REUTERS | Juan Carlos Ulate

TCC gets its hands dirty on delay and disruption claims for unforeseen ground conditions

In Van Oord UK Ltd and another v Allseas UK Ltd, Coulson J showed that the TCC isn’t afraid to roll up its sleeves and get its hands dirty when considering disruption and prolongation claims arising from unforeseen ground conditions, among other things.

This type of claim is often very difficult to prove and this judgment demonstrates that a contractor must be able to make out its case on liability, causation and quantum and have the evidence to support that case.

Background

The case concerned onshore works relating to the laying of a gas export pipeline in the Shetland Islands. The defendant, AUK, was the contractor engaged by Total E&P UK Ltd to carry out the offshore and onshore works. The claimants, OSR, were engaged by AUK to carry out the procurement, supply, construction, installation, flooding, cleaning, gauging and testing of pipelines, and certain onshore works.

OSR’s claims

OSR pursued three claims against AUK:

  • Disruption and prolongation arising from alleged unforeseen ground conditions.
  • Disruption and prolongation arising out of AUK’s alleged failure to obtain permission for temporary crossings from the owners of other pipelines and its delay in obtaining proximity agreements relating to permanent crossings.
  • Additional supervision costs arising from AUK’s delay in supplying a 55 tonne beach valve and cabin.

OSR’s initial claim was for approximately £10 million, but it reduced this to about £8 million before trial.

Coulson J rejected both of OSR’s disruption and prolongation claims in their entirety save for one item in respect of each claim, the quantum of which was relatively modest. He found that these claims failed in liability (unforeseen ground conditions) and in principle (temporary crossings), they both failed as a matter of causation and that OSR’s case on quantum was not made out in either case.

OSR’s claim for supervision costs also failed in its entirety as Coulson J found that payment for change orders under the contract  was dealt with by reference to a particular document, which provided that the specified rates already included supervision.

The sums that Coulson J found were due to OSR did not exceed the interim payment AUK had previously made to OSR. As a result, OSR was required to repay approximately £2.5 million to AUK.

In arriving at this decision, Coulson J carried out a thorough and methodical analysis of the evidence.  Delay and disruption claims can be difficult to prove, but this case raised some useful points for contractors to consider.

Contemporaneous documents

Coulson J emphasised the importance of contemporaneous documents.  He noted that:

“[C]ontemporaneous documents are a useful starting point when trying to work out what was happening on site at any given time, and what the relevant individuals thought were the important events on site during the works… To the extent that the contents of the contemporaneous documents comprise a credibility test to be applied to the OSR claims, then I consider that, particularly in respect of the crossings (which is by far the largest single claim now made), they comprehensively fail that test.”

In Coulson J’s view, the contemporaneous documents simply did not support the matters OSR sought to rely on as they contained little indication that, at the time, OSR put any great emphasis on these matters, or that they were likely to lead to a doubling of the contract price. He  was not sympathetic to OSR’s argument that the reason for this was that AUK had requested that the daily progress reports exclude matters of a contractual nature. In rejecting this argument Coulson J commented that:

“…a report that men or machinery were standing idle on a particular day is not a contractual issue, but a matter of fact, a report linked to progress and resource allocation.”

He commented further that:

“…the reports and other contemporaneous documents in this case make so few references to standing time or disruption, and the fact that detailed claims were not made in the large amounts now advanced until months, even years, after the period in question, are plainly factors undermining the credibility of OSR’s claims in these proceedings.”

Factual witnesses

Coulson J made a number of criticisms of OSR’s factual witnesses.

  • The only witness statement of any detail was that of a Mr O’Rourke. However, his statement “…was not focused on the… specific claims… being made”. Rather, it was mostly a narrative of the project in which Mr O’Rourke criticised AUK on matters not relevant to OSR’s claim.
  • OSR’s two key witnesses were reluctant to support elements of OSR’s case and during cross-examination, they disagreed with the basis on which OSR’s claim had been pleaded.
  • OSR’s witnesses were evasive. In particular, when passages in documents they had prepared were put to them in cross-examination, Coulson J found that occasionally they sought to interpret the documents in a way that supported OSR’s claims, even when that interpretation was implausible.
  • Mr O’Rourke, having signed the statements of truth in OSR’s pleadings, attempted to support the claims made, even where he could not possibly do so as he had not been at the relevant meeting or on site at the relevant time.

Coulson J commented that he did not find OSR’s factual witnesses convincing and considered the evidence of AUK’s factual witnesses to be much more reliable. As a result,  when there was a direct disagreement of fact between them, he always preferred the AUK evidence.

Expert evidence

The particular problems with the expert evidence of OSR’s quantum expert, Mr Lester, are considered by Matt Molloy in his blogin particular the twelve different reasons why Coulson J found Mr Lester’s evidence to be “entirely worthless” and why he disregarded it in full. He concluded that Mr Lester had allowed himself to be used as OSR’s “mouthpiece”, had taken “OSR’s pleaded claims at face value” and that, dangerously for OSR, he only valued the claims on the full basis put forward by OSR. This meant that if the assumptions that OSR based its claim on were found to be wrong, the only alternative figures were those of AUK’s expert witness.

Coulson J concluded that the only expert evidence that he could reasonably rely on was that of AUK’s expert which, in effect, meant that OSR adduced no evidence to support its case on quantum.

Notices

One of the key reasons that Coulson J found that aspects of OSR’s disruption and prolongation claim for unforeseen ground conditions and the temporary crossings failed was because it did not comply with the relevant notice provisions in the contract. OSR was required to notify AUK of any event that may delay the works or cause OSR to incur additional costs within 5 days of the occurrence of the relevant event. The contract required OSR to give a second notice, substantiating this claim, within 12 days of the relevant event occuring.

Coulson J treated this provision as a condition precedent, although there is some uncertainty as to whether compliance with both the 5 and 12 day notices was a condition precedent to a claim under this provision. In reaching this decision he considered Akenhead J’s judgment in Obrascon Huarte Lain SA v Her Majesty’s Attorney General for Gibraltar.

In Obrascon,  Akenhead J considered clause 20.1 of  FIDIC Yellow Book, which is generally regarded to be an effective and enforceable (at least under English law) condition precedent. On the particular facts of that case, Akenhead J offered an alternative interpretation of FIDIC’s notice obligation that is more accommodating to contractors and may permit a valid notice to be served at a later date than previously thought (this aspect of the decision was not appealed). Unfortunately for OSR, the decision in Obrascon didn’t assist it as, on the facts, Coulson J concluded that OSR’s notices were given out of time and were also not given in the correct form.

Points to note for a contractor

When making a claim for disruption and prolongation, a contractor must make out its case on liability, causation and quantum. Although this may seem obvious, in many cases, it is no mean feat. The contractor’s evidence must support its case.

It is therefore important for a contractor to:

  • Maintain good contemporaneous documents throughout the project, recording progress and resource allocation.
  • Identify those persons who can provide witness evidence on the specific issues that form the claim.
  • Appoint suitably independent experts, as required by the circumstances of the case.
  • Comply strictly with the notice provisions in their contracts, both in terms of content and timing.

The TCC may not want a lot for Christmas, but what it does want to see are properly substantiated delay and disruption claims.

Berwin Leighton Paisner LLP Philip Parrott

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