

The purpose of that jurisdiction is to enable the parties to the award to have a body of reasons which enables the court, upon a determination of an application for leave to appeal, to decide whether an error of law has in fact been made and leave should therefore be given. That, and that only, is the available material upon which the court can determine applications for leave to appeal. If there has been a practice of examining pleadings in the arbitration, witness statements, submissions put before the arbitrators or other documents which were used in the course of the arbitration, including documents put in evidence, that practice is, in my judgment, entirely misconceived and inconsistent with the policy of the Arbitration Act which requires that a high degree of finality should attach to arbitration awards."

277. The first reaction that I had to this passage when it was shown to me was that, in my experience, counsel in that case was in error in informing the judge that there was a practice amongst official referees to examine material other than the award when considering applications for leave to appeal. However, given that many construction arbitrations are conducted under standard arbitration clauses in which, like this arbitration, the parties have given their consent for appeals on questions of law arising out of the award to be brought without the need for leave, the potential need to consider extraneous materials also arises for official referees at the hearing of the appeal itself, where the strictures of Coleman J. are equally applicable and where the practice of official referees is as restrictive. It may be that counsel had in mind a passage in a judgment I delivered, which was referred to me in argument, which, on a cursory reading, might suggest that official referees do adopt a more relaxed approach to the admission of extraneous materials. The passage is from How Engineering Services Ltd. v. Lindner Ceilings Floors Partitions PLC and Another. In the course of my judgment, I stated:

"The questions of law can only be considered against the background of the pleadings, the arbitration documents and the submissions of the parties."

15. However, this particular appeal was one arising in the course of the reference and not one arising out of the award. In other words, it was a comparatively rare appeal brought under section 2(1) of the Arbitration Act 1979. The appeal was brought to determine a preliminary procedural point or question, namely as to what has to be pleaded to put forward a "rolled up" loss and expense claim. The parties were at odds as to the applicability of the well-known Wharf case to the myriad of pleadings and other materials that had been put before the arbitrator who was as keen to obtain a ruling from the court as to their admissibility and relevance as the parties were. It was therefore necessary, in considering the question of law that I was concerned with, namely whether the arbitrator's direction that the loss and expense claim should be set out in Points of Claim, had been complied with, to examine the extraneous material I have referred to. The arbitrator had made extensive procedural directions to which I was also referred but I declined to examine other material, particularly inter-party correspondence because:

"... it is neither appropriate nor allowable for the parties to seek to admit before me evidence of what happened during the hearings or prior to the issue of orders by the arbitrator. The record of the arbitration, in the form of the arbitrator's clear and comprehensive orders and reasons, should suffice."

278. It follows that How's case was both exceptional and irrelevant as a guide to what material, if any, other than the reasons, may be looked at by official referees or any other category of judge in determining a section 1(2) appeal, whether brought with leave or by the parties' consent.

279. I should, however, refer to a gloss or exception to the absolute exclusionary rule which is referred to by Professor Thomas in The Law And Practice Relating To Appeals From Arbitration Awards. He states:

"An award includes not only a formal award, but also external documentation which is expressly or impliedly incorporated by reference into an award."

16. In a footnote, Professor Thomas refers by way of example for this proposition, rather than as an authority for it, The "General Valdes".. This case decided that an award, issued under the 1950 Act, which was accompanied by reasons which were neither stated to be part of the award nor were physically incorporated into it were, nonetheless, to be taken to form part of it because it was to be inferred that they were intended by the arbitrator to be considered when his award was the subject of any consideration.

280. I conclude that there is a limited exception to the exclusionary rule identified by Coleman J. in Foley's case. If material is expressly or impliedly incorporated into, or referred to in, the award, such additional material may be consulted as part of the judicial processes associated with appeals on questions of law arising out of the award.

2.3.5 The material sought to be referred to

281. The material which NHC wishes to introduce is a passage in CWS' closing submissions already referred to. This passage summarises the evidence of Mr. Pickavance referred to by the arbitrator in paragraphs 15.10. This evidence identifies certain mechanical work, namely that that he refers to as "uninstructed". It also summarises Mr. Pickavance's evidence about certain electrical work referred to by the arbitrator in paragraphs 16.02(a) and 16.02(b) where the arbitrator states:

"(a) [Mr. Pickavance] has not really carried out a remeasure and, in my judgment, he has omitted some work that should have been included.

(b) [Mr. Pickavance] has, I consider, failed to include a number of Variations (because they were not "authorised variations") that he should have included. I feel that he has taken too rigid a stance where Variations were not automatically approved by Ove Arup."

17. The relevant passage reads as follows:

"(2) [Mr. Pickavance] has adopted the fiction of "uninstructed work" in order to ignore work that should be measured. The effect of this approach is to tie CWS to a tender based on schematic drawings with theoretical straight runs. This reflects neither reality nor legal position - CWS is entitled to be paid for all work in accordance with the sub-contract documents and the directions of NHC by clause 17.1 - Mr. Pickavance accepted that CWS's works were to co- ordinate services, there was no suggestion that the works were capriciously executed. By excluding the works they are deemed not to be necessary for the proper execution of the sub-contract. This is nonsense - no unnecessary works have been demonstrated.

...

(3) this was properly a remeasurable contract. It was necessary for tenders to be assessed on a defined basis but it was recognised that when services came to be installed there would be clashes with other services and other elements of the works. The works could therefore not be fully measured at tender stage; ..."

282. These passages identify both the relevant evidence of Mr. Pickavance and the argument accepted by the arbitrator in the passages of his award I have set out for rejecting the opinion of Mr. Pickavance that the relevant work should not be remeasured under clause 17.1. The material is a convenient summary of the material impliedly incorporated into the award. It therefore comes within the limited exception to the rule that only the award and its accompanying reasons may be consulted when considering an appeal arising out of the award. I am therefore prepared to admit this limited additional material. I am not prepared to consider any other material to see what was the basis for the finding that certain work was to be regarded as directed although not automatically approved by Ove Arup and to identify the relevant work any more precisely than is done in the passage of CWS' closing submissions that I have already set out. Any such additional material cannot be said to have been incorporated into the award. I have already refused to order further reasons for the findings that Mr. Pickavance has failed, in his remeasurements, to include variations which should have been included since these findings were findings of fact.

2.3.6 What was the nature of the work that is the subject of the appeal?

283. The work can be summarised as follows, using the material I have set out as the basis for this summary:

1. The full extent, location and layout of the pipework and cabling to be installed by CWS was not shown on the tender drawings. What was shown was a schematic representation of this work, consisting of straightline runs. These were replaced by runs with bends and other deviations in the layout, needed to accommodate the layout of the building and its contents that were being constructed. Some of this work was omitted from Mr. Pickavance's valuation.

2. Some of the relevant runs not depicted on the schematic drawings arose as variations. This work was not automatically approved by the employer's electrical consultant but was informally accepted by that consultant as being work that was required.

2.3.7 What is the meaning to Answers 10(a) and 10(d) given by the Arbitrator in the Interim Award?

2.3.7.1 The answers

284. The relevant answers, quoted verbatim from the Interim Award, are as follows:

"1. Question 10(a).

When remeasuring the works in accordance with condition 15.2 ... if the as fitted drawings show changes in the subcontract scope of works that are not instructed changes (such changes are evidenced from a comparison between the tender drawings and the other tender documents and [CWS's] as fitted drawings) and which result in [CWS] claiming additional monies over and above the "Subcontract Tender Sum", should the (value of) such changes be included in the Ascertained Final Subcontract Tender Sum" if the changes do not represent actual changes (i.e. they are deemed not to have taken place)?

Answer.

Clause 17.1 applies - "all work executed by the Subcontractor in accordance with the Subcontract Documents and the directions of the Contractor, including any directions requiring a Variation ... shall be valued".

Reasons.

The remeasurement of the Works (in the circumstances) has to be measured from the "as fitted" drawings and valued in accordance with Clause 17.

If any of the Works shown upon the "as fitted" drawings are not in accordance with the CONTRACT DOCUMENTS (IE THE CONTRACT DRAWINGS, THE CONTRACT SPECIFICATION AND OTHER CONTRACT DOCUMENTS or any direction requiring a Variation thereto) then, any other varied works shall not be measured and valued or included in the Ascertained Final Subcontract Sum.

Of course, if [NHC] has issued directions to [CWS] (or in the alternative [CWS] has received from [NHC] pursuant to Clause 4.4 of the Conditions) the measurement and value of these directions involving Variations shall be included in the Ascertained Final Contract Sum.

Question 10(c).

If the changes were not instructed under the Subcontract, can the value of such changes be included in the Ascertained Final Subcontract Sum?

Answer.

If the changes were not instructed, their value should not be included in the Ascertained Final Contract Sum.

Question 10(d).

If [the changes were not instructed and hence their value should not be included in the Ascertained Final Contract Sum], on what basis would CWS seek to include such changes within the Ascertained Final Contract Sum?

Answer.

Only work executed in accordance with the Subcontract Documents and the directions of [NHC] is allowable."

2.3.7.2 The meaning of the answers

285. Question 10(a), which was drafted by NHC and slightly modified by the arbitrator, is not well drafted. It appears to assume that any work shown on the as fitted drawings which is not actually depicted on the schematic drawings is varied work, it assumes that the Tender Sum is added to whereas the Tender Sum is replaced by the sum or sums resulting from the remeasurement exercise and it refers to the "Ascertained Final Subcontract Tender Sum" which does not appear as an entity in the Sub-Contract Conditions and which would appear to be an amalgam of the "Tender Sum" and the "Ascertained Final Sub-Contract Sum", which are two different and mutually exclusive entities that do appear there. A final difficulty is that the question refers to "deemed changes" without explaining what these are and without taking into account that the Sub-Contract Conditions refer to variations but not to changes.

286. The answer to question 10(a) sidesteps these difficulties. When read in conjunction with the reasons, it is clear that the arbitrator has found that merely because that work in not shown on the schematic drawings but is shown on the as-fitted drawings, it does not follow that such work is a variation or change to the scope of the original Sub-Contract Works. The work actually carried out is to be remeasured unless it is work which is not provided for, or envisaged by, the schematic drawings when read in conjunction with the specification and other Contract Documents. It is only if the work that was executed is not to be found provided for in any Contract Document, or in all of them when read together, that the work is a variation to the original scope of the Works. This is not how NHC understand the answer since its argument that work has been measured even though it is not shown on the schematic drawings and was not directed is based upon the assumption that unless the work is actually depicted on the schematic drawings, it is not capable of being within the scope of the unvaried Sub-Contract Works. This is clear from this extract from NHC's written submissions which include this passage:

"Question 10(a) concerns changes which are evidenced from a comparison between the tender drawings (which included the schematic drawings referred to by CWS in its closing submissions and ... ) and CWS's as fitted drawings (in other words and by way of example the difference between the schematic straight line runs and deviated runs ...). In relation to any such changes for which there was no instruction ..."

287. I have highlighted the difference in approach by emphasising the words "Contract Documents (ie the Contract drawings, the Contract Specification and other Contract documents ...)" in the extract from the arbitrator's reasons I have set out in this judgment. These words should be contrasted with the more limited reference in the submissions to "a comparison between the tender drawings ... and the as-fitted drawings".

288. Thus, NHC's submissions in relation to this question of law make the same assumption as was made by the draughtsman of the wording of question 10(a), namely that only the work involved in installing the precise pipe runs depicted on the schematics, and none of the further work shown only on the as-fitted drawings, can qualify as original Sub-Contract work that fell within the scope of the original Works. However the arbitrator's answer makes it clear that that is too narrow a definition of Sub-Contract Works. These are to be deduced from all the Sub-Contract Documents and it follows that work might well be within that scope even if it fell outside the relevant straight-line run shown only on the schematics.

2.3.8 Was the relevant work to be remeasured because it formed part of the subcontract works?

289. NHC's argument is that the relevant work should not be remeasured. According to NHC, CWS were responsible for co-ordinating the mechanical and electrical work, it had to interpret and price the work depicted on the schematics and it should take the risk of costing the schematics accurately. However, the contract is a remeasurement contract in which "all work executed by the Sub-Contractor in accordance with the Sub-Contract Documents ... shall be valued". Thus, it is only if the co-ordination, interpretation and pricing undertaken by CWS yielded work not required by, or envisaged by, any and all of the Contract Documents that it was varied work which, subject to any direction by NHC, was not to be remeasured. In so far as the arbitrator has determined that any particular run is within the scope of the Works although not clearly depicted on the schematics, he has made a finding of fact, or, at best, a finding of primary fact applied to his interpretation of the scope of that part of the Works. These findings are not capable of being the subject of an appeal, both because they are findings of fact and because no particular application of these findings to particular sections of the Contract requirements, as shown in the Contract Documents, is challenged by NHC whose challenge is on the wider, and erroneous, basis that such work cannot, in principle, be remeasured because it is not depicted at all on the schematics.

2.3.9 Was there any evidence that the relevant work was directed?

290. This question must be considered in the light of the arbitrator's method in remeasuring the work. He did not himself identify which part of the remeasured work was originally required and which was a variation which had been properly directed by NHC. This was because his method of remeasurement, which he found was the only feasible way of proceeding given the difficulties that he encountered, was to start by taking the remeasurement of one or other of the parties' experts and then adapting it. However, the arbitrator clearly found that some of the work being remeasured was a variation. By necessary implication, he found that such work had been directed by NHC, either itself or by virtue of that work being the subject of a written instruction of the Architect under the Main Contract which affected the Sub-Contract Works and which had been issued by NHC to CWS. The many ways in which each discrete variation might arise and become work which was subject to a "direction" under clause 4.3 are such that it would not be possible or allowable for NHC to challenge each decision of the arbitrator relating to his overall determination that all such work should be remeasured.

291. What CWS' proposed appeal amounts to is that the global method of remeasurement adopted by the arbitrator meant that he had no admissible evidence which allowed him to find that this work had been the subject of relevant directions. Indeed, the arbitrator made a finding that the work had not been automatically approved by Ove Arup, the consultant who would have been expected to authorise it if it was genuinely varied work.

292. However, the absence of "automatic approval" is not determinative of there being a lack of the requisite direction under clause 4.3. The requirement is for an instruction in writing from the Architect. Such an instruction can be issued in many forms, including the issue of a drawing, site instruction, site meeting minute or written indication of approval of co-ordination work by CWS. Furthermore, any direction which was initially not in writing can be confirmed in writing after the work has been executed at any time prior to the Final Payment of CWS. The work might have been confirmed in many ways. It has to be remembered that NHC adopted CWS's claim for Final Payment and forwarded it to the employer and adopted it as part of its own claim in the Main Contract arbitration. Such could well have constituted written confirmation or a waiver of such a requirement.

293. It follows that there was available to the arbitrator abundant evidence which would have enabled a reasonable finding in each case that the variation was the subject of a direction and should be remeasured although not part of the original scope of the Sub-Contract Works.

2.3.10 Were the directions such as to enable the relevant work to be valued under clause 17.1?

294. Work should be remeasured if:

"... executed by [CWS] in accordance with ... the directions of NHC including any direction requiring a variation ..." (clause 17.1).

18. The conclusion that the arbitrator must have made, namely that work, directed in any of the many ways referred to in paragraph 292 above, fell within the definition of a direction requiring a variation is impeccable and is certainly not of a type which is capable of being characterised as perverse, irrational or not capable of flowing from the legal analysis relied upon. The conclusion follows inevitably from the arbitrator's findings set out in paragraph 289 above.

2.4 Question 3

2.4.1 Is question 3 part of the grounds of appeal?

295. The question is not encompassed by the existing grounds of appeal. These are concerned with Answers 10(a) and 10(d) of the Interim Award, which do not involve Prime Cost or P.C. Sum work and its valuation. I have already ruled that a party cannot keep open unparticularised grounds of appeal by use of a rubric such as that used by NHC, so that this question was not included, or capable of being included, within the grounds of appeal originally drafted on its behalf.

2.4.2 Should NHC be allowed to amend its grounds of appeal?

296. No formal application was made by NHC, it appeared to be content to rely its general intimation that it might:

"seek to supplement the grounds and basis of appeal on receipt of any further reasons". (Ground 7(iv))

19. This reliance was put forward notwithstanding my refusal to order further reasons. I have already pointed out that it is not appropriate for an appellant to reformulate its grounds of appeal after preliminary procedural skirmishing. I will treat the argument as to the substance of the proposed question as being the argument on the application for leave to amend the grounds of appeal and I will only consider whether or not to allow NHC leave to amend these if the appeal on this question, if it is allowed to proceed, would be bound to succeed.

2.4.3 NHC's arguments

297. The argument arises because the arbitrator had to make adjustments to certain P.C. Sums contained in schedules SR1-3. He did so by replacing the P.C. Sums with sums using rates which:

"[CWS] had submitted, [NHC] had accepted and the parties had agreed ...".

20. NHC argued that where CWS subsequently obtained keener rates at a later date, the agreed price should be replaced in computing the Ascertained Final Sub-Contract Sum, by the lower, actual rates thus obtained. The arbitrator rejected this argument as follows:

"An accepted quotation (to be set against a P.C. Sum) is similar to an accepted rate and should apply - unless the quantity or quality of the work - or the conditions - are changed. Even if changes occur they should be adjusted pro rata to the accepted quotation. In my judgment, if [CWS] obtains a more beneficial price, he is entitled to the benefit - just as if he obtained a keener price for (say) the pipework or another item included in his Schedule of Rates." (paragraph 16.02(e))

298. NHC's argument was that the arbitrator had failed to give effect to the natural and generally accepted commercial meaning of "Prime Cost", being one that is well established in engineering measure and value contracts. This is to the effect that only the actual cost to the subcontractor or contractor is chargeable to the contractor or employer as the case may be. Reliance was placed on this passage from Keating on Building Contracts:

"If there is no contractual definition and where there is no question of nomination, the ordinary meaning of prime cost is the submitted estimate of net cost and the intention is, therefore, that the contractor should only charge the employer the actual cost to himself. If his cost is more or less than that stated in the contract, the contract sum is adjusted accordingly ...".

2.4.4 The relevant contract provisions

299. CWS contends that the arbitrator was correct to use the rates which were tendered by the relevant third parties rather than the rates actually contracted for by CWS because it contends that the effect of the Sub-Contract provisions is such that the tendered rates are, in this case, the appropriate basis for determining the Ascertained Final Sub-Contract Sum.

300. I was not provided with any Sub-Contract Documents which identified the relevant P.C. Sums nor with the documents which recorded the agreements reached between NHC and CWS as to the expenditure of these Sums. The Conditions do not refer expressly to P.C. Sums and do not make any express provision for their expenditure. I was informed by NHC that there were two relevant P.C. Sums, referrable to work forming part of CWS' mechanical installation work carried out by ICC and Western Avory. The award merely refers to these P.C. Sums as follows:

"I now refer to the Adjustment of the P.C. Sums." (paragraph 16.02(e))

301. I was provided with Schedules SR1-3. These contained a summary of the Sub-Contract rates. The pages from the Main Contract Bills of Quantities, which contained the detail of the items which were summarised in Schedules SR1-3, were not provided. However the tender version of these pages, pages 10/25 & 26, was provided. These pages had the same contents, except for the actual rates, as their Sub-Contract counterparts. These documents contained no P.C. Sums. They merely set out 15 items of work, against each of which was placed a lump sum rate. As an example, Item 1 read:

"Ventilation Systems, including Air-handling Units, Fan Coils, Fans and Ductwork, Fire Dampers, Control Dampers, Grilles and Louvres".

21. In the tender, the rate was £225,242.35. This was reduced, in SR2, to £208,883.00. The breakdown of these lump sum rates does not appear to have been included in the Sub-Contract Documents nor to have been provided to NHC. Schedule SR2, and the accompanying page 10/26, also contained 6 "Undefined Provisional Sums".

302. I infer that this appeal is either concerned with two of the undefined provisional sums or with 2 parts of the 15 lump sum items. If the latter, there must be another document, which I have not seen, which breaks down the work content and the lump sum rate for each item and which identifies some parts of that breakdown as being subject to various "P.C. Sums".

303. Whichever of these two possibilities is the correct one, the work could not have been carried out without a direction from NHC. This is because:

1. If the work formed part of the work provided for by the "undefined provisional sums", the work could only have been carried out with a direction since clause 17.1 of the Conditions provides:

"Valuation of all work ... all work executed by the Sub-Contractor in accordance with ... the directions of the Contractor including any direction ... in regard to the expenditure of a provisional sum included in the Sub-Contract Documents ...".

2. If the work involved an item of work actually coupled with the rubric "P.C. Sum", that work would require the engagement by CWS of a sub-subcontactor. Clause 26.2 provides that a sub-subcontractor may only be engaged following the express consent of NHC.

304. The Award included findings that CWS actually submitted the relevant quotations to NHC, that NHC accepted them and that these quotations were agreed by NHC and CWS. In other words, the arbitrator has found as a fact that the parties agreed rates for this "P.C. Sum" work. Given the fact that the relevant work required a direction from NHC, these findings are clearly sustainable. This is so whether the work was originally provisional sum or P.C. Sum work. If the Sub-Contract did contain the phrase "P.C.Sum" in connection with specific elements of the work, it is reasonably to be implied that this work would be subject to an adjustment of the P.C Sum rate included in the Sub-Contract Documents. That adjustment could be made as part of the required direction to be made by NHC which itself could be given following an agreement between the parties as to the rates at which the work would be undertaken. If, on the other hand, the work was provisional sum work, clause 17.1 clearly envisages that the necessary direction required for its expenditure might include a direction as to the relevant rates to be applied to the valuation of the work. An agreement as to the appropriate rates for this work is, therefore, something which is to be expected and a finding that such an agreement occurred is clearly both reasonable and sustainable.

305. Clause 17.1 reads:

"Where clause 15.2 applies all work executed by the Sub- Contractor in accordance with the Sub-Contract Documents and the directions of the Contractor including any direction ... in regard to the expenditure of a provisional sum included in the Sub-Contract Documents, shall be valued and such valuation ... shall (unless otherwise agreed by the Contractor and the Sub-Contractor) be made in accordance with the provisions of clause 17.3..."

22. Thus, CWS contends that there was an agreement "otherwise agreed" by virtue of the agreement found to have been made whereby NHC accepted the proffered tender sums when directing the expenditure of the P.C. or provisional sums. NHC contends that the words "P.C.Sum" always carry with them the meaning of the actual cost, this meaning overrides any ostensible agreement reached during the work. NHC also points to the provisions of clause 17.3.3 which appear to provide expressly for the valuation of Prime Cost work and which, therefore, should override any apparently differing agreement as to the appropriated rates.

306. However, NHC has failed to show that the words "P.C. Sum" actually appeared in the Sub-Contract. Moreover, even if these words did appear in the Sub-Contract Documents, the presumed meaning of these words contended for by NHC is, as the extract from Keating shows, displaced where there is a contractual definition at variance with this meaning. Indeed, Keating does not provide full support for NHC's contention since the passage relied on by NHC, quoted in paragraph 298 above, refers to the ordinary meaning of "prime cost" as being the "submitted estimate of net cost".

307. The Conditions, in clause 17.3, provide the means whereby the parties can reach agreement as to the relevant rates that should apply for work described as P.C. Sum work in the schedule of rates or similar Sub-Contract Documents. The effect of this clause is that if the parties reach agreement at any time as to how particular work is to be valued, that agreement is paramount and must displace any presumed or customary meaning of the phrase "P.C. Sum".

308. Clause 17.3.3, which NHC relies on as displacing this agreement, is not, on analysis, in point. This clause provides:

"To the extend that the Valuation relates of the execution of work which cannot properly be valued by measurement the Valuation shall comprise:

17.3.3.1 the prime cost of such work (calculated in accordance with the "Definition of Prime Cost of Daywork carried out under a Building Contract" issued by the [R.I.C.S.]...)".

23. Thus, the clause is concerned with the valuation of work which cannot be valued by measurement at all, which is not the case with the work said to be the subject of a P.C. Sum. In the case provided for in clause 17.3.3.1, the prime cost (not P.C. or Prime Cost) of the work is to be taken, namely the daywork cost using the defined daywork rates. This clause is not concerned in any way with P.C. Sum work but with the prime cost or daywork cost of work which cannot be measured at all.

309. It follows that the parties reached an agreement that the relevant work would be valued by using the tendered rates. The arbitrator was correct to use the agreed and not the actual rates for the relevant work in his computation of the Ascertained Final Sub-Contract Sum.

2.4.4 Conclusion

310. No error of law is shown to have occurred in the method of valuation adopted by the arbitrator for the so-called P.C. Sum work. Thus, I am not prepared to give leave to amend the grounds of appeal and NHC's application to add Question 3 to the questions I am to consider in this appeal is dismissed.

PART C. DELAY AND LIQUIDATED DAMAGES

3 Delay Caused By CWS' Subcontractors

3.1 The Questions of Law Proposed by NHC

24. These questions of law are concerned with delay caused by two sub-subcontractors, 3M and Abel Alarms who provided and installed, respectively, the Book Detection System and the Security System for the Learning Resource Centre.

25. The questions of law proposed by NHC are as follows:

"1. Was the finding of the Arbitrator at paragraph 4.07 of the Award that whilst the desk and security systems were provided by sub-contractors who were "theoretically" domestic sub-contractors of CWS they should in effect be considered as a nominated sub-contractor correct on law?

2. On the basis of the answer to 1. above, was the Arbitrator correct in law to award an extension of time to CWS and not award loss and/or expense to NHC in respect of the default of these sub-subcontractors?

3.2 Question 1

3.2.1 The Content of the Question 1

312. NHC's formulation of this question in leading form presupposes that the arbitrator's finding was to the effect that the relevant sub-contractors were "theoretically" domestic sub-subcontractors of CWS but should,in effect, be considered as Nominated Sub-contractors of NHC. This is not an accurate paraphrase of the relevant finding which was:

"...3M was, for all practical purposes, an Employer's selected contractor and, when considering the question of delays, 3M should be considered as a Nominated Sub- Contractor and not the Claimant's Domestic Sub-Contractor."

26. This question, therefore, falls into two parts:

1. Where 3M and Abel Alarms, for all practical purposes, an Employer's selected contractor?

2. If so, should they both be considered as Nominated Sub- Contractors under both the Main Contract and the Sub- Contract when considering the question of an extension of time for delay in completing the Sub-Contract?

3.2.2 What did the Arbitrator find in paragraph 4.07 of the Award?

313. The overall finding which is the subject of the question of law can be seen to be a composite finding which, when broken down, can be expressed as follows:

1. 3M and Abel Alarms were selected by the Employer. As a result of those selections, CWS had to employ them as sub- subcontractors to execute the relevant parts of the electrical installation work and could neither carry out that work itself nor engage any other sub-subcontractor to execute it.

2. Clause 11.10 of the Sub-Contract Conditions, when read with clauses 25.4.7 and 34.1.4 of the Main Contract Conditions, has the effect that a "Nominated Sub-Contractor" can mean either a Sub-Contractor to NHC or a sub-subcontractor to CWS, so long as the relevant "Nominated Sub-Contractor" meets the definition of Nominated Sub-Contractor contained in clause 34.1.4.

3. 3M and Abel Alarms satisfied the relevant definition. In consequence, both NHC and CWS were entitled to an extension of time since delay caused to each of them by 3M and Abel Alarms was a Relevant Event under both the Main and Sub-Contracts, being delay caused by a "Nominated Sub-Contractor".

314. The first finding is a mixed finding of fact and law, the second is a finding of law and the third is one which applies the second finding to the first.

3.2.3 Is Finding 1 Correct in Law?

315. The relevant finding was:

"I am however aware that [CWS] was also delayed to some degree by the following - who were his own sub-contractors:-

...

(v) Delay due to the Security Systems ([but is should be noted that these [Systems] had to be used by [CWS] as they were already in use throughout the existing University buildings])

(vi) Delay due to the Book Detection System and the Security Desk (again, although 3M was [CWS's] Sub-Contractor, [CWS] was forced to use 3M because the other University buildings used the same system).

...

the Desk and the Security Systems were provided by Sub- Contractors who (although they were theoretically Domestic Sub-Contractors of [CWS], were in effect, Nominated by the University - [CWS] could not change them nor control them.

For example, 3M was, for all practical purposes, an Employer's selected contractor and, when considering the question of delays, 3M should be considered as a Nominated Sub-Contractor and not [CWS's Domestic Sub-Contractor.

...

...the delays referred to in paragraph 4.07 (v) and (vi) above ...[which was] delay ... caused by "Nominated Sub- Contractors" I Consider that it qualifies for extensions of time. This period of time should have been granted to [NHC] by the employer who should, in turn, have allowed an extension of time to [CWS]."

316. I was provided with the relevant extracts from the Main Contract and Sub-Contract Documents that were relevant to the Security and Book Detection Systems. From these Documents and the findings I have set out, the following conclusions emerge:

1. The Main Contract prohibited any sub-contracting without the written consent of the Architect (clause 19.2.2). For particular work identified in the Bills of Quantities, which included the mechanical and electrical installations, the work was to be carried out by one of the companies named in the Bills. CWS was so named.

2. The Sub-Contract also prohibited any sub-subcontracting without the written consent of the Main Contractor which was not to be unreasonably withheld (clause 26.2).

3. The relationship of CWS to NHC was stated to be that of Domestic Sub-Contractor (Bill 1/A30). By necessary implication, resulting from this Bill item being incorporated into the Sub-Contract, a sub-subcontractor approved by NHC pursuant to clause 26.2 was a domestic sub- subcontractor.

4. The Main Contract Electrical Specification, which was incorporated into the Sub-Contract, provided for the following:

(a) A Library Detection System. The construction of the required panels was described in the appropriate Equipment Data Sheet annexed to the Specification.

(b) A Security Intruder Alarm system. The system was described on an Equipment Data Sheet.

5. The general electrical and related layout details of the Library Detection System were shown schematically on 3 Contract and Sub-Contract drawings.

6. The Main Contract Electrical Specification provided a list of possible manufacturers and suppliers of the main items of equipment. These were supplied for information purposes and as a guide to the appropriate standards required of the installation. There was, therefore no contractual obligation to use these companies. The Library Detection System was not referred to on the list. 3 companies, none of which were Abel Alarms, were referred to for the Security Intruder Alarm system.

7. The Sub-Contract tender incorporated a list of proposed suppliers and sub-subcontractors. This document was not incorporated into the Sub-Contract Documents but was an indication of those for whom consent to sub-subcontract to would be sought by CWS. There was no entry for 3M and the Library Detection System. Abel Alarms was identified as the proposed Security System sub-subcontractor.

317. It follows that the choice of the manufacturer, supplier and installer the relevant parts of the installation was not expressly defined in the Sub-Contract Documents. The identity of any supplier or installer required to enable CWS to complete its work was left to CWS save that the resulting system had to comply with the specification and other Sub-Contract Documents and that any sub-subcontractor had to be approved by NHC under the Sub-Contract and by the Architect under the Main Contract before that sub-subcontract could be entered into. CWS had a responsibility to prepare installation drawings showing its proposals for the execution of the Works, co-ordination drawings showing the co-ordination and inter-relationship of the engineering services and their integration into the architectural elements and manufacturers' and equipment drawings showing the principle dimensions, fixings, connections and all relevant details of any item of plant or equipment produced by a manufacturer or equipment supplier. These drawings had to be provided to the Architect.

318. The Works involved the construction of a Learning Resources Centre. This was to form part of the complex of University buildings already in existence and was to link with them. The detailed requirements for the Works were set out in an extensive Electrical Engineering Services Technical Specification which came in two parts: a General Section A and a Particular Section B. These requirements were supplemented by the many Contract Drawings, most of which were schematic and which, in consequence, only provided an outline of the required detail. They were also supplemented by the considerable detail found in the Bills of Quantities and in the Codes of Practice, British Standards and similar documents referred to in the Contract Documents. The detail of the defined work was, therefore, to be gleaned from the detailed Specification, the large number of Contract Drawings and the considerable detail found in the preambles to the individual Bills of Quantities, including Bill 10 concerned with the electrical installation. CWS had to co-ordinate this work and its detail with the existing services and had to integrate it with those services.

319. The arbitrator, in his findings, does not set out the reasoning that led him to find that the Employer effectively selected 3M and Abel Alarms, other than in his finding that these suppliers had supplied the equivalent equipment where ever such equipment was found in the other buildings associated with the Learning Resources Centre. By necessary implication from that finding, a Library Detection System and a Security System could only be co-ordinated with these existing services if the same systems were used in the Learning Resources Centre as had been used earlier. It follows that these sub-subcontractors were needed to enable the defined Works to be completed. To that extent, these sub-subcontractors were selected by the Employer since the Works defined by the Employer could only be completed by using them.

320. On the basis of these findings, made in the light of the arbitrator's consideration of all the technical detail found in the Sub-Contract Documents, CWS had no option but to seek permission for 3M and Abel Alarms to be the sub-subcontractors for these parts of the Works and had to use them if the finished Works were to fulfil the Sub-Contract requirement that, when completed, they co-ordinated with the existing services in the Employer's associated buildings. If follows that it makes no difference to the argument that these sub-subcontractors were to be treated as having been selected by the Employer that Abel Alarms were put forward by CWS in its tender as a potential sub-subcontractor, whereas Abel Alarms only emerged as a sub-subcontractor at a later stage.

3.2.4 Is Finding 2 Correct in Law?

321. It is first necessary to set out the detailed relevant provisions of the Sub-Contract Conditions. The provisions dealing with extensions of time were amended by the parties. The relevant provision, as amended, read as follows:

"11.3 If ...

11.3.1 any of the causes of delay is an act, omission or default of the Contractor, his servants or agents or his sub-contractors, their servants or agents (other than the Sub-Contractor, his servants or agents) or is the occurrence of a Relevant Event: and ... the completion of the Sub-Contract Works is likely to be delayed ... then the Contractor shall, in writing, give an extension of time...

11.10 A Relevant Event shall mean the occurrence of any of the matters set out in the relevant provisions of the Main Contract for which the Contractor may be entitled to claim an extension of time for completion of the Main Contract."

322. The phrase "Relevant Events" is defined in the Main Contract Conditions in clause 25.4 as follows:

"25.4.7 delay on the part of Nominated Sub-Contractors ... which the Contractor has taken all practical steps to avoid to reduce."

323. "Nominated Sub-Contractors" are defined in clause 35.1.4 of the Main Contract Conditions as follows:

"Where ... in the Contract Bills; or ... in any instruction of the Architect ... requiring a variation ... by agreement (which agreement shall not be unreasonably withheld) between the Contractor and the Architect on behalf of the Employer the Architect has, ... by naming a sub-contractor, reserved to himself the final selection and approval of the sub- contractor to the Contractor ...the sub-contractor so named ... shall be nominated in accordance with the provisions of clause 35 and a sub-contractor so nominated shall be a Nominated Sub-Contractor for all the purposes of this Contract."

324. In interpreting or interpolating these provisions of the Sub-Contract, I have in mind the principles to the interpretation of commercial contracts set out in the speech of Lord Hoffmann in Investors Compensation Scheme Limited v. West Bromwich Building Society and Others. These principles were taken from, and built upon, two earlier decisions of the House of Lords. The relevant principles for the process of construction involved in this case are these:

"(1) Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract. ...

(4) The meaning which a document ... would convey to a reasonable man in not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean. The background may not merely enable the reasonable man to choose between the possible meanings of words which are ambiguous but even (as occasionally happens in ordinary life) to conclude that the parties must, for whatever reason, have used the wrong words or syntax."

325. It was suggested by Mr. Black Q.C. that the words "Nominated Sub-Contractor" in clause 25.4.7 of the Main Contract, when applied to the Sub-Contract by virtue of clause 11.10 of those Conditions, could be read so as to include sub-subcontractors who were to be treated as if they were nominated. This would be to give those words a very stained interpretation where they appear in clause 25.4.7, as incorporated into the Sub-Contract Conditions, and to give them a meaning that they do not bear in the same clause when construed in its usual place as part of the Main Contract Conditions. This is because, in the Main Contract Conditions, clause 25.4.7 uses this phrase in the same way as that phrase is used throughout clause 35 of those Conditions. Clause 35 provides a contractual code for the engagement of Nominated Sub-Contractors and it is one of great detail and complexity. It defines all aspects of the relationship between the Main Contractor and a Nominated Sub-Contractor and all the relevant obligations of the Main Contractor in relation to work reserved for Nominated Sub-Contractors. There is no scope for interpreting the words "Nominated Sub-Contractor" in clause 35, and hence clause 25.4.7, in a way that includes "Nominated Sub-subcontractors".

326. Clause 11.10 of the Sub-Contract Conditions cannot have the effect of redefining the words "Nominated Sub-Contractor" in clause 25.4.7 as part of the process of incorporating clause 25.4 into the Sub-Contract Conditions. The only difference in the wording of clause 25.4 of the Main Contract Conditions and the provisions of clause 11.10 of the Sub-Contract Conditions, which it replaces, is in clauses 25.4.6 and 25.4.10 which replace the corresponding words in clauses 11.10.6 and 11.10.10. The words of clause 11.10.6 have had the words "or the Sub-Contractor through the Contractor" omitted from it. The relevant provision, with the omitted words highlighted, defines a Relevant Event as:

" the Contractor, or the Sub-Contractor through the Contractor, not having received in due time necessary instructions, drawings, details or levels from the Architect ..."

27. A similar amendment is made to clause 11.10.10 concerned with shortages of labour and materials.

327. These minor changes were made so as to give effect to the provisions of clause 11.10, a clause which was specially drafted for this Sub-Contract. This clause makes it clear that CWS would only be entitled to an extension of time if NHC would be similarly entitled to one under the Main Contract, which would not be the case in those instances covered by the omitted words I have highlighted. There is, therefore, no warrant for the argument that clause 11.10 has had the effect of altering the meaning of the words "Nominated Sub-Contractor" in clause 25.4.7 of the Main Contract Conditions as incorporated into the Sub-Contract Conditions.

328. However, it does not follow that the arbitrator's finding on this topic cannot stand. This is because the effect of his finding is that the relevant Bill item refers, in part, to work which is to be carried out by a specialist chosen by the Employer. In authorising CWS as the relevant Domestic Sub-Contractor, the Architect, on behalf of the Employer, was not waiving or varying the effective requirement that 3M and Abel Alarms had to be employed to instal the two relevant parts of the Works. This part of the Works undoubtedly falls within the definition of work defined as falling within the province of Nominated Sub-Contractor work in clause 35.1 which has already been set out in paragraph 323 above and which, when the irrelevant words are omitted, reads as follows:

"Where in the Contract Bills the Architect has, by naming a sub-contractor reserved to himself the final selection and approval of the sub-contractor to the Contractor who shall supply and fix any materials or execute work, the sub- contractor so named shall be nominated in accordance with the provisions of clause 35 and a sub-contractor so nominated shall be a Nominated Sub-Contractor for all purposes of this Contract."

329. The effect of the arbitrator's findings is that the Contract Bills should be read as if the description of the work carried out by 3M and Abel Alarms included a requirement that those sub-contractors were named in them as the person who had to carry out the relevant work each was to be concerned with. Thus, the two work items in Bill 10 concerned with the security system and the book detection system had to be carried out by particular, named specialist sub-contractors. The selection of these specialist sub-contractors had, in effect, been reserved by the University, as Employer, to itself. It was clear that the specialist would be a sub-contractor since Bill 1, concerned with the Preliminaries and General Conditions, stated that the mechanical and electrical services installations were:

"... each to be executed by one of the specialist firms listed in the appropriate sections of Bill 3 ... who will become domestic sub-contractors."

330. The Bills of Quantities were required to be prepared in accordance with the 7th Edition of the Standard Method of Measurement as a result of clause 2.2.2.1 of the Contract Conditions which provides that:

"the Contract Bills ... are to have been prepared in accordance with the Standard Method of Measurement of Building Works ...".

28. The Standard Method provides that where work, or particular work items, are to be carried out by a particular specialist sub-contractor, that specialist should be named in the relevant work items in the Bills of Quantities. Thus, since the relevant work was to be carried out by particular sub-contractors, the description of those work items was clearly erroneous. The Bills of Quantities, as worded, required all the electrical work, including these work items, to be carried out by the same specialist firm, who was to be a domestic sub-contractor with, where necessary, the assistance of specialist sub-subcontractors selected by the sub-contractor and approved, after selection, by the Architect. The relevant domestic sub-contractor, for the electrical services, was named in the Main Contract, when concluded, as being CWS.

331. The relevant Bill items in Bill 10 require, therefore, to be corrected. The existing wording reads:

"9. Security installations

ll. Book Detection System Installation"

29. These should have been worded:

9. Security installations to be installed by Abel Alarms

11. Book Detection System Installation to be installed by 3M"

332. There is a clause in the Main Contract Conditions which deals with the situation where the Bill items are erroneously worded. This is clause 2.2.2.2 which provides:

"if in the Contract Bills there is any ... error in description of items ... then such ... error ... shall not vitiate this Contract but the ... error ... shall be corrected; ... any such correction under this clause 2.2.2.2 shall be treated as if it were a Variation required by an instruction of the Architect under clause 13.2."

30. This provision, therefore, requires the Contract to be read as if the relevant Bill items were worded in the way set out in paragraph 331 above. Thus, 3M and Abel Alarms, having been named in the Contract Bills because the Employer, through the Architect, has reserved the final selection and approval of these specialists, "shall be a Nominated Sub-Contractor for all the purposes of this Contract". This provision in clause 35.1.4 creates a definition of the words "Nominated Sub-Contractor". If, as in this case, the companies fulfil the requirements of the definition, they are "Nominated Sub-Contactors" even if they are technically sub-subcontractors, since the wording of clause 35.1.4 is not descriptive but definitional.

332. The words "Nominated Sub-Contractor" mean the same thing in both the Main Contract and the Sub-Contract since Article 1.2 of the Sub-Contract Conditions provides that the Sub-Contractor:

"shall upon and subject to the Sub-Contract Documents and the provisions of the Main Contract carry out and completed the Sub-Contract Works."

31. Thus, the provisions of the two contracts are to be read together, unless there is a conflict between the two when the provisions of the Sub-Contract shall prevail. There is no conflict between the two contracts so far as the use of the expression "Nominated Sub-Contractor" is concerned. Thus, as a result of the arbitrator's findings, CWS has been caused delay by Nominated Sub-Contractors, since the Sub-Contract, read alongside the Main Contract as corrected, provides that both 3M and Abel Alarms were Nominated Sub-Contractors. The findings of the arbitrator that an extension of time of two weeks should be granted to CWS under clause 25.3.7 of the Main Contract, as incorporated into the Sub-Contract, and that a corresponding extension of time should have been granted under the same clause to NHC under the Main Contract are both correct in law and, in so far as they contain findings of fact, are findings the arbitrator cannot be faulted for arriving at. It follows that both parts of Question 1 and Question 2 should all be answered "yes".

333. NHC puts forward two arguments, neither of which is correct in the light of the analysis set out above. The first erroneous argument is that clause 24.4.7 of the Main Contract does not apply to sub-subcontractors. However, the clause applies to anybody who fulfils the definition of "Nominated Sub-Contractor" whether or not that person is, in fact, a sub-subcontractor. It will be rare for this to occur. It only occurred in this case because of the error in description that occurred in Bill 10 and the consequent operation of the contactual correction mechanism provided for in clause 2.2.2.2 of the Main Contract. The second erroneous argument is that the arbitrator was not entitled to deprive NHC of two weeks of its site running costs for this two week period related to delay caused by 3M and Abel Alarms. However, since CWS was, on analysis, entitled to an extension of time of two weeks for this delay, it was not in breach of contract in the delay in completion resulting from that two-week delay and, in consequence, NHC has no entitlement to damages resulting from the corresponding delay it suffered in completing the Main Contract.

PART D. LOSS AND EXPENSE

4 Head Office Overheads

4.1 The Question of Law Proposed by NHC

334. The question of law proposed by NHC was as follows:

"Was the arbitrator entitled to use a formula to ascertain direct loss and/or expense incurred by way of overheads:

(i) in relation to additional overheads; and/or

(ii)in relation to unabsorbed overheads, in the absence of a finding by the arbitrator of a reduction of turnover directly attributable to the delay which caused the loss and expense?"

4.2 CWS's Objection to the Proposed Formulation of the Question of Law

335. CWS object to CWS's proposed formulation of this question of law since it constitutes an amended question of law to that arising out of the pleaded grounds of appeal. These were held by me, in Judgment no 1, to give rise to this question of law:

"Do the arbitrator's findings of fact justify the use of the formula he devised to calculate recovery of Head Office overheads?"

32. NHC has now put forward a question of law which is not wholly within the parameters of the grounds of appeal. This is because the proposed question of law draws a distinction between two types of overhead, namely additional overheads and unabsorbed overheads, a distinction not referred to in the grounds of appeal. These referred to alleged errors of the arbitrator in: (1) finding that CWS had suffered loss; (2) assessing that loss of overheads by use of a formula; and (3) failing to consider whether the figure he awarded should be reduced because of a recovery for overheads elsewhere in the award.

336. What NHC has done, on analysis, is to confine the question of law to the second of the three grounds I have summarised but expanded that ground to encompass two different types of overhead recovery allegedly provided for in the award. Since the question of law does not extend the grounds of appeal in any significant way and does not cause CWS any difficulty in dealing with it, despite its late formulation in these terms, I will allow NHC to amend its grounds of appeal so as to provide for the question of law in the terms formulated by NHC.

4.2 The Contents of the Question of Law

337. The proposed question of law is phrased in leading form. It presupposes that the arbitrator made no finding that CWS' loss was a reduction of turnover directly attributable to the delay found to have occurred. On that basis, what is asked is whether, nonetheless the arbitrator was entitled to award two types of overhead, namely additional overheads and unabsorbed overheads and, even if these were in principle recoverable, was it permissible to quantify them as a composite using a formula method of quantification.

338. It follows that the question splits up into four parts:

1. What findings of fact did the arbitrator make?

2. On the basis of those findings, was it open to the arbitrator to include in his award a sum to reflect loss to CWS of:

(a) additional overheads;

(b) unabsorbed overheads?

3. If so, was it open to the arbitrator to calculate such loss using a formula?

33. CWS alleges that the last three parts of the question raise questions of fact which are not matters which I have the jurisdiction to deal with.

4.3 What Findings of Fact did the Arbitrator make?

339. It is necessary to set out the relevant findings in full. They read as follows:

"7.01 I heard detailed submissions from counsel for both parties, and much evidence from experts on this matter. In one respect at least, I agree with Mr. Evans when he says - when referring to the use of a formula as a basis for calculation of Head Office overheads:-

'It appears to me to be incongruous that [NHC] should deny the method of calculation when responding to [CWS], but then rely upon a similar method of calculation in his counterclaim.' I note also that [NHC] calculated his claim for this item against the Employer, using the Hudson formula!

In principle I accept Head Office overheads as a legitimate head of claim. Furthermore, I am satisfied that, if an individual contract is badly delayed, the Head Office of the company concerned will incur additional costs. I agree also that in suitable cases, a formula may be the only realistic way of calculating the loss and expense suffered. There is a very substantial sum of money (£155,451.57) involved.

7.02 I accept that the actual costs flowing directly from the accepted delay and/or disruption (the 19 weeks ...) - if proved - are recoverable. I accept also that a claim for "Loss of contribution to overhead recovery" may be justified, provided also that a low can be proved. It is of course, for [CWS] to show that he has suffered a loss."

340. The arbitrator then sets out CWS's claim, calculated using the formula taken from Emden which is in the form:

C x D x HO

P

where C = Contract Sum

34. D = Delay in weeks

35. P = Contract Period in weeks

36. HO= Head Office Overheads and Profit as expressed as a % of turnover

37. The award continues:

"7.04 Mr. Pickavance, for [NHC], contends that [CWS] is not entitled to any money in respect of Head Office Overheads.

7.05 From the evidence and from my own experience, I am satisfied that the delay of 19 weeks in the completion of this contract (which was caused by [NHC] did involve [CWS's] Head Office employees in some additional costs. The involvement of [CWS's] Head Office senior management and the letters flowing from them indicates that this contract was causing additional time to be spent by Senior Management. If the contract had not been delayed I do not believe that this additional time would have had to have been spent on this contract and might have been spent (probably productively) on other contracts. (It is reasonable to assume that the extra time spent on this contract would have been spent productively on other contracts because, in general, the CWS Group were trading reasonably profitably during a period of intense competition in the construction industry).

...

7.06 Mr. Black, for [CWS], has put forward a persuasive argument concerning the under-recovery of Overheads. Using the Electrical figures, his argument is ...

'[CWS] recovered £431,559 of its Overheads of, in fact, an actual Overhead of £453,097. That was due on a total turnover of about £3,673,000. So, in fact, he budgeted to recover all of his Overheads from a turnover of £2 million, but, in fact, slightly under-recovered all of his Overheads from a turnover significantly greater at £3.6 million.

The reason is that he has gone out and generated more business than he had budgeted for. It becomes a matter of argument if that is a reasonable mitigation of his loss. But our submission is that this additional turnover (which is an increase of 77 per cent) is, in fact, seeking to compensate essentially for loss of the Overheads that would have been recovered had that additional turnover not been generated.

These figures relate to the whole of the electrical business of CWS and not exclusively to the contract with NHC. But this is a reasonable measure of the type of under-recovery of Overheads that would have occurred, had it not been mitigated by the generation of further turnover and further business.

It is not right to say, all you have lost at the end of the day is £20,000 because that is all you have shown that you have actually failed of recover by way of your Overheads. That does not take account of the fact that we run essentially 77 per cent faster to stand still and fall back a bit. Had we run 77 per cent faster without impact, we say, of the delay and disruption to the NHC contract, that would have reflected itself in additional profit rather than additional contribution to Overheads.

So, we submit as a matter of law, and it will be ultimately a matter of law, that the circumstances in which one can use a formula to assess loss of contribution to Overheads are established from the documents that are already submitted.'

While I am impressed with Mr. Black's reasoning, I am not wholly convinced. There are too many imponderables - for example:-

a) The additional work to increase turnover may have been 'bought' (i.e. tendered for at too low a price)?

b) The Overheads in the original contract may, likewise, have been priced too keenly?

c) How can it be shown that the delay on this contract caused increases to the rent, rates, lighting, heating, water etc., charges to [CWS's] Head Office?

7.07 It could reasonably be argued that the delay on this contract did not increase the ordinary costs of [CWS's] Head Office (the rates, lighting, heating and the like). Nevertheless, I am convinced that [CWS] suffered some Loss and/or Expense in respect of his Head Office costs. I refer to the evidence from Mr. David Hampson, [CWS's] Accountant, which I accept. I am aware that [CWS's] Company is part of a larger Group of Companies and I appreciate that it is not possible to separate the Overhead costs of the mechanical and electrical sections from the rest of the Group. I ... accept [Mr. Hampson's evidence] that the Group Overheads for the 52 weeks ending on 8th January, 1994 was £2,224,981 on a Group turnover of £12,669,896 (or 17.56%).

7.08 I must now decide what proportion (if any) of these Group Head Office Costs were increased because of the delay to this particular contact. The problem is in quantifying the Loss and this is a difficult decision but I accept Mr. Black's submission that, 'just because damages cannot be assessed with certainty, the wrongdoer cannot escape punishment'. 'Rough justice' is better than no justice at all.

7.09 At the end of Mr. Pickavance's evidence, I invited him to say how he would assess Head Office overheads - assuming that he considered them to be allowable. Mr. Pickavance indicated that he would have added an appropriate percentage to the overall figure and in subsequent re-examination by Mr. Darling, Mr. Pickavance confirmed that he had done so in the past. This is indeed quite a common way of dealing with the problem of Overheads within the industry but it was not pleaded by [CWS] and I do not adopt such a procedure.

7.10 As I have stated in paragraphs 7.05 and 7.07 above, I am satisfied that [CWS] has suffered some loss and I therefore use my discretion and I accept the principle of the Emden formula but only for 19 weeks and at 20% of the amount calculated by Mr. Evans."

341. The arbitrator then took the formula set out above and multiplied the formula by 1/5.

342. The reasoning is not crystal-clear but, taken in context, it is clear that the arbitrator is making the following findings:

1. The delay caused CWS some additional costs. This was represented by additional time being spent by senior management working on administrative tasks on this contract in the period of delay (7.05).

2. Some loss and/or expense in respect of Head Office costs occurred because of the delay on this contract. This loss and/or expense was a combination of rates, lighting, heating and the like (7.07).

3. A claim for a "loss of contribution to Overhead recovery" would be justified if CWS could show that it had suffered loss (7.02).

4. The additional time spent on this contract would have been spent productively on other contracts had it not had to be spent on this contract (7.05).

5. CWS suffered a "loss of contribution to Overhead recovery" caused by senior management spending less time on other contracts because, in the period of delay, they were working on this contract (7.05).

6. It was not possible to accept that the "loss of contribution to Overhead recovery" was as much as would be provided for by the Emden formula (7.06).

7. The appropriate way of compensating for both types of loss was to award CWS a composite sum per week for the 19 weeks in question. This loss was calculated by taking one-fifth of the Emden formula weekly recovery (7.08 and 7.10).

343. NHC contends that there was no finding that part of the loss was a "loss of contribution to Overhead recovery" resulting from the loss of the productive time that senior management could and would have spent on other contracts but for the time spent on this contract in the delay period. As NHC reads the award, this finding was not made because, as NHC sees it, the arbitrator rejected CWS's submission that it should be awarded a sum for this loss, calculated by reference to the full Emden formula. Furthermore, according to NHC, paragraph 7.05 is not concerned with unabsorbed overheads, the phrase used by NHC in its submissions to refer to a "loss of contribution to Overhead recovery", since the arbitrator stated in that paragraph that the additional time of senior management spent on administrative tasks on this contract "might have been spent (probably productively) on other contracts". This was not a finding that CWS had suffered this loss. On the contrary, it was tantamount to a finding that there was insufficient evidence that such a loss had been suffered.

344. I do not accept NHC's contentions as to the contents of the findings made by the arbitrator. These contentions overlook the following features of the passage of the award which I have already set out:

1. Paragraph 7.05 of the award concludes with this finding:

"It is reasonable to assume that the extra time spent on this contract would have been spent productively on other contracts because, in general, the CSW Group were trading reasonably profitably during a period of intense competition in the Construction Industry)."

(My emphasis).

38. This passage shows that the arbitrator was making a finding, on the balance of probabilities, that time which would have been spent productively on other contracts was lost to those contracts because of it had to be spent on this contract. Arguably, the fining was to a lower standard, namely that there was a real or substantial chance that the time would have been spent productively. I will consider the application of the appropriate legal principles on the basis that latter finding was the finding of fact made by the arbitrator.

2. The arbitrator made a finding that CWS's Group overheads in the relevant period where 17.56% in relation to turnover. It is this turnover that is referred to when the arbitrator makes the finding as to the loss of productive working by CWS's senior management. In other words, the finding is to the effect that time lost by carrying out administrative tasks in the delay period would have been spent productively working on CWS's other contracts, thereby obtaining for CWS a greater contribution towards Group overheads 17.56% from those contracts.

3. The arbitrator was at great pains to summarise Mr. Black Q.C.'s submission as to why CWS had suffered a loss of unabsorbed overheads on a basis that justified the imposition of the Emden formula. This followed the finding already referred to that some loss of productive working had occurred. He then declined to adopt that formula because, although impressed by the reasoning, he was not "wholly convinced" by it. What the arbitrator was not convinced about was the appropriateness of allowing recovery using the Emden formula. He was not rejecting the claim in its entirety or failing to find that there was no loss or under-recovery of unabsorbed overheads. The argument he was rejecting, was one that "concerned" such an under-recovery. In other words, he was rejecting the argument concerning the quantification of such a loss, he was not rejecting a claim for its recovery in principle nor was he rejecting the claim that some such loss had occurred.

4. The arbitrator, having found in paragraph 7.10 that loss was suffered because of the matters summarised in paragraph 7.05, then linked that loss with an acceptance of the principle of the Emden formula. Since he already had, in paragraphs 7.01 and 7.02, accepted that a formula was a realistic way of recovering for a claim for "loss of contribution to overhead recovery", the finding in paragraph 7.10 must be taken to be referring, at least in part, to such a loss.

4.4 The Finding that Additional Overheads had been Incurred

345. NHC's argument is that the arbitrator could only make a finding that additional overheads had been incurred by virtue of the period of delayed working if the actual costs incurred were identified and made the subject of a finding. It was not sufficient to make these findings:

"I am satisfied that the delay ... did involve [CWS's] Head Office employees in some additional costs."

and

"I am satisfied that [CWS] has suffered a loss ..."

39. These are findings of primary fact interlaced with findings of fact inferred from the primary facts. They cannot be questioned in this appeal.

4.5 Was the Arbitrator Entitled to use a Formula to Ascertain Direct Loss and/or Expense?

4.5.1 Unabsorbed Overheads

346. I should first set out the clause of the Sub-Contract under which the relevant part of the award was made. It reads as follows:

"If the regular progress of the Sub-Contract Works is ... materially affected by any one or more of the Relevant Matters referred to in clause 13.3 ... the agreed amount of any direct loss and/or expense thereby caused to the Sub-Contractor shall be recoverable from the Contractor as a debt." (clause 13.1)

347. NHC's argument was that the necessary foundation for assessing loss and expense using a formula geared to CWS' overhead recovery from its overall turnover was not to be found in the arbitrator's findings of fact. Several formulae are now available for calculating loss represented by a loss of a contractor's contribution to overheads. The principal formulae are Hudson, Emden and Eichleay. The basis upon which such a formula is adopted is explained in Hudson as follows:

"A contactor pricing an individual project, ... after providing for the estimated total "prime-cost" of all kinds which will be required to carry out the contract itself, (any part of which may potentially be shown to increase as a result of an owner's breaches, and will include, for example, supervision or other time-related or quantities-related and therefore "job-related" site overheads or preliminaries) must then additionally estimate for a combined operating margin on his total prime-cost which will not only produce his required net or "pure" profit, but will also serve to make an appropriate contribution, together with that from his other projects, to the fixed overheads of the enterprise as a whole (which, like his "pure" profit, can only be funded from the combined turnover of all his various contracts of the enterprise)."

"... in the case of a delayed contract, where the concern is to ascertain the "profit" which the delayed contract organisation might have expected to earn elsewhere in the market on other contracts, it is this necessary combined operating margin of profit and fixed overhead which, in appropriate market conditions, the contractor's enterprise will have lost as a consequence of the period of owner-caused delay on the individual project, to which he will be entitled to damages. It is the purpose of the Hudson and Eichleay formulae to offer a reasoned calculation, derived from the contractor's own annual accounts or other available information, ...[of this loss]."

348. The underlying assumptions which must be proved in evidence before one of the formulae may be used for quantifying such loss, which is sometimes called "unabsorbed overheads", were set out by Judge LLoyd Q.C. in McAlpine v. Property and Land Contractors as follows:

"Furthermore the Emden formula, in common with the Hudson formula ... and with its American counterpart the Eichleay formula, is dependant on various assumptions which are not always present and which, if not present, will not justify the use of a formula. For example the Hudson formula makes it clear that an element of constraint is required (see Hudson at paragraph 8-185) ie in relation to profit, that there was profit capable of being earned elsewhere and there was no change in the market thereafter affecting profitability of the work. It must also be established that the contractor was unable to deploy resources elsewhere and had no possibility of recovering the cost of the overheads from other sources, eg from an increased volume of work. ..."

"... in the case of delay to the completion of a construction contract, there will be some "under recovery" towards the cost of fixed overheads as a result of the reduced volume of work occasioned by the delay, but this state of affairs must be established as a matter of fact. If the contractor's overall business is not diminished during the period of delay so that whether, for example, as a result of an increase in the volume of work on the contract in question arising from the variations etc or for other reasons, there will be a commensurate contribution towards the overheads which offsets any supposed loss, or if, as a result of other work, there is no reduction in overall turnover so that the cost of the fixed overheads continues to be met from other sources, there will be no loss attributable to the delay. Put another way, this aspect is brought out in the comparable proposition that the contactor has to show that there were no means of reducing the unrecovered cost of the fixed overheads in the circumstances in which he found himself as a result of the events giving rise to the delay. Where a contractor is busy and is taking on work all the time, it will probably not be possible to demonstrate the effect to which I have referred. Furthermore, it has to be borne in mind that certain overheads are incurred through thick and thin, so a contractor's head office staff may not always be constantly occupied because of, for example, the seasonal or cyclical nature of business in the construction industry."

349. The necessary ingredients for establishing an entitlement to a formula-type recovery are also set out in Keating on Building Contracts as follows:

"But for the delay, the workforce would have had the opportunity of being employed on another contract which would have had the effect of contributing to the overheads during the overrun period. There is some authority that a claim on this basis is sustainable. But it is suggested that, in order to succeed, a contractor has in principle to prove that there was other work available which, but for the delay, he would have secured but which in fact because of the delay he did not secure. He might do this by producing invitations to tender which he declined with evidence that the reason for declining was that the delay in question left him insufficient capacity to undertake other work. He might alternatively show from his accounts a drop in turnover and establish that this resulted from the particular delay rather than from extraneous causes. ...".

350. Thus, an Emden-style formula is sustainable and may be used as the basis of ascertaining a contractor's entitlement to payment for loss and/or expense in the following circumstances:

1. The loss in question must be proved to have occurred.

2. The delay in question must be shown to have caused the contractor to decline to take on other work which was available and which would have contributed to its overhead recovery. Alternatively, it must have caused a reduction in the overhead recovery in the relevant financial year or years which would have been earned but for that delay.

3. The delay must not have had associated with it a commensurate increase in turnover and recovery towards overheads.

4. The overheads must not have been ones which would have been incurred in any event without the contractor achieving turnover to pay for them.

5. There must have been no change in the market affecting the possibility of earning profit elsewhere and an alternative market must have been available. Furthermore, there must have been no means for the contractor to deploy its resources elsewhere despite the delay. In other words, there must not have been a constraint in recovery of overheads elsewhere.

351. These requirements were present in relation to the loss found to have occurred, which finding is contained in the findings which I have summarised in paragraph 342 above. This can be seen from a comparison of that loss and the factors I have summarised in the paragraph 350. I will briefly undertake this comparison.

1. Loss has been proved to have occurred.

352. The arbitrator has found in unequivocal terms that:

"As stated in paragraphs 7.05 ..., I am satisfied that [CWS] has suffered a loss ..." (paragraph 7.10).

40. In paragraph 7.05, the arbitrator included this finding:

"... I am satisfied that the delay of 19 weeks in the completion of this contract ... did involve [CWS's] Head Office employees in some additional costs. ... I do not believe that this additional time would have had to have been spent on this contract ... (It is reasonable to assume that the extra time spent on this contract would have been spent productively on other contracts...).".

41. These findings of fact are not challengeable in this appeal.

2. The delay caused a loss of turnover.

353. I have already found that the arbitrator had himself made a finding that the loss of productive management time caused, or created, a significant likelihood, that overhead recovery on other contracts was diminished. If such a reduction in recovery was caused by the delay on this contract, this requirement is established. If the arbitrator's finding was merely to the effect that the possibility of such a loss was substantially increased, that would still be sufficient to carry a reduced award of damages. The reduction would be such as to reflect the degree of likelihood that that the delay caused the loss.

354. The ability to recover reduced damages where there was a likelihood but not a certainty of loss having been caused arises from the case of Allied Maples Group Ltd. v. Simmons & Simmons. The decision is helpfully summarised in Chitty on Contracts as follows:

"Where the plaintiff claims that he himself would have acted in a particular way, he must prove it on the balance of probabilities. ... But where the plaintiff claims that, if the defendant had fulfilled his obligation, an independent third party would have acted in a particular way, he need not prove that hypothetical action on the balance of probabilities. Provided that the plaintiff can prove that there was a "real" or "substantial" (not speculative) chance of the third party's action, the court must assess the chance of that action resulting (usually a percentage), and then discount the plaintiff's damages for his loss by reference to that chance."

355. In this claim by CWS, it is not a situation where CWS need merely establish how it would have acted but for the delay. CWS must, instead, establish a number of inter-related facts:

1. That its senior management, who spent time on this contract in the period of delay, would have spent that time on other contracts on which CWS was working at the time.

2. Had that time been spent in that alternative way, the administrative tasks that would have been undertaken on those other contracts would have caused a variety of people and a variety of contractors and suppliers with whom CWS were working with to have performed more speedily, economically and efficiently such that CWS's profit from those contracts would have improved. Only some of these individuals and companies would have been within CWS's control.

3. As a result of CWS's additional profitability, it would have earned a greater contribution to its overheads from these contracts than it actually did.

356. Since CWS must, as part of the train of events it must establish, prove that third parties would have acted in a different way had it devoted more of its management time to these other contracts, the Allied Marples criteria for the recovery of reduced damages, proved on the basis of a "substantial chance", have been established.

3. No commensurate increase in overhead recovery.

357. Since no variations are associated with the period of 9 weeks' delay, this bar on recovery does not arise.

4. Overheads incurred in any event.

358. The overheads would have been incurred in any event, but there would have been additional turnover to help meet them but for the delay.

5. Constraint on overhead recovery.

359. There was no constraint on overhead recovery on these other contracts. The arbitrator accepted that CWS was trading reasonably profitably during a period of intense competition in the construction industry, that CWS had a significantly greater turnover in the relevant period than it had budgeted for and that its overhead recovery from this turnover was a significant under-recovery compared to its projected recovery. The only doubt in the arbitrator's mind was as to how much of that under-recovery was caused by the delay. As he saw the situation, at least some of the under-recovery might have been caused by such factors as CWS tendering for the other work at too low a price and pricing its overheads on this contract too keenly.

360. It follows that a formula-based recovery was, in principle, available for the part of the loss which represented unabsorbed overheads.

4.5.2 Additional Overheads

361. NHC's complaint about the part of the award concerned with the additional overheads found to have arisen, namely the cost of management time and the head office costs that were expended in the period of delay, was that these could not be quantified by means of a formula at all. NHC placed reliance on passages in Judge LLoyd Q.C.'s judgment in the McAlpine case. These passages included this one:

"... a loss must be proved and not left to be a matter of speculation ... a loss in respect of overheads in a period of delay must be proved to be caused by a reduction in turnover which in turn is directly attributable to the delay."

362. However, NHC's submissions confuse proof of loss and the quantification of that loss once its existence has been established. Judge LLoyd's judgment is not concerned with the latter. It is concerned with showing that it is not axiomatic that because delay occurred, loss of additional overheads must also have occurred. In this award, the arbitrator has made unimpeachable findings of fact that the heads of loss were incurred. It was then open for him to quantify those losses in general terms without CWS having to prove the precise number of hours worked by management or the precise number of units of electricity used up. This is clear from this passage from Hudson:

"It is the purpose of the Hudson and Eichleay formulae to offer a reasoned calculation, derived from the contractor's annual accounts or other available information, as some improvement on the "general (and perhaps conjectural) sum for loss of business" envisaged by Asquith L.J. as being reasonably recoverable under the first branch of the Hadley v. Baxendale rule in the Victoria Laundry case."

4.5.3 The Formula Adopted

363. The arbitrator has assessed CWS's loss as being one-fifth of that allowable under the Emden formula. This loss assessment is a composite assessment for both of the types of loss that he has found occurred. NHC argues that it is not open to the arbitrator to assess CWS's loss in this way. There are three stands to this objection.

1. A reduced formula for unabsorbed overheads.

364. This objection is to the effect that the arbitrator was not entitled to award a reduced formula since there was no evidence of loss in this reduced amount. However, as I have already pointed out, if the arbitrator found that there was a substantial chance of CWS having been caused loss by from being unable to benefit from the actions of third parties, the damages should be reduced proportionately to the size of the chance of such a loss being sustained. Since the arbitrator did make such a finding, it was open to him to take the Emden formula and discount it substantially.

2. A formula-based assessment for additional overheads.

365. This objection is derived from the judgment of Judge LLoyd in the McAlpine case where, in relation to an assessment of direct loss and/or expense represented by additional overheads, Judge LLoyd stated:

"Furthermore "to ascertain" means to "find out for certain" and it does not therefore connote as much use of judgment or the formation of an opinion had "assess" or "evaluate" been used. It thus appears to preclude making general assessments as have at times to be done in quantifying damages recoverable for breach of contract. In [a passage in the award that was the subject of the appeal Judge LLoyd was considering] the arbitrator gave the clause [clause 26 of the JCT Main Contract which contains the same expression 'direct loss and/or expense' as occurs in clause 13.1] the same interpretation:

'Practitioners are generally sceptical about the application of such formulae on the grounds that it is the actual loss and expense which is admissible and the contractor must specify which has been incurred. It is clear in my mind that this was the intention of the JCT standard form in respect of clause 26'"

365. This approach to the expression does not rule out the use of a formula to ascertain the loss and expense arising from the expenditure of additional overheads in this case for these reasons:

1. Clause 26 of the JCT Main Contract requires the architect or arbitrator to "ascertain" the relevant loss. As Judge LLoyd pointed out, this word means "to find or learn for a certainty by experiment, examination, or investigation, to make sure of, to get to know", relying on the Oxford English Dictionary meaning of that word. By way of distinction, clause 13.1 of the Sub-Contract requires the parties to "agree" the loss an expense. In default of agreement, the arbitrator must determine what the parties should have agreed, namely what is to be reasonably regarded as the relevant loss. In an appropriate case, that agreement might be reflected by a formula-based calculation.

2. The arbitrator has made clear findings as to what the loss was and as to what overhead expenditure CWS incurred. In those circumstances, the ascertainment of the relevant loss could well be undertaken as the arbitrator did, using the formula he did.

3. The ascertainment is one involving findings of fact which are unchallengeable on appeal. These findings are primary ones, not involving an element of mixed law and fact.

3. Combining both elements of loss in a single formula

367. The decision to use one appropriate formula for both heads of loss, its make-up and the ascertainment of the appropriate sum are questions of fact for the arbitrator. The combination of two or more heads of loss in a single calculation, where the breaches causing all losses are the same, is a well-recognised technique in the assessment of building contract damages. For example, in Crosby v. Portland Urban District Council, an award of damages of one lump sum partly for extended overheads and partly for loss of productivity was upheld. The arbitrator had found that it was impracticable, if not impossible, to assess each in isolation. Donaldson J. held that where separate heads of loss had been caused by matters for which the employer (or, as here, the Contractor) was responsible, if there had been no duplication of recovery when the loss had been assessed globally, there was no basis for attacking the award. It follows that the approach of the arbitrator is one which cannot be faulted since he has found that these individual components of the claim cannot be separated.

5. Plant Hire Charges

5.1 The Question of Law Proposed by NHC

368. The question of law proposed by NHC was as follows:

"Was the arbitrator entitled to make an ascertainment of the direct loss and/or expense resulting from the use of plant during the periods of delay other than on the basis of the amounts actually incurred or lost by CWS?"

369. Yet again, the question is in leading form and makes a supposition which is not correct, or, at the least, may not be correct. This is to the effect that the method of ascertainment was on some basis other than: "the amounts actually incurred by CWS." If the question is taken to ask what basis of remuneration was adopted by the arbitrator and, if this was one based on something other that the amounts actually incurred by CWS, was it a permissible basis, the question is unobjectionable.

5.2 CWS's Objections to the Proposed Formulation of the Question of Law.

370. CWS contends that the proposed question is much more wide-ranging in its ambit than the original grounds of appeal. According to CWS, these only referred to the paragraph in the award which was concerned with Delaying Event no. 9, which was concerned with delay of 2 weeks. NHC contends that although this delaying event was the only one expressly referred to, the grounds of appeal were intended to refer to all delaying events for which additional plant hire costs, assessed on the same basis as those for Delaying Event no. 2, were awarded. In my view, the grounds of appeal are intended to be comprehensive in their ambit, it would have been unduly repetitious for NHC to set out each Delaying Event separately, given that precisely the same question arises in relation to each where plant hire charges were awarded and the grounds of appeal should be taken to refer to each of them.

5.3 NHC's Contentions

371. CWS, in the Points of Claim, claimed loss and expense under clause 13.1 of the Sub-Contract Conditions for the cost of plant used on site during the relevant periods of delay. The arbitrator accepted this approach in his award. For each relevant period he first found what plant was in use on the site. He then ascertained which plant was hired and the relevant hire charges. For the remaining plant, owned by CWS, he took the charges put forward by Mr. Evans, CWS's expert. These figures were "market rates, less 10% for inflation, less 20% discount". These various individual rates where then totalled up into a weekly rate used for that particular period of delay.

372. This approach was argued to be wrong in law since it did not amount to the assessment of loss. Loss, in relation to plant used on site during a period of delay for which a Contractor has to reimburse the sub-contractor was considered in another part of the McAlpine case by Judge LLoyd, albeit in the context of a claim against an Employer by the Main Contractor under clause 26 of the JCT Main Contract Conditions. Judge LLoyd held as follows:

"Where plant is owned by the contractor which would not have been hired or which was not able to be hired out the ascertainment of loss and expense must be on the basis of the true cost to the contractor and must not be hypothetical or notional amounts. An ascertainment needs to take account of the substantiated cost of capital and depreciation but will (or may) not include elements which are included in hire rates and which are calculated, for example, on the basis of the plant will be remunerative for only some of the time and other times be off- hire. Hire rates are usually higher for that reason alone and also, because the rates are overall rates and therefore include elements which may not be incurred by a contractor owning the plant of hire, their application over a period of any consequence will almost certainly produce figures higher than the true loss or expense incurred by the contractor whose own plant is tied up for the same period."

373. Adopting the same reasoning, NHC argued that it was not appropriate to take notional hire rates for the plant owned by CWS, as the arbitrator did in adopting the figures put forward by CWS's expert which he had admitted, in cross-examination, had been prepared without having taken this decision of Judge LLoyd's into account.

374. CWS contends that the findings being questioned are findings of fact. Moreover, the arbitrator did not award hire rates but merely took those as his starting point and discounted these for inflation and for what was described as "20% discount". This was to assess actual cost to CWS and was a finding that amounted to a reasonable valuation of CWS's actual costs.

5.4 The Question of Law Answered.

375. I accept that the process of ascertaining loss, when it involves the application of primary facts to a defined method of ascertaining loss, is a mixed question of law and fact. The only part of that process which gives rise to a question of law, however, is whether the method chosen is capable of defining the loss that has been caused to CWS.

376. The arbitrator accepted CWS's figures. In paragraph 8.04 of the award he states that:

"I have taken Mr. Evans' claim as a basis but I have borne in mind Mr. Pickavance's figures also. ... Regarding plant, I consider the figure put forward by Mr. Pickavance to be far to low and, on a Contract of this size I believe the figure of £920.82 to be reasonable."

377. Both parties accept that the arbitrator's task was to arrive at a figure which represented CWS' loss. NHC's argument, based on the reasoning of Judge LLoyd in the McAlpine case, was to the effect that the only loss, and the only way of assessing that loss, for CWS' own plant, was to ascertain the capital costs, if any, and the depreciation costs for that plant in the period of delay. That argument overlooks a number of features of this case which have a bearing on the ascertainment exercise the arbitrator had to undertake. These were:

1. The plant consisted of a combination of owned plant and hired plant, thereby making the exercise a more complex one than would have been the case had all the plant been hired.

2. The "hire rates" referred to by NHC were severely discounted hire rates. Indeed, they were not really hire rates at all but built up rates by the arbitrator to reflect the use of plant on "a Contract of this size".

3. The arbitrator was determining what the parties should have agreed to be the appropriate loss and expense to be awarded, given the wording of clause 13.1 of the Sub-Contract Conditions. This was a different exercise to that Judge LLoyd was concerned with in the McAlpine case where he was ascertaining himself what the loss and expense was.

4. The parties, in carrying out the hypothetical exercise the arbitrator had to conduct, would have had these matters in mind:

(1) This was a revaluation and remeasurement contract. The use of plant and the remuneration for the use of plant in a period of delay could have been, as the arbitrator found:

"...by adjusting the unit rates, so that no Loss and Expense claim would be necessary. In practice this is not feasible ..." (paragraph 5.01)

(2) The exercise was, therefore, to remunerate for the loss arising from the use of plant coupled with the loss of a remuneration exercise under clause 16 for the loss of that plant. Since it would be unfair to award CWS less under clause 13 than could have been awarded under clause 16, given that the former valuation exercise was being undertaken merely because the latter was "not feasible", a valuation under clause 13 similar to that available under clause 16 can be seen to provide an appropriate ascertainment of CWS' loss.

(3) Under clause 16, CWS would have been entitled to a fair valuation where, as here, the use of the existing rates would not have provided a basis for evaluating for the use of the plant. A fair valuation could have involved the use of hire rates as a starting point.

378. It follows that the finding by the arbitrator was not one which can be shown to be one based upon a method of ascertainment which was clearly wrong and unsustainable. NHC has, moreover, a further difficulty. The finding that the loss was best represented by the use of heavily discounted current market hire rates was a finding of primary fact which is not open to challenge. This is particularly so given that the challenge could only be mounted at all if NHC was able to make reference to the contents of Mr. Evans' report submitted in evidence, to passages in his cross-examination and to extracts from the pleadings, none of which were brought within the confines of the reasons of the arbitrator. This material I looked at but it is "forbidden fruit" so far as an appeal is concerned and I disregard it.

5.6 Conclusion

379. CWS is correct in submitting that NHC's complaint is essentially one of valuation, there is nothing in the award to show that the arbitrator misapplied the wrong principles and his award amounted to a finding he was entitled to make that the sum awarded was a reasonable valuation of CWS's actual costs in the absence of better evidence.

380. The findings were, therefore, ones that the parties should themselves have reached agreement to under clause 13.1 and insofar as a question of law has been raised at all by NHC, the answer to it is that the arbitrator was entitled to undertake the ascertainment he did.

PART E. RETENTION AND DISCOUNT

6 Retention

6.1 The Question of Law Proposed by NHC

381. The question of law proposed by NHC was as follows:

"Does the arbitrator have jurisdiction to make an award in respect of a matter which was not a dispute or difference between the parties at either the date of the Notice to Concur or the date of his appointment?

382. This is another question in leading form. It presupposes that the award, as to retention, was one that involved a resolution of a question which was not in dispute until after the date of the arbitrator's appointment. The question that is being posed by NHC is better regarded as one which, firstly, asks what was the dispute which was referred to the arbitrator, secondly, asks whether that question involved the arbitrator in determining whether retention should be provided for in the award and, thirdly, if so, asks whether there was an error of law in the award since the arbitrator did not provide for retention.

6.2 NHC's Contentions

383. NHC contends that the arbitrator was appointed on 13th July 1995 by the President of the RICS and that appointment was accepted by each party soon afterwards. The appointment was made following, and by reference to, CWS's notification to NHC of the terms of the dispute that had arisen between the parties in a letter from its' solicitors dated 8th June 1995. The relevant dispute was notified in paragraph (i) of the list of disputes between the parties which read:

"(i) The Final Account for the mechanical and electrical installation works submitted to yourselves periodically up to 17th January 1995."

42. This dispute did not include a dispute as to NHC's entitlement to deduct the second moiety of retention money, this had been deduct from all interim payments, this moiety being 1 1/2% of the various sums agreed to be paid as interim payments. Therefore, NHC were entitled to withhold 1 1/2% of the sum awarded to CWS as the sum "due on the Final Account". The retention was not being claimed in the arbitration, there was no dispute as to NHC's entitlement to withhold this sum and it only became due once a Certificate of Making Good Defects was issued under the Main Contract, an event which occurred in August 1996, long after the arbitrator had been appointed.

384. The award did not deduct anything for retention. Thus, it contained an error of law, namely that it awarded a sum not claimed and which only became due for payment after the appointment of the arbitrator. In so far as there was a dispute as to CWS' entitlement to payment of this sum, that only arose after the appointment of the arbitrator. Any award containing sums which only arose for payment and which gave rise to a claim and a cause of action arising after the arbitrator's appointment could not be included in the reference nor made the subject of an award in that arbitration. 6.3 The Question of Law Raised by NHC

385. The question of law raised by NHC is not clearly expressed. As expressed, the answer is evident since the question asks whether the arbitrator has jurisdiction to make an award in respect of a matter which was not in dispute at the date of his appointment. The answer is clearly no. The part of the award which is now disputed is the part which is alleged by NHC to "award the retention of £20,463.22 to CWS". However, the only passage in the award which deals with retention is this one:

"I understand that the Main Contract Retention was released in August 1996 but this money does not appear to have been passed on to the Claimant." (paragraph 15.10)

43. The sum of £20,463.22 was not the second moiety of retention that would have been retained if that part of the retention was capable of being withheld from the Ascertained Final Sub-Contract Sum determined by the arbitrator since that would have been 1 1/2% of £1,637,540.40 or £24,563.11. The sum referred to by NHC is that that had been withheld prior to the arbitration, namely 1 1/2% of the sums previously paid.

386. The question that NHC is raising is, on analysis, whether clauses 21.5 or 21.2.3 are applicable to the Ascertained Final Sub-Contract Sum determined by the arbitrator.

6.3.1 Clause 21.5

387. Clause 21.5 reads as follows:

"21.5 The Retention which may be deducted and retained by the Contractor shall be ascertained as follows:

...

21.5.2 where the Main Contract Works have reached practical completion but in respect of which a Certificate of Completion of Making Good Defects under clause 17.4 of the Main Contract Conditions ... has not been issued, the Retention which the Contractor may deduct and retain as referred to in clause 21.3.1 shall be one half the amount [3%] that would have been deductible under clause 21.5.1 if the Sub-Contract Works had not reached practical completion ..."

44. Clause 21.3.1 reads as follows:

"21.3 ... the amount of the first and each interim payment to the Sub-Contractor shall be the gross valuation as referred to in clause 21.4 less

21.3.1 an amount equal to any amount which may be deducted and retained as Retention by the Contractor in respect of the Sub-Contract Works in accordance with clause 21.5; ..."

6.3.2 Clause 21.2.3

45. Clause 21.2.3 reads as follows:

"Notwithstanding any other provisions of the Sub-Contract, payments shall be made within seven days of the Contractor receiving from the Employer on account of the Main Works any payment which includes a sum in respect of the Sub-Contract Works."

6.4 Application of the Law

388. The first matter to consider is what the terms of reference of the arbitrator were. NHC seeks to ascertain these from the notice to arbitrate served by CWS before the arbitrator was appointed even though this was not referred to in the award. Clearly, any consideration of whether the award contains findings which fall outside the ambit of this notice was not one arising out of the award but out of a document that is not part of the award. In the setting aside application no complaint was made that the award falls outside the terms of the reference contained in the pre-appointment letter. Any such complaint should have been a matter for that application, not one raised on this appeal.

389. It is clear, from the award, that the arbitrator was determining the Ascertained Final Sub-Contract Sum. This is the same thing as the "Final Account" which CWS inaccurately referred to in the reference to arbitration. This is clear from the terms of the award. The first part of the award, which was incorporated into the Final Award, was an award in relation to preliminary objections to the continuation of the reference taken by NHC. One of the directions given by the arbitrator was to the effect that there was no need for a reference to the court to determine various questions of law that NHC was, at that stage, contending arose. The particular question now relevant was this:

"On the true construction of the Sub-Contract is the consideration to be paid to [CWS] to be calculated in accordance with:-

(a) Clause 15.2 and Clause 17 and Clause 21.8 or

(b) Clause 15.1 and Clause 16 and Clause 21.7?"

390. The significance of this question was that CWS and NHC had operated the Sub-Contract during the course of the Works as if it was a lump sum contract rather than a remeasurement contract. The Sub-Contract Conditions contain alternative provisions for both situations and the parties have to adopt one or other of these alternative provisions when filling in the blanks in the Articles and Conditions before entering into the Sub-Contract. The parties clearly opted for a remeasurement exercise but, as the arbitrator subsequently recorded, then proceeded to operate the contract on the alternative basis. The award explains what happened as follows:

"It seems clear, from the actions of the Claimant that, throughout the Contract period and for many months thereafter, both he and his solicitors believed that the Works were not to be remeasured. As late as October 1995 - 18 months after practical completion, [CWS] and his advisors appeared still to be convinced that the sub-contract was not subject to remeasurement. In October 1995 they were still referring to "the Variation Account" and their figures - at that time - indicated that they were working on an "add" and "omit" basis. [CWS] only made his position clear to [NHC] when [CWS] submitted his Amended Points of Claim in May 1996 and it appears likely that it was [NHC's] solicitors who drew [CWS's] attention to the fact that the Contract was on a remeasurement basis." (paragraph 15.02)

391. It was no doubt this drawing of CWS's attention to the remeasurement provisions of the Sub-Contract by NHC which led the arbitrator, at the meeting he held on 13th March 1996 to reach this determination of the application for a reference to the court of the issue of whether or not the Sub-Contract was subject to remeasurement:

"How is the Variation Account to be calculated. Following an examination of the Articles of Agreement (at the meeting on 13th March, 1996) I found as a fact that Clause 15.2 and Clause 17 and Clause 21.8 applies (i.e. the work is subject to complete re-measurement).

In my judgement Issue 4 [the issue of whether clause 15.1 or clause 15.2 was the governing clause] is not a matter for the Court."

392. Following this ruling, CWS served amended points of claim which set out its claim, namely a claim based on what it was contending was the Ascertained Final Sub-Contract Sum. The arbitration then proceeded on the basis that this Sum was in issue and that the arbitrator had to determine it. The Conditions define the Ascertained Final Sub-Contract Sum as the aggregate of the remeasurement exercise and the loss and/or expense payable to the Sub-Contractor and this is the Sum which the arbitrator determined in the award as follows:

"TOTAL AMOUNT DUE TO THE CLAIMANT.

£ p

(i) Value of Remeasured Work (from page 7) 1,472,024.57

(ii)Amount of Loss and Expense (from page 9) 165,515.83

1,637,540.40"

393. The significance of this is two-fold:

1. The dispute that the arbitrator ruled he had to determine, a ruling which NHC supported at the time and which was never subsequently challenged by NHC, was what was the Ascertained Final Sub-Contract Sum due to CWS, a Sum which had to be determined under clause 21.8 of the Sub-Contract Conditions.

2. Retention may not be taken from the sum determined to be the Ascertained Final Sub-Contract Sum. This is because clause 21.5, concerned with the withholding of retention, is only applicable to "the first and each interim payment to the Sub-Contractor", as is made clear in clause 21.3.

394. Thus, the only basis on which retention could be withheld is that £20,463.22 had been retained from interim payments and was still not payable at the date of the award despite the determination of the Ascertained Final Sub-Contract Sum. This conclusion arises because clause 21.9. provides that the Final Payment shall be due not later than 7 days after the date of issue of the Final Certificate issued by the Architect under clause 30.8 of the Main Contract and shall be paid within 14 days of the date it becomes due. Since the Main Contract was finally brought to an end by the compromise of the Main Contract arbitration in December 1996, the date of issue of the Final Certificate must obviously be taken to be the date of that compromise. The Final Payment is required to be:

"...the total amount of the Sub-Contract Sum calculated in accordance with clause 21.8 less only:

21.9.1.1 ... any discount specified in the Appendix ...

21.9.1.2 the total amount previously paid in the first and any interim payments in respect of the Sub-Contract Works."

395. It follows that the arbitrator was correct to ignore the retention previously withheld. In any case, even if clause 21.2.3 is a pay-when-paid clause, which it is not, the previously retained sums were no longer capable of being retained by NHC since the equivalent retention which the Employer had retained under the Main Contract had been paid to NHC in August 1996, prior to the issue of the Final Award on 13th June 1997.

396. NHC contends that the date by reference to which the Final Award should be determined is the date of either the notice to arbitrate or the date of the arbitrator's appointment. However, the issue for the arbitrator was, as I have tried to show, what was the Ascertained Contract Sum and the concomitant question, what was the Final Payment? These questions are not dependant on fixing the reference-point for their determination at some date earlier than the Final Award since the answers are the same whenever the questions are posed. In answering these questions, the arbitrator is seeking to ascertain the final and complete value of the Works and the consequent final payment due to CWS. Thus, what sum could legitimately have been retained by NHC at some earlier stage in the contract had no relevance to the arbitrator's task. The arbitrator correctly ignored retention in determining his answers to these questions in the Final Award.

7 Discount

7.1 The Questions of Law Proposed by NHC

397. The questions of law proposed by NHC were as follows:

"1. Upon the true construction of the Sub-Contract, is NHC entitled to the "First Discount" and the "Second Discount" as defined by the arbitrator?

2. In relation to the "First Discount" is NHC's entitlement dependent upon timeous payment?"

3. If any discount is "lost" by reason of late payment of a particular instalment, can discount be clawed back by prompt payment of a subsequent or final instalment?"

7.2 NHC's Questions Analysed

398. The arbitrator disallowed any discount entitlement to NHC. The "First Discount" is the traditional discount normally available to a Contractor if payment of any instalment of the Ascertained Contract Sum, or any interim payment, is paid promptly. The arbitrator disallowed any discount because:

"My understanding of the matter is that [NHC] did not pay [CWS] on time to qualify for the 2 1/2% Cash Discount ..."

399. Four questions arise:

1. Was the discount linked to an obligation to pay promptly?

2. Was the disallowance of any discount on account of late payment capable of being clawed back by a subsequent prompt payment?

3. Was there any evidence of late payment?

4. Was there provision for a second discount?

46. Both parties accept that there is a provision for the deduction of 2 1/2% discount. The question is whether it was qualified by an obligation to pay promptly and, if so, what the nature of that qualification was.

7.3 Prompt Payment

7.3.1 The Sub-Contract Provisions Concerning Discount

400. The provisions concerned with discount are somewhat discordant. The starting point is Article 2.2 which provides that the Tender Sum is £1,447,316.03 and continues:

"which sum takes into account any cash discount specified in the Appendix, part 7, and allowable to the Contractor under Sub-Contract DOM/1 ..."

47. Part 7 of the Appendix reads as follows:

"Clause 21

21.3.2 Cash Discount Two And A Half Percent %"

48. Clause 21, so far as material, reads as follows:

"21.3 ... the amount of the first and each interim payment to the Sub-Contractor shall be the gross valuation ... less

...

21.3.2 (if payment is made as provided for in clause 21.2) any cash discount specified in the Appendix, part 7, in respect of the amounts specified in clause 21.4.1 and which have not previously been paid; ..."

49. Clause 21.2 provides that the first payment shall be due not later than one month after the date of commencement of the Sub-Contract Works on-site and that interim payments shall be due at intervals not exceeding one month calculated from the date when the first payment was due.

401. There is also a provision for discount in relation to the Final Payment as follows:

"21.9.1.1 (if payment is made as provided in clause 21.9.2 [namely within 14 days after the Final Payment becomes due]) any discount specified in the Appendix, part 7, in respect of any amounts to which clause 21.4.1 would have applied if those amounts had been included in an interim payment provided that such amounts have not previously been paid; ..."

402. Finally, it is necessary to have regard to clause 21.2.3 which reads:

"Notwithstanding any other provisions of the Sub-Contract, payments shall be made within seven days of the Contractor receiving from the Employer on account of the Main Works any payment which includes a sum in respect of the Sub-Contract Works."

7.3.2 NHC's Submissions

403. NHC submits that the effect of deleting the word "cash" from the Articles and part 7 of the Appendix is to remove any link between prompt payment and the right to discount. This argument is made for three reasons:

1. By omitting the word "cash" from the definition of the appropriate discount in part 7 of the Appendix, the parties were severing the entitlement to discount from any obligation to pay instalments promptly. There could be no other purpose in this deletion.

2. The decision of the Court to Appeal in Team Services plc v. Kier Management and Design Ltd. shows that the words that have been deleted in a standard contract can be considered when construing the words that remain to aid the construction of those words.

3. The additional "one-off" clause 21.2.3 has turned the Sub-Contract into a pay when paid contract. This has provided a good commercial reason to remove the time-link from the discount provision since that turned NHC into a conduit from the Employer to CWS, so far as payment was concerned. In consequence, NHC would want to protect themselves by removing this time-link from the entitlement to take discount.

404. The difficulty with NHC's argument is that, if it is correct, there is no provision which entitles NHC to deduct the discount from any payment. As can be seen from the extracts from clause 21 set out above, discount may be deducted, but only if the relevant payment has been made in accordance with, respectively, clauses 21.2.1 or 21.9.2. NHC points to two different provisions which are alleged to fill this gap and provide for the taking of discount. These are:

1. Clause 21.8.2. This clause deals with the contents of the Ascertained Final Sub-Contract Sum which:

"... shall be the aggregate of the following:

...

21.8.2.5 any other amount which is required to be included or taken into account in computing the Ascertained Final Sub-Contract Sum"

50. According to this argument of NHC, the discount of 2 1/2% is required to be taken into account because Article 2.2 provides that the Tender Sum there defined "takes into account" the discount specified in part 7 of the Appendix.

51. There are two difficulties with this argument. Firstly, clause 21.8.2 is concerned with sums to be aggregated to provide for the Ascertained Final Sub-Contract Sum. On NHC's construction of clause 21.8.2.5, a discount can be taken into account in the aggregation exercise by deducting it from the Sum produced by the other aggregations provided for in clause 21.8.2. That does not make sense since, if this argument is correct, an "aggregation" would include a "deduction". Secondly, the "takes into account" formula is part of the unamended Article 2.2, therefore it applies to cash discounts in the normal, unamended case. If so, clause 21.8.2.5 applies in all cases, thus discount will always be deducted automatically and clause 21.2.1 will never have any practical effect.

2. Clause 21.9.1.1. This requires the Final Payment to be

"less ... any discount specified in the Appendix, part 7."

52. However, part 7 of the Appendix is expressly linked to clause 21.3.2 which links discount with payment in accordance with the provisions of clause 21.2, namely with prompt, monthly payment.

405. It follows that there is no express provision for the deduction of discount, if NHC's argument is correct. There is another difficulty in NHC's argument. It is based on the suggestion that, by virtue of clause 21.2.3, the Sub-Contract is a pay when paid contract. However, that is not the effect of clause 21.2.3. That provision has to be read alongside clauses 21.1, 21.2.1 and 21.2.2, all of which remain in the Sub-Contract despite the addition of the one-off clause 21.2.3. As a result, the overall payment obligation of NHC may be summarised as follows:

1. Payments will be made monthly.

2. Additionally, if payment is received at any other time from the Employer of any sum which "includes a sum in respect of the Sub-Contract Works" which has not yet been paid to CWS, that must be paid outside the monthly payment sequence, within 7 days of its receipt by NHC.

406. A further difficulty for NHC is that its argument is partly premised on the assumption that there could be no purpose for the deletion of the word "cash" unless it was to remove the condition precedent of timeous payment from the entitlement to take discount. However, a purpose could well be to entitle discount to be taken into account when a payment is made by means of a set-off. Thus, if NHC does not make a payment because it has a set-off, it can still take advantage of the discount in any accounting exercise.

407. The plain fact is that there is a conflict between Article 2.2 and part 7 of the Appendix on the one hand and clause 21.3 on the other, given the absence of the word "cash" in the former provisions and its presence in the latter provision. When the parties amended the former provisions, they appear to have overlooked the need to make a similar amendment to the latter provision. Fortunately, the Conditions allows for such difficulties. Clause 2.2 provides as follows:

"If any conflict appears between the Sub-Contract Conditions and the Appendix, then the Appendix shall prevail."

53. This provision provides a self-correcting mechanism in the case of a conflict. Where, as here, such a conflict occurs, the parties have provided that the wording of the Appendix should prevail with the result that clause 21.3 should be read as if the word "cash" had been deleted from it. If that is done, discount is deductible, but only if NHC has made payment, or taken an appropriate allowance, in accordance with clauses 21.2.1 or 21.9.2.

7.4 Was There Provision for a "Claw-Back"?

408. NHC maintains that even if discount may only be taken when payment is made promptly, discount on all sums previously paid may be taken on the prompt payment of a subsequent instalment. This argument overlooks the express terms of the Conditions. Clause 21.2 requires each interim payment to be deducted separately from the sums previously certified. The arbitrator was only concerned with clause 21.9.1.1 since he was concerned to compute the Final Payment. This was the Ascertained Final Sub-Contract Sum less only:

"... the total amount previously paid in the first and any interim payments in respect of the Sub-Contract Works."

54. This is the same formula as appears in clause 21.3.3 for interim payments. The formula means that sums previously paid, to include any discount taken, must be deducted from the gross valuation arrived at. If discount has not been taken from a particular payment, it cannot subsequently be taken as part of a later prompt payment of a subsequent instalment of the value of the Works.

7.5 Was There Any Evidence of Late Payments During the Works?

409. Although NHC maintain there was no evidence of late payments during the Works, that is not the relevant question to ask in relation to the Final Award. The arbitrator, in computing the Final Payment, made this finding:

"Less amount already paid by [NHC] to [CWS] (as agreed) £1,343,751.46".

55. This sum represents the sums already paid. The only discount with which the arbitrator could be concerned is discount on the Final Payment, being the net sum left to be paid having taken into account the gross payments made previously. This is because discount on the Final Payment is regulated by clause 21.9.1.1, this is the only discount provision with which the arbitrator was concerned and it is concerned with discount on such part of the Ascertained Final Sub-Contract Sum which had not previously been paid. If there was an error whereby discount had not been taken when it should have been on any of these earlier payments, that could only have been corrected by a cross-claim made by NHC for that discount.

410. The finding that the Final Payment should be based on a gross valuation less £1,343,751.46 is a finding of fact and if there is any error in taking the sum to be deducted as £1,343,751.46, that is a factual error.

411. The resulting Final Payment of £277,930.22 did not rank for a discount withholding. There was a good reason for that, although not one given by the arbitrator. Clause 21.9.1.1 only allows discount to be taken from the Final Payment if this was paid as provided in clause 21.9.2. This clause requires payment to be made within 7 days of the later of the following events:

1. The date of issue of the Final Certificate issued under clause 30.8 of the Main Contract Conditions. The effective date for this was the final settlement of the Main Contract arbitration in December 1996, long before the Final Payment made pursuant to the Final Award.

2. When all the necessary documents under clauses 21.7.1 and 21.8.1 had been sent to NHC. The arbitrator has found, in the subsequent award as to interest, that CWS had calculated the remeasurement properly, and therefore, by inference, submitted the necessary documents to NHC, by 10th May 1996.

412. Thus, discount was not available from the Final Payment. As to the earlier payments, the arbitrator has found that the appropriate payments to deduct from the gross value under clause 29.9.1.2 was a sum which did not include discount. This is a finding of fact which was agreed to, according to the award, by NHC and cannot, in any case, be challenged since it is a finding of primary fact. This finding was then applied correctly to clause 21.3.3.

7.6 The Second Discount

413. NHC mounted an elaborate argument which sought to show that the wording of Article 2.2, read in conjunction with Schedules SR1-3, required a second discount of 2 1/2% to be deducted from the Ascertained Final Sub-Contract Sum. The basis of this argument that both the Tender Sum, as defined in Article 2.2, and the total of the schedule of rates set out in Schedules SR1-3 refer to a sum which has had discount removed from it. The wording of the two provisions are as follows:

1. Article 2.2:

"The Tender Sum is £1,447,316.03 less 2 1/2% discount which sum takes into account any discount specified in the Appendix, part 7."

2. Schedules SR1-3:

"Schedule of Rates - Summary ...

£1,424,239.11

Less 2.5% MCD on Measured Works Total -28,239.11

1,396,000.00"

414. On the natural and commercial meaning of these provisions, all that has been done is to calculate what discount would be available on the Tender Sum, the calculation being made on the assumption that its constituent parts are paid in accordance with clause 21.3.2, the clause specifically referred to in part 7 of the Appendix. This creates no assumption that the discount will be available to the Contractor, let alone an entitlement to take a second discount. This is clear once it is realised that the printed Articles of Agreement provide for the Tender Sum, where the contract is subject to remeasurement, or the Sub-Contract Sum, where it is subject to additions and omissions to the Contract Sum defined at the outset, both to be inserted as a figure which "takes into account discount". Thus, if there is available a Second Discount, it is always available and is not available only because of the special circumstances created by the Schedules of Rates. However, there is no term in the Conditions which refers to this Second Discount, the words of the Articles do not lend themselves to an interpretation that it exists and the words of the Schedules of Rates are sufficiently similar to the words of the Articles to show that it was intended that the Schedule of Rates would compute the Tender Sum on the same basis as the Tender Sum is computed in the Articles.

415. Thus, the so-called "Second Discount" is no more, on analysis, than the "First Discount" worked out in advance on the Tender Sum. As the work proceeds, the Tender Sum, including the discount built into it, is replaced by the various instalment payments followed, at the end of the contract, by the Ascertained Final Sub-Contract Sum with or without discount built into them, depending on whether the relevant payments were paid timeously. Thus, the question posed by NHC does not arise since there is no provision for a Second Discount at all.

PART F. CWS' CROSS-APPEALS

8 Loss And Expense

8.1 The Question of Law

416. This question of law arises out of the arbitrator's award that CWS should be awarded a two-week extension of time for delays caused by 3M and Abel Alarms but should not recover any loss and expense for that period. The question of law raised by CWS is:

"Was the arbitrator entitled to conclude that CWS would, for the period by which the Sub-Contract was delayed, not be awarded additional loss and/or expense incurred in weeks 23 and 24 therefor?"

417. The arbitrator concluded that he would not award loss and/or expense in this period, in doing so he used his "discretion, judiciously".

418. CWS's submission is that since the arbitrator found that 3M should be treated as if it was a Nominated Sub-Contractor, clause 11.10 should be taken to apply to these sub-subcontractors. In consequence, CWS should have been awarded loss and/or expense in this period.

8.2 The Question of Law Analysed

419. This question does not, on analysis, arise. I have already found that the effect of the arbitrator's findings is that the

56. Bills of Quantities in the Main Contract should be read as if the words "to be installed by 3M" and "to be installed by Abel Alarms" were added into the relevant item in Bill 10. This would have the effect that these companies are "Nominated Sub-Contractors" whenever these words appear in the Sub-Contract, even though they were, in fact, sub-subcontractors. On that basis, loss and/or expense is only recoverable if such loss is recoverable under clause 26.1 of the Conditions. However, loss and/or expense is only recoverable where:

"... the regular progress of the Sub-Contract Works is materially affected by any one or more of the Relevant matters referred to in clause 13.3 ..." (clause 13.1)

"13.3 A Relevant Matter shall mean any of the matters set out in the relevant provisions of the Main Contract for which the Contractor may be entitled to recover any direct loss and/or expense."

420. The relevant provision of the Main Contract is clause 26.1. This clause contains a long list of events but delay caused by a Nominated Sub-Contractor is not one of them. Thus, such delay does not give rise to a claim under clause 13.1 by the Sub-Contractor. The only basis of recovery by CWS for loss caused by a Nominated Sub-Contractor is under this provision of clause 13.1:

"If the regular progress of the Sub-Contract Works is materially affected by any act, omission or default of the Contractor, his servants or agents, or any sub-contractor, his servants or agents ...".

421. It follows that delays caused by these "Nominated Sub-Contractors" are not delays which fall within clause 13 at all, since they do not fall within either of the limbs of recovery, namely "other sub-contractors of NHC" or "Relevant Events". Thus, the arbitrator's award is consistent with the provisions of the Sub-Contract.

9 3-Weeks Delay

422. This ground of appeal is related to the finding that CWS should pay NHC's loss and expense for 3 of the weeks of delay in completing the Main Contract. This appeal arises because CWS contends that there was no necessary finding of a causal link between CWS's 3 weeks delay for which it was responsible and the delay in completing the Main Contract works which occurred much later.

423. The relevant findings of the arbitrator are set out in paragraph 13.02.

"... Furthermore I have seen no good evidence to substantiate [NHC's] claim ... I do not allow [NHC] any additional Site Running Costs for the specific period from 13th January to 18th February, 1994. This was a time when CWS was being prevented from completing his commissioning by 3M and others and long after [NHC], in his site minutes, stated that [CWS] "was progressing to completion". I therefore allow nothing in respect of [NHC's] Site Running Costs for this specific period."

424. The paragraph then concludes with a separate finding as follows:

"I am however satisfied that [CWS] did delay [NHC] by three weeks and I must therefore consider what fair and reasonable weekly sum should be paid by [CWS] to [NHC] in respect of [NHC's] costs during the 3-week period (which I have assessed as being during time-slice Events 17 and 28).

425. CWS's grounds of appeal are summarised in this way in Mr. Black Q.C.'s written submissions:

"Here the arbitrator found that there was a three-week delay which was the responsibility of CWS. That was a finding of fact which cannot be questioned. On the other hand, he found that NHC suffered no extended site costs by reason of any breach of contract by CWS. He then went on to award damages based on a proportion of those costs that he had just held were not attributable to any breach by CWS. It is submitted that it is an error of law to award damages where there is no link between the breach and the damage."

426. I am not concerned with the correctness or otherwise of the findings of fact out of which these findings arise. What is clear, however, is that the arbitrator has found that loss was caused to NHC by the 3-week delay of CWS, albeit that loss was not loss arising from site costs in January and February 1994. The loss was caused at a different period, arising out of CWS's delay in February and March 1993, when time-slice Events 17 and 28 were occurring. This is a finding of primary fact which, even if erroneous, and I have no basis for thinking that it was, cannot be the subject of challenge on appeal.

10 Interest

10.1 The Proposed Grounds of Appeal

427. CWS two grounds of appeal arise out of the arbitrator's special award as to interest dated 27th October 1997. The award as to interest can be summarised as follows:

1. As to the remeasured work, for which CWS was awarded a net sum of £108,941.11, the arbitrator awarded interest from 12th June 1996 until the date of the award.

2. As to the loss and expense, for which CWS was awarded £165,515.83, interest should be awarded as follows:

(1) On £20,000, from 18th April 1994 until the date of the award.

(2) On the balance, for a period of 18 months.

3. As to the counterclaim, for which he awarded NHC £15.858.72, interest should be awarded for the same period as for the bulk of the loss and expense, a period of 18 months.

428. The arbitrator gave full reasons for reaching these decisions. They may be summarised as follows:

1. CWS did not appreciate the Works were subject to be remeasured until May 1996 and did not take any steps to produce any even "remotely realistic figure" until May 1996. The reasons for using the May 1996 date plus a period of 28 days were as follows:

"... I believe both parties were to blame for the failure to remeasure. I am satisfied that (in these circumstances) NHC could not be expected to pay monies in respect of the Valuation of the Works before they had been calculated properly."

2. NHC knew that CWS had been delayed,had suffered loss and expense and that NHC was submitting a very large claim for loss and expense to the Employer. An "honest and reasonable" Contractor should have made some payments in those circumstances to the Sub-Contractor concerned during the course of, or at the end of, the contract period. In practice, a reasonable Contractor would have paid CWS an initial sum of, say, £20,000 on account at the end of the contract period. As to the balance, the award continues:

"[the payment of £20,000 acknowledges] the principle of [CWS's] entitlement to loss and expense but not accepting the quantum at this stage. Despite the contact requirements, in practice discussions and negotiations concerning Loss and Expense normally proceed throughout the maintenance period and for some considerable time thereafter (for a total period of (say) eighteen months). Even it there had been no major disputes it is unlikely that the balance owing to [CWS] would have been proved by him and been paid to him before then. During that period [CWS] would have had to produce detailed evidence of the Loss and Expense that he had suffered and I do not think that he had produced this necessary evidence before the end of the 18 month period referred to above."

3. The loss was suffered by NHC on or about 18th February 1995, the date of Practical Completion. However, NHC produce little evidence in support of the counterclaim. The award continues:

"In practice, I believe that discussions concerning the counterclaim would have proceeded in line with discussions concerning the claim for loss and expense and would have been settled 18 months after the contract completion date."

429. CWS's grounds of appeal, which were not finally formulated into questions of law, were as follows:

"1. Did the arbitrator err in law in finding that NHC could not be expected to pay CWS in respect of the valuation of the Works before it had been calculated properly?

2. Did the arbitrator exercise his discretion so as to reach a conclusion that no reasonable arbitrator properly directing himself as to the relevant criteria could have reached?

3. Was there any basis for awarding NHC any interest at all?"

10.2 Question 1 - Remeasurement

430. CWS contends that the relevant provisions are those relating to interim payments and that the various component parts of the sum awarded for remeasurement of the Works were payable monthly without any demand from CWS being required. Therefore, interest should have been awarded on the basis that the sums were due no later than the date of Practical Completion.

431. This submission overlooks two important matters:

1. The monthly payments, payable pursuant to clause 21.3 which provides:

"Subject to any agreement between the Sub-Contractor as to stage payments, the amount of the first and each interim payment to the Sub-Contractor shall be the gross valuation referred to in clause 21.4 ..."

2. The arbitrator's finding that:

"... neither party realised - until long after the works on site had been completed - that it was a remeasurement contract."

432. These factors, taken together, amount to a finding that the parties made an agreement, or acted on the basis of an agreed course of operation, which was to value the works for each interim payment as if the Tender Sum was the Contract Sum and to add to it and subtract from it. The parties only agreed to return to a remeasurement contract once CWS had submitted a revised Points of Claim in May 1996.

433. It follows that the first valuation on a remeasurement basis was for the computation of the Ascertained Final Sub-Contract Sum, which is separately provided for in clause 21.8 of the Conditions and which occurs after practical completion. The Final Payment, which results from this computation, is only first due for payment when all necessary documents for the purpose of computing the Ascertained Final Sub-Contract Sum have been sent by CWS to NHC. Since the amended Points of Claim was the first document produced by CWS which showed the computation of the remeasurement exercise and since CWS had not previously referred to its entitlement to a remeasurement, the first date upon which a Final Payment became due was when the amended Points of Claim were served.

434. It follows that the arbitrator was correct in taking the starting date for the payment of interest as a reasonable time, namely 28 days, after the service of the amended Points of Claim.

10.3 Question 2 - Remeasurement

435. This question does not arise since it is based upon a supposition that the date or dates upon which the amount awarded for the remeasurement exercise should have been paid when the interim payments were made. I have already shown that this was not the case. Therefore, an attack on the award for interest on the remeasurement exercise as being "Wednesbury" unreasonable is misconceived and fails.

10.4 Questions 1 and 2 - Loss and Expense

436. The same questions are raised for loss and expense. Here, the answer is different since loss and expense was not subject to the agreement, or agreed convention, that interim payments would not be calculated on a remeasurement basis. However, the arbitrator has made express findings that:

1. CWS did not produce detailed or sufficient evidence of the loss and expense suffered before the end of the period of 18 months starting with Practical Completion.

2. The normal date by which the bulk of a loss and expense claim on this type of contract first would become due and payable would be 18 months after Practical Completion.

437. Furthermore, loss and expense is only due for payment, pursuant to the provisions of clause 13.1, once the amount to be paid has been agreed between NHC and CWS. Therefore, in the light of the findings of the arbitrator to the effect that the loss and expense incurred by CWS could not first have been agreed until 18 months after Practical Completion, save for a small amount of £20,000 which could and should have been agreed by the date of Practical Completion, the arbitrator's findings as to interest payable on the loss and expense claim are unimpeachable.

10.5 Question 4 - NHC's Counterclaim

438. This question is based on the supposition that the arbitrator made findings in the Award to the effect that NHC suffered no loss and that there was little evidence to support the counterclaim. Thus, no interest should have been awarded to NHC.

439. The error in this submission is that it presupposes that no counterclaim should have been awarded to NHC, which is the basis of CWS's appeal against the Award. If, as the arbitrator held, and I upheld, NHC proved loss and, hence, an entitlement to an award on the counterclaim, that loss must have been incurred no later than Practical Completion and, in fact, much earlier, given the arbitrator's findings which I have already dealt with. Thus, an award of interest, based on the same reasoning as I have dealt with in paragraph 433 above, is both sustainable and within the arbitrator's discretion to make.

10.6 Conclusion

440. All grounds of appeal concerned with the awards as to interest fail and are dismissed.

PART G. CONCLUSIONS

11 Conclusion

441. The overall conclusions are that all questions of law are answered adversely to the party raising the relevant question and that, in consequence, the appeals brought by NHC and the appeals and cross-appeals brought by CWS all fail and are dismissed. The questions of law that I have dealt with in this judgment are set out in schedule 4 to this judgment.

H.H. Judge Anthony Thornton Q.C.

17th February 1998

SCHEDULE 4

THE QUESTIONS OF LAW ANSWERED IN JUDGMENT NO. 2 AND THE ANSWERS GIVEN.

1. Question:

57. What did the arbitrator mean in referring to work as 'uninstructed work etc.' in paragraph 15.10 of the award?

Answer:

58. This question has already been answered in Judgment No. 1 and is the subject of an issue estoppel. It does not call for answer in this Judgment.

2. Question:

59. Was the arbitrator entitled to include in the Final Award as to the Ascertained Final Sub-Contract Sum amounts in respect of uninstructed work in circumstances where he had made and published an Interim Award on 1st November 1996 which ruled, inter alia, that:

i) if changes were not instructed, their value should not be included in the Ascertained Final Sub-Contract Sum;

and

ii) only work executed in accordance with the Sub-Contract Documents and the directions of the Contractor was allowable?

Answer:

1. No uninstructed work was included in the Ascertained Final Sub-Contract Sum.

2. It was correct to remeasure the relevant work.

3. The finding that the relevant work was directed is not open to an appeal.

4. The finding that the relevant work was to be valued under clause 17.1 is not open to an appeal.

3. Question:

60. On the true construction of the Sub-Contract, are Prime Cost sums to be allowed in the Ascertained Final Sub-Contract Sum on the basis of:

i) actual cost; or

ii) the estimated cost?

Answer:

61. This question is not answered since NHC's application for leave to amend the notice of appeal to add this question of law is refused.

4. Question:

62. Was the finding of the Arbitrator at paragraph 4.07 of the Award that whilst the desk and security systems were provided by sub-contractors who were "theoretically" domestic sub-contractors of CWS they should in effect be considered as a nominated sub-contractor correct in law?

Answer:

63. Both 3M and Abel Alarms were "Nominated Sub-Contractors" as defined in the Main Contract.

5. Question:

64. On the basis of the answer to question 4 above, was the Arbitrator correct in law to award an extension of time to CWS and not award loss and/or expense to NHC in respect of the default of these sub-contractors?

Answer:

Yes

6. Question:

65. Was the Arbitrator entitled to use a formula to ascertain direct loss and/or expense incurred by way of overheads:

(i) in relation to additional overheads; and/or

(ii) in relation to unabsorbed overheads, in the absence of a finding by the Arbitrator of a reduction of turnover directly attributable to the delay which caused the loss and expense?

Answer:

1.The Arbitrator found that there was a reduction of turnover directly attributable to the delay which caused the loss and expense.

2. The Arbitrator was entitled to use one formula to ascertain direct loss and/or expense incurred by way of both additional and unabsorbed overheads.

7. Question:

66. Was the Arbitrator entitled to make an ascertainment of the direct loss and/or expense resulting from the use of plant during the periods of delay other than on the basis of the amounts actually incurred or lost by CWS?

Answer:

67. No. However, the Arbitrator found that direct loss and/or expense incurred was incurred and was entitled to ascertain this in the way that he did.

8. Question:

68. Does the Arbitrator have jurisdiction to make an award in respect of a matter which was not a dispute or difference between the parties at either the date of the Notice to Concur or the date of his appointment?

Answer:

69. No. However, the Arbitrator had jurisdiction to consider whether NHC was entitled to retain any monies from the Final Sum he awarded and correctly concluded that no retention should be withheld from this Sum.

9. Question:

70. Upon the true construction of the Sub-Contract, is NHC entitled to the "First Discount" and the "Second Discount" as defined by the Arbitrator?

Answer:

71. NHC is not entitled to the "First Discount". Since the Sub-Contract does not provide for a "Second Discount", no question arises as to NHC's entitlement to this discount.

10. Question:

72. In relation to the "First Discount" is NHC's entitlement dependent upon timeous payment?

Answer:

Yes.

11. Question:

73. If any discount is "lost" by reason of late payment of a particular instalment, can discount be clawed back by prompt payment of a subsequent or final instalment?

Answer:

No.

12. Question:

74. Was the Arbitrator entitled to conclude that CWS would, for the period by which the Sub-Contract was delayed, not to be awarded additional loss and/or expense in weeks 23 and 24 therefor?

Answer:

Yes.

13. Question:

75. Does the Award set out any causal link between CWS's delay and NHC's consequent delay, for which the Award makes an award of damages in favour of NHC?

Answer:

Yes.

14. Question:

76. Did the Arbitrator err in law in finding that NHC could not be expected to pay CWS in respect of the valuation of the Works before it had been calculated properly?

Answer:

No.

15. Question:

77. Did the Arbitrator exercise his discretion so as to reach a conclusion that no reasonable arbitrator properly directing himself as to the relevant criteria could have reached?

Answer:

No.


© 1998 Crown Copyright


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