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REPUBLIC OF TRINIDAD AND TOBAGO

IN THE COURT OF APPEAL Civil Appeal P151 of 2014 CV 2010-03594

Between

WATER AND SEWERAGE AUTHORITY OF TRINIDAD AND TOBAGO

Appellant

AND

WATERWORKS LIMITED

Respondent

Appearances:

Mr. Reginald T.A Armour SC, Mr. Raphael Ajodhia and Ms. Elena Araujo for the Appellant Mr. Stanley I. Marcus S.C, Ms. Debra W.C. James for the Respondent Date of Delivery: 26th June 2020 Panel: A. Mendonça JA G. Smith JA P.A. Rajkumar JA

JUDGMENT

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I have read the judgment of Rajkumar JA and I agree.

…………………………………………………..

Allan Mendonça

Justice of Appeal

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Table of Contents Page Number

Background 5 The Claims 5 Loss of Profits 5 Issues 6 Conclusion Issue I – Claim under sub-clause 19.6(a) – value of work done 7 Issues ii and iii – Claims under sub- clause 19.6 (c) 8 Purchase orders premature 8 Whether evidence that the purchase orders were for 10 actual supply of equipment Orders 12 Analysis 14 Deductibility of advance payments Reviewing findings of fact by the trial judge 14 Claims under sub-clause 19.6 (c) - Costs or liability which in the circumstances were reasonably incurred by the contractor in the expectation of completing the works 16 Evidence that purchase orders were premature 18 Whether purchase orders were not in fact for actual supply of equipment 21 Contractual provisions 23 whether any reasonable basis for cancellation charges even if purchase orders were not for actual supply of equipment 24 Whether the instant purchase orders could have been a logical or reasonable mechanism for locking in prices 24 Whether the preliminary designs on which the quotations and purchase orders were based were sufficiently detailed to allow equipment to be identified and ordered 25 Changes to the equipment in the quotations 30 Interpretation of contractual provisions Evidence to contradict terms of quotations and purchase orders inadmissible 32 Language of the contract 34 Evidence of subjective intention - Alleged industry practice 34 Commercial Common Sense 35 Orders 36

Judgement of Smith JA 38-44

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Delivered by Peter A. Rajkumar JA

1. The Appellant and the Respondent entered into two contracts for the

design and construction of two water treatment plants, one at Matura

and the other at Yarra, (hereinafter individually referred to as “the

Matura contract” and “the Yarra contract” respectively and together

as “the contracts”). The respondent’s bid under the Matura contract

was accepted on 27th September 2006. Its bid under the Yarra contract

was accepted by letter dated 3rd April 2007. The contracts were

subsequently terminated. The Yarra contract was terminated on or

around 24th June 2009. In the case of the Matura contract notice of

termination was given on or about 11th September 2009 and the

termination was confirmed by letter dated 12th October 2009.

2. The contracts provided for termination before completion pursuant to

sub clause 15.5 of the General Conditions of Contract. This clause

permitted termination by the appellant at any time for its convenience

upon notice, and for the Respondent to receive payments in

accordance with sub clause 19.6, of which sub clauses 19.6(a) and (c)

are relevant.

3. Sub-clause 19.6 of the General Conditions of Contract (sub clause

19.6) provides, inter alia (all emphasis added):

i. “…upon such termination the Engineer shall determine the value

of the work done and issue a Payment Certificate which shall

include:

a. the amounts payable for any work carried out for which a

price is stated in the contract;

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c. any other Cost or liability which in the circumstances was

reasonably incurred by the Contractor in the expectation of

completing the Works;

Background

The Claims

4. Pursuant to that clause the Respondent claimed in respect of the

Matura contract:

i. The sum of $1,497,413.00 representing the value of work

done under sub clause 19.6 (a);

ii. $4,619,028.30 representing a liability reasonably incurred

under sub clause 19.6 (c);

iii. The sum of $4,420.931.17 representing anticipated loss of

profit.

5. In respect of the Yarra Contract the Respondent claimed:

i. The sum of $651,411.60 representing the value of work

done under sub clause 19.6 (a);

ii. The sum of $3,577,942.46 representing charges accruing to

sub-contractors and/or suppliers as a direct consequence of

termination of subcontracts pursuant to sub clause 19.6 (c);

iii. The sum of $2,824,063.72 representing anticipated loss of

profit.

Loss of profits

6. The trial judge concluded that loss of profits could not be recoverable

on termination of the contract under clause 15.5, because it was not

provided for under sub-clause 19.6. This finding is not the subject of

any appeal by the Respondent.

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Issues

7. The trial judge upheld the claims under sub clause 19.6 (a) for value of

work done under each contract. In respect of the Matura contract the

sum of $1,306,577.00 was awarded. This is not the subject of appeal.

In respect of the Yarra contract the sum of $600,000 was awarded. The

trial judge upheld the claims under sub clause 19.6 (c) and awarded the

sum of $4,619,028.30 and $3,577,942.46 respectively under each

contract.

8. The issues on this appeal therefore relate to the awards made by the

trial judge in respect of the Matura and Yarra contracts:-

i. the award which relates to the claims under sub-clause 19.6 (a) of the

General Conditions of Contract in respect of value of work done under

the Yarra contract,

ii. the other two, under sub clause 19.6 (c), in respect of the claims for

reimbursement of alleged liabilities reasonably incurred by the

respondent contractor. These latter two claims arose from the

respondent’s issue of two purchase orders, (one each in relation to

each contract), and the alleged incurring of cancellation charges of 30

% of the value of any cancelled orders.

9. At issue therefore is:

i. Whether the award under the Yarra contract in respect of the claim

under sub clause 19.6 (a) for alleged value of works done was plainly

wrong or otherwise reviewable as a matter of law.

ii. Whether the claim under the Matura contract for the reimbursement

of cancellation charges for cancelling the purchase order relating to the

Matura Water Treatment Plant was actually in respect of a liability

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reasonably incurred in the circumstances by the contractor in the

expectation of completing the works under sub-clause 19.6 (c).

iii. Whether the claim under the Yarra contract for the reimbursement

of cancellation charges for cancelling the purchase order relating to the

Yarra Water Treatment Plant was actually in respect of a liability

reasonably incurred in the circumstances by the contractor in the

expectation of completing the works under sub-clause 19.6 (c).

Conclusion

Issue i - Claim under Sub-Clause 19.6 (a) – value of work done

10. Issue i. relates to the claim under sub clause 19.6 (a) for alleged value

of work done under the Yarra contract. This is largely dependent on

findings of fact made by the trial judge, as distinct from construction of

the relevant contractual provision (clause 19.6 (a)) under which the

claim was made.

11. Because the value of work actually done required findings primarily of

fact, this was a matter for the determination of the trial judge, based

upon the court’s assessment and evaluation of the evidence, including

that of the witnesses. The circumstances in which findings of fact can be

reversed on appeal are limited by a requirement to first find that the

trial judge had been plainly wrong in the assessment or evaluation of

the evidence.

12. In relation to this particular claim it has not been demonstrated that the

trial judge’s findings and conclusions were plainly wrong.

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Issues ii and iii - Claims under sub clause 19.6 (c)

13. Issues ii. and iii. both related to claims under sub clause 19.6 (c).Their

determination required a construction of the term “liability which in the

circumstances was reasonably incurred by the Contractor in the

expectation of completing the Works”. That construction was properly

considered by the trial judge to be a matter of law, (See paragraph 24

of the judgment)1. It required an objective assessment of

reasonableness i) in the context of the entire FIDIC contract ii) in the

context of the relevant evidence as to the circumstances prevailing at

the relevant time. The relevant time in this context would be the time

of the purchase orders, when the cancellation penalties, for which

reimbursement is being sought, were agreed.

14. The trial judge erred in concluding that the claims made under sub-

clause 19.6 (c) in respect of both the Matura and Yarra contracts were

reasonably incurred for the following reasons:

Purchase orders premature

15. In construing sub clause 19.6 (c) the trial judge appreciated that issue

of the purchase orders, if intended to be orders for actual supply of

equipment, would have been premature. This was because as at the

time the purchase orders were purportedly placed for $15,396,761.00

for the Matura water treatment plant and $11,926,474.88 for the Yarra

1 At paragraph 24 of the judgment the trial judge accepted that reasonableness was a matter of

law for her determination. i. 24. At issue is the reasonableness of the claims made by Waterworks. In this regard I accept the

submissions of WASA that this is a matter of law for my determination on the evidence presented to me. While the opinions of persons knowledgeable in the construction industry may be relevant ultimately the question of reasonableness is one for my determination.

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water treatment plant for the supplying and installation of equipment

for each plant:

i. The sites for each plant had not been finalized, and this

remained the position up to the time of termination (see

paragraph 10 of the judgment of the trial judge).

ii. The Environmental Impact Assessment (EIA) for the Matura site

had not been approved. Consequently neither had a Certificate

of Environmental Clearance (C.E.C) had been obtained for the

Matura site. Similarly, no CEC had been obtained for the Yarra

site. Without a C.E.C no plant could be constructed. The volume

of water permitted to be abstracted depended on the C.E.C and

the specific site eventually approved. The type of treatment

required depended on the quality of water at the specific site

selected. These in turn determined the type of equipment to be

used at each site. Yet the purchase orders purported on their

face to be for the supply and installation of equipment for the

plants to be constructed.

iii. The design drawings for the Water Treatment Plants had not

received final approval from the employer and the contract

required approval of final design drawings by the employer

before construction.

16. The trial judge appreciated that the issue of purchase orders for the

actual supply of equipment at that stage was premature and expressly

so found. Given that purchase orders for the actual supply of

equipment would have been premature, committing to liabilities for

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cancellation penalties of 30% of any such premature orders would itself

have been premature. Therefore those liabilities could not in those

circumstances have been reasonably incurred. Consequently the

claims under sub clause 19.6 (c) for reimbursement of those liabilities

for cancelling the “purchase orders” would not be maintainable

because they were not “reasonably incurred” by the contractor in

expectation of completing the works.

Whether evidence that the purchase orders were for actual supply

of equipment

17. However the trial judge concluded, despite the clear language of the

quotations and their terms, and the purchase orders accepting those

terms, that the purchase orders were not for the actual supply of

equipment but rather Waterworks “had merely sourced, priced, and

locked in prices to the prices applicable in 2008”, (See paragraphs 50

and 51 of the judgment).

18. This conclusion, stated to be from an examination of the relevant

documents, was not sustainable on the evidence. The cancellation

charges are claimed under MAAK’s “standard terms and conditions of

sale” in its quotation. Clause 1 thereof governs the sale of its products

and systems. The purchase orders contained no qualification and

therefore were, as they purported to be on their face, orders for the

actual supply and installation of equipment. On their face the purchase

orders were orders to purchase equipment and systems for

$15,396,761.00 and $11,926,474.88 respectively, with liability for

cancellation of those orders amounting to approximately $ 8 million.

Examination of the documentation therefore could not displace the

logical conclusion that the charges for cancellation of those orders

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purportedly incurred at that stage could not have been liabilities

reasonably incurred.

19. Even if the trial judge had been correct in finding that the purchase

orders were not for the actual obtaining of equipment at that time or

for the actual supply of equipment, (but rather were for the purpose of

sourcing, pricing and locking in 2008 prices), the trial judge failed to

analyse and consider the reasonableness of voluntarily agreeing at

that stage to a cancellation charge of 30% of the value of the “orders”

if they were cancelled, in the context of i. the evidence of the prevailing

circumstances (detailed at paragraph 15 above), and ii. the finding that

the 30% “cancellation” charges would not have been based on

cancelling an order for the actual supply of equipment.

20. The court failed to appreciate the significance of the evidence of Mr.

Alladina from MAAK, (who testified on behalf of the respondent), that

the basis of the quotations by MAAK for equipment, (which were

accepted by the respondent by the issue of the purchase orders), was

30% complete preliminary designs submitted to WASA by Waterworks

at the time of tender. It was those quotations, when accepted by

Waterworks, by the issue of its purchase orders, which provided for

the 30% cancellation charges.

21. The judge erred in concluding that those designs would have been

sufficiently detailed to allow the equipment to be ordered at such a

preliminary stage. Even if Waterworks had actually issued the purchase

orders simply to source, price and lock in prices, committing in those

circumstances to stringent cancellation charges at that stage could not

be a liability “reasonably incurred” for which it was entitled to expect

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reimbursement under sub clause 19.6 (c). This was for the same

reasons that purchase orders for the actual supply of equipment would

have been premature. Critical matters remained outstanding relating

to the eventual final designs of the plants to be constructed and the

equipment that would actually be required.

22. Further, the trial judge erred in law in utilizing and relying on the

evidence of Mr. Alladina regarding alleged industry practice and

subjective intention, to displace the objective, plain, and unambiguous

meaning of the words used in the quotations and their terms, and the

purchase orders.

23. Accordingly, the appeal in respect of claim i. must be dismissed.

The appeal in respect of claims ii. and iii. must be allowed.

Orders

24. In those circumstances it is ordered as follows:

i. The orders of the trial judge that the appellant pay to the

respondent under sub clause 19.6 (a): a. the sum of

$1,306,577.00 in respect of the Matura contract and b. the sum

of $600,000 in respect of the Yarra contract are affirmed.

ii. The orders of the trial judge that the appellant pay to the

respondent under sub clause 19.6 (c) the sums of a.

$4,619,028.30 in respect of the Matura contract and

$3,577,942.46 in respect of the Yarra contract, are set aside.

iii. The orders of the trial judge that the respondent do pay to the

appellant the amounts of the advance payment under the

Matura contract of $3,082,547.33, and under the Yarra contract

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the advance payment in the amount of $2,404,228.00, are

affirmed.

iv. It is ordered that amounts payable by the appellant to the

respondent under sub clause 19.6 (a) in the sums of

$1,306,577.00 and $600,000 as above are to be set off against

the advance payments, to be repaid by the respondent to the

appellant, in the amounts of $3,082,547.33 and $2,404,228.00.

v. It is ordered that the difference of $3,580,198.33 is to be paid by

the respondent to the appellant with interest at the rate of 2.5%

per annum from the date of the filing of the appellant’s

counterclaim on October 17, 2011 until April 17, 2014, and

thereafter at the statutory rate of 12% per annum until June 10,

2016, and thereafter at the rate of 5% per annum until payment,

vi. The orders of the trial judge with respect to costs and interest

are set aside.

vii. The respondent is to pay to the appellant a. in respect of the trial,

costs on the basis prescribed in the Civil Proceedings Rules for a

claim in the total amount of $3,580,198.33 plus interest at the

rate of 2.5% per annum from October 17th 2011 until April 17th

2014, (the prescribed costs) b. in respect of the appeal, two

thirds of the prescribed costs, unless written submissions are

filed by the respondent contending otherwise within 14 days

hereof.

viii. In that event the appellant is at liberty to file written submissions

in response within 14 days thereafter.

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Analysis

Deductibility of Advance payments

25. It was common ground between the parties that under the contracts

the advance payment made by the appellant to the respondent with

respect to each contract was to be deducted from sums due under

subsequent payment certificates as the contracts progressed.

Reviewing Findings of Fact by Trial Judge

26. The evaluation, assessment, and quantification of the value of work

carried out depended almost entirely upon an assessment and

evaluation of the evidence. The circumstances in which an appellate

court would review essentially findings of fact by a trial court are by

now too well known to require rehearsal. See Beacon Insurance

Company Limited v Maharaj Bookstore Limited [2014] UKPC 212,

2 Beacon Insurance Company Limited v Maharaj Bookstore Limited [2014] UKPC 21 The role of an appeal court 12. In Thomas v Thomas [1947] AC 484, to which the Court of Appeal referred in its judgment, Lord Thankerton stated, at pp 487-488: “I Where a question of fact has been tried by a judge without a jury, and there is no question of misdirection of himself by the judge, an appellate court which is disposed to come to a different conclusion on the printed evidence should not do so unless it is satisfied that any advantage enjoyed by the trial judge by reason of having seen and heard the witnesses, could not be sufficient to explain or justify the trial judge’s conclusion; II The appellate court may take the view that, without having seen or heard the witnesses, it is not in a position to come to any satisfactory conclusion on the printed evidence; III The appellate court, either because the reasons given by the trial judge are not satisfactory, or because it unmistakably so appears from the evidence, may be satisfied that he has not taken proper advantage of his having seen and heard the witnesses, and the matter will then become at large for the appellate court.” In that case, Viscount Simon and Lord Du Parcq (at pp 486 and 493 respectively) both cited with approval a dictum of Lord Greene MR in Yuill v Yuill [1945] P 15, 19: “It can, of course, only be on the rarest occasions, and in circumstances where the appellate court is convinced by the plainest of considerations, that it would be justified in finding that the trial judge had formed a wrong opinion.” It has often been said that the appeal court must be satisfied that the judge at first instance has gone “plainly wrong”. See, for example, Lord Macmillan in Thomas v Thomas at p 491 and Lord Hope of Craighead in Thomson v Kvaerner Govan Ltd 2004 SC (HL) 1, paras 16-19. This phrase does not address the degree of certainty of the appellate judges that they would have reached a different conclusion on the facts: Piggott Brothers & Co Ltd v Jackson [1992] ICR 85, Lord Donaldson at p 92. Rather it directs the appellate court to consider whether it was permissible for the judge at first instance to make the findings of fact which he did in the face of the evidence as a whole. That is a judgment that the appellate court has to make in the knowledge that it has only the printed record of the evidence. The court is required to identify a mistake in the judge’s evaluation of the evidence that is sufficiently material to undermine his conclusions. Occasions meriting

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Petroleum Company of Trinidad and Tobago v Stanley Ryan and Anor

[2017] UKPC 30 at paragraph 153, Harracksingh v Attorney General of

Trinidad and Tobago [2004] UKPC 3, Bahamas Air Holdings Limited v

Messier Dowty Inc [2018] UKPC 254.

appellate intervention would include when a trial judge failed to analyse properly the entirety of the evidence: Choo Kok Beng v Choo Kok Hoe [1984] 2 MLJ 165, PC, Lord Roskill at pp 168-169. 14. The Board has adopted a similar approach in this jurisdiction. See Harracksingh v Attorney General of Trinidad and Tobago [2004] UKPC 3 in which it referred (at para 10) to the formulation of Lord Sumner in SS Hontestroom (Owners) v SS Sagaporack (Owners) [1927] AC 37, 47:

“… not to have seen the witnesses puts appellate judges in a permanent position of disadvantage as against the trial judge, and, unless it can be shown that he has failed to use or has palpably misused his advantage, the higher court ought not to take the responsibility of reversing conclusions so arrived at, merely on the result of their own comparisons and criticisms of the witnesses and of their own view of the probabilities of the case.

… If his estimate of the man forms any substantial part of his reasons for his judgment the trial judge’s conclusions of fact should … be let alone.” 3 15. ….It is sufficient to refer to Lord Reed’s summary in Henderson v Foxworth Investments Ltd [2014] 1 WLR 2600, para 67: “67. It follows that, in the absence of some other identifiable error, such as (without attempting an exhaustive account) a material error of law, or the making of a critical finding of fact which has no basis in the evidence, or a demonstrable misunderstanding of relevant evidence, or a demonstrable failure to consider relevant evidence, an appellate court will interfere with the findings of fact made by a trial judge only if it is satisfied that his decision cannot reasonably be explained or justified.” 4 The proper approach to the review by an appellate court to the findings of a trial judge 32. As was observed in DB v Chief Constable of the Police Service of Northern Ireland [2017] UKSC 7, para 78 the United Kingdom Supreme Court on a number of occasions recently has had to address the issue of the proper approach to be taken by an appellate court to its review of findings made by a judge at first instance. And, as was said in that case, perhaps the most useful distillation of the applicable principles is to be found in the judgment of Lord Reed in the case of McGraddie v McGraddie [2013] UKSC 58; [2013] 1 WLR 2477. 33. In para 1 of his judgment Lord Reed referred to what he described as “what may be the most frequently cited of all judicial dicta in the Scottish courts” - the speech of Lord Thankerton in Thomas v Thomas [1947] AC 484 which sets out the circumstances in which an appeal court should refrain from or consider itself enabled to depart from the trial judge’s conclusions. Lord Reed’s comprehensive and authoritative discussion ranged over the speech of Lord Shaw of Dunfermline in Clarke v Edinburgh & District Tramways Co Ltd (1919) SC (HL) 35, 36-37, where he said that an appellate court should intervene only if it is satisfied that the judge was “plainly wrong”; the judgment of Lord Greene MR in Yuill v Yuill [1945] P 15, 19, and the speech of Lord Hope of Craighead in Thomson v Kvaerner Govan Ltd [2003] UKHL 45; 2004 SC (HL) 1, para 17 where he stated that: “It can, of course, only be on the rarest of occasions, and in circumstances where the appellate court is convinced by the plainest of considerations, that it would be justified in finding that the trial judge had formed a wrong opinion.” 36. The basic principles on which the Board will act in this area can be summarised thus: 1. “… [A]ny appeal court must be extremely cautious about upsetting a conclusion of primary fact. Very careful consideration must be given to the weight to be attached to the judge’s findings and position, and in particular the extent to which, he or she had, as the trial judge, an advantage over any appellate court. The greater that advantage, the more reluctant the appellate court should be to interfere …” - Central Bank of Ecuador v Conticorp SA [2015] UKPC 11; [2016] 1 BCLC 26, para 5. 2. Duplication of the efforts of the trial judge in the appellate court is likely to contribute only negligibly to the accuracy of fact determination - Anderson v City of Bessemer, cited by Lord Reed in para 3 of McGraddie.

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27. Given that the trial judge had the benefit of seeing and hearing the

evidence of the witnesses, including that of the respondent’s

witnesses, and the appellant’s witnesses Ms. Jones and Mr. Yearwood

and made evaluations in relation thereto, an appellate court would not

be entitled to overturn those findings unless demonstrated to be

plainly wrong. With respect to the Yarra contract it would not be

sufficient for example to disagree with the trial judge as to the

significance of S. Yearwood’s not being involved in administering the

contract from inception and the rejection of her evidence on the value

of work done on, inter alia, this basis. The Court was also entitled to

take into account as it did that documentation for the Yarra contract in

the possession of the appellant was incomplete and to prefer the

evidence of the respondent on this issue. For this reason the orders of

the trial judge with respect to the claim made under sub-clause 19.6

(a) for the value of work done will be affirmed.

Claims under sub clause 19.6 (c) - Cost or Liability which in the

circumstances was reasonably incurred by the contractor in the

expectation of completing the works.

28. At issue therefore is whether it was reasonable in the circumstances

prevailing, and in the particular context of the instant FIDIC contracts,

for the respondent to seek reimbursement for liabilities being claimed

for cancellation of the purchase orders in respect of the Matura and

Yarra contracts under sub clause 19.6 (c).

3. The principles of restraint “do not mean that the appellate court is never justified, indeed required, to intervene.” The principles rest on the assumption that “the judge has taken proper advantage of having heard and seen the witnesses, and has in that connection tested their evidence by reference to a correct understanding of the issues against the background of the material available and the inherent probabilities.” Where one or more of these features is not present, then the argument in favour of restraint is reduced - para 8 of Central Bank of Ecuador. (All emphasis added)

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29. The claim for reimbursement under sub clause 19.6 (c) is based on

liabilities alleged to have been incurred as a result of 30% cancellation

charges in respect of two purchase orders. The cancellation charges

were stipulated at clause 12 of the conditions of MAAK’s quotations for

the supply and installation of equipment for the Matura and Yarra

water treatment plants. Those conditions were deemed to have been

accepted when Waterworks issued the purchase orders accepting

them. The terms for the quotation in respect of the Yarra plant are set

out hereunder. The Matura quotation contains identical terms.

12) Cancellation. Buyer shall be liable for cancellation charges as

follows: (a) Minimum amount equal to 30% of the quoted price of

Product and additional expenses as may be notified the Buyer by

MAAK as incurred in connection with the Agreement. (b) Maximum

amount of 100% of the quoted price of Product depending on the

time of the cancellation.

30. It is not in dispute that the final designs for both the Yarra and

Matura water treatment plants never received final approval from

the appellant. Equally it is not in dispute that under the FIDIC

contracts between the appellant and respondent approval of final

designs was required before construction of the water treatment

plants could commence5.

31. It was necessary therefore to consider whether it was reasonable as

a matter of construction of those FIDIC contracts to have issued the

two purchase orders for procurement of equipment for the purpose

5 Page 801 of the Record of Appeal Volume 2 clause 4. a of the Scope of Works under the heading “Designs and Drawings” - “…Construction to such designs and drawings shall not commence until the employers representative has consented thereto…” (All emphasis added) The scope of works is included in the contract as item 2 (i) of the agreement made on the 30th July 2007 between WASA and Waterworks for the Matura Contract.

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of equipping water treatment plants in the circumstances then

prevailing namely:

a. When the site for Matura had not been settled or acquired up to

April 2009 and the site for Yarra had not been settled or acquired

well into 2008. (See on behalf of MAAK evidence of Mr. Caprariu

page 12613 and 12627, Vol 18 record of appeal).

b. When the sites had not been approved by the EMA by the issue

of CECs, (See paragraph 40 of the trial judge’s judgment).

c. When intake parameters, and quality of water to be abstracted,

which depended the site and the C.E.Cs, had not been finalised

(ibid page 12617),

d. When the final designs had not been approved, (paragraph 40 of

the judgment),

e. When construction could not have commenced at the stage

when the purchase orders were issued, and

f. when construction may not have commenced at all if approval

for their construction had not been obtained.

Evidence that purchase orders were premature

32. At paragraph 45 of the judgment the trial judge noted that 12 days

before the presentation to WASA of the preliminary design for Yarra

and Matura on March 26, 2008 a quotation was provided by MAAK,

(on March 14, 2008), in respect of equipment for the Matura

contract/water treatment plant under the same terms and conditions

as applied for Yarra. The quotation by MAAK for the Yarra contract was

issued on March 25, 2008, one day before the presentation to WASA

of preliminary design. These were quotations for the supply of specific

equipment to equip water treatment plants. The explanation for the

quotations preceding the submission of preliminary designs was

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provided by Mr. Alladina from MAAK, who testified that the quotations

were based on 30% preliminary designs submitted at the time of

tender, (see Alladina’s evidence at volume 18 page 129289 record of

appeal). The purchase orders issued by the respondent Waterworks on

their face purported to bind Waterworks to purchase the equipment

specified in the quotations. The purchase order for Yarra is set out

hereunder.

WATERWORKS LIMITED 4 April 2008 52 Third Avenue Barataria Trinidad WI TO: MAAK Technoloies Group Inc Suite 201 9133 Leslie Street Richmond Hill Ontario L4B 3R3 Canada Purchase Order for Yarra Water Plant Equipment MAAK Quote #: Q187-002-Revised Description: Yarra Water Plant equipment as per MAAK referenced quotation. FOB: Port of Spain 1) Water Treatment Plant Bill 1200 $7,836,201 2) Mechanical Equipment Bill 1500 $ 836,284 3) Electrical Equipment Bill 1600 $1,922,800 4) SCADA Equipment Bill 1700 $ 590,130 5) Instrumentation and Control Equipment Bill 1800 $ 741,059 Total $11,926,474 ____________________ Waterworks Ltd

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33. The water treatment plants did not have approval for their final

designs. Therefore they could not have been constructed either based

on the 30% complete preliminary designs or at all.

34. Yet nine days after the quotation, the purchase order for Yarra was

issued on 4th April 2008, accepting MAAK’s quotation and its stipulated

30% cancellation charge, committing Waterworks to purchase

$11,926,474.88 million worth of equipment for a plant at Yarra, despite

those issues identified above not yet having been resolved or finalised.

Although the purchase order for equipment for the plant to be built at

the Matura site was undated the trial judge assumed that it had been

similarly issued, accepting MAAK’s quotation in the amount of

$15,396,761.00 and likewise committing to payment of a 30% charge

for cancellation.

35. Committing to purchase approximately $27,000,000.00 worth of

equipment to equip water treatment plants at such a preliminary stage

in those circumstances could hardly be characterized as reasonable.

Even less so could accepting a charge of 30% of the value of the orders

upon their cancellation. The trial judge considered however that the

issue was whether the design submitted provided sufficient

information to allow for the identification of equipment necessary for

the construction phase of the contract, (see paragraph 42 of the

judgment).The reasons why the court fell into error in so concluding

are addressed hereinafter.

36. The evidence of Mr. Alladina referred to at paragraph 47 of the

judgment, was that before there was “authorization for the actual

procurement of equipment” WASA’s approval would have to be

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obtained. Based thereon the trial judge recognised, and made a finding

accordingly, that the issue of purchase orders would therefore have

been premature. See for example, paragraph 51 of the judgment,

where it was stated as follows:

“I am satisfied that in these circumstances there was no initiation by Waterworks of the procurement process in the manner suggested by WASA. The fact that the construction phase had not as yet started is, to my mind, of no moment since at the stage of the termination of the contracts Waterworks had merely sourced, priced and locked in prices to the prices applicable in 2008. In these circumstances there would be no purchase order for the actual supply of the equipment in the true sense of the word and indeed to issue such a purchase order at any time prior to the termination of either of the contracts would have been premature.” (All emphasis added)

37. The conclusion that the issue of purchase orders would be premature

is consistent both with the structure of the contracts identified above,

and with the circumstances also identified above, prevailing at the date

of the alleged purchase orders on which the claims under sub clause

19.6 (c) are based.

38. If the issue of purchase orders under the contract for the actual supply

of equipment was premature as the trial judge expressly found, then it

could not have been reasonable to issue such orders. Further the

instant purchase orders provided stringent penalties for cancellation.

Accepting liability for those charges under such premature purchase

orders also could not have been reasonable.

Whether purchase orders were not in fact for actual supply of

equipment

39. These claims for reimbursement of cancellation penalties only survived

the trial judge’s finding as to the prematurity of the purchase orders

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because the court had concluded that they were merely an

“arrangement by which Waterworks agreed to procure the equipment

from MAAK at some time in the future at the prices quoted to it by

MAAK in 2008”. (See paragraph 50 of the judgment6).

40. Even assuming that were actually the case however this conclusion:-

(i) is inconsistent with the terms of the quotations and purchase

orders themselves, as well as MAAK’s own letter in which it claimed

that 30 % cancellation charges applied.

(ii) even if it were the case that the purchase orders were not for

the actual supply of the equipment, it remained unclear on the

reasoning of the trial judge why it would be reasonable for the

respondent contractor to incur liability for a 30% cancellation

charge to apply if an order had not been placed at that time

for actual supply and installation of equipment.

(iii). Further to the extent that the trial judge relied on Mr.

Alladina’s evidence as to alleged industry practice, to

contradict the actual language in the documents that constituted

the contract, this was impermissible as a matter of law.

6 From an examination of the relevant documents I am satisfied that the arrangement between Waterworks and MAAK was not for the actual obtaining of the equipment at that time but rather an arrangement by which Waterworks agreed to procure the equipment from MAAK at some time in the future at the prices quoted to it by MAAK in 2008. What Waterworks did by entering into these contracts therefore was to secure the equipment at the quoted price. The cost of that benefit to Waterworks was that it was required to bind itself to purchasing the equipment from MAAK and commit itself to the payment of 30% of the contract price if it cancelled the contracts. In other words in 2008 Waterworks sourced the equipment and entered into an arrangement by which the equipment was to be made available to them in the future at a price fixed at the time the equipment was sourced.

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Contractual Provisions

41. The contractual provisions are clearly to the contrary. MAAK issued the

quotations for specific equipment. The documents relied upon for the

claim for reimbursement of the cancellation charges in MAAK’s

quotations included i. the quotations and their terms, and ii. the

purchase orders themselves, together with iii. MAAK’s letter that the

cancellation penalties would apply. Those quotations contained terms,

including cancellation charges applicable, if the quotation was accepted

by a purchase order which was signed by MAAK. (See condition 7)

42. The purchase orders purported to commit the respondent to purchasing

the equipment in the quotations, which was to be supplied and installed

by MAAK at the prices specified. By the issue of the purchase orders

Waterworks accepted MAAK’s standard terms and conditions of sale

which by clause 1 thereof governed the sale of its products and systems.

MAAK’s letter dated October 4, 2010 advising Waterworks of its liability

for cancellation charges for the purchase order relating to Matura,

specifically states “…please be advised that Waterworks is liable for

cancellation charges if you cancel your purchase order for the supply of

equipment and systems for the above project…” On their face the

purchase orders were orders to purchase almost $27 million worth of

equipment, with liability for cancellation of those purchase orders

amounting to approximately $8 million. The respondent’s claim is for

reimbursement of charges for cancellation of those orders for the

equipment specified in the quotations. There is therefore no basis on

that documentation for concluding that they were not intended to be

purchase orders for the actual supply of equipment.

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Even if purchase orders were not for actual supply of equipment

whether any reasonable basis for cancellation charges

43. The specific charges for cancellation of the purchase orders for specific

equipment are inconsistent with any intention to not actually commit

to purchasing that specific equipment at that time. In fact the very

basis of the claim for reimbursement of cancellation charges was that

these were charges for cancellation of actual purchase orders. If the

reasoning, that these were not purchase orders for the actual supply

of equipment, were to be accepted, this is still completely inconsistent

with the conclusion that the 30% charge stipulated in MAAK’s

quotation for cancellation of those “orders”, though “not for the actual

obtaining of equipment” at that time (see paragraph 50 of the

judgment), was reasonably incurred. Even on that alternative it could

not be a charge or liability reasonably incurred, (and therefore

reimbursable under sub clause 19.6 (c)), if its purported basis – an

actual order to purchase or supply equipment at that time, did not

exist.

Whether the instant purchase orders could have been a logical or

reasonable mechanism for locking in prices

44. Despite the court’s express finding that the purported purchase orders

were not intended to be for the actual obtaining or supply of

equipment, at paragraph 52 of the judgment the trial judge accepted

the (allegedly undisputed) evidence of Mr. Alladina from MAAK, (the

party who was claiming the cancellation charge from Waterworks), that

it was necessary and normal business practice for contractors to enter

into such agreements so as to bind subcontractors to supply the

equipment at the prices used as the basis of the tender. The respondent

contends that that evidence was in fact disputed. Whether or not that

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is so the trial judge found, “His evidence to me makes perfect business

sense. One of the components in arriving at a contract price for

tendering purposes would be the cost of the equipment necessary to be

purchased under the contract. It would be to a contractor’s advantage

to ensure that the prices used as a basis for the tender not increase

between the submission of the tender and the date for purchase”.

Whether the preliminary designs on which the quotations and

purchase orders were based were sufficiently detailed to allow

equipment to be identified and ordered

45. The trial judge did not fully analyse that evidence in the context of the

evidence of Mr. Alladina that MAAK’s quotations were in fact based on

equipment identified in 30% complete preliminary design drawings

submitted at the time of tender.

46. Despite the express finding that purchase orders at the stage that they

were issued would be premature the trial judge concluded, (@

paragraph 58 of the judgment), that those preliminary designs

submitted at the time of tender provided design calculations and

equipment sufficient to allow equipment required to construct the

plants in accordance with those designs to be identified. At paragraph

59 the trial judge maintained the view that “even at the preliminary

stages of the contracts, March 2008, it was possible to identify

equipment necessary for the construction of the plants”.(Emphasis

added)

47. While some equipment might have been identifiable at that stage, and

might even have remained common to both the 30% complete

preliminary designs and any 100% complete final designs approved for

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construction, there was no basis in logic for that conclusion. This

conclusion failed to sufficiently take into account i. the fact that the

designs on which quotations were based were only 30% complete ii.

that the structure of the contract required approval of the final design

before construction of any specific plant, and iii. the actual

circumstances prevailing at the time of each purported purchase order

identified previously in relation, inter alia, to actual sites and

outstanding C.E.Cs, included significant uncertainties.

48. The evidence was that some of the specifications for the plants would

be dependent on the sites actually approved and the terms of any C.E.C

issued. In the case of Matura it depended on the terms of any approved

EIA. For example, i. the volume of water permitted to be abstracted,

which would impact the volume of water to be treated, and ii. the

quality of the intake water which would determine the type and extent

of its treatment and the equipment therefor. (See for example evidence

of Caprariu on behalf of MAAK cited previously)

49. It would have been obvious as a matter of logic and necessary inference

from Mr. Alladina’s own evidence that the equipment in those purchase

orders, which might have been required may have changed if or when

100% complete final designs were approved for construction. In fact he

readily accepted that before there is an authorization for the actual

procurement of equipment final designs would have to be submitted

and WASA’s approval obtained. (See paragraph 47 of the judgment).

50. This was explained by the evidence of Ms. Yearwood, which accurately

summarizes the structure of the contract and is supported by its terms.

(See evidence at paragraph 22 of Ms. Yearwood’s witness statement at

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page 9621, volume 14 of the record of appeal). “Without a final

approved design there would be no certainty as to whether and exactly

what equipment would be needed for construction. Indeed, in the

absence of a C.E.C there could be no certainty as to whether and when

construction could actually begin. Thus the procurement stage, which

operated in parallel with the commencement of civil works, only

logically arises after the design phase of a design built contract is

complete and approval given for the undertaking of construction in

accordance with a final design submission”.

51. The evidence of any individual witness including Mr. Alladina, on whom

the trial judge relied, needed to be analysed in the context of the

express terms of the contract under which the claims were being made.

52. To proceed to place actual purchase orders based on the 30% complete

preliminary designs, would have been premature just as the trial judge

found. Even on the alternative accepted by the trial judge, that is, that

the “purchase orders” were despite their terms, only for the purpose of

sourcing, pricing and locking in prices, they would still have been

premature for the very same reasons. The equipment, the prices of

which were sought to be locked in, was based on only 30% complete

preliminary designs. The actual equipment to be ordered, (the prices of

which allegedly needed to be locked in), was still very dependent on

matters which were too uncertain at the time purchase orders were

issued. It could not be identified with sufficient certainty to justify

incurring a 30% charge for their possible cancellation.

53. To incur liability by committing to pay that 30% cancellation charge on

admittedly and obviously premature purchase orders, whether for the

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actual supply of equipment or only for the purpose of sourcing, pricing

and locking in prices, in those circumstances could hardly make perfect

business sense. In fact it would more properly have been characterized

as a liability not reasonably incurred.

54. The trial judge fell into error in the reasoning which led to the

conclusion that the 30% complete designs were sufficiently detailed to

justify ordering the equipment in the quotations. For example, at

paragraph 56 of the judgment the trial judge recognised that “… it is

highly probable that every piece of equipment may not be ascertainable

until final drawings are produced…”, but concluded at paragraph 57

however that because a contractor, (under a design and build contract),

“must be able to identify the equipment that it is likely to require in

order to complete the construction phase of the contract”, that the

preliminary design in the tender documents “must contain the

information necessary to identify the equipment required to construct

the plant in accordance with the designs” ( see paragraph 58 judgment).

(All emphasis added). However there was no basis on the evidence for

assuming that construction (or the equipment therefor) would

necessarily be on those exact drawings. Mr. Alladina’s own evidence is

that MAAK’s quotations were actually based on 30 % complete

preliminary design drawings submitted at the time of tender. In fact

clause 4 (a) of the Conditions of Contract (see page 801 record of appeal

volume 2) makes it absolutely clear that construction could not begin

until the final designs were approved. On the evidence before the trial

court, and as a matter of logic flowing therefrom, equipment based on

30% complete preliminary design drawings, useful for the purpose of

costing of likely equipment and pricing for tender, would not necessarily

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be the same as equipment required for any 100% complete final design

drawings eventually approved for construction.

55. As a matter of logic locking in prices on equipment, in a quotation

based only on 30% complete preliminary design drawings would

therefore be of limited value. Further, any alleged savings from

“locking in” prices in this manner for such equipment would have to be

considered in the context of 30% cancellation charges applicable in the

event that equipment was cancelled because it was no longer required

based on 100% complete final designs eventually approved for

construction. This was not fully taken into account when the trial judge

concluded at paragraph 54 of the judgment that “the equipment would

have already been sourced and reserved for use as at the construction

stage of both contracts”. In the light of the court’s own express findings

on the prematurity of the issue of purchase orders for the “actual

supply” of equipment the conclusion of the trial court that it yet made

“perfect business sense” if their purpose was simply to source, price

and lock in prices for such equipment, and to incur a 30% cancellation

charge in respect of those orders, is not supportable as a matter of

logic.

56. Further, as a matter of evidence it was not in dispute that approval and

finalization of the site, the volume of water permitted to be abstracted,

the quality of water being abstracted from the site finally approved,

and the type of treatment and equipment needed therefor, were all

critical matters outstanding as at the date of the purported purchase

orders. This is completely inconsistent with the conclusion that the

preliminary design in the tender documents “must therefore contain

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the information necessary to identify the equipment required to

construct the plant in accordance with the designs.”

Changes to the Equipment in the Quotations

57. Mr. Alladina accepted (at volume 18 Record of Appeal page 13003

record of appeal) that the design documents were preliminary design

drawings, and that these could change – though that would be a

variation – based upon a. the final design approval b. possibly the site,

c. absolutely possible based on the quality of raw water, d. absolutely

possible as a result of the CEC, e. as a result of the topographical survey,

f. for any reason that WASA has, and that would all be handled through

variations. However it was the FIDIC contract between the appellant

and respondent that expressly made provision for such variations.

58. The FIDIC contract between Waterworks and WASA provided for the

events of delays and price fluctuations. The purported arrangement

between MAAK and Waterworks was therefore, on the evidence, not

only risky and illogical, but also unnecessary. The reasoning in

paragraph 537 does not stand up to scrutiny. To reject, as the trial judge

does, the suggestion by WASA that Waterworks could have relied on

the contractual clause relating to price fluctuations as variations to the

contract or the clause providing for adjustments for changes in costs,

as “somewhat disingenuous” is not borne out by the court’s own

reasoning . This was that a contractor who can “by way of contractual

arrangements prevent such an increase in price” may prefer to do this

rather than engage in a dispute with the employer as to whether those

7 53. To suggest, as was suggested by WASA, that with respect to the pricing of the equipment Waterworks ought to have relied on the clause in the contract which allows it to recover price fluctuations as variations to the contract or under the clause providing for adjustments for changes in cost is to my mind somewhat disingenuous. Why should a contractor prefer to engage in a dispute with the employer as to whether a price increase is a variation or not or whether it is entitled to an adjustment for changes in the cost of equipment when it is able, by way of contractual arrangements, to prevent such an increase in price.

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contractual clauses applied. The fact is that Waterworks already had

contractual arrangements in place with WASA to deal with variations

and extensions of time by the contractor for matters for matters that

were not its responsibility. (See clause 8.4 of the General Conditions

of Contract record of appeal volume 2, page 746). Such matters

included delays in site acquisition and obtaining C.E.Cs, (see paragraph

10 of the trial judge’s judgment).

59. Further, the contractual arrangements entered into by Waterworks

with MAAK, on proper analysis, did no such thing because, as the trial

judge had previously found, the cost of that benefit to Waterworks was

that it was required, at that very preliminary stage, to bind itself to

purchasing the equipment from MAAK, (notwithstanding that it was

only identified in the 30% complete preliminary design drawings, which

were not approved for construction), and commit itself to the payment

of 30% of the contract price on cancellation.

60. While it might have been reasonable to obtain a quotation for the cost

of equipment based on those preliminary designs, understanding that

the final designs might result in variations in equipment, and therefore

final costs, the issue of law remains whether it was reasonable to issue

purchase orders accepting those quotations which on their face were

for the procurement of equipment (i) when final designs had not been

approved, (ii) when the equipment needed to equip the plant based on

final designs was subject to change, (iii) when the sites had not been

acquired, and (iv) when CECs had not been issued, and might never

have been issued in respect of the specific sites. If they were for the

actual supply of equipment, they were premature. If they were simply

for the pricing and locking in of prices they were equally premature as

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well as being a risky, illogical and unnecessary mechanism for achieving

this.

Interpretation of Contractual Provisions

Evidence to contradict terms of quotations and purchase orders

61. In Arnold v Britton [2015] AC 1619, in particular at paragraphs 14-23

the UK Supreme Court comprehensively summarised the law relating

to contractual interpretation, and reasserted the primacy of language.

However, even before that case it was clear that evidence of pre

contractual negotiations or the intentions of the parties was not

admissible in construing a document. (See Arnold v Britton (all

emphasis added 8).

8 Arnold v Britton [2015] AC 1619 paragraphs14-23 (All emphasis added)

INTERPRETATION OF CONTRACTUAL PROVISIONS [14] Over the past 45 years, the House of Lords and Supreme Court have discussed the correct approach to be adopted to the interpretation, or construction, of contracts in a number of cases starting with Prenn v Simmonds [1971] 3 All ER 237, [1971] 1 WLR 1381 and culminating in Rainy Sky SA v Kookmin Bank [2011] UKSC 50, [2012] 1 All ER 1137, [2011] 1 WLR 2900. [15] When interpreting a written contract, the court is concerned to identify the intention of the parties by reference to “what a reasonable person having all the background knowledge which would have been available to the parties would have understood them to be using the language in the contract to mean”, to quote Lord Hoffmann in Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38, [2009] 1 AC 1101, para 14, [2009] 4 All ER 677. And it does so by focussing on the meaning of the relevant words, in this case cl 3(2) of each of the 25 leases, in their documentary, factual and commercial context. That meaning has to be assessed in the light of: (i) the natural and ordinary meaning of the clause, (ii) any other relevant provisions of the lease, (iii) the overall purpose of the clause and the lease,

(iv) the facts and circumstances known or assumed by the parties at the time that the document was executed, and

(v) commercial common sense, but (vi) disregarding subjective evidence of any party's intentions. In this connection, see Prenn at pp 1384 – 1386 and Reardon Smith Line Ltd v Yngvar Hansen-Tangen (trading as HE Hansen-Tangen) [1976] 3 All ER 570, [1976] 2 Lloyd's Rep 621, [1976] 1 WLR 989, 995 – 997 per Lord Wilberforce, Bank of Credit and Commerce International SA (in liquidation) v Ali [2001] UKHL 8, [2002] 1 AC 251, para 8, [2001] 1 All ER 961, per Lord Bingham, and the survey of more recent authorities in Rainy Sky, per Lord Clarke at paras 21 – 30. [16] For present purposes, I think it is important to emphasise seven factors.

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[17] First, the reliance placed in some cases on commercial common sense and surrounding circumstances (e.g. in Chartbrook, paras 16 – 26) should not be invoked to undervalue the importance of the language of the provision which is to be construed. The exercise of interpreting a provision involves identifying what the parties meant through the eyes of a reasonable reader, and, save perhaps in a very unusual case, that meaning is most obviously to be gleaned from the language of the provision. Unlike commercial common sense and the surrounding circumstances, the parties have control over the language they use in a contract. And, again save perhaps in a very unusual case, the parties must have been specifically focussing on the issue covered by the provision when agreeing the wording of that provision. [18] Secondly, when it comes to considering the centrally relevant words to be interpreted, I accept that the less clear they are, or, to put it another way, the worse their drafting, the more ready the court can properly be to depart from their natural meaning. That is simply the obverse of the sensible proposition that the clearer the natural meaning the more difficult it is to justify departing from it. However, that does not justify the court embarking on an exercise of searching for, let alone constructing, drafting infelicities in order to facilitate a departure from the natural meaning. If there is a specific error in the drafting, it may often have no relevance to the issue of interpretation which the court has to resolve. [19] The third point I should mention is that commercial common sense is not to be invoked retrospectively. The mere fact that a contractual arrangement, if interpreted according to its natural language, has worked out badly, or even disastrously, for one of the parties is not a reason for departing from the natural language. Commercial common sense is only relevant to the extent of how matters would or could have been perceived by the parties, or by reasonable people in the position of the parties, as at the date that the contract was made. Judicial observations such as those of Lord Reid in Wickman Machine Tools Sales Ltd v L Schuler AG [1974] AC 235, 251, [1973] 2 All ER 39, [1973] 2 WLR 683 and Lord Diplock in Antaios Cia Naviera SA v Salen Rederierna AB (The Antaios) [1985] AC 191, 201, [1984] 3 All ER 229, [1984] 3 WLR 592, quoted by Lord Carnwath at para 110, [1984] 3 All ER 229, [1984] 3 WLR 592, have to be read and applied bearing that important point in mind. [20] Fourthly, while commercial common sense is a very important factor to take into account when interpreting a contract, a court should be very slow to reject the natural meaning of a provision as correct simply because it appears to be a very imprudent term for one of the parties to have agreed, even ignoring the benefit of wisdom of hindsight. The purpose of interpretation is to identify what the parties have agreed, not what the court thinks that they should have agreed. Experience shows that it is by no means unknown for people to enter into arrangements which are ill-advised, even ignoring the benefit of wisdom of hindsight, and it is not the function of a court when interpreting an agreement to relieve a party from the consequences of his imprudence or poor advice. Accordingly, when interpreting a contract a judge should avoid re-writing it in an attempt to assist an unwise party or to penalise an astute party. [21] The fifth point concerns the facts known to the parties. When interpreting a contractual provision, one can only take into account facts or circumstances which existed at the time that the contract was made, and which were known or reasonably available to both parties. Given that a contract is a bilateral, or synallagmatic, arrangement involving both parties, it cannot be right, when interpreting a contractual provision, to take into account a fact or circumstance known only to one of the parties. [22] Sixthly, in some cases, an event subsequently occurs which was plainly not intended or contemplated by the parties, judging from the language of their contract. In such a case, if it is clear what the parties would have intended, the court will give effect to that

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Language of the contract

62. Principles of particular application to the instant case that can be

extracted therefrom include the following. The clear language of the

quotations and the purchase orders simply did not allow the

construction that they were not orders for the actual supply of

equipment at that time. i. The intention of the parties is to be

ascertained by the language of the contract. ii. There was no ambiguity

to be resolved and the trial judge did not refer to any. iii. Nowhere in

the documentation being relied upon did it stipulate that the purchase

orders were not in fact for the actual supply of equipment at that time.

iv. The clearer the natural meaning the more difficult it would be for a

court to justify departing from it. The trial judge is not justified

therefore in substituting for that language the court’s understanding of

the effect of the purchase orders which was inconsistent with that

language. The trial judge having found that purchase orders for the

actual supply of equipment would have been premature, was not

justified in negating that conclusion by completely ignoring their

language, and that of the quotations.

Evidence of subjective intention - Alleged industry practice

63. Further, as a matter of law the evidence of Mr. Alladina, (the

representative of MAAK, the issuer of the quotation and the

beneficiary of the purported cancellation charge), as to alleged

intention. An example of such a case is Aberdeen City Council v Stewart Milne Group Ltd [2011] UKSC 56, 2012 SCLR 114, [2011] 50 EG 58 (CS), where the court concluded that “any . . . approach” other than that which was adopted “would defeat the parties' clear objectives”, but the conclusion was based on what the parties “had in mind when they entered into” the contract (see paras 17 and 22). [23] Seventhly, reference was made in argument to service charge clauses being construed “restrictively”. I am unconvinced by the notion that service charge clauses are to be subject to any special rule of interpretation. …

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industry practice which was uncritically accepted, could not in fact be

accepted at all, if it was inconsistent with the clear terms of the

contract constituted in the purchase order and the quotation.

64. Evidence by him of some other subjective intention was not admissible

for the purpose of the interpretation of that contract between

Waterworks and MAAK. That evidence needed to be disregarded for

that purpose, (paragraph 14 (vi) Arnold v Britton), as it could not

address the construction of the purchase orders themselves. Those

were issued by Waterworks. Its intention in so issuing them could only

be derived from the language that it used. However even evidence

from Waterworks of its subjective intention was not admissible as a

matter of law. Such evidence was to be disregarded. The trial judge

erred in accepting the evidence of MAAK as to the intention of either

MAAK, or Waterworks in the issue of the purchase orders. The result

of that error was that the premature and unreasonable nature of the

purchase orders was disregarded in favour of an impermissible

conclusion, largely based on Alladina’s evidence that despite the fact

that their terms expressed no such thing, they were intended to give

effect to an alleged industry practice.

Commercial Common Sense

65. Commercial common sense – or its equivalent in this case -“perfect

business sense” -could not have been invoked to undervalue the

importance of the language of the provisions being construed,

(paragraph 17 Arnold v Britton), this is all the more so when

commercial common sense does not justify for the reasons set out

extensively above, the alternative construction of the purchase order

being merely a mechanism for locking in prices in fact commercial

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common sense is only relevant at the date the contract is made (see

paragraphs 19 and 21 Arnold v Britton), and in those circumstances

they could not have been a logical or reasonable mechanism for this

purpose either as a matter of evidence or logic, (see paragraph 44

above).

66. Accordingly, the appeal in respect of claim i. must be dismissed. The

appeal in respect of claims ii. and iii. must be allowed.

Orders

67. In those circumstances it is ordered as follows:

i. The orders of the trial judge that the appellant pay to the

respondent under sub clause 19.6 (a): a. the sum of

$1,306,577.00 in respect of the Matura contract and b. the sum

of $600,000 in respect of the Yarra contract are affirmed.

ii. The orders of the trial judge that the appellant pay to the

respondent under sub clause 19.6 (c) the sums of a.

$4,619,028.30 in respect of the Matura contract and

$3,577,942.46 in respect of the Yarra contract, are set aside.

iii. The orders of the trial judge that the respondent do pay to the

appellant the amounts of the advance payment under the

Matura contract of $3,082,547.33, and under the Yarra contract

the advance payment in the amount of $2,404,228.00, are

affirmed.

iv. It is ordered that amounts payable by the appellant to the

respondent under sub clause 19.6 (a) in the sums of

$1,306,577.00 and $600,000 as above are to be set off against

the advance payments, to be repaid by the respondent to the

appellant, in the amounts of $3,082,547.33 and $2,404,228.00.

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v. It is ordered that the difference of $3,580,198.33 is to be paid by

the respondent to the appellant with interest at the rate of 2.5%

per annum from the date of the filing of the appellant’s

counterclaim on October 17, 2011 until April 17, 2014, and

thereafter at the statutory rate of 12% per annum until June 10,

2016 and thereafter at the rate of 5% per annum until payment,

vi. The orders of the trial judge with respect to costs and interest

are set aside.

vii. The respondent is to pay to the appellant a. in respect of the trial,

costs on the basis prescribed in the Civil Proceedings Rules for a

claim in the total amount of $3,580,198.33 plus interest at the

rate of 2.5% per annum from October 17th 2011 until April 17th

2014, ( the prescribed costs) b. in respect of the appeal, two

thirds of the prescribed costs , unless written submissions are

filed by the respondent contending otherwise within 14 days

hereof.

viii. In that event the appellant is at liberty to file written submissions

in response within 14 days thereafter.

………………………………………………….

Justice of Appeal

Peter A. Rajkumar

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Smith JA

1. I have read the judgment of Rajkumar J.A. and I agree with it. However, I

would like to add the following observations with respect to the conclusion

of Rajkumar J.A. that the Respondent’s claims for the value of work done

under clause 19.6(c) of the contracts were not reasonably incurred.

Specifically, I direct attention to the opinion of Rajkumar J.A. which he

expressed at paragraphs 44-53, that it was not reasonable to bind the

Appellant to pay the cancellation charges of MAAK in respect of the

“purchase orders” for the supply of equipment for two water treatment

plants.

2. At paragraph 52 of her reasons, the trial judge accepted that the practice

of locking in prices at such a preliminary stage by placing “orders” with

MAAK was both (i) unchallenged; and (ii) made perfect business sense.

Both these findings were not properly considered by the trial judge on the

facts of this case.

3. I repeat paragraph 52 of the trial judge’s reasons here:

“52. Allidina’s evidence that it was necessary and normal

business practice for contractors to enter into such

agreements so as to bind subcontractors to supply the

equipment at the prices used as the basis of the tender

was not challenged either by way of cross-examination or

by the submission of evidence to the contrary. His

evidence to me makes perfect business sense. One of the

components in arriving at a contract price for tendering

purpose would be the cost of the equipment necessary to

be purchased under the contract. It would be to a

contractor’s advantage to ensure that the prices used as a

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basis for the tender not increase between the submission

of the tender and the date for purchase.”

(my emphasis)

4. I will now comment on two aspects of the trial judge’s findings at

paragraph 52; namely:

i. The allegedly unchallenged evidence of Mr. Allidina; and

ii. The opinion of the trial judge that Mr. Allidina’s evidence made

perfect business sense.

(i) The allegedly unchallenged evidence of Mr. Allidina

5. Mr. Allidina was a representative of MAAK (which was the company that

was subcontracted by the Respondent to supply and install equipment at

the water treatment plants). He testified on behalf of the Respondent to

the effect that it was normal business practice for contractors (like the

Respondent) to enter into agreements to bind subcontractors (like MAAK)

to supply equipment at fixed prices even at this preliminary stage of a main

contract as between a contractor and the employer (the Appellant).

6. The trial judge stated that Mr. Allidina’s evidence was not challenged by

way of cross-examination or by the submission of evidence to the contrary.

However, there was both: (a) cross-examination on this issue; and (b)

evidence led on behalf of the Appellant to the contrary.

In relation to (a) above, in cross-examination, the Appellant repeatedly

suggested to Mr. Allidina that the fixing of prices in these situations was

not industry practice and/or good industry practice.9

9 See Notes of Evidence dated 20 November, 2013 at page 13913 of the Record of Appeal, Volume 18.

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In relation to (b) above, the witness statements of two of the Appellant’s

witnesses actually attacked this alleged industry practice and suggested

that it was not acceptable or reasonable industry practice to make such

binding arrangements with subcontractors until the final designs of the

main contract had received approval (which was not the case here).10

7. There was no unchallenged industry practice as stated by the trial judge

and her conclusions based on this allegedly unchallenged industry practice

are flawed.

(ii) Did Mr. Allidina’s evidence make perfect business sense?

8. The starting point for this discussion is the fact that this alleged industry

practice as testified to by Mr. Allidina was not a matter that was provided

for in the main contract between the Appellant and the Respondent. In

fact, that practice ran counter to an express term of the main contract

between the Appellant and the Respondent.

9. According to clause 13.8 of the general conditions of the main contract:

“Variations and Adjustments...Adjustments for Changes in

Costs: 13.8 ...If this Sub-Clause applies, the amounts

payable to the Contractor shall be adjusted for rises or falls

in the cost of labour, Goods and other inputs to the Works,

by the addition or deduction of the amounts determined by

the formulae prescribed in this Sub-Clause.”

10 See paragraph 27 of the Witness Statement of Eric Jones at page 10468 of the Record of Appeal, Volume 15. See paragraph 20 of the Witness Statement of Shenelle Yearwood at page 9619 of the Record of Appeal, Volume 14.

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10. The main contract made specific provisions for variations in any changes

in costs payable to the contractor, which would include changes in prices

between the design phase and the construction phase of the contract. This

was an express provision of the contract as opposed to an

uncommunicated and subjective intention of the Respondent to lock in

prices at the design phase of the contract.

11. The United Kingdom Supreme Court case of Arnold v Britton11 (and

accepted by the Privy Council in Attorney General v River Dorée Holdings

Ltd [2017] UKPC 39) cited by Rajkumar J.A. is instructive on this point.

At paragraph 15 of that decision, Lord Neuberger observed that in

construing the meaning of a provision of a contract, the relevant words of

the contract have to be examined “in their documentary, factual and

commercial context” but “disregarding the subjective evidence of any

party’s intentions.”12

12. By accepting the evidence of Mr. Allidina in support of a substantive,

uncommunicated intention of the Respondent of an alleged industry

practice to lock in prices at this stage of the contract over the express

provisions of the contract, the trial judge erred by failing to attach the

proper significance to the express provisions of the contract.

13. Another cause for concern in the trial judge’s acceptance of the evidence

of Mr. Allidina as making “perfect business sense” is that the analysis of

“perfect business sense” was done against the backdrop of all the facts as

were now known to the court.

11 [2015] AC 1619 12 See paragraph 15 of Arnold v Britton, supra

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14. In assessing the evidence of Mr. Allidina at paragraph 52 of her reasons,

the trial judge went on to opine that:

“One of the components in arriving at a contract price for

tendering purpose would be the cost of the equipment

necessary to be purchased under the contract. It would be

to a contractor’s advantage to ensure that the prices used

as a basis for the tender not increase between the

submission of the tender and the date for purchase.”13

15. Further, at paragraph 53 of her reasons, the trial judge also went on to

reject the Appellant’s contentions with respect to clause 13.8 above (re

price fluctuations) as being disingenuous. She stated:

“Why should a contractor prefer to engage in a dispute

with the employer as to whether a price increase is a

variation or not or whether it is entitled to an adjustment

for changes in the cost of equipment when it is able, by

way of contractual arrangements, to prevent such an

increase in price.”

16. While it may have been to a contractor’s (such as the Respondent)

advantage to lock in prices at this preliminary stage of the main contract,

this position was not communicated to the Respondent (Employer) at the

time the purchase orders were issued. This in effect was a retrospective

invocation of commercial common sense by the trial judge. This

retrospective invocation of commercial business sense was exacerbated

by the rejection of the express terms of the contract to the contrary (see

clause 13.8 of the contract and paragraphs 9, 10 and 15 above).

13 See paragraph 52 of the trial judge’s decision.

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17. At paragraph 19 of Arnold v Britton, Lord Neuberger states the point

thus:

“The third point I should mention is that commercial

common sense is not to be invoked retrospectively. The

mere fact that a contractual arrangement, if interpreted

according to its natural language, has worked out badly, or

even disastrously, for one of the parties is not a reason for

departing from the natural language. Commercial

common sense is only relevant to the extent of how

matters would or could have been perceived by the

parties, or by reasonable people in the position of the

parties, as at the date that the contract was made. Judicial

observations such as those of Lord Reid in L Schuler AG v

Wickman Machine Tool Sales Ltd [1973] 2 All ER 39 at 45,

[1974] AC 235 at 251 and Lord Diplock in Antaios Cia

Naviera SA v Salen Rederierna AB, The Antaios [1984] 3 All

ER 229 at 233, [1985] AC 191 at 201, quoted by Lord

Carnwath at para [110], have to be read and applied

bearing that important point in mind.”

(my emphasis)

18. The retrospective invocation of an alleged industry practice by the trial

judge to make “commercial common sense” of a business arrangement or

to correct or contradict an express contractual provision was not in

keeping with the proper interpretation of the contractual arrangement

between the parties.

19. Therefore, on the case as presented, it was not proper for the trial judge

to opine that the evidence of Mr. Allidina (or any other evidence of the

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Respondent’s witnesses) was unchallenged and/or made perfect business

sense.

20. That being the case, the trial judge erred when she upheld the claim for

cancellation charges in respect of the “purchase orders” as being

reasonably incurred on the grounds of the alleged or any industry practice.

.........................................

G. Smith

Justice of Appeal