Community 1st Oldham (Chadderton) Ltd v Oldham Metropolitan Borough Council

In these proceedings the Claimant (“Community”) seeks declarations as to various matters arising out of a Lease Plus Agreement (“the LPA”) under which the Chadderton Health and Well Being Centre (“the Centre”), a community centre with facilities including a swimming pool and a library, was provided to the Defendant (“Oldham”).

Under the LPA dated 30 April 2008 the Centre was developed and let by Community as the Landlord to Oldham as the Tenant. The development of the Centre was completed on 26 October 2009 and the term granted by the LPA ends on 30 September 2039.

Disputes arose between Community and Oldham on the operation of the payment provisions which are contained, in particular, in Clause 19 of and Schedule 10 to the LPA. That led to issues being referred to Adjudication with the Adjudicator giving his decision on 23 October 2012.

Community now seeks a final determination of certain of those issues. First, Issues 1 to 7 concern declarations as to the meaning of the LPA. Issue 8 then raises the question of whether Community is estopped from disputing Oldham’s entitlement to make certain deductions. Issue 9 raises a specific issue on the way in which the Library is to be treated in terms of Functional Areas for the purpose of calculating deductions for Availability Failures. Issues 10 to 14 then raises the question of whether there was a breach of the Safety Condition or whether there has been a Service Failure in relation to the floor of the Swimming Pool Changing Area and, if so, whether Oldham was entitled to make deductions and over what period and in what sum.

Community called three factual witnesses. The first was Mr. Andy Dwan, Managing Director of Infrastructure at Equity Solutions & Partners Ltd (“ESP”) and a director of Equity Solutions Property Services Ltd (“ESPSL”). ESPSL is Community’s agent. He produced three witness statements. He dealt with the history of the Swimming Pool Changing Area floor at the Centre and whether it breaches the Safety Condition and responded on questions of cleaning. In his third statement he accepted that Community had not, as he had stated in his second witness statement, carried out a “deep clean” on 26 September 2013. The second witness was Mr. Jason Critchley who was a Property Manager with ESPSL and since 3 January 2012 has acted as facilities manager for the Centre. He provided two witness statements. He dealt with what he observed about cleaning of and ponding or standing water within the changing area. The third witness was Mr. David Johnson, Commercial Director of the Equity Solutions Group, a director of ESP and a director of Community and its parent company. He negotiated and signed the LPA on behalf of Community and explained the background to it. He produced two witness statements.

Oldham called three witnesses. Their first was Mr. Christopher Kelsall, a self-employed consultant specialising in PFI and PP contracts. He had been engaged as the PFI Housing Programme Manager, working as an associate through Mpulse Ltd, for Oldham since February 2007. In October 2011 he was approached by Oldham’s head of capital programs, Mr. Craig Balderstone, and started his involvement assisting Oldham in the operation of the Centre and in its dealings with Community. He produced two witness statements and gave evidence in relation to the Floor Boxes in the Library and also the Swimming Pool Changing Area and remedial measures which had been carried out by Community in relation to those areas. He also dealt with the notification and deduction process in respect of matters which Oldham contended were Availability Failures. Finally he dealt with the issue of whether or not different areas within the Library were to be treated as separate Functional Areas for the purposes of Unavailability and the making of deductions.

Oldham’s second witness was Mr. Manus Twomey, a Facility Manager with Oldham Community Leisure Centre Limited which operates Oldham’s leisure portfolio. In October 2009 he was asked to become the duty manager of the Centre when it opened. In 2011 he became the facility manager for the Centre and another athletic centre. He produced three witness statements and gave evidence about water ponding in the Swimming Pool Changing Area as well as cleaning there and in the Centre generally. Oldham also called Mr. John Hamilton, a graphic designer at Oldham who had visited the Centre on 20 July 2012 and taken photographs.

Oldham also produced witness statements from Mr. Christopher Johnson, a senior surveyor for Survey Systems Limited who had carried out a survey at the Centre to survey the wet changing area floor, drainage channel and swimming pool surround; Mr. Adam Gandy who was a Business Unit Director for Mpulse Limited who visited the centre a number of times and took photographs on 20 July 2012 and also Mr. Sean Newberry a PFI Technical Officer for Oldham who was present at the Centre on 12 December 2013 when certain tests were carried out in the swimming pool changing room area. Community did not require those three witnesses to attend to give evidence.

Generally and subject to the comments I make in relation to individual witnesses, I found the evidence of the witnesses helpful and truthful and their evidence consistent with contemporaneous documents.

The parties also called expert evidence on two aspects of the dispute. First as to architectural matters on issues relating to the falls on the floors in the Swimming Pool Changing Area and on the gratings to the ACO drains. Secondly the parties called evidence concerning the floor tiles, ponding, cleaning of the floors and the treatment of the gratings to the ACO drains in the Swimming Pool Changing Area.

Community called Dr. Malcolm Bailey to give evidence on both aspects of expert evidence. He had graduated from Imperial College in civil engineering and obtained his Masters and doctorate in engineering structures. After working in the steelwork industry he joined Stanger Consultants Ltd and became head of the engineering department before setting up Radlett Consultants to provide forensic engineering services. In 2003 he set up Slip Alert LLP. He has published papers on slip resistance of floors and is chairman of the drafting committee for BS8204 In-situ flooring code of practice and for the B556 BS Slip Resistance coordinating committee. His areas of expertise include the investigation of flooring problems and slipping and tripping accidents. He produced two reports dated 22 November 2013 and 19 December 2013.

Oldham called Mr. Kenneth Bate to deal with the first architectural aspect. He is a chartered architect and worked for both a construction company and more recently a multidisciplinary practice of architects, planners, consulting engineers and landscape architects. He produced one report dated 22 November 2013. In relation to the second aspect concerning the floor tiles ponding and cleaning of the floors Oldham called Mr. Ben Powers, a slip risk consultant and director of Grip Potential Limited, a slip risk assessment company which he formed in 2009. He has a degree in computational physics. He produced three reports dated 22 November 2013, 4 December 2013 and 8 January 2014.

In relation to evidence on the architectural aspects Dr. Bailey and Mr. Bate were able to come to useful agreements which substantially reduced the dispute on expert evidence. In relation to the floor tiles Dr. Bailey and Mr. Powers both had relevant experience and expertise, with Dr. Bailey having detailed academic knowledge as well as practical experience whereas Mr. Powers had gained his experience through long practical experience. I did not find that the evidence of one expert or the other was to be preferred on all topics and my findings on the expert evidence depended on the cogency of the evidence which supported particular opinions which were evidently honestly held by the expert witnesses.

There are 14 Issues which have been dealt with by the parties. On some issues the parties have managed to narrow their dispute and at my invitation counsel also discussed and agreed certain sub-issues which they also addressed in their closing submissions.

I therefore consider each of the Issues in turn.

Oldham does not dispute the declaration sought by Community in respect of Issue 1 and I therefore consider that Community is entitled to the appropriate declaration that, on the true construction of the LPA and in particular paragraph 2 of Schedule 10 an “Availability Failure” only occurs if two conditions are satisfied, namely: (i) a Functional Area is Unavailable because one of the requirements of paragraph 2.1.1 is met; and (ii) the Unavailability has been caused by one of the matters mentioned in paragraph 2.1.2.

This is the first of three issues (Issues 2, 3 and 4) which concern the construction of clauses 19.2 and 19.4 of the LPA. It is therefore convenient to set out those provisions at this stage. Clause 19 of the LPA provides that Oldham is required to pay Community the Lease Payment in respect of each Contract Month in accordance with Clause 19 and Schedule 10.

Clause 19.2.1 then provided that Community was required to include the following information in the Performance Monitoring Report (“PMR”) which they delivered to Oldham:

“19.2.1.1 a summary of all Service Failures affecting the Tenant;

19.2.1.2 the Functional Areas affected by such Service Failures;

19.2.1.3 a detailed description of all Failure Events and Availability Failures affecting the Tenant;

19.2.1.4 the duration of any Failure Event and Availability Failure affecting the Tenant in hours, with the time and date it commenced and the number of days over which the Failure Event and/or the Availability Failure occurred; and

19.2.1.5 the deductions calculated in accordance with paragraph 2.3 of Schedule 10 to be made by the Tenant in respect of Failure Events and Availability Failures.”

Clause 19.2.2 then provided that Payment Notice to be delivered by Community to Oldham with the PMR must contain the following information (Clause 19.2.2):

“19.2.2.1 the Monthly Payment claimed by [Community] for the current Contract Month;

19.2.2.2 a summary of Pass Through Costs for the current Contract Month;

19.2.2.3 a summary of the Utilities Costs claimed by [Community] for the Contract Month just ended;

19.2.2.4 the total deductions calculated in accordance with paragraph 2.3 of Schedule 10 for the Contract Month just ended;

19.2.2.5 any other amount due and payable from one party to the other under this Lease, including any Self Help Costs evidence of which has been supplied to [Community] in accordance with paragraph 4.4 of Schedule 10 during the Contract Month just ended;

19.2.2.6 any VAT payable in respect of the above amounts;

19.2.2.7 any adjustments to reflect previous overpayments and/or underpayments (each adjustment stated separately).”

Clause 19.2.3 [1A/22] required an invoice and Clauses 19.2.4 to 19.2.6 referred to the Payment Date which is defined in 19.2.5 as the last Business Day of the Contract Month in which the invoice is delivered. Clause 19.2.6 then provided:

“19.2.6

In the event that whole of any part of the Payment Notice is disputed payment shall be made in accordance with clause 19.4.”

Clause 19.4 then provided, making reference to Clause 49 which deals with dispute resolution:

“19.4

If either party (acting in good faith) disputes all or any part of the Lease Payment calculated in accordance with this clause 19 and/or Schedule 10, the undisputed amount of the Lease Payment and 50% of the disputed amount (together being the ‘Advance Payment’) shall be paid by the Tenant in accordance with clause 19.2 and the provisions of clause 49 shall apply.”

In relation to Issue 2 Community submits that the PMR and/or the Payment Notice and the invoice provided each month by Community to Oldham should be based on facts which Community accepts and does not have to take into account contentions by Oldham which Community does not accept. Therefore Community says that it does not have to include in those documents all Failure Events and Availability Failures that occur within the relevant Contract Month and the deduction referable to the said Availability Failures in the said documents (as set out at paragraph 24(e) of the Defence and Counterclaim).

Community submits that as it produces the documents to tell Oldham what Community regards as having happened and what Community regards as being payable, it would be contrary to common sense to expect those documents to contain matters which Community did not accept. If, for instance, Oldham contended that there had been a Service Failure or Availability Failure which Community genuinely did not accept then Community could not be expected to refer to that Service Failure in a PMR or take account of that Availability Failure in a Payment Notice or invoice. Community accepts that it has to act “genuinely” or “bona fide” in including matters in the relevant documents.

Community therefore says that if it contends in a Payment Notice and an invoice that £y is payable but on the basis of Oldham’s contentions £x was payable, it should not have to prepare Payment Notice and invoice taking account of Oldham’s contentions and then operate the procedure under Clause 19.4 to resolve the dispute. Rather, Community says that the Payment Notice and invoice should be prepared on the basis of £y and Oldham would disagree on the basis that £x was payable so that it would pay on the basis of its own contentions, operating the Clause 19.4 procedure.

As a result Community says that the phrase “all Service Failures” in Clause 19.2.1.1 and the phrase “all Failure Events and Availability Failures” in Clause 19.2.1.3 should only include those matters which Community genuinely accepts. It says that if it included a disputed Service Failure in a PMR and it was found that the disputed Service Failure was in fact not a Service Failure then the document would have not included “all Service Failures” as it would have included a matter which was not a Service Failure. Whilst the opposite situation might show that the PMR had failed to include a Service Failure, the construction of Clause 19.2.1.1 should not require Community to include something which might turn out to be wrong and which it did not genuinely consider to be a Service Failure.

Community accepts that it has self-monitoring obligations under the LPA including the obligation in Schedule 10 paragraph 7.3.1 under which “[Community] shall monitor the performance of the Services in accordance with this paragraph 7 and the provisions of Schedule 9 and shall record all Service Failures.” It says that it discharges its self-monitoring obligations by making Helpdesk notifications and it refers to a document listing the notifications made both by Community and by Oldham. It submits that Community cannot be required under its self-monitoring obligations to report events which it genuinely does not believe to be reportable.

Oldham submits that Community is required to include all Failure Events and Availability Failures that occur within the relevant Contract Month and the deduction referable to all such Availability Failures in the PMR and/or the Payment Notice and the invoice. It refers to Clause 19.2.1.1 under which Community is required to “… include all Service Failures” (both Failure Events and Availability Failures) in the PMR. Community’s obligation is not limited to only those Service Failures which it accepts.

Oldham also submits that Community is required to include the total deductions for all Availability Failures which have occurred in the Contract Month just passed and not just those Availability Failures that it accepts. It says that this is consistent with Clause 19.2.1 which requires the PMR to include “… all Failure Events and Availability Failures”, “… a detailed description of all Failure Events and Availability Failures affecting the Tenant” and “… the deductions calculated in accordance with paragraph 2.3 of Schedule 10 to be made by the Tenant in respect of Failure Events and Availability Failures.”

Oldham refers to Clause 19.4 which provides that “either party”, that is either Community or Oldham, may raise a dispute in relation to the Lease Payment and says that there would be no point in giving Community the right to challenge the Lease Payment in the Payment Notice if Community was only required to include Availability Failures and/or deductions which it accepted.

Oldham also refers to the self-monitoring obligations in the LPA. It relies on Clause 36 which sets out those obligations in the following terms under “Monitoring of Performance”:

“[Community] shall be responsible for monitoring its performance of its obligations under the Lease during the Operational Phase, in the manner and at the frequencies set out in Schedule 10.”

It also relies on the fact that Community has to provide Oldham with relevant particulars of any aspects of its performance which failed to meet the requirements of the LPA unless those are notified in writing by Oldham and that Oldham’s role under Clause 36 is merely that it “… may at all reasonable times of serve, inspect and satisfy itself as to the adequacy of the monitoring procedures”. Oldham also refers to paragraph 7.1 of Schedule 10, referred to above.

Oldham also relies on the decision of the Court of Appeal in Mid Essex Hospital Services NHS Trust v Compass Group UK and Ireland Ltd [2013] EWCA Civ 200 in which at [89] Jackson LJ made observations about the effect of a monitoring obligation on a party to a PFI contract similar to that of Community.

As a result Oldham submits that Community is not entitled to limit the PMR, the Payment Notice and the invoice, alternatively the Payment Notice and the invoice, to facts which Community accepts and Community has to take into account contentions by Oldham which Community does not accept.

Under the LPA the payment mechanism is dealt with under Clause 19 and Schedule 10. The Lease Payment under the LPA consists of five elements. There is a Daily Payment, a Utilities Cost and certain Pass Through Costs which form the underlying payment. From that amount sums are deducted for Availability Failures and sums are added for Self Help Events. An Availability Failure is defined in paragraph 2.1.2.1 of Schedule 10 as meaning “A Functional Area is Unavailable due to a Service Failure and the relevant Service Failure has been notified to [Community’s] Helpdesk pursuant to paragraph 7.3.1”.

Paragraph 7.3.1 of Schedule 10 forms part of the self-monitoring and reporting obligations of Community under the LPA. As stated in paragraph 7.2 of Schedule 10, that monitoring involves a combination of Community’s Helpdesk, self-monitoring and performance review. The Helpdesk forms an essential part of the monitoring system.

Under paragraph 7.3.1 of Schedule 10 it provides:

“On either [Oldham] or [Community] becoming aware of the occurrence of a Service Failure or a Functional Area has become Unavailable, [Oldham] or [Community] (as the case may be) shall report such failure to [Community’s] Helpdesk where it will be logged on [Community’s] computerised report log.”

Clause 7.5.1 of Schedule 10 then provides that the Helpdesk “… will be responsible for recording, as a minimum, the details set out below, when applicable, for every Service Failure.”

A Service Failure is defined under the LPA to mean any failure to comply with the provisions of Schedule 9 which

“… specifies the services to be delivered by [Community] to [Oldham] during the Operational Phase to ensure that the Facilities … are available for use by [Oldham] at all material times to specified quality standards.”

Another definition of relevance is “Failure Event” which is defined to mean “… a Service Failure which is not an Availability Failure or if it has been an Availability Failure has ceased to be so”.

I consider that those provisions as to the way in which performance is monitored are relevant to the obligations in relation to the PMR which Community has to provide under Clause 19.2.1. There is an obligation under paragraph 7.3.1 of Schedule 10 for either Oldham or Community, on becoming aware of a Service Failure, to report it to the Helpdesk where under paragraph 7.5.1 of Schedule 10 “every Service Failure” is recorded.

It is therefore the notification of Service Failures to the Helpdesk by either Oldham or Community which then forms part of the PMR. It follows that the PMR includes a summary of “all” those Service Failures under Clause 19.2.1.1 and not just those with which Community agrees. This is also consistent with the observations made by Jackson LJ in Mid Essex v Compass referred to above.

It is to be noted that under paragraph 2.1.2 of Schedule 10 an Availability Failure requires the relevant Service Failure to have been notified to the Helpdesk, consistent with what I have set out above. I consider that on this basis the PMR has to contain a detailed description of “all Failure Events and Availability Failures” under Clause 19.2.1.3.

I am not persuaded by Community’s submissions that it only has to include, as a matter of common sense, those Service Failures which it genuinely believes to be Service Failures. The purpose of the PMR is to contain under Clause 19.2.1.1 all of the Service Failures which have been notified to the Helpdesk. This means that Community may dispute that a Service Failure notified to the Helpdesk is in fact a Service Failure but nonetheless has to include it in the PMR.

If Community genuinely considered that a matter reported as a Service Failure was not, in fact, a Service Failure then it might be said that it would be difficult for Community to assess it as a Failure Event or an Availability Failure. However, I consider that the calculation has to be based on the Service Failures reported to the Helpdesk. Otherwise, I consider that the whole system of self-monitoring and deductions for Availability Failures based upon the Service Failures reported to the Helpdesk would break down.

On this basis there is scope for disputes by “either party”, including Community under Clause 19.4 in respect of the Lease Payment to be made under the LPA. I should add that I also accept Community’s submission that disputes by Community could also arise in respect of Self Help Events.

The Payment Notice under Clause 19.2.2 is therefore based on all the Service Failures reported to the Helpdesk and therefore all Failure Events and Availability Failures.

I therefore consider that the appropriate declaration is that, on the true construction of the LPA and in particular Clause 19.2, the PMR, the Payment Notice and the invoice which are to be provided each month by Community to Oldham, should be based on all Service Failures reported as Service Failures to the Helpdesk and not based solely on the reported Service Failures which Community accepts to be Service Failures.

Community submits that, based on its submissions on Issue 2, it is not obliged to issue a Payment Notice or an invoice for a sum which deducts 50% of the deduction for which Oldham contends.

Oldham submits that Community is required to submit a Payment Notice which includes deductions in respect of all Availability Failures, whether or not Community agrees with those. It submits that if Community has included deductions with which it does not agree, then it can raise a dispute under Clause 19.4 of the LPA. If such a dispute is raised, then Oldham is required to pay the undisputed amount and 50% of the disputed amount.

As I have held above in submitting a Payment Notice, I consider that Community has to include deductions in respect of all Service Failures reported to the Helpdesk, which are Availability Failures. In respect of those reported Service Failures, Community is not entitled merely to say that the reported Service Failure is not accepted as a Service Failure and therefore not assess it properly as an Availability Failure.

I consider that the mechanism by which payment is made is then for the Payment Notice and invoice to contain the assessment based on the reported Service Failure but for Community to notify Oldham that it disputes the relevant Service Failure or that it amounts to an Availability Failure so that only 50% of the deduction may be made by Oldham when it makes payment. Clause 19.2.6 makes it clear that “[i]n the event that the whole or any part of the Payment Notice is disputed payment shall be made in accordance with clause 19.4.” The Payment Notice is for the full amount. Clause 19.2.3 shows that, if the Payment Notice shows a net amount owing by Oldham to Community, “… it shall be accompanied by an invoice”. This shows that the invoice depends on the Payment Notice.

I therefore consider that the appropriate declaration is that, on a true construction of the LPA and in particular Clauses 19.2 and 19.4 when Community does not accept a reported Service Failure it is obliged to make an assessment of whether the reported Service Failure is an Availability Failure and include a deduction in Payment Notice and invoice the Lease Payment on that basis. Where Community does not accept that a Service Failure is, in fact, a Service Failure or an Availability Failure then it will be in a position to dispute part of the Lease Payment calculated in accordance with Clause 19 and Schedule 10 and, if it does so then only 50% of the disputed amount is payable by Oldham.

Oldham does not dispute the declaration sought by Community in respect of Issue 4 on the basis that it simply recites Clause 19.4 of the LPA.

It follows that the appropriate declaration is that, on the true construction of the LPA and in particular clauses 19.2 and 19.4, if Oldham (acting in good faith) disputes that it is obliged to make all or part of a Lease Payment claimed by Community in a Payment Notice or invoice Oldham is entitled to deduct 50% of the sum in dispute but is obliged to pay the other 50%.

Community submits that the process of payment in Clause 19 and Schedule 10 relates to a particular Contract Month. It refers to Clause 19.1 which provides that Oldham shall pay Community “… the Lease Payment in respect of each Contract Month … in accordance with the provisions of this clause 19 and Schedule 10.” It also refers to the definition of Lease Payment as meaning “… the payment for managed accommodation and associated Services in each Contract Month as set out in paragraph 1.3 of Schedule 10.”

Community refers to the components of the Lease Payment which under paragraph 1.3.1 of Schedule 10 relate to Daily Payments for each day in the Contract Month, Pass Through Costs for that Contract Month and any Utilities Cost for the Contract Month just ended. I understand that, in practice, the provision for Utilities Cost has been altered but this does not affect the construction of the LPA.

In paragraph 1.3.1 of Schedule 10 it is stated that from the sum of Daily Payment, the Pass Through Costs and the Utilities Cost are deducted

“… in respect of the Contract Month just ended the sum of any deductions for Availability Failures which may be applied by [Oldham] in accordance with paragraphs 2 and 3 ….”

Community refers to Clause 19.2.1 which states that the PMR shall contain the relevant information “in respect of the Contract Month just ended” and to Clause 19.2.2.4 which states that “… the total deductions calculated in accordance with paragraph 2.3 of Schedule 10 for the Contract Month just ended.” In paragraph 2.3.2 of Schedule 10 the deduction made for Availability Failures is based on:

“[t]he total number of hours from when Availability Failure of the relevant Functional Area commences to the time when it shall commence to be Available which fall within the Operational Hours in that Contract Month.”

In terms of timing, Community says that the Delivery Date on which the Project Monitoring Report and Payment Notice are required to be delivered is defined in the LPA as a date five Business Days after the start of a Contract Month. The Payment Date for an invoice is defined in Clause 19.2.5, subject to two exceptions not relevant for this purpose, as “… the last Business Day of the Contract Month in which the invoice is delivered.”

Community submits that, under paragraphs 1.3.1 and 2.3.2 of Schedule 10, the calculation of the Lease Payment requires the deduction for Availability Failures from a Payment Notice delivered and payable in a Contract Month to relate to Availability Failures in respect of the Contract Month just ended. As a result it submits that for a Payment Notice in January the deduction would relate to a calculation for Availability Failures in December.

Community says that the principle that the Lease Payment in one month takes into account deductions for Availability Failures in the previous month has to be viewed in the light of the funding arrangements which, it says, form part of the factual matrix and to which reference is made in the definitions of the LPA and in Schedule 19. It submits that the provisions for Lease Payments are important to service the funding arrangements which necessarily form part of PFI or PPP agreements.

Oldham refers to paragraph 2.1.4 of Schedule 10 which states that, in the context of Availability Failures, “Deductions shall be made in accordance with this paragraph 2 in relation to each Functional Area that is affected by an Availability Failure.” Oldham says that this gives a general right to make deductions which arise out of Availability Failures and does not limit it to those which have occurred within a particular Contract Month.

Oldham refers to paragraph 2.1.2 of Schedule 10 and says that the Availability Failure cannot arise until the relevant Service Failure has been notified to the Helpdesk. As a result Oldham says that Community will always be in a position to investigate the alleged Unavailability before deductions are required to be made and cannot be taken by surprise nor can Oldham manipulate the process or claim deductions for issues which have not been notified.

Oldham says that, to the extent that Community failed properly to assess deductions for Availability Failures under Clauses 19.2.1 and/or 19.2.2 and/or paragraph 2 of Schedule 10, Community cannot benefit from its own breach to avoid such deductions.

In essence there are two issues which are raised by this declaration. The first relates to the question of whether there is a timing mechanism for deductions for Availability Failures. The second relates to the question of whether, if deductions for Availability Failures are not included in the relevant Payment Notice because of a failure by Community to operate the provisions of the LPA, they can rely on that breach.

It is to be noted that the Payment Date for an invoice when the whole or any part of a Payment Notice is disputed is to be made in accordance with Clause 19.4, as provided in Clauses 19.2.5 and 19.2.6. This is a different issue and arises under Issue 6.

For the reasons outlined by Community I consider that the LPA does include a system of payment under which deductions for Availability Failures in one month are to be deducted from the Lease Payment in the following month. I do not consider that Oldham’s reliance on the absence of any reference to timing in relation to deductions for Availability Failures in paragraph 2.1.4 of Schedule 10 is justified. Rather I consider that Community is correct in its reliance on paragraphs 1.3.1 and 2.3.2 of Schedule 10 which show that the calculation of the Lease Payment in a Contract Month requires the deduction for Availability Failures to relate to Availability Failures in respect of the Contract Month just ended.

There might be a number of reasons why a deduction was not made in a particular Contract Month for Availability Failures in the Contract Month just ended. That will depend on the facts. If Oldham but not Community was aware of the occurrence of a Service Failure or of a Functional Area becoming Unavailable and failed to report this to the Helpdesk then a failure to make the deduction for an Availability Failure will be a failure by Oldham and I do not consider that there is a mechanism under the contract for late deduction of Availability Failures in such circumstances.

If however Community was aware of the occurrence of a Service Failure or of a Functional Area becoming Unavailable and failed to report this to the helpdesk then I consider that a failure to make the deduction for an Availability Failure will be a failure by Community. Subject to any other provisions of the LPA, Oldham would be left in a position where it had remedies for breach of contract but I am not persuaded that this is a case where the principle in Alghussein Establishment v Eton College [1988] 1 WLR 587 would be applicable.

It follows that the appropriate declaration is that on a true construction of the LPA and in particular Clauses 19.2.1.5 and 19.2.2.4 and paragraphs 1.3 and 2.3 of Schedule 10, deductions for Availability Failures from Lease Payments for a particular Contract Month are to be made in the Payment Notice and invoice for the following Contract Month.

Community submits that Clause 19.6 and 19.7 allow set-off when it is agreed or determined that sums are due. It says that sums which are agreed or determined by an adjudicator, arbitrator or court as due could normally be set-off under the ordinary principles applicable to common law and equitable set-off. As a result, Community submits that these clauses only make sense if common law and equitable set-off is not allowed.

Community notes that Clause 19.6 begins with a reference to the deduction provisions in Clause 19 and Schedule 10. It submits that this reference has to be read as meaning that those provisions define and limit the right to make deductions and that the only additional right which Oldham has to make deductions is in the limited circumstances specified in clause 19.6, that is when it is agreed or determined that a sum is due.

Community refers to Gilbert Ash (Northern) v Modern Engineering [1974] AC 689 where Lord Diplock said this at page 713, in relation to the presumption that each party to a contract is entitled to all remedies which arise by operation of law:

“To rebut that presumption one must be able to find in the contract clear unequivocal words in which the parties have expressed their agreement that this remedy shall not be available in respect of breaches of that particular contract.”

Community says that Clauses 19.6 and 19.7, read with paragraph 1.3.1 of Schedule 10, amount to such clear and unequivocal words so the normal rules about common law and equitable set-off do not apply.

Oldham submits that Clause 19.6 does not exclude any right but gives an additional right of set-off which is subject to two specific conditions: that the sum is agreed or determined to be due and payable to Oldham by Community and that Oldham must comply with the notice requirement.

Oldham says that the additional right of set-off does not apply to Oldham’s Self Help Costs or any other sums taken into account in calculating the invoice pursuant to Clause 19 and Schedule 10. Oldham submits that Clause 19.6 does not, as Community contends, exclude rights of set-off. It contends that there are no clear or unequivocal words to remove an existing remedy. The only effect of Clause 19.6, Oldham submits, is to provide an additional remedy.

I consider that Oldham’s submissions are correct. The effect of Clause 19.6 is to provide an additional remedy in relation to sums agreed or determined to be due to Oldham from Community. That additional remedy does not apply to Oldham’s Self Help Costs or other sums due to Oldham taken into account in calculating these sums in the Payment Notice and consequently in the invoice. I do not consider that Clause 19.6 contains sufficient clear and unequivocal words to exclude any right of set-off which might exist in the absence of that clause.

It follows that the appropriate declaration is that, on a true construction of the LPA and in particular clause 19.6, Oldham is entitled to set-off from sums due from Oldham to Community sums which have been agreed or determined as due from Community to Oldham but that entitlement does not apply to Self Help Costs or other sums taken into account in calculating the Lease Payment. Clause 19.6 does not exclude any other rights Oldham may have to make common law, equitable or contractual set-offs.

Community submits that, in terms of the Lease Payment, Oldham is obliged to make deductions at the correct time, in the Contract Month after the Contract Month just ended. It submits that Oldham cannot make them later because, for instance, it has misconstrued its contractual entitlement. If the right to make the deduction is not exercised in time then, in normal circumstances, there is no “overpayment” and so Clause 19.2.2.7 does not allow a deduction to be made from the Lease Payment in a later Contract Month.

Community says that Clause 19.2.2.7 is concerned with “adjustments” to reflect “previous overpayments and/or underpayments”. It says that, under Clause 19 and Schedule 10, what has to be paid depends on a right to deduct being exercised at the correct time and, if it is not exercised in time, the right to deduct is lost and there is no “overpayment”. Otherwise, if Clause 19.2.2.7 permitted deductions to be made later, as Oldham contends, Community says that this would nullify the careful wording of Clause 19 and Schedule 10.

Community does, however, accept that there is an exception and that is why it has used the phrase “in normal circumstances” in the declaration. It says that if Oldham correctly understands its contractual entitlement and intends to operate it correctly and at the right time, but, by reason of a genuine administrative error, pays too much, then there would be an overpayment to which Clause 19.2.2.7 would apply. It proposes that the declaration might be rephrased to say at the end “… unless the failure to deduct was the result of a genuine administrative error by Oldham”.

Oldham refers to Clause 19.2.2.7 which provides that, in each Payment Notice, Community is required to include: “… any adjustments to reflect previous overpayments and/or underpayments”. Oldham submits that Community is wrong in its contention that this clause has very limited scope so that, as pleaded at paragraph 41 of the Particulars of Claim, it is limited to:

“… overpayments arising from administrative errors, rebates arising from over-estimated utility costs, rebates in respect of insurance premiums and the like.”

Oldham submits that there is no basis in the language of Clause 19.2.2.7 or other provisions of the LPA to limit the operation of Clause 19.2.2.7 in this way and no good reason for doing so. It says that Clause 19.2.2.7 is expressed in wide and unlimited terms and is not subject to any express limitations. Further, it submits that in the context of the long-term contract which forms the LPA, it is not surprising to include a wide-ranging and unlimited adjustment provision which allows an on-going accounting between the parties.

It submits that Clause 19.2.2.7 is not required to deal with overpayments or underpayments arising from sums which are disputed because Clause 19.4 already provides for that situation, both in terms of a provisional Advance Payment and payment of any balancing payment required once the dispute has been resolved.

Oldham submits that interpreting Clause 19.2.2.7 to include overpayments in respect of deductions for Availability Failures is not, as Community contends, inconsistent with paragraphs 1.3 and/or 2.3 of Schedule 10 any more than interpreting Clause 19.2.2.7 to include overpayments or underpayments in respect of Utilities Costs and/or Pass Through Costs is inconsistent with those provisions. Oldham notes that Community accepts that Clause 19.2.2.7 can be used where there is an overpayment or underpayment by reason of an “administrative error” and says that there is no good reason for limiting its operation to such errors.

Clause 19.2.2.7 requires Community to include in a Payment Notice “… any adjustments to reflect previous overpayments and/or underpayments”. It contains no express limitation on the scope of those previous overpayments or underpayments.

In the context of the Payment Notice for the Lease Payments in a particular Contract Month there are a number of potential ways in which an over or underpayment could arise.

The Daily Payment is subject to adjustment for Variations and to indexation as set out in paragraph 1.2 of Schedule 10. The mechanism for Pass Through Costs under paragraph 6 of Schedule 10 can evidently give rise to the need for adjustments. The calculation of Utility Costs (if carried out in accordance with paragraph 5 of Schedule 10) can equally give rise to the need for adjustments.

In relation to the calculation of deductions for Availability Failures, it may become clear that the assessment of the duration of an Availability Failure or the effect on a Functional Area may be revised leading to an adjustment for an underpayment or an overpayment. Equally in relation to Self Help Events it is possible that the assessment of whether costs and expenses were reasonably incurred (paragraph 4.4 of Schedule 10) or the limits on recovery of costs and expenses (paragraph 4.4.2 of Schedule 10) or whether those costs and expenses were evidenced (paragraph 1.3.2 of Schedule 10) might all give rise to subsequent adjustments for underpayment or overpayment. Adjustments may also arise in relation to the assessment of VAT payable.

In this way each of the elements of a Payment Notice under Clauses 19.2.2.1 to 19.2.2.6 may give rise to adjustments for underpayments or overpayments.

The declaration is phrased in terms of “a Lease Payment from which Oldham could have but did not make a deduction”. The way in which deductions are made is, subject to the mechanism for disputes or set off, by way of inclusion of such deductions in the Payment Notice by Community. Whilst necessarily there is a mechanism which requires a Payment Notice in a particular Contract Month to take into account deductions for the Contract Month just ended (Clauses 19.2.2.4) there might, as stated above, need to be an adjustment for any overpayments or underpayments arising from that process and I consider that Clause 19.2.2.7, on its clear terms, provides for such adjustment.

I do not accept that there is any basis, as Community submits, for the adjustments to be limited to “administrative errors”. Such a category is difficult to define because errors could arise on a number of grounds varying from misinterpretation of the terms of the LPA by an administrator or a pure arithmetical error in calculating a sum by an administrator. Equally, the concept of an adjustment for overpayment or underpayment presumes that the Payment Notice and invoice in a particular Contract Month failed properly to include sums which it should have included for that Contract Month, including sums arising in the Contract Month just ended. I can see no proper basis for distinguishing between certain adjustments arising in certain ways and other adjustments arising in different ways. Rather the plain terms of Clause 19.2.2.7 clearly suggest that there is no such distinction to be drawn.

It follows that the appropriate declaration is that, on a true construction of the LPA and in particular Clause 19.2.2.7, where a Payment Notice and invoice for a particular Contract Month should have included a deduction under Clause 19.2.2.4 and paragraphs 1.3 and 2.3 of Schedule 10 but failed to do so, there would be an overpayment which could be adjusted under Clause 19.2.2.7.

Oldham submits that for the period 16 March 2012 to 25 August 2012, Community is estopped by convention from asserting that Oldham was not entitled to make deductions in respect of Availability Failures which occurred other than in the Contract Month just ended, alternatively, Community is precluded from doing so by reason of the doctrine of equitable forbearance.

Prior to 16 March 2012, Oldham had formed the view that it was entitled to make deductions for Availability Failures which occurred prior to the Contract Month just ended without relying on any statement or promise by Community and Oldham does not assert that any estoppel, waiver or forbearance arose prior to 16 March 2012.

Oldham relies, first, on its letter dated 16 March 2012 in which it stated:

“Further to your recent invoice and performance report issued on 9th February, I wish to express the Council’s frustration that the ongoing performance issues are still not accurately reflected within the invoice itself nor the accompanying monitoring report.

The issues, which have been repeatedly raised with Community 1st Limited, most recently during the OPP meeting on 20th January are listed on the attached spreadsheet. According to our calculations, the provisions of schedule 10 mean that at least £26,000 should have been deducted from the February invoice.

The Council has already processed the February invoice but anticipates that you will make the appropriate adjustment to the March invoice. I therefore request that you review the calculations and confirm whether you agree that they have been undertaken correctly. If no agreement can be agreed prior to the issue of the March invoice, then the Council will withhold 50% of any disputed amount in accordance with clause 19.4 of the Lease Plus Agreement.”

The attached schedule showed that Oldham was calculating the deductions in respect of Availability Failures which commenced on 13 December 2011 and ran to 31 January 2012 and were therefore for the Contract Months of December 2011 and January 2012.

Oldham says that the reference in the letter to the “February invoice” was to the invoice in respect of January 2012 which had been or was about to be paid without deductions. Oldham stated that it expected Community to make these deductions against the March 2012 invoice which would be in respect of February 2012. It says that this is the only reasonable interpretation of the letter of 16 March 2012 and was accepted by Mr. Johnson in cross-examination. He said that he understood the letter dated 16 March 2012 as showing that Oldham considered that it was entitled to levy deductions against the March 2012 invoice in respect of Availability Failures which had occurred in December 2011 and January 2012.

Oldham also relies on its letter dated 14 May 2012 which referred to a previous letter from Oldham dated 11 May 2012 which was responded to by Community also on 11 May 2012. In the letter dated 14 May 2012 Oldham said:

“The figure referred to in my letter of 11 May represents a number of deductions to (sic) which the Council is entitled to make against availability and service shortfalls.

The attached schedule identifies the specific failures, the duration since being reported and the financial calculations. Items 1 to 5 and 9 on the schedule are considered to be Health and Safety breaches, the remaining items are considered routine breaches.

As you are aware the interpretation of the LPA is currently being debated and therefore this letter is sent to you in good faith and is without prejudice to any further deliberations.”

The schedule attached to the letter of 14 May 2012 contained reference to Availability Failures which had occurred in the period December 2011 to February 2012 and Oldham says that it therefore showed that Oldham intended to and considered that it was entitled to levy deductions in respect of Availability Failures which had occurred prior to the Contract Month just ended and that this was inconsistent with Community’s interpretation of the LPA.

Oldham says that, although from 16 March 2012, Community raised a number of objections to the levying of deductions generally, no specific objection was raised to this approach by Community until it filed its Notice of Adjudication on 25 August 2012. In its closing submissions it provided a chronology of exchanges of correspondence.

Oldham says that the failure by Community after 16 March 2012 to dispute Oldham’s operation of the payment mechanism in relation to deductions for Availability Failures which occurred prior to the Contract Month just ended whilst raising other defences constituted a representation or promise by Community that it would not seek to dispute Oldham’s entitlement to levy deductions on the basis that the deductions related to an Availability Failure that had occurred prior to the Contract Month just ended or that Oldham was entitled to levy those deductions.

Oldham relies on Community’s failure to dispute Oldham’s operation of the payment mechanism in relation to deductions for Availability Failures which occurred prior to the Contract Month just ended whilst raising other defences and says that after 16 March 2012 there was a shared assumption that Oldham was entitled to levy deductions where the deductions related to an Availability Failure that had occurred prior to the Contract Month just ended. Oldham says that, in reliance on this representation and/or promise or convention, Oldham levied deductions in respect of Availability Failures which occurred prior to the Contract Month just ended instead of levying deductions in respect of Availability Failures which occurred in the Contract Month just ended. It also says that it would be unjust or unconscionable to permit Community now to contend that between 16 March 2012 and 25 August 2012 Oldham was precluded from levying deductions where the deductions related to an Availability Failure that had occurred prior to the Contract Month just ended.

Oldham relies on Mr. Kelsall’s evidence that, although prior to 16 March 2012, Oldham had formed a view as to how to operate the payment mechanism, it was Community’s failure to dispute Oldham’s operation of the payment mechanism following Oldham’s letter dated 16 March 2012 which led Oldham to continue to believe that its view was accepted. Oldham says that if Community had informed Oldham of its position as to the operation of the payment mechanism, then Oldham could easily have made deductions in respect of Availability Failures which occurred in February 2012 against the March 2012 invoice and made deductions in respect of Availability Failures which occurred in March 2012 against the April 2012 invoice, given that in both cases the invoices were not paid until May 2012.

Community accepts that the letters of 16 March and 14 May 2012 were sent by Oldham to Community, attaching spreadsheets and that Community did not specifically object to deductions being made retrospectively, that is in respect of months before the Contract Month just ended. However, Community says that it did consistently deny that Oldham was entitled to make any deductions whatsoever. Community refers to correspondence from Oldham to Community of 16 March 2012, 29 March 2012 (two emails), 30 March 2012, 20 April 2012, 4 May 2012, 11 May 2012 and 21 May 2012 in which Community challenged the right of Oldham to make deductions from the sums contained in the Payment Notices and invoices delivered by Community.

Community says that it is impossible to spell out from the correspondence or anything else, a representation or promise to the effect that Oldham was entitled to make deductions retrospectively or that Community would not object to retrospective deductions or that Community would limit the points which it raised. Equally it says that it is impossible to spell out a convention as to the basis on which Oldham was entitled to make deductions.

Community says that there is no evidence to suggest that Oldham’s decisions as to how to make deductions had anything to do with, or was in any way influenced by, anything said or not said by Community.

Community refers to the evidence of Mr. Kelsall dealing with retrospective deductions and the practicalities of making deductions in respect of the Contract Month just ended. Community says that he does not suggest that the course taken by Oldham was influenced by anything said or not said by Community. Whilst Community accepts that, in his second witness statement, Mr. Kelsall observes that Community did not raise the retrospective deduction issue at a meeting on 20 April 2012, he does not say that anything different would have occurred if the issue had been raised.

As a result, Community says that Oldham has not established waiver or estoppel by convention or representation or equitable forbearance.

It is clear from the correspondence that prior to 16 March 2012 Oldham had taken the view that they could make deductions from payments due to Community for Availability Failures which had occurred not just in the Contract Month just ended but, in relation to payment for any particular Contract Month, that it could make deductions for Availability Failures which had occurred in Contract Months prior to the Contract Month just ended.

WhilstOldham did, in particular in their letters of 16 March 2012 and 14 May 2012, indicate that they were making deductions for Availability Failures starting from December 2011, I do not read any of the correspondence in reply as showing that there was a representation or common understanding that Oldhamwere entitled to do that or that Community would not object to deductions being made on that basis. Rather, as Community submits, there was a blanket denial that Oldham were entitled to make any deductions for Availability Failures in respect of the relevant Payment Notices and invoices.

Further, on the basis that Oldham had taken the view prior to March 2012 that it could generally make deductions for Availability Failures retrospectively, not just in respect of the Contract Month just ended, there would have to be some clear evidence that following the response to the letter in March 2012, Oldham did something which was clearly referable to that response rather than being a continuation of the view that they had taken prior to March 2012. The evidence simply does not show that.

As a result, I do not consider that there is any basis on whichOldham can rely on an estoppel by convention or equitable forbearance based on an estoppel by representation.

It follows that the appropriate declaration is that Community is not estopped from disputing Oldham’s entitlement to make deductions against Lease Payments on the basis that the Availability Failures occurred in Contract Months prior to the Contract Month just ended in respect of Payment Notices and invoices delivered during the subsequent Contract Month.

Community refers to paragraph 2.1.1 of Schedule 10 which refers to “Functional Area” which is defined in Schedule 1 to mean “one of the Areas within the Facilities set out in Table 1 to Schedule 10”.

Community says that in Table 1, which lists various Departments and gives Area Weighting percentages in respect of each of them, there are a number of entries relating to the Library. It says that the Library is sub-divided and each of the “rooms” into which it is divided has a different Area Weighting percentage.

Community relies on paragraph 2.1.3 of Schedule 10 which provides that each Functional Area has an Area Weighting. It submits that, because the Library is sub-divided into different “rooms” in Table 1, each with an Area Weighting percentage, those rooms must be treated as separate Functional Areas. Community refers to a drawing which shows the ground floor part of the Library and the different “rooms” within it.

Community refers to paragraph 2.3 of Schedule 10 which deals with the calculations of deductions and notes that in paragraph 2.3.2 the Area Weighting of the affected Functional Area is one of the elements of the calculation.

Community accepts that the LPA did not contain a plan identifying parts of the Library and that the plan it relies on shows only the ground floor and areas identified on it could be changed. Community says that it identifies most but not all of the Library “rooms” referred to in Table 1 as, for instance, the Local Studies Area is not shown. However Community says that none of this affects the fact that if an Availability Failure arises, it would be necessary to identify the Functional Areas within the Library it affected and to apply the weightings in Table 1.

Community submits that if, as Oldham contends, the Library were to be treated as a single Functional Area there would be no way to apply, or to apply sensibly, Area Weighting percentages.

Oldham submits that, under the LPA, the Library, insofar as it is an open plan area, is to be treated as a single Functional Area.

Oldham refers to paragraph 2.3.1 of Schedule 10 which provides that deductions shall be calculated in respect of Functional Areas and paragraph 2.3.2 which provides that one element of the deduction calculation in respect of a Functional Area is the “Area Weighting”. It refers to the definitions of “Functional Area” (one of the areas within the Facilities set out in Table 1 to Schedule 10) and “Area Weighting” (the weightings attached to the Functional Areas as specified in Table 1 of Schedule 10). It also refers to the provisions in Table 1 of Schedule 10 relating to the Library.

Oldham says that the LPA did not contain any plan which identified the parts of the open plan section of the Library set out in Table 1 and so there is no contractual basis upon which it can be said that a particular part of the Library corresponds to a particular description in Table 1. It says that in Table 1, the parts of the Library set out above are given a single Room Number. In relation to the plan relied on by Community, Oldham says that it was sent for the first time to Oldham in December 2012 and has no contractual basis.

Oldham says that the Library is an open plan area where users move around freely so that, for instance, a risk to health and safety in one part affects the use of the whole of the Library. It says (referring to Mr. Kelsall’s evidence in his second witness statement) that the open plan Library was intended to be used flexibly by Oldham so that the designations of the various parts of the Library would be likely to change over the course of the LPA.

The issue in this case depends on the effect of Table 1 of Schedule 10 on the way in which the Library is to be treated in terms of Functional Areas.

Section 2 of Schedule 10 deals with Availability Failures. An Availability Failure requires a Functional Area to be Unavailable as set out in paragraph 2.1.2. Under paragraph 2.1.3 each Functional Area has an Area Weighting which is defined in Schedule 1 as meaning “the weightings attached to the Functional Areas as specified in Table 1 of Schedule 10.” The calculation of deductions for Availability Failures in paragraph 2.3.2 requires a calculation for each Functional Area based on a factor “AW” which is the Area Weighting of the affected Functional Area.

Table 1 sets out 17 rooms in the Library department each of which has an Area Weighting. Each of those rooms is described, for instance, Reception Counter, Quiet Study Area, Platform Lift and Drop in room. All of those rooms are described as Functional.

If there had been a plan attached to the LPA identifying those rooms then I do not consider there could be any uncertainty as to the manner in which deductions for Availability Failures in respect of the Library were to be calculated. The fact that an Availability Failure in one “room” might lead to an Availability Failure in another “room” would not justify the whole of the Library being treated as one unit. The question would depend whether one or more of the Functional Areas was Unavailable due to a Service Failure but would not necessarily mean that the whole of the Library would be rendered Unavailable.

Whilst the plan which was produced at the hearing is not a contractual document, it provides some evidence of the way in which the Library was divided into “rooms” or areas. It might be necessary for other evidence to be adduced to identify the relevant “rooms”. I do not consider that the absence of a plan marking the relevant areas means that the position is so uncertain that the carefully calculated Area Weightings in Table 1 cannot be or are not to be applied.

It follows that the appropriate declaration is that, on a true construction of the LPA and in particular Schedule 10 and Table 1, each of the Library areas specified in the fourth column of Table 1 is to be treated as a separate Functional Area and any deductions in respect of an Availability Failure which affects the Library are to be calculated by reference to the particular Functional Area or Functional Areas affected, not by reference to the Library as a whole.

Issues 10 to 14 have to be taken together as they all relate to the issue of what deductions for Availability Failures should be made in relation to the floor tiling in the Swimming Pool Changing Area. There is a subsidiary question relating to the ACO floor drains.

In summary, Community submits that the slip resistance of the floor tiles was not maintained because of a failure to clean them sufficiently over a period of time whilst Oldham submits that the floors were not laid to the correct falls and the surface was irregular leading to ponding which, with contaminants from use including dirt from shod feet caused the slip resistance of the floor tiles to diminish between the regular floor cleaning activities.

It is convenient, first, to consider the expert evidence on the falls to the floor in the Swimming Pool Changing Area. In their joint statement, Dr. Bailey and Mr. Bate agreed the following in relation to the question of whether the floors were laid to the specified falls. They agreed, first, that the falls to the floor in the area between the locker wall and the main drainage channel were significantly less than the 1 in 80 specified and that it was essentially this factor which caused the two areas of ponding. Secondly they agreed that the area on the other side of the drainage channel although not perfect, did not constitute a problem in relation to the floor drainage. Thirdly they agreed that if an area of the floor were to be relaid with the uniform fall of 1 in 80, the majority of the “arguments” relating to this floor would be resolved.

Community originally contended that there was no requirement in the LPA that all tiles should be laid to falls of 1:80. However, in the light of the agreement reached by Dr. Bailey and Mr. Bate, Community accepted that there was a Service Failure in respect of the area referred to by the experts and that to remedy it the area identified by the experts (Areas A and B) should be relaid with falls of 1:80 to the drains to the extent that this is reasonably practicable. Community also accept that other areas were not laid to falls of 1:80 and that there was a Service Failure in respect of those other areas but they do not need to be relaid.

I consider that the evidence establishes that, because that area was not laid to the specified 1 in 80 falls, there was ponding of water in that area. That ponding was caused by excess water not draining. I shall use the word “ponding” in that context.

So far as surface irregularities are concerned, Mr. Bate refers to the floor survey carried out in December 2012 from which it is apparent there is one area with a depression in the surface of 4mm, three areas with a depression on the surface of 3mm and two areas with a depression on the surface of 2mm. At paragraph 83 of his report Mr. Bate says that if the falls were 1 in 80 or sufficient, then depressions up to 3 mm would not cause any significant ponding and the problems being experienced with the floor of the Changing Room would be resolved. He explained that the third part of the agreement in the experts’ joint statement means that if the issue of the falls in the floor was resolved there would be no significant ponding, the level of contamination would be substantially reduced and the floor would no longer create a slipping hazard.

On that basis I consider that, in the light of the experts’ joint statement and the acceptance by Community that there was a Service Failure in relation to the falls, the allegations concerning surface irregularity are no longer material given the views expressed by Mr. Bate. I shall therefore concentrate on the issue of ponding caused by the lack of a fall of 1 in 80.

The next issue which I have to consider is whether an appropriate cleaning regime was carried out by Oldham in compliance with their obligations under Clauses 27.2 and 27.4.1. Those provisions required Oldham to “… keep the [Centre] clean and tidy at all times to a standard appropriate to the designated use of the area” and to “… use methods and materials appropriate to the surfaces… and areas to be cleaned”.

In their joint statement Dr. Bailey and Mr. Powers agreed that:

“… the cleaning regime which has in the past been used by Oldham has generally not maintained the tile such that it provides a Low Risk wet slip resistance rating.”

There was a cleaning regime for the Changing Room floor set out in the O&M Manual. Mr. Twomey gave evidence on behalf of Oldham as to the cleaning regime which had been used at the Centre. In his first witness statement he said that the initial cleaning regime when the Centre opened consisted of daily cleaning by a minimum of 2 lifeguards undertaking daily and weekly cleaning duties together with a weekly deep clean of the Centre as a whole. He said that an out of hours periodic deep clean of the floors and drains in the Swimming Pool Changing Area was undertaken as and when required, the last deep clean having been undertaken a month before his witness statement. He said that the cleaning regime had been changed in the Swimming Pool Changing Area. He referred to an accident in February 2013 which occurred in the Swimming Pool Changing Area and said that in response Oldham increase the frequency of the checks of that area. He said that staff were required to undertake checks every 20 minutes and during these checks would squeegee any water that had ponded during the previous 20 minutes to ensure the floor remained as dry as possible. He also referred to the use of an additional cleaning product called “Bonaclean” which he referred to as an expensive, anti-slip, noncorrosive cleaning product that is used in the periodic deep cleans. He said that this product had been used as and when required since April 2013, although his oral evidence on this was not clear.

In his second witness statement Mr. Twomey elaborated on the cleaning carried out as Responsive Cleaning, Day to Day Cleaning, Weekly Cleaning and Deep Cleaning. In relation to the Day to Day Cleaning he said that in addition to the 20 minute checks, following closure of the pool every evening, the floor of the Swimming Pool Changing Area is treated with “Uni-guard” a neutral or nearly neutral detergent which is left at least 5 minutes before it is scrubbed and hosed down. He said that Oldham also employs two professional cleaners who carry out Weekly Cleaning which includes using a mechanical floor washer in the Changing Area using Uni-guard, which takes about an hour to complete. He also referred to a Deep Clean which, since early 2010, has been carried out once a month, leaving Uni-guard for a longer period and using the mechanical floor washer. In his third witness statement Mr. Twomey says that since 11 November 2013 an updated cleaning regime had been implemented which resulted in a mechanical cleaner being utilised each day.

There were some unsatisfactory parts to Mr. Twomey’s evidence and I gained the impression that he was not able to say what cleaning was actually carried out but rather what the cleaning regime was. There were also some documents which suggested that the floor might not have been cleaned to the correct standard. First, Dr. Bailey’s evidence was that the 20 or 30 minute squeegee clean was only observed once in 4 hours whilst he was carrying out tests. Mr. Twomey said he thought this was wrong.

Secondly, after the incident in February 2013 a company called FloorSlip Ltd carried out an independent investigation and made the following observation: “The staining and dirt visible on the tiles at this establishment suggests that the satisfactory cleaning regime is not necessarily carried out to a level that is sufficient to prevent slips, or is carried out to infrequently. Body fat deposits (from sweat) and the deposits can degrade the design slip resistance.” Mr. Twomey said he disagreed with this.

Thirdly, in an email chain in April 2013 Mr. Critchley informed Ms. Collins of Oldham that on a visit to the Centre he:

“… noted that there was an area of flooring in the changing room that has been cleaned by some form of chemical cleaner …. You will note that this has made a dramatic improvement to the appearance of the tiles.”

When this email was forwarded to Mr. Twomey he responded to Mr. Winrow of Oldham to say “… we’ve been busted … and Paddy should have known to keep his mouth shut to ESPL.” Mr. Twomey’s evidence as to what he meant by this was unsatisfactory explaining that it was “tongue in cheek” and that it was not “shady”. I consider it likely that he saw this comment by Mr. Critchley as raising a proper criticism of the cleaning regime being carried out at the Centre and this is supported by the unsatisfactory responses given by Mr. Twomey.

However, when Mr. Twomey was referred to several cleaning schedules which had been signed off by the relevant cleaner they appeared to be broadly consistent with the cleaning regime set out in his witness statement.

I have concerns that a satisfactory cleaning regime was, in fact, carried out in the Swimming Pool Changing Area, but I do not consider that I can come to a final decision based merely upon the documents I have been referred to and the evidence of Mr. Twomey. Essentially this issue is bound up with the view of the experts on the conclusions to be drawn from the test results.

At this stage it is necessary therefore to consider the test results on the slip resistance of the floor tiles. There were four sets of test results. The tests were carried out using pendulum test machines and they recorded pendulum test values in PTV units. In order to represent a “safe” or low-risk/potential for slipping when walking, the floor surface needs to have a slip resistance of the least 36 PTV units

First Dr. Bailey carried out tests in November 2012 in accordance with BS7276 on one new tile and one old tile in the Changing Room. The new tile gave a slip resistance when wet of 37 PTV and the old tile gave a slip resistance when wet of 25 PTV.

Secondly, Mr. Powers carried out tests in October 2013 in accordance with the UK Slip Resistance Group Guidelines (version 4 2011). He carried out tests on a floor tile within Area A after a treatment had been carried out so that the slip resistance of the floor had been improved. He commenced testing at 6:45am shortly after the Centre opened. These tests gave a slip resistance of 43 PTV. He carried out further tests at 2:00pm and says that the same tile gave a result of 35 PTV.

Thirdly in November 2013 Dr. Bailey carried out further tests to see whether Mr. Powers results in October 2013 were reproducible. For tile 1 Dr. Bailey measured the resistance at 8:10am as 39 DTV. The tile was then cleaned it 8:30am and at 9:40am the result was 41 PTV and at 11:20am 40 PTV. For tile 2 Dr. Bailey carried out cleaning at 8:25am and tested the slip resistance at 8:30am as 34 PTV. At 10:30am the result was 35 PTV and at 11:30am was also 35 PTV. For tile 3 it was also cleaned at 8:25am and tested at 8:40am when it showed a result of 28 PTV. At 10:25am it showed 29 PTV and at 11:45am was also 29 PTV. Tiles 4 to 8 were tested once and showed PTVs of 45, 40, 46, 38 and 38.

Fourthly joint tests were carried out in December 2013. Six tiles were chosen in Area A. Tile 1 was tested at 10:00am (38 PTV), 12:00 noon (40 PTV), 2:00pm (40 PTV) and 4:00pm (40 PTV). Tile 2 was tested at the same times and showed results of 39, 39, 40 and 40 PTV. Tile 3 showed the same result 40 PTV at each of those times tile for showed results of 34 PTV at those times. Tile 5 showed results of 33, 33, 34 and 33 PTV and tile 6 showed results of 35, 34, 34 and 34 PTV.

Mr. Powers considers, in summary, that the results of his tests in October 2013 show a deterioration over a period of seven hours in the slip resistance of floor tiles in areas of ponding. He says that Dr. Bailey’s results in November 2012 did not show this because they were merely single results. He says that the test carried out by Dr. Bailey in November 2013 were only carried out over a limited period not including the afternoon but, in relation to tile 1, he said that the drop of 1 PTV in 1 hour 40 minutes was consistent with his results. In relation to the joint tests, Mr. Powers considered that they were carried out in unrepresentative conditions and merely demonstrated the variability in results between different floor tiles.

Dr. Bailey considers, in summary, that Mr. Powers’ test results in October 2013 did not establish the deterioration in the slip resistance of floor tiles and he questioned whether something might have happened to the floor tiles or whether different floor tiles might have been tested by Mr. Powers. He said that for Mr. Powers to be correct it was necessary for this test results to be reproducible, have a credible physical explanation, be carried out on the same tile in the same manner, have nothing unusual taking place between testing, apply to all tiles in the general area and occur on a regular basis. He said that these criteria had not been achieved. Whilst he accepted that the tests in December 2013 were carried out at period of low usage he relied on those results as not indicating the deterioration that Mr. Powers attributed to the October 2013 results.

The interpretation of the tests to assess the slip resistance of the floor tiles is not straightforward. The issue is whether the evidence shows that the slip resistance of the floor tiles deteriorates over the daytime use of the Swimming Pool Changing Area so that a floor tile which has been properly cleaned at or prior to the start of the day becomes unacceptable in terms of slip resistance by the end of the day in areas where water is ponding.

There was an issue between Dr. Bailey and Mr. Powers as to the appropriateness of the different types of testing carried out by them. I regarded both witnesses as having the appropriate level of expertise in the specialist field of assessing slip resistance. Both experts have experience of assessing slip resistance in terms of pendulum test values (PTVs) and although both experts made cogent criticism of the method of testing carried out by the other, I am not persuaded that there is anything fundamentally wrong with either method which would mean that the results obtained from that method should be ignored. I have no doubt that when each of the experts uses their preferred methods the results obtained will be comparable.

In this case, a central question is whether the test results obtained by Mr. Powers in October 2013 provide a sufficient basis for the underlying thesis that slip resistance deteriorates during the day in areas of ponding. Dr. Bailey put forward cogent reasons as to why a single set of test results was not a sufficient evidential basis to come to the conclusion reached by Mr. Powers. In cross-examination Mr. Powers properly accepted the propositions put forward by Dr. Bailey about, for instance, tests being reproducible. Dr. Bailey also put forward reasons why Mr. Powers results may have been inaccurate. The two attempts to reproduce Mr. Powers’ results did not do so, but, again, there are questions as to whether the duration and time period of the first or the use conditions of the second allowed for a proper reproduction of the conditions in October 2013. To the extent that those attempts provided useful evidence I do not consider that they add support to Mr. Powers’ test results in October 2013. I have come to the conclusion that based on Mr. Powers’ test results and his evidence I cannot find that the ponding causes slip resistance to deteriorate to a dangerous level during the day.

It is common ground between the experts that the presence of ponded water on a tile does not, in itself cause it to be slippery. Indeed tests carried out by Dr. Bailey on tiles on the swimming pool surround confirmed that these tiles which are continually wetted gave a test result of 45 PTV units. Mr. Powers in his second report at paragraph 36 said:

“The tiles which have been installed are designed so that they are safe even when wet. If we were only concerned with water (i.e. we were leaving aside the issue of contaminants), I would agree that it probably does not matter whether the tiles are damp, wet, very wet or ponded.”

He confirmed in cross-examination that, assuming that the floor has a satisfactory slip resistance in wet conditions then the amount of water on the floor will not have any impact.

The tests do show that there is a variability in results and that floor tiles which are wet can have a high PTV value. Therefore I do not consider that ponding of water per se causes the floor tiles to become slippery and unsafe.

There is, however, evidence that contaminants present in the water in the Swimming Pool Changing Area can reduce the slip resistance of the floor tiles. Mr. Powers and Dr. Bailey agree in principle about the effect of contaminants in reducing slip resistance of floor tiles. In paragraph 44 of the second report Mr. Powers says:

“In my opinion, the obvious reason why the slip resistance of the tile which is subject to ponding by contaminated water would decrease during the day is that the water does not drain away and the contaminants (such as body fats, soap, and dirt) in the water fall onto the tile making it dirty. If the water drained away properly, there would be much less time for the contaminants to get onto the surface of the tile.”

Dr. Bailey’s comment on this paragraph of Mr. Powers’ evidence was that, although the mechanism of deposition appears to have credit, in practice the deposition is possibly less of a problem than normal dry deposition where the dirt and contaminants are deposited and pressed into the tile surface by those walking over the tile. He added:

“In reality, the amount of soap etc, that [Mr. Powers] cites is very small indeed and I suggest that if it were possible to analyse the water from those contaminants it would be insignificant as a percentage content.”

I also note Dr. Bailey’s observation (page 14 of his 22 November 2013 Report) that:

“… the wetted surface of the tile in the changing room feels different from those around the pool changing room tiles have a greasy/soapy feel when rubbed, even those where people cannot walk, for example, under the hair drying shelf, behind the main entrance door, alongside the windows, etc.”.

In this case the slip resistance of the floor tiles in the Swimming Pool Changing Area where there is ponding have been shown to have a level of slip resistance which is below the value of 36 PTV units considered to be satisfactory from the point of view of slip resistance. I am not, however, satisfied either based on Mr. Powers’ tests or on the other expert evidence that a floor tile which had a satisfactory slip resistance at the beginning of a day would deteriorate to such an extent during one day to cause unsatisfactory slip resistance. I find Dr. Bailey’s reasoning on this aspect of the case more persuasive than the evidence from Mr. Powers supported by limited testing.

I consider that in the Swimming Pool Changing Area the presence of contaminants in the form of body fats, shampoo/soap and dirt from shoes will reduce the slip resistance of floor tiles over a period of time but will not do so if a proper cleaning regime is used. It may be that contaminants tend to concentrate in areas of ponding as the water increases the concentrations of those contaminants. However, with a proper cleaning regime on a daily, weekly and other periodic basis, I do not consider that there should be any significant difference between the slip resistance of floor tiles in ponded areas and those elsewhere. This is particularly so given that the experts are agreed that water, per se, does not affect the slip resistance of the floor tiles.

On this basis the observations of Dr. Bailey as to the greasy/soapy feel of the floor tiles generally in the Swimming Pool Changing Area and the low levels of slip resistance which have been measured are, in my judgement, much more consistent with a failure of the cleaning regime properly to achieve satisfactory removal of the contaminants so as to retain the slip resistance of the tiles. Combined with the unsatisfactory evidence of the cleaning regime to which I referred above, I reached the conclusion that it is more likely that any failure in slip resistance of the floor tiles in the Swimming Pool Changing Area was the result of an inadequate cleaning regime.

Oldham contends that there is a breach of the Safety Conditions in relation to two aspects arising from inadequate falls which, as set out above, I consider to be the material defect in the Swimming Pool Changing Area. First, it says that the floor in the main thoroughfare in normal use suffers from ponding by reason of the failure to provide the required falls. It says that this water is contaminated with body fats and shampoo or soap residues and the water also increases the contamination by collecting dirt from shoes. Oldham say that this contaminated water that is not draining as it should causes the slip resistance of the tiles to deteriorate more quickly than they should during the day, such that they become unsafe and this amounts to a breach of the Safety Condition for which Community is responsible.

Secondly, Oldham says that the inadequate falls render cleaning less effective than it would otherwise be so that the slip resistance cannot be properly restored at the end of each day through the use of a reasonable cleaning regime so contributing to the breach of the Safety Condition.

Community contends that there has been no breach of the Safety Condition but if there was then it was caused by Oldham’s failure properly to clean the floor tiles and not by the presence of water ponding on the surface.

For the reasons set out above I do not consider that the ponding of water in the Swimming Pool Changing Areas caused by a failure to lay the floors to the required falls has led to a reduced slip resistance of the floor tiles and therefore I do not consider that the lack of falls has led to a breach of the Safety Condition. In relation to the question whether inadequate falls have affected the cleaning regime, there was no suggestion by Mr. Twomey that those cleaning the floors had found difficulties in doing so in ponded areas. Indeed, as he said, the cleaning regime has to be adjusted to the conditions and it would be surprising if the cleaning regime could not or did not deal properly with areas of ponding. I certainly am not persuaded that the inadequate falls led to a failure to clean which then led to a breach of the Safety Condition.

Oldham also relied heavily on documents produced by the RIBA, the HSE and Sport England on the basis that adequate falls are required in areas such as Swimming Pool Changing Area in order to safeguard health and safety. I do not consider that these general observations mean that inadequate falls, without more, amount to a breach of the Safety Condition given the absence of a risk arising from lack of slip resistance, as I have found above.

These drains are located along the main thoroughfare of the Swimming Pool Changing Area so as to take away the water which drains from the floor tiles. There are two issues in respect of the drains. First that until Oldham carried out remedial work sandblasting the drain covers the covers displayed an unsafe slip resistance when wet. Secondly prior to remedial work being carried out in November 2012 the drains had inadequate falls so they did not drain properly leading to risks of stagnation and mould.

In relation to the slip resistance of the ACO drain covers, they are perforated metal covers which provide holes for water to enter the drain. Oldham relies on test results which show that the metal covers had a slip resistance value of 23 PTV. Whilst that would indicate an unsatisfactory level of slip resistance locally, as Dr. Bailey said it would not be normal to walk along those metal covers and, in any event the covers would not become wet because the water would drain into the side of a slot. Whilst Mr. Powers considered that in areas of ponding people might walk on the covers to avoid the ponding I am not satisfied that that the drain covers would in fact become wet or that people would walk on the drain covers. I am not persuaded that these commonly used drain covers give rise to a breach of the Safety Condition.

In relation to the lack of falls on the ACO drains and the risk of stagnation and mould I do not consider that there is sufficient evidence to establish that this gave rise to a breach of the Safety Condition.

It follows that on the basis of my findings set out above the appropriate declaration in relation to this issue is that there was not a breach of the Safety Condition in the Swimming Pool Changing Area.

As I have stated above, Community accepts that there was a Service Failure in respect of Areas A and B identified on the relevant plan and that the relevant area should be relaid with falls of 1:80 to the drains to the extent that this is reasonably practicable. Community also accept that other areas were not laid to falls of 1:80 and that there was a Service Failure in respect of those other areas but they do not need to be relaid. In relation to the ACO drains, Community refers to the relevant paragraph in the Landlord’s Proposals where those drains are specified and contends there was no Service Failure.

On this basis Oldham submit that Community must now accept that the Swimming Pool Changing Area was poorly constructed although Community had refused to accept this since July 2010 and has refused to take adequate steps to remedy this defect. They say the only remaining issue is whether it gives rise to a risk to health and safety.

I have already dealt with the position on the ACO drains and I am not satisfied that there was a Service Failure arising from the drain covers or the lack of falls.

It follows that the appropriate declaration is that there was a Service Failure in relation to the inadequate falls in the Swimming Pool Changing Area.

Oldham claimed to be entitled to make deductions in respect of the Swimming Pool Changing Area by reason of the breach in this Safety Conditions.

For the reasons set out above whilst I have found that there was a Service Failure I have not found that a Functional Area was Unavailable because a Safety Condition was not satisfied. As a result there was not an Availability Failure giving rise to a right to deductions under paragraphs 2.1.4 and 2.3 of Schedule 10 to the LPA.

It follows that Oldham was not entitled to deductions under paragraph 2.1.4 and 2.3 of Schedule 10 to the LPA in respect of the Swimming Pool Changing Area because there was no breach of a Safety Condition due to a Service Failure.

In the light of my findings set out above, this issue does not arise.

Again, in the light of my findings set out above, does not arise.

For the reasons set out above, the appropriate declarations on the issues arising from the LPA at the Centre are as follows, subject to any proposed amendments to the particular wording by the parties:

On the basis of my findings on Issues 10, 11 and 12, Issues 13 and 14 do not arise.

I will deal with any matters arising either at the hearing to hand down judgment or at a subsequent convenient time.