ICC Awards

'5.4. Question (c) Clause 52 (2) of the Conditions of Contract

"Can the Claimant recover global sums for timerelated losses or for disruption caused by an instruction for a variation under Clause 52(2) of the Conditions of Contract?"

Clause 52(1) requires "all extra or additional work done or work omitted by order of the Architect" to be valued at the rates or prices set out in the Contract if applicable. The rate or prices here referred to may include rates or prices for on site overheads or preliminaries so that, in a case where a Clause 51 instruction causes delay, the Contract rates for preliminaries as well as the Contract rate for the additional work are applied to value the variation.

However, the first sentence of Clause 52(1) clearly does not entitle the Contractor to claim the loss and expense caused by extra or additional work without any regard to the rates or prices included in the Contract. The insistence of Clause 52(1) on the valuation of the nature and effect of variations by adjusting rates or fixing new rates is also emphasized by the second sentence.

An instruction requiring a variation may cause delay or disruption to other parts of the Works. If so, Clause 52(2) provides a remedy, but, in the opinion of the Arbitrators, this remedy is only by way of revised or substituted rates or prices. A "suitable rate or price" which, if the circumstances of the variation make the Contract rate or price "unreasonable or inapplicable", is to be agreed, must be a suitable rate or price for an item or items in the Bills of Quantities. It is essential that a comparison be undertaken between a rate and a price which has become unreasonable with one which is now, in the circumstance, suitable.

Claimant submits:

"11. There is no suggestion anywhere in the contractual phraseology that these valuation exercises are to be in any way necessarily related to the proof by the Claimant that it has itself incurred specific expenditure or loss. Accordingly, once the contractual entitlement has been properly established, the Claimant is entitled to recover the sums in question."

This submission ignores the fact that to properly establish a contractual entitlement it is first necessary to establish which existing contract rates or prices were unreasonable or inapplicable. Nevertheless the Arbitrators accept that valuation exercises, under Clause 52, are not necessarily related to specific expenditure or loss. However that is the way the Claimant has presented its claims both to the Architect and in this Arbitration.

Later, in relation to damages claimed, the Claimant relies on the decision of Donaldson J (now the Master of the Rolls) in J. Crosby & Sons Ltd v Portland UDC. In 5 BLR 121 on page 136 Donaldson J. said:

"... I can see no reason why he (the Arbitrator) should not recognize the realities of the situation and make individual awards in respect of those parts of individual items of claim which can be dealt with in isolation and a supplementary award in respect of the remainder of these claims as a composite whole..."

With respect to the Claimant's delay claims, it has made no attempt to distinguish between the additional costs it has incurred due to late instructions (Clause 6(4) claims), and what might be suitable rates or prices under Clause 52(1) or what rates and prices might be unreasonable or inapplicable under Clause 52(2). The decision in Crosby clearly requires arbitrators to first make individual awards under the appropriate Clauses of the Contract and then, and only then, to contemplate making a composite award in respect of the remainder of the claims. The Arbitrators are accordingly unable to accept the submission that they should fix a suitable rate or price to reimburse the Claimant its losses and expenses under the provisions of Clause 52.

Although this point is a matter of pure construction, Counsel for the Claimant appeared to support his argument by reference to what he inferred was the usual practice. He said that Clauses 51 and 52 had been "around for a very long time" and that it would be "an odd state of affairs" if provision had not been made for the consequences of delay. The answer to the latter point is that Clause 52(2) is such a provision. There is no evidence of a usual practice and the Arbitral Tribunal does not, with respect, agree that it is usual for contractors to seek the recovery of delay and disruption losses, caused by a variation under Clause 51 of this form of contract, in the way in which the Claimant has done in this reference.

5.5. Question (d) Clause 52(5) of the Conditions of Contract

"Does Clause 52(5) of the Conditions of Contract, on its proper construction, oblige the Contractor to give the Architect's Representative and the Quantity Surveyor's Representative particulars of claims to damages for breach of contract, and, if so, should a claim to damages be valued and certified under Clause 60(5)?"

It is necessary to explain the background to this question. As indicated above, the fact that the Defendant was not able to give the Claimant possession of the XXX part of the site caused delay and additional costs. An extension of time was granted for this and a sum for additional costs was certified and paid. Item G of the Claimant's Submissions was a claim entitled "Deletion of the XXX Part". It is not entirely clear from the text of that submission what relief is there being asked for.

(…)

Recognizing (we suspect not for the first time) the difficulties caused by the way in which the Claims Volumes and, hence, the disputes referred to arbitration have been formulated, Mr B, on behalf of the Claimant, accepted that he could not ask for a review of the extension of time granted since XXX Part is not one of the heads of claim in either the claims volumes (...). But he also ably and ingeniously contended that the Claimant had received only "partial reimbursement" for the extension of time granted by the Architect; and that the Arbitrators had jurisdiction to review this level of reimbursement and to award a "balance" which the Claimant was looking for. It is this contention that promotes question (d) above.

Broken down into constituent steps, the contention is as follows:

(i) Claims Volume No. 1 reads: "The Contractor hereby request the Arbitral Tribunal to determine a full Extension of Time to cover the period of the balance of the delay between 109 weeks and 82 days as detailed in Volumes 18 and to certify the reimbursement of all loss and expense associated with the total delay." This, it is said, gives jurisdiction to the Tribunal to review the sums certified and paid for the delay caused (inter alia) by the failure of the Defendant to give possession of XXX Part.

(ii) Clause 52(5) of the Conditions should be read with Clause 60. On the proper construction of these Clauses, the Contract contemplated that any claim, including a claim for damages for breach of contract, was to be "the subject of certification under Clause 60": to that extent, Clause 52(5) was substantive and not merely procedural because it linked a claim for damages to the machinery for certification and ultimately to the Arbitrators' powers of review.

It was, rightly, common ground that Clause 52(5) does not itself give any right of action. The text of that subclause is as follows:

"The Contractor shall send to the Architect's Representative and to the Quantity Surveyor's Representative once in every month an account giving particulars, as full and detailed as possible, of all claims for any additional payment to which the Contractor may consider himself entitled and of all extra and additional work ordered by the Architect which he has executed during the preceding month.

No final or interim claim for payment for any such work or expense will be considered which has not been included in such particulars. Provided always that the Architect shall be entitled to authorize payment to be made for any such work and expense, notwithstanding the Contractor's failure to comply with this condition, if the Contractor has, at the earliest practicable opportunity, notified the Architect in writing that he intends to make a claim for such work."

The words in the first sentence "all claims for any additional payment to which the Contractor may consider himself entitled.." are, certainly, wide and, taken by themselves and disjunctively from the rest of the first sentence, may be wide enough to include a claim for breach. But the Arbitrators do not read this sentence in that way. They consider that the second and third sentences must qualify the whole of the first and not just part of it: and that the language of the latter two sentences is inconsistent with a claim for damages being within the scope of Clause 52(5).

Nevertheless, Counsel for Claimant was plainly correct in submitting that the Contract must be read as a whole and Clause 52(5) read with other provisions, particularly with Clause 60. After all, Clause 52(5) is concerned with monthly claims and interim payments authorized by the Architect, i.e. certified. But the Arbitrators hold that Clause 60 does not support Counsel for Claimant. On the contrary, on its proper construction, it is against his submission.

The certificate to be issued by the Architect under Clause 60(5)(a) is based on, although it need not precisely reflect, the Quantity Surveyor's valuation. That valuation is, in turn, based on (although, again, it will not necessarily echo) the Contractor's Monthly Statement provided under Clause 60(2). That subclause legislates very meticulously for the contents of the Monthly Statement. There is no reference in Clause 60(2) to claims for damages nor is there any such reference in the proforma Monthly Statement to be found at Schedule 5 to the Conditions and to which Clause 60(2) expressly refers.

Paragraph (b) of Clause 60(2) requires the Monthly Statement to set out:

"Any amounts to which the Contractor considers himself entitled in connection with all other matters for which provision is made under the Contract including any Temporary Works or Constructional Plant for which separate amounts are included in the Bills of Quantities."

In the Arbitrators' opinion, a claim for damages for breach cannot properly be said to be a matter "for which provisions is made under the Contract" (our emphasis). Quite apart from the general context of this paragraph, there is a significant contrast between the words "under the contract" and the wider languages used in the opening sentence of Clause 67. No other paragraph comes anywhere near embracing claims for damages for breach.

It was argued that 'the architect under this contract is in the business of evaluating all claims which the contractor may put forward', including damages. For the reasons given above, the Arbitrators do not accept this. In addition, Clause 60(5) which we have already set out is inconsistent with the argument.

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5.7. Question (f) Notice

"Does a failure by the Claimant to comply with the requirements of Clauses 6, 44 and 52 as to notices mean that the Arbitrators should reject an otherwise valid claim?"

The question is prompted by the Defendant's final submissions. (...) These arguments could and should have been advanced clearly at an earlier stage in the proceedings. If we had reached a conclusion that a substantial claim for recovery or an extension of time failed purely on the ground of want of a timely notice, we would have considered inviting further arguments from both parties. For the reasons which follow in the succeeding sections of this Award, the Arbitral Tribunal has not faced such a difficulty.

On Clause 6, the Defendant says that the parties have agreed an express code for the issue of "further" drawings, directions, instructions and approvals and, accordingly, no obligation about the timely provision of design information can be implied. It is submitted that a notice complying with the requirements of Clause 6(3) is a condition precedent to any entitlement to recover costs or any extension of time for any delay or disruption caused by the late issue of drawings. In general, the Arbitrators accept both these arguments. But they also hold that on particular facts there may be an exception. The exceptional case would arise where the contractor did not, and had no reason to, anticipate that further necessary design information would be issued. The exception would be, indeed, rare since no variation is involved, but the Arbitrators consider that it is certainly possible.

As to Clause 44, the Defendant submits that the service of a document, giving full and detailed particulars of any extension of time to which the contractor considers himself to be entitled, in order that the claim may be investigated at the time is a condition precedent to any such entitlement.

We emphasize the word "entitlement", because the Defendant goes on to indicate acceptance of the proposition that, in the absence of such full and detailed particulars, the Architect has a discretion to "take matters into account". Again, the Arbitrators accept these submissions. The matter does not end there because the Defendant, while implicitly accepting that the Tribunal has power (as, in our view, it undoubtedly does) to review and revise the exercise of this discretion by the Architect, submits that, having regard to the limitations of the Claimant's discovery, the Tribunal should be cautious in the exercise of that power. On this, it is, we think, necessary only to say that we have had this point well in mind in considering the evidence now adduced in support of the claims to extensions of time.

On Clause 52 which deals with both valuation of variations and with claims, the Defendant contends that compliance with the notice requirement in Clause 52(2) is a condition precedent to the fixing of an increased rate or price. The clause provides that a notice shall have been given in writing as soon after the date of the "order" as is practicable and, in the case of extra or additional work, before the commencement of work or as soon thereafter as is practicable.

In respect of Clause 52(5), the Defendant contends that the provisions are such that neither final nor interim payment for a claim ought to be considered if particulars as full and detailed as possible have not been provided and that those particulars form a condition precedent to payment at any time. However, as in the case of Clause 44, the Defendant accepts that the Architect is once again given discretion to take matters into account.

Having regard to the Arbitrators' reasoning and their answer to the question formulated in Paragraphs 5.4 and 5.5 of this Award, the notice provisions in Clause 52 assume less importance. Generally, however, the Arbitrators accept these submissions. However, while recognizing that the language of Clause 52(5) is somewhat different (particularly that, here, a failure to comply with the Notice requirement affects the Contractor's right to final as well as interim payment) to the language of its equivalent provision in the contract before the Court of Appeal in Tersons Ltd. v Stevenage Development Corporation [1965] IQB 37, the Arbitrators, where necessary, are guided by that decision when applying the principles. Furthermore, in any exercise of their power under Clause 67 of the Conditions to review the Architect's discretion, the Arbitrators will weigh the points made by this Defendant.

It follows that the question posed in paragraph 5.7 (f) of this Award cannot be answered "yes" or "no" but it is considered that sufficient has now been said to indicate the approach which the Arbitrators intend to take to the submissions based on want of notice in the determination of individual claims.'