Mirant Asia-Pacific Construction (Hong Kong) Ltd v Ove Arup and Partners
| Jurisdiction | England & Wales |
| Judge | HIS HONOUR JUDGE TOULMIN CMG,QC,His Honour Judge Toulmin CMG,QC |
| Judgment Date | 20 April 2007 |
| Neutral Citation | [2007] EWHC 918 (TCC) |
| Court | Queen's Bench Division (Technology and Construction Court) |
| Date | 20 April 2007 |
| Docket Number | Case No: HT-02–72 |
[2007] EWHC 918 (TCC)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT
His Honour Judge Toulmin Cmg,QC
Case No: HT-02–72
Mr Andrew White QC and Mr James Howells (instructed by Pinsent Masons, Solicitors) for the Claiamnt
Mr Roger Stewart QC, Mr Ian Wright and Mr Tim Chelmick (instructed by Beale & Co Solicitors) for the Defendants
Hearing dates: 5 th October-23 November; 13 th -14 th December 2006
Approved Judgment
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Introduction and Previous History
These hearings are to assess the damages element of a claim which has already been before me for two substantial hearings, the first on preliminary issues and the second on liability. For ease of reference I have included an index at the end of this judgment.
In these proceedings Mirant-Asia Pacific Construction (Hong Kong) Limited, referred to as “Mirant”, claims against Ove Arup and Partners Hong Kong Limited (“Arup”) damages for breach of contract and negligence in relation to a power station constructed at Sual in the Philippines. The claims arise out of the failure in April 1997 of two of the main foundations of Boiler House Unit 1, referred to as G2 and G5. The boilerhouse is a very large structure measuring 40 metres x 50 metres in area and 75 metres in height.
There is no dispute that the two foundations settled by 46 mm and 66 mm respectively at a time when the steelwork which they were to support was being erected or that between late June and early September 1997 remedial works were carried out. This involved dismantling the partially erected steelwork, carrying out the remedial works and re-erecting the steelwork. I now have to assess damages against Arup arising out of my earlier findings in favour of CEPAS, the off-shore predecessor of Mirant.
The original claimants were CEPAS, known in 1995 as CEPA (Consolidated Electric Power Asia Limited) and Sual Slipform Construction Company (Sual Construction Company from 1997) (“SSCC” or “SCC”). CEPA was the parent of CEPAS and SCC.
On 29 January 1997 a division of Southern Corporation (a US Corporation) acquired an 80% shareholding in CEPA, a company that owned both CEPAS and SCC. On about 14 July 1997 Southern acquired the remaining shares in the companies.
On 14 June 1997 Mr Elliott, the Managing Director who had remained in post after Southern's acquisition, was required to resign. Southern then put in its own management team.
In early 2001 there was a demerger between Southern and the companies which became Mirant. This was the subject of its own litigation, the details of which are not known to me.
The Project to build the power station was subject to complicated contractual arrangements, the details of which I must consider later. Briefly, the design, procurement, construction and commissioning of the power station was undertaken and financed by an international consortium including CEPAS, SCC, and various Alstom companies (referred to as “Alstom” and “GECA”). The project was also partially funded by the International Finance Corporation (IFC) and the Commonwealth Development Corporation, which had an 8 per cent minority interest in the Project.
The contractual provisions were divided into two parts:
(a) An off-shore supply contract between Pangasinan Electric Corporation (“PEC”) and the off-shore works supplied consortium including CEPAS and two Alstom companies, GEC Alstom Power Plants Limited and GEC Alstom Stein Industrie SA (“Stein”). Stein was amongst other things responsible for erecting the steelwork on the boiler. This consortium was responsible for the supply of all equipment procured outside the Philippines. The original contract is dated 9 January 1995.
(b) An on-shore contract, also dated 9 January 1995 to erect the plant and do all other work within the Philippines necessary to bring the plant into full commercial use. SCC was incorporated (as SSCC) on 21 December 1994 to be a member of this consortium. Other members of the consortium included two other Alstom companies.
(c) Under a Tripartite Agreement, also dated 9 January 1995 between PEC, CEPAS, SCC and the Alstom companies, CEPAS was responsible to PEC for performance of the supply contract and the construction contract.
(d) Under a deed of guarantee dated 12 July 1995 CEPAS agreed to guarantee the liabilities of SCC under the construction contract.
(e) Under an agreement also dated 12 July 1995 CEPAS agreed to guarantee SCC's liabilities under the Tripartite Agreement.
As I found at paragraph 381 of my liability judgment, the purpose of the separation into an off-shore supply contract and an on-shore construction contract was to take advantage of the Philippines tax regime.
In his evidence at the liability hearing and again at this hearing, Mr Metcalfe, Project director of CEPA/PEC and involved in the original negotiations, explained the advantages to CEPAS and SCC. Put shortly, they were advised that if they entered into a simple turnkey contract, the entire contract sum would be taxable under Philippine law. Under the contractual arrangements put in place, they were advised that only the construction consortium would be subject to the Philippines tax regime. The supply consortium would carry out its work outside the Philippines and would be classified as an off-shore entity.
The Tripartite Agreement and the deed of guarantee were attempts to create obligations on CEPAS in relation to the on-shore construction contract which would produce the same result as if CEPAS and SCC had entered into a single turnkey contract.
Previous Steps in this Action and the Quantum Claim
The action was commenced by CEPAS and SCC against Arup in 2002. The first hearing before me took place in the spring of 2003 on preliminary issues. My judgment was reviewed by the Court of Appeal which varied it on one issue in relation to the ground investigation by Arup. This issue is not directly relevant to this judgment.
The preliminary hearing decided that an agreement for design of the power plant at Sual was made between CEPAS and Arup on 29 May 1995 and that Arup owed CEPAS a duty of care and skill in relation to the work which it carried out under the contract.
The second hearing before me took place in November and December 2003 and was concerned with the remaining issues of liability. I gave judgment in July 2004. The matter was taken to the Court of Appeal and my judgment was upheld in a judgment dated 29 December 2005.
I decided inter alia (see paragraphs 498 and ff of the judgment):
(a) Arup owed a duty to CEPAS in contract and tort not to cause economic loss to CEPAS
(b) Arup did not owe a duty to SCC in tort not to cause economic loss to SCC
(c) Arup failed to discharge that duty in relation to
(i) the design of the Unit 1 Boiler foundation
(ii) the verification of the assumptions on which the design was based.
Mirant now claim the following losses which they claim were incurred by CEPAS and/or SCC as follows:
| Direct rectification costs | $ 1,552,889 |
| Liquidated damages | $39,731,428 |
| Additional preliminaries and disruption costs paid to Alstom Turbine/GEC Electro and their subsidiaries | $15,799,777 |
| The cost of extended insurance | $621,607 |
| Additional time related costs incurred by SCC | $5,727,000 |
| Additional time related costs incurred by CEPAS | $1,467,180 |
| Acceleration payments made to Alstom Turbine/GEC Electro | $10,273,060 |
| Acceleration costs incurred by SCC | $3,724,428 |
|
| $78,897,369 |
|
| (All figures are in US dollars) |
Mirant gives credit for the sum of $3.9m which it has received under the Project insurance policy.
The net claim originally claimed was $75,944,480. In addition, interest is claimed under s.35A of the Supreme Court Act 1981. In his oral closing submissions Mr White QC confirmed that no claim is being made to recover VAT.
Arup contests the whole of the sums claimed. They admit some theoretical liability for the direct rectification costs but say that Mirant has already been compensated by insurance. Arup claims that it was not reasonable to take down the steelwork. If this latter plea is successful the direct cost of the remedial works would have been in the region, so they say, of $156,871. If it was reasonable for CEPAS to take down the steelwork the extra cost would have been in the region of $450,000. Arup contends that Mirant's claim for the cost of rectification is wholly unreasonable and that it was not responsible for the other losses. These figures have since been the subject of discussion between the quantum experts as a result of which the figures have changed. I will deal with them in detail later.
In respect of other claims, Arup has set out various defences which I will refer to in detail.
(1) I will first consider the law relating to
(a) The general principles of the award of damages
(b) The operative cause of delay.
(c) The settlement of claims.
(I will deal with other issues of law when dealing with the individual claims.)
(2) The witnesses
(a) Witnesses of fact.
(b) The experts.
(3) Disclosure and related issues
(4) A discussion of what is meant by “the critical path” and “Critical Path Analysis”. These...
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Construction, Property & Real Estate (Case Law Review, Issue 7, 2007)
...NEGLIGENCE Quantum and definitions Mirant Asia-Pacific Construction (Hong Kong) Ltd v Ove Arup and Partners International Ltd [2007] CILL 2480 This is the quantum hearing on a long-running decision reported on liability in CILL. The quantum points are heavily fact-based but the report is us......
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Case Law Review - Construction, Property & Real Estate (November 2008)
...Pickavance of Hill International. The Gibson article is an extended case commentary on the latest instalment of Mirant Asia v Ove Arup [2007] EWHC 918 in the TCC, in which HH Judge Toulmin made remarks in which he favoured "Windows" analysis, i.e. reviewing the course of a project month by ......
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...Services Ltd (1994) 67 BLR 117 at 135–137, per Judge Hicks QC; Mirant Asia-Paciic Construction (Hong Kong) Ltd v Ove Arup & Partners [2007] EWHC 918 (TCC) at [40]–[47], per HHJ Toulmin CMG QC; Fluor Ltd v Shanghai Zhenhua Heavy Industry Co Ltd [2018] EWHC 1 (TCC) at [465]f, per Sir Antony E......
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...so that they may be disclosed (if disclosure is ordered): cf Mirant Asia-Paciic Construction (Hong Kong) Ltd v Ove Arup & Partners [2007] EWHC 918 (TCC) at [73]–[118], per HHJ Toulmin CMG QC. 367 Hunt v Hewitt (1852) 7 Ex 236 [155 ER 931]. A diary or log book will be of little positive fore......