Summary

The court determined various preliminary issues in connection with a steelwork construction subcontract, including the extent of the parties obligations under the heads of agreement and supplemental agreement, the extent of the parties agreement as to valuation, the main contractor's entitlement to an abatement in respect of defective work and whether the main contractor or subcontractor had been entitled to repudiate the subcontract.

Facts

The court had to determine preliminary issues in connection with various contracts that the defendant steelwork subcontractor (B) had entered into with the main contractor (M). B had entered into a subcontract with M based upon JCT Dom 2 to design, fabricate, deliver and erect the structural steelwork for the new National Stadium at Wembley, including a bowl and huge steel arch. The parties had entered into a heads of agreement that was amended four months later by a supplemental agreement. The parties were in disagreement as to the correct valuation of B's works and M denied that a final valuation figure had been orally agreed. Each party maintained that the other was in repudiatory breach of contract. M claimed that B was in breach by negligently constructing defective members for the arch, failing to raise the arch in accordance with clause 9 of the heads of agreement and by giving notice that it would no longer carry out any further work. B claimed that M was in breach by revaluing the agreed gross valuation, deducting various payments and failing to use reasonable endeavours to agree to a new programme for completion of the subcontract works in accordance with clause 7 of the supplemental agreement. M had referred the various disputes to adjudication, but sought an abatement of the price payable to B for the works. M submitted that (1) clauses 3.3 and 9.4 of the supplemental agreement did not have retrospective effect; (2) clause 9 of the heads of agreement imposed upon B an implied obligation to execute the works with such diligence and expedition as were reasonably required in order to meet the dates of the programme; (3) an average erection rate of 400 tonnes per week was necessary to complete certain phases of the bowl construction; (4) sums payable under section 6 of the supplemental agreement were in settlement of all disputed variations; (5) clause 2.1 and 2.2 of the supplemental agreement were not restricted to latent defects so that M was not prevented from claiming against B for defects; (6) no oral agreement had been reached as to the final valuation of B's works as M had only issued an interim valuation certificate; (7) M was not in repudiatory breach by refusing to make various payments, but B had repudiated the subcontract; (8) M was not in breach of clause 7 of the supplemental agreement and B's claim for damages for the loss of sums that it would have made on the negotiation of the reprogramming of the completion of the subcontract was not sustainable; (9) M was entitled to claim for an abatement in respect of the defective work as set out in various schedules.

Held

(1) The supplemental agreement had retrospective effect and clauses 3.3 and 9.4 of the supplemental agreement superseded clause 9 of the heads of agreement. (2) There was no implied term that B should execute the works with diligence and expedition as was reasonably required in order to meet the dates of the programme, BP Refinery Pty Limited v President, Councillors and Ratepayers of Shire of Hastings (1978) 52 ALJR 26 (Privy Council) and Philips Electronique Grand Public SA v British Sky Broadcasting Ltd Independent, October 31, 1994 applied. (3) Clause 9 of the heads of agreement obliged B to complete the subcontract works in accordance with the projected programme, but only in respect of certain activities. B was not permitted to apply for an extension of time to complete the bowl steelwork, but could apply for an extension of time to raise the arch. B was not required to complete by any particular date. It was quite impossible to derive from clause 9 an obligation imposed on B to erect steelwork at an average rate of 400 tonnes per week. (4) Insofar as variations were disputed, the costs of designing and fabricating the varied elements of the work, whether offsite or onsite, were compromised by the terms of the supplemental agreement. (5) The phrase "any claim that the contractor might have", as contained in clause 2.2, was clearly used to denote any present or future claim by M against B. The clause was preserving claims, not releasing them and it contained no restriction to future claims or to unknown claims. Clause 2.2 was therefore not limited to latent defects and no such restriction could be read into the clause, either by reason of the circumstances in which the agreement was made or by reason of the purpose that it was intended to serve. (6) In view of the evidence, the parties had agreed to a figure that M was prepared to pay in its regular valuation certificates, but not as a final valuation. (7) M's refusal to make further payments did not amount to a repudiatory breach of contract as M had referred the disputes to adjudication and had abided by the outcome of the adjudicator's decision. B was therefore not entitled to treat the subcontract as at an end and was in repudiatory breach of contract by giving notice that it would stop work and by then stopping work. (8) The obligation in clause 7 of the supplemental agreement, which provided that the parties would use reasonable endeavours to agree, was too uncertain to impose a contractual obligation. Little v Courage Ltd Times, January 4, 1995 and Phillips Petroleum Company UK Ltd v Enron Europe Ltd (1997) CLC 329 applied. B's claim for damages in relation to the reprogramming of the completion of the subcontract was therefore not sustainable. (9) The best method of ascertaining diminution in value was by reference to the cost of the necessary works to remedy the defects, since the partially completed steelwork of a national stadium under construction did not have a market value in the conventional sense, and the steelwork only had a value to the main contractor, who was under an obligation to produce a completed stadium. M's claim for overheads, insurance, alleged defects and low erection rates could form no part of a claim for diminution in value and should be omitted. In relation to the claim for defective design work, the defence of abatement was not available and M's only remedy was a claim for damages for professional negligence.

Judgment accordingly.