J Murphy & Sons Ltd v Beckton Energy Ltd

This a claim brought under Part 8 of the Civil Procedure Rules by the Claimant contractor (“Murphy”) against the Defendant employer (“Beckton”) for declaratory relief. The proceedings relate to a threatened call on an “on-demand” performance bond (“the Bond”) by Beckton. Pursuant to a written contract between the parties dated 14^th March 2013 (“the Contract”), on 25^th February 2016 Beckton gave Murphy 23 days’ written notice of its intention to make a demand under the Bond in respect of its claim for liquidated damages in the sum of £8,274,000 which Beckton contends are due to it from Murphy. The notice thus expires on 19^th March 2016. Murphy issued its claim on 9^th March 2016, and the matter has proceeded on an expedited basis as a matter of urgency. Save where otherwise expressly stated, all references below to Sub-Clauses are references to clauses in the conditions of the Contract.

Murphy seeks a declaration that, until there has been an agreement or determination by the Engineer appointed under the Contract in accordance with Sub-Clause 3.5 of the amount (if any) which Beckton is entitled to be paid by Murphy in respect of liquidated damages, Murphy is not obliged to pay any liquidated damages to Beckton. Murphy contends that such an agreement or determination is a pre-requisite for any entitlement on the part of Beckton to claim liquidated damages.

The Engineer appointed under the Contract is Mr Christopher Turner of Capita Symonds (“the Engineer”). There has been no agreement or determination by him in respect of liquidated damages (under Sub-Clauses 2.5 and 3.5), although Beckton has requested such a determination in the light of these proceedings. The first question raised for my determination is one of pure contractual construction of two clauses in the Contract in particular, namely Sub-Clauses 8.7 and 2.5.

Beckton disputes that its entitlement is subject to or in any way dependent on the process in Sub-Clauses 2.5 and 3.5 of the Contract.

Murphy also seeks injunctive relief against Beckton preventing it from making a demand on the Bond in respect of its claim for liquidated damages until there has been agreement or determination by the Engineer and further notice pursuant to Sub-Clause 4.2.5 of the Contract. This raises the second question for my determination (if Murphy succeeds on the first question), namely whether or not a call on the Bond by Beckton would be fraudulent (assuming that Murphy were to succeed in its claim for declaratory relief). Consequent upon the outcome of that decision would be the question of whether or not the granting of injunctive relief would in any event be appropriate.

Murphy says that a call on the Bond gives rise to a risk of damage to its commercial reputation, standing and creditworthiness, and would be something that might well need to be disclosed in future tenders. Against that, Beckton says that it will suffer dire consequences if it is not able to make a call on the Bond, by 23^rd March 2016 at the very latest. The works the subject of the Contract are 409 days late. The project has been funded on the basis that all relevant parties provided, upfront, the funding required to take it through to the point of Taking-Over. Through a facilities agreement lenders committed a term loan facility of up to some £53million and a VAT facility of up to £2million. Beckton’s shareholders committed a total of some £17million through a combination of loan notes and new ordinary share capital. Notwithstanding that the Taking-Over Date (as defined in the Contract) has not yet occurred, the first repayment to lenders was due on 30^th September 2015, which Beckton has paid, and is due every six months thereafter. Beckton refrained from enforcing its entitlement to recover liquidated damages, whilst nonetheless meeting project costs including finance costs, to assist completion. However, and despite going to great lengths to maintain liquidity without the benefit of delay damages, Beckton has now exhausted all possible sources of committed funding and needs payment of delay damages. The net position for Beckton as at 31^st March 2016 will be an indebtedness of some £1.4million and rising. Beckton is also required to file its audited financial statements for the year ending 30^th June 2015 by the (already extended) date of 30^th April 2016. Without payment under the Bond, Beckton does not believe that its auditors will be able to give an unqualified opinion as to its solvency, which would have grave consequences for Beckton, being a default event under the facilities agreement and damaging to Beckton’s credit status. Beckton points to the fact that Murphy’s consolidated balance sheet as at 31^st December 2014 recorded cash assets of over £74million.

Murphy’s claims, whilst related, are at the same time separate and discrete. The claim for declaratory relief is made by reference to Beckton’s right to recover delay damages; the claim for injunctive relief turns on Beckton’s right to call on the Bond.

The scope and nature of the issues for my potential determination became clear (and narrower) as the hearing proceeded. They can now be distilled as follows :

By the close of the hearing, and at my suggestion, the parties were agreed that a determination of Issue 3 would or might be premature and that an appropriate way forward would be for me to deliver first my decision on Issues 1 and 2. In the event that Murphy’s claims on Issues 1 and 2 were to fail, I would proceed to dismiss the claim for injunctive relief. In the event that Murphy were to succeed, then the parties could consider their respective positions on the question of injunctive relief accordingly.

Evidence has been served as follows :

The Contract was dated 14^th March 2013 and related to the design, procurement, construction, start-up, testing and commissioning of a Combined Heat and Intelligent Power Plant at Beckton, East London (“the Plant”). It was based on FIDIC Conditions of Contract for Plant and Design Build for Electrical and Mechanical Plant and for Building and Engineering Works designed by the Contractor First Edition 1999 (“the FIDIC Yellow Book”). Pursuant to the Contract Murphy obtained the Bond with Zurich Insurance Public Limited Company (Bond Number 63650/0413/1177).

There were two principal elements to the Plant : a Generating Set which generates electricity fuelled by bioliquid, and Turbo Expanders which generate electricity through the expansion of high pressure gas in the pressure reduction stream of a National Grid gas distribution network. Heat from the Generating Set is used to pre-heat the gas prior to the reduction in its pressure. The intention is that all electricity be from renewable energy sources.

Sub-Clause 2.5 of the Contract provided as follows :

“2.5

Employer’s Claims

If the Employer considers himself to be entitled to any payment under any Clause of these Conditions or otherwise in connection with the Contract, and/or to any extension of the Defects Notification Period, the Employer or the Engineer shall give notice and particulars to the Contractor. However, notice is not required for payments due under Sub-Clause 4.19 [Electricity, Water and Gas], or for other services requested by the Contractor.

The notice shall be given as soon as practicable after the Employer became aware of the event or circumstances giving rise to the claim. A notice relating to any extension of the Defects Notification Period shall be given before the expiry of such period.

The particulars shall specify the Clause or other basis of the claim, and shall include substantiation of the amount and/or extension to which the Employer considers himself to be entitled in connection with the Contract. The Engineer shall then proceed in accordance with Sub-Clause 3.5 [Determinations] to agree or determine i) the amount (if any) which the Employer is entitled to be paid by the Contractor and/or ii) the extension (if any) of the Defects Notification Period in accordance with Sub-Clause 11.3 [Extension of Defects Notification Period].

This amount may be included as a deduction in the Contract Price and Payment Certificates. The Employer shall be entitled to set off against or make any deduction from an amount certified in a Payment Certificate, or to otherwise claim against the Contractor, in accordance with this Sub-Clause.”

Sub-Clause 3.5 provided as follows:

“3.5

Determinations

3.5.1

Whenever these Conditions provide that the Engineer shall proceed in accordance with this Sub-Clause 3.5 to agree or determine any matter, the Engineer shall consult with each Party in an endeavour to reach agreement. If agreement is not achieved, the Engineer shall make a fair determination in accordance with the Contract, taking due regard of all relevant circumstances.

3.5.2

Without prejudice to either Party’s right to refer any matter to adjudication and/or litigation in accordance with Clause 20 [Claims, Disputes and Litigation] each Party shall give effect to any such agreement and/or determination…”

By Sub-Clause 20 a similar regime involving the Engineer applied to claims by Murphy against Beckton.

By Sub-Clause 4.2 Murphy was obliged to obtain an on-demand performance bond in a prescribed form. Sub-Clauses 4.2.5 and 4.2.6 provided :

“4 The Contractor…

4.2

Performance Security…

4.2.5

The Employer shall give …23 days’ prior written notice to the Contractor of its intention to make a demand under the [Bond] stating the breach the Contractor has committed, during which period and without prejudice to the Employer’s entitlement and discretion to claim under the relevant Performance Security at the expiry of the said 23 days, the Contractor may seek to remedy the relevant default and/or breach… .

4.2.6

If and to the extent i) the Employer was not entitled to make a claim under the Performance Security and/or ii) amounts recovered under any claim under the Performance Security exceed the entitlements and/or otherwise exceed the losses suffered and recoverable by the Employer under the Contract, the Employer shall be liable for and reimburse the Contractor such excess amounts.”

Sub-Clause 4.2 is substantially different to the equivalent clause in the FIDIC Yellow Book. In that equivalent clause, the relevant failure to pay on the part of the contractor triggering the employer’s right to call on the Bond is linked expressly to Sub-Clause 2.5. Thus the contractor’s failure has to be a failure to pay an amount due “as either agreed by the Contractor or determined under Sub-Clause 2.5”. Here all reference to agreement or determination under Sub-Clause 2.5 was removed. As will be apparent below, there is the same absence of any reference to Sub-Clause 2.5 in Sub-Clause 8.7.

Sub-Clause 8.2 provided :

“8.2

Time for Completion

The Contractor shall i) achieve the ROC Accreditation Milestone by the ROC Accreditation Date and ii) complete the whole of the Works within the Time for Completion for the Works, including :

a)

achieving the passing of the Tests on Completion, and

b)

completing all work which is stated in the Contract as being required for the Works to be considered to be completed for the purposes of taking-over under Sub- Clause 10.1 [Taking Over of the Works and Sections].”

The ROC Accreditation Milestone was defined as the granting by OFGEM of Renewables Obligation (“RO”) accreditation in accordance with the Renewables Obligation Order 2009 based on the completion of such procedures and tests in relation to the plant as constituted, at the time they were taken, the usual industry standards and practices for commissioning that type of plant in order to demonstrate that the plant is capable of commercial operation for which Beckton was awarded Renewables Obligation Certificates (“ROCs”), Renewable Energy Guarantees of Origin and/or Levy Exemption Certificates by OFGEM. The ROC Accreditation Date was defined as the date by which Murphy was to achieve the ROC Accreditation Milestone which should be before the Taking-Over date and no later than 2^nd November 2014 (subject to any extension under Sub-Clause 8.4). Time for Completion of the Works was 31^st January 2015 (subject to any extension under Sub-Clause 8.4).

Sub-Clause 8.7 addressed delay damages so far as material as follows :

“8.7

Delay Damages and Bonus

8.7.1

If the Contractor fails to :

a)

achieve the ROC Acceditation Milestone by the ROC Accreditation Date the Contractor shall pay or allow to the Employer liquidated damages for such delay at the daily rate of £4,000 for each day commencing from the ROC Accreditation Date until the earlier of the achievement of i) the ROC Accreditation Milestone or ii) 31 March 2015; and

b)

achieve the ROC Accreditation Milestone by the ROC Eligibility Change Date the Contractor shall pay or allow to the Employer a Bullet Payment; and

c)

achieve the Taking-Over Date for the Works within the Time for Completion, the Contractor shall pay or allow to the Employer liquidated damages for delay. Such liquidated damages shall be payable at the daily rate of £23,000 for each day after the Time for Completion for the Works up to and including the Taking-Over Date for the Works…

8.7.4

Delay damages due pursuant to this Sub-Clause 8.7 shall be deducted from the next applicable Notified Sum following the end of the month in which such delay occurred or where no such Notified Sum is applicable or is disputed, shall be payable within 30 days of the end of the week in which such delay occurred.”

“Notified Sum” is defined in Sub-Clause 14.6 which addresses interim payments. Like Sub-Clauses 4.2 and 8.7, Sub-Clause 14.6 is not in the terms of the standard equivalent clause in the FIDIC Yellow Book. In the FIDIC Yellow Book the Contractor shall issue to the Employer for interim payment purposes a certificate “which shall state the amount which the Engineer fairly determines to be due, with supporting particulars”.Here the Notified Sum is simply the sum specified by Murphy (in a valid statement). There is no reference to any involvement on the part of the Engineer. Beckton pays that sum unless it issues a Pay Less Notice as prescribed, in which case it pays the lesser sum.

As is apparent below, Beckton relies on the fact that the wording as agreed between the parties in Sub-Clause 8.7 is to be contrasted with the wording in FIDIC Yellow Book which states in terms that the obligation to pay delay damages is “subject to Sub-Clause 2.5”.

As for the Bond, the procedure for making a call on the Bond is as follows :

“3.1

The Employer may from time to time make a written demand (signed by two directors of the Employer) upon the Bond Provider stating:

(a)

that the Contractor has committed a breach of any provision in the Contract … including particulars of such breach and/or an Insolvency Event has occurred; and

(b)

the amount claimed by the Employer as a consequence of such breach… and/or Insolvency Event.”

The maximum amount payable under the Bond up to and including the date being 3 months after the Taking-Over Date is £7,565,303.60 for any breach by Murphy or an Insolvency Event prior to the Taking-Over Date or for any breach by Murphy or an Insolvency Event after the Taking-Over Date is £2,522,101.20.

According to Mr Reinheimer-Jones, as was communicated to Murphy before the Contract was agreed and common knowledge to both parties at the time, Beckton’s lender required, on a non-negotiable basis, that any claim on the Bond should not be subject to any kind of restriction or procedure that would give rise to delay in payment under the Bond. It wanted the security of a conventional on-demand bond.

Beckton contends that :

Thus it is said that Murphy is in breach of its obligations under Sub-Clause 8.2.

Murphy disputes Beckton’s entitlement to any liquidated damages. It says that it has suffered significant delays on the project and requested extensions of time, in particular in August 2014, February 2015, September 2015, November 2015 and December 2015. It disagrees with the position adopted by the Engineer. Amongst other things, it contends that Murphy is entitled to an extension of time and that Beckton is deemed to have taken over parts of the Works in accordance with Sub-Clause 10.2 of the Contract. These are matters hotly contested by Beckton.

This wider dispute is of course not part of the current proceedings, but is the relevant context in which the narrower issues arise.

By letter dated 23^rd December 2014 Beckton notified Murphy of its entitlement to delay damages following Murphy’s failure to achieve the ROC Accreditation Milestone on the ROC Accreditation Date. It stated that its letter “constitute[d] notice and particulars of such entitlement in accordance with clause 2.5 of the EPC Contract”. It went on to say that Beckton currently intended to defer its right to claim, set-off or otherwise deduct such liquidated damages until such time as it determined.

By letter dated 12^th January 2015 Murphy responded to acknowledge receipt “without prejudice to any of [its] rights under the…Contract and in particular [its] entitlements to extensions of time and any other defences [it might] have in relation to any future claim [Beckton might] make in respect of liquidated damages.”

By letter dated 31^st March 2015 Beckton notified Murphy of its alleged entitlement to delay damages due to Murphy’s failure to complete the works within the Time for Completion, namely 31^st January 2015. Again, Beckton stated that its letter “constitute[d] notice and particulars of such entitlement in accordance with clause 2.5 of the ...Contract”. It also again went on to say that it currently intended to defer its right to claim, set-off or otherwise deduct such liquidated damages until such time as it determined.

By letter of 25^th January 2016 Beckton wrote to Murphy “further to the reservation of rights letters dated 23 December 2014 and 31 March 2015”. It notified Murphy of the cessation of such deferral and required Murphy to pay the damages accrued to that date in accordance with Sub-Clause 8.7.4. The sums of £592,000 and £7,682,000 were said to be payable within 30 days. Murphy did not make such payment. By letter dated 22^nd February 2016 Murphy contended that it was entitled to a Taking-Over Certificate for a large part of the Works pursuant to Sub-Clause 10.2.2. Even if delay damages are due, which Murphy denies, the amount of any such damages falls to be reduced significantly. On 8^th March 2016 Murphy asked the Engineer to issue a Taking-Over Certificate accordingly.

By letter dated 25^th February 2016 Beckton notified Murphy pursuant to Sub-Clause 4.2.5 of its intention to make a demand under the Performance Bond. The breach identified was breach on the part of Murphy in failing to pay liquidated damages within 30 days as required by Sub-Clause 8.7.4. On the same day it also notified its intention to deduct further delay damages for the month of January 2016 from the next payment application.

Beckton submits that I should dismiss the claim for declaratory relief as a matter of principle without more. There is no basis for urgency and the truncated procedure that has been adopted is not appropriate for resolution of the issues between the parties. There is a complicated background, not all of which is before the Court, against which Murphy now seeks a final ruling on issues of importance in its favour. Further, it is only when all avenues of appeal have been exhausted that there would be a basis for Murphy’s contention that the fraud exception applied (addressed in more detail below) (see Wuhan Guoyo Logistics Group Co Ltd and anr v Emporiki Bank of Greece SA [2014] BLR 119) (“Wuhan”). Thus, even if I were to deliver my judgment before 19^th March 2016, such judgment would not assist Murphy in seeking to prevent Beckton from making a call on the Bond, since there could be further onward appeal and Beckton would be entitled to persist in its honest belief that there had been a relevant breach on the part of Murphy entitling it to make a call on the Bond.

Despite these submissions, the parties were able to argue the issues of contractual construction out before me without apparent hindrance. Beckton put in full evidence, even though it indicated that it had been obliged to do so in haste and the evidence might be incomplete. Given the nature of the exercise to be carried out, it seems to me that the scope for factual evidence is very limited. As to the exact provenance of the disputed clauses in the Contract, it was common ground that Sub-Clauses 4.2 and 8.7.4 were not in the standard wording of the FIDIC Yellow Book (whereas Sub-Clauses 2.5 and 3.5 were). To that extent at least they were chosen specifically by the parties and bespoke. There is urgency so far as the related question of Beckton’s threatened call on the Bond, the challenge to which by Murphy rests on its claim for declaratory relief.

In all the circumstances, I decline to dismiss the claim for declaratory relief on procedural grounds and proceed to consider the issues substantively.

Murphy submits as follows :

Murphy submits that there is nothing to be gained from Sub-Clause 4.2 for the purpose of construing Sub-Clauses 2.5 and 8.7. Sub-Clause 4.2 deals with the Bond, affecting Beckton’s lender. Sub-Clauses 2.5 and 8.7 deal with the parties’ rights inter se.

Murphy suggests that Sub-Clause 2.5 is an important safeguard in circumstances such as the present, where the contractor asserts that it is entitled to a Taking-Over Certificate, the effect of which would be to reduce dramatically any sum to which Beckton might be entitled by way of delay damages. All that Murphy seeks is for Beckton to honour the scheme agreed between the parties. The Contract contains checks and balances through the role of the Engineer. In terms of a right to payment by Murphy to Beckton, Sub-Clause 8.7 is a significant, if not the most significant, clause in the Contract. One would expect there to be clear words if its provisions were to be outside the regime in Sub-Clause 2.5. Sub-Clause 2.5 would be otiose in effect, and there would be a very different balance of risk under the Contract.

Beckton relies on Sub-Clause 8.7. Murphy shall pay or allow to Beckton liquidated damages for delays to the ROC Accreditation Milestone and to the completion of the whole of the works at the rates set out therein. The delay damages shall be deducted from the next applicable Notified Sum following the end of the month in which the delay occurred, or where no such Notified Sum is applicable or is disputed, shall be payable within 30 days of the end of the week in which such delay occurred. The obligation to pay delay damages arises independently of Sub-Clauses 2.5 and 3.5 and is not contingent upon an Engineer’s determination. Murphy is in breach of that obligation. Beckton’s notice under Sub-Clause 4.2.5 refers to that breach and the breach of Sub-Clause 8.2. It is valid and unaffected by the absence of any determination from the Engineer.

In more detail, Beckton points to the fact that the deduction to be made or sum paid in Sub-Clause 8.7 is not subject to some further analysis or process such as that set out in Sub-Clause 2.5. There is a conflict between Sub-Clause 2.5 and Sub-Clause 8.7. The court should read the two clauses in such a way as to give effect to both, if it can fairly do so. The court should take into account :

When interpreting a written contract, the court is concerned to identify the intention of the parties by reference to what a reasonable person having all the background knowledge which would have been available to the parties would have understood them to be using the language in the contract to mean. The court does so essentially as one unitary exercise by focussing on the meaning of the relevant words in their documentary, factual and commercial context. That meaning has to be assessed in the light of (i) the natural and ordinary meaning of the clause, (ii) any other relevant provisions of the contract, (iii) the overall purpose of the clause and the contract, (iv) the facts and circumstances known or assumed by the parties at the time that the document was executed, and (v) commercial common sense, but (vi) disregarding subjective evidence of any party's intentions. Agreements should be read as a whole and construed so far as possible to avoid inconsistencies between different parts on the assumption that the parties had intended to express their intentions in a coherent and consistent way. One expects provisions to complement each other. Only in the case of a clear and irreconcilable discrepancy would it be necessary to resort to the contractual order of precedence to resolve it.

On the face of it, Sub-Clause 2.5 is in the widest of terms. It provides for a clear procedure which applies “[i[f”Beckton considers itself to be entitled to “any”payment under “any” Clause of the conditions “or otherwise in connection with the Contract”. This can be said to be the position here : Beckton considers itself to be entitled to payment under Sub-Clause 8.7 which speaks in terms of Murphy being obliged to “pay”and of sums being “payable” by Murphy. Whether or not the obligation to pay delay damages under Sub-Clause 8.7 arises independently of Sub-Clauses 2.5 and 3.5, it remains the case that Beckton considers itself to be entitled to a payment under a clause of the conditions in the Contract.

The width of Sub-Clause 2.5 was emphasised in NH International (Caribbean) Ltd v National Insurance Property Development Company Ltd [2015] UKPC 37. There the question under consideration was whether or not a claim to set-off or cross-claim by the employer fell within the scope of an identical clause to Sub-Clause 2.5. Lord Neuberger said this at paragraph 40 :

“…More generally, it seems to the Board that the structure of clause 2.5 is such that it applies to any claims which the Employer wishes to raise. First, “any payment under any clause of these Conditions or otherwise in connection with the Contract” are words of very wide scope indeed. Secondly, the clause makes it clear that, if the Employer wishes to raise such a claim, it must do so promptly and in a particularised form : that seems to follow from the linking of the Engineer’s role to the notice and particulars. Thirdly, the purpose of the final part of the clause is to emphasise that, where the Employer has failed to raise a claim as required by the earlier part of the clause, the back door of set-off or cross-claims is as firmly shut to it as the front door of an originating claim.”

Moreover, there are two express exceptions agreed in Sub-Clause 2.5, neither of which touch on payments of delay damages. And Beckton’s project manager, Mr Tony Taylor, appears to have believed that Sub-Clauses 2.5 and 3.5 were relevant to delay damages in his letters to Murphy of 23^rd December 2014 and 31^st March 2015.

However, on more careful analysis, I have come to the conclusion that on a proper construction the right to liquidated damages under Clause 8.7 is not subject to the mechanism set out in Sub-Clauses 2.5 and 3.5. The fact that Beckton’s letters of 23^rd December 2014 and 31^st March 2015 referred to compliance with Sub-Clause 2.5 is forensically a fair and obvious point for Murphy to rely on, but nevertheless not a point of substance in terms of construing the Contract objectively or in any way determinative. There is no suggestion of any relevant waiver, estoppel or election.

In Sub-Clause 8.7 the words “subject to Clause 2.5”qualifying Murphy’s payment obligationsdo not appear, whereas in the equivalent standard clause in the FIDIC Yellow Book they do. Objectively assessed on the facts here, this selected deviation from the standard form is consistent with the parties’ intention being not to make Beckton’s right to claim delay damages subject in any way to Clauses 2.5 and 3.5. I accept that this is only context and certainly by no means determinative of the issue in Beckton’s favour. I also bear in mind the comments of Christopher Clarke J (as he then was) in Mopani Copper Mines plc v Millennium Underwriting Limited [2008] EWHC 1331 (Comm). To the extent that recourse to deleted words is permissible, care must be taken as to what inferences, if any, may properly be drawn. Here of course, the position is that the parties chose to agree a clause wholly different from the standard wording and one which excluded any reference to Sub-Clause 2.5. It is relevant background at least.

Sub-Clause 8.7 sets out a self-contained regime for the trigger and payment of delay damages. It does not suggest that there is an additional regime, such as that contained in Clauses 2.5 and 3.5, to be imported. The obligation to pay in Sub-Clause 8.7.1 is unqualified. The amount due is clearly fixed in Sub-Clause 8.7.1. The time for deduction or payment is also clearly fixed by Sub-Clause 8.7.4. If the payment of damages were to be subject to Sub-Clause 2.5, then the provisions relating to both the sum of and time for payment provided for in Sub-Clause 8.7 could not apply. There would be open-endedness : for example, there is no set timeframe within which the Engineer is obliged to reach a determination under Sub-Clause 3.5. At most it could be said that the Engineer could not unreasonably delay his determination (by reference to Sub-Clause 1.3).

There are three important and substantive inconsistencies between Sub-Clauses 2.5 and 8.7.4 :

These inconsistencies can all be resolved by construing Sub-Clause 8.7 as providing for an independent regime that is not subject to Sub-Clause 2.5. This seems to me to be a proper reading of Sub-Clause 8.7 when read against the relevant background and in the context of the Contract as a whole, and accurately to reflect what the parties are to be taken to have intended to agree.

Such an approach is supported by the fact that Clause 2.5 appears not to have been properly thought out in the full context of the Contract (viz the reference to Payment Certificates not the Notified Sum). Whether or not such errors diminish the substance of the Clause, they undermine the weight to be attached to it, suggesting objectively that the parties did not consider it specifically in full context. Putting this point another way, Clause 2.5 addresses the situation where the giving of notice makes sense contractually. But Sub-Clause 8.7 does not envisage the giving of notice by Beckton. It speaks simply in Sub-Clause 8.7.4 of deductions being made from the next applicable Notified Sum (or payment by Murphy where no such Notified Sum is applicable or is disputed) without more.

It is also supported by a consideration of the many other sub-clauses in the Contract which would entitle Beckton to make a claim under and be appropriate as the subject of Sub-Clause 2.5. I refer by way of example to Sub-Clauses 4.8.1, 4.18.3, 11.4, 7.5.2, 7.6, 8.6, 11.4 and 15.4. The tensions that exist between Sub-Clause 2.5 and Clause 8.7.4 do not exist in these other clauses.

There is interplay between Sub-Clauses 8.7.4 and 4.2. Thus, when inviting the Court to consider the importance and applicability of the safeguarding procedure invoked by Murphy under Sub-Clause 2.5 to claims for delay damages, Murphy points to the draconian consequences of a related call on the Bond. As explained under Issue 2 below, the terms of Sub-Clause 4.2 can be said to lend support for my construction of Sub-Clause 8.7.4. But for present purposes I do not need to rely on the terms of Sub-Clause 4.2 in this regard. Murphy suggests that they are to be disregarded. But it is at least important to confirm that there is no inconsistency between them and my construction of Sub-Clause 8.7.4. On the contrary, there is total consistency.

I do not consider that my conclusion amounts to a “re-writing” of Sub-Clause 2.5. The issue here is not one of drafting but rather meaning, specifically the effect of Sub-Clause 8.7 and whether, properly construing Sub-Clause 8.7, it is subject to or operates outside the regime in Sub-Clause 2.5. Additionally, it can be said conversely that Murphy’s construction involves a “re-writing” of Sub-Clause 8.7.4.

For these reasons, I conclude that Beckton is entitled to recover payment of liquidated damages from Murphy under Sub-Clause 8.7 without agreement or determination by the Engineer of Beckton’s entitlement to liquidated damages under Sub-Clauses 2.5 and 3.5.

For the sake of completeness, even if I were to accept Murphy’s position on construction, it seems to me that the declaratory relief sought goes too far. For the reasons set out below, Sub-Clauses 2.5 and 3.5 do not create liabilities as such. They constitute a mechanism for resolving what is or is not payable consequent upon a claim by Beckton. The more appropriate declaration would have been that Beckton’s claim for liquidated damages would fall to be determined in accordance with and subject to Sub-Clauses 2.5 and 3.5.

It follows from my conclusion on Issue 1 that a decision on Issue 2 is unnecessary. Out of deference to the arguments raised, however, I address them, albeit briefly. What follows is thus based on the premise that my conclusion on Issue 1 is wrong.

The Bond is a conventional “on-demand” bond. The purpose of such a bond is to act as security for Murphy’s performance. All that is required to trigger payment under the Bond (after notice as stated in Sub-Clause 4.2.5) is a written demand signed by two directors stating that Murphy had committed a breach of the Contract, with particulars, and the amount claimed by Beckton as a consequence of such breach. If it subsequently turns out that Beckton was wrong either as to the principle of breach or the sum claimed, then it is liable for and must reimburse Murphy for any excess amounts claimed. There is no requirement for any proof of the validity of Beckton’s claim, let alone an inquiry into its correctness.

There is nothing in the Contract to say that Murphy’s liability for delay damages was conditional on determination by the Engineer under Clauses 2.5 and 3.5. On the facts here the parties expressly rejected the standard FIDIC Yellow Book form of wording which expressly restricted the employer’s right to calling on the Bond only when the Engineer had made a determination. That is relevant factual matrix (see for example Mottram Consultants Ltd v Bernard Sunley & Sons [1975] 2 Lloyd’s Rep 197 at 209). On the evidence, the relevant factual background known to both parties at the relevant time was Beckton’s lender’s insistence on unrestricted on-demand bond. On the contrary, the only restriction is that contained in Sub-Clause 4.2.5, namely that Beckton is required to give notice as there prescribed. This was effectively common ground.

Murphy contends however that, were it to have obtained declaratory relief as sought, then it would follow that any subsequent claim by Beckton on the Bond prior to any agreement or determination by the Engineer would engage the fraud exception. Beckton would know that it would be asserting a claim to which it had no entitlement. It is crucial to understand that the breach relied on by Beckton for the purpose of the call on the Bond is a failure by Murphy to pay the liquidated damages within the 30 day period as required by Sub-Clause 8.7.4. The procedure in Sub-Clause 8.7.4 is a necessary condition to entitlement. If it is right that there is a requirement to put a claim to delay damages to the Engineer and there has been no determination by the Engineer, then it follows that Beckton could not have an honest belief that it could make a call on the Bond. Reliance is placed on Wuhan.

The fundamental flaw in Murphy’s approach is to confuse liability on the part of Murphy to pay delay damages under Clause 8.7 with the agreed mechanism for resolution of the parties’ dispute in Sub-Clauses 2.5 and 3.5 which leads to enforcement. That this is the effect of Sub-Clause 2.5 is well demonstrated by the fact that it speaks of a belief on the part of Beckton in an entitlement. Thus Beckton must believe that a liability has already arisen independently and earlier.

The fact that there was such an outstanding process does not mean that Murphy has no liability to account for delay damages. The trigger for a performance bond is belief on the part of the drawing party in its entitlement, not such entitlement having been subject to a final determination giving rise to a payment obligation. It is implicit in the nature of a performance bond that, in the absence of some clear words to a different effect, when the bond is called, there will at some stage in the future be an “accounting” between the parties to the main contract in the sense that their rights and obligations will be determined finally at some future date. Indeed this is what is expressly envisaged in Sub-Clause 4.2.6.

Thus a requirement to follow the procedure in Clauses 2.5 and 3.5 was not a condition of liability on the part of Murphy for delay damages, but rather a condition of subsequent enforcement (assuming for present purposes that my conclusion on Issue 1 is wrong). It is not that the obligation accrues on the Engineer’s determination. The obligation accrues under Sub-Clause 8.4. What then follows is a determination of what the obligation is for enforcement purposes. The effect of Murphy’s position is falsely to make the Engineer’s determination a precondition of liability. As was pointed out for Beckton, if the matter went on from a determination by the Engineer to adjudication or litigation, it would be no defence to a claim for delay damages that the Engineer had previously rejected such a claim.

Thus once the interplay and respective roles of Clause 8.7.4 and Clause 2.5 are understood, even on the assumption, contrary to my finding, that Clause 2.5 bites on Sub-Clause 8.7.4, the fraud exception is not engaged.

In these circumstances, even without agreement or determination of the Engineer under Sub-Clauses 2.5 and 3.5 Beckton can in good faith assert breach on the part of Murphy for delay and claim a sum of delay damages as a consequence of such breach for the purpose of Clause 3 of the Bond (assuming of course that Beckton holds the belief that there is such a liability and consequent loss). If subsequently there is an overpayment as a result, the position is rectified under Sub-Clause 4.2.6.

For these reasons, I would have concluded on Issue 2 that it would not be fraudulent for Beckton to make a call on the Bond in the absence of agreement or determination by the Engineer under Sub-Clauses 2.5 and 3.5.

Against this background, as identified above, the claim for injunctive relief falls away.

For these reasons, I dismiss the claims for declaratory and injunctive relief. I invite the parties to draw up an order accordingly and to agree all consequential matters, including costs, so far as possible.