Judges are bound by the law of binding precedent in England and Wales and other common law jurisdictions. This is a distinctive feature of the English legal system. In many countries throughout the world, particularly in mainland Europe, civil law means that judges take case law into account in a similar way, but are not obliged to do so and are required to consider the precedent in terms of principle. They are however, often considered as persuasive.

While all court decisions are precedent (though at varying levels of authority as discussed throughout this article), some become “leading cases” or “landmark decisions” that are cited often whilst others are passed over. A number of the cases cited in this article have or are in the process of becoming landmark decisions, which legal practitioners and arbitral tribunals have to or will follow.

This is where arbitration and the common law jurisdiction legal system differs. Disputes have to be resolved in a court for a precedent to be set which is published and can be later relied on by others. It is a little a chicken and egg situation as in arbitration proceedings the parties may quote legal precedent to support their case so the development of legal precedent is vitally important.

It should be appreciated that only a small fraction of disputes end up in the courts and this only occurs when litigation is chosen as the method of resolving disputes. It is for this reason that such decisions and precedents are eagerly examined and discussed.

Case law 50 years ago – two Australian cases

Looking back at what issues and events were current 50 years ago, there were two significant legal cases in 1972 that are worth looking at: Dillingham Constructions Pty Ltd v Downs (1972) and Morrison-Knudsen International Co Inc v Commonwealth (1972). Two cases both involving ground condition claims but with radically opposing decisions.

Dillingham, the claimant, contracted with the New South Wales Government to deepen Newcastle harbour. When work began, the claimant did not attain the anticipated rate of progress because the blasting operations designed to break up the harbour floor were unsuccessful. Other methods of working had to be adopted with consequent delay and expense. There were disused coal mine workings under the harbour and the claimant concluded that these were the reason for the ineffectiveness of the blasting. The government had known of the workings all along.

The claimant sued the government claiming damages for breach of warranty and negligent misrepresentation inducing entry into the contract. With respect to the latter, they alleged that the New South Wales Government owed and was in breach of a duty to take reasonable care in providing details relevant to the condition of the work site, a duty which obliged the government to disclose the presence of the coal mine workings. Justice Hardie, in the New South Wales Supreme Court, found for the government in respect of both the contract and duty of care claims. In rejecting the contractor’s claim, Justice Hardie stated that a party who has contracted to carry out building work on or under land is duty bound to satisfy themselves of the nature and characteristics of the land both on the surface and below it.

This decision in retrospect seems quite a harsh decision but the general rule is that a contracting party is not subject to a duty of disclosure and that mere silence cannot amount to misrepresentation. Contrast this with the civil law requirements of “good faith” where such failure to disclose would more likely have been unacceptable.

Now some 50 years later and the standard construction contracts, such as the FIDIC Blue Book Form of Contract for Dredging and Reclamation Works (Second edition) and other contracts in the FIDIC suite, require that an employer shall have made available to the contractor for his information, prior to base date, all relevant data in the employer’s possession on sub-surface conditions at the site. The NEC contract goes further by including site information in the contract itself and referring to publicly available information or other information that an experienced contractor could reasonably have expected to have or obtain.

It is worth contrasting the decision in Dillingham with Morrison-Knudsen International Co Inc v Commonwealth. Morrison-Knudsen was an action by a contractor against the employer for negligence. The contractor claimed that basic information supplied by the employer at pretender stage “as to the soil and its contents at the site of the proposed work was false, inaccurate and misleading… the clays at the site, contrary to that information, contained large quantities of cobbles.”

It was decided that a factual misrepresentation made during pre-contractual negotiations by one party and relied on by the other may give rise to liability under the Misrepresentation Act 1967. In an appropriate case, such liability could attach to inaccurate information about ground conditions.

As Chief Justice Barwick stated: “The basic information in the site information document appears to have been the result of much highly technical effort on the part of [the employer]. It was information which the [contractors] had neither the time nor the opportunity to obtain for themselves. It might even be doubted whether they could be expected to obtain it by their own efforts as a potential or actual tenderer. But it was indispensable information if a judgment were to be formed as to the extent of the work to be done…”

So two cases on sub-surface conditions but with radically differing outcomes. In both these cases, it was all dependent on what was pleaded before the court. When comparing the present situation with 50 years ago, the good news is it is now standard practice to have a provision that all relevant data in the employer’s possession is given to the contractor.

However, in the past 20 years or more, the author has seen the rise of sinister “disclaimer” and “non-reliance” clauses, mostly in common law contracts where liability for the accuracy of any information provided is disowned by the employer. These disclaimer clauses are rarely tested in the courts and the results vary widely depending on the disclaimer wording.

Mid-1970s – UK cases

Later in the 1970s, there were two cases that followed: Bacal Construction (Midlands) Ltd v Northampton Development Corporation (1975) and Howard Marine and Dredging Co Ltd v A Ogden and Sons (Excavations) Ltd (1978).

In the former case, Bacal the contractor, had been provided with a soil survey when tendering. A letter from the quantity surveyor then required the soil conditions disclosed to be assumed by the contractor in relation to six foundation blocks it was required to design and price. No indication was given as to the presence of tufa, a spongy soft material, and the foundations had to be redesigned. The Court of Appeal agreed with the decision of the trial judge that the employer had warranted that the soil information was accurate.

The Bacal case does not sit easily with the idea that there is no implied warranty given by the employer in relation to tender information. Where the employer instructs the contractor to design and build on the basis that it must assume soil information is correct, an implied warranty by the employer has been found to exist. This is presumably why the employer’s legal advisors seek to include disclaimer clauses in the contract.

It highlights the distinction between an employer who says certain soil conditions are assumed and leaves it to the contractor to investigate the actual conditions, and an employer who requires the contractor to assume certain conditions when submitting a tender or producing a design. This remains an item of contention almost 50 years later as wording is often used that states the contractor at time of tender has to “investigate” the site when all that can be done is to “inspect” the site. Care should be taken when such investigation wording is used as the implications are potentially very significant.

Howard Marine and Dredging Co Ltd v A Ogden and Sons has become a landmark decision and is quoted in many legal textbooks and commentaries. Ogden Ltd wanted to hire some barges from Howard Marine in order to dispose of excavated clay at sea. Mr O’Loughlin, Howard Marine Ltd’s employee, told Mr Redpath, Ogden Ltd’s employee that their German built barges could carry 1600 tonnes (deadweight, rather than cubic capacity). This was based on the Lloyd’s Register for barges. Unfortunately, and highly unusually, the Lloyd’s Register was actually incorrect. The true capacity was not 1600 but 1055 tonnes. Mr O’Loughlin was aware that the German shipping documents stated the correct figure of 1055 tonnes. But he preferred the Lloyd’s Register. The charter party contract for the hire of the vessel stated Ogden Ltd’s acceptance of the barges confirmed they were in every way satisfied. When the barges proved to be insufficient for the task, Ogden Ltd refused to pay the full price. Howard Marine Ltd terminated the agreement and sought payment of all the outstanding payments.

Howard Marine Ltd stated they had reasonable grounds to believe their false statement, because the Lloyd’s Register was the “bible”. The Court of Appeal (Lord Denning MR, Bridge LJ and Shaw LJ) all held there was no breach of warranty, but decided by a majority that Howard Marine Ltd was liable for breach of duty under Misrepresentation Act 1967 s 2(1).

1980s – Australia and UK cases

The Westham Dredging Company Pty Ltd v Woodside Petroleum Development Pty Ltd (1983) is an interesting and unique case to Australia. It was brought under section 52 of the Trade Practices Act 1974 (Cth) which states that corporations are prohibited from engaging in “unconscionable” and “misleading or deceptive” conduct. This legislation is unique in that the statutory provisions are not limited to consumer transactions but extend to cover the pre-contractual and contractual relationships entered into between commercial parties themselves.

Westham, the claimant, argued that the site investigation was insufficient in that it did not fully describe the actual soil conditions so was misleading. Judge St John found that the Trade Practices Act was concerned with protecting consumers and that it was not possible to extend the operation of the Act to protect commercial interests. Provisions of the Act were to be read down by reference to the heading “Consumer Protection”. This decision in Westham was subsequently overruled by the Full Federal Court in Bevanere Pty Ltd v Lubidineuse on the basis that Judge St John’s views were inconsistent with the binding authority provided by the High Court in Hornsby.

The UK case of Blue Circle Industries v Holland Dredging Co (1987) is a case where works involved dredging in Larne Lough in Ireland to enable larger vessels to dock. The tender referred to the dredged material being deposited in areas approved by the public authorities, the intention being to discharge the material excavated in suitable areas in the Lough.

An alternative plan was agreed to use the excavated material to form an artificial bird island. The employer accepted the contractor’s quotation for this work by letter, which stated that an official works order would follow in due course. The execution of the works to construct the island was unsuccessful and the employer brought proceedings. It was argued by the contractor that this was not a variation to the works within the confines of the contract but a separate contract in its own right. The decision in Thorn v Mayor and Commonalty of London, a case heard way back in 1876, influenced the court.

In Blue Circle, it was held that if the additional or varied work were so peculiar, so unexpected and so different from what any person reckoned or calculated upon to such an extent that it is not contemplated by the contract, then it would constitute a separate contract. The judge in the case considered that the construction of the bird island was wholly outside the scope of the original dredging contract and therefore constituted a separated contract.

1990s – UK cases

In June 1991, the Court of Appeal decided the case of Humber Oil Terminal Trustees Ltd v Harbour and General Works (Stevin) Ltd concerning unforeseeable ground conditions and the application of clause 12 of the Institution of Civil Engineers (ICE) conditions of contract. This was the first case where the notion of the “experienced contractor” was tested in court. FIDIC’s own clause 12 in the 1987 Red Book and later clause 4.12 in the FIDIC 1999 suite of contracts has many similarities with ICE’s clause 12.

A ship named “Sivand” had damaged the harbour installations owned by Humber as a result of negligent handling. Humber had engaged Harbour and General as contractors to carry out repairs under the ICE conditions of contract. The contractors used a jack-up barge, equipped with a 300 tonne fixed crane.

Whilst it was lifting a large concrete soffit, the barge listed, became unstable and collapsed. It was a total loss. Extensive damage was caused to plant and equipment, and much delay and other expense ensued.

Harbour and General claimed under clause 12 of the ICE conditions that the collapse of the barge with its consequences was due to physical conditions, which could not reasonably have been foreseen by an experienced contractor. Humber argued against this, saying that the collapse was a consequence of the contractor’s temporary works, and by reason of 8(2) of the ICE conditions was the responsibility of the contractor.

An arbitrator had found that although the soil conditions at the base of the leg of the barge were foreseeable, there must have been a very unusual combination of soil strength and applied stresses just before the failure occurred. This constituted a physical condition for the purposes of clause 12, which could not have been foreseen by an experienced contractor.

This was maintained on appeal. Still Humber were unsatisfied and they appealed to the Court of Appeal on the basis that: 1) an applied stress could not be part of a physical condition as it was transient and could not be “encountered”; and 2) in circumstances such as this, clause 12 must be over ridden by clause 8(2), which placed on the contractors an unqualified responsibility for the adequacy, stability and safety of all site operations and methods of construction.

Once again, the Court of Appeal rejected the appeal. It held that applied stress, namely the loading of the barge, may be a part of a physical condition within the meaning of clause 12, since the nature of the ground cannot be discovered without an actual or notional application of some degree of stress on it. They also held that clause 8(2) concerning itself with contractor’s temporary works, did not limit or restrict the ambit of clause 12. Consequently the contractor was entitled to be paid for all the costs and consequences of the jack-up barge collapse.

This case had a significant impact on the adverse physical condition provisions in contracts that were subsequently drafted by both the NEC (New Engineering Contract) published by the Institution of Civil Engineers in 1993 as well as the later publication of the FIDIC Rainbow Suite in 1999. The NEC3 Contract in its core clause 60.1 (12) states: The contractor encounters physical conditions which:

As part of an offshore wind farm project, Enertrag (one of the wind farm developers) approached Sea & Land Power and Energy (SLP) to manufacture a weather mast as part of its project. Fabrication of the mast began before a formal contract was entered into between the two parties. It was later agreed that installation of the mast would constitute a variation of the agreement to manufacture the mast. When the installation of the mast failed, Enertrag brought proceedings against SLP for delivery of the mast and for the cost of an alternative onshore meteorological system.

SLP counterclaimed that the installation failed as a result of Enertrag who did not carry out a soils investigation and selected the proposed alternative sites for the mast. SLP also said that the delay was caused by adverse weather conditions that were a force majeure (i.e. outside either of the parties’ control) event under the terms of the agreement for which Enertrag had accepted the risk. Enertrag denied this and said that SLP was responsible for both providing a “turn-key” service and for carrying out the necessary soil investigations and for selecting an appropriate vessel to carry out the work.

The court had to consider in Enertrag v SLP which of the causes was the dominant cause of the failure. After considering the facts, the court stated that the dominant cause of the failure to install the mast was the failure of SLP who should have properly interpreted its own expert advice and in turn advised Enertrag that proper soil investigations were needed. Such a failure amounted to a material default under the terms of the variation, which constituted the entire agreement between the parties and superseded all negotiations, representation or agreements that took place before the variation.
And so the notion of the “experienced” contractor was starting to develop teeth but it would only be in subsequent cases in 2006, 2014 and 2015 that would flesh out the extent of what an experienced contractor would be expected to do.

In 2006, a decision was rendered in the case Associated British Ports v Hydro Soil Services NV and others which dealt with adverse physical conditions, the experienced contractor and when design is considered “fit for purpose”. Associated British Ports (ABP) engaged Hydro Soil Services to carry out strengthening works to a quay wall at Southampton, UK. The contract was for a lump sum and based on the ICE conditions of contract. Hydro in turn engaged a consulting engineer to carry out the design of the strengthening works to the quay wall. The design required ground anchors to be attached to the steel wall and also the insertion of high pressure vertical grout columns along the berth. Whilst the work was being carried out, the sheet piles cracked and bulged. In some places, the bulging was almost 1 metre from the original installed position. Remedial work was required.

ABP claimed damages for breach of contract by the contractor and the contractor brought a counter claim under clause 12 for unforeseen physical conditions. In addition, a claim was made against the consulting engineer for their design. ABP argued that the works were not fit for their purpose and that the contractor should pay for all rectification work.

Based upon expert evidence, it was found that the existing condition of the sheet piling wall did not account for the widespread bulging and cracking that had taken place during the grouting. The potential over stressing of the sheet pile wall was something that an experienced contractor should have seen and therefore the clause 12 claim failed. The spacing of the columns was greater than the design spacing and there was insufficient sheer strength of the grout wall. As a result, the works were unfit for their purpose.

Equally, it was held that the design of the columns was unfit for their purpose. The original design spacing could not be adhered to and the revised greater spacing had been designed by the consulting engineer. The final design should have catered for potential variance of acceptable workmanship tolerances. The only issue arising from workmanship was the decreased diameter of the columns, which was simply bad workmanship.

In a previous case of Mirant v Ove Arup, the court found that an engineer had a duty to warn irrespective of assumptions that were made during the design. In this ABP v Hydro case it was found that the design had not taken into account the potential tolerances that might occur once the work was carried out and this failure was said to be negligent. An engineering designer therefore needs not only to warn their clients about every assumption made, but also consider construction tolerances in respect of every aspect of their final complete design.

2010 to today

The cases of Obrascon Huarte Lain SA v Her Majesty’s Attorney General for Gibraltar (2014) and Van Oord UK Ltd/SICIM Roadbridge Ltd v Allseas UK Ltd (2015) have been the subject of much discussion in legal circles as they are seen as definitive cases on the notion of what is expected of the experienced contractor. Both involved adverse physical conditions claims by the contractors.

These cases have been reported on in detail in Terra et Aqua #162 in the article “Adverse Physical Conditions Legal Developments and changes in risk profiles”. The reader is invited to download the article from the IADC website to gain a more detailed understanding of both cases; the Obrascon case being concerned with the expected volume of contaminated material on a brownfield airfield site in Gibraltar and SICIM concerning the expected amount of peat, which could be encountered for the construction of a roadway in the Shetlands. When rejecting Obrascon’s claim, Justice Akenhead stated: “The contractor cannot simply accept someone else’s interpretation of the data and say that is all that was foreseeable.

In the SICIM case, the judge rejected the supposition that SICIM was entitled to treat the soil report as a type of “guarantee”. He stated further that it is a matter for contractors’ judgment as to the extent to which they rely on the information, referring to the decision in Obrascon, and as a matter of common sense he stated that “every contractor knows that ground investigations are only 100% accurate in the precise locations in which they are carried out, and that it is for an experienced contractor to fill in the gaps.”

It is precisely the “gaps” and extrapolation between borehole locations and the degree of variation between these data points that need to be assessed and to which the experienced contractor test will apply. The contractor has the burden of satisfying the experienced contractor test on the balance of probabilities and cannot solely rely on the employer’s site data alone as a sort of guarantee. This is clear from the decisions of Obrascon and SICIM, along with other recent case law that reinforces this fact.

To conclude, the most recent landmark case occurred in 2021 in the Scottish Court of Sessions. All the earlier cases covered in this article were largely about soil conditions. The following case is different and relates to the NEC contract omission of scope and good faith under a common law jurisdiction – good faith principles that are much more usual under civil law jurisdictions.

The dispute was on the Aberdeen Harbour Expansion Project in Scotland and centred on the ability of the main contractor Dragados to omit works from the scope of work of its dredging subcontractor Van Oord, and how such omissions should be valued under an amended NEC3 Engineering and Construction Subcontract Option B (priced contract with bill of quantities).

The trial judge held in 2020 that the main contractor’s omission of works and awarding them to other subcontractors was a breach of contract, but the subcontractor still had to comply with the instruction and that the rates for future work could be reduced in the same manner as for a lawful omission. The judge also held that even if there was a breach of the obligation to act, “in a spirit of mutual trust and co-operation,” it would still result in the same reduction to rates.

The trial decision was appealed in October 2021 in Van Oord UK v. Dragados UK (2021) CSIH 50. The Scottish Inner House confirmed that the instruction was a breach of contract but reversed the other finding concerning the reduction to the rates for future work. The appeal court highlighted the importance of the obligation to act, “in a spirit of mutual trust and co-operation,” and found rates cannot be reduced if a compensation event is based on a breach of contract.

The appeal court observed that the obligation to act “in a spirit of mutual trust and co-operation,” is not merely an aspiration but also reflects and reinforces the general principle of good faith in a contract. The court identified three existing authorities for this: a contracting party will not in normal circumstances be entitled to take advantage of its own breach as against the other party; a subcontractor is not obliged to obey an instruction issued in breach of contract; and clear language is required to place one contracting party completely at the mercy of the other.

It was recognised that the contract allowed the contractors prices to be reduced for a lawful reduction in the work scope, but the appeal court considered that if a party does not act, “in a spirit of mutual trust and co-operation,” it cannot seek a reduction in prices. It was therefore necessary to evaluate the contractor’s conduct in instructing the omissions. The appeal court noted each breach of contract was a compensation event under the contract and could only be valued as such.

For a lawful omission, the omitted works are valued on the basis of the shorter schedule of costs and this calculation may produce a value greater than the amount payable under the bill of quantities resulting in a shortfall. Under the NEC form for a lawful omission the contractor may be entitled to recover this shortfall from the amount payable for future work.

The rate of anticipated production is therefore very important. At tender stage a “blended” rate was used for dredging, which averaged out the cost of easier and more difficult works. The subcontractor argued the omissions took out the easier work, leaving a disproportionately higher share of the more difficult work. In this case, there was first a reduction in the work scope for which the subcontractor was not paid and for any subsequent work the contractor sought to significantly reduce the rate, making any subsequent outstanding work unprofitable.

The appeal court concluded that such amendment to the rates and prices applies only to a lawful change and does not apply where an instruction is issued in breach of contract. This is because such an instruction would be invalid and not fall within the clause entitling a rate reduction. The appeal court also noted that there is no obligation to obey an instruction given in breach of contract. “NEC3 should not be charter for contract breaking,” it concluded. What is interesting is that the appeal court saw obligation to act, “in a spirit of mutual trust and co-operation,” as having a real function. It is not merely an aspiration, it affects how other provisions in the contract operate.

Similarly, it is useful for contractors and subcontractors in the marine infrastructure industry now to have confirmation by way of a legal precedent that the obligation to obey instructions is limited to valid instructions issued under the contract and that a compensation event, which is a breach of contract, cannot result in a reduction of the contractor’s rates and prices.

Conclusions

In looking back over the past 50 years, one can see that development in case law over the decades has had not only an impact on the development in contracts but also has helped in setting benchmarks for effective dispute resolution. The notion of the experienced contractor being a case in point, this has developed from a position that the contractor can totally rely on the site investigation prepared by the employer to the position now that the contractor has to make a reasonable and informed judgement of what lies between testing and sampling locations.

The author believes the next frontier in case law will be testing in the courts of the application of disclaimer and non-reliance clauses in contracts. Evidence in the way of court decisions is mixed on this as it depends on the specific wording and each clause is unique to its own contract. The non-reliance clause is the most sinister contract amendment seen in the last two decades as it usually specifies that the contractor warrants that they have not relied in any matter on the site investigation information to determine their prices or method of execution of the works. Time will tell when these clauses come before a court. It should be noted that no industry standard contract in the market today includes disclaimer or non-reliance clauses.