MOSTCASH PLC & OTHERS v FLUOR LIMITED [2002] EWCA Civ 975

IN THE SUPREME COURT OF JUDICATURE

COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM THE TECHNOLOGY & CONSTRUCTION COURT

(His Honour Judge Thornton QC)

[2002] EWCA Civ 975

Case No Case No: A1/2002/0135 A1/2002/0901

Venue Royal Courts of Justice, Strand,, London, WC2A 2LL

Between

MOSTCASH PLC & OTHERSClaimants/ Respondents

FLUOR LIMITEDDefendants/Appellant

Before

Lord Justice Waller

Lord Justice Chadwick

Mr Justice Douglas Brown

Mr R ter Haar QC (instructed by Lovells, London) for the Defendants/Appellants

Mr M Lerego QC & Mr N Collings (instructed by Jarmans, Kent) for the Claimants/Respondents

Date 11 July 2002

Lord Justice Chadwick :

These

[1]two appeals are against orders made on 11 January 2002 and 19 April 2002 by His Honour Judge Thornton QC, in the Technology and Construction Court, when determining preliminary issues in proceedings brought by Mostcash plc (formerly known as UK Paper Plc, and now in liquidation) and others against Fluor Limited (formerly known as Fluor Daniel Limited) and others. For reasons which will appear in the course of this judgment it is necessary to describe, in some detail, the circumstances in which those orders came to be made. The underlying facts

[2]The proceedings arise out of an agreement (“the EPCM agreement”), dated 1994 but not signed until September 1996, between UK Paper and Fluor for the design, procurement and construction management of a paper recycling facility at Kemsley Mill, near Sittingbourne. The EPCM agreement provided that Fluor, in consideration of a lump sum price of £3.08 million and certain re-imbursable costs, was to perform the design, engineering, procurement, construction management and other services (“the Services”) set out in section 1.2. The construction of the recycling facility had been completed and handed over to UK Paper in or about October 1995; that is to say, before the EPCM agreement was signed. But it is common ground that Fluor had been providing the services contemplated by the EPCM agreement from 1994 or thereabouts and throughout the period of construction.

[3]Litigation – but not the present proceedings - followed soon after completion and handover. The parties to that litigation – which arose out of a dispute in relation to the construction of piping services and the supply of piping materials - were UK Paper, Fluor, Capper Engineering Services Limited (the piping services contractor) and Trouvay & Cauvin (the supplier of piping materials). In those proceedings UK Paper claimed against Fluor damages for breach of contract and in tort (for negligence) in relation to (amongst other matters)(i) failure to give adequate advice,

(ii) failure to issue drawings on time,

(iii) failure to manage the supply of materials from Trouvay & Cauvin to Capper Engineering,

(iv) failure to expedite the supply of materials and

(v) failure to report adequately or timeously on costs. Fluor counterclaimed against UK Paper for sums said to be due under the EPCM agreement.

[4]That litigation was compromised – at least as between UK Paper and Fluor – shortly before trial upon terms set out in a letter dated 15 January 1998 from Lovell White Durrant (the solicitors for Fluor) to the Jarman Partnership (the solicitors for UK Paper). The compromise provided for the payment by Fluor to UK Paper of £100,000 and for the issue by Fluor of credit notes in respect of the invoices upon which its counterclaim was founded. The letter of 15 January 1998 referred to the litigation then current – “the Main Action” (1996 ORB 1288) and “the Trouvay & Cauvin Action” (1995 U 664). Paragraph 1 of the terms of settlement provided:

“This agreement is between UK Paper plc and their successors or assignees (“your clients”) and Fluor Daniel Limited and their successors or assignees (“our clients”) and is in full and final settlement of all claims and in satisfaction of all causes of action between our respective clients arising out of or in connection with your client’s paper deinking and recycling plant at Kemsley (“the Project”) including but not limited to all matters in dispute in the Main Action and the Trouvay & Cauvin Action and excluding only any cause of action that may in future accrue to UK Paper plc (a) for any latent defect arising from our client’s design (to the extent, if at all, it is not excluded by the terms of the Engineering, Procurement, Project and Construction Management Agreement between our respective clients in respect of the Project); or (b) in connection with any personal injury claim brought against UK Paper plc relating to accident or bodily injury suffered during the construction of the Project by any contractor, servant or agent.”

The present proceedings

[5]The present proceedings were commenced in January 2001. The claim is in respect of damage arising from defects in the design of the cladding to the buildings. Put shortly, it is said that Fluor is in breach of contract – alternatively liable in negligence – in that, knowing that the processes carried out in the course of recycling paper release into the internal atmosphere considerable heat, humidity and acidic and alkaline elements, it failed to take those factors into account in preparing or procuring designs and specifications under the EPCM agreement.

[6]Fluor took the point that any cause of action in contract, for breach of the EPCM agreement, must have accrued to UK Paper before 15 January 1998; and so was barred by the compromise embodied in the letter of that date. It took the further point that the EPCM agreement itself precluded a claim for damages for breach of contract; and precluded a claim in tort. The exclusion of claims by the terms of the EPCM agreement itself

[7]The contention that the EPCM agreement itself precludes the claims in these proceedings is founded upon provisions in Article V of that agreement, read in conjunction with provisions in Article XI. Article V sets out the warranties and guarantees given by Fluor. Sections 5.1 and 5.3 are in these terms:

“5.1 Fluor Daniel’s Services Fluor Daniel warrants and guarantees that it will perform the Services in accordance with the standards of care and diligence normally practiced by recognized engineering and construction firms in performing services of a similar nature. Fluor Daniel shall properly perform, at its own costs, upon the written request of Owner at any time within a one (1) year period from the date the Facilities, or any unit thereof, are transferred to Owner pursuant to Section 9.2, all corrective Services within the original scope of Services necessary to conform to the foregoing guarantee. 5.2 . . . 5.3 Limitations The obligations contained in this Article V are Fluor Daniel’s sole warranty and guarantee obligations and Owner’s exclusive remedy in respect of quality of the Services. Owner’s failure to properly maintain the Facilities or allow Fluor Daniel to promptly make such tests and perform such remedial services as both parties jointly deem appropriate shall relieve Fluor Daniel of its guarantee relative to the subject of such test or service.”

In that context “Owner” means UK Paper; and “Facilities” means “the physical properties to be constructed as part of the Project”. The “Project” means the design, engineering, procurement and furnishing of materials and equipment and construction management for and construction of the recycling facility described in an exhibit attached to the EPCM agreement.

[8]It is said that the effect of the words “The obligations contained in this Article V are Fluor Daniel’s sole warranty and guarantee obligations” in the first sentence of section 5.3 is that Fluor’s only obligation in relation to its own services is that set out in the first sentence of section 5.1; that is to say “that it will perform the Services in accordance with the standards of care and diligence normally practiced by recognized engineering and construction firms in performing services of a similar nature”. Further, that the effect of the words “The obligations contained in this Article V are . . . Owner’s exclusive remedy in respect of quality of the Services” – in that first sentence of section 5.3 is that the only remedy available to UK Paper in the event that Fluor fails to perform the Services in accordance with normally recognised standards of care and diligence is that provided by the second sentence of section 5.1; that is to say, UK Paper’s only remedy is to require Fluor to perform corrective services necessary to conform to the obligation in the first sentence of section 5.1.

[9]Article XI of the EPCM agreement contains what are described as “General Provisions”. Although contained in Article XI, they are set out – curiously – as sections 10.1 to 10.14. Sections 10.7, 10.8 and 10.14 are in these terms, so far as material:

“10.7 Representations and Remedies Fluor Daniel makes no representations, covenants, warranties or guarantees, express or implied, other than those expressly set forth herein. The rights and remedies with respect to the Services, whether in contract or otherwise, are limited to those expressly set forth in this Agreement. 10.8 Damages Fluor Daniel shall in no event be responsible or held liable for consequential damages, including without limitation, liability for loss of use of the Facilities or existing property, loss of profits, loss of product or business interruption however the same may be caused . . . . . . 10.14 Interpretation . . . (d) This Agreement sets forth the above complete understanding of the parties as at the date first above stated, supersedes any and all agreements and representations made or dated prior hereto, and may be amended only by a writing signed by an officer of each party.”

It is said that the effect of the second sentence of section 10.7 – and, in particular, the words “whether in contract or otherwise” – limit the rights and remedies of UK Paper in respect of the Services to those expressed in the EPCM agreement; and so exclude any claim for damages in tort arising out of a failure by Fluor to perform in accordance with any non-contractual duty of care to which it might otherwise be subject.

(d) The identification of preliminary issues

[10]It was in those circumstances that, before serving a substantive defence, Fluor sought and obtained an order for the trial of preliminary issues. On 8 June 2001 His Honour Judge Havery QC directed that the following issues be tried in these proceedings as between UK Paper and its co-claimants (“the Claimants”) and Fluor (“the First Defendant”):

“(i) Is the claim against the First Defendant barred by the settlement agreement of 15 January 1998 on the ground that the Claimants’ cause of action against the First Defendant accrued on or before that date? (ii) Is the First Defendant’s liability limited to the warranty and guarantee given in article V of the Engineering Procurement and Construction Management Agreement between UK Paper plc and the First Defendant?”

Judge Havery directed that Fluor should serve a defence limited to those preliminary issues. He fixed a date in November 2001 for the hearing of those issues.

[11]A statement of defence was served on 18 June 2001. It took the points that I have already identified. UK Paper and its co-claimants served a reply on 5 July 2001. The claimants’ response on the first preliminary issue is set out in paragraph 5 of that reply:

“(a) The claims in the action against the First Defendant are made in respect of defects arising from the First Defendant’s design and are not excluded by the terms of [the EPCM] Agreement. (b) Those defects were latent at the date the Settlement Agreement was made. (c) Upon its true construction, the Settlement Agreement, and in particular the words “excluding only any cause of action that may in future accrue to UK Paper plc”, excluded from the settlement any causes of action that came to the knowledge of UK Paper plc after 15 January 1998. (d) The causes of action against the First Defendant that are the subject of the claim had not come to the knowledge of the Claimants on 15 January 1998. (e) Alternatively, it is not admitted that the Claimants’ cause of action in tort against the First Defendant had accrued by 15 January 1998.”

[12]The claimants took four main points in relation to the second preliminary issue. They may be summarised as(i) points on the construction of the EPCM agreement,

(ii) a claim for rectification of the EPCM agreement,

(iii) reliance on the Unfair Contract Terms Act 1977 in relation to the terms in the EPCM agreement on which Fluor relied to exclude claims and

(iv) an assertion that Fluor was estopped, by a common assumption underlying the compromise of 15 January 1998, from asserting that the EPCM agreement had the effect for which Fluor was now contending.

[13]The construction points are set out in paragraphs 9 and 10 of the reply. There were three points under that head. First, that “Services” was defined in terms apt to include only services that Fluor had performed; that the claim was in respect of matters which Fluor had failed to perform; and that, accordingly, section 5.1 of the EPCM agreement had no application. Second, that neither section 5.3 nor section 10.7 of the EPCM agreement excluded the term implied into that agreement by section 13 of the Supply of Goods and Services Act 1982 or implied conditions as to merchantable quality and fitness for purpose. Third, that neither section 5.3 nor section 10.7 of the EPCM agreement excluded UK Paper’s right to claim damages for breach of contract.

[14]The case on rectification is set out in paragraphs 11 to 13 of the reply. Paragraph 11 contains the assertion that the EPCM agreement should be rectified by the addition of a term that:

“(i) Fluor Daniel will carry out the Services to be performed under this Agreement with reasonable care and skill; (ii) The Facilities will be of merchantable quality and reasonably fit for their purpose; (iii) Nothing in clause 5.3 or 10.7 of this Agreement excludes or limits the right to sue for damages for breach of (i) or (ii).”

[15]The factual basis of that claim to rectification appears in paragraph 12 of the reply. Put shortly, it is said that UK Paper relied on the discussion and negotiation between the parties in relation to sections 5.3 and 10.7 in the course of an interchange of successive drafts of the EPCM agreement; and, in particular, on what had been said or understood by Mr Mocock (of UK Paper) at and following a meeting with Mr Williams (of Fluor) on 19 April 1996. As a result of discussion and negotiation the words “implied warranties of merchantability and fitness for a particular purpose are specifically excluded” - which had appeared in section 10.7 of Fluor’s first draft of the agreement - had been deleted. It is said that Mr Mocock understood that the effect of section 5.3, in conjunction with section 10.7 (if those words were deleted), was that Fluor was accepting that UK Paper’s rights in respect of breaches of the terms that would usually be implied as to the quality of services and the merchantability and fitness for purpose would not be excluded or limited by the agreement; and that Mr Williams knew that that was Mr Mocock’s understanding.

[16]Paragraph 13 of the reply contains an assertion which is, I think, founded on observations of Lord Justice Stuart-Smith in Commission for the New Towns v Cooper (Great Britain) Ltd

[1995] Ch 259

, 280B-D. The paragraph is in these terms:

“It is inequitable and unconscionable for the First Defendant to rely on the terms of the [EPCM] Agreement for the effect contended for in the Defence because the First Defendant knew of Mr Mocock’s understanding of the effect of the changes to The First Defendant’s Original Draft Contract and intended that UK Paper plc should understand the changes that way. It would be just and equitable for the [EPCM] Agreement to be performed in accordance with the term set out in paragraph 11 above.”

[17]The Unfair Contract Terms Act point is made in paragraphs 14 to 16 of the reply. In the form to which it was amended in the course of the hearing in November 2001 paragraph 14 contains the assertion that section 2 of the Act applies to the EPCM agreement in the circumstances(i) that Fluor entered into that agreement in the course of its business and

(ii) that the agreement contained express and implied terms that Fluor would take reasonable care and exercise reasonable skill. It is said, in paragraph 15 of the reply, that terms in the EPCM agreement which purport to exclude Fluor’s liability for breach of the duty to take care and exercise skill – and, in particular, sections 5.3 and 10.7 of that agreement – fail to satisfy the requirement of reasonableness under the 1977 Act. Accordingly, as it is put in paragraph 16 of the reply:

“. . . the First Defendant cannot by reference to those terms exclude or restrict its liability to the Claimants and the Claimants’ remedies consequent on such breach . . .”

[18]The fourth point – estoppel - is pleaded at paragraph 17 of the reply:

“Further or alternatively, UK Paper plc and the First Defendant entered into the Settlement Agreement acting upon the common assumption that under the [EPCM] Agreement the First Defendant could be liable after 15 January 1998 in respect of latent defects falling within (a) [of paragraph 1 of the letter of that date]. The First Defendant is therefore estopped from contending (as it does in paragraph 10 of the Defence) that the true meaning and effect of the terms of the [EPCM] Agreement are such as to prevent any such liability from arising.”

[19]UK Paper served a witness statement made by the solicitor who had countersigned the letter of 15 January 1998. Fluor responded with a witness statement made by the solicitor who had sent that letter. Fluor applied for a ruling that those statements were not admissible in relation to the construction of that letter (the first issue). That application came before Judge Havery on 12 October 2001. He made the order sought. There was also before Judge Havery on that day an application by UK Paper to re-amend its particulars of claim to rely on the term pleaded in paragraph 11 of the reply; that is to say, the term as to care and skill, merchantable quality and fitness for purpose which UK Paper was seeking to have included in the EPCM agreement by way of rectification. The judge gave permission to re-amend and directed that “the question whether such a term existed should be heard in the hearing of the preliminary issues”. The effect of his order of 12 October 2001 was to add a third issue to the two which had been identified in the earlier order of 8 June 2001. That was reflected in an increase in the time estimate for the hearing that was to fixed to commence on 5 November 2001.

[20]When the preliminary issues came before the court for hearing on 5 November 2001 the formal position was that there were three issues to be determined:(i) whether the claim made against Fluor in the proceedings was barred by the terms of compromise set out in the letter of 15 January 1998 (on the ground that UK Paper’s cause of action against Fluor accrued before that date);

(ii) whether, on the true construction of the EPCM agreement as executed, Fluor’s liability in respect of the recycling project was limited to the warranty and guarantee given in article V of the EPCM agreement; and (iii), if so, whether the EPCM agreement should be rectified to include the term as to care and skill, merchantable quality and fitness for purpose set out in paragraph 11 of the claimants’ reply.

[21]We were told, however, that, although that may have been the formal position, it did not reflect the common understanding of the parties and their counsel. Nor, it was said, did that formal position reflect the understanding and intention of Judge Havery following the hearing on 12 October 2001. What was understood and intended was that, in addition to a determination of the three issues which the judge had ordered to be heard as preliminary issues, there should be a determination of the other issues raised by the reply; that is to say, (iv) the Unfair Contract Terms Act point and (v) the estoppel point. If that were the common understanding of the parties and their counsel – and there was no suggestion in this Court that it was not - then it was unfortunate, as it seems to me, that they did not co-operate in putting before the judge by whom the preliminary issues were to be heard an agreed statement of the issues which they were asking him to decide.

[22]The failure to co-operate in the formulation of an agreed statement of issues – to the extent that the issues were not defined by the existing orders - was doubly unfortunate in the circumstances(a) that, in the event, the preliminary issues were not heard by Judge Havery – so that, whatever understanding and intention may be attributed to him, there was no reason why another judge should appreciate that the issues were not limited to those identified in the orders which he had made – and

(b) that the judge to whom the matter was transferred, Judge Thornton, raised at the outset of the hearing on 5 November 2001, in express terms, the question “Have the parties defined what the current issues are, and if not ought we to attempt a definition of them before we start the evidence.” The response, by counsel for Fluor, was that “I am sure we could at some convenient moment draw up an extra couple of questions”. But no moment was found to be convenient until the conclusion of the evidence. And when, eventually, counsel were able to find a moment or moments that were convenient (after the evidence had been completed) they were unable to reach agreement on what a list of issues should contain.

[23]The parties’ inability to agree the issues which they wished the judge to decide was the result, in part at least, of the extent to which the judge allowed – indeed, encouraged - the submissions made on behalf of the claimants to range outside the issues which were properly the subject of the hearing in November 2001. The following passages at the outset of his final submissions, after the close of evidence, [transcript of proceedings, 7 November 2001] give some indication of the difficulties faced by Mr Ter Haar QC, counsel for Fluor: “MR TER HAAR: My Lord, it has been an interesting couple of days because with my Lord’s assistance we have analysed a number of aspects of this contract and of the facts around the settlement agreement, which were not adumbrated at all in the skeleton arguments. It is also clear that my learned friend, assisted by some of my Lord’s thinking, has undergone quite a transformation in his way of seeing this case. . . . I would, however, emphasise the way in which these issues have come before the court. . . . Until [Mr Lerego, QC, counsel for the claimants] stood on his feet to make his submission this morning, the position of UK Paper has been that clause 5.1 does not provide a basis for a claim for damages.”. . . [transcript, page 69 lines 26 to 33, page 70 lines 5 to 8] “MR TER HAAR: . . . what is important is the way in which the preliminary issues were ordered and the pleadings which followed that. It is also significant, if it is said now that it is blindingly obvious clause 5.1 confers a claim for damages, I am entitled to say it is not blindingly obvious because it is completely the contrary of the way in which the case has been presented. What I am saying is that you should treat with a great deal of caution any hint that it is obvious to everybody that clause 5.1 in itself confers a remedy in damages, because that is the complete opposite to the way in which the case has been understood by the claimants themselves until this morning.” [transcript, page 71 lines 1 to 8 and lines 32 to 37] “MR TER HAAR .. . in relation both to estoppel and in relation to rectification, the debate between my Lord and my friend this morning has moved in various directions exploring the issues, but in both cases the pleaded case is very clear and some of the variants upon it, which we discussed this morning, are not what is put forward and are not what I have come to face and should not be considered. Can I give an example? My Lord suggested to my learned friend at one point this morning that maybe there was a common [mistake] in relation to contract which would give rise to a claim for rectification. This is not a case which is pleaded against me. My Lord then said ‘I have not heard from the lawyers on Fluor’s side’, with the implication that perhaps you could draw some inference. My Lord, with the greatest of respect you cannot possibly do that, if I put it in that way, because I cannot be held to be bound by not having called a witness in respect of a case that has never been pleaded against me. Similarly in relation to estoppel. There was some exploration about whether the estoppel by convention would in some sense assist construction of the 1996 Agreement. That is not the way in which the case is put. So one does need to concentrate on the way in which the case has been brought and pleaded and look at it in that light. My Lord, it is because of the way in which the case is understood by both parties that the preliminary issues are framed as they have been. . . . .” [transcript, page 72 line 14 to page 73 line 5] A full examination of the transcript indicates that there is force in all those points. But they were ignored or overridden by the judge. Subsequent attempts to redefine the issues

[24]Such attempts as were made, following completion of the evidence, to agree a list of issues were unsuccessful. In the event, rival lists of issues were prepared and put before the judge after he had reserved his judgment. Fluor’s list of issues preserved the two issues identified by Judge Havery’s order of 8 June 2001; but set out, under each of those issues, a number of sub- issues:

“1. Is the Claim against the First Defendant barred by the Settlement Agreement of 15 January 1998 on the ground that the cause of action accrued on or prior to the date. (a) Does the construction of the Settlement Agreement preclude all claims save any that (i) accrues after the 15 January 1998 and (ii) is for a latent defect and (iii) arises out of Fluor’s design? (b) Had any cause of action for breach of contract accrued as at 15 January 1998? (c) Are Fluor estopped from contending that the only cause of action which could arise under the Contract was one in contract? 2. Is the First Defendant’s liability limited to the warranty and guarantee given in Article V of the Engineering Procurement Project and Construction Management Agreement between UK Paper plc and the First Defendant. (a) Does the construction of the contract limit the ambit of any claim in contract to that which could be brought within the express terms of the contract? (b) Does the construction of Sections 5.3, 10.7 and 10.14 of the Contract exclude a common law duty of care in tort or, alternatively, any claim for breach of a duty of care in tort? (c) Should the following terms be implied into the contract: (i) Fluor Daniel will carry out the Services to be performed under this Agreement with reasonable skill and care; (ii) The Facilities will be of merchantable quality; (iii) The Facilities will be reasonably fit for their purpose; and (iv) Nothing in clause 5.3 or 10.7 of this Agreement excludes or limits the right to sue for damages for breach of (i) or (ii) or (iii). (d) Should the contract be rectified to incorporate the terms in para 2(c) above? (e) Do the terms in Sections 5.3 and/or 10.7 and/or 10.14(c) satisfy the requirement of reasonableness in UCTA 1977. (f) Did the Claimants fail to satisfy the pre-conditions in Section 5.3 such that Fluor are released from their warranty?”

[25]The claimants’ list of issues relegated the first issue to paragraph 8 and contained no express reference to the second of the issues ordered by Judge Havery. Instead, the claimants advanced a reformulation under the first seven paragraphs:

“1. What is the correct construction of Article V of the [EPCM] Agreement? 2. Does the [EPCM] Agreement contain the term set out in section 13 of the Supply of Goods and Services Act 1982? 3. What (if any) duty of care was owed by Fluor to [UK Paper]? 4. Should the [EPCM] Agreement be rectified and, if so, in what form? 5. Is Fluor estopped from contending that the claims made in this action are barred by Article V? 6. Does UCTA apply to the [EPCM] Agreement? 7. If so, do the exclusions and restrictions in sections 5.3 &/or 10.7 &/or 10.14 (c) of liability under section 5.1 of the [EPCM] Agreement &/or s13 of the 1982 Act &/or any duty of care satisfy the requirement of reasonableness? 8. Is the claim against the First Defendant barred by the Settlement Agreement of 15 January 1998 on the ground that the causes of action accrued on or prior to that date?”

It should have been recognised that it was not appropriate to pose questions in such general terms as those posed by paragraphs 3 and 4 of that list for determination as preliminary issues; a fortiori to pose those questions after the completion of the evidence.

[27]In the event, Judge Thornton – in the absence of the assistance which he had requested and was entitled to expect, and upon the provision of which he ought to have insisted – chose to define the issues for himself. The potential for error and confusion, already inherent in the failure to provide – and the failure to insist upon there being provided - an agreed list of issues in advance of the evidence, was compounded by the fact that, as appears from the transcript of proceedings on 11 January 2002 (when his judgment was handed down in a form which he was later to amend), the judge, when defining the issues for himself, seems to have been unaware of (or to have overlooked) the order made by Judge Havery on 8 June 2001. The transcript records the following exchange between the judge and Mr Ter Haar QC, leading counsel for Fluor, (transcript of proceedings, 11 January 2002, page 4 line 22 to page 6 line 25):

“JUDGE THORNTON: But is it suggested that the issues that I have sought to answer are not the issues that I was asked to answer? MR TER HAAR: Yes, it is, because they go wider and further than was, in our submission, necessary and wider than had been ordered by Judge Havery . . . JUDGE THORNTON: . . . At the very least I should try and arrive at a position at which all the parties and the court agree what the issues are and any potential further argument is simply confined to whether I answered the exam paper correctly, and not as to whether I even embarked on the right exam. That is why I invited the parties to seek to agree the issues. They were unable to do so before the hearing and I am now, with I hope the parties’ assistance, trying to arrive at a position where we can now arrive at unanimity what I was trying to decide. . . . MR TER HAAR: . . . The position is, in our submission, clear as to what has happened procedurally. Judge Havery ordered certain issues to be determined. Those issues were then supplemented, not substituted, by matters which were discussed before Judge Havery at the directions hearing in October because the matter had expanded to deal with [UCTA], estoppel , etc. Before my Lord, my Lord found the formulation of those issues unsatisfactory. My Lord then went into somewhat wider questions. JUDGE THORNTON: You say there is already an order from Judge Havery? MR TER HAAR: Yes. . . . JUDGE THORNTON: I could not find it. MR TER HAAR: Are you talking about the 8 June order, because that was certainly before my Lord? JUDGE THORNTON: Could you show me the order that you say enshrines the issues that I was to determine on day one as the trial opened? . . . (Bundle handed to the court) JUDGE THORNTON: I do not recall ever seeing this order.”

The draft judgment handed down on 11 January 2002

[28]The issues formulated by the judge, in the draft judgment which he handed down on 11 January 2002, and the answers which he gave to those issues, were these:

“Issue 1: Does the Agreement contain the terms set out in section 13 of the Supply of Goods and Services Act 1982? Answer: No. Issue 2 : What (if any) tortious duty of care was owed by Fluor to UK Paper? Answer: None. Issue 3: Assuming that all the facts pleaded in the particulars of claim are established, do Sections 5.1, 5.3, 10.8 and 10.14(d) of the Agreement on their true construction separately or collectively exclude UK Paper’s claim for damages? Answer: No. Issue 4: What claims and causes of action were fully and finally settled and satisfied by the settlement agreement? Answer: any claim for any defect arising out of Fluor’s design to the extent, if at all, it is not excluded by the terms of the Agreement and which UK Paper did not first become aware of until after the settlement agreement was entered into.”

[29]Nevertheless, following submissions made on 11 January 2002, (see transcript of proceedings, 11 January 2002, page 20 lines 2-19), the judge was persuaded that his order should address the issues which had been ordered on 8 June 2001. He directed that, in the light of the draft judgment which he had handed down, the first of two issues which had been identified in the order made by Judge Havery on 8 June 2001 should be answered in the negative; and that the second preliminary issue should be answered in the following terms:

“Yes, but on the true construction of the [EPCM] agreement between UK Paper plc and the First Defendant, sections 5.1, 5.3, 10.8 and 10.14 (d) do not exclude the Claimant’s claim for damages.”

That was reflected in the order which he made on 11 January 2002. The judge did not, in that order, determine the question of rectification raised by Judge Havery’s order of 12 October 2001. The reason appears from the final paragraph of the draft judgment which he handed down on 11 January 2002 :

“Since I have decided that UK Paper’s claims are not excluded by the Agreement or the settlement agreement, the issues based on rectification, estoppel and UCTA do not arise. It is inappropriate to decide them since they depend on the erroneous assumption that each of these two agreements exclude or preclude UK Paper’s current claims.”

Further consideration of the draft judgment after 11 January 2002

[30]The judge refused permission to appeal from his order. On 21 January 2002 Fluor lodged an appellant’s notice, seeking permission to appeal and a stay of the proceedings in the action until that application (and any subsequent appeal) had been determined. The order of 11 January 2002 had not then been perfected or entered; but, plainly, Fluor’s advisers took the view that a stay of proceedings had been refused by the judge.

[31]On 28 January 2002 the judge sent to both parties’ solicitors a copy of his “approved judgment”. That incorporated typographical and other minor editorial corrections which had been agreed between the solicitors and set out in a composite list. It included, also, two additional paragraphs (then numbered 85 and 86) in which the judge expanded his reasoning in relation to the construction of the word “defect” in the settlement agreement. In an accompanying note the judge directed that “the earlier draft should be destroyed and replaced with this judgment which is to be regarded as published to the parties and in open court on 11 January 2002”. He expressed agreement with the terms of the draft order agreed between solicitors “save that the proposed first issue becomes the second issue and vice versa”. He further directed that, if an appeal were to be pursued, he would be given the opportunity to “draft a judgment setting out my findings of fact and conclusions on the three further grounds pursued by UK Paper for consideration in the Court of Appeal if necessary.”

[32]Fluor’s solicitors responded, by faxed letter dated 30 January 2002. They pointed out that they could not destroy all copies of the earlier draft judgment because passages from that judgment had been referred to and cited in the skeleton argument already lodged with this Court in support of the appellant’s notice. They indicated, also, that they resisted the suggestion, in the judge’s note of 28 January 2002, that the order of the preliminary issues should be reversed. They pointed out that the order in which those issues appeared in the draft order of 11 January 2002 was consistent with the order made by Judge Havery on 8 June 2001, had been adopted by both parties in the course of submissions on 11 January 2002, and was reflected in the appellant’s notice and skeleton argument already lodged in this Court.

[33]The judge replied on the same day. The first of his faxed letters of 30 January 2002 directed that the matter be relisted “for further discussion and directions” under five heads. A second note from the judge, also dated 30 January 2002, enclosed a draft of a proposed addition to his judgment “to take account of my concern as to the order in which the issues of interpretation are considered or referred to in the procedural order giving effect to my judgment”. Those additional paragraphs were in these terms:

“24. During the hearing, it became clear that there was a difference of view as to which of the two principle issues I should resolve first. These two issues were firstly as to the content and true meaning of the Agreement and secondly as to the meaning of the settlement agreement. UK Paper contended that I should first resolve what terms were to be implied into the Agreement and, in the light of that decision, then interpret the Agreement. Only then should I interpret the settlement agreement, taking into account as part of its background the true meaning and effect of the underlying Agreement. Fluor, on the other hand, contended that I should first interpret the settlement agreement without taking into account the meaning and effect of the underlying Agreement and I should only consider and interpret that Agreement at all if I reached the conclusion that the settlement agreement did not bar the claims that UK Paper is now seeking to advance. 25. I am firmly of the view that UK Paper’s suggested approach is the correct one. This is because the settlement agreement was negotiated and concluded by lawyers against the background of the Agreement and they are to be taken to have had in mind the terms of that Agreement when finalising and agreeing to the wording and terms of the settlement agreement. Moreover, the wording of the settlement agreement is ambiguous and the meaning and effect of the Agreement is therefore to be resorted to as an aid to the interpretation of that later agreement. Finally, as I see it, effect can only be given to the recent and significant decision of the House of Lords in Mahmud v Bank of Credit and Commerce International SA [1998] AC 20 , HL (E) if the order in which these two issues of contractual interpretation are resolved is by taking the Agreement issue first. This is because Mahmud’s case reaffirms the strict approach that is to be taken to the interpretation of settlement agreements. These must be interpreted so as not to exclude claims of which a party is unaware unless this conclusion is required by clear words of the agreement. In this case, as I see the position, it is necessary, in order to give effect to that strict approach, first to discern whether the present claims could have arisen under, or were excluded by, the terms of the underlying Agreement before deciding whether the wording of the settlement agreement is clear enough to bar them even though, on UK Paper’s case, they were not known about at the date of the settlement agreement. 26. At the hearing, therefore, I invited the parties to argue the Agreement issue first and to treat the meaning and effect of that Agreement as part of the background or matrix of the settlement agreement. I, too, have decided the Agreement issue first and have used that decision as part of the material I have taken into account when subsequently deciding the settlement agreement issue. I have, in consequence, reversed the order in which I have decided those issues from the order in which they were set out by the terms of the procedural order that was made by Judge Havery when directing that these issues should be resolved as preliminary issues. I am satisfied that Judge Havery did not intend, by the wording of his procedural order, to dictate the order in which the issues should actually be argued, decided or set out in the judgment or as to whether it be correct or not as a matter of law to have resort to the meaning of the Agreement as an aid to the interpretation of the settlement agreement.”

The judge’s reference, in the new paragraph 25, to Mahmud v Bank of Credit and Commerce International SA

[1998] AC 20

, is, I think, an error. The decision of the House of Lords to which he must have intended to refer is that in Bank of Credit and Commerce SA v Ali and others [2001] UKHL/8,

[2002] 1 AC 251

[34]In the event, no further hearing took place. The parties’ solicitors, in response to a third faxed letter from the judge, reached agreement as to the further amendments which should be made to the judge’s judgment, to the form of the order of 11 January 2002, and to the application for a stay to be dealt with on paper. The application was refused; and that refusal was recorded in a new paragraph (paragraph 4) of the order as sealed.

[35]It is plain, from the material before this Court, that the order was sealed on or after 1 February 2002 (which was a Friday); and there is no reason to doubt that (as the index to the Joint Core Bundle suggests) the order was, in fact, sealed on 6 February 2002. I find it surprising - and a matter of concern - that the court seal bears the date “11 Jan 2002”. A document of record, sealed by the court, ought to be a true record of the matters which it purports to record. If those matters include the date upon which the document was sealed, then that date must be a true date. To affix, on 6 February 2002, a court seal which bears a date which is not 6 February 2002 must, as it seems to me, require some conscious decision that the date should not be a true date. It is not clear why that decision was taken. The order of 19 April 2002

[36]Permission to appeal from the order of 11 January 2002 and a stay of proceedings pending appeal were granted on paper by this Court (Lord Justice Dyson) on 28 February 2002. In those circumstances Judge Thornton, as he had indicated in his note of 28 January 2002 and without further argument, prepared a further judgment on the issues which he had not decided in his earlier judgment. That judgment was handed down on 19 April 2002. The order made that day is in these terms, so far as material:

“It is ordered and declared that: 1. If the First Defendant’s contentions as to the construction of the EPCM Agreement are correct: 1.1 The EPCM agreement is rectified by: 1.2 (a) inserting the word “guarantee” in front of the word “remedy” in Section 5.3 and the word “remedies” in Section 10.7; (b) adding the following words to section 10.7: “For the avoidance of doubt, the remedy of damages for any breach of the warranties contained in section 5.1 is expressly set forth in the Agreement”. 1.2 If the EPCM Agreement is not so rectified, the First Defendant is estopped from relying on the exclusion and limitation provisions of Sections 5.3, 10.7 and 10.14 (d). 1.3 If the First Defendant is not so estopped, these provisions do not satisfy the requirement of reasonableness in the Unfair Contract Terms Act 1977.”

It may be noted that the rectification which the judge ordered is not – and bears no relation to – the rectification claimed in the re-amended particulars of claim.

[37]The judge gave permission to appeal from that order of 19 April 2002. He also took the opportunity, by that order, to give UK Paper the opportunity to cross-appeal from his earlier order in the terms set out in sections 4 and 6 of a respondent’s notice served on its behalf on 20 March 2002. The relevance of the circumstances in which the orders of 11 January and 19 April 2002 were made

[38]I have set out the circumstances in which the orders of 11 January 2002 and 19 April 2002 came to be made in much greater detail than would otherwise be necessary or appropriate for two reasons. First, in order to explain why there are before this Court appeals from two orders which, on their face, go well beyond the preliminary issues ordered by Judge Havery on 8 June 2001. And, second, because those circumstances provide the basis for an application by Fluor – made, we were told only after anxious consideration by leading counsel and his instructing solicitor (both of whom have extensive experience in construction disputes and, in particular, in the conduct of litigation in the Technology and Construction Court) - that, whatever the outcome of this appeal, this Court should direct that these proceedings should not continue to be heard by Judge Thornton.

[39]For my part I am satisfied that that is not an application which can be dismissed as an attempt to avoid further hearings before a judge who, in the past, has taken an unfavourable view of the merits of the case advanced by Fluor. I accept that the application has been made only after proper consideration of the implications which would follow from such a direction; and that it must be addressed on that basis. But, before addressing that application, I think it appropriate to decide the issues which arise on the appeals. The first issue: whether the claim made against Fluor in these proceedings is barred by the agreement made in the letter of 15 January 1998?

[40]In my view this issue – whether it would be contrary to the agreement reached on 15 January 1998 for the claims made against Fluor in these proceedings to be pursued - was correctly identified, in the order of 8 June 2001, as the first issue to be determined. I accept, of course, that (as Judge Thornton pointed out in paragraph 26 of his judgment) Judge Havery is not to be taken to have intended that his order of 8 June 2001 should dictate the order in which the issues should be argued or decided. But, for reasons which I shall explain, I have no doubt that that order of 8 June 2001 does, properly, reflect the manner in which the questions should be approached.

[41]The starting point, as it seems to me, is to ascertain, from the claimants’ pleaded case, what claim or claims are made against Fluor in these proceedings. The case is now pleaded in re-amended particulars of claim served on or about 30 October 2001. As I have said, the claim is in respect of damage arising from defects in the design of the cladding to the buildings. Particulars of those defects are set out under paragraph 34 of the re-amended particulars of claim. In summary, it is said that the cladding to the buildings in which the de-inking and recycling processes are carried on – which is provided by a double skin profiled steel sheeting system – is unsuited to the conditions to which it is exposed; that is to say, to conditions which result from the internal atmosphere of the process buildings and to the external conditions of the coastal location of the site. Further, that the cladding to the adjacent waste paper warehouse and the office block – a single skin profiled steel cladding system – is inadequate to prevent the internal atmospheric conditions in the process buildings from penetrating and affecting parts of those adjacent buildings. There is a further complaint of water penetration at roof level in the office building. Paragraph 35 of the re-amended particulars of claim contains the allegation that “the matters particularised at paragraph 34 above have been caused by breaches of contract and/or negligence” on the part of Fluor. As I have already indicated, it is said that Fluor knew or ought reasonably to have known that the processes carried out in the course of recycling paper release into the internal atmosphere considerable heat, humidity and acidic and alkaline elements; that it failed to take those factors into account in preparing or procuring designs and specifications in respect of the roof and wall cladding system; that it should have specified a different system, different fixings and different materials; and that (in so far as the designs and specifications were prepared by other contractors) Fluor failed to advise that those designs and specifications were deficient, inadequate and ought to be rejected.

[42]The contractual duties relied upon in the pleaded case – and in relation to which Fluor is said to be in breach of contract – are set out in paragraphs 8, 9 and 10 of the re-amended particulars of claim. In paragraph 8, the claimants plead reliance on the full terms and effect of the EPCM agreement. Those terms are said to include the additional term in respect of care and skill, merchantable quality and fitness for purpose – which I have already set out – which it is sought to introduce by way of rectification. Paragraph 9 contains the allegation that “in addition to the terms set out in the [EPCM] Agreement above there were, inter alia , the following express alternatively implied terms in the [EPCM] Agreement”; and there are then set out, as terms of the EPCM agreement, obligations to advise UK Paper in relation to, or itself to reject, design proposals, designs or drawings produced by other contractors. Paragraph 10 is in these terms:

“To the extent that the said terms are to be implied they are to be implied to give efficacy to the [EPCM] Agreement and/or by custom and/or as a matter of law and/or to give effect to the obvious but unexpressed intentions of the parties.”

[43]The duty in tort is set out in paragraph 11 of the re-amended particulars of claim:

“Further the First Defendant owed the First Claimant a duty of care at common law in the performance of the Services to exercise the degree of skill, care and diligence to be expected of reasonably competent engineering and construction firms with specialist expertise and knowledge of facilities for the recycling of paper and manufacturing pulp.”

The judge, at paragraph 18 of his first judgment, described that as a “make-weight claim in tort”. He said this:

“It can be seen that this claim is entirely co-extensive with UK Paper’s contractual claim and it would only have relevance, if a tortious relationship survived the terms of the Agreement at all, if UK Paper’s contractual claims were barred by limitation and it needed to rely on the fact that a tortious cause of action accrued at a later time to its equivalent contractual cause of action and that the relevant limitation period within which a claim may be brought, unlike its equivalent contractual period, could be linked to the discovery of latent damage.”

[44]It had been made clear to the judge, in the course of the hearing in November 2001, that UK Paper placed no reliance on the claim in tort – see the exchange between Mr Lerego QC, counsel for UK Paper, and the judge in the course of Mr Lerego’s closing submissions (transcript of proceedings, 7 November 2001, page 23 line 23 to page 24 line 20):

“MR LEREGO: . . . When the contract is subsequently entered into, the duty in so far as it relates to quality of design, becomes subjected to Article V and if your Lordship accepts our argument as to construction of Article V then, from the point in time when we signed up to the contract, our remedy, if the services were not carried out properly, was to have recourse to the warranty in the first sentence of Section V(i). From that point on we no longer have a remedy in relation to tort . . . JUDGE THORNTON: If you accept that there is no duty in tort as a result of Article V whatever construction of the article that I adopt, does that not preclude a claim in tort? MR LEREGO: Yes. Each party is contending that no claim in tort could arise, or does, on the proper construction of the contract, arise. . . . JUDGE THORNTON: My instinctive caution in entering into the interesting field of whether Henderson v. [Merrett] and all sorts of other cases is no longer particularly good law in this field does not arise? MR LEREGO: It does not arise, if your Lordship accepts our point under construction, no. JUDGE THORNTON: It can only arise if I accepted a different construction to that contended for by either party. MR LEREGO: Yes.”

[45]In this Court Mr Lerego did not seek to resile from the position which he had adopted in that exchange. But it is pertinent to note(i) that the tortious claim was advanced in the original particulars of claim; it was relied upon in the reply of 5 July 2001; it was preserved in the re-amended particulars of claim; and it has not, so far as I am aware, been deleted by any subsequent amendment;

(ii) that it is by no means obvious or unarguable that (absent any provision of the EPCM agreement which precludes such a claim) there could not be a tortious claim which was co-extensive with the contractual claim under that agreement (as the judge recognised in the exchange which I have just set out); and

(iii) that if there were a tortious claim – albeit “entirely co-extensive” with the contractual claim - there could be circumstances in which the cause of action in tort would accrue at a later time than the cause of action in contract (as the judge recognised at paragraph 18 in his first judgment).

[46]The next step is to ask whether the claims made against Fluor in these proceedings are within the class of claims in respect of which the parties intended the agreement of 15 January 1998 to be in “full and final settlement” and “satisfaction”. The answer to the question “in respect of what claims did the parties intend the agreement to be full and final settlement” is to be found in paragraph 1 of the letter which records that agreement. Subject to the proviso introduced by the words “excluding only” the parties intended their agreement to be in full and final settlement of “all claims” and in satisfaction of “all causes of action” between them “arising out of or in connection with [UK Paper’s] paper deinking and recycling plant at Kemsley (“the Project”)”. They made it clear, in express terms, that those claims and causes of action included, but were not limited to, the matters in dispute in the two actions which were then about to come on for trial.

[47]In my view it is beyond argument that, but for the proviso introduced by the words “excluding only”, the claims made in the present proceedings would fall squarely within the description “all claims and . . . all causes of action . . . arising out of or in connection with [the] paper deinking and recycling plant at Kemsley”; and beyond argument that that is the effect that the parties intended that the words which they used in their agreement should have.

[48]At paragraph 75 of his judgment of 11 January 2002 the judge reminded himself of the observation in the speech of Lord Bingham of Cornhill in Bank of Credit and Commerce International SA v Ali and others [2001] UKHL/8,

[2002] 1 AC 251

, 259 H , at paragraph 9:

“A party may, at any rate in a compromise agreement supported by valuable consideration, agree to release claims or rights of which he is unaware, even claims which could not on the facts known to the parties have been imagined if appropriate language is used to make plain that that is his intention.”

Lord Bingham went on, in the same paragraph, to refer with obvious approval to the observation in the judgment of Sir Richard Scott, Vice-Chancellor, in his judgment in this Court in the Ali case, at

[2000] ICR 1410

, 1415:

“The law cannot possibly decline to allow parties to contract that all and any claims, whether or not known, shall be released. The question in a case such as the present is to ascertain, objectively, whether that was the parties’ intention or whether, in order to correspond with their intentions, a restriction, and if so what restriction, should be placed on the scope of the release.”

Lord Bingham described that observation as “both good law and good sense”. He pointed out that it was no part of the court’s function to frustrate the intentions of the contracting parties once those have been objectively ascertained.

[49]There are observations to the same effect in the speech of Lord Nicholls of Birkenhead in the Ali case – see at paragraph 27,

[2002] 1 AC 251

, 265 F-H:

“The wording of a general release and the context in which it was given commonly make plain that the parties intended that the release should not be confined to known claims. On the contrary, part of the object was that the release should extend to any claims which might later come light. The parties wanted to achieve finality. When, therefore, a claim whose existence was not appreciated does come to light, on the face of the general words of the release and consistently with the purpose for which the release was given the release is applicable. The mere fact that the parties were unaware of the particular claim is not a reason for excluding it from the scope of the release. The risk that further claims might emerge was a risk the person giving the release took upon himself. It was against this very risk that the release was intended to protect the person in whose favour the release was made.”

[50]But, although the mere fact that the parties were unaware of the particular claim is not, of itself, sufficient reason to exclude it from the scope of a general release, Lord Nicholls went on to explain that it was not every such claim that would be within the scope of a release which, on its face, extended to future claims. He said this, at paragraph 28 and 29:

“28. This approach however should not be pressed too far. It does not mean that, once the possibility of further claims have been foreseen, a newly emergent claim will always be regarded as caught by a general release, whatever the circumstances in which it arises and whatever its subject matter may be. However widely drawn the language, the circumstances in which the release was given may suggest, and frequently they do suggest, that the parties intended, or more precisely, the parties are reasonably to be taken to have intended, that the release should apply only to claims, known or unknown, relating to a particular subject matter. The court has to consider, therefore, what was the type of claims at which the release was directed . .” 29. This approach, which is an orthodox application of the ordinary principles of interpretation is now well established. Over the years different judges have used different language when referring to what is now commonly described as the context or the matrix of facts, in which a contract was made. But, although expressed in different words, the constant theme is that the scope of general words of a release depends upon the context furnished by the surrounding circumstances in which the release was given. The generality of the wording has no greater reach than this context indicates.”

[51]It was, I think, that “orthodox [and well established] application of the ordinary principles of interpretation” which Lord Bingham had in mind when he said, at paragraph 10 of his speech: “But a long and in my view salutary line of authority shows that, in the absence of clear language, the court will be very slow to infer that a party intended to surrender rights and claims of which he was unaware and could not have been aware”.

[52]The principles are not, I think, open to doubt. The reason why the House of Lords reached the decision that they did in Bank of Credit and Commerce International SA v Ali [2001] UKHL/8 was that they took the view (Lord Hoffmann dissenting) that, on the very particular facts in that case, the claim which the former employee was seeking to advance was a claim which could not have been in his contemplation, as releasor, at the time when the release was given. As Lord Nicholls put it, at paragraph 35,

[2002] 1 AC 251

, 268 E-F :

“. . . I consider these parties are to be taken to have contracted on the basis of the law as it then stood. To my mind there is something inherently unattractive in treating these parties as having intended to include within the release a claim which, as a matter of law , did not then exist and whose existence could not then have been foreseen. . . . The ambit of the release should be kept within reasonable bounds. Mr Naeem cannot reasonably be regarded as having taken upon himself the risk of a retrospective change in the law. A claim arising out of such a change cannot be regarded as having been within the contemplation of the parties.”

Lord Bingham, with whom Lord Browne-Wilkinson expressly agreed, made the same point, at paragraph 19,

[2002] 1 AC 251

, 264 C-D :

“Neither the bank, . . . , nor Mr Naeem could realistically have supposed that such a claim lay within the realm of practical possibility. On a fair construction of this document I cannot conclude that the parties intended to provide for the release of rights and the surrender of claims which they could never have had in contemplation at all. If the parties had sought to achieve so extravagant a result they should in my opinion have used language which left no room for doubt and which might at least have alerted Mr Naeem to the true effect of what (on that hypothesis) he was agreeing.”

Lord Clyde, also, referred to the stigma claim which the employee was seeking to advance as one “which neither party could have contemplated even as a possibility as the law stood at the time when the agreement was made” – see, at paragraph 86,

[2002] 1 AC 251

, 284 C.

[53]By contrast, the claims in the present proceedings are just the sort of claims that may be expected to be within the contemplation of parties to a construction contract, or to a contract for the provision of design, procurement and construction management services. It must be a matter of common experience amongst those who commission, design and manage the construction of commercial buildings that defects come to light after – perhaps years after - the contract has been performed and the building handed over. The books are full of such cases; and the difficulties to which latent defects give rise in the context of limitation. And, plainly, the parties did have such claims in contemplation when they entered into the agreement on 15 January 1998; as appears from the proviso to paragraph 1 of the letter –“excluding only any cause of action that may in future accrue to UK Paper plc (a) for any latent defect arising from our client’s design”. Unless, therefore, the effect of the proviso is to exclude from the compromise in the earlier part of paragraph 1 of the settlement letter the claims made against Fluor in these proceedings, the question “are the claims made against Fluor in these proceedings within the class of claims in respect of which the parties intended the agreement of 15 January 1998 to be in full and final settlement?” must receive an affirmative answer.

[54]I turn, therefore, to consider the effect of the proviso. The opening words - “excluding only” – are themselves indicative of an intention that what has gone before should include all claims and causes of action which are not expressly excluded by what follows. What, then, is excluded by the proviso? Two requirements can be identified:(a) the claim must be founded on a cause of action which has not already accrued to UK Paper at the date of the settlement letter (15 January 1998) and

(b) the claim must be founded on a cause of action either (i) in respect of any latent defect arising from Fluor’s design (not being a claim which is, in any event excluded by the terms of the EPCM agreement) or (ii) arising in connection with any personal injury claim brought against UK Paper relating to injury suffered during the construction of the project by any contractor servant or agent.

[55]The expression “any cause of action that may in future accrue to UK Paper ” may aptly be described as “lawyers’ terminology”. The date upon which a cause of action accrues is of importance in the context of construction disputes because – prima facie, at least – it is the date from which periods of limitation are to be reckoned for the purposes of the Limitation Act 1980: see, for example, section 2 (actions founded on tort) and section 5 (actions founded on simple contract). And, in that context, the basis upon which that date is to be ascertained has been explained by the courts in decisions which are well-known and not in question – see, for example Pirelli General Cable Works v Oscar Faber and Partners

[1983] 2 AC 1

. In particular, it may be taken as well known – at least to any lawyer with experience in construction disputes - that the date on which a cause of action accrues (either in contract or in tort) is not postponed until the date that the claimant first knows that he has suffered damage. The potential injustice to which that may give rise was, of course, addressed (in relation to an action for damages for negligence) by section 14A of the Limitation Act 1980 – introduced, following the decision in the Pirelli case, by section 1 of the Latent Damage Act 1986.

[56]It is not in dispute that, if the expression “any cause of action that may . . . accrue to UK Paper” is given the meaning which it would bear in the context of, say, a limitation defence, the claims in the present proceedings – at least in so far as they are brought in contract – are not within the proviso to paragraph 1 of the settlement letter. A cause of action in contract accrues at the date of the breach – see, for example, Midland Bank Trust Company Limited v Hett, Stubbs and Kemp

[1979] Ch 384

. The breaches of contract relied upon in the present proceedings occurred (if at all) during the period of construction and (in any event) before 15 January 1998. We have heard little argument on the question whether the position would be the same in relation to the claims which are pleaded in tort. Mr Lerego, in advancing his submissions as to the true construction of the proviso, was concerned – for obvious reasons – to distance himself from the claims in tort. Indeed, as I have said, he maintained the position which he had adopted before the judge - that the EPCM agreement had excluded any claim in tort. Mr Ter Haar, for different reasons, was equally concerned to argue that the effect of the second sentence in section 10.7 of the EPCM agreement was to limit the remedies available to UK Paper to claims in contract under that agreement. For my part – for reasons which will become apparent in this judgment - I do not find it necessary to decide whether the claims in tort, as pleaded , had accrued before 15 January 1998. I have some doubt whether, on the facts pleaded, it is possible to decide that question.

[57]The judge accepted that the expression “any cause of action that may . . . accrue to UK Paper” should not be given what he described as its technical meaning; that is to say, he accepted that the word “accrue” should not be construed in the sense familiar to a lawyer with experience of construction disputes. He reached the conclusion, expressed at paragraph 103 of his judgment dated 11 January 2002 (in the form revised and approved on 30 January 2002), that the exceptional class of case not compromised, satisfied or released by the settlement letter of 15 January 1998 “consists of contractual claims based upon latent defects arising out of Fluor’s design, namely defects which UK Paper did not first know about until at least 16 January 1998 ” [my emphasis]. He accepted, at paragraph 102 of his revised judgment, that the word “accrue” when used in conjunction with the phrase “cause of action” usually bears the meaning of “crystallises” or “becomes effective”; but he went on to say this:

“In the context of this settlement agreement, the word is still being used in the sense of “becomes effective” since the causes of action that the settlement agreement refers to, being ones that “may in future accrue”, are those which were existing latent causes of action before the settlement, which were then settled by the agreement, but which might be subject to a subsequent exception which would enable them again to become effective on ceasing to be latent.”

[58]The judge was led to the conclusion which he reached by a process of reasoning which is set out in detail in his revised judgment (at paragraphs 94 to 102). That reasoning may, I think, fairly be summarised as follows:(i) the phrase “all causes of action” – which appears in paragraph 1 of the settlement letter – should be construed to mean “all existing causes of action”; to give that phrase the meaning “all existing and future causes of action” would be inconsistent with the reasoning of the House of Lords in Bank of Credit and Commerce International SA v Ali and others [2001] UKHL/8 because the parties should not be taken to have intended to compromise future unknown claims;

(ii) the phrase “any cause of action . . . for any latent defect” – which appears in the proviso to paragraph 1 – should be construed to mean “any existing cause of action based on any latent defect”;

(iii) the causes of action within the phrase “any cause of action . . . for any latent defect” are, necessarily, causes of action in contract; the parties must be taken to have appreciated that “no claims in tort can possibly arise out of the [EPCM] Agreement” – see paragraphs 99 and 101.4; and

(iv) the phrase “that may in future accrue to UK Paper” – which appears in the proviso – should be construed to mean “that may in future become known about by UK Paper”; to give the word accrue its “technical” meaning would be to defeat the obvious purpose of the proviso because the parties must be taken to have appreciated that all contractual claims would have accrued (in the technical sense) before the date of the settlement letter.

[59]I am satisfied that the judge’s reasoning is flawed in two respects. First, for the reasons that I have already set out, I think that he was wrong to take the view that Bank of Credit and Commerce International SA v Ali and others [2001] UKHL/8 requires the court to approach the settlement letter on the basis that the parties did not intend their compromise to extend to future causes of action of which they would not have had knowledge at the date of that letter. The particular – and, to my mind, crucial – feature in the Ali case was that the cause of action which the claimant was seeking to pursue was one which was not known to the law at the time of the release and so could not have been within the contemplation of the parties. In the present case the possibility that there might be claims based on latent defects in design – which had not been identified at the date of the settlement letter – was in contemplation. That is plain from paragraph (a) of the proviso itself. The question, in the present case, is not whether the parties intended that their compromise should make provision for claims which had not been identified at the date of the settlement letter. The question in the present case is as to the provision which – by the words which they used – they did make for such claims.

[60]Second, I think that the judge was wrong to approach the settlement letter on the basis that the parties must be taken to have appreciated that there were no circumstances in which a claim in tort could arise in respect of any latent defect arising from Fluor’s design. There was no evidence that that was their common understanding at the date of the settlement letter; and an assumption that it was is inconsistent with the claims actually made and still pursued by the claimants in these proceedings – which include claims in tort. It may well be that Fluor had intended, by section 10.7 of the EPCM agreement, to confine its obligations to those expressly set out in that agreement; and that, on 15 January 1998, Fluor had some confidence that the EPCM agreement had achieved that result. There is some indication of that in the qualifying words which appear in parenthesis in paragraph (a) of the proviso itself – “(to the extent, if at all, it is not excluded by the terms of the [EPCM] Agreement between our respective clients in respect of the Project)”. But there is no reason to assume that UK Paper shared that view; and no reason to think that Fluor did not intend to cover the position that would arise if its view were wrong. It must be kept in mind that it is a feature of compromise that parties may take wholly different views as to the existence and strength of the claims which each may have against the other. The purpose of compromise is to avoid a determination as to whose view is correct. In circumstances in which parties intend to compromise claims under or in relation to an existing contract, it is, to my mind, wrong in principle to construe their settlement agreement by first construing that existing contract and then attributing to each, as at the date of the compromise, knowledge of what the court has subsequently held to be the true meaning and effect of that existing contract. That would be to defeat the purpose of the compromise.

[61]The settlement letter of 15 January 1998 was drawn and accepted for the parties by lawyers who may be taken to be experienced in disputes arising from construction or construction management contracts. The solicitors were acting for the parties in existing litigation arising from the construction of the recycling plant which was the subject of the EPCM agreement. The phrase which they used - “any cause of action that may in future accrue . . . for any latent defect” – has, to a lawyer experienced in this field, a well recognised meaning. I can see no reason why the phrase should not be given that meaning in the settlement letter which they agreed on behalf of their respective clients. I think that the judge was wrong to hold otherwise. It follows that I would hold that the contractual claims made against Fluor in these proceedings are barred by the settlement letter of 15 January 1998. The second issue: whether Fluor’s liability is limited to the warranty and guarantee given in Article V of the EPCM agreement

[62]Although posed in terms which might appear to invite the court to go beyond the claimants’ pleaded case, it is plain that the second issue must be addressed in the context of the claims that are actually made in these proceedings. Further, the second issue must be addressed in the light of the answer to the first issue. If, as I would hold, the contractual claims made against Fluor in these proceedings are barred by the settlement letter of 15 January 1998, it is unnecessary to decide whether those claims would, in any event, have been excluded by the EPCM agreement. In particular, it is unnecessary to decide(i) whether the EPCM agreement should be rectified in the manner for which the claimants contend in their re-amended particulars of claim and in paragraph 11 of the reply served on 5 July 2001 or

(ii) whether comparable terms should be implied into that agreement. Whatever additional terms are introduced into the EPCM agreement by rectification, or are to be implied, a claim based on those terms - being a claim in contract - will be barred by the settlement letter of 15 January 1998.

[63]If the contractual claims made against Fluor in these proceedings are barred by the settlement letter of 15 January 1998, then the only question remaining under the second issue, as it seems to me, is whether the effect of the second sentence in section 10.7 of the EPCM agreement – “the rights and remedies with respect to the Services, whether in contract or otherwise, are limited to those expressly set forth in this Agreement” – is to preclude any claim in tort in relation to Fluor’s responsibility for the performance or non-performance of the services which it had undertaken to, or did, provide. As I have said, it has been common ground on this appeal that that question should be answered in the affirmative. That is the conclusion reached by the judge on 11 January 2002 – see paragraphs 39 to 42 of the revised judgment of that date. On the basis that Fluor is not prevented from relying on the second sentence of section 10.7 of the EPCM agreement in relation to the exclusion of any tortious duty of care either(i) by some estoppel or

(ii) by the provisions of the Unfair Contract Terms Act 1977, I can see no reason to differ from the view adopted by both parties and endorsed by the judge. If it were necessary for this Court to determine the point (which, as it seems to me, it is not) I would hold that view to be correct.

[64]The judge answered the second preliminary issue in the affirmative; but he qualified that answer by declaring that on the true construction of the EPCM agreement, “sections 5.1, 5.3, 10.8 and 10.14(d) do not exclude the Claimants’ claim for damages.” In the light of his conclusion at paragraph 42 of his judgment of 11 January 2002 it is clear that the only claim for damages which he could have had in mind, in that context, was a claim for damages under the EPCM agreement. He was concerned to make it clear that he had rejected Fluor’s contention that the only remedy available to UK Paper (as “the Owner”) in respect of the quality of the services to be provided under the EPCM agreement was to require Fluor to perform corrective services – see paragraph 70 of his judgment of 11 January 2002. In the circumstances that there can be no claim for damages under the EPCM agreement – by reason of the compromise reached on 15 January 1998 – the qualification is otiose. For my part, I would dispense with that qualification; on the ground that (in the light of the answer which I would give to the first issue) it is potentially confusing. But I should not be taken to disagree with the judge’s conclusion, at paragraph 70 of his judgment of 11 January 2002, that the only realistic and commercial meaning to be given to section 5.3 of the EPCM agreement is that it is intended to confine the remedy in respect of Fluor’s guarantee to the performance of corrective services; but is not intended to exclude a claim for damages for breach of the warranty contained in section 5.1.

[65]As I have indicated, the conclusion that the second preliminary issue should be answered in the affirmative rests on the premise that Fluor is not prevented from relying on the second sentence of section 10.7 of the EPCM agreement in relation to the exclusion of any tortious duty of care either(i) by some estoppel or

(ii) by the provisions of the Unfair Contract Terms Act 1977. In that context it is necessary to consider the effect of the order which the judge made on 19 April 2002. He directed that, if (contrary to what he had held on 11 January 2002) Fluor’s contentions as the construction of the EPCM agreement were correct, then the EPCM agreement be rectified by the addition of a sentence to section 10.7 in these terms:

“For the avoidance of doubt, the remedy of damages for any breach of the warranties contained in Section 5.1 is expressly set forth in the Agreement.”

He went on to order (i) that, if the EPCM agreement were not so rectified, Fluor was estopped from relying on the exclusion and limitation provisions of (inter alia) section 10.7 and (ii) that if Fluor were not so estopped, then those provisions did not satisfy the requirement of reasonableness in the 1977 Act. I have difficulty in understanding how, given the conditional order for rectification which he had made, there could be any case for estoppel or for the application of the 1977 Act; but it may be that the judge was seeking to anticipate any possible conclusion which this Court might reach. Be that as it may, the order of 19 April 2002 might, on its face, suggest that (one way or another) Fluor was not to be entitled to rely on the second sentence of section 10.7 of the EPCM agreement even in relation to the exclusion of any tortious duty of care.

[66]I am satisfied that that was not the judge’s intention. To hold, on 19 April 2002, that Fluor was not entitled to rely on section 10.7 to exclude any tortious duty of care would be inconsistent with the conclusion which he had reached in his judgment of 11 January 2002; and there is nothing to suggest that he had resiled from his earlier conclusion. Further, as it seems to me, the point that he was concerned to address on 19 April 2002 was whether Fluor could rely on the second sentence of section 10.7 (in conjunction with sections 5.3 and 10.14(d)) as a defence to a claim for damages in contract. He was not concerned to revisit the question whether a tortious duty of care had been excluded. The third issue: whether the EPCM agreement should be rectified

[67]As I have said, the order made by Judge Havery on 12 October 2001 added a third issue to the two which, on 8 June 2001, he had ordered to be determined at the hearing in November 2001. The third issue was whether the EPCM agreement should be rectified to include the term as to care and skill, merchantable quality and fitness for purpose pleaded in paragraph 11 of the claimants’ reply served on 5 July 2001 and incorporated as paragraph 8 of the particulars of claim by the re-amendment for which permission was given on 12 October 2001.

[68]Judge Thornton did not decide that issue. The order for rectification which he made – at paragraph 3 of his order dated 19 April 2002 – was for rectification of the EPCM agreement by inserting the word “guarantee” in front of the words “remedy” and “remedies” in sections 5.3 and 10.7 of the agreement; and by adding to section 10.7 the words “For the avoidance of doubt, the remedy of damages for breach of the warranties contained in Section 5.1 is expressly set forth in the Agreement.”.

[69]We were taken to the evidence given at the trial of the preliminary issues. There is, to my mind, much force in the submission made on behalf of Fluor that there was no evidential foundation for rectification of the EPCM agreement, either as sought by the claimants or in the form ordered by the judge on 19 April 2002. A passage from the cross-examination of Mr Mocock (transcript of proceedings, 6 November 2001, page 14 line 4 to page 16 line 10) illustrates the point: “Q. The state of play at this stage [April 1996] was that you wanted the terms that you had put forward, the express warranties in the contract, Fluor had indicated that they wanted to exclude any warranties. A. Yes. Q. So you knew there was a difference between you as to what should go into the contract? A. Yes. Q. You also knew that unless you could get those warranties into the contract you would not be able to rely upon them because of the effect of the entire contract clause? A. Yes. Q. In the event they came back in a letter of 29 April, with a revised proposal . . . The one thing that Fluor were not going to do was to accept the warranties that you wanted put in the contract. That is right, is it not? A. That is right. . . . Q. But as to 10.7, is this the position, you realised that you were not going to get Fluor to accept the warranties you want put in the contract, and there was no point in fighting any further for it? A. That is right. Q. And this contract was dealt with on the basis that Fluor would not give the warranties that you wanted, you just had to accept that? A. Yes effectively, yes. . . . Q. Is this a fair way of putting it, that at the end of it it might not have every aspect that you would have wanted in the contract, but you regarded the contract overall as fair and reasonable? A. Yes. It was a bit of a bloody draw. Q. And there was certainly nothing left that you felt worth fighting for? A. No, there was not. Q. If there had been, you would have continued to fight. A. Yes.

[70]In the light of that evidence a claim that the EPCM agreement should be rectified in the manner sought by the claimants in their pleadings could not succeed; and the only answer that could have been given to the issue which Judge Havery had ordered on 12 October 2001 was “No”.

[71]For the reasons which I have already given it was unnecessary for Judge Thornton to make the order for rectification which he did make on 19 April 2002: first, because he had been correct to hold, on 11 January 2002, that section 10.7 of the EPCM agreement (in conjunction with sections 5.3 and 10.14(d)) did not exclude a contractual remedy for damages for breach of warranty; and, second, because the true effect of the settlement letter of 15 January 1998 is to preclude all contractual claims for damages under the EPCM agreement. But I should add that, in any event, a judge should be very slow, on the hearing of preliminary issues, to make an order for rectification in a form which had not been sought in the pleaded case. On that ground alone, I think that the judge was wrong to do so in the present case. The order to be made on this appeal

[72]For the reasons that I have set out I would set aside paragraph 1 of the order of 11 January 2002. In my view the first of the preliminary issues ordered by

Judge Havery on 8 June 2001 should be answered in these terms:

“Save to the extent (if at all) that claims in tort made by the claimants against the first defendant in these proceedings accrued after 15 January 1998, the claims made by the claimants against the first defendant are barred by the settlement letter of that date.”

I would vary paragraph 2 of the order of 11 January 2002 by deleting the qualification to the judge’s affirmative answer. I would set aside the whole of paragraph 1 of the order of 19 April 2002. Further conduct of the proceedings

[73]The effect of the order which I would make on this appeal would be, as it seems to me, that the claim against Fluor in these proceedings should be dismissed. But, as we were told, that would not bring these proceedings - or Fluor’s involvement in these proceedings – to an end. The proceedings would (or might) be continued against other defendants; and Fluor is said to be a defendant to contribution claims made against it by those other defendants under CPR Part 20. In those circumstances Fluor’s application that this Court should direct that these proceedings should not continue to be heard by Judge Thornton has to be addressed.

[74]For my part, I would accede to that application and make the direction sought. I accept that, in the circumstances which I have set out at some length earlier in this judgment, the concerns that Fluor have expressed through solicitors and counsel are genuinely held. That is not, of course, to suggest that Fluor would not, in fact, receive a fair trial in proceedings before Judge Thornton. But it must, I think, be recognised that, if further issues were decided against Fluor by Judge Thornton in these proceedings, Fluor would or might be left with a sense of injustice which could not be dismissed as fanciful. I am not persuaded that the direction needed to avoid that situation arising – that is to say, a direction that the proceedings should continue before another judge of the Technology and Construction Court - will give rise to undue administrative or case management difficulties. Douglas Brown J:

[75]I agree. Waller LJ:

[76]I also agree. The cost’s order is in the form of a separate judgment.

MOSTCASH PLC & OTHERS v FLUOR LIMITED [2002] EWCA Civ 975

Lord Justice Chadwick :

These

(d) The identification of preliminary issues

Judge Havery on 8 June 2001 should be answered in these terms:

Cited in 2 later judgments