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You are here: BAILII >> Databases >> England and Wales High Court (Commercial Court) Decisions >> Dhabi v Sd Marine Services [2011] EWHC 848 (Comm) (11 April 2011)
URL: http://www.bailii.org/ew/cases/EWHC/Comm/2011/848.html
Cite as: 136 Con LR 190, [2011] EWHC 848 (Comm), [2011] BLR 384

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Neutral Citation Number: [2011] EWHC 848 (Comm)
Case No: 2009 Folio No. 1361 & 1622

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT

Royal Courts of Justice
Strand, London, WC2A 2LL
11/04/2011

B e f o r e :

THE HONOURABLE MR JUSTICE HAMBLEN
____________________

Between:
ADYARD ABU DHABI
Claimant
- and -

SD MARINE SERVICES
Defendant

____________________

Matthew Reeve and Ruth Hosking (instructed by Clyde & Co) for the Claimant
Adam Constable QC and Lucy Garrett (instructed by Ince & Co) for the Defendant
Hearing dates: 28th February, 2nd - 4th, 7th -11th, 14th -16th, 23rd March 2011

____________________

HTML VERSION OF JUDGMENT
____________________

Crown Copyright ©

    The Hon Mr Justice Hamblen :

    Introduction

  1. The Claimant ("Adyard") is a small to medium-sized shipyard operating from a site on the Abu Dhabi shoreline. The Defendant ("SDMS") is a commercial supplier of services to the public sector. Under a private finance initiative with the UK Government, in December 2007 SDMS entered into a 15 year output contract for the delivery of marine port services and moorings and navigational services for the Royal Navy and its entitled customers. In this capacity SDMS contracted for 32 new-builds and, through its prime subcontractor ("Serco"), supervised the construction projects.
  2. The dispute between the parties concerns whether or not SDMS was entitled to rescind two shipbuilding contracts ("the contracts") entered into on 14 December 2007 for the construction by Adyard and purchase by SDMS of two 50m Moorings and Special Operations Support Vessels, Hulls 10 and 11 ("the vessels"), for a price of $14,837,000 and $13,932,000 respectively.
  3. Under the contracts, Hulls 10 and 11 were to be ready for sea trials by 30 September and 30 November 2009 respectively. The contracts included at Article II, clause 3.3 a right on the part of SDMS to rescind in the event that the vessels were not ready for sea trials by the contractually agreed dates.
  4. It was common ground that the vessels were not ready for sea trials by those dates. SDMS purported to exercise its right to rescind by letters dated 7 October 2009 (Hull 10) and 1 December 2009 (Hull 11). By Article X, clause 2.1, unless Adyard commenced proceedings, it was obliged to refund to SDMS all the instalments of the price previously paid to it. Adyard issued these proceedings on 15 October 2009 (Hull 10) and 14 December 2009 (Hull 11).
  5. In the proceedings Adyard claims that SDMS was not entitled to rescind because it was prevented from completing the vessels for sea trials by SDMS's acts and/or it was entitled to an extension of time to the sea trials date for both vessels. Adyard asserts that it was delayed by various new design items which were imposed by the UK Maritime Coastguard Agency ("MCA") or instructed by SDMS in June/July 2009. By the time of the trial the relevant design items ("the design items") had been narrowed down to the following:
  6. (1) A change from watertight hinged to watertight sliding doors at frames 5, 12, 36 and 49.
    (2) The need for watertight valves and hot air vent arrangements at frame 36.

  7. SDMS disputed Adyard's claim as a matter of contractual entitlement, disputed that these items were variations (save in relation to the door at frame 12) and disputed that they caused any delay. SDMS's position is that it was entitled to rescind and is entitled to the return of the price paid.
  8. Relevant provisions of the contracts

  9. The main provisions of the contracts of relevance are:
  10. "ARTICLE I – DESCRIPTION AND CLASS

    1 .Description
    1.1 The vessel ... shall be designed, constructed, launched, equipped, completed and delivered by the Builder in accordance with the provisions of this Contract and the specifications and General Arrangement Plan which contemporaneously herewith have for the purposes of identification been signed by each of the parties hereto and which are made an integral part hereof (which specifications and General Arrangement Plan are hereinafter respectively called the "specifications" and "Plan" and together are called the "Specification".
    ....
    3 Classification, Rules and Regulations
    3.1 The Vessel, including its machinery, equipment and outfittings, shall be designed and constructed in accordance with the rules, being in force as at the date of this Contract, including any alterations and modifications published on or before the date of this Contract and coming into force during the shipbuilding period as provided in Article V Clause 2 of this Contract, and under the survey of the Classification Society…
    3.2 The Builder's obligation will include that the Vessel shall be delivered as stated in the Specifications. This will include, but not be limited to the installation of the following equipment, supplied and installed by the Builder according to the Specifications and applicable rules and regulations…
    3.3 Decisions of the Classification Society as to compliance or non-compliance with the classification requirements shall be final and binding upon the parties hereto.
    3.4 The Vessel shall further comply with the applicable rules, regulations and requirements of other regulatory bodies referred to in the Specifications applicable to this type of vessel including in each case any alterations and modifications published on or before the date of this Contract and coming into force during the shipbuilding period so as to enable the Vessel to be registered under the UK flag. The Buyer shall give reasonable assistance to ensure that the Vessel can be registered under the UK flag where appropriate. All such rules, regulations and requirements shall be complied with without conditions/recommendations.

    ARTICLE II – CONTRACT PRICE AND TERMS OF PAYMENT
    3 Terms of Payment
    3.1 The Contract Price shall, subject to other provisions in this Article, become due and payable by the Buyer to the Builder by instalments as follows:-
    (e) Sea Trials Instalment:
    The Sum of… (US$ 1,820,806) being… (12.3%) of the Contract Price shall be due within five (5) Business Days after the Builder certifies that the Vessel is ready in all respects for sea trial which shall be achieved by the thirtieth of September two thousand and nine (30/09/2009) and payable in accordance with Clause 4 of this Article II.
    (f) Delivery Instalment:
    The sum of… (US$741,850) being… (5%) of the Contract Price shall be paid upon Delivery in accordance with Article VII of this Contract. The parties shall try to agree on any adjustments to be made to the Contract Price hereunder before Delivery…

    3.2 In the event that the parties fail to agree on the adjustments to the Contract Price before Delivery the disputed amount shall be submitted for resolution to the High Court of England and Wales in accordance with Article XIV. No such submission to Court proceedings shall have the effect of extending or postponing the Delivery Date of the Vessel and, while such proceedings are continuing, the Builder will deliver the Vessel and the Buyer shall take delivery of the Vessel subject to the Buyer or the Builder, as the case may be, providing security in the form of a bank guarantee issued by a first class European bank, satisfactory to the Buyer, or to the Builder, as the case may be, in the form attached hereto as Appendix A for the disputed amount of the adjustments to the Contract Price.
    3.3 If the Builder fails to complete either of the stages contained in Clause 3.1(c) or (e) by the dates specified therein, then the Buyer may, at its option, rescind this Contract in accordance with the provisions of Article X hereof, provided always that, to the extent that any delays are caused by the Buyer's default or any Permissible Delay, that period shall be extended to the same extent.
    ARTICLE V – MODIFICATIONS
    1 Modifications of Specifications
    1.1 The work to be performed by the Builder under this Contract can be modified and/or changed by written request from the Buyer, provided that the Buyer shall first agree in writing, before such modifications and/or changes are carried out, to such adjustments as are reasonably required by the Builder in the Contract Price, the Delivery Date and other terms and conditions of this Contract occasioned by or resulting from such modifications and/or changes.
    1.2 Such agreement and any modification or change to this Contract, may only be effected by exchange of letters signed by the authorised representatives of the parties hereto or by fax or by email containing scanned letters signed by the authorised representatives of the parties hereto, followed up by receipt of the original letters manifesting agreement of the parties hereto which shall constitute amendments to this Contract and/or the Specifications.
    2 Change in Class Requirements
    2.1 In the event that, after the Effective Date of this Contract, any requirements as to class, or as to rules and regulations to which the construction of the Vessel is required to conform are altered or changed by the Classification Society or the other regulatory bodies authorised to make such alterations or changes, the following provisions shall apply:-
    (b) if such alterations or changes are compulsory for the Vessel, the Builder, unless otherwise instructed by the Buyer, shall thereupon incorporate such alterations or changes into the construction of the Vessel, provided that the Buyer shall first agree to reasonable adjustments required by the Builder in the Contract Price, Delivery Date and other terms and conditions of this Contract and the Specifications occasioned by or resulting from such alterations or changes.
    (c) if such alterations or changes are not compulsory for the Vessel but the Buyer desires to incorporate such alterations or changes into the construction of the Vessel, then, the Buyer shall notify the Builder in writing of such intention. The Builder may accept such alterations or changes, provided that such alterations or changes will not have a materially adverse effect on the Builder's planning or programme in relation to the Builder's other commitments, and provided further that the Buyer shall first agree in writing to such adjustments reasonably required by the Builder in the Contract Price, the Delivery Date and other terms and conditions of this Contract and the Specifications occasioned by or resulting from such alterations or changes.
    2.2 Agreements to such alterations or changes under this Clause shall be made in the same manner as provided in Clause 1 of this Article for modifications or changes to the Specifications.

    ARTICLE VIII – DELAYS AND EXTENSIONS OF TIME FOR DELIVERY
    (FORCE MAJEURE)
    1 Causes of Delay

    1.1 The Builder shall under no circumstances be liable for any delay or default caused by fire, flood, unusually severe weather, war (whether declared or not), warlike circumstances, civil or military authority, strikes, lockouts (other than strikes and lockouts affecting the Builder and/or its subcontractors only and not attributable to any regional or national union activity applicable to other business enterprises at a national or regional level), resulting from any cause beyond the Builder's control (hereafter 'Force Majeure').
    3 Definition of Permissible Delay
    3.1 Delays on account of such causes as specified in Clause 1 of this Article and any other delays of a nature which under the terms of this Contract permits postponement of the Delivery Date shall be understood to be permissible delays and are to be distinguished from unauthorised delays on account of which the Contract Price is subject to adjustment as provided for in Article III hereof.
    ARTICLE XVIII – INTERPRETATION
    2 Discrepancies
    2.1 All general language or requirements embodied in the Specifications are intended to amplify, explain and implement the requirements of this Contract. However, in the event that any language or requirements so embodied permit of an interpretation inconsistent with any provisions of this Contract, then, in each and every such event, the applicable provisions of this Contract shall prevail and govern. The specifications and Plan are also intended to explain each other, and anything shown on the Plan and not stipulated in specifications or stipulated in the specifications and not shown on the Plan shall be deemed and considered as if embodied on both. In the event of conflict between the specifications and Plan, the specifications shall prevail and govern.
    2.2 This Contract (including the Umbrella Agreement of even date herewith between the Builder and the Buyer and the Direct Agreement referred to in Article XV, Clause 1) contains the entire agreement and understanding between the parties hereto and supersedes all prior negotiations, representations, undertakings and agreements on any subject matter of this Contract.

  11. The Specification provided as follows:
  12. 2.3 Classification
    The vessel shall be built to Lloyd's Regulations for Ships, +100A1 TUG, LMC, UMS, IWS0. The vessel must also satisfy the United Kingdom Maritime and Coastguard Agency (MCA) requirements for a class VII Cargo Vessel and the IMO Code of Safety for Special Purpose Ships…

    Outline of Adyard's case

  13. It was Adyard's case that the alleged variations in issue were prompted by a change in regulatory approach to safety requirements by the MCA as the intended flag authority. Adyard's variation case in relation to the design items can be summarised as follows:
  14. (1) Sliding watertight doors at frames 5 and 12.
    The two sliding doors at frames 5 and 12 were instructed by SDMS on 15 July 2009, 19 months after the signing of the contracts. At the time, Adyard pointed out in an email dated 21 July 2009 that there was a long ordering time of 18-20 weeks from the suppliers, and the sliding watertight doors were hydraulic and had to be designed as a set, connected to a single set of controls on the Bridge. The end of the period of 18-20 weeks from this message was 24 November – 8 December 2009. Adyard submitted that this was a clear warning of the propensity of these variations, if pursued, to prevent the completion of the vessels in order to meet the contractual sea trials and delivery dates but that SDMS did not withdraw its variation request and instead insisted that it be implemented without an extension of time.

    (2) Engine Room vent ducting and watertight valves.
    Adyard contended that in June 2009 it became clear that, for damage stability purposes, the MCA required that penetrations through the forward Engine Room bulkhead for ventilation should have watertight closings which could be operated centrally in the event of an emergency. For this variations to the design and specification were required. An iterative series of designs were proposed showing a variety of routes for the vent ducts and penetration protection measures and there were protracted negotiations between Adyard and SDMS. By letter dated 20 June 2009 Adyard stated that the changes would have a cost and time implication on the project and that they would like to raise a VTS. SDMS's response was that it was "willing to consider a VTS covering these changes (some of which have either been in the design for over a year or would have been required regardless of the SPS Code) providing that they are at nil cost to SDMS and that there is no adverse effect on the delivery dates." Adyard contended that this demonstrated an inflexible refusal to accept any extensions of time, or even to negotiate, which remained SDMS's position throughout.

  15. Adyard submitted that in the circumstances outlined above SDMS was not entitled to rescind the contract for two main reasons.
  16. First, it relied on the prevention principle which can be summarised as follows:
  17. "It is well settled that in building contracts – and in other contracts too –when there is a stipulation for work to be done in a limited time, if one party by his conduct – it may be quite legitimate conduct, such as ordering extra work – renders it impossible or impracticable for the other party to do his work within the stipulated time, then the one whose conduct caused the trouble can no longer insist upon strict adherence to the time stated. He cannot claim any penalties or liquidated damages for non-completion in that time." – see Trollope & Colls Ltd v. North West Metropolitan Regional Hospital Board [1973] 1 WLR 601, HL at p 607, approving a statement of principle by Lord Denning in the CA.
  18. Adyard submitted that the prevention principle applies in the present case. SDMS cannot and could not insist on strict adherence with the original contractual time limits, particularly those relating to sea trials and delivery, because of the extra work entailed in the variations, and because of SDMS's failure to obtain agreement (and its refusal to negotiate) as to the consequences of the variations, particularly adjustments to the timetable.
  19. Alternatively, Adyard contended that it was entitled to extensions of time for similar reasons, namely because of the extra work entailed in the variations and because of SDMS's failure to agree (and its refusal to negotiate) as to the consequences of the variations. The extensions of time should be at least 7 days in respect of Hull 10 and one day in respect of Hull 11.
  20. Outline of SDMS' case

  21. SDMS submitted that the design items were not variations to the contracts.
  22. SDMS disputed Adyard's claim that there had been any change in regulatory approach to safety requirements by the MCA. Its case was that MCA's position remained throughout that the vessels would have to comply with the damage stability requirements laid down in the SPS Code.
  23. SDMS acknowledged that the addition of a new door at frame 12 was a requested variation but it denied that it had any consequence independent of the changes made necessary by regulatory requirements.
  24. Even if there had been a variation SDMS denied that it had caused any delay. It contended that Adyard was weeks in delay by December 2008 and continued to fall further and further behind during the course of 2009.
  25. SDMS further submitted that Adyard's extension of time claims were barred as a result of Adyard's failure to comply with the notice condition precedent in Article VIII, clause 2.1; that the prevention principle does not apply; that Adyard has no claim under Article V, that any claim should be based on Article II, clause 3.3; and that its claim fails as a matter of causation in law and in fact.
  26. The Relevant Codes and the MCA

  27. A central factual issue in the case is therefore whether there was a change in regulatory approach to safety requirements by the MCA as alleged by Adyard but disputed by SDMS. To understand this issue and the correspondence and dealings between the parties at the time it is necessary to set out the requirements of the various codes and standards which were under discussion.
  28. Contractual requirements

  29. The vessels were described in the General Particulars of the Specification as "Steel Support Ship." Their "Category" was "UK MCA Class VII Cargo Vessel, IMO Code for Special Purpose Ships, Long International Voyages". They were described as having 12 crew and 20 special category persons.
  30. Under section 2.3, "Classification," the Specification provided:
  31. "The vessel must also satisfy the United Kingdom Maritime and Coastguard Agency (MCA) requirements for a class VII Cargo Vessel and the IMO Code Safety for Special Purpose Ships… In addition the vessel must satisfy the following regulations:
    IMO – Conventions
    International Convention for the Safety of Life at Sea, 2004
    IMO – Codes/Resolutions
    Special Purpose Ship Code
    Intact Stability for All Types of Ships Covered by IMO Instruments, Res. A.749(18), as amended by Res. MSC.75(69)
    Miscellaneous

    Passenger ships

  32. UK law divides ships into classes. Class I is a passenger vessel engaged on long international voyages. Class II is a passenger vessel engaged on short voyages. Class VII is a cargo vessel engaged on long international voyages. Cargo vessels cannot carry more than 12 passengers and since, in UK law, a person is either crew or a passenger, special personnel are treated as passengers. A vessel can under UK law only be in one class at a time. This meant that under UK law the vessels were technically Class I passenger ships.
  33. The safety requirements for passenger ships are considerably more stringent than for cargo ships, in particular in relation to damage stability. This is for the common sense reason that passengers are less familiar with ships, and generally also more numerous, than crew and so can be assumed to take longer to get to safety from a damaged ship than crew would.
  34. The SPS Code

  35. "Special Personnel" fit somewhere between crew and passengers. The IMO Code of Safety for Special Purpose Ships (under MCA Resolution A.534(13)) deals with safety requirements for Special Purpose ships. These are defined at paragraph 2 of the Preamble as:
  36. "2 … a special purpose ship is a ship of not less than 500 gross tonnage which carries more than 12 special personnel, ie. persons which are specially needed for the particular operational duties of the ship and are in addition to those persons required for the normal navigation, engineering and maintenance of the ship or engaged to provide services for the persons carried on board
    3 Because special personnel are expected to be able bodied with a fair knowledge of the layout of the ship and have received some training in safety procedures and the handling of the ship's safety equipment, the special purpose ships on which they are carried need not be considered or treated as passenger ships."

  37. The SPS Code's stability requirements are therefore not as stringent as passenger ship requirements, but remain considerably more stringent than cargo ship requirements.
  38. There are two relevant forms of stability standard. One is intact stability and the other is damage stability. Intact stability refers to the ship's ability to withstand its operational environment in an undamaged condition. Damage stability is the ship's ability to withstand a specified degree of flooding defined by the size of an assumed shell opening and the internal subdivision of the hull which limits the spread of water.
  39. Chapter 2 of the SPS Code deals with stability and subdivision. At paragraph 2.1 it sets out the intact stability requirements. It specifies that a special purpose ship must comply with the provisions in resolution A.167(ES.IV) except that the alternative criteria given in 2.5.2 of the Guidelines for the Design and Construction of Offshore Supply Vessels may be used.
  40. The Guidelines for the Design and Construction of Offshore Supply Vessels were originally passed under Resolution A.469(XII). They were superseded by the version adopted on 1 December 2006 under Resolution MSC.235(82) ("the OSV Code"). The OSV Code itself states at paragraph 2 of the Preamble that it provides a standard of safety equivalent to the stability criteria of the Code on Intact Stability for all Types of Ships Covered by IMO Instruments. This Code was passed under Resolution A.749(18) ("the 749 Code").
  41. The Specification for the vessels in fact specifically referred to the 749 Code for intact stability. The Specification and the SPS Code were therefore consistent in what was required in relation to intact stability.
  42. At paragraph 2.2 of the SPS Code, the requirements for damage stability are set out. The subdivision and stability requirements must be adequate to meet the survival standard specified in paragraph 2.5, after sustaining assumed side damage to the extent given in paragraph 2.3.
  43. Paragraph 2.3 sets out the extent of damage that must be assumed. The relevant requirement is at paragraph 2.3.2, which requires that the transverse extent of side damage will be "B/5…" (one fifth of the ship's beam). It was common ground that for these vessels that was 2.6m.
  44. Paragraph 2.2.1 provides that in a special purpose ship carrying not more than 50 special personnel, the damage should be assumed to occur anywhere in its length between transverse watertight bulkheads, except involving damage to the machinery space.
  45. Paragraph 2.3.5 of the SPS Code provides that if pipes, ducts, trunks or tunnels are situated within the assumed extent of damage, arrangement should be made so that progressive flooding cannot thereby extend to compartments other than those assumed to be flooded by each case of damage.
  46. In other words, under the SPS Code, one assumes transverse damage to the extent of 2.6m, excepting only the machinery space. If a compartment is flooded assuming 2.6m of damage, that compartment must have a watertight subdivision to prevent the flooding extending into other compartments and throughout the ship. If the watertight subdivision is penetrated by ducts or pipes of any sort, they too must be equipped with valves to make them watertight for the same reason.
  47. Paragraph 2.7.5 of the SPS Code requires compliance with Regulation 15 of SOLAS. It was common ground that Regulation 15 of SOLAS requires watertight doors to be powered sliding doors (in all cases).
  48. It was common ground between the naval architect experts that every design item relied on as a variation by Adyard was required under the SPS Code (subject to the exemption issue discussed below).
  49. Exemptions under the SPS Code

  50. The SPS Code has two relevant possible exemptions:
  51. (1) At paragraph 2.2.1, it provides that a special purpose ship of not more than 50m in length and carrying not more than 50 special personnel may be exempted from the subdivision requirements of the Code provided that it complies with safety requirements which the Administration may deem appropriate for the area of operation.
    (2) At paragraph 2.7.5, it provides that special purpose ships of not more than 50 m in length may be exempted by the Administration from the requirements of Regulation 15 of SOLAS (sliding watertight doors in all cases).
  52. It is to be noted that these passages of the SPS Code do not set out the alternative standard which is to be met. In both cases the Administration may set the standard.
  53. The OSV Code

  54. It was the OSV Code which Adyard sought to apply (and in fact did apply) for the damage stability (as well as for intact stability). At paragraph 1 of the Preamble, the OSV Code states that it applies to "offshore supply vessels." This is defined at paragraph 1.2. of the OSV Code as a vessel, "which is primarily engaged in the transport of stores, materials and equipment to offshore installations…" The vessels were offshore support vessels. They were to provide support, in the form of personnel, to the MoD's operations.
  55. Paragraph 5 of the Preamble recognises this distinction. It provides that when "an offshore supply vessel is used for special purposes, such as diving assistance or oceanographic surveys, the persons on board in connection with these special purposes should be treated as special personnel."
  56. Section 3 of the OSV Code deals with subdivision and damage stability. By paragraph 3.2.1, the vessel has to comply with the stability criteria in paragraph 3.3 assuming damage as set out in paragraph 3.2.
  57. Paragraph 3.2.2.2 provides that the transverse extent of the assumed damage should be 760mm, again assumed to occur anywhere along the vessel's length.
  58. At paragraph 3.5.1, the OSV Code provides that the machinery spaces and other working and living spaces in the hull should be separated by watertight bulkheads.
  59. The relevant critical difference between the SPS Code and the OSV Code is the extent of transverse damage which is to be assumed: 2.6m in the SPS Code and 760mm in the OSV Code (often referred to as the damage zone). The SPS Code therefore sets up a much higher standard of safety than the OSV Code.
  60. It was Adyard's case that in 2009 the MCA had passed a new SPS Code, the IMO Code of Safety for Special Purpose Ships, 2008, passed under MCA Resolution MSC.266(84) ("the 2008 SPS Code"). Adyard contended that as a result of the requirements of the 2008 SPS Code, the MCA refused to apply the exemptions from the SPS Code, and insisted on full compliance with the SPS Code itself.
  61. Adyard submitted that the design items (except the watertight sliding door at frame 12) were required as a result of the MCA changing its mind on 3 June 2009: in 2008 the MCA intimated approval for the proposed damage stability exemption under the SPS Code, and that Adyard could apply the damage stability standard set out in the OSV Code, but after 3 June 2009 this was no longer the case.
  62. The 2008 SPS Code

  63. The major relevant differences between the SPS Code and the 2008 SPS Code are:
  64. (1) Under the 2008 SPS Code, it is necessary to carry out a probabilistic damage stability calculation rather than the determined one under the SPS Code.
    (2) Under the 2008 SPS Code, there are no exemptions for ships of under 50 metres carrying fewer than 50 special personnel.

  65. It was common ground that the 2008 SPS Code was never in fact applied to these vessels.
  66. The essential factual issues in relation to the MCA and the relevant Codes were:
  67. (1) In 2008, did the MCA intimate approval for the proposed damage stability exemption under paragraph 2.2.1 of the SPS Code?
    (2) In 2009, did the MCA change its mind as a result of the existence of the 2008 SPS Code, and require compliance with the SPS Code?

    The evidence at trial

  68. At the trial oral evidence was given by the following witnesses on behalf of Adyard: Mr Thomas Bower, the General Manager (from August 2009); Mr James Masterton, the General Manager (January 2005 - February 2010); Mr Rajeev Vohra, Marine Manager (2006 – 31 March 2009)(his evidence was by video link due to ill health); Mr A. C. Cidambaram, Technical Director, Engineering Division of Hendersons, who were the naval architects for the project; Mr William Henderson, the Managing Director of Hendersons and Mr Valappil of Technology Ventures, the suppliers of the sliding doors. In addition there were witness statements served under the Civil Evidence Act from Mr Ashok Kumar, Adyard's Project Manager; Mr Vijaya Rengen, Adyard's Operations Manager, and Mr Unnikrishnan, a naval architect with Hendersons.
  69. On behalf of SDMS there was oral evidence from the following witnesses: Mr Graham Baldock, the Managing Director of SDMS; Ms Emily Williams, Programme Manager for SDMS; Mr Martin Johnson, Serco Project Engineer; Mr Iain Ross, Serco Technical Director; Mr Jim Wileman, Senior Chief Engineer contracted by Serco as site representative, and Mr Iain Macleod, a consultant naval architect. In addition there was an unchallenged witness statement from Mr John Gouch, Serco Senior Project Manager.
  70. In addition, there was expert evidence from naval architects (Mr Pollard for Adyard and Mr Coleman for SDMS) and delay experts (Mr Swan for Adyard and Mr Breeze for SDMS).
  71. The factual history

    Pre-contract dealings with the MCA

  72. The involvement of the MCA with these vessels began long before the contracts. As Mr Ross explained in his evidence, Serco had had a long standing relationship with the MCA, both as a vessel operator and as a prospective purchaser of vessels which would come under the UK flag, since 1995/1996. In relation to the procurement of new vessels Mr Ross and Mr Walker were the main people who dealt with the MCA. In this connection Mr Ross had a number of discussions with MCA involving technical requirements for the various project vessels and the legislative framework they were going to occupy.
  73. In his evidence Mr Ross explained that they had had previous experience of broadly differing applications of rules from one MCA area office to another and that they wanted a single point of contact within the MCA. This proved to be Mr Simon Judge, described by Mr Ross as a customer service manager. He also explained how they were limited in how far they could get with the MCA because the culture and approach of the MCA involved having a very
  74. defined view of the design and build process, that they would only go so far at the specification stage, and that they would invariably hang back from giving crystal-clear guidance until they saw the build proposals and designs. He said that there was always this risk that at plan approval stage they would in some way change their mind or their approach.

  75. Serco's consultant naval architect, Mr MacLeod, also had discussions with the MCA between 2006 and summer 2007 in relation to these and other vessels which were being procured by SDMS. Again those discussions focussed on the legislative framework and the MCA's requirements.
  76. The involvement of Hendersons

  77. Towards the end of 2006 Denholm Coates, a broker, suggested Serco use Hendersons to assist with finding a yard. It had been Serco's intention from about 2003/2004 for these vessels to be 50 metres. At the first technical meeting at the end of November/ beginning of December 2006 Mr Henderson told Serco that he thought a 50m vessel would be too small to get everything they wanted on it.
  78. At some point in time the design increased to a 56m design and Hendersons provided a proposed design of a 56m vessel. It was in respect of this design that Mr Judge of the MCA wrote to Mr Cidambaram of Hendersons on 2 March 2007 in relation to the MCA's fees for certification of the vessels and the fact that Hendersons' draft specification referred to the vessel as carrying 20 "supernumeraries" and was to be built as a "Class VII Special Category Vessel." The MCA's response was that "Vessels carrying more than 12 passengers (which includes supernumeraries) are treated as passenger vessels and require to comply with the requirements for such vessels. However, there may be potential grounds for the vessels owners/operators to seek exemption from the passenger vessel requirements based on equivalent standards which may take into account the special purpose of the vessel." The MCA went on to set out the scope of work that was covered by its fees estimate. This included, "Exemption certificate anticipating IMO Code of Special Purpose Ship compliance."
  79. In April 2007, Hendersons produced a "Pre-Construction Report". Under the column "Operational Detail" was a heading "MCA Classification." The proposed solution column read, "Class VII Cargo Vessel and IMO Code of Safety for Special Purpose Ships." The "Justification" column read, "Standard cargo vessel requirement with additional certification for carrying in excess of 12 embarked military personnel." This reflected discussions with the MCA.
  80. A 56m design was the original design put on the table in discussions with Adyard and on 13 May 2007 Mr Cidambaram emailed Mr Vohra of Adyard forwarding a specification and General Arrangement ("GA") plan for a 56m multi support vessel. In the event, SDMS decided to revert back to a 50m design, a decision which appears to have been primarily based on cost considerations, and on 14 May 2007 Mr. Cidambaram emailed Mr. Vohra attaching a GA plan and brief specification for a 50m vessel, followed by subsequent emails on 19 May and 22 May 2007 proposing a LOA of 50.70m and an updated specification respectively. On the basis of this information Mr. Vohra sent Mr. Cidambaram a quotation on 6 June 2007.
  81. On 18 July 2007 Mr Ross wrote to Mr Masterton of Adyard requesting a quotation for two operations support vessels, one of Type A and one of Type B, and attaching specifications. The specifications attached were different from the specifications sent by Mr Cidambaram to Mr Vohra in June 2007 on which Adyard had based its original quotation. Mr Ross then sent a further letter on 20 July 2007 requesting a firm quotation against a Henderson specification.
  82. It was during this time that Mr Cidambaram had discussions with Mr MacLeod, the consultant naval architect employed by Serco in respect of the FPMS projects. Mr MacLeod had had ongoing discussions with the MCA since 2006 in relation to these vessels and others and accepted in cross examination that it was important for him to pass on all the information he had gleaned from the MCA to Hendersons. He also agreed that he had discussed the SPS Code with Mr Cidambaram and that they had looked through the SPS Code together and discussed the exemption from subdivision requirements of the SPS Code under paragraph 2.2.1 of the SPS Code. Mr MacLeod also said that they specifically discussed the use of the OSV Code for damage stability. He agreed that Hendersons as naval architects were capable of putting forward an alternative proposal to see whether the administration would agree to it.
  83. There was a dispute of fact between Mr Cidambaram and Mr MacLeod as to whether Mr MacLeod agreed that the vessels should be designed on the basis of the exemption from subdivision requirements of the SPS Code. I find that he did not. As he said in evidence, there was a conversation in which Mr Cidamabaram said that for such a vessel operating in the Gulf he would use the OSV Code. Mr MacLeod said that that might be OK in the Gulf but that it would obviously have to be checked with the MCA.
  84. The choice of Adyard

  85. The choice of Adyard's was explained in a Serco document as follows:
  86. "The selection of ADYARD to build the 2 off Marine Services Multi-Support Vessels (MSVs) was taken late in the period between announcement of preferred bidder to contract award 17th December 2007.

    The vessels first started out as 56M Anchor Handlers/Platform Support Vessels to a Henderson design with initial negotiations for the placement of the build contract with ITALTHAI, a Thai-based shipbuilding company a short distance from Thailand's capital Bangkok. As negotiations progressed a combination of rising prices and FMPS budgetary constraints meant that an alternative design and shipbuilder needed to be sourced.

    Several alternative shipbuilders were approached including FBM Philippines, who expressed interest but would have had to make infrastructure changes to accommodate. Their main business was fast aluminium catamaran.

    Shipbuilding activity was at its peak. It was during this period that DAMEN, Serco Limited and MOD entered into the tripartite [sic] to secure build slots with DAMEN shipyards. The Henderson 56M design was revisited and the sizes reduced to 50M at the same time ADYARD were presented by Henderson's as a possible solution to supply the 2 off MSVs.

    Mr Iain Macleod (FMPS Consulting Naval Architect) made a site visit and gave favourable reports about the capability of the shipyard, mainly based on its oil & gas work in-progress, its main stay of business, and a small ship repair capability. The senior management of ADYARD stated that they had successfully undertaken several shipbuilding projects before, albeit small landing craft, and wished to start up a shipbuilding capability to service worldwide demand.""

  87. Adyard had made clear in the tender documents that they had no experience of either the MCA or Lloyd's Register. However, Hendersons, who were ultimately employed by Adyard on the project as designers, would be expected to have such experience, as its own publicity material makes clear and its witnesses accepted. On 17 July 2007, for example, Mr Henderson emailed Mr Vohra of Adyard, reassuring him that, "Both Keith and AC will be working with you on this and AC has a long experience with the usual issues with the design for New Builds and will be able to provide valuable technical as well as "Industry Norms Input."
  88. The Specification & Contract

  89. The specifications were designed to suit SDMS's requirements and Mr MacLeod assisted in drawing up the specifications. Adyard's main involvement was in assessing the specification in order to price and schedule.
  90. Both the specification and the GA went through various revisions prior to the contracts being signed in mid December 2007. However, the specification always provided that the vessel were to be Class VII with SPS Code.
  91. Adyard and SDMS entered into the contracts on 14 December 2007. The contracts required compliance with the SPS Code. SDMS was to give reasonable assistance to ensure that the vessels could be registered under UK flag where appropriate.
  92. Hendersons entered into the design contract with Adyard sometime in January 2008. Pursuant to clause 6.13 of the agreement, Hendersons was to use its best endeavours to assist Adyard in obtaining the necessary approvals from "Class and/or Regulatory Body in time."
  93. Adyard's responsibility, as builder, for design was set out expressly in Article I, clause 1 of the contracts:
  94. "The vessel ... shall be designed, constructed, launched, equipped, completed and delivered by the Builder in accordance with the provisions of this Contract and the specifications and General Arrangement Plan which contemporaneously herewith have for the purposes of identification been signed by each of the parties hereto and which are made an integral part hereof (which specifications and General Arrangement Plan are hereinafter respectively called the "specifications" and "Plan" and together are called the "Specification"".

  95. Adyard submitted that it is important to read this provision alongside the Specification and the GA plan. Those latter documents contained a specific design which had been developed between SDMS and Hendersons before the contracts were made and in which Adyard had played no real part. Adyard accepted a contractual obligation to "design ... in accordance with" the previously-developed contractual design. It submitted that this meant that it was no doubt obliged to "fill in the gaps" in the contractual design with more detailed engineering and other drawings of the sort that are typically needed for procurement and construction to take place, but that it was not at liberty to discard the contractual design and start again. The contracts gave Adyard no unilateral power or obligation to change the Specification or the design contained in the contractual GA plan.
  96. SDMS submitted that although the basic design of the vessels was as set out in the Specification and GA plan, this was still a design and build contract. In so far as the design needed to be developed in order to meet contractual requirements it was Adyard's responsibility to do so. One of those requirements was that the vessel complied with the SPS Code. If and in so far as the design needed to be developed for such compliance to be achieved then Adyard was obliged to do so.
  97. I agree with SDMS's analysis. So far as material, the only design developments which were not the responsibility of Adyard were those set out in Article V, namely those resulting from variations requested by SDMS or a change in Class or other regulatory requirements. In so far as the design had to be developed in order to meet Class or other regulatory requirements which were not the result of any change thereto, that was the risk and responsibility of Adyard.
  98. Meeting with MCA on 25 March 2008

  99. There was an important meeting on 25 March 2008 at the MCA's offices. The meeting was attended by Mr Judge of the MCA, Mr John Phelps of Lloyds, Mr Vohra and Mr Kumar of Adyard, Mr Unnikrishnan of Hendersons and Mr Walker of Serco.
  100. Mr Judge of the MCA had prepared a draft letter which formed an agenda for the meeting and of which copies were circulated. The draft is very close to the final version of the letter dated 27 March 2008 which was written by Mr Judge following the meeting. That letter provides a useful summary of the discussions and stated as follows:
  101. "...As discussed, for clarity, I have recorded below the points discussed during our meetings and the advice previously provided following a meeting held together with Serco Denholm and LR London on 4 June 2007 in relation to a similar type of vessel (Special Purpose Ship).

    ...

    2. Vessel status
    ... 3. From discussions with the owner it is noted that the vessels are being designed to operate within the context of a safety case generated by the owner.
    3. UK Law/ Classification
    ... 3. In terms of personnel onboard vessels under UK law there are only definitions in place for "passengers" and "crew".
    4. the vessel required to comply with the requirements for passenger vessels, if more than 12 passengers are carried.
    5. The IMO Special Purpose Ship Code (SPS) is not currently implemented in UK law and the definition of "Special Person" does not currently exist.
    6. Any request for an exemption from any prescribed requirements (UK Law) would be based on the vessel at least complying with the requirements of the IMO Special Purpose Ship Code, SAFCON construction certification and the vessel being safely designed, built and operated within the context of a safety Case.
    7. Exemption certificates where applicable would be issued by the MCA. These need to be sought by the owner in conjunction with the Builder/ Designer with supporting justification.
    8. The risk of UK law or any exemption not being accepted by any host country or foreign administration lies with the owner, if the vessel is to trade internationally.

    4. Construction

    ... 2. The watertight doors fitted within watertight bulkheads are to be approved sliding watertight doors. Please advise if you propose any alternatives?

    ...

    11. Stability information (MCA)

    1. The intact and damage stability information is to comply with the Passenger vessel, or SPS requirements, as applicable. This information should be submitted at an early date for an independent check of the data together with a General Arrangement, Lines Plan and details of the initial down-flooding points.
    2. Any exemption from the Passenger ship requirements would need to include compliance with the severe wind and weather criteria.
    3. The intact and damage stability information is to be submitted in a format (see guidance) that can be approved indicating compliance with the requirements for Code certification. Any proposal necessary to achieve compliance should be forwarded in advance, or at an early stage.
    ...
    32.Special Purpose Ship Code
    1. The MCA is not a signatory to the Special Purpose Ship Code and as such a Special purpose ship certificate cannot be issued under the authority of the UK Government. However, a letter of compliance (or equivalent) confirming compliance with the relevant requirements and current convention requirements can be issued by the LR where appropriate.
    2. The primary convention certificates will need to be in place based on the vessel year of build."

  102. In the witness statements of Mr Vohra and Mr Unnikrishnan it was said that the latter told Mr Judge that they intended to apply the damage stability criteria from the OSV Code. This is not reflected in the notes of either of them, nor is it reflected in MCA's letter, nor was it supported by Mr Vohra in oral evidence. In oral evidence he accepted that it was said by Mr Judge that the OSV Code would be applied for intact stability, but that the SPS Code would be applied for damage stability.
  103. I find that at that meeting there was a discussion as to the applicable standards for both intact and damage stability. Mr Judge told the meeting that the vessels were passenger ships, and that in order to obtain an exemption from the full passenger ship requirements, compliance with at least the SPS Code would be required. He also said that in relation to intact stability compliance with the OSV Code would be required. He further stated that doors at watertight subdivisions would have to be sliding watertight doors.
  104. Meetings between Adyard and Serco on 26 and 27 March 2008

  105. There were further meetings between Adyard and Serco on 26 and 27 March 2008. The agenda included a "Review of MCA exemptions." These meetings were attended by Mr Vohra, Mr Cidambaram, Mr Walker and Mr Ross.
  106. Mr Ross' handwritten notes of one of the meetings recorded: "MCA exemptions to come from SDMS/Serco – MCA visit 25th March… SPS compliance key to exemption agreement… Specific exemptions: - sliding w/tight doors… NOTE MCA have declared need for class 1 exempted as opposed to class 7 with SPS…" At the bottom of the page is recorded, "Design issues: SPS compliance is an issue and has driven change – USD32k ex Henderson (+LRS for approval?) Was old design SPS compliant."
  107. Hendersons' Response to MCA letter dated 27 March 2008

  108. Hendersons produced a document headed "Response to MCA Letter dated 27 March 2008."
  109. At reference 3.6 (in response to the MCA's comment that the vessel must "at least" comply with the requirements of the SPS Code), the document stated, "The vessel will be registered as a Cargo Vessel. The vessel shall comply with IMO Code of Safety for Special Purpose Ships as applicable to vessel less than 50m in length and carrying special personnel less than 50."
  110. At reference 4.2 (in response to the MCA's comment that watertight doors must be of an approved sliding type, the document stated, "It is proposed to fit hinged water tight doors in the bulkheads below main deck as these are normally kept closed at sea… Exemption can be granted by MCA in accordance with SPS code) Section 2.7.5."
  111. At reference 11 (in response to the MCA's comment that the intact and damage stability information is to comply with the passenger vessel, or SPS requirements), the document stated,
  112. "As per SPS Code 2.1, the intact stability of special purpose ships of under 100m in length should comply with the provisions in resolution A.167(ES.IV) except that the alternative criteria given in 2.5.2 of the Guidelines for the Design and Construction of Offshore Supply Vessels may be used for special purpose ships of similar design and characteristics. Accordingly, the vessel shall comply with intact stability criteria IMO Resolution A.749(18).
    As per SPS Code 2.2.1, in a special purpose ship carrying not more than 50 special personnel the damage should be assumed to occur anywhere in its length between transverse watertight bulkheads, spaced at a distance of not less than the longitudinal extent of side damage specified in 2.3.1, except involving damage to the machinery space. A special purpose ship of not more than 50m in length and carrying not more than 50 special personnel may be exempted from the subdivision requirements of this Code provided that it complies with safety requirements which the Administration may deem appropriate for the area of operation.
    However, the damage stability analysis shall be carried out in accordance with IMO Resolution as applicable to Offshore Supply Vessels." [emphasis original]
  113. The document indicates that Hendersons understood that the MCA was requesting damage stability to be designed to the criteria in the SPS Code but that it was Hendersons' intention to seek an exemption from those requirements enabling it to design on the basis of the OSV Code not just for intact, but also for damage stability.
  114. Exemptions list dated 31 March 2008

  115. At the same time Hendersons were preparing a list of exemptions which they needed for their current design. Mr Cidambaram sent the list to Mr Vohra by email dated 31 March 2008.
  116. The first exemption was from the passenger ship requirements and the alternative standard given is the SPS Code. The "Explanation" states that, "The vessels shall be registered as Cargo vessels under UK Law. The vessel's operation is normally shore based with short sea voyages… Special personnel shall not be onboard when the vessel undertakes long voyages."
  117. The second exemption was from the passenger ship requirements for subdivision and damage stability. The alternative was stated as being the SPS Code section 2.2.1. It is apparent from the "Explanation" column, however, that, "As per SPS Code, for vessel with length not exceeding 50m and carrying special personnel not exceeding 50, the sub-division requirements may be exempted by Administration. Accordingly, it is proposed to apply IMO Damage Stability requirements as applicable to Offshore supply vessels to demonstrate the survival capability of the vessel."
  118. The third exemption was for hinged, rather than sliding, watertight doors.
  119. It was therefore apparent from this list that Hendersons were seeking exemption from the SPS requirements both for damage stability and for watertight doors.
  120. Mr Vohra forwarded the list to Mr Judge and to Mr Walker and Mr Johnson on the same day. He forwarded it to Mr Phelps of Lloyds on 9 April 2008.
  121. Drawings and stability documents sent on 10 April 2008

  122. On 10 April 2008, Hendersons sent revised drawings and their Response to the MCA's letter dated 27 March 2008 to Mr Vohra. Mr Cidambaram referred to the "Response" document in his email and stated, "this note may be forwarded to the client for discussion with MCA." However, it never was. The revised drawings included the GA plan rev A.
  123. Hendersons sent a more extensive list of drawings, including the GA rev A, to Lloyds on the same date. Mr Kumar also sent the GA rev A and "Preliminary" copies of the intact and damage stability booklets to Serco, "for reference" to Mr Johnson by courier on 10 April 2008.
  124. Revision A of the GA plan showed hinged rather than sliding doors. There were hinged doors at frames 5, 12, 36 and 49. They were all described as watertight doors. It also showed an engine room which ran the whole length of the ship between frames 12 and 49. There was a large container at frames 26 to 30. The "Preliminary" copy of the damage stability booklet records that the OSV Code was being used to calculate damage stability.
  125. Mr Kumar forwarded the GA plan rev A and copies of the "preliminary" intact and damage stability booklets described as "for approval" to Mr Judge of the MCA on 13 April 2008.
  126. Meeting with the MCA on 17 April 2008

  127. A further meeting had been arranged for 17 April 2008 with the MCA.
  128. At the meeting on 17 April 2008, the issues of the application of the OSV Code rather than the SPS Code for damage stability and the use of hinged rather than sliding watertight doors were on the table for discussion.
  129. The meeting on 17 April 2008 was attended by Mr Judge of the MCA, Mr Walker for SDMS and Mr Vohra for Adyard. Mr Vohra took with him the MCA's draft letter dated 24 March 2008 (circulated during the meeting on 25 March 2008) and used it for his notes of the 17 April 2008 meeting.
  130. At that meeting, there was a further discussion about the size of the engine room. It was common ground that under the SPS Code (as fully applied), the engine room is not taken into account when calculating damage stability. That is, the SPS Code permits the designer to assume that the engine room is not flooded if the ship is damaged, even if it would otherwise be caught by the transverse extent of damage. The MCA wanted the engine room to be reduced in size. SDMS agreed to consider the removal of the ISO container stowage below decks in order to facilitate the design of a smaller engine room.
  131. It was at this meeting that Adyard contended the MCA intimated approval of an exemption from the SPS Code requirements for damage stability. This was disputed by SDMS. This central factual issue will be addressed separately below.
  132. The MCA wrote several letters to Adyard recording the matters discussed at the 17 April 2008 meeting.
  133. The first letter to Mr Vohra was on 21 April 2008 and was specifically in relation to the stability booklets which it had received prior to the meeting. The letter recorded that the documents have been sent to the MCA's Stability Unit for an independent check, but went on to state:
  134. "Meeting 17 April 2008
    Points raised during our meeting Rajeev Vohra, Gerry Walker and Simon Judge in Plymouth on 17 April 2008 will have an influence on the damage stability in particular and will need to be taken into account in the future."
  135. The MCA wrote three letters to Mr Vohra on 23 April 2008. The first, recording its notes of the meeting on 17 April 2008, is the most important. The letter follows the format of the 27 March 2008 letter and stated:
  136. "... The purpose of the meeting was to discuss the items that were raised in our letter of 27 March 2008 and to discuss exemptions ..."

  137. Section 2 recorded the various substantial modifications to the design which are going to take place. These included:
  138. " i. Modification of the two Engine Rooms
    ii. Removal of the container stowage below deck in way of the Engine Room/s.
    iii. Reconsider the fuel tank arrangements…"

  139. It recorded at item 3 (UK Law/Classification) that the comments raised in the letter dated 27 March 2008 "are accepted/in hand and the following added". It then stated:
  140. "There has been a slight variation to the approach for seeking exemptions from Passenger Vessel requirements and it is anticipated that a single request Exemption based on compliance of the Special Purpose Ship Code and any other specified conditions.
    This is in the process of being agreed by the MCA HQ, and I hope to be able to confirm this shortly."

  141. Under Section 4 (Construction), the rubric as to the comments in the letter dated 27 March 2008 was repeated. The additional comment was:
  142. "An exemption is being sought from the requirement to have a sliding WT door, although this may not be sought with the proposed modifications."
  143. Under Section 11 (Stability Information), the letter recorded:
  144. "1. Comments raised in letter dated 27 March 2008 are accepted/in hand and the following added.
    2. The watertight subdivision is likely to significantly change and a further submission of damage stability information will be made."
  145. Under Section 21 ("Accommodation"), the rubric as to the comments in the 27 March 2008 was repeated, followed by, "2. Finalised exemptions being sought will be prepared by Serco."
  146. Under Section 32 ("Special Purpose Ship Code"), the MCA simply re-iterated that the comments in the 27 March 2008 letter are "accepted/in hand."
  147. The MCA sent a further two letters on 23 April 2008.
  148. The second 23 April 2008 letter commented on the Access Plan and Escape Plan drawings sent to the MCA prior to the meeting. Those drawings showed a hinged non-watertight (NWT) door at frame 5 and no door at all at frame 12.
  149. The letter stated that the drawings have been considered in conjunction with the Special Purpose Ship Code. That letter recorded that there are no objections to the proposed arrangements save that:
  150. "1.1 Watertight doors forming part of the required watertight sub division are to be sliding watertight doors."

  151. The letter went on to say:
  152. "Please refer to our letter dated 27 March 2008 which refers to the survey requirements/elements in terms of UK law. These plans should be presented to LR as part of the plan approval process requirements.
    Meeting 17 April 2008
    The points raised above were discussed during our meeting Rajeev Vohra, Gerry Walker and Simon Judge. However, there are now variations proposed in terms of the arrangements that will need to be taken into account in the future."
  153. The third 23 April 2008 letter commented on all the plans submitted including the GA plan rev A. Consideration had taken place in conjunction with the SPS Code. The letter recorded that there were no objections to the proposed arrangements save that:
  154. "Drawing HI/9187/101 General Arrangement
    Meeting 17 April 2008
    The points raised above were discussed during our meeting Rajeev Vohra, Gerry Walker and Simon Judge. However, there are now variations proposed in terms of the arrangements that will need to be taken into account in the future."

  155. Immediately after the meeting, SDMS confirmed the offer to agree to the removal of the under deck store for the ISO container in order to facilitate the redesign of the engine room.
  156. Discussions after meeting on 17 April 2008

  157. Mr Kumar sent a revised exemptions list to Mr Cidambaram on 20 April 2008. This list was identical to the original list save that it added a series of exemptions relating to the crew accommodation. This version of the list of exemptions was never sent to either the MCA or to SDMS or Serco.
  158. On 18 April 2008, Mr Johnson sent Mr Kumar comments on the GA rev A plan which he had received the day before, together with a sample exemption submission for the crew accommodation regulations. His comments were contained in a letter dated 18 April 2008 which stated:
  159. "Following the meeting at Plymouth, UK between Adyard, Serco and MCA a number of issues have arisen that will require major changes to the General Arrangement at reference. I have listed below the issues raised by the UK MCA and those of Serco.
    1. Engine Room – The combined engine and generator room with the hold in the centre was not acceptable to the MCA from the damage stability point of view. It is suggested that the hold is removed and the forward engine room bulkhead is moved from Frame 48 to Frame 42 as a minimum.
    2. Hold/storage area – The vessel will still require some below deck storage, but it does have to have the capacity to load a 20' ISO Container. It is possible that the workshop could be moved and the hold area be positioned between Frames 5 and 12.
    7. Exemptions from UK Accommodation Regulations – Statutory Instrument 1997 No 1505 – The Merchant Shipping (Crew Accommodation) Regulations 1997 should be complied with where possible, but in any case where these regulations can not be met an exemption will be required from the MCA. I have listed a few areas where the design does not comply…
    I am sure that exemptions can be obtained for all of these issues, but they will need applying for as soon as possible. I have attached a copy of a similar exemption that Serco submitted recently."
  160. This letter triggered a misunderstanding by Hendersons of the MCA's requirements. Mr Cidambaram mistakenly believed that the MCA were treating the engine room as flooded (which is not required under the SPS Code). He wrote an email to Mr Kumar on 20 April 2008 saying that this would require changes in the design. He also complained that the movement of the engine room bulkhead from frame 49 to 42 might mean that the damage stability criteria were not met if the engine room was to be treated as flooded.
  161. Mr Kumar forwarded this email to Mr Johnson for his comments. Mr Johnson replied on 22 April 2008. He said:
  162. "The moving of the forward engine room bulkhead from Frame 49 to Frame 42 was only a suggestion. The design is yours and you make these decisions. The specification calls for the design to meet the requirements of the SPS Code, IMO Intact Stability Code and IMO Resolution A.749(18) as amended by Resolution MISC 75(69). In any case the requirements of stability and subdivision must be to the satisfaction of the Administration, in this case the MCA…"

    Revision B of the General Arrangement drawing dated 1 May 2008

  163. On 1 May 2008, Adyard sent the MCA rev B of the GA plan showing the new arrangement of the engine room and the various other changes that had been discussed at the 17 April 2008 meeting. Rev B of the GA plan showed sliding watertight doors at frames 36 and 49. It showed a hinged "NWT" (non watertight) door at frame 5. This was a change from rev A of the GA plan which had showed a watertight hinged door at frame 5. The door at frame 12 had, for some reason, disappeared.
  164. Revision to the damage stability booklet

  165. On 19 May 2008, SDMS sent its comments on rev B of the GA plan to Adyard. The plan was approved subject to the following comments:
  166. "The following plans are to be amended in accordance with GA Plan HI/9187/101 Rev B [the GA rev B] and re-submitted for comment:
    The intact Stability booklet is to include an additional load case for the most onerous crane operation condition."

  167. On 26 May 2008, Hendersons wrote formally to Adyard requesting additional payment for the changes to the layout requiring modification to a series of drawings. Item 2 of the list of matters requiring modification is "Stability Calculations – Intact and Damage."
  168. On 9 June 2008, the MCA wrote to Adyard commenting on the GA plan rev B. That letter stated:
  169. "The arrangements are noted to have been modified to include the points raised in my letter dated 17 April 2008 and considered acceptable, including:
    1. Modification of the engine rooms.
    2. Removal of the container stowage below deck in way of Engine Rooms.
    The remaining points raised in our letter dated 21 April 2008 are understood to be being addressed."

  170. The remaining points included the resubmission of revised damage stability calculations and resolution of the issue as to sliding doors at watertight subdivisions. On 10 June 2008, the MCA sent an identical letter in relation to rev C of the GA plan (which they had been subsequently sent).
  171. Site visit 10 – 11 June 2008

  172. On 10 and 11 June 2008, Mr Walker visited the Yard. Under item 8, "MCA Exemptions", the following was recorded in the visit report:
  173. "It was agreed that all main items of non-compliance where exemption from the required codes and standards had been identified and had been de-risked with the certifying authority as much as could be expected. It was agreed that the process of applying for exemptions should start soonest – ACTION – ADYARD to review SI 1997 1505 vs 50M vessel to identify compliance/non compliance and revert to SERCO with findings, for submission of exemption request. ADYARD to request exemption for anchors direct to LR…"

  174. At item 9 the comments from the MCA as to crew accommodation in its letters dated 9 and 10 June 2008 were discussed.
  175. Damage stability and watertight doors in July and August 2008

  176. On 7 July 2008, Mr Kumar emailed Mr Judge attaching revision C of the Access Plan and Escape Route plans. Mr Judge had already commented on rev 0 of these drawings, stating he required watertight sliding doors in his second letter dated 23 April 2008. Rev C still showed a hinged non-watertight (NWT) door at frame 5 and no door at all at frame 12.
  177. On 8 July 2008, Mr Kumar sent an email to Mr Judge at the MCA attaching what he described as "revised" drawings and documents. These documents were rev B of the tank capacity plan, rev 0 of the trim and stability booklet (intact stability), rev 0 of the damage stability booklet and rev D of the GA drawing.
  178. The intact stability booklet and the damage stability booklet were in fact the same revisions (and the same documents) which were submitted to the MCA on 13 April 2008, prior to the meeting on 17 April 2008 at which the major changes to the design were discussed. For example, these versions of the intact and damage stability booklets still had the large engine room which had already been removed on the GA plans.
  179. Mr Judge replied on 11 July 2008 asking Mr Kumar to forward the stability documents straight to the MCA's Mr Maclean at the Stability Unit as he was out of the office. Mr Kumar duly did this on 12 July 2008. This is probably the reason that Mr Judge apparently did not realise that the documents being sent were the same as the ones he had already said needed to be revised.
  180. In the event Adyard did not submit a revised damage stability booklet to the MCA until 23 July 2009.
  181. On 17 July 2008, the MCA wrote to Adyard commenting on the rev C versions of the Access Plan and the Escape Plan showing a non-watertight door at frame 5 and no door at frame 12. The MCA had no objection to the proposed arrangements but commented:
  182. "Damage Stability
    Watertight doors forming part of the required watertight subdivision are to be sliding watertight doors."
  183. This letter was passed on to Hendersons on 26 July 2008.
  184. On 29 July 2008, Mr Cidambaram sent Mr Kumar rev 0 of the Disposition and Details of Doors drawing. It included a list of watertight steel doors. Doors 4 and 5 were listed as sliding doors and appeared at frames 36 and 49 on the plan showing below main deck, as per revs B and C of the GA plan. The door at frame 5 was door number 2. It was listed as a hinged door. It had however become a watertight door. No door was shown at frame 12.
  185. Mr Kumar forwarded this drawing to the MCA on the same day.
  186. Mr Judge commented on this drawing by email dated 18 August 2008. He said:
  187. "The following is drawn to your attention:
    1. Watertight doors, where required for subdivision purposes are to be of an approved sliding type."

    Application of the SPS Code in 2009

    Damage stability

  188. On 13 January 2009, there was a meeting between Adyard and SDMS. The attendees were Mr Vohra and Mr Kumar of Adyard, Mr Cidambaram of Hendersons, Mr Phelps of Lloyds and Mr Baldock and Ms Williams of SDMS.
  189. Item 1 of the minutes recorded that the "Feelings that MCA are delaying the approval process and Serco have agreed with Adyard to help chase outstanding approvals…" The actions were for Adyard to arrange a joint design review meeting with MCA (with all parties in attendance) to discuss all the outstanding issues and for Hendersons to complete all current drawings by the end of February 2009. At the same meeting at point 4, Adyard confirmed that none of the current VTSs would have an impact on delivery.
  190. Following this meeting, on 28 January 2009 Hendersons produced the first revision of the intact and damage stability calculations since MCA requested these in the meeting on 17 April 2008. These rev 1 versions still used the OSV Code for damage stability.
  191. Mr Cidambaram sent these to Mr Kumar saying that they could be sent on to the client and the MCA for approval. However, these revisions of the stability documents were never sent either to the MCA or to SDMS.
  192. It would appear from Mr Kumar's email to Mr Johnson dated 25 February 2009 that he simply missed these documents. On 25 February 2009, Mr Kumar told Mr Johnson (who had been asked to chase the MCA) that the MCA had had the relevant stability documents since March 2008. This referred to the rev 0 documents (which showed a large engine room and pre-dated the 17 April 2008 meeting) and which in any event were not sent on 10 March 2008 but on 10 April 2008.
  193. On 1 February 2009, Adyard's monthly report includes for the first time an action against the MCA for the approval of the stability reports. However, the MCA had not been sent any relevant documents to approve.
  194. On 4 February 2009, the MCA's Mr Brian Thomson emailed Adyard to introduce himself as the person carrying out the stability approval for the MCA and asking for some information. On 23 February 2009, Mr Cidambaram chased Mr Kumar to chase up SDMS and MCA for approval of the revised damage stability booklet as this was relevant to finalising the duct arrangements through the engine room bulkhead. Mr Kumar did do this, but as noted above, he referred to the wrong versions of the booklets.
  195. On 27 February 2009, Mr Johnson chased up the MCA on approval as requested and emailed Mr Kumar to inform him that Mr Thomson had said that he can "go no further with the task because the scale on the drawings bears no resemblance to reality. They are requesting that accurate drawings are re-submitted…" Mr Kumar forwarded this to Mr Cidambaram on 28 February 2009.
  196. At some point between 28 February and 2 March 2009, Mr Unnikrishnan and Mr Thomson of the MCA had a conversation about the review of the stability booklets. It is apparent from Mr Unnikrishnan's email dated 2 March 2009 that Mr Thomson had realised that he only had the rev 0 versions of the stability booklets (dated April 2008) and had asked for the updated versions which he was supposed to be reviewing.
  197. It is clear from the email that there had also been some discussion of the relevant criteria to be applied. Mr Unnikrishnan also said:
  198. "We would also request clarification on the following stability criteria applicable to this vessel.
    Intact stability as per IS code [IMO 749(18)]
    Both vessel are less than 50m and are carrying less than 50 special personnel… They are under UK flag. Since SPS code is not ratified under UK flag, we are following OSV code [Resolution MSC.235(82) – Adoption of the Guidelines for the Design and Construction of Offshore Supply Vessels, 2006] for damage stability calculations. Please confirm that this is acceptable to MCA."

    MCA email dated 5 March 2009

  199. On 5 March 2009, the MCA's Mr Maclean responded to Mr Unnikrishnan's query on 2 March 2009, copying in Mr Judge and Mr Thomson. Mr Maclean said:
  200. "Further to the email on Tuesday from our Brian Thomson, I have been asked to clarify the current requirements for UK vessels which carry Special Purpose Personnel onboard. I have attached a copy of our draft Marine Guidance Note (MGN) which lays down the current MCA policy with respect to this type of vessel.
    The damage stability requirements which will apply to Adyard Hull Nos. 10 & 11 will be dependent on the standard which the vessels are to be certified under. There are three possible routes to certification which could apply, each with a different damage stability standard and these are outlined below:
    1. If the vessel is to be certified as a cargo ship as outlined in the MGN, the proposed stability standard ie IMO Resolution MSC 235(92) will be acceptable. However, it should be noted that if this is the case, any special personnel carried on board the vessel would need to meet the definition of crew and be signed on in the vessel's articles and also meet the minimum standards of training etc. in accordance with STCW.
    2. Alternatively, if the vessel is to be certified as a passenger ship, passenger ship construction standards (including stability considerations) would need to be complied with in full. However, in this case any special personnel carried onboard would not require any additional certification.
    3. Finally, if it intended that the vessel will be certified as a Special Purpose Ship and an SPS Code certificate issued, it will be necessary for the vessel to comply with the requirements of IMO Code of Safety for Special Purpose Ships Resolution MSC.266(84) [the 2008 SPS Code]. I have attached a copy of this code to this email. It can be seen that Special Purpose Ships are now considered under the probabilistic damage stability framework as implemented by the latest revision of SOLAS.
    As can be seen from the above, at this stage, it is important to determine the type of certificate which will be issued to the completed vessel and we would be grateful if you could confirm this to us as soon as possible…"

  201. Mr Cidambaram replied on 9 March 2009. He clarified that the keels for the vessels were laid in 2008 and that therefore the 2008 SPS Code, which applied to vessels with keels laid after 1 January 2009, did not apply.
  202. He went on to explain that the design of the vessels in relation to damage stability had been calculated on the basis of the OSV Code on the assumption that the exemption in paragraph 2.2.1 of the SPS Code permitted this. He then asked the MCA to confirm the damage stability criteria which should be applied to these vessels.
  203. Events during March 2009

  204. On 13 March 2009, following a further discussion with Mr Maclean, Hendersons agreed to send the MCA the intact stability booklet but not the damage stability booklet, which would wait until Hendersons received an answer to their question as to whether they could use the OSV Code.
  205. On 18 March 2009, there was a further meeting between Adyard, Hendersons and SDMS. It was attended (at different stages) by Mr Kumar, Mr Vohra (of Adyard), Mr Wileman, Mr Baldock, Ms Williams (all of SDMS) and Mr Unnikrishnan and Mr Swain (of Hendersons).
  206. The MCA approvals issue was discussed. In her handwritten notes, Ms Williams recorded that Mr Kumar felt that the MCA were "being managed" in relation to outstanding approvals. In the formal minutes, it was recorded that Adyard had an action from the meeting on 9 January 2009 to arrange a meeting with the MCA. Adyard responded that Mr Judge was visiting the yard in March and SDMS asked for confirmation of the date of the visit bearing in mind that it was already 18 March 2009.
  207. There was also a discussion of the current VTS on the table, including VTS 16. This VTS related to Hendersons claim for additional costs of the redesign due to the changed engine room. The handwritten note recorded that Adyard's proposed reduction in cost was not sufficient. "MCA claim engine room too big container inside. SL thinks related to Henderson stability problem. Adyard saving money – disputed…"
  208. After this, Adyard and Hendersons chased the MCA for a response on the applicable damage stability criteria fairly regularly, namely on 23 March 2009, 24 March 2009, 15 April 2009 and 28 April 2009. Each time Mr Judge replied saying that he had chased MCA headquarters.
  209. On 31 March 2009, Mr Walker produced a report on Adyard's progress which concluded that the project was delayed by at least 6 months. Mr Walker recorded under the heading "Lloyds and MCA" that "One area of concern was the time taken to review Intact and Damage Stability. This was due to incomplete data being supplied by Adyard to the MCA."
  210. On 15 April 2009, Mr Judge responded to a chaser from Mr Kumar repeating that he had chased his headquarters, but that he anticipated that the decision "would have adverse effect."
  211. On 23 and 24 April 2009, Adyard received a further quotation for two watertight sliding doors. Delivery was 14 weeks plus shipping.
  212. SDMS letter dated 1 May 2009

  213. On 1 May 2009, SDMS wrote formally to Adyard in relation to damage stability. Mr Walker said:
  214. "During a recent meeting held with Mr Simon Judge of the [MCA] I discussed the issue of damage stability of the vessels at subject.
    He advised me that ADYARD were proposing to apply a different standard to that required under the Special Purpose Ship Code (SPS Code), for vessels operating with the numbers of special category personnel that we intend to carry onboard these ships. He advised me that ADYARD were seeking to apply a standard the same as for offshore supply vessels.
    I am surprised that ADYARD are making this request as early on in the design process as a result of initial feedback received on the General Arrangement Plan given by MCA, we removed the requirement to fit an ISO container below deck in order for ADYARD to achieve compliance with the SPS Code for the 50M design.
    I believe your request is with the MCA policy for consideration. You have indicated in your correspondence with the MCA that failure to obtain a dispensation from the SPS Code damage stability criteria will have an adverse effect on the build programme due to any ensuing rectification work.
    Please be advised Serco Ltd will not accept any excuse for failure to secure this dispensation from the MCA as mitigation against late delivery. Compliance to the SPS Code is a contractual requirement and the risk in achieving compliance lies solely with ADYARD."

  215. On 2 May 2009, Mr Kumar sent this letter to Hendersons for comment. Mr Cidambaram responded on 3 May 2009. He set out paragraph 2.2.1 of the SPS Code and said as follows:
  216. "Since the vessel is less than 50m in length and carrying less than 50 special personnel, the design was based on the consideration that necessary exemption will be provided. It is only suggestion from us that offshore supply vessel damage stability requirements can be considered by Administration as appropriate for this vessel as an alternative.
    There was no clear communication from MCA that these vessels should be treated as more than 50m length and apply the required damage stability criterion.
    Please note that the damage stability as per SPS Code as applicable to vessel more than 50m in length can be applied if required by Serco/MCA. A confirmation on this is required to redo the calculations and submit to MCA for approval.
    We expect the present subdivision will meet SPS Code requirement. However, there is a problem in respect of ER vent duct. Present location of vent duct will fall within damage zone and will lead to progressive flooding of ER. Any watertight arrangement of vent duct at ER bulkhead will be difficult. The ducts will have to be led on to main deck near winch per our earlier proposal, which was not accepted by Serco considering noise problems.
    To our best of understanding, SERCO's contention that large store room was removed to meet SPS Code was not correct as at that time no damage stability calculations were submitted. Please note that as far as SPS Code is concerned the engine room damage is not to be considered. However, it was felt by MCA that ER is very large and store was coming in between and accordingly the layout was modified."

  217. Mr Kumar cut and pasted Mr Cidambaram's response into a formal letter dated 3 May 2009.
  218. Claim during site visit 12 – 14 May 2009

  219. On 11 May 2009, Mr Kumar emailed Mr Cidambaram with an agenda for a technical discussion with Serco. This included an item for "Damage stability aspects (holdups on WT sliding doors and requirement of WT vent flaps etc)." This was the first time that watertight sliding doors were mentioned in relation to the MCA's requirements.
  220. The Serco visit referred to is Mr Walker's site visit on 12 – 14 May 2009. Mr Walker's report of that visit recorded as follows:
  221. "MCA APPROVALS
    ADYARD are still waiting from the MCA guidance on what Damage Stability criteria has to be applied to the 50M vessels. Early on in the design process the MCA indicated that additional damage cases would need to be considered, a requirement driven by the length of the Engine Room. At the time Serco relaxed the design requirement to fit a 20ft ISO container below decks to enable ADYARD/HI to improve sub-division.
    Recent discussions with HI representative indicate that the present design will meet the required Damage Stability criteria – ADYARD/HI to request resolution on this soonest and concurrently ADYARD/HI to run model for one compartment flooding.
    The result of the need to comply with Damage Case would mean the need to fit two SLIDING WATERTIGHT DOORS. ADYARD have stated that the lead time for these doors in 12-14 weeks, a 4 week delivery and two weeks installation and testing, 20 weeks from order to testing."
  222. There is no record of to which two doors Adyard were referring. If the two doors were those at frames 36 and 49 (on one ship), these doors had been shown on Adyard's GA plans as sliding doors since 1 May 2008. If the two doors were those at frame 5 (on both ships), the MCA required that these doors were sliding doors on at least three separate occasions in 2008.
  223. Claim at meeting on 19 May 2009

  224. There was a further meeting with SDMS on 19 May 2009. There was a slideshow presentation by Adyard relating to progress and current issues.
  225. The hard copy of the slides was annotated by Ms Williams. At slide 27 which recorded Adyard's assertion that it would be necessary to procure watertight sliding doors (and valves), Ms Williams had noted "GET ON ORDER NOW (x 4)."
  226. The formal minutes of the meeting recorded at item 3 (in relation to slide 27) that the procurement period is 20 weeks "which takes H10 past the delivery date. Adyard confirmed they are 80% sure they will need them. JM instructed AK to procure the doors now…".
  227. Meeting with MCA on 3 June 2009

  228. Adyard had managed to arrange a meeting with the MCA to take place on 3 June 2009. Mr Judge would attend in person and the MCA's damage stability personnel would attend by phone.
  229. Adyard relied on the decision at this meeting as the foundation of its case that, as a result of the existence of the new 2008 SPS Code, the MCA changed its approach to the application of the OSV Code standard for damage stability and insisted on compliance with the SPS Code.
  230. At this meeting, it is common ground that the MCA informed Adyard and SDMS that the vessels would be built in accordance with the original SPS Code.
  231. There was a further extensive review of Adyard's drawings in order to progress outstanding approvals.
  232. There was a further meeting between Adyard and SDMS on 4 June 2009. This meeting was attended by Ms Williams and Mr Baldock for SDMS, Mr Brown and Mr Chalmers for Serco and Mr Masterton and Mr Kumar for Adyard.
  233. Ms Williams' typed up notes of what SDMS were told had happened in the relevant telephone call with the MCA damage stability personnel recorded that the decision stated that the old code, not the new code, will be applied but that the MCA wanted some items from the new code including sliding watertight doors. It was Ms William' evidence, which I accept, that this was a mistaken transposition of her manuscript notes which did not link the doors to either code.
  234. Mr Judge's email dated 5 June 2009 reflected the decision made by the MCA:
  235. "Thank you for your email regarding the damage stability standards applicable to Adyard Yard Nos 10 and 11. I apologise for the delay in responding on this issue.
    Noting the keel laying dates for these vessels… we agree that the applicable version of the Special Purpose Ship (SPS) Code would be IMO Resolution A.534(13) [the SPS Code].
    [Mr Judge then set out paragraph 2.2.1 of the SPS Code]
    In this case the UK would expect that these vessels are shown to demonstrate a stability standard similar to other ships certified under the SPS code. We would accept compliance with the damage stability requirements of Paragraphs 2.3 – 2.55 of the SPS Code as meeting this requirement.
    However, it is noted that this damage stability standard excludes damages to the machinery space (main engine room). Therefore, in order to maintain a level of safety consistent with other similar vessels, we would also require that damage stability in way of the engine room wing spaces is shown to comply with the requirements of IMO Resolution MSC.235(92) 'Adoption of the Guidelines for the Design and Construction of Offshore Supply Vessels.'"

  236. The MCA's decision was that the SPS Code applied. It did not apply the new 2008 SPS Code. The MCA asked Adyard to apply the OSV Code to the engine wing tanks only. It was common ground that this requirement made no difference.
  237. Mr Cidambaram replied to Mr Judge's email on 8 June 2009. He said that Hendersons would submit revised damage stability booklets based on the SPS Code criteria. Again, he referred to the need to make the engine room ducts at frame 36 watertight and proposed to fit watertight valves to achieve this. Mr Cidambaram did not refer to the need for any additional watertight sliding doors.
  238. Mr Judge wrote to Adyard on 9 June 2009 to record the conclusions as to the drawings discussed at the meeting on 3 June 2009. In that letter, he recorded that the stability information was being considered separately. In relation to specific drawings, he commented as follows:
  239. (1) At items 7.3, 11.3 and 32.2, that watertight doors must be sliding doors. The drawing referred to at item 11.3 shows the hinged door at frame 5. At item 11.3, the comment reads, "Watertight doors relied upon as part of the watertight subdivision need to be of an approved sliding watertight type."
    (2) At items 7.2, 11.2 and 12.2, that, "Where required the penetrations through the watertight bulkheads that have an effect on the subdivision arrangements need to be provided with effective means of closure and included in the damage control plan/information."
  240. Adyard sent this letter to Hendersons with draft comments for their input on 15 June 2009.
  241. On 15 June 2009, Adyard placed its Purchase Order for 4 watertight sliding doors (those at frames 36 and 49 on both ships).
  242. On 16 June 2009, Adyard sent a finalised email attaching its schedule of responses to the MCA. At 11.3, Adyard requested again that the door at frame 5 be left as a hinged door, as it was for access to the store room and would normally be closed at sea.
  243. Claim in 20 June 2009 letter

  244. At the same time, Adyard was putting together its delay claim. On 16 June 2009, Mr Kumar sent Mr Cidambaram an email with the draft text of a VTS which he wanted to submit to SDMS. The draft letter states as follows,
  245. "2. The ship construction was started in April 09 to the mutually agreed specification requirement of SPS code. The SPS Code requirement for damage stability is as follows:
    [Paragraph 2.2.1 of the SPS Code was set out]
    3. Since the registered length of the vessel is less than 50m in length and carrying less than 50 special personnel, the design was based on the consideration that necessary exemption will be provided. However we have given an appropriate alternative of applying an offshore supply vessel damage stability requirements in case if the Administration authority have any reservation.
    4. Further there was no clear communication from MCA that these vessels should be treated as more than 50m in length and apply the required damage stability criterion.
    5. Due course of time the SPS code got revised w.e.f 1st Jan 09. As you are aware we had enough correspondence and telecoms for debating the subject matter but never yielded any result.
    6. At last during our joint meeting of 3rd June 09 at Plymouth, a clear cut decision was taken by MCA to go along with the revised SPS code for both vessels except at the engine room where the offshore supply vessel code will be applied. MCA has agreed all the above fact… He has also told the forum this aspect is above the initial agreed specification.
    7. To comply with the revised SPS code the following additional requirements are found to be essential:-
    a) Two nos of water tight sliding doors at Bhds. No. 36 and 49 respectively.
    b) Two nos of water tight sliding valves for the ventilation trunks near Bhd 36 (P&S)
    c) Revised stability calculations at all three conditions to meet SPS requirements.
    8) The above changes definitely will have cost & time implication on our project. We would like to raise a VTS for capturing all these modifications..."
  246. Mr Cidambaram responded on the same day. He commented on paragraphs 6 and 7 of Mr Kumar's email.
  247. Under paragraph 6 he said,
  248. "Please note that MCA, instead of providing exemption/concession, has stipulated to follow the (old) SPS code as applicable to vessels above 50m in length. In addition, OSV damage stability Code to be applied in way of machinery space. MCA has not requested for revised (new) SPS Code."

  249. Under paragraph 7, Mr Cidambaram added to Mr Kumar's list of required items, "New arrangement for hot air escape from engine room" and "Bilge/ballast pipes to be routed clear of new damage zone."
  250. Mr Cidambaram did not tell Mr Kumar that his claim that the sliding doors at frames 36 and 49 were a consequence of any change was wrong, although as the designer he should have known that sliding doors had been shown at these frames since 1 May 2008.
  251. Mr Kumar then sent a draft version of his letter to Mr Masterton and Mr Rengan for approval. The final as-sent version dated 20 June 2009 was in substantially the same form.
  252. In the final 20 June 2009 version of that letter Mr Kumar did not change his draft at all as a consequence of Mr Cidambaram's comments. He simply incorporated Mr Cidambaram's text from his email into the letter. This resulted in the inconsistent assertions first that the MCA had decided to "go along with the revised SPS code for both vessels" and then immediately afterwards that the MCA had decided, "to follow the earlier existing SPS code… MCA has not requested for revised (new) SPS Code."
  253. The letter stated:
  254. "8. To comply with the SPS code as applicable to vessel of 50m or more in length the following additional requirements are found to be essential:

    a) Two of water tight sliding doors at bulkheads 36 and 49 respectively
    b) Two of water tight sliding valves for the ventilation trunks near bulkheads 36 (P&S)
    c) Revised stability calculations at various conditions to meet SPS requirements
    d) New arrangement for hot air escape from engine room
    e) Re routing of Bilge/ ballast pipes to clear of new damage zone

    8) The above changes definitely will have cost & time implication on our project. We would like to raise a VTS for capturing all these modifications.

    ..."

  255. Adyard submitted that this was an unequivocal request to SDMS to agree adjustments to the price and time provided for under the contracts, by way of the VTS process.
  256. Mr Johnson and Mr Walker both provided comments on the letter for the purposes of SDMS's formal response. Mr Johnson pointed out that the two watertight sliding doors at frames 36 and 49 had been in the design since May 2008.
  257. Doors at frames 5 and 12

  258. On 23 June 2009, there was a further meeting on site with the MCA (Mr Brian Thomson) and SDMS (Mr Johnson). At this meeting there was a discussion about the door at frame 5 and a discussion about the need for a door at frame 12. Mr Johnson summarised the discussion in an email dated 8 July 2009 as follows:
  259. "… during the meeting it was questioned on what size the door would be at frame 5 as head height in Steering Gear Room is between 1.0 M and 1.5 M and the practicality of accessing the store and transfer of even small items via Steering Gear due to head height, installed equipment and vertical access to Main Deck of the Steering Gear Room. It was suggested that it may be more practical for the WT Door to be transferred from Frame 5 to Frame 12 – pending the intended usage of this store.
    Martin as you know after this meeting I discussed this by telecon, when you confirmed access via Frame 12 would be acceptable but you also raised the excellent point of how to access the Steering Gear Room for normal routine checks etc if main Deck inaccessible due to weather conditions, there is also the requirement of access due to Steering Gear failure and having to use local control. This would indicate there is a clear case of requirement for WT doors at both Frame 5 and 12…"
  260. SDMS replied to Adyard's 20 June 2009 letter formally on 3 July 2009. The letter stated as follows:
  261. "... It has always been a contractual requirement that both vessels comply with the [SPS] Code ... At a tripartite meeting held between Serco, Adyard & MCA in March 2008, various aspects of the then General Arrangement were discussed ... It was indicated by the MCA ... that due to the length of the engine room, exemption could not be applied and the vessel would have to comply with criteria for vessels greater than 50 metres i.e. Damage should be assumed to occur anywhere in the vessel length between transverse watertight bulkheads, even though the vessel is less than 50 metres.
    ...SDMS would like to take this opportunity to remind Adyard that under Article 1, Clause 3 of the contract, the Builder has an obligation to design and construct the vessels in accordance with class requirements. Which is why since January 2009, SDMS has consistently requested that Adyard engage fully with the MCA in order to de-risk the programme. Unfortunately this issue is symptomatic of the state of the whole build, but ultimately remains Adyard's responsibility to deliver within the requirements laid out in the contract.
    With regard to the technical changes identified in paragraph 8 of your letter, SDMS is willing to consider a VTS covering these changes (some of which have either been in the design for over a year or would have been required regardless of the SPS Code) providing that they are at nil cost to SDMS and that there is no adverse effect on the delivery dates."

  262. It was Adyard's case that this letter entrenched SDMS's position that the design items which were the subject of the MCA's decision of 3 June 2009 as clarified on 23 June 2009 involved no change, and that SDMS's position then and thereafter was that it would accept no extra cost for such changes and would allow no changes to the timetable.
  263. On 5 July 2009, Mr Johnson asked Adyard to investigate and advise on the installation of a watertight door at frame 12 and retaining a watertight door at frame 5.
  264. On 6 July 2009, the MCA formally responded to Adyard's request to have a hinged door at frame 5. It asked for a finalised proposal for sliding watertight doors "including those at frames 5 or 12 and frames 36 and 49." This was a reference to the discussion at the meeting on 23 June 2009.
  265. On 8 July 2009, Mr Wileman emailed Mr Kumar repeating his request for Adyard, "to advise cost implications for the installation of an additional water tight door in the ER at Frame 12 allowing access from ER to Aft Store. Access would then be possible to Steering Gear Room from ER via the store WT door at frame 12 and already WT Door at Frame 5 (as MCA now to be Sliding WT door)… Also referring to the latest MCA letter dated 6th July 2009 Section 1.3 and 32.3 it indicated WT Doors at these frames must be sliding and not hinged."
  266. On 15 July 2009, Hendersons wrote to the MCA, asking once again for doors at frames 12 and for 36 to be hinged rather than sliding doors. The MCA refused this request (again) on 20 July 2009.
  267. Mr Kumar forwarded the MCA's email to Mr Chalmers (of Serco) on 21 July 2009. He said,
  268. "Please find below email received from MCA yesterday for the WT sliding doors for our Serco project in line to the revised SPS code implementation. As per our understanding there were only two WT sliding doors per boat initially. Now this has increased to 04 nos per boat."

  269. Mr Kumar then went on to say that because all the doors had to be operated from a single control panel, this meant that "the entire activity needs to be once again initiated from the drawing board. The delivery time for these additional WT sliding doors will be of 18 to 20 weeks from the order placement…"
  270. SDMS replied on 24 July 2009, referring Adyard back to their 3 July 2009 letter.
  271. On 23 July 2009, Adyard supplied rev 2 of the damage stability booklet, applying the SPS Code, to the MCA.
  272. The lead up to the claim

  273. Mr Bower arrived as the new General Manager of Adyard on 5 August 2009. He was a new broom. He immediately tried to start up negotiations with Mr Furmston acting on SDMS's behalf. Mr Furmston's position in those negotiations was that there was a prospect of an extension of time being granted so long as a realistic programme was produced. Such a programme was produced in late August/early September. At the same time Mr Bower started making enquiries to see whether there was any contractual basis for an extension of time. By 16 September 2009 he had instructed claims consultants, Trett Consulting in Abu Dhabi.
  274. On 26 September 2009, Mr Kumar emailed Mr Wileman and Mr Johnson with the cost for the sliding door at frame 12. The cost per door was $41,008.00. On 27 September 2009, Mr Johnson asked for a breakdown of this cost. Mr Kumar provided this breakdown on 7 October 2009. The breakdown includes an allowance for "piping modification."
  275. On 7 October 2009, SDMS exercised its contractual right to rescind in relation to Hull 10.
  276. On 12 October 2009, Mr Bower sent Mr Pramod at Topaz a document summarising the "facts surrounding the SPS Code changes". It asserted that the MCA insisted on compliance with the 2008 SPS Code and that as a result 2 additional sliding doors, watertight dampers and revised ventilation ducting arrangements were required. It asserted that this caused delay.
  277. On the same day, Mr Cidambaram wrote to Mr Kumar, again stating that the MCA were not applying the 2008 SPS Code:
  278. "As far as SERCO vessels are concerned, the requirements of old SPS Code and the new Code are more or less same except that as per new rules, the damage stability should be based on probabilistic damage considerations. These calculations are quite involved and takes considerable tome and unless these calculations are carried out, one cannot be sure that vessel will meet the new criteria.
    The vessel as being constructed now meets the damage stability requirements as per Old SPS Code and this criteria is acceptable to MCA as communicated to us. These calculations are still under review by MCA."

  279. On 13 October 2009, at a meeting between Adyard, SDMS and Serco, Mr Bower stated that unless SDMS approved the draft VTS sent to them under cover of Adyard's letter dated 20 June 2009, work on Hull 11 would stop. SDMS repeated that the 20 June 2009 letter relied on an allegedly new requirement for the sliding doors at frames 36 and 49 which had been in the design since 1 May 2008.
  280. On 19 October 2009, the sliding doors arrived at site.
  281. On 2 November 2009, Adyard submitted a VTS H11-40 for Hull 11 in relation to the door at frame 12. The cost was $41,008 as discussed in emails. The space for consequences for delivery time was left blank. This was in accordance with the previous email discussions in which Adyard had not mentioned any delay associated with the door at frame 12. Mr Baldock signed this VTS on behalf of SDMS on 17 November 2009 and entered "nil" against the delivery consequences space.
  282. Adyard never submitted a VTS for the door at frame 12 in relation to Hull 10.
  283. Adyard's delay claim for Hull 11 was submitted under cover of VTS H11-049 and relied on Adyard's letter dated 4 November 2009. This letter was in very similar terms to Adyard's pleaded case in these actions in relation to both Hulls.
  284. The letter dated 4 November 2009 asserted:
  285. (1) The SPS Code applied to the vessel at time of contract.
    (2) The exemption in paragraph 2.2.1 of the SPS Code applied to the vessel.
    (3) The 2008 SPS Code applied to the vessel from 1 January 2009.
    (4) As a consequence of the application of the 2008 SPS Code, the exemption under paragraph 2.2.1 was no longer available.
    (5) The MCA confirmed in the meeting on 3 June 2009 that, "in the light of [the 2008 SPS Code, it would] refuse any exemption under paragraph 2.2.1."
    (6) The MCA confirmed in the meeting on 3 June 2009 that the vessel should be built to the requirements of the 2008 SPS Code, but indicated that if it were built to the requirements of the SPS Code, they "might still certify the vessel."
    (7) In order to meet the requirements of the MCA, the following changes were required:
    i. three watertight sliding doors at frames 5, 36 and 49;
    ii. two watertight sliding valves for the ventilation trunks near bulkhead 36;
    iii. revised stability calculations to meet SPS requirements;
    iv. new arrangement of hot air escape from the engine room;
    v. re-routing of bilge/ballast pipes to clear new damage zone.
  286. The letter claimed 124 days of delay. It also relied on a timeline which purported to set out a relevant chronology of events.
  287. SDMS rejected this claim by its letter dated 19 November 2009.
  288. The delay to the project

  289. Adyard produced a series of documents during 2009 in which it analysed the reasons that it thought that the project to build these two ships had gone so horribly wrong. I find that these documents accurately summarise the causes of delay.
  290. On 8 July 2009 Mr Rengan asked Mr Rao to produce a "White Paper" on the Serco projects, with the aim "to bring out the flaws and projected loss and appraise management at this stage."
  291. The final version of this document, the "White Paper on Current State of Affairs in Ship Building" is dated 11 July 2009. It included the following passages:
  292. "Aim of this paper is to bring out the factors contributing to the not so healthy state of affairs in our ship building yard in Abu Dhabi and also seek management's support for the measures to be introduced to correct the same.

    State of currently running projects:

    1. Delma Landing craft: The project is running very late and already consumed 26 months (against 8 months agreed)…
    2. Both BUE Cutting barges were handed over in June 09. Though there was delay in completing the projects, the delay was mostly due to variations proposed by clients and hence attributable to clients…

    3 SERCO vessels: Since this project is the most complex of all and also the hottest both in terms of schedule compliance and cost concerns, this was taken as the case for studying the functioning of this ship building yard. In my opinion, this project has been handled very badly right from the beginning and has problems in every aspect of ship building. It is detailed below function-wise.

    Engineering: … No forward planning was carried out and as a result the engineering at Yard practically took off just 5-6 months ago i.e. 13 months after the award of contract… Yard is not possession of any software for undertaking interference analysis and correction. Routing of pipes was carried out on Auto CAD platform and is process is iterative and error prone… Rework is anticipated since there is no mechanism to check the interferences arising between structure, piping and electrical and ducting works. Average experience of engineering team members is only 3 years and many are first timers. Steel material was grossly under estimated by engineering resulting procurement delays.

    Procurement: Procurement was one of major short comings of the project. Steel procurement was carried out without clear technical delivery conditions and most of the time the material was found non LR grade and required to be recertified. Huge amounts were spent for recertification and in the process exceeded the Lloyds survey budgets. Other than the major equipment that were part of 1st stage payment none were ordered in the first 6 months of project… all late purchases are being rushed, hence at extra price, mostly Air-freighted. A huge list of items still outstanding to be ordered / received.

    Construction: No Production manager or Engineer was appointed for the project. No dedicated production personnel were allocated. Workmen were taken on hire and put on job. Lack of accountability resulted huge man-hours per ton with estimated cost overrun of 220%. Non availability material at right time and lapses from engineering resulted in huge and unchecked rework.

    Project management: Though there was a dedicated Project Manager for the project, it was not managed systematically. Planning was done in a very unprofessional way due to lack of an experienced planner and improper guidance from the project team. The importance of Material planning & facilities planning was grossly neglected. Lack of coordination… resulted in huge delays in material procurement, wrong procurements, thus resulting in rejection of material / equipment by both classification society and client. Failure of logical build sequence and interface management between different sections of ship construction (Piping, Electrical, Equipment layout, etc.) resulted in a lot of reworks in the past and it is unavoidable even in future….

    Cost Control: Initial estimation and pricing of the vessel was done without gathering adequate information about the specification of the ship and its machinery, hence ended up spending more during the project and is continuing even now… no serious attempt was made to control [labour costs] within the budget, resulted in cost overrun of whopping 220%. The costing sheet of the project is already showing in the negative, many more months to go, more things to purchase.

    Corrective Actions: Efforts are on to speed up construction… However, all such measures can facilitate in putting the project on track only in terms of schedule compliance.

    Note: This report is to be seen as an attempt to identify the problems and effort to improve efficiency of ship building yard. There is no intension [sic] of showing any individual or department in poor light."

  293. On 26 July 2009, Mr Kumar produced a power point presentation which, among other things, summarised the causes of delay on the project. The slide states:
  294. "Sl Activity delayed Cause of delay
    1 Raising MTOs for steel Wrong estimation during detail engineering
    2 Order placement of equipments Non clarity in specification & non allocation of project engineer
    3 Release of production drawings Lack of design dept involvement
    4 Generator seating installation Modification on the class approved drawing
    5 Blasting painting of machinery compartment Re-work due to modifications and poor workmanship
    6 Blasting painting of superstructures Re-work due to poor workmanship"

  295. In August 2009 Mr Bower produced his own "Shipbuilding Analysis" on 9 September 2009. It stated:
  296. "Estimating

    Generally the hours required to outfit the vessels have been underestimated or not estimated at all…

    Planning

    The jobs are planned around steel or aluminium construction with little regard given to the cost of outfit. This practice means that the cost of doing any particular function is never at the estimated cost – it is now anywhere between 4 and 8 times higher than the estimate. Attached operating curve.

    Project Management & Job costing

    There are absolutely no standardized project management systems or reporting structures in place. Project Management (Managers) is non-existent in both yards.
    JDE is a good accounting package, but the set up of job numbering in line with the WORK hasn't happened and therefore the control of the work is near impossible.
    There is no way to know the work left in a project or control it… The job number system used on the Serco project is a case in point.
    Accurate ETC's are non-existent because the Project Managers don't have any understanding of the work that is left to complete at any point in the project – this should be a daily project management activity.

    Engineering & Technical Support

    The engineering tools are woefully inadequate…
    Engineering is planned to be late (through lack of understanding of the importance of Pre-outfit)…

    Procurement

    The philosophy of buying the cheapest is not necessarily the best – e.g. BUE barges were drawn with 3m wide plates Topaz purchased 2m wide plates thereby (in one seemingly insignificant decision) doubling the meterage of welding on panels – doubling the welding at this early stage – doubles the time to completion for the panel – thereby contributing to delivery pressure at a very early stage of the build program. Once the steel or aluminium is overrun either on time or budget it can never be picked up in the later outfit stages.
    Approval process for project related purchases is onerous and is leading to delays in deliveries…

    Production

    Not enough supervision on the job and what is there is not competent to build ships.
    Too many workers assigned to one job. And no control of what they are to get done.

    Planned manning 465 on Serco boats actual charges 851.

    The philosophy to date has been to move the men to the job all the time as opposed to moving the job to the men – must have the men doing the same job all the time because the skills are not high enough to have men doing a variety of tasks…

    Product by stage construction

    The ships thus far have been constructed using archaic processes it is accepted practice (in both yards) to close out areas of structure then install outfit items – almost all the work is done out of position and very costly in terms of manhour expenditure and leaving little chance of delivering on time. The vessels that we are constructing are small and there is no opportunity to decrease the duration of time to complete the work by adding men to tight in accessible spaces. This methodology is the single biggest contributor to inefficiency and poor productivity…

    Production Facilities

    Need a lot of improvement in Liwa – there is no metal forming equipment and this costs huge manhours in attempting to shape steel in bows, sterns, and turn of bilge areas…

    Production Personnel

    Need to dramatically improve the quality of supervision and the general craftsmanship skills in the shipyards. The rework (if it was tracked accurately) would be in the 30 to 40% range based on my observations of the number of areas of "do-overs" that you see happening when walking about…"

  297. On the same date, Mr Bower wrote to his superiors at Topaz summarising the position. He said,
  298. "The Contract was signed on the 14th December 2007 with a Contracted Delivery date of 14 October 2009. There had been discussions in May of [sic] June that broached the subject of the vessels being late and could be delivered in December. There is in my opinion little or no hope of coming close to delivering one vessel in December let alone two.
    We completed a work left to go and ETC exercise two weeks ago in an effort to determine when the boats would complete and at what cost, the manhours were in the 250K range, and when all of the interference of working in small boats is taken into consideration the delivery of the first boat will be around the 10th of March 2010, with the second delivered some 16 or 18 days later."
  299. Mr Bower also produced schedules showing a revised programme for the vessels which he believed to be realistic. These were sent to and used in discussion with Mr Furmston. These showed a delivery date in March 2010.
  300. Although in his witness statement Mr Bower suggested that these schedules could have been accelerated I find that there was no realistic prospect of them being accelerated to a significant extent and that on any view neither vessel could have been made ready for delivery within 2009. Indeed, Adyard's own valuation expert reported that as at that 10 May 2010 (following an unknown quantity of further work to the vessels which continued post-rescission), Hull 10 was only 56.66% complete, and Hull 11 only 57.97% complete.
  301. The factual issue

  302. The central factual issue in relation to the alleged variations was:
  303. (1) In 2008, did the MCA intimate approval for the proposed damage stability exemption under paragraph 2.2.1 of the SPS Code?
    (2) In 2009, did the MCA change its mind as a result of the existence of the 2008 SPS Code, and require compliance with the SPS Code?

  304. Adyard contended that at the meeting of 17 April 2008 Mr Judge intimated his approval for the proposed damage stability exemption under paragraph 2.2.1 of the SPS Code. It submitted that approval was inherent both in his willingness to treat the vessels as cargo ships and because he indicated his willingness to grant an exemption when, going through the provisions of the SPS Code, he reached the provision for an exemption for a vessel under 50m. This approval was conditioned upon reducing the size of the engine room.
  305. In support of this case Adyard relied in particular on the following:
  306. (1) In advance of the meeting, Mr Vohra sent the list of exemptions sought to Mr Judge at the MCA by email on 31 March 2008:"Request you revert back on the acceptability of the same". The list was also sent to the Defendant. All the participants at that meeting, and Mr Judge in particular, would have read the list of exemptions in preparation for the meeting. The issue of the exemption under paragraph 2.2.1 of the SPS Code was therefore crystallised in the minds of the parties and was on the table for discussion.
    (2) Mr Vohra's evidence in relation to the meeting and in particular his evidence that Mr Judge went through the provisions of the SPS Code indicating exemptions which he was prepared to grant. He indicated a general willingness to be helpful and to accept exemptions. Although Mr Vohra could not specifically recall that paragraph 2.2.1 was discussed, it is inherently likely that it would have been and that Mr Judge intimated agreement to an exemption. If he had not done so Mr Vohra would have remembered it and he would not have left the meeting with the impression that matters had been satisfactorily addressed, as was his evidence.
    (3) This is supported by Mr Vohra's evidence that the possibility of treating the special personnel as crew was raised by Mr Judge and was discussed, this being indicative of Mr Judge's willingness to treat the vessels as cargo ships.
    (4) This is further supported by Mr Judge's requirement that the size of the engine room be reduced. It was submitted that this was the condition for his agreement to there being an exemption.
    (5) The failure of SDMS to call Mr Walker to give evidence. He had originally been scheduled to be called as a witness but SDMS had decided during the course of the trial not to do so. This meant that they had no witness evidence to contradict that given by Mr Vohra.
    (6) Various documents produced after the meeting.

  307. Having carefully considered the documentary and witness evidence I am unable to accept that any approval or intimation of approval was given by Mr Judge at the 17 April 2008 meeting for the proposed damage stability exemption under paragraph 2.2.1 of the SPS Code and find that it was not. In particular:
  308. (1) Mr Judge's position at the 25 March 2008 meeting, as reflected in his letter of 27 March 2008, was that:

    (1) Any exemption would be from the passenger ship requirements.
    (2) Any such exemption would be based on the vessels "at least" complying with the requirements of the SPS Code.
    (3) Damage stability information would comply with the passenger ship requirements or, if an exemption from these was obtained, with the SPS Code.
    (4) Watertight doors in watertight bulkheads would be approved sliding doors.

    (2) Mr Vohra accepted in evidence that Mr Judge's stance at the 25 March 2008 meeting was that the SPS Code would be applied to damage stability. Mr Cidambaram also accepted in evidence that this was his understanding of MCA's position.

    (3) To move from a requirement of compliance "at least" with the SPS Code as a condition of agreeing an exemption from the passenger ship requirements to approval or intimated approval of an exemption to the SPS Code requirements would reflect a major change in attitude, and, moreover, a change in respect of safety matters. Further, as explained in the unchallenged evidence of Mr Coleman, the additional requirements in terms of cost to apply the SPS Code in respect of damage stability were minimal, but the effect on survivability of the vessels was considerable.

    (4) The best evidence of what was said at the 17 April 2008 meeting is to be found in MCA's subsequent letters and in particular its first letter of 23 April 2008. This said nothing about approval or intimated approval of an exemption to the SPS Code requirements or a departure in approach from the 27 March 2008 letter. It recorded at item 3 (UK Law/Classification) that the comments raised in the letter dated 27 March 2008 "are accepted/in hand and the following added:"

    "There has been a slight variation to the approach for seeking exemptions from Passenger Vessel requirements and it is anticipated that a single request Exemption based on compliance of the Special Purpose Ship Code and any other specified conditions.
    This is in the process of being agreed by the MCA HQ, and I hope to be able to confirm this shortly."
    (5) As Mr Cidambaram agreed in evidence, the MCA was here repeating that it would be necessary to obtain an exemption from passenger ship requirements based on compliance with the SPS Code. I am unable to accept Adyard's suggestion that the reference to a "variation" is to the removal of the need for exemption from the passenger ship requirements because of the change from a vessel registrable as a passenger ship to a cargo ship; that "Single request exemption" is a reference to the exemption sought under the SPS Code in the list of exemptions, and that "any other specified conditions" is a reference to the alternative damage stability criteria suggested in the second item in the list of exemptions. I accept the evidence of Mr Coleman that this is addressing administrative changes within MCA in relation to the process of granting exemptions from passenger ship requirements. It is not addressing exemptions from the SPS Code.

    (6) The letter further stated that Under Section 11 (Stability Information) that:

    "1. Comments raised in letter dated 27 March 2008 are accepted/in hand and the following added.
    2. The watertight subdivision is likely to significantly change and a further submission of damage stability information will be made."

    (7) If there had been an approval or intimated approval of an exemption to the SPS Code in respect of damage stability requirements this is where one would expect it to be noted. It is not. On the contrary it referred back to what had been said in the 27 March 2008 letter under this head, namely: "The intact and stability information is to comply with the Passenger Vessel, or SPS requirements, as applicable. This information should be submitted at an early date…"

  309. In relation to the main points relied upon by Adyard as set out above, I shall address each of them following the same numbering.
  310. As to (1), this was not disputed. It was accepted that the issue of exemptions would have been discussed at the meeting.
  311. As to (2), Mr Vohra's evidence in relation to the meeting was somewhat confused. In his witness statement he said that Mr Judge "indicated that he was comfortable with approving the vessel, subject to the question of the engine room size". However, this generalised evidence does not address the basis upon which such approval might be given. In relation to the SPS Code itself Mr Vohra said that Mr Judge had a copy of it and "we went through it looking at ways he could help us and give us exemptions. So far as I can recall, he took me to the provision which allowed an exemption for vessels under 50m and indicated that we should seek an exemption under it". Even if that was correct, it falls far short of an approval or intimated approval of an exemption.
  312. In oral evidence Mr Vohra said that Mr Judge went through the SPS Code and the exemptions and indicated a willingness to oblige. However, he also said that there was no mention of the OSV code (which was the suggested basis of any exemption) and that it was the SPS Code which was being discussed. The main focus in Mr Vohra's mind was the fact that Mr Judge made it clear that there was no requirement that the engine room be flooded (as is the case under the SPS Code for these vessels). From this Mr Vohra understood that there would be no problem in achieving compliance for the vessels. This was why he left the meeting apparently satisfied.
  313. As to (3), I accept that there was some discussion of treating the special personnel as crew, but I find that it was not discussed in the context of damage stability. In his witness statement Mr Vohra said that this related to SOLAS requirements and that he could not remember whether it was considered in relation to the application of the SPS Code. I find that it was not, as indeed was borne out by some of Mr Vohra's answers in cross examination. Had it been the letter of 23 April 2008 would have been expressed very differently. I also accept that Mr Judge indicated a willingness to treat the vessels as cargo ships, but that had always been his position, provided the SPS Code was complied with. As Mr Ross explained in evidence, it did not really matter whether one had a class 7 cargo ship applying the SPS Code as an increase in standards, or a passenger ship applying the SPS Code as a reduction in standards.
  314. As to (4), Mr Judge's requirement that the engine room be reduced is more consistent with an understanding that the SPS Code rather than the OSV Code was to be applied since the engine room would only be flooded under the transverse damage assumptions under the former Code. However, I regard this point as being essentially neutral as Mr Judge could well take the view that it was undesirable to have such a large engine room whichever code was being considered. Whilst this was a change that would no doubt assist in obtaining approval of the vessel, I do not find that it was linked to the obtaining of an exemption from the SPS Code, still less that it was the condition for such an exemption.
  315. As to (5), I accept that this is a matter which Adyard can rely upon, although it would be a stronger point had Mr Vohra's evidence been clearer and more obviously supportive of its case.
  316. In relation to the main documents relied upon I find as follows:
  317. (i) VTS No 009. This VTS was one of two batches sent by Mr Vohra to Serco in May 2008. It was sent under cover of a letter dated 26 May 2008. It provided for a change of the classification in the Specification of all the special personnel to "crew". The annotation referred to a decision of the MCA about the reclassification of the crew under UK law - "as per MCA according to UK laws". It was signed off by Serco in 2009. Adyard made much of this at the trial, although it was not a document referred to in the correspondence at the time or in the pleadings, nor was it stressed in Adyard's witness statements or expert report. This reflects the fact that at the time it was not regarded as being relevant to damage stability, as was borne out by Mr Vohra's evidence in cross examination. Whilst it is not entirely clear to what it was addressed, it seems likely that it was to do with accommodation/hospital issues. I accept Mr Johnson's evidence that it was signed off by mistake because insufficient attention was paid to it in the light of the fact that it had nil cost/time consequences.
    (ii) The letter of authority from the MCA to Lloyd's Registry dated 26 June 2008. This document dealt with the range of certificates to be provided by Lloyd's on the MCA's behalf. It provides for a "Cargo Ship Safety Construction Certificate (SAFCON)". It was submitted that this marked the MCA's change of position at the meeting of 17 April 2008 to treating the vessels as cargo ships. This was another document that only acquired significance during the trial. I do not consider that it is of any great import. MCA's position was that the vessels could be treated as cargo ships provided the SPS Code was complied with.
    (iii) Crew accommodation exemptions /Hospital. The MCA decided that the vessels required hospitals under the Merchant Shipping (Crew Accommodation) Regulations 1997. It was submitted that this can only have been on the basis that the special personnel were "crew" so that the total number of crew exceeded 15 under Reg 32(1). The Crew Accommodation Regulations exemption was the only one pursued by Adyard but this document, approved by Adyard and Hendersons at the time, described in terms the vessel as being designed for the crew and 20 special personnel
    (iv) Drawings approvals letters of 23 April 2008. These letters from the MCA gave qualified approval to drawings. In each case the letter stated that the plans had been "examined in conjunction with the Special Purpose Ship Code and Merchant Shipping (Cargo Ship Construction) Regulations [1997]". The latter regulations apply only to ships to be registered as cargo ships and so it was submitted that this was consistent with a decision by the MCA to treat the vessels as cargo ships. However, as already found, this is of no particular significance in circumstances where any willingness to do so depended upon compliance with the SPS Code.
    (v) Letters of 9 and 10 June 2008. These letters contained the MCA's approval of the GA Plans Rev B and C, which incorporated the changes to the internal subdivision required by the MCA for the purposes of damage stability at the meeting of 17 April 2008. Both of the letters expressed approval in terms "The arrangements are noted to have been modified to include the points raised in my letter dated 17 April and considered acceptable including..." (emphasis added). It was submitted that this was a distinct change from the comparable letter of 23 April 2008 dealing with the GA Plan as it stood before the subdivision changes required at the 17 April meeting. In that letter, the formula used was "No objection is seen to the arrangements outlined subject to..." (emphasis added). I consider that this is seeking to read far too much into the letters. Further, the letters concluded: "The remaining points raised in our letter dated 21 April 2008 are understood to be being addressed." The remaining points included the resubmission of revised damage stability calculations and resolution of the issue as to sliding doors at watertight subdivisions.
    (vi) Minutes of Meeting between Mr. Vohra and Mr. Walker on 10 & 11 June 2008. At this meeting it was stated at item 8:"MCA Exemptions – It was agreed that all main items of non-compliance where exemption form (sic) the required codes and standards had been identified and had been de-risked with the certifying authority as much as could be expected." However, at item 9 the comments from the MCA as to crew accommodation in its letters dated 9 and 10 June 2008 were discussed. This indicates that at this stage the only exemptions under discussion related to the crew accommodation regulations and the anchors respectively.
    (vii) Emails sent by Mr Johnson in June 2009 which discuss the meeting. It was submitted that these supported the suggestion that paragraph 2.2.1 had been discussed at the meeting. The passages relied upon were not entirely clear, but the essential point being made by Mr Johnson in the emails was that there had been no change in the MCA's position as he understood it from the meeting.
  318. For all these reasons I reject Adyard's case that there was an approval or intimated approval of the proposed damage stability exemption under paragraph 2.2.1 of the SPS Code. However, I also do not accept SDMS's that there was an outright refusal of any such exemption. I find that at the 17 April 2008 meeting the possibility of an exemption from the SPS Code was discussed and that Mr Judge's attitude was generally co-operative and helpful. He indicated that it was open to Adyard to apply for an exemption and that this would be considered. However, unless and until an exemption was both properly applied for and approved the position remained that the SPS Code had to be complied with. In the absence of anyone from Hendersons or a naval architect being present there was no detailed discussion of what this might involve. Because Mr Vohra was under the impression that the key issue was that the engine room was not to be treated as being flooded he emerged from the meeting anticipating that there would be no problems. This was the impression he conveyed to Mr Cidambaram. Although, as he acknowledged in his evidence, Mr Cidambaram recognised that MCA's stated position remained that the SPS Code must be complied with, he continued to proceed on the basis that exemptions would be obtained. However, unless and until the exemptions were obtained the MCA's formal position remained as before, namely that compliance with the SPS Code was required.
  319. In the light of my finding that there was no approval or intimated approval of an exemption under paragraph 2.2.1 of the SPS Code there can be no question of there having been any change in the MCA's requirements. The MCA's requirements in 2008 were that the SPS Code be complied with. Those remained their requirements in 2009. The most that was intimated in 2008 was a willingness to consider an exemption case. In 2009 an exemption case was considered, but was not accepted. That does not involve any change in requirements.
  320. Indeed Mr Cidambaram accepted in evidence that what the MCA was saying in June 2009 was what he accepted he had understood them to be saying in March/April 2008, namely that the SPS Code should be applied without exemptions.
  321. Even if Adyard had established that the MCA had intimated approval of an exemption in 2008 I would not have found that there was a change in "requirements" within Article V, clause 2.
  322. That clause applies where "after the Effective Date of this Contract, any requirements as to class, or as to rules and regulations to which the construction of the Vessel is required to conform are altered or changed". In my judgment an intimation that a discretion is likely to be exercised in a particular way is not a requirement. It is an indication that a particular requirement is likely to be relaxed, but unless and until a decision is made to do so the relevant requirement remains as before. Even on Adyard's case it cannot be said that the MCA's requirement in 2008 was that damage stability be assessed according to the OSV rather than the SPS Code.
  323. For all these reasons I find that Adyard's factual case on variation fails. By the end of the trial it was acknowledged by Adyard that if it could not be established that there was a change in requirements under Article V, clause 2 then its variation case failed, and that no separate point arises in relation to the requested variation in respect of the door at frame 12.
  324. The contractual case

  325. If, contrary to my conclusion above, Adyard was able to establish that that there had been a change in requirements within Article V, clause 2 SDMS submitted that the case in any event failed contractually.
  326. By the end of the trial Adyard's case essentially depended on whether it could rely on the prevention principle. Its entitlement to do so as a matter of law turned on whether or not the contract provided for an extension of time in respect of the relevant event. Adyard submitted that it did not do so. This was disputed by SDMS.
  327. A convenient summary of the prevention principle is to be found in the judgment of Jackson J in Multiplex v Honeywell [2007] Bus LR Digest D109 in which he stated as follows:
  328. "47…..The essence of the prevention principle is that the promisee cannot insist upon the performance of an obligation which he has prevented the promisor from performing.
    48. In the field of construction law, one consequence of the prevention principle is that the employer cannot hold the contractor to a specified completion date, if the employer has by act or omission prevented the contractor from completing by that date. Instead, time becomes at large and the obligation to complete by the specified date is replaced by an implied obligation to complete within a reasonable time. The same principle applies as between main contractor and sub-contractor.
    49. It is in order to avoid the operation of the prevention principle that many construction contracts and sub-contracts include provisions for extension of time. Thus, it can be seen that extension of time clauses exist for the protection of both parties to a construction contract or sub-contract."

  329. Jackson J then reviewed the main authorities relating to the prevention principle and concluded as follows:
  330. "56. From this review of authority I derive three propositions.
    57. The third proposition must be treated with care. It seems to me that, in so far as an extension of time clause is ambiguous, the court should lean in favour of a construction which permits the contractor to recover appropriate extensions of time in respect of events causing delay. This approach also accords with the principle of construction set out in Lewison, The Interpretation of Contracts, 3rd ed (2004), at p 231, para 7.14:
    "Where two constructions of an instrument are equally plausible, upon one of which the instrument is valid, and upon the other of which it is invalid, the court should lean towards that construction which validates the instrument."

  331. The authorities on the prevention principle show that:
  332. (1) In a basic shipbuilding contract, which simply provides for a Builder to complete the construction of a vessel and to reach certain milestones within specific periods of time, the Builder is entitled to the whole of that period of time to complete the contract work.
    (2) In the event that the Buyer interferes with the work so as to delay its completion in accordance with the agreed timetable, this amounts to an act of prevention and the Builder is no longer bound by the strict requirements of the contract as to time.

    (3) The instruction of variations to the work can amount to an act of prevention.

  333. However, as Jackson J stated in the Multiplex v Honeywell case, the prevention principle does not apply if the contract provides for an extension of time in respect of the relevant events. Where such a mechanism exists, if the relevant act of prevention falls within the scope of the extension of time clause, the contract completion dates are extended as appropriate and the Builder must complete the work by the new date, or pay liquidated damages (or accept any other contractual consequence of late completion) – see also Chitty on Contracts at paragraphs 37-115 to 37-117 and Keating on Construction Contracts at paragraphs 9-018 to 9-20.
  334. Adyard put its case as follows:
  335. (1) Under Article V, clause 2.1(b) the Buyer has a choice either to "first agree to reasonable adjustments required by the Builder in the Contract Price, the Delivery Date and other terms and conditions of this Contract and the Specifications occasioned by or resulting from such alterations or changes" or to instruct the Builder "otherwise": i.e. instruct the Builder not to incorporate the compulsory changes required by the MCA into the construction of the vessel.

    (2) In the absence of an instruction "otherwise" the incorporation of the compulsory change into the construction of the vessel is contingent upon ("provided that") the Buyer "first" agreeing to reasonable adjustments required by the Builder. If however no agreement is reached the Builder cannot build to the old specification without being in breach of the contracts, in particular Article I, clause 3.4 and the specifications.

    (3) Commonsense, and the language of Article V.2.1(b) would suggest that the Buyer has to make a consistent decision as to whether to (1) accept the compulsory modification and achieve agreement as to the Builder's reasonable adjustments or (2) give the "notice otherwise" envisaged by Article V, clause 2.1(b). What the Buyer cannot do is withhold the "notice otherwise" and refuse to negotiate or agree the reasonable adjustments.

    (4) Article V, clause 2.1(b) does not separately deal with the question as to the effect of the Buyer taking inconsistent positions on the option in response to a compulsory change required by the MCA. In such circumstances Adyard submitted that:

    (a) Where the Buyer takes an inconsistent position in response to a compulsory change made by the MCA the inconsistency will prevent the builder from completing in accordance with the MCA's requirements (and therefore in compliance with the contract) either way. The refusal to agree the adjustments means that the option for the Builder proceeding with the modified works is interrupted.
    (b) Under the prevention principle the legal task is to ask what events and circumstances are treated by the particular contract as being events or circumstances which are at the "Buyer's risk" as to time. Variations to the specification and compulsory changes required by the MCA are clearly identified by Article V as matters which are at the Buyer's, rather than the Builder's, risk. It follows naturally from this that the Buyer's failure to agree adjustments of time in the manner contemplated by Article V, clause 2.1(b) has the following consequences:

    (i) The Builder is prevented from completing and the prevention principle operates.
    (ii) The failure to agree adjustments, so long as it continues, prevents the Builder from completing in accordance with the contract. The Buyer has created a form of "limbo" as a result of it taking and sustaining inconsistent positions on the option expressly provided for in Article V, clause 2.1(b). This may be a breach of contract but, in principle, it does not have to be. It is part and parcel of the circumstances designated by the contract as being a Buyer risk event, namely the compulsory change required by the MCA.

  336. In summary Adyard's case was therefore that the contract does not provide any mechanism for an extension of time if there is no agreement to an adjustment. The parties are left in a contractual "limbo" during which the Builder is prevented from completing the vessel in accordance with the contract and the prevention principle accordingly applies.
  337. SDMS disputed this analysis. It submitted that the regime for change, time and money is set out in Articles II, V and VIII and that these clauses work together to provide a coherent and practical structure. They do not (as is the consequence of Adyard's case) fall down in an obviously foreseeable circumstance (such as the non-agreement of the value of a piece of work). It put its case as follows:
  338. (1) Article II, clause 3.2 relates to money rather than time. However, its existence acknowledges that the parties may not be able to agree on any adjustment to the Contract Price under Article V (also expressly recognised in Article II, clause 3.1(f): "try to agree…") and provides a solution.

    (2) It is immediately followed by Article II, clause 3.3 which is the key clause in this dispute. It relates to time rather than money. It provides for rescission if the sea trials date is not met. It is the clause which SDMS operated and which Adyard contends it was not permitted to operate. It is drafted to provide an extension of time mechanism to allow relief from the consequences of failure to meet the date if that failure is caused by Permissible Delay or buyer's default. The clause is therefore intended to deal with a prevention principle type argument.

    (3) Article V deals with modifications to Specifications, which are essentially changes introduced by the Buyer and Changes in Class requirements, both compulsory and non-compulsory, which are essentially changes introduced by the regulatory bodies.

    (4) Article V, clauses 1, 2.1(b) and (c) all provide that the Builder is only contractually obliged to incorporate modifications to the Specification into the vessel on the basis that the Buyer first agrees the relevant reasonable adjustments to the Delivery Dates and Contract Price ("provided that the Buyer shall first agree…").

    (5) It is obviously foreseeable that the parties may not be able to reach agreement. This is not, however, addressed in Article V which does not provide any freestanding right to an extension of time in the absence of agreement. The reason for this is that other parts of the contracts provide the mechanisms for extensions of time/relief from liquidated damages in such circumstances.

    (6) On the proper construction of the contracts, the provisions in Article V which entitle Adyard to an agreement of adjustments to the Delivery Date as a consequence of delays caused by modifications to the specification fall within the very wide definition of Permissible Delay in Article VIII, clause 3.1 (since they are "delays of a nature which under the terms of this Contract permits postponement of the Delivery Date").

    (7) That right is subject to the notice provisions in Article VIII, clause 2.1, which requires notice of the date of the occurrence of a cause of delay and the date on which the cause of delay ended, and notice of the period by which it is asserted that the Delivery Date is postponed.

    (8) The Buyer's entitlement to claim Permissible Delay under Article VIII means that there is a contractual mechanism for an extension of time if there is no agreement to an adjustment and one which is, moreover, expressly acknowledged in Article II, clause 3.3.

  339. SDMS submitted that a failure to agree adjustments does not mean that the Builder is entitled simply to cease work, or is in some way prevented from continuing work, or that the contracts collapse. The Builder's obligation is to construct the vessel in accordance with his pre-existing contractual obligations. However, in practical terms the Builder has a choice. He can either implement the relevant modification and pursue his entitlement to time and cost at a later stage having given the relevant notice under Article VIII, clause 2.1 or he can not effect the change. If the election is not to effect the change, there are no immediate consequences. Any delay would occur at the point at which the MCA and/or the Buyer refused to accept the vessel (likely to be either the Sea Trials or the Delivery Date).
  340. SDMS acknowledged that an election not to effect the change could be problematical in respect of compulsory changes given the Buyer's obligation under Article 1, clause 3.4 to comply with UK law so as to enable the vessels to comply with UK flag. It submitted that there were two possible contractual solutions to this problem:
  341. (1) The Builder's pre-existing contractual obligation to ensure UK Flag is met means that the Builder is under an overriding obligation to comply with any (new) compulsory MCA requirements. Any consequent entitlement to an adjustment to price and, if relevant, time is dealt with by the bespoke clauses in Article II, Clause 3.2 and, if relevant, 3.3.
    (2) Alternatively, the proviso in Article V is given effect so that the Builder is not obliged to comply with the MCA's new requirements, notwithstanding the inconsistent obligation to construct a vessel to UK Flag. On this analysis, there is an implied exception to the obligation to construct a vessel to UK Flag. The consequence of this construction is that it results in a vessel which is ultimately non-compliant and merely postpones the implications for the parties.

  342. Adyard submitted that SDMS's analysis was flawed in that Article V and VIII are separate regimes and that it is artificial and unsatisfactory to seek to introduce the notice regime in Article VIII, clause 2 into the procedure for dealing with modifications to the Specification provided for in Article V and that it does not fit. In particular:
  343. (1) Article VIII, clause 2.1 is directed at giving notice of a "cause of delay". This must be a reference to Article VIII, clause 1.1 which is entitled to "Causes of Delay". Thus the notice provision is in respect of force majeure events for which Article VIII, clause 1.1 applies. No notice is required in respect of modifications to the Specification save for Article V, clause 2.1(a) which places an obligation on both parties to notify the other of changes in the requirements of regulatory authorities and Class. So, Article V has its own notification regime. It does not require another.
    (2) Whilst it may be commercially sensible to require notification by the builder of force majeure events it is not apposite or commercially appropriate for modifications to the Specification. A modification to the Specification is essentially a transaction between the Builder and the Buyer. It makes no rational sense to require notice of it between the Builder and the Buyer, save for the notice provided for in Article V, clause 2.1(a).

  344. Whilst I agree with Adyard that Articles V and VIII generally operate separately, it is apparent that Article VIII is not limited to force majeure causes of delay. This is made clear by Article VIII, clause 3.1 which defines Permissible Delay as being "Delays on account of such causes as specified in Clause 1 of this Article (i.e. force majeure causes) and any other delays of a nature which under the terms of this Contract permits postponement of the Delivery Date" (emphasis added). I agree with SDMS that this is intended to be a broad sweep up clause encompassing the numerous different bases on which the Delivery Date can be extended under these contracts. Article V permits the parties to agree adjustments to the Delivery Date. There is nothing in Article VIII, clause 3.1 to suggest that the reference to "delays of a nature which under the terms of this Contract permits postponement of the Delivery Date" excludes postponements which the terms of the contract permits to occur by agreement.
  345. Although Article V has its own notice provision this is for a different purpose. It relates to the fact of a change in requirements rather than to the resulting implementation of any change into the construction of the vessel. This can sensibly be identified as a cause of delay. Further, in the case of a failure to agree to adjustments to the Delivery Date it makes obvious commercial sense for an Article VIII notice to be given since it is clearly important that the parties know at the time whether an entitlement to postpone the Delivery Date is being claimed, and, if so, on what grounds. It also fits in with Article II, clause 3.3 under which the time at which SDMS is entitled to rescind may be extended by Permissible Delays.
  346. Adyard further submitted that it is uncommercial and contrary to the scheme of Article V to place the responsibility of making the decision whether or not to implement the modification on the Builder. In particular, if he elects to build according to the changed requirements, he risks the Buyer arguing that he is not entitled to extra costs or time involved in the modifications. Conversely, if he elects to build according to the original specification, keeping to the original costs and original contractual timetable, he risks the Buyer saying that he is in breach of contract because the vessel does not "comply with the requirements of the MCA so as to enable the vessel to be registered under the UK flag".
  347. Whilst there is no doubt a risk that the Buyer will dispute the Builder's claim for costs or time, on SDMS's construction the Builder's position is protected by Article II, clause 3.2 and Article VIII. As to the risk of the vessel not being compliant with the UK flag requirement, on SDMS's case that is addressed as set out in paragraph 248 above.
  348. Adyard also submitted that Article II, clause 3.2 does not assist since it is addressed at adjustments to the delivery instalment under Article II, clause 3.1(f). However, the wording of clause 3.2 is general. It relates to disputed "adjustments to the Contract Price before Delivery" and Article V concerns adjustments to the Contract Price.
  349. Having carefully considered the parties' arguments on construction it has to be acknowledged that the contract is not particularly well drafted and that there is a degree of ambiguity. However, I have no doubt that the construction advanced by SDMS is to be preferred for the reasons given by it and in particular:
  350. (1) It involves construing the contract as a whole giving effect to its provisions in a complementary and coherent manner.

    (2) It avoids the unsatisfactory consequence of the parties being in a contractual "limbo".

    (3) It is inherently unlikely that the parties would have intended there to be such a "limbo", particularly in an obviously foreseeable situation such as a failure to agree an adjustment.

    (4) This all the more so given the potentially extreme circumstances of the application of the prevention principle, as explained by Colman J in Balfour Beatty v Chestermount Properties (1993) 62 BLR 1, 27. A trivial variation may lead to the loss of the right to liquidated damages for a long period of culpable delay and, in this case, loss of the right to rescind as well.

    (5) As most clearly illustrated by Article II, clause 3.2 it is apparent that the parties intended to address the situation of a failure to agree an adjustment.

    (6) As illustrated by Article V and Article II, clause 3.3 it is apparent that the parties intended to deal with the possible application of the prevention principle.

    (7) As stated by Jackson J in Multiplex v Honeywell where there is ambiguity the court should lean in favour of a construction which makes the contract work.

  351. I accordingly hold that Adyard is not entitled to rely on the prevention principle in this case. If so, its essential case falls away. It had a fall back case on extension of time which I will address below.
  352. The causation issue

    Causation in law

  353. Even if Adyard is entitled to rely on the prevention principle this could only avail it if its causation case is sound in law.
  354. Adyard's causation case, both in relation to the prevention principle and any claim for an extension of time, was that causation is established by showing that the duration of the relevant event or act of prevention extended over the original contractual sea trials date.
  355. If, for example, a two day variation was instructed the day before the sea trials date, and was a variation of a type which would need to be completed before sea trials, then, if there was an extension of time clause Adyard would be entitled to a one day extension of time, or, if there was no such clause, Adyard could rely on the prevention principle.
  356. Adyard submitted that this was the correct approach regardless of what other events may have been delaying the works and regardless of whether the variation would have any impact on the actual progress of the works. One looks only at the event/act in question and how it relates to the contractual completion date.
  357. So, if the project was already in six months irretrievable delay it would make no difference to the causation analysis. Adyard would still get its extension of time or be entitled to rely on the prevention principle.
  358. Mr Breeze gave a helpful example of the extreme consequences in practical terms of this approach:
  359. "Assuming (as is in fact appropriate in the present case) that the Contractor is many months in delay by reason of its own default. The Employer decides a week before the (original unextended) contract completion date that he wishes a wall to be painted blue instead of the contractually specified red. At the time of the instruction, because of the Contractor's delays, the wall is not even built yet. The paint will take 5 weeks to procure, but will still arrive before the completion of the wall and the date upon which the Contractor would require the paint in line with his delayed progress. Mr Swan's analysis would appear to entitle the Contractor to 4 weeks' extension of time (by adding 5 weeks to the date of impact, and comparing with the original contract completion date). However, I would suggest that common sense tells the observer that such an extension was neither fair nor reasonable, where the employer's actions have not actually delayed the progress of the Contractor by a single day."

  360. In my judgment Adyard's approach is wrong as a matter of both principle and authority. It is also contrary to common sense, as the above example illustrates.
  361. It is wrong in principle because in essence Adyard's case is that there is no need to prove causation in fact. On its case there is no need to prove the event or act causes any actual delay to the progress of the works. Notional or theoretical delay suffices. That would seem to involve turning the prevention principle on its head. The rationale of the principle is that it is unfair for a party to insist on performance of an obligation which he has prevented the other party from performing. That necessarily means prevention in fact; not prevention on some notional or hypothetical basis. In relation to the extension of time claim it is also contrary to the express causal requirements set out in the contracts in this case. In so far as the relevant extension of time provision is Article V, that expressly imposes a causal requirement. It states that the reasonable adjustment is to be that "occasioned by or resulting from" the relevant modification. In so far as the relevant extension of time provision is Article II, clause 3.3, it seeks to identify the period of delay "caused by the Buyer's default or any Permissible Delay" and extend the period of time to Sea Trials "to the same extent."
  362. It is wrong as a matter of authority because it is contrary to the principles laid down in the authorities dealing with both extensions of time and the prevention principle.
  363. In relation to extensions of time, Adyard's argument is essentially a variation of the gross entitlement approach rejected by Colman J in the Balfour Beatty case.
  364. In the Balfour Beatty case, the contract was for the construction of the shell and core of an office block. The completion date was 12 September 1989 (as extended). The contractor did not complete by that date, for reasons which it was agreed were his risk under the contract. By January 1990, the contractor was expected to finish (for the same reasons) in July 1990. Between February and July 1990, while the contractor was in culpable delay, the employer instructed some variations to the contract.
  365. The contractor contended that he was entitled to an extension of time for completion by the period required to carry out the variations starting from the date of the relevant instructions ("the gross basis"). In other words, if a variation was instructed on 1 February 2009 and would take 2 months to carry out, the completion date should be extended to 1 April 2009.
  366. The employer contended that the contractor was entitled to an extension of time for the period required to carry out the variations added on to the completion date as it then was ("the net basis"). In other words, on the same factual scenario, the completion date should be extended to 12 November 1989.
  367. It was held in Balfour Beatty that the net basis was the correct approach. In his judgment Colman J analysed the "contractual purpose of the completion date/extension of time/liquidated damages regime" (page 25). He said:
  368. "At the foundation of this code is the obligation of the contractor to complete the works within the contractual period terminating at the completion date and on failure to do so to pay liquidated damages… But superimposed on this regime is a system of allocation of risk. If events occur which are non-contractor's risk events and those events cause the progress of the works to be delayed… the contract provides for the completion date to be… adjusted to reflect the period of delay so caused… The underlying objective is to arrive at the aggregate period of time within which the contract works as ultimately defined ought to have been completed having regard to the incidence of non-contractor's risk events…"
  369. He went on (at 30):
  370. "… the function of the completion date is to identify the end of the period of time commencing with the date of possession within which the contractor must complete the works, including subsequent variations… The completion date as adjusted retrospectively is thus not the date by which the contractor ought to have achieved or ought in future to achieve practical completion but the date which marks the end of the total number of working days starting from the date of possession within which the contractor ought fairly and reasonably to have completed the works…" [emphasis original]

  371. Colman J then went on to make it clear that delay (to the completion date) must be therefore assessed by reference to the progress of the works (to the then-projected completion date): see the passages at pages 25 and 29 to 32.
  372. As the editors of the BLR's commented at the time (at 10),
  373. "The practical value of the judgment of Colman J is that it should put an end to hypothetical questions about the potential as opposed to the actual effect of causes of delay which entitle a contractor to an extension of time. In many cases it will be a simple exercise to determine whether, for example, a variation did in fact further delay completion in a period of culpable delay. It may be found that no such delay can be established. If it can, then a fair period is added to the then applicable date to produce the requisite extension of time…"
  374. In Henry Boot Construction (UK) Ltd v Malmaison Hotel (Manchester) Ltd (1999) 70 Con LR 33, the contractor claimed in an arbitration an extension of time as a result of delay said to have been caused by variations and late information (among other things). The employer pleaded in its defence firstly that the alleged variations did not cause any delay because they were not on the critical path and secondly (at paragraph 37 of its defence) that the true cause of the delay was other matters which were contractor-risk events.
  375. The contractor contended that the matters pleaded at paragraph 37 were outside the jurisdiction of the arbitrator and "irrelevant to the Claimant's entitlement to an extensions of time in this Reference (since they relate to alleged progress of the works and not to the effect of relevant events upon the completion date or the Architect's obligation to determine that)" (see page 34 of the report and paragraphs 8 and 9 of the judgment). That is essentially the same argument as that advanced by Adyard in this case. Dyson J rejected the argument and held as follows:
  376. "15……It seems to me that it is a question of fact in any given case whether a relevant event has caused or is likely to cause delay to the works beyond the completion date in the sense described by Colman J. in the Balfour Beatty case. In the present case, the respondent has what [she] calls both a negative and a positive defence to the EOT/I claim. The negative defence amounts to saying that the variations and late information etc relied on by the claimant did not cause any delay because the activities were not on the critical path, and on that account did not cause delay. The positive defence is that the true cause of the delay was other matters, which were not relevant events, and for which the contractor was responsible. In my view, the respondent is entitled to advance these other matters by way of defence to the EOT/I claim. It is entitled to say (a) the alleged relevant event was not likely to or did not cause delay e.g. because the items of work affected were not on the critical path, and (b) the true cause of the admitted delay in respect of which the claim for an extension of time is advanced was something else. The positive case in (b) supports and fortifies the denial in (a). The respondent could limit its defence to the claim by relying on (a), but in my view there is nothing in clause 25 which obliges it to do so. Likewise, when considering the matter under the contract, the architect may feel that he can decide the issue on a limited basis, or he may feel that he needs to go further, and consider whether a provisional view reached on that basis of one set of facts is supported by findings on other issues. It is impossible to lay down hard and fast rules. In my judgment it is incorrect to say that, as a matter of construction of clause 25 when deciding whether a relevant event is likely to cause or has caused delay, the architect may not consider the impact on progress and completion of other events."

  377. In the Malmaison case it was accepted that if the contractor could show that the relevant event caused concurrent delay there would be an entitlement to an extension of time. Dyson J said at para 13:
  378. "… if there are two concurrent causes of delay, one of which is a relevant event, and the other is not, then the contractor is entitled to an extension of time for the period of delay caused by the relevant event notwithstanding the concurrent effect of the other event. Thus to take a simple example, if no work is possible on a site for a week not only because of exceptionally inclement weather (a relevant event), but also because the contractor has a shortage of labour (not a relevant event), and if the failure to work during that week is likely to delay the works beyond the completion date by one week, then if he considers it fair and reasonable to do so, the architect is required to grant an extension of time of one week. He cannot refuse to do so on the grounds that the delay would have occurred in any event by reason of the shortage of labour."
  379. It is to be noted that this example involves a relevant event which caused a period of actual delay to the progress of the works – no work could be done for a week due to the weather. If that is established then the contractor is entitled to his extension of time even if there is another concurrent cause of that same delay. A useful working definition of concurrent delay in this context is "a period of project overrun which is caused by two or more effective causes of delay which are of approximately equal causative potency" – see the article Concurrent Delay by John Marrin QC (2002) 18 Const LJ No. 6 436.
  380. A similar approach was taken by HHJ Seymour QC in Royal Brompton Hospital NHS Trust v Hammond (No 7) (2001) 76 Con LR 148. Having accepted that the approach set out in Balfour Beatty and Malmaison was correct the Judge then dealt with a submission made to him as to "events operating concurrently." He said (at paragraph 31):
  381. "[This] does not mean, in my judgment, a situation in which, work already being delayed, let it be supposed, because the contractor has had difficulty in obtaining sufficient labour, an event occurs which is a relevant event and which, had the contractor not been delayed, would have caused him to be delayed, but which in fact, by reason of the existing delay, made no difference. In such a situation although there is a relevant event,
    'the completion of the Works is [not] likely to be delayed thereby beyond the Completion Date.'
    The relevant event simply has no effect upon the completion date. This situation obviously needs to be distinguished from a situation in which, as it were, the works are proceeding in a regular fashion and on programme, when two things happen, either of which, had it happened on its own, would have caused delay, and one is a relevant event, while the other is not. In such circumstances there is real concurrency of causes of the delay. It was circumstances such as these that Dyson J was concerned with in the passage from his judgment in Malmaison… (para 13)…"

  382. This makes it clear that there is only concurrency if both events in fact cause delay to the progress of the works and the delaying effect of the two events is felt at the same time. In HHJ Seymour QC's first example, the relevant event did not in fact cause any delay to the progress of the works. His first example is consistent with Colman J's comments as to the situation in which a variation is instructed during a period of culpable delay at pages 30 – 31 of the report in Balfour Beatty.
  383. As appears from the report of this case at page 220, the Court of Appeal refused permission to appeal from this judgment, describing it as "exemplary" (paragraph 2), recording that "both parties accept that his analysis of the legal position was entirely correct" (paragraph 11) and summarising the nature of the task under clause 25 in paragraph 12 as follows:
  384. "… they have to estimate a likely date for final completion without allowing for any delay caused by the relevant event, and they have to determine whether and if so to what extent the relevant event will cause that date to be delayed…"
  385. A similar requirement of proof of delay to the actual progress of the works is apparent in the prevention principle cases, albeit that there the issue is viewed retrospectively. This is made clear, for example, by the case which Adyard itself relies upon as best expressing the principle, namely Lord Denning's speech in the Court of Appeal in Trollope & Colls Ltd v North West Metropolitan Regional Hospital Board [1973] 1 WLR 601 at 607:
  386. "It is well settled that in building contracts – and in other contracts too – when there is a stipulation for work to be done in a limited time, if the other party by his conduct – it may be quite legitimate conduct, such as ordering extra work – renders it impossible or impracticable for the other party to do his work within the stipulated time, then the one whose conduct caused the trouble can no longer insist upon strict adherence to the time stated. He cannot claim any penalties or liquidated damages for non-completion in that time." (emphasis added)
  387. The conduct therefore has to render it "impossible or impracticable for the other party to do the work within the stipulated time." The act relied on must actually prevent the contractor from carrying out the works within the contract period or, in other words, must cause some actual delay.
  388. The principal authority relied upon by Adyard in support of its argument was the dissenting judgment of Lord Carloway in the Scottish Court of Session Extra Division, Inner House, decision in City Inn Ltd v. Shepherd Construction Ltd [2010] BLR 473. That case concerned how to assess the issue of a fair and reasonable extension of time under clause 25 of the JCT standard form in a case of concurrent delay caused by relevant events and matters for which the contractor was responsible. The majority of the Inner House held that where there was delay caused by two concurrent causes, one of which was a relevant event, the decision maker may apportion the delay as between the relevant event and the other event. Lord Carloway dissented and held that the decision maker is required to consider only the effect on completion of the relevant event and not of the effects of events which are not relevant events.
  389. In his judgment Lord Carloway said as follows:
  390. "106. ….delay caused by the contractor…..is irrelevant so far as the contractual exercise is concerned. That exercise does not involve an analysis of competing causes. It involves a prediction of a Completion Date, taking into account that originally stated in the contract and adding the extra time which a Relevant Event would have instructed, all other things being equal.

    110. …the exercise remains one of looking at the Relevant Event and the effect it would have had on the original (or already altered) Completion Date. If a Relevant Event occurs (no matter when), the fact that the Works would have been delayed, in any event, because of a contractor default remains irrelevant."

  391. Adyard submitted that the essential point, whether analysed as a matter of "concurrency" or "prevention", is that the effect of the Buyer's risk event has to be measured against the contractual completion date and that this does not require any analysis of competing causes of delay for which the Builder might be responsible. It submitted that in cases such as the present where the Builder's obligations to progress the works are defined by reference to particular contractual milestones, rather than any programmes, that this approach should be followed.
  392. City Inn was an extension of time rather than a prevention principle case, but in so far as Lord Carloway was suggesting in his judgment that it is not necessary to show that the relevant event is an operative cause of delay to the progress of the works, it does not reflect English law. As set out above, the English law authorities in relation to extensions of time under the JCT form and similar contracts are clear that it must be established that the relevant event is at least a concurrent cause of actual delay to the progress of the works.
  393. Further, the majority in the City Inn case accepted that the issue of whether a relevant event causes delay is to be assessed by reference to the progress of the works as a whole. They clearly recognised the relevance of considering and establishing causation in fact. Lord Osborne summarised the position as follows:
  394. "42. ….In the first place, before any claim for an extension of time can succeed, it must plainly be shown that a relevant event is a cause of delay and that the completion of the works is likely to be delayed thereby or has in fact been delayed thereby. In the second place, the decision as to whether the relevant event possesses such causative effect is an issue of fact which is to be resolved, not by the application of philosophical principles of causation, but rather by the application of principles of common-sense. In the third place, the decision-maker is at liberty to decide an issue of causation on the basis of any factual evidence acceptable to him. In that connection, while a critical path analysis, if shown to be soundly based, may be of assistance, the absence of such an analysis does not mean that a claim for extension of time must necessarily fail. In the fourth place, if a dominant cause can be identified as the cause of some particular delay in the completion of the works, effect will be given to that by leaving out of account any cause or causes which are not material. Depending on whether or not the dominant cause is a relevant event, the claim for extension of time will or will not succeed. In the fifth place, where a situation exists in which two causes are operative, one being a relevant event and the other some event for which the contractor is to be taken to be responsible, and neither of which could be described as the dominant cause, the claim for extension of time will not necessarily fail…."

  395. In the last of the situations envisaged by Lord Osborne the English law approach would be to recognise that the builder is entitled to an extension of time, not an apportionment – see, for example, Malmaison at para 13.
  396. Adyard's delay expert, Mr Swan, suggested that, at least in relation to its claim for an extension of time, Adyard's contract completion date approach was supported by the SCL Protocol. However, as Mr Swan agreed in evidence, the SCL Protocol is not in general use in contracts in the construction industry and nor has it been approved in any reported case. There was no evidence that the parties were aware of it or that they contracted with it in mind. Further, the SCL Protocol itself says that "it is not intended to be a contractual document. Nor does it purport to take precedence over the express terms of a contract or be a statement of law".
  397. In such circumstances the SCL Protocol can be of little assistance in relation to the legal causation issues which arise in this case.
  398. In so far as the SCL Protocol is of any relevance I find as follows:
  399. (1) The particular passage relied upon by Mr Swan was Clause 3.2.6:

    "The Protocol recommends that the Updated Programme should be the primary tool used to guide the CA (Contract Administrator) in determining the amount of the EOT. The EOT should be granted to the extent that the Employer Risk Event is predicated to prevent the works being completed by the then prevailing contract completion date."
    (2) Reliance was placed upon the reference to the "then prevailing contract completion date". However, as Mr Breeze explained, Clause 3.2.7 provides guidance as to how the extension of time should be calculated. This requires first that the programme is fully brought up to date to include the effects of all delays to date, and any realistic recovery plans should be incorporated. The sub network for the Employer Risk Event should then be inserted and "…the impact on the contract completion dates should be noted".

    (3) I accept Mr Breeze's evidence that Clauses 3.2.6 and 3.2.7, when read in context within the SCL Protocol, are contemplating a Time Impact Analysis. That means that any extension to the Contract Completion Date is determined by impacting an updated programme showing progress and therefore, the difference between the date upon which the contractor was planning to complete (given progress to date) and any later date caused by the impact of the particular event.
    (4) In so far as reliance was also sought to be placed on Figure 9 of Appendix D of the SCL Protocol, I find that, as put to Mr Swan in cross examination, it can be read as showing that the introduction of the employer's event on path 2 makes that path critical and causative of concurrent delay in which case again it puts forward the orthodox position.

  400. I therefore do not consider that any real support for Adyard's case on causation is to be found either in the City Inn case or, if relevant, in the SCL Protocol. I hold that in relation to both its extension of time claim and its claim in reliance on the prevention principle it has to establish causation in fact, which means showing that the variations were likely to or (as the case may be) did cause actual delay to the progress of the works.
  401. Causation in fact

  402. Mr Swan agreed in cross examination that there was no actual delay, whether viewed prospectively or retrospectively, caused by any of the design items.
  403. This was in accordance with the common sense view of what was actually happening on site. As I have already found, the project was already in irretrievable critical delay well before June 2009.
  404. It follows that if, as I have held to be the case, actual delay has to be proved then Adyard's causation claim fails.
  405. In these circumstances it is not necessary to address in any detail all the various prospective delay scenarios considered by the experts. However, for completeness I find that even if one considers delay prospectively and does so by reference to the contract sea trials dates no delay has been proved. In particular I find that:
  406. (1) There should be no addition for design amendments or approval time in respect of the doors. These periods should overlap with the period of procurement.

    (2) The appropriate procurement period for the doors is 6 weeks (excluding shipping).

    (3) The appropriate procurement time for the valves is 4 weeks (excluding shipping).

    (4) If either the doors or valves were programmed to be critical then they should have been air freighted.

    Extension of time

  407. On the pleadings this was Adyard's primary case. By the end of the trial, however, it was positively averring that there was no basis for claiming an extension of time in order to lay the foundation for its reliance on the prevention principle.
  408. On the construction of the contract which I have held to be correct the contract provides for an extension of time in the events which happened through Article VIII and Article II, clause 3.3. However, any claim for such Permissible Delay fails due to the lack of an Article VIII, clause 2 notice.
  409. Even if no such notice is required, any extension of time under Article II, clause 3.3 depends on proof of actual delay. As with Article II, clause 3.2 one must look at what actually happened. Article II, clause 3.3 requires consideration of the period of delay "caused by the Buyer's default or any Permissible Delay". If there is such delay then there shall be an extension of the period of time to sea trials "to the same extent." This requires a retrospective analysis, identifying the delay actually caused by the default or Permissible Delay and adding that period of delay to the original sea trials date. As I have already found, it is clear that there was no actual delay, as Mr Swan acknowledged.
  410. For the same reason if and in so far as at the end of the trial Adyard was still contending in the alternative that delay was caused by Buyer's default in failing to agree an adjustment, such claim would equally fail as a matter of causation (even if it was otherwise made out).
  411. SDMS' entitlement to rescind

  412. It follows from my findings that Adyard failed to complete the stage referred to in Article II, clause 3.1(e) (Sea Trials) of the contracts by the dates specified in that clause (namely 30 September 2009 and 30 November 2009), and that the failure to have done so was not caused by any Permissible Delay or Buyer's default.
  413. Accordingly, SDMS was entitled to rescind pursuant to Article II, clause 3.3 of the contracts.
  414. It follows that SDMS is entitled to succeed on its counterclaim pursuant to Article X of the contracts for the return of instalments paid. SDMS is also entitled to interest calculated in accordance with Article X, clause 2.1.

  415. Conclusion

  416. For the various reasons set out above, the claims are dismissed and SDMS is entitled to judgment on the counterclaims.


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URL: http://www.bailii.org/ew/cases/EWHC/Comm/2011/848.html