Taylor Woodrow Holdings Ltd & Anor v Barnes & Elliott Ltd

I am going to direct that a transcript be prepared of my judgment and it is to be made available to you. Applications in relation to costs and any other applications consequential I will date from when you and counsel have had chance to consider it.

This is an appeal under section 69(1) of the Arbitration Act 1996 from an interim award of Eric Mouzer, an arbitrator, made on 18 August 2004. The appeal is brought without leave by reason that the terms of the contract between the parties provide that appeals from the arbitrator may be made directly to the court without leave.

By an agreement of 4 August 2000, executed as a deed, Taylor Woodrow Holdings and George Wimpey (Southern) Limited ("the consortium") employed Barnes & Elliott ("Barnes") to carry out and complete the design, refurbishment and conversion works at Longrove Park, a former psychiatric hospital, near Epsom in the county of Surrey. The object was to create 64 duplexes out of the north and south blocks comprising the main buildings, and to provide new ancillary amenities such as parking spaces for both visitors and residents, bin stores, footpaths, garages and safe vehicular and pedestrian access.

The works were commenced on or about 4 August 2000. Delays occurred and the works were not completed until June 2002. They should have been completed on or about 3 December 2001.

The consortium has claimed that it is entitled to liquidated damages in the sum of £843,500. The arbitrator's interim award contained his decision on two preliminary issues arising under the contract. This was a JCT Standard Form of Building Contract with Contractors Design (1998 edition), subject to amendments made by the parties. The agreed preliminary issues that were raised for determination by the arbitrator were:

The contract provided for sectional completion. The works were divided into six sections. The contractual provisions, which are relevant to the preliminary issues determined are:

Clause 210 of the Employers' Requirements is entitled "Completion in Sections or Parts". It is divided into three bullet points:

Under the last bullet point is a description of the requirements before sectional practical completion can be achieved. These are much wider and refer to the completion of an appropriate number of parking spaces, garages, bin stores, footpaths and the pedestrian and vehicular access for both potential purchasers and owners. These are all matters that it is contemplated should be ascertained or ascertainable for marketing and conveyancing purposes. For instance, for access what licences or rights of way are necessary? In relation to such matters as bin stores, car parking, the identification of the number and location of those to be appropriated to each living unit. Those matters are important. There is no requirement that each living unit must enjoy the use of a garage (as opposed to a parking space) or two garages (as opposed to one). Clearly intending purchasers or lessees may have different requirements as to these ancillary amenities, which may fall to be considered as late as at the marketing stage. The planning requirement for the whole site envisages sufficient parking for both visitors and residents.

The contractor's proposals do not, in my judgment, afford any assistance as to which of the ancillary amenities are appropriated to any particular living unit or section. The proposals include a programme which shows the proposed sequence, timing and duration of construction works. There are six sections referred to in the bar chart programme. The works shown in these sections relate to the creation of the living units in the north and south blocks of the old hospital building. The external works, which include the provision of access roads, common services, parking spaces, garaging and hard and soft landscaping are not identified as being part of any of the six nominated sectional works. In effect they comprise a seventh or additional section. They contain many of the works which are the subject of the prescribed requirements to achieve partial possession of works and practical completion of a section under the Employers' Requirements. Nowhere in the contract is there a provision which divides the whole of the works into six discrete sections. Mr Bowdery argues that this is not an oversight because the contract was a design and build contract and gave Barnes considerable discretion as to matters such as the lay-out of the living units and, by analogy, a similar discretion as to which of the ancillary amenities would be appropriated to each living unit. On the face of it, that would confer upon the contractor a considerable degree of control as to when practical completion of a section was complete, irrespective as to whether or not it accorded with the reasonable commercial requirements of the consortium developers to be able to market and to progressively sell the living units together with suitable facilities, which include garages, parking spaces and bin storage facilities.

Mr Bowdery further submitted that practical completion of a section is clearly intended to be ascertained by reference to the completion of living units because the programme in the contractor's proposals refers to six sections of living accommodation. Further, he argues that by virtue of Appendix 1, liquidated damages are calculated by reference to the number of living units comprising a section. Thus, if a section included twelve living units, the liquidated damages would be 500 x 12 per week, namely £6,000.

Miss O'Farrell for the defendants submitted that the arbitrator's construction of the agreement was correct. At paragraph 51 et seq of his award the arbitrator said:

Mr Bowdery's submission that Barnes were empowered under the contract to determine, as they wished, during the currency of the contract what comprised a section and whether it was complete, I reject. It does not accord with commercial good sense that what constitutes a complete unit for sale or letting is a matter for the contractor, as opposed to the developer who markets and sells during the rolling contract process. In my judgment the arbitrator's construction of the contract and provisions as to what comprised the work in each section is correct. There is no sensible mechanism contained in the contract enabling the works to be identified for the purposes of sectional practical completion under clause 24.

In relation to part possession, the Employers' Requirements paragraph 210 (which I referred to earlier) and clause 17 govern this. Clause 17 which deals with partial possession by the employer. 17.1 is in these terms:

17.1.14 provides:

At paragraph 77 of his award, the arbitrator found that the value of the part taken into possession was calculable. An employer wishing to enter into possession of any part of the works would have satisfied himself under the Employers' Requirements paragraph 210 that it was functional, and a competent quantity surveyor would be able to ascertain its value, particularly since under clause 17.1 the contractor would have identified in writing the parts taken into possession.

The difficulty which arises was identified by the arbitrator when considering the effect of 17.1.4. He concluded, in my judgment correctly:

Mr Bowdery submitted that, applying the correct approach to the construction of the contract, the arbitrator ought to have decided that clause 17.1.4 of the JCT conditions were immaterial to the issue he had to decide, first, because the rate of liquidated damages was tied to each unit; and secondly, in the event that possession of a unit was taken before practical completion of the applicable section, liquidated damages would be payable from the date for completion of the sections to the date of possession of the unit.

As to the first matter, it is correct that the rate of the LADs was referable to the number of living units in the section. But as to the second, whilst liquidated damages would be payable from the date of the completion of the section to the date of possession of the unit, its amount was intended to be adjusted to give proportionate relief based upon the value of the partial works taken into possession, that relief to be calculated by reference to the ratio set out in 17.1.4.

Thirdly, Mr Bowdery submitted that the parties did not provide for any liquidated damages to apply to other work within the section, save for other units. Fourthly, he submitted that there was no need, therefore, to undertake the calculation in clause 17.1.4 because there were no damages payable for non-completion of other work in the section. The thrust of this part of the submission is that 17.1.4 was redundant and that no proportionate relief thereby is appropriate.

I reject that submission. In my judgment, the arbitrator's analysis was correct. He concluded that 17.1.4, which governs the computation of the relief from LADs on account of partial possession, was operable only if a valuation could be placed on the sectional works. He concluded, in my judgment rightly, that the contract failed to provide any means of ascertaining what was contained in any section and there was no certainty as to what works comprised each contract sections. It was not possible to value any sectional works and therefore the proportional relief against LADs contemplated were incapable of being calculated.

For the sake of completeness I set out clause 24, which governs liquidated damages:

It follows inexorably that if for the purposes of clause 24 the contents of any section were not ascertained in the contract, or any mechanism agreed between the parties whereby they could be ascertained, there is no basis for triggering the operation of clause 24 since it would be uncertain what had remained undone and when. The arbitrator so found. In my judgment his construction of the contract was correct. Clause 24 was void for uncertainty; it was incapable of operation. Clause 17.1.4 was inoperable. By virtue of that, where partial possession was given, the proportionate relief from any LADs on the section was incapable of calculation. Any LADs, referable as they were to living units, however comprised, would not bear a proper relationship to the extent of the section not taken into possession.

This contract was a JCT contract, which had been the subject of amendment. It endeavoured to provide for sectional completion. A sectional completion supplement is published by the joint contract tribunal for this purpose. The dangers inherent in not using this are exemplified in this case. It is for the court applying business commonsense and meaning to the construction of commercial documents to endeavour to avoid frustrating the reasonable expectations of the businessman. But it is not for the court, however, to re-write the contract. The provisions of the contract considered by the arbitrator, in my judgment, cannot be characterised as ambiguous. They were in fact uncertain and inoperable. There is no question, in my judgment, of the contra proferentum rule applying in this case. That applies only where there is a clearly identified ambiguity.

In view of my findings as to the first conclusion of the arbitrator, it is not necessary in my judgment to consider the second matter because the first matter disposes of this appeal. I dismiss this appeal. I say in passing that the approach of the arbitrator to the second limb is an approach that I could not fault, save that, interestingly, he received the evidence of forensic accountants. That evidence was not formally put before me by counsel. I say no more about it.

I direct that a copy of my judgment be made available to the parties.