SHEPHERD HOMES Ltd v ENCIA REMEDIATION Ltd and GREEN PILING Ltd (Third Party)

Hearing dates: 20 th & 21 st December 2006

Approved Judgment

I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.

This is a preliminary issue as to whether a particular term was incorporated into a contract and, if so, with what effect.

The background

Eden Park is a site at Hart Lane, Hartlepool. The underlying soil is peat. It is owned by the claimant—Shepherd Homes Limited (“SHL”). SHL sought to develop the site so as to produce 94 homes. They employed Encia Remediation Ltd (“Encia”), then named AIG Remediation Limited, as a civil engineering contractor to provide ground works, roads, paths and sewers for the site, and also to pile the site and create ring beams and floors for the dwellings to be erected. AIG Remediation Ltd (now Encia, by which name I shall hereafter refer to it) was a subsidiary of AIG Engineering Group and part of the American International Group of companies. This is one of the largest insurance groups in the world. Encia employed Green Piling Ltd (“Green Piling”) as a specialist sub-contractor to carry out the piling work. Green Piling Ltd was a small piling sub contractor with a turnover in the year to March 2001 of £336,682. The work was divided into two stages: Phase I consisting of 46 plots and Phase II consisting of 48 plots. The contract price of the works as between SHL and Encia turned out to be £777,459 for Phase I and £1,236,031.80 for Phase II. The contract price for Phase I as between Encia and Green Piling turned out to be £91,316 for Phase I and £156,286 for Phase II.

Green Piling carried out the work between July 2001 and September 2002. In around May 2003 properties constructed on the site began to show signs of cracking due to settlement. On 18 ^th October 2005 SHL began these proceedings against Encia, which include allegations that the piling design was defective, because of a failure on the part of Green Piling to take into account down drag, and that that was the cause of the settlement. Green Piling attributes the failure to poor workmanship in relation to the ground beams. SHL make a similar allegation but their experts attribute the failure to pile design.

SHL's claim as at April 2006 was of the order of £3,000,000 in respect of 12 properties. At present there is a claim in respect of 41 properties together with a claim for general damages for blight. The exact scope and cause of the settlement is the subject of dispute and continuing expert investigation and the number of properties in respect of which there will be a claim may rise. Mr Michael Black, QC, for Encia told me that his best estimate was that there was a potential liability of the order of £10,000,000 but with a possibility of more. Green Piling contends that the problems that have arisen have been caused by Encia's construction techniques. A trial date has been fixed for 4 ^th June 2007.On 10 ^th March 2006 Encia was granted permission to join Green Piling as a third party.

The issue

On 24 ^th November 2006 Mr Justice Jackson ordered that:

“There be a preliminary issue to determine in respect of the Phase 1 Contract and the Phase II Contract to what extent, if at all, clause 4.3 of the Third Party's standard terms and conditions of contract :

a. formed part of the Third Party's offer which was accepted by the Defendant;

b. is enforceable as a matter of law;

c. was revised and/or waived;

d. cannot be relied upon by the Third Party by reason of estoppel.”

Clause 4.3. of Green Piling's standard terms and conditions provides as follows:

“4.3 Our maximum total liability is limited to the Contract Price; whether in contract or in tort, for any damage or loss whatsoever, including all direct, indirect or consequential loss.”

The making of the contract

Initial contact

On 26 ^th June 2001 Mr Philip Bates of Green Piling telephoned Mr Patrick Kane, Encia's Contracts Director. This was a cold call. Mr Bates had learnt from Mr Garry Stewart of Abbey Pynford, a contractor which was not able to provide a competitive tender for the piling works (see paragraph 8 below), that Encia was looking for a piling sub-contractor. Mr Kane and Mr Bates arranged to meet the following morning at Encia's offices.

Encia had been in discussion with a number of piling contractors since early April and by 26 ^th June 2001 had obtained tenders from four of them: (i) Van Elle, (ii) Stent Foundations Ltd, (iii) Aarsleff Piling Ltd and (iv) Abbey Pynford Plc. Insofar as those quotations referred to conditions Mr Kane had not considered them in any detail, his intention being to be fully familiar with the terms and conditions before any contract was made. On 26 ^th June Mr Kane made a note of the piling options open to Encia based on the offers that had been made. They were as follows:

The “Remeasure” quotations were quotations that allowed for an increase in price if it should turn out that the pile lengths that had to be used were greater than those for which the contractor had allowed. The lump sum quotes did not allow for such an increase. Per Aarsleff had quoted on both bases. Van Elle's quote related to concrete piles but they had also suggested the use of steel piles, as had some at any rate of the other contractors.

Mr Kane was concerned that the prices on offer were more than the sum he had allowed for in Encia's tender to SHL and that the lead times were longer than he had hoped for. He needed a contractor to start work on site within a relatively short time.

The meeting of 27th June 2001

On 27 ^th June 2001 Mr Bates and Mr Kane met at Mr Kane's office in Wetherby. Mr Bates was keen that Green Piling should establish a relationship with as prestigious a client as Encia. There is a deal of common ground as to what occurred then and thereafter, although there are some differences. I have no doubt that all the witnesses were endeavouring to tell me the truth as they recalled it. What follows are my findings of fact.

Mr Bates took with him to the meeting a package of information relating to Green Piling which included (i) photographs of piles in, or being driven into, the ground, completed works and various pieces of plant and equipment; (ii) a company profile; (iii) details of some of Green Piling's previous clients; (iv) Green Piling's terms and conditions; (v) outline method statements; (vi) a typical health and safety plan; and (v) standard drawings of pre-cast piles. He handed this package to Mr Kane and expanded on the information contained in it, mentioning his own knowledge and expertise.

Mr Kane outlined the works that were required and handed to Mr Bates a tender package which included some site/plot layout and construction drawings and AIG borehole logs numbered 201–209. Mr Bates asked to be given any other information that there was. Mr Kane confirmed that the number of piles required was 641.

Mr Bates was then left alone for about 15–30 minutes in order that, on the information that he had been given, he might calculate a price for the works to give to Mr Kane. After that Mr Bates quoted a price which Mr Kane said was too high. Neither Mr Kane nor Mr Bates can now recollect what that price was but it was greater than £100,000. Mr Kane told Mr Bates (as was correct) that Van Elle and Stent had tendered for the work; and that Van Elle's tender was based upon piles averaging 11 metres in length and was in the sum of £80,000 but subject to re-measurement. Stent had offered a fixed price of £99,000 with piling lengths ranging from 6–10 metres. He did not mention any other tenderer or the lead-in times that Van Elle and Stent had indicated. Mr Kane expressed a preference to work with Green Piling if the price was competitive.

Mr Bates realised that he would have to reduce his price and, on reconsideration, confirmed that Green Piling's best offer was £100,000. He said that this was what he called a qualified offer based upon the information provided. By this he meant that if the piles had to go deeper into the ground than he had allowed for Green Piling would not charge any additional sums unless they had to go deeper than was reasonably foreseeable from the information that had been made available. What is less clear is whether Mr Bates gave any further explanation of what he meant. I revert to this in paragraph 72 below.

Mr Kane accepted the £100,000 price and instructed Green Piling to start work on 2 ^nd July 2006.

During the course of the meeting Mr Bates expressed the view, in suitably diplomatic terms, that it might be possible to save costs by making some design changes. He suggested that the ground beam and pile layout design was over engineered, that a more cost effective design of pile type, number of piles and pile beams was possible, and that this would result in cost savings that could be shared between Encia and Green Piling. In particular he thought that tubular steel piles could be used instead of precast concrete ones, and that the number of piles could be reduced as could the dimension of the pile...