Factual and Procedural Background
The Claimants ("Company A") made three disruption and prolongation claims against the Defendant ("Company B") arising from the onshore laying of a thirty inch gas export pipeline in the Shetland Islands, Scotland. Initially claimed at around £10 million, the claims were reduced to approximately £8 million by closing submissions. Company B denied the claims and counterclaimed repayment of interim payments made to Company A.
Company B was the principal contractor engaged by a third party ("The Company C") for offshore and onshore pipeline works as part of a gas field development. Company B subcontracted Company A to perform procurement, supply, construction, installation, flooding, cleaning, gauging, testing, and certain onshore works related to the gas export pipeline, specifically under Works Package 10 ("WP10").
The pipeline route ran from the Shetland Gas Plant to Firths Voe, crossing two existing pipelines owned by separate entities. The total onshore pipeline length was approximately 5.7 kilometres.
Company A consisted of two companies: one with generally positive performance evidence, and the other with negative performance evidence and claims that were largely unsupported and exaggerated. The claims related to three main issues: unforeseen ground conditions requiring a wider embankment than planned; failure by Company B to obtain permission for temporary crossings over existing pipelines; and additional supervision costs due to delayed supply of equipment, specifically a beach valve and cabin.
The works began in September 2011 and the mainline works were completed in September 2012, with the beach valve area significantly delayed until July 2014.
The dispute involved detailed contractual provisions, extensive contemporaneous documentation, witness evidence from both parties, and expert reports on quantum. Company A’s claims were challenged on credibility, factual support, compliance with contractual notice provisions, causation, and valuation methodologies. Company B’s evidence was generally found more reliable, and their quantum expert’s valuations were preferred.
Legal Issues Presented
- Whether Company A is entitled to claims for disruption and prolongation arising from unforeseen ground conditions under the contract.
- Whether Company B breached its contractual obligations by failing to obtain permission for temporary crossings and causing delay in the provision of proximity agreements for permanent crossings.
- Whether Company A complied with contractual notice requirements for its claims.
- The proper valuation method for any proven claims under the contract’s change order provisions.
- Whether Company A is entitled to additional supervision costs related to delayed beach valve works.
Arguments of the Parties
The opinion does not contain a detailed account of the parties' legal arguments.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| Obrascon Huarte Laine SA v Her Majesty's Attorney General for Gibraltar [2015] EWCA Civ 712 |
Unforeseen ground conditions and the reasonable foreseeability test for contractors. |
The Court applied the principle that an experienced contractor would not rely solely on pre-contract geotechnical reports but would reasonably foresee variable ground conditions. The Court upheld the rejection of a claim based on unforeseen ground conditions where the contractor could have reasonably foreseen them. |
| Liverpool City Council v Irwin [1977] AC 239 |
Test for implying terms into contracts. |
The Court applied the established test for implied terms and found that the contract could operate without any implied term entitling Company A to build a narrower stone road rather than an embankment, undermining the claim based on an implied term. |
| London Borough of Merton v Stanley Hugh Leach Ltd (1985) 32 BLR 51 |
Implied terms regarding employer cooperation, hindrance and prevention. |
The Court acknowledged the existence of such implied terms but found they were not relevant to claims based on unforeseen ground conditions, which were governed by express contract terms. |
Court's Reasoning and Analysis
The Court began by examining the contractual framework, focusing on Articles concerning work conditions, change orders, work time schedules, and obligations to obtain permits.
Regarding the claim for unforeseen ground conditions (Claim 3), the Court applied the principle from Obrascon that an experienced contractor is expected to foresee variable ground conditions beyond pre-contract reports. It found that the ground conditions encountered, including deeper peat pockets, were reasonably foreseeable. Company A’s claim failed because it could not show the conditions were different from those described in contract documents, nor that the conditions substantially modified the scope or price.
Company A’s failure to provide timely and adequate contractual notices under Article 22 disentitled it from claims arising from unforeseen ground conditions.
The Court found that Company A had no contractual entitlement to build a narrower stone road in the Southern section; the method and embankment width were matters for Company A’s discretion. The claim for a design change (Claim 1) was abandoned and found hopeless.
On the issue of temporary crossings and proximity agreements (Claim 2), the Court distinguished between temporary crossings (a matter for Company A’s temporary works and subject to permission which Company B had to seek but could not guarantee) and permanent works requiring proximity agreements (which were Company B’s contractual responsibility).
The Court found that Company A failed to request permission for temporary crossings in good time and did not provide necessary information, limiting Company B’s liability. The absence of permission for temporary crossings did not cause significant delay or disruption, and no valid contractual notice was given for this claim.
Conversely, the delay in obtaining proximity agreements for permanent crossings was Company B’s responsibility, with valid notice given. However, delay and disruption caused by this were limited to specific line items.
Regarding causation, the Court found that many delays were caused by Company A’s own defaults, including poor performance and inadequate resources, rather than the claimed causes. The contemporaneous documents and witness evidence supported this conclusion.
On valuation, the Court preferred Company B’s expert’s approach, which emphasized lump sum adjustments and fair and reasonable rates over Company A’s expert’s unsubstantiated and inconsistent valuations. Many claims were dismissed or valued at nil due to lack of evidence or failure to comply with contractual valuation procedures.
The claim for additional supervision costs related to the beach valve (Claim 4) was rejected on the basis that contract rates already included supervision, and no contractual basis existed for additional payments.
Holding and Implications
DISMISSED: The Court dismissed Company A’s claims for unforeseen ground conditions (Claim 3) and for failure to obtain permission for temporary crossings (part of Claim 2), due to failure of proof on liability, causation, notice, and valuation.
UPHELD IN PART: The Court upheld Company A’s claim relating to delay caused by the late provision of proximity agreements for permanent crossings (part of Claim 2), awarding a net sum of £333,226.52, subject to ongoing dispute over certain interim payments.
DISMISSED: The claim for additional supervision costs related to the beach valve (Claim 4) was dismissed in full.
Financially, the Court ordered Company A to repay approximately £1.9 million to Company B in respect of overpayments on Claims 1 and 3, and a net repayment of approximately £589,000 in respect of Claim 2, after accounting for interim payments. The decision does not establish new precedent but clarifies the application of contractual provisions on unforeseen ground conditions, change orders, notice requirements, and the allocation of risk in complex construction contracts.