Practical Law

Long ago, as a kid growing up in what was then Lancashire, my parents took me for a ride on the Blackpool Tram. I well remember the clatter of the rickety old tramcar as it trundled along the promenade towards Fleetwood, its fading paintwork a sad reminder of Blackpool’s bygone heyday as a fashionable seaside resort.

I’m now old and rickety, but the Blackpool Tram has a new lease of life. In 2008 the Council embarked on an £85 million modernisation programme, including shiny new tramcars, track upgrades and a landmark new depot at Starr Gate. The depot was constructed by Volker Fitzpatrick (VF) under a design/build contract based on the NEC3 ECC. Completion was certified in May 2011 and the restored tramway came back into service in early 2012.

Unfortunately, by 2015 the gloss had come off the new depot – literally. The Council discovered that the galvanised steel components connecting the wall and roof sections to the portal frame (roof components) were corroding, probably due to exposure to the harsh coastal marine environment. (It also identified various more minor defects, which are not covered in this blog.) The Council sued VF, claiming damages of over £6 million in total. After a few preliminary skirmishes, the full trial took place earlier this year before HHJ Stephen Davies. His judgment runs to 114 pages and I’ve read every word of it. Being retired and in lockdown, there isn’t much else to do on a wet weekend.

Non-issues and real issues

At first glance I thought this was Hojgaard, part 2. The case seemed to raise interesting issues of design life warranties and “fitness for purpose”. But, as it turned out, the judge dealt with them relatively shortly as a matter of contract interpretation.

In fact, the heart of the judgment lies in two more prosaic (but still important) issues; namely, precedence of documents and the evidence needed to prove the Council’s case. It contains some salutary lessons for draftsmen and litigators alike.

Precedence of documents

The design life requirements for elements of the depot were set out in two documents prepared on behalf of the Council. The Works Information stated a design life of 20 years, unless otherwise specified in the Functional Performance Specification (FPS). The FPS (Appendix 1 to the Works Information) then stipulated a 50 year design life for the “building structure”. However, nowhere did it indicate whether that included the roof components.

To address this point, as part of its tender VF submitted a design log prepared by its designer, RPS. This specified a design life of 25 years for the “external shell”, as distinct from the “structural frame” to which a 50 year design life would apply. The design log was duly included within the final contract documents as “Works Information for the Contractor’s design”.

This was a nuisance for the Council, who wished to argue for a 50 year design life. Having tried (and failed) to persuade the court that the design log wasn’t part of the contract at all, it fell back on the precedence of documents clause.

Now, it is well known that NEC standard forms don’t include a precedence provision. Many lawyers feel strongly that this omission needs to be corrected (and Practical Law offers suggested wording for the purpose). Sure enough, in this case the Council’s legal team had added a Z clause stating that, in the event of an inconsistency between the Council’s and VF’s Works Information, the former would prevail. The Council argued that the effect of this provision was to override the design log and give primacy to the FPS.

However, the judge disagreed and ruled in favour of VF. In his view there was no inconsistency between the two sets of Works Information, so the Z clause didn’t come into play at all. Rather, the lack of clarity lay within the Council’s Works Information, which failed to specify the required design life for the roof components. That issue could only be resolved by looking at the design log, which (albeit not in so many words) pointed to the conclusion that the roof components were not part of the “building structure”. In short, reading the documents as a whole, VF’s interpretation was correct and the warranted design life for the roof components was 25 years only.

In one sense, this ruling merely applies established principles and is uncontroversial. However, it is a timely reminder that a precedence clause is not a “get out of jail” card for an employer whose documents do not clearly and consistently state what it actually wants. Those who loudly advocate the inclusion of such a provision would do well to remember this. Also, if accepted, the Council’s argument would have rendered the design log entirely redundant in contractual terms. It’s hardly surprising that the judge wished to avoid this conclusion.

Evidence of breach

VF accepted that, in certain respects, the depot had not been constructed in accordance with the specification, and that this may have contributed to the corrosion. It had offered to rectify those defects – an offer that the Council had rejected. However, it argued that the corrosion in fact had no adverse impact on the long-term performance of the roof components, and that as a result there was no breach of the design life warranty (which formed the major part of the Council’s claim).

Keen readers will recall that, in Hojgaard, the foundations had begun to fail within six months of completion, so the court had no difficulty in inferring that the design life warranty had been breached. The position was different in Blackpool Tram, where, by the time of trial, the depot had been in operation for almost ten years and there was no sign that any of the roof components were failing. They may have been unsightly, but there was no evidence that their serviceable life was compromised. Even an argument based on aesthetics didn’t wash; the depot may have been an architectural icon, but the rusting was purely internal, at high level and invisible to a lay observer.

It was the lack of evidence that did for the Council. It appears to have forgotten the first rule of litigation; that the claimant must prove its case. Its expert witnesses had apparently not been allowed to inspect the roof components in detail. Nor had it commissioned a full condition survey, even though it would have been perfectly possible to do so. In the absence of direct evidence, the Council’s experts were left to put forward hypotheses (based on theoretical and, in some cases, flawed analyses and calculations) as to the nature and extent of the corrosion and the likelihood of its becoming worse in future. The judge dismissed these as pure speculation, with no credible evidential basis. He was heavily critical of the Council’s approach and had no difficulty in finding for VF on this issue as well.

It’s worth remembering that, in order to establish a breach of the design life warranty, the Council needed to do more than show that the roof components were likely to fail prematurely. They had to prove that VF’s design was inherently unsuitable; in other words, that it was not capable of lasting for the warranted period. Clearly the evidence produced fell well short of that standard, and as a result its case was doomed to fail.

Conclusion

In summary, not a landmark decision after all, but a painful reminder of some basic principles. As I said in my blogs on the Court of Appeal and Supreme Court decisions in Hojgaard, it really is worth investing the time and effort to ensure that documents are coherent and internally consistent, rather than expecting a precedence clause to come to the rescue.  And don’t forget that it is for the claimant to produce the evidence needed to prove its case.

As for me, I’m delighted to hear that the Blackpool Tram is still in good shape after its makeover. Maybe I’ll go and take another ride on it… when circumstances allow.