Aberdeen Harbour Expansion Project subcontractor establishes breach of contract by main contractor
A subcontractor involved in the Aberdeen Harbour Expansion Project has succeeded in establishing that the main contractor of the project breached the terms of their contract by omitting work within the scope of the subcontract and transferring it to other companies.
The pursuer, Van Oord UK Ltd was the subcontractor of Dragados UK Ltd, the main contractor for the AEHP. It also argued that the compensation mechanism for loss of work was misinterpreted by the defender as it related to breach of contract.
The case was heard in the Outer House of the Court of Session by Lord Tyre.
The scope of the subcontract, which was entered into in March 2018, included soft dredging works and the filling of caissons. The subcontract incorporated the standard form NEC3 subcontract conditions, including inter alia the core clauses, the clauses for main Option B, and the Shorter Schedule of Cost Components, set out in the NEC3 engineering and construction subcontract, as amended.
The defender sometimes instructed the omission of work falling within the scope of the subcontract, which was transferred to one of two other subcontractors, WASA Dredging UK Ltd and Canlemar SL. The scope of both other contracts overlapped with that of the defender’s subcontract with the pursuer. Prior to contracting with the pursuer, the defender did not tell the pursuer of its intention to include that area of soft dredging works in its subcontract with either WASA or Canlemar.
In terms of the NEC3 contract, each omission of works constituted a compensation event, done under reference to a defined cost. This resulted in a reduction of the total amount payable to the pursuer for the works it still had to carry out under the contract, with the reductions given effect by reductions in the bill payable by the defender for the pursuer’s remaining work.
The pursuer submitted that the defender was not entitled to transfer work falling within the scope of the subcontract to other parties, and was therefore in breach of contract. It argued that no provision of the contract permitted such a transfer, and the clause (14.3) which allowed the defender to specify any works to be omitted did not apply here. The pursuer also sought declarator that the defender was not entitled to reduce the sum payable for work in the manner in which it did.
A third issue relating to wave measurement was also considered. All three issues were previously the subject of adjudications, which were decided largely in favour of the defender. The parties issued notice of dissatisfaction with the adjudications, thus making the issues determinable by the court.
Matters require proof
In his opinion, Lord Tyre first addressed the issue of transfer of work, saying of the relevant contractual clauses: “In my opinion those clauses do not amount to a clear contractual entitlement to omit works and transfer them to another subcontractor, except in the circumstances in which omission of work is permitted by the second and third sentences of clause 14.3. It is not suggested by the defender that those circumstances subsisted at the time of any of the defender’s Contractor’s Instructions.”
He continued: “The defender also, however, has averments (denied by the pursuer) that, at least in relation to caisson filling, it had wished the pursuer to carry out the works but the pursuer had refused to do so. The defender also has averments that the pursuer co-operated with and facilitated transfer of works to WASA; this, as I understand it, is the basis of the defender’s plea of acquiescence.”
He concluded on this matter: “Those matters would require proof and would, at this stage, appear to preclude the granting of the declarator sought by the pursuer that all of the various Contractors’ Instructions and relative compensation event notices were issued by the defender in breach of contract. I shall, however, hear any further submissions that parties wish to make on whether, in the light of my decision, the question of acquiescence remains a live issue and, if so, what order should be made at this stage.”
Regarding the consequences of the breach of contract, he said: “There is nothing unusual about a compensation event consisting of a breach of contract. It would therefore be surprising if different rules applied to valuation of breaches of contract and to valuation of other compensation events.”
He continued: “It would be equally surprising if different rules applied to valuation of breaches of contract effected by the giving of an instruction and to valuation of other breaches of contract. In my opinion the pursuer’s contention that the reference in clause 61.1 to the employer giving an instruction applies only to the giving of a valid instruction must be rejected.”
He concluded on the matter: “I do not consider that the pursuer’s argument based on clause 10.1 adds anything to what has already been discussed. For a breach of clause 10.1 to have practical consequences, it would have to fall within one of the categories of compensation event in clause 60.1: presumably clause 60.1(18) if nothing else. Any such breach would thus be brought into the compensation event mechanism in the usual way.”
For these reasons, Lord Tyre concluded firstly that the defender was in breach of contract, inviting further submissions on the issue of acquiescence by the purser, and secondly that the pursuer had not made out a relevant case in relation to the price reduction issue. A proof before answer was allowed in respect of the wave measurement issue.