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England and Wales High Court (Technology and Construction Court) Decisions
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Cite as:  EWHC 2537 (TCC)
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BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
TECHNOLOGY AND CONSTRUCTION COURT (QBD)
London, EC4A 1NL
B e f o r e :
| ENERGY WORKS (HULL) LIMITED
|- and -
MW HIGH TECH PROJECTS UK LIMITED
Part 20 Claimant
|- and -
|M&W GROUP GmbH
- and -
OUTOTEC (USA) INC
Part 20 Defendant
Vincent Moran QC & William Webb (instructed by Clyde & Co LLP) for the Defendants
Adrian Williamson QC & Paul Bury (instructed by Walker Morris LLP) for the Part 20 Defendant
Hearing dates: 13th, 14th July 2020
Additional submissions in writing: 17th, 21st, 24th, 28th July; 21st, 22nd September 2020
Crown Copyright ©
Covid-19 Protocol: This judgment was handed down by the judge remotely by circulation to the parties' representatives by email and release to BAILII. The date and time for hand-down is deemed to be Thursday 24th September at 10:30am
Mrs Justice O'Farrell:
i) the legal effect of an assignment by the First Defendant ("MW") to the Claimant ("EWHL") of MW's sub-contract with the Part 20 Defendant ("Outotec");
ii) whether MW can pursue its claims for contribution against Outotec as direct claims, in respect of accrued rights under the sub-contract, or based on its liability for "the same damage" pursuant to the Civil Liability (Contribution) Act 1978 ("the 1978 Act").
i) the costs of rectifying defects;
ii) delay damages (under the Main Contract or as general damages);
iii) additional costs of completing the works and other losses arising from, or consequent on, termination (under the Main Contract or as damages for repudiatory breach).
i) liquidated damages under the Sub-Contract for delays in delivery of the plant;
ii) an indemnity in respect of MW's liability to EWHL for defects in the plant for which Outotec was responsible, including direct remedial costs and consequential delay and termination losses arising under or as a result of breach of the Main Contract.
i) MW's primary case is that the assignment of the Sub-Contract to EWHL only assigned the future right to performance and did not assign any accrued rights under the Sub-Contract. Accordingly, MW is entitled to pursue its claims against Outotec on the basis of those direct accrued contractual rights which existed prior to the assignment.
ii) Alternatively if, as alleged by Outotec and EWHL, the assignment transferred all past and future rights under the Sub-Contract to EWHL, MW submits that properly construed, the assignment also transferred all past and future liabilities and obligations under the Sub-Contract and took effect as a novation.
iii) MW's secondary case is that both Outotec and MW are, or would if sued be, liable to EWHL in respect of the same damage such that MW can claim a contribution from Outotec under the 1978 Act.
i) MW has no claim against Outotec in respect of the quality of its work because the assignment of the Sub-Contract was effective to transfer all benefits, including accrued rights and the right to sue in respect of the same, to EWHL.
ii) MW is not entitled to any contribution under the 1978 Act because MW and Outotec are not liable to EWHL in respect of the same damage for the purpose of the 1978 Act.
The Main Contract
"In consideration of payment by the Purchaser, the Contractor shall regularly and diligently carry out and complete the Works in accordance with the Contract and ensure that the Plant as constructed and completed shall comply with the Contract, including (without limitation) meeting any performance specifications set out in the Specification and/or the Schedules and/or the Contractor's Proposals."
"The Contractor shall be responsible for the design of the whole of the Plant. Any design provided by or on behalf of the Purchaser (whether contained in a Contract Document or provided in a Variation Order or otherwise) shall be verified by the Contractor."
"All work carried out by the Contractor shall be carried out with sound workmanship and materials, safely and in accordance with good engineering practice and legislation and shall be to the reasonable satisfaction of the Project Manager."
"Without derogation from any other provision, and as a separate and independent obligation, the Contractor shall design the Works and every part of the Works:
(a) using all the skill and care reasonably to be expected of duly qualified and experienced designers undertaking the design of works similar in scope, size, complexity and character to the Works or such part of the Works; and
(b) in accordance with Good Industry Practice."
"Subject to Clause 14 (Delays), the Contractor shall complete the construction of the Plant, carry out and complete the Take Over procedures and satisfy the requirements under Clause 33 and Schedule 15 to enable the Project Manager to issue the Take over Certificate on or before the date, or within the period, specified in Schedule 11 (Times of completion) and shall also complete the construction of any Section of the Plant and do any other thing in the performance of the Contract on or before the dates, within the periods, specified in Schedule 11."
"If the Contractor fails to satisfy the requirements under Clause 33 and Schedule 15 in accordance with Schedule 11 (Times of completion) to enable the Project Manager to issue the Take Over Certificate or the Contractor fails to do any other thing in accordance with Schedule 11 (Times of completion), the Contractor shall pay the Purchaser liquidated damages as specified in Schedule 12 (Liquidated damages for delay), but (subject to Sub-clause 15A) shall have no liability to pay such liquidated damages in excess of the Delay Damages Cap."
"the Contractor having paid or allowed or becoming liable for a sum or sums in aggregate equal to or greater than the Delay Damages Cap."
"(a) except as the Project Manager may direct or permit, the Contractor shall forthwith leave the Site and shall have no right to re-enter the Site or to undertake any work, including the rectification of any Defect or to remove any Contractor's Equipment, Temporary Works or Materials;
(b) the Purchaser may himself or through others complete the Works…
(d) the Contractor shall, if so required by the Purchaser and to the extent permitted by the subcontract, assign any subcontract to the Purchaser."
"Within 90 days after the later of (i) the termination of the Contractor's employment, and (ii) the completion of the Works under Sub-clause 44.3(b) (including the completion of testing and the remedying of defects, such that the total cost to be incurred by the Purchaser has been incurred) the Project Manager shall … issue to the Purchaser and the Contractor a certificate (a 'Default Certificate') which shall give a full statement of account including:
(a) all sums due to the Purchaser from the Contractor including any cost incurred by the Purchaser in completing the Works in accordance with Sub-clause 44.3(b) which is in addition to that which the Purchaser would have incurred if the Contractor had completed the Works in accordance with the Contract; and
(b) all sums due to the Contractor in respect of work completed by the Contractor prior to the termination of his employment other than any such work of a temporary nature necessitated by such termination and any sum due to the Contractor under Sub-clause 44.4(b).
Having allowed for all previous payments made to the Contractor and any sum due to the Purchaser from the Contractor, the Default Certificate shall state the balance due to or from the Contractor."
"In consideration of payment by the Contractor, the Subcontractor shall regularly and diligently carry out and complete the Subcontract Works in accordance with the Subcontract."
"The Subcontractor shall be responsible for the design of the whole of the Subcontract Plant. Any design provided by or on behalf of the Contractor (whether contained in a Subcontract Document or provided in a Variation Order or otherwise) shall be verified by the Subcontractor."
"All work carried out by the Subcontractor shall be carried out with sound workmanship and materials, safely and in accordance with good engineering practice and Legislation and shall be to the reasonable satisfaction of the Contract Manager."
"The Subcontractor acknowledges that the Subcontract Plant forms part of the Main Contract Plant and that the Subcontract Works form part of the Main Contract Works, and the Subcontractor acknowledges that any breach of its obligations under this Subcontract could result in the Contractor being in breach of its obligations under the Main Contract."
"Neither the Contractor nor the Subcontractor shall without the previous consent of the other transfer any benefit or obligation under the Subcontract to any other person in whole or in part, except that:
(a) the Subcontractor may without such consent transfer the right to receive any money which is or may become due to him under the Subcontract; and
(b) if so required by the Purchaser under the Main Contract the Contractor may assign the Subcontract to the Purchaser."
"Subject to Clause 14 (Delays), the Subcontractor shall fulfil its obligations under this Subcontract on or before the date, or within the period, specified in Schedule 11 (Time of Completion)."
"If the Subcontractor fails to fulfil any of its obligations under this Subcontract and, to do any other thing in accordance with Schedule 11 (Times of completion), the Subcontractor shall pay the Contractor liquidated damages as specified in Schedule 12 (Liquidated damages for delay), but shall have no liability to pay damages in excess of the maximum (if any) stated in Schedule 12."
"If at any time before the Subcontract Plant is Taken Over in accordance with Clause 33 (Taking Over) or during the Defects Liability Period, the Contract Manager:
(a) decides that any matter is a Defect; and
(b) as soon as reasonably practicable notifies the Subcontractor of the particulars of the Defect;
the Subcontractor shall as soon as reasonably practicable make good the Defect so notified and the Contractor shall so far as may be necessary place the Subcontract Plant at the Subcontractor's disposal for this purpose. The Subcontractor shall, if so required by the Contract Manager, submit his proposals for making good any Defect to the Contract Manager for his approval which shall not be unreasonably withheld."
"Notwithstanding any other provision of the Subcontract neither the Subcontractor nor the Contractor shall be liable to the other for:
(b) loss or deferment of anticipated or actual profit, loss of revenue, loss of use, loss of production, business interruption or any similar damage or for any consequential or indirect losses of any kind resulting from or arising out of or in connection with the Subcontract Works or the performance of them or any act or omission relating the them however caused; except in respect of:
(ii) any sum included within the liquidated damages for delay under Sub-clause 15.1…"
"Except in the case of termination of the Subcontractor's employment under Clause 44 (Termination for Subcontractor's default) or a repudiation of the Subcontract by either party, the liability of either party to the other arising out of or in connection with the Subcontract or the Subcontract Works, whether by reason of any breach of contract or of statutory duty or tortious or negligent act or omission shall be limited to the damages, remedies and reimbursements expressly provided in the Subcontract… "
"The total aggregate liability of the Subcontractor to the Contractor arising out of or in connection with the Subcontract and the Subcontract Works shall not exceed the Subcontract Price (including but not limited to any liability arising under negligence, tort, common law or indemnity).
i) The Subcontractor's liability for liquidated damages for performance pursuant to clause 15 and Schedule 12 shall be limited to a sum equal to 10% of the Contract Price ("Delay Damages Cap")…"
(ii) any sum included within the liquidated damages for delay under Sub-clause 15.1…"
The Outotec Warranty
"The Sub-Contractor warrants that it:
(a) has carried out or will carry out and complete the Sub-Contract Works in accordance with and subject to the terms of the Sub-Contract; and
(b) has observed and performed and will observe and perform all of its duties and obligations expressed in or arising out of the Sub-Contract."
"The Sub-contractor warrants that all reasonable skill and care have been and will be exercised in the following, to the extent of the Sub-Contractor's responsibility for the same:
(a) the design of the Sub-Contract Works;
(b) the selection of goods, materials, equipment or plant for the Sub-Contract Works; and
(c) the satisfaction of any performance requirement or specification of or for the Sub-Contract Works …"
"4.1 If the employment of the Main Contractor under the Main Contract is terminated, the Beneficiary may within 28 days after the date of termination give notice requiring the Sub-Contractor to enter into a new contract (New Contract) with the Beneficiary or its appointee on the same terms as the Sub-Contract, executed as a deed, but with such revisions as the Beneficiary may reasonably require to reflect altered circumstances, for the continuation and completion of the Sub-Contract Works; and the Sub-Contractor shall comply with such notice.
4.2 Upon the execution of the New Contract the Beneficiary shall pay to the Sub-Contractor a sum equal to the amount due to the Sub-Contractor under the Sub-Contract (less any retention, which shall be payable under the New Contract as if the work or materials to which such retention relates had been supplied under the New Contract).
4.3 Upon the execution of the New Contract, the Beneficiary shall pay the Sub-Contractor (to the extent not included in the sum payable under clause 4.2) the amount of any:
(a) demobilisation costs incurred in consequence of the termination of the Main Contract; and
(b) remobilisation costs incurred in consequence of the Beneficiary's notice given under clause 4.1,
to the extent reasonably or necessarily incurred by the Sub-Contractor."
"The Sub-Contractor shall not have any liability under this Deed for any delay in carrying out the Sub-Contract Works."
"In any claim under this Deed for breach of clause 1 (Duty of care) there shall be available to the Sub-Contractor any defence that:
(a) arises from or in connection with the Sub-Contract; and
(b) would have been available if the claim had been brought by the Beneficiary had the Beneficiary been the contractor under the Sub-Contract,
excluding any set-off or counterclaim available against the Contractor."
i) The Main Contract was dated 20 November 2015.
ii) The Sub-Contract was also dated 20 November 2015.
iii) The Outotec Warranty was provided shortly before 9 February 2016.
iv) The original completion date for the project was 9 April 2018. The project did not complete on that date.
v) The Main Contract contained a provision entitling EWHL to terminate for contractor default if the Delay Damage Cap was reached. The Delay Damages Cap equated to 273 days of culpable delay.
vi) EWHL says MW had no entitlement to an extension of time. As a result, it says that the Delay Damage Cap was reached on 7 January 2019 and it validly terminated the contract for contractor default on 4 March 2019.
vii) MW says that it was entitled to an extension of time of 39 weeks and in any event a sufficient extension that the Delay Damages Cap had not been reached as of that date such that EWHL was not entitled to terminate for contractor default.
First Preliminary Issue
viii) The facts, dates and background relevant to the first preliminary issue are evidenced by the contemporaneous documents contained in Bundle B / Sections C & D.
ix) It should be assumed for the preliminary issue that:
a) All defects in the Outotec plant alleged by EWHL against MW under the Main Contract and alleged by MW against Outotec under the Sub-Contract exist; andb) No other defects exist.
Commissioning, Delay and Termination
x) The key stage of the project for the purposes of trial will be the commissioning and testing stage.
xi) MW's position is that the commissioning stage should have started in May 2018 when it obtained or should have obtained a Readiness to Receive RDF certificate. RDF is refuse derived fuel and following "polishing" in the MPT becomes the fuel used to power the waste to energy plant.
xii) At this point, the commissioning of the facility on the final fuel which it would be using could commence.
xiii) The programmed time for commissioning was 10 November 2017 to 20 February 2018 – approximately 3.5 months. Had everything gone smoothly with commissioning, the project could have been completed around the end of August 2018.
xiv) However, this did not happen. There are two key matters raised in the pleadings concerning why commissioning was delayed up to and beyond 4 March 2019 when the Main Contract was terminated:
a) Firstly, MW says that EWHL failed to provide RDF which was compliant with the contractual specification. This delayed commissioning when the RDF was rejected by MW and led to the failure of commissioning when Outotec's plant was damaged as a result of the non-compliant RDF.b) Secondly, MW says that if it is wrong about this and the RDF was compliant then the reason for the failure of the commissioning was defects with the Outotec plant. In effect, it was not the RDF which damaged the Outotec plant, but rather some latent defect in the plant which manifested itself and caused the commissioning to fail.
xv) As to these allegations:
a) EWHL denies that it failed to deliver compliant RDF and denies that was a cause of critical delay in any event.
b) Outotec denies that its plant was defective under the Sub-Contract.
xvi) For the trial of the preliminary issue, the following should be assumed:
a) Compliant RDF was delivered by EWHL;
b) Commissioning failed because of defects with the Outotec plant;
c) Had the Outotec plant not been defective:
i) Commissioning would have successfully completed around the end of August 2018;
ii) Takeover would have occurred shortly thereafter;
iii) MW's liability to EWHL for liquidated damages would have ceased around August 2018;
iv) The Main Contract would not have been terminated.
d) Instead, as a result of defects in the Outotec plant, the project was substantially delayed beyond the end of August 2018 and the Main Contract was validly terminated by EWHL.
xvii) It is on this set of factual and legal findings (or some variant of them) that MW says Outotec would be directly liable to EWHL (under the Outotec Warranty and/or depending upon the outcome of preliminary issue 1, the assigned Outotec Sub-Contract) and therefore a contribution claim would arise.
Whether, in respect of the assignment of the Outotec Sub-Contract:i) MW retains the benefit of rights under the Sub-Contract as alleged at paragraphs 26 and 27 of the Amended Part 20 Particulars of Claim; orii) if not, this takes effect as an assignment of both the benefit and the burden of the Sub-Contact (or a novation) as alleged at paragraphs 26A and 26B of the Amended Part 20 Particulars of Claim?
In respect of MW's contribution claim at paragraph 28 of the Amended Part 20 Particulars of Claim, whether:i) any MW liability to EWHL for delay under the Main Contact is or is not the same damage as any Outotec liability under the Sub-Contract and/or the Deed of Warranty said to have been caused by late delivery of, or alleged defects within, the Outotec plant; andii) any MW liability to EWHL for losses flowing from termination of the Main Contract is or is not the same damage as any Outotec liability under the Sub-Contract and/or the Deed of Warranty said to have been caused by late delivery of, or alleged defects within, the Outotec plant;iii) any MW liability to EWHL for defects under the Main Contact is or is not the same damage as any Outotec liability under the Sub-Contract and/or the Deed of Warranty said to have been caused by alleged defects within the Outotec plant.
Issue 1 – assignment/novation
"the Contractor shall, if so required by the Purchaser and to the extent permitted by the subcontract, assign any subcontract to the Purchaser."
(b) if so required by the Purchaser under the Main Contract the Contractor may assign the Subcontract to the Purchaser."
"4.1 If the employment of the Main Contractor under the Main Contract is terminated, the Beneficiary may within 28 days after the date of termination give notice requiring the Sub-Contractor to enter into a new contract (New Contract) with the Beneficiary or its appointee on the same terms as the Sub-Contract, executed as a deed, but with such revisions as the Beneficiary may reasonably require to reflect altered circumstances, for the continuation and completion of the Sub-Contract Works; and the Sub-Contractor shall comply with such notice."
"M+W and EWHL are in the process of agreeing the deed of assignment and notice of assignment, with the intention that the assignment of the subcontracts takes place within the next week…
We understand that EWHL will be engaging in discussions directly with you in relation to arrangements for completion of the Works…"
"…we require you, as the Sub-Contractor, to enter into a New Contract with us, the Beneficiary, subject to agreement on terms."
"Further to the termination of the M&W Contract with Energy works (Hull) Ltd, and as instructed by Energy works (Hull) Ltd under clause 44.3(d) and/or clause 43.3(b) of the Contract, and in accordance with Clause 9.1(b) of the IChem E Forms of Subcontract
we hereby give you notice that we assign the Subcontract with Outotec (USA) Inc. to Energy Works (Hull) Ltd … Energy Works (Hull) Ltd will be in communication regarding ongoing items in respect of your Subcontract…"
"... the responsibility for the subcontracts/purchase orders now rests with EWH for the completion of the Works. For the avoidance of doubt M+W shall not be liable for any costs incurred as a result of any delays to the completion of the Works or costs consequent on any acts of prevention, omissions or breach of any of these assigned subcontracts and purchase orders by EWH."
"MW hereby assigns to EWH the Subcontracts/Purchase orders listed at Appendix A to this letter."
The subcontracts listed at Appendix A included the Sub-Contract.
"Further to the termination of the M+W Contract with Energy Works (Hull) Ltd, and as instructed by Energy Works (Hull) Ltd under clause 44.3(d) and/or clause 43.3(b) of the Contract, and in accordance with, as appropriate:
Clause 9.1(b) of the IChemE Forms of Subcontract
we hereby give you notice that we assign the following Subcontracts/Purchase Orders with Outotec (Usa) Inc to Energy Works (Hull) Ltd, 1 Humber Quays, Wellington Street West, Hull, HU1 2BN:
- 06 February 2015
- 18 November 2015
- 20 November 2015
- 06 December 2015 …
Energy Works (Hull) Ltd will be in communication regarding ongoing items in respect of your Subcontracts/Purchase Orders.
It is M+W's position that the Subcontracts/Purchase Orders listed above with Outotec (USA) Inc were previously assigned by way of the letters between Clyde & Co and Fenwick Elliott of 8 April 2019 and 12 April 2019. However, this having been queried, this letter serves as a notice of assignment of those contracts listed above insofar as it has not previously occurred."
"On 13 March 2019, EWH requested that in accordance with clause 44.3(d) of the EPC Contract, that M+W assigned all subcontracts and purchase orders to EWH.
M+W attempted to agree terms of the assignments with EWH but no such agreement was reached between the parties. As a consequence a "bare" assignment of subcontracts and purchase orders has taken place and no terms in relation to these assignments have been agreed.
As a consequence of the above, it is unclear as to the effect of assignment due to the parties being unable to agree precise terms. However, it appears that M+W no longer has the benefit of these rights under these subcontracts, including the right to enforce performance of the subcontract and bringing claims.
Having exercised its right to assign all subcontracts, EWH has deprived M+W of its ability to enforce performance of the subcontracts and to bring claims.
EWH required the assignment of all subcontracts so that it can enforce the contractual rights discussed above. As M+W has detailed previously, M+W expects EWH to enforce its assigned rights against the assigned subcontractors as part of EWH's ongoing duty to mitigate its losses …"
Legal principles - assignment
"(1) Any absolute assignment by writing under the hand of the assignor (not purporting to be by way of charge only) of any debt or other legal thing in action, of which express notice in writing has been given to the debtor, trustee or other person from whom the assignor would have been entitled to claim such debt or thing in action, is effectual in law (subject to equities having priority over the right of the assignee) to pass and transfer from the date of such notice –
(a) the legal right to such debt or thing in action;
(b) all legal and other remedies for the same; and
(c) the power to give a good discharge for the same without the concurrence of the assignor …"
"It will be seen that, in order that the section may apply, three conditions must be fulfilled:
(1) the assignment must be absolute and not purport to be by way of charge only;
(2) it must be in writing under the hand of the assignor;
(3) express notice in writing thereof must be given to the debtor or trustee.
The general effect of the section is to allow the assignee to sue the debtor in his own name instead of, as previously, having to sue in the name of the assignor and perhaps having to go to a court of equity to compel his joinder in the action."
"The argument runs as follows. On any basis, clause 17 is unhappily drafted in that it refers to an assignment of "the contract". It is trite law that it is, in any event, impossible to assign "the contract" as a whole, i.e. including both burden and benefit. The burden of a contract can never be assigned without the consent of the other party to the contract in which event such consent will give rise to a novation…
Although it is true that the phrase "assign this contract" is not strictly accurate, lawyers frequently use those words inaccurately to describe an assignment of the benefit of a contract since every lawyer knows that the burden of a contract cannot be assigned."
"The majority in the Court of Appeal drew a distinction between an assignment of the right to require future performance of a contract by the other party on the one hand and an assignment of the benefits arising under the contract (e.g. to receive payment due under it or to enforce accrued rights of action) on the other hand.
I accept that it is at least hypothetically possible that there might be a case in which the contractual prohibitory term is so expressed as to render invalid the assignment of rights to future performance but not so as to render invalid assignments of the fruits of performance. The question in each case must turn on the terms of the contract in question."
"The question is to what extent does clause 17 on its true construction restrict rights of assignment which would otherwise exist? In the context of a complicated building contract, I find it impossible to construe clause 17 as prohibiting only the assignment of rights to future performance, leaving each party free to assign the fruits of the contract.
… parties who have specifically contracted to prohibit the assignment of the contract cannot have intended to draw a distinction between the right to performance of the contract and the right to the fruits of the contract. In my view they cannot have contemplated a position in which the right to future performance and the right to benefits accrued under the contract should become vested in two separate people. I say again that that result could have been achieved by careful and intricate drafting, spelling out the parties' intentions if they had them. But in the absence of such a clearly expressed intention, it would be wrong to attribute such a perverse intention to the parties. In my judgment, clause 17 clearly prohibits the assignment of any benefit of or under the contract."
i) Subject to any express contractual restrictions, a party to a contract can assign the benefit of a contract, but not the burden, without the consent of the other party to the contract.
ii) In the absence of any clear contrary intention, reference to assignment of the contract by the parties is understood to mean assignment of the benefit, that is, accrued and future rights.
iii) It is possible to assign future rights under a contract without the accrued rights but clear words are needed to give effect to such intention.
Parties' submissions on assignment
i) the parties, who were sophisticated and well-advised, agreed that, on termination, there would be an assignment of the benefits of the Sub-Contract;
ii) the natural and ordinary meaning of the phrase "assign any subcontract" in clause 44.3(d) of the Main Contract and "assign the Subcontract" in clause 9.1(b) of the Sub-Contract is assignment of the benefit of the whole of the Sub-Contract;
iii) on termination, MW assigned the benefit of the whole of the Sub-Contract;
iv) the effect of the assignment was to transfer to EWHL both accrued and future rights under the Sub-Contract.
i) the Main Contract refers to the assignment of the Sub-Contract and does not specifically identify what element of the benefits under the same at the date of transfer are to be assigned;
ii) this is a case where a contractor is agreeing to assign its own sub-contract (rather than one where it is seeking to assign its benefit in the main contract, or being prohibited from doing so);
iii) the wording of the Sub-Contract distinguishes between the assignment of benefits under the Sub-Contract on the one hand and the assignment of the Sub-Contract as a whole (including all benefits and burdens) on the other; and
iv) it is made conditional upon permission for the transfer existing under the Sub-Contract.
Discussion and conclusion on assignment
Legal principles - novation
" … It is trite law that novation, which involves the addition or substitution of a new party to an existing contract, requires the consent of all existing parties as well as that of the new party himself…
 Although there has been some discussion in the authorities about the principles involved, there has hitherto been no real doubt that under English law a party to a contract may effectively give consent in the contract itself to a subsequent novation. The point was touched on in The Argo Fund Ltd v Essar Steel Ltd  EWHC 600, also a case relating to a syndicated loan, in which it was common ground between the parties that terms similar to those of clause 26 in the present case were effective to achieve the parties' object. The analysis proposed in that case was that of unilateral contract (see paragraphs 51-52), which I find persuasive … The provisions of clause 26 in this case cannot possibly be described as nebulous and there is no uncertainty about the terms of the contract to which a novation gives rise."
"(i) … as novation does not as such involve a transfer of rights or obligations, the word 'transfer' is not apt to describe a requirement to novate. (ii) … If what was intended was a right to require MM to novate with MCL or the design and build contractor yet to be appointed, one would expect much clearer wording than simply, 'we shall be entitled to transfer this Appointment'. One would need wording which explained that the appointment would be extinguished and replaced by a new one. On balance, I consider that 'assign or transfer' were synonymous."
"… there are four main differences. First, a novation requires the consent of all three parties involved … But (in the absence of restrictions) an assignor can assign without the consent of either assignee or the debtor. Secondly, a novation involves the termination of one contract and the creation of a new one in its place. In the case of an assignment the assignor's existing contractual rights are transferred to the assignee, but the contract remains the same and the assignor remains a party to it so far as obligations are concerned. Thirdly a novation involves the transfer of both rights and obligations to the new party, whereas an assignment concerns only the transfer of rights, although the transferred rights are always "subject to equities". Lastly a novation, involving the termination of a contract and the creation of a new one, requires consideration in relation to both those acts; but a legal assignment (at least), can be completed without the need for consideration."
"The principle that the burden of a contract cannot be transferred so as to discharge the original contractor without the consent of the other party means that, as a general rule, the assignee of the benefit of a contract involving mutual rights and obligations does not acquire the assignor's contractual obligations…
… However, where contractual rights are assigned, the extent of those rights will be defined by the original contract… The conditional benefit principle arises where the right assigned is conditional or qualified, the condition being that certain restrictions shall be observed or certain burdens assumed. The restrictions or qualifications are an intrinsic part of the right which the assignee has to take as it stands. The question whether a contract creates a conditional benefit is one of construction."
"… where a right under a contract was conditional upon, or qualified by, performance of some obligation in return for which the right has been granted, an assignee of the benefit of such right will only be entitled to exercise the right subject to performance of the burden: Tito v Waddell (No.2)  Ch 106, 290, per Megarry V-C; Rhone v Stephens  2 AC 310, 322, per Lord Templeman; Davies v Jones  2 All ER (Comm) 755, para 27, per Sir Andrew Morritt C. That principle is referred to in the authorities as "the conditional benefit principle"."
"Rather, it involves the imposition by law on a contractual assignee or successor in title of a positive obligation under the relevant contract or conveyance, notwithstanding the absence of any contractual or estate obligation to the third party beneficiary of the obligation."
" … the general principle, enunciated uncompromisingly by Lord Browne-Wilkinson, is not, in my view, wholly inflexible. Thus if the parties to an agreement expressly agree in it that one party may assign both the benefits and the obligations of performing the contract to another then in my opinion there can be no legal objection to the efficacy of such an assignment, as an assignment, if effected thereafter. For another thing, the doctrine of conditional benefit, as discussed by Gloster LJ and to which I will come, constitutes another potential modification to any so-called general principle.
 Be that as it may, it seems to me important that the authorities in this field are clear that ultimately what is critical is the interpretation of the contractual arrangements in question."
i) Novation occurs when the original contract between A and B is extinguished and replaced by the creation of a new contract between A and C.
ii) Novation requires the consent of all parties to the original and new contract.
iii) Such consent or authorisation can be given in the original contract but clear words are needed to express such intention and the terms of the new contract must be sufficiently certain to be enforceable.
iv) The principle of conditional benefit can apply so as to impose on the contractual assignee a positive obligation where such obligation is inextricably linked to the benefit assigned.
v) In every case the Court must construe the contractual arrangements to give effect to the expressed intentions of the parties.
vi) The Court must not confine the interpretation exercise to a semantic analysis of the contractual provisions and other material documents; notwithstanding the descriptions or labels used by the parties, the established rules of construction apply, as set out in Arnold v Britton (above).
Parties' submissions on novation
i) the terms "assignment" and "novation" are not interchangeable; they are very different legal concepts;
ii) by using the word "assign", as opposed to novate, it would have been understood on all sides that it was only the benefits that were being transferred;
iii) the notices served by MW constituted a statutory assignment under section 136(1) of the Law of Property Act 1925, which operates as an absolute transfer of MW's legal rights but not its obligations under the Sub-Contract;
iv) the principle of conditional benefit does not arise in this case;
v) there is nothing odd about an employer on termination of a Main Contract seeking to have a mechanism for transfer of the benefits of the Sub-Contracts (so that, for example, the Sub-Contract is not terminated and the Sub-Contractors do not immediately walk off site) whilst leaving the burdens to be clarified in further new contracts, as anticipated in the Outotec Warranty.
i) The wording of the relevant provisions purported to assign, without reservation, "the Sub-Contract" and not a limited body of rights under it;
ii) the language used in the contractual documents, "assign the Sub-Contract", could and should be read as a reference to assignment of the benefit and burden under the Sub-Contract, alternatively, taking effect as a novation;
iii) clause 44.3 expressly required the consent of Outotec to any transfer;
iv) by reason of clause 9.1(b) of the Sub-Contract Outotec provided its consent (in advance) to any assignment of the Sub-Contract, including the burden of the Sub-Contract, to EWHL;
v) in those circumstances, the ordinary assumption that the assignment should be taken to be legal shorthand for a proposed assignment of only the benefit of the contact (as per Lord Brown-Wilkinson in Linden Gardens) does not necessarily arise.
Discussion and conclusion - novation
Issue 2 - Contribution
MW failed to complete the works and the plant within the time for completion stipulated in Schedule 11, by 9 April 2018. EWHL claims liquidated damages under the terms of the Main Contract; alternatively, general damages for delay.
ii) Termination losses
By 7 January 2019 the Delay Damages Cap was reached and MW had not completed the plant or satisfied the contractual requirements for take over; as a result, EWHL had a right of termination which it exercised on 4 March 2019 pursuant to clause 44.1(c) of the Main Contract or at common law. EWHL claims costs arising from, or consequent on, the termination pursuant to the terms of the Main Contract; alternatively as damages for repudiatory breach.
In breach of contract, MW failed to carry out and complete the works in accordance with the terms of the contract. A list of defects, together with the nature of the defect, the remedial works required and costs incurred or estimated, is set out in Appendix 4.
Outotec failed to complete the plant and make it available for collection by the dates set out in the table in Schedule 11. MW claims liquidated damages under the terms of the Sub-Contract, calculated in accordance with Schedule 12.
If, and to the extent that, EWHL establishes any defect in the plant, such defect constitutes or arises out of a breach of the Sub-Contract by Outotec. A list of the defects which MW seeks to pass on to Outotec, together with the nature of the relevant allegations against MW and the breaches of the Sub-Contract, is set out in Annex 1.
iii) Termination losses
MW seeks to pass on to Outotec any other liability under the Main Contract which MW would not have incurred but for the defects for which Outotec is responsible. This includes MW's increased liability for liquidated damages as a result of the defects and any impact on MW's liability for the termination under the Main Contract.
Legal principles - contribution
"Subject to the following provisions of this section, any person liable in respect of any damage suffered by another person may recover contribution from any other person liable in respect of the same damage (whether jointly with him or otherwise)."
"Subject to subsection (3) below, in any proceedings for contribution under section 1 above the amount of the contribution recoverable from any person shall be such as may be found by the court to be just and equitable having regard to the extent of that person's responsibility for the damage in question."
"Subject to subsection (3) below, the court shall have power in any such proceedings to exempt any person from liability to make contribution, or to direct that the contribution to be recovered from any person shall amount to a complete indemnity."
"Where the amount of the damages which have or might have been awarded in respect of the damage in question in any action brought in England and Wales by or on behalf of the person who suffered it against the person from whom the contribution is sought was or would have been subject to –
(a) any limit imposed by or under any enactment or by any agreement made before the damage occurred …
the person from whom the contribution is sought shall not by virtue of any contribution awarded under section 1 above be required to pay in respect of the damage a greater amount than the amount of those damages as so limited or reduced."
"When any claim for contribution falls to be decided the following questions in my opinion arise:
(1) What damage has A suffered?
(2) Is B liable to A in respect of that damage?
(3) Is C also liable to A in respect of that damage or some of it?
… I do not think it matters greatly whether, in phrasing these questions, one speaks (as the 1978 Act does) of "damage" or of "loss" or "harm", provided it is borne in mind that "damage" does not mean "damages" (as pointed out by Roch LJ in Birse Construction Ltd v Haiste Ltd  1WLR 675, at p 682) and that B's right to contribution by C depends on the damage, loss or harm for which B is liable to A corresponding (even if in part only) with the damage, loss or harm for which C is liable to A. This seems to me to accord with the underlying equity of the situation: it is obviously fair that C contributes to B a fair share of what both B and C owe in law to A, but obviously unfair that C should contribute to B any share of what B may owe in law to A but C does not."
"… The critical words are "liable in respect of the same damage." Section 1(1) refers to "damage" and not to "damages": see Birse Construction Ltd v Haiste Ltd  1 WLR 675, 682 per Roch LJ. It was common ground that the closest synonym of damage is harm. The focus is, however, on the composite expression "the same damage". As my noble and learned friend Lord Bingham of Cornhill has convincingly shown by an historical examination the notion of a common liability, and of sharing that common liability, lies at the root of the principle of contribution: see also Current Law Statutes Annotated (1978), "Background to the Act" at p 47. The legislative technique of limiting the contribution principle under the 1978 Act to the same damage was a considered policy decision. The context does not therefore justify an expansive interpretation of the words "the same damage" so as to mean substantially or materially similar damage. Such solutions could have been adopted but considerations of unfairness to parties who did not in truth cause or contribute to the same damage would have militated against them. Moreover, the adoption of such solutions would have led to uncertainty in the application of the law. That is the context of section 1(1) and the phrase "the same damage". It must be interpreted and applied on a correct evaluation and comparison of claims alleged to qualify for contribution under section 1(1). No glosses, extensive or restrictive, are warranted. The natural and ordinary meaning of "the same damage" is controlling."
Parties' submissions on contribution
i) MW is not liable with Outotec to EWHL in respect of the same damage for delay. EWHL's delay claim against MW is for liquidated damages under the Main Contract. The regime under the Sub-Contract is quite different. The relevant periods of delay are different, the applicable events giving rise to the damage or loss are completely different and the applicable damages are in different rates and currency.
ii) The termination losses for which MW would be liable under the Main Contract, or for damages for repudiatory breach, are not matters for which Outotec would be liable under the Sub-Contract.
iii) The defects alleged against MW arise in respect of different obligations under the Main Contract and are not back-to-back with the obligations under the Sub-Contract.
iv) Further, there is an express remedy in the Sub-Contract, namely, that Outotec should put right any defects at its own cost (clause 37.3). The remedies and liabilities under the Sub-Contract are exclusive (clause 45.2). Unless MW can bring the defects claim within this express and exclusive remedy, the same damage test cannot be satisfied.
i) Outotec delivered its plant late;
ii) if EWHL is correct about the defects alleged in Appendix 4 of the claim, then some of these constituted defects in the plant supplied by Outotec; and
iii) if EWHL is successful in its termination case, Outotec's defective plant was a cause of critical delay to the project and therefore some or all of the delay and termination losses may be properly passed down by MW to Outotec.
i) The Main Contract provided that MW was obliged to assign its contracts with sub-contractors and suppliers in the event of termination of the Main Contract. MW complied with this clause by assigning the Sub-Contract. The assignment of rights under a contract includes a cause of action for any breach of contract, together with the right to claim damages by way of remedy for such breach: Offer-Hoar v Larkstore Ltd  EWCA Civ 1079 per Mummery LJ at . Therefore, if this assignment transferred MW's historic accrued rights to sue Outotec for breach of contract, then Outotec is liable to EWHL pursuant to those rights.
ii) Separately, Outotec provided a collateral warranty to and in favour of EWHL which warranted that it had not and would not breach the Sub-Contract. This provides a separate route for liability to arise directly between Outotec and EWHL which is not dependent upon the outcome of the assignment point in relation to the Sub-Contract.
Issue 2(i) - delay
Concession in respect of Issue 2(i)
"MW does not advance the case that its liability for LADs under the Main Contract and Outotec's liability for LADs under the Sub-Contract represent the same damage for the purposes of its contribution claim under the Act."
"… we are dealing here with the liquidated damages claim which is sought to be passed on that in a sense 9.1 is a general application, it is denied that MW has any proper basis [in which] to claim liquidated damages pursuant clause 15.1 either as a contribution claim since the liquidated damages claimed by MW do not relate to the same damages [sic: damage as] any liability MW has to EWHL arising out of the particulars of claim. That, I think, in the light of Mr Moran's intervention this morning, is now conceded to be correct and/or (b) as a claim under the Sub-Contract itself since MW has assigned the Sub-Contract to EWHL and no longer has any rights to claim under the same…
Now in view of Mr Moran's concession this morning, I am not quite sure, subject to issue 1, how much of issue 2(i) remains live. I know that that will become clear during the course of his submissions, but just to set out our position briefly and I will not labour it in the light of the concession on the assumption which issue 2 assumes that MW have no contractual claim, we say it is perfectly clear that Outotec cannot under any circumstances be liable under the 78 Act for liquidated damages which arise under the Main Contract."
Issue 2(ii) – termination losses
Issue 2(iii) - defects
i) Item 7 – EWHL's allegation against MW is that steel ladders were used on site, contrary to the requirement to use them only in exceptional circumstances, and the design of the ladders failed to comply with BS 5395 (undersized or oversized safety hoops and/or missing or defective safety gates). The same allegation is made by MW against Outotec.
ii) Item 9 – EWHL's allegation against MW is that it failed adequately to paint steel components, plant and members to ensure a minimum time to first maintenance of 15 years and/or to provide a protective paint system appropriate for the environmental conditions in accordance with BS EN ISO 12944. The same allegation is made by MW against Outotec.
iii) Item 14 – EWHL's allegation against MW is that the location and depth of the urea injection nozzles caused impingement erosion on adjacent vapour space tubes, which will result in failure of the tubes before expiry of the minimum of 8,000 hours of operation. The same allegation is made by MW against Outotec.
iv) Item 23 – EWHL's allegation against MW is that the design of the gasifier does not allow for stable combustion of fuel and has resulted in accumulation of slag, requiring manual cleaning before the minimum 8,000 hours of operation have been achieved. The same allegation is made by MW against Outotec.
Exclusive remedies clause
In respect of the assignment of the Sub-Contract:i) MW does not retain the benefit of rights under the Sub-Contract as alleged at paragraphs 26 and 27 of the Amended Part 20 Particulars of Claim; andii) the assignment of the Sub-Contact by MW to EWHL did not transfer the benefit and burden so as to take effect as a novation as alleged at paragraphs 26A and 26B of the Amended Part 20 Particulars of Claim.
In respect of MW's contribution claim at paragraph 28 of the Amended Part 20 Particulars of Claim, on the assumed facts:iii) at least part of any MW liability to EWHL for delay under the Main Contact is the same damage as any Outotec liability under the Sub-Contract and/or the Deed of Warranty said to have been caused by late delivery of, or alleged defects within, the Outotec plant;iv) any MW liability to EWHL for losses flowing from termination of the Main Contract is not the same damage as any Outotec liability under the Sub-Contract and/or the Deed of Warranty said to have been caused by late delivery of, or alleged defects within, the Outotec plant;v) at least part of any MW liability to EWHL for defects under the Main Contact is the same damage as any Outotec liability under the Sub-Contract and/or the Deed of Warranty said to have been caused by alleged defects within the Outotec plant.