[2013] EWHC 967 (TCC)

Case No HT-12-199[2013] EWHC 967 (TCC)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT
Venue The Rolls Building, 7 Rolls Building, Fetter Lane LondonDate 23/04/2013
EC4A 1NL
Before
THE HONOURABLE MR JUSTICE STUART-SMITH
Between
MT HØJGAARD A/SClaimantDefendants
Andrew White QC and Mark Chennells (instructed by Fenwick Elliott LLP) for ClaimantAdrian Williamson QC and Paul Buckingham (instructed by Wragge & Co) for DefendantsHearing Hearing dates: 10 and 11 April 2013
Judgment

Introduction

[1]The construction of off-shore wind farms requires the use of substantial contractors’ plant and equipment and is a major undertaking. When the Claimant [“MTH”] contracted with the Defendants [“E.ON”] in December 2006 to design, manufacture, deliver, install and commission the foundations for 60 wind turbine generators [“WTGs”] and 2 substations for the Robin Rigg wind farm in the Solway Firth, the contract value was in excess of €100 million. Both MTH and E.ON are major and sophisticated commercial concerns, as would be necessary in order to contemplate entering into such a contract with each other. Other contracts (involving other parties) were then to follow on for the placing of the WTGs on MTH’s foundations.[2]The contract specified that MTH was to provide a jack-up barge called the LISA, use of which was to be integral to installation of the monopiles and transition pieces that together would form the foundations for the WTGs. Use of the LISA implied that other vessels and equipment would be required, since the LISA could not store all necessary plant on board, was not self-propelling, and required ancillary equipment (referred to in the contract documents as foundation installation vessel spread) to assist it in the operations.[3]After the execution of the contract, and while the works were in progress, the LISA proved to be inadequate for the tasks that she was meant to carry out. In response, the Engineer under the contract issued 3 Variation Orders (VOs 5, 9 and 10 – collectively referred to as “the VOs”) requiring the substitution of a different vessel - the Resolution - to do installation work which, under the terms of the contract, was previously to have been done using the LISA. In circumstances which have given rise to a separate dispute, MTH withdrew the LISA from the contract and installed all but two of the 62 foundations using the Resolution instead of the LISA. By common consent, the Resolution was a superior and more effective vessel. A central feature of the changed arrangements after and pursuant to the VOs was that, where originally MTH had been responsible for hiring the LISA and providing it for the contract at its cost, the Resolution was hired direct by E.ON which then provided it on a free-issue basis to MTH.[4]As might be anticipated, the contract made provision for the valuation of Variation Orders; but the parties have been unable to agree the financial consequences of the changes in arrangements. Hence these proceedings and these preliminary issues. The central dispute between the parties can be shortly summarised. They are agreed that there must be an adjustment to the Contract Price to reflect the fact that the LISA and its associated installation vessel spread has been omitted from the contract. They are also agreed that some additions to the Contract Price must be made to reflect the new work content attributable to MTH working with the Resolution. However, the major financial dispute arises because: i) MTH says that what should be omitted is the component of the original Contract Price included for the provision of the LISA (making due allowance for the fact that she carried out 2 of the 62 foundations); but ii) E.ON contends that the deduction should be the product of applying a rate (or alternatively a cost) to the amount of time it alleges that the LISA would have taken to carry out the contract works if it had in fact done so.[5]E.ON says that, because the LISA had proved inadequate, MTH would have taken a very long time to install all the foundations using her. Consequently, applying either a rate or a cost to the time that MTH would have taken if it had completed the contract using the LISA has the result that the sums for which E.ON contends as appropriate deductions are greatly in excess of the sums for which MTH contends. MTH submits that the appropriate deduction (net of additions referable to working with the Resolution) is just shy of €12,900,000, whereas E.ON submits that it is either just under €57,250,000 (its primary case) or just under €34,650,000 (its secondary case).

The Preliminary Issues

[6]At a CMC on 16 November 2012 the Court ordered the trial of preliminary issues relating to the correct valuation of the VOs 5, 9 and 10. The parties cooperated to finalise the list of issues to be tried, a statement of facts to form the basis for the trial of the preliminary issues, and a statement of background facts.[7]The preliminary issues agreed by the parties to be tried in the present hearing are set out at Annexe 1. They all turn upon the proper interpretation of the Contract and, in particular, upon the meaning of Clause 31.3.[8]The trial of the preliminary issues took place on 10 and 11 April 2013. This is the judgment of the Court following that trial. The judgment: i) Reviews the general structure of the Contract at [9-16]; ii) Summarises the factual background at [17-43]; iii) Addresses the principles to be applied in interpreting the Contract at [44-52]; iv) Discusses the issues raised at trial at [53-82]; v) Provides answers to the Preliminary Issues which, in general terms, uphold MTH’s submissions and rejects those of E.ON, at [62-63], [81-82] and [84].

The Contract

[9]The Contract was executed on 20 December 2006. The Court has been provided with extracts from the Contract running to over 200 pages. It is evident that this is only a modest proportion of the entire contract documentation, but the parties are content that the extracts provide a suitable and sufficient view of the contract as a whole, so far as it is relevant to the preliminary issues.[10]Clause 31 of the Contract makes provisions for Variations. The sub-clause directly at issue is Clause 31.3 which provides as follows:
“31.3 DISAGREEMENT ON ADJUSTMENT OF THE CONTRACT PRICE If the Contractor and the Employer are unable to agree on the adjustment of the Contract Price, the adjustment shall be determined in accordance with the rates specified in Part L, Schedule L1.3 Schedule of Rates. If the rates contained in the Schedule of Rates (Schedule L1.3) are not directly applicable to the specific work in question, suitable rates shall be established by the Engineer reflecting the level of pricing in the Schedule of Rates (Schedule L1.3). Where rates are not contained in the said Schedule, the amount shall be such as is in all the circumstances reasonable. Due account shall be taken of any over- or under-recovery of overheads by the Contractor in consequence of the Variation.”
[11]In the course of the hearing, other provisions were referred to. Those that may be thought relevant to the preliminary issues are set out at Annexe 2.[12]The Contract was bespoke. It adopted a carefully developed contractual structure in several parts, with an agreed hierarchy of contractual documents. Within that structure, it provided a detailed series of provisions that set out the financial consequences to the parties of performance and contractual default: i) MTH’s primary obligation was to perform the Works within the Time for Completion (16 June 2008, with provision for extension in specified circumstances) in consideration for the Contract Price. There were six Sections of the Works (A-F) with each of sections A-D being the Completion of a group of 15 WTG foundations. E.ON was to make payment of the Contract Price in predetermined percentages at various Key Events See Part L1.4 Payment Profile . Items 43-46 of the Payment Profile provided for 4% of the Contract Price to be paid upon completion of the main installation of the foundations for each of Sections A to D. Thus, in aggregate, the payment due by reference to the completion of the installation of the Section A to D foundations (which was the work originally to be performed with the LISA) was 16% of the Contract Price, or something in excess of €16 million. The Payment profile anticipated that the installation of the foundations (including a met mast which was subsequently omitted) would be completed by 5 November 2007, which was in accordance with MTH’s draft programme that was included in the contract documents L1.5, entitled MTH Programme No 221186 Rev 6 dated 18th December 2006. ; ii) MTH had programming obligations throughout the duration of the contract: see Clause 12.1. If MTH failed to provide programmes in accordance with its obligations, the Engineer could withhold 10% of future milestone payments until the situation was remedied; iii) A further example of specified financial penalties in the event of particular failings on the part of MTH was that in the event of Minor Default (as defined) the Engineer was entitled to withhold 2.5% from all subsequent Key Event payments until the situation was remedied: see Clause 45.1; iv) Consistently with this approach, Clause 27 provided for liquidated damages in the event of delay. There were a number of provisions addressing different aspects of delay, with different financial consequences attaching in different circumstances. Most relevantly for present purposes, if it failed to complete the installation of the Section A-D foundations by the Key Date, MTH was to pay liquidated damages at the rate of £5,000 per day. The Key Date was specified to be 31 December 2007 L1.6, item 22 , giving MTH some leeway beyond the date for completion of the foundation installation in its draft programme before liquidated damages became payable. The maximum liquidated damages that could be levied was 20% of the Contract Price and, subject to limited exceptions, the contractual liquidated damages were to be to the exclusion of any other remedy of E.ON in respect of MTH’s failure to Complete within the Time for Completion Other remedies, including the ultimate sanction of termination of the agreement, were provided in case of Prolonged Delay (as defined). In the event of termination, the Contract specified the financial consequences that could follow: see Clause 27.2. ; v) The contract also specified some circumstances in which E.ON might recover actual losses that were caused (as opposed to a pre-determined amount) Clause 27.2 is an example. . However, Clause 42.2 provided that the liability of MTH to E.ON under the agreement should in no case exceed the Contract Price plus the maximum liquidated damages for delay and performance, calculated in accordance with Clause 27.1; vi) Except in limited and specified circumstances, neither party was to be liable to the other side for any loss of profit, loss of use, loss of production, loss of opportunity, loss of contracts or for any other indirect or consequential damage: see Clause 42.1. The effect of this was that (subject to the specified exceptions) if MTH failed to complete its works on time, E.ON’s remedy for such failures was limited to its entitlement to liquidated damages; vii) Clause 42.3 recorded the express agreement that the remedies provided for in the Contract were alone to govern their rights under the agreement and that, accordingly, the remedies provided by the Contract were (save in the case of Contractor’s Misconduct or Employer’s Misconduct) to the exclusion of any other remedy.[13]Other provisions may be briefly noted at this stage: i) Clause 14.1 provided that MTH was not to remove from the Site any Contractor’s Equipment that it had brought to site except when it was no longer required for the Completion of the Works or when the Engineer had given his consent. When MTH withdrew the LISA it did so before the installation of the foundations was finished and without the consent of the Engineer, as a result of which E.ON asserts that the withdrawal was in breach of Clause 14.1. This issue does not arise on the present hearing but the Court was told that there is in existence a separate claim, apparently in the form of a claim for damages for breach of contract arising out of the LISA’s withdrawal; ii) Part L of the Contract was entitled “Schedule of Prices, Payment Profile & Draft Programme”: a) Schedule L1.1 was a segregation (or breakdown) of the Contract Price of €101,454,052. It showed, at a high level, what sums were attributed to specified elements of the Works. In particular: i) Manufacture of the foundations totalled just over €60 million Made up of €23.964 million for manufacture of the monopiles and €36.043 million for the transition pieces which together made up the foundations. ; ii) Transportation of the foundations totalled just under €3.6 million; iii) Installation of the foundations totalled €22.1 million; iv) The Wait on Weather Allowance Meaning payment for those days on which sea conditions rendered impossible the safe execution of parts of the Works. was €3.58 million. b) Schedule L1.2 provided prices for alternatives and extras; c) Schedule L1.3 (which was expressly referred to in Clause 31.3) provided a Schedule of Rates “which will be used for the evaluation of Variation Orders”. The rates for the provision of manpower were to be fully inclusive of all costs and charges including site and establishment overheads. Materials, plant and sub-contract work mark-ups were stated generally to be on a cost-plus basis but certain categories of plant (including the day rate for foundation installation vessel spread) were separately specified; d) The draft programme provided for the LISA and its vessel spread to be mobilised to site by 16 June 2007 and included a period of 142.2 days thereafter for the installation of the foundations. Of this: i) 127.2 days related to the installation of the 60 WTG foundations; and ii) 15 days related to the installation of the met mast (which was subsequently omitted) and the two substation foundations. iii) Part E of the Contract provided (at E1.8) that the 142 day foundation installation programme comprised 104 days of installation and 38 days of anticipated Waiting on Weather.[14]Clause 31 made provision for Variation of the Works. Clause 31.3 is at the heart of this dispute and is considered in detail later. For present purposes it is sufficient to note that the Engineer, provided he had the approval of E.ON, had the power to instruct MTH to vary the works: see Clause 31.1. MTH could propose a variation but could not insist upon it - the Engineer had power either to accept or reject MTH’s proposal, following consultation with E.ON: see Clause 31.6.[15]Apart from the power provided by Clause 31, the Engineer had no power to alter any contractual provision relating to the scope or carrying out of the Works; and his power under Clause 31 was limited to instructing MTH “to Vary any part of the Works.” It follows that, unless the omission of the provision and utilisation of the LISA and the addition of the Resolution in its place “[Varied] any part of the Works”, there was no power in the Engineer to issue the VOs. That is not an outcome to which either party wishes to subscribe.[16]It is necessary to consider precisely how the Variations worked in accordance with the provisions of the Contract. “Works” was a defined term whose meaning included “delivering to Site, erecting, testing, inspecting and commissioning the Plant” and “all work to be done by [MTH] under [the Contract].” Clause 8.1(iii) required the Contractor to deliver and install and complete the Works “providing all necessary Contractor’s Equipment.” Contractor’s Equipment was defined to mean all “appliances or things of whatsoever nature required for the purposes of the Works” excluding Plant, which was in turn defined to mean things that would be incorporated in the Works. Accordingly, the LISA was within the definition of Contractor’s Equipment. The provision of the LISA was therefore part of the work to be done by MTH under the Contract and, on that basis, was part of the Works. In addition, Clauses 1.5 and 1.5.4 of Part I of the Contract provided that the Works included transport of WTGs foundations to the site, installation of WTG foundation structures and mobilisation of all necessary construction plant to complete the Works, all of which encompassed the provision and use of the LISA. On this basis too, the provision and utilisation of the LISA formed part of the Works, as defined. Mr Williamson QC for E.ON initially equivocated when asked whether the provision and utilisation of the LISA formed part of the Works; but, recognising that his case depended upon the omission of the LISA being a Variation of the Works falling within Clause 31 so as to trigger the provisions of Clause 31.3, he came to accept that it did. In my judgment, his acceptance was correct.

The Factual Background

[17]The statement of facts agreed by the parties includes a number of facts which are not agreed for all purposes but which are assumed for the purposes of these preliminary issues. The following is a brief summary of the factual background which is intended to highlight matters that are potentially relevant to the determination of the preliminary issues. For that reason, although it is clear that the parties had discussions in the course of their pre-contract negotiations about what Vessel should be used and how it should be treated in the Contract, those discussions are irrelevant to the process of contractual interpretation and are not mentioned further.[18]The LISA was not mobilised to site by 16 June 2007. It soon became apparent that the LISA was not going to be able to keep to the contractual time frame even when she arrived. On 16 July 2007 MTH wrote to the Engineer’s representative stating that the time projected for the foundation installation had increased from 104 days to 164.5 days due to modifications to the installation methodology. By mid-July 2007 further problems had emerged as a consequence of which MTH advised that either work would have to be undertaken on the LISA’s jacking system or there would have to be a further revision to the installation sequence. In response, the Engineer issued a Contract Management Improvement Notice pursuant to Clause 45.1 of the contract on 25 July 2007 (“CMIN1”). CMIN1 notified the Claimant of a number of issues that required improvement, including the inability of the vessel to jack-up with either a monopile or a transition piece on board, the revision of the installation sequence as advised by MTH in its letter dated 16 July 2007, the late commencement of the installation works, and the failure of MTH to provide accurate and up-to-date progress information.[19]MTH responded to CMIN1 on 17 July 2007, acknowledging that “the vessel’s capabilities are not as expected and the installation methods have had to be adjusted accordingly”. During August 2007 MTH advised that it had investigated the possibility of bringing a second installation spread to the site, but there were no suitable vessels available until the end of 2007. As things stood, MTH’s foundation installation was not going to be completed until May 2008. Discussions took place between the parties to try to find a solution, but none was identified in the period before the LISA finally arrived at the site on 1 September 2007. On 4 September 2007 MTH issued a revised programme which indicated that the installation would now take 255 days, being 242 days to install the 60 WTG foundations and 13 days to install the 2 substation foundations. The met mast had by now been omitted.[20]On 16 September 2007 the LISA was undertaking a jacking trial when it suffered a “punch-through” incident. Two of the LISA’s legs began to settle into the sea bed which rapidly developed into an uncontrollable penetration through the clay layer, causing the vessel to incline dangerously to starboard. Although MTH notified this event as a purported event of force majeure, pursuant to Clause 44.3 of the contract, it is assumed for the purposes of the preliminary issues that it was not and that MTH is accordingly responsible for any consequent delays.[21]On 21 September 2007 the Engineer recorded that MTH remained in Minor Default pursuant to CMIN1 and concluded that MTH should “give serious consideration to applying best endeavours to secure the services of a second major jack-up vessel (i.e. Resolution when available…)”. By 3 October 2007 the LISA had been re-floated and salvaged, but the punch-through incident had necessitated a review of her capabilities. By 15 October 2007 MTH had received a preliminary report which indicated that there were a number of WTG foundation locations where the LISA would not be able to operate. This was clarified on 18 October 2007 when MTH wrote to the Engineer to record that the preliminary report it had received had concluded that, subject to Health & Safety Executive approval, it should be possible for MTH to undertake the installation of 12 or 13 (out of 60) of the WTG foundations plus possibly the two substation foundations using the LISA. The Marine Warranty Surveyor, whose approval was a necessary pre-requisite to carrying out the works, was said to be prepared to issue a limited approval for the LISA to operate in this “safe zone” subject to jacking trials being successfully undertaken.[22]By 13 November 2007, a week after the installation of the foundations should have been completed according to MTH’s draft programme, the LISA had not returned to site, nor had the jacking trial been commenced. On that day MTH advised the Engineer that unrelated damage had been observed to the LISA’s hydraulic jacking cylinders during the repairs necessitated by the punch-through incident. The damage took the form of corrosion to the LISA’s hydraulic cylinders and was going to take a long time to repair. It is MTH’s case that the corrosion, the consequent major breakdown and the loss of the LISA constituted another event of force majeure. However for the purposes of the preliminary issues it is assumed that they did not and that MTH was accordingly responsible for any consequent delays.[23]On 16 November 2007 the Engineer sent to MTH a “Variation Request” which stated that E.ON had secured the services of the Resolution and had requested MTH to examine utilisation of the Resolution to install foundations at the Robin Rigg site in order to mitigate delays to the works. The Variation Request asked MTH to provide a detailed description of the work and a programme for its execution, proposals for any necessary modifications to the Programme, and MTH’s proposals for the adjustment to the Contract Price. In doing so MTH was to assume that the Resolution was to arrive on Teesside between 26 November and 6 December 2007 and would depart on 28 January 2008. It was proposed that E.ON should contract direct for the provision of the Resolution operational with marine crew, that MTH should provide supervision on the Resolution, and that MTH should manage and co-ordinate the overall foundation installation operation by the LISA, the Resolution and any other vessels.[24]On 11 December 2007 MTH responded to the Variation Request setting out a new (and protracted) programme for carrying out the remaining work with the LISA only and, in the alternative, indicating that if the Resolution was to be introduced in parallel with the LISA, the Resolution could complete 11 foundations in 27 days with the remaining 51 foundations being completed by the LISA in 182 days.[25]Before that proposal was sent, MTH had formally notified the Engineer on 20 November 2007 that the repairs to the LISA’s hydraulic jacking cylinders were expected to take “several months rather than weeks”. By a further letter dated 26 November 2007 MTH indicated that the repairs would take until mid-March.[26]On 19 December 2007 the Resolution arrived at site and mobilisation commenced. The contractual arrangements were formalised on 21 December 2007 when the Engineer issued VO5. VO5 recorded that ehe Resolution would be on hire to the Robin Rigg Project from 11 December 2007 up to and including 4 February 2008 but that it might be possible to extend the charter. It also stated:
“The Employer has secured the services of the MPI Resolution… . This Variation Order formalises the Employer making available the MPI Resolution and certain project equipment and services to the Contractor for use to install to install (sic) foundations at the Robin Rigg site, in order to mitigate delays to the Works. Deployment of the MPI Resolution partly replaces some of the working time for vessel Lisa A from the scope of the Agreement. … Contractual arrangements shall be as follows: • E.ON contracts directly with MPI for the vessel operational with the personnel and equipment detailed [on an attached sheet]. … • MTH provide supervision on Resolution … • MTH manage/coordinate the overall foundation installation operation by Lisa, Resolution and any other vessels.” • E.ON contracts directly with MPI for the vessel operational with the personnel and equipment detailed [on an attached sheet]. • MTH provide supervision on Resolution • MTH manage/coordinate the overall foundation installation operation by Lisa, Resolution and any other vessels.”
[27]VO5 was sent under cover of a letter from the Engineer to MTH dated 21 December 2007 in which he said that he disagreed with MTH’s proposals to changes to the Contract Price (which had been that there should be an increase in the Contract Price of some €450,000) and confirmed that he would undertake his own evaluation pursuant to Clause 31.3 of the Contract.[28]At a meeting on 18 and 19 February 2008 the parties agreed that the valuation of VO5 would be based upon the time that was saved by the LISA by the provision of the Resolution. It is not alleged that this agreement was binding and it does not represent MTH’s position in the present trial.[29]The LISA returned to site in early May 2008. Before operations could commence, she had to undertake a jacking trial for the installation method to be certified as approved by the Marine Warranty Surveyor. The trial took place between 5 and 10 May 2008 following which the Marine Warranty Surveyor issued a limited Certificate of Approval which permitted the LISA to install foundations only at 37 locations. No approval was given in relation to the remaining 25 locations which were regarded as more hazardous. Furthermore the certificate only permitted the LISA to work between 1 May and 30 September. The consequence of this certificate of approval was that MTH was now in a position to carry out installation of foundations using the LISA but only at limited locations and for limited periods.[30]On 22 May 2008 MTH issued its Progress Report No. 18. It included a revised programme which projected that each foundation installation executed using the LISA would take 3.97 days to install. Adjustments to the weather waiting period were also made.[31]On 22 June 2008 MTH issued its Progress Report No. 19, by which it confirmed that it intended to use the Resolution as an additional installation vessel. A further programme projected that the LISA would be used to install 19 foundations at an average rate of 3.83 days per foundation (ignoring the effect of weather) and that the other foundations would be installed by the Resolution and a third vessel.[32]On 11 July 2008 MTH noted that the average cycle time before the LISA was likely to increase from around two days to in excess of 6 days “depending upon the state of the tide etc”. It recorded that the LISA had become “disproportionately costly for the useful work that could be expected to be achieved by it” and that the Resolution was “considerably better suited to the conditions at Robin Rigg and greatly more efficient in operation”. MTH sought the Engineer’s permission, pursuant to Clause 14.1 of the contract, to remove the LISA from the project.[33]At the end of July 2008 the LISA’s jacking system broke down as a result of operator error. Despite that, the LISA managed to complete the installation of the monopile on which it was working. Thereafter the repairs to the LISA took most of August 2008.[34]The Resolution had arrived back on site on 29 July 2008. On 30 July 2008 the Engineer issued a further variation request seeking MTH’s proposal, pursuant to Clause 31.2 on the Contract, in relation to the use of the Resolution between 29 July 2008 and 28 November 2008. At the same time the Engineer rejected MTH’s request to remove the LISA from site.[35]By a letter dated 29 August 2008, MTH provided a programme to completion which indicated that the Resolution would carry out 58 turbine foundations with the LISA installing two.[36]On 4 September 2008 there was a meeting between the parties’ senior management during which MTH’s proposal to remove the LISA from the project was noted and MTH was recorded as agreeing that the LISA was not “fit for purpose” for the Robin Rigg site. To the same effect, MTH wrote to the Engineer on 5 September 2008 recording that the LISA was “disproportional (sic) costly”. MTH notified the Engineer that it intended to direct the LISA to Belfast where she was to be de-mobilised. On 12 September 2008 the Engineer responded, refusing to consent to the LISA’s removal from site. MTH replied the same day stating that it intended to demobilise the LISA forthwith, notwithstanding the Engineer’s objections.[37]On 27 October 2008 the Engineer issued VO9 which recorded that the Resolution would be on hire to the Robin Rigg project from 29 July 2008 until 5 December 2008. It also stated:
“The Employer has secured the services of the MPI Resolution. This Variation Order formalises the agreed provision by the Employer of the MPI Resolution, and certain project equipment and services, to the Contractor for use to install wind turbine generator foundations at the Robin Rigg site, in order to mitigate delays to the Works. The agreed deployment of the MPI Resolution reduces the work that will be undertaken by the vessel Lisa A. … Contractual arrangements shall be as follows: • MTH retain overall contractual responsibility for design, supply, transportation, storage, handling, and installation of foundations in accordance with the Agreement. … • E.ON contracts direct with MPI for the vessel operational with the personnel and equipment detailed [in an attached document] … • MTH manage/coordinate the overall foundation installation operation by Lisa, Resolution and any other vessels” • MTH retain overall contractual responsibility for design, supply, transportation, storage, handling, and installation of foundations in accordance with the Agreement. … • E.ON contracts direct with MPI for the vessel operational with the personnel and equipment detailed [in an attached document] … • MTH manage/coordinate the overall foundation installation operation by Lisa, Resolution and any other vessels”
[38]VO9 was sent under cover of a letter from the Engineer which said that the effects on the Contract Price of VO9 would be evaluated by the Engineer in accordance with Clause 31.3 of the contract.[39]On the same day the Engineer issued a further “Variation Request” proposing the further use of the Resolution. On 3 December 2008 MTH wrote concerning the Engineer’s approach to evaluation of VO5, VO9 and the recently issued Variation Request. MTH objected to the “cost based” approach adopted by the Engineer and promoted an approach based on savings made by MTH as a result of the provision of the Resolution calculated by reference to the original contract duration of 127.2 days rather then the anticipated actual durations, which by that stage had increased considerably.[40]On 5 December 2008 the Engineer issued VO10. VO10 recorded that the Resolution would be on hire to the Robin Rigg project from 5 December 2008 until 19 February 2009. So far as material it was in the same terms as VO9 as set out at [37] above.[41]By his covering letter the Engineer noted that he did not agree with the evaluation presented by MTH in its letter of 3 December 2008 and said that he would respond more fully to the letter subsequently.[42]MTH’s foundation installation was completed, using the Resolution, on 5 February 2009.[43]The Engineer evaluated the VOs by reference to the cost to E.ON of hiring the Resolution. This led to a deduction of €38,640,779.49 from the Contract Price. It is common ground that this approach was wrong.

The Principles to be Applied in the Interpretation of Commercial Contracts

[44]The general principles of contractual interpretation are well known. The interpretation of contracts is the ascertainment of the meaning which the contract would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract ICS Ltd v West Bromwich BS (HL) [1998] 1 WLR 896, 912H per Lord Hoffmann . The Court’s enquiry will start and usually finish, by asking what is the ordinary meaning of the words used Charter Re v Fagan [1997] AC 313, 348B-C per Lord Mustill ; however, language is flexible and the meaning of words is so sensitive to syntax and context that the natural meaning of words in one sentence may be quite unnatural in another. Thus a statement that words have a particular natural meaning may mean no more than that in many contexts they will have that meaning. In other contexts their meaning will be different but no less natural Charter Re v Fagan (ibid) at 391C-D per Lord Hoffmann . Equally, words and phrases in contractual documents do not usually have one immutable meaning. Often there is more than one meaning available for selection. In choosing the appropriate meaning, the contextual scene is usually of paramount importance Stratton v Dorintal Insurance [1987] 1 Lloyds LR 482, 484 col. 2 per Steyn J. . For these reasons, individual words or phrases in a contract should be interpreted in the context of the contract as a whole.[45]The background knowledge and surrounding circumstances which it is legitimate to take into account include anything which would have been reasonably available to the parties which would have affected the way in which the language of the contract would have been understood by a reasonable man; but the law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent See ICS at 912H-913B, Chartbrook v Persimmon [2009] 1 AC 1101 at [38- 42] . Similarly, evidence about what the parties understood a contract to mean or their obligations under a contract is generally inadmissible for the purposes of interpreting a contract, as is post-contract conduct - though post-contract conduct may be relevant to the question whether a term has been incorporated in the contract or not GNER vAvon [2001] 2 Lloyds Rep 649 at [29] per Longmore LJ . In a commercial contract, it is right that the court should know the commercial purpose of the contract and this in turn presupposes knowledge of the genesis of the transaction, the background, the context, and the market in which the parties are operating Reardon Smith Line Ltd v Hansen-Tangen [1976] 1 WLR 989 at 995 per Lord Wilberforce . It is not necessary to find ambiguity before one can have regard to background when construing contractual wording Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC 1101 at [37]; Oceanbulk Shipping & Trading SA v TMT Asia Ltd & Ors [2011] 1 AC 662 at [36] affirming the statement of Lord Steyn in R (Westminster City Council) v National Asylum Support Service [2002] 1 WLR 2956 at [5] .[46]The position of the parties differed on the circumstances in which regard could be had to the consequences of competing interpretations and, in particular, when and to what extent the Court either can or should have regard to the commercial consequences of an interpretation and whether those consequences are “commercially sensible”. Mr Williamson urged a restrictive approach, relying upon Lord Hoffmann’s propositions 4 and 5 in ICS, which he submits emphasise that people should be held to the terms of their agreement because “we do not easily accept that people have made linguistic mistakes, particularly in formal documents.” He referred to and relied upon the judgment Sir Christopher Staughton (with whom Latham LJ agreed) in Gan Insurance Company Ltd v Tai Ping Insurance Company Ltd (Nos 2 and 3) [2001] Lloyds Rep IR 667 which he submitted imposed a test that was more restrictive and preferable to that offered by Mance LJ in the same case.[47]In Gan v Tai Ping the clause in question did not make grammatical sense and did not have an ordinary meaning: see Latham LJ at [80] and Sir Christopher Staughton at [83]. Sir Christopher Staughton identified alternative meanings, one of which he regarded as contrary to what the parties could have intended as “it would make no sense”. He said that he would have adopted that (nonsensical) alternative meaning if the parties had expressed it in clear terms: but they had not done so. He concluded:
“85 In reaching that conclusion I have not had recourse to what is ‘unbusinesslike’, or to ‘commercial sense’ or even to ‘business commonsense’, which are all frequently invoked since the decision in Antaios Naviera SA v Salen Rederierna AB [1985] AC 191 . Those expressions are a temptation for the court to make a contract for the parties; and it has been said many times that the court should not do that. See for example, Lord Mustill in Charter Reinsurance Co Ltd v Fagan [1996] CLC 977 at p. 984B; [1997] AC 313 at p. 388C. 86 If necessary I would refer, as Lord Mustill did, to what Lord Reid said in Wickman Machine Tool Sales v S Schuler AG [1974] AC 235 at p. 251: The fact that a particular construction leads to a very unreasonable result must be a relevant consideration. The more unreasonable the result the more unlikely it is that the parties can have intended it, and if they do intend it the more necessary it is that they shall make that intention abundantly clear. So far as I am aware that sentiment has not been criticised or reversed.”
So far as I am aware that sentiment has not been criticised or reversed.”[48]At [16], Mance LJ had said:
“Nonetheless, in my judgment the subclause has no very natural meaning and is, at the least, open to two possible meanings or interpretations — one the judge's, the other that it addresses two separate subject-matters. In these circumstances, it is especially important to undertake the exercise on which the judge declined to embark, that is to consider the implications of each interpretation. In my opinion, a court when construing any document should always have an eye to the consequences of a particular construction, even if they often only serve as a check on an obvious meaning or a restraint upon adoption of a conceivable but unbusinesslike meaning. In intermediate situations, as Professor Guest wisely observes in Chitty on Contracts (28th edn.) vol. 1, para. 12–049, a ‘balance has to be struck’ through the exercise of sound judicial discretion.”
[49]Mance LJ’s statement of principle was approved by the Supreme Court in Rainy Sky SA v Kookmin Bank [2011] 1 WLR 2900 at [26] Lord Mance, as he now is, was one of the members of the Supreme Court, all of whom agreed with the judgment of Lord Clarke. . In the Court of Appeal Patten LJ had expressed the view that “unless the most natural meaning of the words produces a result which is so extreme as to suggest that it was unintended, the court has no alternative but to give effect to its terms.” Sir Simon Tuckey had taken what was regarded as a less restricted view, saying:
“If the language of the bond leads clearly to a conclusion that one or other of the constructions contended for is the correct one, the court must give effect to it, however surprising or unreasonable the result might be. But if there are two possible constructions, the court is entitled to reject the one which is unreasonable and, in a commercial context, the one which flouts business common sense.”
[50]The Court rejected the approach which had been adopted by Patten LJ in favour of that adopted by Sir Simon Tuckey. In doing so, Lord Clarke said:
“20It is not in my judgment necessary to conclude that, unless the most natural meaning of the words produces a result so extreme as to suggest that it was unintended, the court must give effect to that meaning. 21 The language used by the parties will often have more than one potential meaning. I would accept the submission made on behalf of the appellants that the exercise of construction is essentially one unitary exercise in which the court must consider the language used and ascertain what a reasonable person, that is a person who has all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract, would have understood the parties to have meant. In doing so, the court must have regard to all the relevant surrounding circumstances. If there are two possible constructions, the court is entitled to prefer the construction which is consistent with business common sense and to reject the other. 22 This conclusion appears to me to be supported by Lord Reid's approach in Wickman Machine Tool Sales Ltd v L Schuler AG [1974] AC 235 quoted by Sir Simon Tuckey and set out above. I am of course aware that, in considering statements of general principle in a particular case, the court must have regard to the fact that the precise formulation of the proposition may be affected by the facts of the case. Nevertheless, there is a consistent body of opinion, largely collated by the buyers in an appendix to their case, which supports the approach of the judge and Sir Simon Tuckey.”
[51]Other authority is to the same effect. In Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749 at 771, Lord Steyn said:
“In determining the meaning of the language of a commercial contract, and unilateral contractual notices, the law therefore generally favours a commercially sensible construction. The reason for this approach is that a commercial construction is more likely to give effect to the intention of the parties. Words are therefore interpreted in the way in which a reasonable commercial person would construe them. And the standard of the reasonable commercial person is hostile to technical interpretations and undue emphasis on niceties of language.”
[52]In the light of this authority, it is possible to summarise the position shortly: i) Where in a commercial contract the words used can be said to have a normal or natural meaning and admit of only one interpretation, the Court will almost always adopt that interpretation even if the result seems unreasonable. However, even in such a case, the often-repeated observation of Lord Diplock in The Antaios recognises that if the interpretation leads to a conclusion that “flouts business common sense it must yield to business common sense.”; ii) In all other cases where the words used admit of more than one interpretation, the Court should consider the implications of the alternative interpretations and should always have an eye to the consequences of a particular construction, even if they only serve as a check on an apparently obvious meaning or a restraint upon adoption of a conceivable but unbusinesslike meaning; iii) What is also clear is that the weight to be given to the implications or consequences of an interpretation will depend upon the clarity of the contractual language and the confidence with which the Court can form a view about whether the consequences of a given interpretation are genuinely uncommercial or otherwise tend to suggest that the parties to the contract did not intend them. In my judgment the Court should always be cautious when invited to take a view about whether consequences of an interpretation are commercially unacceptable or otherwise militate against a particular interpretation. This is for two main reasons. First, the Court will seldom, if ever, know what motivated the parties to agree either the particular terms in issue or the terms of a contract as a whole in the terms that they did – and, even if it did, pre-contract negotiations and aspirations are generally inadmissible as an aid to construction. Second, as Lord Hoffmann said in ICS, the Courts should adopt the common sense proposition that we do not easily accept that people have made linguistic mistakes, particularly in formal documents. Discussion - General The three “limbs” of Clause 31.3

Discussion - General

[53]It is common ground that Clause 31.3 has three “limbs” which may be used by the Engineer when determining the adjustment of the Contract Price: i) The first limb applies if the rates specified in Part L, Schedule L1.3 are directly applicable. The parties agree that they are not directly applicable in this case; ii) Accordingly, the primary case of both parties is that the determination should be in accordance with limb 2, which requires that “suitable rates shall be established by the Engineer reflecting the level of pricing in the Schedule of Rates (Schedule L1.3).” There is no reason why the “suitable rates” to be established by the Engineer should not coincide with those set out in Schedule L1.3, but what is required is that the Engineer should establish suitable rates and that the rates he establishes should “reflect the level of pricing” in Schedule L1.3. This means that the Engineer should have regard to the rates and prices in Schedule L1.3 and establish rates for the limb 2 exercise which are broadly consistent with those rates after making due allowance for the differences that result in their not being directly applicable; iii) Limb 3 applies “where rates are not contained in [Schedule L1.3]” In context it must apply where there is no rate in Schedule L1.3 that can be reflected in a suitable rate for the purposes of limb 2. It is not possible to be prescriptive about when that will be, but an example would be where an additional piece of work involves a process or procedure that is quite different from anything listed in Schedule L1.3 so that it is not possible to identify a suitable rate that reflects those in Schedule L1.3.[54]The identification of three “limbs” tends to suggest that the Engineer must choose one limb only when determining the adjustment to the Contract Price under a particular VO. The submissions of the parties reflected this, with each advancing a limb 2 valuation and a limb 3 valuation. It may well be that, in a given case, this is appropriate; but it is not inevitable on the words of Clause 31.3. The starting point is that the adjustment should be determined in accordance with the Schedule L1.3 Rates if possible. There may, however, be cases where there are some directly applicable Schedule L1.3 rates but there are some items to be valued for which there are no directly applicable Schedule L1.3 rates. In such a case, there is nothing in the contract wording that requires the Engineer to adjust the Contract Price as if none of the Schedule L1.3 rates were directly applicable. The words “if the rates contained in [Schedule L1.3] are not directly applicable tothe specific work in question, suitable rates shall be established …” support the interpretation that, where there is more than one item of specific work and rates in Schedule L1.3 are applicable to one item but not to another, resort to limb 2 suitable rates should be had for the item or items where the Schedule L1.3 rates are not directly applicable, but that Schedule L1.3 rates should otherwise be used. The words “the specific work in question” can reasonably be applied to constituent elements of additional works required to be performed under a VO and, in absence of any contractual indication to the contrary, should be so applied.[55]A similar approach can and should be adopted when considering whether and to what extent limb 3 applies. So the end result may be that the Engineer’s determination includes a mixture of each of the limb 1, limb 2 and limb 3 approaches. The wording of limb 3 raises an additional point. Where the previous two limbs refer to the adoption of rates, limb 3 states that “the amount shall be such as is in all the circumstances reasonable.” Seen in context, “the amount” means the amount of the adjustment to the Contract Price. I return later to what is meant by “in all the circumstances”.

Additions and Omissions?

[56]MTH submitted that Clause 31 and, in particular, the valuation provisions of Clause 31.3 applied where a VO required additions to the Works but was inapt where the VO required omissions. That submission is rejected. First, it is common ground that Clause 31 is the only provision under the contract permitting variation of the Works. That being so, clear words would be required so as to limit the meaning of “Variations” to include additions to but not omissions from the Works. In fact, the contractual definition of “Variation” is general and expressly includes both additions and omissions. Second, Clause 31.1 expressly contemplates that the parties’ agreement or the Engineer’s determination under Clause 31.3 may result in either an addition to or a deduction from the Contract Price. A deduction from the Contract Price implies a reduction in the Works which in turn implies that Clause 31 is apt to cover omissions. Third, Clause 31.3 is the contractual mechanism for valuing all Variations where the parties have not agreed the adjustment to the Contract Price. It must therefore apply both to additions and omissions.

Clause 31.3 – the missing element

[57]The provisions of Clause 31.3 are clear, at least in relation to limb 1 and limb 2, in identifying how rates are to be identified and established. What they do not say is how such rates are to be treated so as to reach the adjustment of the Contract Price. Limb 3 uses different language, which is at least in part because it applies where the Engineer cannot work by reference to rates established by the Contract. However, it has in common with limb 1 and limb 2 that it does not identify what approach is to be adopted in seeking to arrive at the amount that is in all the circumstances reasonable. This missing element is not problematic (and has caused no particular problems in this case) when valuing additional work because the Engineer can either adopt (to a greater or lesser extent) the contractor’s projected costings (which will be the product of rates and projected time for carrying out the work), or he can value independently the work as actually carried out to the extent that it is reasonable to do so. Where the contractor has offered a particular price for additional work which has been accepted by the employer, that will of course determine the adjustment to the Contract Price and Clause 31.3 will not be called upon.[58]With omissions the position is different because the omitted work has not been and will not be carried out. The choice is therefore between adopting the contractor’s original projected price, which will have been incorporated in the Contract Price, or creating a hypothetical calculation based on what would have been reasonable if the work had in fact been carried out. It is this difference and uncertainty that lies at the heart of the present dispute and enables MTH, on the one hand, to argue for a valuation based upon the original contribution of the omitted work to the Contract Price while E.ON, on the other, looks to project what might have happened if the omitted work had in fact been carried out.[59]This missing element has implications for the interpretation of Clause 31.3. The parties and the Court are not confronted by words which are said to bear alternative “natural” meanings. Instead, the Court is required to interpret the clause in the absence of any words stating how rates are to be applied or, by extension, how the “amount” under limb 3 is to be calculated. This suggests that the contractual context will be of paramount importance as it provides the contractual framework within which Clause 31.3 is to be operated.

Discussion - Issues 1 and 2

[60]In contractual terms, what matters is that the VOs instructed MTH to Vary part of the Works, within the meaning of the first sentence of Clause 31.1. As I have said, Clause 31 covered VOs which instructed there to be additions to the Works and VOs which instructed there to be omissions from the Works: but in either event, the jurisdiction granted to the Engineer by Clause 31 was to instruct that part of the Works should be Varied, and nothing else. If one is speaking in general, non-contractual language, it may be profitable to discuss whether what was done was to omit or add to the work or merely to change the method of working. But speaking in general, non-contractual language is positively unhelpful when attempting to construe the terms of the Contract.[61]Reverting to contractual language, I have identified at [16] above how the utilisation of the LISA and its associated spread formed part of the Works. By parity of reasoning, the works associated with the use of the Resolution also fell within the Works, as defined. The effect of the VOs was therefore to omit part of the Works associated with the LISA and to require MTH to carry out additional work in relation to the Resolution which added to the Works. Not only was this the effect of the VOs, it was also what they stated in terms: VO5 said “Deployment of the MPI resolution partly replaces some of the working time for vessel Lisa A from the scope of the Agreement”, while VOs 9 and 10 said “the agreed deployment of the MPI Resolution reduces the work that will be undertaken by the vessel Lisa A.”[62]I would therefore answer Preliminary Issue 1 by altering the wording as follows: In valuing VOs 5, 9 and 10, the varied work should properly be characterised as a Variation (by omission and/or addition) of part of the Works, within the meaning of the first sentence of Clause 31.1 of the Contract.[63]The parties are agreed that the answer to Preliminary Issue 2 is No. I agree.

Discussion – limb 2: Issues 3 to 7

[64]In the course of the hearing, the parties offered various different examples of when Clause 31.3 might be called into operation. What became clear is that there is a spectrum of possible circumstances, each of which will be likely to arise as a result of differing commercial or operational concerns. At one extreme, an employer might decide the day after the execution of the Contract that his financial interests would be best served if his contractor were to be instructed to use alternative or additional equipment that is more efficient (and expensive) than originally provided for in the Contract, in order that all or part of the Works can be concluded and brought into profitable operation sooner so as to enable the employer to capture a particular commercial opportunity. In that case, the intuitive reaction might be that the employer “should” carry the additional financial burden. At the other extreme, an employer might consider that his contractor is seriously in breach of contract and in delay such that, in desperation, the employer requires the same alternative or additional equipment in order to mitigate substantial financial losses that are being caused by the delays. In that case, the intuitive reaction might be different. The permutations between the two extremes may be many and varied.[65]There are a number of reasons why such intuitive reactions are an unreliable guide to contractual interpretation: i) First, Clause 31.3 must have a single meaning which is capable of consistent application across the spectrum of possible circumstances to which it will need to be applied; ii) Second, the circumstances in which Clause 31.3 needs to be applied will involve post-contract conduct by the parties, which is not generally an admissible guide to interpretation; iii) Third, the Court will frequently not know the full reasons why the Variation procedure has been operated. The facts of this case illustrate the point. While there is no doubt that the Works were in delay, the Court does not know why E.ON and the Engineer decided to operate the contractual machinery in the way that they did. This is developed further below.[66]For these reasons, I consider that the circumstances in which a Variation Order could be or is generated should be left out of account when seeking to interpret Clause 31.3.[67]The provisions for Variation form one part of the carefully developed overall Contractual structure, which I have outlined at [9-16] above. That meant that, when the inadequacy of the LISA became apparent, E.ON had a range of contractual options. As Mr Williamson accepted, E.ON could have adopted the stance that the inadequacy of the LISA was MTH’s problem which MTH had to sort out, failing which it would become liable to liquidated damages up to 20% of the Contract Price. If it wished to adopt this stance, E.ON’s hand was strengthened by the fact that the Engineer had issued CMIN1 pursuant to Clause 45.1 at an early stage. The issuing of CMIN1 had three consequences. First, while the Minor Default continued, 2.5% would be withheld from all stage payments. Second, if MTH did not comply with CMIN1 within a reasonable time, it would be in Major Default, which opened the way to termination under Clause 45.2. Third, a persistent failure to improve performance may have enabled E.ON to assert Contractor’s Misconduct, which would open the way to an expanded claim for losses under Clause 42.1.[68]In those circumstances, there were also a number of contractual routes open to E.ON if steps such as the hiring of the Resolution were being contemplated. E.ON asserts in this trial that responsibility for the difficulties arising out of the LISA’s non-performance rested on MTH. For present purposes that appears to be correct. But, whether or not it is correct, it would have been open to the parties to enter into a contractually binding agreement that MTH was to be responsible for the costs of hiring the Resolution, either directly or by agreeing to indemnify E.ON against the costs of hire and any ancillary costs that it incurred. The stronger the perception of the parties that the delays attributable to the LISA were the contractual responsibility of MTH, the stronger would have been E.ON’s hand in negotiations and, at least in theory, the harder the bargain they could have struck.[69]Instead of implementing one or more of these contractual routes, E.ON implemented the VO procedure. It also effected the fundamental change of hiring the Resolution and providing it free-issue, rather than leaving the responsibility for providing all necessary Contractor’s Equipment with MTH. Although the Court has some information about how this came about, it does not know why E.ON acted in this way. Specifically, the Court does not know whether E.ON acted on (privileged or other) advice about its rights and remedies, or whether such advice was correct. Nor does the Court know what financial calculations, if any, E.ON carried out and whether (or why) it concluded that operating the Variation procedure in the way that it did would be more advantageous (financially or otherwise) to it than relying upon its remedies for delay under the Contract.[70]These considerations lead to the conclusion that the circumstances in which VOs 5, 9 and 10 came to be issued are not a reliable guide or aid to interpretation. They also confirm my view that the Court should be very cautious indeed in this case before relying upon the financial consequences that are said to flow from VOs 5, 9 and 10 on one interpretation or another as being a reliable aid, even for the purposes of being a check or restraint upon adoption of an interpretation as being “unbusinesslike”.[71]What is permissible is to recognise that the genesis of this transaction was a major commercial and Engineering project involving two substantial and sophisticated contracting parties. It is also permissible to take the view that the Contract was devised so as to provide a comprehensive statement of the rights, obligations and remedies of the parties. It therefore seems probable that the answer to the competing submissions will be found within the four walls of the Contract itself.[72]What has to be adjusted under Clause 31.3 is the Contract Price; and the adjustment happens because the Works have been varied, either by addition to or omission from the Works that the Contractor originally undertook to do. E.ON is correct to submit that, under limb 1 and limb 2, the Engineer is to refer to Schedule L1.3 and not Schedule L1.1; but that does not mean that Schedule L1.1 is contractually irrelevant to the exercise. The Contract Price was defined as being a fixed lump sum, which means that there were not separate contracts for the carrying out of constituent parts of the Works. However, Schedule L1.1 was inserted to show what sums the constituent parts of the Works there listed contributed to the Contract Price. The contribution of constituent parts of the Works to the Contract Price was also reflected in Schedule L1.4, which provided for payments in stages by reference to completion of particular stages of the Works. It is not possible to effect a precise reconciliation between Schedules L1.1 and L1.4, not least because the parties may have wished to weight payments during the course of the contract in a particular way and because the breakdown of figures in each schedule is at a fairly high level. However, a broad correlation can be seen, which is illustrated by the fact that the total in Schedule L1.1 for installation of all foundations was €22.1 million, while the stage payments under Schedule L1.4 on completion of the installation of the foundations were 16% in aggregate with a further 0.2% on sectional completion of Sections A to D, equivalent to slightly over €16.4 million. I conclude therefore that the Contract recognised the principle that constituent elements of the works made discrete contributions to the Contract Price, even though the precise amount of each contribution was not itemised in Part L and MTH did not provide its detailed price breakdown as part of the contract process.[73]Contractually it was no concern of E.ON’s whether MTH had over-priced or under-priced all or any part of the Works. It would not be surprising if MTH had, knowingly or not, pared some parts of its pricing to the bone (or beyond) and added fat elsewhere. Whatever the process MTH had adopted, it had contracted to carry out all of the Works for the agreed fixed sum, and Schedule L1.1 at least formalised the amounts that had been attributed to the parts of the Works as there set out. Mr Williamson recognised this when he accepted that if the entirety of an item identified in Schedule L1.1 were to be omitted by a Clause 31 Variation, then the sum appearing against that item should be omitted as the appropriate adjustment to the Contract Price. In my judgment, his acceptance was correct because it recognises a basic principle underpinning the Contract: discrete parts of the Works made a discrete contribution to the Contract Price and, if MTH carried out a part of the work, it should be entitled to be paid that part’s contribution to the Contract Price but, if it did not, it should not be paid. Put another way, E.ON’s primary obligation was to pay MTH for the work it did and not to pay it for work it did not do.[74]This basic principle and Mr Williamson’s answer in relation to the omission of complete items from Schedule L1.1 argue strongly in favour of MTH’s position on the proper approach to be adopted to valuations under Clause 31.3. Mr Williamson says that it does not because he submits that the analogy does not hold. I am unable to see why it should not. Once it is accepted that the major items listed in Schedule L1.1 will themselves be made up of constituent parts which generate a contribution to the whole, there seems no reason in principle why, for example, omission of manufacture of all the transition pieces (item 9 on Schedule L1.1) should result in an adjustment of the itemised sum of €36,043,619 but that omission of half of them should ignore the contribution that they made to the €36 million. Because their contribution is not itemised in Schedule L1.1, it may not be possible to identify it with precision; but the Engineer can be required to do his best, using the guidance as to rates and amounts set out in Clause 31.3.[75]E.ON’s alternative approach, which requires the Engineer to adjust the Contract Price by reference to the time it would have taken MTH to carry out the works if they had not been omitted suffers from a number of fundamental objections: i) It is directly contradictory to the principle that parts of the Works had a price which MTH was entitled to be paid if the part was executed but not entitled to be paid if it was not; ii) It ignores the fact that the sums which MTH would be entitled to be paid for executing parts of the Works would be the same, however long it took to execute them. That was so whether MTH had overpriced or underpriced the works. Furthermore, the contractual mechanism for dealing with delay was the application of liquidated damages, which formed part of the detailed contractual structure outlined above for dealing with the consequences of contractual non-performance of all kinds. What the contract did not state or provide was that contractual non-performance should be addressed by adjustment of the Contract Price. In this case, E.ON appears to have a powerful case for saying that MTH had contractual responsibility for the fact that the Contract fell seriously into delay. Assuming that to be correct, the Contract provided for the consequences of the delay to be determined by application of the remedies provided by the Contract and not by adjusting the Contract Price as such. If the VOs had not been issued, the delay may have been even greater, in which case the remedies provided by the Contract would have been applicable, but there would still have been no adjustment to the Contract Price as such. That being so, there seems to be no reason why the issuing of the VOs should have the result that the additional delay which would have been incurred had MTH continued to work with the LISA should be reflected in an adjustment to the Contract Price, particularly when the delay has in fact been avoided; iii) A slightly different approach is that, if the VOs had not been issued and MTH had carried on with the LISA, MTH would have suffered the direct financial consequences of the continued hire of the vessel and ancillary costs, which would have reduced the profitability of the contract for MTH. However, MTH would still have been entitled to be paid the Contract Price, and E.ON would have had to pay it, with its contractual remedies for delay being as outlined above. However, E.ON’s interpretation would have the effect that E.ON’s obligation to pay the Contract Price would be reduced not merely by the amount it would have had to pay if the LISA had carried out the works, but also by the amount of the extended hire which MTH would have incurred if the LISA had continued to be used. This seems wrong in principle since the profitability or otherwise of the Contract for MTH was no concern of E.ON’s. There is, to my mind, no reason why E.ON should benefit from a reduction in the Contract Price by reference to the notional costs of hiring the LISA that MTH might have incurred if the VOs had not been issued, when those costs, if incurred, would not have affected the statement of account as between MTH and E.ON.[76]A further difficulty with E.ON’s interpretation is that it requires the Engineer to conduct an exercise which is at best hypothetical and at worst fictitious. It is hypothetical because the work with the LISA was not carried out and therefore it is not known how things would have turned out if it had been. E.ON seeks to meet this objection by basing its calculations on MTH’s projections of time the LISA would have taken per foundation and extrapolating it forwards. However, as the factual summary set out above shows, MTH’s estimates of time that it would take were constantly shifting, and there is no reason to suppose that the estimate of 3.83 days per foundation given on 22 June 2008 was more reliable than the estimate of 3.97 days per foundation given on 22 May 2008, or vice versa. To the contrary, on 11 July 2008 the Claimant noted that the average cycle time for the LISA was likely to increase to in excess of six days. When asked why E.ON had not based its calculations on that estimate, the only reply given was that perhaps E.ON had been too generous, which is neither compelling nor convincing. In addition, the exercise proposed by E.ON is substantially fictitious since it projects that the LISA would have carried out all the foundation installations. Yet by June 2008 it had been established that the LISA could not have carried out 25 of the locations because the Marine Warranty Surveyor declined to issue a Certificate of Approval in respect of those locations. E.ON had no answer to this save to point to the fact that MTH was contractually obliged to carry out those installations with the LISA by the terms of the Contract. That would be a potent argument in support of a claim for damages for failure to carry out the works if the VOs had not been issued; but it is of no substance when E.ON’s case is based upon assertions about what would have happened if the LISA had been retained, since it asserts something that could not and would not have happened in any event.[77]The uncertainty inherent in E.ON’s approach is shown by the fact that the outcome will be dependent upon when the Variation of the Works occurs. I have just pointed out the shifting assessments of the cycle time in May to July 2008. Earlier in this judgment I noted that Variations might have occurred immediately after the Contract was executed, long before the extended estimates of mid-2008 were available. If the Variations had occurred before any of the LISA’s difficulties became apparent, there would have been no realistic alternative but to resort to MTH’s estimates and draft programming for guidance on the time that the LISA would have taken. Equally, although it seems unlikely to have applied to the LISA, it is readily foreseeable that later and extended estimates of the time to carry out work might be reduced after successful repair or modification of the equipment in question. All of these considerations show that picking a particular date or estimate is likely to be both arbitrary and capricious. This does not fit comfortably in a contractual structure which put in place detailed and comprehensive provisions for dealing with particular contractual outcomes.[78]I have said that the Court should be very cautious before relying upon the financial consequences that are said to flow from the VOs. There is one commercial consideration, however, which is relevant as a check or restraint upon E.ON’s preferred interpretation. E.ON submits that the net deduction from the Contract Price (after additions referable to the use of the Resolution) resulting from its interpretation is €57 million, leaving an adjusted Contract Price of c. €44 million. Yet the Schedule L1.1 breakdown shows that the price for manufacture of the foundations alone was just over €60 million. The effect of E.ON’s interpretation is therefore to reduce the Contract Price to a sum that is less than the price for the manufacture alone. This seems contrary to the principle that MTH was entitled to be paid for the work it in fact carried out, subject always to the availability of the remedies provided by the Contract for non performance.[79]E.ON argues that MTH’s interpretation involves a transfer in the allocation of risk. I disagree. It is correct that the effect of the VOs, on MTH’s interpretation, was to relieve it of the financial consequences that it might have incurred in future if it had been required to complete the contract using the LISA; but this is not a transfer of risk as such and is not objectionable since the purpose of the VOs was to avoid the consequences of further delays attributable to the LISA, which was for the benefit of both parties. The real transfer of risk arose because E.ON elected to hire the Resolution itself without putting in place any mechanism that would transfer the cost of hire to MTH. That is not a matter of which E.ON can complain in these proceedings or which affects the interpretation of the Contract.[80]For these reasons I have come to the conclusion that MTH is correct to submit that what E.ON is attempting to achieve is additional contractual remedies for breach of contract under the guise of adjustment of the Contract Price. MTH’s submissions have the merit of relative simplicity and conformity with the overall contract structure. In my judgment the contractual context is the primary reason for preferring the submissions of MTH to those of E.ON about how the missing element of Clause 31.3 should be supplied. It follows that, under each of the limbs of Clause 31.3, what the Engineer should be seeking to achieve is an approximation to the contribution to the Contract Price made by those parts of the Works which were omitted by the VOs. The reference to the amount of the adjustment being “such as is in all the circumstances reasonable” in limb 3 should be interpreted accordingly: the Engineer has a broad discretion to take into account all circumstances which may reasonably be taken into account for the purpose of determining what was the contribution of the omitted works to the Contract Price.[81]Returning to the Preliminary Issues, Issue 3 reflects MTH’s case and is to be answered in the affirmative. Issue 4 reflects E.ON’s case and is generally to be answered in the negative. However, in assessing the addition to the Contract Price referable to the use of the Resolution, the precise attendant equipment and labour that MTH provided while working with the Resolution falls to be taken into account by the Engineer. Issues 5, 6 and 7 do not arise in the light of the answer to Issue 4.

Discussion – limb 3: Issues 8 to 12

[82]The discussion set out above under limb 2 determines the general approach under limb 3. The consequence is that Issue 8, which reflects MTH’s case, is to be answered in the affirmative. Issue 9, which reflects E.ON’s case, is to be answered in the negative save in respect of 9(f): in assessing the addition to the Contract Price referable to the use of the Resolution, the precise attendant equipment and labour that MTH provided whilst working with the Resolution falls to be taken into account by the Engineer. Issues 10, 11 and 12 do not arise in the light of the answers to Issue 9.

Summary Conclusions

[83]For the reasons set out above, I uphold the submissions of MTH and conclude that the Engineer’s objective in adjusting the Contract Price under Clause 31.3 after a Variation involving omission of part of the Works is to ascertain and deduct the component of the original Contract Price that relates or must be taken to relate to the provision of the LISA.[84]The preliminary issues are answered as follows: i) Issue 1: In valuing VOs 5, 9 and 10, the varied work should properly be characterised as a Variation (by omission and/or addition) of part of the Works, within the meaning of the first sentence of Clause 31.1 of the Contract. ii) Issue 2: No. iii) Issue 3: Yes. iv) Issue 4: No, save that in assessing the addition to the Contract Price referable to the use of the Resolution, the precise attendant equipment and labour that MTH provided while working with the Resolution falls to be taken into account by the Engineer. v) Issues 5, 6 and 7 do not arise in the light of the answer to Issue 4. vi) Issue 8: Yes. vii) Issue 9: No save that in assessing the addition to the Contract Price referable to the use of the Resolution, the precise attendant equipment and labour that MTH provided whilst working with the Resolution falls to be taken into account by the Engineer. viii) Issues 10, 11 and 12 do not arise in the light of the answers to Issue 9. ANNEXE 1 List of Preliminary Issues

ANNEXE 1

[1]In valuing the Resolution Variations (“RVs”), should the varied work properly be characterised as:(a) a change in the method of working; or(b) the omission and addition of work; or(c) in some other way?[2]Does the approach to the valuation of the RVs depend upon whether it was the Claimant or the Defendants who paid the cost of the hire of the Resolution?

Limb 2

[3]In valuing that element of the RVs that constitutes the omission of the LISA under Limb 2, is the Engineer required to:(a) ascertain the component of the original Contract Price that relates or must be taken to relate to the provision of the LISA; and(b) ensure that it (or the rates upon which it is based) reflect the level of pricing in the Schedule of Rates and, if so,(c) deduct it from the Contract Price?[4]In determining the adjustment of the Contract Price in respect of the RVs under Limb 2, is the Engineer entitled to take into account the following matters:(a) the time it would in fact have taken to perform the Works if the LISA had been deployed?(b) the time that it did in fact take to perform the Works with the Resolution?(c) the fact that had the LISA been used, the allowance in the Contract Price would have been exceeded?(d) the precise attendant equipment and labour that the Claimant provided whilst working with the Resolution?(e) the marginal cost increase or decrease to the Claimant resulting from the instruction(s)?[5]If the answer to 4(a) is “yes”, then is the time it would in fact have taken to perform the Works if the LISA had been deployed to be determined by the application of an efficiency factor to the time that the Resolution took to perform the Works?[6]If the answer to 5 is “yes”, are the following matters, to the extent that they are established because they are not admitted by the Claimant, relevant to the determination of that efficiency factor:(a) the superior performance of the Resolution;(b) the impact of the operating difficulties experienced by the LISA in performing the works that had actually been carried out;(c) the impact that the weather would have had on the operation of the LISA.[7]If the answer to any part or parts of questions 4 and 5 is “yes”, do the answers depend upon any of the disputed facts identified in the Statement of Facts, and if so which?

Limb 3

[8]In valuing that element of the RVs that constitutes the omission of the LISA under Limb 3, is the Engineer required to ascertain and deduct the component of the original Contract Price that relates or must be taken to relate to the provision of the LISA?[9]In determining the adjustment of the Contract Price in respect of the RVs under Limb 3, is the Engineer entitled to take into account the following matters:(a) the time it would in fact have taken to perform the Works if the LISA had been deployed?(b) the time that it did in fact take to perform the Works with the Resolution;(c) the fact that had the LISA been used, the allowance in the Contract Price would have been exceeded;(d) the reasons why the Defendants decided to instruct the use of the Resolution in place of the LISA;(e) whether the LISA was capable of performing all the Works in any event;(f) the precise attendant equipment and labour that the Claimant provided whilst working with the Resolution;(g) the marginal cost increase or decrease to the Claimant resulting from the instruction(s).[10]If the answer to 9(a) is “yes”, then is the time it would in fact have taken to perform the Works if the LISA had been deployed to be determined by the application of an efficiency factor to the time that the Resolution took to perform the Works?[11]If the answer to 10 is “yes”, are the following matters, to the extent that they are established because they are not admitted by the Claimant, relevant to the determination of that efficiency factor:(a) the superior performance of the Resolution;(b) the impact of the operating difficulties experienced by the LISA in performing the works that had actually been carried out;(c) the impact that the weather would have had on the operation of the LISA.[12]If the answer to any part or parts of questions 9 and 10 is “yes”, do the answers depend upon any of the disputed facts identified in the Statement of Facts, and if so which?

ANNEXE 2: THE CONTRACT

[1]Part B of the Contract (Form of Agreement) stated:
“WHEREAS i) The Employer wishes to build, own and operate up to 60 wind turbine generators with an electrical output of up to 200 megawatts at Robin Rigg (hereinafter referred to as “the Project”), ii) The Project shall be located at the offshore location of Robin Rigg, off the coast of the Solway Firth, Scotland, iii) The Contractor hereby agrees to undertake to perform the Works in accordance with this Agreement, iv) The Employer hereby appoints the Contractor to complete the Works in consideration for the Contract Price. NOW THEREFORE the Parties hereto agree as follows: Part C, List of Definitions Part D, Conditions of Contract Part E, Commercial Schedules Part L, Schedule of Prices, Payment Profile and draft Programme … Part I, Technical Requirements Part J, Contract Management Park K, Master Programme Annexes …”
NOW THEREFORE the Parties hereto agree as follows: Part C, List of Definitions Part D, Conditions of Contract Part E, Commercial Schedules Part L, Schedule of Prices, Payment Profile and draft Programme Part I, Technical Requirements Part J, Contract Management Park K, Master Programme

Annexes

[2]Part C of the Contract (Definitions) contains the following definitions: “Agreement” means this Form of Agreement between the Employer and the Contractor including the Appendices attached hereto for the execution of the Works; … “Completion” means the completion of all design, manufacture, inspection, testing, transport, erection and installation of the Works by the Contractor in accordance with this Agreement, including the provision of all documentation required by the Employer prior to Taking Over. In this definition, “Completed” and “Complete” shall have corresponding meaning. … “Contract Price” means the fixed lump sum of 101,454,052 Euros… as payable to the Contractor for the execution of the Works in accordance with the Payment Profile in Part L, Schedule L1.4 as may be adjusted from time to time pursuant to this Agreement; … “Contractor’s Equipment” means all appliances or things of whatsoever nature required for the purposes of the Works but does not include Plant. … “Contractor’s Misconduct” means any act or omissionof the Contractor in violation of the rules of diligence that are either fraudulent, dishonest or so reckless as to the potential consequences that no conscientious contractor in the same position and under the same circumstances would have taken the same decision; … “Force Majeure” means any circumstance other than any occurrence covered by the Waiting on Weather Allowance, Part E Schedule E1.8, which is beyond the control of the Parties and could not have been avoided by the use of Good Industry Practice and which results in or causes the failure of that Party to perform any of its obligations under this Agreement, including but not limited to: … (h) major breakdown and/or loss of a Main Item except where such breakdown or loss is due to any misuse or poor maintenance by the Contractor. … “Liquidated Damages” means the liquidated damages to be paid to the Employer by the Contractor under the provisions of Clause 27.1. … “Major Default” shall mean where the Contractor:(a) has failed to comply within a reasonable time with a notice under Clauses 45.1 of the Conditions, to the Engineer’s reasonable satisfaction; or(b) assigns this Agreement or Sub-Contracts the whole of the Works without the Employer’s written consent; or(c) becomes bankrupt or insolvent…(d) is in breach of his obligations under this Agreement in respect of his obligations under Clauses 14.2,15.1 and15.2 of the Conditions in such a manner as to reasonably cause the Employer fundamentally to lose all trust in the Contractor’s ability to perform this Agreement; “Main Item” means any one or combination of the following items of equipment: the jack up vessel, substation lifting barge, hammer, and drill which form part of the Contractor’s Equipment being used by the Contractor to perform the Works. … “Minor Default” shall mean the Contractor’s unsatisfactory performance in discharging its obligations under this Agreement, interpreted by the reasonable opinion of the Engineer, and excluding an Major Default; … “Plant” means machinery, apparatus, materials and all things to be provided under this Agreement for incorporation in the Works; … “Section(s) of the Works” shall mean• Section A shall mean the Completion of 15 Wind Turbine Generator Foundations• Section B shall mean the Completion of 15 Wind Turbine Generator Foundations• Section C shall mean the Completion of 15 Wind Turbine Generator Foundations• Section D shall mean the Completion of 15 Wind Turbine Generator Foundations and 2 offshore substation foundations (including cable decks) plus 1 met mast foundation.• Section E shall mean the Completion of the offshore substation superstructures.• Section F shall mean the Completion of the As Built Drawings. … “Time for completion” is 16th June 2008… … “Variation” means a variation alteration addition or omission from or to the Works in accordance with a validly issued Variation Order and Vary and Varied shall be construed accordingly; “Variation Order” means any written order, identified as such, issued to the Contractor by the Engineer under Clause 31 of the Conditions; “Variation to Contract Price” means the Employer’s written acceptance of any increase or decrease in the Contract Price, issued to the Contractor by the Engineer under Clause 31; “Waiting on Weather Allowance” means the number of Waiting on Weather Days accounted for by the Contractor in the Contract Price; … “Works” means designing, manufacturing, delivering to Site, erecting, testing, inspecting and commissioning the Plant including the Contractor’s Drawings in accordance with this Agreement, all Plant to be provided and all work to be done by the Contactor under this Agreement including work which (although not mentioned in this Agreement) are necessary for the stability or for the completion, or safe and proper operation of the Works.”• Section A shall mean the Completion of 15 Wind Turbine Generator Foundations• Section B shall mean the Completion of 15 Wind Turbine Generator Foundations• Section C shall mean the Completion of 15 Wind Turbine Generator Foundations• Section D shall mean the Completion of 15 Wind Turbine Generator Foundations and 2 offshore substation foundations (including cable decks) plus 1 met mast foundation.• Section E shall mean the Completion of the offshore substation superstructures.• Section F shall mean the Completion of the As Built Drawings.[3]Part D of the Contract (Contract Conditions), includes the following:
“8. OBLIGATIONS OF THE CONTRACTOR 8.1 GENERAL OBLIGATIONS The Contractor shall, in accordance with this Agreement, design, manufacture, test, deliver and install and complete the Works: (i) with due care and diligence expected of appropriately qualified and experienced designers, engineers and constructors (as the case may require); (ii) within the Time for Completion; (iii) providing all necessary Contractor’s Equipment…; 12 CONTRACTOR’S PROGRAMME & EXECUTION PLAN 12.1 PROGRAMME TO BE FURNISHED The Contractor shall submit to the Engineer for approval within eight (8) weeks of the Commencement Date, the Programme which shall provide for each Section of the Works to be completed in accordance with relevant Time for Completion and the initial draft Programme in Part L, Schedule L1.5 and the requirements set out in this Clause and as amplified by the Employer’s Requirements. … … Where the Contractor through its own acts or omissions fails to make available the Programme in accordance with the requirements of this Clause the Engineer shall be entitled to withhold ten per cent (10%) of future milestone payments until the Engineer is reasonably satisfied that the Contractor has submitted a programme that is in accordance with Employer’s Requirements. The Engineer shall provide seven (7) days written notice of its intention to withhold such sums from future milestone payments. 14.1 CONTRACTOR'S EQUIPMENT The Contractor shall provide all the Contractor's Equipment necessary to Complete the Works unless otherwise stated in the Employer's Requirements. All the Contractor's Equipment shall, when brought on to the Site, be deemed to be exclusively intended for the execution of the Works. The Contractor shall not remove from the Site any such equipment, except: (a) when it is no longer required for the Completion of the Works; or (b) when the Engineer has given his consent. …” … 25 COMPLETION 25.1 TIME FOR COMPLETION The Works shall be Completed and shall have passed the Tests on Completion within the Time for Completion. … 26 EXTENSION OF TIME 26.1 EXTENSION OF TIME FOR COMPLETION The Contractor may, after first using Reasonable Endeavours to avoid or mitigate any delay, claim an extension of the Time for Completion if he is or shall be delayed in Completing the Works by any of the following causes: (a) extra or additional work constituting a Variation ordered in writing under Clause 31; … (e) Force Majeure; … … 27 DELAY IN COMPLETION 27.1 LIQUIDATED DAMAGES FOR DELAY IN COMPLETION If the Contractor fails to Complete all Sections A,B,C and D by the Key Date 22 (as set out in Part L, Schedule L1.6) the Contractor shall pay Liquidated Damages as follows: £5,000.00 (five thousand pounds sterling) per day which shall accrue starting from the day immediately following the Key Date 22 and shall continue to accrue until such time as Sections A, B, C and D of the Works have passed the Tests on Completion. … The maximum Liquidated Damages under this Clause is twenty per cent (20%) of the Contract Price. … Such Liquidated Damages shall, without prejudice to the Employer’s rights under Clauses 27, 28 and 45.2, be to the exclusion of any other remedy of the Employer in respect of the Contractor’s failure to Complete within the Time for Completion. … 27.2 PROLONGED DELAY If the Employer has become entitled to the maximum Liquidated Damages under Clause 27.1 he may by notice require the Contractor to Complete the Works. Such notice shall fix a final time for Completion that shall be within such period as shall be reasonable in the circumstances. If the Contractor fails to Complete the Works within such time, and this is not due to a cause for which the Employer or an Employer’s Other Contractor is responsible, the Employer may by further notice to the Contractor either: (a) require the Contractor to Complete the Works; or (b) may himself or by any other contractor Complete at the Contractor’s risk and cost provided that he does so in a reasonable manner; or (c) may agree to accept those parts of the Works that have passed the Tests on Completion and reject those parts of the Works that have not been Completed and shall be entitled to recover all sums paid in respect of those parts of the Works not completed, together with the cost of dismantling the same, clearing the Site and returning such dismantled Plant to the Contractor or otherwise disposing of it in accordance with the Contractor’s instructions; or (d) terminate this Agreement forthwith without prejudice to any other rights of the parties under this Agreement. … 31. VARIATIONS 31.1 ENGINEER’S RIGHT TO VARY The Engineer following consultation with and approval from the Employer may by Variation Order to the Contractor at any time before the Works are Taken-Over, instruct the Contractor to Vary any part of the Works. A Variation Order shall constitute an Engineer’s Instruction. The reasonable cost of preparing information for a Variation by the Contractor shall be deemed to be included in the Contract Price. The Contractor shall not Vary any part of the Works, except in accordance with a Variation Order from the Engineer as set out in Clause 31. 31.2 VARIATION ORDER PROCEDURE Prior to any Variation Order under Clause 31.1, the Engineer shall notify the Contractor of the proposed nature and form of such proposed Variation. As soon as possible after having received such notice and in any event no later than seven (7) days, the Contractor shall submit to the Engineer: (a) a detailed description of work, if any to be performed and a programme for its execution; and (b) the Contractor’s proposals for any necessary modifications to the Programme according to Clause 26.1 [extensions of time] or to any of the Contractor’s obligations under this Agreement; and (c) the Contractor’s proposals for adjustment to the Contract Price. … Following the receipt of the Contractor’s submission the Engineer shall, after due consultation with the Employer and the Contractor, decide as soon as possible whether or not the proposed Variation shall be carried out. If the Engineer decides that the proposed Variation shall be carried out, he shall issue a Variation Order clearly identified as such, in accordance with the Contractor’s submission or as modified by agreement. If the Engineer and the Contractor are unable to agree the adjustment of the Contract Price, the provisions of Clause 31.3 shall apply. Instructions to the Contractor to Vary the Works within the scope of this Agreement shall be given by the Engineer on a standard form entitled “Variation Order” which shall be serially numbered. The Variation Order shall constitute the sole method of authorisation by which the Contractor shall be instructed to vary the Works in accordance with the provisions of this Agreement. The Contractor should ensure that he has received a Variation Order before Varying the Works. Following agreement with the Contractor or determination by the Engineer pursuant to Clause 31.3, of the addition to, or deduction from, the Contract Price attributable to a particular Variation, such addition or deduction shall be evidenced by the issue by the Engineer of a form entitled “Variation to the Contract Price”
. The issue of a Variation to the Contract Price shall constitute the sole method by which the Employer shall recognise an addition to or deduction from the Contract Price in respect of a Variation. … 31.3 DISAGREEMENT ON ADJUSTMENT OF THE CONTRACT PRICE If the Contractor and the Employer are unable to agree on the adjustment of the Contract Price, the adjustment shall be determined in accordance with the rates specified in Part L, Schedule L1.3 Schedule of Rates. If the rates contained in the Schedule of Rates (Schedule L1.3) are not directly applicable to the specific work in question, suitable rates shall be established by the Engineer reflecting the level of pricing in the Schedule of Rates (Schedule L1.3). Where rates are not contained in the said Schedule, the amount shall be such as is in all the circumstances reasonable. Due account shall be taken of any over- or under-recovery of overheads by the Contractor in consequence of the Variation. … 31.5 RECORDS OF COSTS In any case where the Contractor is instructed to proceed with a Variation prior to the determination of the adjustment to the Contract Price in respect thereof the Contractor shall keep records of the cost of undertaking the Variation and of time expended thereon. Such records shall be open to inspection by the Engineer at all reasonable times. 31.6 CONTRACTOR’S RIGHT TO VARY The Contractor may at any time and at its own cost propose a Variation to the Works. Such Variation proposal shall be submitted to the Engineer as Formal Notice clearly marked as a “Variation” and supported by details required pursuant to Clause 31.2. The Engineer shall, following consultation with the Employer, either accept or reject the proposed Variation at its absolute discretion… … 33.1 TERMS OF PAYMENT The remuneration payable to the Contractor in respect of the performance of the Works shall be the Contract Price which shall be paid in instalments in accordance with the payment profile set out in Part L, Schedule L1.4 … 33.2 METHOD OF APPLICATION … Application for payment shall be related to the Completion of Key Events and the expected dates shown for each Key Event. If the Contractor has not achieved the Key Event by the due date, he shall not be entitled to apply for payment until achievement of the Key Event. On either the Completion of the Key Event or the date due, whichever be the later, the Contractor shall make an application for Key Event Payment due in accordance with Clause 33.1. If a Variation to the Contract Price is issued, no attempt shall be made to adjust payments previously made, however unless alternative payment arrangements are agreed with the Employer, when the next payment is due, the invoiced sum shall include the cumulative percentage of the price of the Variation as may then be applicable based on the Payment Profile Schedule (Schedule L1.4) and the balance being payable in accordance with remaining Key Events. Any other application for payment shall state the amounts claimed and the detailed particulars in respect of which the application is made. 33.3 ISSUE OF CERTIFICATE OF PAYMENT Within twenty one (21) days after receiving an application for Key Event Payment, which the Contractor was entitled to make, the Engineer shall issue a Certificate of Payment to the Employer, with a copy to the Contractor. The Certificate shall show: (i) the amount that is due, the Key Event that the Key Event Payment is related to certified as complete by the Engineer and payable by the Employer, with full supporting documentation as reasonably required by the Engineer; (ii) any amount proposed to be withheld and the ground for withholding payment; and (iii) if there is more than one ground for withholding payment, each ground and the amount attributable to it.… … 42 LIMITATIONS OF LIABILITY 42.1 LIABILITY FOR INDIRECT OR CONSEQUENTIAL DAMAGE Neither party shall be liable to the other side under this Agreement for any loss of profit, loss of use, loss of production, loss of opportunity, loss of contracts or for any other indirect of consequential damage that may be suffered by the other, except for (i) such loss of the Employer resulting from the Contractor’s Misconduct; (ii) such loss of the Contractor resulting from the Employer’s Misconduct; and, (iii) as expressly provided in Clause 27. (iv) as expressly provided in Clause 55. 42.2 MAXIMUM LIABILITY The liability of the Contractor to the Employer under this Agreement shall in no case exceed the Contract Price plus the maximum liquidated damages for delay and performance, determined in accordance with Clause 27.1. The liability of the Contractor to the Employer relating to painting systems shall in no case exceed the values stated in Part E, Schedule E1.16 (Paint System Guarantee). 42.3 EXCLUSIVE REMEDIES The Employer and the Contractor intend that their respective rights, obligations and liabilities as provided for in this Agreement shall alone govern their rights under this Agreement. Accordingly, the remedies provided under this Agreement in respect of or in consequence of: (a) any breach of contract; or (b) any negligent act or omission; or … are, save in the case of Contractor’s Misconduct or the Employer’s Misconduct, to be to the exclusion of any other remedy that either may have against the other under the law governing this Agreement or otherwise. … 44 FORCE MAJEURE … 44.2 EFFECT OF FORCE MAJEURE Neither party shall be considered to be in default or breach of his obligations under this Agreement to the extent that the performance of such obligations is prevented by any circumstances of Force Majeure that arise after the Commencement Date. … 45 DEFAULT 45.1 Minor Default In the event of a Minor Default, the Engineer may issue a Contractor Management Improvement Notice detailing with reasons those areas of performance that need improvement. The Contractor shall put right the issues raised in the Contractor Management Improvement Notice forthwith and shall communicate in writing the actions taken to rectify the deficiencies in the contract administration. If the Engineer is satisfied with the action taken then he shall write to the Contractor revoking the Contractor Management Improvement Notice. If the Engineer is not satisfied that the actions taken by the Contractor are adequate to address the issues raised in the Contractor Management Improvement Notice then the Engineer shall be entitled to withhold two point five per cent (2.5%) from all subsequent Key Event Payments until the Contractor Management Improvement Notice is revoked. The Engineer shall provide seven (7) days written notice of its intention to withhold such sums from subsequent Key Event Payments. The Contractor shall not be entitled to claim for additional costs (whether by adjustment to the Contract Price or otherwise) or an extension to Time for Completion for any delays and or additional resources caused by the Contractor addressing issues raised in a Contractor Management Improvement Notice. … If the Contractor is not executing the Works in accordance with this Agreement or is neglecting to perform his obligations hereunder so as to seriously affect the carrying out of the Works, the Engineer may give notice to the Contractor requiring him to make good such failure or neglect within such period as shall be reasonable in the circumstances. 45.2 Major Default In the event of a Major Default, the Employer may terminate this Agreement upon seven (7) days’ notice. Any such termination shall be without prejudice to any other rights or powers of the Employer, the Engineer or the Contractor under this Agreement. The Employer may upon such termination Complete the Works himself or by any other Contractor. The Employer or an Employer’s Other Contractor may use for such Completion any Contractor’s Equipment which is on the Site at no cost to the Employer. Otherwise the Contractor shall be granted a reasonable period to remove Contractor’s Equipment from the Site.[4]Part I of the Contract includes the following: “1.5. Items Included in the Works The Works shall include, but not necessarily be limited to, the following list of items that must be included in the Works. The Contractor shall include for any work which, although not mentioned in this Agreement, are necessary for the stability, completion, or safe and proper operation of the Works. … 1.5.4. Transportation & Installation Transportation and installation in accordance with Part I, Section 14 shall include the following: 20. Transport of WTG…foundation structures…to the site. … 24. Installation at the specified site locations of WTG and Met Mast foundation structures including all mechanical systems and components. … 26. Mobilisation of all necessary construction plant to complete the Works. …

Transportation and installation in accordance with Part I, Section 14 shall include the following:

[5]The Master Programme provided under Part K of the contract showed the installation of the foundations to be carried out between early June and November 2007. The more detailed draft programme under Part L provided for them to be installed in sections between 16 June and 5 November 2007, a period of 142 days. Other provisions show that this period of 142 days was made up of 104 days installation with a Waiting on Weather allowance of 38 days. …[7]Part L of the Contract includes the following: L1.1 Segregation of Price Item No. Work Breakdown Total (Euro) 6 Manufacture of all MP 23,964,475 7 Transportation of all MP (including mobilization/demobilization) 3,598,295 9 Manufacture of all TP (including appurtenances) 36,043,619 10 Transportation of all TP (including mobilization/demobilization) Included in 7 11. Installation of all TP (including mobilization/demobilization) Included in 8 16 Wait on Weather Allowance 3,578,593 (1) By Schedule L1.1:
"L1.1 Segregation of Price … Total (Euro) 8 Installation of all MP (including mobilization/demobilization) 22,104,888 … 11 Installation of all TP (including mobilization/demobilization) Included in 8 … 16 Wait on Weather Allowance 3,578,593" (2) By Section L1.3: "
L1.3 Schedule of Rates Contractor to provide details of labour rates that will be used for the evaluation of Variation Orders as follows: … Materials, Plant and Sub-Contract Work Mark Up Percentage to be added to the actual cost by the Contractor for the provision of material, plant and specialist Sub-Contract services Materials 10.0% Plant 10.0% Sub-Contract Services 8.4% The following rates should be submitted in addition to the hourly rates requested above. Item No Category of Plant Rate (EURO/unit) 1 Day rate for foundation installation vessel spread – operational 150,000 /day … 4 Day rate for onshore facility i.e. Plant, Personnel, Office, etc 13,600 /day 5 Day rate for Pile Upending Spread offshore if not part of the installation vessel's base structure i.e. Hydraulic Trailers, Upending Tool, Strand Jacks, Winches etc. including supervisor(s), riggers Included in 1 … 7 Day rate for Grout Spread including supervisor(s), riggers Included in 1 … 10 Day rate for support/supply vessels, if more than one please specify below (excluding equipment and personnel) Crew Vessel 1,500 /day Coaster 10,950 /hour … Tug boat (BP 20 Tonne) 6,850 /day … It is common ground that the reference in Section L1.3 of Part L of the Contract to the rate for a Coaster of €10,950 per “hour” is an obvious mistake and upon a true construction of the Contract the contractual rate for a Coaster is €10,950 per day. (DCC/11; RDCC/4) L1.4 Payment Profile Stage payments against Key Events Event No. Description Anticipated Event ID and date Payment (% of Agreement Cumulative (% of Agreement Price) ID Date