Laserbore Limited v Morrison Biggs Wall Limited

Queen's Bench Division (Official Referee's Business)

25 August 1993

 

N Jefford for the Plaintiffs; A Burr and E Baker for the Defendants

 

JUDGE BOWSHER QC

INTRODUCTION

The plaintiffs are specialists in microtunnelling. The defendants are building and engineering contractors. The parent company of the group which includes the plaintiffs did once include a specialist tunnelling company, but that company was closed down in 1975. I accept the defendants' evidence that the defendants are not skilled in microtunnelling, but they are experienced in laying pipelines and they do frequently instruct specialist sub-contractors to do tunnelling and pipejacking for them, and they are experienced as main contractors in instructing such specialist sub-contractors.

Microtunnelling is a sub-division of pipejacking. Pipejacking is the building of underground pipelines by assembly at the foot of an access shaft and pushing them through the ground instead of assembling them in situ. Where the pipe is more than 1 metre in diameter, miners or tunnelling machines work inside or beyond the end of the pipe and the pipe is pushed through by hydraulic rams in the thrust shaft, reacting against the rear wall of the thrust shaft. Where the pipe is less than 1 metre in diameter, a man cannot work in the pipe and a similar system is used save that the excavation of the tunnel face is done by a remotely controlled tunnelling machine: this is called microtunnelling.

The plaintiffs claim payment for some microtunnelling done by them as sub-contractors to the defendants who were acting as main contractors to Shell Chemicals UK Limited (Shell). The defendants make a comparatively small counterclaim.

In May, 1991, the defendants agreed with Shell to construct the North West Ethylene Pipeline from Grangemouth to Moffat. It is typical of the construction industry's reception of metrication that that pipeline is described as being about 98.04 km in length and 10" in diameter.

Most of the pipeline was laid in open trenches by the defendants using their own resources. Where there were road, rail or main river crossings, the defendants employed specialist sub- contractors.

This action concerns a rail crossing known as RLX7 at Elvanfoot under the main railway line from Glasgow to London, close to and to the west of the A74 road, about 44 miles north of Carlisle. Although the general direction of construction was from north to south, because of a loop in the pipeline and the railway, at this particular crossing the direction of construction was from south to north. The south side of the railway was called the thrust side and the north side was called the reception side. It is significant that at the point of the crossing, the railway was in a shallow cutting, and the bed of the railway was lower than much of the surrounding ground.

 

THE CONTRACT

This action came before me on 16 March, 1992 when there was an application to stay the action under section 4 of the Arbitration Act, 1950. An issue was raised as to whether there was any agreement made between the parties which contained an agreement for submission to arbitration. To determine that issue it was necessary to hear oral evidence, and I therefore ordered the trial of a preliminary issue to determine what was the contract between the parties.

That preliminary issue was tried by Mr Recorder Barry Green QC and he decided that there was no arbitration agreement. His decision, from which there has been no appeal, was set out in certain declarations made on 10 June, 1992 as follows:

1. A contract arose between the Plaintiff and Defendant which was contained in a fax dated 9.8.91 from the Defendant to the Plaintiff enclosing a letter of intent and a letter of 9.8.91 from the Plaintiff to the Defendant.

2. That contract was contained solely in the abovementioned documents and not also in any oral conversation. The express terms of that contract are contained in the said documents.

3. No other material contract arose between the parties.

The existence of any implied terms in that contract was left open by Mr Recorder Green QC.

The fax dated 9 August was simply in the form of a covering letter. The letter of intent stated an intention to award a sub-contract to the plaintiffs for microtunnelling operations at RLX7 subject to the placing of a formal sub-contract, agreement of a programme, and formalisation of an agreed sub-contract price to be based on the plaintiffs' quotation dated 9 August, 1991. Those conditions were never satisfied. However, the letter of intent continued:

"You are hereby requested to mobilise and commence all operations necessary to undertake and complete the subcontract works.

. . .

Until such time that a formal subcontract is executed between us Morrison Biggs Wall will reimburse Laserbore Limited fair and reasonable payment for all works executed and agreed under this interim arrangement.

MBW can at any time terminate this interim agreement at their sole discretion subject to formal notification to Laserbore Limited and the payment conditions noted above."

The letter of 9 August, 1991, simply confirmed acknowledgement and acceptance of the defendants' letter and stated that the plaintiffs' Method Statement would be sent on 12 August, 1991.

The defendants never did exercise their right to terminate the interim agreement.

On 12 August, 1991, the plaintiffs did submit a Method Statement. In the covering letter, reference was made to the ICE Conditions of Contract 5th Edition. The covering letter also contained an important paragraph:

"The microtunnelling rate is quoted on the basis that it is viable for the foresaid technique and free from obstruction. If the tunnel is aborted due to encountering an obstruction, then we require to be paid in full for that part of the work completed, plus the cost of any additional resources to complete the contract."

That letter never became a contractual document. But the quotation sent with it has been used by the plaintiffs' Quantity Surveying expert to support the claim for payment made by the plaintiffs as evidence of what is fair and reasonable. The prices in that quotation were not rejected. For those reasons, it is to be noted that the figures in the quotation were put forward on the basis of the term which I have set out, which was very favourable to the plaintiffs. I accept the evidence of the plaintiffs' expert that if that term had not been included with the quotation, the prices quoted would have been higher. It has been said that that term was agreed even though the document itself never became a contractual document. Another competing sub-contractor (DCT) put forward a term to a similar effect.

 

THE ISSUES

Pursuant to the interim agreement, the plaintiffs started work. They built a thrust pit and almost completed a reception pit. They then started tunnelling from the thrust pit side but aborted the tunnel after a very short distance. The plaintiffs then built a larger thrust pit and a differently designed reception pit not far from the first and successfully bored a tunnel in a new situation with more powerful equipment.

Are the plaintiffs entitled to be paid for all the work they have done or only for some of it? At what rates are they to be paid? Is anything to be deducted by way of set-off and counterclaim?

The plaintiffs claim that they are entitled to be paid a fair and reasonable sum for all the work they have done. Alternatively, the burden is on the plaintiffs to show:

1. That the amount of work undertaken by them was reasonable;

2. That the charges made for that work were fair and reasonable.

The defendants challenge the plaintiffs on both those heads. The defendants also allege certain implied terms and misrepresentations as challenges to the claim and also as a basis for their counterclaim.

 

THE CONSTRUCTION OF THE EXPRESS TERMS OF THE CONTRACT

The express terms of the contract entitle the plaintiffs to be paid for "all work executed and agreed under this interim arrangement". There are difficulties in that some of the work executed is said not to have been agreed. Moreover, the contract was limited to " operations necessary to undertake and complete the subcontract works". Not surprisingly, there was no agreement to pay for unnecessary works, nor for work unreasonably undertaken. It is accordingly necessary for me to consider what of the work undertaken by the plaintiffs was necessary and reasonable. However, since the work was closely supervised both by the defendants and by Shell, and since the defendants had the right at any time to terminate the interim agreement at their sole discretion but did not do so, there is a strong presumption that all the work done by the plaintiffs was done with the agreement of the defendants. The Shell inspectors had no contractual function in the contract between the plaintiffs and the defendants, but as a matter of practicality, if at any time Shell inspectors had expressed any dissatisfaction with what was being done, it cannot be doubted that the defendants would have insisted that their wishes were met on pain of instant termination of the interim agreement.

The defendants place great stress on the word "reimburse" in the letter of intent. Some dictionary definitions indicate that reimbursement is a repayment of money expended. The defendants argue that it follows that payment to the plaintiffs for work done should be computed on the basis of costs incurred plus an amount for profit. I cannot accept that argument. The letter of intent must be construed objectively, but it has to be construed sensibly with the knowledge that people writing letters in the construction industry are not walking dictionaries. A word in a commercial letter should not be analyzed in the same way as a word in a statute or a word in a standard form contract agreed after much deliberation by a learned committee. In any event, the Shorter Oxford English Dictionary gives one of the meanings of reimburse as "recompense", and one of the meanings for recompense is given as "to reward . . . for something done", that is, the equivalent of the contractual words, "fair and reasonable payment for all works executed [etc]". In its context, I construe the word "reimburse" as meaning "pay "rather than "repay". There would be no commercial sense in an agreement that the defendants would reimburse the plaintiffs for their costs of doing the work. Accordingly, the defendants accept a liability to pay costs plus profit and overheads: but those words are not to be found in the letter of intent. For that reason, I believe that the words of the letter must be construed in a more colloquial sense.

 

IMPLIED TERMS AND MISREPRESENTATIONS -- GENERAL CONSIDERATIONS

The defendants' case with regard to the implied terms and representations is as follows:

"1. From the outset, the plaintiffs held themselves out as microtunnelling specialists, stating that they were "experienced in working in a wide range of ground conditions" and that the company was "rapidly gaining a reputation for applying well designed tunnelling solutions in difficult and uncompromising conditions". The defendants also say that they relied implicitly upon the plaintiffs as specialists and would have sought further assurances and made additional enquiries should Mr Whitehouse (the plaintiffs' joint managing director) not have appeared fully confident as to the capabilities of the machinery he proposed.

2. On about the 8th August 1991, at a site meeting attended by the plaintiffs [Mr Whitehouse], the defendants [Mr Raine] and Shell [Messrs Richards and Yeo], the defendants informed the plaintiffs that the required depth of the tunnel was 4 metres below track level. At the same site meeting, a trial hole was dug adjacent to the proposed crossing location, to a depth of some 6 metres. The plaintiffs represented to the defendants that they intended to carry out the proposed tunnelling work with an Iseki Unclemole machine and they handed to the defendants a 16 page brochure relating to the machine which included within it a specification therefor. The plaintiffs thereby expressly or impliedly represented to the defendants that the Iseki Unclemole machine was capable of carrying out the tunnelling work proposed in the location required. In particular, the plaintiffs expressly stated that the material exposed by the trial hole was capable of being satisfactorily dealt with by the machine in question and (in the context of the site investigation documentation which they had) apparently judged the material in question to be "appropriate" for the use of the Iseki machine.

3. In reliance upon the above representations (the defendants having made known to the plaintiffs the requirement of completing the tunnelling in accordance with time restrictions laid down by ScotRail) and in reliance upon the skill, expertise and judgment of the plaintiffs as to the appropriate tunnelling machine to be used for the job, the defendants sent their letter of intent dated 9th August 1991.

4. In the above circumstances, the defendants contend that there were implied terms of the contract contained in the exchange of letters on the 9th August 1991;

(a) That the Iseki Unclemole tunnelling machine to be utilised by the plaintiffs would be reasonably fit for the purpose of carrying out the tunnelling works required of it;

(b) That the plaintiffs would plan and execute the works requested of them with reasonable skill and care;

(c) That the work methods adopted by the plaintiffs would be reasonably economic;

(d) That the plaintiffs would take reasonable care to provide for the defendants a cost-effective route to construction of the tunnel.

5. In making the above representations, the plaintiffs owed to the defendants a duty of care in tort to take reasonable care to ensure that such representations were accurate. The plaintiffs also owed to the defendants a duty of care in the tort of negligence in relation to the selection by the plaintiffs of methods of construction and/or in the execution of such methods, so as to prevent the defendants from suffering economic loss."

The case put forward by the plaintiffs in relation to the alleged misrepresentation is that the most Mr Whitehouse may have done was to express the view that the Iseki machine was capable of dealing with the material exposed in the trial hole in the drive horizon, namely, gravel with cobbles of 50 to 100 mm diameter. It is accepted on both sides that the Iseki machine would deal with cobbles of those dimensions. In part, the defendants' pleading supports the plaintiffs' case. Paragraph 3(4) of the Re-Amended Defence and Counterclaim pleads that, "In particular Laserbore expressly stated that the material exposed by the trial hole was capable of being satisfactorily dealt with by the [Unclemole] machine". That is very much what the plaintiffs say Mr Whitehouse said. The question is whether he went further expressly or by implication to represent or promise that the Unclemole could deal satisfactorily with all the material in the 31 metres behind the material exposed by the trial hole. The defendants' case at the trial appears to have been that the plaintiffs ought reasonably to have anticipated encountering larger cobbles or boulders and that any statement made by Mr Whitehouse should be regarded as a representation or warranty in relation to those larger boulders.

By the Re-Amended Statement of Claim the plaintiffs also allege implied terms of the contract as follows:

"(i) The defendants would not hinder or prevent the plaintiffs from carrying out and completing the works carried out under the contract in a regular and ordinary manner;

(ii) The defendants would do everything reasonably necessary in order to enable the plaintiffs to carry out and complete the works carried out under the contract in a regular and ordinary manner;

(iii) The defendants would reimburse the plaintiffs fair and reasonable payment in accordance with the contract within a reasonable time of the works being executed."

In this case, the express terms of the contract have been determined by the Recorder. Should any further terms be implied?

In some cases, where there is an apparently complete bargain, the courts are willing to add a term on the ground that without it the contract will not work: Liverpool City Council v. Irwin [1977] AC 239, [1976] 2 All ER 39 at 253 G of the former report per Lord Wilberforce. Lord Wilberforce made it plain that any term implied of necessity must be reasonable but reasonableness of itself alone is not enough. Efforts to suggest that the courts have a power to rewrite contracts merely to make them reasonable in the eyes of the court have been conclusively quashed. As Lord Salmon said in the same case at page 262 G:

"Unless a warranty or term is in all the circumstances reasonable there can be no question of, implying it into a contract, but before it is implied much else besides is necessary, for example that without it the contract would be inefficacious, futile and absurd".

That type of implication is usually founded upon some words of the judgment of Bowen LJ in The Moorcock (1899) 14 PD 64 at 68. The words most often cited from that judgment are as follows:

"Now an implied warranty, or, as it is called, a covenant at law, as distinguished from an express contract or express warranty, really is in all cases founded on the presumed intention of the parties, and upon reason. The implication which the law draws from what must obviously have been the intention of the parties, the law draws with the object of giving efficacy to the transaction and preventing such a failure of consideration as cannot have been within the contemplation of either side; and I believe if one were to take all the cases, and they are many, of implied warranties or covenants in law, it will be found that in all of them the law is raising an implication from the presumed intention of the parties with the object of giving to the transaction such efficacy as both parties must have intended that at all events it should have."

It must be stressed that in the last lines of that quotation Bowen LJ referred to the intentions of both parties. That reference to the intention of both parties is repeated in the following words of the judgment which are less often cited:

"In business transactions such as this, what the law desires to effect by the implication is to give such business efficacy to the transaction as must have been intended at all events by both parties who are business men; not to impose on one side all the perils of the transaction, or to emancipate one side from all the chances of failure, but to make each party promise in law as much, at all events, as it must have been in the contemplation of both parties that he should be responsible for in respect of those perils or chances".

Nearly 100 years later, Slade LJ had to emphasise that the presumed intention was the intention of both parties: Duke of Westminster v. Guild [1985] QB 688, [1984] 3 All ER 144 at 699G of the former report.

MacKinnon LJ in Shirlaw v. Southern Foundries (1926) Ltd [1939] 2 KB 206 at 227 expressed some reservations concerning The Moorcock:

"I recognise that the right or duty of a court to find the existence of an implied term or implied terms in a written contract is a matter to be exercised with care; and a court is too often invited to do so upon vague and uncertain grounds. Too often also such an invitation is backed by the citation of a sentence or two from the judgment of Bowen LJ in The Moorcock. They are sentences from an extempore judgment as sound and sensible as all the utterances of that great judge; but I fancy that he would have been rather surprised if he could have foreseen that these general remarks of his would come to be a favourite citation of a supposed principle of law, and I even think that he might sympathise with the occasional impatience of his successors when The Moorcock is so often flushed for them in that guise".

The words of Bowen LJ in The Moorcock have become revered as statements of principle, though the application of the principle to the facts of that case has been doubted. But the principle should be applied with care.

The implication of a term on the ground of obviousness may occur in circumstances not always differing from the ground of necessity. That the term to be implied is obvious was a ground put forward by MacKinnon LJ in Shirlaw at page 227:

"If I may quote from an essay which I wrote some years ago, I then said: 'Prima facie that which in any contract is left to be implied and need not be expressed is something so obvious that it goes without saying; so that, if, while the parties were making their bargain, an officious bystander were to suggest some express provision for it in their agreement, they would testily suppress him with a common 'Oh, of course'".

The question whether terms should be implied has to be considered in the light of the enterprise in question in this case. Tunnelling is not a precise science. The success and cost of a tunnel depends on a judgment made about the geological conditions likely to be met along the length of the tunnel. That judgment may be based on geological maps (which only show what is on the surface of the ground), on observation of the surface of the ground and of the banks of rivers and burns, and on information gained from boreholes and trial pits and (in this case) from the thrust and reception pits themselves. It being impractical to sink a borehole in the middle of the railway track, the best that can be done is to observe the general conditions round about and the specific conditions at each end of the proposed tunnel and make an assessment of probabilities as to what lies in between. Unfortunately, it was not possible to make a trial hole on the north side of the track on 8 August, 1991, as no way leave had been obtained at that time. The defendants' expert, Mr Chamberlain, gave evidence that in southern Scotland it is very difficult to assess what lies between each end of a proposed tunnel because the soil in that area is not stratified. The geology of the area is the result of glacial activity. Based on his interpretation of maps published by the Ordnance Survey for the British Geological Survey, Mr Chamberlain gave evidence that Elvanfoot is on a "watershed" of glacial activity in which glaciers have moved outwards leaving glacial material in uneven deposits. Because Elvanfoot is close to the edge of two maps, I was shown two maps. Each of those maps has printed on it lengthy and important notes which are not wholly consistent with each other. One of the maps is much older in its source material than the other, but without evidence, it would not be safe to assume that newer is better. No geologist was called as a witness. The evidence of Mr Moss, the expert called on behalf of the plaintiffs, based on considerable practical experience, was that it would be reasonable to expect strata in glacial deposits, as fluvio-glacial deposits will be stratified, such deposits being laid down on the melting of a glacier or by streams flowing within the glacier.

In the light of those conflicting opinions, there must be an element of risk in tunnelling and commonly the contract will expressly allocate that risk to one party or the other. The letter of 12 August, 1991 to which I have referred contained a term which, if accepted, would have allocated the risk to the plaintiffs. The contract might, on the other hand, have put the risk on the defendants. The allocation of the risk is simply a matter of negotiation and the price would normally be adjusted accordingly, also as a matter of negotiation. In considering the implication of terms, it must be borne in mind that there is no reason why it is more fair that the risk should be borne by one party rather than the other. The same consideration makes it particularly difficult to assess fair and reasonable remuneration. The two questions which I have posed for proof by the plaintiffs are interlinked because the measure of payment is affected by the allocation of risk although neither of the experts giving evidence on quantum has taken that consideration into account.

The facts relied on for the implication of the terms alleged by the defendants include representations alleged to have been made by the plaintiffs to the defendants. By their pleading, the defendants allege that the plaintiffs expressly or impliedly represented that the Iseki Unclemole machine was capable of carrying out the tunnelling work proposed and also expressly stated that the material exposed by the trial hole was capable of being satisfactorily dealt with by the machine. The Iseki Unclemole is a Japanese remotely controlled tunnelling machine which was used by the plaintiffs in the first instance to start the tunnel which was aborted.

Before considering whether terms should be implied as contended by the plaintiffs, it is necessary to consider the history of the project up to the date of the contract.

 

HISTORY AND REPRESENTATIONS TO DATE OF CONTRACT

Between early July, 1991 and 8 August, 1991, the plaintiffs and the defendants were involved in negotiations for a contract for the tunnelling works at RLX7. The defendants also had discussions with another possible sub-contractor, DCT Civil Engineering Limited (DCT).

The plaintiffs were given the following information:

Saynor Geotechnical Report 2167 dated February, 1991;

Fugro McLelland Limited trial pit logs;

Norwest HoIst Trial Hole Logs and photographs dated 17 Oct, 1990.

Those documents had been made for other purposes.

In mid July, the plaintiffs gave the defendants a budget price of f158,500 for the microtunnelling works on the basis that the tunnel would be (as then required) 16 metres under the railway line. That budget price was rejected as too high. It now appears that when giving that price, the plaintiffs had in mind to use a Herrenknecht tunnelling machine.

On 8 August, 1991, Mr Paul Whitehouse, Joint Managing Director of the plaintiffs, met Mr Alistair Fraser, the defendants' Managing Quantity Surveyor for this project, at the defendants' site office at Lanark. During some but not all of that meeting, Mr Raine, the defendants' project planning engineer for the Shell contract was present. Mr Fraser explained that the tunnelling work would have to be done between 30 August, 1991 and 9 September, 1991, a period when ScotRail would impose a temporary speed restriction (TSR) on the track. According to Mr Whitehouse, Mr Fraser also told Mr Whitehouse that the depth of the tunnel was now to be only 3 metres under the railway track. Mr Whitehouse accordingly did some fresh calculations and quoted a budget price of 88,200. His evidence as to the price but not as to the 3 metres is supported by notes made at the time. According to Mr Whitehouse's evidence, he added the proviso that the job could be done using the plaintiffs' Iseki machine, subject to availability, meaning that the price was dependent on the job being within the capability of the Iseki machine. Mr Whitehouse said in evidence that he told Mr Fraser that there were limitations in the capacity of the Iseki, and in particular that the crusher could only handle stone up to a maximum of 250 mm in diameter and that it was important that Mr Fraser understood the limitations of the plaintiffs' proposal. Mr Fraser then said, "You have got the job, I will send you a letter of intent". Only then did Mr Whitehouse telephone his head office to arrange that a specification of the Iseki machine be sent to Mr Fraser though at some time during the meeting Mr Whitehouse handed over an Iseki brochure and both Mr Fraser and Mr Raine saw it.

Both Mr Raine and Mr Fraser denied that Mr Whitehouse put any limitations on the capability of the Unclemole in their conversation at Lanark. To the contrary, they said that Mr Whitehouse was fully confident of completing the works using the Iseki Unclemole machine. I prefer the evidence of Mr Whitehouse because it is consistent with his subsequent action in asking for further investigations.

There is a curious conflict of evidence about changes in budget price quoted for the job. At the meeting with Mr Fraser at Lanark, Mr Whitehouse quoted 88,200 which was rounded up to 90,000. Later on that same day, Mr Whitehouse revised that budget price to 100,000 and the defendants passed the price on to Shell as 110,000. Those price changes are agreed. Mr Whitehouse said that the reason for the upward revision was that the first price was given on the basis of Mr Fraser telling him at Lanark that the tunnel was to be 3 metres rather than 16 metres below the railway line, and the second price was given at the site after Mr Raine told him that the tunnel was to be 4 metres below the railway line. Mr Raine on the other hand said that the revision in price was made because it was only at the site that Mr Whitehouse realised that the ground surrounding the railway was above the level of the railway. Mr Raine and Mr Whitehouse stood at the level of the railway. Mr Whitehouse said that from there, the level of the ground where the trial pit was to be dug was at eye level. Mr Raine said that it was 1 metre above rail level. At all events, Mr Whitehouse asked, and Mr Raine agreed that the trial pit be dug to 6 metres depth to allow for 4 metres to the top of the pipe plus the width of the pipe plus the level of the ground above the railway. Mr Raine said that the revision in price was 5,000 upwards. That figure of 5,000 bears no relation to the change which was in fact made to the price. Equally, there is no reference in any document to the tunnel being required to be 3 metres below the railway. It was not until 9 August, 1991 that the depth of 4 metres was mentioned anywhere in writing. On that date Shell wrote to the defendants a memorandum stating the depth, (in response to a request dated 7 August, 1991) and it is not unlikely that the depth of 4 metres would have been disclosed on 8 August orally by one of the Shell men present at the site on that day and passed on to Mr Whitehouse by Mr Raine.

I am sure that Mr Whitehouse, Mr Fraser, and Mr Raine are all honest witnesses. However, although Mr Whitehouse had some difficulty recharging his memory, I prefer his evidence of his memory once it was recharged. It is the defendants' case, and Mr Whitehouse eventually accepted, that he went to the site of RLX7 in July. It is also the defendants' case that in July Mr Whitehouse was given a drawing including a section drawing for the then proposed 16 metre deep tunnel which showed very clearly that the ground into which shafts would have to be sunk would be above the level of the railway track. When he quoted the budget price of 158,500 he must have realised that the top of the shafts would be above the level of the railway and it cannot be the case that he appreciated that fact for the first time when he visited the site on 8 August, 1991. One must therefore look for another explanation for the revision of the budget price at the site. The only available explanation is the one put forward by Mr Whitehouse, that Mr Fraser told him mistakenly (perhaps at a time when Mr Raine was not present at the meeting in Lanark) that the depth of the tunnel was to be 3 metres and that Mr Raine gave the correct information at the site.

After his meeting with Mr Fraser, and on the same day, Mr Whitehouse went to the proposed site of RLX7 with Mr Raine, the defendants' project planning engineer for the Shell contract, and with some representatives from Shell, Messrs Richards, Yeo and Mackman. The evidence was that, as one would expect, the Shell inspectors took a continual interest in the site and the works. While the defendants were not experts in microtunnelling, they were not completely innocent of all relevant expertise, and the overseeing by the Shell inspectors made it the less unlikely that the plaintiffs would be allowed to take any unreasonable step, even if they had wished to do so.

Contrary to Mr Fraser's statement that Mr Whitehouse was confident that the Iseki machine would do the job, Mr Whitehouse wanted further investigations. Mr Whitehouse asked for a trial hole to be dug immediately adjacent to the site of the proposed thrust shaft so that the parties and the representatives from Shell could log the ground and so that Mr Whitehouse could satisfy himself that the Iseki machine was capable of handling the ground. Mr Raine then said that the depth of the tunnel was to be 4 metres cover below the level of the railway track (that is, there was to be 4 metres between the bed of the track and the top of the tunnel). Mr Whitehouse accordingly asked for a trial hole to be excavated to a depth of 6 metres which was immediately done, using a mechanical excavator.

The upper levels of that trial pit included blue clay containing boulders of up to 350 mm diameter, which the Iseki could not cope with. But the last 2 metres were a consistent granular well graded gravel and ballast entirely suitable for the Iseki machine, and Mr Whitehouse expressed his opinion to that effect to Mr Raine and the representatives from Shell. No one present at the time disputed that opinion, with the evidence in front of their eyes, and I am not impressed by efforts at the trial to dispute that opinion by reliance on photographs of a quality which makes them very difficult to interpret. (Although not available to the plaintiffs prior to contract, Shell's log of the trial pit similarly recorded no such material at the drive horizon. The expert witnesses recorded a formal agreement that the material recorded by Shell in the trial pit at the level of the proposed tunnel was within the capacity of the Iseki Unclemole). Mr Whitehouse asked if a trial hole could be dug on the other side of the railway but Mr Raine said that they had not been granted a wayleave to the reception side and that therefore a trial hole could not be excavated on that side at that particular time. Plainly, if the tunnel was to be constructed, a wayleave would have to be obtained and was likely to be obtained before long. But there was great time pressure on all parties to make all their preparations and to have dug the thrust and reception pits in time to do the actual tunnelling under the track in the TSR window from 30 August to 9 September, 1991. That time pressure was shown in a letter from the defendants to Shell dated 8 August, (the same day as the vital meeting) asking for a written instruction from Shell no later than the following day to place an order with the plaintiffs. The suggestion that the plaintiffs could have waited for the granting of the wayleave so that a trial hole could be dug on the reception pit side before quoting a price is unrealistic. The defendants did receive instructions from Shell the following day, and on 9 August, 1991, the defendants cancelled their interim agreement with DCT and sent the letter of intent to the plaintiffs containing the interim agreement which is the subject of this litigation.

One does not need to be a tunnelling expert to realise that it is risky to start a tunnel on the basis of information from a trial hole at only one end of the tunnel, even when there was information from a borehole previously made on the other side of the track by someone else at a different location. As I have already said, the defendants were not tunnelling experts but from their recent experience in digging a trench over many miles of south Scotland, the defendants knew better than anyone else the nature of the geology of that part of Scotland. I cannot believe either that the plaintiffs would have given or that the defendants would have accepted or acted on a warranty or representation that any particular machine was capable of cutting a tunnel at any particular place, even though in cross-examination Mr Whitehouse did accept that he thought (though he did not say) that the sub-soil condition could, in Mr Burr's words, "be approached in a very stratified fashion".

There was some suggestion that the trial pit dug in the presence of Messrs Whitehouse and Raine and the Shell representatives was insufficiently deep to show the ground at the level of the tunnel 4 metres under the railway. However, I cannot accept that the gentlemen concerned all made the same mistake of failing to compare the top of the trial hole with the level of the railway track and failing to make due allowance for any difference. All of them knew that there was a difference from the drawings which had been previously circulated. I accept the evidence of Mr Whitehouse that they stood to one side and by standing at rail level were able to assess the ground level where the trial pit was dug in relation to the rail track and made due allowance accordingly. That evidence was corroborated by Mr Raine in paragraph 20 of his supplementary statement. Moreover, the depth of the thrust pit was described in the plaintiffs' written quotation as being 6 metres deep and the tunnel would have to be a little above the floor of the thrust pit (allowing for the concrete base and for the protrusions of the tunnelling machine). The very skilled Shell inspectors agreed that the depth of 6 metres for the thrust pit was suitable, so 6 metres must have been sufficient for the trial pit.

From the site at RLX7, Mr Raine telephoned Mr Fraser at their site office at Lanark and told him that Mr Whitehouse had revised the price upwards to 100,000. In that telephone conversation, Mr Raine did not tell Mr Fraser that Mr Whitehouse made any representations at the site concerning the suitability of the Iseki Unclemole. That circumstance strengthens my view that Mr Whitehouse made no such representations. Moreover, it is clear that if (contrary to my view) Mr Whitehouse had made such representations, the defendants did not act on them because Mr Fraser made his recommendation to Shell as to the employment of the plaintiffs and sent the letter of intent knowing nothing of any alleged representations.

The claims alleging negligent misstatement are based on the same alleged statements as the misrepresentation claim. The claims for negligent misstatement therefore also fail.

 

IMPLIED TERMS AND REPRESENTATIONS -- PARTICULAR CONSIDERATIONS

I am satisfied that neither Mr Whitehouse nor anyone else on behalf of the plaintiffs expressly or impliedly made the representations alleged by the defendants in their pleadings. Counsel for the defendants in his closing submissions suggested a further alleged representation which had not been pleaded nor put to Mr Whitehouse in cross-examination. It was suggested that at the meeting on 8 August, 1991, Mr Whitehouse represented that the plaintiffs would produce a "fully comprehensive method statement". The evidence in support of that proposition emerged for the first time in cross-examination of Mr Raine. I do not accept Mr Raine's evidence on that point, coming as it did without notice, and even if I were to accept it, it would not be evidence of a representation of existing fact. If it were to be relied on as an express promise, it would be ruled out by the findings of Mr Recorder Green.

As to the implied terms, the terms contended for by the plaintiffs (that the defendants would not hinder or prevent the plaintiffs from carrying out and completing the work and so forth) are necessary and reasonable and also obvious, and supported by the decision in London Borough of Merton v Stanley Leach 32 Build LR 51, but their relevance to the issues in this case is very limited. The plaintiffs rely on those implied terms in the alternative in support of small claims in respect of delay in access to the reception pit side and in relation to standing time while the plaintiffs waited for permission from ScotRail for the use of a crane.

The term contended for by the defendants that the plaintiffs would plan and execute the works requested of them with reasonable skill and care is also necessary, reasonable and obvious. In part that term is admitted in the Reply. The plaintiffs admit the term as regards execution but not as regards planning. The plaintiffs clearly feared that any admission regarding planning might be used in disguise as a warranty of fitness for purpose of the microtunnelling machine, and rightly so, because in closing submissions for the defendants it was submitted that the plaintiffs "failed to plan or carry out its work with reasonable skill and care in that it decided to utilise the Iseki Unclemole when that was (as it knew or ought in the circumstances to have known to have known), an unsuitable machine for the operation". For reasons given later in this judgment, the plaintiffs were not in breach of their duty of skill and care when they decided to use the Iseki Unclemole. The other terms for which the defendants contend are neither necessary nor reasonable nor obvious. The express terms are broad and the pleading of the implied terms seems merely to be an attempt to put an unnecessary gloss on those express terms. By pleading those implied terms the defendants appear to be seeking to put on the plaintiffs the risk of unforeseen obstructions. As I have already said, it is neither necessary nor obvious that that risk should go one way or the other. Apart from the obligation to use reasonable skill and care, I hold that the contract was not subject to the implied terms alleged by the plaintiffs.

 

THE EXPERT EVIDENCE ON LIABILITY

The expert evidence on liability is relevant to the issues whether the plaintiffs used reasonable skill and care and also to the issue whether the amount of work undertaken was reasonable.

Mr Arthur Moss gave evidence on behalf of the plaintiffs. 23 years ago, he founded Delta Civil Engineering Limited to specialise in constructing pipelines in difficult ground by trenchless methods. A little later, he founded Decon Engineering Company (Bridgwater) Limited for the design and manufacture of tunnelling machines. The fact that, as emerged in evidence, he invented the caisson method of shaft construction used in this case should not overshadow Mr Moss' enormous practical experience in the field in tunnelling and pipejacking.

For the purpose of giving evidence and after the event, Mr Moss examined the borehole and trial hole information made available to the plaintiffs at the time. Despite the fact that some of the information was not easy to interpret, he found a remarkable correlation between the two, namely a recording of a band of 1.4 metre thickness of boulder clay. Using that information, he prepared a drawing (Appendix E to his report) showing a layer of boulder clay under the railway substantially above the position where the plaintiffs planned to bore the tunnel with the Iseki machine. The boulder clay would not have been suitable for the Iseki machine, but below the boulder clay was silty gravel with cobbles which was well within the capacity of the Iseki machine and the tunnel was planned to go through what was anticipated to be silty gravel with cobbles.

Cross-examination for the defendants included questions put at length suggesting that there was further information available to the plaintiffs from visual inspection of the trial pit, of the heap of spoil taken from the trial pit, of a bund created from the spoil heap, and of the surface of surrounding ground. It was never a part of the defendants' pleaded case that that material ought to have put them on notice that the ground conditions were other than they foresaw. I accept the convincing evidence of Mr Moulds (a miner and supervisor employed by the plaintiffs), Mr Orrell (the plaintiffs' site engineer), and Mr Rankin (the contracts manager for Euro Iseki Limited) that there was in fact nothing there to put the plaintiffs on notice of anything of the sort. Moreover, since the cross-examination was based mainly on photographs of doubtful value, it is important that Mr Moss' evidence based on cross-examination on the photographs supported the plaintiffs' contemporary eye-witnesses.

In examination in chief, Mr Moss gave important answers regarding the reliability of the information used by the defendants and the responsibility for providing it. I asked him how often strata go absolutely straight in the United Kingdom and he replied:

"All sedimentary rocks tend to go to a plain. Over the short length we are talking about here of 30 metres, I would expect sedimentary formations to be consistent. There is a good chance that strata that are put down by a glacier could be jumbled over such a short length, but again we are talking about a relatively -- well in fact -- a very short length in geological terms, 30 metres."

Although that opinion was attacked in cross-examination at some length, and Mr Chamberlain for the defendants gave a contrary view in his evidence, I accept the view of Mr Moss there expressed.

Shortly afterwards, Mr Moss was asked by counsel for the defendants:

"Q: In your experience in the industry, who is it who normally provides the soils information?

A: It is the employer, the client.

Q: Would it be normal for a sub-contractor . . . to obtain the soils report of his own?

A: No, that would be very unusual indeed, so much so in fact I have never personally experienced such a situation on a contract of this size."

I regard that answer as extremely important in relation to suggestions, sometimes veiled, that the plaintiffs ought to have made further soils investigations. There was no duty on them to do so. That evidence of Mr Moss was supported by the evidence of Mr Moulds, a superviser employed by the plaintiffs. Mr Moulds is a plain practical man with great experience and no paper qualifications. He gave his evidence with great sincerity and force. In his evidence he said:

"Site investigation is nothing to do with me. I just dig the holes. Normally pegs are set out by the main contractors. The pegs were there."(ie the pegs for the pits were there when Mr Moulds arrived at the site on Monday 26 August, 1991).

In closing submissions, the defendants relied on certain answers given by Mr Moss in response to a line of questioning initiated by me testing the reasonableness of reliance on a probability of stratification at the site of RLX7. Because of the importance of the evidence of Mr Moss, I have obtained a transcript of his evidence. Mr Burr gave me a one page transcript of a combination of the notes made on behalf of the defendants of a part of the evidence of Mr Moss given on 5 July, 1993. The part of the evidence summarised in the defendants' notes is recorded between page 9 line 26 and page 11 line 41 of the shorthandwriter's transcript. I have read both documents with care, and it is not surprising that the shorthandwriter gives a fuller record. I shall not attempt to reproduce the whole of that record, but some of the answers are very significant. In answer to counsel for the plaintiffs and in relation to the trial hole dug at the request of Mr Whitehouse, Mr Moss said:

"I think what is very significant in this is that the trial hole in fact was more a trial pit. It was quite a long trench. The descriptions I have been given plus my own study of the photographs that we have leads me to believe that we have got a fairly regular line of strata over the length of that trial pit which is in line with the tunnel as it were. It is a line along the direction of the tunnel. So I have looked for correlation between those strata in the trial pit with the borehole on the opposite side 30 metres away. I think it is significant that it exists."

Mr Moss continued:

"The correlation is twofold. First of all, the material at the tunnel horizon has a description which is the same or at least it is a clay-bound gravel on both sides and above that is a band of clay shown clearly in the trial pit and again shown on the borehole log as being boulder clay, 1.4 metres thick on both sides."

Counsel for the plaintiffs then asked:

"Q: If you had been a contractor on this job, would you have thought that was just a coincidence?

A: I don't think so. I think I would have looked at the two and felt that there must be a correlation. I would have thought that the boulder clay referred to in fact clay which had been laid down by water during the regression of the glacier and that, as such, would be a fairly even formation.

Q: Is that because . . . it would be a sedimentary formation?

A: It would be a sedimentary formation although still part of the general description of glacier material.

Q: In your opinion and experience, is that correlation of thickness of the clay likely to be just a coincidence?

A: I wouldn't have said so. I believe that this is significant and that we are looking at a waterborne glacial deposit that has above it peat on one side and probably peat on the other.

Q: Is that why you have drawn straight lines between these two levels on your diagram at [Appendix E]?

A: That is why. But I should add they are dotted lines in that no one can say . . . without 200 boreholes across there exactly how the formation would lie between the two, even if it is exactly the same formation. You cannot say until you expose it."

In the event, the first tunnel had to be abandoned because the tunnelling machine came up against obstructions which I find on the balance of probability were boulders of a size larger than the Iseki machine could deal with. That does not mean that the opinion given by Mr Moss was negligent or wrong. Even less does it mean that the plaintiffs acted without due care. There is an analogy here with the medical negligence cases: Hancke v. Hooper (1835) 7 C & P 81; Rich v. Pierpont (1862) 3 F & F 35; R v. Bateman (1925) 94 LJKB 791, 794; Hatcher v. Black (1954) The Times, 2 July; Bolam v. Friern Hospital [1957] 2 All ER 118, [1957] 1 WLR 582, 586; and Hunter v. Hanley 1955 SC 200, 204-205 per Lord Clyde:

"But where the conduct of a doctor, or indeed of any professional man, is concerned, the circumstances are not so precise and clear cut as in the normal case [of negligence]. In the realm of diagnosis and treatment there is ample scope for genuine difference of opinion and one man clearly is not negligent merely because his conclusion differs from that of other professional men, nor because he has displayed less skill or knowledge than others would have shown. The true test for establishing negligence in diagnosis or treatment on the part of a doctor is whether he has been proved to be guilty of such failure as no doctor of ordinary skill would be guilty of if acting with ordinary care . . .".

By citing those words I do not intend to suggest that Mr Moss showed less skill or knowledge than the expert called for the defendants. I think that probably the contrary is the case. But even if contrary to my view Mr Moss did show less skill or knowledge than Mr Chamberlain, Mr Moss was putting forward a perfectly respectable opinion on which the plaintiffs can with justification rely to show that they did not fail to use reasonable skill and care. I find that the plaintiffs are not guilty of failing to use due skill and care.

By contrast with Mr Moss, Mr Chamberlain had considerably less experience in practice of various ground conditions. Despite having produced two reports, much of Mr Chamberlain's evidence was produced piecemeal in the course of the trial. This is particularly true of what have been called the thrust pit modification proposals. During the trial, Mr Chamberlain produced proposals for modifying the original thrust pit which he said should have been adopted by the plaintiffs instead of (after failure of the first tunnel) embarking on a second tunnel with its own pits. Since this idea did not occur to Mr Chamberlain when he wrote either of his first two reports, it is difficult to see the justification for his criticism of the plaintiffs for failing to consider such proposals in the field. (In fact, when we turn to consider those proposals it will be seen that if they had been considered there would have been good reasons to reject them). Mr Chamberlain's approach to this aspect of the case raises serious questions as to the value of the remainder of his evidence.

When Mr Chamberlain was cross-examined he was taken to each individual item of evidence available to the plaintiffs concerning the ground conditions. He accepted that not one piece of that evidence indicated any material in excess of the capacity of the Iseki at the level of the tunnel. The "worst" conditions were recorded in the Norwest Holst trial holes. From the poor photocopies of photographs available, those appear to have been deep holes, rather than long pits (as was dug for the plaintiffs). Their logging does not appear at all professional.

Mr Chamberlain put forward a thesis as to what the reasonably competent tunnelling contractor ought to have foreseen and summarised that thesis in a diagram attached to his first report.

In cross-examination, it became apparent that Mr Chamberlain's thesis was largely based on a simple proposition. The "worst case scenario" from the Norwest Holst trial holes was that there were boulders up to 250 mm (and within the capacity of the Iseki) to a depth of 7m below ground level. The plaintiffs trial pit disclosed a band 1.4m in thickness which contained boulders up to 350mm. Therefore, Mr Chamberlain said, the reasonably competent tunnelling contractor ought to have foreseen that there might be boulders of a maximum dimension of 350mm where boulders of a dimension of 250mm only had been recorded. That thesis ignored the Saynor borehole information and the plaintiffs' own trial pit neither of which revealed boulders even up to 250mm at the level of the drive horizon. In fact, in no item of information given to the plaintiffs was there any suggestion that anyone had found a single piece of material outside the capacity of the Iseki at a level where the Iseki was to be tunnelling.

In support of his thesis, Mr Chamberlain prayed in aid that the material revealed by the various pieces of ground information had the characteristic of "till":

(i) the characterisation of the material as "till" derived from Mr Chamberlain's reading of notes from two geological maps of adjoining areas. Those notes were substantially different one from the other (having been produced at different dates). A geologist would have been required to explain the differences.

(ii) The Saynor Geotechnical Report described the material as "glacial deposits". That description is equally applicable to stratified glacial deposits. Mr Moss was not led by that description to believe that only "pockets" of glacial deposits would be present.

(iii) Mr Chamberlain was adamant that the description "till" could only be used to describe glacial material in random pockets. He founded himself on a textbook definition of the term. That textbook was not produced in evidence, and it was in any event written by a geologist on a topic outside Mr Chamberlain's sphere of competence. I can therefore place little reliance on it.

(iv) It was put to Mr Chamberlain in cross-examination that he rejected material from his analysis which did not fit with it. That appeared from his approach to the geological maps. In his second report he said that the reasonably competent tunnelling contractor would have reference to those geological maps. In cross-examination he accepted that they would not pay regard to the maps for a short tunnel where the maps would tell you little, but that he would expect the compilers of a soils report to have taken them into consideration. Mr Chamberlain's own use of the maps was open to criticism.

I was not impressed by Mr Chamberlain's evidence given in reliance on the photographs. The photographs were not clear and I could not see much of what Mr Chamberlain says he saw in them.

I asked Mr Chamberlain what the plaintiffs ought to have done which they failed to do, and his answer was that they ought to have qualified their bid. I interpret that as meaning that they should have expressly excluded those alleged implied terms which I have held were not implied. I cannot hold the plaintiffs at fault for having failed to qualify their bid. Moreover, even if they had qualified their bid, in view of the shortness of time available and the defendants' loss of confidence in DCT, I cannot believe that the result would have been any different. Mr Chamberlain did not, in response to my question, express the view that the plaintiffs failed to use reasonable skill and care in any other respect.

For all those reasons, I prefer the evidence of Mr Moss to the evidence of Mr Chamberlain, and I repeat that even if I did not prefer the evidence of Mr Moss, I would still hold that the plaintiffs did not fail to use reasonable skill and care.

 

THE COUNTERCLAIM

Before considering the amount of the claim, I propose to consider the question of liability on the counterclaim.

The only basis for any liability on the counterclaim is for breach of the implied term which I have found was a term of the contract between the parties, namely that the plaintiffs would plan and execute the works requested of them with reasonable skill and care.

For the reasons which I have already given, I am satisfied that there was no breach of that implied term and that accordingly the counterclaim must fail.

 

THE AMOUNT OF THE CLAIM

The details of the plaintiffs' claim are based on details set out in what has been called Application for Payment No 3.

Two experts on quantum were called: Mr Spence for the plaintiffs and Mr Bish for the defendants. Mr Spence said that the plaintiffs were entitled to be paid about 420,000. Mr Bish on the other hand valued the plaintiffs' work (including inefficiencies, that is work for which the defendants contend the plaintiffs are not entitled to be paid) at about 186,000.

In relation to those figures, Mr Burr on behalf of the defendants submitted that the plaintiffs' quotation of 12 August, 1991 showed a willingness on the part of the plaintiffs to do all the work of boring a tunnel for 100,000 and the draft contract sent by the defendants on 17 December, 1991 (which was never agreed) reflected a willingness on the part of the plaintiffs to bore a tunnel for 90,000. Therefore, says Mr Burr, even if two successful tunnels had been made, the reasonable charge would have been 200,000 or 180,000, but in fact the first tunnel was hardly started and this circumstance corroborates Mr Bish's figure of 186,000 for the total. There is some superficial force in that submission, but it ignores the possibility that building a second tunnel in circumstances of extreme urgency may be much more expensive than starting to build a first tunnel in circumstances of moderate urgency. That submission also ignores the fact that although the boring of the first tunnel only proceeded a very short distance, a very high proportion of the work for the tunnel consisted of preparatory work, mobilization and digging two pits (thrust and reception) all of which was done.

On the other hand, Miss Jefford submitted that on one of the positions contended for by Mr Bish and Mr Chamberlain, the defendants would get all the work for less than the plaintiffs originally agreed to do the first tunnel and they would receive a windfall of 50,000 from Shell as reimbursement from Shell for a mobilisation fee paid in fact by the plaintiffs. Mr Burr submitted that that "windfall" was res inter alios acta.

Unfortunately, those broad submissions do not relieve me of the duty of starting at the beginning and going through the details to the end. I shall naturally take those submissions into account, to the extent that I think fair, in assessing the reasonableness of individual items. I also remind myself that although it is necessary to assess items individually, having done that I should also consider whether the addition of all the items together produces a fair and reasonable result.

 

HISTORY AFTER CONTRACT

To understand the plaintiffs' claim it is necessary to consider the history of what happened after contract.

The plaintiffs commenced the excavation of the thrust pit on 20 August, 1991. Water from the adjacent burn seeped into the shaft overnight, causing the works to be stopped whilst the plaintiffs excavated a settlement lagoon so as to enable the suspended particles within the water to be pumped from the shaft to settle prior to discharge into the nearby burn. The plaintiffs carried out the works using an excavator with a grab. Such a machine was not specifically listed in the plaintiff's method statement and the excavation was stopped on the 22 August, 1991, on the orders of ScotRail, because in the opinion of ScotRail the grab was so set up that it might hit the overhead power lines above the railway. That was a merely temporary stoppage. The evidence given on behalf of the plaintiffs, which I accept, was that British Rail regulations varied from region to region. Given the time available, I do not think that the plaintiffs can be criticised for failing to satisfy ScotRail at the first attempt.

Excavation of the thrust pit continued and, on the 27 August 1991, a mobile crane arrived at the site in order to unload the Iseki machine. It is said (though it is not certain) that that crane was a 40 or 45 ton crane. A crane of that size was not listed in the plaintiff's method statement and ScotRail subsequently ordered that the works be stopped for a second time on the 27th August 1991. An invoice from a hire company charged the plaintiffs for a 20 ton crane, but whether a 20 ton crane in fact arrived at the site is in doubt. Mr Raine explained that plant hire companies do not charge for higher capacity machinery if the actually supplied is not as ordered. Mr Harvey and Mr Orrell recall seeing a 40 or 45 ton crane on site at some stage, though it is not clear at what stage. It is plain that the plaintiffs ordered a suitable crane, a 20 ton crane, and were charged for it. The provision of a heavier crane by the sub- contractors cannot expose the plaintiffs to a charge of failing to take reasonable skill and care in planning and executing the works. The plaintiffs took reasonable skill and care by ordering a suitable crane. The plaintiffs cannot be criticised because their sub-contractors, without authority, may have supplied instead a more expensive crane which was not suitable because of its extra size.

On the 27 August, 1991, Shell rejected the plaintiff's method statement on the ground that it did not contain sufficient detail to indicate to ScotRail the precise manner in which the plaintiffs intended to carry out the works adjacent to the railway track. In particular, no detailed drawings were included showing the position and radii of proposed plant by reference to the railway boundary. Mr Raine telephoned the plaintiffs about this upon hearing from ScotRail.

Mr McGuire, the Chairman and Joint Managing Director of the plaintiffs, telephoned Mr Rankin, the contracts manager of Euro Iseki, and asked him to assist in the modification of the method statement and to attend a meeting to be held on site the next day, in order to answer questions on the operation of the Iseki machine.

Revision A of the method statement was finally approved by Shell on the 29 August, 1991. Its earlier rejection by ScotRail caused delay to the plaintiff's preparatory works, but since there was no delay to the commencement of the tunnelling, the defendants have no legitimate complaint, though they complained at the trial. In any event, the plaintiffs were under no contractual duty to provide a method statement.

The plaintiff's original method statement provided that the first reception pit was to be supported by the use of sheet piling. However, during the course of construction of the first thrust pit, Mr Harvey (the plaintiffs' contracts director) decided that the reception pit should also be constructed using the caisson method, on account of the loose nature of the ground. The caisson method involves sinking either complete caisson rings, or segment rings bolted together under their own weight, or, if this is unsuccessful, assisted by additional weights. The caisson method (whether using caisson rings or segment rings) is more expensive than the sheet piling method. I accept the evidence of Mr Moss that the plaintiffs acted reasonably both in proposing the sheet piling method for the reception pit in the first place and in substituting the caisson method. They tried to save money for the defendants by proposing the cheaper method, and when they found that it was not practicable, they changed to the more expensive method.

The construction of the reception pit commenced on the 28 August, 1991, after a delay of one day in total on account of the defendants' failure to flume the burn to the north of the railway any earlier. Mr Moulds added, and I accept, that there was also some problem about Roman remains. The plaintiffs cannot be blamed for that delay.

The plaintiffs were unable to insert the final segment ring and, accordingly, the reception shaft was never completed to its full depth; this resulted in the shaft being two feet, or 600 to 800mm short of its intended or required depth. The shaft was intended to be completed by taking away the cutting ring or edge and underpinning the shaft using the remaining segments on site. That is a normal procedure when the further downward movement of the shaft becomes impossible either because of some obstruction or because of friction on the outer surface. Mr Orrell of the plaintiffs did not inform the defendants, Shell or ScotRail of the decision to finish off the reception pit using underpinning, but there is no reason why he should have done so at the time. It appears that there were two segment rings short once the plaintiffs had removed the cutting edge.

The Iseki drivers attended the site during the week before the excavation of the thrust pit was due to commence to check the set-up adopted by the plaintiffs. They discussed the ground conditions as indicated by the contents of the spoil heap (which consisted of the material excavated in the digging of the thrust and reception pits) with Mr Moulds and, in the light of those ground conditions, recommended that bentonite be added to thicken the slurry which was to be pumped through the Iseki in order to facilitate the removal of the material which the Iseki had excavated. The plaintiffs accepted that advice and mixed the bentonite between 31 August and 1 September, 1991.

The plaintiff's method statement made provision for the use of bentonite if necessary. The defendants argue that accordingly, this item ought to have been allowed for by the plaintiffs. The plaintiffs also decided to build a bund around the slurry settlement tank prior to this being finally positioned. While the possibility of the use of bentonite was envisaged by the plaintiffs, I do not regard that possibility as a justification for saying that the use of bentonite and the construction of the slurry tank and additional lagoons were all to be included in the price quoted after contract.

The plaintiffs commenced tunnelling with the Iseki machine on 2 September, 1991. The Iseki machine encountered difficulty in commencing the drive and gradually lifted up and derailed from the tracks which were supporting it, some 10 to 15 minutes after it was inserted into the ground; the Iseki then cut out. That caused Mr Orrell concern, since the Iseki was not commencing the drive as it had done on the previous jobs it had been used for at Crewe and Macclesfield.

The following day, the plaintiffs tried again. The Iseki had advanced approximately 400mm into the drive on the 3rd September 1991 when it came to a halt. The machine was pulled out from the tunnelling face and the materials in the face of the machine were exposed. Mr Orrell inspected the tunnelling face and saw a boulder of 300mm diameter, which was in excess of the maximum diameter with which the Iseki could deal and accordingly reported his observation to Mr Harvey. Mr McGuire gave evidence of a 400mm boulder. Mr Moulds boarded up the face of the tunnel in order to prevent the material in the face from falling in.

That evening, a meeting took place on site to discuss the situation. The meeting was attended by Messrs Whitehouse, McGuire and Harvey of the plaintiffs. Mr Orrell was also on site, but was not involved in the discussion. Mr Doolan (the defendants' Pipeline Director) and Mr Slater of Shell also attended.

Messrs McGuire and Whitehouse of the plaintiffs went down the shaft to inspect the materials exposed. Mr McGuire saw a collection of cobbles and boulders ranging from 200 to 400mm in diameter; his attention was, however, immediately caught by a boulder of some 400mm diameter at the front, because it was too large for the Iseki machine to deal with. Mr Whitehouse also recalls seeing boulders of 160 to 400mm diameter, including a rectangular 400mm boulder. Mr Moulds also went down the shaft and removed a boulder of some 300mm diameter from the tunnel face.

Mr McGuire accepted that he was aware that neither Mr Doolan nor Mr Slater had any previous knowledge or experience of the Iseki machine and that they were therefore dependent upon him for advice and guidance. He informed them that the machine had met with an obstruction and that at least one boulder had been found in the excavation with which the machine could not deal.

Mr McGuire explained that, in principle, the way forward was either to source a larger machine, or that a second attempt should be made with the Iseki machine. Mr McGuire advised Messrs Doolan and Slater that, in the light of the time constraints imposed by the limited duration of the temporary speed restriction ("TSR") granted by ScotRail (of which there were only three days remaining), the chance of obtaining another machine was minimal and, accordingly, there was no alternative other than reinserting the Iseki, although Mr McGuire himself thought that it was highly unlikely that the second attempt would be successful. The defendant's case is that any "agreement" alleged with Mr Doolan or Mr Slater arose from Mr McGuire presenting only one option to them. I do not accept that argument. It must have been obvious to all concerned that there were other possibilities. They could have tried the slim chance of finding another machine in the time available, and if that turned out to be impossible, they could have tried to persuade ScotRail to grant another TSR (which was eventually done).

The Iseki was tested to ensure that it was operating properly and then reinserted into the tunnel on the 4 September, 1991 on the instructions of Mr Doolan and Mr Slater in accordance with Mr McGuire's advice. The progress of the machine was extremely slow: during the dayshift, the machine advanced some 2.4 metres and a further 0.5 metres was achieved during the nightshift. Average to good progress during that period would have been 12 metres. The automatic cut-out of the Iseki, in response to overtorquing, occurred on more than one occasion, notwithstanding the constant adjustments which the Iseki driver was making so as to achieve the correct set-up of the machine for the ground conditions.

During the early hours of 5 September, 1991, the Iseki machine ground to a final halt. That morning, Mr McGuire attended the site with Mr Hill (the defendants' contracts manager, an engineer by profession) together with Mr Slater of Shell. Mr McGuire was informed by the Iseki machine operator, Mr Terry, that the machine had been cutting out throughout the night and would go no further. Mr McGuire, Mr Hill, and Mr Slater all saw the machine cut out a number of times and they also realised that it would go no further.

Messrs McGuire and Terry explained to Messrs Hill and Slater that the machine would go no further. Mr McGuire accepted that neither Mr Hill nor Mr Slater had any or any significant microtunnelling expertise and that he was the only microtunnelling expert present. Mr McGuire explained that the job could not be finished within the current TSR and that the only option available was to source another machine and to arrange a new TSR. It was quite obvious to all present that the advice given by Mr McGuire was correct. Although they were not experienced in microtunnelling, they had quite enough engineering experience to recognise good advice when they heard it. Accordingly, it was agreed that Mr McGuire would look for an alternative machine and that Mr Slater would arrange for a new TSR. Mr Slater thereupon cancelled the existing TSR by mobile telephone and attempted to arrange another.

The defendants' case is that, in agreeing to the second insertion of the Iseki machine, it acted upon the advice of the plaintiffs as the specialised experts and that the defendants at no time ordered or instructed the plaintiffs to reinsert the machine. I do not understand the suggestion which seems to be made on behalf of the defendants that because there was no practical alternative the agreement of the defendants to the course taken should be disregarded. The defendants agreed with the course proposed by Mr McGuire and instructed him to get on with it. I find that all the work done by the plaintiffs on the first drive was done on the instructions and with the agreement of the defendants. In giving their instructions and making their agreements, the defendants relied on the advice of the plaintiffs, but the plaintiffs were honest, sincere and skilful in giving their advice. At no time did the plaintiffs act in such a way as to entitle the defendants to say that their will was overborne or that they were deceived into a course of action. The facts of the situation left the defendants without much choice, but they did very sensibly and properly agree to the plaintiffs taking the action which they proposed, and they gave them instructions accordingly.

The defendants assert that the effective cause of the stoppage must have been that the Iseki machine encountered a boulder in excess of the maximum size with which it could deal. That assertion is supported by the plaintiff's witnesses of fact. Mr McGuire accepted that that was the "immediately obvious conclusion" and that he himself was of that opinion on 5 September, 1991. The plaintiff's expert witness, Mr Moss, also accepted that that was the "likely" cause, although not the only possible explanation under a railway line. The defendants submitted that the alternative explanations proffered by Mr Moss, namely of an "outside influence" and the "geologically unforeseen" such as a railway girder inserted to mark a section for payment of railway workers are in all the circumstances too improbable to merit serious consideration. That submission puts the defendants' case too high. Those explanations are serious possibilities which have to be considered by an engineer. But as a judge considering the matter on the balance of probabilities I find that the likely cause of the stoppage of the Iseki machine was that, as asserted by the defendants, and contrary to the plaintiffs' expectations, the Iseki machine encountered a boulder in excess of the maximum size with which it could deal. It does not follow that the plaintiffs were as a result in breach of contract. The plaintiffs never gave a guarantee that the use of the Iseki machine would result in a successful tunnel.

The plaintiffs are entitled to fair and reasonable payment for all of the work undertaken on the first drive.

I turn to consider what was done after the first drive was abandoned.

At the meeting held on 5th September 1991, Mr McGuire advised Mr Slater (in response to a question from the latter) that, if a larger machine was found and obtained, then larger thrust and reception pits would be required. I accept the evidence of Mr McGuire that he was instructed by Mr Slater of Shell in the presence of Mr Hill to construct new shafts for a larger machine. The employer (Shell), the main contractor (the defendants), and the sub-contractor (the plaintiffs), together considered a very difficult situation. It may be that Shell and the plaintiffs knew more about the technical details than the defendants, but the defendants were not innocent of knowledge of tunnelling. Mr Hill in his evidence made it plain that he was able to take an intelligent part in the decision. Other decisions might have been made, and some of the possible decisions were investigated at the trial with the benefit of hindsight. Even with the benefit of hindsight, it seems to me that the right decision was made to abandon the first drive and start afresh nearby. I accept the firm evidence of Mr Moss to that effect. Mr Moss said that it would have been inadvisable to tunnel in that same location for two reasons: (1) there was a risk of damage to and clogging of the cutter heads when the cause of the previous stoppage was unknown; (2) there were risks in tunnelling where the ground was previously disturbed. But the plaintiffs do not need to prove that the decision was right. The decision was reasonable at the time and it was agreed between the plaintiffs and the defendants.

That agreement was reinforced by a fax message from the defendants to the plaintiffs dated 12 September, 1991, by which the defendants sought --

"confirmation that you will be set up, thrust and reception pits dug, microtunnelling rig sought and installed into the thrust pit and bored to ScotRail's boundary wall by 0900 hours Sunday 22 September . . ."

At the date of that fax, the plaintiffs had already started on the construction of the second set of pits, and that fax was clearly confirmation that the defendants agreed with the course being undertaken by the plaintiffs.

That agreement was further reinforced at a site meeting on 15 September, 1991 attended by Messrs Crossan, Doolan and Fraser of the defendants and by Messrs McGuire, Whitehouse and Harvey of the plaintiffs. At that meeting, it is common ground that Mr Crossan told the plaintiffs that they had a contract and that they should "get on with it". By that stage, the construction of the second set of pits was under way and the plaintiffs informed the defendants that they could obtain an alternative machine from DCT.

I am in no doubt that the plaintiffs undertook the second drive with the Herrenknecht machine under instructions from the defendants and with their clear agreement. The defendants' agreement was an informed agreement because they had looking over their shoulder the experts from Shell who would have given them the benefit of their views and prevented them from making any agreement which was less than informed. If the plaintiffs had undertaken work which was not agreed by the defendants and Shell, there would have been instant protests. This was not an isolated project on which the plaintiffs could be left to their own devices to succeed or fail. If RLX 7 was not successfully completed, a much larger project would be thwarted. The agreement of the defendants and of Shell was further evidenced by a letter from the defendants to the plaintiffs dated 17 September, 1991 the terms of which I need not reproduce.

Mr Chamberlain gave evidence at the trial that a cheaper solution might have been to stay with the first proposed line of tunnel and modify the thrust and reception pits. That late thought was put forward for the first time at the trial and on the evidence it seems to me to be totally impractical and it is unreasonable to suggest that the plaintiffs should have pursued that line.

After the meeting on the 5th September 1991, Mr McGuire instructed Mr Harvey to make arrangements for the construction of the second set of thrust and reception pits. The size of the second set of pits was finally decided by Messrs McGuire and Harvey on the 8th September 1991 to be between 5.5 and 6 metres diameter and construction commenced the following day with a double shift gang, although no alternative machine had at that time been found. The size of the pits was reasonably determined as a matter of caution as the size which would accommodate the largest machine which the defendants might be required by circumstance to use.

The only machine which the plaintiffs were able to find which could be made available in time for the second TSR (which was due to commence on the 22nd September 1991) was a Herrenknecht AVN 500 owned by DCT. Accordingly, when Mr McGuire met Mr Thompson of DCT on 13 September, 1991 in order to discuss the matter, Mr Thompson was in a position to dictate his own terms. The DCT machine was working on another job at Ellesmere Port and Mr Thompson apparently insisted that his machine could only be released if the plaintiffs would agree to complete the Ellesmere Port job in addition to making a "disruption payment" to DCT of 50,000.

By a fax and a letter both dated 17 September, 1991, the defendants instructed the plaintiffs to mobilise the 500mm Herrenknecht machine from DCT and to pay the mobilization cost of 50,000. The letter made it plain that the instruction was given pursuant to a site variation order from Shell, and evidence at the trial revealed that Shell have paid the mobilization cost of 50,000 to the defendants. Although disputed at the trial, it is quite clear that the defendants undertook responsibility for the 50,000 mobilization fee.

There was some dispute at the trial as to the nature of a 25,000 set off between the plaintiffs and DCT. It has not been proved to me that that set off had anything to do with the matters in issue in this action and I disregard that set off for the purposes of this action.

The DCT machine went into operation at Elvansfoot on 18 September, 1991. The second tunnel was completed using the DCT machine in a new TSR beginning on 22 September, 1991. The works were demobilised by about 24 September, 1991.

If the plaintiffs had delayed work in the hope of obtaining a machine which would fit existing pits, and then failed to find such a machine, it is likely that they would not have had sufficient time to dig new and larger pits. There was considerable dispute as to whether the DCT machine would have fitted into the original thrust pit. On the views which I have expressed, I do not think that it matters whether in point of fact as it turned out the machine would or would not have fitted into the original thrust pit and I therefore do not propose to lengthen this judgment by setting out here the evidence and arguments about it: I simply state my conclusion on the evidence that it would not have fitted into the original thrust pit.

The alternative to the construction of new pits was the modification of the existing pits. Although it was always part of the defendants' case that the plaintiffs should have modified or enlarged the existing pits, there was no pleaded particularisation of the modifications which it was alleged could have been made nor was there anything in the defendants' served expert evidence on this issue. Two proposals were then put to Mr Moss in the course of his cross-examination:

(i) The construction of a sheet piled pit adjacent to the existing shaft and apparently attached to it (Option 1).

(ii) The construction of a second adjacent shaft with an interconnecting tunnel (Option 2).

Mr Moss saw no advantages in those schemes and various dangers:

(i) Option 1: there were likely to be difficulties in driving sheet piles in ground known to contain boulders; cutting the segments from the top and inserting a steel framework would be impractical and limit the width of the shaft to an extent which could render it unusable. The whole scheme created a ludicrous risk for a nominal addition of 2 metres.

(ii) Option 2: grouting the ground would be necessary and very expensive; the interconnecting tunnel would have to be 2 metres internal diameter to accommodate the machine; the centre line of the existing tunnel would have to be on the centre line of the new tunnel -- this would require the further sinking of an existing shaft unsupported but that was likely to be a dangerous and difficult operation because there had been pumping and tunnelling from the shaft which would have caused the ground to become unstable.

When Mr Chamberlain came to give his evidence both proposals had been modified:

(i) The construction of an adjacent sheet piled trench faced on to the existing shaft (Option 1A).

(ii) The construction of an adjacent shaft with a "picture frame" between the two (Option 2A).

Both those schemes were the subject of lengthy cross- examination probing both the cost of those alternative proposals and the time that would be taken to carry them out.

On cost, the written evidence of Mr Spence (the plaintiffs' quantum expert) in response to questioning demonstrated that the costs of those two proposals would be greater or no less expensive than the sum which the plaintiffs claim for the second thrust shaft. Neither quantum expert is able to make any accurate assessment of what would have been a fair and reasonable payment for the Chamberlain proposals as no drawings or specification have ever been provided. In consequence, Mr Bish (the defendants' quantum expert) was unable to say how many settings of the portal frame his costings allowed for. Mr Chamberlain accepted in cross-examination that there was at least a day's engineering design work in the Option 1A and it is reasonable to infer that there would be a similar amount in Option 2A.

So far as time is concerned, Mr Chamberlain's bar charts showed work commencing on 11 September, 1991. If work had commenced on that date, it is unlikely that those proposed modification schemes could have been completed in time for the TSR. Detailed and lengthy cross-examination of Mr Chamberlain produced answers fully supporting the submissions of the plaintiffs on this point.

 

FAIR AND REASONABLE PAYMENT

The quantum experts have approached their task from totally different principles. The plaintiffs' expert has attempted to assess "reasonable rates" while the defendants' expert has considered the matter on a "costs plus" basis. The latter method has been particularly hard on the plaintiffs where the plaintiffs have been less than efficient in recording their costs.

Counsel for the defendants invited me to consider the concept of a "fair and reasonable" sum in the context of payment on the basis of a quantum meruit or quantum valebant.

In fact this is not a case of quantum meruit or quantum valebant, it is a claim in contract. Mr Recorder Green QC has found that a simple contract was formed between the parties, an express term of which provided that the defendants "reimburse" the plaintiffs "fair and reasonable payment". The defendants lay great stress on the word "reimburse" because they say that it supports Mr Bish's "cost plus approach". The defendants rely on dictionaries. I have already given my view on the dictionary approach. In the context of this case and applying an objective test, I am quite satisfied that the parties used the word reimburse to mean "pay" rather than "repay". The word reimburse lends little support to the defendants' contention for a costs plus basis of computation, but that approach finds some support elsewhere.

In Volume 1 of Chitty on Contracts (26th edition), quantum meruit is considered on page 1407 at paragraph 2145, in very general terms in the following passage:

"Quantum meruit to fix a price or remuneration. If no price for goods sold has been fixed in the contract of sale, the law will imply that a reasonable price is to be paid, and, in an action for quantum valebant, the court will as "a question of fact dependent on the circumstances of each particular case," decide what is a reasonable price. Similarly, in a contract for work done, if no scale of remuneration is fixed, the law imposes an obligation to pay a reasonable sum (quantum meruit)".

Further guidance is given in the fifth edition of Keating on Building Contracts, at page 80:

"Assessment of a reasonable sum. The courts have laid down no rules limiting the way in which a reasonable sum is to be assessed. Where a quantum meruit is recoverable for work done outside a contract, it is wrong to regard the work as though it had been performed to any extent under the contract. The contractor should be paid at a fair commercial rate for the work done. Where a quantum meruit is recoverable for work done pursuant to a void contract, it is wrong in principle to apply the provisions of the void contract to the assessment of the quantum meruit. But it is unclear whether, in determining what is a reasonable sum it is permissib1e or relevant to consider the Plaintiff's conduct in performing the work and whether by reason of such conduct the defendant has suffered any unnecessary additional costs. Useful evidence in any particular case may include abortive negotiations as to price, a calculation based on the net cost of labour and materials used plus a sum for overheads and profit, measurements of work done and materials supplied, and the opinion of quantity surveyors, experienced builders or other experts as to a reasonable sum. Although expert evidence is often desirable there is no rule of law that it must be given and in its absence the court normally does the best it can on the materials before it to assess a reasonable sum."

The defendants relied particularly on the passage in that quotation, "Useful evidence in any particular case may include abortive negotiations as to price, a calculation based on the net cost of labour and materials used plus a sum for overheads and profit, . . .". The defendants submitted that the starting point on the basis of abortive negotiations as to price should be 90,000 rather than 100,000 because it was accepted that the original price of 100,000 should be subject to a discount of 10% for the main contractor. Eventually, a 10% discount was agreed, but it was for prompt payment, and prompt payment was not made in respect of the sums in issue. I cannot accept that one should start by considering the agreed price less a 10% main contractor's discount. That discount appears for the first time in a document put forward by the main contractor, and to see what is fair one should not forget that when on 9 August, 1991 the plaintiffs quoted to the defendants a price of 100,000, the defendants in quoting to Shell added on 10% for their profit calculated not on 90,000 but on 100,000. At another stage, the figure agreed was 102,500 less 2 1/2% discount. On one view of the evidence, the 2 1/2% discount was a discount granted on account of nothing other than that a main contractor gets a discount. I accept the evidence of Mr Spence that the defendants were underpricing their work, and on that basis alone it would be reasonable to take 102,500 as a starting point.

In the tenth edition of Hudson's Building and Engineering Contracts (10th edition) on pages 571 and 572, we find the following statement:

"In practice, in determining a reasonable price, the courts may act upon evidence calculated upon the cost of labour, plant and materials plus a reasonable percentage for profit, or they may act upon evidence of what reasonable rates or prices for the physical work involved would be. This is a perennial problem in the conduct of building litigation arising out of less formal contracts or disputed variations and there is no general rule of practice with regard to it. The decision may depend upon the nature and amount of the work involved, or upon whether the work has been actually carried out, or is hypothetical work, eg in a claim for damages for loss of profit, or upon the nature of the issues raised between the parties, and will be influenced by considerations of convenience from the evidentiary point of view. As stated, some work is, of course, by its nature incapable of accurate measurement by means of rates."

The first sentence of that citation sets out the two opposing approaches in this case as alternatives.

The defendants relied on a decision of the Court of Appeal in Crown House Engineering v. Amec Projects 48 Build LR 37. In that case, the Court of Appeal considered whether the amount awarded on a quantum meruit should be affected by the timing and manner in which the claimant undertook the work, but that question was not conclusively answered and the appeal was decided on another ground. The judge at first instance in that case took the view that the proper measure of the award on a quantum meruit was "the objective value of the job done". The Court of Appeal neither approved nor disapproved of that view of the law. It seems to me that it might be the proper measure in some cases and it might not be the proper measure in other cases. Where a plaintiff is entitled to be paid on a quantum meruit (or as in this case contractually for fair and reasonable payment) for abortive work it would be quite wrong to decide that the plaintiff should get nothing because the objective value of the work was nothing. For example, if I ask a surveyor to survey a house which I wish to buy, and the house is sold to another after he has inspected but before he has reported to me, I would not be allowed to reject his claim in quantum meruit (assuming that in that case he had to frame his claim in that way) by saying that what he had done was worthless to me. Equally, the first tunnel in this case was worthless on the test of "the objective value of the work done" but it would be quite wrong on my view of the case to say that the plaintiffs should receive nothing for it.

The better approach seems to me to be to ask, "What would be a fair commercial rate for the services provided?": per Saville J, Greenmast Shipping Co v. Jean Lion et Cie (The Saronikos) [1986] 2 Lloyds Rep 277 at 279 col 1. Similar words are also to be found in the passage I have cited from Keating.

I return to the approaches of the respective experts, the "reasonable rates" basis on the one hand and the "costs plus" basis on the other. I take the "reasonable rates" basis used by the plaintiffs' expert to be Saville J's "fair commercial rate for the services provided". In a competitive market, one would expect both approaches to result in much the same figure, particularly if one accepts that someone who competes by providing high quality rather than low cost should receive a higher remuneration on both tests. Tenders are usually built up on a costs plus basis and the acceptance or rejection of tenders sets what can be viewed as the market rate. But one problem for the plaintiffs is that they did not expect to have to prove their claim on a costs plus basis and they have not kept records sufficient to prove their claim in that way.

I am in no doubt that the costs plus basis in the form in which it was applied by the defendants' quantum expert (though perhaps not in other forms) is wrong in principle even though in some instances it may produce the right result. One can test it by examples. If a company's directors are sufficiently canny to buy materials for stock at knockdown prices from a liquidator, must they pass on the benefit of their canniness to their customers? If a contractor provides two cranes of equal capacity and equal efficiency to do an equal amount of work, should one be charged at a lower rate than the other because one crane is only one year old but the other is three years old? If an expensive item of equipment has been depreciated to nothing in the company's accounts but by careful maintenance the company continues to use it, must the equipment be provided free of charge apart from running expenses (fuel and labour)? On the defendants' argument, the answer to those questions is, "Yes". I cannot accept that that begins to be right.

One problem in this case is that the plaintiffs' expert has in some instances relied not on general market rates but on institutional rates which are said to be too high in the circumstances. The plaintiffs' expert relies in some instances on FCEC Daywork rates. The defendants' expert objects that use of those rates involves an element of double charging in that FCEC daywork rates include charges for insurance and head office charges which are separately made in Mr Spence's calculations. The experts have agreed a reduction in respect of those charges. Once the agreed reduction is made, I see no objection to the use of FCEC daywork rates in the instances where they have been used.

Despite those findings of principle, it is necessary to go through the points of difference between the experts and consider in respect of each point of difference what is fair and reasonable payment.

 

QUANTUM

The plaintiffs are entitled to be paid fair and reasonable sums for all the work they did.

There are small claims for additional work arising out of delay in access to the reception pit and standing time because of ScotRail's objection to the use of a grab. I have already given my reasons why those claims should be allowed. The quantum experts have agreed the relevant sums at a total of 6,000.

The plaintiffs' claim is based on a document referred to as Application number 3. That application is based on a combination of agreed sums and commercial rates

The defendants have very helpfully set out the differences between the parties in schedule G to their written closing submissions. I will go through that schedule item by item.

Item 1. Site labour 22,131 Agreed

Item 2. Materials purchased 20,432 Agreed

Item 3. Materials ex stock

The plaintiffs claim 29,009. The defendants put forward a value of 4,577. This item relates to concrete segments used to make up rings for the second thrust pit. These segments were taken out of stock from the plaintiffs' yard. An invoice was shown to Mr Bish proving the purchase of a very small number of those segments. There can be no doubt that the total number of segments claimed for was used and that the balance claimed for outside the invoice came from the plaintiffs' stock. The plaintiffs' claim is that the segments should be charged at today's replacement values. Mr Bish's evidence is that the segments should be charged at 25% of their replacement value. That evidence is put on two bases. First, that some of the segments might be second hand in that they might have been saved from a previous job. Second, that in the absence of proof of the amount paid, it should be assumed that the cost of buying those segments was considerably less than replacement value.

As to the first submission, there is no evidence that any of the segments were secondhand. What is clear on the evidence is that if it were possible to salvage any segments, those salvaged would be limited to the top layer, what are called guard rings: all the rest would be grouted into the ground and would not be capable of salvage. In the absence of any evidence to support it, I reject the first submission.

As to the second submission, it follows from what I have already said that I regard it as wrong in principle. If one were to make a calculation on a costs plus basis, it would be necessary to know the amount paid and the date and calculate the effect of inflation, interest on money employed, and cost of storage space to discover the true cost. Having made a complex calculation, it might or might not appear that the company made a good investment in buying the concrete segments before they were needed for use. That calculation would be affected by the directors' efficiency and economic foresight in deciding how many segments to put into stock: the time spent by the segments in stock might be efficient or inefficient from a business point of view. The true cost might be a great deal more than present day replacement cost. I see no fairness or reasonableness in the customer being charged an amount which depends on the quality of the economic foresight of the directors of the company. The replacement value at the time the segments were supplied is a fair and reasonable charge, and I therefore prefer the plaintiffs' figure of 29,009.

Item 4. Plant -- Internal

The defendants claim a figure of 69,728 and the defendants put forward a figure of 11,918. Again, the dispute comes down to a difference between the "costs plus" and the "fair commercial rate for the services provided" approach. The defendants have sought to take the plaintiffs' management accountancy figures as the basis for the calculation of the "costs plus" charge for equipment. I can only repeat that that seems to me to be a wholly wrong approach. The largest disputed figure is the figure for the cost of the Iseki machine. Mr Spence for the plaintiffs has relied on actual commercial hire rates for the Iseki. Mr Bish has made a calculation based on the plaintiffs' internal management accounts. To apply those management accounts, Mr Bish has also made certain assumptions about the level of use of the machine as to which there is no evidence. Using that unproven assumption, Mr Bish arrived at a notional daily rate and applied it to an assumed 5 day week, whereas documents show that for much of the time the plaintiffs' plant was on site for 7 days per week and sometimes for 24 hours per day. I reject Mr Bish's approach.

Mr Burr on behalf of the defendants argued that at the rate set by Mr Spence, the Iseki would be paid for within 2 years (assuming it is used for 40 weeks of the year), but it is written down in the accounts over 10 years. The rate of write down in the accounts is affected by interaction between company financial policy and the fiscal policy of the tax laws, as to which I heard no evidence.

On the other hand, it seems to me that Mr Spence's approach may result in double recovery of head office overheads, insurances and profit. The ordinary commercial hire rate will include sums to cover those items for the company hiring out the equipment. Mr Spence charges them again by applying percentages to the commercial hire rate. That is a correct approach where the plaintiffs have actually paid out money on external hire (as in item 5 below) but it does not seem to me to be a correct approach in respect of internal equipment. I make this finding with some diffidence because I do not recall it being among the many points argued and considered in evidence and it is contrary to an agreement on the calculation of insurance. If counsel wish to address further argument to this point, they should be at liberty to do so. Subject to that qualification, I accept the plaintiffs' figure of 69,728 but rule that no percentage uplift should be applied to it, for insurances, head office overheads, or profit.

Item 5. Plant -- external hire 14,562 Agreed

Item 6. CITB Levy 380 Agreed

Item 7. Insurance

The parties agree that there should be an uplift of 4.2% for insurance applied to site labour, materials, and plant. The parties do not agree as to the figures to which that percentage should be applied. That percentage should be applied to items 1, 2, 3, and 5, on the defendants' schedule,

ie 22,131 + 20,432 + 29,009 + 14,562 = 86,134

4.2% = 3,617.63

Item 8. Yard Costs.

The plaintiffs claim 10,872 and the defendants propose a figure of 1,966. Both figures are estimates.

The defendants' figure is based on Mr Bish's "costs plus" approach, which I reject, and I prefer the figure of 10,872 put forward by the plaintiffs.

Item 9. Engineers/Surveyors costs.

The plaintiffs claim 10,317 and the defendants propose 4,762.

The parties agree that 6.3% should be applied to the figures for labour, materials, plant and yard costs. That agreement was originally qualified, but I understand from the closing submissions of counsel for the defendants that it is now made in respect of whatever figures I find in respect of those items. The plaintiffs are to be awarded 6.3% on those items.

Item 10. Iseki operators.

It is common ground that the purchase of the Iseki machine included within the purchase price the cost of the supply of Iseki operators for 20 man days to help train the plaintiffs' operators. In oral evidence, Mr Rankin of Iseki confirmed that Iseki would not seek to charge the plaintiffs for any additional days worked by their men in excess of the 20 man days. The "free" days worked by the Iseki operators were on this job. The plaintiffs seek to charge for those days as part of their cost included in hiring the machine. The plaintiffs' claim in this respect seems to me to be misconceived. It is not suggested that the Iseki engineers were not fulfilling their training function, and hence the plaintiffs got from Iseki the benefit of what they paid for in the inclusive price. Secondly, the commercial hire rate, which is the basis of the plaintiffs' claim would in any event have taken into account those "free" days as part of the purchase price in assessing the hire rate.

This small claim of 3,260 is rejected.

Item 11. Iseki repairs.

The plaintiffs claim 11,469 and the defendants say that nothing is payable.

I accept the defendants' contention that the cost of repairs is provided for in yard costs at least as far as repairs of fair wear and tear. In the unusual circumstances of this case, and with the agreement of the defendants, the Iseki machine was subjected to strains which went beyond fair wear and tear and the plaintiffs are entitled to be paid for such additional cost.

The plaintiffs accept the defendants' breakdown of their figure into three amounts. The first of those amounts is an Iseki invoice dated October, 1991 for 3,442. That figure is in my view payable by the defendants. The second sum is for an Iseki invoice dated 22 June, 1993. While that invoice is for work of the type which one would expect to arise from the stressful work involved in RLX7, no explanation is given for that work (if it arose from RLX7) not being included in the invoice issued in October, 1991. That claim is disallowed.

The third invoice is for the costs of Mr Rankin visiting the site, in the modest sum of 392. My impression from the evidence is that his visit was to help the plaintiffs produce a method statement, which I find was not a part of their commitment to the defendants. That sum also is disallowed.

The sum allowed under this head is therefore 3,442.

12. DCT Sub-contract

This is the plaintiffs' claim for the cost of hiring the Herrenknecht machine for the second tunnel. The plaintiffs claim 124,250 and the defendants propose 75,000.

The defendants do not allege that the sum invoiced was in any way unreasonable, but the point is taken that only 75,000 has been paid in respect of it after the lapse of two years.

As to the balance, 35,000 is accounted for by a credit note in respect of work at Ellesmere Port. I accept the evidence of Mr McGuire that this credit note was a commercially negotiated sum to compensate the plaintiffs for their commitment to provide the machine and associated mobilization at Ellesmere Port.

The remainder of the balance is a figure of 14,250 which remains in the plaintiffs accounts as a figure that has not been paid. Mr Burr submits that in the present climate of shortage of money in the construction industry, I should infer that if forceful steps have not been taken to collect a sum of that size it is not regarded as a genuine debt. I do however accept the evidence of Mr McGuire that the plaintiffs continue to be pressed for payment of that sum. There may be many reasons why a company may not be sued for a debt recognised as due. I reject the unsupported doubts cast on the validity of this debt by the defendants.

The plaintiffs are entitled to the total of 124,250 claimed under this head.

The quantum experts have agreed a reduction in the uplift from 12 1/2% to 5% for this figure.

Item 13. Head office overheads (including finance).

The plaintiffs claim 28.7%. The defendants propose 26%. The figure put forward by the defendants is based on the plaintiffs' profit and loss management accounts. The plaintiffs base their figures on their statutory accounts for the year ended April, 1992. The defendants criticise the plaintiffs statutory accounts because of certain marked differences between them and the previous year's accounts. Not having examined the various accounts in detail, I can only say that the audited accounts are more likely to be accurate than other accounts and I therefore prefer the plaintiffs' figure of 28.7%.

Item 14. Profit.

The plaintiffs claim 9,972 and the defendants propose 6,285.

The plaintiffs and the defendants have agreed 2.4% profit and have agreed that percentage is to be applied to items 1 to 13 above with the exception of item 12 (DCT invoice) to which it is agreed a 5% uplift should be applied. I agree with that, save that, subject to the possibility of further argument, I do not think it right that the 2.4% percentage for profit should be applied to item 4, internal plant.

"Extent of Morrison's reasonableness"

The defendants seek to make a general reduction of 19,200 from the plaintiffs' claim on the basis of the defendants' alleged reasonableness in their approach to the plaintiffs' claim on a costs plus basis. Since I find that that was the wrong approach, I am unable to accept that reduction. However, without having done all the arithmetic, I have considered the amount of the claim which I have allowed in broad terms to review whether, in broad terms, it is fair and reasonable. I think that it is.

Rather than make my own calculations in the light of those decisions, I think it better to ask the parties to translate my decisions into figures and at the same time to agree any necessary corrections to such figures as I have computed.

I wish to pay tribute to the enormous efforts made by counsel for both parties in seeking to present a vast mass of detail to the court in the most manageable form. In accordance with the order I made on the order for directions in this action, I was provided with written notes of opening and closing speeches backed up with computer disks, and I was also provided with disks of the experts' evidence. Without the submissions and evidence presented in that form, it would have taken me weeks rather than days to produce this judgment. It is in the public interest that the parties and the taxing masters should generously recognise and reward the very hard work of counsel, supported by their instructing solicitors. Some of the witnesses also worked far into the night to produce written answers to questions put to them by counsel.

I also wish to pay tribute both to the lawyers concerned and to the administration of this court for the fact that this complex dispute has been tried and decided less than two years after the completion of the work which is the subject of the action. It is unlikely that the action could have been prepared for trial more speedily.

 

Glovers; McKenna & Co