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England and Wales High Court (Queen's Bench Division) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Queen's Bench Division) Decisions >> Foster Wheeler Wood Group Engineering Ltd v. Chevron U.K Ltd  EWHC QB 381 (29 February 1996)
Cite as:  EWHC QB 381
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QUEEN'S BENCH DIVISION
QUEEN'S BENCH DIVISION
OFFICIAL REFEREES' BUSINESS
HIS HONOUR JUDGE HUMPHREY LLOYD QC
B E T W E E N
FOSTER WHEELER WOOD GROUP ENGINEERING LIMITED
CHEVRON U.K. LIMITED
Pursuant to the Practice Statement of 9 July 1990 this text records my judgment and no note or further record is to be made.
His Honour Judge Humphrey LLoyd QC
29 February 1996
Mr Colin Reese QC and Mr Simon Lofthouse appeared for the plaintiff, instructed by Clifford Chance.
Mr Andrew White appeared for the defendant, instructed by Herbert Smith.
"If and to the extent that the defendant was required to reimburse the plaintiff for hours worked, costs incurred and/or the services provided at the rates and prices contained in the Exhibit II, the defendant was only obliged to pay for hours worked, costs incurred and/or services which had been reasonably and properly incurred and/or provided for."
Accordingly part of Chevron's case was that the sums claimed in the invoices included amounts which had not been reasonably and properly incurred by Foster Wheeler (as well as in accordance with the contract). In the event it seems that the Phases did not proceed exactly as originally contemplated and the terms of the contract were varied by a number of variations of which Variation 02 and Variation 14 are considered relevant. Variation 02 was both an instruction to proceed with Phase II (Detailed Engineering Work) and an alteration of the original labour rates.
1. (a) Whether the defendant has any right at common law to set off damages sustained by it as a consequence of breaches of contract on the part of the plaintiff. (b) Whether the defence of abatement is excluded by the contract. 2. Whether it was an implied term of the contract that reimbursable costs would be reasonably and properly incurred. 3. Whether the plaintiff's liability for defects in design was limited in the manner alleged by the plaintiff in paragraph 50A of the Amended Reply and Defence to Counterclaim.
For completeness it is necessary to set out the text of paragraph 50A referred to in Issue 3:-
"50. The alleged breaches at paragraph 50 of the Defence are denied. The plaintiff may plead further to the Schedules to be served in support. Without prejudice to the forgoing denial the plaintiff avers as follows:
A: To the extent, which is denied, the defendant establishes any breach against the plaintiff, the liability of the plaintiff is limited as follows:
Post Acceptance(i) The extent of the plaintiff's liability under Section 3 is limited to:(a) correcting such Designs as are covered by the Guarantee and (b) correcting any portion of the Facility damaged by the defect or its repair. (c) in the alternative to (a) and (b), payment of the actual direct cost of corrective work performed by others.
(ii) It is expressly denied, if the same be alleged, that such liability extends to the plaintiff reimbursing the defendant for any cost or expense allegedly incurred, whether during the performance of the Contract or otherwise.
(iii Without prejudice to the forgoing, the Guarantee only applies after Acceptance as defined at Section 1.1(a) of the Contract and, in the premises, costs incurred or damage done by defective design during the currency of the Contract prior to acceptance are not subject to the Guarantee at all.
Prior to Acceptance
(iv) At sub-paragraph 10(viii) the plaintiff relies on Section 12 which expressly provides a procedure for the plaintiff to remedy defective work during the currency of the Contract and prior to Acceptance, which clause provides that the Guarantee is to be invoked by the defendant after Acceptance.
(v) The plaintiff further relies on Section 9.4 which expressly provides for the plaintiff's liabilities in respect of due care and diligence and the performance of the Contract. Such liability is expressly limited to "loss, damage or destruction of any property of the Group (including the Facility)". In the premises the plaintiff avers that it has no further liability beyond that provided by Section 9.4 which Section does not relate to the sums presently claimed.
(vi) Further, and to the extent as is necessary in relation to the particularised claim to be pleaded against the plaintiff, the plaintiff will rely upon Variation 14 dated 9 February 1993 which expressly provides that the plaintiff's obligations under, inter alia, Section 3.4 shall be limited to the replacement of any of the plaintiff's personnel who in the defendant's opinion is unsatisfactory and/or re-performance of their defective work at no cost to the defendant.
Without prejudice to A, and to the extent that the defendant contends that the plaintiff failed to perform its Works with due diligence and/or in accordance with generally accepted, current good practice of the industry and trades involved:
(vii) The plaintiff will contend that, on a true and proper construction, such a term as provided by Section 2.2 of the Contract specifies the standard against which the balance of the terms pleaded against the plaintiff at paragraph 50 of the Defence should be judged.
(viii) An "error-free" design would require such an extent of checking as to be uneconomical and that it is generally accepted and current good practice to accept that a certain amount of error will stay with the design to be identified and resolved on site as the most cost effective solution. This was particularly true under the Contract due to the uncertainty and under-estimation of the scope of the same as pleaded at paragraph 32 (ii) [of the Amended Reply and Defence to Counterclaim].
"The correct approach to construction
The parties' submissions adopt different approaches to the issues of construction which arise. The Syndicates say that the words of the contracts alone are so clear that any further thought about their implications or aid to their true construction is not only unnecessary but wholly inappropriate; they cite words of Lord Halsbury in Leader v Duffey (1888) 13 App. Cas. 294 (a case concerning a marriage settlement) and Smith v Cooke, Swinnerton  A.C. 297 (a case concerning a deed of assignment of a partnership business and property). Charter Re submit that construction should never be a wholly abstract or literal exercise, divorced from any consideration of context or practical implications.
On the one hand, the court should not approach the construction of any contract with notions of principle or reasonableness conceived in the abstract and seek to force the provisions of a particular contract into that straitjacket: cf per Saville J. in Palm Shipping Inc. v. Kuwait Petroleum Corp. (The "Sea Queen")  l Lloyd's Rep 500, citing an earlier dictum of Lord Goff to like effect in The "Notos"  1 Lloyd's Rep. 503 at page 506.
On the other hand, there is a wealth of authority, which is of particular relevance in the commercial context, that the court should seek to place itself in the same matrix as the parties were when contracting and to understand their general aim, objectively assessed, and that considerations of reasonableness or "commerciality" can play an important role in this exercise. Mr Kentridge cited passages from Antaios Co. Nav. S.A. v Salen Redererna A.B.  1 A.C. 191, at pages 200E-201E and F.L. Schuler A.G. v Wickman Machine Tool Sales Ltd.  AC 235, the familiarity of which in no way detracts from their forcefulness on re-reading in the present connection.
For my part, I adopt and apply recent guidance given in the Court of Appeal in the unreported authority in Arbuthnot v Fagan: Deeny v Gooda Walker Ltd (30 July 1993) where a similar issue about the correct approach to construction arose. The context was the wording of the standard form of agency agreement prescribed by Lloyd's byelaw prior to 1989; the language made it, according to the underwriting agencies, a condition precedent to the accrual of any cause of action against a particular agency in respect of a particular syndicate and year that the name must first pay all calls made upon him or her for underwriting expenses or liabilities in respect of that syndicate and year. This defence failed. The Master of the Rolls said this on construction:"Courts will never construe words in a vacuum. To a greater or lesser extent, depending on the subject matter, they will wish to be informed of what may variously be described as the context, the background, the factual matrix or the mischief. To seek to construe any instrument in ignorance or disregard of the circumstances which gave rise to it or the situation in which it is expected to take effect is in my view pedantic, sterile and productive of error. But that is not to say that an initial judgment of what an instrument was or should reasonably have been intended to achieve should be permitted to override the clear language of the instrument, since what an author says is usually the surest guide to what he means. To my mind construction is a composite exercise, neither uncompromisingly literal nor unswervingly purposive: the instrument must speak for itself, but it must do so in situ and not be transported to the laboratory for microscopic analysis.""I readily accept Mr Eder's submission that the starting point of the process of interpretation must be the language of the contract. But Mr Eder went further and said that, if the meaning of the words is clear, as he submitted it is, the purpose of the contractual provisions cannot be allowed to influence the court's interpretation. That involves approaching the process of interpretation in the fashion of a black-letter man. The argument assumes that interpretation is a purely linguistic or semantic process until an ambiguity is revealed. That is wrong. Dictionaries never solve concrete problems of construction. The meaning of words cannot be ascertained divorced from their context. And part of the contextual scene is the purpose of the provision. In the field of statutory interpretation the speeches of the House of Lords in A.G. v Prince Ernest Augustus of Hanover  A.C. 436 showed that the purpose of a statute, or part of a statute, is something to be taken into account in ascertaining the ordinary meaning of words in the statute: see Viscount Simonds' speech, at 461, and Lord Somerville of Harrow's speech, at 473. It is true that such a purpose may also be called in aid at a later stage in the process of interpretation if the language of the statute is ambiguous but it is important to bear in mind that the purpose of the statute is a permissible aid at all stages in the process of interpretation. In this respect a similar approach is applicable to the interpretation of a contractual text. That is why in Reardon Smith Line Limited v Yngvar Hansen Tangen  1 W.L.R. 989 Lord Wilberforce, speaking for the majority of their Lordships, made plain that in construing a commercial contract it is always right that the court should take into account the purpose of a contract and that presupposes an appreciation of the contextual scene of the contract.Corbin on Contracts, 1960, Volume 3, s 545, explains the role that the ascertainment of the purpose of a contract should play in the process of interpretation:"In order to determine purposes we are obliged to interpret their words in the document of agreement and their relevant words and acts extrinsic to that document. It may seem foolish, therefore, to say that the words of a contract should be interpreted in the light of the purposes that the parties meant to achieve, when we can turn on that light only by process of interpretation. Nevertheless, it is believed that such an admonition serves a useful purpose. As the evidence comes in and as interpretation is in process, the court may soon form a tentative conviction as to the principal purpose or purposes of the parties. As long as that conviction holds (and the court must be ready at all times to be moved by new evidence), further interpretation of the words of contract should be such as to attain that purpose, if reasonably possible."
In the same section of this seminal work the author added that if the court is convinced that it knows the purpose of the contract, however vaguely expressed and poorly analyzed, it should be loath to adopt any interpretation of the language that would produce a different result. In my judgment these observations accurately state the approach to be adopted. And in the present case the purpose of clause 9 (c) is not in doubt."
Steyn L.J's application of this approach is of note:
"The implications of the agents' argument that clause 9 (c) precludes the Names from suing the agents for negligence so long as a cash call in respect of syndicate and year account remains outstanding generates immediate scepticism. This is an invitation to adopt an interpretation which is at variance with the purpose of clause 9 (c). This interpretation achieves something that is commercially unnecessary and different from the acknowledged purpose of clause 9 (c). It amounts to saying that clause 9 (c) has the coincidental or collateral effect that the agent is protected against actions in negligence while a cash call remains unpaid. Furthermore, as Mr Boswood Q.C. said, the agents' interpretation leads to the extraordinary result that if the agent ruins a Name by negligent underwriting, so that the Name cannot pay the cash call, the contract breaker or tortfeasor goes scot-free. And that result is inimical to the interests of policyholders and the Lloyd's market since the claim against the agent may be an asset available to meet the policyholders' claims. That is so uncommercial and unreasonable a result that words of the greatest precision would be required to achieve it. Clause 9(c) plainly comes nowhere near this."
Finally, Hoffman L.J. said this:
"It seems to me legitimate to test the plausibility of a given construction by examining what the consequences would be. The construction for which the Agents contend means that if they are going to be negligent, they should rather ruin their Names entirely than leave them with enough resources to pay their calls. In the latter case they will be exposed to an action for negligence whereas in the former case they will be immune. Mr Eder said that his startling consequence had to be accepted in the interests of maintaining discipline at Lloyd's and inducing the Names to pay their calls. But his argument cannot apply to those who have no money. And in cases of contumacious refusal to pay, it is hard to see why denial of the right to sue for negligence will be more effective than the undisputed right of Lloyd's to obtain judgment for the unpaid calls.""
Issue 3. Whether the plaintiffs liability for defects in design was limited in the manner alleged by the plaintiff in paragraph 50A of the .Amended Reply and Defence to Counterclaim.
This issue clearly required a consideration of the whole of the contract, but argument focused particularly on the following clauses. (I have emphasised in italics the key provisions relevant to Issue 3. Provisions relevant only to other issues are set out later.)
"SECTION 1 - DEFINITIONS AND STANDARD TERMS
1.1 DEFINITIONSWords and phrases used throughout this Agreement shall have the following meanings:
(a) "Acceptance" means the date on which the COMPANY gives written notice to CONTRACTOR that it is satisfied that CONTRACTOR has performed the Work in accordance with all requirements contained in this Agreement as far as can be determined by COMPANY. Acceptance or payment by COMPANY hereunder shall in no way relieve CONTRACTOR of any obligation or liability under this Agreement.
.....(k) "Design" shall mean any design engineering, draughting and detailing by CONTRACTOR required to complete the Work in accordance with this Agreement.
(n) "Facility" means that property of the Group (including all materials), the object or result of any part of the Work, which is intended to be a part of the Group's oil production platforms located in Blocks 3/3 and 3/8a of the UK Sector of the North Sea. The complete facility is referred to generally in the specification as existing equipment to be modified, new equipment to be installed and all associated pipework, fittings, fixtures, components and equipment associated with the accommodation of third party entrant subsea completions and produced hydrocarbons or gas on the existing Ninian Field platforms.
.....(p) Throughout this Agreement, "Group" means such companies in addition to COMPANY as may from time to time hold any interest in United Kingdom Production Licence(s), petroleum field(s) or prospect(s) with which work is associated or in the petroleum produced or to be produced therefrom. On request but without prejudice to the foregoing, CONTRACTOR may obtain current details of the Group applicable to any Work.
(s) "material" and "materials" mean all materials, supplies and equipment to be incorporated into the Facility, unless the context requires otherwise.
.....(y) "Segment" means a portion of the Work capable of being placed into service by itself, or with previously completed Segments. Each CTR workscope shall be considered as a "segment".
(ee) "Work" means any and all work to be performed by CONTRACTOR under this Agreement, unless the context requires otherwise."
SECTION 2 - GENERAL REQUIREMENTS
2.1 CONTRACTOR'S SCOPE OF WORKExcept as otherwise provided in Section 2.4 or 22 hereof, CONTRACTOR shall perform all designs, prepare all records, furnish all supplies and all items of a consumable nature that are required for design of the Facility in this Agreement and the documents listed immediately below which are an integral part of this Agreement and such additional explanations as COMPANY shall furnish to CONTRACTOR to detail the requirements of this Agreement.
Exhibit I Scope of WorkExhibit II Basis of Compensation
Exhibit III Incentive ProgrammeExhibit IV Project Organisation
Exhibit V Key PersonnelExhibit VI Project Schedule
Exhibit VII Sub-ContractorsExhibit VIII Performance Bond
Exhibit IX Personnel Section Criteria and Job DescriptionsExhibit X Project Co-ordination Procedures
Volume II CONTRACTOR'S CTR CatalogueWithout prejudice to the generality of the foregoing, CONTRACTOR's scope of work shall include activities, as detailed in Exhibit I, all to be performed to the satisfaction of the COMPANY's Representative.
CONTRACTOR shall perform the Work with due diligence and in accordance with generally accepted, current good practice of the industry and trades involved, Furthermore;(a) The Facility shall be of a design which will meet the requirements of this Agreement, provide high operating reliability, minimum downtime inoperable and achieve an economical balance of first cost versus operating and maintenance cost.
(c) COMPANY does not desire to place restrictions on CONTRACTOR's judgment as to design of the Facility. In the interpretation of the design requirements of this Agreement, it is not intended that there be imposed on CONTRACTOR any design condition which is inconsistent with sound economics or good design practice. If in CONTRACTOR's judgment such inconsistencies develop, CONTRACTOR shall immediately notify COMPANY and, if COMPANY concurs with CONTRACTOR's judgment, a jointly acceptable modification of this Agreement will be issued pursuant to Section 2.5 hereof.(d) CONTRACTOR shall perform the Work with diligence and in accordance with generally accepted, current, good practice of the industry and trades involved. Furthermore, CONTRACTOR shall ensure that the Facility:
i) complies with the requirements of this Agreement;ii) is complete in every respect in the manner indicated or manifestly implied in this Agreement;
iii) is able to operate satisfactorily in all conditions that may be encountered within the design parameters;iv) is safe to operate and maintain; and
v) meets all requirements for the obtaining of a Certificate of Fitness.vi) meets the approval of Lloyd's, and DoT or any other Statutory or Regulatory Authority.
CONTRACTOR's performance and the Facility shall comply with the provisions of this Section regardless of whether or not full details of such practice or completeness are contained in this Agreement and provided COMPANY and CONTRACTOR shall agree on any such requirements.
2.6 PRECEDENCEIn the event of a conflict between any of the following items, they shall take precedence in the order listed:
a) Sections 1 through 31 hereof.b) Exhibits attached hereto.
c) Standard drawings in the Specification.d) American Society of Testing Materials Specifications, British National Standards, the National Electrical Code or other similar publications referred to in the Agreement but not included in the Appendix of the Specification.
e) CONTRACTOR's design, drawings, data and/or specifications.
SECTION 3 - PERFORMANCE OF THE WORK
3.1 DRAWINGS - DESIGNS3.1.1 Designs by Contractor
a) In the planning and execution of the Work hereunder CONTRACTOR shall perform all engineering activities required to establish the suitability of CONTRACTOR's methods and equipment and to clarify, detail or otherwise facilitate the Work, or field revisions thereto.b) CONTRACTOR shall use those COMPANY standard drawings which are requirements of this Agreement. CONTRACTOR may substitute its own standard drawing for a given COMPANY standard drawing only upon prior written approval of COMPANY. If such approval is given, CONTRACTOR's standard drawing shall be deemed a COMPANY standard drawing for the purpose of Section 2.6 hereof.
c) As soon as completed and checked by CONTRACTOR prints of CONTRACTOR's drawings, including subsequent revisions thereto and including CONTRACTOR's standard drawings shall be given to COMPANY for review and approval. At the start of work, COMPANY will advise CONTRACTOR which drawings, if any, do not require COMPANY approval. Within ten (10) working days of receipt of the prints, COMPANY will advise CONTRACTOR of comments it has, will request any additional date it may require or will approve the drawings.
.....g) As soon as CONTRACTOR's design and fabrication drawings have been approved for construction CONTRACTOR shall produce photographically reduced copies at A3 size of all significant drawings as agreed with COMPANY's Representative. Ring bound copies of the A3 prints shall be issued to COMPANY. Subsequent significant drawing revisions shall also be reduced to A3 size by CONTRACTOR.
3.1.2 Drawings and Designs provided by COMPANY(c) CONTRACTOR shall be responsible for verifying all dimensions of and proper fitting up of tie-ins to existing facilities or facilities to be constructed by others as shown on the design drawings provided by COMPANY based on an offshore survey report. CONTRACTOR shall submit any proposed change or deviation from drawings to COMPANY for written approval before fabrication or installation.
3.1.3 As-Built DrawingsDuring construction CONTRACTOR shall keep on file in its project office current markups of all drawings to agree with the actual installation. CONTRACTOR shall revise the originals of all significant drawings (eg P & ID's plot plans, electrical single line diagrams, equipment data sheets, and vessel drawings) upon completion of each Segment and deliver these to COMPANY at the same time as delivering the Segment to agree with actual installation. Minor construction drawings, such as piping spools and structural details, need to be revised. Revisions to models, if any, are not required.
COMPANY will maintain a representative ("COMPANY's Representative") who will be the only COMPANY employee authorised to represent COMPANY with respect to this Agreement. His functions, which he may from time to time delegate in writing to others, shall include but not be limited to:i) Establishing and maintaining liaison between CONTRACTOR's Representative and COMPANY.
ii) Reviewing CONTRACTOR's schedule and performance.iii) Making such inspections as COMPANY may desire in order to check the progress and quality of the work.
iv) As a result of Variations pursuant to Section 2.5 hereof, negotiate and subject to COMPANY Management approval agreeing any consequent change in remuneration or Completion Date.After the start of Work, COMPANY's Representative will assist CONTRACTOR in developing procedures for handling correspondence, approving purchases, approving CONTRACTOR's programmes, personnel requirements, etc., reviewing CONTRACTOR's plans for recruiting skilled personnel in critical disciplines, reviewing and approving CONTRACTOR's subcontracting plans, subcontractor's manpower requirements, and other administrative aspects of the Work. Such assistance shall in no way detract from CONTRACTOR's status hereunder as an independent CONTRACTOR.
CONTRACTOR shall provide office space, office furniture, local and long distance telephone, facsimile and telex service, and other such services for COMPANY's Representative and other COMPANY and third party personnel throughout the course of the Work.
c) CONTRACTOR's RepresentativeCONTRACTOR shall maintain a representative ("CONTRACTOR's Representative") at all times and at all locations when Work is in progress who shall act in full charge of CONTRACTOR's work and maintain liaison between CONTRACTOR and COMPANY's Representative. His functions, which he may from time to time delegate to others, shall include but not be limited to:
i) Establishing and maintaining liaison between COMPANY's Representative and CONTRACTOR.ii) Representing CONTRACTOR in matters pertaining to performance and quality, scheduling and accounting practices.
iii) As a result of Variations pursuant to Section 2.5 hereof, negotiating and approving any consequent change in remuneration or Completion Date.CONTRACTOR shall not change its Representative during the course of the Work unless COMPANY approves such change in writing.
a) COMPANY and others responsible to COMPANY shall have the right, but not the obligation, to inspect the Work or any part thereof, at all times, and CONTRACTOR shall provide proper facilities therefor. CONTRACTOR shall at all times during working hours keep a competent person in the immediate vicinity of each area in which any part of the Work is being performed to receive communications from COMPANY and to supervise that part of the Work.b) CONTRACTOR shall be solely responsible for the quality of the Work. COMPANY will make such inspection as COMPANY may desire in order to check the progress and quality of the work, to see that CONTRACTOR's employees are properly qualified in their respective discipline, that workmanship is of an acceptable grade, and that all requirements of this Agreement are being met. Such inspection or any other inspection by COMPANY shall not relieve CONTRACTOR of full responsibility for the performance of its obligations under this Agreement.
CONTRACTOR shall fully co-operate with COMPANY and any other CONTRACTOR employed by COMPANY to ensure that all parts of the Work being carried out at the Site are correctly integrated (where necessary) with other services supplied by COMPANY or any other CONTRACTOR and that the overall programme (as indicated on or deduced from Exhibit VI - Project Schedule) is achieved. In the event that CONTRACTOR has any grievance about the lack of co-operation on the part of other CONTRACTORS (not being contractors for which it is responsible hereunder) CONTRACTOR shall immediately notify COMPANY's Representative thereof. Should CONTRACTOR be delayed in the performance of the Work by the lack of co-operation on the part of the other said CONTRACTORS then such delay shall be treated as if it were caused by CONTRACTOR unless COMPANY's Representative shall have been notified as aforesaid.It is agreed that the performance of portions of the Work by Subcontractors and the performance of other work by other contractors may result in programming conflicts. If such conflicts arise they shall be resolved so as to result firstly in the maximum probability of the overall programming being achieved and secondly in the performance of the greatest amount of work during the conflict. It is further agreed that the consequences of such resolution of any such programming conflicts have been adequately allowed for in the overall programme, in Exhibit VI - Project Schedule and in all other ways.
a) The Work shall be considered complete only when CONTRACTOR has met all requirements of this Agreement to the satisfaction of COMPANY.b) When CONTRACTOR considers that a Segment of Phase I, II or III described in EXHIBIT I - SCOPE OF WORK are completed in accordance with the requirements of this Agreement, CONTRACTOR shall so notify COMPANY in writing. After receipt of such notice, COMPANY shall have thirty (30) days to review and inspect the completed Work as to conformance to the requirements of this Agreement. At or prior to the end of such period, COMPANY's Representative will either advise CONTRACTOR in writing of any defects or deficiencies it has discovered in such Work. CONTRACTOR shall promptly correct such defects or deficiencies at no additional cost to COMPANY.
c) Upon completing all corrective Work, CONTRACTOR shall again so notify COMPANY in writing and COMPANY shall review and accept or reject such corrective Work as outlined in Subsection 3.4.1(b) above. CONTRACTOR shall not be entitled to any costs whatsoever incurred in the performance of corrective Work.d) Acceptance by COMPANY or payment hereunder shall in no way relieve, reduce, modify or affect any obligation or warranty of CONTRACTOR whether under this Agreement and/or at law or otherwise.
a) COMPANY's notice of Acceptance of a Phase, issued pursuant to Subsection 3.4.1 shall establish the date of Acceptance of such Segment. The date of completion of a Phase may be varied pursuant to Section 8.b) Until COMPANY has issued a written notice of Acceptance the Work shall not be considered accepted either in whole or in part. Neither payments made during the performance of the Work, nor the presence of COMPANY's Representative during the course of the Work, shall constitute Acceptance of the Work or of any part of the Work.
c) Acceptance of all or any Segment or Segments by COMPANY notice shall not release CONTRACTOR from any liability or obligation which has been incurred by CONTRACTOR under this Agreement prior to the issue of such notice of Acceptance, including but not limited to the requirements of Subsection 3.4 herein.
With respect to any Designs, data or information which have been provided, reviewed or approved by COMPANY, CONTRACTOR guarantees each Segment to be free of defects in CONTRACTOR furnished Design, and CONTRACTOR guarantees corrective Work, if any, performed by CONTRACTOR hereunder to be free of defects in design.
This guarantee does not apply to defects caused by the Facility being subjected to conditions substantially more severe than described in this Agreement.
COMPANY shall notify CONTRACTOR in writing or by telephone or telex confirmed in writing whenever a breach of this guarantee exists, and CONTRACTOR shall be given reasonable opportunity if in the opinion of the COMPANY the nature of the defect and COMPANY's operating schedule permit, to inspect and correct such defective Design, and any portion of the Facility damaged by the defect or by repair of it. Prior to start of any work pursuant to this guarantee, CONTRACTOR shall inform COMPANY of the nature of corrective work which CONTRACTOR proposes to perform and shall obtain COMPANY's approval thereof.
When required by COMPANY, corrective work required to satisfy this guarantee shall be performed on an overtime and/or shift basis and using the fastest means available in order to minimise COMPANY's loss of operating time. In any event any corrective work performed under this Guarantee shall be entirely at CONTRACTOR's expense as regards the supply of materials and labour.
COMPANY shall have the right to have corrective work performed by others, but should COMPANY exercise such right CONTRACTOR's obligations under this guarantee shall be limited to payment of the actual direct cost of such corrective work.
SECTION 9 - LIABILITY
9.4 CONTRACTOR shall exercise due care and diligence in the performance of this Agreement and in the design of the Facility and CONTRACTOR shall be liable for and shall indemnify the Group against losses, damages, compensation, claims, demands, proceedings, costs, charges and expenses in respect of each event of loss, damage or destruction of any property of the Group (including the Facility), caused by or arising out of the act, neglect, default or omission of CONTRACTOR regardless of negligence and any other liability of COMPANY or the Group in tort contract, under statute or otherwise, provided always, CONTRACTOR's liability to COMPANY and the Group hereunder shall be limited to One Million Pounds Sterling (£1,000,000) in respect of any one event and unlimited in all. CONTRACTOR shall have no such liability unless COMPANY shall have given to CONTRACTOR written notice of the liability within two (2) years from the date of commissioning of any objects on the Facility produced from CONTRACTOR's design or three (3) years from mechanical completion and commissioning thereof whichever is the earlier.
"From February 13 1993, all CONTRACTOR's reimbursable personnel will form an integrated team with COMPANY's personnel to carry out the follow-on engineering scope of work. This team shall take instructions from and report directly to COMPANY's personnel under direction of COMPANY's Representative.
COMPANY AND CONTRACTOR AGREE THAT THE TERMS AND CONDITIONS OF CONTRACT ARE CHANGED AS FOLLOWS:With respect only to work done by the Integrated Project Team the following aspects are removed from the CONTRACTOR's responsibilities:
(a) Section 3.1 Drawings-Designs(b) Section 3.3.2 Inspection
(c) Section 3.4 Completion, Acceptance and GuaranteesSection 9.4 is renumbered 9.4(a).
New Section 9.4(b) is added as follows:9.4(b) Notwithstanding the provisions of Section 9.4(a)
"9.7 Notwithstanding anything to the contrary contained herein, as between COMPANY and CONTRACTOR, it is agreed that the responsibility for pollution or contamination shall be as follows:a. CONTRACTOR shall assume responsibility and liability for pollution or contamination caused by or arising out of the act, neglect, default or omission of CONTRACTOR or its Subcontractors including control and removal of the same for an amount up to Five Hundred Thousand Pounds Sterling (£500,000) in respect of any one event. COMPANY shall indemnify CONTRACTOR for any liability in excess of said amount.
9.8 Neither Party or its Subcontractors or the Group shall be liable for any loss of contract, product, production or profit, business interruption and similar form of consequential damage suffered by either party or its Subcontractors or the Group.
SECTION 12 - ACCEPTANCE/REJECTION
12.1 At any time prior to Date of Acceptance of the Facility or of a Segment of Work, COMPANY may reject work provided by CONTRACTOR and parts of the Work or such Segment which are defective or fail in any way to conform with the requirements of this Agreement. As soon as practicable after receiving notice thereof from COMPANY, CONTRACTOR shall at CONTRACTOR's expense remove and replace such Work and reperform the Work necessarily affected by such removal and replacement. After Acceptance of the Work or of any Segment, and portions of the Work which fail to meet the guarantees stated in Section 3.3.2 hereof shall be replaced or reperformed in accordance with the provisions of said guarantees.
12.2 When CONTRACTOR considers that it has fully performed a Segment of the Work it shall issue notice to COMPANY of completion with respect to that Segment. Such notice shall be supported by relevant documentary evidence. Within thirty (30) days of receipt of CONTRACTOR's completion notice COMPANY shall notify CONTRACTOR of deficiencies that COMPANY require to be remedied or COMPANY shall issue Acceptance.
SECTION 28 - PARTICIPANTS CLAUSE28.1 For the purposes of sub-sections 28.2 and 28.4 hereunder of this section it is agreed that:-
(a) this Agreement has been made by COMPANY not only on it own behalf but also as agent and trustee for the Members from time to time of the Ninian Group and each of them;(b) such Members are, or, if not presently Members, shall on ratification or adoption become, parties to this Agreement;
(c) such members shall be bound by and entitled to the benefit of the provisions of sub-section 28.2 through 28.4 hereunder but shall not otherwise be under any obligation of liability whatsoever to the CONTRACTOR however arising.28.2 In consideration of the provisions of this Section the Members of the Ninian Group sanction the making of this Agreement by COMPANY.
28.3 If any loss, damage, injury or expense should be caused to the said Members or any of them by any breach of this Agreement by the CONTRACTOR or any tort of the CONTRACTOR or those for whom he is responsible or if any situation should arise or event occur which directly or indirectly gives rise to an obligation on the part of the CONTRACTOR under this Agreement to indemnify the COMPANY or the said members or any of them:-(a) Subject to (b), (c) and (d) hereof, the CONTRACTOR shall be liable in damages to or, as the case may be, liable to indemnify the members and each of them;
(b) the CONTRACTOR shall be entitled as against the members to rely upon any defences or limitations or exclusions of liability which he is given by this Agreement;(c) provided that the procedure of the relevant court so permits, the member shall not seek to enforce such liability or commence proceedings in their own names and any claims shall be made and proceedings brought by and the name of COMPANY alone claiming and/or suing as agent and/or trustee for the members and COMPANY shall be entitled to, and shall, on their behalf recover from the CONTRACTOR the full amount of their loss, damage, injury or expense and of their rights of indemnity.
(d) the provisions of this Agreement with regard to governing law and/or jurisdiction and/or arbitration shall apply to any such claims or proceedings in the same way as they apply where COMPANY is concerned solely on his own behalf."
"Subject to satisfactory performance and agreements of CTRs CONTRACTOR will be instructed to proceed with the Phase II work which will include the following:The content of Phase III - Follow on Support Services - was described as follows:(a) Final design engineering:- final plot plans, general arrangements, schematics, loop diagrams, isometrics, fabrication drawings, etc
(b) Final critical path network.(c) Project planning bar charts.
(d) Project costing and Budgetary control.(e) Vendor and Fabricator technical appraisal of tenders.
(f) Preparation of various material requisitions.(g) Preparing tender package for fabrication, services, etc.
(h) Preparing tender packages for installation.(i) Hazop study and formal safety assessments.
(j) Operation manuals and commissioning manuals."
"Subject to satisfactory performance and agreement of CTRs, CONTRACTOR will be instructed to provide Follow on Support Services CONTRACTOR's responsibilities may include the following with respect to the Project:(a) Supplying site query support;All such Follow on support services shall be in accordance with CTRs to be agreed between COMPANY and CONTRACTOR prior to commencement of Follow-on Support Services."
(b) Supplying engineering support at fabrication sites;(c) Providing office support for field material requisitioning;
(d) If requested providing testing and inspection of assistance at manufacturers' works, at fabrication sites and off shore; and(e) Correcting and updating all drawings approved for construction to "as built" condition.
(f) Correcting and updating all construction drawings to "as built" condition.(g) Preparing response and supporting documentation for site queries.
(h) Providing engineering assistance with inspection and testing equipment of manufacturers' works.(i) Providing on-site engineering assistance for fabrication direction and load out.
(j) Providing assistance to construction for field material requisitions resulting from site queries.(k) Co-ordinating design site queries with other COMPANY Contractors, including:- fabrication contractor; - installation and hook-up and commissioning contractors; and
- subsea installation contractor.
"A multi-discipline Team of Engineers and Designers will be mobilised for both Topsides and Sub-sea activities located in a dedicated Project Office in CONTRACTOR's offices at East Tullos. A dedicated area in this office will accommodate COMPANY personnel. The Task Force environment will provide a close working relationship with COMPANY."Provision was later made for organisation charts which had been structured with the following objectives, amongst others, in mind:-
"A close working relationship between the CONTRACTOR's Task Force and the COMPANY Project Team" and "a single commercial and contractual interface, ....allowing a complete freedom for direct technical interface between COMPANY and the CONTRACTOR's Project Team Members".
Essentially the types or heads of cost or expense said to have been incurred by Chevron include:
1. considering a problem and deciding whether it was a design error and if so what ought to be done about it (the cost here may have been incurred both by Foster Wheeler and by Chevron);In addition I shall assume that Chevron may have incurred other costs and losses although they do not appear clearly from any of the examples relied on by Foster Wheeler.
2. re-designing the relevant part of the work (again this may have been carried out by Foster Wheeler rather than Chevron), together with, if necessary, and where appropriate, the cost of the time spent by Chevron on supervising and approving the new proposals;3. putting right the error by way of additional fabrication or installation costs, including the cost of additional or replacement materials; this would affect(a) the work as originally designed; (b) work affected by the error e.g. testing or having to re-test work which was of itself unaltered;
4. revising the drawings so that they reflected the "as built" condition.
"It is, of course, open to parties to a contract for sale of goods or for work and labour or for both to exclude by express agreement a remedy for its breach which would otherwise arise by operation of law or such remedy maybe excluded by usage binding upon the parties (cf. Sale of Goods Act 1893, section 55). But in construing such a contract one starts with the presumption that neither party intends to abandon any remedies for its breach arising by operation of law, and clear express words must be used in order to rebut this presumption. In the case of building contracts no question of usage arises to rebut the presumption. ..."
"So when one is concerned with a building contract one starts with the proposition that each party is to be entitled to all those remedies for its breach as would arise by operation of law, including the remedy of setting-up a breach of warranty in diminution or extinction of the price of materials supplied or work executed under the contract. 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."Mr White relied upon those passages and upon Ailsa Craig Fishing Co. Ltd v Malvern Fishing Co. Ltd  1 WLR 964. The speeches of Lord Wilberforce and of Lord Fraser of Tulleybelton are pertinent to the questions before me. Lord Wilberforce at page 966G said:-
"Whether a clause limiting liability is effective or not is a question of construction of that clause in the context of the contract as a whole. If it is to exclude liability for negligence, it must be most clearly and unambiguously expressed, and in such a contract as this must be construed contra proferentem. I do not think that there is any doubt so far. But I venture to add one further qualification, or at least clarification: one must not strive to create ambiguities by strained construction, as I think that the appellants have striven to do. The relevant words must be given, if possible, their natural, plain meaning. Clauses of limitation are not regarded by the courts with the same hostility as clauses of exclusion: this is because they must be related to other contractual terms, in particular to the risks to which the defending party may be exposed, the remuneration which he receives, and possibly also the opportunity of the other party to insure."
"The question whether Securicor's liability has been limited falls to be answered by construing the terms of the contract in accordance with the ordinary principles applicable to contracts of this kind. The argument for limitation depends upon certain special conditions attached to the contract prepared on behalf of Securicor and put forward in their interest. There is no doubt that such conditions must be construed strictly against the proferens, in this case Securicor, and that in order to be effective they must be "most clearly and unambiguously expressed": see W.& S. Pollock & Co. v Macrae, 1922 SC (HL) 192 at page 199 per Lord Dunedin. Pollock was a decision on an exclusion clause but in so far as it emphasised the need for clarity in clauses to be construed contra proferentem it is in my opinion relevant to the present case also. It has sometimes apparently been regarded as laying down, as a proposition of law, that a clause excluding liability can never have any application where there has been a total breach of contract, but I respectfully agree with the Lord President who said in his opinion in the present case that that was a misunderstanding of Pollock. Pollock was followed by the Second Division in Mechans Ltd v Highland Marine Charters Ltd., 1964 SC 48 and there are passages in the judgments in that case which might seem to treat Pollock as having laid down some such general proposition of law, although it is not clear that they were so intended. If they were I would regard them as being erroneous. Mechans appears to have been relied upon by counsel for the appellants before the Second Division, but was not relied on in this House. There are later authorities which lay down very strict principles to be applied when considering the effect of clauses of exclusion or of indemnity: see particularly the Privy Council case of Canada Steamship Lines Ltd v The King  A.C.192, 208, where Lord Morton of Henryton, delivering the advice of the Board, summarised the principles in terms which have recently been applied by this House in Smith v U.M.B. Chrysler (Scotland) Ltd., 1978 SC (HL) 1. In my opinion these principles are not applicable in their full rigour when considering the effect of clauses merely limiting liability. Such clauses will of course be read contra proferentem and must be clearly expressed, but there is no reason why they should be judged by the specially exacting standards which are applied to exclusion and indemnity clauses. The reason for imposing such standards on these clauses is the inherent improbability that the other party to a contract including such a clause intended to release the proferens from a liability that would otherwise fall upon him. But there is no such high degree of improbability that he would agree to a limitation of the liability of the proferens, especially when, as explained in condition 4(i) of the present contract, the potential losses that might be caused by the negligence of the proferens or its servants are so great in proportion to the sums that can reasonably be charged for the services contracted for. It is enough in the present case that the clause must be clear and unambiguous."
"Acceptance by Company or payment hereunder shall in no way relieve, reduce or modify or affect any obligation or warranty of Contractor whether under this agreement and/or at law or otherwise." (Mr White's emphasis added.)
"Acceptance of all or any Segment or Segments by Company notice shall not release Contractor from any liability or obligation which has been incurred by Contractor under this Agreement prior to the issue of such Notice of Acceptance, including but not limited to the requirements of Section 3.4 herein." (Mr White's emphasis added.)
1. prior to Acceptance Chevron could require Foster Wheeler to re-work its design;
2. after Acceptance, the remedies available to Chevron are limited to those set out in the guarantee in Section 3 (clause 3.4.3);
3. prior to Acceptance Chevron should be in no better a position.
(The reference in clause 12.1 to "the guarantees stated in Section 3.3.2" must be a numbering error as the guarantees are found in clause 3.4.3; a literal interpretation would also lead to circuity.)
Clauses 9.4 and 9.8
"CONTRACTOR shall exercise due care and diligence in the performance of this Agreement and in the design of the Facility and CONTRACTOR shall be liable for and shall indemnify the Group against losses, damages, compensation, claims, demands, proceedings, costs, charges and expenses in respect of each event of loss, damage or destruction of any property of the Group (including the Facility), caused by or arising out of
- The first limb of the clause is strictly unnecessary except to underline that the second limb contains two objectives: a provision that the contractor shall be liable and a provision that the contractor shall indemnify.
- Clause 9.4 concludes by stating that Foster Wheeler "shall have no such liability" unless notice has been given and within certain periods. Although it was suggested that the effect of the inclusion of an obligation to indemnify has the effect of extending the limitation period, I doubt if in this instance it would have that effect since the words "no such liability" refer to "liability hereunder" and thus include the liability arising from the obligation to indemnify. There is a further limitation placing a ceiling of £1 million in respect of any one event. The clause also makes Foster Wheeler liable "regardless of negligence and any other liability of [Chevron]".
"I can see no reason why, because an alternative remedy is given for a limited number of breaches of a limited kind discovered in a limited period, I should hold that by some implication the plaintiffs have given up all rights which clause 9 expressly bestows upon them."
No, unless the circumstances fall within the fifth paragraph of clause 3.4.3, and subject to the overall limitations set out in Section 9.
Issue 2Whether it was an implied term of the contract that reimbursable costs would be reasonably and properly incurred?
"1.1 (l) "direct costs" whether payable by COMPANY to CONTRACTOR or by CONTRACTOR to COMPANY means substantiated direct costs.
(x) "Reimbursable Cost" means those costs incurred by CONTRACTOR and indicated as being reimbursable in Exhibit II - Basis of Compensation.(dd) "wage costs" means the wages actually paid to the CONTRACTOR'S personnel and all costs to CONTRACTOR (i) for any and all taxes, contributions or assessments for unemployment insurance required by law which are measured by or based upon said wages including contributions or assessments for Workmen's Compensation or Industrial Injury Benefit and premium for insurance against the aforesaid and (ii) for all benefits to be paid to or on behalf of the CONTRACTOR's personnel, such as reimbursement for transportation, subsistence, health and welfare, pension, vacation, holiday, training and other funds which CONTRACTOR is required to pay in accordance with governmental regulations or collective agreements with recognised trade unions with membership in the specific area of the Work hereunder.
6.1 CONTRACTOR's total remuneration for the performance of all of its obligations pursuant to this Agreement shall be the sum of the amounts determined by the Basis of Compensation in Exhibit II hereof.
6.2 ADJUSTMENTS TO REMUNERATIONCONTRACTOR's remuneration shall not be changed on account of any change in conditions affecting the Work, or on account of any other difference between the anticipated and the actual performance of this Agreement, or for any other reason except as follows:
(a) COMPANY requires a Variation pursuant to Section 2.5 hereof.(b) COMPANY directs and CONTRACTOR takes acceleration measures pursuant to Section 8.3 hereof.
(c) CONTRACTOR's reimbursement shall be increased by the total of the reasonable direct audited costs necessarily incurred by CONTRACTOR due to COMPANY caused delays or suspensions as provided in Section 8.4 hereof unless CONTRACTOR is also in default.
SECTION 7 - COMPENSATION, INVOICING AND PAYMENT
7.2.1 Reimbursable Costs and Supporting Detail(a) CONTRACTOR shall submit to COMPANY at the end of each calendar month during the progress of the Work hereunder, a Reimbursable Costs invoice for costs incurred in such calendar month. Such invoice shall be submitted in duplicate and shall:
(iv) be accompanied by one copy of details to support an audit of CONTRACTOR's charges, including the name, classification, rate and time (supported by a signed time sheet) worked by each individual, expense accounts ...., statements, receipts and invoices,....and specific details on all other Reimbursable Costs, all of which shall be in a form acceptable to COMPANY.
7.3 Payments7.3.1 Subject to the provisions of Section 16 and Section 20 of this Agreement and Subsection 7.3.3 below, COMPANY will pay CONTRACTOR the amount payable within thirty (30) days after receiving CONTRACTOR's invoice. PROVIDED always that the provision by CONTRACTOR of the insurance required by Section 10 hereof and the provision of certificates or renewal certificates to evidence such insurance shall be a condition precedent to COMPANY's payment of any of CONTRACTOR's invoices.
7.3.3 COMPANY shall have the right to deduct from any payments to CONTRACTOR any amount which COMPANY is required to deduct by any Act of Parliament, statutory instrument or other law or regulation which is applicable to this Agreement hereto and to pay any deducted amount to the party and in the manner provided therein. Further, COMPANY shall have the right to deduct from any payments to CONTRACTOR, or suspend in whole or in part, payments to CONTRACTOR whilst CONTRACTOR is in Default pursuant to the Agreement.7.3.4 If COMPANY shall dispute any items of an invoice in whole or in part, COMPANY shall not delay payment of the undisputed part of the invoice provided that in such event CONTRACTOR shall, before COMPANY is required to make any payment, furnish COMPANY with a credit note for the amount of such invoice which COMPANY disputes and such credit note shall include Value Added Tax, if any is chargeable, on such disputed amount and provided that the thirty day payment period referred to above shall be suspended at the time that COMPANY notifies CONTRACTOR of such dispute and shall recommence on the date that COMPANY receives CONTRACTOR's credit note. The issuing of a credit note by CONTRACTOR shall not itself in any way be evidence of acceptance by CONTRACTOR that COMPANY is correct in disputing that part of the invoice to which the credit note relates.
16.4 CONTRACTOR shall assist COMPANY in making the above audit.
3.1 Project Support Services SupportProvide all required support and input to the Project Support Services Group for the control, recording and reporting of planning, progress, design and materials/equipment vendor documentation, weight control, design change control and design manhours/cost control. QA and QC document control, and such other aspects of the Work as COMPANY may request.
Pursuant to the requirements of Subsection 6.1 COMPANY shall pay CONTRACTOR a total compensation in accordance with the provisions of this Exhibit II. Provided always that CONTRACTOR shall perform and observe its obligations under the Agreement and such total compensation shall be deemed to be CONTRACTOR's complete entitlement under the Agreement.
1.2 Firm PriceExcept as otherwise expressly stated herein the rates and prices stated in this Exhibit II shall be fixed and not subject to variation in the period to 31 December 1991."
2.2.1 The rates contained in Schedule A unless expressly stated otherwise are deemed to include the following:- (a) All costs of employment of CONTRACTOR's direct, indirect, productive and non-productive labour, including all associated costs, direct remuneration, payroll related expenses and other direct and indirect costs and expenses.
(b) All sub-contract administration.
(c) All non productive time.
(d) All necessary consumable items.
(e) All insurance and associated costs.
2.2.2 The Weekday Overtime and Saturday/Sunday Working rates contained in Schedule A unless expressly stated otherwise are deemed to include for all items pursuant to item 220.127.116.11.2.3 The rates set out in Subsection 2.2.1 and 2.2.2 above are fixed until 31st January 1991. Thereafter at COMPANY's sole discretion the salary and payroll burden portion of the rates amy be adjusted based on the average salary or contract rate variation for each grade. Such variations will be reviewed with reference to local market trends. Subsequently rates may be reviewed quarterly."
"3. Progress Incentive Subject to satisfactory performance in the opinion of the Programme Evaluation team the CONTRACTOR will be paid the management fee rate per hour for each direct manhour saved in the achievement of any CTR workscope.
This additional payment will not be made in event that:a) The standard of work produced fails to meet the standards required by COMPANY.
b) The CTR workscope is not completed within the times agreed and set out in the project agreed between CONTRACTOR and COMPANY from time to time.
In the event that on any CTR workscope, the CONTRACTOR expends manhours in excess of those agreed by the programme evaluation team then the management fee relating to such additional manhours will not be payable to CONTRACTOR.
For the purpose of calculation of progress incentives each CTR workscope activity shall be treated as an independent workscope.
4. InnovationIf after the agreement of a CTR workscope CONTRACTOR in the progress of its workscope require [sic] to spend additional time in design of new areas of technology or where a fundamental change in design philosophy occurs or in order to pursue aspects of design which will provide an improved balance of first cost versus operating and maintenance cost then CONTRACTOR may subject to the provisions of clause 2.5 of the Agreement propose that the CTR manhours allowed for such a workscope are amended.
Should COMPANY agree with such a proposal and consider that further investigation/design is required then at its sole option COMPANY may authorise the programme evaluation team to increase the manhour target on the particular CTR workscope.The application of the Progress Incentive, will then be applied to the revised CTR manhour estimates."
"CONTRACTOR shall maintain adequate accounting records during the progress of the Work for cost control purposes to provide the basis for CONTRACTOR's remuneration hereunder pursuant to Section 6 of this Agreement and for the purpose of Audit pursuant to Section 16 of this Agreement. ...."
"These provisions shall apply equally in the case of errors of fact including errors in arithmetic, except that when, in the opinion of COMPANY, an invoice is manifestly and substantially wrong, COMPANY may return the invoice to CONTRACTOR with the request that it be resubmitted in correct form."
and the more general provisions of clause 7.3.5:-
"COMPANY shall be entitled to recover at any time overpayments which have been made to CONTRACTOR."
"Although the authorities to which I have already referred involved cases of avoidments a clear theme running through them is that no man can take advantage of his own wrong. There was nothing in any of them to suggest the foregoing proposition was limited to cases where the parties in breach were seeking to avoid the contract and I can see no reason for so limiting it. A party who seeks to obtain a benefit under a continuing contract is just as much taking advantage of his own wrong as a party who relies on his breach to avoid a contract and thereby escape his obligations".
Issue 2 will therefore be answered: No
Issue 1 (a) Whether the defendant has right at common law to set off damages sustained by it as a consequence of breaches of contract on the part of the plaintiff?
"So when one is concerned with a building contract one starts with the proposition that each party is to be entitled to all those remedies for its breach as would arise by operation of law, including the remedy of setting-up a breach of warranty in diminution or extinction of the price of materials supplied or work executed under the contract. 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."
Issue 1(b) Whether the defence of abatement is excluded by the Contract.
"That leads to another point, and that is how far this head of defence which can be set up in abatement of price can be applied to a claim for professional services. That is, of course, in a sense a claim for work and labour done, but it is clear, from the language of the learned Baron which I have read [Parke B in Mondel v. Steel (1841) 8 M and W 848] that what he had in mind was a specific chattel like a ship, which might be bought or upon which work and labour might be done. I find the greatest difficulty in applying this defence of abatement to a claim for professional services, certainly to such a claim for professional services as we have here. And it is not without interest that neither counsel has been able to call our attention to any case, reported or unreported, with one possible exception, in which such a claim for professional services has been reduced or abated by the application of Mondel v. Steel. The nearest, perhaps, we get to it is the case of Hoenig v. Isaacs  2 All ER 176, where the plaintiff claiming the cost of work and labour was an interior decorator or a craftsman and not a professional person like a surgeon or a solicitor. It is also not without interest that in Mondel v. Steel the Court did refer to a case of an attorney, Templer v. M'Lachlan (2 Bos & Pul 936; 127 ER 576), of which Parke B said:-"The same practice has not, however, extended to all cases of work and labour, as, for instance, that of an attorney, Templer v. M'Lachlan, unless no benefit whatever has been derived from it."
I do not refer in detail to that case. It was decided by reference to reasons, some of which might no longer hold good today. But there is no case, which has been cited to us, in which somebody in the position of an architect has had his or her claim for fees abated under this doctrine, except possibly the case to which I must now refer; and, as I say, I see the greatest difficulty in replying the doctrine to such a claim as is made by way of a counterclaim here."
"The defendants do not put forward any defence of abatement such as might be pleaded at common law in an action for the price of goods sold or the cost of work and labour, viz that the goods or work were not up to standard required by the contract and so the price should be reduced. That is not pleaded since it was held in Hutchinson v. Harris (1978) 10 BLR 19, by this Court that such a defence is not available to a defendant in an action by a professional firm for fees. In such an action the proper course is for the defendant to counterclaim for damages for professional negligence and breach of duty on the part of the plaintiffs and plead an equitable set-off."
"The placing of a fence around contracts for the sale of goods or for work and labour seems curiously arbitrary".
Nevertheless the weight of opinion in the Court of Appeal cited to me makes it clear that that is the law which I must apply.
"Looking at the propositions involved from the point of view of interpreting the words in the English language it seems to me that the painting of a portrait in these circumstances would not, in the ordinary use of the English language, be deemed to be the purchase and sale of that which is produced by the artist. It would, on the contrary, be held to be an undertaking by the artist to exercise such skill as he was possessed of in order to produce for reward a thing which would ultimately have to be accepted by the client. If that is, the contract in this case was not a contract for the sale of goods within the meaning of s. 4 of the Sale of Goods Act, 1893."
Greer LJ then considered the authorities and concluded (at page 587):-
"If you find, as they did in Lee v. Griffin (1861) 1 B & S 272, that the substance of the contract was the production of something to be sold by the dentist to the dentist's customer, then that is a sale of goods. But if the substance of the contract, on the other hand, is that skill and labour have to be exercised for the production of the article and that it is only ancillary to that that there will pass from the artist to his client or customer some materials in addition to the skill involved in the production of the portrait, that does not make any difference to the result, because the substance of the contract is the skill and experience of the artist in producing the picture."
He concluded there that the contract for the portrait was a contract for work and labour and materials.
"Equally, in my judgment, if the history and the reality of the transaction involved in the painting of a portrait of this kind is considered, it would be an abuse of language to say that the portrait is sold. In former days the phrase used would have been: "What painter are you going to employ to paint the portrait?". In these days the phrase is: "Who is commissioned to paint the portrait?". Both phrases are alike representative of a transaction which is a mandate or authority given to another for award to execute a certain thing which you desire - namely, the production of a portrait or representation of yourself or someone whom you wish to be so represented. That was the language, I think, employed in this case. The evidence as reported was that the defendant asked the plaintiff his fee for a portrait of Miss Finnegan, and then later the painter was commissioned to carry out the work.
In those circumstances, adopting the test put by Blackburn J. in Lee v. Griffin, I have no doubt that the proper conclusion to be drawn is that this was a contract not for the sale of goods but for the employment of an artist to do work which the defendant desired that he should do."
"Nevertheless, the nature of his remuneration and the terms of his tenure of office are so closely analogous to those of a contract of employment that any claim by him to salary payable pursuant to the statutory provisions and the local scheme made thereunder ought, in my judgment, to be approached in the same way as a claim to salary or wages under such contract. The relationship between the Council and the plaintiff has all the incidents which one would expect from a contract of employment ... "
29 February 1996
Note 1 No clause 3.3.3 exists and this must refer to 3.3.4 [Back]
Note 2 See also CIA Bareada Panama SA -v- George Wimpey & Co Ltd  1 Lloyd's Rep 598 per Bridge LJ at page 609. col 1. where hes set out a "succinct statement of principle" from Williston on Contract:
"It is a principle of fundamental justice that if a promisor is himself the cause of the failure of performance either of an obligation due him or of a condition upon which his own liability depends he cannot take advantage of the failure." [Back]
Note 3 His Honour Judge Bowsher QC in Corfield v Grant (1992) 59 BLR 102 at 112 accepted the reasons given by Stephenson LJ in Hutchinson v. Harris. [Back]
Note 4 This sitter later became the defendant's wife. [Back]