Royal Courts of Justice
Strand, London, WC2A 2LL
Before:
MR JUSTICE AKENHEAD
Between:
A E YATES TRENCHLESS SOLUTIONS LIMITED | Claimant |
- and - | |
BLACK AND VEATCH LIMITED | Defendant |
Rosemary Jackson QC (instructed by Glovers) for the Claimant
Marcus Taverner QC (instructed by Wragge & Co) for the Defendant
Hearing dates: 2, 3 and 19 December 2008
Judgment
Mr Justice Akenhead:
Introduction
Black and Veatch Ltd, by way of novation, stands in the shoes of Gleeson Construction Services Limited (“Gleeson”) which was engaged by South West Water Ltd (“SWW”) in about 2005 to carry out engineering works at Burrows Water Treatment Works, Dawlish, Devon. These works included directional drilling work to install some 600 metres of water main beneath Dawlish Water and adjacent roads. A E Yates Trenchless Solutions Ltd (“Yates”) are and were specialist engineering contractors who were engaged by Gleeson as sub-contractors to carry out this directional drilling work. Yates encountered conditions in 2006 and later which it claims delayed and disrupted their work and for which it claims it is entitled to compensation under the terms of its sub-contract. No formal sub-contract was signed.
Proceedings for declarations have been sought to be tried in relation to what the sub-contract contract was and depending on what it was whether one set of terms and conditions has contractual priority over another. Both parties accept that there was a sub-contract but they differ as to whose terms and conditions were incorporated. There is thus a “battle of the forms”.
The law
It is usually possible to establish by the conventional approach to contract formation what the contract in any given case is. Thus there will be an offer, an acceptance, consideration and an intention to create a legal relationship. The latter two factors do not give rise in this case to any difficulty. It is trite to say that each case will depend on its own facts as to whether, when and how any given offer or counter-offer has been accepted. Many of the cases relied upon do not decide much beyond their own facts.
In G Percy Trentham Ltd v Archital Luxfer Ltd & Others [1993] 1 Lloyd’s Rep 25, Lord Justice Steyn, with whom the other members of the Court of Appeal agreed, said at Page 27 in a case which necessarily turned on its own facts:
“Before I turn to the facts it is important to consider briefly the approach to be adopted to the issue of contract formation in this case. It seems to me that four matters are of importance. The first is the fact that English law generally adopts an objective theory of contract formation. That means that in practice our law generally ignores the subjective expectations and the unexpressed mental reservations of the parties. Instead the governing criterion is the reasonable expectations of honest men. And in the present case that means that the yardstick is the reasonable expectations of sensible businessmen. Secondly, it is true that the coincidence of offer and acceptance will in the vast majority of cases represent the mechanism of contract formation. It is so in the case of a contract alleged to be made by an exchange of correspondence. But it is not necessarily so in the case of a contract alleged to have come into existence during and as a result of performance. See Brogden v Metropolitan Railway (1877) 2 AC 666; New ZealandShipping Co Ltd v A.M. Satterthwaite & Co Ltd [1974] 1 Lloyd’s Rep 534 at p.539, Col 1; [1975] AC 154 at p.167 D-E; Gibson vManchester City Council[1979] 1 WLR 294. The third matter is the impact of the fact that the transaction is executed rather executory. It is a consideration of the first importance on a number of levels. See British Bank for Foreign Trade Ltd v Novinex[1949] 1 KB 628. at p 630. The fact that the transaction was performed on both sides will often make it unrealistic to argue that there was no intention to enter into legal relations. It will often make it difficult to submit that the contract is void for vagueness or uncertainty. Specifically, the fact that the transaction is executed makes it easier to imply a term resolving any uncertainty, or, alternatively, it may make it possible to treat a matter not finalised in negotiations as an inessential. In this case fully executed transactions are under consideration. Clearly, similar considerations may sometimes be relevant in partly executed transactions. Fourthly, if a contract only comes into existence during and as a result of performance of the transaction it will frequently be possible to hold that the contract impliedly and retrospectively covers pre-contractual performance. See Trollope& Colls Ltd v Atomic Power Construction Ltd[1963] 1 WLR 333.”
It is important to appreciate that the reference in the first of Steyn LJ’s four matters to “the reasonable expectations of sensible businessmen”is in the context of confirming that the law recognises only an “objective theory of contract formation”. Thus, in the context of a commercial contract such as that entered into in this case, one needs to have regard to an objective interpretation of what the parties did and said in fact. When one couples the first with the second matter, conduct in terms of possible acceptance is again construed upon an objective basis. Thus, a contractor who commences work after receipt of an order to commence may well have its conduct in commencing the work objectively construed as an acceptance of the order, because objectively sensible business people would expect that commencement without reservation suggested acceptance of the order.
The case of Brogden v Metropolitan Railway (1877) 2 AC 666 referred to by Steyn LJ established or confirmed the proposition that conduct by a party to a contract can in appropriate circumstances probably be considered as an implied acceptance. That case related to parties who wished to make a contract relating to the supply of coal. A draft contract was supplied by the railway company to the supplier and the simple details were agreed. That draft was returned by the supplier to the railway company with some minor additions in relation to the proposed name of an arbitrator. The coal was then supplied and paid for on the basis set out in that draft contract albeit that the railway company had omitted to complete the necessary formalities and the draft stayed (uncompleted) in a drawer in their offices. Lord Cairns LC said as follows:
“… there are no cases upon which difference of opinion may more readily be entertained, or which are always more embarrassing to dispose of, than cases where the Court has to decide whether or not, having regard to letters and documents which have not assumed the complete and formal shape of executed and solemn agreements, a contract has really been constituted between the parties. But, on the other hand, there is no principle of law better established than this, that even although parties may intend to have their agreement expressed in the most solemn and complete form that conveyancers and solicitors are able to prepare, still there may be a consensus between the parties far short of the complete mode of expressing it, and that consensus may be discovered from letters or from other documents of an imperfect and incomplete description; I mean imperfect and incomplete as regards form. (Page 672)
… I must say that having read with great care the whole of this correspondence, there appears to me clearly to be pervading the whole of it the expression of the feeling on the one side and on the other that those who were ordering the coals were ordering them, and those who were supplying the coals were supplying them, under some course of dealing which created on the one side the right to give the order, and the other side an obligation to comply with the order. (Page 679)
My Lords, those are the grounds which lead me to think that, there having been clearly a consensus between these parties, arrived at and expressed by the document signed by Mr. Brogden, subject only to approbation, on the part of the company, of the additional term which he had introduced with regard to an arbitrator, that approbation was clearly given when the company commenced a course of dealing which is referable in my mind only to the contract, and when that course of dealing was accepted and acted upon by Messrs. Brogden Co. in the supply of coals.” (Page.680)
Lord Hatherley said this:
“My Lord, Mr. Herschell, in his extremely able argument in this case, has given us every assistance that we could wish to have for its determination, and has, at it appears to me, put the case on a very proper foundation, when he says that he will not contend that this agreement is not to be held to be a binding and firm agreement between the parties, if it should be found that, although there has been no formal recognition of the agreement in terms by the one side, yet the course of dealing in conduct of the party to whom the agreement was propounded has been such as legitimately lead to the inference that those with whom they were dealing were made aware by that course of dealing, that the contract which they had propounded had been in fact accepted by the persons who so dealt with them” (Page 686)
In this case, Brogden, is authority for the proposition that a course of dealing and conduct, construed objectively, can amount to acceptance, in contractual terms of an offer made by a party.
Reliance has been placed on the case of Jayaar Impex Ltd v Toaken Group Ltd [1996] 2 Lloyd’s Rep. 437. This was a decision of Mr. Justice Rix (as he then was) and was clearly and expressly a decision upon its own facts. It is a case from which one can draw this relatively obvious proposition: where there is an established contract between the parties, it is difficult to infer that there has been an agreed variation to that contract by reason of conduct which is referable only to the established contract. Thus, where commencement of the works is consistent with and referable to an established contract, it is difficult and in many cases impossible, without more for that commencement of works to be conduct which, objectively construed, implies acceptance of some variation to that subsisting contract.
There was argument as to the effect of the rejection of an offer. Halsbury’s Laws of England (4th Edition Re Issue) Vol. 9 (1) addresses this:
“645. The power to accept an offer may be terminated by any unambiguous intimation, expressed or implied, by the offeree to the offeror that he rejects the offer. This will generally remain true notwithstanding that the offer was stated to be open for a certain period as yet unexpired. A rejection cannot be effective as such unless and until communicated to the offeror; but, thereafter, the offer cannot be accepted unless subsequently revived by the offeror, or unless the original offer was intended to continue notwithstanding the rejection.
An offer can only be rejected by a definite indication of intention to reject. …
A counter-offer is often seen as having the effect of a rejection of the original offer.”
In the case of Butler Machine Tool Co. Ltd v Ex-Cell-O Corporation (England) Ltd[1979] 1 WLR 401, the Court of Appeal had to consider the effect of a counter-offer. Lord Denning MR (at page 404) and Lord Justice Lawton (at page 406) quoted with approval Mr. Justice Megaw’s words in Trollope & Colls Ltd v Atomic Power Constructions Ltd[1963] 1 WLR 333 at page 337: “The counter-offer kills the original offer”.
The History through the Documents
On 10 October 2005, Gleeson invited Yates to tender. That invitationt states materially as follows:
“We should be pleased to receive from you a most competitive tender for the supply of all supervision, labour, plant and materials to carry out the Directional Drill works at our Burrows site, as detailed in the Scope attached.
The tender should be based on fixed rates and be returned to the above address by no later than 21st October 2005 at the earliest availability. The tender quotations MUST be valid for a minimum of 6 months from receipt. We are looking to mobilise week commencing 21st November 05. Please could you also provide a programme for works.
The tender, if accepted will be carried out under the IChemE Form of Contract for Civil Engineering Works ‘The Brown Book’ Second Edition 2004 incorporating Completed Sub-Contract Schedules 1 to 15 and this will be incorporated in Vol. 1 of the Sub-Contract Order for the above works.
The following documents have been enclosed:
1. Scope of Works ….
2. Drawings ….
3. Daywork Schedule ….
4. Schedule of Attendances ….
5. Fully Qualified Workforce Group Statement (on CD).
6. Fully Qualified Workforce Guidance (on CD).
7. Fully Qualified Workforce Conditions (on CD).
8. Gleeson …. ‘Engineering Division Health and Safety Policy’ (on CD).
9. Gleeson … Health and Safety Management System Procedures: All listed on enclosed CD ( inc Engineering Division Health and Safety Policy – Current at TODAY’s DATE)….
This Subcontract enquiry document and related information and specifications will be incorporated into Volume 2 of the Subcontract Order for the above works.
The quotation received by Gleeson as well as the letter of appointment will be incorporated into Volume 3 of the Subcontract Order for the above works. …
Please also note the following important details:
…
(9) The Sub-Contractor will at some time be required to attend a pre-contract subcontract meeting as confirmed by Gleeson …
Gleeson … are not obliged to accept the lowest tender and the successful tenderer will be subject to South West Water approval and a Sub-Contract ‘Pre-Let’ interview with Gleeson ….”
Enclosed with this letter was the CD referred to. There is an issue as to whether or not the SWW Conditions were sent with this letter either as an attachment or on the CD. I am satisfied on the balance of probabilities that it was not. The letter itself does not suggest that it was and the evidence about whether it was on the CD was to the effect that it was only a possibility that it was. The Scope of Works attached to this letter contained borehole logs. There was only one other tenderer who was invited to quote, Avoidatrench.
On 20 October 2005, Yates submitted their tender under cover of an email of that date:
“Please find attached our quotation for the installation by hdd at Dawlish. I have priced three scenarios …..
I have got concerns with the depth and ground conditions near the river, the borehole number 2 indicating gravel beds, and would propose to dig a ‘burp’ hole in here if possible to avoid the risk of any fluid break out under/into the river …
We have not included waste removal as this is not a function of the ground conditions …”
The attached quotation letter stated:
“Re: Burrows-WTW-Directional Drill
We thank you for your recent enquiry regarding the above and now have pleasure in submitting our ‘QUOTATION’ for the above directional drilling sub-contract works duly priced for your requirements, as per the attached schedule …
Prior to entering into a formal contract, we will require a site visit.”
Three alternative prices were provided, the most relevant being that which offered to install ductile iron pipe; that quotation totalled £221,827.92 and excluded the collection and removal from site of “arisings”. It was prefaced with these words:
“… Yates … is pleased to submit this proposal to Gleeson … to provide ‘Horizontal Directional Drilling Solutions’ (HDD) in accordance with the attached “Terms and Conditions of Contract and Price Schedule”.
The estimated time for completion was 4-5 weeks and a particular 70 tonne (Power- bore) piece of equipment was specified to be used.
After the priced quotations, there was a section entitled “Responsibilities/ Attendances required by: Gleeson …”. At the end of that section the following appears:
“Please note the following:
1. This offer is subject to availability of resources at the time of placing the order … and to our confirmation of this offer in writing.
2. Work will normally be carried out in accordance with the Civil Engineering Contractors Association “Form of Sub-contract for use with the ICE Conditions of the contract” except that clauses 3(3), 3(4), 10(3), 11, 15(4) and 17(3) shall be deleted from the Form of subcontract or the “Engineering and the Construction subcontract – 2nd Edition”.
3. The conditions in this letter will form part of the contract documentation (second schedule of the Blue Form or Works information for the NEC/ECC) and in the event of any conflict between these conditions and any other documents (including the subcontract order or the form of subcontract) these conditions shall prevail. We will not undertake work under nonstandard forms of contract that do not contain clauses similar to Clauses 12 and 13 of the ICE Conditions of Contract or 60.1 of the NEC/ECC. …
6. Our offer is based only on the information provided.
We are not deemed to have any knowledge of any other documents.
7. In the event that we exceed the agreed contract period for reasons that do not entitle us to an extension of our contract period we will pay Liquidated Damages to the main contractor of £500/week to an overall maximum of 5% of our contract value. This figure is our total liability to the main contractor for delays or any other costs arising from our delay …
12. Unless agreed to the contrary in writing we do not accept any responsibility for any design of the works….
19. We have not inspected the site and our knowledge of ground conditions is limited to any geotechnical information supplied to us. Our tender is based on the assumption that the ground is suitable for the directional drill specified ….
22. Our price is based on the use of our Horizontal Drilling M/c as shown on page 1 and the boreholes provide[d]. If rock is encountered we reserve the right to renegotiate the drilling rates to allow for increased drilling times and change of drilling bits, reamers etc. If installation with this machine is not practicable we will have no responsibility for the completion of the works by other methods or machines and will be reimbursed for abortive work in accordance with the enclosed schedule …”
Avoidatrench also submitted a quotation albeit it was late (on 24th October 2005). Avoidatrench did not quote for the use of ductile pipe but for the use of plastic pipe.
On 1 November 2005, there was, at Gleeson’s Exeter offices, the anticipated interview meeting between Gleeson’s Messrs. Morant and Eversett and Mr. Brodie of Yates, who was the Operations Manager responsible for putting together the quotation. The Record of Interview is a 14-page document. There is no doubt, and I find, that the large bulk of this document was filled in during the course of a meeting. On page 1 amongst other things “Yates” was written in the box against “Name of Sub-Contractor” and opposite the box entitled “Form of Sub-Contract” Mr. Morant wrote this: “I Chem E Brown Book”.
Page 2 refers to the fact that sub-contractors must complete a “Service Provider Questionnaire” which Yates had already done. On pages 3 to 5 there was a list of questions relating to Health and Safety. Page 6 is headed “Commencement and Completion” and refers to the Commencement Date for the Sub-Contract works being 21st November 2005 whilst the Completion Date is stated to be 10th February 2006: “this date is the overall completion – looking to actually finish 23rd December 2005”. The “total period on site” is said to be “Approx. 24 days”.
Page 7 related to “Technical” matters. This page refers to pressure testing being “by AE Yates”, where it is clear that pressure testing was at this stage not included in Yates’ price. This page also confirms that disposal of materials was to be “at cost + 10%”. Other evidence suggests (and I find) that it was agreed that Yates would provide a further quotation for the pressure testing and the disposal of materials. Page 8 is concerned with the attendances and indicates what Gleeson was to provide whilst Page 9 addresses “the Working Arrangements”.
Section 7 is headed “Financial”. The first two boxes state:
“Sub-Contractor’s Offer:
Date of Offer: 20/10/05
Price: £221,827.92
Discount Offered: 6% off drilling rate
Quotation Expiry Date: 28 days …
Amendments to Subcontract Offer: less 6% on drilling rate = £255/m x 600 = £153,000 new total = £212,828.00”
Other boxes on this page are entitled “Approvals/ References”, “Turnover”, “Financial Report”, “Insurances”, “Bonds/Parent Company Guarantee” and “Tax and VAT”.
Pages 11 and 12 addressed “Quality Assurance” and “Environmental” matters.
The final page contains a box headed “Section 10 – Any Other Matters”; the following amongst other things was stated:
“For Lateness in Completion
The amount due from the Subcontractor for each complete week, or part thereof, of delay for which the Subcontractor is responsible in completion of the Construction of the Subcontract Plant (or any part of the Subcontract Plants so designated) in accordance with Schedule 9 shall be 2% to a maximum of 20% of the Sub-Contract price”.
There was room in the Section 10 box for other information to be written in by hand and certain information was written in. Finally at the foot of this last page the following appears before Mr. Brodie’s and Mr. Morant’s signatures:
“This is a true record of the interview”.
There is no dispute between the parties and, I accept, that at the very least the parties were not agreed about the level of liquidated damages. Thus it was, that it was mutually understood that Mr. Brodie would need to seek approval from more senior people within Yates to any change in the rate of liquidated damages.
By this time, Gleeson had consulted with SWW about the use of ductile iron as opposed to plastic pipe. Because ductile iron was preferred by SWW, it was then inevitable that Yates would get the job.
By email dated 2 November 2005, Mr. Morant said to Mr. Brodie:
“The order number for the above job is SC34489. By having this number we are giving you the go ahead for the work and therefore you are now able to order the required materials. The Subcontract will follow as soon as possible hopefully by the end of this week.
If you have any queries please do not hesitate to contact me”.
Very shortly after receipt of this email, Mr. Brodie sent an order for the ductile iron pipes to St. Gobain Pipelines PLC.
Some 6 hours after receipt of Mr. Morant’s email, Mr. Brodie emailed Mr. Eversett and Mr. Morant on 2 November 2005 in the following terms:
“Thank you very much for the order.
I have a couple of questions raised by my Director of Tunnelling following our meeting on Tuesday, 1st Nov 2005.
As you can appreciate timescale is tight before Xmas, especially as pipe is coming from Germany. They are assuring me of delivery beginning week commencing 12th December 2005. If there is a delay on delivery then inevitably there would be a delay in installation and given the possibility of harsh winter conditions;
Can you clarify your date Feb 10th is the completion date by works?
And would the Liquidated Damages (Lateness in Completion) commence from this date?”
In answer to these two questions Mr. Eversett replied by email at 7:34 am on 3 November 2005:
“Yes to both”.
By letter dated 3 November 2005, Gleeson sent to Yates the Sub-Contract documentation in the following terms:
“Re: Burrows WTW …
Subcontract Order No. SC34489
Please find enclosed [herewith] our Subcontract Agreement (Vol. 1), The Enquiry (Vol. 2) and Further Documents (Vol. 3) on the above project.
Please complete the Subcontract Agreements where indicated and return both copies to this office within 7 days to ourselves to complete.
Please note we are now operating a Self-Billing System. Could you please sign and return the enclosed form.
If you have any queries regarding the above please do not hesitate to contact the writer”.
I will return to the attached documents later in this Judgment but the Sub-Contract Agreement on the front page said as follows:
“Subcontract Agreement – relating to – I Chem E Form of Contract, Subcontract ‘The Brown Book’ second edition 2004 incorporating Schedules 1 to 15 with South West Water Ltd Amendments – between - Gleeson…. -and- Yates .. Sub-Contract Order No. SC34489 (I Chem E Brown Book)”.
The Further Documents included Yates’ quotations (see above).
That letter was received by Yates on 10November 2005. Prior to that Mr. Brodie and Mr. Eversett had been in communication about provision of prices for waste removal and pressure testing by Yates. By email dated 10 November 2005, Mr. Brody wrote to Mr. Morant as follows:
“I have received contract documents, many thanks and will forward them to head office for approval.
Two issues that were discussed in our meeting, waste removal and pressure testing. I am putting together prices for waste removal by tanker vs. on site flocculation and centrifuge systems and should have these ready shortly.
In addition I am putting together price for pressure testing …
I cannot find any mention of the testing as an additional item, nor the waste removal. Is the waste removal which is an additional item covered by the email I sent on 20/10/2005 in Volume 3?
Cost of tankering waste removal will be at costs + 10%.
Are these two items described under the existing order or do you need to revise the document?
I should have all other documentation with you by the end of next week.”
On 11 November 2005, Mr. Brodie sent by email to Mr. Eversett Yates’ quotations for slurry control (£24,112.50) and pressure to testing and pipeline (£3,993.43).
On 17 November 2005, Mr. Morant sent to Mr. Brodie “the variation orders for the additional works outlined in your email dated 11th November 2005”. Those “variations” were on two pro-formas addressed to Yates with the following material information (the two forms are shown together below):
“CONTRACTOR’S INSTRUCTION
Sub-Contract: SC 34489
Dear Sirs
CI TITLE: SLURRY CONTROL/PRESSURE TESTING
In accordance with the SubContract
Please carry out the additional works to incorporate the slurry control/ pressure testing of the pipeline to the Burrows works as requested by our Mr. Davin Eversett and detailed upon your quotation dated 11th November 2005 for the sum of £24,112.50/£3,993.43 …
(ii) Please notify us within 7 days if compliance of this Contractor’s Instruction will delay completion of the Sub-Contract Works.”
In the last fortnight of November 2005, there were discussions, reported in the emails relating to the proposed drilling timetable. Mr. Brodie wrote to Mr. Myring of Gleeson on 9 December 2005:
“Within our terms and conditions we require the main contractor to provide us with a suitable water supply point and require a 2½” stand pipe feed (the usual ¾” feed off a main is impractical and will take too long to fill a 2000 gallon bowser). Especially as we will require filling it up at least twice if not three times prior to drilling commencing.
The Record of interview meeting states that potable water can be taken from the main treatment works. Can you confirm this?”
The response of three days later from Mr. Myring is that he would investigate this facility.
On 15 December 2005, Mr. Myring passed on an instruction from SWW to delay the start of the directional drilling part of the works. There was then some discussion as to what might happen if the whole project was cancelled including what possible claims Yates might have but Mr. Brodie wrote on the next day to Mr. Eversett amongst other things that:
“As a result of postponement of the contract, AE Yates would require a sum of £3,000 per week to reserve the drilling rig for the contract, charge to commence on Monday, 9th Jan 2006 until such time as we commence the project or the project is cancelled …”
The project was not cancelled.
Yates commenced their work on site on 6 February 2006. Some problems were encountered relatively soon. On 14 February 2006, Mr. Brodie emailed Mr. Myring referring to the fact that there had been a breakout which had “occurred as a result of faults” in the ground. Mr. Brodie wrote a letter or note also on 16 February 2006 to Mr. Eversett as follows:
“As you are aware we are experiencing a number of problems on the above directional drill, which are or have affected our works in a number of ways …
The bore was advanced by the above method until it was approximately 300m away from the launch pit. During this period, unexpected ‘frac-outs’ of drilling mud to the surface occurred on a number of occasions. These breakouts were appearing up to 15m away and up hill …
At 300m the ground became harder so that the head would not steer, but could be advanced by rotation of the drill head ...
The probability of drilling mud break outs can be reduced by going deeper but this will take the bore profile beyond the parameters of walk over guidance, and necessitate the use of a wireline guidance system and tracking engineer, which obviously has cost implications as set out below.
… Our extra over costs for using wire line and installing the sleeve are set out below …”
That letter prompted a response from Mr. Eversett shortly thereafter:
“Under the subcontract order number. SC 34489 you have given an undertaking to complete a directional drill of 600m of 300mm I/d ductile iron, within a five week programme period. The construction methods utilised in order to achieve this are your responsibility, bearing in mind the conditions you could have reasonably expected within the information provided at the time.
We are not in a position to instruct to you with regard to your method of working, please therefore complete the directional drill of 600m of 300mm I/d ductile iron. If you have any claim for additional costs, you should provide full substantiation of those costs, along with a demonstration and substantiation of any difference between the conditions envisaged and those encountered. We will then be able to comment further …”
Various discussions and meetings then took place to address the problems which Yates indicated that they had been encountering.
On 26 May 2006, Yates sent back the self-billing form which had been referred to in Gleeson’s letter of 3 November 2005. It is likely that this was a replacement form, the earlier one having been sent by Yates and then mislaid.
By letter dated 26 July 2006, Mr. Whitehead the Chairman of Yates wrote to Gleeson in the following terms:
“As you are aware we attempted to pull the pipe yesterday and aborted the pull when the pulling load (approx. 30t) approached the safe working load of the pipe joints (38t) after only 129m pipe were pulled. We are of the opinion that this problem has been caused by the unforeseen ground conditions and the consequent need to provide a ‘burp’ hole of approx 120m from the reception pit to relieve pressure on the ground beneath the river. This has meant that we have been unable to flush the bore properly and that a section of the bore cannot be filled with mud as the bore level is above ground level at the ‘burp’ hole.
The tender information indicated that the ground was stony/gritty clay. We have now received a draft geotechnical report based on the subsequent boreholes and geotechnical studies which, have shown the ground to be predominantly, gravel overlining Teignmouth Brecia. The brecia is comprised of angular, strong rock fragments in a very weak earth matrix …
We have already intimated that under the terms of our quotation we feel you are responsible for the costs involved. Clauses 3, 6, 12, 19 and 22 of our quotation placed the responsibility for costs on yourselves as does 3.5, 6.2 and 6.3 of the Brown Book and 17.10 of the SWW amendments to the Green Book. Please accept this letter as formal notification of claim under the contract. When we know the results of the pull back and after the meeting scheduled for 27/07/06 we will write to you again with our proposals”.
Various further technical meetings took place between the parties over the months that followed. On 2 August 2006, Mr. Whitehead of Yates sent to Mr. Eversett “a draft of the geotechnical advice we have received about the ground conditions at Dawlish. As you see it supports the contentions in my letter of 26/07/06 …”. That Report prepared by “STATS” dated July 2006 and contained a chapter headed “Pre Contract Interpretation” in which the following appears:
“From discussions with … Yates … personnel, and with reference to an email sent by Chris Brodie of [Yates] to [Gleeson] dated 20/10/2005 and included within Vol. 3 of the Sub-Contract Agreement, it is understood that [Yates] considered that the ground conditions for the directional drill would comprise predominantly firm to hard clay with a variable granular content as described in the drillers logs”
The report then goes on to consider the issue whether the “ground conditions encountered by Yates … during the drilling/directional drill … could not have been reasonably foreseen by a competent contractor from the information provided at tender stage”. STATS considered that they were not so reasonably foreseeable. An updated STATS/report dated December 2006 was sent to Gleeson at about that time which contained similar statements and considerations as set out above.
On 2 and 17 January 2007 Yates sent letters (the later one updating the earlier one) claiming on an interim basis £1,327,529.69 in relation to costs incurred up to 31 October 2006. In each version of the plan the Sub-Contract details were described as follows:
“Gleeson…tender inquiry: 10 October 2005
…Yates…quotation: 20 October 2005
Subcontract: SC34489
Form of Sub Contract: Institution of Chemical Engineers Subcontract for Civil Engineering Works (Brown Book) Second Edition 1994”
Black & Veatch (who had taken over Gleeson) wrote back on 31 January 2007 effectively rejecting the claim. On 25 May 2007 they wrote again to Yates as follows:
“We refer to your letter of 17th January 2007 including your interim claim submission and to our earlier reply of 31st January 2007.
The basis of your claim is not made clear. If it is being made under Sub-clause 6.3 of the Subcontract, which appears to be your intention, it is a condition precedent to any entitlement that you have first complied with the notice provisions. Please, therefore, provide copies of any notices that you believe that you have given to us…
Without prejudice to the position in respect to notices, we have reviewed your submission…
Your claim is deficient in that it does not satisfy the requirements of the Subcontract, in particular Sub – Clause 6.3 (if that is the clause under which you are claiming entitlement) and Clause 18. Please reconsider your claim and, if you still believe that you have an entitlement, re-submit it in accordance with the requirements of the Subcontract.”
This was responded to by Yates on 5 June 2007:
“…We are disappointed with your latest response received some four months later.
[Yates] advised in numerous letters and emails, as the situation developed, that the technical difficulties experienced during the drilling and reaming at Dawlish were attributable to conditions which could not reasonably have been foreseen at the date of tender by an experienced contractor. Our letters dated 16 February and 26 July 2006 formally advised notification in accordance with Brown Book Sub clauses 6.2 and 6.3. Due to the ongoing difficulties being encountered we reconfirm that the final paragraph of 6.2 and 6.3 (referring to Sub-clause 18.2) are still applicable…”
Mr. Brodie emailed Mr. Myring on 8 June 2007 referring to pre-reaming and the need to break down hard material. The email concludes:
“This notification is given under subclause 6.2 and 6.3 of the brown book.”
On 11 July 2007, Yates sent to the Claimant an Opinion of Rosemary Jackson QC. Although Ms. Jackson QC clearly had been provided with some incorrect information, her essential conclusion was that the Sub-Contract documentation sent under cover of the letter dated 3 November 2005 was not incorporated into the Sub-Contract between the parties. That Opinion was revised on 21 July 2007 and had a similar conclusion.
I was told that Yates’ works had recently been completed. I make no findings about that however. It seems clear however that the present lines of battle were drawn clearly as from the sending of Ms. Jackson’s Opinions in July 2007.
The Meeting of 1st November 2005
The context of this meeting was that it was Gleeson’s invariable practice to have an interview meeting with a proposed Sub-Contractor. That was presaged in its Invitation to Tender dated 10th October 2005. Whilst the parties are agreed upon most of what happened at this meeting, there remained some important differences. The most important difference is whether Mr. Brodie insisted (as he now says after the main meeting business had been concluded) that Yates’ terms and conditions, specifically the ground condition clause, had to be incorporated into any contract.
Although I consider that all three witnesses who attended this meeting were doing their best to recall what was or was not likely to have been said at this meeting, I have formed the view that the evidence of Mr. Morant and Mr. Eversett is to be preferred. I am satisfied that what happened at this meeting was, as Mr. Morant has said, that the attendees went through the Record of Interview form with Mr. Morant effectively acting as the scribe. Every matter that was noted down in handwriting was said. Thus I am wholly satisfied that at the beginning of the meeting Mr Morant said that the form of contract was (as the Record indicates) to be the Brown Book (I Chem E) form; there was no dissent from that. I found Mr. Brodie’s evidence on this confusing and confused:
(a) In his written statement he said (Paragraph 19) that the meeting lasted for around two hours and in Paragraph 22 the following:
“I do remember Davin (Eversett) making reference to terms and conditions. It is difficult to remember the exact wording used by me after so much time has passed, but I clearly remember saying that our terms and conditions had to be incorporated into contract document, specifically the ground conditions clause. This is because ground conditions are absolutely vital to the work we do, and this is the basis is the basis on which we always work. We always insist that the main contractor bears complete responsibility for unexpected or different ground conditions.”
He went on to say at Paragraph 24:
“Davin may have made reference to the IChemE but I can’t remember him doing so. I know that I did not and could not have agreed to the contract being governed by an IChemE form. I have no authority to and would never do so.”
(b) He said in evidence that it was at the end of the meeting that he talked about his “terms and conditions” being incorporated. He had not said that in his witness statement.
(c) He said in evidence and did not mention in his statement that he had retained on his own files a copy of the Record of Interview. Although overnight after giving evidence he was unable to find it, this is something which I would have expected to have been mentioned before cross-examination at least.
(d) He said in evidence (Day 1, at page 121 of the trnascript) that Mr. Morant filled out the first page and as he filled it he read it out:
“Q. He [Mr. Morant] said, “Name of subcontractor, A E Yates; scope of work, directional drilling; form of subcontract, IChemE Brown Book” did he not?
A. Yes.
Q. You can remember that?
A. I can remember going through and filling the form out. I can’t remember him specifically reading sentences out.
Q. And in the form that you had, you filled in the same thing did you?
A. I put in notes, yes.
Q. So you would have filled in form of contract IChemE Brown Book?
A. Yes.”
This was a clear acknowledgement that there was a clear record kept on both sides that the Brown Book I Chem E conditions of the Sub-Contract were intended at least by Gleeson to be incorporated. I am wholly satisfied that Mr. Brodie knew about that. Although he may not have known what was in the Brown Book form, he would have known and did know that it was or might well be different from the conditions and terms of the Yates’ quotation (which refers to the Blue form of ICE subcontract, the ICE form of main contract and the NEC forms but not the Brown Book).
The fact that Mr. Brodie signed the Record of Interview as a “true record” suggests very strongly that he accepted that everything above had been said and that at that stage there had been no challenge by him to any aspect of what was noted down.
I accept Mr. Morant’s evidence which was that at that start of the meeting he read out aloud to those assembled that the form of sub-contract was to be the I Chem E Brown Book contract conditions. That was corroborated by Mr. Eversett’s evidence which I also accept.
It was agreed, and I accept, that the parties were not in a position to agree liquidated damages at the meeting. The Gleeson representatives made it clear that the liquidated damages were to be at the rate of 2% per week up to a maximum of 20% of the subcontract price, exactly as is written on the Record of Interview. Mr. Brodie’s reaction was that he would have to check as to whether they were accepted. Based on the evidence which I heard, I am satisfied that Mr. Brodie did not indicate that it would not be agreed but that it was something which he did not highlight anyway as likely to give rise to any difficulty.
Mr. Brodie was emphatic in giving his evidence that he did say after the completion of the Record for Interview that Yates’ terms and conditions would have to be incorporated. Mr. Morant was equally emphatic that Mr. Brodie did not raise this issue at all. Mr. Eversett could not specifically remember whether Mr. Brodie talked about Yates’ terms and conditions; he accepted that it was Gleeson’s practice to incorporate into the sub-contracts the sub-contractor’s quotation but in terms of priority in contractual terms he said “They’re at the bottom of the heap”.
The onus of proof in establishing that Mr. Brodie made it clear that Yates’ terms and conditions were to apply is, necessarily, on Yates. I am not satisfied that Yates has discharged this burden. It is unlikely that Mr. Brodie did say anything of this sort. If he did, I am surprised that it was not recorded in Section 10 “Any Other Matters” in the Record of Interview; it was made clear to him that the Brown Book was to apply and if he was concerned to ensure that it did not, the opportunity was there to record on the Record of Interview sheet his concerns about it. Given that Mr. Brodie did not know much about the Brown Book, I would have expected him to have brought to his superiors’ attention that Gleeson had been calling during the interview for the incorporation of the Brown Book; no such action took place.
I also found Mr. Brodie’s recollection of what he did when receiving the Sub-Contract documentation on 10 November 2005 unconvincing: he said that he did not really read it at all. The references to the Brown Book even on the front sheet of the Sub-Contract documentation are plain to see. I suspect strongly that it would have been a dereliction of his duty and indeed his practice not at the very least to have had a brief look through the Sub-Contract documentation for a project which at £200,000 was to comprise 20% or more of Yates’ turnover for the year. I consider that it is probable that he did look at those documents and he found nothing in them objectionable or contradictory of what had been said either by the Gleeson representatives or by him. The fact that nobody on the Yates’ side ever came back before July 2007 to say that the Sub-Contract documentation was objectionable also suggests that nothing was said at the 1 November 2005 meeting about Yates’ terms and conditions. It is of some corroborative interest that Ms Jackson’s Opinions make no mention of the alleged fact that Mr Brodie (who was still employed by Yates) had mentioned at the meeting that the Yates’ terms and conditions should apply.
Reliance has been placed by Yates’ Leading Counsel on the assertion that Section 7 of the Record of Interview in some way reinstated in contractual terms the offer contained in Yates’ quotation of 20 October 2005. I am satisfied that that is not what Section 7 is concerned with. It is dealing with purely financial matters. Thus the quoted price was reduced by some £9,000 and the remainder of the matters on that page simply deal with purely financial considerations. It was not and was not intended as such in some way to reinstate the quotation as an offer in contractual terms.
What was the Sub-Contract and when did it come into being?
At the close of the Interview Meeting on 1 November 2005, in contractual terms, Yates’ offer in their quotation of 20 October 2005 had been rejected. It had been rejected on price grounds, on the basis of the proposed incorporation of the Brown Book and in connection with the rate of liquidated damages. At the close of the meeting there was, as such, no counter offer or acceptance because although Mr. Morant had written down in the Record of Interview in effect all the terms which they required, the question of liquidated damages remained to be discussed. This was a matter at that stage of importance to both parties. In effect, what had happened was that Gleeson had indicated after some negotiation and discussion the basis upon which it was prepared to contract and Mr Brodie was to seek confirmation or otherwise in relation to liquidated damages.
The status of the email of 2 November 2005 from Mr. Morant to Mr. Brodie is not and can not be an acceptance. There was no offer from Yates capable of acceptance and Mr. Morant must be taken to have known that liquidated damages remained to be discussed and agreed. In my judgment it can be construed as a separate and simple offer that Yates could order required materials in connection with the project. It was not in ordinary terms a “letter of intent”but the offer was issued in the context of the indication that the “Sub-Contract” would follow; put another way the offer was in effect for a holding arrangement and envisaged that the parties would enter into a formal sub-contract.
That offer was accepted by Mr. Brodie later that day, thanking Gleeson “for the order”. It is not particularly relevant to consider whether the two queries relating to the completion date and the commencement of liquidated damages amounted to a counter offer because Mr. Eversett accepted early the following day the two points raised.
Thus there was, at this stage, a simple contract between the parties whereby Yates was to order the materials for the project in the context that they would be required in time to enable completion of the proposed Sub-Contract Works by 10 February 2006. There would be, at the very least, an implied term that Yates would be paid a reasonable price for this service. The parties effectively accepted that a form of sub-contract would follow, albeit there was no special implied undertaking that whatever it was it would be acceptable.
The sending of the Sub-Contract Agreement under cover of Gleeson’s letter of 3 November 2005 can properly be classified in contractual terms as an offer. It was an offer to Yates that they should carry out the Sub-Contract Works on the terms indicated in the Sub-Contract documentation sent under cover of that letter.
Mr. Brodie’s response upon receipt on 10 November 2005 was clearly in terms not a rejection. His comment that the contract documents would be forwarded to Head Office for approval, whilst it does not, as such, amount to an acceptance, objectively speaking, is certainly not a rejection. The fact that the Sub-Contract documents appear to have been mislaid or overlooked within the Yates’ organisation is neither here nor there because their conduct must be construed objectively. Mr. Brodie’s language suggests, if anything, that approval is largely a formal step.
In my judgment, that offer was accepted by the later conduct, construed objectively, of Yates:
(a) The receipt without demur by Yates of Gleeson’s variation instructions of 17 November 2005 and its later acting upon those instructions by carrying out the works, is the clearest recognition that they accepted that those instructions were issued “in accordance with the Subcontract”. In context, the reference to the Sub-Contract must have been to the formal Sub-Contract documentation which had been sent under cover of Gleeson’s letter dated 3 November 2005. Although the Order number is the same as that referred to in the email of 2 November 2005, judged objectively, the reference to the Sub-Contract can have been only to the Sub-Contract documentation rather than the informal e-mail arrangement reached on 2 November 2005 (which commercial parties such as Gleeson and Yates would not have afforded subcontract status to).
(b) The signing and returning of the Self Billing System form referred to in Gleeson’s letter of 3 November 2005 by Yates again is a clear acceptance of the terms that were being put forward in that letter. It involved Yates acting upon that letter which necessarily involved an acknowledgement that it accepted it.
(c) The commencement of the Sub-Contract Works, including the variations, in February 2006 occurred without qualification or reservation and amounts to acceptance.
(d) Yates’ letter of 26 July 2006 purports to give notice, formally, of a claim “under the contract”. Although there is reference to various clauses in the quotation, the very fact that the claim is made pursuant to terms of the Brown Book and of the SWW amendments (seen for the first time by Yates in the bundle of Sub-Contract documents sent on 3 November 2005) is, objectively construed, conduct indicating that it is accepted that the Brown Book and the SWW amendments formed part of the Sub-Contract. The reference to the quotation conditions is not inconsistent with the Sub-Contract being as sent out in the letter of 3 November 2005, which expressly incorporated the quotation albeit with a lower contractual precedence than the Brown Book. Mr Whitehead’s subjective view that he was trying to present an alternative case (quotation having precedence, alternatively the Brown Book) is immaterial in construing conduct said to amount to contractual acceptance. In any event, I am not satisfied that Mr Whitehead had by then focussed on any possible problem relating to the Brown Book.
(e) The sending of the STATS Report apparently confirming that a three volume “Subcontract Agreement” was in place, again is conduct indicating acceptance of the fact that the Sub-Contract was as contained in Gleeson’s letter of 3 November 2005, which talked about three volumes of Sub-Contract documentation, including the Brown Book.
(f) The claims were made purportedly pursuant to “Sub-Contract 34489” which confirmed in the “Sub-Contract Details” that the Brown Book was the applicable form of sub-contract and, again, is conduct which indicates acceptance that that was the case. It is consistent with acceptance of the 3 November 2005 letter which sought to incorporate the Brown Book.
(g) Yates’ letter dated 5 June 2007 indicating that notifications had been given pursuant to the Brown Book is conduct also which, construed objectively, indicates that it is an acceptance that the Brown Book applied; that could have only arisen in contractual terms because the Sub-Contract contained in the letter of 3 November 2005 had been accepted. Similar considerations apply to Mr. Brodie’s email of 8 June 2007 whereby notification is given under Clauses 6.2 and 6.3 of the Brown Book.
The fact that the letter of 3 November 2005 asked for Yates to sign and return the Sub-Contract does not ultimately affect this view. The wording in the letter does not seek to make signing the Sub-Contract a pre-condition to there being a contractual relationship. The case of Brogden is a good comparable example of a similar situation. The fact that, as I have found, there was a simple contract created by the emails on 2 November 2005, does not impact upon this finding either; that related to the ordering of the materials and was clearly mutually intended to be a temporary arrangement pending a formal Sub-Contract.
Priority
The Sub-Contract was contained within the documents which were sent with Gleeson’s letter of 3 November 2005. That comprised the Sub-Contract Agreement, Schedules 1-15 and SWW Amendments in Volume 1, Gleeson’s tender enquiry dated 10 October 2005 including the Scope of Works, Drawings, Daywork Schedule and Schedule of Attendance in Volume 2 and Volume 3 comprising the Yates’ quotation dated 20 October 2005 and the Record of Interview on 1 November 2005.
The Sub-Contract Agreement itself identifies expressly in Clause 1 what Sub-Contract documents are incorporated. The relevant ones are as follows:
“(a) This Subcontract Agreement.
(b) The Special Conditions (enclosed).
(c) The General Conditions of Contract being Clauses 1-46 as set out in the I Chem E Form of Contract of Civil Engineering Subcontracts (the “Brown Book”), 2nd Edition, 2004.
(d) The Subcontract Specification
(e) The Schedules:
Schedule 1: Description of the Sub-Contract Works
Schedule 2: Documentation;
Schedule 3: Responsibilities of Contractor…
Schedule 9: Times of completion;
Schedule 10: Liquidated damages for delay;
Schedule 14: Terms of payment;
Schedule 15: Main Contract particulars;
For the purpose of identification, the contents of the Subcontract, including the number of pages in each part, are listed in the Annex to this Subcontract Agreement.”
Other relevant clauses of the Agreement itself are:
“2. The Subcontract constitutes the entire agreement between the Contractor and the Subcontractor with respect to the performance of the Subcontract Works and supersedes all prior negotiations, representations or agreements thereto, whether written or oral, except to the extent that they are expressly incorporated in the Subcontract…
6. In case of conflict between any of the documents accompanying the Subcontract Agreement, the order of precedence shall be set out in Clause 2 of the General Conditions…”
The Annex describes the 15 Schedules. Schedule 2 identified that a number of documents such as the Service Provider Questionnaire and Quality Assurance documents were part of Schedule 2. There were requirements relating to insurances to be taken out by Gleeson and Yates. There then follows:
“Documents Forming the Subcontract Agreement:
The terms and conditions of the I Chem E Form of Contract for Civil Engineering Works “The Brown Book” Second Edition 2004 incorporating Completed Subcontract Schedules 1 to 15, together with and subject to the amendments and additions contained in the [SWW] Special Conditions…
Gleeson … correspondence – including Drawings
(1) Gleeson Subcontract enquiry letter dated 10 October 2005…
(2) Completed Record of Interview with Subcontractor dated 1 November 2005…
(3) The Letter of Appointment dated 3 November 2005.
Subcontractor Correspondence – including quotation.
(1) [Yates] email dated 20 October 2005…containing the quotation…”
Liquidated damages for delay were said to be 2% per week up to a maximum of 20% of the Sub-Contract price (in Schedule 10).
Clause 2.2 of the Brown Book Conditions states as follows:
“The Subcontract documents shall be construed as mutually explanatory of one another. In the event of conflict between any of the documents comprising the Subcontract, the order of precedence shall be as follows:
(a) The Subcontract Agreement;
(b) The Special Conditions;
(c) The General Conditions of Contract;
(d) The Subcontract Specification;
(e) The Schedules.”
It is said that there is a conflict between Yates’ quotation incorporated into the Sub-Contract (Volume 3) and by Schedule 2. Therefore, in simple terms, if that conflict exists, the General Conditions of Contract take precedence. Yates argues however that because Schedule 2 (see above) places side by side (so to speak) the Brown Book and Yates’ quotation of 20th October they were clearly intended to rank at the same level of precedence; the argument continues that there is a conflict between the clauses in the quotation dealing with ground conditions and those in the Brown Book and that, contra proferentem, the quotation conditions should prevail.
I do not consider that that argument is intellectually or legally well founded. On any count and by whatever route, the parties agreed that the General Conditions in the Brown Book should be incorporated. Those Conditions set the priority which is to apply. That priority involved the General Conditions having precedence in interpretation terms over the quotation. As a matter of business of commonsense, parties can be taken to have intended their contract to make sense and, where ambiguities arise in circumstances in which parties have made provision for there to be a precedence (as here), that precedence should apply rather than the circular argument relied upon by Yates in this case. The fact that the General Conditions are referred to in one of the Schedules can not have been intended to involve the demotion of the General Conditions in precedence terms. It is not surprising that the Schedules should refer to various contract documents; the Brown Book is expressly predicated on the basis of there being 15 Schedules forming part of the Sub-Contract.
Conclusion
There will be judgment for the Defendant on the preliminary issues with declarations to the effect that the documents enclosed with the Defendant’s letter of 3 November 2005 were incorporated in and formed the Sub-Contract between the parties and that the terms and conditions of the I Chem E Form of Contract for Civil Engineering Works “The Brown Book” Second Edition 2004 take precedence over the terms and conditions of the Claimant’s quotation dated 20 October 2005 where the two conflict. I will hear the parties as to the exact form of any declarations. I am not deciding in this judgment any part of the underlying dispute as to whether the conditions encountered by Yates during the Sub-Contract Works give rise to any valid claim under the Sub-Contract.