VAN OORD UK LIMITED AGAINST DRAGDOS UK LIMITED 30/09/2020 [2020] ScotCS CSOH_87 (30 September 2020)

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OUTER HOUSE, COURT OF SESSION
2020 CSOH 87
CA143/19
OPINION OF LORD TYRE
In the cause
VAN OORD UK LIMITED
against
DRAGADOS UK LIMITED
Pursuer
Defender
Pursuer: Moynihan QC; BurnessPaull LLP
Defender: Walker QC; CMS Cameron McKenna Nabarro Olswang LLP
30 September 2020
Introduction
[1]       The defender was employed by Aberdeen Harbour Board as the main contractor in a
project for the design, management and construction of the Aberdeen Harbour Expansion
Project (“AHEP”) at Nigg Bay, near Aberdeen. By a subcontract agreement dated 16 March
2018, the defender subcontracted certain works to the pursuer. The subcontract scope of
works included soft dredging works, the volume of which was originally estimated at about
2,150,000m3. The scope also included the filling of caissons. The subcontract incorporated
the standard form NEC3 subcontract conditions, including inter alia the core clauses, the
clauses for main Option B, and the Shorter Schedule of Cost Components, set out in the
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NEC3 engineering and construction subcontract (“ECC”) (April 2013 edition), as amended
by two schedules of amendments.
[2]       From time to time the defender instructed the omission of work falling within the
scope of the pursuer’s subcontract and transferred that work to one of two other
subcontractors. The first issue that arises in the present action is whether the defender was
entitled in terms of the subcontract to transfer work to others or, alternatively, whether in so
doing the defender was in breach of its contract with the pursuer. The second issue, which
arises if the defender was in breach of contract, is whether, in terms of the contract, the effect
of omission of the works transferred to other subcontractors was to reduce the bill rate
payable to the pursuer in respect of works t hat it still had to carry out. A third and separate
issue arises between the parties in relation to the proper interpretation of the provisions of
the subcontract relating to wave measurement for the purpose of determining whether the
pursuer was entitled to a compensation event for adverse weather conditions.
[3]       All three issues have been the subject of adjudication, as provided for in the
subcontract. The adjudications were decided largely in favour of the defender. The parties
having intimated notices of dissatisfaction, the issues are at large for determination by the
court. They came before me in the form of a debate of the parties’ preliminary pleas to
relevancy.
Factual narrative
[4]       The following brief summary of relevant facts not in dispute is derived partly from
the pleadings and partly from a notice to admit served by the pursuers, most of which was
admitted by the defender in a notice of non -admission.
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[5]       In addition to its subcontract with the pursuer, the defender entered into
subcontracts with two other subcontractors, namely WASA Dredging UK Limited
(“WASA”) and Canlemar SL (“Canlemar”). The contract with WASA was entered into on
15 May 2018, and was for the carrying out of works that included an area of soft dredging
works which also formed part of the scope of the work under the defender’s subcontract
with the pursuer. Prior to contracting with the pursuer on 16 March 2018, the defender did
not tell the pursuer of its intention to include that area of soft dredging works in its
subcontract with WASA. Prior to the commencement of this action the defender did not tell
the pursuer of the inclusion of those works in its subcontract with WASA. The contract with
Canlemar was entered into by way of a letter of intent dated 13 August 2018 followed by a
formal subcontract agreement on 14 December 2018. This contract too was for the carrying
out of works that included areas of soft dredging which also formed part of the scope of the
work under the defender’s subcontract with the pursuer. Prior to contracting with the
pursuer, the defender did not tell the pursuer of its intention to include those areas of soft
dredging works in its letter of intent or its subcontract agreement with Canlemar. Prior to
the commencement of this action, the defender did not tell the pursuer of the inclusion of
those works in the letter of intent and the subcontract with Canlemar.
[6]       The pursuer began dredging work on 5 May 2018. In the course of 2018 and 2019,
the defender issued various Contractor’s Instructions to the pursuer to omit certain areas of
soft dredging from its works. Some of the work was transferred to WASA and some to
Canlemar. The work transferred to Canlemar also included some caisson filling. It is
unnecessary for the purposes of this opinion to detail the various Contractor’s Instructions;
suffice to say that their validity is disputed by the pursuer. This is the first of the issues
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mentioned above. The pursuer seeks declarator that the instructions were issued in breach
of contract.
[7]       Each omission of works from the scope of the pursuer’s work had two separate
effects. The first and more obvious was that the pursuer was no longer obliged or entitled to
carry out the work and be paid for it. In these proceedings the pursuer does not seek
payment for work that it did not, in the circumstances, carry out. The second effect is more
controversial. In terms of the NEC3 contract, each omission of works constituted a
compensation event. The effect of a compensation event on the sum payable under the
contract is calculated not under reference to sums in the bill of quantities but rather under
reference to Defined Cost (as explained more fully below). According to the defender’s
calculation, this resulted on each occasion in a reduction of the total amount payable to the
pursuer for the works that it still had to carry out under the contract. Those reductions were
given effect by a reduction on each occasion in the bill rate payable by the defender for the
pursuer’s remaining work. The defender contends that this is a correct application of the
terms of NEC3; the pursuer contends that it is not. This is the second of the issues
mentioned above. The pursuer seeks (i) declarator that the defender was not entitled to
reduce the sum payable to it for work done consequent upon the disputed Contractor’s
Instructions and (ii) payment of a sum calculated on the basis of the unreduced bill rate.
The terms of the subcontract
[8]       It is convenient at this point to set out the relevant terms of the subcontract.
Unfortunately this has to be done at some length. Clause 4 of the Subcontract Agreement
stated:
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“4 The documents forming this subcontract are:
4.1 this Agreement;
4.2 the conditions of subcontract (being the core clauses, the clauses for main Option
B, dispute resolution Option W2 and secondary option clauses X2, X4, X7, X16, X18
and Y(UK)2 and the Shorter Schedule of Cost Components set out in the NEC 3
“engineering and construction subcontract” April 2013 edition) as amended by the
Standard Schedule of Amendments set out on the Legal Documents Disc and as
further amended (where applicable) by the Subcontractor Specific Schedule of
Amendments included in Schedule Part 3 (and all references in this subcontract to
the conditions of subcontract shall be deemed to be to such provisions as so
amended);
4.3 the completed Subcontract Data Part one set out in Schedule Part 1;
4.4 the completed Subcontract Data Part two set out in Schedule Part 2;
4.5 the Subcontract Works Information;
4.6 the Works Information under the Main Contract (insofar as relevant and
applicable to the subcontract works and/or performance of the Subcontractor’s other
obligations under this subcontract);
4.7 the Site Information under the Main Contract (insofar as relevant and applicable
to the subcontract works and/or performance of the Subcontractor’s other obligations
under this subcontract);
4.8 the Risk Register; and
4.9 the Bill of Quantities including preamble.
The documents listed above are to be taken as mutually explanatory of one another
however, for the purposes of interpretation, the priority of documents shall be in
accordance with the order of precedence outlined above where clause 4.1 has the
highest priority and clause 4.9 has the lowest priority.”
[9]       As regards the NEC3 conditions, parties helpfully provided a consolidated text of
selected clauses, adopting Option B and incorporating the Standard Schedule of
Amendments and the Subcontractor Specific Schedule of Amendments. The following
clauses, using the consolidated text provided, are relevant to this opinion:
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“Clause 10
10.1 The Contractor and the Subcontractor shall act as stated in this subcontract and in
a spirit of mutual trust and co-operation.
Clause 11.2
(8) The Fee is the sum of the amounts calculated by applying the subsubcontracted fee
percentage to the Defined Cost of subsubcontracted work and the direct fee percentage
to the Defined Cost of other work.
(19) Subcontract Works Information is information which either
specifies and describes the subcontract works or
states any constraints on how the Subcontractor Provides the Subcontract
Works and is either
in the documents which the Subcontract Data states it is in or
in an instruction given in accordance with this subcontract.
(21) The Bill of Quantities is the bill of quantities as changed in accordance with this
subcontract to accommodate implemented compensation events and for accepted
quotations for acceleration.
(22) Defined Cost is the cost of the components in the Shorter Schedule of Cost
Components whether work is subsubcontracted or not excluding the cost of
preparing quotations for compensation events.
(28) The Price for Work Done to Date is the total of
the quantity of the work which the Subcontractor has completed for each
item in the Bill of Quantities multiplied by the rate and
a proportion of each lump sum which is the proportion of the work covered
by the item which the Subcontractor has completed.
Completed work is work without Defects which would either delay or be covered by
immediately following work.
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(31) The Prices are the lump sums and the amounts obtained by multiplying the rates
by the quantities for the items in the Bill of Quantities.
Clause 14.3
14.3 The Contractor may give an instruction to the Subcontractor which changes the
Subcontract Works Information or a Key Date. The Contractor may, in the event that
a corresponding instruction is issued by the Project Manager under clause 14.3 of the
Main Contract only, also give an instruction to omit (a) any Provisional Sum and/or
(b) any other work, even if it is intended that such work will be executed by Others.
The Subcontractor has no claim for loss of revenue, loss of opportunity, loss of any
contract, loss of profit or for any indirect loss or damage against the Contractor in
relation thereto.
[NB: Clause 14.3 of the Main Contract provides:
14.3 The Project Manager may give an instruction to the Contractor which changes the
Works Information or a Key Date. The Project Manager may also give an instruction
to omit (a) any Provisional Sum and/or (b) any other work (provided the total value
of all such work omitted under all instructions issued by the Project Manager shall not
exceed 5% of the total of the Prices in the aggregate), even if it is int ended that such
work will be executed by Others. The Contractor has no claim for loss of revenue,
loss of opportunity, loss of any contract, loss of profit or for any indirect loss or
damage against the Employer in relation thereto.]
Clause 27
27 .3 The Subcontractor obeys an instruction which is in accordance with this
subcontract and is given to him by the Contractor.
Clause 60.1
60.1 The following are compensation events.
(1) The Contractor gives an instruction changing the Subcontract Works
Information except
a change made to take account of any mistake, ambiguity, inconsistency,
inaccuracy, discrepancy or omission which the Subcontractor ought to have
notified to the Contractor pursuant to clause 17.2
a change made in order to accept a Defect or
a change to the Subcontract Works Information provided by the
Subcontractor for his design which is made either at his request or to comply
with other Subcontract Works Information provided by the Contractor.
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(13) A wave measurement is recorded, during the Backhoe Dredging activities that
has a significant wave height of over 1.0m and with a wave period of up to
5 seconds, or
has a significant wave height of over 0.75m and with a wave period of
greater than 5 seconds.
Or
During Trailing Suction Hopper Dredging activities:
A wave measurement is recorded that has a significant wave
height of over 1.5m,
Crosswinds greater than Beaufort Force 8 are measured.
The Subcontractor shall provide a wave rider buoy and wind measurement
equipment which will be positioned, at locations to be mutually agreed, within 500m
of the operations. The readings from this buoy will form the basis of determining
wave measurements in accordance with the above. The vessel captain shall have the
ultimate authority to determine safe dredging operations, but only delays caused by
weather conditions that exceed the above parameters above shall be taken into
account in assessing a compensation event. Notwithstanding this, the Subcontractor
shall, for Backhoe Dredging operations undertaken after 1 October 2018 be entitled
to additional cost and time compensation:
equivalent to 4 hours (2 hours each way) over and above the delays caused
by weather conditions that exceed the parameters above, each time above the
first ten times, the vessel captain considers it necessary to move the e
equipment out of the working area and into a sheltered area; and
until such time that there is a favourable weather outlook from Cantabria
University based on the above parameters, indicating a minimum period of
working of 24 hours.
(18) A breach of subcontract by the Contractor which is not one of the other
compensation events in this subcontract or any act of prevention.
(21) The Contractor gives an instruction in accordance with clause 14.3.
Clause 61
61.1 For compensation events which arise from the Contractor giving an instruction,
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issuing a certificate, changing an earlier decision or correcting an assumption, the
Contractor notifies the Subcontractor of the compensation event at the time of that
communication. He also instructs the Subcontractor to submit quotations, unless the
event arises from a fault of the Subcontractor or quotations have already been
submitted. The Subcontractor puts the instruction or changed decision into effect.
61.2 The Contractor may instruct the Subcontractor to submit quotations for a
proposed instruction or a proposed changed decision. The Subcontractor does not
put a proposed instruction or a proposed changed decision into effect.
61.3 The Subcontractor notifies the Contractor of an event which has happened or
which he expects to happen as a compensation event if
the Subcontractor believes that the event is a compensation event and
the Contractor has not notified the event to the Subcontractor.
If the Subcontractor does not notify a compensation event within seven weeks of
becoming aware of the event, he is not entitled to a change in the Prices, the
Subcontract Completion Date or a Key Date unless the event arises from the
Contractor giving an instruction, issuing a certificate, changing an earlier decision or
correcting an assumption.
61.4 If the Contractor decides that an event notified by the Subcontractor
arises from a fault of the Subcontractor,
has not happened and is not expected to happen,
has no effect upon Defined Cost, Completion or meeting a Key Date or
is not one of the compensation events stated in this subcontract
he notifies the Subcontractor of his decision that the Prices, the Subcontract
Completion Date and the Key Dates are not to be changed. If the Contractor decides
otherwise, he notifies the Subcontractor accordingly and instructs him to submit
quotations.
The Contractor notifies his decision to the Subcontractor and, if his decision is that the
Prices, the Subcontract Completion Date or the Key Dates are to be changed,
instructs him to submit quotations before the end of either
two weeks after the Subcontractor's notification or
a longer period to which the Subcontractor has agreed.
If the Contractor does not notify his decision, the Subcontractor may notify the
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Contractor of his failure. A failure by the Contractor to reply within three weeks of
this notification is treated as acceptance by the Contractor that the event is a
compensation event and an instruction to submit quotations.
Clause 63
63.1 The changes to the Prices are assessed as the effect of the compensation event
upon
the actual Defined Cost of the work already done,
the forecast Defined Cost of the work not yet done and
the resulting Fee.
If the compensation event arose from the Contractor giving an instruction, issuing a
certificate, changing an earlier decision or correcting an assumption, the date which
divides the work already done from the work not yet done is the date of that
communication. In all other cases, the date is the date of the notification of the
compensation event.
63.2 If the effect of a compensation event is to reduce the total Defined Cost, the
Prices are not reduced except as stated in this subcontract.
63.4 The rights of the Subcontractor to changes to the Prices and the Subcontract
Completion Date are its only rights in respect of a compensation event.
63.10 If the effect of a compensation event is to reduce the total Defined Cost and the
event is
a change to the Subcontract Works Information or
a correction of an assumption stated by the Contractor for assessing an
earlier compensation event,
the Prices are reduced.
63.13 Assessments for changed Prices for compensation events are in the form of
changes to the Bill of Quantities.
For the whole or a part of a compensation event for work not yet done and
for which there is an item in the Bill of Quantities, the changes are
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• a changed rate,
• a changed quantity or
• a changed lump sum.
For the whole or a part of a compensation event for work not yet done and
for which there is no item in the Bill of Quantities, the change is a new priced
item which, unless the Contractor and the Subcontractor agree otherwise, is
compiled in accordance with the method of measurement.
For the whole or a part of a compensation event for work already done, the
change is a new lump sum item.
If the Contractor and the Subcontractor agree, rates and lump sums may be used to
assess a compensation event.
Clause 64
64.1 The Contractor assesses a compensation event
if the Subcontractor has not submitted a quotation and details of his
assessment within the time allowed,
if the Contractor decides that the Subcontractor has not assessed the
compensation event correctly in a quotation and he does not instruct the
Subcontractor to submit a revised quotation,
if, when the Subcontractor submits quotations for a compensation event, he
has not submitted a programme or alterations to a programme which this
subcontract requires him to submit or
if, when the Subcontractor submits quotations for a compensation event, the
Contractor has not accepted the Subcontractor's latest programme for one of the
reasons stated in this subcontract.
64.3 The Contractor notifies the Subcontractor of his assessment of a compensation
event and gives him details of it within the period allowed for the Subcontractor's
submission of his quotation for the same event. This period starts when the need for
the Contractor's assessment becomes apparent.
64.4 If the Contractor does not assess a compensation event within the time allowed,
the Subcontractor may notify the Contractor of his failure. If the Subcontractor
submitted more than one quotation for the compensation event, he states in his
notification which quotation he proposes is to be accepted. If the Contractor does not
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reply within three weeks of this notification the Subcontractor informs the Contractor
of the Contractor's failure to reply and if the Contractor does not respond within three
weeks of the Subcontractor informing the Contractor of that failure the notification is
treated as acceptance of the Subcontractor's quotation by the Contractor.
Clause 65
65.1 A compensation event is implemented when
the Contractor notifies his acceptance of the Subcontractor’s quotation,
the Contractor notifies the Subcontractor of his own assessment or
a Subcontractor’s quotation is treated as having been accepted by the
Contractor.
65.2 The assessment of a compensation event is not revised if a forecast upon which
it is based is shown by later recorded information to have been wrong.”
[10]       The definition of Defined Cost in clause 11.2(22) above is the cost of the components
in the Shorter Schedule of Cost Components. That schedule lists costs under various
headings such as People, Equipment and Plant and Materials, broadly consisting of costs
directly attributable to the carrying out of the subcontract works.
[11]       For a definition of the subcontract works it is necessary to refer to the Subcontract Data
Part one, where the subcontract works are defined as “the Dredging of Silts, Sands, Gravels
and Glacial Till (including Boulders) associated with the Aberdeen Harbour Expansion
Project as detailed in Scope Document AHEP-DRA-SOW-0002 Rev 8 and material Reuse
Method Related Philosophy AHEP-DRA-SOW-0003 rev 2”. The documents referred to
contain, but are not exhaustive of, Subcontract Works Information for the purposes of the
definition of that term in clause 11.2(19).
[12]       The Subcontract Data part 2 contains specification inter alia of the direct fee
percentage and the subsubcontracted fee percentage (both 12.5%), the tendered total of the
Prices, the working rate and standing rate for various items of equipment, and the working
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rate and standing rate for site staff, survey and environmental support. These are the rates
used in Defined Cost calculations for costs included in the Shorter Schedule of Cost
Components.
Issue 1: Was the transfer of work from the pursuer to other subcontractors a breach of
contract?
Argument for the pursuer
[13]       On behalf of the pursuer it was submitted that the transfer of work falling within the
pursuer’s subcontract to other contractors was a breach of contract. It was accepted th at
there was no absolute rule of law prohibiting transfer of work to another contractor in any
circumstances. The question of whether works could be “omitted”, ie removed from the
scope of the contract, whether transferred to another contractor or not, depended upon the
proper interpretation of the contract. Reference was made to Abbey Developments Ltd v PP
Brickwork Ltd [2003] EWHC 1987 (Technology).
[14]       In the present case there was no provision permitting such transfer. By clause 14.3,
the parties had expressly agreed circumstances in which the defender could instruct that
work be omitted, even if it was transferred to someone else to carry out, namely where the
project manager under the main contract had issued a corresponding instruction. The
parties had further agreed by inclusion of clause 60.1(21) that the issuing by the defender of
such an instruction was a compensation event. It was not suggested that there had been any
corresponding instruction issued under the main contract and accordingly those subclauses
had no application to the circumstances here. The defender’s purpose or motive was
irrelevant.
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[15]       The removal of work from the scope of the pursuer’s works and its transfer to WASA
and to Canlemar was a breach of the defender’s obligation under clause 10.1 to act in a spirit
of mutual trust and co-operation. Without informing the pursuer of its intention at the time
of entering into the subcontract, the defender had “triple-contracted” in relation to
approximately one third of the pursuer’s works. The pursuer did not and could not have
envisaged that the defender would hold such an intention or proceed to carry it out. By this
means the pursuer was exposed to a situation in which it could, for example, be required to
carry out the more difficult portion of the works at the contractual rates, with the easier
portion then being transferred to another contractor. (The pursuer contends that this is what
occurred, but that is not admitted by the defender.) To suggest that this was simply a bad
bargain was outrageous: it was clearly a breach of clause 10.1. If it were to be contended
that the pursuer acquiesced in some of the transfers of work, the pursuer could not have
acquiesced when it was unaware that the defender had had the possibility of transfer in
mind at the time of contracting, and even after the present action had been raised, the terms
of the defender’s contract with Canlemar had remained undisclosed.
[16]       The effect of the transfer of work to other contractors was that the defender claimed
to be entitled to apply the compensation event provisions, relying on calculations of Defined
Cost, in a way that was never intended by the parties. That too was a breach of clause 10.1:
it was contrary to a spirit of mutual trust and co-operation to use the contractual provisions
dramatically to reduce the bill rate for work actually done by the pursuer. It was
self-evident that the pursuer would not have agreed to the use of Defined Cost if it had been
aware that a significant proportion of its work could be transferred to another subcontractor.
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Argument for the defender
[17]       On behalf of the defender it was submitted that the removal of work from the
pursuer’s scope of works was not a breach of contract. By means of the compensation event
mechanism, NEC3 provided a fair and adequate procedure to compensate a subcontractor
for omissions, with the purpose of ensuring that the subcontractor was neither better nor
worse off as a result. Instruction of an omission should not therefore be regarded as a
breach of contract.
[18]       The pursuer’s analysis assumed that the scope of the works, as set out in the
Subcontract Works Information, was fixed at the time of the contract and could not
subsequently be reduced. That was incorrect. Clause 11.2(19) made clear that the
Subcontract Works Information was not fixed but could be specified in an instruction “given
in accordance with this subcontract” which specified and described the subcontract works.
The fact that the second part of clause 14.3 addressed a particular situation, ie a
corresponding instruction in the main contract, did not prevent the first sentence of the
clause from being interpreted as permitting other omissions by means of instructions which
changed the Subcontract Works Information. By virtue of clause 60.1(1), the pursuer was
able to advance such a change as a compensation event. The circumstances of the present
case had been envisaged by the contracting parties and had been provided for.
[19]       The fact that the defender entered into contracts with WASA and Canlemar was
irrelevant to the proper interpretation of its contract with the pursuer. Those contracts were
entered into after the pursuer and defender’s contract had been concluded. There had been
nothing secret or underhand about the transfer of work to either of these companies: they
were onsite and the pursuer was aware of what was happening.
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[20]       The circumstances of the present case were distinguishable from those in Abbey
Developments Ltd v PP Brickwork Ltd. The contractual provisions were different. In Abbey
Developments, the scope of the work was fixed in the contract, whereas in the present case the
defender was using an express contractual power to amend the scope by omitting work
from it.
Decision
[21]       The Abbey Developments case concerned a labour-only subcontract for the brickwork
of a housing development, in the course of which the contractor became dissatisfied with the
subcontractor’s performance. The issue was whether the contractor was entitled as a matter
of law to remove most of the remaining work from the subcontractor and to employ an
alternative subcontractor to carry it out. Before turning to consider the terms of the
subcontract, HHJ Lloyd QC reviewed in some detail the case law and other authorities,
including the then current edition of Hudson on Building Contracts, on the question of
whether, and in what circumstances, an employer (or, as in that case and in the present case,
contractor) is entitled to instruct the omission of work which the contractor (or
subcontractor) has been engaged to perform. His conclusions may be summarised as
follows:
A contract for the execution of work confers on the contractor not only a duty to
carry out the work but a corresponding right to complete the work which it
contracted to carry out.
A clause entitling the employer to vary the works must be construed carefully so
as not to deprive the contractor of his contractual right to the opportunity to
complete the works and realise such profit as may then be made. Clear words
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are needed if the employer is to be entitled to remove work from the contractor in
order to have it done by somebody else.
There is no principle of law that says that in no circumstances may work be
omitted and given to others without incurring liability to the original contractor.
The test is whether, on a proper interpretation of the contract read as a whole, the
clause relied upon by the employer is wide enough to permit the change that was
made.
The employer’s motive or reason for instructing the omission of the work is
irrelevant.
[22]       Although Abbey Developments remains unreported in official law reports (the text
provided to me unfortunately had no page numbering), it is frequently referred to and no
authority was cited to me that expressed the view that it was wrongly decided. I see n o
reason not to follow the guidance that it provides. The principles that I have identified are
capable of general application including, in my opinion, application to contracts
incorporating the NEC3 clauses. I should, however, note in particular the following
observation made by HHJ Lloyd QC before he turned to apply the principles identified
above to the contractual terms applicable in that case:
“The valuation provisions of many contracts… provide the contractor with a means
of obtaining acceptable compensation in the event of omissions which deprive it of
profit, et cetera. In these circumstances it may be doubted if there would be a viable
claim for breach of contract even if the work is given to another if the contract
provides its own means of awarding the contractor amounts that it might recover if it
had a claim for breach of contract.”
[23]       Applying the principles identified in Abbey Developments to the circumstances of the
present case, the question is whether the terms of the subcontract entitled the defender to
omit works from the scope of the subcontract works and have them carried out instead by
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WASA and Canlemar. The defender’s argument was based upon clause 14.3, read together
with the definition of Subcontract Works Information in clause 11. 2(19). In my opinion
those clauses do not amount to a clear contractual entitlement to omit works and transfer
them to another subcontractor, except in the circumstances in which omission of work is
permitted by the second and third sentences of clause 14.3. It is not suggested by the
defender that those circumstances subsisted at the time of any of the defender’s Contractor’s
Instructions. It is of significance that the parties have expressly provided in the contract for
a particular situation in which the defender was entitled to give an instruction to omit work;
that, in my opinion, raises at least a prima facie inference that in other circumstances the
defender was not so entitled, in the absence of another equally clear provision empowering
it to do so.
[24]       The defender submitted that, following the giving of the Contractor’s Instructions,
the Subcontract Works Information was changed, because the definition of Subcontract
Works Information, read short, includes “information which… specifies and describes the
subcontract works… and is… in an instruction given in accordance with this subcontract”. I
accept that an instruction to omit works is an instruction that changes the Subcontract
Works Information, even if the giving of that instruction is a breach of contract. That must
be so because as a matter of practicality the omitted works no longer form part of the scope
of the subcontract works: the reality is that the subcontractor is no longer able to proceed to
carry them out. I accept also that the phrase “an instruction given in accordance with this
subcontract” should not be read as meaning “an instruction which is not given in breach of
contract”. That, in my view, would attach too much weight to the words “in accordance
with”. I note that the same words appear in clause 60.1(21) where they seem to mean no
more than “in terms of”. It is also apparent, as discussed further below, that clause 60.1
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envisages that the giving of an instruction could constitute a breach of contract. That being
so, the fact that an instruction has the effect of changing the Subcontract Works Information
does not prevent it from being a breach of contract. No other provision of the subcontract
was founded upon as entitling the defender to give the Contractor’s Instructions which
omitted work from the scope of the pursuer’s works. It follows, in my opinion, that their
omission was a breach of contract by the defender.
[25]       I reach this conclusion without, at this stage of the argument, having to place any
significant weight upon clause 10.1. I have already noted that one of the conclusions of
HHJ Lloyd QC in Abbey Developments, following observations made in the earlier case of
Amec Building Ltd v Cadmus Investments Co Ltd (1996) 51 Con LR 105, was that the
contractor’s motive for omitting the works is irrelevant. It is not therefore necessary in this
context to inquire into whether the omission of the works amounted to a breach by the
defender of its obligation under clause 10.1 to act in a spirit of mutual trust and co -
operation. It is sufficient to hold that the subcontract, read as a whole and construed in
accordance with the principles applicable to the interpretation of commercial contracts, did
not contain any provision entitling the defender to omit works with a view to having them
carried out by an alternative sub-contractor.
[26]       I do not regard the present case as meeting the description in the passage I have
quoted above from HHJ Lloyd QC’s judgment regarding a contract “which provides its own
means of awarding the contractor amounts that it might recover if it had a claim for breach
of contract”. It seems to me that the reverse is true here: in terms of NEC3 the omission of
work does constitute a breach of contract. But the matter is not left there, because the
contract goes on to specify the remedy and indeed the only remedy available for a breach
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of contract, namely that it is a compensation event. That leads on to the second issue arising
for determination in these proceedings.
[27]       I have thus far addressed the first issue as a matter of principle. The parties do have
pleadings regarding the reasons why the work was transferred to WASA and Canlemar. As
I have already said, I would regard most of this as irrelevant to the question whether the
defender was contractually entitled to act as it did. It would not, for example, be a defence
to the pursuer’s breach of contract argument merely to assert that the pursuer’s performance
had been unsatisfactory (cf Abbey Developments). It can be assumed that unsatisfactory
performance is otherwise addressed by the provisions of NEC3. The defender also,
however, has averments (denied by the pursuer) that, at least in relation to caisson filling, it
had wished the pursuer to carry out the works but the pursuer had refused to do so. The
defender also has averments that the pursuer co-operated with and facilitated transfer of
works to WASA; this, as I understand it, is the basis of the defender’s plea of acquiescence.
In response, the pursuer founds upon clause 10.1, and submits that the pursuer could not
have acquiesced in the transfers because it had been unaware of the existence of the other
subcontracts. It had not indeed been aware of the subcontract with Canlemar until after the
raising of the present action. Those matters would require proof and would, at this stage,
appear to preclude the granting of the declarator sought by the pursuer that all of the
various Contractors’ Instructions and relative compensation event notices were issued by
the defender in breach of con tract. I shall, however, hear any further submissions that
parties wish to make on whether, in the light of my decision, the question of acquiescence
remains a live issue and, if so, what order should be made at this stage.
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Issue 2: What are the consequences of the defender’s breach of contract?
Argument for the defender
[28]       In relation to the second issue, it is convenient to begin by narrating the argument for
the defender presented on the hypothesis that it was held (as I have held) that the omission
of work from the scope of the pursuer’s subcontract works was a breach of contract. The
defender’s position was summarised in the following propositions:
The compensation event mechanism was appropriate for all compensation
events, including breaches of contract. It provided fair and adequate
compensation for a breach consisting of omission of works.
The compensation event mechanism put the subcontractor in the same position
as if the event had not occurred. Properly understood, it made no difference
whether or not the instruction was a breach of contract.
Clause 61.3 did not entitle the pursuer to prevent a compensation event being
valued under the contractual mechanism. The pursuer’s approach was contrary
to the terms of the contract, and would produce a windfall benefit for the
pursuer.
Because (as was common ground) the bill rates played no part in the valuation
exercise, they changed if and to the extent necessary to spread an increase or
reduction in the Prices resulting from the compensation event mechanism.
[29]       Most of the compensation events listed in clause 60.1 were, in essence, breaches of
contract by the employer. The intention underlying NEC3 was that a contractor should be
left neither better nor worse off as a consequence of a compensation event. This was
achieved by the Defined Cost calculation, which used actual past costs and forecast future
costs falling within the Shorter Schedule of Cost Components, rather than the bill rates. This
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meant that if, for example, the tender had been priced too low, or if productivity to date had
been poor, Defined Cost would exceed the bill rates which would therefore be reduced. If
they were not, this would amount to a benefit to the contractor and a penalty imposed upon
the employer.
[30]       Properly characterised, the defender’s instructions omitting work from the scope of
the pursuer’s subcontract were compensation events within clause 60.1(1) (instruction
changing the Subcontract Works Information), rather than clause 60.1(18) (a breach of
contract which is not one of the other compensation events). In any event, clause 63.4 made
clear that the pursuer’s rights to changes to the Prices and the Subcontract Completion Date
were its only rights in respect of a compensation event. Common law remedies were
excluded. Breaches of contract required to be valued in accordance with clause 63 in the
same way as any other compensation event. The procedure in terms of NEC3 was that in
terms of clause 61.1 the defender notified the pursuer of the compensation event and the
pursuer submitted a quotation. If the pursuer failed to submit a quotation, the defender
would make an assessment in terms of clause 64. Either way, the effect of the compensation
event was assessed in a three-stage process:
(1) Under clause 63.1, there required to be calculated (i) the Defined Cost of work
already carried out; (ii) forecast Defined Cost of work that the pursuer would have
had to carry out but for the omission; and (iii) forecast Defined Cost of completing
the work remaining after the omission.
(2) If clause 63.10 applied, ie if the effect of the compensation event was to reduce the
total Defined Cost and the event was a change to the Subcontract Works Information,
the Prices were reduced.
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(3) The reduction in the Prices was effected by calculating a new bill rate, with the
purpose of spreading the reduction in the Prices over the work remaining to be done.
[31]       This was the process that had been carried out in relation to each of the instructions
omitting work from the scope of the subcontract. The fact that each resulted in reduction of
the bill rate was not suggestive of any unfairness: it was how NEC3 was intended to work
to ensure that the pursuer was neither better nor worse off as a consequence of the
compensation event consisting of the breach of contract. If the Prices were not reduced, the
pursuer would be relieved of a loss that it would otherwise have incurred because of poor
productivity to date during its performance of the subcontract works. The pursuer would
be paid on the basis that it had incurred costs carrying out work that it had not, in fact,
carried out. Only by reducing the rates was the reduction in Defined Cost to the pursuer
from not having to execute some of the work reflected in the remaining payments. This was
because the rate in the Bill of Quantities assumed that all the work would be done.
[32]       The pursuer’s arguments based upon clauses 61.3 and 63.10 were misconceived. The
purpose of clause 61.3 was not to provide the subcontractor with an opportunity to preven t
a valuation and thereby avoid a reduction in bill rates. Its purpose was simply to ensure
that the subcontractor could initiate the valuation process if the contractor failed to do so. In
any event clause 61.3 had no application to the present circumst ances because the defender
had given notification of compensation events within the specified time limits. Regardless
of whether the instruction was a breach of contract, it was a change to the Subcontract
Works Information, and so clause 63.10 was engaged.
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Argument for the pursuer
[33]       On behalf of the pursuer it was submitted that the compensation event procedure
operated differently in cases where the compensation event was a breach of contract from
how it operated in other cases. The compensation event mechanism in clauses 60 - 64
proceeded on the basis that references to an instruction were to a valid instruction, ie to an
instruction which was not a breach of contract. Clause 60.1(1) in particular was concerned
with valid instructions changing the Subcontract Works Information. It appeared to be
common ground that the provisions of NEC3 were intended to ensure that a subcontractor
did not suffer detriment as a consequence of the occurrence of a compensation event. If in
the present case the pursuer were to suffer the double penalty of losing part of the works
from the subcontract and also having the bill rate reduced for the work that remained with
it, that would clearly amount to a significant detriment. The occurrence of such a detriment
was, however, avoided by the following contractual provisions.
[34]       Firstly, clause 61.1 applied only to valid instructions. It was not therefore applicable
to the present case, and the defender was not empowered to initiate the compensation event
mechanism by means of a notification of the compensation event. Instead, the initiative lay
with the pursuer to initiate the mechanism in terms of clause 61.3.
[35]       Secondly, clause 61.3 entitled but did not oblige the pursuer to initiate the
compensation event mechanism. Clause 61.3 provided expressly for the eventuality that the
subcontractor did not notify a compensation event within seven weeks of becoming aware
of it: the consequence was that there was no change to the Prices. If, therefore, the
subcontractor appreciated that the effect of the compensation event mechanism would be a
reduction in the Prices, and thus a reduced bill rate, it could simply choose not to initiate the
process, and the reduction in the Prices would not occur.
Page 25 ⇓
25
[36]       Thirdly, in any event, clause 63.10 stated that if the effect of a compensation event
was to reduce the total Defined Cost, the Prices were reduced only if (reading short) the
event was a change to the Subcontract Works Information. If an invalid instruction, ie an
instruction that was a breach of contract, was not a change to the Subcontract Works
Information, then clause 63.10 was excluded and there was no reduction in the Prices.
Clause 63.2 stated expressly that if the effect of a compensation event was to reduce the total
Defined Cost, the Prices were not reduced except as stated in the subcontract.
[37]       On this interpretation, the prejudice to the pursuer occasioned by the reduction in
the bill rate was avoided. There was no question of the pursuer claiming payment for work
that it was no longer doing, but that was a separate matter, addressed by the contractual
provisions regarding the Price for Work Done to Date.
[38]       Past productivity was irrelevant. The problem in the present case arose because
Defined Cost was higher than the bill rate. That was a pricing decision taken in good faith
by the pursuer at the time of contracting, when it was unaware of the defender’s intention to
enter into contracts with other subcontractors for some of the same work. It was not for the
defender now to suggest that the pursuer had entered into a bad bargain: it was obvious that
if the pursuer had been aware of the defender’s intention, it would have put in place a
different Defined Cost structure that took account of the possibility of removal of work from
the scope of the subcontract works. By the time of the defender’s breaches of contract that
could no longer be done. The clauses identified above provided protection to the pursuer
from the adverse consequences of such breaches. The defender’s conduct in entering into
the contracts with WASA and Canlemar, and then exploiting the compensation event
procedure to reduce the rate payable to the pursuer following transfers of work, was a
breach of clause 10.1.
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26
Decision
[39]       The identification and valuation of change by reference to compensation events is a
key element of NEC3. As it is put in Mitchell and Trebes: NEC Managing Reality, Book One:
The Engineering and Construction Contract (2005) at paragraph 1.7.3:
“The ECC uses compensation events to determine change and t he Schedule of Cost
Components to value change. Compensation events are those events for which the
contractor becomes entitled to an assessment of time and money, bearing in mind
that the assessment could be zero. Compensation events tend to be a contractual
remedy to the project manager's or the employer's breach of contract.
Neither the originally tendered activity schedule (main Option A) nor the priced bill
of quantities (main Option B) is used for assessing the financial effects of change.
Instead the contractor is reimbursed the financial effects of the compensation event
upon Actual Cost or forecast Actual Cost (ECC2), or upon Defined Cost or forecast
Defined Cost (ECC3). The premise behind this is that the contractor should be
neither better off, nor any worse off for the change occurring.”
(We are concerned here with Option B and with ECC3.)
[40]       As the authors point out, there is nothing unusual about a compensation event
consisting of a breach of contract. It would therefore be surprising if different rules applied
to valuation of breaches of contract and to valuation of other compensation events. It would
be equally surprising if different rules applied to valuation of breaches of contract effected
by the giving of an instruction and to valuation of other breaches of contract. In my opinion
the pursuer’s contention that the reference in clause 61.1 to the employer giving an
instruction applies only to the giving of a valid instruction must be rejected. The purpose of
clause 61.1, in my opinion, is to require the employer to notify the contractor of a
compensation event in circumstances where the occurrence of the event consists of a
communication from the employer giving an instruction, issuing a certificate, changing an
earlier decision or correcting an assumption as opposed to other compensation events
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27
which occur otherwise than by a direct communication. The contractor is obliged to put the
instruction into effect even if it constitutes a breach of contract; his remedy is provided by
the compensation event mechanism.
[41]       I reject also the pursuer’s contention that clause 61.3 affords the contractor an
opportunity to avoid a change in the Prices by failing to notify a compensation event. The
purpose of clause 61.3 is clear: to allow the contractor to put the compensation event
mechanism in motion if the employer fails to do so. The language of clause 61.3 is of
“entitlement” to a change in the Prices; that does not sit easily with the proposition that the
contractor can use clause 61.3 to derail the compensation event procedure if he calculates
that it is financially beneficial to do so. The clause should in my view be read as ensuring
that the valuation procedure is engaged rather than as preventing it from proceeding. It is
also relevant to note that where the contractor initiates the compensation event procedure
because of the occurrence of any event other than the ones mentioned in clause 63.10, the
Prices cannot be reduced.
[42]       In any event clause 61.3 is not applicable to the circumstances of the present case.
The compensation events were instructions given by the defender, and notifications in terms
of clause 61.1 were given. The pursuer’s clause 61.3 argument depends upon acceptance of
the prior contention that instructions given in breach of contract were not instructions for
the purposes of clause 61.1. As I have rejected that contention, the argument based on
clause 61.3 must also fail.
[43]       It follows from what I have said so far that the calculation in clause 63.1 had to be
made. It is common ground that that calculation produced a reduction in the Defined Cost.
But that would not necessarily lead to a reduction in the Prices. In terms of clause 63.2, the
Prices are not reduced except as stated in the subcontract. The question is whether the
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28
circumstances of the present case fall within clause 63.10, ie whether each compensation
event consisting of an instruction by the defender to omit work was a change to the
Subcontract Works Information. I have given my reasons for holding that it was, at
paragraph 24 above. I stated there that the fact that an instruction had the effect of changing
the Subcontract Works Information did not prevent it from being a breach of contract. In my
opinion the converse is also true: the fact that an instruction amounts to a breach of contract
does not prevent it from being a change to the Subcontract Works Information.
[44]       The remainder of the calculation is mechanical. Under clause 63.13, a change in the
Prices is given effect by changes to the bill of quantities. The practical consequence is to
reduce the rate payable for the work remaining to be done.
[45]       On behalf of the pursuer it was strongly argued that there had to be something
wrong with the above analysis. It was common ground, as observed in Mitchell and Trebes
(above) that a contractor should be neither better nor worse off as a result of the occurrence
of a compensation event, yet here the pursuer was prejudiced not only by losing its profit on
the work omitted from the scope of the subcontract but also by having the bill rate reduced
for the work which remained to be done. In my opinion this argument is founded upon a
factual assertion which is not self-evidently correct, namely that the pursuer is worse off.
This is the argument that NEC3’s use of Defined Cost, under reference to the Schedule of
Cost Components, appears to be intended to avoid. As Mitchell and Trebes put it ( ibid, Book
Four: Managing Change) at paragraph 2.3 under the heading “Why has this approach been
taken?”:
“Traditionally, the valuation of change has been assessed on the basis of tendered
rates and prices. Problems occur, however, when, as often happens on projects, the
scope and nature of the project start to vary and arguments then arise with regard to
the applicability of bills of quantities rates, prices and lump sum items and how
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much the quantity/type/scope of an item needs to change before a new rate or price
is required.
It is possible to argue ad infinitum about the rights and wrongs of a particular price.
The Schedule of Cost Components is a way around these problems.
In the ECC all change is valued at [‘Defined Cost’] with no reference made to
tendered rates or prices. The philosophy behind this provision is that the contractor
should be 'no better nor no worse off' as a result of change which is at the risk of the
employer under the contract during the construction of the works…”
[46]       As I understand it, the use of Defined Cost is intended to provide an objective
method of giving effect to change, including change that occurs as a consequence of a breach
of contract, in a way that does not leave the contractor either better or worse off. If the
method works as intended, a reduction in bill rates which on the face of it appears to leave
the contractor worse off may be doing no more than reflecting losses which will in any event
be incurred. That is in effect what the defender says has happened in the present case. In
that regard I note, for example, in the project manager’s assessment of the compensation
event which had the effect of reducing the bill rate from £7.48 to £6.16 per m3, the following
is stated:
Loss of revenue
…From the analysis shown above, it appears that this specific item was on track to
lose Van Oord significant sums. The effect of those losses, however minimal, would
have had a negative contribution to the companies overall performance. Taking this
out of Van Oord's scope does not therefore lose Van Oord any positive revenue.
Loss of opportunity
Taking cognasince [sic] of the above, it seems that to release Van Oord from their
obligations to continue to perform an activity which is losing money only increases
Van Oords potential opportunity to complete these works earlier and commence on
other more profitable ventures. It should also be noted that in Dec 2018 Van Oord
received additional works valued at over £3.0m based on the Defined Costs as used
above…”
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I am not in a position to make any finding as to whether what is stated is correct. I am
satisfied, however, in principle, that a reduction in bill rates to give effect to a change in
Prices produced by the compensation event mechanism does not necessarily imply that the
contractor (or, as here, the subcontractor) is worse off.
[47]       I do not consider that the pursuer’s argument based on clause 10.1 adds anything to
what has already been discussed. For a breach of clause 10.1 to have practical consequences,
it would have to fall within one of the categories of compensation event in clause 60.1:
presumably clause 60.1(18) if nothing else. Any such breach would thus be brought into the
compensation event mechanism in the usual way. Any decision taken by the pursuer in
relation to pricing at the time of contracting does not seem to me to make any difference: the
whole of my discussion of the second issue proceeds on the basis that the defender is in
breach of contract.
[48]       For these reasons I hold that the pursuer has not made out a relevant case for the
granting of declarator that the defender was not entitled in terms of the subcontract to
reduce the Prices payable to the pursuer consequent upon the Contractor’s Instructions and
relative compensation event notices.
Issue 3: Wave measurement
Factual context
[49]       Clause 60.1(13), set out above, provided for a compensation event to occur whenever
a wave measurement exceeding certain specified heights and wave periods was recorded.
(In other words, the risk of disruption caused by adverse sea conditions was to be carried by
the defender.) The clause specified a means of making wave measurements: the pursuer
was to provide a wave rider buoy and wind measurement equipment to be positioned, at
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31
locations to be mutually agreed, within 500m of the pursuer’s operations. The readings
from this buoy were “to form the basis of determining wave measurements”. The parties
are in dispute as to the proper interpretation of this clause.
[50]       The parties reached agreement on the location of the buoy shortly after the date
when the subcontract was entered into, and the buoy was placed at the agreed location.
However, it was immediately appreciated that although the buoy might be representative of
sea conditions at the dredging site when work commenced, that would not be the case later.
As work on the construction of a breakwater advanced, the dredging site would become
more sheltered, but the buoy was located outside the breakwater. This mutual appreciation
was reflected in the following email exchange on 28 March 2018 between the defender’s
Mr Malcolm MacDonald and the pursuer’s Mr Godfried van Oord (with Mr MacDonald’s
observations in roman type and Mr van Oord’s response in italics):
“Good morning
I understand that this position is the most suitable from a practical point of view but
I am not convinced that it will be reflective of the actual conditions at the dredger
location. Although I acknowledge that in the early stages there won't be much
difference until the north breakwater is advanced.
Propose the following:
• Install as per discussions and sketch attached OK, will apply for the
exemption
• Monitor if there is a significant difference between the buoy data and
workable conditions at the dredger locations For sure there will be differences
as soon as the breakwater is in place, will ask Anestis how we can deal with that.
We'll come back to that.
- If there is a significant difference we need to move the buoy or have some
agreement on the applicable standby [see above]
Is this suitable? Yes I agree that for the upcoming period this is sufficient, Anestis will have
to come with a proposal how we can deal with this when breakwater installation
progresses…
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[51]       There was no further communication on how to address the issue identified. On
25 June 2018, Mr MacDonald noted in an email that “It is apparent that in most wave
directions, the sig wave height inside AHEP is much less than recorded on the wavebuoy”.
On 13 July 2018, the pursuer produced a technical note which stated inter alia:
“…As the construction of the structure progresses, it will start providing a shelter to
certain locations in the bay. This means that the buoy measurements - which are
intentionally conducted outside of the impact zone of the breakwater for the reasons
explained in paragraph… – are not representative of the sea state at certain areas
where dredging activities are scheduled. For this reason a study (mostly based on
diffraction which is the most prominent process in such cases) has been conducted to
compute the estimated reduction of wave energy to be expected per area.
The results of this analysis are transformation factors with which the buoy readings
shall be multiplied to compute the sheltered conditions.
It shall be clarified that this study is performed only for the estimate of the wave
conditions at the protected areas. For any activities conducted outside of the
sheltering zone (i.e. at the disposal area), the measurements of the buoy shall be used
as logged by the buoy, without any transformation. For this reason amongst others
discussed in section 0 it is important to keep the wave buoy at the main location for
the entire period dredging activities are on-going…”.
[52]       No adjustment methodology was agreed. The buoy was never moved. As the
dredging works proceeded, the pursuer submitted compensation event notices using
unadjusted data from wave buoy reports. The defender instructed Arup, its designer on the
AHEP project, to produce wave modelling reports, which the defender then used in its
valuation of the compensation events. In the Arup model, the wave buoy data were
adjusted mathematically with a view to producing figures considered to be more
representative of the sea conditions at the place where the dredger was working. On this
basis the amount of compensation due to the pursuer would be very much lower.
[53]       In these proceedings the pursuer seeks (i) declarator that for the purposes of
determining its claim under clause 60.1(13), the defender is not entitled to make any
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33
adjustment to the measurements produced by the wave buoy; and (ii) payment of a sum
due for weather disruption in 2018.
Argument for the pursuer
[54]       On behalf of the pursuer it was submitted that the defender’s averments that the
wave buoy data required to be adjusted were irrelevant. The contractual provisions were
clear: clause 60.1(13) provided for the buoy to be positioned at agreed locations (in the plural)
and for the buoy data to form the basis of determining whether a compensation event had
occurred. Properly construed, that meant that the buoy data were determin ative.
Clause 60.1(13) did not provide for mathematical adjustment of the data. It provided a clear
and sensible means of addressing the issue of buoy data becoming unrepresentative as
breakwater construction works proceeded: namely, to move the buoy to a different agreed
location.
[55]       The defender’s averments contained no specification of the adjustment that was said,
in terms of the contract, to be necessary. There was no averment of when, if ever, the initial
location became unrepresentative. It appeared that the court was being asked to determine,
after the event, a “reasonable adjustment” to the data. But decisions on whether to suspend
operations had to be made by the vessel captain on the basis of the buoy data. That could
not have been done on the basis of adjusted data calculated long afterwards. On the
contrary, there were indications within clause 60.1(13) that the question whether the
parameters in the clause had been exceeded was to be determined contemporaneously: the
reference to a wave height etc being “recorded”... ”during… activities”, and the link to the
vessel captain’s ultimate authority to determine safe dredging operations, with the buoy
data being used as a cross check.
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34
Argument for the defender
[56]       On behalf of the defender it was submitted that the correct interpretation of clause
60.1(13) could only be determined after proof of the factual circumstances at the time when
the sub-contract was entered into. The words “the readings from this buoy will form the
basis of determining wave measurements “ were open to more than one interpretation: they
could, as the pursuer submitted, mean that the readings were determinative, or they could
mean, as the defender submitted, that the readings provided a starting point which would
then require to be adjusted. The defender offered to prove that the latter interpretation was,
in the circumstances, the only interpretation that made commercial sense. The email
exchange demonstrated that both parties were aware at the time of contracting that as
breakwater construction proceeded, the buoy data would become increasingly
unrepresentative of sea conditions at the location where dredging work was taking place.
Indeed, any reasonably competent contractor or subcontractor in the position of the parties
would have realised this.
[57]       The purpose of the clause was to compensate the pursuer when weather conditions
rendered its dredger unusable, not to give it a windfall benefit when the dredger was not in
fact experiencing the same wave conditions as the buoy. It made no commercial sense to
construe the clause as containing an unenforceable agreement to agree a series of new
locations as the works proceeded. Those difficulties were avoided by interpreting the
clause as an agreement to use the buoy data but subject to appropriate adjustment. This
appears to have been what the pursuer’s technical note had in mind when it referred to
“transformation factors” and the need to keep the buoy at the same location for the entire
period of dredging.
Page 35 ⇓
35
[58]       The defender offered to prove that the method advocated by its expert witness, Mr
Timothy Beckett, consisting of a refinement of the method employed by Arup, constituted
an appropriate adjustment. The method produced a precise measurement of downtime.
There was no difficulty in carrying out this exercise after a lapse of time. There had been no
need for the vessel captain to be aware contemporaneously of adjusted data from the buoy;
his responsibility was simply to decide whether it was safe to carry on dredging. In fact the
pursuer did carry on without the benefit of adjusted data, and notified compensation events
as it went along.
Decision
[59]       In my opinion the proper interpretation of clause 60.1(13) will be better determined
after proof. The words “will form the basis of determining wave measurements” are in my
view open to more than one interpretation: they may have been intended to mean that the
readings from the buoy were to be determinative or they may not. I accept the pursuer’s
submission that use of the word “locations” in the plural is a strong indication that parties
envisaged, at the time of contracting, that the buoy would not remain at the same location
for the duration of the dredging (although the pursuer’s technical note seems to suggest a
change of mind in this regard). That, however, does not appear to me to provide a
conclusive answer to the question whether adjustment of the buoy data was also in the
parties’ contemplation. Even if the buoy were to be moved, there might still be scope for its
readings to be more or less representative from time to time, so that it might make better
commercial sense, and reflect a shared intention, to interpret the words “form the basis” in
the manner contended for by the defender. Nor is it readily apparent how frequently
movement of the buoy might have been contemplated by the parties when using the word
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36
“locations”. The email exchange some two weeks after the date of the contract might assist
in the process of objective ascertainment of the parties’ intentions at the time of contracting,
but it is clearly not conclusive one way or the other. As pr oof before answer is to be allowed
on this issue, it is probably better that I say no more about it at this stage.
Other matters
[60]       In addition to the conclusions already mentioned, the pursuer seeks payment of a
sum representing the 12.5% fee due in terms of the subcontract in respect of the work
removed from the pursuer’s scope of work by the disputed Contractor’s Instructions. In the
course of the debate, the defender submitted that this claim was irrelevant, amounting in
effect to a common law damages claim of the kind excluded by clause 63.4, and in any event
that it was excessive because the 12.5% figure did not consist wholly of profit. Those
arguments were not, however, contained in the defender’s note of argument and I prefer to
reserve consideration of them until parties have had an opportunity to consider the
implications for this conclusion of my opinion in relation to the other issues. I shall hear
further argument if necessary.
Disposal
[61]       I am grateful to both counsel for their very helpful submissions and clear
presentation of the issues. As agreed, I will put the case out by order to discuss further
procedure and any orders to be made at this stage. Questions of expenses are reserved.



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