The Court of Appeal has unanimously dismissed the appeal by Obrascon against the original decision of Mr Justice Akenhead in the Technology and Construction Court (TCC).  The case is of interest because it provides further insight into how the English Courts view the operation of what is known as the FIDIC Yellow Book (the Plant and Design-Build contract).

Both the original TCC judgment and the Court of Appeal findings turn on their own facts.  There are however a number of helpful observations which can be derived from the judgments.  

The Court of Appeal upheld the TCC judgment in its entirety, finding that the amount of contamination encountered by the contractor, Obrascon, when carrying out preparatory works in connection with the construction of the tunnel underneath the airport at Gibraltar was no more than Obrascon should have foreseen on the basis of the information made available to it. Consequently Obrascon was not entitled to an extension of time or additional payment under clause 4.12 of the Yellow Book in respect of contamination.  The Court further found that certain instructions given by the engineer relating to the treatment of contaminated materials and locations of stock piles were not variation instructions and that, on the facts, the employer, the Government of Gibraltar, had correctly terminated the contract under clause 15.2 of the Yellow book.   

Pulling together both the TCC and Court of Appeal decisions we can see the following principles emerging in relation to the operation of the Yellow Book: 

  1. It was agreed by all parties that clause 20.1 of the Yellow Book imposes a condition precedent in its second paragraph.  The TCC analysed the first paragraph of 20.1 closely and noted that the “event or circumstances giving rise to the claim” for the extension of time must first occur and then there must have been either awareness of that event or circumstance by the Contractor or the means of knowledge or awareness of that event or circumstance before the condition precedent bites.  The TCC felt that such a clause should be construed reasonably broadly given its serious effect on what could otherwise be a good claim for breach of contract by the Employer.  Consequently, it had to be read in conjunction with clause 8.4, which identifies when and in what circumstances an extension will be granted. 
  2. Clause 8.4 refers to an extension being granted to the extent that completion “is or will be delayed” by a number of causes.  The entitlement therefore arises either when it is clear that there will be a delay or when a delay has been at least started to be incurred.  Consequently, the “event or circumstance” as described in clause 20.1 can mean either the incident itself (such as a variation or exceptional weather) or the delay which results or will inevitably result from the incident.  The Contractor can therefore give notice either when it knows it is going to be delayed or when it is actually delayed.  A strict interpretation of the condition precedent in clause 20.1 would probably mean that the Contractor would have to give notice as soon as it could reasonably have known that it was going to be delayed, but that is not the case on the wording of clause 8.4 (which does not say “is or will be delayed, whichever is the earlier”) and on the reasonably broad interpretation of the condition precedent. 
  3. The TCC noted that the Contractor’s breach of contract in order to justify termination would have to be more than trivial but rejected Obrascon’s argument that a breach must be analogous to a repudiatory breach of contract in order to trigger the termination provisions.  
  4. The TCC also decided that on the facts the Employer’s notice of termination was not invalid because it was sent to the wrong address. The Court held that the notice should have been sent to the contractor’s head office but sending it to the site office would not render it ineffective because all of the relevant personnel at Obrascon’s organisation had received notification with the appropriate time and in the appropriate form.  
  5. The Court of Appeal did not disturb these findings. The grounds of appeal by Obrascon were, first, that the Judge had erred in holding that the quantity of contamination which Obrascon encountered was foreseeable by an experienced contractor; secondly, that various instructions issued by the Engineer constituted variations and thirdly that the Judge in the TCC had erred in holding that the Employer had terminated the contract pursuant to various provisions in clause 15.2.  

In rejecting these arguments the Court of Appeal made the following observations: 

  1. Clauses 1.1 and 4.12 of the Yellow book require the contractor at tender stage to make its own independent assessment of all available information.  The contractor must draw upon its own expertise and its experience of previous civil engineering projects and must make a reasonable assessment of the physical conditions which it may encounter.  The contractor cannot simply accept someone else’s interpretation of the data and say that it is all that was foreseeable.  It followed that an incorrect assessment of the amount of contamination which Obrascon was likely to encounter included in an Environmental Statement was not a basis to establish a claim for unforeseeable ground conditions.  
  2. On a number of findings in relation to whether certain matters equated to variations, the Court was not prepared to disturb the findings of fact made by the Judge in the TCC.  The Court took the opportunity to restate that it should be reluctant to overturn findings of fact made at first instance and that this is particularly true in the case of appeals from the TCC.  
  3. The grounds for termination provided by the Employer related principally to Obrascon’s failure to proceed with the works and its failure to comply with a notice to correct. Obrascon had argued that it had stopped work because it was required to redesign the tunnel as a result of the excessive and unforeseeable contamination. Again, the Court of Appeal disagreed, finding that on the facts as ascertained by the TCC there was no need to redesign the tunnel and, as previously noted, that the amount of contamination encountered should have reasonably been foreseen by Obrascon. These matters were sufficiently serious to justify termination of the contract. The Court observed the obligation under clause 8 of the FIDIC conditions to “proceed with the works with due expedition without delay” is not directed to every task on the contractor’s to do list but is principally directed to activities which are or may become critical. In the circumstances Obrascon’s lack of significant activity on site between 21 January and 28 July 2011 was a failure “to proceed with the works with due expedition without delay” which amounted to a serious breach of clause 8.1.  

Whilst, as stated above, Obrascon may turn largely on its own facts, the various observations made by the TCC and the Court of Appeal in relation to the operation of the FIDIC Yellow Book are useful and probably applicable to other engineering contracts with similar provisions.  Lord Justice Jackson in the Court of Appeal briskly disposed of Obrascon’s arguments and, in an aside which echoes comments made by a number of Judges (including Lord Justice Jackson) in other recent cases, the Court congratulated the solicitors on both sides “for limiting the bundle to documents which we actually needed”.  Various Courts have had much to say recently about the excessive amount of extraneous documentation which finds its way into bundles and it seems likely that this clampdown on what certainly amounts to a waste of time and money for everyone will continue. You have been warned.