Building work on large site reprogrammed at request of development corporation on the basis that the contractors would be secured closure of a road crossing the area–Contractors begin work informally, and subsequently insist on recognition of their claim for loss caused by delay in closure of the road as a condition of execution of formal contract–Construction of letter from corporation recognising validity of contractors’ claim–Held to apply to prospective as well as existing loss–Further point on design of foundations also resolved in favour of contractors
This was an
appeal by the Northampton Development Corporation from a judgment of O’Connor J
finding in favour of the respondents, Bacal Construction (Midlands) Ltd,
building contractors, of Northampton, on issues as to liability arising out of
a contract for the development of a site at Weston Favell, Northampton, known
as ‘Lumbertubs I.’
Mr K F
Goodfellow QC and Mr A J Butcher (instructed by Sharpe, Pritchard & Co,
agents for the solicitor to the corporation) appeared for the appellants, and
Mr R S Alexander QC and Mr S D Brown (instructed by Ray & Vials, of
Northampton) represented the respondents.
Giving
judgment, BUCKLEY LJ said that in April 1970 the appellant corporation invited
tenders for the development of one part of the general area of development with
which they were concerned, a part known as Lumbertubs I. The development was to
comprise 518 dwellings, 131 garages, and drainage, footpaths and site works.
The area upon which the works were to be carried out was at Weston Favell,
approximately three miles north-east of Northampton. It comprised some 34 1/2
acres and was rectangular in shape, having its longer axis from north to south
and being divided roughly in half by a road running from north to south known
as Lumbertubs Lane. The corporation supplied those invited to tender with a
layout plan indicating the sites and respective characters of the several
blocks to be erected. The tenderers were invited to submit their own designs.
The contractor was required to provide a programme of starts, completions and
hand-over dates. It was stipulated that initially access to the site would be
by way of Lumbertubs Lane, and it was stated that it was expected that a
section of a new road, called the new transverse road, which was to run down
the western side of the western boundary of the Lumbertubs I site, would be
completed during the early part of the contract and so allow another means of
access to the site. The plans for the development involved the closure of
Lumbertubs Lane. The new transverse road was not expected to be available until
about September 1970. The intention was that Lumbertubs Lane should not be
closed until the new transverse road was open, and that the programme for the
works would be arranged accordingly.
Bacal
(formerly called Adkins & Shaw (Builders & Contractors) Ltd) were the
successful tenderers. They offered to complete the works in 65 weeks from
commencement and to start handing over completed houses in week 43, which meant
that houses would thereafter come forward at about 24 per week. The corporation
were anxious to take delivery of fewer houses per week without extension of the
65-week period, and they asked if first hand-overs could be brought forward to
week 34, which would reduce the average weekly hand-over to 16 or 17 houses
each week. Bacal said that this would only be possible if they reprogrammed the
work to start building the blocks on the line of Lumbertubs Lane early in the
contract, which involved the closure of Lumbertubs Lane before the new
transverse road was ready. They accordingly prepared a new programme, the
’34-week programme,’ for carrying out the works upon these lines. Bacal entered
on the site on April 27 1970 and in agreement with the corporation began to
operate the 34-week programme. Lumbertubs Lane, however, was not closed until
September 14 1970. This was too late to enable Bacal to adhere to the 34-week
programme. Accordingly Bacal’s plan for the development of the site was
disrupted and much delayed, and Bacal asserted that they had suffered a
substantial loss in consequence. At this time, although Bacal had been at work
on the site for a considerable period, no formal contract had yet been signed.
Bacal refused to sign the contract unless the corporation accepted liability
for the loss which Bacal claimed to have suffered in consequence of the late
closure of Lumbertubs Lane. This was eventually dealt with by means of a letter
dated March 11 1971 from the corporation to Bacal which was bound up with the
contract documents, although not expressly referred to in them. The contract as
signed stipulated that the first houses should be handed over in week 43. The
letter in question was in the following terms:
The
Northampton Development Corporation hereby acknowledge the existence of a valid
claim (the amount of which remains to be negotiated) by Adkins & Shaw
(Builders & Contractors) Ltd in respect of alleged abortive expenditure
incurred through the delayed closure of Lumbertubs Lane, which did not occur
until September 14 1970, which said abortive expenditure is claimed to have
arisen as a result of a request by the said Northampton Development Corporation
made prior to March 5 1970 for the said Adkins & Shaw (Builders &
Contractors) Ltd to commence handing over houses in week no 34 on the basis of
Lumbertubs Lane being closed to enable this to be implemented in lieu of week
43 as specified in house buildings and road sewers contracts as made between
the said parties and dated today’s date which said request nevertheless
retained the overall period of 65 weeks for the completion of the said contract
and the said Northampton Development Corporation hereby undertakes to instruct
its advisers to enter into negotiations with a view to amicably settling the
said claim.
The contract
in fact bore the date May 7 1971, but nothing turned upon this fact. The first
matter of dispute in the action was the true construction and effect of the
letter. There was also another wholly distinct dispute between the parties
relating to the foundations of certain of the buildings.
When Bacal had
prepared the 34-week programme, a meeting, described as a programme meeting,
was held on March 5 1970, at which the corporation was represented by (among
others) Mr Redfern, its chief architect and planning officer. Bacal’s two
representatives included Mr A F Stockwell. The architects and the quantity
surveyors were also represented, as were certain statutory undertakers
concerned with the Lumbertubs I development. The trial judge said that even
without explanation it must have been apparent to all present that if the
34-week programme was to be agreed and adopted Lumbertubs Lane would have to be
closed before the work started, for it called for an immediate start on three
particular blocks, one of which actually encroached upon the carriageway of
Lumbertubs Lane. The judge accepted that Mr Redfern did say something the
effect of which was to indicate that the road would be closed before the work
started. The minute of the meeting, prepared in the corporation’s office,
recorded that Mr Redfern reported that closure of Lumbertubs Lane would start
on March 16 1970. The judge said that he was satisfied that Mr Redfern did not
say this at the meeting, but that nobody objected to the minute, and that in
the light of what had taken place at the meeting it was not surprising that Mr
Stockwell understood the minute to assert that physical closure of Lumbertubs
Lane would start on March 16. Throughout the period until the trial, the
corporation maintained that Mr Redfern had given no such assurance at the
meeting, and this question was at all material times before the trial an issue
between the parties. The corporation had contended in the Court of Appeal, as
below, that the letter of March 11 1971 was a means of putting an end to this
dispute and was in the nature of a compromise. They asserted that under it the
corporation assumed liability only for abortive expenditure already incurred by
the date of the letter.
The trial
judge cited a long passage from the speech of Lord Wilberforce in Prenn
v Simmonds [1971] 1 WLR 1381, commencing at 1383H and going down to
1385H, and in his (Buckley LJ’s) opinion rightly directed himself that he must
construe the letter in the light of the factual background known to the parties
at its date, including evidence of the ‘genesis,’ and objectively the ‘aims,’
of the transaction. He (the trial judge) reviewed the relevant evidence and
reached the conclusion that the genesis of the letter of March 11 1971 was the
fact that Bacal’s contract was disrupted by the failure to close Lumbertubs
Lane, and that the objective of achieving first hand-overs in week 34 was
consequently rendered impossible, with financial loss to Bacal. He went on to
hold that the aim of the letter was to produce a formula binding on both
parties by which the loss sustained by Bacal could be calculated by the
quantity surveyors and agreed between them. He declined to accept the
corporation’s contention that the expenditure for which liability was accepted
must have been incurred before the date of the letter. He construed the letter
as an agreement by the corporation to meet any extra expenditure which flowed
directly from the attempt by Bacal to implement the 34-week programme whenever
such expenditure was incurred, so long as it could be shown that it was caused
by the non-closure of Lumbertubs Lane.
He (Buckley
LJ) thought that the use in the letter of the past tense was of no particular
significance. Any particular item of expenditure claimed by Bacal must be shown
to have flowed from the cause indicated in the letter and to have been rendered
abortive through the delayed closure of Lumbertubs Lane, but provided it
fulfilled both these requirements, in his opinion it was of no significance at
what date that particular item of expenditure had been incurred. Bacal might
well have incurred or become irrevocably committed to expenditure exclusively
referable to their embarking on the 34-week programme, or might have become
unavoidably involved in expense arising out of the disruption of that
programme, which could not accurately be said to have been contractually
incurred before March 11 1971. Nevertheless, if any such expenditure was shown
to have been rendered abortive by the late closure of Lumbertubs Lane, he (his
Lordship) thought that it was covered by the terms of the letter. In other
words, he agreed with the view of the trial judge that the liability accepted
by the letter was not confined to expenditure incurred before the date of the
letter. This interpretation of the letter appeared to him to be a natural one
in the light of the surrounding circumstances. Bacal were claiming that they
had been and would be put to unnecessary expense by reason of the breakdown of
the 34-week programme. The letter appeared on its face to be an attempt to
define that claim and to provide machinery for its amicable quantification.
There was nothing on the face of the letter to indicate that it was intended to
be in the nature of a compromise of a dispute. There seemed to him to be
nothing inconsistent in this with the objective of settling the claim amicably.
A foreseeable future expense was as capable of quantification as one which had
already been incurred. Accordingly, in his judgment, the appellants failed on
this part of the appeal. For his part, he should regard any expenditure as
‘abortive’ within the meaning of the letter which resulted from Bacal’s
embarking on the 34-week programme, including expenditure resulting from the
disruption of that programme due to the delayed closure of Lumbertubs Lane,
which would not have been incurred at some stage of the works if Bacal had
throughout followed their original 43-week programme.
The other
issue in the appeal related to the foundations of the various buildings erected
on the site. It was common ground that the designs of foundations prepared by
Bacal were adequate having regard to the hypotheses upon which they were
required to design them. None of the information given by the corporation to
Bacal gave any warning of the presence of tufa. The tender documents contained
an express statement that the general information was that the site was a
mixture of Northamptonshire sand and upper lias clay. In the course of the
works, however, it was discovered that in various areas of the site there were
subsurface strata or patches of tufa. This was described by the trial judge as
being a soft spongy material. Its presence necessitated the redesigning of the
foundations wherever it was found. Additional excavation had to be carried out,
and additional building work had to be done. Bacal contended that it was an
implied term of the contract, or an implied warranty on the part of the
corporation, that the ground conditions would accord with the hypotheses upon
which they were instructed to design the foundations. The corporation, on the
other hand, contended that there was no room here for any implied term or warranty,
because the terms of the contract sufficiently covered the facts. To understand
the argument it was necessary to set out some of the clauses of the contract.
Clause 12 read as follows:
(1) The quality and quantity of the work included
in the contract sum shall be deemed to be that which is set out in the
contract bills which unless otherwise expressly stated in respect of any
specified item or items shall be deemed to have been prepared in accordance
with the principles of Standard Methods of Measurement of Building Works, Fifth
Edition, Imperial, revised March 1964 by the Royal Institution of Chartered
Surveyors and the National Federation of Building Trades Employers, but save as
aforesaid nothing contained in the contract bills shall override, modify or
affect in any way whatsoever the application or interpretation of that which is
contained in these conditions, provided that the additional clauses set out in
the contract bills shall be deemed to be contained in the conditions and not in
the contract bills.
(2) Any error in description or in quantity in or
omission of items from the contract bills shall not vitiate this contract, but
shall be corrected and be deemed to be a variation required by the architect or
supervising officer. Clause 12 (2) shall not have effect so as to enable the
correction of an error or omission arising from an error, omission or
inconsistency in the contractors’ documents to be treated as a variation
required by the architect.
In connection
with clause 12, it was necessary to read clause 1 (3) and (4), which were as
follows:
(3) Subject to the prior written approval of the
architect in that behalf, the contractor shall have power to amend, modify or
alter that part of the works designed by the contractor insofar as the same shall
be necessary for the satisfactory completion of the works in the manner
aforesaid.
(4) No such amendment modification or alteration
shall entitle the contractor to any additional payment whatsoever in respect
thereof, or be construed as a ‘variation’ (whether or not the subject of an
architect’s instruction) as hereinafter defined.
The words ‘in
the manner aforesaid’ in subclause (3) referred back to clause 1 (1), which
read:
The
contractor shall upon and subject to these conditions carry out and complete
the works shown upon the contract drawings and described by or referred to in
the contract bills and in these conditions in every respect to the reasonable
satisfaction of the architect/supervising officer.
The
corporation said that in consequence of the discovery of tufa, the contract
bills in relation to the foundations were in some cases found to be in error or
to contain omissions, and that they consequently fell to be corrected in
accordance with clause 12 (2). Consequently, they said, such corrections were
to be deemed to be variations required by the architect. The provision which
excluded the application of clause 12 (2) in the case of an error in any
contractor’s document did not, they said, apply to the present case, because
Bacal made no error in designing the foundations in accordance with the
hypotheses which they were required to assume. Since the additional works
occasioned by the discovery of tufa constituted ‘deemed variations’ within the
provisions of clause 12 (2), Bacal was entitled to additional payment only to
the extent allowed under clause 11 (6). Bacal relied upon clause 1 (4). They
necessarily agreed that the foundations were part of the works defined by the
contractor. They said that in consequence of the discovery of tufa they were in
many instances compelled to amend modify or alter their designs pursuant to
clause 1 (3). They said that clause 1 (4) in wide, clear and unqualified terms
provided that no such ‘amendment modification or alteration’ should be treated
as a variation for the purposes of the contract. Since these amendments were
not to be treated as variations, Bacal said that clause 11 could not apply to
them. They (Bacal) questioned whether clause 12 (2) could apply in these
circumstances at all, for they said that error in description or in quantity
in, or an omission of items from, the contract bills was not the same as
inadequacy of a design resulting from unforeseen physical conditions. The
contract bills in respect of the foundations related only to specimen
foundation designs prepared to meet hypotheses laid down by the corporation. It
was common ground that there was no error or inadequacy in the designs in
relation to the hypotheses, nor was there any error in the bills of quantity in
relation to those designs.
Clause 1 (3)
and (4) were not, or so he (his Lordship) imagined, inserted in the contract in
order to meet such conditions as had arisen in respect of the foundations: they
were primarily intended, he suspected, to ensure that the contractor should not
get extra remuneration in respect of alterations in design necessitated by
design defects for which the contractor was responsible. The language of these
two subclauses, however, seemed to him to be clear and unequivocal and to fit
the circumstances which had arisen as the result of the discovery of tufa. He
saw no ground for construing them so as to relate them exclusively to defects
in designs due to some fault on the part of the contractor. It would be a
strange result if some other clause in the contract were to render something a
deemed variation which was expressly excluded from ranking as a variation by
clause 1 (4). The corporation had contended that Bacal’s construction of clause
1 (4), which was itself a typed amendment inserted in the printed form of
contract, would result in inconsistency with other parts of the contract which
were also inserted as typed amendments of the printed form. There was a very
large number of such typed amendments, and the contract was in consequence both
confusing to read and in some instances confusing to construe. For himself, he
(Buckley LJ) could not find elsewhere in the document any contrary indication
which was so clear as to induce him to interpret clause 1 (4) otherwise than in
accordance with what seemed to him to be its plain meaning. In his judgment,
Bacal’s analysis of the contract was correct, so that the redesigning and
additional work occasioned by the discovery of tufa did not rank as variations
for the purposes of the contract, and in particular for the purposes of clause
11. Accordingly, no provision was to be found in the contract entitling Bacal
to additional remuneration for their additional work. In these circumstances,
Bacal submitted that there were strong commercial reasons for implying such a
term or warranty in the contract as they had suggested. First, before designing
the foundations for any building it was essential to know the nature of the
soil conditions. Secondly, where the contract was for a comprehensive
development of the kind here in question, the contractor must know the soil
conditions at the site of each projected block in order to be able to plan his
timetable and to estimate his requirements for materials. These were matters
which related directly to the contract price. Thirdly, if the work was
interrupted or delayed by unforeseen complications the contractor was unlikely
to be able to complete his contract in time. Clause 22 of the contract required
the contractor to pay or allow liquidated damages in such an event. The
corporation had in fact retained a very substantial sum by way of liquidated
damages to which they claimed to be entitled because Bacal did not complete the
contract within 65 weeks. The trial judge accepted Bacal’s argument and held
that the corporation was liable on an implied term or warranty. He (his
Lordship) agreed, and accordingly, in his judgment, the corporation failed on
this part of the appeal also.
STEPHENSON and
LAWTON LJJ agreed, and the appeal was dismissed with costs.
