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Case Update: Clancy Docwra Limited v E.ON Energy Solutions

The judgment given in the Technology and Construction Court in Clancy Docwra Limited v E.ON Energy Solutions Limited provides a detailed examination of the extent of a party’s obligations and shows the importance of tender stage clarity surrounding what is the scope of the contract works and what is excluded.

Background

The dispute came out of a project for installation of an underground district heating network (UDHN) in central London.  The work involved the excavation of trenches for installation of hot water and chilled water pipes. Clancy Docwra Ltd was employed as E.ON’s sub-contractor to excavate the trenches and then install the UDHN pipework. The location of the project meant all parties knew there would be significant services and other obstructions below ground.  The issue to be determined was where did the risk for this lie?

The Issue.

The parties concluded a sub-contract and CDL proceeded to carry out its work.

Interim payments were made by E.ON which initially included £341,000 for variations due to obstructions in the ground.

Later on though, E.ON took the position that the sub-surface conditions were at CDL’s risk and so a matter for CDL to deal with.  At this point the dispute arose.

The dispute evolved around; 1) the extent of CDL’s obligations; 2) what work was in the definition of the Sub-Contract Works and what works entitled CDL to a variation; and 3) which party carried the risk for the ground conditions.

The dispute was referred to adjudication the decision was given in E.ON’s favour.

In summary, the adjudicator decided that whilst CDL had made certain ‘assumptions’ concerning ground conditions, within a series of tenders, those assumptions were just assumptions and did not re-allocate the risk of ground conditions as set out in the Sub-Contract Conditions.

The matter proceeded to litigation for final determination.

 

The Litigation Proceedings

The key item in the proceedings was a declaration that CDL sought from the court that consistent with its qualifications throughout the tender process “… CDL is entitled to a Variation instruction…where CDL encounters any one or more of the following…

  1. Ground conditions which do not permit CDL to use mechanical plant and which instead require hand digging
  2. Mains and services which obstruct E.ON’s as-designed pipe route…and which mains or services E.ON do not have diverted by the relevant statutory undertaker;
  3. Obstructions in the trench which need to be broken out…
  4. Soft spots;
  5. Unavailability of a clear and unrestricted corridor…when CDL is working below ground.”

These were referred to as the five circumstances.

E.ON relied heavily on clauses 2.1.7 – 2.1.9 to conclude that the allocation of risk for the ground conditions had been passes to CDL.  Those clauses are as follows;

Clause 2.1.7        The Sub-Contractor shall be deemed to have inspected and examined the site and its surroundings and to have satisfied himself before the date of the Sub-Contract as to the nature of the ground, the sub-surface and sub-soil; the form and nature of the site; the extent , nature and difficulty of the Sub-Contract Works; … and in general to have obtained for himself all necessary information as to risks, contingencies and all other circumstances influencing of (sic) affecting the Sub Contract Works.

                Clause 2.1.8        … the Sub-Contractor shall not be entitled to any extension of time or to any additional payment, damages, or direct loss and/or expense on the grounds of any misunderstanding or misinterpretation of any matter set out in clause 2.1.7 or his failure to discover or foresee any risk, contingency or other circumstance (including without limitation the existence of any physical conditions or artificial obstructions) influencing or affecting the Sub-Contract Works.

                Clause 2.1.9        Any information survey, report or other document which may have been provided by or on behalf of the Employer or Contractor in connection with the site is provided by way of information only without warranty or representation as to its accuracy, reliability or completeness.”

The judge’s starting point was the tender process.

The Tender Process

Key to CDL’s arguments was the view that the design against which it was asked to tender was underdeveloped and showed only a general route without depths and other essential information.  The Sub-Contract Enquiry Document said, inter alia, “You should allow for everything necessary … to carry out and complete the Sub-Contract works as detailed in this enquiry.  Any deviations must be brought to our attention.”

In return CDL’s tender was “offered on the following basis”:

  1. “…that E.ON have confirmed that there is a clear and unrestricted corridor to lay the proposed DHN system as per the route identified on the drawings.
  2. “We have based all the works using mechanical plant and have made no deduction for hand digging…
  3. We have made no allowance for diversion of mains and services…”

E.ON sought clarification on a number of matters, including asking CDL if it had allowed for removal of soft spots and diversion of 3rd party services.

There were a number of meetings and emails between the parties in which E.ON sought confirmation that items such as removal of soft spots and diversion of 3rd party services had been included.  CDL responses would clarify what was included in its tender, and that those items were excluded.  A typical exchange on 14 September 2015 was; [E.ON] “…confirm that you have allowed for removal /breakout of obstructions in the trench.”  [CDL]  “The route responsibility lies with you…so we have based our submittal on a clear corridor…we have allowed for breaking out the existing road surface i.e. concrete and tarmac layers only.”

It is important to note that the Sub-Contract Works were defined as “the works referred to in the Sub-Contract Agreement and described in the Numbered Documents…”  Many meeting minutes and emails became part of the contract documentation by being included as part of the Numbered Documents.

The Dispute

E.ON’s position was that CDL undertook to carry out all civils works.  CDL’s position was that the five circumstances were excluded from the scope of the sub-contract.

The Judgement

Oral evidence was heard from several witnesses for both sides but Jefford J decisions on the meaning of the sub-contract were based on the sub-contract documents.  What mattered to Jefford J was the documents that became part of the Sub-Contract.

In giving the principles behind her judgement Jefford J referred to two Supreme Court authorities;

  1. Arnold v Britton [2015] UKSC 36, per Lord Neuberger:

“15. 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”… And it does so by focusing on the meaning of the relevant words…in their documentary, factual and commercial context…  but disregarding the subjective evidence of any party’s intentions…

  1. First, the reliance placed in some cases on commercial common sense and surrounding circumstances should not be invoked to undervalue the importance of the language of the provision which is to be construed.”
  2. Wood v Capita Insurance Services [2017] UKSC 24, per Lord Hodge:

“…in striking a balance between the indications given by the language and the implications of the competing constructions the court…must also be alive to the possibility that one side might have agreed to something which with hindsight did not serve his interest…”

The Parties Cases on Construction

CDL’s case was that the sub-contract works it was obliged to carry out were defined by the Numbered Documents.  In practice it was obliged, and so entitled, to carry out the works in a “clear and unrestricted corridor”, using mechanical plant, without the need for mains and services to be diverted, not having to remove or breakout obstructions, and not having to remove any soft spots.  CDL’s case was also that if E.ON required CDL to carry out works that were not part of the sub-contract works CDL was entitled to the instruction of a Variation which would be a Relevant Event and Relevant Matter with consequences in time and money.

E.ON’s case had two limbs.  First, that the definition of the works was to be found in the Scope of Works document.  Secondly, that the risk of unforeseen ground conditions was clearly placed on CDL with the relevant allocation of risk being that in clauses 2.1.7 to 2.1.9.

Discussion

Jefford J identified that the key issue was obviously what the Sub-Contract Works were.  The Sub-Contract Agreement gave a broad description of the works as the UDHN enabling works “…more particularly described in the Numbered Documents”.  That is not looking to the Numbered Documents for CDL’s entitlement to extra time and money but looking to them for CDL’s obligations under the contract.

E.ON’s argument was that the Scope of Works should be the primary source of the definition of the Sub-Contract Works because it was what CDL were invited to, and did, tender on.  Jefford J noted that the invitation to tender recognised that the tender might involve exclusions of types of work and risk and might deviate from the enquiry.  Tenderers had been asked to identify exclusions and bring all deviations to E.ON’s attention.  CDL did identify exclusions and a deviation in that its tender was based on the assumption of a clear and unrestricted corridor.

E.ON’s argument depended on the meaning of clause 2.1.7 – 2.1.9, clauses which it says mean CDL had taken on some broad open-ended risk as to the condition of the site because it had examined the site and satisfied itself as to the conditions.  E.ON’s position assumes that the scope of the Sub-Contract Works is “all civil works”.  That is why Jefford J started with the definition of the Sub-Contract Works which led her to the Numbered Documents.

One point in E.ON’s case was that CDL, in not allowing for the risk of breaking out was making a pricing decision but it had not said removal of obstructions was excluded from its scope, i.e. that CDL would do the work but had not included money in its tender for it.  Jefford J said this did not make sense.  It would be most unusual for a tenderer to not price an element of work, but still offer to carry out that work.

E.ON made arguments based on items in the post tender minutes; minutes which were also part of the Numbered Documents.  These minutes set out that CDL would be deemed to have visited the site to ascertain the local conditions.  E.ON said that the purpose of this provision was to place on the Sub-Contractor the risk of adverse site conditions.  However, Jefford J said that this must be read in the context of what the works are.  This provision cannot be used to expand the scope of the works; to do so would not be risk allocation, it would be ignoring the definition of the works.

In its tender CDL sought to set out what it would and would not do and what it would not take the risk of.

In Jefford J’s view CDL were right to says its works did not include the matters that were specifically excluded from the scope in its tender (i.e. removal of soft spots, hand digging, breaking out of obstructions and diversion of services).  In the post tender discussions these matters were specifically excluded by CDL. , except for the breaking out of obstructions which was covered in the 14 September 2015 email (see above under “The Tender Process”).  In answering the request for confirmation that CDL had allowed for the breakout of obstructions the email did not say “no”, but Jefford J found it plain what the answer meant because it identified what breaking out had been allowed for and that it “only” allowed for that.

The judgement set out that if E.ON instructed CDL to carry out work that had been expressly excluded then E.ON was instructing a Variation because they were instructing an addition to the Sub-Contract Works.

Further, E.ON submitted that the effect of CDL’s construction was to render clauses 2.1.7 – 2.1.9 almost useless.  Obstructions are to be expected if excavating trenches in London, so if breaking out obstructions is excluded from the works a substantial risk is not imposed, but the judge found that a clause imposing risk of ground conditions may still have relevance, for example,  regarding hard clay, voids or water table height.

Jefford J granted declaration 1 in respect of matters 1-4 (ground conditions, mains & services, breaking our obstructions, and soft spots).  A declaration was not given in relation to the clear and unrestricted corridor but the judge decided that CDL had not included breaking out of obstructions in its offer and any instruction by E.ON to do so was a Variation.

 

Comment

This case relates to the specifics of the wording in a particular set of tender correspondence and post tender meetings.  However, care should be given to the parties efforts to exclude any matters – there needs to be a meeting of minds.  The repeated efforts of E.ON to pass the risk of the state of the ground to CDL were consistently countered by CDLs repeated clarifications of the work that was and was not included in the CDL tender.

Tudor Rose has been actively involved with numerous cases relevant to this issue. Should you wish to find out more about this, please do not hesitate to get in touch with us.

Whilst Tudor Rose has made every effort to ensure that the information contained within this article is correct at the date of publication, this article has been prepared as guidance only and does not constitute legal advice.