Case No. 0LS79020

(ii) How would the Trust have benefited from having a signed contract?(iii) Does TTPM have the benefit of an effective limitation clause? (i) What were the chances of Kier signing the contract? 150. I find that, if TTPM had discharged its duty, there was a two-thirds chance that Kier would have signed the contract (including the liquidated damages provision) and a one-third chance that matters would have turned out much as they did, viz. with works proceeding throughout without a contract. Although it cannot be said that there was literally no chance that Kier would have walked off site and the Trust would have had to find a new contractor, I regard the chance of that having happened as minimal; to the extent that such a chance might have existed, I do not regard it as substantial enough to warrant a specific allowance, having regard to the necessarily broad approach involved in the assessment of the chances of having or failing to have a contract. There is no good reason to suppose that any of the matters identified by Kier and TTPM as standing in the way of a contract were intractable. As explained below, I reject the contention that Kier had unexpressed reasons of its own for being unwilling to sign the contract. It remains possible that, when concentrated efforts were made to finalise the contract, some previously unidentified problem would have been identified and would have prevented the parties concluding the contract within a short timescale. In such circumstances, the strong probability is that the matter would have proceeded in much the way it did, with continuing efforts to resolve the outstanding issues. Only an unrealistic caricature of the appropriate stance for TTPM to have taken, coupled with a failure to appreciate that the parties would necessarily have remained responsive to changing circumstances, would militate against that conclusion.151. Kier does not appear to have had any objection to the liquidated damages provision in itself. In November 2003 Kier had said that it wished to agree that the liquidated damages (that is, per week) did not exceed 1% of the contract price. For the Trust, TTPM had made clear that the level of liquidated damages was not open for negotiation. Kier did not raise the matter again in discussions with TTPM. When Kier wrote in connection with the contract documents on 23rd July 2004 (paragraph 52 above) it mentioned “the two-week LAD-free period” but said nothing about the liquidated damages themselves; it is a reasonable inference that Kier was not proposing to argue further about the level of liquidated damages. As Mr O’Callaghan accepted there appears to be nothing in Kier’s internal documents to show that the level of liquidated damages was regarded as a sticking-point.152. The real question is whether, at a time when the parties might otherwise have been able to execute the contract, Kier was or would have been unwilling to execute it on the ground that the contract would be against its commercial interests—whether because of its exposure to the risk of being liable for liquidated damages or for some other reason.153. The argument raised by TTPM is that at all material times Kier had one reason or another that would have prevented it from signing a contract. Until about the end of May 2004 there were a number of issues that, although resolvable in principle, could not by then have been resolved: the need for evidence of the Trust’s funding arrangements; AIB’s request for a warranty from Kier; warranties and conditions of appointment between Kier and the design consultants. From about the end of May 2004, however, Kier was sufficiently aware of problems with the H5 works that it was looking for reasons to avoid signing the contract and would have been unwilling to sign the contract, because the risk of liability to pay liquidated damages would have been too great.154. TTPM’s case in respect of this latter period was supported by evidence from Mr Hinchliffe. He expressed the opinion that by June 2004 the delays with the works were such that Kier would have been unwilling to execute a contract on the terms proposed by the Trust; any contract that Kier would have accepted would have been on terms that would have been less favourable to the Trust than the terms it eventually achieved at the mediation. 155. Mr Hinchliffe mentioned in particular the fact that, having previously approved a re-design of the housemasters’ building that excluded the steel frame from the construction, in April 2004 Shire had provided to Kier a revised design that provided for the introduction of additional steel. Mr Hinchliffe saw this as the reason why, after Kier had appeared close to signing the contract in early May 2004, it then failed to do so and sought instead further letters of intent. It was significant that Kier’s internal site reports began to show significant delays from about this time; the report for 18th May showed that the works were 2 ½ weeks behind schedule, whereas that for 21st June showed that, although the main building was only 1 ½ weeks behind schedule, the housemasters’ building was 10 weeks behind. By July the recorded delay on the housemasters’ building had increased to 12 weeks, and thereafter matters grew worse. Mr Hinchliffe’s conclusion was as follows: “[H]ad a commercially astute contractor such as Kier been in a position to execute the contract [it] would not have done so on the basis of the terms currently on the table. I consider that, had Kier entered into a single stage design and build contract, at any time from late May 2004 onwards, it would have been, as a minimum, on the basis of an additional payment for 12 weeks prolongation costs plus relief from 12 weeks LADs. By mid September … there were major delays with sub-contractors on the main block on cladding and curtain walling, M&E, plasterwork, joinery and decorations. By this time the factors for and against signing the contract were only tipped further against Kier being willing to sign. I consider the detriment to Kier far outweighed any discernible benefit.”156. This evidence gained support from Mr O’Callaghan. He expressed the view that by the summer of 2004—in cross-examination he suggested that he had in mind a date earlier than August but was reluctant to be specific—Kier’s board of directors would have been “very cautious” about entering into the contract, even if all other issues had been resolved, because there was a possibility of delayed completion and even one week’s delay would have resulted in Kier’s entire profit on the works being wiped out. Similarly, Mr O’Callaghan laid significant emphasis on the reintroduction of steel into the design of the housemasters’ block as a factor that would have affected the timetable for the execution and completion of the works and would have made Kier unwilling to execute a contract unless it incorporated an extension of time for completion of the H5 works.157. I am not persuaded that there is significant merit in these contentions. Some preliminary observations are relevant. First, Mr O’Callaghan’s evidence was to the effect that it would always be a priority for Kier to have a contract rather than to proceed with letters of intent and that, if Kier “owned” the problems that had arisen under letters of intent (by which I think he meant had responsibility for them), it would still in the “vast majority” of cases be prepared to “live with” the difficulties and sign the contract. Second, Mr O’Callaghan was keen to deny any suggestion that Kier was given to “slippery” behaviour or that those acting for Kier in 2004 were at all likely to have engaged in such behaviour. Kier’s approach might be pedantic and even difficult, but it was not disingenuous or lacking in good faith. I have seen nothing in the evidence before me to lead me to any different conclusion. Third, Kier’s stance in its communications with TTPM was that it remained committed to signing the contract, albeit that particular issues—primarily warranties at first and the dispute concerning consultants’ fees later—were holding matters up. I do not consider that the evidence justifies a finding that this was a smokescreen for an unwillingness to sign the contract at all or that Kier, a reputable construction company, was acting in bad faith.158. Mr O’Callaghan’s evidence that Kier would have been cautious about signing a contract from summer 2004 onwards has itself to be viewed with some caution. He became involved only in the summer of 2005, specifically with regard to the efforts to resolve the dispute that led to the mediation. In that respect he was instrumental in putting together Kier’s case for an extension of time and additional payment. Part of the work involved commissioning a retrospective programme analysis from Driver Consult, which concluded that the delay in practical completion was due in large measure to the reintroduction of steelwork into the housemasters’ block. That conclusion formed the basis of Kier’s stance at the mediation, in which Mr O’Callaghan was closely involved. However, as Mr Bowdery observed, one must be careful not to look through the wrong end of the telescope. Driver Consult’s analysis did not inform Kier in 2004, whatever may be its merits.159. In my judgment, the contemporary documentation produced by Kier indicates that there is no good reason to suppose that Kier would have considered it to be against its commercial advantage to execute the contract at any time before September 2004. Two categories of document are of particular importance. The reports of Kier’s site team’s monthly “production meetings” monitored progress and programming issues and were prepared by those involved in the project on site. The contract review meeting reports were also primarily the responsibility of the site management team and would contain the input of the contracts manager, the project manager and the managing quantity surveyor, but they were discussed at board level with the construction director, the commercial director and the managing director.160. The reports of the production meetings record fairly clearly that until September the site team considered the project on track for completion by the proposed contractual completion date. Delays were recorded, in particular with regard to the housemasters’ block; but these delays had minimal reference to the critical path for completion, and in July the report engaged in some re-programming in order to bring the housemasters’ block back in line with the rest of the works. It was in September that a delay to the completion date was identified. As for the contract review meeting reports, these remained relatively positive throughout the relevant period; although the report for September, when taken in conjunction with the delays forecast in that month’s report of the production meeting, was sufficient to indicate that the contract would no longer be commercially attractive to Kier.161. Mr O’Callaghan was disinclined either to accept the reports of the production meetings at face value or to conclude that they provided a proper guide to the view that Kier’s board of directors would have taken when presented with a request to sign a contract. I did not find his evidence on this point convincing. In cross-examination he questioned whether the reports represented anything more than a “statement of intent” and said that he suspected that those responsible for the reports “knew they’d got a bigger problem on than they would commit to paper”. He suggested that the site team was sitting “on the fence” because it was unwilling “to be the bearer of bad news to [the] board of directors”. In fact, the reports do not “sit on the fence”, unless by that is meant that they do not identify delays to completion which Mr O’Callaghan, with his knowledge of the Driver Consult analysis, thinks they ought to have identified. Nor is it clear why the site team should have failed to acknowledge apparent programming problems, in circumstances where the worst possible outcome would be for Kier to assume unrealistic contractual obligations because the site team had ignored reality. The clear inference to be drawn from the reports is that until September 2004 those responsible for carrying out the works considered that the project could be completed on time. 162. I am also not persuaded by Mr O’Callaghan’s contention that the optimism shown in the production meeting reports would not have got past Kier’s board. The contract review meeting reports, which were considered at board level, do not betray any awareness that the project was heading for the rocks. One of the people instrumental in the production of the reports was Simon Phillips, the managing quantity surveyor. When it was put to Mr O’Callaghan that the reports were presumably a fair reflection of Mr Phillips’ perception of where the project was, month by month, Mr O’Callaghan answered: “I’m afraid I would—I go back to what I said earlier. I think Simon—and I know Simon—is sitting on the fence. If I had been there, I would have looked at this and said, ‘This doesn’t stack up to me. You are not reflecting the true level of risk here,’ because the flags are already there before this report. They’re already saying we are getting into delays and he’s not factoring that. He’s just—he’s excluding that from his report to give himself probably—to enable himself to sit on the fence, is my view of this.” In fact, delays had been identified; the complaint apparently is that they were not reflected in the projected completion dates. But that is to ignore the fact that the identified delays were not thought to impact on projected completion. Why Mr Phillips should wish to ignore the true level of risk is unexplained and remains unclear to me, particularly as Mr O’Callaghan’s apparent belief is that Kier was not responsible for the delays. And I view with scepticism Mr O’Callaghan’s claims as to what he would have done had he been present: as a matter of fact, the directors who were present did not do what he says he would have done; and his views on the hypothetical situation are informed by Driver Concept’s analysis which, it appears, was obtained at a cost of up to £30,000 but was not available to Kier in 2004.163. Dr Aldridge analysed Kier’s documentation and disagreed with Mr Hinchliffe’s conclusions. In his opinion, the documentation showed that as late as September 2004 Kier expected no more than a four-week delay, for which it believed it had a good case for an extension of time. It was accordingly unlikely that concern over delay would have prevented Kier from signing a contract until October, when indeed it became aware of more significant delays for which no extension of time was to be expected. He disagreed fundamentally with Mr Hinchliffe regarding the relevance of the reintroduction of steel into the design of the housemasters’ block. Although Kier later claimed that this design alteration was of critical importance, it was in fact not a cause of actual delay at all and—as Mr Hinchliffe himself acknowledged—was not identified as a cause of delay in any of Kier’s contemporaneous documents; the delays mentioned in Kier’s internal reports for June and July related to slippage in the programme but not to delay of the final completion of the works in their entirety. 164. On these matters, Dr Aldridge’s analysis of the position as it stood in 2004 appears to me to be more consistent with the evidence than does that of Mr Hinchliffe and Mr O’Callaghan. I find that even in September 2004 Kier would probably have been willing to sign a contract in September, because it believed that it could justify the modest predicted delay to completion. In October Kier’s perception of the likely delays had significantly altered and it would probably not have signed a contract without substantial renegotiation of its terms. 165. Mention may be made of other arguments that were adduced to show that Kier would have been unlikely to sign the contract.166. First, recognising (I think) in the course of cross-examination that Kier’s internal records did not contain any expressions of awareness that delays made it unwise to sign the contract, Mr Hinchliffe suggested that there was a perceptible change of tone in the emails being sent to TTPM by Kier after May 2004. Although programming issues are properly within the scope of expert evidence, questions regarding the tone of emails and the recognition by Kier that a contract would be disadvantageous to it are matters of fact for the court. I do not consider that there is any relevant change of tone in Kier’s communications or that the terms in which it wrote to TTPM reasonably lead to the conclusion that it had decided not to sign the contract.167. Second, Mr O’Callaghan raised the question of the additional costs referable to the reintroduction of steel into the design of the housemasters’ block. That is not a matter that prevented Kier from continuing with the works under the letters of intent, including the final letter of intent to the full value of the contract. It might also be thought somewhat remarkable that TTPM should now identify a supposed impediment to the execution of the contract which they had failed to identify during the period to which the Trust’s claim relates, in circumstances where it would have been to Kier’s advantage to mention the suggested problem and not to remain silent about it. Although it is possible that increased costs of construction of the housemasters’ block would have impeded the execution of a contract, I have not been persuaded on the evidence that it was likely to do so.168. Third, some limited reliance was placed on Mr Bryan’s oral evidence that at the mediation in 2005 Kier had stated that it had taken a commercial decision not to execute the contract. Mr Bryan was uncertain and vague in that recollection and I have no hesitation in finding that Kier did not say any such thing, at least if it amounted to confirming that during 2004 it had only pretended to be desirous of executing the contract while in fact having decided not to do so. Mr Bryan’s evidence on the point was not given with confidence as to his recollection. There is no documentary evidence to support it. No other witness who attended the mediation had a similar recollection, although it is to be expected that they would have done so if Kier had said what is alleged, as it would have been a striking position to adopt at a mediation. And Kier itself would have had no obvious reason to make such a statement, which would have been irrelevant to any position it could have wished to advance at the mediation and would have served to confirm in the Trust and TTPM any suspicions of Kier’s bad faith. 169. Fourth, it was said that Kier’s failure to sign the contract promptly for more than two years after the mediation settlement is clear evidence that nothing TTPM could have done would have been at all likely to induce Kier to sign a contract during the currency of the H5 works. I am not persuaded by that argument. The situations were very different and are not properly comparable. In the events that happened, the parties had an adversarial dispute, there was no ongoing commercial relationship and the contract was ultimately signed pursuant to a compromise agreement. Kier’s delay in those circumstances is not a good guide to its willingness to sign a contract in an ongoing commercial relationship, particularly when I reject, as I do, the suggestion that Kier was in anything other than good faith with regard to the intention to sign a contract. Further, it is apparent from the evidence of Mr Marsh that there were some genuine issues to be resolved in the aftermath of the mediation and that what he saw as Kier’s “opportunism” was not the sole reason for continuing delay.