Van Oord UK Ltd and Sicim Roadbridge Ltd v Allseas UK Ltd [2015] EWHC 3074 (TCC)

Allseas UK Ltd (“AUK”) was engaged as the Principal Contractor by Total E&P UK Limited (“Total”) to carry out both the offshore and onshore construction works involved in the laying of gas pipelines at Sullom Voe, Shetland, which formed part of Total’s Laggan-Tormore Gas Field development.

By a Sub-Contract entered into in 2010, AUK engaged Van Oord UK Ltd and Sicim Roadbridge Ltd (together “OSR”) as AUK’s sub-contractor to carry out the procurement, supply, construction, installation, flooding, cleaning, gauging and testing of pipelines and certain onshore works.

Following the completion of the Sub-Contract works, OSR raised a claim for £10,000,000 against AUK for disruption and prolongation of the works due to alleged unforeseen ground conditions affecting part of the pipeline’s route. OSR stated (a) that they originally intended to install the pipeline by firstly constructing a new stone road along the route and then laying the pipe in a trench excavated into the untreated ground to the side of the new road and (b) that because peat was encountered there at greater depths than OSR could reasonably have foreseen, they required to build a 13.5 metre wide stone embankment and lay the pipe within that new embankment (at a much greater cost and time than they had allowed for in the Contract Price).

The principal questions before the Technology and Construction Court concerned how the provisions of the Sub-Contract should operate in relation to (a) unforeseen ground conditions and (b) the claims notification process in the Sub-Contract.

The Sub-Contract expressly stated that OSR accepted all responsibility for properly evaluating all costs, risks and contingencies associated with the works (including all site information supplied by AUK) and that OSR would be liable for failing to have done so.

That said, the Sub-Contract (in Article 12.2.3) specified the following carve-out, namely:

Should CONTRACTOR [OSR] during the performance of the WORK on SITE encounter sub-surface conditions:

  • different from those described in the CONTRACT DOCUMENTS, and
  • which an experienced CONTRACTOR could not reasonably have been expected to foresee (i) following an examination of the CONTRACT DOCUMENTS, and/or (ii) on the basis of the information and data obtained in performing the pre-installation SITE SURVEYS or of other data available (whether from COMPANY or elsewhere), and
  • which substantially modifies the SCOPE OF WORK and the CONTRACT PRICE and/or the WORK TIME SCHEDULE and/or the COMPLETION DATE,

then CONTRACTOR shall give notice thereof to COMPANY and shall be entitled to request a CHANGE ORDER pursuant to Article 22.”

Accordingly, the above carve-out could provide additional time and money for OSR if they could demonstrate that the site conditions they encountered could not have been foreseen by an experienced contractor (having examined the Contract Documents and other available data).

The reasons given by the court for comprehensively rejecting OSR’s claim were as follows:

  1. the manner of performing the ground works was a matter solely for OSR to determine (and it was OSR’s responsibility to allow for this when fixing the lump sum Contract Price). The Sub-Contract did not specify a methodology for performing the works nor did it allow additional time or money if a particular methodology was adopted instead of another (i.e. no additional cash could be claimed for design development);
  2. Certain items of pre-contract documentation provided to OSR regarding peat conditions were not “Contract Documents” so OSR could not rely on them. The court also regarded it to be a requirement of an “experienced contractor” not to limit its analysis of a project’s risks to the information contained in the pre-contract information presented to it;
  3. OSR’s assertion that it had priced for the excavation works on the basis of the pre-contract information was not supported by the evidence. OSR had provided their lump sum price quotation before they had received the pre-contract information (and they did not subsequently seek to amend their quotation);
  4. OSR failed to demonstrate that the ground conditions could not reasonably have been foreseen by an “experienced contractor” (although neither party led expert evidence as to what an experienced contractor could reasonably have expected to foresee). OSR relied on factual expert witnesses who claimed that they would not have foreseen the levels of peat encountered by OSR. The court (particularly Mr Justice Coulson) was highly critical of OSR’s expert witnesses and, in respect of one unfortunate expert witness, giving 12 reasons why the evidence of that expert witness was “entirely worthless”!  Evidently, OSR should have considered the suitability of their proposed expert witness not only by reference to his technical expertise but also his ability to cope with the demands of the court process (particularly as regards the need for thoroughness, preparedness and clarity);

and last (but certainly not least)…

  1. OSR had failed to comply with the claim notification provisions in the Sub-Contract. The Change Order provisions in the Sub-Contract required two notices to be given as follows:

CONTRACTOR shall issue such request for CHANGE ORDER to COMPANY within a maximum of five (5) days of the occurrence of any such event. CONTRACTOR shall prepare at its own cost and,within twelve (12) days (or any other mutually agreed period of time) from the occurrence of such event, submit to COMPANY an evaluation of all its consequences with fully substantiated supporting documents, failing which and notwithstanding any other provisions of the CONTRACT, CONTRACTOR shall not be entitled to any claim based on the occurrence of such event…”.

The alleged unforeseen ground conditions were discovered by OSR on 11/12 October 2011 but OSR did not give notice of them to AUK until 19 October 2011. Consequently, the court held that, even if the ground conditions had been unforeseen and thus claimable, OSR’s claim was out of time. Clearly, the court took a very hard line, in effect regarding the giving of the 5 day and 12 day notices to be a condition precedent to OSR’s claim and also holding that the wording of OSR’s notices was insufficient (as they did not refer to the Change Order provisions of the Sub-Contract).

In conclusion, the strictness of the court’s approach emphasises the need for Contractors to (a) pay very close attention to (and fully understand when pricing) the proposed risk allocation in contracts (particularly as regards unforeseen ground conditions) and (b) be appropriately staffed, organised and resourced to properly administer their contracts (thereby ensuring that all contractual time-limits are duly observed and notifications are suitably prepared and served).