Greenore Port Ltd v Technical & General Guarantee Company Ltd [2006] EWHC 3119 (TCC)

Claim No.HT-04-377
IN THE HIGH COURT OF JUSTICE
QUEEN’S BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT
[2006] EWHC 3119(TCC)
Venue Royal Courts of JusticeDate Thursday, 30 th November 2006
Before
MR. JUSTICE JACKSON
Between
Greenore Port LtdClaimantTechnical & General Guarantee Company LtdDefendant
B E T W E E N:
GREENORE PORT LTD.
(formerly known as Greenore Ferry Services Ltd.) Claimant
- and -
TECHNICAL & GENERAL GUARANTEE COMPANY LTD.Defendant
Transcribed by BEVERLEY F. NUNNERY & CO
Official Shorthand Writers and Tape Transcribers
Quality House, Quality Court, Chancery Lane, London WC2A 1HP
Tel: 020 7831 5627 Fax: 020 7831 7737
MR. MANUS McMULLAN (instructed by Charles Russell LLP) appeared on behalf of the Claimant.
MR. MICHAEL DAVIE (instructed by Bayham Solicitors) appeared on behalf of the Defendant.
J U D G M E N T
[1]This judgment is in 11 parts, namely: Part 1 - Introduction; Part 2 – The Facts; Part 3 – The Present Proceedings; Part 4 – The Claimant’s Evidence; Part 5 – The Defendant’s Evidence; Part 6 – The Termination Issue; Part 7 –The Effect of the Claimant’s Rejection of the Defendant’s Offer Dated 9th August 2001; Part 8 – The Claim for Additional Completion Costs; Part 9 – Damages For Delay; Part 10 – The Claim for Rock Dredging Costs and Loss of Profits After October 2001; and, Part 11 – Conclusion.

Part 1. Introduction

[2]Greenore Point is a promontory on the east coast of Ireland. It is just south of the border which divides the Republic of Ireland from Northern Ireland. From Greenore Point one looks across Carlingford Lough to the coast of County Down and the Mountains of Mourne. In the 1870s a passenger ferry port was established at Greenore Point. Fine masonry walls were constructed along the quayside with a design life of 100 years. Once Greenore Port had been established ferry boats travelled from there to Northern Ireland and beyond.[4]By the end of the twentieth century the masonry quay walls had outlived their design life. The claimant decided to carry out renovation works to upgrade the port as a whole. The chosen contractor was SAR Marine & General Ltd., to whom I shall refer as “SAR”. Unfortunately the renovation works did not proceed smoothly and SAR became insolvent before works were completed.[5]The present action is a claim by the claimant to recover some of its losses pursuant to a performance bond issued by the defendant.[7]Any reference in this judgment to pounds is to Irish pounds. Before Ireland converted to the euro, Irish pounds had a somewhat lower value than pounds sterling. In this judgment I shall use the following abbreviations: “VO” means variation order. “BQ” means bill of quantities. “PCB” means polychlorinated biphenyls.

Part 2. The Facts

[9]By a contract dated 4th September 2000 (“the contract”) SAR agreed with the claimant to carry out renovation works at Greenore Harbour for the sum of £3,257,735, subject to adjustment in accordance with the contract conditions. The contract incorporated the third edition of the Conditions of Contract as published by the Institution of Engineers of Ireland, the Association of Consulting Engineers of Ireland, and the Civil Engineering Contractors’ Association of Ireland, subject to certain modifications which were expressly agreed between the parties. Clause 12 of the contract conditions entitled the contractor to an extension of time and reimbursement of costs in the event that it encountered physical conditions or artificial obstructions which could not reasonably have been foreseen. Clauses 21 and 24 of the conditions required the contractor to take out and maintain both public liability insurance and employer’s liability insurance in respect of the works. Clause 44 of the conditions provided that under certain circumstances the engineer may grant an extension of time for completion of the works. Clause 47 of the conditions required the contractor to complete the works within the prescribed time or, in default, to pay liquidated damages for delay. Clause 63 of the contract conditions provided as follows:
“… if the Engineer shall certify in writing to the Employer that in his opinion the Contractor … (d) despite previous warning by the Engineer in writing is failing to proceed with the Works with due diligence or is otherwise persistently or fundamentally in breach of his obligations under the Contract … then the Employer may after giving 7 days notice in writing to the Contractor enter upon the Site and the Works and expel the Contractor therefrom without thereby avoiding the Contract or releasing the Contractor from any of his obligations or liabilities under the Contract or affecting the rights and powers conferred on the Employer or the Engineer by the Contract and may himself complete the Works or may employ any other contractor to complete the Works and the Employer or such other contractor may use for such completion so much of the Constructional Plant Temporary Works goods and materials which have been deemed to become the property of the Employer under Clauses 53 and 54 as he or they may think proper and the Employer may at any time sell any of the said Constructional Plant Temporary Works and unused goods and materials and apply the proceeds of sale in or towards the satisfaction of any sums or which may become due to him from the Contractor under the Contract.”
[10]The works which SAR agreed to carry out and the apportionment of the contract sum were set out in the priced BQ. The principal elements of those works, as set out in the BQ, may be summarised as follows: (i). Reconstruction of sections A and B of the quay wall. This entailed sinking piles into the sea bed in front of the existing masonry quay wall and then constructing a new steel wall along the line of the piles. (ii). Construction of a new concrete deck, together with crane rails, along sections A and B of the quay. (iii). Construction of a new cattle access tunnel (iv). The installation of pipe work and other services. (v). Dredging the harbour to specify depths, including the blasting and removal of rock. The specified depths were shown on drawing 4618.01\T\104. (vi). Suction dredging of PCBs from an area delineated on a drawing marked “Figure 4-6”, and depositing that material in the void between the old masonry quay wall and the new steel quay wall. (vii). Shore protection works around Greenore Point.[11]The appendix to SAR’s tender (which was incorporated into the contract) provided that the section A works should be completed within 14 weeks from commencement, section B works within 22 weeks, and dredging within 24 weeks. The appendix specified liquidated damages for delay at the following rates: section A £2,000 per week; section B £2,000 per week; dredging £4,000 per week. The start date for works agreed between the parties was 31st July 2000.[12]It should be noted that the word “dredging” and its synonyms have given rise to occasional misunderstanding during the trial. The phrases “PCB dredging”, “PCB pumping” and “suction pumping” all refer to the process of extracting material contaminated with PCB for deposition between the old and new quay walls. The purpose of this exercise appears to have been at least in part environmental. I imagine that this environmental benefit was relevant to the EU funding which the claimant obtained, although this aspect has perfectly understandably not been explored at trial. The terms “dredging” or “main dredging” refer to the process of dredging the sea bed to the depths required by the BQ and contract drawings. The purpose of this exercise was to enable ships to enter the harbour with heavier cargoes and a greater draught than was previously possible. The phrase “rock dredging” or “rock blasting” refers to that part of the main dredging which required the removal of rock.[13]It can be seen from the BQ, and there is no dispute, that the contract was front-loaded. The BQ had been priced so that the contractor would receive substantial payments in the early stages of work. Thus, for example, £493,350 became immediately payable when SAR mobilised plant and equipment for works to the quay wall and deck. Substantial sums were payable when certain piles were delivered to site, but nothing was payable for the installation of those piles.[14]On the 5th September 2000 the defendant issued a performance bond for the benefit of the claimant up to a limit of £325,773.50 in respect of loss caused to the claimant by SAR’s breach of the contract.[15]At an early stage of the contract part of the section B works was omitted, as shown on drawing L17024. The effect of this omission was that piling works would stop at pile 41, rather than pile 52. This had the consequence that all related work such as constructing the concrete deck and crane rails, would also stop in line with pile 41. This reduced the length of the main renovation works from 151 metres to 121 metres. At a relatively early stage the shore protection works were also omitted.[16]It can be seen from the correspondence that SAR was in some financial difficulty from the early days of the project. SAR had difficulty in raising the bond fee payable to the defendant and needed time to pay. The claimant made various cash advances to SAR at SAR’s request from September 2000 onwards. The claimant then deducted the amount of these cash advances from the payments which it made on interim certificates.[18]At a site meeting on 20th December 2006, Mr. Patterson, a director of SAR, realistically admitted that the contract was in difficulties and that progress had not been sufficient. One of the remedial measures which Mr. Patterson proposed was that Mr. Bill Wilcox, who was about to become a director of SAR, should come to site after Christmas and join the management team.[20]The contractual completion dates for the section A works and the section B works passed without any end of those works being in site. The only extension of time which the engineer was prepared to grant was for a period of four weeks in respect of a claim made by SAR under clause 12 of the contract conditions. The main dredging works (as described in BQ part 4) were never begun.[21]By late April 2001 SAR’s cash flow difficulties were such that it could not pay suppliers. Accordingly, the claimant started to pay suppliers directly, in order to ensure the continued delivery of materials to site. These arrangements were recorded in two variation orders which KMM issued on the 2nd May 2001. VO3 stated:
“Please note that concrete supply to site will be provided by the client, Greenore Ferry Services Ltd., commencing on 30th April 2001 as discussed and agreed. You will be required to liaise with the concrete supplier with regard to timing of supply and quantity required etc. The element of costs associated with the supply of concrete only as invoiced by the concrete supplier will be deducted from future valuations.”
VO 4 stated:
“Please note that steel reinforcement supply to site will be provided by the client, Greenore Ferry Services Ltd., commencing on 30th April 2001. You will be required to liaise with the steel reinforcement supplier with regard to timing of supply and quantity required etc. The element of costs associated with the supply of reinforcement only as invoiced by the supplier will be deducted from future valuations.”
[22]At a site meeting on 30th May Mr. Patterson stated that winding up proceedings had been issued against SAR, that SAR’s assets were frozen and that wages had not been paid to SAR’s workmen for the last month. According to the minutes Mr. Patterson also stated that any delays on the project were entirely SAR’s responsibility.[23]On 1st June 2001 SAR’s bank accounts were unfrozen, but SAR still had difficulty in paying wages. In those circumstances, the claimant started to pay wages (net of tax and national insurance) directly to SAR’s workforce. On 18th June 2001 SAR sent the following letter, signed by two directors, to the claimant:
“Following your recent conversation with one of our directors, Mr. Wilcox, I would confirm that monies received on site are in satisfaction of a contract sum for work currently being undertaken within the remit of the contract. We understand your concern but would assure you that this is the most efficient method of progressing the works.”
[24]On 22nd June the claimant took over from SAR responsibility for the hire of various site huts and storage facilities.[26]On Wednesday 18th July 2001 SAR’s insurance cover for the project came to an end. SAR informed the claimant that it was stopping work until such time as further insurance cover could be put in place. A meeting between the claimant, SAR and KMM was hastily convened in order to discuss the situation. The minutes of that meeting read as follows:
“Present: Ms. R. de Pasquale, Greenore Ferry Services (GFS); Ms. V. Price, Greenore Ferry Services Limited (GFS); Mr. W. Wilcox, SAR Marine & General (SAR); Mr. R. McLeod, SAR Marine & General (SAR); Mr. D. O’Loan, Kirk McClure Morton (KMM); Miss R. Griffin, Kirk McClure Morton (KMM). “1.0. SAR financial position. WW stated that SAR Marine and General Limited are about to go into liquidation and all insurances for the company were cancelled this morning. “WW stated that SAR would be in court on Monday 23rd to start administration/liquidation proceedings. “WW stated that due to the conditions of contract the plant which is on site at present would remain on site until sections A and B (up to pile 51) have been completed. “WW stated that there would be two options available to GFS to complete the contract. Option 1, Mark Patterson would discuss with the administrator/liquidator today to try to purchase the SAR plant and start up a new company. GFS could then use the new SAR company to complete the works. Option 2, the administrator could run the contract on behalf of SAR in its present form. “DOL noted that a third option was available to GFS following termination of the contract by SAR, then GFS could keep the equipment on site and finish the works with another contractor. “RDP stated that she would prefer not to use the new SAR company as this would simply revert to a similar working arrangement as at present and would await the outcome of the administrator/liquidator meeting with MSP to review if Option 2 was viable. “DOL stated that the contract with SAR was not terminated until official notice was received that SAR had gone into liquidation but that lack of insurance cover had effectively meant they had abandoned the contract. “In addition, the previous six weeks’ work on site had also demonstrated that SAR Marine & General, without the assistance of GFS to pay site administration, labour and material costs, would have abandoned the contract some considerable time ago. “RDP requested a list from WW of the plant on site at present. WW agreed to forward a list. “2.0. Completion of Phase 1. WW stated that he would be prepared to finish the contract under the same working conditions as present, i.e. GFS pay for the remaining labour and administration costs and materials but would be working under a different company, Norfolk Diving Company (NDC). “VP stated that if NDC complete the contract that WW must supply a VAT number and a C2 certificate, otherwise GFS would have to withhold 35 per cent VAT. “WW stated that he would provide insurance and would enquire what is required to obtain a C2 certificate. “DOL stated that if GFS employed NDC the contract would be on a labour and administration basis with GFS supplying materials and that GFS may have to insure the SAR plant held on site. However, it would be desirable for NDC to cover all insurances if possible. WW to investigate insurance cover and revert. “3.0. Requirements on site. “WW stated that he required a construction drawing for the return wall capping beam. WW stated that there is approximately four to six weeks to complete the works as soon as the PCBs have been cleared. “DOL confirmed that the chain connections from the sheet piles to the fender units were acceptable. “WW requested the detail for the isolated mooring bollard behind the temporary offices. “DOL confirmed that the ladders are to be shot-blasted and painted with zinc ridge paint. “WW noted that the fender at chainage 110 metres has been moved one pile position eastwards as there had been difficulty installing at the proposed location.”
[27]I have heard evidence from two of the persons who were present at that meeting and I am satisfied that those minutes are a fair summary of what was said on that occasion. Further comments made at the meeting were recorded by Ms. Griffin in a contemporaneous manuscript note. In particular, Mr. Wilcox said:
“As of today, all employees laid off.”
[28]Following that meeting on 18th July the claimant decided to adopt the final option which had been proposed by Mr. Wilcox. The claimant engaged Norfolk to carry out the remainder of the works (apart from the main dredging) on the basis that the claimant reimbursed Norfolk for its actual costs incurred at agreed rates. In those circumstances, Mr. Wilcox, Mr. McLeod and the other SAR employees who were on site as at 18th July treated themselves as no longer being employed by SAR. They carried out the remainder of the renovation works, excluding the main dredging, under the aegis of Norfolk.[29]After the lapse of its insurance cover on 18th July, SAR took no further steps to carry out the renovation works at Greenore. Indeed, after that date the directors of SAR, apart from Mr. Wilcox, had almost no further contact with the claimant.[31]On 23rd July SAR went into administration. On 25th July solicitors for the administrator wrote as follows to the claimant:
“It is anticipated that a sale of the business will be effected soon to a new company owned by the current directors of SAR Marine & General. They will endeavour to minimise the disruption and loss to creditors of the company by completing outstanding contracts.”
[32]On 26th July 2001 Mr. Patterson of SAR telephoned Mr. O'Loan of KMM. Mr. O'Loan’s note of that telephone conversation reads as follows:
“MSP reports that SAR in ‘Administration’. If management buy-out can't find finance within 6 weeks then automatically liquidated. Cost is approx. £1M to buy back (including 50K for goodwill – ‘for whatever goodwill there is left’.) “MSP reported that GFS has three options: “1. To let administrator run the contract; “2. To let SAR new company run the contract, both on similar basis as present, i.e. site admin, labour plus materials supply at cost; “or 3. To determine the contract (by engineer). “MSP noted that KMM had ‘more than sufficient grounds to determine the contract.’ DOL agreed. Discussion on reasons for lack of progress. No materials supply. MSP noted that insurances were now in place, thus not grounds to determine. “MSP noted that Administrator had been in touch with Roisin de Pasquale and solicitor in Arthur Cox yesterday? (although he didn’t sound confident on this). “DOL checked with OMIS and no insurance in place for SAR or for SAR new company.”
I should explain that the last two lines of that document are a note which Mr. O'Loan added after the end of the telephone conversation.[33]The claimant and its advisers took the view that the contract with SAR remained in effect until it was formally determined pursuant to clause 63 of the conditions. Accordingly, on 30th July 2001 KMM sent the following letter to the claimant:
“GREENORE HARBOUR DEVELOPMENT “CONTRACT WITH SAR MARINE & GENERAL LTD – CERTIFICATION UNDER CLAUSE 63. “Following discussions on 18th July with the Contractor we note that the insurance cover for the contract has been rescinded (written confirmation received from SAR) and that the work on site therefore ceased completely. “Given the recent history of direct payments from yourselves (GFS Ltd) to cover materials supply to site, site administration, labour charges on site and subsistence to the workforce, etc., since early May, we consider that the Contractor is failing to carry out his obligations with due diligence to the Contract. “We remind you that had a direct intervention by yourselves not taken place to directly pay both the concrete and steel suppliers, that the vital supply of concrete and steel reinforcement would have been stopped in the first week of May 2001. “Furthermore, the original date for completion of the contract was 14th January 2001 and we still await completion at this late stage (now in week 52 of a 24 week contract). “We thus certify that in our opinion, the Contractor is persistently and fundamentally in breach of his Contractual obligations. “You should note that under the terms of the contract in Clause 63(1), that the Employer may enter and expel the contractor from the site. Under Clause 63(3), we note that we shall determine and certify any amounts accruing to the Contractor in respect of work done and materials and plant on site. We would also point out that the constructional plant, temporary work, goods and materials on site shall be deemed to become the property of the Employer under Clause 53.”
[34]On 31st July following the receipt of KMM’s letter, the claimant wrote as follows to SAR in administration:
“I refer to the CONTRACT and I enclose a certification issued by the Engineer under the Contract which confirms that the Contractor is persistently and fundamentally in breach of his contractual obligations under clause 63 of the Contract. “On behalf of Greenore Ferry Services, I hereby formally give seven days written notice to the Contractor of Greenore Ferry Services intention to enter upon the Site and the Works and to expel the Contractor from Site pursuant to the terms of Clause 63(1)(d) of the Contract. “Greenore Ferry Services wishes to advise you that all constructional plant, temporary work, goods and materials on site are deemed to be the property of Greenore Ferry Services, under clause 53 of the Contract and therefore the Contractor has no entitlement to remove any such items from Site. “Please note that I am also sending this formal notice to the Administrator of the Contractor.”
The claimant did indeed send a letter in similar terms to the administrator on the same day.[35]Whilst those contractual matters were being dealt with, Norfolk was proceeding with the works. There were also negotiations between the claimant and Norfolk concerning appropriate rates of pay for labour and the precise terms of the contract between Norfolk and the claimant. “We understand that you have determined the contract on which Technical & General Guarantee Company Limited issued the above numbered Performance Bond. “We advise that, as Guarantors, we will arrange to complete the Works as designated in the original contract for the original contract price, with no additional costs to yourselves other than as provided for in the original contract. We have appointed BME (Contracting) Limited as our contractors on the project, and would be grateful if you contact the writer at our Geneva office without delay to organise a start date for the works.”[37]The claimant was not favourably impressed by that letter. The claimant responded on the same day rejecting the defendant’s proposal and stating that it would be making a claim under the performance bond. “Further to our recent discussions and review of the works to be completed at Greenore Port we are pleased to confirm that Norfolk Marine Limited (‘Norfolk’) has been appointed to complete the quay all works, as described below, at Greenore Port which were to be completed by SAR Marine under the terms of the contract entered into between Greenore Ferry Services and SAR Marine dated 4 September 2000 (‘the Works’). “We are cognisant that you are aware of the extent of the outstanding Works (as described and referenced by Parts 1 to 4 of the original SAR Marine contract documents) which include:
“* Concreting of the capping beam/crane rail beam at Chainage 0m to approx Ch 38m and return end. “* Suction dredging of berth spoil and placement behind quay wall but excluding final dredging. “* Placement of third crane rail beam between cattle tunnel and return end of quay. “* Concreting of deck area behind capping beam. “* Fenders, bollards, water supply, moving cranes, ducts, electrics, ladders, etc. “* All other associated works necessary for completion as described or implied in the original contract documents as varied together with ensuing site instruction and variations to the original works. “Norfolk’s contractual obligation is to provide labour and necessary site administration to complete the Works as the bulk materials and equipment will be supplied through Greenore Ferry Services Limited. This contract award shall therefore cover insurance, labour and site administration costs of Norfolk necessary for the completion of the Works. Norfolk hereby agrees that it will commence, undertake and complete the Works with due diligence and will use its best endeavours to complete the Works with minimum possible period. “The precise reimbursement payable to Norfolk for completing the Works (as referred to above) shall be determined by reference to the agreed rates listed in the Kirk McClure Morton fax of 15 August 2001 which shall be deemed to form part of this agreement. The estimated cost is in the order of IR£14,000 - £16,000 per week. “Please note that should the progress on site be deemed by the Engineer to be inadequate given the hours worked, then the Engineer can, at his sole discretion, proportionately reduce any monies which would otherwise be due given the inadequate progress of Norfolk in completing the Works. “Please sign the enclosed copy of this letter to confirm your acceptance of your appointment on the above terms.”
[39]On 23rd August 2001 the defendant wrote to the claimant stating that the defendant had no liability under the bond since the claimant had rejected the offer contained in the defendant’s letter dated 9th August 2001. 40 The works carried out by Norfolk proceeded. Those works lasted longer and proved more expensive than had been anticipated. KMM certified that works were completed on 24th October 2001. Norfolk remained on site with a reduced workforce after that date carrying out further works until 6th November 2001. The total sum paid by the claimant to Norfolk, excluding certain payments in respect of plant, was £244,651. 41 The payments in respect of plant which now have to be disregarded came about in the following way. During the course of Norfolk’s works there was a dispute about title to the plant on site. Mr. Wilcox maintained that Norfolk had brought that plant from the administrator of SAR for £35,000, plus VAT. The claimant maintained that it had acquired good title to that plant pursuant to clauses 53 and 63 of the contract conditions. That dispute was compromised by an agreement that the claimant would sell the plant to Norfolk for £20,000 and the claimant would then pay £20,000 to Norfolk for hire of that same plant. Thus no money actually changed hands. During the course of the trial it was agreed that on this issue Mr. Wilcox was correct. Norfolk had indeed acquired good title to the plant from the administrator (see Smith v. Bridgend County Borough Council [2002] 1 A.C. 336). Accordingly, the cross-payments of £20,000 not only cancelled each other out but also achieved nothing.[42]After the completion of Norfolk’s work KMM did not measure the total amount of work as described in the bills of quantities which had been executed by SAR and/or Norfolk.[43]Let me now turn to dredging. A substantial amount of PCB dredging was done by SAR before its demise. Much more PCB dredging was carried out by Norfolk after 18th July. It is clear from the records that a significantly greater quantity of PCB contaminant was excavated than the limited quantity shown in the BQ, namely 2,500 cubic metres. 44 As previously mentioned, the main dredging works were not undertaken either by SAR or by Norfolk. Instead the claimant engaged IDC to carry out as much of the specified main dredging work as was possible without carry out rock blasting. IDC duly carried out this work in October. Unfortunately there were rocks in the sea bed which could not be removed without blasting. Thus even after IDC’s services there remained pinnacles of rock in unfortunate locations within the berth. For this reason, only a very modest improvement was achieved in the loads which ships could carry when entering that berth. A plan showing the depths to which IDC dredged and the location of rock pinnacles is annexed to KMM’s valuation certificate relating to IDC’s work. 45 It can be seen from that certificate and the attached plan that the general dredging undertaken by IDC went to a substantially greater depth than that indicated in the BQ and the contract drawings. The general dredging was taken down to a depth of 8.2 metres. On the other hand, the rock dredging (item E125.1 in the BQ) was omitted. The claimant’s expert quantity surveyor, Mr. Alan Taylor, has demonstrated that the additions and omissions in respect of dredging approximately cancelled each other out. Overall the engagement of IDC to do the dredging work has neither contributed to the cost overrun on this project nor achieved a cost saving.[46]Let me now return to the narrative. On 23rd November 2001 SAR went into liquidation. 47 The claimant took the view that it had suffered substantial losses as a result of SAR’s failure to perform its contractual obligations. On the 23rd April 2002 the claimant, by its solicitors, sent to the defendant a formal demand under the performance bond in the sum of £325,773.50. After further correspondence between the parties, on 25th August 2003 the defendant wrote to the claimant’s solicitors denying any liability under the performance bond. 48 The claimant was aggrieved by the defendant’s refusal to honour the performance bond. Accordingly, the claimant commenced the present proceedings. Part 3. The Present Proceedings[49]By a claim form issued in the Technology and Construction Court on 17th December 2004 the claimant claimed against the defendant €413,647 as money due under the performance bond. This claim was based upon the exchange rate of €1 equals .78564 Irish punts, which was the rate set when Ireland converted to the euro. The claimant’s claim was brought in the English courts because the performance bond provides that only the English courts have jurisdiction. The claimant is a company registered in the Irish Republic, the defendant is a company registered in the Bahamas.[50]The defendant denied liability under the performance bond upon a variety of grounds. One ground of defence was that the claimant had not validly determined the contract under clause 63 of the conditions but, rather, had repudiated the contract.[51]The pleadings on both sides have been amended from time to time and, it must be said, reflect considerable ingenuity on the part of all lawyers involved in this case. Some of the contentions advanced are now no longer pursued. I shall not weary listeners to or readers of this judgment by narrating the history of the action or by paraphrasing all of the arguments which have been pleaded. Instead I shall identify the principal issues between the parties as they now emerge, after taking account of concessions made during the trial. Those issues may be summarised as follows: (i). How did SAR’s contract come to an end? Was it repudiated by the claimant or repudiated by SAR or terminated under clause 63? (ii). Is the claimant precluded from recovering its losses because it unreasonably rejected the defendant’s offer to complete the renovation works at no additional cost? (iii). Is the claimant in principle entitled to recover the difference between(a) actual costs incurred on the works and(b) the amount of the notional final account prepared by Mr. O'Loan? If so, what is the proper quantification of that difference? (iv). What damages for delay is the claimant entitled to recover? (v). In respect of the rock dredging which was not carried out, what is the claimant entitled to recover (a) in respect of the costs of that exercise, and (b) in respect of loss of profits?[52]Both counsel in their helpful and detailed written submissions have identified a daunting number of questions as calling for resolution by the court. It seems to me, however, that most of those questions fall under the rubric of the five issues which I have set out. I shall therefore tackle the issues in that order and then see what else it is necessary to decide.[53]The trial of this action began on Monday, 20th November 2006. Mr. Manus McMullan represents the claimant and Mr. Michael Davie represents the defendant. The evidence of factual and expert witnesses occupied the whole of last week. Closing speeches were delivered on Monday of this week, namely the 27th November.[54]My next task in this judgment will be to summarise the evidence of the factual witnesses. I shall not attempt to summarise the evidence of the two expert quantity surveyors, because so much of their evidence has been overtaken by agreement reached on quantum matters. Instead I shall refer to the expert evidence as it becomes appropriate, when addressing the outstanding quantum issues.[55]That completes my outline of the present proceedings, and I must now turn to the factual evidence. Part 4. The Claimant’s Factual Evidence 56 In this part of the judgment I shall summarise the claimant’s factual evidence. In so doing, I shall weave together the gist of each witness’ written statement and oral evidence. DIARMUID O’LOAN 57 Mr. O’Loan is a civil engineer, specialising in marine engineering, employed by KMM. He was project engineer for the Greenore Port renovation works. Dr. Shaw of KMM was the supervising engineer, to whom Mr. O’Loan reported. The resident engineer on site was Ms. Rosie Griffin. (i). The new wall consisted of sheets of steel placed between tubular piles. The piles were pinned to rock at the base. Tie rods attached to the tops of piles were anchored into another wall behind. (ii). The dredging works were of two types. First, excavation of a contaminant known as “PCB”, using Toyo pumps; secondly, the main dredging works of the berth pocket to allow a deeper draught for ships. The main dredging works needed to come after the construction of the new quay wall, since the old quay wall would collapse if deep dredging was carried out close to it. 59 Ancillary works forming part of the project included constructing a new concrete deck along the quayside, concrete crane rails, drainage pipework and fendering. 60 The works were divided into two parts, sections A and B. Section A of the quay wall needed to be completed before section B was started. This sequence was necessary to maintain shipping at the port. In the event the far end of the section B works (between piles 41 and 52) was not accomplished. As a result the main dredging between piles 42 and 51 was also omitted, although all of the PCB dredging was done. 61 SAR’s programme of works attached to the BQ showed a start date of 17th July 2000. However, a formal commencement date of 31st July was subsequently agreed. This resulted in a completion date of 14th January 2001. 62 The claimant made substantial payments to SAR at an early stage of the contract. In particular, certificate 1 (dated 3rd August 2000) included £493,350 in respect of mobilising plant and equipment. 63 At an early stage it became clear that SAR did not have the necessary experience and ability to manage the project on site. Also they could not get to grips with the financial management. From an early stage Mr. O’Loan lacked confidence in SAR’s site management and he also lacked confidence in SAR on the financial side. 64 Timely completion was important to the claimant, because of conditions attached to the EU grant aid, which was partly funding the project. Despite this, the project was delayed by a catalogue of failures on SAR’s part, which caused considerable delays. This included the overturning of a crane, insufficient drilling capacity and insufficient crane capacity. SAR was unduly slow in drilling sockets for the piles, which was a critical operation. 65 On 1st September SAR made a claim under clause 12 of the contract for unforeseen ground conditions. KMM decided to allow four weeks extension of time in respect of this. 66 Delays by SAR continued. At a meeting in December Mr. Patterson agreed that the management of the site was under strength and said that Bill Wilcox would be brought in after Christmas to join the management team on site. 67 Mr. Wilcox came in January. He turned the situation around and got the works going. However, the claimant and KMM were still dissatisfied with SAR’s rate of progress and expressed this in correspondence in early 2001. 68 By April/May 2001 it became clear that SAR was in financial difficulties. In May the claimant had to step in and start paying for materials direct, in order to secure deliveries. This began when a lorry came to site carrying concrete. The driver refused to deliver unless he was paid. The claimant was annoyed, but in this situation it had to step in. 69 On the 2nd May KMM issued valuation certificate 8. This was the last valuation certificate which KMM issued. It shows the total value of measured works as £2,890,352 (which was quite close to the original contract sum of £3,270,049). 70 At site meeting 27 on 16th May Mr. Wilcox estimated that completion would be achieved by the end of June. However, this was not achieved since little work was done between then and mid-July. There was a further loss of confidence in SAR during this period. 71 On 26th May SAR wrote to Dr. Shaw, admitting slow progress over the last two months and that SAR may not be able to complete the works. SAR also asserted that a 4 week extension of time had been agreed in respect of the third crane rail (V.O. 7). 72 It was correct that there had been indecision by the client about its detailed requirements for the third crane rail, but it was not correct that KMM had agreed any extension of time. The work in question involved installing a concrete beam to carry the crane rail and thickening the concrete deck slab in that area, in order to support the weight of the crane. The client’s indecision had delayed this work, but that delay was concurrent and should not have affected the overall completion date. What KMM agreed to do was to pay the costs associated with that concurrent delay. These costs amounted to £28,845, as set out in re-issued V.O. 7. Mr. O’Loan remains of the view that SAR was not entitled to any extension of time in respect of V.O. 7 and the third crane rail. 73 At a site meeting on 30th May Mr. Patterson said that there was a winding up order against SAR and SAR’s bank accounts were frozen. Subsequently a validation order had been made to unfreeze the accounts. SAR had cash flow problems. It had not paid wages for a month. SAR accepted responsibility for all delays on the project. Mr. Patterson went on to say that SAR was committed to completing the project and he produced a programme to completion. All of these matters are recorded in the minutes of the meeting. 74 Mr. Wilcox said on that occasion that the main dredging work would be welcome. A barge and crane were ready to come to site. Mr. O’Loan said that there was £260,000 remaining in the dredging. These comments are recorded in the manuscript meeting notes, and summarised in the formal minutes. It was also noted at the meeting that dredging would not be done beyond pile 41. This was because works to the quay wall were now going to stop at pile 41. 75 In a letter to Dr. Shaw dated 1st June Mr. Wilcox, writing on behalf of SAR, stated that claims had been resolved. Mr. O’Loan has no reason to doubt that that was correct. Mr. Wilcox also suggested in the letter that a payment/deduction schedule to completion be prepared. However, that was not produced. 76 On 6th June Mr. O’Loan sent draft valuation sheets to SAR. This was KMM’s last assessment of SAR’s work. It showed that most of the PCB dredging was complete. Nevertheless the last bit of PCB dredging, namely the bottom layer, is the most difficult to accomplish. 77 On 10th June Mr. Patterson submitted his draft measurement of the works. At this time Mr. Patterson was spending little time on site and had much less knowledge about the works than Mr. Wilcox. In his covering email of 10th June Mr. Patterson asked Mr. O’Loan to make a decision about extension of time. This was because the question of extension of time had not been finally decided. 78 Mr. O’Loan did not produce any assessment in response to Mr. Patterson’s submission. Furthermore SAR never asked for another assessment. 79 On 12th June Mr. Patterson told Mr. O’Loan about the possibility of a creditors voluntary arrangement. On 13th June SAR submitted “BOQ no. 9”. This was an assessment of the value of works to date, which showed that a minus sum was due. Therefore after 13th June, there was no point in KMM doing any interim valuation. 80 During June the claimant started paying wages direct to SAR’s workforce. This was necessary to keep work progressing. From about mid-June there was an understanding with SAR that the claimant would pay all wages and associated costs. It can be seen from the records that the claimant made substantial payments during June, both in respect of wages and materials. 81 Attached to DWF’s letter to SAR dated 29th June there was a spreadsheet prepared by Mr. Patterson dated 27th June 2001. This spreadsheet lists eight men who were working at Greenore. These people remained on site, first under SAR and later under Norfolk. The spreadsheet records that the client would be paying all associated costs up to the completion of main decking works. That was correct. There was an agreement that the claimant would pay labour direct and all the cost of materials up to completion of main decking works. But there was always going to be a reckoning at the end of the job. If SAR had stayed, the work was always going to be measured at the end. 82 Mr. Patterson’s spreadsheet also records that the main dredging works (which would be profitable) had been excluded. That was correct. The claimant decided to take dredging works out of SAR’s package, because the claimant had no confidence in SAR. Alternatively, it may be that the main dredging was never omitted from SAR’s contract, since there is no VO to this effect (whereas there are VOs omitting the supply of concrete and steel from the scope of SAR’s works). It may be that dredging was only omitted when Norfolk came onto the scene, in that dredging was not an item of work entrusted to Norfolk. Mr. O’Loan is not entirely clear in his recollection about this matter. 83 The claimant paid approximately £60,000 to SAR between mid June and mid July 2001. So SAR was doing some work in that period, but not enough. SAR did not get more people in. However, there are no meeting minutes or correspondence during this period in which KMM complain about SAR’s delay on the project. Nor was any extension of time awarded. The top priority was to progress the works. 84 On the 18th July SAR stopped work. Mr. O’Loan did not measure SAR’s work on that date, because the position was that SAR had been overpaid. Nevertheless Mr. O’Loan accepts that he ought to have done a measurement of works on the date that SAR stopped. 85 On 18th July SAR faxed a letter to the claimant, saying that its insurance cover had been withdrawn and that it had to stop work until insurance cover could be put in place. Insurance is basic for a construction contract. Mr. O’Loan took the view that SAR had abandoned the contract, but nevertheless the contract remained in force until it was formally terminated. 86 On the same day there was a site meeting at which it was said that SAR was about to go into liquidation or administration. Mr. Wilcox (speaking on behalf of SAR) said that there were two options:(i) set up a new company to purchase SAR’s plant and then complete the works;(ii) the administrator could run the contract on behalf of SAR. Mr. O’Loan noted a third option, namely that the claimant kept SAR’s plant and completed the works. Mr. Wilcox suggested a further option, namely that his company, Norfolk, finish the contract, using the existing labour force. Mr. Wilcox said that he could obtain insurance. In proposing this, Mr. Wilcox was speaking on his own behalf. 87 Following the meeting the claimant decided to adopt the proposal that Norfolk should complete the work. Ms. de Pasquale effectively took this decision on 19th July when she paid £10,000 to Norfolk to cover the insurance premium. 88 Norfolk duly obtained insurance cover on 20th July. In fact, it now appears from the time sheets that Norfolk did some work (namely toyo pumping) on 19th and 20th July, while still uninsured. Mr. O’Loan was unaware of this at the time. On Monday 23rd July Norfolk started work in earnest. The hours worked by Norfolk’s men from then on are recorded in Norfolk’s timesheets, although many relevant details are omitted. Norfolk submitted invoices to the claimant for work done on a time basis. Norfolk’s first invoice was 31st July and covers the whole of July (i.e. including two weeks when SAR was still contractor). 89 Mr. O’Loan gained the impression that Mr. Wilcox did not tell either SAR or the administrator that Norfolk was taking over the work. Indeed, he is unaware of anyone ever telling SAR about this development. Mr. O’Loan regarded the formal termination of SAR’s contract as “paperwork”, which had to await the outcome the current court proceedings concerning SAR’s insolvency. On 25th July Mr. O’Loan learnt that SAR had gone into administration. He then set about drafting a letter under clause 63 of the contract, which would lead to termination. 90 On 26th July Mr. Patterson telephoned Mr. O’Loan. Mr. Patterson said that the claimant had three options: (i) let administrator run the contract; (ii) let a new SAR company run the contract;(iii) determination of the contract by the engineer, for which there were “more than sufficient grounds”. Mr. Patterson also said that SAR’s insurances were now in place, but Mr. Patterson subsequently discovered that this was untrue. Mr. O’Loan listened during this conversation and said little. He did not reveal that Mr. Wilcox’s company, Norfolk, had taken over the work. 91 On 30th July Dr. Shaw sent the clause 63 letter. Mr. O’Loan had done the first draft. That draft had subsequently been considered and amended by the claimant’s solicitors. That letter was intended to reflect the wording of clause 63. It was also a fair summary of the events which had occurred. Mr. O’Loan thought that sub-paragraph (d) of clause 63 (1) was appropriate to the circumstances. 92 On 31st July the claimant wrote to SAR under clause 63 giving seven days notice of its intention to expel the contractor from site. Mr. O’Loan does not accept that the correspondence sent under clause 63 was a sham. He regarded it as necessary paperwork in order to bring SAR’s contract to an end, for which there were more than sufficient grounds. 93 SAR sent an invoice showing that £76,522 was due to it on 18th July. Mr. O’Loan did not agree. In his view SAR had been overpaid. 94 The contract with Norfolk was on the basis of the claimant paying the actual costs of labour and materials. KMM and the claimant never considered pressing Norfolk for a lump sum contract. There was only a small amount of work left to do. It was necessary to keep the co-operation of the labour force by employing them in the same terms. In hindsight Mr. O’Loan can see that a lump sum contract would have been sensible. Nevertheless Mr. O’Loan considers that they acted reasonably in engaging Norfolk upon the terms which were agreed. The rates of payment for the workforce were properly negotiated. 95 The scope of works to be done by Norfolk was set out in Ms. de Pasquale’s letter to Mr. Wilcox dated 20th August. When this letter is read in conjunction with plans and other data available, the work to be done by Norfolk is defined reasonably clearly. The final version of this letter (which was signed by both parties on 21st August) omitted the sentence “We estimate a total of 10 weeks shall be necessary”. This was probably because Ms. de Pasquale wanted to keep open the possibility of Norfolk finishing sooner. 96 In the meantime, while arrangements with Norfolk were being put in place, the claimant received a rather odd letter from the defendant proposing to complete the works, at no additional cost, using a company called BME Contracting Ltd. This letter was dated 9th August. By then Norfolk was engaged upon the work. The claimant was suffering huge losses by reason of the delays. Ms. de Pasquale wanted to get shipping back into the port as soon as possible. In those circumstances Ms. de Pasquale dismissed the defendant’s offer out of hand. Mr. O’Loan subsequently learnt that Mr. Patterson (in whom the claimant had lost confidence) was a director of BME. 97 Norfolk duly carried out the work which had been agreed between the parties. Norfolk’s works were substantially completed by 24th October, but two further weeks were needed in order fully to complete section B. Thus in all Norfolk took 16 weeks for their works. The total payments made to Norfolk amounted to IR £244,792. Mr. O’Loan did not do a measurement or re-measurement of the actual work done by Norfolk. Nor did he ever do a measurement or re-measurement of the total work done by SAR. 98 During the course of Norfolk’s works there was a problem concerning plant and machinery. Norfolk had paid £35,000 to the administrator of SAR in order to purchase the plant which SAR had left on site. The claimant maintained that it had already acquired good title to the plant under clause 53 of the contract and thus Norfolk’s “purchase” from the administrator was ineffective. Mr. Wilcox took strong objection to this. In the event a commercial deal was done between Norfolk and the claimant, in order to keep the project moving. Under this deal Norfolk purchased the plant from the claimant for £20,000 and then the claimant paid £20,000 to Norfolk in order to hire back that same plant. Thus no money actually changed hands and Norfolk retained the plant for which (rightly or wrongly) it had paid £35,000 to the administrator. 99 In the last two weeks of Norfolk’s contract remedial works were carried out because three rectangular piles holding the closer panels at the west end of the new quay wall had slipped outwards. This problem was partly of SAR’s making and partly of Norfolk’s making. This remedial work should not be charged to SAR (although no credit has been given for it in the present claim). 100 The main dredging work did not form part of Norfolk’s contract. This work was carried out by Irish Dredging Company, although the blasting dredging and disposal of rock was omitted from that exercise. As a result of that omission the final depths to which the berth pocket was dredged were somewhat uneven. This is illustrated on the drawing annexed to KMM’s certificate of valuation for Irish Dredging Company’s works, dated 6th December 2001. Mr. O’Loan considers that much of the benefit of the port renovation works has been lost, because pinnacles of rock remain sticking upwards from various parts of the sea bed. 101 More recently, for the purposes of this litigation, Mr. O’Loan has prepared a “notional final account”. This is Mr. O’Loan’s assessment of what the claimant would have paid to SAR, if SAR had completed the contract works. The bottom line figure is IR £3,278,037. 102 Mr. O’Loan has also prepared a summary of the actual costs which the claimant has incurred in carrying out the port renovation works. This summary includes sums paid to SAR, Norfolk, Irish Dredging Company, sums paid direct to suppliers of materials and so forth. These costs total £3,604,545. 103 These figures have been the subject of subsequent examination by the experts and discussion between the parties. Although Mr. O’Loan has given detailed written and oral evidence about (a) the constituent elements of the notional final account and (b) the actual costs incurred, I shall not summarise that evidence at this stage. I take that evidence into account and I will refer to that evidence, in so far as it becomes necessary, when dealing with quantum issues. MS. VANESSA PRICE 104 Ms. Price has been employed by the claimant as financial controller since 1993. She is the niece of Ms. de Pasquale, who was chief executive of the claimant at the time of the construction works. 105 The claimant secured EU grant aid in the sum of IR £1,458,000, which was just under half of the anticipated cost of the project. The original deadline imposed by the EU for completion of the works was 30th June 2000, but this was progressively extended. 106 The principal berth at Greenore was at the site of the renovation works. There was also a secondary berth (“berth 2”) to the west of that area. The closure of the principal berth during the course of the works put considerable pressure on the claimant’s business. This pressure became more acute, as the construction works were delayed and extended. 107 SAR, the contractor, fell into financial difficulties. From May 2001 the claimant was paying SAR’s contractors direct. From June the claimant was paying wages to SAR’s workforce. The claimant only paid net wages to the men, leaving SAR to account to the Revenue for the income tax and National Insurance contributions which were due. The claimant made these various payments under pressure and in response to the situation. It was an emergency measure and a matter of expediency. The claimant hoped that SAR’s financial position would improve and that SAR would resume paying the labour force and the suppliers of materials. There was never any agreement between the claimant and SAR to change the basis of SAR’s contract, so as to put responsibility on the claimant to pay suppliers and workmen (as suggested by the defendant’s counsel). 108 SAR’s letter to the claimant dated 18th June 2001 confirmed that the original contract remained in place. That reflected Ms. Price’s understanding. 109 The various wages payments which the claimant made in June and July were necessary. Otherwise the workmen would leave site. 110 During June and early July there was no correspondence sent to SAR complaining about lack of progress. The situation at that stage was critical. Ms. Price and Ms. de Pasquale were in constant communication with Mr. Wilcox on site. They were satisfied with Mr. Wilcox as site manager. They felt that SAR’s problems were financial management and cash flow. 111 There was never any agreement to exclude the main dredging from the scope of SAR’s works. The main dredging works were part of SAR’s contract. However, SAR showed no inclination to do the dredging. They never brought the necessary plant to site. In June and July the claimant’s main focus was upon getting the quay wall finished. Nevertheless dredging was never omitted from SAR’s contract. Such discussions as the claimant had with IDC in and around May 2001 were exploratory and did not mean that dredging had been taken away from SAR. 112 On 18th July SAR’s insurance cover was withdrawn. SAR ceased working at Greenore and abandoned the contract. 113 Ms. Price attended the site meeting on Wednesday 18th July 2001. It was at around mid-day. She knew before the meeting that SAR’s insurance cover had been withdrawn. It was clear at the meeting that there would be a court hearing on Monday 23rd July regarding SAR’s continued existence. Ms. de Pasquale said it would be a matter for the directors of the claimant whether to allow the administrator of SAR to continue the contract. At that time Ms. de Pasquale was in almost constant telephone contact with all board members. 114 Mr. Wilcox’s proposal for a new contract with Norfolk to undertake the remaining works was considered at the meeting, but no decision was taken. After the meeting Ms. de Pasquale discussed the matter with Ms. Price and decided to adopt that course. Only a small amount of work was still remaining and it did not seem sensible to go out to tender in respect of that. 115 It would not have been feasible to negotiate a fixed price or a fixed term contract with Norfolk. Norfolk was Mr. Wilcox’s company. Mr. Wilcox was a working man. He had no head office and no competence to manage a fixed price or fixed term contract. Mr. Wilcox would not have been interested in such a contract. The only arrangement with Mr. Wilcox which was feasible was one whereby the claimant paid Norfolk for labour and paid for materials direct. It is not right (as suggested by the defendant’s counsel) that the claimant failed to take reasonable precautions, because it knew it would recover under the bond. The bond was not uppermost in the claimant’s thinking. 116 The claimant’s overriding concern was to get the construction works finished and the port operating again. Mr. Wilcox had the upper hand in negotiations. At that time there was a boom in the Irish economy and labour costs were rising. 117 There was a hiatus before Mr. Wilcox was able to procure insurance cover for Norfolk. During that hiatus some toyo pumping was done to remove PCB contamination. This work was done using the claimant’s crane and driver. Ms. Price is confident that it would have been covered by the claimant’s own insurance. That apart Mr. Wilcox’s labour force were simply paid for standing by. 118 KMM did not measure the works at the time when SAR ceased working. Measurement was something which Ms. Price associated with payment. But no payment was owing to SAR. The claimant knew what works remained to be done on site. No measurement was required for the purpose of entering into a new contract with Norfolk. 119 On Monday 23rd July there were court proceedings in England and SAR went into administration. The view taken by Ms. de Pasquale and Ms. Price was that SAR had abandoned the contract, but the contract remained in existence until it was formally terminated. Accordingly, following SAR’s administration on 23rd July, steps were taken by KMM (on whom the claimant placed reliance in its dealings with SAR) to effect formal termination. KMM sent its formal clause 63 letter on 30th July. On looking at that letter now, Ms. Price agrees that it was somewhat farcical to talk about expelling SAR from site, because SAR had already abandoned the contract. There had been no contact with SAR since 18th July, apart from one telephone call from Mr. Patterson to Mr. O’Loan on 26th July. That telephone call reinforced the claimant’s worst fear about SAR and its directors. 120 In the meantime Mr. Wilcox’s team, operating under Norfolk, proceeded with the works. Ms. Price did not think that Mr. Wilcox was acting against SAR’s interest, since SAR was now unable to perform the contract. 121 On 31st July Norfolk submitted an invoice for the whole of July. This included two weeks when the workmen were employed by SAR. The claimant probably agreed to pay for those two weeks under pressure from Mr. Wilcox. Mr. Wilcox said to Ms. Price on at least one occasion that if he could not get wages to the workers on site, the men would leave and the claimant would not have the works completed. 122 On 9th August 2001 the defendant sent a letter offering to complete the works at no additional cost using a company called BME Contracting Ltd. At first site this looked like a wonderful promise. However, the claimant was advised that such an offer from a bondsman was unusual. The company, BME Contracting Ltd, was unknown. The contact address given was in Geneva. On further consideration, the defendant’s letter looked like a ruse to get out of the bond. The position was that SAR had abandoned its contract and imperilled the claimant’s business. To switch from Norfolk and to go down another route using an unknown contractor with dubious motivation would have been commercial suicide. Also Ms. Price was concerned about the way in which the defendant’s letter was phrased. It appeared to be an attempt to dictate what the claimant should do. Ms. Price understood that the claimant was entitled to appoint a replacement contractor of its own choosing. Accordingly the claimant replied on the same day, rejecting the defendant’s proposal. 123 Ms. Price subsequently learnt that Mr. Patterson was a director of BME. 124 The agreement with Norfolk was signed on 21st August. This did not include any reference to an estimate of 10 weeks, although this had appeared in earlier drafts. Ms. Price does not recall Ms. de Pasquale saying that this should be omitted. However, it was their hope that the remaining work could be completed in less than 10 weeks. 125 By the time Norfolk was working on site Ms. Rosie Griffin, the resident engineer, had departed. She was a luxury which the claimant could no longer afford. During this period Mr. O’Loan continued to make regular visits to site. Also Ms. de Pasquale checked up on progress regularly and inspected the works. The claimant had previous experience of managing construction works on site during the 1990s. 126 While the construction works were in progress the claimant suffered substantial loss of business and substantial loss of profits. 127 In October 2001 an agreement was reached for the sale of the claimant company and its business to new owners. The purchaser was Renore Ltd, a company half owned by Dublin Port Company. The purchaser did not wish at that stage to go ahead with rock dredging (i.e. the part of the main dredging which IDC did not accomplish). This could be done at any time and was regarded as non-essential. The claimant company both under its original ownership and under its new ownership did not have ready funds available for rock dredging. 128 In April 2002 the sale of the claimant company and its business to Renore Ltd was completed. In the same year the claimant bought a special crane which made it possible to unload the bow of a ship quickly, i.e. before low water. This ameliorated the problems caused by having insufficient draught in the berth. 129 The present plan is that in 2007 the claimant will refurbish the remainder of the quay wall and at the same time do all outstanding dredging work. PATRICK SAVAGE 130 Mr. Savage is the bulk materials handling manager at Greenore Port and has been employed by the claimant since 1974. 131 Berth 1 at Greenore is the principal berth. Berth 2, to the west is a “NABBSA” berth, which means that at low water vessels there sit on the mud. This berth is only suitable for small coasters. 132 The claimant has two main customers, who account for 99% of its business, namely Cefetra Ltd and Arkady Feed Ltd. These customers import the ingredients of animal feed, which are stored in various warehouses quite close to Greenore. Because of the restricted draught at Greenore Port, customers often have to offload part of their cargoes at other ports before arriving at Greenore. 133 Before the port renovations works were carried out the draught available for ships was 3.6 metres (fore) and 6.5 metres (aft). To this there had to be added an allowance for tides. The purpose of the dredging works was to achieve an available draught, both fore and aft, of 7.5 metres. 134 In the event SAR did not do the dredging works provided for in its contract. IDC was brought in as a rescue measure to carry out dredging. IDC brought in a platform with a back hoe excavator. The understanding was that IDC would get out whatever it could with that plant. In the event IDC was unable to remove a pinnacle of rock in the aft area. The result is that the available draught aft remains at 3.6 metres plus an allowance for tide. 135 IDC advised the claimant that blasting was necessary to get out the pinnacle of rock in the aft area and all the sections of rock which had been exposed by IDC’s dredging. Before carrying out such blasting, it would be necessary to bore a line of holes in front of the quay wall. This would insulate the quay wall from the shock of the blasting. 136 The claimant has decided that the sensible way to proceed is to do all the remaining work at the same time. In other words, the claimant will (a) renovate the section of quay wall between piles 41 and 52, and (b) carry out all remaining dredging (including rock blasting) along the whole length of the principal berth as far as pile 52. 137 Mr. Savage has been asked to consider what losses the claimant has suffered by reason of the fact that rock dredging as far as pile 41 was not carried out by October 2001. 138 The claimant has suffered losses as a result vessels being diverted to other ports and also because of the need for weekend working. These are all losses attributable to the restricted draught at Greenore, but Mr. Savage cannot put figures on these losses. So instead Mr. Savage has gone back through the claimant’s records from October 2001 onwards and looked at vessels which have actually arrived at Greenore. He has calculated the extra tonnage which, he believes, each vessel would have carried into Greenore and unloaded if it had been possible for ships to enter the berth on an even keel with a 7.5 metre draught. These details are set out in a schedule, which indicates a total tonnage “lost” between October 2001 and December 2005 of 210,385 tonnes. Taking a conservative profit figure of 1.5 euros per tonne, the total loss of profits in that period amounts to 315,577 euros. 139 Mr. Savage was, quite properly, pressed in cross-examination about the details of his schedule and its underlying rationale. It is not necessary for present purposes to set out the detail of that cross-examination. Part 5. The Defendant’s Factual Evidence 140 In this part of the judgment I shall summarise the defendant’s factual evidence. In doing so, I shall weave together the gist of each witness’ written statement and oral evidence. MARTIN ATHEY 141 Mr. Athey is a solicitor and the company secretary of the defendant. 142 The defendant issues about 500 performance bonds per year, mostly in the field of construction. So the performance bond issued to SAR in respect of the Greenore project was part of the defendant’s routine business. 143 Mr. Athey had no involvement in this matter when the bond was issued, apart from writing one standard reference letter in September 2000. The various securities which the defendant took in respect of its liability under the bond (personal guarantees from directors and so forth) were quite normal. Mr. Athey was not aware then that SAR was in financial difficulties, but that was not necessarily a relevant factor. 144 In June 2001 Mr. Athey was copied in on a letter revealing SAR’s financial difficulties. However, Mr. Athey had no other involvement at that stage. 145 In August 2001, after the demise of SAR, SAR’s directors approached the defendant with a proposal that they should form a new company, which would complete the Greenore contract. This proposal was in the defendant’s interest, since it had given a performance bond. 146 The defendant called upon the personal guarantees and the other securities which it had taken in respect of the bond. 147 Mr. Athey understood from his colleague, Ian Smith, that the claimant’s termination of the construction contract had caused the demise of SAR. Mr. Smith was more involved with the Greenore contract than Mr. Athey. Mr. Smith is still employed by the defendant and Mr. Athey does not know why Mr. Smith is not giving evidence. 148 As proposed by the SAR directors, a new company was duly incorporated and it was known as BME Contracting Ltd (“BME”). Mr. Athey and Mr. Thorneycroft (an accountant) joined the board of BME as representatives of the defendant. 149 A proposal was made to the claimant that BME should complete the Greenore contract at no additional cost. Mr. Athey discussed this proposal briefly with Mr. Denham, Mr. Sims. and Mr. Patterson, but they probably discussed the matter in greater detail with Mr. Smith. Mr. Athey did not go into details of costings or how BME would do the work. 150 The defendant’s letter to the claimant, proposing that BME should do the work, was dated 9th August 2001. That letter did not state that the Greenore contract had changed to an agreement on a labour basis only. Mr. Athey does not know why that letter was not phrased as an offer. 151 The proposal that BME should do the remaining work was not accepted. Mr. Athey was surprised, some years later, to learn that the contract for the remainder of the work had been awarded to Norfolk. Mr. Athey was also surprised to learn that the Norfolk contract was on the basis of a daily rate, when BME had been willing to complete the works within the original contract price. ALLAN DENHAM 152 Mr. Denham is a civil engineer, who was employed by SAR from 1999 until the demise of that company. He was a director of SAR from February 2001 onwards. During that period SAR was not cash rich. Times were hard. 153 Mr. Denham had much less involvement in the Greenore contract than Mr. Wilcox and Mr. Patterson. Mr. Denham spent most of his time at another of SAR’s sites, namely the Uig Ferry Terminal on the Isle of Sky. Mr. Denham was responsible for running the Uig contract. 154 During 2000 Mr. Denham looked at the Greenore documentation and provided the engineering methodology which was the basis of SAR’s tender. The geological information provided by the claimant for tenderers was of poor quality and inaccurate. 155 Mr. Denham did not do the pricing for the Greenore works. However, he notes that one item of work which SAR priced in the BQ was a survey to ascertain the location of the rock head. 156 In July 2000 SAR had some difficulty paying for the performance bond. There was a delay in paying part of the sum which was due to the defendant. Generally it was Mr. Patterson who dealt with these matters. 157 It was the claimant’s job to obtain a foreshore licence. This was necessary before SAR could start work. There was some delay in obtaining the foreshore licence. It can be seen from the correspondence that the licence still had not been obtained on 24th July 2000. 158 Mr. Denham recalls visiting site twice in 2000, namely in August and around Christmas. Mr. Denham also recalls that the rock head turned out to be lower than anticipated. This necessitated a re-design of the piles (to accommodate greater pile length) and caused delay to the works. Mr. Denham discussed with Mr. O’Loan the possibility of lodging a clause 12 claim in respect of this matter, but Mr. O’Loan said that Ms. de Pasquale would not consider such a claim. 159 Mr. Denham believes that the cost and delays attributable to the poor quality of the design information provided to SAR on the Greenore contract was one major factor which contributed to the failure of SAR. Another major factor was a problem which occurred on the Uig contract. 160 Mr. Denham is surprised now to see documentation indicating that the Engineer accepted SAR’s clause 12 claim on Greenore and granted 4 weeks paid extension of time. 161 Mr. Denham now sees from the correspondence bundle that SAR was paid virtually all the money that it applied for during the Greenore contract (including the interim payments requested in respect of variations and claims). He was not previously aware of this. 162 Mr. Denham recalls visiting Greenore once during 2001. That was towards the end of the contract, when Ms. de Pasquale was getting upset about the slow progress. 163 During 2001 SAR’s financial difficulties increased. In June the claimant was making direct payments to SAR’s workforce and also to suppliers of materials. On 18th June 2001 Mr. Denham and Mr. Wilcox signed a letter to SAR assuring SAR that this was all pursuant to the contract. 164 It can be seen from the correspondence that on 2nd July 2001 the defendant refused to provide financial help to SAR. That must have been a huge blow to SAR. In July 2001 SAR came to the end of the line. SAR did not have the funds to continue or to pay anybody. When the insurance cover for Greenore fell due for renewal on 18th July, SAR could not afford to pay the premium. Mr. Denham had regular discussions with Mr. Wilcox. He would have told Mr. Wilcox that work was stopping at Greenore. 165 At the end of July 2001, rather surprisingly, the claimant purported to terminate its contract with SAR. 166 The administrator of SAR never suggested that he would run the Greenore contract. 167 After discussions with the defendant, the directors of SAR formed a new company known as BME Contracting Ltd (“BME”). Mr. Wilcox was asked to become a director of BME, but he chose not to do so. 168 On 9th August 2001 the defendant made an offer to the claimant that BME would complete the Greenore works at no extra cost beyond the originally agreed contract price. Mr. Denham was amazed that the claimant did not accept this proposal. 169 If BME was going to complete the Greenore works on the terms suggested, it would require funding from the defendant. Mr. Denham understood that the defendant would provide financial support, but he does not recall that the defendant ever made an offer of funding. Part 6. The Termination Issue 170 It is clear that, one way or another, SAR’s contract for the renovation works came to an end. Several theories of how and when that contract was terminated have been put forward. The principal analyses which have been canvassed in argument are as follows: (i). SAR repudiated the contract on 18th July 2001 and the claimant accepted that repudiation by engaging Norfolk to take over the works. (ii). The claimant repudiated the contract by engaging Norfolk to take over the works and SAR accepted that repudiation. (iii). The claimant terminated the contract pursuant to clause 63 of the conditions. 171 I make the following findings of fact which are relevant to the termination issue. On 18th July 2001 SAR’s insurance cover lapsed because SAR was unable to pay for further insurance. On that date all of SAR’s available funds were exhausted and all of the employees whom SAR had on the Greenore site were informed that they were laid off. Mr. Wilcox remained a director of SAR, albeit receiving no payment for his services as director. On that date it was inevitable that SAR would go into either administration or liquidation within the next few days. There was no realistic prospect that SAR would be able to resume work at Greenore. It was theoretically possible that if SAR went into administration, then the administrator might decide to perform the Greenore contract. However, the circumstances in July 2001 were such that no reasonable administrator would decide to take that course. 172 Let me now turn to the legal position. SAR’s conduct on the 18th July amounted to a repudiation of the contractor. Accordingly the claimant became entitled immediately to accept SAR’s repudiation and bring that contract to an end. Nevertheless, it is clear from the documents and from the evidence given at trial that no one who was present on the 18th July understood the legal position. There was a shared belief on the part of the representatives of the claimant, KMM and SAR that the construction contract would have to remain in force until (a) SAR had gone into administration or liquidation, and (b) the engineer and the claimant had served notices pursuant to clause 63. 173 Following the meeting of 18th July the claimant decided to adopt the suggestion made by Mr. Wilcox that his company, Norfolk, should take over the existing labour force and complete the renovation works. The precise moment at which the claimant made this decision is unclear. The claimant crossed the Rubicon on either 19th or 20th July, when it transferred to Norfolk the approximate cost of obtaining employer’s liability insurance and public liability insurance. By a facsimile timed at 4.58 p.m. on Friday, 20th July, Offshore Marine Insurance Services Ltd. confirmed to Norfolk and to the claimant that insurance cover was in place. In my view, the claimant would not have paid money for the insurance premium to Norfolk unless the claimant had definitely decided to engage Norfolk for the future works. 174 It can be seen from the work sheets that on 18th, 19th and 20th July Mr. Wilcox and his team of nine workmen were simply standing by, because no insurance was in place. The only activity on site was PCB pumping, which was being carried out by the claimant’s driver using the claimant’s crane. The work sheets reveal that Mr. Wilcox’s team did some substantive work over the weekend, 21st to 22nd July. On Monday, 23rd July Mr. Wilcox’s team started work on site in earnest. The factual conclusion which I draw from the above evidence is that Norfolk started working on site as the new contractor in substitution for SAR on Saturday, 21st July 2001. Norfolk continued to work in that capacity until 6th November 2001. 175 The engagement of a new contractor to carry out works the subject of SAR’s contract is inconsistent with the continued existence of that contract. In my view, therefore, the engagement of Norfolk amounted to an acceptance by conduct of SAR’s repudiation. It was not necessary that the claimant or the engineer should have been aware of the legal character of what they were doing. Whether or not conduct amounts to an acceptance of repudiation has to be determined objectively. The thought processes of the individuals involved and their legal knowledge or lack of it does not affect the legal position. 176 Mr. Davie, on behalf of the defendant, makes a formidable point in opposition to this analysis. He submits that any acceptance by the claimant of SAR’s repudiation was not notified to SAR. Mr. Wilcox, who was acting behalf of Norfolk at this stage, was not SAR’s agent for the purpose of receiving such a notification. 177 In order to deal with Mr. Davie’s argument, it is necessary to consider the position of Mr. Wilcox in greater detail. Mr. Denham said in evidence that he did not think that Mr. Wilcox was a director of SAR. I am satisfied that in this respect Mr. Denham is mistaken in his recollection. In particular, it can be seen that on 18th June both Mr. Denham and Mr. Wilcox signed an important letter to the claimant with the word “Director” typed under each of their names. I am sure that Mr. Denham would have demurred if that description was not correct. Furthermore, SAR’s printed notepaper showed Mr. Wilcox as one of SAR’s directors. 178 The next point to note is that on and after 18th July Mr. Wilcox was not acting against the interests of SAR in offering to take over the works and then doing so. As Mr. Denham put it in his evidence, SAR had come to the end of the line. SAR did not have the resources to continue with the Greenore contract. It seems to me that from SAR’s point of view Mr. Wilcox’s actions were either neutral or possibly beneficial. If no one had taken over the renovation works SAR’s liability to the claimant would have been greater. Furthermore, because Norfolk stepped into the breach, the administrator was able to make an early sale to Norfolk of the plant on site for the agreed sum of £35,000 plus VAT. It has to be remembered that that plant had not been without its problems. 179 During the latter part of July 2001 Mr. Wilcox had two roles. He acted as a director of Norfolk and as a director of SAR. Mr. Wilcox represented both companies at the meeting on 18th July. On 25th July Mr. Wilcox sent a letter to KMM on behalf of SAR in administration (insofar as he was still able to represent that company). By that letter Mr. Wilcox informed KMM of the date of the administration and the details of the administrator. For the reasons previously mentioned, I do not consider that the interests of SAR and Norfolk were in opposition. Mr. Wilcox may well have been acting against the interests of other SAR directors, who were hoping to form a Phoenix company, but that is a separate matter. 180 During the crucial period 18th to 23rd July SAR had no representative on site other than Mr. Wilcox and his deputy, Mr. McLeod. Neither Mr. Patterson nor anyone else from SAR was in communication with the claimant. I therefore conclude that during the period 18th to 23rd July communication by the claimant of relevant facts to Mr. Wilcox constituted notification of those facts to SAR. It is immaterial whether or not Mr. Wilcox passed on those facts to his fellow directors of SAR.[181]In my view, the circumstances of Arab Bank plc v. Zurich Insurance Co. [1999] 1 Lloyd’s Rep 262 (upon which Mr. Davie relies) are readily distinguishable. If it is necessary to go further, which I doubt, I would hold that Mr. Wilcox was the acting will and mind of SAR in connection with the Greenore project. He had both actual and ostensible authority to receive information on behalf of SAR. In this regard, the reasoning of Hoffmann LJ in El Ajou v. Dollar Holdings plc [1994] 2 All E.R. 685 at 703-706 is in point.[182]Even if the analysis set out above is wrong, I would find it impossible to say that the claimant had repudiated the contract by appointing Norfolk to continue the works. The claimant was simply recognising reality, namely that SAR was no longer and could never again be the contractor on site. If I had not found that the claimant accepted SAR’s repudiation, I should have held that the contract remained in force until 31st July, when KMM and SAR determined SAR’s employment pursuant to clause 63. In the circumstances, however, it is not necessary for me to unravel the skein of intricate arguments concerning the operation of clause 63.[183]Let me now draw the threads together. I hold that the contract in the present case came to an end on or about 20th July 2001, when the claimant accepted SAR’s repudiation. Part 7. The Effect of the Claimant’s Rejection of the Defendant’s Offer dated 9th August 2001

Part 7. The Effect of the Claimant’s Rejection of the Defendant’s Offer

[184]The defendant’s letter dated 9th August 2001 has been read out in Part 2 of this judgment. The defendant’s case is that the claimant acted unreasonably in rejecting out of hand the offer contained in that letter. The claimant thereby failed to extinguish or at least to mitigate its losses flowing from SAR’s repudiation of the contract.[185]A number of comments need to be made about the defendant’s letter dated 9th August 2001. That letter is a bizarre document. It is most unusual for any bondsman to seek to step in and carry out the construction works which it has guaranteed. This letter came out of the blue. It was phrased not in the language of offer but in the language of command. It was written at a time when the defendant was in no position to command anything. The letter gave no clue about what the company BME (Contracting) Limited (“BME”) was. The letter required the claimant to contact an office in Geneva in order to organise a start date. 186 I am bound to say that a letter formulated in such strange terms is hardly likely to inspire confidence in the reader. I accept the evidence of Ms. Price about her feelings and her suspicions when she received that letter. It is clear that Ms. de Pasquale took a similar view. 187 In my judgment Ms. Price and Ms. de Pasquale were entirely reasonable in the view which they took about the proposal contained in the defendant’s letter dated 9th August 2002. The claimant acted reasonably in rejecting that proposal immediately. It should not be forgotten that the claimant had a business to run and was suffering substantial loss of profits during every week when the main berth at Greenore Harbour was closed to shipping. The claimant was faced with the choice between an unknown company seemingly based in Geneva and a company which was already on site with a team of competent workmen, who were well familiar with the job. It is hardly surprising that the claimant preferred the latter option. 188 Furthermore, in my view, if the claimant had accepted the defendant’s proposal, the outcome would have been far from satisfactory. The directors of BME were former directors of SAR, who had already demonstrated their inability to manage the Greenore renovation works. Moreover, in the light of the correspondence in June and July 2001 and the oral evidence of Mr. Denham, I think it highly unlikely that the defendant would have provided anything like enough funding to enable BME to take over SAR’s contract and to carry out the remaining works at no additional cost to the claimant.[189]Let me now draw the threads together. The claimant acted sensibly and reasonably in rejecting the proposals contained in the defendant’s letter dated 9th August 2001. The defence of failure to mitigate on this ground is rejected.

Part 8. The Claim for Additional Completion Costs

[190]One major head of damages claimed in respect of SAR’s repudiation is the additional cost of completing the works. The rationale of this head of claim is that if the first contractor abandons the project and the employer has to bring in a second contractor under a new agreement, it is almost inevitable that the overall cost of the works will be increased.[191]Mr. Davie for defendant, in his written closing submissions, formulates the measure of loss in this way:
“The cost to the employer of completing the works in a reasonable manner less the contract price.”
Mr. Davie cites in support of that formulation McGregor on Damages (17th edition, 2003) Chapter 26 and Mertens v. Home Freehold Company [1921] 2KB 526. I accept Mr. Davie’s formulation as an appropriate starting point for this exercise. Nevertheless, close regard must be paid to the circumstances of the particular case. For example, the contract price (which is to be deducted) must be adjusted by reference to any omissions or variations instructed during the course of the works.[192]In the course of this judgment I shall use the phrase “additional completion costs” to mean those additional costs incurred by the claimant in completing the works, which are attributable to the fact that SAR repudiated and other contractors were brought in. The other contractors whom the claimant brought in were(1) Norfolk in respect of the works on land and the PCB dredging; and(2) IDC in respect of the main dredging.[193]Before I embark upon the exercise of assessing the additional completion costs, I must consider three threshold defences raised by the defendant. I would summarise these defences as follows:(i) The basis of SAR’s contract changed before repudiation in two important respects: (a) main dredging was excluded; (b) the basis of SAR’s contract changed so that the claimant assumed responsibility for paying wages and purchasing materials.(ii) The claimant did not complete the works in a reasonable manner, in that it engaged Norfolk under a contract which was unrestricted in terms of time and cost.(iii) The engineer failed to measure the works either when SAR left site or when Norfolk completed. The evidence available to establish the additional completion costs is (through the claimant’s default) so exiguous that this head of damages cannot properly be assessed at all.[194]Let me start with the first threshold defence. Mr. O'Loan’s evidence was ambivalent on the question whether main dredging was excluded from SAR’s works before 18th July. Ms. Price was clear in her recollection that it was not so excluded. The defendant’s witnesses did not touch on this issue. Although Mr. Denham was a director of SAR at the material time, he only had limited involvement with the Greenore site. Mr. Denham’s evidence did not address the question as to whether main dredging was omitted.[195]Having reviewed the oral evidence, I am quite satisfied that the main dredging work was not excluded from SAR’s contract at any time before SAR repudiated. I am reinforced in this conclusion by reference to the contemporaneous documents. In particular SAR’s application for payment submitted on 10th June 2001 showed that SAR anticipated doing the main dredging work. Furthermore, the claimant had by then paid to SAR £371,395 for mobilisation in respect of the main dredging work. It is improbable in the extreme that the claimant would have instructed SAR not to do that item of work.[196]In relation this issue, the claimant places heavy reliance on a note at the bottom of a spreadsheet prepared by Mr. Patterson on 27th June 2006. That note reads as follows:
“On completion of the main deck works there is also a dredging contract to complete which shall be profitable but has been excluded as these works will be to the discretion of the administrator.”
In my view, when that note is read in context, it is not saying that dredging works had been excluded from SAR’s contract. It is saying that dredging works have been excluded from the financial analysis set out in the spreadsheet.[197]The second respect in which the defendant contends that SAR’s contract was varied relates to the basis for payment. I am quite satisfied by the evidence of Ms. Price that the direct payments which the claimant made in respect of materials and labour between May and July 2001 were a temporary expedient because of SAR’s financial difficulties. It was always hoped, perhaps forlornly, that arrangements would revert to the proper contractual basis. As Mr. O'Loan said, there was always going to be a reckoning at the end of the job. I find that there was never any agreement to change the basis of SAR’s contract. SAR’s remuneration was a lump sum subject to adjustment in accordance with the contract conditions. All direct payments made by the claimant for labour and materials were treated by the parties as payments on account towards SAR’s lump sum entitlement.[198]I turn now to the second threshold defence. It is quite true that the claimant entered into an open-ended contract with Norfolk for completion of all works except main dredging. That contract, which was reduced to writing on 21st August 2001, was unrestricted in terms of time and cost. The claimant paid Norfolk for the hours worked and went on doing so until completion was achieved. It is also true that this arrangement had the effect of making the overall cost of the works higher. Nevertheless, I am quite satisfied on the evidence that the claimant acted reasonably in entering into such a contract with Norfolk. I reach this conclusion for five reasons:(i) It is unlikely in the extreme that any new contractor would have been willing to tender for the remaining works at Greenore on a lump sum basis.(ii) If a new contractor had been brought in, this would have generated additional delay which would have been highly damaging to the claimant’s business.(iii) The use of Mr. Wilcox and his team, who were familiar with the Greenore project, was the optimum solution to the problems created by SAR’s repudiation.(iv) Norfolk did not have the abilities or experience to enter into a lump sum fixed term contract, essentially for the reasons given by Ms. Price.(v) Mr. Wilcox was in a strong bargaining position. The claimant was in a weak bargaining position. The contract which was negotiated during August 2001 fairly reflected the parties’ bargaining strengths.[199]I turn now to the third threshold defence. In my view, it is regrettable that KMM failed to measure the works when SAR left site. It is also regrettable that KMM did not measure the works, in particular the PCB dredging, carried out by Norfolk. Nevertheless, the records of what SAR did up to 18th July 2001 and the records of what Norfolk did after 18th July 2001 are sufficient to enable the court to make a reasonable assessment of the additional completion costs. The scope of work to be undertaken by Norfolk was sufficiently defined in the written agreement dated 21st August 2001. Accordingly, the court has sufficient evidence upon which to make an assessment of the additional completion costs and I shall now embark upon that exercise.[200]The first stage of this exercise is to ascertain what costs the claimant has actually incurred in completing the works. On this aspect of the case the quantity surveyor expert witnesses have made substantial progress in agreeing the figures. Mr. Alan Taylor of Faithful & Gould acts for the claimant; Mr. Mamas Stavrou of Davies Langdon LLP acts for the defendant. I shall refer to Mr. Taylor and Mr. Stavrou collectively as “the experts”. 201 The experts have agreed that the total sum paid by the claimant to SAR was £2,807,345, and that the total sum paid to Norfolk was £244,651. In relation to the latter figure, however, Mr. Stavrou maintains that the arrangements with Norfolk were unduly generous and the payments made were extravagant. Mr. Stavrou believed that a reasonable sum for payment to Norfolk would have been £46,543.[202]When Mr. Stavrou was cross-examined on this issue, he maintained that it was not reasonable for the claimant to put in place an uneconomical method of completing the work. I agree with Mr. Stavrou that the contract made with Norfolk did not provide any substantial incentive to efficiency. It was in that sense uneconomic. On the other hand, I have been persuaded by the oral evidence that the claimant negotiated with Norfolk the best deal that was reasonably available in the circumstances. This uneconomical arrangement was the consequence of SAR’s repudiation. Accordingly, for the purposes of calculating damages I shall take the actual figure paid to Norfolk rather than Mr. Stavrou’s hypothetical figure. It should be noted, however, that Mr. Stavrou’s figure (if it were relevant) would have to be substantially increased.[203]Mr. Stavrou was cross-examined on the scope of Norfolk’s work by reference to the records which are available. Those records include invoices for materials delivered, timesheets for labour, and photographs of the completed works. Mr. Stavrou has not seen anything in those records which suggested that the scope of works undertaken by Norfolk differed materially from the scope of works which SAR had originally contracted to carry out. I find that the scope of works was substantially the same, subject to two qualifications. First, it turned out that the quantity of PCBs to be dredged was significantly greater than anticipated. Secondly, Norfolk spent time in the last two weeks dealing with a pile collapse, for which both Norfolk and SAR bore some responsibility: see the evidence of Mr. O'Loan. In relation to the first matter, SAR would have encountered precisely the same additional PCB dredging if it had remained on site. In relation to the second matter, I accept the evidence of Mr. Taylor that £9,160 should be attributed to work following the pile collapse.[204]A separate complaint is made that Norfolk charged the claimant for the whole of July but, in fact, the workmen were employed by SAR for the first 17 days. In relation to that, it seems to me that this payment was a necessary sweetener to maintain the goodwill and presence of Norfolk’s workmen at a critical time.[205]In the result, therefore, I shall take as the sum properly paid to Norfolk £244,651 less £9,160. That amounts to £235,491. 206 In addition to the above figures, the claimant provided diesel and other services to SAR at a total cost of £66,485. This forms part of the total actual costs. Also, the claimant made payments to others of £486,063. The principal component of this figure is the sum of £231,500 which was paid to IDC. All of these costs form part of the total costs of the renovation works which SAR had contracted to carry out. I am not persuaded by Mr. Stavrou’s evidence or Mr. Davie’s submissions that any deduction should be made from these costs.[207]Let me now pull together the above figures. Subject to counsel checking my arithmetic, the total actual costs which the claimant incurred in order to achieve completion of the various works undertaken by SAR, Norfolk and IDC was £3,595,384.[208]Let me now turn to the notional final account. This is intended to set out the sums which the claimant would have paid to SAR if SAR had remained on site and completed the works. For the purpose of this exercise, the variations and omissions made in respect of the works both before and after 18th July must be taken into account. Thus it must be assumed that if SAR had remained on site, SAR would have been instructed to excavate the additional quantities of PCBs which Norfolk encountered. It must also be assumed that SAR would have been instructed to do the actual dredging work which IDC carried out. In other words, SAR would have dredged to a greater depth but not removed rock.[209]The experts have reached a very large measure of agreement in relation to the notional final account. I congratulate both experts on that achievement. I shall simply concentrate on those matters which remain in issue. 210 The first matter in issue relates to prolongation claims. In relation to the four weeks paid extension of time due under clause 12, Mr. O'Loan has allowed £16,954.46 per week in the notional final account. Mr. Taylor regards this allowance as generous. Mr. Stavrou considers that three further items have wrongly been omitted, namely weekly costs associated with the performance bond, insurances and protection of the works. On this issue I prefer the view of Mr. Taylor to that of Mr. Stavrou. The items in dispute were not priced in the BQ with a weekly rate. There is no evidence that additional costs under these heads were actually incurred during the relevant four week period. These costs were never claimed by SAR in interim applications.[211]A separate point raised by Mr. Stavrou in relation to prolongation concerns the office equipment, the survey and test equipment and the safety equipment which SAR was required to provide. There is a suggestion on behalf of the defendant that the cost of these items should be allowed for the total period of overrun of the work, namely 42.29 weeks. Mr. Stavrou very fairly said in cross-examination that if he were acting as engineer he would not allow such a claim. I agree. I do not allow that claim.[212]In relation to variation instructions which were given and implemented during SAR’s time on site, I have heard some interesting evidence both from Mr. O'Loan and from the experts. However, the value of those variations is agreed between the experts at £117,278. The value of SAR’s claims has also been agreed between the experts, namely in the sum of £224,496. I shall not therefore extend this judgment by discussing those matters.[213]The principal issue which remains to be decided concerning the notional final account is what sum would have been paid to SAR for dredging the additional quantities of PCBs which were encountered. One can see from Norfolk’s worksheets certain dates when Norfolk was engaged upon suction pumping of PCBs. The quantities dredged up filled the void between the old quay and the new quay wall. After that, a pit had to be excavated in which the surplus PCBs could be buried. Mr. O'Loan in cross-examination accepted that the amount of PCBs dredged up was not measured. He also said that the bottom layers of PCBs which were excavated last usually proved to be the most difficult and time-consuming to extract. Mr. Stavrou said in evidence that the amount of PCBs dredged by Norfolk was unknown. Mr. Taylor in his evidence, with counsel’s assistance, identified the Norfolk worksheets upon which suction pumping (i.e. PCB dredging) is recorded.[214]Both counsel have done calculations in their closing speeches in respect of this head. Mr. McMullan for the claimant proposes a figure of £55,128 made up as follows: Eight days’ dredging at contract rates, £21,120. Grouting, 2,400 cubic metres of PCBs at £14.17 per cubic metre, £34,008. Total, £55,128. Mr. Davie for the defendant proposes a figure of £171,975. Mr. Davie takes 25 days of pumping at a total price of £65,700. To this Mr. Davie adds £106,275 in respect of pressure grouting. The basis of Mr. Davie’s calculations is that the total quantity of PCBs dredged by Norfolk was 7,500 cubic metres. 215 I bear in mind that most of the anticipated PCBs had been dredged by SAR before they left site. I accept Mr. O'Loan’s evidence that the later stages of PCB dredging are slower. Therefore, substantially less than 300 cubic metres per day was likely to have been pumped out by Norfolk. There is uncertainty about the precise amount of time which Norfolk devoted to PCB dredging and grouting. I accept Mr. Davie’s submission that where the evidence is lacking as a result of failures on the claimant’s side, I must give the benefit of the doubt to the defendant. Taking all those factors in to account, I propose to add £100,000 to the notional final account in respect of additional PCBs. I am satisfied that this allowance is generous to the defendant.[216]I must now take the various figures agreed in the notional final account . I must insert Mr. Taylor’s figure rather than Mr. Stavrou’s figure for prolongation. I must then add £100,000 in respect of additional PCBs. Subject to counsel checking my arithmetic, I believe that the bottom line figure for the notional final account now becomes £3,326,554. No adjustment is required to this sum in respect of retention monies.[217]On the basis of the above figures, the difference between actual costs expended and the notional final account is £268,830. Before I assess the completion costs in this sum, I will give counsel an opportunity to check my arithmetic and inform me, hopefully by agreement, of any necessary corrections.

Part 9. Damages for Delay

[218]The first matter to establish is what extensions of time were allowed by KMM during the currency of the SAR contract. Mr. O'Loan has said in evidence, and I accept, that KMM decided to allow a four-week extension of time in respect of SAR’s clause 12 claim. At the time when SAR’s contract came to an abrupt end, KMM had not sent a formal letter to SAR granting that four-week extension. Nevertheless, I am satisfied on the evidence that that had been agreed orally between the engineer and the contractor. That extension of time is also recorded in the draft valuation which Mr. O'Loan sent to SAR on 6th June 2001. The eighth sheet of that draft valuation sets out with some precision how the four-week extension of time is apportioned between different activities. 219 There is an issue between the parties as to whether KMM also gave or ought to have given a further three-week extension of time in respect of VO 7. VO 7 required the construction of a reinforced concrete spreader beam which would support a third crane rail. The location of that beam is shown in the photographs. It can be seen from the correspondence that SAR was pressing for a four-week extension of time in respect of VO 7. Mr. O'Loan took a different view. Mr. O'Loan considered that the events surrounding the third crane rail beam had caused three weeks of concurrent delay; in other words, SAR was entitled to reimbursement of its costs in respect of those three weeks, but not entitled to any deferral of the due completion date. Mr. O'Loan was cross-examined thoroughly on this item but maintained his position.[220]It should be noted that at the site meeting on 30th May 2001 SAR accepted responsibility for all delays. In a letter sent on 1st June 2001 SAR accepted that all claims had been resolved. In the draft valuation which Mr. O'Loan sent to SAR on 6th June he allowed no extension of time in respect of VO 7. Having regard to the contemporaneous documents and also the evidence given at trial, I am quite satisfied that KMM neither gave nor ought to have given any extension of time in respect of VO 7. 221 It can be seen from the correspondence that SAR also sought an extension of time in respect of sections A and B of the works up to 1st July 2001. Mr. McMullan in his closing speech characterised that application as a “try on”. I would not choose that pejorative term. SAR’s team on site was under-resourced, under-funded and struggling in a difficult situation. I am, however, satisfied that SAR did not have any entitlement to extension of time beyond the four weeks which the engineer said he would allow.[222]The next question which arises is whether any liability to pay liquidated damages for delay had accrued on the date when SAR’s contract was terminated, namely on or about 20th July 2001. Mr. Davie argues that no such liability had crystallised because the formalities had not been attended to. In particular, there was no certificate of valuation giving effect to KMM’s draft valuation of 6th June, and there was no certificate of extension of time issued pursuant to clause 44. 223 I am not persuaded by Mr. Davie’s arguments. Clause 44(2) does not require a formal certificate. The relevant phrase in clause 44(2) reads as follows:
“The Contractor … shall by notice in writing to the Contractor grant such extension of time for completion…”
In my view, the engineer’s draft valuation of 6th June does amount to a notice in writing for that purpose.[224]It is quite true that, following Norfolk’s completion of the works, KMM did not issue any extension of time certificate under clause 44(4) of the contract conditions. By that time, however, the contract had come to an end as a result of SAR’s repudiation and therefore SAR had no entitlement to such a certificate. Even if I am wrong in this analysis, however, the same result would be reached in other ways. No court or arbitrator would allow the employer to recover an extra four weeks’ liquidated damages for delay simply because the engineer’s notice extending time lacked the requisite degree of formality. 225 In my view, the correct analysis is that on the date of termination SAR was substantially in delay. SAR had an accrued liability to pay liquidated damages for delay at the rate stated in the contract, after credit is given for four weeks’ extension of time. Since there is uncertainty about the precise date when SAR’s repudiation was accepted, I shall treat SAR’s liability for liquidated damages as ending on 18th July 2001. 226 Counsel are agreed that liquidated damages for delay, calculated on the basis set out above, in respect of section A, section B and dredging works amount to £200,000. I therefore hold that that is the sum to which the claimant is entitled as against SAR pursuant to clause 47 of the contract.[227]The position after repudiation is different. No liability for liquidated damages can accrue under clause 47 after the contract has come to an end. The claimant’s only remedy in respect of delay between 19th July and 24th October 2001 is to claim damages for breach of contract on conventional principles. 228 It is clear from the evidence of Ms. Price and Mr. Savage that the claimant was suffering substantial loss of profits in every week that the main berth was closed for business. Although it was hoped that the division of the works into sections A and B would enable some shipping to come into the main berth during the renovation works, this did not prove to be practicable.[229]The problem which arises here is how to put a figure on the claimant’s weekly loss between 18th July and 24th October. The evidence given by Mr. Savage is directed to a different target, namely assessing the loss of profits after 24th October 2001 because rock dredging had not been carried out.[230]In the end, I have come to the conclusion that the exercise of assessing damages for delay between 19th July and 24th October 2001 is unnecessary. The damages which I have already held to be recoverable against SAR exceed the limit of the defendant’s performance bond by a comfortable margin.[231]Let me now draw the threads together. For the reasons set out above, I hold that the claimant has a good claim against SAR for liquidated damages for delay in the sum of £200,000. The claimant also has a claim for damages for breach of contract assessed on conventional principles in respect of delay between 19th July and 24th October 2001. It is neither easy to assess those damages on the present evidence, nor necessary to do so in circumstances where the bond limit has been exceeded. Part 10. The Claim for Rock Dredging Costs and Loss of Profits After October 2001

Part 10. The Claim for Rock Dredging Costs and Loss of Profits

[232]As will be recalled from Part 2 above, at the end of the renovation works the general dredging of the main berth had been accomplished to a greater depth than specified in SAR’s contract, but the rock dredging which was part of SAR’s contract had not been done at all. The claimant claims as damages in this action:(a) the cost of the rock dredging specified in the BQ but not carried out in 2001; and(b) damages for loss of profits since 2001 by reason of the presence of rocks in the berth.[233]The first question which arises is why rock dredging has not been done to date and whether it is going to be done at all. I am satisfied that the claimant does intend to do rock dredging at a future date, probably some time next year. The claimant has taken the decision to postpone all rock dredging until after the entire length of the quay wall has been renovated. This decision seems to me to be entirely sensible for several reasons. First, it can be seen from the plans that the most troublesome piece of rock is very close indeed to a section of the old masonry wall which is currently unprotected. This is because a large part of the section B works was omitted during the currency of SAR’s contract. It would obviously be much safer to postpone rock blasting until after a new steel wall has been erected in front of that 130-year old masonry wall. Secondly, rock blasting will necessitate special measures to protect even the new quay wall, as explained by Mr. Savage. It is much more sensible to do all of that work in one go. Thirdly, it will minimise disruption to the port and its customers if all remaining work is done collectively.[234]Let me now suppose, hypothetically, that SAR had remained as contractor until the completion of the project in 2001. I think it probable that the claimant would have taken precisely the same decisions in respect of dredging as the claimant in fact took after the demise of SAR. In other words, despite the submissions of Mr. McMullan, I am not persuaded that rock dredging would ever have been done in 2001. It was always going to be the case that troublesome rocks would remain in the berth until removed at a later date.[235]There is a further point that arises. The premise which underlies the claim for additional completion costs is that one compares the actual costs of what has been done with the notional costs. The notional costs represent what would have been paid to the original contractor if it had performed the contract. In order to carry out this exercise, one has to take into account the variations which occurred both by way of addition and omission. For the purposes of the notional final account, all such variations, both before and after repudiation, must be valued by reference to the contract terms and the contract BQ. Thus, the notional final account in this case proceeds on the hypothesis that the instruction to remove extra PCBs, which was given to Norfolk, would have been given to SAR, if SAR had stayed on site. Likewise, it must be assumed that the instructions given to the dredging company (i.e. to dredge to a greater depth but not to remove fixed rocks) would also have been given to SAR, if SAR had remained on site. 236 For all of the above reasons, I reject the claimant’s claim for the costs of rock dredging and for loss of profits after October 2001. Part 11. Conclusion[237]By a performance bond dated 5th September 2000, the defendant accepted liability to the claimant for loss sustained by the claimant on default of SAR up to the limit of £325,773.50. 238 SAR committed breaches of the construction contract, as a result of which the claimant sustained substantial loss. For the reasons set out in Parts 8 and 9 above, I hold that the claimant’s loss exceeds the limit of the bond. Accordingly, the defendant is liable to the claimant in the sum of £325,773.50. That sum must be converted from Irish Punts into Euros. 239 If the figures were converted from Irish Punts into sterling, it would be seen that the principal sum at issue in this case is below £300,000. By the standards of TCC litigation, this is a modest value case where costs are liable to become disproportionate to the sum at stake. Nevertheless, the facts and the issues are complex and they have had to be properly investigated. Counsel and solicitors on both sides have made strenuous efforts to compress this trial into six days, inclusive of judgment. I congratulate all counsel and solicitors on achieving this.[240]I will now invite counsel to agree(a) the conversion of the judgment sum into Euros;(b) the amount of interest due to the claimant. After counsel have agreed what they can, I will hear argument about any outstanding issues. (Adjourned for a short time)

Cited in 2 later judgments