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REPUBLIC OF TRINIDAD AND TOBAGO
IN THE COURT OF APPEAL Civil Appeal P151 of 2014 CV 2010-03594
Between
WATER AND SEWERAGE AUTHORITY OF TRINIDAD AND TOBAGO
Appellant
AND
WATERWORKS LIMITED
Respondent
Appearances:
Mr. Reginald T.A Armour SC, Mr. Raphael Ajodhia and Ms. Elena Araujo for the Appellant Mr. Stanley I. Marcus S.C, Ms. Debra W.C. James for the Respondent Date of Delivery: 26th June 2020 Panel: A. Mendonça JA G. Smith JA P.A. Rajkumar JA
JUDGMENT
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I have read the judgment of Rajkumar JA and I agree.
…………………………………………………..
Allan Mendonça
Justice of Appeal
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Table of Contents Page Number
Background 5 The Claims 5 Loss of Profits 5 Issues 6 Conclusion Issue I – Claim under sub-clause 19.6(a) – value of work done 7 Issues ii and iii – Claims under sub- clause 19.6 (c) 8 Purchase orders premature 8 Whether evidence that the purchase orders were for 10 actual supply of equipment Orders 12 Analysis 14 Deductibility of advance payments Reviewing findings of fact by the trial judge 14 Claims under sub-clause 19.6 (c) - Costs or liability which in the circumstances were reasonably incurred by the contractor in the expectation of completing the works 16 Evidence that purchase orders were premature 18 Whether purchase orders were not in fact for actual supply of equipment 21 Contractual provisions 23 whether any reasonable basis for cancellation charges even if purchase orders were not for actual supply of equipment 24 Whether the instant purchase orders could have been a logical or reasonable mechanism for locking in prices 24 Whether the preliminary designs on which the quotations and purchase orders were based were sufficiently detailed to allow equipment to be identified and ordered 25 Changes to the equipment in the quotations 30 Interpretation of contractual provisions Evidence to contradict terms of quotations and purchase orders inadmissible 32 Language of the contract 34 Evidence of subjective intention - Alleged industry practice 34 Commercial Common Sense 35 Orders 36
Judgement of Smith JA 38-44
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Delivered by Peter A. Rajkumar JA
1. The Appellant and the Respondent entered into two contracts for the
design and construction of two water treatment plants, one at Matura
and the other at Yarra, (hereinafter individually referred to as “the
Matura contract” and “the Yarra contract” respectively and together
as “the contracts”). The respondent’s bid under the Matura contract
was accepted on 27th September 2006. Its bid under the Yarra contract
was accepted by letter dated 3rd April 2007. The contracts were
subsequently terminated. The Yarra contract was terminated on or
around 24th June 2009. In the case of the Matura contract notice of
termination was given on or about 11th September 2009 and the
termination was confirmed by letter dated 12th October 2009.
2. The contracts provided for termination before completion pursuant to
sub clause 15.5 of the General Conditions of Contract. This clause
permitted termination by the appellant at any time for its convenience
upon notice, and for the Respondent to receive payments in
accordance with sub clause 19.6, of which sub clauses 19.6(a) and (c)
are relevant.
3. Sub-clause 19.6 of the General Conditions of Contract (sub clause
19.6) provides, inter alia (all emphasis added):
i. “…upon such termination the Engineer shall determine the value
of the work done and issue a Payment Certificate which shall
include:
a. the amounts payable for any work carried out for which a
price is stated in the contract;
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c. any other Cost or liability which in the circumstances was
reasonably incurred by the Contractor in the expectation of
completing the Works;
Background
The Claims
4. Pursuant to that clause the Respondent claimed in respect of the
Matura contract:
i. The sum of $1,497,413.00 representing the value of work
done under sub clause 19.6 (a);
ii. $4,619,028.30 representing a liability reasonably incurred
under sub clause 19.6 (c);
iii. The sum of $4,420.931.17 representing anticipated loss of
profit.
5. In respect of the Yarra Contract the Respondent claimed:
i. The sum of $651,411.60 representing the value of work
done under sub clause 19.6 (a);
ii. The sum of $3,577,942.46 representing charges accruing to
sub-contractors and/or suppliers as a direct consequence of
termination of subcontracts pursuant to sub clause 19.6 (c);
iii. The sum of $2,824,063.72 representing anticipated loss of
profit.
Loss of profits
6. The trial judge concluded that loss of profits could not be recoverable
on termination of the contract under clause 15.5, because it was not
provided for under sub-clause 19.6. This finding is not the subject of
any appeal by the Respondent.
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Issues
7. The trial judge upheld the claims under sub clause 19.6 (a) for value of
work done under each contract. In respect of the Matura contract the
sum of $1,306,577.00 was awarded. This is not the subject of appeal.
In respect of the Yarra contract the sum of $600,000 was awarded. The
trial judge upheld the claims under sub clause 19.6 (c) and awarded the
sum of $4,619,028.30 and $3,577,942.46 respectively under each
contract.
8. The issues on this appeal therefore relate to the awards made by the
trial judge in respect of the Matura and Yarra contracts:-
i. the award which relates to the claims under sub-clause 19.6 (a) of the
General Conditions of Contract in respect of value of work done under
the Yarra contract,
ii. the other two, under sub clause 19.6 (c), in respect of the claims for
reimbursement of alleged liabilities reasonably incurred by the
respondent contractor. These latter two claims arose from the
respondent’s issue of two purchase orders, (one each in relation to
each contract), and the alleged incurring of cancellation charges of 30
% of the value of any cancelled orders.
9. At issue therefore is:
i. Whether the award under the Yarra contract in respect of the claim
under sub clause 19.6 (a) for alleged value of works done was plainly
wrong or otherwise reviewable as a matter of law.
ii. Whether the claim under the Matura contract for the reimbursement
of cancellation charges for cancelling the purchase order relating to the
Matura Water Treatment Plant was actually in respect of a liability
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reasonably incurred in the circumstances by the contractor in the
expectation of completing the works under sub-clause 19.6 (c).
iii. Whether the claim under the Yarra contract for the reimbursement
of cancellation charges for cancelling the purchase order relating to the
Yarra Water Treatment Plant was actually in respect of a liability
reasonably incurred in the circumstances by the contractor in the
expectation of completing the works under sub-clause 19.6 (c).
Conclusion
Issue i - Claim under Sub-Clause 19.6 (a) – value of work done
10. Issue i. relates to the claim under sub clause 19.6 (a) for alleged value
of work done under the Yarra contract. This is largely dependent on
findings of fact made by the trial judge, as distinct from construction of
the relevant contractual provision (clause 19.6 (a)) under which the
claim was made.
11. Because the value of work actually done required findings primarily of
fact, this was a matter for the determination of the trial judge, based
upon the court’s assessment and evaluation of the evidence, including
that of the witnesses. The circumstances in which findings of fact can be
reversed on appeal are limited by a requirement to first find that the
trial judge had been plainly wrong in the assessment or evaluation of
the evidence.
12. In relation to this particular claim it has not been demonstrated that the
trial judge’s findings and conclusions were plainly wrong.
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Issues ii and iii - Claims under sub clause 19.6 (c)
13. Issues ii. and iii. both related to claims under sub clause 19.6 (c).Their
determination required a construction of the term “liability which in the
circumstances was reasonably incurred by the Contractor in the
expectation of completing the Works”. That construction was properly
considered by the trial judge to be a matter of law, (See paragraph 24
of the judgment)1. It required an objective assessment of
reasonableness i) in the context of the entire FIDIC contract ii) in the
context of the relevant evidence as to the circumstances prevailing at
the relevant time. The relevant time in this context would be the time
of the purchase orders, when the cancellation penalties, for which
reimbursement is being sought, were agreed.
14. The trial judge erred in concluding that the claims made under sub-
clause 19.6 (c) in respect of both the Matura and Yarra contracts were
reasonably incurred for the following reasons:
Purchase orders premature
15. In construing sub clause 19.6 (c) the trial judge appreciated that issue
of the purchase orders, if intended to be orders for actual supply of
equipment, would have been premature. This was because as at the
time the purchase orders were purportedly placed for $15,396,761.00
for the Matura water treatment plant and $11,926,474.88 for the Yarra
1 At paragraph 24 of the judgment the trial judge accepted that reasonableness was a matter of
law for her determination. i. 24. At issue is the reasonableness of the claims made by Waterworks. In this regard I accept the
submissions of WASA that this is a matter of law for my determination on the evidence presented to me. While the opinions of persons knowledgeable in the construction industry may be relevant ultimately the question of reasonableness is one for my determination.
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water treatment plant for the supplying and installation of equipment
for each plant:
i. The sites for each plant had not been finalized, and this
remained the position up to the time of termination (see
paragraph 10 of the judgment of the trial judge).
ii. The Environmental Impact Assessment (EIA) for the Matura site
had not been approved. Consequently neither had a Certificate
of Environmental Clearance (C.E.C) had been obtained for the
Matura site. Similarly, no CEC had been obtained for the Yarra
site. Without a C.E.C no plant could be constructed. The volume
of water permitted to be abstracted depended on the C.E.C and
the specific site eventually approved. The type of treatment
required depended on the quality of water at the specific site
selected. These in turn determined the type of equipment to be
used at each site. Yet the purchase orders purported on their
face to be for the supply and installation of equipment for the
plants to be constructed.
iii. The design drawings for the Water Treatment Plants had not
received final approval from the employer and the contract
required approval of final design drawings by the employer
before construction.
16. The trial judge appreciated that the issue of purchase orders for the
actual supply of equipment at that stage was premature and expressly
so found. Given that purchase orders for the actual supply of
equipment would have been premature, committing to liabilities for
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cancellation penalties of 30% of any such premature orders would itself
have been premature. Therefore those liabilities could not in those
circumstances have been reasonably incurred. Consequently the
claims under sub clause 19.6 (c) for reimbursement of those liabilities
for cancelling the “purchase orders” would not be maintainable
because they were not “reasonably incurred” by the contractor in
expectation of completing the works.
Whether evidence that the purchase orders were for actual supply
of equipment
17. However the trial judge concluded, despite the clear language of the
quotations and their terms, and the purchase orders accepting those
terms, that the purchase orders were not for the actual supply of
equipment but rather Waterworks “had merely sourced, priced, and
locked in prices to the prices applicable in 2008”, (See paragraphs 50
and 51 of the judgment).
18. This conclusion, stated to be from an examination of the relevant
documents, was not sustainable on the evidence. The cancellation
charges are claimed under MAAK’s “standard terms and conditions of
sale” in its quotation. Clause 1 thereof governs the sale of its products
and systems. The purchase orders contained no qualification and
therefore were, as they purported to be on their face, orders for the
actual supply and installation of equipment. On their face the purchase
orders were orders to purchase equipment and systems for
$15,396,761.00 and $11,926,474.88 respectively, with liability for
cancellation of those orders amounting to approximately $ 8 million.
Examination of the documentation therefore could not displace the
logical conclusion that the charges for cancellation of those orders
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purportedly incurred at that stage could not have been liabilities
reasonably incurred.
19. Even if the trial judge had been correct in finding that the purchase
orders were not for the actual obtaining of equipment at that time or
for the actual supply of equipment, (but rather were for the purpose of
sourcing, pricing and locking in 2008 prices), the trial judge failed to
analyse and consider the reasonableness of voluntarily agreeing at
that stage to a cancellation charge of 30% of the value of the “orders”
if they were cancelled, in the context of i. the evidence of the prevailing
circumstances (detailed at paragraph 15 above), and ii. the finding that
the 30% “cancellation” charges would not have been based on
cancelling an order for the actual supply of equipment.
20. The court failed to appreciate the significance of the evidence of Mr.
Alladina from MAAK, (who testified on behalf of the respondent), that
the basis of the quotations by MAAK for equipment, (which were
accepted by the respondent by the issue of the purchase orders), was
30% complete preliminary designs submitted to WASA by Waterworks
at the time of tender. It was those quotations, when accepted by
Waterworks, by the issue of its purchase orders, which provided for
the 30% cancellation charges.
21. The judge erred in concluding that those designs would have been
sufficiently detailed to allow the equipment to be ordered at such a
preliminary stage. Even if Waterworks had actually issued the purchase
orders simply to source, price and lock in prices, committing in those
circumstances to stringent cancellation charges at that stage could not
be a liability “reasonably incurred” for which it was entitled to expect
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reimbursement under sub clause 19.6 (c). This was for the same
reasons that purchase orders for the actual supply of equipment would
have been premature. Critical matters remained outstanding relating
to the eventual final designs of the plants to be constructed and the
equipment that would actually be required.
22. Further, the trial judge erred in law in utilizing and relying on the
evidence of Mr. Alladina regarding alleged industry practice and
subjective intention, to displace the objective, plain, and unambiguous
meaning of the words used in the quotations and their terms, and the
purchase orders.
23. Accordingly, the appeal in respect of claim i. must be dismissed.
The appeal in respect of claims ii. and iii. must be allowed.
Orders
24. In those circumstances it is ordered as follows:
i. The orders of the trial judge that the appellant pay to the
respondent under sub clause 19.6 (a): a. the sum of
$1,306,577.00 in respect of the Matura contract and b. the sum
of $600,000 in respect of the Yarra contract are affirmed.
ii. The orders of the trial judge that the appellant pay to the
respondent under sub clause 19.6 (c) the sums of a.
$4,619,028.30 in respect of the Matura contract and
$3,577,942.46 in respect of the Yarra contract, are set aside.
iii. The orders of the trial judge that the respondent do pay to the
appellant the amounts of the advance payment under the
Matura contract of $3,082,547.33, and under the Yarra contract
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the advance payment in the amount of $2,404,228.00, are
affirmed.
iv. It is ordered that amounts payable by the appellant to the
respondent under sub clause 19.6 (a) in the sums of
$1,306,577.00 and $600,000 as above are to be set off against
the advance payments, to be repaid by the respondent to the
appellant, in the amounts of $3,082,547.33 and $2,404,228.00.
v. It is ordered that the difference of $3,580,198.33 is to be paid by
the respondent to the appellant with interest at the rate of 2.5%
per annum from the date of the filing of the appellant’s
counterclaim on October 17, 2011 until April 17, 2014, and
thereafter at the statutory rate of 12% per annum until June 10,
2016, and thereafter at the rate of 5% per annum until payment,
vi. The orders of the trial judge with respect to costs and interest
are set aside.
vii. The respondent is to pay to the appellant a. in respect of the trial,
costs on the basis prescribed in the Civil Proceedings Rules for a
claim in the total amount of $3,580,198.33 plus interest at the
rate of 2.5% per annum from October 17th 2011 until April 17th
2014, (the prescribed costs) b. in respect of the appeal, two
thirds of the prescribed costs, unless written submissions are
filed by the respondent contending otherwise within 14 days
hereof.
viii. In that event the appellant is at liberty to file written submissions
in response within 14 days thereafter.
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Analysis
Deductibility of Advance payments
25. It was common ground between the parties that under the contracts
the advance payment made by the appellant to the respondent with
respect to each contract was to be deducted from sums due under
subsequent payment certificates as the contracts progressed.
Reviewing Findings of Fact by Trial Judge
26. The evaluation, assessment, and quantification of the value of work
carried out depended almost entirely upon an assessment and
evaluation of the evidence. The circumstances in which an appellate
court would review essentially findings of fact by a trial court are by
now too well known to require rehearsal. See Beacon Insurance
Company Limited v Maharaj Bookstore Limited [2014] UKPC 212,
2 Beacon Insurance Company Limited v Maharaj Bookstore Limited [2014] UKPC 21 The role of an appeal court 12. In Thomas v Thomas [1947] AC 484, to which the Court of Appeal referred in its judgment, Lord Thankerton stated, at pp 487-488: “I Where a question of fact has been tried by a judge without a jury, and there is no question of misdirection of himself by the judge, an appellate court which is disposed to come to a different conclusion on the printed evidence should not do so unless it is satisfied that any advantage enjoyed by the trial judge by reason of having seen and heard the witnesses, could not be sufficient to explain or justify the trial judge’s conclusion; II The appellate court may take the view that, without having seen or heard the witnesses, it is not in a position to come to any satisfactory conclusion on the printed evidence; III The appellate court, either because the reasons given by the trial judge are not satisfactory, or because it unmistakably so appears from the evidence, may be satisfied that he has not taken proper advantage of his having seen and heard the witnesses, and the matter will then become at large for the appellate court.” In that case, Viscount Simon and Lord Du Parcq (at pp 486 and 493 respectively) both cited with approval a dictum of Lord Greene MR in Yuill v Yuill [1945] P 15, 19: “It can, of course, only be on the rarest occasions, and in circumstances where the appellate court is convinced by the plainest of considerations, that it would be justified in finding that the trial judge had formed a wrong opinion.” It has often been said that the appeal court must be satisfied that the judge at first instance has gone “plainly wrong”. See, for example, Lord Macmillan in Thomas v Thomas at p 491 and Lord Hope of Craighead in Thomson v Kvaerner Govan Ltd 2004 SC (HL) 1, paras 16-19. This phrase does not address the degree of certainty of the appellate judges that they would have reached a different conclusion on the facts: Piggott Brothers & Co Ltd v Jackson [1992] ICR 85, Lord Donaldson at p 92. Rather it directs the appellate court to consider whether it was permissible for the judge at first instance to make the findings of fact which he did in the face of the evidence as a whole. That is a judgment that the appellate court has to make in the knowledge that it has only the printed record of the evidence. The court is required to identify a mistake in the judge’s evaluation of the evidence that is sufficiently material to undermine his conclusions. Occasions meriting
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Petroleum Company of Trinidad and Tobago v Stanley Ryan and Anor
[2017] UKPC 30 at paragraph 153, Harracksingh v Attorney General of
Trinidad and Tobago [2004] UKPC 3, Bahamas Air Holdings Limited v
Messier Dowty Inc [2018] UKPC 254.
appellate intervention would include when a trial judge failed to analyse properly the entirety of the evidence: Choo Kok Beng v Choo Kok Hoe [1984] 2 MLJ 165, PC, Lord Roskill at pp 168-169. 14. The Board has adopted a similar approach in this jurisdiction. See Harracksingh v Attorney General of Trinidad and Tobago [2004] UKPC 3 in which it referred (at para 10) to the formulation of Lord Sumner in SS Hontestroom (Owners) v SS Sagaporack (Owners) [1927] AC 37, 47:
“… not to have seen the witnesses puts appellate judges in a permanent position of disadvantage as against the trial judge, and, unless it can be shown that he has failed to use or has palpably misused his advantage, the higher court ought not to take the responsibility of reversing conclusions so arrived at, merely on the result of their own comparisons and criticisms of the witnesses and of their own view of the probabilities of the case.
… If his estimate of the man forms any substantial part of his reasons for his judgment the trial judge’s conclusions of fact should … be let alone.” 3 15. ….It is sufficient to refer to Lord Reed’s summary in Henderson v Foxworth Investments Ltd [2014] 1 WLR 2600, para 67: “67. It follows that, in the absence of some other identifiable error, such as (without attempting an exhaustive account) a material error of law, or the making of a critical finding of fact which has no basis in the evidence, or a demonstrable misunderstanding of relevant evidence, or a demonstrable failure to consider relevant evidence, an appellate court will interfere with the findings of fact made by a trial judge only if it is satisfied that his decision cannot reasonably be explained or justified.” 4 The proper approach to the review by an appellate court to the findings of a trial judge 32. As was observed in DB v Chief Constable of the Police Service of Northern Ireland [2017] UKSC 7, para 78 the United Kingdom Supreme Court on a number of occasions recently has had to address the issue of the proper approach to be taken by an appellate court to its review of findings made by a judge at first instance. And, as was said in that case, perhaps the most useful distillation of the applicable principles is to be found in the judgment of Lord Reed in the case of McGraddie v McGraddie [2013] UKSC 58; [2013] 1 WLR 2477. 33. In para 1 of his judgment Lord Reed referred to what he described as “what may be the most frequently cited of all judicial dicta in the Scottish courts” - the speech of Lord Thankerton in Thomas v Thomas [1947] AC 484 which sets out the circumstances in which an appeal court should refrain from or consider itself enabled to depart from the trial judge’s conclusions. Lord Reed’s comprehensive and authoritative discussion ranged over the speech of Lord Shaw of Dunfermline in Clarke v Edinburgh & District Tramways Co Ltd (1919) SC (HL) 35, 36-37, where he said that an appellate court should intervene only if it is satisfied that the judge was “plainly wrong”; the judgment of Lord Greene MR in Yuill v Yuill [1945] P 15, 19, and the speech of Lord Hope of Craighead in Thomson v Kvaerner Govan Ltd [2003] UKHL 45; 2004 SC (HL) 1, para 17 where he stated that: “It can, of course, only be on the rarest of occasions, and in circumstances where the appellate court is convinced by the plainest of considerations, that it would be justified in finding that the trial judge had formed a wrong opinion.” 36. The basic principles on which the Board will act in this area can be summarised thus: 1. “… [A]ny appeal court must be extremely cautious about upsetting a conclusion of primary fact. Very careful consideration must be given to the weight to be attached to the judge’s findings and position, and in particular the extent to which, he or she had, as the trial judge, an advantage over any appellate court. The greater that advantage, the more reluctant the appellate court should be to interfere …” - Central Bank of Ecuador v Conticorp SA [2015] UKPC 11; [2016] 1 BCLC 26, para 5. 2. Duplication of the efforts of the trial judge in the appellate court is likely to contribute only negligibly to the accuracy of fact determination - Anderson v City of Bessemer, cited by Lord Reed in para 3 of McGraddie.
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27. Given that the trial judge had the benefit of seeing and hearing the
evidence of the witnesses, including that of the respondent’s
witnesses, and the appellant’s witnesses Ms. Jones and Mr. Yearwood
and made evaluations in relation thereto, an appellate court would not
be entitled to overturn those findings unless demonstrated to be
plainly wrong. With respect to the Yarra contract it would not be
sufficient for example to disagree with the trial judge as to the
significance of S. Yearwood’s not being involved in administering the
contract from inception and the rejection of her evidence on the value
of work done on, inter alia, this basis. The Court was also entitled to
take into account as it did that documentation for the Yarra contract in
the possession of the appellant was incomplete and to prefer the
evidence of the respondent on this issue. For this reason the orders of
the trial judge with respect to the claim made under sub-clause 19.6
(a) for the value of work done will be affirmed.
Claims under sub clause 19.6 (c) - Cost or Liability which in the
circumstances was reasonably incurred by the contractor in the
expectation of completing the works.
28. At issue therefore is whether it was reasonable in the circumstances
prevailing, and in the particular context of the instant FIDIC contracts,
for the respondent to seek reimbursement for liabilities being claimed
for cancellation of the purchase orders in respect of the Matura and
Yarra contracts under sub clause 19.6 (c).
3. The principles of restraint “do not mean that the appellate court is never justified, indeed required, to intervene.” The principles rest on the assumption that “the judge has taken proper advantage of having heard and seen the witnesses, and has in that connection tested their evidence by reference to a correct understanding of the issues against the background of the material available and the inherent probabilities.” Where one or more of these features is not present, then the argument in favour of restraint is reduced - para 8 of Central Bank of Ecuador. (All emphasis added)
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29. The claim for reimbursement under sub clause 19.6 (c) is based on
liabilities alleged to have been incurred as a result of 30% cancellation
charges in respect of two purchase orders. The cancellation charges
were stipulated at clause 12 of the conditions of MAAK’s quotations for
the supply and installation of equipment for the Matura and Yarra
water treatment plants. Those conditions were deemed to have been
accepted when Waterworks issued the purchase orders accepting
them. The terms for the quotation in respect of the Yarra plant are set
out hereunder. The Matura quotation contains identical terms.
12) Cancellation. Buyer shall be liable for cancellation charges as
follows: (a) Minimum amount equal to 30% of the quoted price of
Product and additional expenses as may be notified the Buyer by
MAAK as incurred in connection with the Agreement. (b) Maximum
amount of 100% of the quoted price of Product depending on the
time of the cancellation.
30. It is not in dispute that the final designs for both the Yarra and
Matura water treatment plants never received final approval from
the appellant. Equally it is not in dispute that under the FIDIC
contracts between the appellant and respondent approval of final
designs was required before construction of the water treatment
plants could commence5.
31. It was necessary therefore to consider whether it was reasonable as
a matter of construction of those FIDIC contracts to have issued the
two purchase orders for procurement of equipment for the purpose
5 Page 801 of the Record of Appeal Volume 2 clause 4. a of the Scope of Works under the heading “Designs and Drawings” - “…Construction to such designs and drawings shall not commence until the employers representative has consented thereto…” (All emphasis added) The scope of works is included in the contract as item 2 (i) of the agreement made on the 30th July 2007 between WASA and Waterworks for the Matura Contract.
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of equipping water treatment plants in the circumstances then
prevailing namely:
a. When the site for Matura had not been settled or acquired up to
April 2009 and the site for Yarra had not been settled or acquired
well into 2008. (See on behalf of MAAK evidence of Mr. Caprariu
page 12613 and 12627, Vol 18 record of appeal).
b. When the sites had not been approved by the EMA by the issue
of CECs, (See paragraph 40 of the trial judge’s judgment).
c. When intake parameters, and quality of water to be abstracted,
which depended the site and the C.E.Cs, had not been finalised
(ibid page 12617),
d. When the final designs had not been approved, (paragraph 40 of
the judgment),
e. When construction could not have commenced at the stage
when the purchase orders were issued, and
f. when construction may not have commenced at all if approval
for their construction had not been obtained.
Evidence that purchase orders were premature
32. At paragraph 45 of the judgment the trial judge noted that 12 days
before the presentation to WASA of the preliminary design for Yarra
and Matura on March 26, 2008 a quotation was provided by MAAK,
(on March 14, 2008), in respect of equipment for the Matura
contract/water treatment plant under the same terms and conditions
as applied for Yarra. The quotation by MAAK for the Yarra contract was
issued on March 25, 2008, one day before the presentation to WASA
of preliminary design. These were quotations for the supply of specific
equipment to equip water treatment plants. The explanation for the
quotations preceding the submission of preliminary designs was
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provided by Mr. Alladina from MAAK, who testified that the quotations
were based on 30% preliminary designs submitted at the time of
tender, (see Alladina’s evidence at volume 18 page 129289 record of
appeal). The purchase orders issued by the respondent Waterworks on
their face purported to bind Waterworks to purchase the equipment
specified in the quotations. The purchase order for Yarra is set out
hereunder.
WATERWORKS LIMITED 4 April 2008 52 Third Avenue Barataria Trinidad WI TO: MAAK Technoloies Group Inc Suite 201 9133 Leslie Street Richmond Hill Ontario L4B 3R3 Canada Purchase Order for Yarra Water Plant Equipment MAAK Quote #: Q187-002-Revised Description: Yarra Water Plant equipment as per MAAK referenced quotation. FOB: Port of Spain 1) Water Treatment Plant Bill 1200 $7,836,201 2) Mechanical Equipment Bill 1500 $ 836,284 3) Electrical Equipment Bill 1600 $1,922,800 4) SCADA Equipment Bill 1700 $ 590,130 5) Instrumentation and Control Equipment Bill 1800 $ 741,059 Total $11,926,474 ____________________ Waterworks Ltd
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33. The water treatment plants did not have approval for their final
designs. Therefore they could not have been constructed either based
on the 30% complete preliminary designs or at all.
34. Yet nine days after the quotation, the purchase order for Yarra was
issued on 4th April 2008, accepting MAAK’s quotation and its stipulated
30% cancellation charge, committing Waterworks to purchase
$11,926,474.88 million worth of equipment for a plant at Yarra, despite
those issues identified above not yet having been resolved or finalised.
Although the purchase order for equipment for the plant to be built at
the Matura site was undated the trial judge assumed that it had been
similarly issued, accepting MAAK’s quotation in the amount of
$15,396,761.00 and likewise committing to payment of a 30% charge
for cancellation.
35. Committing to purchase approximately $27,000,000.00 worth of
equipment to equip water treatment plants at such a preliminary stage
in those circumstances could hardly be characterized as reasonable.
Even less so could accepting a charge of 30% of the value of the orders
upon their cancellation. The trial judge considered however that the
issue was whether the design submitted provided sufficient
information to allow for the identification of equipment necessary for
the construction phase of the contract, (see paragraph 42 of the
judgment).The reasons why the court fell into error in so concluding
are addressed hereinafter.
36. The evidence of Mr. Alladina referred to at paragraph 47 of the
judgment, was that before there was “authorization for the actual
procurement of equipment” WASA’s approval would have to be
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obtained. Based thereon the trial judge recognised, and made a finding
accordingly, that the issue of purchase orders would therefore have
been premature. See for example, paragraph 51 of the judgment,
where it was stated as follows:
“I am satisfied that in these circumstances there was no initiation by Waterworks of the procurement process in the manner suggested by WASA. The fact that the construction phase had not as yet started is, to my mind, of no moment since at the stage of the termination of the contracts Waterworks had merely sourced, priced and locked in prices to the prices applicable in 2008. In these circumstances there would be no purchase order for the actual supply of the equipment in the true sense of the word and indeed to issue such a purchase order at any time prior to the termination of either of the contracts would have been premature.” (All emphasis added)
37. The conclusion that the issue of purchase orders would be premature
is consistent both with the structure of the contracts identified above,
and with the circumstances also identified above, prevailing at the date
of the alleged purchase orders on which the claims under sub clause
19.6 (c) are based.
38. If the issue of purchase orders under the contract for the actual supply
of equipment was premature as the trial judge expressly found, then it
could not have been reasonable to issue such orders. Further the
instant purchase orders provided stringent penalties for cancellation.
Accepting liability for those charges under such premature purchase
orders also could not have been reasonable.
Whether purchase orders were not in fact for actual supply of
equipment
39. These claims for reimbursement of cancellation penalties only survived
the trial judge’s finding as to the prematurity of the purchase orders
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because the court had concluded that they were merely an
“arrangement by which Waterworks agreed to procure the equipment
from MAAK at some time in the future at the prices quoted to it by
MAAK in 2008”. (See paragraph 50 of the judgment6).
40. Even assuming that were actually the case however this conclusion:-
(i) is inconsistent with the terms of the quotations and purchase
orders themselves, as well as MAAK’s own letter in which it claimed
that 30 % cancellation charges applied.
(ii) even if it were the case that the purchase orders were not for
the actual supply of the equipment, it remained unclear on the
reasoning of the trial judge why it would be reasonable for the
respondent contractor to incur liability for a 30% cancellation
charge to apply if an order had not been placed at that time
for actual supply and installation of equipment.
(iii). Further to the extent that the trial judge relied on Mr.
Alladina’s evidence as to alleged industry practice, to
contradict the actual language in the documents that constituted
the contract, this was impermissible as a matter of law.
6 From an examination of the relevant documents I am satisfied that the arrangement between Waterworks and MAAK was not for the actual obtaining of the equipment at that time but rather an arrangement by which Waterworks agreed to procure the equipment from MAAK at some time in the future at the prices quoted to it by MAAK in 2008. What Waterworks did by entering into these contracts therefore was to secure the equipment at the quoted price. The cost of that benefit to Waterworks was that it was required to bind itself to purchasing the equipment from MAAK and commit itself to the payment of 30% of the contract price if it cancelled the contracts. In other words in 2008 Waterworks sourced the equipment and entered into an arrangement by which the equipment was to be made available to them in the future at a price fixed at the time the equipment was sourced.
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Contractual Provisions
41. The contractual provisions are clearly to the contrary. MAAK issued the
quotations for specific equipment. The documents relied upon for the
claim for reimbursement of the cancellation charges in MAAK’s
quotations included i. the quotations and their terms, and ii. the
purchase orders themselves, together with iii. MAAK’s letter that the
cancellation penalties would apply. Those quotations contained terms,
including cancellation charges applicable, if the quotation was accepted
by a purchase order which was signed by MAAK. (See condition 7)
42. The purchase orders purported to commit the respondent to purchasing
the equipment in the quotations, which was to be supplied and installed
by MAAK at the prices specified. By the issue of the purchase orders
Waterworks accepted MAAK’s standard terms and conditions of sale
which by clause 1 thereof governed the sale of its products and systems.
MAAK’s letter dated October 4, 2010 advising Waterworks of its liability
for cancellation charges for the purchase order relating to Matura,
specifically states “…please be advised that Waterworks is liable for
cancellation charges if you cancel your purchase order for the supply of
equipment and systems for the above project…” On their face the
purchase orders were orders to purchase almost $27 million worth of
equipment, with liability for cancellation of those purchase orders
amounting to approximately $8 million. The respondent’s claim is for
reimbursement of charges for cancellation of those orders for the
equipment specified in the quotations. There is therefore no basis on
that documentation for concluding that they were not intended to be
purchase orders for the actual supply of equipment.
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Even if purchase orders were not for actual supply of equipment
whether any reasonable basis for cancellation charges
43. The specific charges for cancellation of the purchase orders for specific
equipment are inconsistent with any intention to not actually commit
to purchasing that specific equipment at that time. In fact the very
basis of the claim for reimbursement of cancellation charges was that
these were charges for cancellation of actual purchase orders. If the
reasoning, that these were not purchase orders for the actual supply
of equipment, were to be accepted, this is still completely inconsistent
with the conclusion that the 30% charge stipulated in MAAK’s
quotation for cancellation of those “orders”, though “not for the actual
obtaining of equipment” at that time (see paragraph 50 of the
judgment), was reasonably incurred. Even on that alternative it could
not be a charge or liability reasonably incurred, (and therefore
reimbursable under sub clause 19.6 (c)), if its purported basis – an
actual order to purchase or supply equipment at that time, did not
exist.
Whether the instant purchase orders could have been a logical or
reasonable mechanism for locking in prices
44. Despite the court’s express finding that the purported purchase orders
were not intended to be for the actual obtaining or supply of
equipment, at paragraph 52 of the judgment the trial judge accepted
the (allegedly undisputed) evidence of Mr. Alladina from MAAK, (the
party who was claiming the cancellation charge from Waterworks), that
it was necessary and normal business practice for contractors to enter
into such agreements so as to bind subcontractors to supply the
equipment at the prices used as the basis of the tender. The respondent
contends that that evidence was in fact disputed. Whether or not that
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is so the trial judge found, “His evidence to me makes perfect business
sense. One of the components in arriving at a contract price for
tendering purposes would be the cost of the equipment necessary to be
purchased under the contract. It would be to a contractor’s advantage
to ensure that the prices used as a basis for the tender not increase
between the submission of the tender and the date for purchase”.
Whether the preliminary designs on which the quotations and
purchase orders were based were sufficiently detailed to allow
equipment to be identified and ordered
45. The trial judge did not fully analyse that evidence in the context of the
evidence of Mr. Alladina that MAAK’s quotations were in fact based on
equipment identified in 30% complete preliminary design drawings
submitted at the time of tender.
46. Despite the express finding that purchase orders at the stage that they
were issued would be premature the trial judge concluded, (@
paragraph 58 of the judgment), that those preliminary designs
submitted at the time of tender provided design calculations and
equipment sufficient to allow equipment required to construct the
plants in accordance with those designs to be identified. At paragraph
59 the trial judge maintained the view that “even at the preliminary
stages of the contracts, March 2008, it was possible to identify
equipment necessary for the construction of the plants”.(Emphasis
added)
47. While some equipment might have been identifiable at that stage, and
might even have remained common to both the 30% complete
preliminary designs and any 100% complete final designs approved for
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construction, there was no basis in logic for that conclusion. This
conclusion failed to sufficiently take into account i. the fact that the
designs on which quotations were based were only 30% complete ii.
that the structure of the contract required approval of the final design
before construction of any specific plant, and iii. the actual
circumstances prevailing at the time of each purported purchase order
identified previously in relation, inter alia, to actual sites and
outstanding C.E.Cs, included significant uncertainties.
48. The evidence was that some of the specifications for the plants would
be dependent on the sites actually approved and the terms of any C.E.C
issued. In the case of Matura it depended on the terms of any approved
EIA. For example, i. the volume of water permitted to be abstracted,
which would impact the volume of water to be treated, and ii. the
quality of the intake water which would determine the type and extent
of its treatment and the equipment therefor. (See for example evidence
of Caprariu on behalf of MAAK cited previously)
49. It would have been obvious as a matter of logic and necessary inference
from Mr. Alladina’s own evidence that the equipment in those purchase
orders, which might have been required may have changed if or when
100% complete final designs were approved for construction. In fact he
readily accepted that before there is an authorization for the actual
procurement of equipment final designs would have to be submitted
and WASA’s approval obtained. (See paragraph 47 of the judgment).
50. This was explained by the evidence of Ms. Yearwood, which accurately
summarizes the structure of the contract and is supported by its terms.
(See evidence at paragraph 22 of Ms. Yearwood’s witness statement at
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page 9621, volume 14 of the record of appeal). “Without a final
approved design there would be no certainty as to whether and exactly
what equipment would be needed for construction. Indeed, in the
absence of a C.E.C there could be no certainty as to whether and when
construction could actually begin. Thus the procurement stage, which
operated in parallel with the commencement of civil works, only
logically arises after the design phase of a design built contract is
complete and approval given for the undertaking of construction in
accordance with a final design submission”.
51. The evidence of any individual witness including Mr. Alladina, on whom
the trial judge relied, needed to be analysed in the context of the
express terms of the contract under which the claims were being made.
52. To proceed to place actual purchase orders based on the 30% complete
preliminary designs, would have been premature just as the trial judge
found. Even on the alternative accepted by the trial judge, that is, that
the “purchase orders” were despite their terms, only for the purpose of
sourcing, pricing and locking in prices, they would still have been
premature for the very same reasons. The equipment, the prices of
which were sought to be locked in, was based on only 30% complete
preliminary designs. The actual equipment to be ordered, (the prices of
which allegedly needed to be locked in), was still very dependent on
matters which were too uncertain at the time purchase orders were
issued. It could not be identified with sufficient certainty to justify
incurring a 30% charge for their possible cancellation.
53. To incur liability by committing to pay that 30% cancellation charge on
admittedly and obviously premature purchase orders, whether for the
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actual supply of equipment or only for the purpose of sourcing, pricing
and locking in prices, in those circumstances could hardly make perfect
business sense. In fact it would more properly have been characterized
as a liability not reasonably incurred.
54. The trial judge fell into error in the reasoning which led to the
conclusion that the 30% complete designs were sufficiently detailed to
justify ordering the equipment in the quotations. For example, at
paragraph 56 of the judgment the trial judge recognised that “… it is
highly probable that every piece of equipment may not be ascertainable
until final drawings are produced…”, but concluded at paragraph 57
however that because a contractor, (under a design and build contract),
“must be able to identify the equipment that it is likely to require in
order to complete the construction phase of the contract”, that the
preliminary design in the tender documents “must contain the
information necessary to identify the equipment required to construct
the plant in accordance with the designs” ( see paragraph 58 judgment).
(All emphasis added). However there was no basis on the evidence for
assuming that construction (or the equipment therefor) would
necessarily be on those exact drawings. Mr. Alladina’s own evidence is
that MAAK’s quotations were actually based on 30 % complete
preliminary design drawings submitted at the time of tender. In fact
clause 4 (a) of the Conditions of Contract (see page 801 record of appeal
volume 2) makes it absolutely clear that construction could not begin
until the final designs were approved. On the evidence before the trial
court, and as a matter of logic flowing therefrom, equipment based on
30% complete preliminary design drawings, useful for the purpose of
costing of likely equipment and pricing for tender, would not necessarily
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be the same as equipment required for any 100% complete final design
drawings eventually approved for construction.
55. As a matter of logic locking in prices on equipment, in a quotation
based only on 30% complete preliminary design drawings would
therefore be of limited value. Further, any alleged savings from
“locking in” prices in this manner for such equipment would have to be
considered in the context of 30% cancellation charges applicable in the
event that equipment was cancelled because it was no longer required
based on 100% complete final designs eventually approved for
construction. This was not fully taken into account when the trial judge
concluded at paragraph 54 of the judgment that “the equipment would
have already been sourced and reserved for use as at the construction
stage of both contracts”. In the light of the court’s own express findings
on the prematurity of the issue of purchase orders for the “actual
supply” of equipment the conclusion of the trial court that it yet made
“perfect business sense” if their purpose was simply to source, price
and lock in prices for such equipment, and to incur a 30% cancellation
charge in respect of those orders, is not supportable as a matter of
logic.
56. Further, as a matter of evidence it was not in dispute that approval and
finalization of the site, the volume of water permitted to be abstracted,
the quality of water being abstracted from the site finally approved,
and the type of treatment and equipment needed therefor, were all
critical matters outstanding as at the date of the purported purchase
orders. This is completely inconsistent with the conclusion that the
preliminary design in the tender documents “must therefore contain
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the information necessary to identify the equipment required to
construct the plant in accordance with the designs.”
Changes to the Equipment in the Quotations
57. Mr. Alladina accepted (at volume 18 Record of Appeal page 13003
record of appeal) that the design documents were preliminary design
drawings, and that these could change – though that would be a
variation – based upon a. the final design approval b. possibly the site,
c. absolutely possible based on the quality of raw water, d. absolutely
possible as a result of the CEC, e. as a result of the topographical survey,
f. for any reason that WASA has, and that would all be handled through
variations. However it was the FIDIC contract between the appellant
and respondent that expressly made provision for such variations.
58. The FIDIC contract between Waterworks and WASA provided for the
events of delays and price fluctuations. The purported arrangement
between MAAK and Waterworks was therefore, on the evidence, not
only risky and illogical, but also unnecessary. The reasoning in
paragraph 537 does not stand up to scrutiny. To reject, as the trial judge
does, the suggestion by WASA that Waterworks could have relied on
the contractual clause relating to price fluctuations as variations to the
contract or the clause providing for adjustments for changes in costs,
as “somewhat disingenuous” is not borne out by the court’s own
reasoning . This was that a contractor who can “by way of contractual
arrangements prevent such an increase in price” may prefer to do this
rather than engage in a dispute with the employer as to whether those
7 53. To suggest, as was suggested by WASA, that with respect to the pricing of the equipment Waterworks ought to have relied on the clause in the contract which allows it to recover price fluctuations as variations to the contract or under the clause providing for adjustments for changes in cost is to my mind somewhat disingenuous. Why should a contractor prefer to engage in a dispute with the employer as to whether a price increase is a variation or not or whether it is entitled to an adjustment for changes in the cost of equipment when it is able, by way of contractual arrangements, to prevent such an increase in price.
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contractual clauses applied. The fact is that Waterworks already had
contractual arrangements in place with WASA to deal with variations
and extensions of time by the contractor for matters for matters that
were not its responsibility. (See clause 8.4 of the General Conditions
of Contract record of appeal volume 2, page 746). Such matters
included delays in site acquisition and obtaining C.E.Cs, (see paragraph
10 of the trial judge’s judgment).
59. Further, the contractual arrangements entered into by Waterworks
with MAAK, on proper analysis, did no such thing because, as the trial
judge had previously found, the cost of that benefit to Waterworks was
that it was required, at that very preliminary stage, to bind itself to
purchasing the equipment from MAAK, (notwithstanding that it was
only identified in the 30% complete preliminary design drawings, which
were not approved for construction), and commit itself to the payment
of 30% of the contract price on cancellation.
60. While it might have been reasonable to obtain a quotation for the cost
of equipment based on those preliminary designs, understanding that
the final designs might result in variations in equipment, and therefore
final costs, the issue of law remains whether it was reasonable to issue
purchase orders accepting those quotations which on their face were
for the procurement of equipment (i) when final designs had not been
approved, (ii) when the equipment needed to equip the plant based on
final designs was subject to change, (iii) when the sites had not been
acquired, and (iv) when CECs had not been issued, and might never
have been issued in respect of the specific sites. If they were for the
actual supply of equipment, they were premature. If they were simply
for the pricing and locking in of prices they were equally premature as
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well as being a risky, illogical and unnecessary mechanism for achieving
this.
Interpretation of Contractual Provisions
Evidence to contradict terms of quotations and purchase orders
61. In Arnold v Britton [2015] AC 1619, in particular at paragraphs 14-23
the UK Supreme Court comprehensively summarised the law relating
to contractual interpretation, and reasserted the primacy of language.
However, even before that case it was clear that evidence of pre
contractual negotiations or the intentions of the parties was not
admissible in construing a document. (See Arnold v Britton (all
emphasis added 8).
8 Arnold v Britton [2015] AC 1619 paragraphs14-23 (All emphasis added)
INTERPRETATION OF CONTRACTUAL PROVISIONS [14] Over the past 45 years, the House of Lords and Supreme Court have discussed the correct approach to be adopted to the interpretation, or construction, of contracts in a number of cases starting with Prenn v Simmonds [1971] 3 All ER 237, [1971] 1 WLR 1381 and culminating in Rainy Sky SA v Kookmin Bank [2011] UKSC 50, [2012] 1 All ER 1137, [2011] 1 WLR 2900. [15] When interpreting a written contract, the court is concerned to identify the intention of the parties by reference to “what a reasonable person having all the background knowledge which would have been available to the parties would have understood them to be using the language in the contract to mean”, to quote Lord Hoffmann in Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38, [2009] 1 AC 1101, para 14, [2009] 4 All ER 677. And it does so by focussing on the meaning of the relevant words, in this case cl 3(2) of each of the 25 leases, in their documentary, factual and commercial context. That meaning has to be assessed in the light of: (i) the natural and ordinary meaning of the clause, (ii) any other relevant provisions of the lease, (iii) the overall purpose of the clause and the lease,
(iv) the facts and circumstances known or assumed by the parties at the time that the document was executed, and
(v) commercial common sense, but (vi) disregarding subjective evidence of any party's intentions. In this connection, see Prenn at pp 1384 – 1386 and Reardon Smith Line Ltd v Yngvar Hansen-Tangen (trading as HE Hansen-Tangen) [1976] 3 All ER 570, [1976] 2 Lloyd's Rep 621, [1976] 1 WLR 989, 995 – 997 per Lord Wilberforce, Bank of Credit and Commerce International SA (in liquidation) v Ali [2001] UKHL 8, [2002] 1 AC 251, para 8, [2001] 1 All ER 961, per Lord Bingham, and the survey of more recent authorities in Rainy Sky, per Lord Clarke at paras 21 – 30. [16] For present purposes, I think it is important to emphasise seven factors.
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[17] First, the reliance placed in some cases on commercial common sense and surrounding circumstances (e.g. in Chartbrook, paras 16 – 26) should not be invoked to undervalue the importance of the language of the provision which is to be construed. The exercise of interpreting a provision involves identifying what the parties meant through the eyes of a reasonable reader, and, save perhaps in a very unusual case, that meaning is most obviously to be gleaned from the language of the provision. Unlike commercial common sense and the surrounding circumstances, the parties have control over the language they use in a contract. And, again save perhaps in a very unusual case, the parties must have been specifically focussing on the issue covered by the provision when agreeing the wording of that provision. [18] Secondly, when it comes to considering the centrally relevant words to be interpreted, I accept that the less clear they are, or, to put it another way, the worse their drafting, the more ready the court can properly be to depart from their natural meaning. That is simply the obverse of the sensible proposition that the clearer the natural meaning the more difficult it is to justify departing from it. However, that does not justify the court embarking on an exercise of searching for, let alone constructing, drafting infelicities in order to facilitate a departure from the natural meaning. If there is a specific error in the drafting, it may often have no relevance to the issue of interpretation which the court has to resolve. [19] The third point I should mention is that commercial common sense is not to be invoked retrospectively. The mere fact that a contractual arrangement, if interpreted according to its natural language, has worked out badly, or even disastrously, for one of the parties is not a reason for departing from the natural language. Commercial common sense is only relevant to the extent of how matters would or could have been perceived by the parties, or by reasonable people in the position of the parties, as at the date that the contract was made. Judicial observations such as those of Lord Reid in Wickman Machine Tools Sales Ltd v L Schuler AG [1974] AC 235, 251, [1973] 2 All ER 39, [1973] 2 WLR 683 and Lord Diplock in Antaios Cia Naviera SA v Salen Rederierna AB (The Antaios) [1985] AC 191, 201, [1984] 3 All ER 229, [1984] 3 WLR 592, quoted by Lord Carnwath at para 110, [1984] 3 All ER 229, [1984] 3 WLR 592, have to be read and applied bearing that important point in mind. [20] Fourthly, while commercial common sense is a very important factor to take into account when interpreting a contract, a court should be very slow to reject the natural meaning of a provision as correct simply because it appears to be a very imprudent term for one of the parties to have agreed, even ignoring the benefit of wisdom of hindsight. The purpose of interpretation is to identify what the parties have agreed, not what the court thinks that they should have agreed. Experience shows that it is by no means unknown for people to enter into arrangements which are ill-advised, even ignoring the benefit of wisdom of hindsight, and it is not the function of a court when interpreting an agreement to relieve a party from the consequences of his imprudence or poor advice. Accordingly, when interpreting a contract a judge should avoid re-writing it in an attempt to assist an unwise party or to penalise an astute party. [21] The fifth point concerns the facts known to the parties. When interpreting a contractual provision, one can only take into account facts or circumstances which existed at the time that the contract was made, and which were known or reasonably available to both parties. Given that a contract is a bilateral, or synallagmatic, arrangement involving both parties, it cannot be right, when interpreting a contractual provision, to take into account a fact or circumstance known only to one of the parties. [22] Sixthly, in some cases, an event subsequently occurs which was plainly not intended or contemplated by the parties, judging from the language of their contract. In such a case, if it is clear what the parties would have intended, the court will give effect to that
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Language of the contract
62. Principles of particular application to the instant case that can be
extracted therefrom include the following. The clear language of the
quotations and the purchase orders simply did not allow the
construction that they were not orders for the actual supply of
equipment at that time. i. The intention of the parties is to be
ascertained by the language of the contract. ii. There was no ambiguity
to be resolved and the trial judge did not refer to any. iii. Nowhere in
the documentation being relied upon did it stipulate that the purchase
orders were not in fact for the actual supply of equipment at that time.
iv. The clearer the natural meaning the more difficult it would be for a
court to justify departing from it. The trial judge is not justified
therefore in substituting for that language the court’s understanding of
the effect of the purchase orders which was inconsistent with that
language. The trial judge having found that purchase orders for the
actual supply of equipment would have been premature, was not
justified in negating that conclusion by completely ignoring their
language, and that of the quotations.
Evidence of subjective intention - Alleged industry practice
63. Further, as a matter of law the evidence of Mr. Alladina, (the
representative of MAAK, the issuer of the quotation and the
beneficiary of the purported cancellation charge), as to alleged
intention. An example of such a case is Aberdeen City Council v Stewart Milne Group Ltd [2011] UKSC 56, 2012 SCLR 114, [2011] 50 EG 58 (CS), where the court concluded that “any . . . approach” other than that which was adopted “would defeat the parties' clear objectives”, but the conclusion was based on what the parties “had in mind when they entered into” the contract (see paras 17 and 22). [23] Seventhly, reference was made in argument to service charge clauses being construed “restrictively”. I am unconvinced by the notion that service charge clauses are to be subject to any special rule of interpretation. …
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industry practice which was uncritically accepted, could not in fact be
accepted at all, if it was inconsistent with the clear terms of the
contract constituted in the purchase order and the quotation.
64. Evidence by him of some other subjective intention was not admissible
for the purpose of the interpretation of that contract between
Waterworks and MAAK. That evidence needed to be disregarded for
that purpose, (paragraph 14 (vi) Arnold v Britton), as it could not
address the construction of the purchase orders themselves. Those
were issued by Waterworks. Its intention in so issuing them could only
be derived from the language that it used. However even evidence
from Waterworks of its subjective intention was not admissible as a
matter of law. Such evidence was to be disregarded. The trial judge
erred in accepting the evidence of MAAK as to the intention of either
MAAK, or Waterworks in the issue of the purchase orders. The result
of that error was that the premature and unreasonable nature of the
purchase orders was disregarded in favour of an impermissible
conclusion, largely based on Alladina’s evidence that despite the fact
that their terms expressed no such thing, they were intended to give
effect to an alleged industry practice.
Commercial Common Sense
65. Commercial common sense – or its equivalent in this case -“perfect
business sense” -could not have been invoked to undervalue the
importance of the language of the provisions being construed,
(paragraph 17 Arnold v Britton), this is all the more so when
commercial common sense does not justify for the reasons set out
extensively above, the alternative construction of the purchase order
being merely a mechanism for locking in prices in fact commercial
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common sense is only relevant at the date the contract is made (see
paragraphs 19 and 21 Arnold v Britton), and in those circumstances
they could not have been a logical or reasonable mechanism for this
purpose either as a matter of evidence or logic, (see paragraph 44
above).
66. Accordingly, the appeal in respect of claim i. must be dismissed. The
appeal in respect of claims ii. and iii. must be allowed.
Orders
67. In those circumstances it is ordered as follows:
i. The orders of the trial judge that the appellant pay to the
respondent under sub clause 19.6 (a): a. the sum of
$1,306,577.00 in respect of the Matura contract and b. the sum
of $600,000 in respect of the Yarra contract are affirmed.
ii. The orders of the trial judge that the appellant pay to the
respondent under sub clause 19.6 (c) the sums of a.
$4,619,028.30 in respect of the Matura contract and
$3,577,942.46 in respect of the Yarra contract, are set aside.
iii. The orders of the trial judge that the respondent do pay to the
appellant the amounts of the advance payment under the
Matura contract of $3,082,547.33, and under the Yarra contract
the advance payment in the amount of $2,404,228.00, are
affirmed.
iv. It is ordered that amounts payable by the appellant to the
respondent under sub clause 19.6 (a) in the sums of
$1,306,577.00 and $600,000 as above are to be set off against
the advance payments, to be repaid by the respondent to the
appellant, in the amounts of $3,082,547.33 and $2,404,228.00.
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v. It is ordered that the difference of $3,580,198.33 is to be paid by
the respondent to the appellant with interest at the rate of 2.5%
per annum from the date of the filing of the appellant’s
counterclaim on October 17, 2011 until April 17, 2014, and
thereafter at the statutory rate of 12% per annum until June 10,
2016 and thereafter at the rate of 5% per annum until payment,
vi. The orders of the trial judge with respect to costs and interest
are set aside.
vii. The respondent is to pay to the appellant a. in respect of the trial,
costs on the basis prescribed in the Civil Proceedings Rules for a
claim in the total amount of $3,580,198.33 plus interest at the
rate of 2.5% per annum from October 17th 2011 until April 17th
2014, ( the prescribed costs) b. in respect of the appeal, two
thirds of the prescribed costs , unless written submissions are
filed by the respondent contending otherwise within 14 days
hereof.
viii. In that event the appellant is at liberty to file written submissions
in response within 14 days thereafter.
………………………………………………….
Justice of Appeal
Peter A. Rajkumar
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Smith JA
1. I have read the judgment of Rajkumar J.A. and I agree with it. However, I
would like to add the following observations with respect to the conclusion
of Rajkumar J.A. that the Respondent’s claims for the value of work done
under clause 19.6(c) of the contracts were not reasonably incurred.
Specifically, I direct attention to the opinion of Rajkumar J.A. which he
expressed at paragraphs 44-53, that it was not reasonable to bind the
Appellant to pay the cancellation charges of MAAK in respect of the
“purchase orders” for the supply of equipment for two water treatment
plants.
2. At paragraph 52 of her reasons, the trial judge accepted that the practice
of locking in prices at such a preliminary stage by placing “orders” with
MAAK was both (i) unchallenged; and (ii) made perfect business sense.
Both these findings were not properly considered by the trial judge on the
facts of this case.
3. I repeat paragraph 52 of the trial judge’s reasons here:
“52. Allidina’s evidence that it was necessary and normal
business practice for contractors to enter into such
agreements so as to bind subcontractors to supply the
equipment at the prices used as the basis of the tender
was not challenged either by way of cross-examination or
by the submission of evidence to the contrary. His
evidence to me makes perfect business sense. One of the
components in arriving at a contract price for tendering
purpose would be the cost of the equipment necessary to
be purchased under the contract. It would be to a
contractor’s advantage to ensure that the prices used as a
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basis for the tender not increase between the submission
of the tender and the date for purchase.”
(my emphasis)
4. I will now comment on two aspects of the trial judge’s findings at
paragraph 52; namely:
i. The allegedly unchallenged evidence of Mr. Allidina; and
ii. The opinion of the trial judge that Mr. Allidina’s evidence made
perfect business sense.
(i) The allegedly unchallenged evidence of Mr. Allidina
5. Mr. Allidina was a representative of MAAK (which was the company that
was subcontracted by the Respondent to supply and install equipment at
the water treatment plants). He testified on behalf of the Respondent to
the effect that it was normal business practice for contractors (like the
Respondent) to enter into agreements to bind subcontractors (like MAAK)
to supply equipment at fixed prices even at this preliminary stage of a main
contract as between a contractor and the employer (the Appellant).
6. The trial judge stated that Mr. Allidina’s evidence was not challenged by
way of cross-examination or by the submission of evidence to the contrary.
However, there was both: (a) cross-examination on this issue; and (b)
evidence led on behalf of the Appellant to the contrary.
In relation to (a) above, in cross-examination, the Appellant repeatedly
suggested to Mr. Allidina that the fixing of prices in these situations was
not industry practice and/or good industry practice.9
9 See Notes of Evidence dated 20 November, 2013 at page 13913 of the Record of Appeal, Volume 18.
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In relation to (b) above, the witness statements of two of the Appellant’s
witnesses actually attacked this alleged industry practice and suggested
that it was not acceptable or reasonable industry practice to make such
binding arrangements with subcontractors until the final designs of the
main contract had received approval (which was not the case here).10
7. There was no unchallenged industry practice as stated by the trial judge
and her conclusions based on this allegedly unchallenged industry practice
are flawed.
(ii) Did Mr. Allidina’s evidence make perfect business sense?
8. The starting point for this discussion is the fact that this alleged industry
practice as testified to by Mr. Allidina was not a matter that was provided
for in the main contract between the Appellant and the Respondent. In
fact, that practice ran counter to an express term of the main contract
between the Appellant and the Respondent.
9. According to clause 13.8 of the general conditions of the main contract:
“Variations and Adjustments...Adjustments for Changes in
Costs: 13.8 ...If this Sub-Clause applies, the amounts
payable to the Contractor shall be adjusted for rises or falls
in the cost of labour, Goods and other inputs to the Works,
by the addition or deduction of the amounts determined by
the formulae prescribed in this Sub-Clause.”
10 See paragraph 27 of the Witness Statement of Eric Jones at page 10468 of the Record of Appeal, Volume 15. See paragraph 20 of the Witness Statement of Shenelle Yearwood at page 9619 of the Record of Appeal, Volume 14.
41 | P a g e
10. The main contract made specific provisions for variations in any changes
in costs payable to the contractor, which would include changes in prices
between the design phase and the construction phase of the contract. This
was an express provision of the contract as opposed to an
uncommunicated and subjective intention of the Respondent to lock in
prices at the design phase of the contract.
11. The United Kingdom Supreme Court case of Arnold v Britton11 (and
accepted by the Privy Council in Attorney General v River Dorée Holdings
Ltd [2017] UKPC 39) cited by Rajkumar J.A. is instructive on this point.
At paragraph 15 of that decision, Lord Neuberger observed that in
construing the meaning of a provision of a contract, the relevant words of
the contract have to be examined “in their documentary, factual and
commercial context” but “disregarding the subjective evidence of any
party’s intentions.”12
12. By accepting the evidence of Mr. Allidina in support of a substantive,
uncommunicated intention of the Respondent of an alleged industry
practice to lock in prices at this stage of the contract over the express
provisions of the contract, the trial judge erred by failing to attach the
proper significance to the express provisions of the contract.
13. Another cause for concern in the trial judge’s acceptance of the evidence
of Mr. Allidina as making “perfect business sense” is that the analysis of
“perfect business sense” was done against the backdrop of all the facts as
were now known to the court.
11 [2015] AC 1619 12 See paragraph 15 of Arnold v Britton, supra
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14. In assessing the evidence of Mr. Allidina at paragraph 52 of her reasons,
the trial judge went on to opine that:
“One of the components in arriving at a contract price for
tendering purpose would be the cost of the equipment
necessary to be purchased under the contract. It would be
to a contractor’s advantage to ensure that the prices used
as a basis for the tender not increase between the
submission of the tender and the date for purchase.”13
15. Further, at paragraph 53 of her reasons, the trial judge also went on to
reject the Appellant’s contentions with respect to clause 13.8 above (re
price fluctuations) as being disingenuous. She stated:
“Why should a contractor prefer to engage in a dispute
with the employer as to whether a price increase is a
variation or not or whether it is entitled to an adjustment
for changes in the cost of equipment when it is able, by
way of contractual arrangements, to prevent such an
increase in price.”
16. While it may have been to a contractor’s (such as the Respondent)
advantage to lock in prices at this preliminary stage of the main contract,
this position was not communicated to the Respondent (Employer) at the
time the purchase orders were issued. This in effect was a retrospective
invocation of commercial common sense by the trial judge. This
retrospective invocation of commercial business sense was exacerbated
by the rejection of the express terms of the contract to the contrary (see
clause 13.8 of the contract and paragraphs 9, 10 and 15 above).
13 See paragraph 52 of the trial judge’s decision.
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17. At paragraph 19 of Arnold v Britton, Lord Neuberger states the point
thus:
“The third point I should mention is that commercial
common sense is not to be invoked retrospectively. The
mere fact that a contractual arrangement, if interpreted
according to its natural language, has worked out badly, or
even disastrously, for one of the parties is not a reason for
departing from the natural language. Commercial
common sense is only relevant to the extent of how
matters would or could have been perceived by the
parties, or by reasonable people in the position of the
parties, as at the date that the contract was made. Judicial
observations such as those of Lord Reid in L Schuler AG v
Wickman Machine Tool Sales Ltd [1973] 2 All ER 39 at 45,
[1974] AC 235 at 251 and Lord Diplock in Antaios Cia
Naviera SA v Salen Rederierna AB, The Antaios [1984] 3 All
ER 229 at 233, [1985] AC 191 at 201, quoted by Lord
Carnwath at para [110], have to be read and applied
bearing that important point in mind.”
(my emphasis)
18. The retrospective invocation of an alleged industry practice by the trial
judge to make “commercial common sense” of a business arrangement or
to correct or contradict an express contractual provision was not in
keeping with the proper interpretation of the contractual arrangement
between the parties.
19. Therefore, on the case as presented, it was not proper for the trial judge
to opine that the evidence of Mr. Allidina (or any other evidence of the
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Respondent’s witnesses) was unchallenged and/or made perfect business
sense.
20. That being the case, the trial judge erred when she upheld the claim for
cancellation charges in respect of the “purchase orders” as being
reasonably incurred on the grounds of the alleged or any industry practice.
.........................................
G. Smith
Justice of Appeal