Fitzpatrick Contractors Ltd v Tyco Fire and Integrated Solutions (UK) Ltd

Fitzpatrick’s factual evidence was provided in witness statement form by Mr Nash, the Commercial Manager; Mr Carson, the Project Manager; Mr Davey, the Director of Procurement; and two statements from Mr Robinson, Fitzpatrick’s Managing Surveyor. Each of these four men gave oral evidence. I mean no disrespect to them when I say that, in summary; their evidence was entirely in accordance with my interpretation of the contemporaneous documentation, set out in Section E above.

Obviously the most important of these witnesses was Mr Robinson. I consider that he gave detailed and careful evidence, particularly in his answers in cross-examination. I formed a very positive impression of him. I consider that he was honest and clear. He was patently a witness of truth. He denied absolutely, as did all of the other Fitzpatrick witnesses, that there was (or could have been) a separate meeting in advance of the main meeting on 24 April at which the version of the CECA document, sent out by Tyco the afternoon before, was discussed in detail. Indeed, Mr Robinson explained that the detailed discussion alleged by Mr Ward could simply not have happened because, as at 24 April, he had not even opened the relevant e-mail from Tyco enclosing the terms proposed by Mr Pearson. In addition, there was evidence, which I accept, that Mr Robinson did not actually open the e-mail enclosing that version of the sub-contract until 13 May. That, of course, was also consistent with the fact that it was later on 13 May that he replied to Tyco on the question of the proposed sub-contract amendments.

I should also make mention of Mr Giles, a witness called on behalf of Tyco, who was present at the offices at Poplar High Street for a part of the morning of the 24 April. His evidence was consistent with Mr Ward attending one meeting, due to start sometime later than 10am. His evidence, therefore, was entirely consistent with the evidence of the Fitzpatrick witnesses.

I am afraid that I did not find Mr Ward to be a satisfactory witness. I considered that, at times during his cross-examination, he was deliberately evasive. Moreover, on a number of occasions, his answers were explicable only on the basis that they advanced Tyco’s new case, rather than because they were in accordance with what he knew had happened. For example, it was originally Mr Ward’s case, as set out in his witness statement, that he did not reach agreement with Mr Robinson on 24 April, either as to the precedence of the Tyco tender, or on the percentage limit in clause 3(4); and yet, during his cross-examination, he appeared to suggest, on more than one occasion, that he had somehow reached agreement on both matters at the alleged ‘first meeting’. I consider that this was because his oral evidence was, at least at times, conditioned by the necessities of Tyco’s new case.

There was a wider problem affecting the credibility of Mr Ward’s oral evidence. As previously noted, it was entirely reliant upon the alleged first meeting on 24 April. However, such a case was not made at any time prior to the amendments to the defence in December 2007. This is an extraordinary omission, given that this was a contract where, within weeks of the agreement of the terms, the parties were arguing about its terms, and indeed whether or not there was a binding sub-contract at all. Mr Ward himself wrote lengthy letters in which he advocated various positions on behalf of Tyco. Many of the points taken in those letters were, on any view, bad ones. Yet at no time during any of that correspondence did Mr Ward ever refer to the existence of the first meeting on 24 April, and the allegedly detailed agreement he had reached on that occasion with Mr Robinson, which is now crucial to Tyco’s new case.

Still further, I consider that the credibility of Mr Ward’s oral evidence now was significantly undermined by the fact that Tyco originally argued that there was no sub-contract between the parties at all. This was always a very difficult position to sustain, because of the exchange of correspondence on 7 May, but up to and beyond the commencement of these proceedings, that was Mr Ward’s stance and that was Tyco’s case. I consider that, in consequence, there is force in the suggestion made by Mr Livesey QC that, once Tyco accepted the inevitable, that there was a sub-contract between the parties, they have, to some extent, thrashed around trying to find a case which was consistent with the letter of the 7 May but which denied that the sub-contract was in the terms alleged by Fitzpatrick. I am confident that that is the explanation for the new case, and the oral evidence of Mr Ward.

For all those reasons, therefore, I am not inclined to accept the evidence of Mr Ward unless that evidence is either corroborated by the contemporaneous documentation, or by Mr Robinson or one of the other Fitzpatrick witnesses. Where there is an important difference of recollection about what was said, and the documents do not help, I inevitably prefer the evidence of Mr Robinson.

It is Tyco’s case that, at a meeting on 24 April attended only by Mr Ward and Mr Robinson, the parties reached agreement on a variety of the CECA terms. It is, I think, accepted that, even on this case, agreement was not reached either as to the precedence issue (the Tyco tender submission versus the Employer’s Requirements) or the percentage limit in clause 3(4). Tyco contend that this agreement was what was referred to in the fourth and fifth bullet points of the award letter of the 7 May, namely the reference to the CECA form and the special standard terms and conditions “as reviewed by P Ward and I Robinson on 24 April 2002”. It is also suggested that, by writing this letter in these terms, Fitzpatrick were accepting Mr Ward’s proposals in relation to both precedence and the percentage limit in clause 3(4), despite the absence of any such agreement at the meeting on 24 April. Accordingly, on Tyco’s new case, a detailed sub-contract was agreed on 7 May and everything that happened thereafter was irrelevant in law. It seems to me that, on a proper analysis of this case, it falls apart for a variety of reasons.

The first difficulty with Tyco’s new case is that it is unsupported by any credible evidence. I have already set out, in Section F-2 above, my conclusions as to the lack of credibility inherent in Mr Ward’s oral evidence. I should also make the point that, although other Tyco witnesses could have been called to support the new case (if it were right), none were, and the only other Tyco witness, Mr Giles, gave evidence that supported Fitzpatrick’s version of events.

Just as important, however, is the absence of any reference to the first meeting of the 24 April, or the agreements allegedly reached on that occasion, in any subsequent document. Let us suppose, for a moment, that my firm impression of Mr Ward and the other oral evidence was wrong, and that there had indeed been a first meeting, and detailed agreement reached, on the 24 April. In such circumstances, the first thing that would have happened would have been a written confirmation, provided by Tyco to Fitzpatrick, of Fitzpatrick’s agreement to so many of their proposed terms. There was no such confirmation. As I have already indicated, the only agreed record of a meeting on the 24 April is the review agenda, which contains a variety of matters which are wholly contrary to the new case which Tyco now seek to advance.

Further, adopting the same assumptions, what would Tyco’s response have been to the letter of the 7 May in such circumstances? Tyco would immediately have replied to that letter, saying that there was no reference to the detailed agreement that had been reached as to the CECA form at the first meeting on 24 April, and would doubtless have taken the trouble to enclose the revised form in the terms which Mr Ward said had been agreed with Mr Robinson. Instead, the acceptance of the letter of award by Tyco was without any qualification whatsoever (see paragraph 25 above). Furthermore, if there had been such an agreement reached on the 24 April then, during the later e-mails and discussions of May and June 2002, one would have expected to see references to such a meeting and agreement liberally sprinkled throughout the exchanges. If there had been such an agreement, then Mr Ward would have become puzzled or angry at the attempts by Fitzpatrick to go back on what they had agreed at the first meeting on 24 April (by proposing different terms), and would have said so. Judging by the trenchant terms used by Mr Ward in his later correspondence, he would have been unafraid of making such a position crystal clear to Fitzpatrick. But in fact, there is no mention whatsoever in this correspondence either of the first meeting on 24 April or, more importantly, the alleged agreements reached at that meeting. Instead, in May and June, Mr Ward negotiated the term of the sub-contract with Mr Robinson as if no such terms had already been agreed; the only possible conclusion is that this was because no such terms had already been agreed, because no such first meeting had ever taken place.

In essence, I consider that the contents of all the contemporaneous documents after the 24 April are contrary to, or at least inconsistent with, the notion that detailed agreement was reached on that date. Take for example the review agenda: on its face, that document is wholly inconsistent with the matters now alleged by Tyco as having been agreed and/or raised for subsequent agreement at the first meeting. For example, the review agenda made plain that only the rates and prices from the Tyco tender will be relevant, which is completely different to what Mr Ward said he discussed and agreed with Mr Robinson. Another example is the reference to the liquidated damages in the full sum of £6,335.62 per day, which is again wholly contrary to what Mr Ward said he and Mr Robinson had discussed.

Later, at the time of the letter of 7 May and thereafter, the documents proceeded on the basis that there was a narrowing of the points in issue, and those remaining matters were being debated and resolved. Not only was there no reference to any prior agreement, but the matters subsequently agreed were wholly inconsistent with the agreements which Mr Ward said he had reached at the first meeting. In short, there is no reliable evidence which supports the existence of a prior agreement; everything, including the contemporaneous documentation, is consistent with there having been no such agreement.

Furthermore, I consider that Tyco’s interpretation of the letter of award of 7 May is artificial, and also requires the court to make modifications and deletions to the words used. That is not an appropriate approach to contract interpretation.

The first bullet point makes plain that the work had to be carried out in accordance with the Employer’s Requirements. No other interpretation of the words used is possible. Tyco argue that the work did not have to be carried out in accordance with the Employer’s Requirements if the Tyco tender included for work which was non-compliant. I reject that argument in its entirety, given that there was no mention whatsoever of the Tyco tender in the letter of the 7 May 2002, let alone a suggestion that it might take precedence over the Employer’s Requirements.

In addition, Tyco seek to rely on the fourth and fifth bullet points in the letter, and the reference to the matters reviewed on 24 April, to suggest that this was a reference to the first meeting, and thus a reference to the CECA form which, they say, was discussed by Mr Ward and Mr Robinson on that occasion. I reject that case for a number of reasons. First, as I have already found, there was no such meeting. Secondly, even as a matter of construction, I cannot accept that such a submission is right. I have already made the point that the CECA form was “to be sent”, and that that must relate to something happening in the future, once the terms and conditions had been agreed. It cannot refer to something which had already been agreed. Furthermore, at the fifth bullet point, the reference to the special and standard terms and conditions is not a reference to terms and conditions which had been agreed, but terms and conditions which had been “reviewed”, which was entirely consistent with the document that was entitled ‘review agenda’, and wholly contrary to Mr Ward’s case that the terms had already been agreed. Furthermore, if there were any doubt about it, the special standard terms and conditions were going to be included in the formal sub-contract, which must be a reference back to the preceding bullet point, namely the document which was to be sent in the future. It was emphatically not something that was already in existence.

Ultimately, it comes to this: there is no reference in the letter of 7 May to the CECA sub-contract form having been discussed or agreed. Indeed, there was no such agreed amended form in existence because, even on Mr Ward’s case, he had just made manuscript alterations to one version of the form, which he had then retained: Mr Robinson did not have a copy of the alleged ‘agreements’ of 24 April. It simply stretches credibility too far to conclude that the parties were prepared to agree a major commercial contract on the basis of a detailed series of amendments to a standard form of sub-contract which had not, at that point, been sent from one party to another, but was merely reflected in Mr Ward’s manuscript notes on his version of the CECA form, that had originally been sent to him by Mr Pearson.

It is also important to note that, on Mr Ward’s own evidence, two of the matters which are now seen as vital in this litigation, namely the alleged precedence of Tyco’s tender over the Employer’s Requirements, and the alleged percentage limit in clause 3(4), were expressly not agreed on 24 April. Mr Ward’s statement concedes that, on both points, agreement had not been reached at that point. Therefore Mr Thomas QC is driven to argue that, in some way, bullet points four and five in the letter of award must be taken as an acceptance by Fitzpatrick of the alleged proposals made by Mr Ward at the alleged first meeting on 24 April. I consider that such a submission is unsustainable.

First, that is simply not what the letter says. If Tyco are right, and there were matters which had been raised at the first meeting on 24 April and not accepted by Fitzpatrick at that date, then those matters remained outstanding on 7 May, it being agreed that there were no discussions or meetings in between. There was nothing in the letter to say that those suggestions had somehow been accepted; on the contrary, the letter indicated that those were matters which remained to be agreed so that, once they were, the sub-contract conditions could be sent out recording all of the matters subsequently agreed between the parties.

Moreover, such a submission ignores what happened after the letter of 7 May 2002. Again, let us assume Mr Ward is right and the question of the Employer’s Requirements taking precedence over the Tyco tender had not been agreed on 24 April. There was no reference to that matter at all in the letter of 7 May so, on the face of it, it remained outstanding. It was not something expressly raised by Tyco in their letter of 6 June. However, because they said that they wanted to incorporate their drawings and the training offered, Tyco did propose removing the words which limited the incorporation to “the rates and prices only” of the Tyco tender. As a matter of drafting, that proposed change meant that, if the precedence of the Employer’s Requirements was to be maintained, an express rider had to be added to the effect that the Employer’s Requirements took precedence over the tender. The evidence was unequivocal: this very rider was expressly agreed on 19 June. The parties’ respective manuscript notes make that plain. Furthermore, after the amended documents were sent out on 20 June, with that provision clearly stated, Mr Ward never suggested that it had not been, or was not, agreed.

Accordingly, even if Mr Ward was right and the question of precedence was not agreed on 24 April, it is equally plain on the face of the contemporaneous documents (many of which he wrote) that it was subsequently agreed. There can therefore be no basis whatsoever for endeavouring to imply in the letter of award some sort of blanket acceptance of proposals which, even on Tyco’s case, remained outstanding as at 7 May and were subsequently agreed – in very different form – in June.

The point made above about the precedence issue illustrates a wider difficulty with Tyco’s new case. All that happened after the 7 May 2002 reveals, for the reasons which I have already given, a series of contract negotiations leading to the agreement on 19 June. The difficulty from Tyco’s perspective with that analysis is that the agreement that was reached was contrary to the position they now want to adopt. Accordingly, they are driven, not only to say (paragraphs 49-50 above) that important statements in their letters were completely erroneous, but that, effectively, everything that happened after 7 May was irrelevant. It is Tyco’s case that there was a contract on 7 May 2002, to be interpreted in the convoluted way which I have described, such that everything that happened after 7 May was therefore irrelevant.

I consider that this interpretation is contrary to commercial commonsense. I have already indicated that, although there was a basic agreement on 7 May, many detailed matters remain to be agreed. I consider that that is what happened. There is no reason, in fact or in law, for the court to ignore those clear agreements and instead to rule that, in some way, everything after the 7 May is irrelevant from a contractual view point. Again I am bound to conclude that this submission had more to do with the necessity of Tyco’s new case than any consideration of ordinary commercial negotiations. I reject the submission that, because there was a basic agreement on 7 May, the discussion and clear agreement on other matters thereafter is somehow irrelevant. On the contrary, for the reasons which I have given, it seems to me to hold the key to this case.

For all these various reasons, I consider that, on analysis, Tyco’s new case is unsustainable. It is made by reference to one witness only, whose oral evidence is not only uncorroborated but, in my judgment, lacking credibility. It is contradicted by and/or wholly inconsistent with the contemporaneous documentation. It relies on an interpretation of the letter of award which is artificial and convoluted, and requires deletions and modifications to the words used. It suggests Fitzpatrick’s acceptance of Tyco proposals to which no reference is made in the letter of 7 May and which, subsequently, were agreed in a completely different form. And it operates on the basis that the agreements clearly reached after the 7 May were somehow irrelevant. For all those reasons, I reject Tyco’s new case on the form of the sub-contract.

Are the material terms of the Sub-Contract entered into by Fitzpatrick and Tyco on or about the 7 May 2002 those set out in paragraph 3 of the Particulars of Claim, or those set out in section 3 of the draft Amended Defence?

Generally, I find that the material terms of the sub-contract are those set out in paragraph 3 of the Particulars of Claim. I make plain that the agreement of 7 May was a basic agreement only and that that was varied by the agreement reached between the parties on 19 June. The relevant sub-contract documents are those which were sent out by Mr Robinson on 20 June 2002.

Was the Sub-Contract varied alternatively first entered into on or about the 19 June 2002 as contended for by Fitzpatrick at paragraph 3.6 of the Particulars of Claim?

The answer is that the sub-contract was varied by agreement on the 19 June 2002 for the reasons set out above.

In particular:

The CECA form was the one sent out by Mr Robinson on 20 June 2002, because that reflected the final agreement he had reached the previous day with Mr Ward.

Was it a term of the contract that Tyco’s Quality Submission was to take precedence over the Employer’s Requirements?

The answer to this issue is plainly No. All of the documents emanating from Fitzpatrick, starting with the tender enquiry, made clear that the Employer’s Requirements were the most important sub-contract document of all. This was reiterated in the letter of 7 May. Thereafter, the documents sent out on 13 May 2002 by Fitzpatrick to Tyco again made plain that the Employer’s Requirements took precedence. No suggestion to the contrary was raised in Tyco’s letter of 6 June. Indeed, the question of the Tyco tender only arose by a side-wind, as a result of the reference to the deletion of the words ‘rates and prices only’. The manuscript notes prepared by both Mr Robinson and Mr Ward are plain that on 19 June the parties agreed that, for the avoidance of doubt, the Employer’s Requirements would take precedence over everything else. There was no dissent from that agreement.

Was Tyco obliged to produce 100% or only 65% design of all relevant packages in time for the Design Freeze on 6 August 2002?

At the commencement of the hearing, Tyco accepted that they could not argue for 65%. In their closing submissions they suggested that their obligation was not necessarily to produce 100% by the set date because that percentage was not expressly referred to in the sub-contract. It was unclear what percentage, if any, they contended for. However, the contract made plain that, by the 6 August 2002, there had to be a complete submission of the design, which would suggest that, in the absence of any other contention, the right answer is 100%.

Is Tyco’s liability under the Sub-Contract in respect of Fitzpatrick’s own liability under the Main Contract for liquidated damages subject to a cap of 10%, or 25%?

The answer to this is 25%. That is what was agreed on 19 June and recorded in the documents sent out by Mr Robinson the following day, on the 20 June. There was no response from Tyco to suggest that that limit had not been agreed at 25%; indeed, a figure of £1,562.83 for liquidated damages (being 25% of the sum stated in the main contract) was expressly agreed.

At the end of the main hearing of the preliminary issues on 19 March 2008, a potentially critical dispute emerged clearly between the parties for the first time. Tyco contended that, if (as I have) I concluded that there was a sub-contract between the parties which incorporated the form of contract sent out by Fitzpatrick on 20 June 2002, clause 3(4) of that contract operated so as to limit their total liability to Fitzpatrick for any claims for breach or non-performance (excluding liquidated damages) to 25% of the sub-contract value. This was said to be a critical point, given that Fitzpatrick claim many millions of pounds in damages as a result of what they contend was Tyco’s poor performance of and failure to complete the sub-contract works. It was this discrete point which gave rise to the need for the further hearing on 22 April 2008. I have already provided to the parties my written answer to this dispute, dated 16 May 2008. My reasons for that answer are set out below.

I propose to set out the terms of clause 3(4) and outline in brief the arguments that have been advanced. Having identified some of the other sub-contract terms which I consider to be relevant to this issue, I then go on to deal with the factual background to the agreement of the particular words in clause 3(4), before setting out my conclusions as to its proper construction. I should reiterate my thanks to leading counsel for the succinct nature of their submissions on this potentially important point.

Clause 3 of the CECA form of sub–contract is concerned with the sub- contractor’s knowledge and obligations in respect of the main contract. Clause 3(2) obliges the sub-contractor to carry out, complete and maintain the sub-contract works so that no act or omission on his part will render the main contractor in breach of the main contract. It requires him to assume and perform the liabilities of the main contractor under the main contract, insofar as they relate to the sub-contract works. Clause 3(3) then sets out the wide-ranging indemnity provided by the sub-contractor to the main contractor in respect of every liability which the main contractor may have incurred “to any other person whatsoever”.

Clause 3(4) in its un-amended form read as follows:

“The Sub-Contractor hereby acknowledges that any breach by him of the Sub-Contract may result in the Contractor’s committing breaches of and becoming liable in damages under the Main Contract and other contracts made by him in connection with the Main Works and may occasion further loss or expense to the Contractor in connection with the Main Works and all such damages loss and expense are hereby agreed to be within the contemplation of the parties as being probable results of any such breach by the Sub-Contractor”.

It is plain that clause 3(4), in those terms, was designed to prevent the sub-contactor from arguing that a breach by him of the sub-contract (which gave rise to a liability on the part of the Main Contractor to a third party) was a loss which arose under the second limb of Hadley v Baxendale, and was not therefore within the contemplation of the parties at the time of entering into the sub-contract. In other words, clause 3(4), in its un-amended form, was designed to widen the sub-contractor’s liability under the sub-contract, at least to ensure that the sub-contractor could not endeavour to limit that liability by relying on the argument that a particular head of loss claimed by the main contractor was outside the contemplation of the parties at the time that the contract was made. It was, therefore, a clause which dealt with one particular type of claim that might be made against the sub-contractor, and it was a provision in favour of the main contractor. It was the complete opposite of a provision seeking to limit or cap the sub-contractor’s liability to the main contractor; much less a clause providing a blanket exclusion or limitation of the sub-contractor’s liability for all claims that might be made against him.

It is also important to identify what was covered by clause 3(4) in its un-amended form. I consider that clause 3(4) is addressing liabilities incurred by the main contractor “under the Main Contract and other contracts made by him in connection with the Main Works”. In other words, the clause is dealing with the main contractor’s liability to a third party (whether the employer or another sub-contractor) and is designed to prevent the sub-contractor from arguing (under the second limb of Hadley v Baxendale) that it has no liability for losses under such a head. The reference to “further loss or expense to the Contractor” must mean ‘further – or additional - to the liability in damages under the main contract and other sub-contracts made by the main contractor’. In other words, it was intended to cover the situation where the main contractor incurred a loss of his own which was parasitical or consequential upon the liability he incurred to the third party. Moreover, the words ‘loss or expense’ will, in the context of a construction or engineering contract such as this, naturally mean a delay-related loss, rather than anything else. I note that this part of the clause does not refer to damages.

In the present case, I have found that the contract incorporated a version of clause 3(4) which was amended by the parties. The amendment, however, comprised the addition of 4 ½ lines to the existing clause 3(4). Accordingly, the clause as agreed incorporated the words set out in paragraph 98 above, but then changed the final full stop to a comma and went on:

“…….. up to a maximum of 25% of the Sub-Contract Value (exclusive of such figures contemplated). For the avoidance of doubt, the liquidated damages sum contained in the Main Contract, i.e. £6,335.62 per day will be replaced by £1,562.83 per day in the event that any calculation requires the inclusion of a liquidated damages amount.”

The parties are agreed that, if Tyco’s breach of the sub-contract caused delay to the main contract, then Tyco would be liable for 25% of the amount stated in the main contract by way of liquidated damages of £6,335.62 per day. In other words, Tyco would only be liable to reimburse Fitzpatrick £1,562.83 per day in the event that they caused the delay to the Main Contract. For the avoidance of doubt, I accept Tyco’s submission that the words “exclusive of such figures contemplated” is a reference to those liquidated damages figures. Thus there are two possible caps in the amended version of clause 3(4): the agreed cap of £1,562.83 on the liquidated damages that Fitzpatrick could claim (being 25% of the amount in the main contract); and the cap of 25% on “such damages, loss or expense…” What do those words encompass?

This is the principal remaining dispute between the parties. Tyco maintain that, if they were in breach of the sub-contract, so that their work was done badly and required extensive remedial work, they were only liable to pay Fitzpatrick a total of 25% of the sub-contract value. In other words, Tyco argue that the 25% was a complete cap on their liabilities under this sub-contract (howsoever arising) and that clause 3(4) was not limited to Fitzpatrick’s third party liabilities. Fitzpatrick, on the other hand, say that clause 3(4) was designed to (and did only) relate to their liabilities to the employer and to the other sub-contractors. They maintain that the cap is irrelevant to Fitzpatrick’s own claims for damages under the sub-contract as a result of Tyco’s poor performance. In the alternative, Fitzpatrick say that, if the cap does extend to their own claims for damages for breach against Tyco, it only caps their claims under the second limb of Hadley v Baxendale and does not affect their claims for direct loss and damage pursuant to the first limb of Hadley v Baxendale.

There are other terms of the sub-contract which are, in my judgment, relevant to this dispute. I have already referred to clauses 3(1)-3(3), which do not refer to any purported cap.

Clause 6 was concerned with commencement and completion. Pursuant to clause 6(1), Tyco were obliged to commence the carrying out of the sub-contract works within 10 days of receipt of Fitzpatrick’s written instructions to do so, and were obliged to proceed thereafter with due diligence and without any delay. There was an obligation to complete and for the works satisfactorily to pass any performance test or other final test prescribed in the final contract. Clause 6(2) contained relatively typical extension of time provisions. The parties made one small modification to the standard form at clause 6(2) but it is irrelevant for present purposes; other than that, the clause was as per the standard form.

Clause 7 obliged Tyco to comply “with all the instructions and decisions of the Employer’s Representative and his assistants….irrespective of whether such instructions and decisions were validly given under the main contract.” Clause 7(2) gave Fitzpatrick like powers to give instructions and decisions to Tyco and Tyco were again obliged to comply with them. There were no modifications to the standard form.

Clause 13 dealt with ‘Outstanding Work and Defects’. Clause 13(1) obliged Tyco, if they completed the sub-contract works prior to the main contract works, to maintain this sub- contract work in the condition required by the main contract to the satisfaction of the Employer’s Representative. They were expressly obliged to make good every defect and imperfection therein until substantial completion of the main works. Clause 13(2) obliged Tyco to maintain the sub-contract works after completion of the main works and to make good defects and imperfections in the same way as Fitzpatrick were liable to make good under the main contract. Again, the parties made no changes whatsoever to the standard wording of clause 13.

Clause 15 was concerned with payment. There were detailed provisions as to the valuation of the sub-contract work and Fitzpatrick’s obligation to include within its main contract applications for payment the ‘valid statement’ provided by the sub-contractor, Tyco in relation to its own works. Clause 15(3)(b) provided that, subject to clauses 3 (4), and 10(3) and 17(3) Fitzpatrick were entitled to withhold or defer payment of all or part of any sums otherwise due in various circumstances listed in the clause. The standard form wording was not modified by the parties.

Clause 17 was concerned with Tyco’s default and contained, at Clauses 17 (1) and (2), detailed provisions concerning determination. Clause 17 (3) was different. That provided:

“The Contractor [Fitzpatrick] may in lieu of giving notice of determination under this Clause take part only of the Sub-Contract Works out of the hands of the Sub-Contractor [Tyco] and may by himself, his servants or agents carry out complete and maintain such part and in such event the Contractor may recover his reasonable costs of so doing from the Sub-Contractor, or deduct such cost from monies otherwise becoming due to the Sub-Contractor.”

As with the other provisions which I have set out, Clause 17(3) was not the subject of any special amendments by the parties. In other words, all of these critical provisions of the CECA form were un-amended in any material respect when the contract was agreed in June 2002.

On any consideration of the factual background to the negotiations, there can be no doubt that the matter to which both sides ascribed importance in the context of clause 3(4) was the question of liquidated damages. It is true that, at the outset, Tyco sought an overall cap on liability in their tender. This can be seen, for example, at Volume B, Version 1 (30/11/01), page 6 of 25, which talks about a limit on liability not exceeding the sub-contract price. But it could not be said that this point was drawn plainly to Fitzpatrick’s attention at that time, or featured prominently in the subsequent discussions and correspondence. Thus, the possibility of a cap was a point which, if it was to be expressly negotiated and agreed, had to arise specifically in discussions or correspondence. When it did, I am in no doubt that it arose in the context of the discussions about liquidated damages.

In support of my conclusion that, in the relevant period, the parties considered the amendment to clause 3(4) exclusively in the context of liquidated damages, I refer to the following:

Contemporaneous Documents

Witness Statements

Oral Evidence

At one point during his oral submissions on 22 April, Mr Livesey QC, on behalf of Fitzpatrick, accepted that, despite the factual evidence, he could not say that clause 3(4) was limited to liquidated damages. However, towards the end of his submissions on that day, that was precisely the submission that he made.

In my judgment, although I have found that the clear focus of the discussions between the parties was on liquidated damages, I do not think that it would be right to construe clause 3(4) as relating only to liquidated damages. That is not what the words say: they are plainly intended to go wider than that, otherwise there would just be a reference to the £1,562.83. However, I do conclude that, because that was their focus, it indicates that both parties were looking at clause 3(4) as a clause which was concerned with Fitzpatrick’s liabilities to others incurred as a result of Tyco’s breach: in particular, Fitzpatrick’s liability to pay liquidated damages to TFL under the main contract. There is nothing in any of the written material to suggest that, in April or May, let alone June 2002, Tyco wanted or were making plain that they required the cap to apply, not only to Fitzpatrick’s liabilities to the third parties, but also to such direct losses as Fitzpatrick themselves would suffer as a result of Tyco’s breaches of the sub-contract. Had they done so, Mr Ward would have made that plain both in his letter of 6 June, and in the meeting that followed on 19 June. He did neither.

In my judgment, for the reasons set out above, there are three important points for me to keep in mind when construing this home-made amendment to the CECA standard form. The first is the factual background, summarised above, and the failure on the part of Tyco in May and June 2002 to mention any requirement on their part for a general cap on all claims that might be made against them. The second is that, for the reasons which I have already outlined, clause 3(4) of the un-amended CECA form is concerned, not with damages generally, but with certain types of third party claims only, and whether such damages were “within the contemplation of the parties…”Any cap added to the clause by the parties has to be construed accordingly. Thirdly, given that Tyco now argue that this was a complete or blanket cap, it means that they see it as an exclusion or limitation of liability clause of the widest possible application. Thus, it is necessary to have regard to the well-known rule of construction that, in order for such an argument to succeed, the exclusion/limitation provision in question must be clear, and that any ambiguity or lack of clarity in the words used must be resolved against Tyco: see, for a recent example of this approach, the speech of Lord Bingham in Dairy Containers Ltd v Tasman Orient Line CV [2005] 1 WLR 215.

I have concluded that Clause 3(4), as amended by agreement between the parties, was seeking to impose a cap of 25% on any liabilities incurred by Fitzpatrick under the main contract and other sub-contracts made by Fitzpatrick, where such liabilities arose as a result of Tyco’s breaches of the sub-contract, and where Fitzpatrick sought to pass on such liabilities to Tyco. In other words, I agree with Fitzpatrick’s primary construction that the clause is concerned with third party liabilities, and not Tyco’s ordinary liability to reimburse Fitzpatrick for the direct losses which Fitzpatrick themselves suffered as a result of Tyco’s breaches of the sub-contract.

I reach that conclusion for a variety of reasons. First, for the reasons set out at paragraphs 98-100 above, I have concluded that clause 3(4), in its un-amended form, was concerned solely with Fitzpatrick’s liabilities to third parties. The clause was originally designed to allow Fitzpatrick to make unfettered claims in such circumstances against Tyco. The amendments plainly limit the quantum of such claims to 25% of the sub-contract value. But the quantum cap does not alter the first part of the clause and does not mean that, in some way, that original limitation on the application of the clause was somehow removed. The agreement of a quantum cap for particular claims cannot affect, much less widen, the claims that the clause was designed to cover. The effect of the clause, as amended, was to impose a specific cap in relation to liquidated damages, which the parties expressly spelled out, and a 25% cap on claims made against Fitzpatrick by the employer or by another sub-contractor and passed on by Fitzpatrick to Tyco on the basis that they had suffered this particular loss and damage as a result of something which could be traced back to a breach of the sub-contract by Tyco.

The clause is concerned with the situation where, because of Tyco’s breach, Fitzpatrick have become “liable in damages under the main contract and other contracts made by him in connection with the main works”. It seems to me that those words are clear. I reject the contention that in some way the use of the words “further loss or expense to the contractor” somehow widens this provision out, to cover all damages claims which Fitzpatrick might want to make, whether arising through a third party liability or out of Fitzpatrick’s own costs and losses. That is not what the words provide for. Again, it should be noted that these words come from the original clause, and not the parties’ subsequent amendments.

In any event, the reference to “further loss or expense” must mean “further” to Fitzpatrick’s liability to the third party in damages under the main contract or under other sub-contracts. It is covering loss and expense which is parasitical or consequential upon the liability incurred by Fitzpatrick to a third party: see paragraph 100 above. In other words, if the occurrence of an event means that Fitzpatrick are liable to another sub-contractor in consequence of Tyco’s breach, and their liability to that sub-contractor is £1m, then Tyco would be liable for that amount up to the cap. Tyco would also be liable for any further loss or expense caused to Fitzpatrick as a consequence of, say, any delay in sorting out that problem, because that would be “further loss or expense” in connection with the main works. The cap would apply to such loss and expense as well. But those words do not extend the cap beyond that situation. They do not, for example, extend the cap to Fitzpatrick’s claims for damages arising as a result of rectifying defective works or completing unfinished works, because such claims were wholly outside the ambit of clause 3(4).

I am entirely satisfied that the cap at clause 3(4) was not intended to, and could not, limit Tyco’s responsibility to carry out the sub-contract works in accordance with the sub-contract documents, or their direct liability to Fitzpatrick in damages if they did not do so. There is nothing in clause 3(4) which suggests that Tyco’s basic liability to Fitzpatrick (which has nothing to do with any third party claim against Fitzpatrick) had been limited in this way. Moreover, such a conclusion is entirely in accordance with the evidence: after 7 May, Tyco never even sought the wide-ranging limitation of liability provision for which they now contend.

If I am wrong in my construction of Clause 3(4), then I would be driven to conclude that the words of the amendment are ambiguous, and that the attempt to use a provision, which originally sought to widen the sub-contactor’s liability for certain types of claim, to try and limit the sub-contractor’s liability for all and any claims made against him, has resulted in confusion and an absence of clarity. On that basis too, bearing in mind the approach which the court must adopt to unclear exclusion or limitation clauses as set out in paragraph 115 above, it would be necessary for me to decide this construction dispute against Tyco. The words of clause 3(4) are too unclear to allow it to operate to exclude Tyco’s potential liability for millions of pounds, arising out of their alleged failure to do the sub-contract works properly or at all. Again, such a conclusion is entirely in accordance with the factual background, and in particular Tyco’s failure even to mention in June 2002 that that was what they wanted to achieve.

Finally, in support of my conclusions at paragraphs 120 and/or paragraph 121 above, I should say that, in my view, the construction for which Tyco contend would be wholly incompatible with the other provisions of the CECA form which the parties have agreed. It is therefore not an interpretation which I should adopt. Pursuant to Clause 6, Tyco agreed to commence and complete the sub-contract works. That was an ongoing primary obligation. It would render the sub-contract unworkable if Tyco could argue that they were entitled to refuse to carry out any works at all, or do a small amount of slap-dash work, and then sit back, on the basis that their liability could never be more than 25% of the sub-contract value. Similarly, Tyco were obliged to comply with all instructions from or decisions by the employer’s representatives and Fitzpatrick. If Tyco did some of the work in an exceedingly deficient manner, and refused to do the rest, they would be required to rectify that position. Their failure to do so would put them in breach of clause 7. Again there is nothing in clause 7 which would indicate that, in some way, their liability under clause 7 was limited to just 25% of the sub-contract value.

Similarly, clause 13 obliged Tyco not only to achieve substantial completion but to carry out outstanding work and rectify defects. Any failure to do so would be a breach of clause 13. Again, there is nothing in the words of clause 13 which suggests that Tyco could argue that they were not in breach of clause 13 because, for example, they had already been paid 75% of the sub-contract value and so could walk away from the remainder of the job with impunity. It would make a nonsense of these careful provisions if the reality was that Tyco did not have to comply with these obligations or, if they did, only in a way calculated to recover 75% of the sub-contract value.

A different problem would arise under clause 15 if Tyco are right and their liability to Fitzpatrick could never be more than 25% of the sub-contract value. How would that be achieved under this valuation provision? Pursuant to clause 15, Tyco’s entitlement to regular valuations and payment was dependant upon performance and the value of the works properly completed. There is nothing in these provisions which would allow for a valuation with a maximum deduction of 25% of the sub-contract value, regardless of the quality of the work actually performed by Tyco. I am sure that the words of clause 3(4), seen in the context of the rest of the sub-contract, simply do not permit such an impractical construction of clause 15.

In many ways, the most important provision of the sub-contract that supports Fitzpatrick’s construction of clause 3(4) is clause 17(3), which I understand was actually used by Fitzpatrick when they became dissatisfied with Tyco’s performance. That allowed Fitzpatrick to take some of the sub-contract work away and to recover their reasonable costs of so doing from Tyco. If, in accordance with clause 17(3), Fitzpatrick took away work that cost them, say, 40% of the sub-contract value, to have that part of the work carried out by others, then they would be entitled, subject to the proviso of reasonableness, to recover those costs from Tyco under clause 17(3). I consider that there is nothing in clause 17(3) which limits that right. On Tyco’s construction, the clause 3(4) cap would have to apply to clause 17(3), so that, in the example I have given, if all the remaining work was done by Tyco, they would be entitled to be paid 75% of the value of the sub-contract, even though 40% had been taken away from them. In my judgment, there is nothing within the clause which would support such a construction. I expressly reject the submission that clause 17(3) has to be read as if it were subject to the alleged cap in clause 3(4); there is nothing in the contract which makes that a mandatory or even sensible requirement.

To be fair to Mr Thomas QC, he appreciated the difficulties with his interpretation of clause 3(4). Accordingly, during his oral submissions on the 22 April, he sought, for the first time, to draw a distinction between non-feasance and misfeasance that, he maintained, kept alive his construction. He agreed that the 25% cap could not apply in cases where there was non-feasance on the part of Tyco and that, if they had not carried out an element of the sub-contract works at all, then there was a failure of consideration and they were not entitled to be paid for that work. He said the cap would not apply to such unperformed works. However, he maintained that, where Tyco had done the work, even if they had done it badly, then that was a case of misfeasance, and was therefore caught by the general cap for which he contended in clause 3(4).

In many ways, this argument highlighted the uncommercial and impractical consequences of Tyco’s argument as to the proper interpretation of clause 3(4). The distinction relied on finds no expression in clause 3(4). Furthermore, on a complex project like this, it will often be impossible to differentiate sensibly between incomplete and defective work. It would be unworkable to suggest, in relation to one significant part of the sub-contract works worth, say, £1 million that, if Tyco had not carried out any part of it, that was misfeasance, so that the cap did not apply; but that if Tyco had carried out one week’s worth of slap-dash work on that element of the work, then the complaints must be allegations of misfeasance, in respect of which the cap would apply. Furthermore, how would the sub-contract works be broken down in such a situation? How would it be possible to say that one element of the works had not been done at all, without first defining and agreeing the precise boundaries of each element of the sub-contract works?

I consider that it would be wholly impracticable for work of this kind to be divided up in the way suggested by Mr Thomas QC. I am in no doubt at all that such divisions never occurred to Mr Robinson and Mr Ward when they were negotiating these provisions. There can be no clear or proper way of differentiating between claims arising out of work badly carried out (which would be the subject of the cap) and work left incomplete (which would not be the subject of the cap). In the absence of any words within the clause itself, I reject any construction of clause 3(4) that makes it necessary. Therefore I consider that the examples noted above, where Tyco might choose to sit back and do little or nothing in relation to large elements of the sub-contract work, knowing that their maximum liability was 25% of the sub-contract value, are not an unfair way of testing the practical difficulties inherent in Tyco’s submissions on the proper operation of clause 3(4).

For all these reasons, I prefer Fitzpatrick’s submissions on the issue of construction. The cap of 25% did not apply to their direct claims for damages against Tyco, or their claims to be reimbursed their reasonable costs under clause 17(3). The cap would not affect, for instance, the claims identified at paragraphs 1.8.1 and 1.8.2 of Fitzpatrick’s Submissions of 20 March 2008.

As an alternative argument, Mr Livesey QC maintained that, if the cap in clause 3(4) did apply to Fitzpatrick’s claims for their own losses, as opposed to being limited to claims by third parties and associated loss and expense, then it would only apply to claims made by Fitzpatrick for their own losses under the second limb of Hadley and Baxendale. In other words, he argued that the cap in clause 3(4) could not, on any view, extend to claims for direct loss under the first limb of Hadley and Baxendale.

It is of course unnecessary for me to give a view on this point since I have concluded that clause 3(4) did not impose a cap upon Fitzpatrick’s own claims against Tyco for losses that they themselves had suffered. However, it seems to me that it would be helpful if I expressed a view on the alternative argument.

If I am wrong to accept Fitzpatrick’s primary case, so that the cap in clause 3(4) does apply to Fitzpatrick’s own claims for their losses as well as their liabilities to third parties, then I am in no doubt that the cap would apply only to those claims made under the second limb of Hadley and Baxendale.

The reason for that conclusion is because, for the reasons that I have given, clause 3(4) was, in its un-amended form, concerned with possible arguments under the second limb of Hadley and Baxendale. If I am wrong to find that it was confined to third party claims, there is nothing in the words utilised in the amended form which would cause me to conclude that the cap on Fitzpatrick’s own claims went beyond those brought under the second limb.

Accordingly, if I am wrong as to my primary conclusion, I am in no doubt that the cap would only apply to Fitzpatrick’s own claims under the second limb of Hadley and Baxendale. I note that, in Mr Thomas’s clear submissions, he conceded that, if I was against his primary case (which I am) he accepted that the cap would indeed be limited to claims under the second limb of Hadley v Baxendale. Accordingly, even on this alternative interpretation, Fitzpatrick’s claims for the costs that they themselves incurred in completing/rectifying the sub-contract works, being claims for direct losses under the first limb, would not be capped.

For the reasons set out above, and as indicated to the parties on 16 May, I conclude that the cap in clause 3(4):

Is not limited to claims for liquidated damages;

Applies to all claims against Tyco in which Fitzpatrick seek to pass on their liability for damages to the employer under the main contract or to any other sub-contractor under any other sub-contract, where such liability has been caused by Tyco’s breach of this sub-contract (i.e. third party claims);

Applies to any loss and expense incurred by Fitzpatrick which is ‘further’ to such third party claims (ie where the loss and expense is parasitical or consequential upon the third party claims). ‘Loss and expense’ means loss suffered or expense incurred as a result of delay or disruption;

Does not apply to any claims by Fitzpatrick against Tyco for damages arising out of Tyco’s failure to carry out and complete the sub-contract works properly or at all;

Does not apply to any claim by Fitzpatrick to be reimbursed their reasonable costs under clause 17(3) of the sub-contract.