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You are here: BAILII >> Databases >> England and Wales High Court (Technology and Construction Court) Decisions >> Decoma UK Ltd v Haden Drysys International Ltd [2005] EWHC 2948 (TCC) (27 July 2005) URL: https://www.bailii.org/ew/cases/EWHC/TCC/2005/2948.html Cite as: 103 Con LR 1, [2005] EWHC 2948 (TCC) |
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QUEENS BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT
Strand, London, WC2A 2LL |
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B e f o r e :
____________________
DECOMA UK LIMITED(FORMERLY KNOWN AS CONIX UK LIMITED) |
Claimant |
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| - and - |
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HADEN DRYSYS INTERNATIONAL LIMITED |
Defendant |
____________________
Mr Marcus Taverner QC (instructed by Gateley Wareing ) for the Defendant
____________________
VERSION
OF JUDGMENT
Crown Copyright ©
His Honour Judge Peter Coulson QC:
IDENTIFICATION OF CONTENTS |
PARAGRAPHS |
| A INTRODUCTION | 1-6 |
| B THE PRELIMINARY ISSUES | 7 |
| C ASSUMED FACTS | 8-10 |
| D RELEVANT PRINCIPLES OF CONSTRUCTION | 11-18 |
| D1 General | 11 |
| D2 Presumption That A Party Cannot Take Advantage Of His Own Wrong | 12-14 |
| D3 Exclusion Clauses | 15-16 |
| D4 Canons of Construction Generally | 17-18 |
| E THE EXPRESS TERMS OF THE CONTRACT | 19-47 |
| F HOW THE CONTRACT OPERATED | 48-145 |
| F1 General Points | 48-50 |
| F2 The Importance Of Pre- And Post-Final Acceptance | 51 |
| F3 Pre-Final Acceptance: General Rights, Obligations And Claims | 52-59 |
F4 Pre-Final Acceptance: Contractual Remedies Available To Decoma | 60-96 |
F5 Pre-Final Acceptance: Limits On Decoma's Claims |
97-115 |
| F6 The Post-Final Acceptance Position | 116-119 |
| F7 The Indemnity Provisions | 120-129 |
F8 Does The Analysis At F2-F7 Result In Haden Taking Advantage Of Their Own Wrong? |
130-145 |
| G THE NINE HEADS OF CLAIM | 146-188 |
| H ANSWERS TO THE PRELIMINARY ISSUES | 189-204 |
A INTRODUCTION
Decoma
UK
Limited ("
Decoma")
claims damages for breach of contract against
Haden
Drysys
International
Limited ("
Haden")
arising out of alleged defects in the waterborne paint-spraying system designed, built and installed by
Haden
for
Decoma's
facility at Halewood on Merseyside. Some of these claims are put, in the alternative, as claims for sums due under the express terms of the Contract between the parties. The total sum claimed by
Decoma
in these proceedings is estimated to be in excess of £18 million.
Haden
pursuant to a written agreement dated 13 October 1999. This Contract was not in a standard form, but was instead drafted specifically for this transaction. The Contract Price was £8,738,799.
Decoma,
Haden
seek to rely on the General Conditions in
various
ways in order to limit and/or exclude their liability for damages. If
Haden's
contentions are correct,
Decoma's
entitlement to recovery would be severely restricted, in all probability to just 5% of the original Contract Price.
Haden's
arguments on the Contract terms to be tested in advance of the main trial by way of a Preliminary Issue hearing. On 27.5.05, His Honour Judge Seymour QC ordered the hearing of six Preliminary Issues which were designed to deal with these contractual arguments. Following the re-assignment of the case to me, the Preliminary Issues were heard on the 4th and the 11th of July 2005. Leading Counsel each produced two sets of written submissions, upon which they elaborated concisely at the hearing, and I am
very
grateful to them for their considerable assistance.
Decoma
(Section G below) before finally answering the Six Preliminary Issues (Section H below).
B THE PRELIMINARY ISSUES
Decoma
in the Particulars of Claim (save for the claim for liquidated damages) and then asked:
"Issues:-
(1) Can such a claim made prior to the Final Acceptance Date bevalid
in principle either as a claim
(a) for breach of Article 3.1 and/or 3.2 and/or Article 11.1 and/or(b) under Article 11.3?(2) Insofar as the claim is brought under Article 11.3:(A) Can the claim qualify as a claim for(i) "direct costs charges and expenses" and/or(ii) "costs charges and expenses incurred"(iii) "in remedying the defect(s)"?(B) Are the following steps or any of them, namely(a) a notification from the Owner;(b) a failure by the Contractor to comply with all or any of the matters set out at (a) to (c) in Article 11.3 within 48 hours;(c) a correction of such default;
(d) the incurring of demonstrable and reasonable direct costs, charges and expenses in remedying the defect by the Owner;
(e) the receipt by the Contractor from the Owner ofinvoices for the sameconditions precedent to the Defendant becoming liable for all such direct costs, charges and expenses under Article 11.3?
(3) Does the Claimant's right to or the fact of payment of the sums identified in Article 12.3 preclude the Defendant's liability to the Claimant in respect of such claim?
(4) Does the claim qualify as being a claim for "loss or deferment of anticipated or actual profit, loss or revenue, loss of use, loss of production, loss of efficiency, or operating materials, business interruption or similar damage or for consequential or indirect loss" as set out in Article 12.3A and/or is such claim thereby precluded?
(5) Is the amount of claim in any event (and however advanced by the Claimant):
(a) excluded by Article 12.4? and/or(b) subject to the 5% cap as provided for in Article 12.4 namely to a sum being "in aggregate to any payments that shall become payable under Article 12.3, the maximum amount of 5% of the Contract Price)…"?
(6) (a) does Article 15.1 give rise to a right to indemnity in respect of claim?
(b) If so, does it(i) override any exclusions or limitations expressly provided for within Article 12.4 ? and/or(ii) entitle the Claimant to recover all or any of the categories of loss where otherwise the Claimant would not be able to recover such category of loss?"
C ASSUMED FACTS
Decoma
is an operator of paint spraying facilities and
Haden
specialises in the design and construction of process plants.
Haden
agreed to design, construct, install and commission a "turnkey" waterborne paint finishing system for £8,738,799 or such other sum as should become payable under the terms of the contract.
Haden
purported to design, construct, install and commission the plant but:
Haden
installed and supplied was and is incapable of meeting the Equipment Performance Specifications and/or the Specifications.
Haden
carried out certain remedial works to try to improve the plant from 2000-2002, especially in relation to the conveyor track and stabilisation.
Decoma
also carried out
various
works from 2000 onwards to remedy defects in the plant installed by
Haden."
Haden,
Substantial Completion, as defined in the Contract, was never achieved. In consequence, as we shall see, this meant that the Commissioning was never completed and thus the Final Acceptance Test was never satisfied. Accordingly, there has never been Final Acceptance of the
Haden
paint-spraying system. Despite that, there is no dispute that the system was taken over and has been operated by
Decoma
for some years.
D RELEVANT PRINCIPLES OF CONSTRUCTION
D1 General
D2 Presumption That A Party Cannot Take Advantage Of His Own Wrong
Decoma,
Mr Sears QC briefly referred to the legal presumption that, when drafting a Contract, the parties did not intend that one party would be permitted to take advantage of his own wrong as against the other party. At the oral hearing, this had become one of the cornerstones of his submissions. The relevant principle is summarised at paragraph 7.09 of The Interpretation of Contracts (third edition, 2004) by Mr Justice Lewison as follows:
"A contract will be construed so far as possible in such a manner as not to permit one party to it to take advantage of his own wrong."
Many of Mr Sears QC's most important submissions were to the effect that, in their interpretation of this Contract,Haden
were seeking to do precisely that.
v
Eton College [1988] 1 WLR 587. It is important to note that, in that case, the principle was applied because the literal meaning of the clause in question rendered it wholly inconsistent with all the other parts of the Lease and produced what Lord Jauncey called "a bizarre result". Accordingly, given the absence of any provisions which contradicted the presumption that it was not the intention of the parties that either should be entitled to rely on his own breach in order to obtain a benefit, the literal meaning of the clause in question was modified and the party in breach could not rely on the term. Accordingly, in my judgment, this presumption is predominantly a rule of construction, and its application, or otherwise, will always depend on the words used and the meaning and effect of the terms of the contract as a whole.
Haden
rely in this case, and which attracts this criticism from
Decoma.
A number of the relevant provisions appear to provide that
Decoma
can recover for a particular type of loss against
Haden,
but only up to a certain specified financial limit. Such "cap" clauses, which are a common feature of commercial contracts, reflect an agreement between the parties that, in the event of a breach, the wrong-doer's liability will be fixed at a pre-set maximum level. In one sense, of course, the wrong-doer who seeks to rely on such a clause is seeking to take advantage of his own wrong, because the cap clause in question can only be triggered by his breach of contract in the first place. It would, however, be absurd to suggest that, if the cap clause was clear, the wrong-doer could not rely on such a provision to limit his liability, because that is exactly what the parties have agreed that he can do. Accordingly, what will be of the utmost importance in this case is the overall scheme of the Contract and the wording of the particular clauses themselves, and whether they do, clearly and unambiguously, cap
Haden's
liability for particular claims in the way for which they contend. This leads on to the next point of principle.
D3 Exclusion Clauses
"Clear words are necessary before the court will hold that a contract has taken away rights or remedies which one of the parties to it would have had at common law."
The proper approach to the construction of such clauses is, in my judgment, set out clearly by Lord Diplock in Photo Productionv
Securicor Transport [1980] AC 827, at page 850. There he said:
"My Lords, an exclusion clause is one which excludes or modifies an obligation, whether primary, general secondary or anticipatory secondary, that would otherwise arise under the contract by implication of law. Parties are free to agree to whatever exclusion or modification of all types of obligations as they please within the limits that the agreement must retain the legal characteristics of a contract; and must not offend against the equitable rule against penalties; that is to say, it must not impose upon the breaker of a primary obligation a general secondary obligation to pay to the other party a sum of money that is manifestly intended to be in excess of the amount which would fully compensate the other party for the loss sustained by him in consequence of the breach of primary obligation. Since the presumption is that the parties by entering into the contract intended to accept the implied obligations exclusion clauses are to be construed strictly and the degree of strictness appropriate to be applied to their construction may properly depend upon the extent to which they involve departure from the implied obligations. Since the obligations implied by law in a commercial contract are those which, by judicial consensus over the years or by Parliament in passing a statute, have been regarded as obligations which a reasonable businessmen would realise that he was accepting when he entered into a contract of a particular kind, the court'sview
of the reasonableness of any departure from the implied obligations which would be involved in construing the express words of an exclusion clause in one sense that they are capable of bearing rather than another, is a relevant consideration in deciding what meaning the words were intended by the parties to bear. But this does not entitle the court to reject the exclusion clause, however unreasonable the court itself may think it is, if the words are clear and fairly susceptible of one meaning only.
My Lords, the reports are full of cases in which what would appear to bevery
strained constructions have been placed upon exclusion clauses, mainly in what today would be called consumer contracts and contracts of adhesion. As Lord Wilberforce has pointed out, any need for this kind of judicial distortion of the English language has been banished by Parliament's having made these kinds of contracts subject to the Unfair Contract Terms Act 1977. In commercial contracts negotiated between businessmen capable of looking after their own interests and of deciding how risks inherent in the performance of
various
kinds of contract can be most economically borne (generally by insurance), it is, in my
view,
wrong to place a strained construction upon words in an exclusion clause which are clear and fairly susceptible of one meaning only even after due allowance has been made for the presumption in favour of the implied primary and secondary obligations."
This summary of the correct approach to exclusion clauses in commercial contracts also reflects what Lord Diplock himself said in Gilbert Ashv
Modern Engineering [1974] AC 689, at pages 717 and 718.
v
Fagan [1996] 1 Lloyd's Re Insurance Law Reports 135 where, at page 139, he said:
"Courts will never construe words in avacuum.
To a greater or lesser extent, depending on the subject matter, they will wish to be informed of what may
variously
be described as the context, the background, the factual matrix or the mischief. To seek to construe any instrument in ignorance or disregard of the circumstances which give rise to it or the situation in which it is expected to take effect is in my
view
pedantic, sterile and productive of error. But that is not to say that an initial judgment of what an instrument was or should reasonably have been intended to achieve should be permitted to override the clear language of the instrument, since what an author says is usually the surest guide to what he means. To my mind construction is a composite exercise, neither uncompromisingly literal nor unswervingly purposive: the instrument must speak for itself, but it must do so in situ and not be transported to the laboratory for microscopic analysis."
D4 Canons Of Construction Generally
"The canons of construction are no more than pointers to discovering the presumed intention of the parties to a written contract. They are not to be slavishly applied, and where they point in different directions the court must select those which produce a reasonable and just result. "
In similarvein,
Devlin J said in Chandris
v
Isbrandtsen-Moller Co Inc [1951] 1 KB 240: "A rule of construction cannot be more than a guide to enable the court to arrive at the true meaning of the parties."
E THE EXPRESS TERMS OF THE CONTRACT
General Note
Article 3: Contractors Responsibilities
Haden,
to the Owner,
Decoma.
For present purposes, the two most important are at Articles 3.1 and 3.2, as follows:
"3.1 Performance of Work
i. All Work required of the Contractor by this Agreement shall be completed in a timely, efficient and good and workmanlike manner in accordance with the terms and conditions of this Agreement.ii. The Contractor shall take all reasonable steps to perform and co-ordinate the Work with the Owner's facility Contractors.iii. Where in compliance with the requirement for co-ordination with the Owner's facility Contractors, the Contractor is delayed and/or disrupted in carrying out the Work, a Change Order shall be deemed to have been issued under Article 6.
3.2 Design and Construction
The Contractor shall provide everything necessary for the proper execution and completion of the Work. The Contractor shall design and construct the Project in a manner which shall be:
(a) In conformance with the Equipment Performance Specifications;(b) Sufficient, complete and adequate in all respects necessary to enable the Equipment to meet the Equipment Performance Specifications; andc) In conformance with applicable national (including European Union) and local engineering, environmental, construction, safety and electrical codes and standards."
Thereafter Article 3 contained avariety
of further obligations on the part of
Haden
including obligations in respect of the Control Work (Article 3.5) conforming with all Legal Requirements (Article 3.8), Safety precautions and the like (Article 3.12) and the provision of a Guarantee (Article 3.19).
Article 4: Owners' Responsibilities
Decoma's
three principal obligations: payment of the Contract Price (Article 4.1); the provision of access to the facility site at Halewood (Article 4.2); and the furnishing of materials by
Decoma
(Article 4.3). More detailed provisions concerned with precisely how the Contract Price was to be paid were set out in Article 7. Access was defined in Article 4.2 as including:
"… without limitation, the Project Schedule and the Milestone dates set out therein until the earliest of (i) the Final Acceptance Date; (ii) the date upon which this Agreement is terminated in accordance with the terms hereof; or (iii) the date upon which the Contractor shall no longer have any obligations hereunder."
Article 6: Change Orders
Decoma
to order "changes, additions, deletions or revisions" to the contract work scope. If Change Orders were issued, Article 6.1 allowed for the possibility that this would necessitate adjustment to both the Contract Price and the Project Schedule, which was at Annexure J and was the detailed programme for the work.
"…an external event the occurrence of which was by objective assessment beyond the reasonable control of the party relying upon it which makes it impossible or illegal for the party to effect their performance obligations under this Agreement…"
Article 7: Contract Price
"Contract Price The Contractor agrees to design, engineer, construct, install and complete the Project in accordance with the Equipment Performance Specifications, the Specifications and the Project Schedule Final Completion Date for the Contract Price. Payments on account of the Contract Price shall be made by the Owner directly to the Contractor in accordance with the provisions of this Article 7."
"(a) 20% of the Contract Price as Payment upon Execution (see Article 7.2)(b) 25% of the Contract Price upon commencement of mechanical installation
(c) 25% of the Contract Price upon commencement of electrical installation
(d) 15% of the Contract Price upon Completion of Installation
(e) 10% of the Contract Price upon Completion of Commissioning
(f) 5% of the Contract Price upon Final Acceptance Date Certification"
The Relevant Sections of Article 1: Definition of Completion Stages
various
stages towards the end of the Work. I have called these completion stages. It is important to see how those completion stages were defined in Article 1.
"…the date upon which substantially all of the Equipment is fastened in place in accordance with the Specifications such that it is capable of commencing initial start up and debugging and the running of all motors and pumps…"
"…the transition of a static installation to a dynamic installation, which shall demonstrate that the installed equipment functions in accordance with the Specification, and is in a state of readiness to commence the Equipment Performance Tests."
The Equipment Performance Tests were themselves defined by Article 1.10 as:
"…the equipment performance tests to be conducted jointly by the Owner and the Contractor for purposes of assessing the Equipment's performance relative to the Equipment Performance Specifications in accordance with Article 10.2 hereof forming part of the Equipment Performance Specification and as specially detailed within Annexure B, Section 3 to this Agreement"
"…the date upon which (i) the Final Acceptance Test has been successfully completed to the reasonable satisfaction of the Owner, (ii) all Punch List items, that would prevent the Owner from operating the facility to the performance parameters expressly ascertainable by referent to the Equipment Performance Specification (Annexure A) and the Specification (Annexure B) have been completed to the reasonable satisfaction of the Owner; and (iii) legal and beneficial title to the Equipment has passed to the Owner and Final Acceptance shall be construed accordingly. Final Acceptance Date Certification shall be evidenced with the completion of the proforma contained within Annexure K. The date thereof shall constitute the actual final completion date achieved by the Contractor."
"…the painting of a minimum of one complete production shift of parts by the Equipment under production conditions in accordance with the Equipment Performance Specifications (Annexure A)."
Also of relevance to Final Acceptance were the production of Punch Lists, defined in Article 1.22 as:
"…the list of incomplete items made on or about the Substantial Completion Date jointly by the Contractor and the Owner, indicating items to be completed, or Work to be performed by the Contractor considered to be required in order to complete or correct the Work in accordance with, and expressly ascertainable by reference [to] the Equipment Performance Specification and the Specification on or before the Final Completion Date, which would prevent the Owner from safely operating or having the ability to service the Turnkey Paint Waterborne Finishing Line in the future."
Article 10: Performance Testing
"the Contractor shall successfully complete Equipment Performance Tests demonstrating the operation of the Equipment in accordance with the Equipment Performance Specifications, to the reasonable satisfaction of the Owner."
"The Contractor shall successfully complete the Final Acceptance Tests to the reasonable satisfaction of the Owner on or before the Final Completion Date."
"If the Equipment Performance Tests or the Final Acceptance Tests, as applicable, do not, in the opinion of the Owner, acting reasonably and notvexatiously,
yield results which meet the Equipment Performance Specifications or the Final Acceptance Test criteria, as applicable then, subject to the Parties express rights and remedies provided for herein and the provisions of Article 10.5 hereof, the Contractor shall continue to use its best efforts to repair, redesign and modify the Equipment at its sole cost and expense and shall perform additional Equipment Performance Tests until such time as the Equipment meets the Equipment Performance Specifications or Final Acceptance Test Criteria as applicable."
Haden
and
Decoma
as to whether or not the Equipment was meeting the relevant Specifications or had failed to pass the Final Acceptance Tests. In such an event, if the dispute could not be resolved, 'an independent testing report' was obtained from a 'mutually-acceptable neutral independent suitably qualified engineer…' Article 10.5 went on to provide that:
"In the absence of manifest error, the determination of the Engineer shall be final and binding upon the Parties. If the Engineer confirms the initial determination of the Owner, then the Contractor shall proceed to remedy such situation in accordance with the provisions of Article 10.4 hereof."
Article 11: Warranty
"11.1 Contractor's Warrantiesi) The Contractor expressly warrants that all the Materials, Equipment and Work covered by the Contract Documents shall be new (unless otherwise required or permitted by the Contract Documents), of good and merchantable quality, free from defects in design, materials, workmanship and title and fit for the purpose intended by the Owner, which purpose has been communicated to the Contractor and that the Equipment, Materials and Work conform in every respect to the Specifications.ii) The Contractor further represents and warrants to the Owner that, upon Final Completion Date, the Material and Equipment will comply with all applicable Legal Requirements and the Equipment will operate in accordance with the Equipment Performance Specifications.
iii) In addition, upon the expiry of the warranty period more particularly defined within Article 11.2, the Contractor shall assign to the Owner the full benefit of all warranties given to the Contractor by Suppliers which are still
valid.
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11.2 Limitation of Warranty
All warranties shall terminate on the later of (i) Two (2) years for running components after the Final Acceptance Date and three (3) years for design and non running components after the Final Acceptance Date; or (ii) with respect to Supplier warranties, any longer period provided for therein; or (iii) if, subsequent to the Final Acceptance Date, the Equipment is not capable of being used for production purposes by reason of a breach of any of the foregoing warranties, then, in such event, the term of any then applicable warranty shall be extended by the period of any such disruption ascertainable by reference to the provisions of the 'Ultimate Guarantee' contained with Annexure Q.
11.3 Breach of Warranty
In the event of an alleged breach of any of the foregoing warranties by the Contractor, the Contractor shall following notification from the Owner ensure that a Contractor's representative attends site within a maximum period of 12 hours. The Contractor's representative shall immediately commence analysis and as soon as practical identify the cause of the problem. Thereafter, the Contractor's representative shall supply a written plan to correct the breach. The Owner and Contractor shall confer as to the most expeditious programme for rectification and an appropriate course of action shall be mutually agreed.
If the Contractor fails to (a) identify the cause of the problem and/or (b) take action to rectify the default and/or [c] agree the most expeditious and appropriate programme for rectification within, in respect of any or all sub clauses (a) (b) and [c] above, 48 hours from the alleged breach, then the Owner may, without limiting any other rights or remedies it may have hereunder or at law or in equity, but shall not be obligated to, correct or cause to be corrected such default and in such event the Contractor shall be liable for all demonstrable and reasonable direct costs, charges and expenses incurred in remedying the defect by or on behalf of the Owner if due to a breach of the warranty.
The Contractor shall forthwith pay to the Owner the full amount of such direct costs, charges and expenses upon receipt of invoices for same from the Owner.
Nothing provided for herein, with the express exception of allowing the Contractor to respond within the aforementioned maximum time frame, shall prevent or restrict the Owner from taking such immediate reasonable action as it deems necessary to mitigate any damage or potential loss which may result from such breach but such exception shall not apply where immediate reasonable action is required prior to the expiry of the aforementioned maximum time frame in circumstances where the Owner reasonably believes such action is required to prevent injury to persons, breach of law or physical damage to the Works and/or other Property.
11.4 Upon expiry of any warranty under Article 11.2, a Completion of Warranty Certificate shall be issued in respect of the relevant warranty but such certification shall be without prejudice to any other extent, unexpired or continuing warranties under Article 11.2."
Article 12: Completion Guarantees
Haden's
'Final Completion Guarantee'. Pursuant to that Article,
Haden
guaranteed to
Decoma
that:
"… subject to any Change Order (the issue of which shall not unreasonably orvexatiously
be withheld by the Owner) or any event of Force Majeure, the Final Acceptance Date will occur on or before the Final Completion Date. Failure in this respect shall entitle the Owner to Liquidated and Ascertained damages as set forth in Article 12.3".
Haden
failed to achieve the Final Completion Date and ascended on a rising scale to a maximum amount of "5% of the Contract Price". The deduction and payment of liquidated damages was said to be:
"… In full satisfaction and accord of the Contractor's liability to achieve Final Acceptance by the Final Completion Date. Both parties are agreed that the aforementioned rates are a genuine pre-estimate of loss".
"Without prejudice to the Owner's rights to recover losses under this Agreement other than those stipulated in this Article, both Parties are agreed pursuant to Article 12.4 thatsubject to the following "trigger mechanism" and "formulae for maximum aggregate liability" later herein defined,
losses stipulated expressly in this clause 12.3A shall expressly only be recoverable under this Agreement upon the Contractor's successful achievement of Final Acceptance Date Certification as defined in Article 1.14.
If a period of 24 hours elapses following notification by the Owner pursuant to Article 11.3 without the Equipment being capable of use whether partially or wholly for production purposes by reason of a demonstrable breach of any of the foregoing warranties contained with Article 11.1, then
the Owner shall be entitled to recover loss or deferment of anticipated or actual profit, loss of revenue, loss of use, loss of production, loss of efficiency, or operating materials, business interruption or similar damage or for consequential or indirect losses that reasonably and demonstrably arise as a result of such breach ("trigger mechanism"). "
"Such deductions or payments under this Article up to the maximum aggregate amount shall be in full satisfaction and accord of the Contractor's liability for the losses stipulated expressly in Article 12.3A".
First Part
"Except fori) the Contractor's obligations with respect to the payment of liquidated damages set forth in Article 12.3,
ii) the Contractor's obligations in respect of the payment of Post Final Acceptance Date losses stipulated in Article 12.3A,
iii) or the provisions in respect of the Owner's termination of the Contractor's employment contained within Articles 14.3 and 14.6 respectively,
iv) the Contractor's obligations in respect of payments and/or damages due to the Owner under the warranty provisions set forth in Article 11.3 and
v)
the indemnities expressly contained under Articles 15.1 – 15.3 inclusive,
neither the Contractor or the Owner shall be liable one to the other for any loss or deferment of anticipated or actual profit, loss of revenue, loss of use, loss of production, loss of efficiency, or operating materials, business interruption or similar damage or for consequential or indirect losses arising from or arising out of or in connection with the Project or the performance thereof or any act or omission relating thereto howsoever caused whether in contract, tort or otherwise at law."
Second Part
"Further, damages for any breach of this Agreement by the Contractor prior to Final Acceptance Certification, shall expressly not exceed, in aggregate to any payments that shall become payable under Article 12.3, the maximum amount of 5% of the Contract Price other than in respect of damages due to breach of Article 8 where no such limit shall apply and such liability or payment shall be in full satisfaction and accord of the Contractor's liability for the said failure subject to the provisions in respect of the Owner's termination of the Contractor's employment contained within Articles 14.3 and 14.6 and the indemnities expressly contained under Articles 15.1 – 15.3".
Third Part
"Damages as stipulated in Article 12.3A shall expressly not exceed, in aggregate the maximum amount set forth in Article 12.3A and such liability or payment shall be in full satisfaction and accord of the Contractor's liability for those losses set forth in Article 12.3A in respect of the said failure subject to the provisions in respect of the Indemnities expressly contained under Articles 15.1 – 15.3".
Fourth Part
"Any exclusion or limitation of liability under this Agreement shall exclude or limit such liability in contract, tort, or otherwise".
Article 14: Default and Termination
"Termination for a Party's Failure to Perform if a Party refuses or fails to perform any of its obligations under this Agreement, the other Party shall give the defaulting party written notice of such default. If the defaulting party fails to remedy any such default to the reasonable satisfaction of the other party within 28 days of receipt of such notice, then the other party may terminate this Agreement immediately upon delivery of written notice to the defaulting party giving its reason for termination, in which event the Contractor shall cease Work on the Project andvacate
the Facility forthwith. Payment shall be in accordance with Article 14.3".
Decoma
terminated the Contract pursuant to Article 14.1 or 14.2, Article 14.3 provided that:
"The Contractor shall receive payment for all work executed up to the date of the notice of termination in the amounts and on the milestone payment dates set forth in Articles 7.4, plus the actual cost of Equipment within the Working Areas which have not been paid for within the milestone payments, plus (at the Owner's discretionary option to secure the benefit of the same) other actual costs reasonably incurred in expectation of completing the Project where the benefit of contracts entered into with sub contractors and suppliers can be assigned to the Owner, less a deduction of the total extra over expense (hereafter "Extra Over Expense") reasonably incurred and accrued in completing the Work including, without limitation, additional overhead and legal expenses reasonably incurred and accrued by the Owner to effect such take-over and to complete the Work. In the event that the Owner's Extra Over Expense exceeds the amount payable to the Contractor then such excess shall be deemed a debt due by the Contractor to the Owner and shall become recoverable accordingly and become payable within 10 Business Days of demand by the Owner. The non-defaulting party shall use all reasonable endeavours to mitigate their losses on such termination".
Article 15: Indemnities
"The Contractor shall indemnify and hold harmless the Owner and Owner's, directors, employees, related parties and affiliates (collectively the 'Indemnified Parties') against all costs, losses and damages that the Contractor or any Sub Contractors may cause the Indemnified Parities, or any one or more of them, in the performance of any of the Contractor's obligations under this Agreement relating to the Project specifically and exclusively in respect of:i) the failure to comply with all rules and regulations governing security, maintenance and safety at the Facility;
ii) any claim by any tier of Sub Contractor or employee of the Sub Contractor or his sub contractor of any tier for injury or compensation;
iii) any claim resulting from contractors' or sub contractors' failure to maintain workers compensation or other public or private insurance;
iv) any failure of the Contractor or sub contractors to comply fully with all Legal Requirements including environmental laws;
v)
any breach of the Contractors' obligations regarding confidential information or breach of the Contractors' warranties or agreements; or
vi)
any liens, charges or encumbrance imposed on the Equipment or on the Facility.
The Owner agrees to indemnify and save the Contractor harmless of and from any and all losses as defined herein resulting from the breach of the Owner's obligations hereunder.
The Contractor hereby waives any statutory and/or constitutional immunity to which but for this waiver it might be entitled;
i) As an employer in compliance with any workers' compensation law; orii) Under any other employee benefit statutes or similar laws.
The Indemnities provided for herein shall not:
a) Be construed so as to indemnify any party for its own negligence and/orb) Override any limitations expressly provided for under Article 12.4".
Article 16: Miscellaneous Provisions
various
miscellaneous provisions. Mr Sears QC properly drew attention to Article16.3 which provided:
"Captions. The captions contained in this Agreement are for convenience and reference only and in no way define, describe, extend or limit the scope or intent of this Agreement or the intent of any provision contained herein"
F HOW THE CONTRACT OPERATED
F1. General Points
Haden,
who depicted the Contract as a more-or-less coherent whole, and who endeavoured to show that the terms purportedly limiting
Haden's
liability in certain circumstances were part of a contractual scheme of overall allocation of risk between the parties. Mr Sears QC, perhaps for understandable reasons, concentrated more on the alleged lacunae and uncertainties in the Contract wording, to make good his primary argument that the Articles particularly relied on by
Haden
fell short of having the clear effect for which they contended. This meant that
Haden
were often concentrating on what the Contract terms did or were trying to do, whilst
Decoma
focussed more on what they said those terms failed to achieve.
F2. The Importance Of Pre- And Post-Final Acceptance
Haden
spray-painting system. This basic proposition was at the heart of many of Mr Taverner QC's submissions, and it was accepted by Mr Sears QC: see paragraph 51(b)(i) of his first skeleton argument. It is beyond doubt that this difference was inherent in the Contract Articles. This differentiation can be seen particularly in Articles 12.3A and 12.4. For example, the former said expressly that loss of profit/loss of use claims "shall expressly only be recoverable under this Agreement upon the Contractor's successful achievement of Final Acceptance Date Certification", whilst the latter imposed a cap on "damages for any breach of this Agreement by the Contractor prior to Final Acceptance Certification". It is therefore sensible to consider first the contractual provisions that relate to the parties' rights and liabilities before Final Acceptance, and then go on to consider the provisions relating to the position after Final Acceptance. I have, of course, concentrated on the former since, on the basis of the Assumed Facts, Final Acceptance was never achieved.
F3. Pre-Final Acceptance: General Rights, Obligations and Claims
Haden
would have been working on the design, construction and installation of the paint-spraying system at the Halewood facility. At that stage, therefore,
Decoma's
principal contractual rights were:
a) To have a paint-spraying system that was passing successfully through thevarious
completion stages, such as the completion of installation, the completion of commissioning, and the completion of the Equipment Performance Tests, so that ultimately, the system would pass the Final Acceptance Test;
b) To have a paint-spraying system that achieved Final Acceptance on or before 14 March 2000, or any later extended Final Completion Date.
Haden
were required, principally by reference to Articles 3.1 and 3.2, to fulfil those two obligations to
Decoma.
In addition, of course,
Haden
had other, more specific, obligations to fulfil as the work was being carried out, such as to control the work properly (Article 3.5) and to take reasonable safety precautions (Article 3.12).
Haden
failed to meet their primary obligations in the period prior to Final Acceptance? What claims would
Decoma
want or be likely to make in such circumstances? It is clear that
Decoma's
principal (if not only) claim in those circumstances would be a claim for liquidated damages under Article 12.3, as a consequence of
Haden's
delay in completing the system to the contractual standard. If
Haden
failed to perform in accordance with the
various
Specifications, completion of the paint-spraying system would be delayed beyond the Final Completion Date, and
Decoma
would be deprived of its use, and therefore the opportunity to make a profit out of it. In such circumstances the parties had agreed that liquidated and ascertained damages would be payable by
Haden
in consequence of that breach of contract, by reference to Article 12.3. They had also agreed that such a claim would be capped at 5% of the Contract Price.
Haden
in achieving the
various
completion stages would mean that, pursuant to Article 7.4,
Haden
would not be entitled to the respective Milestone Payments set out at (d), (e) and (f) of that Article. Thus, for instance, delays to substantial completion would have allowed
Decoma
to retain a total of 30% of the Contract Price, and even after that was achieved, 15% of the Contract Price remained with
Decoma
until the completion of commissioning, when a further 10% would be paid to
Haden.
The amount payable by
Decoma
once Final Acceptance was achieved was the final 5% of the Contract Price.
Decoma's
position would have been protected by the express terms of the Contract set out above. Of course, the delays might have been so extensive that
Decoma's
claims for loss of profit/ loss of use were greater than the liquidated damages capped at a maximum of 5% of the Contract Price. However, that possibility was plainly in the contemplation of the parties at the time that they agreed to the terms of Article 12.3: indeed, it is inevitable that, where any contractual claim is capped by agreement, circumstances might arise where the actual loss exceeds the cap. I agree with Mr Taverner QC's submission that this cap was simply part of the general allocation of commercial risk between the parties.
Haden
to comply with the
various
technical requirements, set out in the Annexures to the Contract. In the first instance, of course,
Haden
had to strive to comply with the quality requirements in the Contract, and that obligation was ongoing: see Article 10.4. But if the problem persisted, or if there were a dispute as to whether or not
Haden
were complying with the Contract terms, then
Decoma
had two options.
Decoma,
but I do not accept that this was because, as he suggested, there were obvious limits on the financial recovery possible under Article 14.3. Moreover, given that determination under Article 14.2 only required one warning Notice of Default, the determination procedure was relatively straightforward and could easily be utilised if the delay in achieving Final Acceptance was protracted. The ability to terminate was, on any
view,
an important part of
Decoma's
contractual armoury. In addition, if there was the risk of a possible financial shortfall under Article 14.3, that risk would have had to have been compared to any shortfall arising out of the cap on liquidated damages in Article 12.3, so that
Decoma
could make an informed decision as to whether or not the termination option should be utilised.
Decoma
had a less drastic remedy available to them pursuant to Article 10.5. Having identified the particular dispute with
Haden
in respect of the latter's failure to perform, they were expressly empowered to appoint a neutral engineer to carry out an independent Equipment Performance Test to
verify
the
validity
of their complaints. Pursuant to the express provisions of Article 10.5, his determination would be final and binding. For all these reasons, therefore, it seems to me that, if
Haden
were in breach of their obligations in the period before Final Acceptance, there were a
variety
of ways, under this Contract, in which
Decoma
were entitled to protect their position and recover at least some of their likely losses.
F.4 Pre-Final Acceptance: Contractual Remedies Available To Dacoma
a) Article 12.3
Decoma's
claims would principally have been for liquidated damages pursuant to the express terms of Article 12.3, arising from
Haden's
breach of the Final Completion Guarantee at Article 12.2. This entitlement was an exclusive remedy for all claims arising out of
Decoma's
inability to use, and make a profit out of, the paint-spraying system due to
Haden's
delay in completing it to the required standard. I should add that I do not accept the argument that this entitlement could somehow only be ascertained after Final Acceptance: there is nothing in Article 12.3 that supports such an unusual interpretation. It follows, therefore, that there could be no separate entitlement on the part of
Decoma,
prior to Final Acceptance, to make a claim for lost profit and the like as a result of being deprived of their use of the paint-spraying system, in addition to their right to liquidated damages. The liquidated damages would be
Decoma's
sole remedy in such a situation.
b) Article 3.1 and 3.2
Decoma
would want or need to make a claim for non-delay damages, prior to Final Acceptance, for breach of the workmanship and materials obligations within Article 3.1 and 3.2, it is clear that they could do so. There is no temporal limit on the claims that could be made for breach of these Articles: it seems to me, therefore, that such claims could be made either before, or after, Final Acceptance. Mr Taverner QC attempted to differentiate between the wording at Article 3.1, and Article 3.2, and argued that 3.1 only took effect on completion. I do not accept that differentiation. It seems to me that these two Articles were intended to relate generally to the entirety of
Haden's
contractual obligations, both during the design/construction/installation process and once that process was completed. Therefore I find that, in addition to claims for liquidated damages for delay, Articles 3.1 and 3.2 were available to
Decoma
to found claims, if any, for non-delay breaches of contract in the period prior to Final Acceptance. It is unsurprising, therefore, that that is one of the ways in which
Decoma
put their claims in the present proceedings.
c) Article 11.1
Decoma
could also rely on, and make claims for breach of, the warranties in Article 11.1. Mr Sears QC submitted that they could, taking the point that there was nothing on the face of Article 11.1 which said in terms that the warranties set out there did not come into effect until after Final Acceptance. Mr Taverner QC contended that the warranties in Article 11.1 only took effect once Final Acceptance had been achieved. I have come to the conclusion that Mr Taverner QC's analysis is to be preferred. There are six separate reasons for this.
Decoma
could have made a claim for breach of warranty against
Haden
when that which was being warranted was still being designed, constructed and installed. Furthermore, such a claim would have been entirely pointless, given that
Haden
would have been continuing with the work in any event, and endeavouring to ensure that the paint-spraying system did, on Final Acceptance, meet the contractual requirements. Thus, it is not a sensible or commercial interpretation of the Contract to conclude that the warranties were actionable before the system was even finished. This
view
is strengthened by the fact that, for the reasons set out above, any loss to
Decoma
in not having a system that complied with the Contract prior to Final Acceptance would have been due to, in Mr Sears QC's words, "a failure to achieve a state of affairs by a given date", for which they would have been compensated by the payment of liquidated damages. Article 11.1 was, of course, irrelevant to that entitlement and was, in my judgment, designed to provide a
vehicle
for defects claims after Final Acceptance.
very
unsatisfactory construction of the Contact, and most unlikely to have been what the parties intended, to say that the Materials and Equipment warranty under Article 11.1(ii) did not commence until Completion, but that the warranty in respect of 'Work' (which appears to be the only part of the warranty at Article11.1(i) which is not then duplicated in Article11.1(ii)) started at some unspecified date during the progress of the Contract works on site. In any event, it is in my judgment beyond argument that the crucial warranty in respect of Materials and Equipment did not commence until actual completion of the Contract, because the Materials and Equipment warranty appears in both Articles11.1(i) and 11.1 (ii), and whilst the former is silent as to commencement, the latter provides a clear starting date to which I must give effect.
variety
of reasons. It would not have been at all likely that the parties, having agreed to give the warranty at Article 11.1(ii) a start date, would have plumped for a random date that bore no relation to the actual state of completion of the Equipment and Materials. Therefore I agree with the proposition that this can only be a reference to Final Acceptance (i.e. actual completion), not Final (i.e. intended) Completion. Therefore, given that the point was expressly raised by Mr Sears QC in reply, I confirm that the test as to modifications by the court outlined in East
v
Pantiles (Plant Hire) Limited (Court of Appeal, 15.12.81, unreported) is satisfied. Of course, in one sense, this point is of academic interest in the present dispute, given that, on the Assumed Facts, neither the contractual nor the actual completion date has yet been achieved.
view,
the consequences of a breach of Article 11.1 are expressly dealt with in Article 11.3, a
view
on which I expand at paragraphs 74-77 below. Article 11.3 required a representative of
Haden,
on receipt of a Notice from
Decoma,
to attend site within 12 hours. Such a right pre-supposed that
Haden
would not already be on site.
Haden
would obviously have been on site prior to Final Acceptance because they would have still been completing the Contract work. They would not have been on site after Final Acceptance, and would therefore have had to send someone to Halewood to inspect: hence the 12 hour response period. That is another reason why, so it seems to me, Article 11.1 was designed to cover the position post-Final Acceptance, when
Haden
would no longer have been on site.
Decoma
cannot utilise Article 11.1 to make a claim for breach of warranty in respect of the period prior to Final Acceptance. Given that
Decoma
accept that they can make identical claims for breach of Articles 3.1 and 3.2, it may be thought that this finding is of little consequence.
Haden
must not be permitted to take advantage of their own wrong and that they should not be allowed to argue that Article 11.1 does not apply pre-Final Acceptance, when the only reason that Final Acceptance did not happen was, on the Assumed Facts, due to
Haden's
default. There are in my judgement two immediate answers to that point which I set out below. I deal more broadly with the issues raised by
Decoma's
submission that
Haden
have taken advantage of their own wrong in Section F8 of this Judgment below.
Haden
in contending that the warranties at Article 11.1 do not apply pre-Final Acceptance, given their concession that precisely the same claims can be made pursuant to Articles 3.1 and 3.2. Further, as I explain below, any limits on the damages recoverable and the sorts of claim that can be made for breach of Articles 3.1 and 3.2 are equally applicable to any claim for damages for breach of Article 11.1: see paragraphs 103-105 below.
d) Article 11.3
i) Does Article 11.3 apply only to breaches of Article 11.1 or does it also apply to breaches of Articles 3.1 and 3.2?ii) If there is a breach of Article 11.1, does
Decoma
have a choice as to whether or not to operate Article 11.3?
ii) If Dacoma choose to operate Article 11.3, is a Notice from Dacoma to
Haden
required?
iv) What happens following the Notice?
v)
Can
Decoma
recover under Article 11.3 if they have decided not to carry out any remedial work?
vi)
Can
Decoma
recover under Article 11.3 if they have decided to carry out the remedial work but they have not yet put that work in hand?
vii)
What are "direct costs, charges and expenses incurred in remedying the defects"?
I deal with each of these disputes in turn.
i) Does Article 11.3 apply only to breaches of Article 11.1 or does it also apply to breaches of Article 3.1 and 3.2?
Decoma's
pleaded case, the only other Articles on which they are relying as giving rise to a substantive claim for damages for breach of contract, are Articles 3.1 and 3.2. Accordingly the real issue on this point is
very
specific: Can the words 'foregoing warranties' in Article 11.3 cover breaches of Articles 3.1 and 3.2? The answer to that is plainly in the negative. Articles 3.1 and 3.2 are not expressed as warranties. No fair reading of this Contract could alert the reader to the idea that the reference to 'foregoing warranties' in Article 11.3 included the
various
obligations owed by
Haden
to
Decoma
under Articles 3.1 and 3.2, which are not even said to be warranties at all.
Haden,
particularly Articles 3.1 and 3.2'. I do not believe, for the reasons which I have given, that the words are capable of such an interpretation. It is just not what they say. For all these reasons, therefore, I find that Article 11.3 is essentially parasitic upon Article 11.1, and can only be triggered by a breach of Article 11.1. In consequence, Article 11.3 provides a remedy which is only available to
Decoma
following Final Acceptance. Such a finding is consistent with Article 11 as a separate and stand-alone remedy available to
Decoma
as an alternative to claims for damages for breach of Articles 3.1 ad 3.2.
Decoma
in these proceedings.
(2) If there is a breach of Article 11.1, does
Decoma
have a choice as to whether or not to operate Article 11.3?
Decoma
could choose whether or not to utilise the Article 11.3 remedy. However, by the end of the hearing, it seemed that the parties were agreed that
Decoma
did indeed have the right to choose whether to utilise Article 11.3 or not. Certainly it seems to me clear that
Decoma
could indeed make this choice. Either they could bring a defects claim for damages based on the breach of Articles 3.1 and 3.2 (which applied either before or after Final Acceptance) or make an identical claim for damages for breach of Article 11.1 (which would only be available after Final Acceptance); alternatively, after Final Acceptance, they could operate Article 11.3 as a means of getting
Haden
back to the Halewood facility to carry out the necessary remedial work as quickly as possible. In this respect, it seems to me that the Article 11.3 procedure was at least similar to the Defects Liability Period, and the attendant procedure for the notification of defects, provided by most standard forms of building and engineering contracts. It was simply an option open to the Employers; they did not have to exercise that contractual option if they did not want to. But, as set out below, if they did, they had to then follow the procedure set out in the Contract if they wanted to avail themselves of the benefit that it provided.
(3) IfDecoma
chose to operate the Article 11.3 procedure, was a Notice required?
Decoma
chose to avail themselves of their rights under Article 11.3, they were not obliged to provide
Haden
with a Notice under Article 11.3, and that, effectively, the Article created substantive rights in favour of
Decoma
in any event. I do not accept that submission. The whole purpose of Article 11.3 was to get
Haden
back to inspect the defect within 12 hours and to propose a plan for remedial action. That simply could not happen if
Haden
had not been notified of the defect in question. The notification by
Decoma
to
Haden
was a fundamental part of the Article 11.3 procedure: indeed, the procedure could not work without it. Of course, as previously noted,
Decoma
did not have to notify
Haden
of the defect because they did not have to utilise Article 11.3 at all. Taking the example provided by Mr Sears QC,
Decoma
might decide that they could not wait even for the 12 hour period, and they might decide to carry out their own remedial scheme immediately. There was nothing to stop them doing that, and then claiming the costs of that remedial scheme as damages for breach of Articles 3.1 and 3.2 or, if it was after Final Acceptance, Article 11.1. What they could not do was to decide not to notify
Haden,
carry out their own scheme (with which
Haden
might profoundly disagree) and then somehow jump back into the Article 11.3 remedy at a later stage in the procedure. That was not what Article 11.3 provided. That is not a justifiable reading of Article 11.3 or the Contract as a whole.
Decoma
to
Haden.
To take the most obvious example:
Haden
were required to attend site "within a maximum period of 12 hours". When did that 12 hour period start? The only possible answer is that it started when the Notice was received by
Haden.
As we shall see later, a claim for loss of use/loss of production pursuant to Article 12.3A also required the Notice under Article 11.3, because a claim was only possible under Article 12.3A if the Equipment was not capable of being used 24 hours after the Notice. Accordingly, I reject Mr Sears QC's submission that the argument that a Notice was a condition precedent to the working of Article 11.3 was "a commercial nonsense…..[such a condition precedent] is quite unreasonable". On the contrary, it seems to me clear beyond doubt that, in order to trigger the Article 11.3 procedure, a Notice from
Decoma
to
Haden
was required, in order to allow the parties to try and reach agreement on the remedial works carried out by
Haden.
Thus, to that extent, I am entirely satisfied that, in accordance with the principle outlined by Lord Reid in Schuler
v
Wickman Machine Tools [1974] AC 235, this construction of Article 11.3, and the mandatory requirement of a Notice, leads to an entirely reasonable result.
Haden
were made aware that there was a defect which required their representative to go, within 12 hours, to the Halewood facility for inspection purposes.
(4) What happens following the Notice?
Haden,
their representative was obliged to get to the Halewood Facility within 12 hours. Thereafter, one of three things was going to happen. First, following the provision by
Haden
of "a written plan to correct the breach", the parties could agree on an appropriate course of action and
Haden
could carry out the agreed remedial work.
Haden,
within 48 hours, either to identify the cause of the problem, or to take action to rectify the default, or to agree the most expeditious and appropriate programme for rectification. Those are all anticipated by Article 11.3. If any one of those three 'failures' occurred,
Decoma
had the option of carrying out, or causing others to carry out, the appropriate remedial work themselves, and were then able to charge
Haden
for "all demonstrable and reasonable direct costs charges and expenses incurred in remedying the defect".
Haden
in one of the three ways identified above, it was open to
Decoma
to decide not to carry out any remedial work. A separate dispute then arises between the parties as to what, if anything,
Decoma
could recover under Article 11.3 in such circumstances.
(4) CanDecoma
recover under Article 11.3 if they have decided not to carry out any remedial work?
Decoma
cannot recover monies under Article 11.3 if, following Notice to
Haden
and a subsequent 'failure' by
Haden
as described above,
Decoma
then decided not to "correct or cause to be corrected" the defect in question. That is because
Haden's
liability to pay is triggered by the words "in such event", and that "event" must mean the decision to correct the defect or pay others so to do. It does not seem to me that the Article could be operated in any other way. However, two points arise which lessen the effect of this interpretation of Article 11.3 on
Decoma.
Decoma
were not obliged to correct the defect in question. Having given the requisite Notice and considered their remedial options,
Decoma
might, for instance, have decided to live with the defect and instead make a claim for loss of use or loss of production as a consequence of the unremedied defect. Such a claim would prima facie be recoverable after Final Acceptance pursuant to Article 12.3A, subject to the express provisions of that Article. Such a claim would not be recoverable under Article 11.3 in any event, because it would not be for the direct costs of rectification. Accordingly a claim for loss of use could not be made under Article 11.3 in any event.
Decoma
could show that they complied with the Article 11.3 procedure and had decided that a particular defect should be corrected, but for other reasons, such as mitigation or cash-flow difficulties and the like, they had not yet put that work in hand, the fact that the work had not actually been done would not be fatal to their claim under Article 11.3.
(6) CanDecoma
recover under Article 11.3 if they have decided to carry out the remedial work but have not yet put it in hand?
Decoma
must not only decide to carry out the remedial work but must have actually completed it before a claim could arise. I reject that submission. Clear words would be needed to displace the usual rule that, where a Defendant is in breach of contract, a Claimant can recover the reasonable estimated costs to be incurred on a remedial scheme to be carried out in the future, as well as the reasonable costs that have been incurred on a scheme already carried out. No such clear words are set out in Article 11.3. There is nothing to preclude
Decoma
from making a claim under Article 11.3 if they had decided remedial work was required but had not actually carried out such work by the time
Haden's
liability came to be determined.
Decoma
had decided to carry out remedial work, but had not done so at the time that
Haden's
liability came to be determined,
Haden
would still be liable for the estimated costs involved, subject always to the stipulation that such costs had to be "reasonable".
(7) What are "direct costs, charges and expenses incurred in remedying the defects"?
v
Richardson, Westgarth Co [1940] 2 KB 99 103 where he said:
"What does one mean by 'direct damage'? Direct damage is that which flows naturally from the breach without other intervening cause and independently of special circumstances, while indirect damage does not so flow".
Decoma,
in carrying out, or getting others to carry out, the appropriate rectification works. Such costs, charges or expenses would not, for instance, include any costs incurred before the remedial work was carried out, and would not include any costs incurred after the remedial work had been completed. It would not include losses incurred as a consequence of the carrying out of the rectification work. The words clearly limit the costs recoverable to the costs of the rectification works themselves.
"… if a period of 24 hours elapses following notification by the owner pursuant to Article 11.3 without the company equipment being capable of use whether partially or wholly for production purposes by reason of a demonstrable breach of any of the foregoing warranties contained within Article 11.1 then the owner shall be entitled to recover …".
I therefore accept Mr Taverner's QC's submission that Article 12.3A is, in this sense, a sister clause to Article 11.3, with the latter allowing a claim for the direct cost of rectification work, and the former permitting a claim for loss of profit / loss of use, but with both claims being entirely dependant on the same trigger, namely the Notice from
Decoma
to
Haden
under Article 11.3.
view
that the costs recoverable under Article 11.3 are intended to be limited to the direct costs of rectification work whilst any indirect losses - the claims for loss of profit/loss of use and the like - are recoverable under Article 12.3A. As we shall see later, the reason why the express right to make a claim for loss of profit/loss of use under Article 12.3A was a distinct and definite benefit to
Decoma
was because, pursuant to Article 12.4, there was a blanket exclusion of all such claims, subject to one or two exceptions, including Article 12.3A. This, therefore, explains the secondary purpose of Article 11.3 and the Notice given thereunder: although the financial entitlement by reference to Article 11.3 itself generally duplicated the likely entitlement to damages for breach of Articles 3.1 and 3.2 (and, after Final Acceptance, breach of Article 11.1 too),
Decoma's
utilisation of the Article 11.3 procedure opened the door to a claim for loss of profit/loss of use, which would otherwise have been closed.
F5 Pre- Final Acceptance: Limits onDecoma's
Claims
(a) Primary Position
Decoma
can make the following claims.
(1) A claim for liquidated damages under Article 12.3.
(2) A claim for non-delay damages (if any could be demonstrated) for breach of Articles 3.1 and 3.2.
Haden
could not be liable for liquidated damages in an amount greater than 5% of the Contract Price. I do not understand Mr Sears QC to contend that any claim for liquidated damages was not so limited. As noted above, the claim for liquidated damages made by
Decoma
in these proceedings is capped at £436,939.95 in paragraph 42 of the Particulars of Claim, and is the one claim not the subject of these Preliminary Issues.
Decoma's
argument that the cap in the second part of Article 12.4 should not be enforced.
Decoma
in any event. As I have already pointed out, this makes complete sense in any event, since a separate claim for loss of profit/ loss of use would not be permitted before Final Acceptance because of the exclusive remedy provided by the liquidated damages provisions.
(b) Secondary Position
Decoma
to make an additional claim against
Haden
for damages for breach of the warranties at Article 11.1, in addition to those at 3.1 and 3.2.
Decoma's
claims set out at paragraphs 99-101 above. In other words (subject to the analysis at paragraph 111 below), any pre-Final Acceptance claim for damages for breach of Article 11.1 would be caught by the cap in the second part of Article 12.4, of 5% of the Contract Price. In addition, on the Assumed Facts, any claim for loss of profit/ loss of use would be excluded by the clear operation of Article12.3A, which only allows such claims after Final Acceptance, for the good reasons set out above. Furthermore, such a claim would in any event have been excluded by the first part of Article 12.4 which excludes all claims for loss of profit, save for those expressly excepted. A claim for damages for breach of Article 11.1 is not one of the exceptions.
Decoma
could make a claim for damages for breach of Article 11.1 in these proceedings, that claim would add nothing to their existing claims for damages for breach of Articles 3.1 and 3.2. In particular, such a claim would be subject to precisely the same limitations and exclusions as the claims for breach of Articles 3.1 and 3.2.
(c) Tertiary Position
Decoma
can make a claim by reference to Article 11.3 before Final Acceptance, the questions arise: what is the nature of such a claim and what, if any, limits apply to it?
(i) The Nature of Any Claim by Reference to Article 11.3
Decoma's
potential claim by reference to Article 11.3. Is it a claim for damages for breach of Contract or a claim under the Contract ? It might be thought that this is a rather pedantic kind of dispute, but it matters to
Decoma
because of their argument that the cap of 5% of the Contract Price in the second part of Article 12.4 applies only to damages claims, and would not therefore affect their right to bring an identical claim for payment of sums due under Article 11.3.
Decoma
by reference to Article 11.3 is properly categorised as a claim for damages for breach of contract. First,
Decoma's
financial entitlement by reference to Article 11.3 is only triggered at all if there is an underlying breach of the Article 11.1 warranty by
Haden;
if
Decoma
follow the Article 11.3 procedure by providing a Notice; and if, for whatever reason, the defect that resulted from that breach is not put right. It is important to note that
Haden
are not obliged to put the defect right: no such express stipulation exists in Article 11.3. Therefore, if a direct cost is incurred by
Decoma
in rectifying that underlying breach, and if that cost is not paid by
Haden
in accordance with the stipulation in Article 11.3 to do so "forthwith",
Haden
would be in breach of Contract. Thus, it seems to me that, to the extent that it matters, any claim by reference to Article 11.3 would be a claim for damages for breach of contract against
Haden
for failing to pay the sums identified by reference to the procedure in Article 11.3.
(ii) The Applicable Limits: Article 12.4
Haden's
"liability in contract" to the 5% cap. In other words, even if this was capable of being categorised as a claim under the Contract rather than as a claim for damages for breach, the final part of Article 12.4 would still limit
Decoma's
recoverable loss to 5% of the Contract Price. Mr Sears QC did not appear to have any answer to that submission.
very
artificial and uncommercial construction of the Contract to conclude that a claim for damages for breach of Article 11.3 was capped by the second part of Article 12.4, but that its precisely identical twin, namely a claim for the same sum under Article 11.3, was somehow completely exempt. Such a distinction would be wholly unjustified and render the cap in Article 12.4 of no practical effect whatsoever. I therefore reject it.
Decoma's
claims in these proceedings for breach of (or by reference to) Articles 3 or 11, the cap in the second part of Article 12.4 was not enforceable. His first point was that the second part of Article 12.4 envisaged that Final Acceptance would be achieved so that, if it was not, the cap did not apply. I do not accept that as a matter of construction: this part of the Article was concerned solely with limiting the damages recoverable for breaches on the part of
Haden
in the period before Final Acceptance; it does not say that the cap on damages for such breaches would not be operable if Final Acceptance was not, in fact, achieved. But Mr Sears QC then went on to make one of the principal arguments at the heart of his oral (if not his written) presentation. He contended that, because Final Acceptance was not achieved due to
Haden's
default, the second part of Article 12.4 should not be enforced and/or there should be no cap.
Decoma
argued that they should be allowed to avoid the cap because, in a way that they said was not foreseen by the Contract, they took over the paint-spraying system some years ago, even though
Haden
had not, because of their breaches of contract, achieved Final Acceptance. There were, I think, two distinct elements to this submission: an argument based on the specific construction of Article 12.4, and an argument to the effect that an adverse result to
Decoma
on the construction point would mean that
Haden
were taking advantage of their own wrong. I deal in Section F8 below with the latter argument. As to the construction point, my conclusions are as follows:
(a) Mr Sears QC's submission does not reflect what the words say. There is nothing in the second part of Article 12.4 which even arguably differentiated between the position, on the one hand, if Final Acceptance was delayed or not achieved due toHaden's
default, and, on the other, if Final Acceptance was delayed or not achieved due to
Decoma's
default (or even for a reason which was not the fault of either party).
(b) Under the Contract Articles as a whole, it was plainly foreseeable that a delay in achieving (or a failure to achieve) Final Acceptance might be (indeed, probably would be) the result of breaches of Contract on the part of
Haden.
For instance, the events which caused any delay or failure might not justify an adjustment of the Project Schedule under Article 6.
Haden
would then be in breach of Article 12.2. Thus it was equally foreseeable that the cap in Article 12.4 would be applicable in circumstances where Final Acceptance was delayed or not achieved due to
Haden's
default. In other words, the Contract plainly contemplated the possibility that the claims for breach which were being capped prior to Final Acceptance included, or might include, those breaches which would themselves delay Final Acceptance or lead to it not being achieved.
(c) In my judgment, the absence of any clear words limiting the applicability of the Article 12.4 cap solely to those situations where Final Acceptance was delayed (or not achieved at all) for reasons which were not
Haden's
fault makes it clear that the cap was applicable, without qualification, to all
Haden's
breaches during the period before Final Acceptance was achieved, whatever the reasons for any delay or failure in achieving Final Acceptance.
(d) Could the qualification, to the effect that the cap would not be applicable if a delay or failure to achieve Final Acceptance was due to
Haden's
breaches of contract, be implied into the Contract? That was not really how Mr Sears QC put it, and it seems to me, for the reasons which I have outlined, that
Decoma
would not begin to satisfy the test of 'necessary implication' set out by the House of Lords in Trollope & Colls
v
North West Metropolitan Regional Hospital Board [1973] 1 WLR 601.
(e) I agree with Mr Taverner QC's submission that
Decoma's
argument appears to be an ingenious attempt to revive the doctrine of fundamental breach. In essence,
Decoma
want to be relieved of the consequences of the cap because they say it is only applicable at all due to a fundamental breach on the part of
Haden.
That doctrine was expressly rejected by the House of Lords in Photo Production, where they made clear that it was not good law, and it can therefore be of no assistance to
Decoma
in this case.
(f) In my judgment, contrary to Mr Sears QC's argument, the second part of Article 12.4 provided for what should happen in the
very
circumstances in which
Decoma
now find themselves: it expressly limited the amount of damages recoverable by
Decoma
for breaches of contract by
Haden
prior to Final Acceptance. The words are clear. They are entirely consistent and compatible with the overall scheme of the Contract, as set out above. There is therefore no possible reason, as a matter of construction, to ignore the cap in the second part of Article 12.4. Furthermore, to do so would be to ignore the overall scheme of the Contract, and its complex series of interlocking rights, remedies, exclusions and caps.
(iii) The Applicable Limits: Loss of Profit
view,
given my conclusions as to the applicability of the cap in the second part of Article 12.4 to any pre-Final Acceptance claim made by reference to Article 11.3, it may not matter
very
much what I conclude as to
Decoma's
ability to recover a loss of profit/loss of use claim, whether under or for breach of Article 11.3. However, it is actually an important point because, in my judgment, even if, contrary to my primary
view,
Decoma
can utilise Article 11.3 before Final Acceptance, they would not be able to use it to found a claim for loss of profit/ loss of use in any event.
Haden
would pay liquidated damages prior to Final Acceptance if quality difficulties caused delay. Liquidated damages were an exclusive remedy for such breaches and would prevent
Decoma
from making any separate claim for loss of profit and the like due to their being deprived of a fully-functioning paint-spraying system prior to Final Acceptance. Mr Sears QC endeavoured to get round the liquidated damages point by seeking to differentiate between defects claims and delay claims, but, prior to Final Acceptance, there can be no such differentiation. It is not one that is made in the Contract. In the period before Final Acceptance, problems with the quality of the works being carried out would not of themselves be of any concern to
Decoma
because they would not (indeed, could not) use the system until it was finished; the losses, and the claims resulting from them, would only start when the quality problems delayed the Completion Date, and the parties had agreed that, in those circumstances, liquidated damages would be an exclusive remedy.
Decoma
so far: claims for loss of profit under Article 11.3 may be exempted from the blanket exclusion, but if no such claims can arise by reason of other clear contractual provisions, the exception in the first part of Article 12.4 cannot help them. In my judgment, Article 12.3A is so clear that claims for loss of profit cannot be made until after Final Acceptance, that on the Assumed Facts, the claims cannot succeed.
view
that this was probably intended to be a reference to the procedure under Article 11.3, which was the necessary trigger to the loss of profit/loss of use claims that could be made under Article 12.3A.
F6: The Post-Final Acceptance Position
Haden's
breaches of Contract, it is sensible to identify in outline terms what
Decoma's
position would have been under the Contract if Final Acceptance had been achieved.
Decoma
had a
variety
of options. They could make damages claims for breaches of Articles 3.1, 3.2 and 11.1. In the alternative they could have triggered the Article 11.3 procedure and got
Haden
back to put right the defects. If
Decoma
provided the relevant notice but
Haden
failed to comply with their obligations under Article 11.3, then the direct costs of putting right the defects would have been recoverable as damages.
Decoma
could have claimed loss of profit/loss of use against
Haden
but, on my reading of the Contract, this would only have been possible under Article 12.3A. In turn, this would have required a Notice under Article 11.3. This is because Article 12.3A expressly only allowed loss of profit/loss of use claims to be recoverable if there had been such notification. Again the words, which I have already set out, are not capable of any other meaning. As I have already said, that probably explains the exception by reference to Article 11.3 that appears in the first part of Article 12.4. In other words, a loss of profit/loss of use claim was excluded, even after Final Acceptance, unless
Decoma
could demonstrate a claim under Article 12.3A which, in turn, required compliance with the Article 11.3 Notice procedure. Such claims would also have been capped by Article 12.3A in any event
F7 The Indemnity Provisions
v)
and he says that the second part of that sub-clause allows him to make a claim for an indemnity in respect of all
Decoma's
losses, howsoever arising, with no limitation and no exclusions whatsoever.
Decoma
can, to all intents and purposes, ignore all the detailed contractual provisions with which this Judgment has so far been concerned, and claim everything, without restriction or cap, by reference to one half of the fifth sub-clause of an indemnity provision. For a number of reasons, I am unable to accept that submission.
vehicle
which rendered all those careful provisions entirely otiose. Can it really have been the intention of the parties to draw up a complex arrangement of caps and exclusions in the knowledge that it all mattered naught because of Article 15.1(
v)?
That would plainly be, to borrow Lord Jauncey's words, "a bizarre result".
v)
should be considered as 'ejusdem generis'. In The Interpretation of Contracts at paragraph 7.12, the rule is described as follows:
"If it is found that things described by particular words have some common characteristic which constitutes them a genus, the general words which follow them ought to be limited to things of that genus".
In this Section of his book, Lewison J comments that:
"the main argument of construction which justifies the application of the rule is the presumption against surplusage; for if the general words have unrestricted meaning, the enumerated items are surplusage."
v)
should not render the first part of the same Article redundant, which it undoubtedly would if the second part meant 'all breaches of all warranties anywhere in the Contract whether concerned with confidential information or not'. Secondly, the effect of Article 15.1(
v)
should be considered in the context of Article 15.1 as a whole. All the provisions in Article 15.1 are concerned with specific obligations on the part of
Haden
such as security, workers' compensation and the like. It would be quite wrong to construe Article 15.1(
v)
as being of such general application that it effectively wiped away all the remaining sub-clauses and rendered them all as surplusage. This
view
is confirmed by the introductory words of Article 15.1, which makes clear that the indemnities are not general, but 'specific' and 'exclusive'.
v)
was a specific indemnity in respect of possible breaches by
Haden
of warranties or agreements concerning confidential information. That is the subject matter of Article 15.1(
v).
It is not clear what warranties or agreements the draftsman had in mind: Mr Taverner QC may be right to suggest that what was intended was a reference to warranties or agreements which might, post-Contract, be entered into by
Haden.
But whatever the reason for its inclusion, I am entirely satisfied that this sub-clause was intended to provide an indemnity in respect of breaches of confidentiality agreements and nothing else.
Decoma
may owe to third parties. All of the matters in Article 15.1 are situations where
Decoma
might find themselves with a liability to a third party or, in the case of, say, Health & Safety Legislation, a liability to pay a fine. This Article provided a means by which
Decoma
could recover against
Haden
in respect of particular liabilities incurred to third parties, provided always that the reason for the liability to the third party arose out of
Haden's
works. That is why the indemnities are said "to hold [
Decoma]
harmless against…" The Article was not concerned with
Decoma's
own losses. Those were not the matters covered in Article 15.1; those were matters dealt with in Articles 3.1, 3.2, 11.1 and the like.
v)
does not permit
Decoma
to make all their claims without reference to the express provisions in Articles 11 and 12. Article 15.1(
v)
is limited to agreements and warranties in respect of confidential information: any wider meaning would render the whole of the rest of Article 15.1 complete surplusage. Accordingly,
Decoma
cannot rely on Article 15.1(
v)
as a means of avoiding the content and effect of Articles 11 and 12.
Decoma
can rely on Article 15.1(
v)
to get round the limitations imposed by Articles 11 and 12. The cap in Article 12.4 is said to be "subject to … the indemnities expressly contained under Articles 15.1-15.3". That reference obviously takes the reader to those Articles. What, if anything, do they say about Article 12.4? At Article 15.1, having set out the six specific warranties and
Decoma's
obligation to indemnify
Haden,
the Article makes clear that "the indemnity shall not … override any limitations expressly provided for under Article 12.4".
v)
did relate to all the warranties provided by
Haden
under the Contract, the indemnity at Article 15.1(
v)
could not and did not override the crucial limitation, which is the cap at Article 12.4 to 5% of the Contract Price.
F8 Does The Analysis At 2-7 Result In
Haden
Taking Advantage Of Their Own Wrong?
Decoma's
claims in these proceedings would be limited, for a whole host of different reasons, to a total of 5% of the Contract Price.
Decoma
say that that is unfair, and the result of
Haden
taking advantage of their own breaches of Contract to gain a benefit. They say that, accordingly, the Contract should not be interpreted in a way that gives rise to such a result.
(a) General Principle
Haden
are seeking to take advantage of their own wrong; certainly they are not seeking to do so in the manner identified by Lord Jauncey in Alghussein. However, even if I was wrong about that, the presumption that the parties did not intend, when drafting the contract, that one party could take advantage of his own wrong, is capable of being rebutted by the clear words of the contract itself. In this case, the Contract provisions on which
Haden
rely are clear and they are not capable of any other interpretation, as I believe I have demonstrated. Accordingly, if (which I do not accept) the presumption is even relevant in this case, it is rebutted by the clear words of the Contract.
Decoma
now complain about deal expressly with the parties' rights and obligations in a situation where
Haden
were, or might be, in breach of contract. The possibility of
Haden's
wrong (indeed, in some instances, the necessity of it) is therefore assumed in the Articles upon which they now seek to rely. What matters, therefore, is whether the exclusion of, or limitations on, the claims that could be made in consequence of
Haden's
wrong, are clear and incapable of any other meaning. For instance, in my judgment, it is simply not open to
Decoma
to complain that the 5% cap on pre-Final Acceptance claims means that
Haden
are benefiting from their own wrong, when such a cap was plainly and obviously agreed by the parties at the outset and was entirely in accordance with the overall scheme of risk allocation set out in the other Articles.
Decoma's
complaints was the suggestion that, at the time that the parties agreed the Contract, they did not imagine a situation where the paint-spraying system would not have achieved Final Acceptance so long after the Final Complete Date, and that it would therefore be somehow unfair as a matter of principle to apply the contractual provisions relating to the situation pre-Final Acceptance, no matter how clear they are. As I have already pointed out, this argument was at its starkest in respect of the cap in the second part of Article 12.4, with Mr Sears QC contending that, because Final Acceptance was not achieved due to
Haden's
default, the cap should either be treated as ineffective, or at the
very
least qualified as being inoperable if Final Acceptance was not achieved due to
Haden's
default.
vehicle
by which the parties' rights and obligations are to be measured and determined. If the parties clearly specified in the Contract what claims could be made and what claims would be capped even if, as a result of events which did or might constitute breaches of contract on the part of
Haden,
Final Acceptance was delayed or not achieved, then those are the provisions which the Court must apply if Final Acceptance was delayed or not achieved, whether that delay or failure was due to
Haden's
breaches of contract or not. The reasons for the delay, and the nature and extent of
Haden's
breaches of contract which may have caused the failure to achieve Final Acceptance, are both irrelevant to the proper construction of this Contract. Whilst, when considering the different interpretations of a contract put forward by the parties, the Court needs to know and understand what Lord Bingham in Arbuthnott called "the mischief", events that took place after the Contract was agreed cannot generally be relied on as an aid to construing the Contract itself.
view,
the reasons for the delay, and/or the nature and extent of
Haden's
breaches which caused the failure to achieve Final Acceptance, are somehow relevant to the proper construction of the Contract, then it would follow that the reasons why
Decoma
chose to make the Milestone Payments that were not in fact due and/or decided not to terminate the Contract and/or chose instead to take possession and use the paint-spraying system for many years, would also become relevant to the questions of contract interpretation. The factual investigation could be endless. I cannot conceive of any situation where such an approach to contract construction would be acceptable in English law: it is tantamount to saying that the Contract may mean radically different things depending on the post-Contract events.
(b) The Terms Of The Contract Itself
Decoma
because it allows
Haden
to take advantage of their own wrong. It seems to me that the correct position is set out below.
Decoma
say allows
Haden
to take advantage of their own wrong, is the finding that their claims for the cost of rectification work, put as claims for damages for breach of Contract pre-Final Acceptance under Articles 3.1 and 3.2 (and even Articles 11.1 and 11.3, if I am wrong and the Article 11 warranties/procedure are actionable pre-Final Acceptance) are subject to the cap of 5% of the Contract Price in the second part of Article 12.4. (The other element of my analysis which might be considered crucial is the conclusion that the claims for loss of profit/loss of use are either excluded altogether or, on any
view,
subject to the cap in Article 12.3A. I am bound to say that I do not see how that could even arguably be said to allow
Haden
to take advantage of their own wrong when it is based, amongst many other things, on the limit in Article 12.3A, which expressly applied after Final Acceptance.
Decoma's
complaint, that
Haden
are taking advantage of their own wrong by relying on the fact that Final Acceptance had not been achieved, is therefore of no application in relation to that conclusion). Thus, it is only necessary, when considering the argument that
Haden
were taking advantage of their own wrong against the backdrop of the Contract as a whole, to have in mind the first point, namely the applicability of the cap in the second part of Article 12.4 on the claims for the cost of rectification of the defects.
Decoma
were obliged to rely on an extremely strained construction of both Article 11.3 and Article 12.4, which I have rejected for a whole host of reasons: see paragraphs 73-96 and 107-115 above. That rejection has left
Decoma
with nothing but their general complaint that the situation in which they find themselves was somehow not that envisaged by the Contract, and that
Haden
are taking advantage of their own failure to reach Final Acceptance. As a matter of general principle I have rejected that submission for the reasons set out at paragraphs 132-136 above. But I also reject it because it fails to have regard to the overall scheme of the Contract.
Decoma's
complaint pre-supposes that, in the circumstances which have occurred,
Haden
have or will unfairly escape liability under the Contract: that they will, in Mr Sears QC's phrase, "get away scot free". That is, in my judgment, plainly not the case.
Haden
are liable for liquidated damages under Article 12.3 as a consequence of the failure to achieve Final Acceptance. For the reasons which I have already explained, that is the most obvious claim that
Decoma
have following a failure to achieve Final Acceptance by the Contract Completion date.
Haden
do not escape liability for that claim under the Contract. The fact that the claim is capped, by Article 12.3, is simply a function of the Contract itself.
Haden
had not performed the work to a sufficient standard,
Haden
were not entitled to
various
elements of the Contract Price. As I have already explained, the Milestone Payments, and in particular the last three, amounting to 30% of the whole, were only payable if particular stages of the completion process were satisfied. If they were not satisfied,
Haden
were not entitled to these payments. I was told that, although the completion stages that would trigger Milestone Payments (d), (e), and (f) were not reached, payments were in fact made. I do not know why. But the fact that payments were made does not detract from the principle that, on the application of Article 7.4 to the Assumed Facts,
Haden
would not have been entitled to such payments, which comprise 30% (£2.5 million) of the Contract Price. The sum retained by
Decoma
pursuant to these provisions could, of course, have been more than the cost of any remedial scheme.
Decoma
to terminate under Article 14.2 and make a financial claim in consequence under Article 14.3. Again, the fact that
Decoma
have not chosen to take this course, and see it as a relatively drastic option, is nothing to the point. It demonstrates a further way in which
Haden,
under the Contract, were
vulnerable
to potentially significant financial claims if
Decoma
had chosen to utilise their full contractual options.
Haden
were open to a claim for damages for breach of Articles 3.1 and 3.2 and, if I am wrong as to when Article 11.1 became operable, Article 11.1 and Article 11.3 as well. This claim would have been entirely sufficient for
Decoma's
purposes, save for the fact that the amount of that claim is greater than the amount which
Decoma
agreed, in a number of different Articles, as the maximum damages cap. As I have already pointed out, that is the unarguable effect of the Contract Articles when taken together as a whole.
Decoma's
submissions that I should not take into account, in my analysis of the advantage allegedly being taken by
Haden,
the options in respect of termination and non-payment of Milestone Payments, because they did not in fact happen. That cannot be right. I am analysing this Contract by reference to the words used, and considering how the parties allocated the
various
risks between one another. The options in respect of termination, and non-payment of Milestone Payments, are elements of that analysis. The fact that
Decoma
have not exercised those options is nothing to the point; it cannot affect how I construe the Contract itself. Moreover
Decoma
cannot have it both ways: they cannot on the one hand rely, as an aid to construction, on the assumed fact that Final Acceptance was not achieved due to
Haden's
default, and then on the other say that the Court should ignore some of the contractual remedies available to them in such circumstances because (for whatever reason) they chose not to exercise them.
(c) Summary
Decoma's
underlying submission that, in some way,
Haden
are unfairly taking advantage of their own breach of Contract in relying on the second part of Article 12.4, or any of the other contractual caps and exclusions. On the Assumed Facts,
Haden
are patently liable to
Decoma
in all the ways that I have identified above. If (as on the Assumed Facts there undoubtedly is) there is any shortfall between what
Decoma
have lost and what they can recover from
Haden,
that is a function of the clear and express terms of the Contract, and nothing else.
G THE NINE HEADS OF CLAIM
Head 1
"8 As pleaded at paragraph 33.1 of Particulars of Claim,Decoma
has carried out remedial works particularised in Part 1 of the Schedule of Defects and Costs.
Decoma
claims £692,791, of which:
a) 30% is based upon costs toDecoma
of having its employees carrying out remedial work;
b) 70% is based upon payments made to third parties;
c) some of the claims, based onDecoma
employee costs and/or payments to third parties, relate to investigations:
i) to find out whether or not the plant is defective; and/or
ii) to find out how to remedy the defect"
v).
view
is that this is a claim for the direct cost of remedying work. Accordingly, it is recoverable as damages for breach of Articles 3.1 and 3.2, subject to the cap in the second part of Article 14.2. It is not recoverable as damages for breach of Article 11.1 because that warranty is not actionable until Final Acceptance. If, contrary to that
view,
Article 11.1 can be utilised pre-Final Acceptance, then this claim would also be recoverable as damages for breach of Article 11.1, but would again be subject to the cap.
v)
for the reasons set out at paragraphs 120-129 above.
view,
this claim by reference to Article 11.3 is recoverable pre-Final Acceptance, it is, for the reasons I have stated, recoverable as a claim for damages for breach of contract. It is not recoverable separately as a claim pursuant to the express terms of Article 11.3. In any event, whether recoverable as damages for breach of contract or pursuant to Article 11.3, this head of claim by reference to Article 11.3 would depend upon:
a) Notification fromDecoma
to
Haden
in respect of the alleged defect;
b) A failure byHaden
either to identify the cause of the problem and/or to take action to rectify the default and/or to agree the most expeditious and appropriate programme for rectification within 48 hours from notification;
c) A decision byDecoma
to carry out remedial work (whether or not such remedial work has actually been carried out by the time that
Haden's
liability is determined);
d) The provision byDecoma
to
Haden
of an invoice in respect of estimated or actual "direct costs, charges and expenses incurred in remedying the defect …"
Head 2
"As pleaded at paragraph 33.2 of the Particulars of Claim,Decoma
claims costs incurred by its technical and/or managerial staff in Part 2 of the Schedule of Defects and Costs. Claims for the cost of time spent by
Decoma
employees remedying specific defects are made in Head 1. Other costs and expenses in relation to
Decoma
employees are claimed in Head 2. They relate substantially to costs of transport (air tickets and so on) and living expenses.
Decoma
cannot allocate those costs to specific defects but says they were caused by the requirement for such technical and/or managerial employees temporarily to relocate from
various
![]()
Decoma
companies in North America to Halewood in order to remedy the defects in the plant installed by
Haden."
v).
Decoma
would need to demonstrate that each of the employees' flights/accommodation for which a claim is made in Head 2 was a "direct cost incurred in remedying the defects" and was, in all the circumstances, reasonable. Whether or not each of these items would actually be recoverable would be a matter of fact in each case.
Head 3
"10 As pleaded in paragraph 33.3 Particulars of Claim,Decoma
claims the estimated costs of remedial works still to be carried out as particularised in Part 3 of the Schedule of Defects and Costs"
v).
view
is that no such sum is recoverable under Article 11.3 or as damages for breach thereof, because Article 11.3 is not actionable prior to Final Acceptance.
Head 4
"11 As pleaded in paragraph 33.4.1 of the Particulars of Claim,Decoma
claims for charges incurred as a result of Jaguar's decision to remove X400 sill production, taken because
Decoma
was unable to demonstrate the requisite paint production capacity/capability whilst remedial works were being effected.
12 The claims for charges incurred as a result of Jaguar's decision to remove X400 sill production and the X400 sill design and engineering costs which were thereby wasted were caused by, according to Jaguar (in its letter of 13 August 2001), "Decoma's
inability to meet, and thus support, the production requirements for the X-type programme."
13 The cost is quantified in the following way:
a) £1,290,617 was claimed by Jaguar fromDecoma;
b) In fact the claim was settled by a payment byDecoma
to Jaguar of £200,000;
c)Decoma
suffered further loss as a result of a weakened bargaining position with Jaguar which
Decoma
says is best quantified by the difference between the amount of Jaguar's claim in the amount actually paid i.e. £1,090,617"
v).
In other words it is not put by reference to Article 11.3, either as a claim for damages for breach of that Article or as a claim pursuant to the express terms of that Article. I do not address what Mr Taverner QC called the "oddness" of this Head of Claim, although I understand, on the basis of the Assumed Facts, why he makes that point.
v)
must fail in any event. That leaves the claim for damages for breach of Articles 3.1, 3.2 and 11.1. In order to see if this Head of Claim is recoverable as part of such a damages claim, it is first necessary to identify what type of claim this is.
Decoma
were "unable to demonstrate the requisite paint production capacity/capability whilst remedial works were being effected." That seems to me to make it clear that this is a loss of use/loss of production claim. Mr Sears QC argued that this Head of Claim was simply an item of costs which were wasted, and not a loss of production, but it seems to me that the words of the Assumed Facts make clear beyond doubt that this Head was of the type expressly identified in Article 12.3A.
Decoma
against
Haden
in any event. If I was wrong about that, it would in any event be limited by the cap in Article 12.3A.
Head 5
"As pleaded in paragraph 33.4.2Decoma
claims the sum of £408,600 quantified by estimating the cost of the time wasted by its employees in designing and engineering work for the X400 sill contract, which Jaguar took away from
Decoma
as aforesaid."
Essentially, I was told, this wasDecoma's
own wasted costs in setting up the X400 sill contract which was then taken away from
Decoma
by Jaguar.
v).
It is not put by reference to Article 11.3 at all.
Decoma
claims is, essentially, to seek to avoid all these contractual restrictions in their entirety. For the reasons I have provided, whatever the position in relation to the cap in the second part of Article 12.4, there is simply no basis for such an approach.
Head 6
"As pleaded in paragraph 33.4.3Decoma
claims the sum of £986,876 consisting of the cost of sub-contracting out Jaguar X100 paint production for six months because of the lack of capacity/capability (caused by the defects in the paint production line) to fulfil this order at the same time as the order for X400 production whilst remedial works were being effected."
v).
very
strained attempt to categorise this Head of Claim as a cost of remedial work, and thus to bring it under the express provisions of Article 11.3, when, in truth, it is clear beyond doubt that this is a claim for loss of production/loss of use. As Assumed Fact 15 makes clear, there was a lack of capacity/capability in the paint production line due to the defects, so some of that work had to be sub-contracted out. That, therefore, must make this a claim for loss of production/loss of use of the type envisaged in Article 12.3A.
view,
be the direct cost of rectifying the defect (Article 11.3), because the money spent did not go on rectification work. At most, this Head of Claim would be for the indirect cost of the rectifying the defect; the consequential cost consequences of carrying out the works of rectification identified in Article 11.3. Accordingly such a Head of Loss would not be recoverable under Article 11.3, either pursuant to that Article or as damages for breach thereof.
view,
it is not recoverable by reference to those Articles because:
a) A claim for loss of use/loss of production could only be recoverable after Final Acceptance (Article 12.3A);
b) Such a claim is in any event excluded by the first part of Article 12.4 and is not the subject of any of the exceptions to that blanket exclusion;
c) Prior to Final Acceptance, this claim would have been covered by the liquidated damages machinery, and could not have been made separately.
Head 7
"16 As pleaded in paragraph 33.5Decoma
claims the increased cost of maintaining and/or operating the plant from March 2000 to date, at the rate of approximately £240,000 per annum, plus the cost of replacement of bearings in 2003 and 2004 of £67,000 – as particularised in Part 4 of the Schedule of Defects and Costs; and the continuing rate of approximately £240,000 per annum until the aforesaid defects have been rectified.
17
Decoma
has pleaded in Response 3 of its Further Information that:
a) Part 4 of the Schedule of Defects and Costs is substantially the same in principle as the claim set out in Part 1: it consists of the direct costs of rectifying defects in the Plant which have been incurred byDecoma.
![]()
Decoma
will in due course amend its claim to clarify and particularise the Part 4 costs incurred to date, and what Part 4 costs are continuing.
b) Pending such amendment, the claim is based upon the extra cost of maintenance incurred byDecoma.
If the Plant had been installed properly and in accordance with the Contract,
Decoma
would have had to employ maintenance staff but probably on an ad hoc and/or temporary basis when needed.
c) Instead, because maintenance is constant and ongoing, especially in relation to trolley bearings, track and stabiliser inspection and repair and the Stradwell computer controlled system,Decoma
has to have a permanent staff of 17 skilled technicians to maintain the conveyor system and plant, and has to employ more electricians/computer technicians than otherwise it would. Further, other employees also have to spend time on such maintenance issues. The estimated costs
Decoma
has incurred as a result is £240,000 pa. In fact, this is probably an under estimate."
176 This Head of Claim is put as a claim for damages for breach of Articles 3.1, 3.2 and 11.1. In the alternative it is put as a claim under Article 11.3. In the further alternative it is put as a claim for an indemnity under Article 15.1(v).
177 There is an argument about whether or not the costs are, in truth, costs incurred in rectifying the defects, or additional costs incurred in maintenance work.Haden
say that, to the extent that these are maintenance costs, they are not recoverable. This is a dispute of fact which I cannot resolve because it strays beyond the Assumed Facts.
178 In my judgment, for the purposes of the Preliminary Issues, I should assume, givingDecoma
the benefit of the doubt, that this Head of Claim is properly recoverable as costs incurred or to be incurred in remedial works which
Haden
have carried out or have decided to have carried out. On this basis it seems to me that precisely the same principles apply to this Head of Claim as apply to Head of Claim 1, and therefore paragraphs 148-151 of this judgment are repeated.
Head 8
"18 As pleaded in paragraph 36.1, this head relates to the lost profit resulting from reduced paint production whilst remedial works were being carried out. It is quantified in the sum of £4,253,740.19 The claim is calculated in the following way: it is based on the difference between the production that should have been achieved and the production that was in fact achieved."
v).
It is also put as a claim for damages for breach of Article 11.3. It is not put in any other way.
very
well be that this claim is put as a claim for damages for breach of Article 11.3 because of the potential exception, by reference to Article 11.3, in the first part of Article 12.4.
Decoma's
underlying submission that, even if the claim under Article 11.3 was limited to direct costs, a claim for damages for breach of Article 11.3 can be wholly unlimited, and include loss of profit/ loss of use. I have already explained how a claim for damages for breach of Article 11.3 would be based on
Haden's
failure to pay the sums quantified pursuant to the procedure in Article 11.3: see paragraph 108 above. Thus, if those sums excluded loss of profit/ loss of use items, then the damages claim would be similarly limited. For the avoidance of doubt, I also accept Mr Taverner QC's submission that there is no pleaded or assumed 'breach' of any element of Article 11.3 other than the failure to pay.
Decoma
to found, pre-Final Acceptance and whilst the works were still being carried out, a damages claim for loss of profit which ignores all the contractual limitations and exclusions set out above, and which, on
Decoma's
case, could operate side-by-side with a claim for liquidated damages. In my judgment, this is simply not a credible interpretation of the Contract. One of the many reasons why Article 11.3 does not apply before Final Acceptance is because
Decoma
already have an exclusive remedy if they are denied the use of the paint spraying system: that is their claim for liquidated damages. It is simply not a proper interpretation of Article 11.3 to say that it can be used to found a claim for damages for breach which then gets round all the remaining clauses of the Contract.
Decoma
are trying to do with this Head of Claim. Under the Contract, on any
view,
claims for loss of profit were capped by Article 12.3A to 5% of the Contract Price. This Head of Claim, and Head 9, far exceed that cap. Originally,
Decoma
accepted that this claim was limited by the cap, but they have since indicated that they no longer maintain that concession. It is, therefore, an example of a Head of Claim where
Decoma
are seeking to avoid the clear terms of the Contract, so as to make their claims without regard to any of the relevant provisions in Article 12. I do not regard that as a legitimate approach to the construction of the Contract.
Head 9
"The claim pleaded at paragraph 36.2 as "lost contribution to overheads" in the sum of £3,935,268. As can be seen, it calculates the difference between the cost toDecoma
of each unit and its selling price at the projected
volumes
that should have been achieved had the Jaguar X400 sills been painted by
Decoma."
v),
and is a claim for damages for breach of Article 11.3. It is not put in any other way.
H. ANSWERS TO PRELIMINARY ISSUES
Answer to Preliminary Issue 1
Decoma's
pleaded claims be
valid
prior to Final Acceptance?
valid
prior to Final Acceptance. Claims for breach of Articles 11.1 or by reference to Article 11.3 cannot be
valid
prior to Final Acceptance, although, for the reasons I have given, it makes
very
little difference to the final result if they are.
Answer to Preliminary Issue 2(A)
Decoma's
pleaded claims "direct costs" as identified in Article 11.3?
Decoma
have decided to carry out the work; Heads 4, 5 and 6 are not for direct costs as envisaged by Article 11.3; Head 7 is for direct costs, on the assumption that it can be shown that the costs will be incurred in rectifying defects; Heads 8 and 9 are not for direct costs as envisaged by Article 11.3.
Answer to Preliminary Issue 2(B)
Decoma
to
Haden
in respect of the alleged defects; a 'failure' by
Haden
in one of the three express ways identified in Article 11.3; a decision by
Decoma
to carry out the remedial work or to engage others to carry out the remedial work; and the provision by
Decoma
of an invoice in respect of the estimated or actual costs of the remedial work.
Answer to Preliminary Issue 3
Haden's
liability in respect of liquidated damages preclude
Decoma
from making Heads of Claim 4, 5, 6, 7, 8 and 9?
Decoma
are precluded from making Head of Claim 7. It may well be properly categorised as a claim for the costs of remedial works and thus not excluded by operation of Article 12.3. Heads of Claim 4, 5 and 6 are excluded (or, at the
very
least limited) by the express terms of the Contract, as are Heads of Claim 8 and 9. The reasons are set out above. Part of the reasoning in support of the conclusion that those Heads of Claim are not open to
Decoma
is because, prior to Final Acceptance, the payment of liquidated damages constitutes
Decoma's
agreed remedy for being deprived of the paint-spraying system: see, amongst others, paragraphs 60, 63, 69, 101, and 113 above.
Answer to Preliminary Issue 4
Decoma
claims for loss of profit/loss of use?
very
least, limits them to 5% in accordance with Article 12.3A. There can be no possible basis under this Contract on which these five Heads of Claim could be made without being subject to the cap in Article 12.3A. As I have already explained, that remains the position whatever points
Decoma
take about
Haden
relying on the pre-Final Acceptance limits, because the limit in Article 12.3A is expressly said to apply after Final Acceptance.
Answer to Preliminary Issue 5(A)
view
limited by Article 12.3A.
Answer to Preliminary Issue 5(B)
Decoma,
then they would be subject to the cap in Article 12.3A. In both cases, the cap is 5% of the Contract Price.
Answer to Preliminary Issue 6
v)
allow
Decoma to make a claim for indemnity which overrides all the exclusions or limitations?