WW Gear Construction Ltd v McGee Group Ltd

This case raises a short and not unimportant issue of construction in relation to conditions precedent in the standard JCT contracts. The contract in this case incorporated the JCT Trade Contract terms (TC/C) 2002 edition with Amendment No 1:2003, albeit as will be seen below this was further amended by the parties.

WW Gear Construction Ltd (“the Employer”) is a Cyprus registered company which wished to develop a site in the middle of a roundabout directly on the south side of Westminster Bridge, No 1, Westminster Bridge Road, London SE1. The development was to include the construction of the Westminster Park Plaza Hotel. McGee Group Ltd ("the Contractor") is a ground works contractor which was retained by the Employer on or about 31 August 2007 to carry out excavation and other ground works for this development. The agreed Contract sum was £1,812,836.75. The Construction Manager named in the Contract was GC Project Management Ltd. The Contractor carried out work completing it in about May 2009 and the Employer made some payments. Disputes arose in relation to payments including the Contractor’s claims for delay and disruption related loss and expense.

The Contractor made, as is usual, applications for payment, apparently starting in late 2007 continuing through to October 2009, and broadly on a monthly basis. The applications included requests or claims for payment for extended preliminary costs associated, apparently, with delay either to individual elements of the works (for instance extended preliminaries for capping beam works as from 30 November 2007) and to the works as a whole from about June 2008. For Application 18 which was said to summarise the position up to 29 March 2009, the Contractor referred in its summary to a "Loss & Expense Claim” being "As Attached". That claim, in the sum of £1,555,919.89, included for preliminaries which at least in part had previously formed the subject matter of monthly applications for payment; it included various other delay and disruption claims such as "Site Plant" as well as "Additional Head Office Direct Costs”, “Additional Site Management Costs” and “Head Office Overheads & Loss of Profit". I am not in a position to make any findings as to whether or not any other notices, claims or applications were made by the Contractor in relation to loss and expense.

The Employer decided that it wished to refer to adjudication issues arising between the parties, including issues relating to the proper interpretation and application of extension of time and delay related loss and expense clauses in the contract. Dr John Ross was appointed adjudicator and in an adjudication decision dated 29 March 2010, running to 83 pages and various appendices, he decided in broad terms against the Employer on these issues. The Employer was not satisfied with this decision albeit that it has not sought to challenge the enforceability as such of the decision. Consequently, it has issued these proceedings for final declarations.

The Contract documentation comprised Numbered Documents 1 to 9, which included Preliminaries and General Conditions. The Contract incorporated the standard Trade Contract (TC/C) albeit amended by the various provisions set out at Part A20 of the Preliminaries and General Conditions. In setting out the relevant clauses, I will refer to the amended conditions, albeit underlining those parts in the body of the clause which were the subject of the agreed amendments.

Relevant clauses were as follows:

It was agreed between the parties that any disputes or differences between them were still being determined by legal proceedings in the TCC.

The Employer seeks a final determination from this Court as to the true meaning and effect of Clause 4.21 and asserts in its Claim that as amended Clause 4.21 provided that a timely and detailed application would be a condition precedent to entitlement under that clause. It took issue with the adjudicator's decision in particular that part which decided that the condition precedent was "devoid of meaning" and of no effect. It seeks declarations in the following terms:

“.1 On its true construction, the [Contractor] was required to comply with the provisions of Clause 4.21.1 as a condition precedent to its entitlement to make any such application, further or alternatively, to have such an application for loss and expense ascertained by the Construction Manager, further or alternatively to loss and expense

.2 In order to satisfy the condition precedent, the Defendant must establish that it provided sufficient information within the specified period whether or not it did so in relation to any given claim is a matter of fact to be determined in all the circumstances."

This second declaration was abandoned and not pursued by Counsel during oral argument.

Essentially, much of the argument between the parties has revolved around whether meaning can or should be given to the words “Trade Contractor’s entitlement under this clause 4.21.1” on the basis that, at least superficially, there is no entitlement under that sub-sub-clause. The Employer argues that, as a matter of construction, what was clearly intended was a reference to Clause 4.21 in the round whilst the Contractor argues that conditions precedent are to be construed strictly and that, as the words are superficially meaningless, they should not be construed as barring the Contractor from a legitimate claim for loss and expense if the application therefor is not made within the period or periods set out in Clause 4.21.1. The Contractor prays in aid the Adjudicator’s decision in this context which found this expression to be meaningless and that the condition precedent had "no teeth".

The Employer through its Counsel has expressly conceded that Clause 4.25, even as amended, does not operate to prevent the Contractor’s claims at common law, including claims for damages for breach of contract, from being pursued even if Clause 4.21 as a whole has not been complied with by the Contractor. In my judgement, that was a proper concession to make.

Reliance was placed by both parties on the House of Lords decision in Chartbrook Ltd and another v Persimmon Homes Ltd and another [2009] UKHL 38. Lord Hoffmann addressed important issues of construction which are germane to the current case:

“14.There is no dispute that the principles on which a contract (or any other instrument or utterance) should be interpreted are those summarised by the House of Lords in Investors Compensation Scheme Ltd v West Bromwich Building Society[1998] 1 WLR 896, 912-913. They are well known and need not be repeated. It is agreed that the question is what a reasonable person having all the background knowledge which would have been available to the parties would have understood them to be using the language in the contract to mean. The House emphasised that “we do not easily accept that people have made linguistic mistakes, particularly in formal documents” (similar statements will be found in Bank of Credit and Commerce International SA v Ali[2002] 1 AC 251, 269, Kirin-Amgen Inc v Hoechst Marion Roussel Ltd[2005] RPC 169, 186 and Jumbo King Ltd v Faithful Properties Ltd(1999) 2 HKCFAR 279, 296) but said that in some cases the context and background drove a court to the conclusion that “something must have gone wrong with the language". In such a case, the law did not require a court to attribute to the parties an intention which a reasonable person would not have understood them to have had. Para 11:

15.

It clearly requires a strong case to persuade the court that something must have gone wrong with the language and the judge and the majority of the Court of Appeal did not think that such a case had been made out. On the other hand, Lawrence Collins LJ thought it had. It is, I am afraid, not unusual that an interpretation which does not strike one person as sufficiently irrational to justify a conclusion that there has been a linguistic mistake will seem commercially absurd to another: compare the Kirin-Amgen case [2005] RPC 169 at pp. 189-190. Such a division of opinion occurred in the Investors Compensation Scheme case itself. The subtleties of language are such that no judicial guidelines or statements of principle can prevent it from sometimes happening. It is fortunately rare because most draftsmen of formal documents think about what they are saying and use language with care. But this appears to be an exceptional case in which the drafting was careless and no one noticed.

22.

In East v Pantiles (Plant Hire) Ltd(1981) 263 EG 61 Brightman LJ stated the conditions for what he called “correction of mistakes by construction":

“Two conditions must be satisfied: first, there must be a clear mistake on the face of the instrument; secondly, it must be clear what correction ought to be made in order to cure the mistake. If those conditions are satisfied, then the correction is made as a matter of construction.”

23.

Subject to two qualifications, both of which are explained by Carnwath LJ in his admirable judgment in KPMG LLP v Network Rail Infrastructure Ltd[2007] Bus LR 1336, I would accept this statement, which is in my opinion no more than an expression of the common sense view that we do not readily accept that people have made mistakes in formal documents. The first qualification is that “correction of mistakes by construction” is not a separate branch of the law, a summary version of an action for rectification. As Carnwath LJ said (at p. 1351, para 50):

“Both in the judgment, and in the arguments before us, there was a tendency to deal separately with correction of mistakes and construing the paragraph ‘as it stands’, as though they were distinct exercises. In my view, they are simply aspects of the single task of interpreting the agreement in its context, in order to get as close as possible to the meaning which the parties intended.”

24.

The second qualification concerns the words “on the face of the instrument". I agree with Carnwath LJ (at pp 1350-1351) that in deciding whether there is a clear mistake, the court is not confined to reading the document without regard to its background or context. As the exercise is part of the single task of interpretation, the background and context must always be taken into consideration.

25.

What is clear from these cases is that there is not, so to speak, a limit to the amount of red ink or verbal rearrangement or correction which the court is allowed. All that is required is that it should be clear that something has gone wrong with the language and that it should be clear what a reasonable person would have understood the parties to have meant. In my opinion, both of these requirements are satisfied.”

This is self explanatory. Whilst the Court does not readily accept that contractual parties have made a mistake in their written contracts, once it is clear that something has gone wrong with the language, the Court will seek as a matter of construction and interpretation to determine what the parties really meant; in doing so, as with all contractual construction exercises, the Court can as necessary have regard to the background to and context of the contract in question. If it is simply not possible to determine what was mutually intended from the wording, the background and the context, it may well be the case that the Court has to say that the parties have produced a meaningless term or contract as the case may be. The construction exercise however is to be distinguished from the circumstances which give rise to a claim for rectification. It is not suggested in the current case that rectification is required.

It is sometimes said and argued that conditions precedent which have the effect of otherwise excluding what would otherwise be perfectly valid claims or entitlements are to be construed strictly. For instance in cases such as Gilbert-Ash (Northern) Ltd Modern Engineering (Bristol) Ltd 1974 AC 689, various judges used words to the effect that the contractual language used to exclude rights of set off or other such common law or equitable rights must be "sufficiently clear" (see Lord Diplock page 716 H). However the basic rules of construction apply to all contractual terms. Thus, in Bremer Handelsgesellschaft Schaft v Vanden Avenne Izegem [1978] 2 Lloyds Rep 109, Lord Wilberforce said in relation to a particular clause [quoting Lane LJ in the Court of Appeal]:

“Whether this clause is a condition precedent or a contractual term of some other character must depend on (i) the form of the clause itself, (ii) the relation of the clause to the contract as a whole, (iii) general considerations of law.”

There is no direct authority, at least to which the Court has been referred, on this particular form of contract. However, the un-amended form of wording is similar and comparable to that used in the earlier editions of the JCT contracts, both in their 1963 and 1980 editions. In London Borough of Merton v Stanley Hugh Leach Ltd (1985) 32 BLR 51, Mr Justice Vinelott was asked to consider a number of legal and construction issues in relation to the 1963 Edition of the JCT Standard form including various issues relating to loss and expense claims made under Clause 24 (1) of the contract conditions, which was the precursor to Clause 4.21 in the contract with which this case is concerned. Clause 24(1) stated:

“If upon written application to him by the Contractor the Architect…is of the opinion that the Contractor has been involved in direct loss and/or expense for which he would not be reimbursed by a payment made under any other provision in this Contract by reason of the regular progress of the Works or of any part thereof having been materially affected by [various listed factors such as late information] and if the written application is made within a reasonable time of it becoming reasonably apparent to him that the progress of the Works or any part thereof has been affected as aforesaid, then the Architect should either himself ascertain or instruct the Quantity Surveyor to ascertain the amount of such loss and/or expense…”

Mr Justice Vinelott went on to say at Page 95 looking at Clause 24 (1) and 11(6), the equivalent Variation related clause:

“ The common features of Clauses 24(1) and 11(6) are first that both are “if” provisions, that is , provisions which only operate in the event that the contractor invokes them by making a written application, secondly, that if an application is made the architect must form an opinion whether the contractor has suffered direct loss and/or expense in the circumstances of the kind there set out, thirdly, that the written application must be made within a reasonable time after a stated event, and, fourthly, that the architect must then ascertain the amount of the loss or expense which is then added to the contract sum.”

Although it must be borne in mind that the terms in the Merton case and the current case are somewhat different, the dicta of Vinelott J are illuminating.

In simple terms, the issue has boiled down to whether the making of an application by the Contractor within the general and specific timescales set out in Clause 4.21.1 is a condition precedent to the recovery of loss and expense under that clause or whether the terms of that sub-sub-clause are meaningless. Ascertained loss and/or expense under Clause 4.21 is simply one of the adjustments to be made to the contract sum. Whilst some of the grounds in respect of which loss and expense are awardable under Clause 4.21 may well also reflect breaches of contract on the part of the Employer and give rise to an independent entitlement in damages on the part of the Contractor, Clause 4.21 is simply a contractual adjustment clause.

The main part of the Clause may be broken down to show that this is one of those “if” clauses referred to by Vinelott J in the Merton case.

One then turns in a similar manner to analyse Clause 4.21.1:

It follows from the above that the requirement to make a timely application in writing is a precondition to the recovery of loss and/or expense under Clause 4.21. The Contractor simply has no entitlement to recover such loss or expense unless and until it has made such an application because it is the application which triggers the ascertainment process which leads to the adjustment of the Contract Sum. That is what the parties have agreed. The parties have preserved the Contractor’s rights to claim in effect at common law for breach of express or implied terms of the Contract. However, the parties have also agreed through the proviso in Clause 4.21.1, as amended, that the application must be made in a timely manner and in any event no more than two months after either it has become or should reasonably have become apparent to him that the regular progress of the Works or of any part thereof had been or was likely to be affected. The timeliness and the two-month period can thus be seen to be related to either progress actually being affected or to a time when it was likely to be affected. It will therefore follow that upon a proper construction of Clause 4.21 including Clause 4.21.1 there is a condition precedent to the Contractor’s entitlement to recover loss or expense which involves the submission of a written application within the time constraints set out in Clause 4.21.1. It is not an unduly onerous provision in any event.

It follows from the above that the Employer is entitled to a declaration that the Contractor was required to comply with the provisions of Clause 4.21.1 as a condition precedent to its entitlement to loss and expense under and pursuant to Clause 4.21.