Vivergo Fuels Ltd v Redhall Engineering Solutions Ltd
[2013] EWHC 4030 (TCC)
Queen’s Bench Division, Technology and Construction Court
Mr Justice Ramsey
16 December 2013
Contract – Breach of contract – Repudiatory breach – Claimant employing defendant under contract to carry out mechanical and piping work at new biofuel plant – Project being subject to delays – Claimant contending defendant failing to complete on agreed date and failing to provide a revised programme of works – Claimant terminating the contract on the ground of alleged material breaches by the defendant – CLaimant seeking declarations from court – Whether defendant in repudiatory breach of contract – Whether valid notice being given to defendant that failure to proceed regularly and diligently – Whether claimant in breach of contract by barring the defendant from entering work site and completing work.
Abstract
Contract – Breach of contract. The proceedings concerned an agreement under which the claimant (Vivergo) had employed the defendant (Redhall) to carry out mechanical and piping work at a new biofuel plant for Vivergo in Hull. The Technology and Construction Court made several declarations, including that Vivergo had been in repudiatory breach of the contract by barring Redhall from the work site based on Redhall’s alleged breach of contract due to a series of delays and a failure to provide a revised programme as requested.
Digest
The judgment is available at: [2013] EWHC 4030 (TCC)
The claimant (Vivergo) was a biofuel plant’s purchaser and eventual operator. The proceedings concerned a contract dated 31 March 2010 (the contract) by Vivergo for the defendant (Redhall) to carry out mechanical and piping work at a new biofuel plant for Vivergo in Hull (the project). The completion date in the contract was 11 February 2011, which was extended to 27 February 2011. However, the work was not completed by the extended date—clause 13.5 of the contract allowed for a revision of the approved program where there were delays. In addition, clause 43.2(b) of the contract provided that if Redhall, as the contractor, was in default in that it failed to proceed regularly and diligently with the contract works, the contract manager might notify Redhall of that and, if Redhall did not commence and diligently pursue the rectification of that default within 14 days, Vivergo could terminate Redhall’s employment using a notice. Accordingly, in September 2010, Vivergo wrote to Redhall, giving notice that the delay was likely to prejudice the construction of the permanent works and requiring Redhall to remedy delays according to cl 13.6 of the contract. Vivergo stated in its letter that, Redhall’s ‘continued failure to provide a programme to complete the works exacerbates the difficulties caused by your delays …’ which, Vivergo contended, amounted to a breach of contract. Redhall responded that it was not in breach of contract and contended that the numerous variations, delays and disruption caused to its works were the subject of extension of time claims, which in turn required the revision of the approved programme.
Redhall indicated to Vivergo that works would not be completed until considerably later than July 2011. In a letter dated 22 February 2011, Vivergo, through Aker (which managed a phase of the project), notified Redhall that, given its delays and failure to provide a programme despite repeated requests, Redhall was in breach of contract and that the contract was terminated. On 3 March, Redhall submitted a programme (Rev 4) to Aker. A letter dated Vivergo sent a letter terminating Redhall’s employment. Redhall was barred from the site on the morning of 14 March 2011.
On the same day, Redhall wrote to Vivergo and Aker, stating that such action amounted to a repudiation by Vivergo, which Redhall accepted. Redhall subsequently referred the matter to adjudication. The adjudicator held, among other things, that Vivergo had not given any valid notification for sub-clause 43.2 about the alleged failure of Redhall to proceed regularly and diligently with the works and that Vivergo was, therefore, not entitled to terminate the contract and that Vivergo was not entitled to terminate Redhall’s employment on the grounds of a material breach of cl 13.5. In a subsequent decision, an adjudicator held that Redhall had incurred loss and damage resulting from Vivergo’s repudiation of the contract. Vivergo brought proceedings seeking declarations about the termination. Vivergo sought a declaration that the letter of 11 March 2011 was a legal notice determining Redhall’s employment under cl 43 of the contract. Alternatively, Vivergo alleged common law repudiation and acceptance by letter dated 11 March 2011.
The first issue for consideration was whether Redhall had been entitled to an extension of time of 15.23 working days to the overall completion date from 11 February 2011 to 7 March 2011 and to an extension of time of 12.03 working days to the milestone dates and whether Redhall was in material breach of its obligation to provide a revised programme following cl 13.5 on 22 February 2011. The second issue for consideration was whether Aker had given a valid notice to Redhall on 22 February 2011, under cl 43.2 of the contract, notifying Redhall that it was failing to proceed regularly and diligently because it had failed to provide a programme and was in material breach of the contract by failing to provide a programme following cl 13.5, and whether, by 11 March 2011, Redhall had complied with the obligation under cl 43.2 and had, within 14 days, commenced and diligently pursued the rectification of the programming default notified in the letter of 22 February 2011. The third issue for consideration was whether Redhall was in repudiatory breach of the contract on 11 March 2011 and whether Vivergo’s letter of 11 March 2011 was an acceptance of that repudiation. Finally, a question arose as to whether Vivergo was in repudiatory breach of the contract by barring Redhall from the site on the morning of 14 March 2011, whether Vivergo’s repudiatory breach had been accepted by Redhall’s letter of 14 March 2011, and the contract had thereby been terminated.
The court ruled:
(1) The breach of a contractual obligation had to be material. It was settled law that the primary focus should be on the character of the breach rather than the consequences, which were not draconian if the innocent party availed itself of the contractual remedy. It was settled law that ‘regularly’ meant, as a minimum, attending the site ‘with sufficient in the way of men, materials and plant to have the physical capacity to progress the works substantially per the contractual obligations. Further, ‘diligently’ meant that the physical capacity had to be applied ‘industriously and efficiently’ with ‘successful progress towards contractual obligations’ being ‘a good touchstone by which to judge whether a contractor is proceeding regularly and diligently. It was established law that a contractor’s general obligation was to proceed continuously, industriously and efficiently with appropriate physical resources to progress the works towards completion substantially under the contractual requirements as to time, sequence and quality of work (see [364], [365], [378], [379] of the judgment).
On the facts, Redhall had been entitled to an extension of 15.23 working days to the overall completion date from 11 February 2011 to 7 March 2011 and to an extension of 12.03 working days to the milestone dates. Redhall had failed to proceed regularly and diligently with the contract works on 22 February 2011 and was in material breach of its obligation to provide a programme per cl 13.5 on 22 February 2011. The need for the revised schedule was not some mere unimportant obligation. Instead, it went to an essential aspect of the project, the time of completion, and on a project such as the instant case, it was relevant not only as a matter of management of Redhall’s works but the entire project (see [366], [374], [375], [402], [521] of the judgment).
Glolite Ltd v Jasper Conran Ltd (1998) Times, 28 January considered; Dalkia Utilities Services plc v Celtech International Ltd [2006] All ER (D) 203 (Jan) considered.
(2) It was settled law that the construction of notices had to be approached objectively. The issue was how a reasonable recipient would have understood the notices. Considering that question, the notices had to be construed, considering the relevant objective contextual scene. The following principles could be derived from the authorities: (i) unilateral notices were to be construed in the same way as contractual documents and therefore it was necessary to construe them objectively against the background or ‘the relevant objective contextual scene’ known to both parties; (ii) the relevant meaning of the unilateral notices was the meaning that a reasonable recipient would have understood by the notices; (iii) the purpose of the notice was relevant to its construction and validity; prima facie, if a notice unambiguously conveyed the purpose, a court would ignore immaterial errors which would not have misled a reasonable recipient; (iv) the notice had to be sufficiently clear and unambiguous to leave a reasonable recipient in no reasonable doubt as to how and when the notice is intended to operate; (v) in the context of a clause which required a default notice and then a termination notice, the two notices had to be connected both in content and in time; and (vi) in that case the notice had to notify the default (see [410] of the judgment).
On 22 February 2011, Aker had given a valid notice to Redhall under cl 43.2 of the contract, notifying Redhall that it was failing to proceed regularly and diligently because it had failed to provide a programme and was in material breach of the contract by failing to provide a programme per cl 13.5. On the facts, the Rev 4 programme submitted to Aker on 3 March 2011 had been sufficient to comply with Redhall’s obligation under cl 43.2. It followed that Redhall had complied with the obligation under cl 43.2 and had, within 14 days, commenced and diligently pursued the rectification of the programming default notified in the letter of 22 February 2011 (see [469], [498], [521] of the judgment).
Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] 3 All ER 352 applied; Architectural Installation Services Ltd v James Gibbons Windows Ltd (1989) 46 BLR 91 considered.
(3) On the facts, Redhall’s failure to proceed regularly and diligently had not amounted to a repudiatory breach of the contract on 11 March 2011 and Vivergo’s letter of 11 March 2011 had not been, in any event, an acceptance of that repudiation. Neither was Vivergo’s conduct barring Redhall from the site on 14 March 2011 such an acceptance. Vivergo had accordingly been in repudiatory breach of the contract by barring Redhall from the site on the morning of 14 March 2011, and Vivergo’s repudiatory breach had been accepted by Redhall’s letter of 14 March 2011, and the contract was thereby terminated (see [513], [521] of the judgment).
Stocznia Gdynia SA v Gearbulk Holdings Ltd [2009] 2 All ER (Comm) 1129 applied.
Marcus Taverner QC, Gaynor Chambers and Paul Bury (instructed by Shoosmiths LLP) for Vivergo.
Stephanie Barwise QC, Robert Clay and David Johnson (instructed by Muckle LLP) for Redhall.
