WW Gear Construction Ltd v McGee Group Ltd

This is a claim under Part 8 in which the Claimant, the employer under a building contract, seeks a declaration as to the meaning of a clause in the contract.

In August 2007 the parties entered into a contract ("the Trade Contract") by which the Defendant agreed to carry out the excavation and associated groundworks for a development in London SE1. The original contract sum was about £1.8 million and the original contract period was 30 weeks. In this judgment I will refer to the parties as the Employer and the Contractor. Ms Gaynor Chambers appeared for the former, and Ms Sarah Hannaford QC appeared for the latter.

There have been several adjudications between the parties. The current adjudication is the fourth and was begun by the Contractor by a notice dated 25 April 2012. The Contractor is claiming about £2½ million, a significant proportion of which consists of claims based on variations. The adjudication is still on foot and the decision is due on 1 June 2012. That is in two days time (that is, from the date of issue of this judgment in draft).

The building contract is an amended form of the JCT Trade Contract (TC/C). The main body of the contract runs to more than 90 pages. Part 4 of the Trade Contract concerns payment. Clauses 4.4 - 4.6, which extend to about five pages, are concerned with the valuation of variations. Clauses 4.21 - 4.25 concern the recovery of loss and expense incurred by the Contractor caused by matters materially affecting the regular process of the works.

The declaration sought by the Employer is in the following terms (typing error corrected):

A variation under a building contract can take many forms. It may be a fairly straightforward instruction, such as to replace the clear glass specified for certain windows with tinted glass. Or it may take the form of an instruction to alter the footprint of the building in a way that makes the access more difficult to a particular elevation, thereby increasing the duration of that part of the work and making it more expensive to carry out. The possibilities are limitless. Some variations may have no effect on the time taken to carry out the work, others may affect the time taken to carry out the particular part of the work that is the subject of the variation without affecting the date of completion of the works as a whole, and others may delay both the time taken to carry out the part of the work that has been varied and cause delay to the overall completion of the works.

Clause 4.4 of the Trade Contract provides that all variations shall be valued under the provisions of one or other of two alternatives, A and B. Alternative A is a procedure by which the contractor submits a price for the work for the employer to accept. Clause 4.4.2 includes the following, at paragraph A1:

Clause A7.1 provides that the Construction Manager can either accept the amount put forward by the contractor in lieu of an ascertainment under clause 4.21, or refuse it and direct that clause 4.21 is to apply in respect of the ascertainment. It provides as follows:

If alternative A is not operated because either the contractor chooses not to submit a price or the employer does not accept the contractor's offer, then alternative B applies. Alternative B provides rules for the valuation of variations ("the Valuation Rules").

For example, clause 4.6.1.2 provides as follows:

Ms Hannaford referred me to and relied strongly on the Standard Method of Measurement (“SMM”), to which I will refer later in this judgment.

Clause 4.21 of the Trade Contract provides as follows:

One of the matters listed in clause 4.22 is an instruction requiring a variation. It is to be noted that clause 4.21 is not limited to matters materially affecting the regular progress of the Works, but also affecting the regular progress of "any part thereof".

This provision has already been the subject of litigation, because in 2010 the Employer was unsuccessful in an earlier adjudication relating to this project and so it issued proceedings for final declarations as to the true meaning and effect of the proviso to clause 4.21. In particular, the Employer sought a declaration that the Contractor was required to comply with clause 4.21.1 as a condition precedent of its right to claim loss and expense under clause 4.21. The case came before Akenhead J in June 2010 and he made the declaration sought: see [2010] EWHC 1460 (TCC). He described it as a "short but not unimportant issue of construction”.

Unsurprisingly, the result of this decision is that where the Contractor has not given the required notice under clause 4.21.1 it now seeks to make claims for loss and expense under other provisions of the contract. Indeed, in the current adjudication it is doing just that.

Before I turn to consider clause 4.6 I must deal with three threshold points raised by Ms Hannaford. First, she submitted that the court does not have jurisdiction to entertain this claim or, at least, that in all the circumstances it ought to decline to exercise its discretion in favour of doing so. Second, for the court to intervene at this point would be an unwarranted interference with the adjudication process. Third, that the declaration sought blurs the distinction between issues of legal interpretation and questions of fact and that, in any event, any appropriate declaration would be of limited utility and would not justify the court’s intervention.

I will take these in turn. In support of the first point, Ms Hannaford relies on paragraph 9.4.1 of the TCC Guide and a general principle that the court will only consider intervention in an ongoing adjudication in rare cases. Paragraph 9.4.1 of the TCC Guide states that the court will hear any applications for declaratory relief arising out of the commencement of a disputed adjudication and that, commonly, these will concern:

Disputes over the jurisdiction of an adjudicator. It can sometimes be appropriate to seek a declaration as to jurisdiction at the outset of an adjudication, rather than both parties incurring considerable costs in the adjudication itself, only for the jurisdiction point to emerge again at the enforcement hearing.

Disputes over whether there is a written contract between the parties or, in appropriate cases, whether there is a construction contract within the meaning of the Act.

Disputes over the permissible scope of the adjudication, and, in particular, whether the matters which the claimant seeks to raise in the adjudication are the subject of a pre-existing dispute between the parties.”

In relation to the general principle, Ms Hannaford relies on the decision of Coulson J in Dorchester Hotel Ltd v Vivid Interiors Ltd [2009] EWHC 70 (TCC). In that case the claimant sought a declaration to prevent a breach of natural justice, of which it claimed there was a serious risk. Coulson J declined to make the declarations sought. In relation to the question of jurisdiction he said this, at paragraph 17:

The court's power to grant a declaration is to be found in CPR 40.20, which is in these terms:

This jurisdiction is unfettered but, as Neuberger J (as he then was) pointed out in Financial Services Authority v Rourke (19 October 2001, unreported), the court has to consider whether, in all the circumstances it is appropriate to grant a declaration. In that case he said, at page 11:

“It seems to me that, when considering whether to grant a declaration or not, the court should take into account justice to the claimant, justice to the defendant, whether the declaration would serve a useful purpose and whether there are any other special reasons why or why not the court should grant declaration."

The provisions of the TCC Guide do not of course have the status of rules of Court: paragraph 9.4.1 simply provides an indication of the types of application that the court will usually entertain. The list is inclusive, not exclusive. However, in my judgment the paragraph should be taken into account when the court is considering how to exercise its discretion in any case where the court is being asked to grant a declaration in relation to an adjudication.

So in response to the first limb of Ms Hannaford’s first threshold point, my conclusion - in agreement with the submissions of Ms Chambers - is that the court does have jurisdiction to grant a declaration in this case. The power to do so is very wide and there is no relevant fetter that would apply to this type of case. The real issue, therefore, is whether or not it is appropriate to do so.

If in the Dorchester Hotel case Coulson J is to be taken as suggesting that the court should only intervene in cases where an adjudication is fundamentally flawed in some way or may be just about to go off the rails irretrievably (see paragraph 12 of his judgment), then I would not be prepared to go quite so far. However, I do not think that he was suggesting this. As I read his judgment, he was saying that where there is an ongoing adjudication the court should intervene only rarely and in those limited circumstances where it is appropriate to do so. With this I agree.

Ms Hannaford's second point is, I think, a little more difficult. It is clear that Parliament has provided a scheme by which disputes arising in building or engineering contracts can be resolved swiftly on an interim basis by an adjudicator. Ms Hannaford submits that it is implicit in this that the adjudicator should be left to get on with it free from intervention by the court: there should not be a second level of intervention in tandem by the court because this is wasteful not only of the parties’ time and money but also of judicial resources.

Ms Chambers submitted that a party to a contract is in principle free to make an application to the court at any time for a declaration as to the rights of the parties. She asks rhetorically: why should the right be curtailed during the period when an adjudication is on foot?

There are obvious practical difficulties in permitting such an application to be made during an ongoing adjudication. First, it may distract the respondent from giving full attention to the adjudication at a critical point when the timetable is very tight. Second, it may seriously interfere with the adjudicator's ability to conduct the referral properly. In general, adjudications are commenced without notice to the responding party and so, if the responding party wishes to make an application to the court in relation to the adjudication, as is the position in this case, it will not normally have the opportunity to do so until the adjudication has begun. In these circumstances the application is unlikely to come on for a hearing before the court within less than 14 days from the date of issue of the claim form (and that would be a tight timetable), by which time the adjudication will be well advanced. In this case the period was 17 days.

The statutory time limit for the completion of an adjudication is 28 days, which can be extended to 42 days at the request of and with the consent of the referring party. It can only be extended further if the parties both agree. In a case where the claimant seeking a declaration is a respondent to the adjudication, the referring party may well refuse to consent to any extension beyond the 28 day period. In any event, mutual consent to an extension beyond the 42 day period is unlikely to be forthcoming. The likely result of this is that the court may well not be in a position to grant the requested declaration until very shortly before the adjudicator is required to make his decision. This case is a good example. I heard argument on the afternoon of Monday, 28 May 2012 (until 5 pm), after which I reserved judgment. I issued this judgment (in draft) during the morning of 30 May 2012 and the adjudicator has to deliver his decision on 1 June 2012. If the adjudicator was required to take this judgment into account when preparing his decision, he would have had just over one working day in which to do so. This is a very short time.

This seems to me to be an unacceptable imposition on an adjudicator and one that may well result in unfairness, misunderstandings or mistakes - not least because the parties may well have no right or opportunity to make submissions to the adjudicator in the light of the judgment.

For this reason alone, therefore, I consider that it would not be appropriate to make a declaration in this case. This is not a conclusion that is intended to be of general application in cases of this sort, but I do consider that it would be a rare case in which the court would be likely to make a declaration in circumstances such as this with the risk of causing the type of injustice that I have just mentioned. One example of a case where the court might consider granting a declaration could be where both parties have agreed that the court should grant a declaration, with a view to assisting the adjudicator, and have also agreed to extend the adjudicator's time for making the decision in order to accommodate any determination by the court. In such a case I can see that the court might conclude that it would be appropriate to make a declaration.

Further, a consideration of Ms Hannaford's third objection to the making of a declaration leads me to a similar result, but in order to explain this I need to consider the provisions of the Trade Contract in more detail.

Ms Hannaford makes the initial point that the expression "direct loss and expense" is not defined in the Trade Contract. She submits that there are different heads of loss and expense and that the contract does not identify any particular heads of loss and expense that can or cannot be recovered under clause 4.6: in particular, there is nothing to say that disruption costs cannot be recovered under that clause.

Clause 4.6.1.2, which I have already set out above, deals with the situation where the varied work is similar to the original work but is not executed under similar conditions. Take the example of a change in the footprint of a building in circumstances where the access to one elevation is made more difficult - perhaps requiring a special scaffold and a different crane - and where the new footprint has an impact on the construction of drains running alongside the building. Suppose that the restricted access means that a different method of constructing the drainage trenches has to be employed, requiring special plant and taking longer.

The costs of such a variation, in the absence of provisions to the contrary, should, one would have thought, include: additional costs such as the special scaffold and the longer period for which the scaffold has to be paid for, the additional cost of constructing the drainage, in terms of both the equipment required and the additional time for which the relevant labour and plant will be on site.

Taking the words of the clause in isolation, I see no reason why clause 4.6.1.2 would not permit the contractor to recover these costs, either under the provision for the inclusion of a "fair allowance for such differences in conditions", or by the addition of the relevant preliminary items under clause 4.6.3.3. These are items of a type referred to in the SMM.

I have been referred to the "Preliminaries/General Conditions" of the SMM. These include items such as cranes, earthmoving plant, scaffolding and propping, not only in terms of the fixed charge for the item in question but also the time related charge. So, for example, if a special crane was required and needed to be on-site for a period longer than originally anticipated, the contractor could recover the additional cost of bringing that particular crane to the site, the additional cost of keeping it on-site for the period originally anticipated and the further cost of keeping it on-site for the period of the overrun.

The issue that arises on this application is whether there is any provision in the Trade Contract that prevents the Contractor from claiming such loss and expense under clause 4.6.

Ms Chambers presented a skilful argument based on the provisions relating to Alternative A (which I have set out above) to the effect that the Contractor could not do this. Her argument went as follows. Where the Contractor chooses to submit a Price Statement under Alternative A, it is to be based on the provisions of clauses 4.5 and 4.6 (the Valuation Rules). However, he has the option of making a separate claim for an amount to be paid in lieu of any ascertainment under clause 4.21 of direct loss and/or expense, which will be loss and/or expense caused by the regular progress of the works (or any part of them) being materially affected by the variation. If the Contractor adopts this option, then the Construction Manager can either accept it or require them to be an ascertainment under clause 4.21. Accordingly, Ms Chambers submits, there is no room for any overlap. I understood Ms Chambers to recognise that there is a potential for overlap between clause 4.6.3.3 and clause 4.21, but her submission was that these provisions show that the parties must be taken to have intended that there is to be one entitlement under clause 4.6 and a separate entitlement under clause 4.21.

Ms Hannaford's answer to this was that the conclusion did not follow from the premise. The sums recoverable under clauses 4.5 and 4.6 may or may not include sums that could be recovered under clause 4.21. To the extent that they could be recovered under clauses 4.5 and 4.6, the Contractor would take them into account when preparing his Price Statement. If he had a claim for other items of loss and/or expense caused by the disruption to the regular progress of the works, or the relevant part of them, which could not be recovered under clauses 4.5 and 4.6, then he had the option of submitting his estimate of the amount that would be recoverable in respect of those items under clause 4.21.

Although I was initially rather taken by Ms Chambers’ neat and elegant argument, I consider that Ms Hannaford's submission is correct. My reasons are as follows.

If clause 4.21 of the Trade Contract is stripped of its provisos and other irrelevant provisions, it provides for the situation where the Trade Contractor

Since the matters referred to in clause 4.22 include an instruction requiring a variation, if the contractor incurs loss and/or expense because the instruction materially affects the regular progress of part of the works he is entitled to recover such direct loss and/or expense (subject always to be provisions requiring prompt notice). So, reverting to the example of the instruction to change the footprint of the building that I have given above, the contractor would be entitled, all other things being equal, to recover any loss and expense directly resulting from the interference with the regular progress of the works. In my judgment, that would include (at least) some elements of the loss and expense resulting from the variation that consisted of time related charges. However, such of those time related charges that were items of the type referred to in the SMM would also be recoverable under clause 4.6. On the face of it, therefore, there is a potential overlap between the valuation of a variation under clause 4.6 and the loss and expense that is (in principle) recoverable under clause 4.21 where the regular progress of the works or any part thereof has been materially affected by the variation instruction.

However, all things are not equal because both clause 4.6 and clause 4.21 contain a provision that prevents double recovery. In the case of clause 4.21, the Trade Contractor can only recover direct loss and/or expense "for which he would not be reimbursed by a payment under any other provision in this Trade Contract".

In the case of clause 4.6, the concluding words of the clause are as follows:

In my judgment the different manner of the negative phrasing in each of these provisions provides a small pointer to the true meaning. Clause 4.21 appears to be directed to a prospective lack of entitlement to recovery under any other provision of the contract, which is not surprising because the clause is requiring the contractor to give notice of the disrupting events as soon as they occur and at a time when he is unlikely to have had the opportunity to make a claim under any other provision of the contract. So if there is another provision in the contract which would provide an avenue of recovery, there is probably no claim under clause 4.21.

By contrast, the concluding words of clause 4.6 are precluding the recovery of any loss and/or expense for which the contractor would be reimbursed by payment under any other provision of the contract. Accordingly, if there is no prospect of a recovery under another provision of the contract, then there is no bar to recovery under clause 4.6. It seems to me that this is so irrespective of whether that is because of a failure to comply with the terms of the relevant provision or for some other reason.

It seems to me, therefore, that if there are items of loss and/or expense which are potentially recoverable under either clause 4.6 or clause 4.21 and the contractor is unable, for whatever reason, to make a claim under clause 4.21, there is nothing to prevent him from recovering that loss and expense under clause 4.6 (provided, of course, that it falls within the terms of that clause).

This analysis accords with the views of the author of the commentary on the JCT Standard Form of Building Contract in Keating on Construction Contracts, 8th Edn, where the wording of the corresponding clauses of the Standard Form of Building Contract are not materially different from the wording of the clauses in the Trade Contract. In relation to clause 4.23 of the Standard Form, in which the relevant words are identical to those in clause 4.21 of the Trade Contract, the author says:

One thing that emerges very clearly from this analysis is that whether or not the contractor can make a claim under clause 4.6 or clause 4.21 will be very sensitive to the facts giving rise to the claim. If the loss and/or expense claim does not fall within the provision of clause 4.6, it may or may not fall within clause 4.21. If it falls within the scope of clause 4.21, the contractor can only recover if he has complied properly with the notice provisions which Akenhead J has held to be a condition precedent under clause.

Ms Chambers also referred me to the Minor Works form of contract by way of contrast, in that it specifically includes direct loss and/or expense within the valuation of the variation. However, the provisions in that contract are much abbreviated and I agree with Ms Hannaford that they afford little assistance on the question raised by this application.

It will be apparent also from my conclusions so far that the proviso at the end of clause 4.6 of the Trade Contract does not have the effect stated in the declaration that is sought by the Employer. No other form of declaration has been sought in the alternative and I am doubtful whether it is in fact possible to formulate a declaration in terms that would be appropriate.

For the reasons that I have given, this application for a declaration fails and the claim must be dismissed.

I have prepared this judgment quickly so that a draft could be issued to the parties before the adjudicator had to make his decision. However, in the light of the conclusions that I have reached it did not seem to me that there was any clear advantage to be gained by permitting the adjudicator to know the terms of the draft judgment before making his decision. I therefore directed, for the avoidance of doubt, at the time of issuing the draft judgment, that its contents were not to be communicated to the adjudicator unless both parties agreed. In the absence of agreement, any party that wished the adjudicator to know of the contents of the judgment would have to apply to me.

I will hear counsel for the parties on any issues that arise, either in relation to costs or as to the form of relief.