Decoma UK Ltd v Haden Drysys International Ltd

Pursuant to a Claim Form dated 7 September 2004, the Claimant, 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.

The paint-spraying system was designed, built and installed by 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.

The Contract documents consisted of a set of General Conditions, together with Annexures A-T. It was the General Conditions, comprising Articles 1-16 inclusive, which set out the parties’ principal rights and obligations to one another. It is those General Conditions which are the main subject matter of this Judgment.

In answer to the claims made by 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.

It was plainly sensible for 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.

Accordingly, having set out the Issues and the Assumed Facts (Sections B and C below), I outline some of the principles of construction which I consider to be of general relevance to these Preliminary Issues (Section D below). I then go on to set out the express terms of the Contract and to explain how I consider such terms operated together (Sections E and F below). I then set out my conclusions as to how the proper interpretation of the Contract affects the individual Heads of Claim made by Decoma (Section G below) before finally answering the Six Preliminary Issues (Section H below).

The Preliminary Issues ordered by Judge Seymour QC identified each of the claims made by Decoma in the Particulars of Claim (save for the claim for liquidated damages) and then asked:

The Assumed Facts for the Preliminary Issues divide into two parts: the general, and those relevant to each Head of Claim. I set out in paragraph 9 below the general Assumed Facts, which were numbered 1 to 6 inclusive. The remaining Assumed Facts, numbers 7 to 20 inclusive, are concerned with the individual Heads of Claim and are therefore set out as part of my analysis of each such Head of Claim in Section G below.

The general Assumed Facts are as follows:
”1. Decoma is an operator of paint spraying facilities and Haden specialises in the design and construction of process plants.
2. By contract dated 13 October 1999 (“the Contract”) 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.
3. The contract was a bespoke one specifically negotiated between the parties. It was not on either party’s standard terms.
4. Haden purported to design, construct, install and commission the plant but:
(a) It did not complete the plant, because it never fastened all the Equipment in place in accordance with the Specification so that it was capable of debugging.
(b) The plant Haden installed and supplied was and is incapable of meeting the Equipment Performance Specifications and/or the Specifications.
(c) The plant was never tested as anticipated by the Contract.
(d) Had it been so tested, it would have failed the Equipment Performance Tests and/or the Final Acceptance Tests.
5. Haden carried out certain remedial works to try to improve the plant from 2000-2002, especially in relation to the conveyor track and stabilisation.
6. Decoma also carried out various works from 2000 onwards to remedy defects in the plant installed by Haden.”

Accordingly, it is important to note at the outset that, on the basis of the Assumed Facts, due to the breaches of contract on the part of 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.

Leading Counsel referred to a number of authorities concerned with the proper construction of commercial contracts. Where those authorities relate to particular words or phrases in this Contract, the meaning of which is disputed, I deal with them in the part of the Judgment concerned with that particular provision. But, in addition to these specific disputes, there were more general points of principle which were debated, and I identify those in Sections D2-D4 below.

Towards the end of his first written submissions on behalf of 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.

This presumption is an important principle of construction of commercial contracts for the reasons explained by Lord Jauncey of Tullichettle in Alghussein Establishment 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.

It is also important to note the kind of clauses on which 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.

Exclusion clauses, and for these purposes I include the kind of cap clauses referred to above, have been the subject of much comment by the courts in recent years. The general principle is summarised at paragraph 12.19 of The Interpretation of Contracts :

“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 Production v 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’s view 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 be very 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 Ash v Modern Engineering [1974] AC 689, at pages 717 and 718.

Again, therefore, what matters is the wording of the clause in question. Is it sufficiently clear and fairly susceptible of one meaning only? In another context, the importance of the words themselves was stressed by Sir Thomas Bingham MR in Arbuthnott v Fagan [1996] 1 Lloyd’s Re Insurance Law Reports 135 where, at page 139, he said:

“Courts will never construe words in a vacuum. 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.”

Although both Leading Counsel cited passages from The Interpretation Of Contracts, and in particular Chapter 7 thereof, which helpfully sets out the canons of construction, they both properly stressed that these principles could only be taken so far in assisting me in the proper interpretation of the relevant Articles. Indeed, as the learned author makes clear at paragraph 7.01:

“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 similar vein, 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.”

Mindful, therefore, of both the canons of construction and the particular principles set out at Sections D2 and D3 above, I now turn to the relevant provisions of the Contract.

The individual Articles set out below often consist of indigestible chunks of prose which, on analysis, contain a number of separate rights and liabilities. Accordingly, I have sometimes added spacings between one part of the provision and the next, and have sometimes included numbers to differentiate between separate obligations. Where I have adopted this latter methodology, the numbering is in bold. I take some comfort from the fact that, before me, both Leading Counsel adopted precisely the same course.

Article 3 is the first of the 15 Articles of direct relevance to this dispute. It set out a large number of responsibilities owed by the Contractor, Haden, to the Owner, Decoma. For present purposes, the two most important are at Articles 3.1 and 3.2, as follows:

Performance of Work

Design and Construction

Article 4 set out 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 6.1 allowed 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.

Article 6.4 was not, in fact, concerned with Change Orders at all. It was a clause which allowed for the possibility that anticipated or actual events of “Force Majeure” might necessitate adjustment to the Project Schedule. Force Majeure was given a wide definition at Article 1.17 of the Contract, and was said to mean:

“…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 7.1 provided that:

“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.”

“The Final Completion Date was defined as “the scheduled date of 14 March 2000 set forth in the Project Schedule as may be altered in accordance with the Change Order procedure contained within this Agreement.”

Article 7.2 provided for a payment upon execution of the contract of 20% of the Contract Price. Article 7.4 set out the Milestone Payments of the Contract Price as follows:

“(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

10% of the Contract Price upon Completion of Commissioning

It will be seen from Article 7.4 that the last three Milestone Payments, at (d) (e) (f), were due at 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.

Article 1.4B defined ‘Completion of Installation’, which triggered Milestone Payment (d) as ‘Substantial Completion’. That was itself defined, in Article 1.29 as:

“…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…”

Article 1.4C defined the next stage in completion, namely ‘Completion of Commissioning’ which triggered Milestone Payment (e) as:

“…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”

Article 1.14 defined the ‘Final Acceptance Date’, which triggered Milestone Payment (f) as:

“…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.”

Article 1.15 defined ‘Final Acceptance Test’ as:

“…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.”

The definitions set out in paragraphs 28-31 above are relevant, not only to Article 7, but also to Article 10, set out below.

Article 10.2 was concerned with Equipment Performance Tests. It provided:

“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.”

Article 10.3 was concerned with Final Acceptance Tests. That provided:

“The Contractor shall successfully complete the Final Acceptance Tests to the reasonable satisfaction of the Owner on or before the Final Completion Date.”

Article 10.4 was headed ‘Effect of Non-Performance’. It provided:

“If the Equipment Performance Tests or the Final Acceptance Tests, as applicable, do not, in the opinion of the Owner, acting reasonably and not vexatiously, 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.”

The reference to Article 10.5 in Article 10.4 was effectively a reference to a procedure for independent testing. Article 10.5 anticipated that there may be disputes between 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.”

Together with Article 12 (Completion Guarantees), Article 11 lies at the heart of the present dispute between the parties. At this stage, therefore, I simply set out the entirety of Article 11 as follows:

“11.1

Contractor’s Warranties

i)

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.

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 12.1 was concerned with Substantial Completion, the definition for which has been set out above. Article 12.2 contained 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 or vexatiously 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”.

Article 12.3 was the provision concerned with Liquidated and Ascertained Damages. Such damages were payable if 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”.

Article 12.3A was entitled ‘Post Final Acceptance Date losses’. The first part of the Article provided as follows:

“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 that

subject 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”). “

The next parts of Article 12.3A set out the “formula for maximum aggregate liability”. In essence this capped the claims available under Article 12.3A at £625,000 (if there was no entitlement to liquidated damages under Article 12.3) and a maximum aggregate amount of £800,000 if there was an entitlement to an amount of liquidated damages over £225,000 under Article 12.2.

Having set out the formula, Article 12.3A then stated expressly:

“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”.

Article 12.4 was entitled ‘Limitation of Liability’. It consisted of four distinct parts and I set out this one long piece of prose by reference to those elements.

First Part

“Except for

i)

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 14.1 allowed either party to terminate the Contract if the other ceased to carry on business or became insolvent. Article 14.2 allowed either party to terminate the contract if the other failed to perform its obligations thereunder. It provided:

“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 and vacate the Facility forthwith. Payment shall be in accordance with Article 14.3”.

Article 14.3 was concerned with payment obligations in the event of termination. If 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 15.1 was entitled ‘General Indemnity’. It was a lengthy Article and is set out below with suitable spacing to make it intelligible:

“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; or

ii)

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/or

b)

Override any limitations expressly provided for under Article 12.4”.

Article 16 consisted of 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”

In this Section of the Judgment, I set out an explanation, by reference to the Contract Articles, of how the Contract operated. Before doing so, I should make two general points.

First, there can be no doubt that, whilst the Articles that made up the General Conditions were drafted for this specific commercial transaction, the wording of those Articles is sometimes imprecise and the relationship between one provision and another is occasionally unclear. This has lead directly to a number of the present disputes between the parties. In trying to provide a commercial and purposive interpretation of the Contract as a whole, I have therefore been guided by the principles set out in Section D of this Judgment. I should however say that, as I demonstrate below, many of the important provisions of the Contract are, in truth, entirely clear and incapable of any interpretation other than the one which I have provided.

Secondly, it is right to note that it was Mr Taverner QC, on behalf of 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.

The Contract differentiated between the parties’ rights and liabilities as they existed prior to Final Acceptance, and as they were after the Final Acceptance of the 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.

Before Final Acceptance 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:

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).

So what was going to happen if 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.

In addition, delays on the part of 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.

In these circumstances, if there were problems (and therefore delays) in the proper completion of the paint-spraying system, 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.

Of course, a problem might arise if the delays in the completion of the paint-spraying system were the result of a deep-rooted failure on the part of 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.

The more draconian option would have been the termination of the Contract pursuant to Article 14.2. I accept Mr Sears QC’s general submission that this was not necessarily an attractive option for 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.

In the alternative, 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.

Article 12.3

For the reasons which I have already identified, I am satisfied that, prior to Final Acceptance, 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.

Article 3.1 and 3.2

Although it might not be easy to see how or why 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.

Article 11.1

One of the big disputes between the parties is whether, prior to Final Acceptance, 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.

First, it would have been wholly unnecessary and impractical for the Article 11.1 warranties to be actionable whilst the paint-spraying system was still being designed, constructed and installed. Whilst the works were being carried out, there would have been times when parts of the paint-spraying system would have complied with the relevant Equipment Performance Specification, and doubtless other times when, in order to accommodate the next element of the ongoing Work, those same parts would not have complied. It would be absurd if 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.

Secondly, the location of Article 11 in the Contract, coming as it does after Article 10 (which dealt with Performance Testing) and before Article 12 (which dealt with Completion Guarantees) also demonstrates that the warranties in Article 11.1 were treated by the draftsman as being warranties that came into effect once Final Acceptance had been achieved.

The third point is perhaps the most important of all. Contrary to Mr Sears QC’s submission, I find that a commencement date was clearly provided for in Article 11.1. As I pointed out to him during the course of his submissions, the warranty at Article 11.1(ii) is expressly stated to commence at “the Final Completion Date”: that was the clearest possible statement that this warranty was not intended to be actionable before Completion. This is therefore an express provision which reflects the commonsense position outlined in paragraph 63 above. Moreover, the warranty at Article 11.1(ii), to the effect that the Materials and Equipment would comply with the Equipment Performance Specifications, is rightly accepted by Mr Sears QC as duplicating the major element of the warranty at Article11.1(i), which also warrants that the Materials and Equipment would comply with the Specifications in the Contract. It would then be a 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.

A subsidiary debate existed in respect of the reference to ‘Final Completion Date’ in Article 11.1(ii). Mr Taverner QC submitted that, given that the Final Completion Date was defined as14 March (unless extended), the reference should have been to the actual Final Completion Date (i.e. Final Acceptance) to ensure that the warranty took effect when the work was actually completed, not when it should have been completed. This was a point that Mr Sears QC originally conceded, but he later submitted that the reference to the Final Completion Date meant what it said. In my judgement Mr Sears QC’s original concession was correct. As against the actual progress of the work, the Final Completion Date was essentially meaningless: it was a random date identified by the Contract terms, not the physical realities of the progress of the work on site. At the Final Completion Date, the Work, Equipment and Materials might have been completed, but, equally, they might not have been completed for a 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.

Fourthly, the warranties in Article 11.1 were all stipulated to end a set period after the Final Acceptance Date: see Article 11.2. It would therefore be a purposive construction of the Article as a whole to conclude that the Warranties also commenced on that date. That is also a further reason to conclude that the reference to Article 11.1(ii) was to Final Acceptance.

Fifthly, in my 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.

Sixthly, and finally, I consider that a claim by reference to Article 11.3, required a breach of Article 11.1 and could be quantified by reference to two potential heads of claim: a claim for direct costs for the rectification of the defective work, expressly allowed under Article 11.3, and a claim for indirect losses, such as loss of profits/loss of use, which was only permitted under Article 12.3A. Both heads of claim required, as the necessary “trigger mechanism”, a Notice under Article 11.3. This is dealt with in greater detail below. For present purposes, what matters is that Article 12.3A, dealing with the claim for loss of profit/loss of use as a result of problems with the paint-spraying system due to breaches of the warranty at Article 11.1, was expressly said to apply only after Final Acceptance. That, of course, makes perfect sense, because a claim for loss of profit/loss of use prior to Final Acceptance would be covered by the exclusive remedy of liquidated damages under Article 12.3. Accordingly, reading the Contract as a whole, it seems to me that the claim under Article 11.3 was similarly limited, and that therefore the warranty at Article 11.1, which triggered Article 11.3, was also not actionable until after Final Acceptance.

For all these reasons, therefore, I conclude that 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.

Mr Sears QC submitted that, as a matter of construction, 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.

The first is that the time when Article 11.1 becomes actionable is clear for the reasons set out above. Indeed the express intent of Article 11.1(ii), stipulating the relevant commencement date, is just not capable of any other meaning. Therefore, in accordance with the principles I have set out in Section D above, I am bound to give effect to the clear words used. The second answer can be found in the point to which I have already alluded in paragraph 70 above. There can be no obvious advantage to 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.

Article 11.3

I have counted as many as seven separate disputes between the parties in respect of Article 11.3. These can, I think, be broken down as follows:

The event that triggers the Article 11.3 procedure is a breach of “the foregoing warranties”. ‘Foregoing’ in this context must mean the warranties previously mentioned in the Article, namely those set out in Article 11.1, which are then limited in time by Article 11.2. It would be artificial to conclude that ‘foregoing’ meant ‘every warranty in the Contract’, given that some specific warranties come before Article 11.3 and some, which could not on any basis be described as “foregoing”, can be found in the Contract after Article 11.3. I also note that precisely the same words, namely ‘foregoing warranties’, are used in Article 12.3A, where they are expressly related back to Article 11.1. That is a further reason why, on the words of the Contract as a whole, I have concluded that the reference in Article 11.3 to ‘foregoing warranties’ is a reference to the warranties in Article 11.1.

In any event, it is appropriate to recall that, on 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.

Mr Sears QC is essentially arguing that ‘foregoing warranties’ means or should read ‘any Contractual obligation on the part of 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.

The parties are agreed that Final Acceptance was never reached. It follows, therefore, that the remaining parts of my analysis of Article 11.3 are, on that basis, irrelevant. However, because of the considerable argument that Article 11.3 generated, I go on to deal with it on the assumption that I am wrong and that it does provide a remedy which is available to Decoma in these proceedings.

If there is a breach of Article 11.1, does Decoma have a choice as to whether or not to operate Article 11.3?

At one point it appeared to be disputed that 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.

Mr Sears QC submitted that, if 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.

For the avoidance of doubt, I am entirely satisfied that the remainder of the Article, and the procedure set out there, depended on there having been a Notice from 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.

I should also say that, during the course of his submissions, Mr Taverner QC referred to potential disputes as to constructive notice, adequacy of notice and the like. Plainly such matters do not arise under the Preliminary Issues which are presently before me. It is clear that the Contract did not stipulate the form of the Notice to be provided. All that mattered was that, in one way or another, 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.

Following the Notice to 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.

Secondly, there might have been a failure by 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”.

Thirdly, even assuming a failure by 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.

It seems to me that 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.

First, as Article 11.3 makes expressly clear on its face, 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.

Secondly, as is more fully explained by reference to the issue at (6) below, it seems to me that, if 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.

Mr Taverner QC contended that, in order to recover under Article 11.3, 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.

Mr Taverner QC relied in support of his submission on the words ‘demonstrable’ and ‘invoices’, which he said meant that the costs must have actually been incurred, and then invoiced, before a claim could be made. I do not accept that point either. ‘Demonstrable’ means proving the particular financial item claimed, and has nothing to do with whether that item had already been incurred. And whilst a reference to ‘Invoices’ can denote a claim for costs already incurred, it is not uncommon for one party to send another an invoice in respect of an estimated future cost. This is particularly true if the estimate in question has been produced by a third party who is actually going to carry out the work. I also accept Mr Sears QC’s point that ‘incurred’ here can mean ‘to be incurred’: there is nothing in Article 11.3 which prevents such a conclusion. In addition, unlike Article 14.3, it does not stipulate that the costs must be ‘incurred and accrued’. The use of the word ‘accrued’ in Article 14.3 suggests that the costs must have already been incurred: thus the absence of that word in Article 11.3 indicates that the costs may not yet have been actually incurred. Accordingly, for all these reasons, I am satisfied that, if 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”.

In relation to this dispute Mr Sears QC relied on the words of Atkinson J in Saint Line Limited 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”.

I am not sure that that authority is of any great assistance in the present case. The “costs, charges and expenses incurred in remedying the defect” mean precisely that: the costs incurred, or to be incurred by 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.

This analysis, so it seems to me, is confirmed by the use of the word ‘direct’ to qualify the costs of carrying out the works of rectification. The use of that word must, as Atkinson J indicated, be compared to ‘indirect’ costs, such as loss of profit and the like. This therefore is further support for the contention that the costs recoverable under Article 11.3 must be limited to the costs incurred in actually carrying out the work and not any consequential heads of claim.

As noted above, Mr Taverner QC submitted that the direct costs under Article 11.3 could be helpfully compared to the losses recoverable under Article 12.3.A. These losses were defined as “loss or deferment of anticipated of actual profit, loss of revenue, loss of use, loss of production, loss of efficiency, or operating materials, business interruption of similar damage or … consequential or indirect losses that reasonably or demonstrably arise as a result of such breach”. By way of shorthand, I have referred to these types and heads of loss in this Judgment as claims for “loss of profit/ loss of use”. Those losses were said to be “expressly only … recoverable under this Agreement on the Contractor’s achievement of Final Acceptance Date Certification …”.

On any fair reading of Article 12.3A, it is clear that the category of loss which I have called “loss of profit/loss of use”, is recoverable only after a Notice has been given under Article 11.3. The key words that make this plain are:

“… 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.

For these reasons, therefore, it is my 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.

It is in one sense easier to define what claims are encompassed by Article 11.3 and what are not by reference to the individual Heads of Claim in these proceedings. Accordingly, in Section G below, I identify which Heads of Claim would be legitimate claims under Article 11.3 (assuming I was wrong to conclude that Article 11.3 had no relevance pre-Final Acceptance) and which would not arise under Article 11.3 in any event.

It follows from my analysis at F3 and F4 above that, prior to Final Acceptance, Decoma can make the following claims.

The claim for liquidated damages would be limited by the operation of the cap in Article 12.3. Essentially this means, that, no matter how long the delay in achieving Final Acceptance, 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.

The claim for damages for breach of Articles 3.1 and 3.2 would be limited by the operation of the second part of Article 12.4 (paragraph 43 above). That also provided for a cap at 5% of the Contract Price in respect of “damages for any breach of this Agreement by the Contractor prior to Final Acceptance Certification …” That was entirely compatible and consistent with the limit in Article 12.3. Furthermore, of course, the limit expressly applied to the aggregate of the two claims identified in paragraph 97 above: in other words, those two claims, taken together, cannot amount to more than 5% of the Contract Price. For convenience, I deal at paragraph 111 below with Decoma’s argument that the cap in the second part of Article 12.4 should not be enforced.

On the Assumed Facts, a claim for damages for breach of Articles 3.1 and 3.2 prior to Final Acceptance could not include any claim for loss of profit/loss of use and the like. There are two separate reasons for this.

First, such a claim is envisaged by Article 12.3A to arise only after Final Acceptance. Indeed the Article says in unequivocal terms that such claims can only arise after Final Acceptance. Accordingly, because, on the Assumed Facts, Final Acceptance has not been reached, such a claim could not be open to 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.

Secondly, claims for loss of profit/loss of use, even those made after Final Acceptance, are generally excluded by the first part of Article 12.4. The clause effectively excludes the right of either party to make claims for loss of profit/loss of use and the like against the other, and then goes on to outline certain exceptions to that blanket exclusion. Claims for damages for breach of Articles 3.1 and 3.2 are not identified as exceptions to the blanket exclusion. Accordingly, there could be no claim for lost profit/ loss of use as part of a claim for damages for breach of Articles 3.1 and 3.2 because such claims have been expressly excluded by the first part of Article 12.4.

Now assume that I wrong in my conclusion at paragraphs 62-72 above that the warranties at Article 11.1 are not actionable before Final Acceptance. This would allow 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.

However, this would not alter any of the limitations on 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.

Therefore, even if I was wrong and 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.

It is also appropriate for me to analyse the position if I am wrong in my conclusion that Article 11.3 is not actionable pre-Final Acceptance. Assuming for this purpose that 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?

There is an argument between the parties about the nature of 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.

It seems to me that any financial claim brought by 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.

It seems to me clear that any pre-Final Acceptance claim by reference to Article 11.3 (assuming that one is even possible) is again caught by the 5% limit in the second part of Article 12.4. There are three reasons for this. First, of course, there is the point that I have already made, that a claim by reference to Article 11.3 is, in reality and in substance, a claim for damages for breach of contract, and it is therefore plainly caught by the words in the second part of Article 12.4. Secondly, I accept Mr Taverner QC’s submission that, even if my analysis at paragraph 108 above is wrong, and the claim by reference to Article 11.3 is properly categorised as a claim under the Contract, the fourth and final part of Article 12.4 would apply in any event to limit 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.

Thirdly, I should say that, for completeness, I would regard it as a 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.

Mr Sears QC submitted that, in respect of all of 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:

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 to Haden’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).

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.

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.

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.

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.

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.

On one 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.

The main reason for this conclusion lies in the clear words of Article 12.3A. As I have already pointed out, this Article makes it quite clear that claims for loss of profit/loss of use and the like would “expressly only” be recoverable after Final Acceptance. The words used really could not be any clearer. They are not capable of any other interpretation. Furthermore, as I have already pointed out, such a conclusion is the only one that is consistent with the agreement that 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.

Mr Sears QC relied on the contention that claims under or for damages for breach of Article 11.3 were expressly made exempt from the blanket exclusion of loss of profit/ loss of use claims at Article 12.4. He is certainly right that Article 11.3 is referred to as one of the exceptions. But that can only take 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.

Furthermore, even after Final Acceptance, I have no doubt that claims for loss of profit/loss of use could not be made by reference to Article 11.3. Such claims are emphatically not claims for the “direct costs, charges and expenses incurred in remedying the defect”. It cannot be seriously argued to the contrary. It might then be asked: what can be the explanation for the reference to Article 11.3 in the exception at the start of Article 12.4? Although I do not consider that, for the purposes of these Preliminary Issues, it is strictly necessary to answer that question, it is my 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.

I deal briefly with the position after Final Acceptance. Although, on the basis of the Assumed Facts, Final Acceptance was not reached due to 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.

If there were defects in the paint-spraying system, following Final Acceptance, then 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.

A damages claim by reference to the direct costs of rectifying the defects would have been unlimited because there is nothing in the Contract to cap such a claim. The limit of 5% of the Contract price provided for in the second part of Article 12.4 is expressly said to be applicable to breaches “prior to Final Account Certification”. The cap simply does not apply thereafter.

In addition, 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

Mr Sears QC has one final string to his bow. He refers to Article 15.1(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.

This is a somewhat startling submission, because it means, as Mr Sears QC fairly accepted, that 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.

First, it seems to me that such a conclusion would be contrary to commercial common-sense. There would have been no point in the parties going to so much time and trouble to exclude and limit their rights to make particular claims against one another if in fact there was a complete claims 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”.

Secondly, I accept Mr Taverner QC’s submissions that sub-clause (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.”

It seems to me that this principle works in two ways in the present instance. First, the content of the second part of Article 15.1(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’.

I consider that Article 15.1(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.

Thirdly, I accept Mr Taverner QC’s other general point in relation to the indemnities, to the effect that the indemnities in Article 15.1 were designed to, and did, cover any liabilities which 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.

For these reasons, I conclude as a matter of construction that Article 15.1(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.

However there is another, entirely separate, reason why I do not consider that 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”.

Accordingly, in my judgment, although the limitation in Article12.4 is said to be subject to Article 15.1, the words in Article 15.1 provide expressly that the indemnities do not override the limitation in the second part of Article 12.4. Accordingly, even if (which I do not accept) Article 15.1(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.

I have set out in Sections F2-F7 of this Judgment my analysis of how this Contract worked. If follows that, prima facie, 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.

I do not accept that submission for reasons which arise out of both general principle, and the particular Articles and wider scheme of this Contract. I deal with both of these areas in turn below.

I do not accept, for the reasons which I set out at paragraphs 137-142 below, that 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.

As I have already pointed out, many of the provisions that 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.

Underlying 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.

No authority, other than the general reliance upon Alghussein, was cited in support of such an approach to contract construction. It is, in my judgment, wrong in principle. I have already made the point that it seemed to me to be indistinguishable from the defunct doctrine of fundamental breach. In my judgment, the Contract is the 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.

I should add that if, contrary to my 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.

In any event, I reject the submission that, by reference to the Articles in the General Conditions, my analysis of the overall scheme of risk allocation set out at Sections F2-F7 is somehow unfair to Decoma because it allows Haden to take advantage of their own wrong. It seems to me that the correct position is set out below.

The key element of my analysis of the Contract, which 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.

First, as set out in paragraph 111 above, I have found that the cap in the second part of Article 12.4 applied to these claims because that is the only possible interpretation of the words used. As I have already noted, in order to try and get round the difficulty created by these clear words, 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.

First, 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.

Secondly, if Final Acceptance was delayed because 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.

Thirdly, it was always open to 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.

Finally, as I have already noted, 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.

As I have indicated, there was a suggestion in 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.

Accordingly, for all these reasons, I do not accept 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.

Assumed Fact 8 is concerned with Head 1. That states:

“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 to Decoma of having its employees carrying out remedial work;

b)

70% is based upon payments made to third parties;

c)

some of the claims, based on Decoma 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”

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).

My primary 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.

This Head of Claim is not recoverable under Article 11.3, again because Article 11.3 is not actionable pre-Final Acceptance. It is also not recoverable under Article 15.1(v) for the reasons set out at paragraphs 120-129 above.

If, contrary to my primary 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:

In any event, such a claim, whether for damages or as a separate claim pursuant to Article 11.3, would again be subject to the 5% cap in the second part of Article 12.4.

Assumed Fact 9 is concerned with Head 1. That states:

“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.”

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 indemnity under Article 15.1(v).

As a matter of principle, all the same points set out in paragraphs 148-151 above apply to Head 2. In addition, to be recoverable by reference to Article 11.3 (whether as damages or, if there is a separate claim under Article 11.3, pursuant to such a separate claim), 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.

Assumed Fact 10 is concerned with Head 3. That states:

“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”

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).

As a matter of principle, all the same points set out in paragraphs 148-151 above apply to this Head of Claim. I confirm that the fact that the work has not actually been carried out is not of itself a bar to its recovery by reference to Article 11.3 although, of course, my primary 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.

Assumed Facts 11-13 are concerned with Head 4. They state:

“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 from Decoma;

b)

In fact the claim was settled by a payment by Decoma 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”

This Head of Claim is put as a claim for damages for breach of Articles 3.1, 3.2 and 11.1 or, in the alternative, as a claim for an indemnity under Article 15.1(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.

For the reasons I have previously given, the claim under Article 15.1(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.

In my judgment, this is a claim for loss of use or loss of production, and is therefore within the category of losses expressly referred to in Articles 12.3A and 12.4. Assumed Fact 11 makes clear that Jaguar removed the X400 sill production because 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.

As a claim for loss of use, there are two separate reasons under the Contract why this claim is not recoverable at all. First, it is plainly a claim of the type envisaged by Article 12.3A, but that Article makes clear that such a claim cannot be made in any circumstances prior to Final Acceptance. Accordingly, Head of Claim 4 cannot be made because Final Acceptance has not been reached. Secondly, even if that were wrong, this claim is expressly excluded in any event by the blanket exclusion in the first part of Article 12.4. A claim for damages for breach of Articles 3.1, 3.2 and/or 11.1 is not an exception to the first part of Article 12.4.

Accordingly, this Head of Claim is not recoverable by 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.

Assumed Fact 14 is concerned with Head 5. That states:

“As pleaded in paragraph 33.4.2 Decoma 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 was Decoma’s own wasted costs in setting up the X400 sill contract which was then taken away from Decoma by Jaguar.

This Head of Claim is put as a claim for damages for breach of Articles 3.1, 3.2 and 11.1 or, in the alternative, as a claim for an indemnity under Article 15.1(v). It is not put by reference to Article 11.3 at all.

Accordingly, this claim is put on the same basis as Head of Claim 4. Thus all the points of principle identified in paragraphs 160-163 above apply again and exclude this claim in its entirety.

The two Heads of Claim at 4 and 5 are the sorts of claims for indirect, or consequential losses, which, even after Final Acceptance, the parties clearly endeavoured either to exclude altogether (the blanket exclusion in the first part of Article 12.4), or severely limit (Article 12.3A). Prior to Final Acceptance, such claims would not have been permissible at all, given the exclusive remedy provided by the liquidated damages machinery. The effect of the 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.

Assumed Fact 15 is concerned with Head 6. That states:

“As pleaded in paragraph 33.4.3 Decoma 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.”

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).

Mr Sears QC argued that this claim was a direct cost of remedying defective work. He argued, by analogy, that it was the same sort of loss as the cost of hiring temporary equipment to carry out remedial work. I do not accept that submission. It is a 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.

In any event, even on the assumed basis that this Head of Claim only arose because remedial work was being carried out to the production line and therefore the production line was not working at full capacity, such a loss could not be the direct cost of rectifying the defect in any event. Indeed, this Head of Claim is a good example of a claim which could not, on any 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.

In his first skeleton argument, Mr Sears QC suggests that this claim would be recoverable by reference to Article 11.3 because the cost would not have been incurred but for the defects. It is doubtless right that the cost was only incurred because of the defects: but that does not mean that the cost is recoverable as a direct cost of remedying the defect: that is a completely different point.

The next question is: if it is not recoverable under or by reference to Article 11.3, is this Head of Claim recoverable as a claim for damages for breach of Articles 3.1, 3.2 and/or 11.1? In my view, it is not recoverable by reference to those Articles because:

If, contrary to my firm conclusions set out above, this Head of Claim was recoverable by reference to Article 11.3, then, for the reasons explained earlier in this judgment, it would be subject to the conditions identified in paragraph 150 above and would also be subject to the 5% cap in Article 12.3A.

Assumed Facts 16 and 17 are concerned with Head 7. They state:

“16 As pleaded in paragraph 33.5 Decoma 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 by Decoma. 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 by Decoma. 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.”

Assumed Facts 18 and 19 are concerned with Head 8. They state:

“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.”

This claim is put pursuant to the indemnity under Article 15.1(v). It is also put as a claim for damages for breach of Article 11.3. It is not put in any other way.

The indemnity claim fails for the reasons previously identified.

It is clear that this claim is not put as part of a damages claim by reference to Articles 3.1, 3.2 and 11.1 because such a claim would plainly be excluded by operation of Article 12.3A (which only allows such claims to be made after Final Acceptance) and, even if it were made after Final Acceptance, by the blanket exclusion in the first part of Article 12.4. It may 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.

For the reasons set out at paragraphs 112-115 above, I have explained that a claim for loss of profit cannot be made under or for breach of Article 11.3. I have also made plain that such a claim could not operate pre-Final Acceptance. For these reasons, I do not consider that this Head of Claim is recoverable as a claim for damages for breach of Article 11.3. I should add that I can see no basis whatsoever for 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.

Looked at more widely, I have concluded that it would be absurd if Article 11.3 – which provides a specific recovery for the direct costs of rectification works – could somehow be utilised by 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.

It is also instructive to look at what 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.

Assumed Fact 20 is concerned with Head 9. That states:

“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 to Decoma 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.”

This claim is put pursuant to the indemnity under Article 15.1(v), and is a claim for damages for breach of Article 11.3. It is not put in any other way.

Accordingly, precisely the same principles apply to this claim as applied to Head of Claim 8. Those principles are summarised in paragraphs 181-185 above. For those reasons therefore, I conclude that this Head of Claim must also fail. Even if that were wrong, it would be limited to the 5% cap in Article 12.3A.

Question: Can any of Decoma’s pleaded claims be valid prior to Final Acceptance?

Answer: Claims for damages for breach of Articles 3.1 and 3.2 can be 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.

Question: Are Decoma’s pleaded claims “direct costs” as identified in Article 11.3?

Answer: Head 1 is in respect of direct costs as identified by Article 11.3; Head 2 may be for such direct costs depending on the facts; Head 3 is for direct costs provided that 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.

Question: What steps are required under Article 11.3?

Answer: The steps required by Article 11.3 are those set out in paragraph 150 above, namely a notification from 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.

Question: Does Haden’s liability in respect of liquidated damages preclude Decoma from making Heads of Claim 4, 5, 6, 7, 8 and 9?

Answer: On the Assumed Facts, I cannot say that 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.

Question: Are the Decoma claims for loss of profit/loss of use?

Answer: For the reasons given, Heads 4, 5 and 6, and Heads 8 and 9, are claims for loss of profit/loss of use as defined in Article 12.3A. That is one reason why the Contract operates to exclude them, or, at the 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.

Question: Are the claims excluded by Article 12.4?

Answer: Heads 4, 5, 6 and Heads 8 and 9 are excluded by Article 12.4. If I am wrong about that, they are on any view limited by Article 12.3A.

Question: Are the claims subject to the 5% cap?

Answer: Heads of Claim 1, 2, 3 and 7, being claims for rectification costs and not excluded by the Contract, are subject to the cap in the second part of Article 12.4. If I am wrong and any of the other Heads of Claim (for loss of profit and the like) are not excluded and are open to Decoma, then they would be subject to the cap in Article 12.3A. In both cases, the cap is 5% of the Contract Price.

Question: Does Article 15.1(v) allow Decoma to make a claim for indemnity which overrides all the exclusions or limitations?

Answer: For the reasons set out in paragraphs 120-129 above the answer to this question is No.