Neutral Citation Number: [2006] EWHC 1341 (TCC) No HT-04-314
IN THE HIGH COURT OF JUSTICE
QUEENS BENCH DIVISION
TECHNOLOGY & CONSTRUCTION COURT
Court No 7
St Dunstan's House
133-137 Fetter Lane
London EC4A 1HD
Monday, 5th June 2006
Before:
MR JUSTICE JACKSON
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BETWEEN:
MULTIPLEX CONSTRUCTIONS (UK) LIMITED
Claimant/Part 20 Defendant
-v-
CLEVELAND BRIDGE UK LIMITED
First Defendant/Part 20 Claimant
CLEVELAND BRIDGE DORMAN LONG ENGINEERING LIMITED
Second Defendants
- - - - - - -
Computerised Transcript of
Smith Bernal Wordwave Limited
190 Fleet Street London EC4A 2AG
Tel No: 020 7404 1400 Fax No: 020 7831 8838
(Official Shorthand Writers to the Court)
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ROGER STEWART QC & PAUL BUCKINGHAM(instructed by Clifford Chance LLP)) appeared on behalf of the Claimant.
HUGH TOMLINSON QC, SIMON HARGREAVES & THOMAS GRANT (instructed by Walker Morris) appeared on behalf of the First and Second Defendants.
JUDGMENT as APPROVED
MR JUSTICE JACKSON: This judgment is in 16 parts, namely:
Part 1. Introduction.
Part 2. The facts.
Part 3. The present proceedings.
Part 4. Multiplex's evidence.
Part 5. CB's evidence.
Part 6. Issue 1.
Part 7. Issue 2.
Part 8. Issue 3.
Part 9. Issue 4.
Part 10. Issue 5.
Part 11. Issue 6.
Part 12. Issue 7.
Part 13. Issue 8.
Part 14. Issue 9.
Part 15. Issue 10.
Part 16. Conclusion.
Part 1. INTRODUCTION
This is the trial of ten preliminary issues concerning the steelworks subcontract for the new National Stadium at Wembley. The claimant is Multiplex Constructions UK Limited, to whom I shall refer as Multiplex. The first defendant is Cleveland Bridge UK Limited, to whom I shall refer as CB. CB is part of a group of companies known as the Cleveland Group of companies. The second defendant is Cleveland Bridge Dorman Long Technology Ltd, which is the holding company for that group.
The new National Stadium at Wembley is oval in shape, the main length of the stadium lies on an east-west axis. The structural frame of the stadium is steelwork. Vertical steel columns rise from the ground and support each level of the stadium.
As the columns step back from the centre they become progressively taller. Sloping members are attached to the columns and support the banks of seats. These sloping members are known as rakers. The entire structure which accommodates spectators is referred to as "the bowl". Around the top of the bowl there runs a ring of steelwork known as the perimeter prismatic truss; this is generally abbreviated to PPT.
A fixed roof runs along the northern side of the stadium. Another fixed roof runs along the southern side of the stadium. There are movable roofs which can be slid into position at the east end and the west end. A huge steel arch stands above the bowl on an east-west axis at an angle of 112 degrees. Cables run downwards from the arch and are attached to the north roof. In effect, the arch supports part of the north roof and the weight of the north roof provides restraint for the arch.
At regular intervals along the arch there are circular rings known as diaphragms. Between each diaphragm and the next there are hollow pieces of steel which are referred to as cords or members. Each end of the arch rests on a massive base which is constructed of concrete, steel and lead. The arch could not, of course, be constructed in situ. Therefore it had to be assembled on the ground and then hoisted upwards into position.
The stadium is now nearing completion. It will have a capacity of about 90,000 seats. The stadium will be used for Association Football and Rugby League events. It will also be used for all types of concerts. The stadium will have extensive, high quality corporate hospitality facilities and an area for the press with state-of-the-art communication systems. The Wembley arch, which was constructed and erected by CB, is already a feature of the London skyline.
Having recently visited the stadium accompanied by representatives of both parties, I have no doubt that it will be a world class sports stadium. Long after the present problems have been forgotten, all parties to this litigation can take pride in what they have created.
Now, however, I must turn to the present problems. Multiplex is constructing the stadium as main contractor employed by Wembley National Stadium Limited. CB was the steelwork subcontractor from September 2002 to August 2004. There are three contracts between the parties, namely the original subcontract, an agreement entitled Heads of Agreement dated 18th February 2004 and a Supplemental Agreement dated 16th June 2004.
I shall refer to the period between the Heads of Agreement and the Supplemental Agreement as "the interregnum".
Let me now say a little more about the parties. Multiplex is the UK subsidiary of a group of companies based in Australia. Mr John Roberts is the chairman of the group and his son, Mr Andrew Roberts, is chief executive. Mr Matthew Stagg was at the material time the director in charge of the UK subsidiary.
Let me now turn to CB. As previously mentioned, CB is part of the Cleveland Group of companies. The ultimate holding company of this group is Al Rushaid Investment Corporation, a company incorporated in the Kingdom of Saudi Arabia. Sheikh Abdullah Al Rushaid is the chairman and controlling shareholder of that company.
I should now mention other companies which feature in this case. The structural engineer for the project is Mott MacDonald Limited, together with related companies. I shall refer to the engineer as "Mott". The concrete subcontractor employed by Multiplex was PC Harrington, sometimes referred to as "PCH". CB also employed a number of subcontractors, in particular Oakwood Engineering Services, to whom I shall refer as "Oakwood". Oakwood did some design work. Shanghai Grand Tower ("SGT"), which operates in China, did some of the fabrication. The WT Partnership, to whom I shall refer as "WT", are a firm of quantity surveyors who advised both parties on valuation matters during the interregnum. Hollandia BV, to whom I shall refer as "Hollandia", is a Dutch steelwork company.
After these introductory remarks, I must now turn to the facts.
Part 2. THE FACTS
By a subcontract dated 26th September 2002, based upon JCT Dom 2, CB agreed with Multiplex to design, fabricate, supply, deliver and erect the structural steelwork for the new Wembley Stadium. The subcontract sum was £60 million, subject to adjustment in accordance with the terms of the subcontract.
Clause 4.1.1 of the subcontract conditions states:
"The Sub-Contractor shall for the consideration payable in accordance with clause 21 carry out and complete the Sub-Contract Works and perform all its other Sub-Contract Obligations in compliance with the Sub-Contract Documents and the Contract [and for that purpose shall complete the design for the Sub-Contract works including the selection of materials, goods and workmanship to be used in the construction of the Sub-Contract Works] and in conformity with all reasonable directions and requirements of the Contractor (so far as they may apply) regulating for the time being the due carrying out of the works."
Clause 11.1 of the subcontract provides:
"The Sub-Contractor shall carry out and complete the subcontract works in accordance with the details in Appendix Part 4 and reasonably in accordance with the progress of the Works but subject to receipt of the notice to commence work onsite as stated in Appendix Part 4 and the operation of clauses 11 and 38A and/or 38C and any revision to the period or periods for the completion of the Sub-Contract Works in respect of a Variation for which a Variation Notice has been issued."
Clause 11 also contains provisions for extension of time. Clause 12.2 of the subcontract conditions provides:
"The aggregate monetary liability of the Sub-Contractor under this sub-Contract for each right or remedy to the Contractor for any matters arising in connection with the performance of its obligations under the Sub-Contract shall not exceed £6 million (Six million pounds) and the Contractor releases the Sub-Contractor from any liability in excess thereof."
Clause 13 enables the subcontractor to recover loss and expense, if delay or disruption has been caused to the subcontractor.
Clause 21 sets out the procedure for interim payments. Clause 21 is supplemented by a Pricing Document, which forms volume 3 of the subcontract package.
The appendix part 4 of the subcontract provides:
"The programme contained within volume 2 of the numbered documents listed as item p in Appendix Part 2 hereof is provided for information only, to indicate anticipated sequence of the subcontract works and interface with other subcontract packages. Dates and the sequence contained within the programme do not form part of the subcontract.
"(1) Date for commencement of the subcontract works onsite will be:
"between 7th July 2003.
"and 10th August 2003.
"(2) Period(s) for carrying out and completion of the subcontract works onsite:
"81 No. calendar weeks.
"(3) Period required for notice(s) to commence work onsite:
"2 No. calendar weeks.
"(4) Period required for subcontract works off site and prior to commencement onsite:
"44 No. calendar weeks."
The programme referred to in part 4 of the appendix is a restraint schedule. This states that construction information for the arch will be released within two weeks of notification of the award and that construction information for the bowl will be released progressively between 2 and 14 weeks from notification of the award.
By an agreement dated 14th October 2002 Oakwood agreed with CB to carry out drafting and detailing services in relation to the structural steelwork.
Problems arose at an early stage of the project because the design of the stadium was incomplete. Mott was late in releasing design information showing what structural steelwork was required. There was also a substantial number of variations. This in turn delayed CB in designing and fabricating the individual pieces of steel which were required.
Starting in October 2002, and continuing through 2003, CB sent a number of letters to Multiplex protesting at late design information or design changes, and asserting that their own works had been delayed and disrupted. These letters, or some of them, would appear to constitute notices under clause 11 of the subcontract conditions (in respect of extension of time) and under clause 13 (in respect of loss and expense).
Whether these letters, or some of them, provide the detailed substantiation and particulars which are required under clauses 11 and 13 is an issue between the parties, although not for resolution today.
In February 2003, a document entitled "Valuation Procedures" was agreed between Multiplex and CB. This supplemented the provisions of the Pricing Document and gave further details as to how interim payments should be assessed.
In March and April 2003, CB proposed acceleration measures which it might take in order to overcome the delays that had occurred. On 15th April 2003, Multiplex sent a letter to CB which included the following passage:
"Whilst we cannot agree at this stage to all the contents of your letters and the quantum of your claim we do agree in principal [sic] that you are entitled to an extension of time and that we have instructed you to proceed with acceleration measures in order to mitigate the delay to both the arch and bowl structures.
We will also work with you to agree a revised cash flow as discussed. In order to progress and agree your entitlement to an extension of time and the cost of the acceleration measures it is essential to receive the information as requested in our letter dated 11th April 2003, reference 000240 as soon as possible."
During the summer of 2003, issues arose between the parties. There was a dispute as to the allocation of design responsibility for the arch. Also, Multiplex became concerned about what it perceived as poor performance and delay by CB in the design and fabrication of steelwork. In short, Multiplex took the view that CB was blaming all the problems on late or varied design information, when in truth CB bore the responsibility for significant delays. Multiplex also pressed CB to provide full details and substantiation of the loss and expense which CB was claiming.
By a letter dated 12th September 2003, CB claimed 30 weeks extension of time on the grounds of late release of bowl information.
By a letter dated 15th September, Multiplex agreed to "cashflow" any acceleration measures agreed as being required on condition that substantiation was forwarded within two months.
On 22nd September, CB commenced erecting steelwork for the bowl on site. By letter dated 23rd September Multiplex agreed to pay, and thereafter did pay, approximately £2.8 million to CB on a "cashflow" basis only.
Work proceeded through October 2003. On 29th October CB sent to Multiplex a spreadsheet indicating that the minimum final cost of CB's works would be £86,954,719.
During November 2003 relations between CB and Multiplex worsened, with each party blaming the other for delays which had occurred. CB informed Multiplex that it was suffering losses on the project which it could not sustain. Accordingly, either there had to be a substantial payment for variations or alternatively the contract between the parties should switch to cost plus.
On 5th December 2003, CB wrote to Multiplex claiming an extension of time of 50.5 weeks. In that letter, CB protested at the extent of the changes being made to the steelwork. In the last paragraph of that letter, CB stated:
"It is our opinion, therefore, that the steelwork package subcontract is now without any effective contractual control. As a consequence we consider the subcontract, in terms of its time for completion and its valuation, to be at large."
In a second letter of the same date, CB asserted that it was necessary to move to a new contractual arrangement.
By letter dated 10th December 2003, CB wrote to Multiplex contending that Multiplex had failed to honour its commitments in relation to cash neutrality, cessation of change and review of issues. CB stated that with effect from 17th December it would revert to normal working in relation to drafting, design and fabrication.
Multiplex took considerable exception to CB's letters dated 5th and 10th December. Multiplex considered that CB's claims were unjustified and that CB was responsible for substantial delays.
On 15th December 2003, there was a meeting between John Roberts (chairman of Multiplex, who was in the UK on a visit from Australia) and Roderick Grant (the recently appointed chief executive of Cleveland Group). A number of issues were discussed. It was agreed that the two chairmen, namely John Roberts and Sheikh Abdullah, would meet in January.
On 23rd December Multiplex issued certificate 15, which included contracharges of approximately £1.6 million in respect of various facilities and services provided by Multiplex to CB. CB took exception to these contracharges and Multiplex reinstated half of the sum deducted in certificate 16 issued on 12th January. Mr Muldoon (of Multiplex) maintains that the explanation for certificate 16 is that Multiplex agreed to take the contracharges in two tranches in order to assist CB's cashflow.
After the Christmas and New Year holiday, hostilities resumed between the parties. CB expressed concern about the continuing flow of variations and late information; Multiplex expressed concern about CB's delays in fabrication and erection. Multiplex were particularly concerned about delays to the arch. This needed to be raised, not only as a visible sign of progress (for the sake of public relations) but also to free up areas of the site where the arch was currently lying on the ground.
On 23rd January 2004, CB wrote to Multiplex suggesting that the arch did not need to be raised until 1st November 2004. Multiplex took considerable exception to this suggestion.
Also on 23rd January, Multiplex issued certificate 17. This certificate clawed back the sum of £2.8 million which had previously been paid to CB on account of variations, acceleration, loss and expense. CB took considerable exception to this deduction.
On 27th January 2004, a meeting took place between the two chairmen, Mr John Roberts and Sheikh Abdullah, accompanied by senior staff on both sides. The opposing views of Multiplex and CB were ventilated. One outcome of this meeting was an agreement that Multiplex would value variations on the basis of current information within the next week.
By letter dated 4th February 2004, Multiplex sent to CB variation notice 399, in which Multiplex valued change notices numbers 1 to 720 at £2,884,712. This valuation excluded change notice 597 (variation to craneage system) and change notice 541 (changes to arch, supply and fabrication). It was not possible at that stage to value the arch variations because the allocation of design responsibility for the arch was the subject of adjudication.
In early February the parties were discussing the possibility of outsourcing part of the fabrication. CB was not averse to the proposal that part of the fabrication should be removed from its subcontract. The parties were also seeking to negotiate an overall settlement of the differences between them.
On 11th February 2004, Cleveland Group held a board meeting. The minutes of this meeting include the following passage:
"It was RESOLVED that legal advice be taken as to MPX's behaviour in administering the contract with a view to establishing whether MPX could be deemed to have repudiated the contract.
Response to Cleveland Bridge's proposal was awaited. It was noted that Cleveland Bridge's options were as follows:
"1. Take/negotiate fair deal with MPX; failing that;
"2. Subject to suitably strong legal advice, stop work on the basis that MPX have repudiated the contract and that the contract is at large.
"3. Negotiate an orderly withdrawal from the contract after a minimum of, say three months; or
"4. Continue to work under the existing contract to a January 2006 finish.
"Shekhar Shetty outlined that Option 4 did not have the support of the principal shareholder, leaving only options 1-3 ...
"[Post Meeting Note: Sheikh Abdullah Al Rushaid confirmed that funding for only Option 2, essentially a four week period, would be available, and no funding should be directed specifically to Wembley. This decision was made on the basis that MPX could be shown to have repudiated the contract. Under these circumstances it was concluded that only options 1 and 2 remain and legal advice should be sought as a matter of urgency.]
"It was FURTHER RESOLVED that a business plan for option 2 be developed over the next 10 days to manage the business, and maximise asset valuation ...
"It was FURTHER RESOLVED that Roddy Grant plan how to handle the media, government and local MPs and staff for any actions contemplated.
"It was RESOLVED that such a plan be code named PROJECT TRAFALGAR."
Multiplex contends that CB's conduct since 11th February 2004, including its stance in the present litigation, constitutes the implementation of Project Trafalgar. CB denies that this is the case. CB contends that Project Trafalgar came to an end on 18th February 2004 when the parties reached agreement on their differences.
In early 2004 another plan was being developed. This was the "Armageddon plan". The Armageddon plan was Multiplex's plan to replace CB with another steelwork subcontractor and to pursue substantial financial claims against CB. Whether the Armageddon plan became Multiplex's sole objective or merely remained one option is a matter which has been fiercely contested at the present trial.
The negotiations between Multiplex and CB in February 2004 had a successful outcome. On 18th February 2004 a written agreement entitled "Heads of Agreement" was signed by the parties. The Heads of Agreement provided as follows:
"HEADS OF AGREEMENT
Preamble
(A) CBUK have claimed 1 year EOT for late delivery of design information. Multiplex dispute the extent of the claim, however late changes to the PPT design has delayed the project. Any delay is unacceptable to Multiplex.
(B) CBUK have offered to settle the EOT claim by altering the contract to cost reimbursable. This alteration of the risk profile is not acceptable to Multiplex.
(C) MPX and CBUK have agreed to settle the Claim as described below. This proposal allows for acceleration of fabrication, the ability for MPX to accelerate erection and reversion to a fixed price.
The deal
1. The current CBUK contractual responsibilities remain untouched except for outsourcing of certain future fabrication (including cost and delivery) and the cost of erection including certain bought out items and subcontracts.
2. Intent of the parties is that a Supplemental Agreement (formally adjusting contract), with an effective date of 15 February 04, incorporating the points below be concluded by end February.
3. Settlement of all claims and disputes to date. The only exception is a dispute as specifically contemplated by Clause 11.
4. Future Fabrication is to be outsourced by MPX as per schedules handed by B Rogan (BR) to A Muldoon (AM) on 11/02/04 with any changes to be agreed by them. CBUK value rates to be taken out of existing contract value with an extra/over costs incurred by MPX in outsourcing as per the existing contract to be the responsibility of MPX.
5. CBUK retain responsibility for remaining fabrication as per the contract, subject to Items 7 & 9.
6. CBUK retain responsibility for design and fabrication drawings, Bought Out Materials and Subcontracts according to schedule handed by BR to AM (11/02/04), with any changes to be agreed by them.
7. CBUK new fixed price in respect of items 1,5-6 above from 15 February is GBP12 million, based on design status as at 15/02/04 and subject to any changes agreed by BR/AM - following a detailed review of the schedule handed by BR to AM on 11-02-04.
8. MPX to re-imburse CBUK (weekly/monthly on a basis to be agreed) at cost for erection and site-works (site staff, direct labour, cranes and other site-related costs) for period of three months; i.e. ending 15/05/04. Plus £80,000 per month for off-site administration and overheads.
9. During these three months CBUK is to complete the works in accordance with the attached programme (named: projected CBUK programme) and complete the raising of the arch by 21st April 2004 (subject to EOT's). In addition MPX/CBUK will re-programme erection works beyond the 3 months, and determine a new fixed price and programme for completion (price to include 10% contribution to CBUK overheads and profit).
10. If at the end of these three months, no agreement to fixed price and/or programme, CBUK to agree orderly handover with no premium or additional cost to MPX. Four weeks notice will be given to CBUK. This notice can be given up to 2 weeks in advance of 15-05-04.
11. A valuation will be compiled up to 15-2-04, (After which the arrangements described in the foregoing will apply). Including £25k for overtime for week ending 15-02-04. This valuation will be checked by an independent QS. Payment will be made on the basis of this valuation, less paid to date. The valuation will include an appropriate deduction for site office rent. Should CBUK dispute any deductions made by MPX, in this valuation, then the value of the deduction, only, may be referred to Dispute Resolution.
12. MPX to make payments to CBUK of GBP 4 million on execution of this Heads of Agreement, an additional GBP 1.25 million on completing the lifting of the Arch and a further GBP 0,5 million if a fixed price arrangement, as detailed in Item 9, is entered into with CBUK.
13. Payment to CBUK of all costs (the sum of £75,000) is included in respect of the Provisional Sum, for painting, is included above.
14. CBUK warrant that they have paid (or will Pay) for all works done or materials purchased up to 16-2-04, including settlement of any outstanding disputes or claims.
15. If CBUK provide an acceptable unconditional BG, for the retention sum, then MPX will release the cash retention.
16. Both parties agree to ensure that the content of this agreement is strictly confidential. Disclosure has to be agreed with both parties.
Agreed on 18th February 2004."
In relation to clause 4 of the Heads of Agreement, it should be noted that the fabrication to be outsourced comprised the steelwork for the PPT and the roof and part of the steelwork for the bowl. The Heads of Agreement, amongst other matters, resolved the ongoing dispute between the parties concerning delay caused by lack of design information for the arch. Accordingly, the adjudication concerning that matter was terminated without the adjudicator being required to issue a decision.
Following the execution of the Heads of Agreement, Multiplex duly paid to CB the sum of £4 million, referred to in clause 12. Multiplex also proceeded to reimburse to CB its onsite costs. These payments can be seen in a number of interim certificates. The practice was established that CB submitted weekly applications in respect of onsite costs. Multiplex paid the onsite costs every second week.
One problem which had emerged before the signing of the Heads of Agreement was that some of the arch members, as fabricated by CB, deviated from straightness. There is an issue between the parties as to what the proper tolerance was and how many members were outside that tolerance. However, the practical problem which was being addressed on site in early 2004 was not a contractual issue, but an engineering issue, namely which arch members required replacement.
On 3rd March 2004 Mott produced a report identifying members which were "working hard" or "working very hard". Discussions continued between CB, Multiplex and Mott. The upshot of the various investigations and discussions was that CB replaced 24 arch members between 27th March and 28th April.
A separate problem affecting the arch concerned the arch bases at the east and west ends. Multiplex's concrete subcontractor, PCH, used the incorrect grade of concrete in the foundations for those bases. Multiplex became aware of this in early March and required PCH to remove the top part of the concrete and repour. Additional reinforcement was added to the top section of the bases. This remedial work was completed when the newly laid concrete had gained sufficient strength and when the strengthening works to the bases had been carried out.
In the event, the arch could not be lifted by 21st April, the date stated in clause 9 of the Heads of Agreement. The lifting of the arch was delayed by approximately two months. There is a dispute between the parties as to whether this delay was caused by PCH's errors (for which Multiplex is responsible) or by CB's errors.
Let me turn now to the valuation exercise required by clause 11 of the Heads of Agreement.
WT were instructed to perform the role of independent quantity surveyor envisaged by that clause. CB maintains that WT were not truly independent, by reason of their previous work for Multiplex. There was a wide gulf between the parties concerning the correct valuation of CB's works as at 15th February 2004.
CB contended (in revised application 18) that the value of its works as at 15th February was £38,457,601. This produced a net figure of £36,534,721 after deducting a 5 per cent retention. Multiplex contended that the correct valuation was substantially lower than that.
The first valuation produced by WT was seen only by Multiplex. Multiplex maintains that its failure to pass a copy to CB was an oversight. Multiplex sent comments to WT on this valuation, which Multiplex did not share with CB.
On 19th March 2004, WT produced their "initial valuation" which they sent to both parties. In this valuation WT produced two alternative figures, namely £30,294,651 (calculated in accordance with the Pricing Document for interim valuations) and £30,052,606 (based upon the actual works carried out up to 15th February).
Both parties were dissatisfied with the valuations produced by WT. Nevertheless, Multiplex agreed to use WT's higher figure in interim payments. The first interim certificate which Multiplex issued after receipt of WT's report was certificate 22, dated 22nd March. It can be seen that this certificate proceeds on the basis that the value of CB's works up to 15th February was £30,294,651.
On 24th March there was a meeting between Multiplex, CB and WT to discuss valuation issues. This meeting did not result in agreement. Minutes of the meeting were circulated and various amendments were proposed.
On 20th April, Multiplex sent to WT and CB a commentary on WT's valuation. Multiplex's paper on valuation issues, dated 20th April, concludes that the correct figure as at 15th February is £25,458,949. After deduction of sums due to Multiplex, that produced a net figure of £24,770,895.
CB responded to this paper on 27th April, contending (a) that Multiplex were backtracking on matters previously agreed and (b) that on the basis of matters previously agreed the correct figure should be £34,155,612.
On 30th April WT's services were dispensed with. CB contends that following the departure of WT, the valuation required by clause 11 of the Heads of Agreement was agreed orally in the sum of £32.66 million at a meeting between Mr Stagg of Multiplex and Messrs Grant, Rogan and Child of CB on 14th May. Multiplex denies that a final valuation of the works was agreed on 14th May, but accepts that an interim valuation in that sum was agreed.
Following the meeting on 14th May, there were discussions between Mr Cursley of Multiplex and Mr Underwood of CB as to how a valuation in the sum of £32.66 million should be made up. Mr Cursley then prepared a draft certificate of payment, which included a valuation of CB's works at 15th February in the sum of £32.66 million. Mr Stagg gave this draft certificate to Mr Child at a meeting on 3rd June. However, no formal certificate including this valuation was issued until after the signing of the Supplemental Agreement.
Throughout the interregnum, disputes on other fronts continued between Multiplex and CB. Multiplex complained that CB was slow and inefficient in preparing shop drawings and fabricating steel, that deliveries of steel to site were out of sequence and incomplete, and that erection rates were unacceptably low.
CB complained that the volume of variations and design changes was unacceptable and that Multiplex, as main contractor, was causing delays by the manner in which it was managing the project.
Multiplex complained that CB's labour force was too large and was under-employed. CB denied this and blamed Multiplex for those occasions when the men had insufficient work.
On occasions CB's men were asked by Multiplex to do work outside the steelwork subcontract. Since CB was operating on the basis of reimbursable costs, CB complied with such requests.
Another source of difficulty during the interregnum concerned certain steel which CB had sent to China to be fabricated by SGT. For reasons which are in dispute, SGT was unable to fabricate part of that steel in time for erection in accordance with the programme attached to the Heads of Agreement. Accordingly, it was necessary for some raw steel to be shipped back from China for fabrication in the UK. This did not prove to be an easy operation. There were problems in organising transportation. There were also problems in obtaining the necessary permits. The Chinese authorities were puzzled by the fact that a large quantity of steel was shipped halfway round the world to China for fabrication and then shipped back to the UK untouched. Multiplex sent a representative, Mr Perkins, to Shanghai to assist CB in resolving the situation. According to Mr Perkins' reports, the Chinese Ministry suspected a smuggling operation.
In due course the problems in Shanghai were resolved and the steel was shipped back to England. The fabrication costs in England were higher than in China and the question arose of who should bear the extra cost. This was resolved by a separate agreement between Multiplex and CB, recorded in writing, whereby Multiplex bore £2 million of the additional costs.
Clause 2 of the Heads of Agreement stated that a Supplemental Agreement would be concluded by the end of February. This was not achieved. The negotiations concerning the terms of the Supplemental Agreement continued until mid-June. Both parties took legal advice during the course of these negotiations. CB contends that Multiplex spun out the negotiations for tactical reasons. Multiplex denies this allegation. Be that as it may, the Supplemental Agreement was finally signed by both parties on 16th June. That agreement reads as follows:
"THIS AGREEMENT is made 16th day of June 2004
BETWEEN:
(1) MULTIPLEX CONSTRUCTIONS (UK) LIMITED (Company Number 03808946) whose registered office is situated at Mayfair Place, 8th Floor, 50 Berkeley Street, London W1J 8BY ("the Contractor")
(2) CLEVELAND BRIDGE UK LIMITED (Company Number 03749601) whose registered office is situated at Cleveland House, PO Box 27, Yarm Road, Darlington Co Durham DL1 4DE ("the Sub-Contractor")
(3) THE CLEVELAND GROUP OF COMPANIES LIMITED (Jersey Company Number 75906) whose registered office is situated at PO Box 478, St Helier, Channel Islands, JE2 5SL ("the Guarantor")
WHEREAS;
(A) By a sub-contract ("the Sub-Contract") dated 26 September 2002 made between (1) the Contractor and (2) the Sub-Contractor, the Contractor engaged the Sub-Contractor to carry out the fabrication and erection of structural steel in connection with the design and construction of Wembley National Stadium.
(B) The original Sub-Contract Sum (stated in Article 2.1 of the Sub-Contract) was £60,000,000 and original the period for the carrying out and completion of the Sub-Contract Works (stated in Appendix - Part 4 to the Articles of Agreement) was 81 No. calendar weeks, which period commenced on 8 June 2003.
(C) The Sub-Contractor has made certain claims under the Sub-Contract and certain disputes have arisen between the Contractor and the Sub-Contractor under and in connection with the Sub-Contract.
(D) It has been agreed to resolve and settle all claims and disputes between the Contractor and the Sub-Contractor existing on or before 15 February 2004, and to make consequential amendments to the Sub-Contract on the terms set out in this Agreement.
(E) By a deed of guarantee ("the Guarantee") dated 26 September 2002 made between (1) the Guarantor and (2) the Contractor, the Guarantor agreed to guarantee to the Contractor the performance by the Sub-Contractor of the Sub-Contract and the Guarantor hereby consents to the terms of this Agreement.
(F) By a performance bond ("the Performance Bond") dated 27 November 2002, Gulf International Bank B.S.C. London ("the Surety") agreed, also, to guarantee to the Contractor the performance of the obligations of the Sub-Contractor under the Sub-Contract, with a maximum aggregate liability of the Surety under the Bond of £6,000,000 and the Surety has consented to the terms of this Agreement and has confirmed that the Performance Bond shall continue in full force and effect in relation to the Sub-Contract as varied by this Agreement.
NOW IT IS HEREBY AGREED as follows:-
"1. Unless the context otherwise requires, or this Agreement specifically otherwise provides, words and phrases used in this Agreement shall have the meanings (if any) give or ascribed to them by the Sub-Contract.
"2.1 Subject to Clause 2.2, the provisions of this Agreement are in full and final settlement of all disputes between the Contractor and the Sub-Contractor and all and any claims by the Sub-Contractor to the Contractor and by the Contractor to the Sub-Contractor existing on or before 15 February 2004 under or in connection with the Sub-Contract whether for extension of time, direct loss and/or expense, Variations, other adjustments to the Sub-Contract Sum, damages for breach of contract or otherwise or howsoever arising. Neither the Contractor nor the Sub-Contractor shall be entitled or permitted to make or pursue any claims against the other for any matter arising from any event or circumstance occurring up to and including 15 February 2004 (whether or not known to the Sub-Contractor).
"2.2 Clause 2.1 shall not apply to any claim that the Contractor might have for design workmanship or materials not being in accordance with the Sub-Contract.
"3.1 The Sub-Contract Works shall be varied post 15 February 2004 only by the omission of the fabrication and supply to the Site of the items specified in Schedule 3, Part A.
"3.2 Notwithstanding Clause 3.1, the Sub-Contractor shall retain responsibility under the Sub-Contract for all design and fabrication drawings. In addition, the Sub-Contractor shall retain responsibility under the Sub-Contract for bought out materials and sub-contracts remaining in its scope after execution of this Agreement.
"3.3 The Sub-Contract Works shall be completed in accordance with the revised programme contained in Schedule 4.
"4. Save as may be subsequently adjusted in accordance with the terms of the Sub-Contract (any such adjustment being subject to Clause 2.1 above), it is agreed that (taking account of all the matters referred to in Clauses 2.1, 3.1 and 3.2) the adjusted Sub-Contract Sum (exclusive of Value Added Tax) shall be as specified in Schedule 1.
"5. The Sub-Contractor hereby warrants to the Contractor that it has discharged or will discharge all payment obligations to its sub-contractors and suppliers in respect of work performed and materials supplied up to and including 15 February 2004.
"6.1 In consideration of the above, the Contractor has paid to the Sub-Contractor prior to the date of this Agreement the sum of 4,000,000 (exclusive of Value Added Tax).
"6.2 In addition, the Contractor shall pay to the Sub-Contractor the sum of £1,250,000 (exclusive of Value Added Tax) within 14 days following completion of the lifting of the steel arch (forming part of the Sub-Contract Works) to the position referred to in Schedule 1, paragraph (e).
"7. The parties shall use reasonable endeavours to agree to re-programme the completion of the Sub-Contract Works and to agree a fixed lump sum and/or reimbursable Sub-Contract Sum for the completion of Sub-Contract Works (to incorporate the reimbursable cost items referred to in Schedule 1, paragraph (c), an additional lump sum payment of £500,000 and a 10% contribution to overheads and profit), and to enter into a further supplemental agreement, recording the agreement contemplated by this Clause 7, on or before 29 June 2004 (or other such extended date as agreed in writing between the Contractor and the Sub-Contractor). The said additional lump sum payment of £500,000 will be paid on execution of the further supplemental agreement described in this Clause 7.
"8. In the event that the parties fail to reach such agreement in accordance with Clause 7 on or before 29 June 2004 (or other such extended date as agreed in writing between the Contractor and the Sub-Contractor), the Contractor shall be entitled to give 28 days written notice (or other such extended notice period as agreed in writing between the Contractor and the Sub-Contractor) to the Sub-Contractor further varying the Sub-Contract Works to remove from the Sub-Contract the unperformed reimbursable cost items referred to in Schedule 1, paragraph (c). It is noted in this regard that the Sub-Contractor issued HR1 notices in respect of its Site employees on 30 April 2004.
"9. In the event that the unperformed reimbursable cost items (referred to in Schedule 1, paragraph (c)) are removed from the Sub-Contract Works in accordance with Clause 8, it is agreed that:
"9.1 the parties will liaise during the 28 day notice period with a view to securing alternative employment for as many of the Sub-Contractor's Site employees as possible and ensuring an orderly handover of the works with due respect for consultation and notice requirements; and
"9.2 there shall be no adjustment to the Sub-Contract Sum or other payment to the Sub-Contractor arising for such Variation other than the additional payment referred to in Clause 9.3; and
"9.3 the Contractor and/or his sub-contractors and/or his or their agents may enter upon the Sub-Contract Works and use for a consideration of £500,000 all temporary buildings, plant, tools, equipment and temporary works necessary for the carrying out and completion of the unperformed reimbursable cost items provided that where the aforesaid temporary buildings, plant, tools, equipment and temporary works are not owned by the Sub-Contractor, the Sub-Contractor shall use all reasonable endeavours to ensure that the benefits of all hire agreements and the like in respect of such temporary buildings, plant, tools, equipment and temporary works are fully assigned to the Contractor for the completion of the unperformed reimbursable cost items. The aforesaid consideration will be paid within 14 days of the Sub-Contractor complying with this Clause 9 and leaving the Site; and
"9.4 the adjusted period for the carrying out and completion of the whole of the Sub-Contract Works shall be 26 weeks commenting on 15 February 2004, as described in Schedule 4.
"10. The Sub-Contract shall be amended in accordance with the provisions of Schedule 2 and, save as amended by this Agreement, the Sub-Contract shall continue in full force and effect.
"11. The Guarantor hereby consents to the terms of this Agreement and confirms that the Guarantee will continue in full force and effect in relation to the Sub-Contract as varied by this Agreement.
"12. The parties hereto shall treat the existence and contents of this Agreement as strictly private and confidential between the parties and the parties to this Agreement shall not disclose to any other person the existence or contents of this Agreement, except as may be required by law or in connection with pursuing claims against third parties.
"13. Any Dispute arising under or in connection with this Agreement shall be dealt with in accordance with Articles 3 and 4 of the Articles of Agreement as if it was a Dispute under or in connection with the primary Sub-Contract save that the Mediation Period contemplated by the primary Sub-Contract need not apply.
IN WITNESS whereof this Deed has been executed by the parties hereto and is intended to be and is hereby delivered the year first before written.
SCHEDULE 1
(Sub-Contract Sum)
The adjusted Sub-Contract Sum shall comprise:-
(a) the gross valuation as a [sic] 15 February 2004 of work properly completed on Site and goods and materials brought onto the Site by the Sub-Contractor and Off-Site Materials in accordance with the provisions of the Sub-Contract, subject to the deduction of Retention and other deductions permitted under the Sub-Contract; and
(b) a fixed, lump sum of £12,000,000 for the completion of all remaining works, services and other obligations under the Sub-Contract (save for those reimbursable cost items referred to in paragraphs (c) and (f) below and those lump sum items referred to in paragraphs (d) and (e) below) subject to the deduction of Retention and other deductions permitted under the Sub-Contract; and
(c) all costs reasonably and properly incurred by the Sub-Contractor from 15 February 2004, in connection with the erection and site works (being site staff, direct labour, cranes and other site related costs), plus a fixed amount for off-site administration and overheads at a rate of £80,000 per month from 15 February 2004, subject to the deduction of Retention and other deductions permitted under the Sub-Contract; and
(d) a fixed, lump sum of £4,000,000 previously paid as consideration for this Agreement (as referred to in Clause 6.1 above) not subject to the deduction of Retention;
(e) a fixed, lump sum of £1,250,000 following completion of the rotation of the steel arch to its parked, temporarily restrained position prior to load transfer (as referred to in Clause 6.2 above) not subject to the deduction of Retention; and
(f) the costs reasonably incurred by the Sub-Contractor in purchasing steel (as directed by the Contractor) that are not included in the gross valuation as at 15 February 2004, subject to the deduction of Retention and other deductions permitted under the Sub-Contract. The Contractor has, prior to the execution of this Agreement, directed that all steel required for these Works is purchased by the Sub-Contractor, but the Contractor reserves the right to alter this direction for subsequent purchases.
Payment of the adjusted Sub-Contract Sum shall be made, monthly, in accordance with the payment provisions of the Sub-Contract save as to the items referred to at paragraph (c) above which shall be paid by the Contractor to the Sub-Contractor at two week intervals. An Application for Payment in respect of the items referred to at paragraph (c) above may be made in accordance with clause 21.3 of the Sub-Contract at two week intervals and clause 21 of the Sub-Contract shall be construed accordingly with the necessary changes made.
If the Contractor proposes to issue a Certificate of Payment for an amount that is less than the amount claimed by the Sub-Contractor in an Application for Payment, Mr M Stagg (or if unavailable, Mr B Sheppard) of the Contractor shall first consult with Mr R Grant (or if unavailable, Mr J Child) of the Sub-Contractor before such Certificate of Payment is issued.
(All costs associated with the painting for which a provisional sum was included in the Sub-Contract are deemed to be included in the lump sum referred to at paragraph (b) above. For the avoidance of doubt all costs associated with the expenditure of the Provisional Sum for Fire Protection is not included in the lump sum referred to at paragraph (b) above. Such expenditure will be recovered by the Sub-Contractor monthly and in addition to the draw down on the lump sum at paragraph (b)).
SCHEDULE 2
(Consequential amendments to the Sub-Contract)
The Sub-Contract Conditions shall be amended as follows:-
Articles of Agreement
Appendix - Part 4:
Remove programme referred to and replace with programme contained in Schedule 4 to this Agreement.
Sub-Contract Conditions
Clause 1.3:
The definition of Sub-Contract, after "the Appendix", insert "the Supplemental Agreement"
Clause 2.2
Before "1. Articles of Agreement" insert "1A. Supplemental Agreement"
Insert new definition after "Sub-Contractor Training Vacancies List" as follows:-
"Supplemental Agreement: The agreement dated 16th June 2004 made between the Contractor, the Sub-Contractor and the Guarantor, supplemental to the Sub-Contract."
Clause 39.5: Delete and replace with:-
"In the event that the Sub-Contractor elects the option to provide to the Contractor a Retention Bond in lieu of the Retention, the Sub-Contractor shall procure and deliver to the Contractor a Retention Bond for an amount equivalent to 5% of the Sub-Contract Sum, reducing to 2.5% of the Sub-Contract Sum at Practical Completion, in the form attached in Appendix - Part 23 to the Articles of Agreement, to be issued by a bondsman previously approved by the Contractor and following receipt of the Retention Bond duly executed by the bondsman, the Retention deducted by the Contractor from payments shall be paid to the Sub-Contractor."
SCHEDULE 3
VARIED SUB-CONTRACT WORKS
Part A
(Agreed omissions to the Sub-Contract Works)
The Contractor will carry out the following Sub-Contract Works:
(i) Attached A4 Schedule (2 pages) entitled "Schedule 3 MPX Fabrication responsibility including MPX sublet, China steel returned unmade and 667T CBUK sublets";
(ii) Attached A4 Schedule entitled "Schedule 3 varied Sub-Contract Works Part A - Document 2..."
SCHEDULE 3
VARIED SUBCONTRACT WORKS PART A - DOCUMENT 2
Project Buyouts
Holding Yard Wembley
Shunting
Roof Expansion Joints
Site Electrodes
Cat Walks
Temp Works - Roof Props
M&E Package for moving roof
Cleats 18Te
Tube Trusses 45te
Cruciform 10te
Fire Protection
3500m² paint
Project Subcontracts
Site touch up - labour
Site touch up - Plant
Site touch up - Materials
In-situ machining
Strand Jacking Equipment
Strand Jacking Supervision
Part B
(Responsibilities retained by Sub-Contractor)
The responsibilities retained by the Sub-Contractor shall be as those arising from the primary Sub-Contract save as amended by this Agreement.
SCHEDULE 4
(Replacement Programme)
The programmes are:
(i) Attached A3 Programme WS05-V1 Acceleration (Sub-Let fabrication listing), Rev. 0, 11-Feb-04;
(ii) Attached A4 Projected CBUK Programme (incorporating CBUK Design & Fabrication Dates as at 06/02/04) Rev CBDP..."
Following the execution of the Supplemental Agreement, Multiplex issued payment certificate number 35, dated 25th June. That certificate included the sum of £32.66 million as representing the value of works up to 15th February. Somewhat confusingly, the figure of £32.66 million is not expressly shown in the build-up attached to the certificate. However, if one draws a line across the page below the 17th entry and adds up all figures above that line, it can be seen that the subtotal at this point in the calculation is £32.66 million. Below that line, various figures are added for work done and material supplied after 15th February.
The total value of the certificate (including the £4 million lump sum agreed in the Heads of Agreement and allowing for certain adjustments which were made by amendment to certificate 35) is £52,656,727. After giving credit for previous payments, the net sum shown as due in certificate 35 is £1,684,386. That sum was duly paid by Multiplex to CB.
Clause 7 of the Supplemental Agreement provided that the parties should use reasonable endeavours to agree by 29th June (a) a new programme for the completion of the steelwork and (b) a fixed price or cost plus subcontract for the outstanding work. No such agreement was reached by 29th June and there was no agreement to extend that date.
Multiplex contends that the negotiations came to nothing because CB failed to put forward any sensible proposals for carrying out the remainder of the steelwork. CB contends that insofar as Multiplex took part in any negotiations during this period such participation was a sham; Multiplex had made up its mind before entering into the Supplemental Agreement that it would serve notice under clause 8 removing all onsite erection from CB; this was part of the Armageddon plan, which Multiplex had by then decided to implement.
Another important event occurred in the latter part of June. That was the lifting of the arch to the requisite angle of 112 degrees. CB contends that lifting was completed on 22nd June. Multiplex contends that because of adjustments made on 29th June, that is the date when lifting was completed.
On 30th June Multiplex wrote to CB giving 28 days notice, pursuant to clause 8 of the Supplemental Agreement, that all remaining onsite erection work would be removed from CB's subcontract. The service of this notice constituted the first stage of implementing the Armageddon plan. Multiplex contends that the decision to serve the notice was taken on 29th June.
On 6th July, Multiplex wrote to CB stating that it would not pay the £1.25 million bonus due on the lifting of the arch. The grounds stated for withholding payment were that Multiplex had a counterclaim for (a) CB's fabrication of more than 100 arch members out of tolerance and (b) CB's delay in raising the arch. The service of this withholding notice was the next step in implementing the Armageddon plan.
On 16th July, Multiplex issued certificate 37, which revalued CB's works downwards by a very large sum. This certificate showed the valuation of steelwork as at 15th February to be £23,973,208. A deduction for inefficient working since 15th February was made in the sum of £3,529,904. A sum of £1,580,446 was deducted because of misalignment of arch members and consequential delay to the raising of the arch.
The bottom line of certificate 37 was that CB owed to Multiplex the sum of £12,410,251 plus VAT.
On the same day Multiplex also issued certificate 38. This certificate valued CB's works in the fortnight ending 2nd July at £535,751. Thus the sum shown as due from CB to Multiplex in certificate 38 was £11,874,500 plus VAT.
The only consultation which occurred before the issue of these two certificates was a telephone call from Mr Stagg to Mr Grant on the afternoon of 16th July. The two certificates, together with an invoice in the sum of £11,874,500 plus VAT, were sent by fax from Multiplex to CB later that afternoon.
CB protested in strong terms about the deductions and contracharges which were made in certificates 37 and 38. The issues were discussed at a meeting between the parties on 21st July. Later that day, Clifford Chance, Multiplex's solicitors, sent a notice to CB referring the disputes concerning certificates 37 and 38 to adjudication.
On 23rd July CB wrote to Multiplex asserting that Multiplex was in repudiatory breach of contract on the following grounds:
"1. In breach of clause 4 and Schedule 1(a) of the Supplemental Agreement you have sought to revalue the agreed gross valuation of 15th February 2004 and purported to make deductions from that revaluation.
"2. In breach of clause 7 of the Supplemental Agreement you have failed to use reasonable endeavours to agree a new programme and price for the completion of the Sub-Contract Works. As set out in correspondence between us, this is most clearly evident from the fact that you had already engaged other contractors to take over our erection and site works before 29th June 2004.
"3. Consistently and without proper reason under certifying and/or making arbitrary deductions from our interim applications.
"4. Failure to make payment of £1.25 million within 14 days of the completion of the lifting of the steel arch pursuant to clause 6.2 of the Supplemental Agreement.
"5. A persistent failure to properly consult before issuing a Certificate of Payment for an amount that is less than the amount claimed in our application for payment pursuant to schedule 1 of the Supplemental Agreement."
By that letter, CB gave to Multiplex a period of seven days to rectify the breaches of contract, failing which CB would cease work.
On 26th July, Clifford Chance responded to CB's letter denying the alleged breaches of contract.
On 2nd August CB wrote to Multiplex stating that CB accepted Multiplex's repudiation and accordingly would carry out no further work on the project. On the same day CB stopped work on the Wembley project.
Multiplex responded on 5th August, asserting that CB had thereby repudiated the contract. In the meantime Hollandia, which had already taken over some of the steel fabrication, was engaged as steelwork subcontractor in place of CB.
Thereafter, five adjudications followed between the parties. The same adjudicator, Mr David Miles of Glovers, dealt with all five matters. In summary his conclusions were as follows:
(i) The completion of lifting the arch occurred on 29th June 2004. Therefore, Multiplex's withholding notice served on 6th July was valid.
(ii) The gross valuation of CB's works as at 15th February 2004 for the purpose of paragraph (a) of schedule 1 to the Supplemental Agreement was £32.66 million.
(iii) CB's reimbursable costs for the period after 15th February should be reduced by 15 per cent because the loss of tags from steel members caused disruption on site.
(iv) The concrete subcontractor was the effective cause of delay to the lifting of the arch. This delay was not a breach of contract by CB.
(v) Multiplex was entitled to recover contracharges totalling £293,516 in respect of the defects found in arch members.
The overall result of these findings, together with further findings on specific issues between the parties, was that Multiplex owed to CB sums totalling £5,952,194 inclusive of VAT and interest. Multiplex duly paid the sums awarded by the adjudicator.
Each party was aggrieved by the conduct of the other. Neither party treated the adjudicator's decisions as the final resolution of the disputes between them. Accordingly, both parties commenced the present proceedings.
Part 3. THE PRESENT PROCEEDINGS
On 2nd August 2004, CB issued a claim form against Multiplex in the Technology and Construction Court, claiming damages for misrepresentation and breach of contract. On 21st October 2004, Multiplex issued a claim form against CB in the Technology and Construction Court, claiming damages for breach of contract. Both parties served particulars of claim in their respective actions in early November 2004.
By order dated 10th December, the two actions were consolidated. In the consolidated action, Multiplex became claimant and CB became defendant. Multiplex served its consolidated particulars of claim on 23rd December 2004. CB served its consolidated defence and counterclaim on 28th January 2005. Further pleadings followed and both parties made amendments to their statements of case.
In brief outline, Multiplex's pleaded case in the consolidated proceedings is as follows:
(i) CB was in breach of contract or negligent by designing, fabricating and constructing the arch with defective members.
(ii) CB was in breach of contract by failing to raise the arch by 21st April 2004 as specified in clause 9 of the Heads of Agreement.
(iii) CB was in breach of contract or negligent by fabricating and erecting defective steelwork for the bowl.
(iv) CB was in breach of contract or negligent by producing defective drawings for the steelwork which was fabricated by Hollandia.
(v) CB was in breach of contract by causing the Bridon cable connections for the arch to be twisted.
(vi) By reason of those breaches of contract or negligence Multiplex is entitled (as an alternative to damages) to an abatement of the price payable to CB for the works. The claim for abatement is not subject to the £6 million cap imposed by clause 12.2 of the subcontract.
(vii) The Supplemental Agreement had retrospective effect as from 15th February 2004. It superseded any terms of the Heads of Agreement which were inconsistent with the Supplemental Agreement.
(viii) CB failed ever to propose a price or programme for completing the steelwork as envisaged by the Heads of Agreement and the Supplemental Agreement. Multiplex lawfully removed onsite erection from the scope of CB's works pursuant to clause 8 of the Supplemental Agreement.
(ix) The revaluation of CB's works and the deductions made in certificates 37 and 38 were lawful and in accordance with the subcontract and the Supplemental Agreement.
(x) CB was in breach of the Supplemental Agreement in that it failed to complete the design, drafting, fabrication and transport of steel in accordance with the programme contained in schedule 4 to the Supplemental Agreement.
(xi) CB was in breach of contract or negligent in that it failed to erect bowl steelwork in accordance with the programme attached to the Heads of Agreement and/or at the average rate of 400 tonnes per week.
(xii) CB repudiated the subcontract by its letter dated 2nd August 2004 and by ceasing work on that date.
(xiii) Multiplex is entitled to recover from CB the sums which it has overpaid and also damages for breach of contract.
In brief outline, CB's pleaded case in the consolidated proceedings is as follows:
(i) CB's entitlement to reimbursement of costs under the Heads of Agreement was not subject to those costs being reasonably or properly incurred. CB was not required to execute the works with such diligence and expedition as was required to meet the programme attached to the Heads of Agreement.
(ii) The Supplemental Agreement did not have retrospective effect or supersede the Heads of Agreement.
(iii) The programme attached to the Heads of Agreement did not have contractual effect.
(iv) Although CB replaced 24 arch members at the instigation of Mott, it is denied that those or any other arch members were out of tolerance. CB was not in breach of contract or negligent in designing or erecting the arch members.
(v) The delay in raising the arch from 21st April to 22nd June was not a breach of contract, because the Supplemental Agreement superseded clause 9 of the Heads of Agreement. Furthermore, the effective cause of delay to the arch was PCH using the wrong grade of concrete for the bases. Accordingly, CB was entitled to an extension of time for the arch on that and other grounds.
(vi) Any claim for defects in the arch members was compromised by clause 2.1 of the Supplemental Agreement.
(vii) The defects which are alleged in the bowl steelwork are denied. The problem with Bridon cables was resolved. The alleged defects in drawings for steelwork are denied. Multiplex cannot circumvent the £6 million limit set out in clause 12.2 of the subcontract by presenting these matters as claims for abatement.
(viii) In June 2004 Multiplex, in breach of the Supplemental Agreement, made no proper attempt to agree with CB a price and programme for completing the steelwork. CB did attempt to reach such agreement.
(ix) Certificates 37 and 38 were gross under-valuations. CB was entitled to receive the sums claimed in its valuations preceding those certificates.
(x) The Supplemental Agreement did not impose upon CB the obligation to complete sections of work in accordance with the programme contained in schedule 4.
(xi) CB's average steelwork erection rate between 15th February and 30th June 2004 was 202 tonnes per week. This was a proper rate in the circumstances and did not put CB in breach of any contractual obligation.
(xii) In any event, CB's liability to Multiplex is limited to £6 million by clause 12.2 of the subcontract.
(xiii) The gross valuation of CB's works as at 15th February for the purposes of the Supplemental Agreement was agreed in the sum of £32.66 million. Multiplex is estopped from contending otherwise.
(xiv) Multiplex was in breach of contract by reneging on the valuation agreement, failing to pay the arch bonus, grossly under-valuing CB's works in certificates 37 and 38, failing to consult before issuing those certificates, and implementing the Armageddon plan.
(xv) Multiplex's breaches of contract amounted to repudiation, which CB accepted.
(xvi) CB is entitled to the arch bonus of £1.25 million, the various sums claimed in CB's July 2004 applications and substantial damages.
The above is a very brief summary of allegations which span some 240 pages of pleadings and several ring files of schedules.
At a case management conference on 5th December 2005, I discussed with counsel the most cost-effective manner in which to progress this complex litigation. A consensus emerged at that hearing that the determination of certain issues may be critical to the resolution of this whole litigation. Those issues concern the interpretation of the Heads of Agreement, the interpretation of the Supplemental Agreement, whether £32.66 million was the finally agreed value of CB's work up to 15th February 2004, and who repudiated the subcontract. Accordingly, with the consent of both parties, I made an order for the trial of preliminary issues concerning those matters.
The precise formulation of the preliminary issues has continued to evolve since 5th December, as both parties made certain concessions and refined their respective cases. The final version of the preliminary issues which the court is called upon to decide reads as follows:
"ISSUE NUMBER 1: Supplemental Agreement
1. Is the Supplemental Agreement effective with retrospective effect from 15 February? If so, did clause 3.3 and/or 9.4 of the Supplemental Agreement supersede clause 9 of the Heads of Agreement with retrospective effect from 15 February 2004?
ISSUE NUMBER 2: Heads of Agreement
2. Does the Heads of Agreement, on a proper construction in the circumstances in which the Heads of Agreement was made, or as a matter of common intention or as matter of law provide that CBUK was obliged to execute the Sub-Contract Works with such diligence and expedition as were reasonably required in order to meet the dates of the projected CBUK programme which was attached? (APC §11C(ii); ADCC §11C(ii)).
ISSUE NUMBER 3: Programme
3. On a proper construction in the circumstances in which the Heads of Agreement was made did clause 9 of the Heads of Agreement:
(a) Oblige CBUK to complete the Sub-Contract Works in accordance with the Projected CBUK Programme (APC §65A)?
(b) Require CBUK to carry out the Sub-Contract Works in the sequence set out in sequence set out in the Projected CBUK Programme but not to complete any particular activity by a particular date? (ADCC §65A.1(b))
(c) Require CBUK to complete Phases 11 to 18 of the bowl steelwork by 26 July 2004? (APC §65A; ADCC §65A.1(d))
(d) Permit CBUK to apply for an extension of time within which it was required to complete Phases 11 to 18 of the bowl steelwork (by 26 July 2004) and to raise the Arch (by 21 April 2004)?
(e) Place CBUK under an obligation to achieve an average on-site steelwork erection rate between 15 February and 26 July 2004 of 400 tonnes/week? (APC §65B; ADCC §65B).
ISSUE NUMBER 4: Settlement of Variations
4. Was the effect of the Supplemental Agreement in relation to pre-15 February variations:
(a) That insofar as such variations were disputed, the costs of carrying out the varied elements of the works after 15 February 2004, whether off site or on site, were compromised by the terms of the Supplemental Agreement? or
(b) (i) The costs of the varied elements of such works on the off site before the 15 February 2004 were compromised by inclusion within the agreed sum of £32.66 million
(ii) The cost of the varied elements of such works off site (drawing, design and fabrication) carried out post 15 February 2004 was included in the agreed sum of £12 million.
(iii) The cost of the varied elements of such works on site carried out post 15 February 2004 were paid on a costs reimbursable basis.
ISSUE NUMBER 5: Effect of Clause 2 of the Supplemental Agreement
5. Do clauses 2.1 and 2.2 of the Supplemental Agreement, on a proper construction in the circumstances in which the Supplemental Agreement was made, prevent Multiplex from making claims for design, workmanship or materials not being in accordance with the Sub-Contract in relation to matters which were known to it at 15 February 2004? (ADCC §35.1; ARDCC §16)
ISSUE NUMBER 6: Valuation Agreement
6. (a) Did Mr Matthew Stagg orally agree that the final valuation of the work undertaken by CBUK to 15 February 2004 would be £32.66 million? (the "Valuation Agreement")? (ADCC §85.1(4)(d); ARDCC §34(4)), if so
(b) Is the Valuation Agreement binding on Multiplex? (ARDCC §36A(2))
ISSUE NUMBER 7: Entire agreement
7. (a) Was the effect of clause 4 and Schedule 1(a) of the Supplemental Agreement and the Valuation Agreement that the valuation to 15 February 2004 of £32.66 million became part of the adjusted sum payable under the Amended Sub-Contract? (ADCC §87; ARDCC §36)
(b) Is the effect of clause 1.8.1 of the Amended Sub-Contract that the Amended Sub-Contract sets out the entire agreement between the parties so that CBUK is not entitled to rely on the Valuation Agreement? (ADCC §87B; ARDCC §36(c) and 36B), if so
(c) Is Multiplex estopped and precluded from contending that the alleged Valuation Agreement did not become a term of the Supplemental Agreement and from relying on clause 1.8.1 of the Sub-Contract? (ADCC §87A; ARDCC §36A)
ISSUE NUMBER 8: Repudiation
8. Which party was in repudiatory breach of contract, in particular:
(a) Was Multiplex in repudiatory breach by:
(i) Refusing to make payments of CBUK based on the agreed valuation of £32.656 million?
(ii) Refusing to make the payment of £1.25 million within 14 days of the rotation of the Arch to its parked temporarily restrained position?
(iii) Refusing to pay sums applied for by CBUK in respect of costs reimbursable to 2 July 2004?
(iv) Failing and refusing to cooperate with CBUK in seeking to agree a new programme and price for completion of the Sub-Contract Works?
(v) Failing to consult CBUK before issuing certificates of payment for amounts less than the amounts claimed in the application for payment? (ADCC §§93; ARDCC §48).
If not,
(b) Was CBUK in repudiatory breach by giving notice on 2 August that it would no longer carry out any further work under Sub-Contract? (APC §§68; ADCC §68).
ISSUE NUMBER 9: Damages claim
9. Is CBUK's claim for damages for the loss of the sums which it would have made on the negotiation of the reprogramming of the completion of the Sub-Contract Works sustainable in law? (ADCC §97(3))
ISSUE NUMBER 10: Abatement
10. (a) Are the claims in Schedule 1A to 1E and item 16 of Schedule 3 claims for an abatement?
(b) If so, what is the proper measure of the abatement?"
The trial of the preliminary issues commenced on Tuesday, 25th April and lasted for a month. The senior management teams of both parties gave evidence about the history of events during 2003 and 2004. At the end of the hearing I said that I would consider the evidence and submissions over the vacation week and give judgment on Monday 5th June. This I now do.
Part 4. MULTIPLEX'S EVIDENCE
In this part of the judgment I shall summarise the evidence given by Multiplex's witnesses, in so far as appropriate. I shall weave together what appears in the witness statements and what the witnesses said in oral evidence. In respect of each witness, I will attempt to set matters out in a convenient order.
ASHLEY MULDOON
Mr Muldoon was appointed Multiplex's construction manager on the Wembley project in April 2003 and became the project director in May 2003. Problems had developed at Wembley and Mr Muldoon was required to get the project back on track. There were a number of issues which Mr Muldoon had to address. These included the performance of Mott and the performance of CB.
Mr Muldoon's predecessor had acknowledged that CB had been delayed by late and incomplete design information and had asked CB to accelerate, on the understanding that CB would be paid for acceleration. In Mr Muldoon's view CB never properly substantiated any claim for acceleration costs.
On 4th June Mr Muldoon attended a meeting with Mr Rogan of CB. At this meeting Mr Rogan claimed substantial sums and extension of time on the basis of design changes. Mr Muldoon was sceptical about these claims, but he was still investigating. Mr Muldoon considered that CB had acted sensibly in employing a retro squad to deal with design changes.
On a number of occasions Mr Whalley of Multiplex told CB how their claims for variations, extension of time, loss and expense should be presented. This was set out, for example, in Multiplex's letters to CB dated 1st July, 9th December and 10th December 2003. Unfortunately CB never set out their claims properly. Mr Muldoon regarded the paperwork as important.
During the course of 2003 there were more and more problems with CB's performance. CB's workforce was unmotivated and unproductive. CB's design and fabrication processes were badly managed and slow. CB devoted insufficient resources to these operations. Multiplex inspected CB's Darlington premises in September and found that only one bay was allocated to Wembley. That bay was entirely used for the arch steelwork. In order to overcome some of their difficulties and to reduce costs, CB sent some of their steel to be fabricated in China by Shanghai Grand Tower.
When CB started erecting steel on site, their progress was slow and they fell far short of 500 tonnes per week (the rate expected by Multiplex).
CB sought to blame all delays on Mott's design changes and delays, but Mr Muldoon did not think that this was justified. Multiplex certainly was dissatisfied with Mott and expressed this dissatisfaction in some strongly worded letters to Mott. Nevertheless Mr Muldoon considered that the impact on CB's progress was limited.
CB were responsible for producing AFC drawings for the arch, and there were difficulties with the arch which were of CB's making.
In September both by letter and at a meeting CB claimed a 30 week extension of time. This claim surprised Mr Muldoon and he did not think it was justified.
During the autumn Mott made changes to the design of the PPT. These could have had a very serious effect on CB's work, but in fact they did not. The problem here was that two different offices of Mott had worked on the PPT design and there was an imbalance of forces operating on the PPT. CB needed to spend 2-3 weeks checking and analysing the effects of this. Happily the outcome was that physical changes were only required to very few members that had been fabricated. Mr Muldoon considered that this matter only caused a 3 week delay to work on the PPT. It did not affect the roof at all, because CB did not start roof work until early 2004.
In November CB asserted that the estimated total cost of their works was £83,294,645. This was substantially in excess of the agreed fixed price of £60 million. CB attributed the cost increase to variations and said that the arch in particular had become more complex.
On 28th November Mr Rogan telephoned Mr Muldoon and said that he had been to a meeting with Sheikh Abdullah. Sheikh Abdullah was not prepared to cashflow the deficit on the project. As a result there were only two ways forward. Either Multiplex had to issue variations for £23 million or they would have to move to a cost plus contract. Unless something changed CB would be negative £9 million by January and CB would be "done for". CB's overtime working would have to cease immediately.
On 5th December Mr Rogan wrote to Mr Muldoon stating that CB were entitled to an extension of 50.5 weeks. This was a 20 week increase from the claim made in September. Mr Muldoon noted that there was plenty of work available for CB to do in the period between September and December. He did not believe that this increased claim could be justified. CB failed properly to substantiate their claims for extension of time, as required by the subcontract. The difficulty was that CB, instead of producing a properly formulated claim, simply lumped together every RFI and every letter and said that all these matters had caused delay.
In December CB declared that they would no longer accelerate, but would return to "normal working". Mr Rogan told Mr Muldoon that CB were in financial difficulties and may become insolvent if their parent company withdrew support. Also in December Multiplex issued a certificate, which clawed back monies previously paid to assist cashflow. This was because CB had not complied with the conditions of the cashflow advance, agreed between Mr Whalley and Mr Rogan.
In January there were further delays by CB in fabricating and delivering the steelwork for the arch. A dispute about the extent of CB's responsibilities in respect of the arch was referred to adjudication. However, before the adjudication was concluded this matter was settled by the Heads of Agreement.
Multiplex imposed a design freeze in January. They instructed Mott that changes should only be made to drawings if absolutely necessary. As the documents show, Multiplex were seriously dissatisfied with Mott and took a tough line with them in correspondence.
During January CB expressed a wish to outsource some of the steel fabrication, because of the limited capacity of their own Darlington factory. Mr Muldoon discussed with Mr Rogan whether Multiplex could help. It might be easier if Multiplex made any approach to CB's competitors, which was necessary. Accordingly Multiplex had discussions with other steelwork companies about the possibility of them taking over the fabrication of steel for the roof and part of the bowl.
During January Mr Muldoon discussed a number of scenarios with Mr McGregor and these can be seen in Mr McGregor's notes of that period. Mr Muldoon thought that the most prudent way forward was to continue with CB. The problem was getting them to perform.
On 27th January there was a top level meeting between CB (represented by Sheikh Abdullah, Mr Grant and Mr Nightingale) and Multiplex (represented by Messrs Roberts, Stagg and Muldoon). CB asserted that the total cost of the works would now be £91 million. Mr Grant proposed moving to cost plus for four months while a new programme was prepared. He said that if this proposal was not acceptable, CB would take Multiplex to adjudication for ever.
Since CB had not properly quantified their variations claim, Mr Roberts told Multiplex's staff to carry out their own valuation exercise. They did so and the outcome was the letter sent by Mr Muldoon to CB on 4th February. In this letter Multiplex valued change notices 1 - 720 (excluding variations to the arch and craneage system) at £2.8 million odd.
CB also had claims for extension of time, acceleration and mitigation, but these were not substantiated.
Negotiations leading up to the Heads of Agreement continued through early February. Mr Muldoon recalls a telephone conversation with Mr Stagg on 17th February in which he was asked for the value of work done in January and up to 15th February. He does not think that this conversation was on 13th February (as suggested in cross-examination). Mr Muldoon told Mr Stagg what CB had claimed, but he could not say what they would get, because the commercial department had not yet done the assessment. Mr Rogan then came onto the phone and Mr Muldoon said the same thing to him.
Mr Muldoon was not involved in finalising the Heads of Agreement.
Following the Heads of Agreement CB brought in Richard Thomas. Mr Muldoon understood that this was intended to revitalise the site team and provide a new leader. Unfortunately CB's work was slow and inefficient during the period after the Heads of Agreement. This problem was aggravated because steel was coming to site in the wrong order and not properly tagged. Throughout the period February to June erection rates were unacceptably low. On a number of occasions Mr Muldoon complained to CB about the large number of men on site, the slow progress and the general lack of efficiency. However, Mr Muldoon does not recall any occasion during this period when he said that Multiplex would take back monies paid on the grounds of inefficiency.
During this period it was CB, not Multiplex, who dragged their feet in negotiations. Also CB sought to change the deal. In particular, they sought to make Multiplex bear the additional costs attributable to China steel. These costs arose, because Shanghai Grand Tower could not fabricate all the steel by the required dates. So some steel had to be brought back to England and fabricated at higher cost. In the result the cost of this was shared equally between CB and Multiplex. In Mr Muldoon's view, CB held a gun to Multiplex's head in respect of the China steel and Multiplex took a commercial decision to move matters forward.
The Heads of Agreement contemplated a final valuation of work as at 15th February being carried out. WT were instructed to do this. Mr Muldoon regarded WT as independent, even though Multiplex had previously employed them to do a cost plan for fitting out. WT came up with two different figures in their report, namely £30,294,651 (assuming maximum entitlement for off-site materials and preliminaries) and £30,052,606 (on the basis of actual works carried out). Mr Muldoon agreed to pay the higher figure on a cashflow basis. The WT valuation included variations which Mr Muldoon believed were covered by the Heads of Agreement. Mr Muldoon was prepared to pay on an interim basis for variations which he did not think were justified.
On 24th February Mr Muldoon learnt from Mr Petaccia that 141 arch members fabricated by CB were more than 25 millimetres out of tolerance. After that Mott did an extensive exercise to assess which of those members would need to be modified or replaced and which could remain as they were. CB identified 9 further arch members which required replacement.
There was a separate problem with the arch bases. CB had failed to put enough holes in the cast-in cans. In order to remedy this it was necessary, to put Macalloy bars in the bases and to raise the grade of concrete from grade 40 to grade 60. Unfortunately PCH put concrete grade 40 into the bases. There were also some voids in the concrete under the can. This necessitated further remedial work, namely removing the top sections of concrete, putting in additional reinforcement and then pouring on concrete grade 60. Mr Muldoon agreed with Mr Rogan that CB could put in bearings for the arch after the rectification work to the concrete was complete. He also said that there were many other issues with the arch which needed to be resolved, in addition to the bearings.
In the event, the lifting of the arch was delayed from 21st April (the date in the Heads of Agreement) to 29th June. Mr Muldoon did not concede that the concrete defects were the dominant cause of the arch delay. Indeed he did not think that this was the case. In Mr Muldoon's view the defective arch members were more of an issue. However, he did not make a final judgment about this at that time.
Throughout the costs reimbursable period CB worked inefficiently. They had many men on site who were doing nothing. Mr Muldoon believed that CB were abusing the cost-plus arrangement.
At some time in 2004, probably after the Heads of Agreement, Mr Muldoon started discussing the Armageddon plan with his colleagues. This was a worst case scenario, in which CB left the job and Hollandia took over the whole steelwork contract. Mr Muldoon and his colleagues also looked at other scenarios. These scenarios are set out in the attachments to various emails sent by Mr Ong. Mr Muldoon was cross-examined about these scenarios at some length. Hollandia's figure of £14 million for roof work was included in many of the options, simply because CB had not quoted any figure for that item.
Mr Muldoon's email exchanges of 4th-5th May are part of the process of examining the options. The reference to "hoping they fall over under the pressure" was a reference to getting a reasonable way forward with CB. The phrase "fall over" did not mean become bankrupt.
Mr Muldoon's briefing note for a meeting with his colleagues on 6th May identifies all possible options. The reference to "be nice to CB" refers to the period after giving notice under clause 8 of the Supplemental Agreement. It would be an awkward period while Hollandia was taking over erection from CB and Mr Muldoon wanted the handover to be amicable. Multiplex would subsequently revalue CB's work to what Multiplex believed to be the correct figure and Multiplex expected an adjudication to follow.
Mr Muldoon maintained that during May and June (before 29th June) Multiplex had not definitely made up its mind to get rid of CB. On the contrary it was examining all the options with care and in detail. For example, the attachment to Mr Ong's email of 9th June showed two plan As, two plan Bs and also a plan D. These options included the following:
· CB continue with erection and with the existing fabrication (i.e. that not outsourced pursuant to the Heads of Agreement).
· CB cease erection work, but continue with the existing fabrication.
· CB leave the job altogether.
The complete departure of CB was a worst case scenario ("Armageddon"), because it would be a massive operation to transfer the steelwork to a new sub-contractor in the middle of the job. Furthermore, Hollandia were only prepared to step in on a cost plus basis. So a complete switch from CB to Hollandia was not something which Mr Muldoon desired. Mr Muldoon's primary aim was to have the right sub-contractor going forward in the right mindset.
Although Armageddon was just one option, it required detailed advanced planning and preparation. This explains the numerous detailed notes about how Armageddon would be implemented. It also explains why Mr Muldoon had detailed discussions with Hollandia from March 2004 onwards.
As time went on, however, it became increasingly likely that Armageddon would be the outcome. This was because, despite repeated requests, CB never produced a price and programme for completing the works after expiry of the costs reimbursable period. In the absence of such a price and programme, Multiplex would have to serve notice under clause 8 of the Supplemental Agreement (removing erection works). Thereafter Multiplex would revalue CB's works to what Multiplex regarded as the proper figure. This may well prompt CB to walk off site.
The revaluation of CB's works which Mr Muldoon had in mind comprised the following:
· Revaluing CB's works as at 15th February to what Multiplex regarded as the proper figure;
· Withholding payment of the arch bonus by reason of CB's breaches of contract, if legal advice supported this course;
· Making a 50% deduction from payments for the costs reimbursable period, to reflect inefficiency and lack of productivity.
Mr Muldoon believed that each of these steps was justified and was prepared to defend Multiplex's position in adjudication.
In early June John Roberts (the chairman of CB) and Andrew Roberts (the chief executive) visited the UK. Mr Muldoon and Mr Stagg met them on 10th June to discuss Wembley. The only decision made at that meeting was that Multiplex would sign the Supplemental Agreement.
In June Multiplex set about instructing expert witnesses to act for them in the anticipated adjudication.
The Supplemental Agreement went through many drafts before it was finally signed. It was Mr Muldoon's understanding that at that stage no final valuation had been agreed for CB's works up to 15th February. He understood from Mr Stagg that the sum of £32.66 million had only been agreed as an interim figure.
Both parties wanted to sign the Supplemental Agreement before the arch was lifted.
CB only became willing to put proposals for going forward after the Supplemental Agreement was signed. Even at this stage CB only put forward proposals based on cost plus. Furthermore CB were proposing that Hollandia should manage CB's staff on site. This proposal that Hollandia should actually manage CB on site went beyond Mr Muldoon's earlier suggestion that Hollandia might assist CB. Mr Muldoon discussed CB's proposals with Mr Rogan at a meeting on 14th June. Mr Muldoon found those proposals to be completely unacceptable.
On 16th June Mr Muldoon attended a Multiplex board meeting at which the signing of the Supplemental Agreement was noted. The June board report (which appears in the trial bundle immediately after the June board minutes) was not in fact prepared for the board until July. Mr Muldoon denies that he was initially confused about the date of the June board report or that he tried to trim his witness statement to overcome a perceived difficulty in Multiplex's case. It was true both in June and in July that a smooth transition was required for whatever works were transferred to Hollandia.
On 22nd June Mr Muldoon received a document from CB, setting out the cost to completion. This was on a cost plus basis. Mr Muldoon had further meetings with CB on 22nd and 23rd June. Mr Rogan stated that there was no point in putting forward a fixed priced figure, because that would be too high.
On 24th June Mr Muldoon telephoned Mr Rogan and asked him to put forward a price and a programme. Mr Muldoon confirmed this request in a letter of the same date. Mr Rogan replied in a letter dated 28th June, which proposed sharing pain and gain. After receiving this letter Mr Muldoon reached a firm decision not to go ahead with CB. Mr Muldoon then spoke to Mr Stagg, who agreed with that decision. Accordingly, on 29th June Multiplex gave notice to CB under clause 9 of the Supplemental Agreement.
The process of transferring erection work to Hollandia over the next few weeks was a massive operation and gave rise to substantial problems.
On the 6th July Multiplex sent a letter to CB withholding payment of the £1.25 million arch bonus. Mr Muldoon cannot recall any earlier occasion when Multiplex said that they would withhold the arch bonus. He had legal advice that this was the appropriate time to inform CB.
On 16th July Multiplex issued certificates revaluing CB's work. This was not part of a strategy to make CB insolvent. Multiplex knew that CB's performance bond was available to be called upon. They also knew that the retention bond and the bank guarantees in respect of off-site materials would not benefit Multiplex.
MATTHEW STAGG
Mr Stagg, a very senior employee in the Multiplex group of companies, was construction director of the English subsidiary, Multiplex Constructions (UK) Ltd, from August 2003 to the autumn of 2004.
From August 2003 onwards Mr Stagg devoted about 1 to 2 days per week to Wembley and the rest of his time to other projects. Mr Stagg was aware that there were difficulties with the steelwork package. He was party to the decision to replace the previous project director and to appoint Mr Muldoon.
So far as Mr Stagg recalls, his first meeting with CB was in October 2003. However, it is possible that his recollection is mistaken and that his first meeting with CB was in August, as Mr Rogan asserts.
In September 2003 Multiplex agreed to pay £2.8 million to CB to assist their cashflow, but this was subject to substantiation by CB within two months. CB were accelerating at this stage. However, they never did provide substantiation for their acceleration claim.
In the autumn of 2003 CB had a claim for extension of time plus loss and expense, by reason of late design changes. Multiplex thought that three weeks delay had been caused, but CB were claiming 50 weeks.
In Mr Stagg's view CB were harming the project by their conduct in the latter half of 2003. They sent a barrage of correspondence. They made numerous spurious claims. They were demanding to change their sub-contract to cost plus. They asserted that time was at large, which meant that they were refusing to work to any programme. Then they stopped working overtime. CB's attitude throughout was that everything was somebody else's fault.
It is true that several times Multiplex promised a design freeze to CB. However, on a project like this there always have to be some changes.
By the end of 2003 CB were entitled to be paid substantial sums for variations, but they never properly quantified or proved what their entitlement for variations was. Mr Cursley and Mr Whalley had discussed at length with CB what they needed to do in this regard.
In December 2003 Multiplex decided to deduct from CB's certificates certain contra-charges. These included craneage costs and fees for a finite element analysis of the arch undertaken by Mott at CB's request.
On 15th December Mr Stagg and John Roberts had a meeting with Mr Grant and Mr Nightingale. Mr Roberts raised the responsibilities of CB's directors for trading while insolvent. It was decided at this meeting that Multiplex and CB would have an adjudication in order to determine who was responsible for the arch connections. Multiplex needed more information in respect of the other variation claims. It was also agreed that Multiplex's contra-charges would be deducted in two instalments rather than one. Finally, it was agreed that there would be a chairmen's meeting in January. The two chairmen knew each other.
In January CB advised Multiplex that the arch was going to be further delayed. By letter dated 23rd January CB suggested that the arch should not be erected until November. Multiplex did not welcome this suggestion. They regarded the arch as important for two reasons. First, it was important from a public relations perspective for the arch to be lifted. Secondly, while the arch was lying on the ground, it restricted movement around the site and prevented work from being carried out on critical parts of the bowl. In Mr Stagg's view, CB's letter dated 23rd January was written to exert commercial pressure on Multiplex and to retaliate.
Also on 23rd January Multiplex issued certificate 17 in a negative sum. Multiplex decided that since CB were taking a particular line, then they would play in accordance with the sub-contract.
On 27th January the meeting between the two chairmen took place. John Roberts, Mr Muldoon and Mr Stagg attended on behalf of Multiplex. Sheikh Abdullah, Mr Grant and Mr Nightingale attended on behalf of CB. Mr Grant began by making a presentation, but Mr Roberts did not let him get very far. Mr Stagg said that Mr Grant was doubling or tripling the numbers by counting every piece of paper rather than each real variation.
Mr Grant said that CB were suffering substantial losses on the contract. Sheikh Abdullah said that he was only prepared to continue with the contract if it moved to cost-plus. Mr Roberts rejected this proposal. Mr Grant said that unless the parties reached a compromise, they would be involved in adjudications "for ever". Mr Grant also said that CB would work to a programme one year late. That would make the stadium one year late. Mr Stagg and his colleagues viewed this behaviour in a poor light.
The meeting did, however, have a good outcome in respect of variations. Mr Roberts asked why these had not been paid. Mr Stagg and Mr Muldoon explained that they had not been properly costed. Mr Roberts then instructed Mr Stagg and Mr Muldoon to determine their value.
During the meeting Mr Stagg did not accept that the variations were significant in terms of causing delay. A lot of the variations were simply additional tonnage. This was because steel members in the bowl had been enlarged.
On 3rd February Mr Stagg and Mr Muldoon had a meeting with Mr Grant. At this meeting Mr Stagg offered to take all or some of the fabrication away from CB. Mr Stagg made this offer because of what CB were saying about their fabrication difficulties and also because of what Multiplex had seen of CB's factory organisation at Darlington. Mr Grant was dismayed by the suggestion that all fabrication should be taken away from CB, but was receptive to the idea that some fabrication should be done by others. Multiplex were genuinely trying to solve the problems between themselves and CB. They agreed to meet again on 6th February.
Mr Stagg, Mr Muldoon and Mr Grant duly met on 6th February. Mr Grant put forward a proposal for "drawing a line in the sand" and settling the various claims which existed. An accelerated programme would be put in place. Multiplex would arrange for the fabrication of 6,200 tonnes of steel, but CB would remain responsible for fabricating the other 5,000 tonnes. A lump sum would need to be agreed for this fabrication. CB would remain responsible for design and drawings. CB would also carry out the erection and site works, but under a new cost-plus arrangement. Mr Grant's proposals were sensible.
At a meeting on 11th February Mr Grant proposed £12 million for the lump sum element, i.e. in respect of the drawings and fabrication retained by CB. On the same day Mr Rogan handed a set of schedules to Mr Muldoon. The last two pages of these schedules became incorporated into the Supplemental Agreement.
At this time Mr John Roberts was concerned that CB would leave site if no deal was made.
In respect of the arch, Multiplex were concerned from a public relations point of view that it should be erected. However, Mr Stagg was much more concerned about the effect of the arch upon the whole project. Whilst it was lying down it had a significant impact upon other trades.
On 12th February Mr Stagg and Mr Muldoon attended a meeting with Mr Grant, Mr Rogan and Mr Child. Mr Stagg remembers that CB mentioned a "line in the sand". Mr Muldoon left the meeting after a sharp exchange with Mr Grant.
According to Mr Stagg's witness statement, he put forward his written proposal entitled "The Deal" at the meeting on 12th February. But Mr Stagg cannot recall whether in fact this was put forward on 13th February, as Mr Tomlinson suggested. The 3 month costs reimbursable period proposed was a cooling off period. It suited both parties. Although the deal envisaged that Multiplex could require CB to leave site at the end of the three month period, Mr Stagg indicated that he regarded it as inconceivable that they would go ahead without CB.
Mr Grant was concerned that the figures which Multiplex were offering did not get close enough to meeting his £14 million gap (the difference between £40 million expended and £26 million received).
Mr Grant wanted £6 million to settle CB's claims up to that date. They finally agreed on £5.25 million, structured as a £4 million payment plus a £1.25 million bonus on the lifting of the arch.
Mr Stagg recalls telephoning Mr Muldoon about the figures for January and the first half of February. Mr Muldoon gave some numbers which Mr Stagg passed on to Mr Grant by telephone.
Negotiations continued leading up to the Heads of Agreement. The 15th February valuation which was being discussed in these negotiations was a progress payment (i.e. an interim valuation), not a final account.
Mr Stagg signed the Heads of Agreement on behalf of Multiplex. Mr Stagg regarded this as binding, but he understood that it needed to be converted into a more formal Supplementary Agreement.
WT were instructed as the independent valuers. Their function was to produce an interim valuation, not a final account. On 19th March WT produced a report with two different valuation figures. Mr Stagg does not recall whether he saw that report at the time. WT's two valuations were somewhere in the middle between Multiplex's figure (£24 to £25 million) and CB's figure (£39.9 million). That may indicate that they were acting independently. Neither CB nor Multiplex were satisfied with WT's work. In the end Mr Grant and Mr Stagg both decided that WT should be dismissed.
The negotiations for the Supplemental Agreement took a long time. There was a hiccup at the beginning, in that Multiplex delayed sending to CB the first draft of the Supplemental Agreement. But after that both parties got on with the negotiations.
Mr Stagg had a number of meetings with Mr Grant during March, April and May. On many occasions Mr Stagg expressed concern about CB's erection rates. The Supplemental Agreement went through many drafts. Mr Grant repeatedly tried to change the Heads of Agreement. For example Multiplex ended up paying £2 million for the fabrication of the China steel. Mr Grant also asked that the costs-plus period be pushed back beyond the 15th May, and Mr Stagg agreed to this. Mr Grant also insisted on being paid £500,000 upon the signing of the Supplemental Agreement.
During this period Multiplex developed a contingency plan, "the Armageddon Plan", which they intended to implement if it became necessary to bring in a new steelwork sub-contractor. This was a worst case scenario, which Mr Stagg very much hoped would not happen. There are many notes, emails and documents in the bundle, through which Mr Stagg was taken in cross-examination. Mr Stagg accepts that these documents were detailed. They needed to be, because changing sub-contractor was a major operation. Nevertheless this was still only a contingency plan or "plan B". "Plan A" was always to go forward with CB. The Armageddon Plan contained the following elements:
· Give notice to CB removing on-site erection from their sub-contract after the arch had been lifted. Transfer on-site erection to Hollandia.
· Withhold payment of the arch bonus on the basis of a cross-claim.
· On 16th July issue a certificate reducing the 15th February valuation of CB's works to what Multiplex regarded as the proper figure.
· Reduce payments for the cost-plus period by about 50% on the grounds of CB's inefficiency.
· Bring in Hollandia to take over all the steelwork, in the event that CB withdrew altogether.
· Launch immediate adjudications in order to establish that Multiplex's various valuations and cross claims were valid.
The bundle contains numerous spreadsheets looking at cost-savings which the Armageddon plan might bring. Mr Stagg took all these figures with a grain of salt. He knew from experience that replacing a contractor always generated much higher costs and much more delay than anybody ever expected. Accordingly Mr Stagg's strong preference was to go forward with CB. He refers to this option at item 7 of his note dated 10th May. Mr Stagg's email of 5th May ("Plan B. CBUK fixed and fuck them later") did not reflect what Mr Stagg wanted to happen. He was being very emotional when he wrote this.
On 14th May Mr Stagg met Mr Grant, Mr Rogan and Mr Child in a coffee shop. This venue was chosen because it enabled Mr Stagg to smoke. The Supplemental Agreement was discussed. In relation to valuation, Mr Stagg offered to pay £32.66 million on an interim basis. Mr Stagg never said that the valuation was final or binding. On the contrary he said that it was an interim payment to assist cashflow.
On being pressed about this in cross-examination, Mr Stagg said that he could not remember the actual words used at the meeting. Nevertheless he was adamant that at the meeting he was only ever talking about an interim valuation. No-one talked about a "final and binding" valuation.
The words attributed to Mr Stagg by CB's witnesses, namely "yes tick", do sound like what Mr Stagg would say.
There was discussion about whether the figure should go into the Supplemental Agreement. Mr Stagg said that it could not, but he certainly did not say that this was for internal reasons. His superiors knew exactly what was going on.
Mr Tomlinson suggested that there was an analogy between China steel and the valuation figure. They were both agreed, but were nevertheless omitted from the Supplemental Agreement. Mr Stagg disagreed. China steel was different. That matter was so complicated that Mr Stagg had proposed dealing with it separately.
There was an exchange of letters between Mr Grant and Mr Stagg on 17th and 18th May. In this exchange both men were talking about the sum of £32.7 million being a cash payment or a progress payment, not a final valuation. On 18th May Mr Stagg deleted reference to £32.7 million from the amended draft supplemental agreement sent by CB. Mr Stagg offered to produce a certificate showing what CB would get.
On the 20th May Mr Stagg had a further discussion with Mr Grant. This was by telephone, not at a meeting. Mr Grant said that he wanted the figure put into the Supplemental Agreement. Mr Stagg said he could not do this. He had been advised that if the figure went into the Supplemental Agreement, then he could not claw the money back in a disaster scenario. Mr Stagg cannot remember the exact words used. He thinks it more likely that he said "disaster" than "catastrophe". Mr Stagg did not mention the arch falling down. Mr Grant may have mentioned that as an example. During a discussion with Mr Grant earlier in May Mr Stagg had said that it would be a disaster if Multiplex did not go forward with CB.
Mr Grant rang back later. He said that he did not agree with what Mr Stagg had said. Nevertheless Mr Grant would agree to leave the number out of the Supplemental Agreement.
A number of matters were being settled as at 15th February. These included CB's claims for extension of time and variations. But the final valuation of CB's work as at 15th February was not one of the matters being settled. The agreed figure of £32.66 million was simply a cash sum which CB were being paid at that stage and which Multiplex could revisit later if necessary.
The negotiations about the terms of the Supplemental Agreement continued through May and June. So did Multiplex's internal discussions about the Armageddon plan. Although much detail about what was going to happen appears in the meeting notes and emails, nevertheless the Armageddon plan remained a contingency plan. Mr Stagg hoped that they would not have to change subcontractor. In cross-examination Mr Stagg was somewhat ambivalent as to when the Armageddon plan would start. On one view it was the date when Multiplex served notice under clause 8 of the Supplemental Agreement. On another view it was the date when Multiplex issued certificates revaluing CB's works. However, Mr Stagg made the point that the two events were linked, as night follows day.
Mr Stagg recalls the meeting in June with John Roberts, Andrew Roberts and Mr Henderson. The purpose of the meeting was to gain approval for the Supplemental Agreement. Mr Stagg was asked a number of questions about Mr Muldoon's notes of that meeting. He had not seen those notes before. Both in cross-examination and in re-examination he could only give limited assistance about what those notes meant.
Mr Stagg insisted that the programme as at 15th February should go into the Supplemental Agreement. He told CB that he was not aware of Multiplex having claims against CB for delay. This was because Mr Stagg had not looked into the matter. He was not telling a lie.
Mr Stagg signed the Supplemental Agreement on behalf of Multiplex on 16th June.
Both Mr Stagg and Mr Muldoon pressed CB to provide a price and programme for going forward, but they never did so. The only offers which CB put forward were cost plus, with zero risk to CB. The programme which CB offered was meaningless.
In late June Mr Stagg and Mr Muldoon had a meeting with Mr Grant and Mr Rogan. When asked why the erection rate was low, Mr Grant said that steel was coming to site unlabelled. This meant that the steel could not be put up. That was the fault of CB or their subcontractor.
On 29th June Mr Stagg and Mr Muldoon finally decided to remove erection work from CB. There is no document recording this decision. That is because at the end of the day there was nothing to consider. Multiplex had only received a totally unacceptable offer from CB.
It is true that Hollandia only offered cost plus. But Multiplex thought that Hollandia's management was more capable.
Accordingly Multiplex gave notice under clause 8 of the Supplemental Agreement. Multiplex did not seek to extend the period for giving notice under clause 8 notice, because they felt that would be a waste of time.
After giving notice, Mr Stagg did not speak to Mr Grant again until the telephone conversation on 16th July. This was a short conversation. Mr Stagg advised Mr Grant of Multiplex's intention to revalue CB's works. Mr Grant said that he did not agree and this was not consultation. By then Multiplex and CB had effectively parted company. Mr Stagg saw no point in having a meeting over the weekend, as Mr Grant proposed.
Multiplex issued their two valuation certificates on 16th July. The figures in these certificates were not designed to achieve targets. Those figures were put in because Multiplex's commercial people believed that they were correct.
Mr Stagg called a meeting with CB on 21st July. The objective of this meeting was to set up a dispute for the purposes of adjudication.
In late July CB made serious allegations against Multiplex, to which Mr Stagg responded in correspondence. Multiplex maintained that they had acted lawfully and in accordance with their obligations under the subcontract and Supplemental Agreement.
DAVID WATKINS
Mr Watkins was Multiplex's site manager at Wembley from July 2003 until December 2005.
2003
Delays occurred on the steelwork during 2003. There were two causes of delay, namely (i) design changes and late information from Mott and (ii) poor performance by CB. As to the first matter, some design information for the bowl was many months late. These issues mainly affected the upper bowl. There were hundreds of tonnes of extra steel, but the effect of that depends upon where the extra steel was. As to the second matter, Mr Watkins thought that poor performance by CB was the main cause of delay.
CB had separate teams dealing with the arch and the bowl.
The arch was delayed because of CB's problems in sourcing materials for the pencil ends and other elements. This meant that CB devoted more resources to the arch, in order to make up for the delay.
Fabrication of steel for the bowl was delayed because CB's men in Darlington only worked 4.5 days per week. Furthermore the steel sent to site was often missing crucial pieces (meaning it could not be erected) or else was untagged (with the consequence that site staff could not identify the relevant pieces of steel). Sometimes the pieces of steel were fabricated incorrectly.
In relation to work on site, CB commenced erecting the bowl in the week of 22nd September 2003. CB began with phases 11 and 15 (upper levels on the north and south sides of the stadium). Because of the fabrication problems mentioned above, erection of the bowl proceeded slowly. By the end of 2003 CB had started to assemble the arch (lying on the ground) on site.
2004
At the beginning of February Mr Watkins discussed with Mr Muldoon how much steel CB should be erecting per week. Mr Watkins suggested that a reasonable average figure would be 400 tonnes. This was based upon 1 tonne of steel per crane per hour and a deduction of 33% for lost production time.
Soon after 18th February Mr Muldoon asked Mr Watkins to review the productivity of CB's men on site. Mr Watkins noticed that CB were running out of steel on the south side and also that CB were being held up because they were missing specific beams. Soon afterwards Mr Watkins noticed delays because steel was not being delivered in erectable sequence.
In March Mr Watkins had two concerns about CB's men on site. First, there were not enough men to achieve an average of 400 tonnes per week. Secondly, the actual production rate was too low for the number of men who were on site. Mr Watkins does not accept that these two complaints were incompatible.
CB's progress reports each week show the planned and actual tonnage for erection. The planned erection tonnage is quite low in early 2004, but rises much higher after the anticipated date for lifting the arch. Although 400 tonnes per week was reasonable as an average, in the early period (before lifting the arch) CB could only erect less than 400 tonnes per week.
CB had the habit of retrospectively changing both the planned and actual erection tonnages in the course of their progress reports.
Multiplex only provided 9 tower cranes, rather than 10 as should have been provided. However, CB also had a number of crawler cranes available. CB could not erect any steel in the week of 15th March because the tower cranes were out of action. There were other times when CB could not erect because their own cranes had broken down.
The arch had the potential to delay bowl erection, because the arch lay on the ground, blocking parts of the bowl. In fact, however, the delayed arch lift did not cause delay. This was because at all times before the arch lift, there were substantial amounts of bowl steel on site which could be erected despite the arch lying on the ground.
Design problems continued to cause some delays during 2004. For example, there was a clash of certain columns and the core walls. However, CB had a measure of responsibility in this regard, since CB were obliged to co-ordinate with other subcontractors.
At a number of Multiplex internal meetings Mr Watkins' colleagues expressed frustration at CB's delays and slow progress. In progress reports CB sometimes admitted their shortcomings.
Another problem was that the site was littered with random pieces of steel that had been delivered in the wrong order. Also a significant quantity of steel was sitting on trailers adjacent to the site or around the perimeter.
In April and May Mr Watkins put his concerns to CB about falling behind programme and low output. On many occasions Mr Watkins complained to CB about their failure to achieve 400 tonnes per week. Mr Watkins does not accept that this is something which he made up later.
At a meeting in June Mr Allison of CB said that he wanted to get rid of certain staff and managers on site. He also said that he had problems with deliveries. This confirmed what Mr Watkins believed was the position for some months.
In July Mr Ong asked Mr Watkins about CB's performance on site. Mr Watkins considered that CB ought to have erected 400 tonnes per week on average, whereas in fact they had erected about 200 tonnes per week. On the basis of this crude, but conservative, calculation Mr Watkins estimated CB's efficiency at 50%.
RANALD McGREGOR
Mr McGregor was Multiplex's project engineer from July to November 2003 and thereafter was project manager. He has a degree in construction management, but is not a qualified engineer.
CB were responsible for producing all connection designs for the steel. They sub-contracted most of the bowl connection design to Oakwood Engineering Ltd ("Oakwood"). Oakwood produced their drawings using a three-dimensional drawings programme, X-steel. Oakwood devoted insufficient resources to their work. This led to delay on all subsequent stages of CB's work.
Mr McGregor accepts that there were many design changes emanating from Mott and these also caused delay, but CB did not deal with these difficulties properly. CB did not increase resources on key elements. CB set up a retro squad to deal with these changes. But this squad worked inefficiently. It often did not get round to making the necessary changes to drawings before fabrication commenced. Also the retro squad used a different programme from X-steel.
Bowl fabrication work at Darlington was a constant concern to Mr McGregor. Mr McGregor visited Darlington several times. Also he employed Gordon Davies, who was very experienced in steel fabrication and who lived near Darlington, to monitor progress. Mr Davies sent regular reports, which gave a fair picture. Those reports record many problems with the fabrication process. One major problem was that the bowl fabrication team only worked 4.5 days per week. They finished at midday on Fridays. There was no night or weekend working, as there should have been. Also insufficient factory space was devoted to bowl fabrication and there were not enough men on this task. There was always sufficient design available from Mott to allow more fabrication than occurred.
According to Mr Davies' reports, the average fabrication rate over the period 24th October to 30th January was 289 tonnes per week. Mr McGregor maintains that CB should have done even better than that.
CB sub-let some fabrication to SGT in China. Mr~McGregor visited their factory in November. SGT were concerned about late drawings release from CB.
The design problems from Mott continued through 2003 and into 2004. The bowl design was pretty well complete by the end of 2003. On 18th December Multiplex instituted a design freeze, which was intended to reduce dramatically the number of changes. Nevertheless there is always an iterative process between engineers throughout the project.
When pressed in cross-examination, Mr McGregor agreed that there was fault on both sides - Multiplex's side (including Mott) and CB's side. In his witness statement Mr McGregor has concentrated on CB's faults.
In relation to the PPT, a serious problem emerged in December. This resulted from a lack of co-ordination between Mott's Australia and UK offices. Mr McGregor took this up with senior people at Mott and devoted much effort to resolving the problem as soon as possible. This problem was dealt with during December, January and early February. In December Mr McGregor wrote a note extremely critical of Mott. Looking back at that note now, he does not agree with all of it. Once the PPT design problem had been resolved, it did not in fact cause delay. When the PPT steel arrived on site, it sat in storage, waiting for the remainder of the bowl structure to be erected.
In December and January the relationship between CB and Multiplex deteriorated badly. This was due in particular to two letters from CB:
· CB's letter dated 5th December 2003, claiming a 50.5 week extension of time (this would delay the stadium by one year);
· CB's letter dated 23rd January 2004, threatening to delay raising the arch until November 2004.
Mr McGregor made notes in January about possible scenarios to deal with the problem, in particular by bringing in another steelwork contractor. These were Mr McGregor's own thoughts. It was not for him to make the decisions.
The difficulties which had arisen between the parties up to January and February 2004 were resolved by the Heads of Agreement. Mr McGregor prepared the programme attached to the Heads of Agreement. The bars which he has coloured in red show the critical path.
Mr McGregor calculated that CB would need to erect on average 400 tonnes per week, in order to adhere to that programme. It is a coincidence that Mr Watkins has come to the same figure by a different route.
Once the PPT design problem had been resolved, it did not in fact cause delay. When the PPT steel arrived on site, it sat in storage, waiting for the remainder of the bowl structure to be erected.
Not all the steel sent to China could be fabricated in time to comply with the programme annexed to the Heads of Agreement. So the China steel was shipped back to England. Some was fabricated, some was partially fabricated and some was not fabricated at all. Mr McGregor thought that this situation was ludicrous. In Mr McGregor's view, if CB had dealt with the matter competently, all that steel would have been fabricated in China. There were delays in shipping the steel back and there were problems with the Chinese Government in getting the necessary permits. All these matters were within CB's responsibility.
Between March and June Mr McGregor had many meetings with Hollandia and related companies. Hollandia did an audit of the roof. Mr McGregor discussed with Hollandia the possibility of them taking over all the steelwork. During this period Mr McGregor was alarmed by the slow progress of CB and the continuing slippages. Mr Davies' reports continued to record fabrication delays and problems at Darlington.
Mr McGregor raised his concerns with CB at meetings, for example the meeting on 30th March.
Mr McGregor's diary during this period contains many notes about the Armageddon plan. Mr McGregor was cross-examined in some detail about these notes. He was adamant that the Armageddon plan was just one o