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||Neutral Citation Number:  EWHC 2595 (TCC)
||Case No: HT-14-127
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT
||Royal Courts of Justice
Rolls Building, 7 Rolls Buildings
London EC4A 1NL
||28 July 2014
B e f o r e :
MR. JUSTICE EDWARDS-STUART
|| Laing O'Rourke Construction Ltd
(formerly Laing O'Rourke Northern Ltd)
||- and -
||Healthcare Support (Newcastle) Ltd
Newcastle upon Tyne Hospitals
NHS Foundation Trust
Peter Fraser Esq QC & Miss Camille Slow
(instructed by Pinsent Masons LLP) for the Claimant
Stephen Dennison Esq QC
(instructed by Herbert Smith Freehills LLP) for the 1st Defendant
Miss Stephanie Barwise QC & Riaz Hussain Esq
(instructed by Ward Hadaway LLP) for the 2nd Defendant
Hearing dates: 22 and 23 July 2014
HTML VERSION OF JUDGMENT
Crown Copyright ©
Mr. Justice Edwards-Stuart:
- These proceedings are brought under Part 8 of the Civil Procedure Rules ("CPR"). They arise out of the construction of facilities at two hospitals in Newcastle for the Second Defendant, an NHS Foundation Trust ("the Trust"). The project was undertaken under a Private Finance Initiative scheme ("PFI"). The Claimant is the Contractor who entered into an agreement dated 4 May 2005 with the First Defendant ("HSN") to design and build the facilities. That is the Construction Contract. HSN entered into an agreement with the Trust on the same day by which it agreed to design, build and finance the redevelopment of the facilities and to provide other related services. That is the Project Agreement.
- The two hospitals which are the subject of this PFI are the Royal Victoria Infirmary and the Freeman Hospital in Newcastle. The arrangement is that on completion of the project the Trust will pay a charge to HSN for the use of the facilities over a period of 35 years.
- Under both the Construction Contract and the Project Agreement there is provision for an independent professional to act as the Independent Tester. The Independent Tester has various functions of inspection and certification under the contracts. Faithful & Gould Ltd was appointed as the Independent Tester. That was by a separate contract also made in 2005 and known as the Independent Tester Contract.
- The works under the Construction Contract were to be carried out in nine phases. Phases 1 to 7 involved the various clinical facilities and have been completed. Phase 8 concerned two Clinical Office Blocks ("COBs") which, as their name suggests, were to be used as offices by the hospital staff.
- The Claimant contends that Phase 8 was completed in mid 2012. However, the Phase Certificate of Practical Completion has not been issued by the Independent Tester. That is what has given rise to the present dispute. The Claimant seeks declarations in relation to the manner in which the Independent Tester is to act when deciding whether or not to issue a Phase Certificate of Practical Completion.
- Unfortunately this is not the first time that this dispute has been before the courts. In August 2012 the Trust brought proceedings in this court to obtain an injunction preventing the Independent Tester from certifying completion of Phase 8. These were heard by Ramsey J. The other parties were HSN and the Independent Tester. The application failed because the Trust felt constrained to discontinue its application during the course of the hearing. But this initial skirmish has done nothing to assist in the resolution of the dispute. For the past two years the COBs have been empty and the hospital staff remain in their original office accommodation.
- The Independent Tester has identified, and continues to identify, five areas of the works about which the Trust has complained and which it, the Independent Tester, says are preventing it from issuing the necessary completion certificate. It is probably helpful at this stage to set out what these are. They are as follows:
i) Certain toilet areas. These are said not to meet the relevant standards for spatial requirements: in other words, they are too small.
ii) Daylight levels. The Trust contends that there is insufficient daylight in some of the offices by reference to the requirements of the relevant British Standard.
iii) Window restrictors. The Room Data Sheets ("RDS") required certain rooms to have window restrictors fitted that prevent the top hung windows from opening more than 120 mm. These were not fitted or, at least, the restrictors that were fitted permitted the Windows to open to a greater extent.
iv) The link bridge steelwork. There are two bridges connecting the COBs to the main hospital buildings. They include certain structural steelwork and high level windows that the Trust contends are not shown in the drawings and should not be there.
v) Potential overheating. There is a dispute about the maximum room temperatures permitted by the contracts, how these should be interpreted and what levels can be achieved in practice when the buildings are in use.
- In short, the dispute between the parties is whether the Trust is correct in asserting that any breach of contract relating to the quality or conformity of the works requires the Independent Tester to withhold the completion certificate, or whether, as the Claimant contends, all that is required is compliance with the Completion Criteria set out in Schedule 12, Part 2, of the Project Agreement (Schedule 12 to the Construction Contract is in materially the same terms). These have been referred to as the wider construction and the narrower construction, respectively.
- At the conclusion of the hearing, on Wednesday, 23 July 2014, I was told by counsel that there was some urgency and that it would be much appreciated by the Claimant and HNS, in particular, if I could give my decision on Monday, 28 July 2014. I undertook to meet this request if I could, but I made it clear that any judgment produced in that timescale would of necessity be fairly brief and that I would only be able to give my reasons in fairly summary terms. The parties appeared content to accept this.
The terms of the contracts
The Construction Contract
- This contained the following provisions:
"Project Agreement and Other Project Documents
4.9 Except where expressly stated to the contrary in this Contract and without prejudice to Clause 4.10, 47 [Effect of Termination] and 48 [Compensation on Termination], the Building Contractor shall perform and assume, as part of its obligations, the Building Contractor's obligations set out in Schedule 37 [FM Assumptions] …"
Schedule 37, under the heading "General", said this:
"A key objective is to ensure that all facilities comply with the appropriate hygiene and health and safety legislation, and best practice guidelines all as defined by Schedule 8 Part 3 (Trust's Construction Requirements). The incorporation of operational requirements in the design, construction and layout of support services facilities will contribute to the cost-effective and hygienic operation of the services."
17.1 The Building Contractor shall carry out and complete the Works and make good any defect therein, and shall provide all labour, materials, equipment, temporary works and everything whether of a permanent or temporary nature required for such and [sic] carrying out completion making good of defects:
(a) so as to procure satisfaction of the Trust's Construction Requirements and Use Parameters;
(b) in accordance with the Project Co's Proposals; and
(c) in accordance with the terms of this Contract.
To avoid doubt, the obligations in Clause 17.1(a), (b), and (c) are independent obligations
PRE-COMPLETION COMMISSIONING AND COMPLETION
22.1 The parties acknowledge and agree that pursuant to clause 22.1.1 of the Project Agreement that before the date specified by the Completion Process for each Phase the Trust shall provide Project Co with a draft of the Final Commissioning Programme relating to the relevant Phase. Project Co shall supply the Building Contractor a copy of the draft of the Final Commission Programme in respect of each Phase within three (3) Business Days of receipt of the same from the Trust. The Building Contractor shall provide to the Project Co any comments it may have on the said draft and Project Co shall incorporate such comments into its submission of comments on the said draft to the Trust pursuant to clause 22.1.1 of the Project Agreement provided that Project Co received the Building Contractors comments at least two (2) Business Days prior to the end of the period stated for submission of the Project Co's comments on such draft pursuant to Clause 22.1.1 of the Project Agreement. The Trust and Project Co shall within ten (10) Business Days of receipt by the Trust of Project Co's comments agree the terms of the Final Commissioning Programme for the relevant Phase and Project Co shall consult with the Building Contractor regarding any proposal to make any compromise or amendment of its requirements in relation to the Final Commissioning Programme and shall not make any such compromise or amendment without first obtaining the consent of the Building Contractor, such consent not to be unreasonably withheld or delayed ...
22.5 In accordance with the Completion Process the Building Contractor shall notify the Independent Tester, the Trust's Representative (as agent for and on behalf of Project Co), Project Co's Representative and the Funders' Representative of the date when the Building Contractor (acting reasonably) considers that any Phase of the Works will be complete in accordance with the Trust's Construction Requirements, the Completion Criteria and this Contract not less than three (3) months prior to such anticipated completion.
22.11 The parties acknowledge that the Independent Tester shall, within five (5) Business Days of any inspection made by the Independent Tester pursuant to clause 22.3 of the Project Agreement, notify the Project Co (who shall promptly pass such notification to the Building Contractor) of any outstanding matters (including, without limitation, the repetition of any of the tests on completion which are required to be carried out and passed in accordance with the Final Commissioning Programme) which are required to be attended to before the relevant Phase of the Works can be considered to be complete in accordance with the Completion Criteria. The Building Contractor shall attend to such matters and shall, if necessary, give Project Co, the Trust and the Funder's Representative further notices in accordance with clause 22.10 and the Independent Certifier (as agent for and on behalf of Project Co pursuant to clause 22.3 of the Project Agreement) (but dealing only with matters raised in the notification under this Clause 22.11) so that the procedures in Clause 22.10 and this Clause 22.11 are repeated as often as may be necessary to ensure that all outstanding matters in relation to the Works are attended to.
Phase Completion certificate
22.12 Pursuant to the terms of the Independent Tester Contract, the parties acknowledge that Project Co and the Trust shall procure that the Independent Tester shall, when he is satisfied subject to clause 22B.3(d), that completion of a Phase has occurred in accordance with the Completion Criteria, issue a Phase Certificate of Practical Completion in respect of that Phase to that effect stating the date upon which, in his of opinion, the Phase Actual Completion Date occurred. Subject to clause 22.15 (Snagging) … The issue of a Phase Certificate of Practical Completion in respect of a Phase shall, in the absence of manifest error, bad faith or fraud, be conclusive evidence for the purpose only of ascertaining the relevant Payment Commencement Date under the Project Agreement, that the Phase Actual Completion Date has occurred on the date stated in such certificate.
22.16 The issue of the Certificate of Practical Completion in respect of a Phase shall in no way affect the obligations of the Building Contractor under this Contract including in respect of any Defects (or Latent Defects)."
"Defects" and "Latent Defects" were both defined as defects that appeared after practical completion. But it is to be noted that the provision is not confined to Defects or Latent Defects.
The Project Agreement
- This contained the following provisions:
"22.1 Final Commissioning Programme
22.1.1 The Final Commissioning Programme relating to the relevant Phase shall be prepared in accordance with the requirements of the Completion Process. Before the date specified by the Completion Process for each Phase the Trust shall provide Project Co with a draft of the Final Commissioning Programme relating to the relevant Phase as jointly developed by the Trust and Project Co in accordance with the provisions of clause 22.1.2 and 22.1.3. Project Co shall provide the Trust with comments on the draft Final Commissioning Programme for each relevant Phase submitted to it within the period stated in the Completion Process. The parties shall, within ten (10) Business Days of receipt by the Trust of Project Co's comments agree the terms of the Final Commissioning Programme for the relevant Phase provided that the Trust may by prior notice to Project Co change the scope and time of the Trust's Commissioning and reimburse Project Co its reasonable costs incurred as a result of such change in scope or time. If the parties are unable to agree the Final Commissioning Programme for each relevant Phase or the change in scale or time of the Trust's Commissioning by the date specified in the Completion Process for the relevant Phase the matter shall be referred for determination in accordance with Schedule 26 (Dispute Resolution Procedure).
22.1.2 The Final Commissioning Programme for each Phase shall be in accordance with the Outline Commissioning Programme for that Phase and shall impose no greater or more onerous obligations on the Trust than those set out in the relevant Outline Commissioning Programme (unless otherwise agreed by the Trust in its absolute discretion). The Final Commissioning Programme shall then replace the Outline Commissioning Programme as it relates to that Phase.
22.1.5 In accordance with the Completion Process Project Co shall notify the Independent Tester and the Trust's Representative of the date when Project Co (acting reasonably) considers that any Phase of the Works will be complete in accordance with the Completion Criteria not less than three months prior to such anticipated completion. Such notification shall trigger the activities of the Independent Tester under this clause.
22.5 Phase Completion Certificate
22.5.1 Pursuant to the terms of the Independent Tester Contract, the parties shall procure that the Independent Tester shall, when he is satisfied, subject to clause 22A.3.4 that completion of a Phase has occurred in accordance with the Completion Criteria, issue a Phase Certificate of Practical Completion to that effect stating the date upon which, in his opinion, the Phase Actual Completion Date occurred … The issue of a Phase Certificate of Practical Completion shall, in the absence of manifest error, bad faith or fraud, be conclusive evidence for the purpose only of ascertaining the relevant Payment Commencement Date, that the Phase Actual Completion Date has occurred on the date stated in such certificate.
22.5.2 The Independent Tester shall issue the relevant Phase Certificate of Practical Completion notwithstanding that there are Snagging Matters relating to such Phase …
22.5.5 The issue of any Phase Certificate of Practical Completion in respect of a Phase shall in no way affect the obligations of Project Co under this Agreement including in respect of any Defects."
- Schedule 1 to each contract contained the definitions, which were in almost materially identical terms save where the context required otherwise (shown in square brackets). These included definitions of the following expressions:
||means the Completion Tests as defined in Part 2 of Schedule 12 (Outline Commissioning Programme) and as may be applicable to each Phase;
||means the process and procedures for carrying out of the notifications, testing, inspections and completion certification as defined in Part 1 of Schedule 12 as may be applicable to each Phase of the Works the dates for which shall be incorporated in the Final Commissioning Programme;
||means any defect or fault in the Works and/or the Facilities (not being a Snagging Matter) which in relation to a Phase occurs after the relevant Phase Actual Completion Date and prior to the date falling twelve (12) months after the Phase Actual Completion Date due to a failure by [the Building Contractor] [Project Co] to meet the Trust's Construction Requirements [and/or Project Co's Proposals] or otherwise to comply with its obligations under this [Contract] [Agreement];
|"Final Commissioning Programme"
||Means in respect of each Phase the program to be jointly developed and agreed by the Trust, Project Co [and the Building Contractor] in accordance with the provisions of Clause  [ 22.1.2] (Pre-Completion Commissioning and Completion);
|"Outline Commissioning Programme"
||means the programme for each Phase setting out the standards, specifications, procedures and other requirements for the carrying out and completion of the commissioning activities of the parties as set out in outline in Part 1 of Schedule 12 (Outline Commissioning Programme);
|"Phase 8 Actual Completion Date"
||Means of the date on which Phase 8 has been completed in accordance with this [Contract] [Agreement], as such date shall be stated in the Certificate of Practical Completion for Phase 8, or, in the event of dispute, as such date may be determined in accordance with Schedule 26 ([Construction] Dispute Resolution Procedure);
|"Phase Certificate of Practical Completion"
||Means the certificate to be issued by the Independent Tester in respect of the Works to be performed in each Phase in accordance with clause 22.5.1 ([Phase Completion Certificate] [Pre-Completion Commissioning and Completion]) in the form set out in Schedule 28 (Certificates);"
Schedule 12 to each contract
- Schedule 12 to each contract was in materially at the same terms. The agreements did not contain any hierarchy of documents, so Schedule 12 - like all the schedules - ranks equally with other contractual documents in terms of priority. It consisted of two parts, and associated programmes, each of which was headed: "SCHEDULE 12, Outline Commissioning Programme". Part 1 was sub-headed "Completion Process", and Part 2 was sub-headed "Completion Criteria".
- For convenience I will set out the relevant provisions in the schedule to the Project Agreement. Part 1 contained the following:
"The obligations and responsibilities of the parties in relation to the completion and commissioning process are set out in clause 22 of the Project Agreement, which should be read in conjunction with this Completion Process."
Inspection and commissioning process
Where appropriate, the Independent Tester shall, in conjunction with the Contractor, Project Co and the Trust, develop the detailed tests on completion necessary to support the Completion Criteria. This process shall also include defining all key inspection and witness activity points. Once these tests are established, the Independent Tester shall agree a programme with Project Co for inspections/witnessing and visits to correlate with the key activity points. As part of the programme agreement, it is the intention to review and agree the procedure to be followed for acceptance of the specific work activities before the activities are progressed on site.
Project Co shall procure that the Contractor will establish quality controls through inspection and test plans (ITPs) for specific activities in line with the construction status drawings and specifications. The intention is that ITP's (sic) are to be in place prior to the commencement of any activity to which they refer. The ITP's will identify the type and frequency of the inspections to be carried out and how the results are to be recorded …
Envelope inspections will be carried out to each building in accordance with the agreed programme and ITP requirements. External works inspections will be completed in agreed phased sections. Inspections and witnessing of internal finishes will be carried out on a department by department basis in accordance with the agreed programme. Within each department once final fix operations have been progressed, the Contractor will carry out a builders clean followed by an initial inspection. Any snagging work identified during the initial inspection will be attended to and the area re-inspected again to confirm all outstanding items have been addressed. The Independent Tester will be notified of the availability of the Department for inspection and will be given the opportunity to carry out or witness the inspection in accordance with the agreed programme …
This process will continue throughout the project to a point where building activities are sufficiently complete to allow commissioning activities to progress …
For each phase prior to commencement of commissioning and in accordance with the following schedule of information release dates the Trust shall provide Project Co with a draft of the Final Commissioning Programme relating to the relevant Phase."
This was described as a seven-stage process which was a guide for the Independent Tester to adopt in his ultimate programme. On the next page there was a reference to the commissioning activities being set out in "the following draft programmes", each of which was described as "[XYZ] outline commissioning programme".
- Part 2 set out the various phases and there are forecast completion dates. It then provided:
"For each of these Phases the Completion Criteria to be satisfied to enable the Independent Tester to issue the Phase Actual Completion Certificate are set out below:"
- In relation to Phase 8, the relevant criteria were as follows:
"The Works within this Phase include:
( Clinical office blocks 1 and 2, available and ready for Trust use.
( Stair and lift cores 1, 2 & 3, available and ready for use by the Trust including fully commissioned lifts.
( Link bridges to section A and Peacock Hall, available and ready for use by the Trust
( The main underground culvert running north/south is completed up to the existing level l corridor at Peacock Hall including the plantroom to the south of office block 1.
( Hard and soft landscaping around the office buildings are complete
In particular the following Completion Criteria shall be satisfied.
The culvert and buildings are structurally complete, all external fabric is complete and internally all the finishes are complete in accordance with the Room Data Sheets.
All furniture and equipment shown on the Room Loaded Drawings (as supplemented by Schedule 13) have been installed (and commissioned if appropriate).
All internal and external drainage systems appropriate to this Phase are installed and are operational.
All plantrooms are complete and operational to all sections within this Phase.
All tests on completion have been passed and records are available demonstrating that all mechanical and electrical services installations (as noted on Room Data Sheets) within this Phase have been tested and commissioned in accordance with the Final Commissioning Programme for this Phase.
Note: the process for determining all appropriate tests on completion is as described in "Inspection and Commissioning Process" in Part 1 of this Schedule 12.
Lift and escalator systems as appropriate to the Phase are complete, commissioned and operational.
A proving and training period for the Service Provider has been completed.
A draft hard copy and electronic format of the As Built Specification Documents and Operation & Maintenance Manuals and Health & Safety Files for the Facilities (containing, as a minimum, all the testing and commissioning information so far as it is reasonably practicable to provide at such a stage) have been issued by the Building Contractor to Project Co.
Copies of all available consents relevant to the design and construction of this Phase have been supplied to Project Co. and the Trust.
The area within the Phase is free of all temporary or unused materials, plant and equipment used in connection with the works and/or pre completion commissioning other than those agreed to remain for spares or those required to carry out snagging matters.
The Trust has been supplied with a set of keys, appropriate access codes and swipe cards for access to and within the building.
The fire management strategy has been finalised and agreed with the Trust Fire Officer and Building Control relating to the operation of the Phase.
External works as appropriate to the Phase have been completed and are available for use by the Trust.
The Phase shall be clean in accordance with that described in the Commissioning Process.
All signage applicable to the Phase within the Building Contractor's scope of works has been installed."
The Independent Tester Contract
- Both the Construction Contract and the Project Agreement provided the text of the Independent Tester Contract at Schedule 15 to each contract. The Independent Tester Contract contained the following provisions:
2.1 Project Co engages the Independent Tester to perform the obligations and tasks which are ascribed to the Independent Tester under the Construction Contract and the Project Agreement and which are summarised in Part 1 of Appendix 1 upon the terms and conditions set out below (together the "Services").
2.2 The Independent Tester shall provide the Services independently, fairly and impartially to Project Co and in doing so shall have regard to the interest of the Funders, the Trust, Project Co, the Surety (as defined in the Construction Contract) and the Contractor in relation to the Project Agreement and the Construction Contract (as the case may be) and at such times and at such locations as the parties shall agree from time to time. Whilst the Independent Tester may take account of any representations made by Project Co, the Trust, the Contractor and the Surety (as defined in the Construction Contract) and the Funder's Technical Adviser (as defined in the Construction Contract) (as appropriate), the Independent Tester shall not be bound to comply with any representations made by any of them in connection with any matter on which the Independent Tester is required to exercise his professional judgement.
2.4 The Independent Tester shall provide the Services and the Varied Services:
2.4.1 with the reasonable care, skill and diligence to be expected of a properly qualified and competent professional adviser who has held itself out as competent and experienced in rendering such services for projects of a similar size, nature, scope and complexity to the Project; and
2.4.2 in accordance with Good Industry Practice, all applicable Law and NHS Requirements.
For the purposes of this Clause 2.4 "Good Industry Practice" shall mean the exercise of that degree of skill, diligence, prudence, foresight and operating practice that would reasonably and ordinarily be expected from skilled and experienced operators with appropriately qualified personnel engaged in the same type of undertaking as the Independent Tester in compliance with Law.
2.6 The Independent Tester shall comply with all reasonable instructions given to it by Project Co pursuant to Clause 2.5 above except and to the extent that the Independent Tester reasonably considers that any such instructions vary or might vary the Services or its authority or responsibilities under this Deed or prejudices or might prejudice the exercise by the Independent Tester of its professional judgement in accordance with Clauses 2.2 and 2.4 above. The Independent Tester shall promptly confirm in writing to Project Co (and, other than in the case of instructions relating to the Varied Services set out at Part 2 of Appendix 1, promptly provide a copy of such confirmation to the Trust) whether or not it shall comply with any such instruction setting out the grounds upon which the decision is made.
- Part 1 of Appendix 1 set out the scope of the services. Paragraph 3.1 provided as follows:
"The Independent Tester shall carry out an initial full review of the design of the Project and thereafter shall monitor the development of the design to verify that it complies with the design is described in schedules 8 and 10 to the Project Agreement. If in the professional judgment of the Independent Tester, because of the results of monitoring the sample or other circumstances, more verification work is required, it shall provide a detailed report in respect of that and, if so agreed (acting reasonably) (or determined as between Project Co and the Trust by the Dispute Resolution Procedure) any change in the work scope in this respect resulting in a changing fees will be borne by Project Co, the Trust or the Contractor as they shall agree or as determined by the Dispute Resolution Procedure."
- Paragraph 5.5 contained procedures for witnessing samples of a proportion of the testing and commissioning procedures, prescribing that the Independent Tester was to witness no less than 50% of all tests and to review 100% of all test results. Paragraph 5.6 is important and provided that the Independent Tester shall:
"Determine whether any relevant Phase is finished or complete in accordance with the Project Agreement and advise Project Co and the Trust of the need for any additional surveys and investigations which may be necessary to demonstrate whether a relevant Phase of the Project is finished or complete."
The submissions of the parties
- The submissions of Mr. Peter Fraser QC, who, with Miss Camille Slow, appeared for the Claimant, instructed by Pinsent Masons, were for the narrower construction. They submitted that the obligations of the Independent Tester when certifying whether practical completion of a Phase had taken place were to consider the Completion Criteria set out in Part 2 of Schedule 12 and nothing else.
- Mr. Fraser argued that clause 22.5.1 of the Project Agreement was absolutely clear in requiring the Independent Tester to issue the completion certificate if he was satisfied that completion of a Phase had occurred "in accordance with the Completion Criteria". This provision was echoed in Schedule 12 itself. He relied also on the provisions in clause 22.1.5, which required HSN to give three months notice to the Independent Tester of the date on which it considered that any Phase of the Works would be complete "in accordance with the Completion Criteria", and in particular the fact that such notification was to trigger the activities of the Independent Tester under that clause.
- He said that there was no provision in the Project Agreement that required the Independent Tester to be satisfied that all the work had been carried out strictly in accordance with the contract before issuing a completion certificate. He said that the provision in paragraph 5.6 of the Independent Tester's scope of services simply referred back to the obligations under the Project Agreement.
- Leaving aside the fifteen particular criteria that were identified in Part 2 of Schedule 12, which I understood Mr. Fraser to accept would have to be complied with strictly if they were in absolute terms (for example, the requirement for all furniture and equipment shown on the Room Loaded Drawings to have been installed), Mr. Fraser submitted that the opening bullet points in relation to Phase 8 were focused on the major elements of the building and the use to which the building would be put. He submitted that expressions such as "available", "ready for Trust use", "fully commissioned" and "complete and operational" clearly demonstrate that this was the intention.
- In short, Mr. Fraser was effectively submitting that the building had to be fit for use and occupation consistent with the purposes for which it had been designed and built, as reflected by the provisions of the Project Agreement. As I understood it, his submissions amounted to this: a breach of the specification that did not have any materially detrimental effect on the amenity value and functional use of the building was not one that should prevent the issue of a completion certificate. Still less, the existence of a dispute between the Trust and the Contractor as to what the contracts meant. Mr. Fraser relied on the fact that the terms of the agreements did not preclude the Trust from making a claim for damages in respect of any nonconformity or defects that existed at the time of practical completion.
- I was referred to the observations of Lord Clarke about the approach to the construction of commercial contracts in Rainy Sky SA v Kookmin Bank  UK SC 50, at -. Of course, I bear these in mind. In support of his arguments Mr. Fraser also referred to well known authorities on practical completion to the effect that practical completion allowed the employer to take possession of the works and use them as intended (for example, per Salmon LJ in Jarvis & Sons v Westminster City Council  3 All ER 1025, at 1031). Whilst the general practice in the industry is obviously relevant by way of background, if the words of a particular contract pointed to a contrary conclusion then those words must prevail.
- Mr. Stephen Dennison QC, who appeared for HSN, instructed by Herbert Smith Freehills, largely supported the submissions of Mr. Fraser and Miss Slow. He submitted that the requirement of the Project Agreement was no more sophisticated than saying that completion is achieved once the Completion Criteria are satisfied. They were the benchmark by reference to which the Independent Tester was to certify or refuse to certify completion.
- Miss Stephanie Barwise QC, who, with Mr. Riaz Hussain, appeared for the Trust, instructed by Ward Hadaway, contended for the wider approach. I should mention at once that at the time of the injunction proceedings in 2012 the Trust was represented by different solicitors and counsel.
- Miss Barwise relied on clause 22.5 of the Construction Contract, which required the Contractor to give three months notice to the Independent Tester and HSN, amongst others, of the date on which it considered that any Phase of the Works would be complete "in accordance with the Trust's Construction Requirements, the Completion Criteria and this Contract". This showed, she submitted, that in order to achieve completion of a Phase the Contractor would have to comply with all three sets of obligations - the provision would make no sense otherwise. She submitted that it would be a perverse construction of the agreement if completion could be certified even if the works did not accord in significant respects with the TCRs. This submission may be correct, but of course it depends on what is meant by "significant respects".
- Miss Barwise invited the court to step back and remember that this project concerns of a healthcare facility. She submitted that we would not be having this debate if what we were talking about were small defects in the machinery in, for example, the renal osmosis room. Again, that may well be correct: as I suggested in argument, the Independent Tester may well have to take a zero tolerance approach where clinical facilities and equipment are concerned - not least, perhaps, because the Independent Tester may not be a clinician.
- However, her principal argument was founded on clauses 22.1.1 and 22.1.2 of the Project Agreement, which she described as the crux of the matter. She submitted that the clear intention of clause 22.1.1 was that the Trust was to provide HSN with a draft of the Final Commissioning Programme relating to the relevant Phase, which was then to be discussed and agreed by the parties (or, failing agreement, resolved by the contractual Dispute Resolution Procedure). She did not adopt the argument that had been advanced in the injunction proceedings that the existence of a Final Commissioning Programme was a condition precedent to the issue of a completion certificate: her argument was rather more subtle.
- She pointed out, correctly, that both Parts 1 and 2 of Schedule 12 contained the heading that I have set out at paragraph 13 above. This was not an error, she said, because the Final Commissioning Programme that would be worked up during the Completion Process was intended to define what the tests on completion would be. As I understood her submissions, the Final Commissioning Programme would contain all the points that the Trust and the Independent Tester wished to raise in relation to that Phase of the development. She submitted that was clear not only from clause 22.1.1 but also from what happened in practice although, in the case of Phase 8, the Final Commissioning Programme was never in fact agreed. She pointed out that testing and commissioning in accordance with the Final Commissioning Programme was one of the identified Completion Criteria.
- In argument, she put it this way (at Day 1/149):
" ... it's reiterated within the FCP; it gets picked up in the FCP. As your Lordship will see from the document I'm about to show you, what the parties did is lift those 15 points and then put them into a schedule and they both adopted it. So they fed into it, under section 5, the tests on completion. They fed in a series of items, which they had agreed as being tests which would be passed, whether those tests were walk-round inspections or other tests."
- In these circumstances she submitted that, where clause 22.1.2 referred to the Final Commissioning Programme replacing the Outline Commissioning Programme, it meant, in effect, that it replaced the entirety of Schedule 12. The fact that both parts of Schedule 12 were headed "Outline Commissioning Programme" reinforced this conclusion. Miss Barwise accepted that what the parties actually did is not an admissible aid to construction, but I understood her to rely on it as an example of how the contractual machinery worked in practice. Effectively, her submission was that once the Final Commissioning Programme was agreed, neither part of Schedule 12 was needed any more because the whole schedule became subsumed within the Final Commissioning Programme.
- Miss Barwise did not shrink from the conclusion that, if her argument were correct, it meant that if the Trust could identify any non-conformity with the terms of the contract and bring it to the attention of the Independent Tester, he would be bound to refuse to issue a completion certificate if he agreed that the nonconformity alleged did in fact exist. On Miss Barwise's approach it did not matter whether the nonconformity would or would not adversely affect the amenity value or functional use of the offices. Beguilingly though it was argued, this was clearly a bold submission.
My conclusions on the effect of the contract
- In my view, the operative clause of the Project Agreement is clause 22.5. This is the clause that says how the Independent Tester is to go about issuing a Phase Certificate of Practical Completion. It requires the Independent Tester to issue that completion certificate when he is satisfied that completion of a Phase has occurred in accordance with the Completion Criteria. It goes on to provide that, absent manifest error, bad faith or fraud, the certificate shall be conclusive evidence for the purpose only of ascertaining the relevant Payment Commencement Date and that the Phase Actual Completion Date has occurred on the date stated in the certificate. It is relevant, in my view, that the certificate is not conclusive evidence of the quality of the work or that the buildings as built are in accordance with the specification.
- The Completion Criteria are defined in Schedule 1 to mean "the Completion Tests as defined in Part 2 of Schedule 12 (Outline Commissioning Programme) and as may be applicable to each Phase". The Completion Process is defined as the process and procedures for carrying out notifications, testing, inspections and completion certification as set out in Part 1 of the Schedule.
- In my judgment, the ITPs referred to in Part 1 of Schedule 12 are not just confined to commissioning activities as usually understood. This is made clear on the second page of the document, which refers to various types of inspection that are to take place before commissioning even begins.
- As I have already mentioned, Part 2 of Schedule 12 reiterates that the Completion Criteria set out in the document are to be satisfied to enable the Independent Tester to issue the Phase Actual Completion Certificate.
- It seems to me that the real difficulty with Miss Barwise's argument is that it overlooks the definition of Outline Commissioning Programme which I have set out above. That is confined expressly to the programme for each Phase set out in Part 1 of Schedule 12. There is no reference to Part 2 of Schedule 12 in that definition. As I have already mentioned, Part 1 of Schedule 12 lists a number of draft programmes for various stages of the works, each of which is called an "outline commissioning programme". In my view it is an inescapable conclusion, as Mr. Fraser submitted, that those are the programmes referred to in the definition of Outline Commissioning Programme.
- This conclusion fits with the structure of the Completion Criteria set out in Part 2 of Schedule 12. Several of those criteria do not involve any sort of commissioning: for example, whether finishes are complete in accordance with Room Data Sheets or whether all the relevant signage has been installed. Those are matters of checking and counting, not commissioning. In addition, the fifth item on the list of Completion Criteria, which is where the only place where the Final Commissioning Programme is mentioned, concerns the mechanical and electrical services installations, which are installations that usually require commissioning.
- As I have already noted, in some of the fifteen particular criteria set out there will be little or no room for any exercise of judgment as to whether or not they have been satisfied: for example, either the internal finishes are complete in accordance with the Room Data Sheets or they are not. The same goes for the installation of the furniture and equipment shown on the Room Loaded Drawings. By contrast, the requirement for all the internal and external drainage systems appropriate to the Phase to have been installed and be operational may leave some room for judgment. Suppose, for example, some of the runs or falls of the external drains do not accord precisely with the detail shown in the drawings, yet the drains may be complete and, in the view of the Independent Tester, fully operational.
- More generally, the references in the opening bullet points to the COBs and the link bridges to be "available and ready for use by the Trust" are not precise. In my judgment the phrases "use by the Trust" or "Trust use" mean the anticipated use of the offices following proper performance of the Project Agreement. Therefore any material departure from the specification or the Trust's Construction Requirements ("TCRs") would be potentially likely to have an adverse effect on the amenity and functional utility of the offices. As I have already noted, even a fairly minor departure from a clinical requirement may well lead the Independent Tester reasonably to conclude that it is likely to have a material effect on the Trust's ability to use that facility safely and properly.
- But in my view if the Independent Tester reasonably considers that a departure from the specification or the TCRs has not had and will not have any material adverse impact on the ability of the Trust to enjoy and use the buildings for the purposes anticipated by the contract, then he may conclude that the Completion Criteria have been met. As a matter of business efficacy and commercial common sense, I can see no justification for importing a requirement that any breach of the specification, however technical or minor, must prevent the Phase Certificate of Practical Completion from being issued.
- It follows also that the existence of a dispute between the Trust and the Contractor as to whether or not some particular nonconformity with the specification or TCRs either exists at all or prevents the offices from being taken into use in the manner anticipated by the contract cannot be relevant to the exercise of the Independent Tester's judgment. He must decide for himself, having received any representations from the parties, as to whether or not the nonconformity alleged (assuming that he accepts that it is a nonconformity) has or is likely to have a materially adverse effect on the enjoyment and use of the building by the Trust in the manner contemplated by the agreements. If he concludes that it will not, then he can issue the completion certificate and leave the Trust to its remedy in damages.
- This is quintessentially a matter of fact and degree. During argument I put to Miss Barwise a hypothetical example. Suppose that the Contractor had misread the drawings with the result that the vertical distance between the floor slabs on each level was 50 mm less than it should have been. The Contractor takes steps to mitigate the effect of this by reducing the void above the false ceilings by 25 mm. The result is that the ceilings on each floor are 25 mm lower than they should have been.
- If, for the purposes of the argument, one assumes that the slightly lower ceilings will make absolutely no difference to people using the offices, for example, by raising the ambient temperature, and are barely noticeable from an aesthetic point of view, is the Independent Tester bound to refuse to issue a completion certificate? Miss Barwise says yes. Mr. Fraser says no.
- Of course, the practical answer may be that in those circumstances no reasonable body in the position of the Trust would object and so the question would be academic. However, experience shows that people and corporate bodies do not always behave reasonably. The hypothetical trust may already be in dispute with the contractor and so seizes on this nonconformity as a commercial lever to delay completion and improve its position in the negotiations. There is a suggestion that that is what is happening here, and it certainly looks as if there may have been an element of exaggeration in some of the witness statements, but that is not an issue before me and so I do not propose to say any more about it.
The declaratory relief sought
- The declarations sought by the Claimant are appended to this judgment.
- As to declaration 1, I consider that the Claimant is entitled to a declaration along the lines sought but, subject to hearing counsel on the precise form of words, I would suggest that the declaration is along the following lines:
"That the issue of the state of completion of the works that are the subject of the Construction Contract generally, and in particular Phases 8 and 9, should be considered by the Independent Tester against the Completion Criteria contained in Schedule 12, Part 2, to the Construction Contract and the Project Agreement and in the light of the judgment dated [ ] July 2014, without those criteria being amended, varied or otherwise influenced by any extant dispute between the Project Company and the Trust under the Project Agreement."
- In relation to declarations 2 and 3, both HSN and the Trust submit that circumstances have not arisen that would justify such declarations. Whilst they have not made any specific submissions in opposition, they invite the court not to make the declarations sought. I agree. It is usually inappropriate for the court to make declarations that are directed to a hypothetical situation. There is no evidence of any proposal to introduce a "third party certifier" and I therefore conclude that I should not make any declarations along those lines.
- As to declaration 4, I consider that this adds nothing of any value to declaration 1. I therefore decline to make that declaration. Subject to anything that may be said by counsel, the same goes for declaration 5.
- I decline to make declarations 6 and 7, and I think that on reflection Mr. Fraser concluded that he could probably not pursue them because essentially they raise matters of fact and degree that are inappropriate for investigation in Part 8 proceedings. But whether or not that is so, I consider that they are not appropriate for that reason.
- I have considered the counter-declarations proposed by Mr. Robin Smith, on behalf of the Trust, but I do not consider that any of them are appropriate, largely for the reasons I have given in relation to the other declarations.
- I consider that the Claimant is entitled to a declaration on the lines that I have set out above, but only in relation to declaration 1. I am unpersuaded about declaration 5, but if it is to be submitted that it adds something to declaration 1, then I am prepared to hear counsel further.
- I refuse the application in so far as it relates to declarations 2-4 and 6-7.
- I will hear counsel on any questions of costs or other issues arising out of the form of relief.
The declarations sought by the Claimant
- That the issue of the state of completion of the works that are the subject of the Construction Contract generally, and in particular Phases 8 and 9, should be considered by the Independent Tester against the Completion Criteria contained in the Construction Contract, without those criteria being amended, varied or otherwise influenced by any extant dispute between the Project Company and the Trust under the Project Agreement.
- That any agreement between the Project Company and the Trust to appoint a further "third party certifier" (whether as described in the letter of 11 February 2014 from the Project Company to the Claimant, or at all), whether to evaluate compliance with the Building Regulations 2006 and/or issue a "completion certificate" and/or otherwise, would not be binding upon the Independent Tester (and to that extent therefore would be void) and of no legal effect upon the function of the Independent Tester under the Construction Contract.
- That any agreement that the Project Company and the Trust may enter into inter se to appoint a further or additional "third party certifier" (whether as suggested in the letter of 11 February 2014 or at all), whether to evaluate compliance with the Building Regulations 2006 and/or issue a "completion certificate" and/or otherwise, would not be binding upon (and to that extent therefore would be void) and of no legal effect upon the Claimant's rights and obligations under the Construction Contract.
- That the existence of any dispute between the two Defendants themselves about the works does not of itself constitute one of the Completion Criteria against which the Independent Tester should consider the question of completion of the works in Phase 8 and/or Phase 9.
- That the Completion Criteria against which the Independent Tester must consider the progress and completion of Phase 8 of the works are those identified in Schedule 12 Parts 1, 2 and 14 of the Project Agreement, incorporated into the Construction Contract by Clause 19 and Schedule 1 thereto.
- That upon the proper construction of the Construction Contract the matters listed in paragraph 4.8 of the Independent Tester Monthly Report of February 2014 are not matters included within the Completion Criteria for Phase 8 contained in Schedule 12 Part 1 of the Project Agreement, such that resolution or status of those matters has no effect upon consideration of the Phase 8 Completion Date under clause 19.1 of the Construction Contract.
- That upon the proper construction of the Construction Contract the matters listed in paragraph 4.8 of the Independent Tester Monthly Report of February 2014 are not matters included within the Completion Criteria for Phase 9 contained in Schedule 12 Part 1 of the Project Agreement, such that resolution or status of those matters has no effect upon consideration of the Phase 9 Completion Date under clause 19.1 of the Construction Contract.
Note 1 My emphasis. [Back]
Note 2 My emphasis [Back]
Note 3 My emphasis. [Back]
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