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TRINIDAD AND TOBAGO

IN THE HIGH COURT OF JUSTICE

SAN FERNANDO

Claim No. CV2007-02193

BETWEEN

RAGHUNATH SINGH & COMPANY LIMITED

Claimant

AND

NATIONAL MAINTENANCE TRAINING AND

SECURITY COMPANY LIMITED

Defendant

BEFORE THE HONOURABLE JUSTICE PETER A. RAJKUMAR

Appearances:

Mr. Ashraph for the Claimant

Mr. Colin Kangaloo instructed by Ms. Nadia Kangaloo for the Defendant.

Judgment

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Index Page

Background 3

The Claim 4

Issues 4

Conclusion 4

Disposition and Orders 5

Analysis and Reasoning 6

Facts not in issue 6

The Defendant’s case 7

Law 7

Issue 1 whether a contract had been concluded 7

Whether the contract between the claimant and the Defendant was frustrated 9

Findings 13

Law on frustration 20

The Conceptual Basis 22

Analysis 34

Construction of the contract – its nature and surrounding circumstances – findings 35

What was contracted for – the terms and construction of the contract 35

Alleged supervening event 36

How does the alleged supervening event affect if at all delivery of what was contracted for 36

Contractual provision/knowledge of the parties 37

Control over event 37

Issue – Whether the claimant has proved its damages in relation to its claim for loss of profit 37

Law – Proof of special damage 38

Loss of profit – Terminated contracts 41

The principles summarised 42

i. The nature of the claim/value 44

ii. The difficulty or ease with which proper evidence of value might be obtained 45

Loss of Profit arising from non availability of rental equipment 47

Has the claimant mitigated its loss 49

Conclusion 50

Disposition and Orders 51

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Background

1. The claimant responded to the invitation of the defendant, acting as agent for the

Government of Trinidad and Tobago to tender for a contract for the construction of the Palo Seco

High School (the school). The defendant’s tender of $22,297,672.32 was accepted on February

28th

2002. The claimant was asked to provide a performance bond, which it did on March 21st

2002 at a cost of $81,548.67.

2. The invitation to tender provided at clause 5(1) that the claimant was advised to visit the

proposed construction site and its surroundings prior to tender.

3. The site was 15 feet away from a producing oil well. Petrotrin – the operator of that well

declined to abandon it.

4. The cost of abandoning oil wells on the site was estimated to be $400,000.00 but the

defendant was of the view that it could escalate to $1 million.

5. It also came to the view after it accepted the tender that the Environmental Management

Authority would be reluctant to issue a certificate of environmental clearance for the site, which

was to be used for a school.

6. The claimant received no further written communication from the defendant until

September 11, 2002, when the defendant informed it that its client had issued instructions to

cease the commencement of activities, and that it was “seeking arrangements to acquire an

alternative site”. “ ..MTS is unable to enter into a formal agreement with your firm and

handover of the site for commencement of the works.”

7. The defendant declined to proceed with the contract.

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The claim

8. The Claimant claimed against the Defendant for:

(a) Damages for breach of contract made between the Plaintiff and the Defendant on or about

the 28th

day of February, 2002 for the construction by the Plaintiff of the school

(b) Further and/or in the alternative damages for loss or profit.

The claimant specifically pleads a claim for loss of profit under the contract in the amount of

$2,297,672.32 or 10% of its value, as well as the cost of the performance bond.

Issues

9. (a) Whether a contract had been concluded between the claimant and the defendant.

(b) If so, whether the contract between the Claimant and the Defendant had been frustrated

thereby relieving the Defendant of any obligations and/or liability under it.

(c) Whether the Claimant proved its claim for damages in relation to its claims for loss of

profit, to cost of performance bond, and loss of profit arising from inability to use its equipment.

Conclusion

10. a. A contract was concluded by the letter, (wrongly dated February 28th

2001), and

issued on February 28th

2002, accepting the claimant’s tender. No further contract document was

required to constitute a binding contract.

b. The circumstances in which the defendant elected not to proceed with the contract do not

amount to events of frustration and the defendant cannot claim to be absolved from its

obligations and liability under the contract.

The claimant is under an obligation to prove its damages and loss.

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c. It has not been disputed that the claimant was called upon to provide a performance bond

after acceptance of its tender and that it indicated to the defendant that it had complied by letter

of March 21st 2002. It claimed that it incurred a cost of $81,548.67 to do so, which evidence I

accept, as it was not disputed.

11. Given, however, that the major part of its claim is for in excess of $2 million representing

loss of profits of 10% of the contract value, I find that it has failed to supply sufficient evidence

of appropriate probative value in respect of that aspect of its claim.

12. In the circumstances I find that, in default of such evidence, the claimant has established,

a claim to nominal damages with respect to this aspect of its claim, and an award of nominal

damages is therefore made, in addition to the cost to it of establishing the performance bond.

13. The claim for loss of profit arising from inability to use its equipment was not pleaded,

and I find that it has not been proved.

Disposition and Orders

14. The defendant is to pay to the claimant:-

i. The sum of $81,548.67, (the cost of the performance bond).

ii. Interest thereon at the rate of 6% per annum from March 21st 2002.

iii. Nominal damages in the sum of $20,000.00 in respect of loss of profit.

iv. Interest thereon at the rate of 12 % per annum from the date of service of the writ.

v. Costs on the basis prescribed by the Civil Proceedings Rules for a claim in the total amount

as calculated above.

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Analysis and Reasoning

Facts not in issue

15. The Claimant alleges that on December 9, 2001 it submitted to the Defendant a tender for

a contract for the building of the Palo Seco High School at a price of $22,297,672.32.

16. Its tender was accepted by letter of February 28, 2002.

17. The Claimant effected a Performance Bond incurring a cost of $81,548.67.

18. On or about September 11, 2002 the Defendant informed the Plaintiff that it was unable

to proceed with the said contract and the works because it was making arrangements to obtain an

alternative site for the construction of the said school.

19. The Claimant alleged that it the Defendant is in breach of the contract and the Plaintiff

has incurred and suffered financial loss and particularised this as follows:

(a) Cost of establishing Performance Bond $81,548.67.

(b) Loss or profit at 10% of contract price $2,229,762.20.

20. The Defendant claims

i. That the said contract was frustrated. It pleaded:-

“ …. Alternatively the alleged contract was frustrated in that it became impossible of

performance without there being any fault on the part of the Defendant and in the

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premises, the Defendant was discharged from the performance of the alleged

contract due to matters pleaded at paragraph 10 hereinabove.”. (See paragraph

11 of the Defence)

ii. That by letter dated September 11, 2002 it indicated to the Plaintiff that it was unable to

enter into a formal agreement with the Plaintiff.

iii. That it is not liable to the Plaintiff for its claim for loss of profit.

The defendant contends that

21.

i. The contract between the Claimant and the Defendant was frustrated and the Defendant is

therefore not liable under this contract.

ii. The Claimant has led no probative evidence of its loss of profit and is therefore not

entitled to such damages.

iii. Even if such sum is proven, the Claimant has not mitigated its loss and is not entitled to

the loss of profit claimed. I consider it unnecessary to this decision to address this last

matter.

Law

Issue 1-Whether a contract had been concluded?

22. I find that it cannot seriously be contended that no contract had been concluded.

See for example Halsbury's Laws of England/CONTRACT (VOLUME 9(1) (REISSUE))/3.

669. Provisional agreements.

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Where there is an informal agreement which expressly requires or envisages the

subsequent execution of a formal contract, the legal effect of that prior informal

agreement at common law depends on the intention of the parties, as with letters of intent.

They may have entered into a binding provisional agreement, whilst envisaging its

subsequent replacement by a more formal one; or they may evince an intention only to

be bound on the execution of the formal contract, the prior informal agreement being of

no legal effect.

Where there is a definite acceptance of an offer to enter into a provisional agreement,

the fact that it is accompanied by a statement that the acceptor desires that the

arrangement should be put into a more formal shape does not relieve either party from

his liability under the provisional agreement, for instance: …an informal acceptance of

a tender for a large building contract;

If the envisaged formal contract does materialise, it may exactly reflect the terms of the

prior provisional agreement, in which case it may have little more than an evidential

value. Alternatively, it may differ materially from the provisional agreement, so that it

may be material to decide whether it has replaced that provisional agreement.

23. In this case the tender provides the answer in that the form of tender, provided by the

defendant, and duly completed by the claimant, at clause 5.5 provides “ unless and until an

agreement is prepared and executed, this tender, duly signed on the page overleaf, together with

your written acceptance thereof, shall constitute a binding Contract between us. “

24. Further Clause 33.1 of the conditions of contract provides that the employer will notify

the successful tenderer that his tender has been accepted (“by a letter of acceptance”).

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25. Further under clause 33.2 – The notification of award will constitute formation of the

contract.

a. The tendering documents comprised (para6-1) the invitation to tender, instructions to

tenderers, the conditions of contract part 1 and part 2, specimen forms, technical

specifications, bills of quantities and drawings.

b. The tender itself comprised (para.12-1) the form of tender, the bid bond, the priced bill of

quantities. Obviously therefore the effect of acceptance of the tender was to create a

binding contract, with at least conditions of contract and prices having been agreed at that

stage.

26. The Defendant’s letter of acceptance dated the 28th February, 2002 (erroneously dated

28th

February, 2001), constituted the notification of award.

27. There is therefore no ambiguity. A contract was concluded between the parties. At issue

is whether that contract was frustrated.

Whether the contract between the Claimant and the Defendant was frustrated

Factual Chronology

28. The circumstances in which the contract was not proceeded with are set out in the witness

statement of Mr Loreilhe, Divisional Manager of the defendant (“MTS”) who testified via his

witness statement as follows: - (summarized with emphasis added)

1. MTS was the Construction Management Agency for inter alia the design, construction, of

the Palo Seco High School (“the High School”).

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2. The initial choice of site for the construction of the High School (“the Original Site”),

chosen by the Ministry of Education, was approximately sixteen (16) acres and contained

two (2) non-functional oil wells.

3. The consultants believed that the technology was available to safely abandon the oil wells.

4. On February 7, 2001 an Environmental Assessment of the site was commissioned.

5. On October 15, 2001, EPTM Consulting Services Limited (“EPTM”) was engaged to

produce tender documentation for the plugging and abandonment of the two (2) oil wells

on the Original Site. EPTM was also subsequently engaged by MTS to manage the

implantation of the plugging and exercise of abandoning the two (2) oil wells.

6. (I find that it is clear therefore that MTS was the party who was overseeing the issues that

the presence of those oil wells on the original site could have caused and that they were

aware that there were such potential issues at that original site.)

7. On October 16, 2001 tenders were invited by MTS for the construction of the High School.

On December 6, 2001, MTS recommended Raghunath Singh & Co. in respect of the High

School with a tender sum of $22,297,672.32.

8. During December 2001, MTS received approval from the Ministry of Finance for the

award of tenders in respect of the said seven (7) schools and contracts were awarded by

MTS for six (6) schools, also during December 2001. However, the letter of award for the

High School was not issued as MTS was awaiting information for the projected date of the

implementation of the plugging and abandonment of the two (2) oil wells on the Original

Site

29. It is clear therefore that MTS was well aware that the plugging of oil wells on the

original site was an issue critical to any award.

30. The design and supervision consultants Gillespie and Steel Limited provided updated site

layout drawings and it was then discovered that they had shifted the Original to a position that

placed it close to a producing oil well (“the proposed new Site”) belonging to the Petroleum

Company of Trinidad and Tobago (“Petrotrin”). By its letter to MTS dated October 11, 2001

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however, Petrotrin had indicated that the Proposed new Site may pose a greater potential health

and safety risk to the occupants of the High School primarily because the perimeter of the

Proposed Site was only approximately fifteen (15) metres from a producing oil well and

other non-producing wells which would also have to be abandoned.

31. On January 10, 2002, MTS commissioned an air quality monitoring programme which

allegedly confirmed that there were no toxic emissions on the proposed new Site.

32. At a meeting between MTS and Raghunath Singh & Co. on February 6, 2002, MTS

advised that the abandonment of the producing Petrotrin oil well would be executed during

the month of March 2002.

33. On February 27, 2002, it was decided that the Proposed Site would be handed over to

Raghunath Singh & Co. on March 1, 2002 and that a letter of award would accordingly be

issued.

34. By letter erroneously dated February 28, 2001, instead of 2002, MTS certified that the

tender of Raghunath Singh & Co. had been accepted at a contract price of $22,297,672.32

exclusive of Value Added Tax. By the said letter, MTS also requested Raghunath Singh & Co.

to commence acquisition/consideration of the following to facilitate prompt commencement of

the works when instructed:

a. Performance Bond;

b. Insurances for the Works;

c. Advance Payment Guarantee;

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d. Detailed Implementation Schedule and Methodology Statement.

35. Raghunath Singh & Co. subsequently posted a performance bond in the sum of

$81,548.67.

36. No formal contract was executed as required by Clause 34 the Tender Documents. (I

have found that this makes no difference whatsoever).

37. On March 18, 2002, the approximate cost of the abandonment project was found to be

$400,000.00. MTS determined that, given the uncertainty of safely, securely and permanently

capping a producing oil well, the cost of the abandonment project could amount to as much as

$1,000,000.

38. At a meeting held between MTS and the Environmental Management Authority

(“EMA”) on March 19, 2002, the EMA raised the issue of conducting a risk assessment of the

Proposed Site.

39. A Risk Assessment Report was submitted April 19, 2002. The Report recommended the

shutdown of the producing Petrotrin oil well.

40. On March 27, 2002, MTS was instructed to apply for a Certificate of Environmental

Clearance (“CEC”) from the EMA.

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41. By letter dated April 29, 2002, the Project Management Unit of the Ministry of Finance

instructed that Petrotrin be urgently approached with respect to the shutdown of the producing oil

well with the alternative that a new site should be identified and acquired as soon as possible.

42. By letter dated April 30, 2002 MTS wrote to Petrotrin requesting permission to abandon

the producing oil well.

43. By letter dated May 20, 2002 Petrotrin advised MTS that it was unwilling to abandon the

producing oil well. MTS had no control over this position taken by Petrotrin.

44. By letter dated June 11, 2002 the EMA advised that an Environmental Impact

Assessment (“EIA”) was required for the proposed construction of the High School.

45. On August 8, 2002, he prepared a report on the status of sites for secondary schools. The

report recommended that a thorough investigation should be made of alternative sites prior to

any EIA study being done on the Proposed Site.

46. By letter dated August 7, 2002 from SEMPCU to MTS, SEMPCU confirmed that it was

quite obvious that a new site would have to be found for the High School since it appeared that

the EMA would not have provided a CEC for the Proposed Site. The SEMPCU letter also

confirmed that SEMPCU would not construct on a site for which it did not have a CEC from the

EMA or at least a response from the EMA which was not negative to the site. Given the concerns

of the EMA and the danger of building the High School near a producing oil well, it was

neither safe nor commercially feasible to build the High School on the Proposed Site. As a

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result of these matters, on September 11, 2002 MTS issued a letter to Raghunath Singh & Co.

informing them that MTS was unable to enter into a formal agreement with them.

Despite the best efforts of MTS, ….at no time, prior to and/or after the award of the tender to

Raghunath Singh & Co., was MTS in a position to hand over the Proposed Site to Raghunath

Singh & Co. for the construction of the High School.

Findings

47. The effect of the defendant’s evidence by its witness statement is that:-

i. there was an original site identified.

ii the original site was shifted to a proposed new site.

The original site contained 2 non producing oil wells which would have had to be abandoned. It

is clear therefore that MTS was well aware that the plugging of oil wells on the original site was

an issue critical to any award.

48. The proposed new site contained non functioning oil wells as well as being 15 metres

from a producing oil well.

49. MTS knew this by in or around October 11th 2001 as Petrotrin so advised it by letter.

50. MTS advised the claimant that the producing oil well would be abandoned in March

2002.

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51. MTS decided on February 27th 2002 that the proposed site would be handed over to the

claimant on March 1 2002 and a letter accepting the claimant’s tender was issued on February

28th

2002.

52. It subsequently transpired that-

i. Petrorin was not willing to abandon the producing oil well

ii. The cost of abandonment was determined to be $400,000.00 with a possible increase to

one million dollars

iii. An environmental impact assessment ,(EIA) would be required

iv. Rather than conduct the EIA the defendant decided to identify alternative sites.

53. It is clear that:-

a. the fact that oil wells, both producing and non producing, needed to be abandoned and there

must be a cost to this. Notwithstanding this MTS handed over the proposed site to the claimant.

b. the fact that there was a producing oil well in proximity to the site was an issue that was

known to MTS. They were so told by Petrotrin, and they conducted air quality tests. The effect

of its presence therefore could have been the subject of inclusion in any subsequent contract with

the claimant.

c. in fact MTS went so far as to tell the claimant in a meeting on February 6th 2002, they allege,

that the well would be abandoned in March 2002. The basis on which it did so is not explained

in the defendants witness statement.

d. it was never the case that the EMA took any action that would have prevented the

implementation of the contract.

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54. Petrotrin’s position that it was not willing to hand over the site was a reason put forward

by the defendant for not being able to hand over the site. However the fact that the producing oil

well had to be dealt with, and the possibility that Petrotrin may not have wished to abandon a

producing oil well were factors that must have been known to the defendant before it decided to

accept the tender of the claimant.

55. The letter of Petrotrin is dated October 11th

2001 refers to a meeting in October 2001

where the defendant was present and recognized the risks. Petrotrin then placed the claimant on

notice that the presence of the producing well 15 metres away from the perimeter of the proposed

site meant the scope and financial implications for the well abandonment effort for the new site

as well as the required actions to address the potential risks would be greater than originally

envisaged. Petrotrin’s letter also referred to it having been originally contemplated that Petrotrin

would be doing the abandonment work and MTS would pay it to do so.

56. The letter of award to the claimant was wrongly dated February 27th

2001 but in fact the

actual date was February 27th

2002.

57. At a meeting between MTS and Raghunath Singh & Co. on February 6, 2002, MTS

advised that the abandonment of the producing Petrotrin oil well would be executed during

the month of March 2002.

58. This is evidence which, if I accept it, is adverse to the defendant in the circumstances of

this case. There is no reason not to accept it. Its significance is that MTS was clearly assuming

responsibility for dealing with the producing oil well, and advising the claimant of this. In fact

that well was outside the parameters of the proposed site, and the claimant had no control over

that area in any event.

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59. It is also significant in that MTS clearly therefore recognized that the abandonment of

that producing oil well was important and had to take place.

60. Any abandonment exercise had to be effected by Petrotrin, as previously agreed with

Petrotrin.

61. Further, as the oil well was under the control of Petrotrin, it could not be abandoned

unless Petrotrin agreed.

62. It is reasonable to infer therefore that the advice to the claimant suggests that MTS had

some basis for advising the claimant that the abandonment would take place in the month of

March 2002.

63. Even if it did not that would have been the impression that MTS conveyed to the

claimant- that the producing well was to be abandoned and that MTS would see to the

arrangements in this regard with Petrotrin.

64. A Risk Assessment Report was submitted April 19, 2002. The Report recommended the

shutdown of the producing Petrotrin oil well.

65. This was highly foreseeable and I so find. It did not require an independent agency to

point out that it was sensible to undertake a risk assessment of the possible hazards associated

with a producing oil well so close to a high school.

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66. Even if the assessment determined that there was no risk it was prudent to first ascertain

this before accepting a tender, and concluding a contract.

67. The claim that the position of the EMA subsequently became a problem is clearly an

afterthought. In light of Petrotrin’s letter the haste to accept any tender before clarifying the

position with respect to the abandonment of the producing oil well, an assessment of the health

and safety issues surrounding construction of a school in the vicinity of such a well, and the cost

of abandoning this and other non producing wells, is inexplicable.

68. I find that the potential danger of building a high school near a producing oil well was

apparent to MTS well before the acceptance of the tender of the claimant. The reports,

recommendations and correspondence that it refers to, all after the fact of such acceptance, did

not constitute any new information. Logic and commonsense would have suggested that the

position regarding that oil well be confirmed with Petrotrin, before deciding to accept a tender

for construction of an adjacent school.

69. The defendant could have provided for these matters in its acceptance. It could have

made its acceptance of tender conditional upon the site being handed over, or the wells being

abandoned. Instead it proceeded to instruct the claimant to provide performance bond, insurance,

guarantees, and a detailed implementation and methodology statement, without referring to the

possibility that the site may not have been available if the wells could not be abandoned. The

reason for the haste in accepting the claimant’s tender in those circumstances has not been

satisfactorily explained.

70. The Court was asked to find that the contract was frustrated by the presence of the oil

well and the fact that it became dangerous to build a school in accordance with the tender on

such site. Tthe Defendant contended that to proceed to construct the school on the proposed site

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would have caused a danger to the school and its occupants and as such the Defendant could

not take the risk of building the school on that site. Further, that the building of the school

near the producing oil well would render the performance of any contract radically

different from that which was agreed to be undertaken originally, in particular given the

uncertainty of safely, securely and permanently capping the producing oil well and the cost

of so doing.

71. In fact however it did not become any more dangerous after the acceptance of the award

as it had been before the award.

72. The Court was asked to make a finding that not only would costs have increased but to

build the school taking into account the presence of the oil well would lead to the contractor

rendering a performance fundamentally different from what the original tender contemplated.

73. I am unable to accept this. The contract was for the construction of a building on a site.

The contract was awarded after the defendant was aware of the risks associated with the presence

of the producing oil well and the need for the abandonment of this well and other non producing

wells. It commissioned an air quality monitoring programme in January 2002 by Kaisen which

reported that there were no toxic emissions.

74. The effect of that oil well was therefore clearly in its contemplation when it accepted the

claimant’s tender in February 2002. The facts that

(a) The defendant’s assumption that Petrotrin would abandon that oil well was unjustified, and

(b) It subsequently had a change of heart concerning whether it was a sensible risk to take to

construct a school so close to a producing oil, and

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(c) It became uncertain whether the EMA was likely to grant it approval to do so,

do not detract from the countervailing fact that the presence of the oil well, and its impact on the

site was known to the defendant before it accepted the tender.

75. On the evidence, the Defendant had control of the site and was responsible for ensuring its

suitability and, before entering the contract, they knew of the risk or potential risk.

Law - Frustration

Chitty on Contracts Volume 30th

edition paragraph 23-050 page 1508

76. The Davis Contractors case. It is in building contracts that the best illustration may be

found of the principle that “it is not hardship or inconvenience or material loss which calls the

principle of frustration into play”, unless there is a radical change in the obligation. In Davis

Contractors Ltd v Fareham U. D.C. the plaintiffs agreed to build 78 houses for the defendants at

a fixed price, the work to be completed in eight months. Due partly to bad weather, but also to

an unforeseen shortage of labour caused by the unexpected lag in the demobilisation of troops

after the war, the work took 22 months to complete, and cost the builders some £17,000 more

than they anticipated. The builders claimed that the shortage of labour and the delay had

frustrated the contract, so that they were entitled to sue for the £17,000 on a quantum meruit.

The House of Lords unanimously held that the contract had not been frustrated. Viscount

Simonds denied that:

“...where, without the default of either party, there has been an unexpected turn of

events, which renders the contract more onerous that the parties contemplated that is by

itself a ground for relieving a party of the obligation he has undertaken.”

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Chitty on Contracts Volume 30th

edition paragraph 23-059 page 1514

77. Significance of a foreseen event, the parties to the contract may not have made express

provision for the event which has occurred but they may have foreseen it happening. In such a

case, the fact that the parties have foreseen the event but not made any provision for it in their

contract will usually, but not necessarily,

prevent the doctrine of frustration from applying

when the event occurs. While an unforeseen event will not necessarily lead to the frustration of

a contract. a foreseen event will generally exclude the operation of the doctrine. The inference

that a foreseen event is not a frustrating event is only a prima facie one and so can be excluded

by evidence of contrary intention. Thus, it is a question of construction of the contract whether

the parties intended their silence to mean that the contract should continue to bind in that

event, or whether they intended the effect of the event, if it occurs, to be determined by any

relevant legal rules. If one party foresaw the risk, but the other did not, it will be difficult for

the former to claim that the occurrence of the risk frustrates the contract. On the other hand, a

contract may be frustrated by supervening illegality, notwithstanding the fact that the war which

has brought about the supervening illegality was foreseen.

Chitty on Contract paragraph 23-060 page 1515

78.

The issue which the court must consider is whether or not one or other party has

assumed the risk of the occurrence of the event. The degree of foreseeability required to

exclude the doctrine of frustration is, however, a high one:

“...foreseeability’ will support the inference of risk-assumption only where the

supervening event is one which any person of ordinary intelligence would regard as

likely to occur... the contingency must be ‘one which the parties could reasonably be

thought to have foreseen as a real possibility.”

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Frustration - The Conceptual Basis

79. In Davis Contractors Limited v Fareham Urban District Council [1956] 2 All

E.R. 145 per LORD REID at pages 152g to 153 e (all emphasis added)

In order to determine how far the arbitrator's findings are findings of law and,

therefore, subject to review, I think it is necessary to consider what is the true basis of

the law of frustration. Generally, this has not been necessary; for example, Lord

Porter said in Denny, Mott & Dickson Ltd v James B Fraser & Co Ltd ([1944] 1 All

ER 678 at p 687):

“Whether this result follows from a true construction of the contract

or whether it is necessary to imply a term or whether again it is more

accurate to say that the result follows because the basis of the

contract is overthrown, it is not necessary to decide … “

These are the three grounds of frustration which have been suggested from time to

time, and I think that it may make a difference in two respects which is chosen.

Construction of a contract and the implication of a term are questions of law,

whereas the question whether the basis of a contract is overthrown, if not dependent

on the construction of the contract, might seem to be largely a matter for the

judgment of a skilled man comparing what was contemplated with what has

happened. And, if the question is truly one of construction, I find it difficult to see

why we should not apply the ordinary rules regarding the admissibility of extrinsic

evidence whereas, if it is only a matter of comparing the contemplated with the

actual position, evidence might be admissible on a wider basis. Further, I am not

satisfied that the result is necessarily the same whether frustration is regarded as

depending on the addition to the contract of an implied term or as depending on the

construction of the contract as it stands.

Frustration has often been said to depend on adding a term to the contract by

implication: for example, Earl Loreburn in F A Tamplin SS Co Ltd v Anglo-Mexican

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Petroleum Products Co Ltd ([1916] 2 AC 397 at p 404), after quoting language of

Lord Blackburn, said:

“That seems to me another way of saying that from the nature of the contract

it cannot be supposed the parties, as reasonable men, intended it to be

binding on them under such altered conditions. Were the altered conditions

such that, had they thought of them, they would have taken their chance of

them, or such that as sensible men they would have said 'if that happens, of

course, it is all over between us'? What, in fact, was the true meaning of the

contract? Since the parties have not provided for the contingency, ought a

court to say it is obvious they would have treated the thing as at an end?”.

I find great difficulty in accepting this as the correct approach, because it seems to

me hard to account for certain decisions of this House in this way. I cannot think that

a reasonable man in the position of the seaman in Horlock v Beal ([1916] 1 AC 486)

would readily have agreed that the wages payable to his wife should stop if his ship

was caught in Germany at the outbreak of war, and I doubt whether the charterers in

Bank Line Ltd v A Capel & Co ([1919] AC 435) could have been said to be

unreasonable if they had refused to agree to a term that the contract was to come to

an end in the circumstances which occurred. These are not the only cases where I

think it would be difficult to say that a reasonable man in the position of the party

who opposes unsuccessfully a finding of frustration would certainly have agreed to an

implied term bringing it about.

Page 153 h-154a

I think that there is much force in Lord Wright's criticism in Denny, Mott & Dickson

Ltd v James B Fraser & Co Ltd ([1944] 1 All ER at p 683):

“The parties did not anticipate fully and completely, if at all, or provide for

what actually happened. It is not possible to my mind to say that, if they had

thought of it, they would have said, 'Well, if that happens, all is over between

Page 24 of 51

us'. On the contrary, they would almost certainly on the one side or the other

have sought to introduce reservations or qualifications or compensations.”

It appears to me that frustration depends, at least in most cases, not on adding any

implied term but on the true construction of the terms which are, in the contract,

read in light of the nature of the contract and of the relevant surrounding

circumstances when the contract was made. There is much authority for this view. In

British Movietonews Ltd v London & District Cinemas Ltd ([1951] 2 All ER 617),

Viscount Simon said (ibid, at p 625):

“If, on the other hand, a consideration of the terms of the contract, in the light

of the circumstances existing when it was made, shows that they never agreed

to be bound in a fundamentally different situation which has now unexpectedly

emerged, the contract ceases to bind at that point—not because the court in its

discretion thinks it just and reasonable to qualify the terms of the contract, but

because on its true construction it does not apply in that situation.”

Page 154 d-e

On this view, there is no need to consider what the parties thought, or how they or

reasonable men in their shoes would have dealt with the new situation if they had

foreseen it. The question is whether the contract which they did make is, on its true

construction, wide enough to apply to the new situation: if it is not, then it is at an

end.

Lord Radcliff at page 159g-i

Frustration is not to be lightly invoked as the dissolvent of a contract.

Lord Loreburn ascribes the dissolution to an implied term of the contract that was

actually made. This approach is in line with the tendency of English courts to refer all

Page 25 of 51

the consequences of a contract to the will of those who made it. But there is something

of a logical difficulty in seeing how the parties could even impliedly have provided for

something which, ex hypothesi, they neither expected nor foresaw; and the ascription

of frustration to an implied term of the contract has been criticised as obscuring the

true action of the court which consists in applying an objective rule of the law of

contract to the contractual obligations that the parties have imposed on themselves.

So long as each theory produces the same result as the other, as normally it does, it

matters little which theory is avowed (see British Movietonews Ltd v London &

District Cinemas Ltd ([1951] 2 All ER 617 at p 624 per Viscount Simon)). But it may

still be of some importance to recall that, if the matter is to be approached by way of

implied term, the solution of any particular case is not to be found by inquiring what

the parties themselves would have agreed on had they been, as they were not,

forewarned. It is not merely that no one can answer that hypothetical question;

it is also that the decision must be given “irrespective of the individuals concerned,

their temperaments and failings, their interest and circumstances” (Hirji Mulji v

Cheong Yue SS Co ([1926] AC 497 at p 510)). The legal effect of frustration “does

not depend on their intention or their opinions, or even knowledge, as to the event”

(ibid, at p 509). On the contrary, it seems that, when the event occurs, the

“meaning of the contract must be taken to be, not what the parties did intend

(for they had neither thought nor intention regarding it), but that which the

parties, as fair and reasonable men, would presumably have agreed upon if,

having such possibility in view, they had made express provision as to their

several rights and liabilities in the event of its occurrence”

(Dahl v Nelson, Donkin & Co ((1881) 6 App Cas 38 at p 59, per Lord Watson)).

Page 160 d-e

So, perhaps, it would be simpler to say at the outset that frustration occurs whenever

the law recognises that, without default of either party, a contractual obligation has

Page 26 of 51

become incapable of being performed because the circumstances in which

performance is called for would render it a thing radically different from that which

was undertaken by the contract. Non haec in foedera veni. It was not this that I

promised to do. There is, however, no uncertainty as to the materials on which the

court must proceed.

“The data for decision are, on the one hand, the terms and construction of the

contract, read in the light of the surrounding circumstances, and, on the other hand,

the events which have occurred”

Page 160g

But, even so, it is not hardship or inconvenience or material loss itself which calls the

principle of frustration into play. There must be as well such a change in the

significance of the obligation that the thing undertaken would, if performed, be a

different thing from that contracted for.

Page 161g-h

Two things seem to me to prevent the application of the principle of frustration to this

case. One is that the cause of the delay was not any new state of things which the

parties could not reasonably be thought to have foreseen. On the contrary, the

possibility of enough labour and materials not being available was before their eyes and

could have been the subject of special contractual stipulation. It was not made so. The

other thing is that, though timely completion was, no doubt, important to both sides, it is

not right to treat the possibility of delay as having the same significance for each….

80. In National Carriers Ltd v Panalpina (Northern) Ltd [1981] 1 All E.R. 161 at page

165c per Lord Hailsham

The doctrine of frustration is of comparatively recent development.

Page 27 of 51

It is generally accepted that the doctrine of frustration has its roots in the decision of

the Court of Queen's Bench given by Blackburn J in Taylor v Caldwell (1863) 3 B & S

826, [1861–73] All ER Rep 24. (Lord Hailsham LC at page 165 c-e)

Lord Hailsham LC at pages165g-166f

At least five theories of the basis of the doctrine of frustration have been put forward

at various times, and, since the theoretical basis of the doctrine is clearly relevant to

the point under discussion, I enumerate them here. The first is the 'implied term', or

'implied condition', theory on which Blackburn J plainly relied in Taylor v Caldwell as

applying to the facts of the case before him. To these it is admirably suited. The

weakness, it seems to me, of the implied term theory is that it raises once more the

spectral figure of the officious bystander intruding on the parties at the moment of

agreement. In the present case, had the officious bystander pointed out to the parties in

July 1974 the danger of carrying on the business of a commercial warehouse opposite

a listed building of doubtful stability and asked them what they would do in the event of

a temporary closure of Kingston Street pending a public local inquiry into a proposal

for demolition after the lease had been running for over five years, I have not the least

idea what they would have said, or whether either would have entered into the lease at

all. In Embiricos v Sydney Reid & Co [1914] 3 KB 45 at 54, [1914–15] All ER Rep 185

at 188 Scrutton J appears to make the estimate of what constitutes a frustrating event

something to be ascertained only at the time when the parties to a contract are called

on to make up their minds, and this I would think, to be right, both as to the

inconclusiveness of hindsight which Scrutton J had primarily in mind and as to the

inappropriateness of the intrusion of an officious bystander immediately prior to the

conclusion of the agreement…

Hirji Mulji v Cheong Yue Steamship Co Ltd is, it seems to me, really an example of the

more sophisticated theory of 'frustration of the adventure' or 'foundation of the

contract' formulation, said to have originated with Jackson v Union Marine Insurance

Co Ltd (1874) LR 10 CP 125, [1874–80] All ER Rep 317; cf also eg per Goddard J in

W J Tatem Ltd v Gamboa [1938] 3 All ER 135 at 144, [1939] 1 KB 132 at 138. This, of

Page 28 of 51

course, leaves open the question of what is, in any given case, the foundation of the

contract or what is 'fundamental' to it, or what is the 'adventure'. Another theory, of

which the parent may have been Earl Loreburn in F A Tamplin Steamship Co Ltd v

Anglo-Mexican Petroleum Co [1916] 2 AC 397, [1916–17] All ER Rep 104, is that the

doctrine is based on the answer to the question, 'What, in fact, was the true meaning

of the contract?' (see [1916] 2 AC 397 at 404, [1916–17] All ER Rep 104 at 108). This

is the 'construction theory'. In Davis Contractors Ltd v Fareham Urban District

Council [1956] 2 All ER 145 at 160, [1956] AC 696 at 729 Lord Radcliffe put the

matter thus, and it is the formulation I personally prefer:

'… frustration occurs whenever the law recognises that, without default of

either party, a contractual obligation has become incapable of being

performed because the circumstances in which performance is called for

would render it a thing radically different from that which was undertaken by

the contract. Non haec in foedera veni. It was not this that I promised to do.'

In all fairness, however, I must say that my approach to the question involves me in the

view that whether a supervening event is a frustrating event or not is, in a wide variety

of cases, a question of degree, and therefore to some extent at least of fact, where in

your Lordships' House in Tsakiroglou & Co Ltd v Noblee & Thorl GmbH [1961] 2 All

ER 179, [1962] AC 93 the question is treated as one at least involving a question of law,

or, at best, a question of mixed law and fact: page 166g

Lord Wilberforce at page 170

2. Various theories have been expressed as to its justification in law: as a device by

which the rules as to absolute contracts are reconciled with a special exception which

justice demands, as an implied term, as a matter of construction of the contract, as

related to removal of the foundation of the contract, as a total failure of

consideration. It is not necessary to attempt selection of any one of these as the true

basis; my own view would be that they shade into one another and that a choice

Page 29 of 51

between them is a choice of what is most appropriate to the particular contract under

consideration. One could see, in relation to the present contract, that it could

provisionally be said to be appropriate to refer to an implied term, in view of the grant

of the right of way, or to removal of the foundation of the contract, viz use as a

warehouse. In any event, the doctrine can now be stated generally as part of the law

of contract; as all judicially evolved doctrines it is, and ought to be, flexible and

capable of new applications. Lord Wilberforce at page 170

Lord Simon of Glaisdale at page 175

I. Frustration of a contract takes place when there supervenes an event (without default

of either party and for which the contract makes no sufficient provision) which so

significantly changes the nature (not merely the expense or onerousness) of the

outstanding contractual rights and/or obligations from what the parties could

reasonably have contemplated at the time of its execution that it would be unjust to

hold them to the literal sense of its stipulations in the new circumstances; in such

case the law declares both parties to be discharged from further performance. Page

175

Fourthly, a number of theories have been advanced to clothe the doctrine of frustration

in juristic respectability, the two most in favour being the 'implied term theory' (which

was potent in the development of the doctrine and which still provides a satisfactory

explanation of many cases) and the 'theory of a radical change in obligation' or

'construction theory' (which appears to be the one most generally accepted today). My

noble and learned friends who have preceded me have enumerated the various theories;

page 176.

Lord Roskill at page 184 f-h

The doctrine is principally concerned with the incidence of risk: who must take the risk

of the happening of a particular event, especially when the parties have not made any

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or any sufficient provision for the happening of that event. When the doctrine is

successfully invoked it is because in the event which has happened the law imposes a

solution casting the incidence of that risk on one party or the other as the circumstances

of the particular case may require, having regard to the express provisions of the

contract into which the parties have entered. The doctrine is no arbitrary dispensing

power to be exercised at the subjective whim of the judge by whom the issue has to be

determined. Frustration if it occurs operates automatically. Its operation does not

depend on the action or inaction of the parties. It is to be invoked or not to be invoked

by reference only to the particular contract before the court and the facts of the

particular case said to justify the invocation of the doctrine. Page 184

Lord Roskill at page 188a-d

My Lords, I do not find it necessary to examine in detail the jurisprudential foundation

on which the doctrine of frustration supposedly rests. At least five theories have been

advanced at different times: see the speech of Lord Wilberforce in Liverpool City

Council v Irwin [1976] 2 All ER 39 at 43, [1977] AC 239 at 253–254. At one time

without doubt the implied term theory found most favour, and there is high authority in

its support. But weighty judicial opinion has since moved away from that view. What is

sometimes called the construction theory has found greater favour. But my Lords, if I

may respectfully say so, I think the most satisfactory explanation of the doctrine is

that given by Lord Radcliffe in Davis Contractors Ltd v Fareham Urban District

Council [1956] 2 All ER 145 at 159–160, [1956] AC 696 at 728. There must have been

by reason of some supervening event some such fundamental change of circumstances

as to enable the court to say, 'This was not the bargain which these parties made and

their bargain must be treated as at an end', a view which Lord Radcliffe himself tersely

summarised in a quotation of five words from the Aeneid: 'Non haec in foedera veni.'

Since in such a case the crucial question must be answered as one of law (see the

decision of your Lordships' House in the Tsakiroglou case) by reference to the

particular contract which the parties made and to the particular facts of the case in

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question, there is, I venture to think, little difference between Lord Radcliffe's view

and the so-called construction theory. Page 188.

81. In the case of CTI Group Inc v Transclear SA [2008] EWCA Civ 856

Facts

The dispute between the parties arose out of a contract made between the buyers and the

sellers on 7 May 2004 for the sale of 27,000mt of Indonesian cement in bulk fob the

“Mary Nour” at Padang. The sellers were unable to provide a cargo for the vessel at

Padang and on 17 May the parties entered into a substitute contract for the sale of the

same quantity of cement on substantially the same terms save that shipment was to be

made in Taiwan. In the event, however, the sellers failed to provide a cargo for the vessel

in Taiwan either, and as a result the buyers made a claim against them for damages in

the sum of US$449,726.96 representing the loss incurred in obtaining a cargo from an

alternative source in Russia: Moore-Bick LJ at page27a-b

In para 3 of the award the arbitrators record that it was common ground that the

supplier at Padang had declined to provide a cargo because of pressure brought to bear

on it by Cemex and that Cemex had also used its influence to persuade the supplier in

Taiwan to withdraw its offer of a cargo: page 27

Moore-Bick LJ at page 29a-d paragraph 6

The arbitrators held that in those circumstances the contract had become impossible of

performance. They expressed their conclusion in the following terms:

“39 The only conclusion which we could reach on the evidence was that there could

be no doubt that performance of the substance of the contract – the provision of a

cargo of bulk cement to be shipped from Asia to Mexico on the 'MARY NOUR' – had

become commercially impossible by 17 May 2004. Although (as one would expect) the

precise means by which this commercial embargo on the project was effected was

unclear, it seemed to be equally incontrovertible that it had resulted from pressure

Page 32 of 51

placed by Cemex on the potential suppliers once Cemex became aware that the

contract had been concluded. From that perspective, it struck us that this was indeed a

situation in which the contractual performance had become commercially impossible

and the only alternative performance (involving a shipment from the Mediterranean

or Black Sea area) was fundamentally different from that contemplated by the parties

. . . .”

On the appeal Field J took a different view of the matter. He held that the contract was

not frustrated because the sellers had taken the risk of a failure of their contemplated

source of supply. Page 29

Page 31-32 paragraphs 13-15 Moore-Bick LJ

[13] The dictum of Lord Radcliffe in Davis v Fareham at p 729 that:

“frustration occurs whenever the law recognizes that without default of either party a

contractual obligation has become incapable of being performed because the

circumstances in which performance is called for would render it a thing radically

different from that which was undertaken by the contract. Non haec in foedera veni. It

was not this that I promised to do.”

is generally accepted as encapsulating the modern law on frustration. However, not

every supervening event which prevents performance of the contract will result in its

being frustrated because it may be apparent from the general nature of the contract, its

particular terms and the context in which it was made that it was intended to apply in

the circumstances that have arisen. Thus in Davis v Fareham Lord Reid said at p 720:

“It appears to me that frustration depends, at least in most cases, not on adding any

implied term, but on the true construction of the terms which are in the contract read in

light of the nature of the contract and of the relevant surrounding circumstances when

the contract was made . . . . On this view there is no need to consider what the parties

thought or how they or reasonable men in their shoes would have dealt with the new

situation if they had foreseen it. The question is whether the contract which they did

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make is, on its true construction, wide enough to apply to the new situation: if it is

not, then it is at an end.”

[14] As each of these passages makes clear, it is essential to the doctrine of frustration

that the performance of the contract in the new situation should be fundamentally

different from that originally contemplated. In deciding whether that is the case it is

necessary to have regard to the general nature of the contract as well as its specific

terms, the context in which it was made and the contemplation of the parties as to the

range of circumstances in which it might come to be performed. Having regard to the

nature of the arbitrators' findings it is important to recognise that a contract will not

necessarily be frustrated simply because performance has become impossible, as some

of the cases to which our attention was drawn show, and that it will not be frustrated

simply because one party is prevented from performing in the manner originally

intended if performance in some other manner is possible.

[15] A good example of this latter point is to be found in J Lauritzen AS v Wijsmuller

BV (The “Super Servant Two”) [1990] 1 Lloyd's Rep 1, in which this court considered

the position of a contracting party placed, as a result of a supervening event for which

he had no responsibility, in the position of being unable to perform one or other of two

contracts. In that case Wijsmuller had agreed to transport a drilling rig belonging to

Lauritzen from Japan to Rotterdam using one or other of two specialised vessels,

“Super Servant One” and “Super Servant Two”. Wijsmuller intended to perform the

contract using “Super Servant Two”, but after the contract had been made “Super

Servant Two” sank. Wijsmuller had entered into other contracts which they could only

perform with “Super Servant One” and in the event they chose to perform those

contracts instead of their contract with Lauritzen. In proceedings brought by Lauritzen

Wijsmuller contended that the contract had been frustrated as a result of the sinking of

“Super Servant Two”, but that was rejected on the grounds that since the contract

provided for the use of either vessel, the loss of “Super Servant Two” did not render

performance impossible or fundamentally different.

Page 34 of 51

Page 35a-b

That obligation will be discharged by frustration if a supervening event not

contemplated by the contract renders that performance impossible or fundamentally

different from what was originally envisaged, but most events which result in the failure

of a supplier to provide the goods will not fall into that category.

Page 36b

However, as Lord Reid made clear in Davis v Fareham in the passage cited earlier, the

court is not concerned with what the parties thought or how they would have dealt with

the new situation if they had foreseen it, and the finding that performance had become

“commercially impossible” must be understood in the context of the award as a whole.

Page 36d-e

In order to rely on the doctrine of frustration it is necessary for there to have been a

supervening event which renders the performance of the seller's obligations impossible

or fundamentally different in nature from that which was envisaged when the contract

was made.

Analysis

82. In Panalpina, Davis and CTI Group v Transclear the alleged frustrating events were

found to be insufficient to successfully invoke the doctrine.

83. Whether the different theoretical bases of the doctrine of frustration all form part of a

continuum, any aspects of which may be applicable depending on the circumstances

(paraphrasing Lord Wilberforce in Panalpina), or whether the construction theory which is now

Page 35 of 51

in favour applies, from a practical perspective the exercise at trial requires a finding on each of

the following:-

1. What was contracted for- the terms and construction of the contract.

2. What was the alleged supervening event

(together the “data for decision” – per Lord Radcliff in Davis).

3. How does the alleged supervening event affect, if at all, delivery of what was contracted

for. Does it render the contractual performance now possible radically different from

what was undertaken? – (per Lord Radcliff at 729).

4. What provision does the contract make for happening of the alleged supervening event,

expressly, or, (far more likely when frustration is being alleged), impliedly?

5. What did the parties know about the possibility of the alleged frustrating event?

6. Which party if any had a greater degree of control over the happening of the alleged

frustrating event?

The last three matters, if applicable at all, go directly to the issue of which party impliedly

accepted the risk of the alleged frustrating event occurring.

Construction of the contract – its nature and the surrounding circumstances - Findings

84.

1. What was contracted for- the terms and construction of the contract.

The contract was for construction of a school at a specific site. The defendant was aware that the

site was near a producing oil well. There was no “new state of things that the parties could not

reasonably have foreseen”. The oil well was before their eyes. It could have been the subject of

express contractual stipulation.

Page 36 of 51

2. Alleged Supervening Event

85. The alleged supervening/frustrating event is the difficulty posed by the inability to have

the producing oil well capped/abandoned. The defendant could have made express contractual

stipulation for this. The terms of contract emanated from it. It did not do so.

86. At the time that it agreed to accept the tender of the claimant it contemplated

abandonment of the oil well taking place in the following month. The presence of that oil well

was not a surprise to it. Petrotrin had informed them of the presence of that well since the

previous year. The producing well was off the site and the defendant itself says that it expected

to have dealt with its abandonment by March 2002.

87. It is clear on the evidence that the defendant understood that the cost of the abandonment

exercise would be for its account. This is apparent from Petrotrin’s letter which predated the

acceptance of the claimant’s tender.

88. There is no evidence that Petrotrin ever gave any assurance to the defendant that it would

willingly give up production of that well and abandon it. In the absence of such an assurance it is

difficult to understand the defendant’s haste to accept a tender for construction of a school at that

site.

3. How does the alleged supervening event affect, if at all, delivery of what was

contracted for. Does it render the contractual performance now possible radically different

from what was undertaken?

Page 37 of 51

89. In the instant case the Defendant’s evidence is not that it was impossible to build on the

site but that it was more onerous. There is absolutely no evidence that the contract was

impossible to perform. On the authorities this is not sufficient to invoke frustration.

4. Contractual provision/knowledge of the parties

90. As to what provision the contract makes for happening of the alleged supervening event,

expressly or impliedly, I find that while the contract made no provision for the possibility of the

oil well not being abandoned, it is clear that the defendant knew about that distinct possibility

and that it considered that to be its responsibility. Furthermore, the distinct possibility that the

producing well would not be capped because Petrotrin would not agree, or that the cost of doing

so would be excessive, was a real likelihood. I find that it was one which any person of

reasonable intelligence would regard as likely to occur. See Treitel – Frustration and Force

Majeure – paragraph 13-009 - Degree of forseeability at page 466

5. Control over event

91. On the evidence it is the defendant which had a greater degree of control over the

happening of the alleged frustrating event, and chose to assume the risk that the oil well, which it

knew of, would have been abandoned by Petrotrin. These matters support the conclusion that the

Defendant accepted the risk of the supervening event.

I find that the contract therefore could not be deemed to be frustrated by its occurrence.

Issue

92. Whether the Claimant has proved its damages in relation to its claim for loss of

profit?

Page 38 of 51

Law - Proof of special damages

93. Pretrial loss is an item of special damage. It has to be pleaded, particularized and strictly

proved. See Charmaine Bernard (Legal Representative of the Estate of Regan Nicky

Bernard) v Ramesh Seebalack [2010] UKPC 15 at paragraph 16 Sir John Dyson SCJ (citing

Perestrello) infra:

In Bonham Carter v Hyde Park Hotel [1948] 64 TLR Lord Goddard CJ stated that parties

“must understand that if they bring actions for damages, it is for them to prove their damage; It

is not enough to write down the particulars, so to speak, throw them at the head of the court

saying ‘this is what I have lost; I ask you to give me these damages’. They have to prove it.”

94. The degree of strictness of proof that is required depends on the particular

circumstances of each case.

(a) As Bowen L.J. stated in Ratcliffe v Evans (1892) 2 Q B 524, 532 - 533: (all emphasis

added)

“In all actions accordingly on the case where the damage actually done is the gist of the action,

the character of the acts themselves which produce the damage and the circumstances under

which these acts are done, must regulate the degree of certainty and particularity with which

the damage done ought to be stated and proved. As much certainty and particularity must be

insisted on, both in pleading and proof of damage, as is reasonable having regard to the

circumstances and to the nature of the acts themselves by which the damage is done. To insist

upon less would be to relax old and intelligible principles to insist upon more would be the vainest

pedantry.”

(b) In Civil Appeal 41 of 1980 Gunness and Another v Lalbeharry, the appellant was injured in

a vehicular collision. In an action for damages for negligence the Judge allowed certain claims and

disallowed others. Among the claims disallowed was a claim for special damages relating to the loss

of various items of jewelry, handbag, cosmetics and $75.00 in cash. On Appeal the Court held that

the Judge erred in disallowing the claim. Braithwaite J.A with whom the other members of the Court

of Appeal agreed stated(@ page 2 ):

“In disallowing the appellant’s claim for these items, the judge merely stated:

Page 39 of 51

‘From the evidence which she gave and which was unsupported, I find that you failed to prove such

loss.’

There is no evidence to contradict the evidence of the appellant nor had she been shown not to be a

credible witness. There is therefore no justification for the judge’s finding in this respect. The fact

that her evidence is unsupported is clearly not sufficient to deny her claim for a loss which must be

taken, in the absence of evidence to the contrary, in the circumstances of her loss of consciousness

to be at least strong prima facie evidence of the fact which she alleged.” (all emphasis added)

(c) That a measure of flexibility exists in the degree of proof required for special damages was

confirmed by the Court of Appeal in Civil Appeal 162 of 1985 Uris Grant v Motilal Moonan Ltd.

and Frank Rampersad, where Ratcliffe v Evans was applied.

The appellant’s furniture and other articles were destroyed when a vehicle ran off the road and

crashed into a house in which she lived. She claimed damages in respect of the destroyed chattels.

According to the evidence the appellant had made a detailed list of the things destroyed the day

following the accident. In the statement of claim the Appellant’s special damage claim had been

particularized. A default judgment was taken up, and in the assessment before the Master, the

appellant produced in evidence the list she had prepared which itemized each item and the price

thereof. She however produced no receipt verifying the price she had paid for the items. She

admitted that she did not have such receipts, nor did the appellant retain the services of a valuator to

value the damage.

The Master held that the appellant had failed to prove the value of the items and awarded an “ex

gratia” payment. The Court of Appeal held that the Master erred. The Court at page 16 noted that the

appellant’s evidence as to her loss represented strong prima facie evidence and was unchallenged.

With respect to the lack of receipts to support her claim, it stated: - By the production in evidence of

the list of chattels destroyed together with the costs of their replacement, the appellant had

established a prima facie case both of the fact of loss of those articles and of the costs of their

replacement at the time. Her special damage had to be established on a balance of probabilities. The

respondent called no evidence in rebuttal. In the event, the Master, in my view, either had to accept

the appellant’s claim in full or, if for whatever reason she had reservations she should have

approached the matter along the lines in Ratcliffe’s Case by applying her mind judiciously to each

item and the cost thereof in the list. This she did not do. Instead she merely, as stated earlier, made

Page 40 of 51

an ex gratia award. She did so on the premise, wrongly in my view, that the appellant had called no

evidence of any kind in support of her claim.

In my view, the Master erred. The appellant did call prima facie evidence of her replacement costs

the fact of which, as I said was unchallenged. At this stage I must pose the question whether in this

country it is unreasonable, in a case of this kind, for a person to be unable to produce bills for

clothing, groceries, watches, kitchen utensils, furniture and/or other electrical appliances and/or

for that matter to remember the time of the purchase. To my mind, this is clearly in the negative and

to expect or insist upon this is to resort to the “vainest pedantry.”

With regard to proof of special damage the authors of McGregor on Damages citing the dictum of

Bowen, L.J. in Radcliffe’s Case supra and quoted earlier in this judgment state that in proof as with

pleading, “the courts are realistic and accept that the particularity must be tailored to the facts.” (all

emphasis added)

d. In a more recent decision of the Court of Appeal, David Sookoo, Auchin Sookoo v

Ramnarace Ramdath Cv. App No. 43 of 1998 per M.A de la Bastide, C.J, delivered

12th

January 2001, it was confirmed that that degree of flexibility had limits, depending

on inter alia:-

(i) The circumstances,

(ii) The nature of the claim,

(iii) The difficulty or ease with which proper evidence of value might be obtained, and

(iv) The value of the item involved.

“It is common experience that items of special damage are sometimes not proved to the hilt and

yet the Court may make an award in respect of them. It is a matter which depends on the

circumstances and evidence in each case. The Court has to decide whether on the material

before it, it can arrive at some acceptable conclusion as to the amount which it should award.”

(At page 4)

“…..These are the cases on which counsel for the Respondent relies. The sort of evidence which

a Court should insist on having before venturing to quantify damages will vary according to the

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nature of the item in respect of which the claim is made and the difficulty or ease with which

proper evidence of value might be obtained. It would also, depend in part on the value of the

individual item. It may not be reasonable to require expert evidence of the value of used

household items but where one is dealing with a motor-vehicle which usually has considerable

value, and in respect of which there should be no difficulty in securing proper evidence of

value, then the Court is entitled to adopt a more stringent approach.

I, accept the correctness of the decision in Grant’s case but that case is clearly distinguishable

on the facts from ours”. (At page 5)

e. See also the discussion on proof of special damages by the Honourable Justice of Appeal

Archie as he then was at pages 8 to 11 of the case of Civ. App. No. 20 of 2002 Anand Rampersad

v. Willie’s Ice Cream Limited – applying all of the above cases – as follows:-

At page 8 – “I wish to emphasise that the fact that a defendant may not challenge the values of

destroyed items given by the plaintiff does not automatically entitle the plaintiff to recover

whatever is claimed. The rule is that the plaintiff must prove his loss”.

At page 10 – “None of the latter three cases should be understood as derogating in any way

from the principle that the plaintiff must prove any special damages claimed. In particular, Uris

grant, which may appear to bear some similarity to the present case, is merely an example of a

case where the degree of particularity accepted by the Court of Appeal was considered to be

appropriate in those special circumstances. In this case the Plaintiff/Respondent is a commercial

enterprise. It would have been reasonable to expect that some evidence of the value of the

larger items could be found in its books and records.”

At page 10 –“ a lesser degree of strictness would apply to proof of the value of smaller items

such as kettles, mops (etc .In accordance with Uris Grant the Master, in the absence of any

evidence to the contrary, would have been entitled to accept a reasonable figure”.

At page 10-11 “the plaintiff cannot simply present a list of prices, it must show the basis on

which the figures are established” (all emphasis added)

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95. In Hudson’s Building and Engineering Contracts, Eleventh Edition, Volume 1 at

paragraph 8-172 it is stated:-

“Loss of Profit

Terminated Contracts

In ‘total prevention’ cases, where a contract has been discontinued as a result of the

owner breach, the Robinson v Harman compensatory principle will, in the more usual

case where work has been partially performed at the time of termination, entitle the

contractor to the full contract value of any work done up to that time, less sums

previously paid and possibly also, ... a sum for profit lost on the remaining work ...

...establishing a claim for loss of profit on uncompleted work following a contractor’s

rescission or termination may not be practical for a number of reasons, namely:

(1) The contractor must be able to establish that his contract prices for the remaining

work would as a fact have been profitable. This will depend primarily on the adequacy

of his original estimating and pricing of the cost of the contract, rather than any profit

percentage used when pricing ...” (emphasis added)

96. There has been no evidence before this Court on the adequacy of the original

estimating of the Bill of Quantities or the pricing under this tender, and furthermore no

probative evidence of the adequacy of the pricing of the cost of the contract has been given by a

person who was directly involved in the pricing exercise. Rather, what has been given in

evidence by Mr. Ali is a profit percentage used when pricing. This according to Hudson’s does

not show that the contract would as a fact have been profitable and the extent of such profit.

The defendant’s counsel’s submission to this effect is accepted.

97. The Claimant has only the evidence of Mr. Zaid Ali. Mr. Ali is a Finance Manager of the

Claimant. He is not a Quantity Surveyor. He states at Paragraph 8 of his witness statement:-

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The Claimant has been in the construction business for over 30 years. When preparing the

tender the value ascribed to any particular job would take into account a profit ranging between

15% to 20%. What is done is that a cost buildup estimate is prepared; this would represent an

estimate of the actual cost. To this estimate is added 15% to 20% which represents the

contractor’s profit margin. In the tender for the Palo Seco High School the mark up representing

the Claimant’s profit was 20%. If one factors in unforeseen events for example bad weather,

price increases both in material and labour and productivity problems then as a worst off

situation the profit margin would not fall below 10%. The agreed contract price was

$22,297,672.32 so that the Claimant having regard to the Defendant’s breach of contract would

have loss (sic) profit on the basis on 10% in the sum of $2,229,762.20.

98. Mr. Ali testified that he was involved in the tender but did not prepare the Tender and the

Bill of Quantities. As Finance Manager he was unable to provide evidence of what was involved

in the pricing of individual items in the Bills of Quantities associated with this tender. His

evidence as to whether there was a profit on each item, and if so what was that percentage profit

or even whether there was such a profit was in the form of generalizations, both in his witness

statement and under cross examination, as the record of his evidence reflects. It was not

supported by any calculations or analysis or documentation, though he admitted that such

documentation and records did exist. For example the “cost build up estimate” representing

actual cost was not produced.

99. It is quite clear from paragraph 8 of his Witness Statement that he was uncertain as to the

percentage profit that the Claimant Company could be expected to make under this contract,

especially as there is not a shred of documentation or accounting information to support it.

100. In that paragraph Zaid Ali states that the profit for this contract could be 20 % but no

lower than 10%, even taking into account “unforeseen events”. That could not be considered

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probative, far less cogent or compelling evidence, as to the level of profit, if any that could be

obtained from this contract.

101. The onus in this matter was on the Claimant to prove its loss of profits strictly.

The principles summarised

1. The principles revealed by the cases are that special damages must be particularized and

pleaded. (See Seebalack)

2. Special damages must be proved by evidence.

3. The degree of proof varies depending on

(i) The circumstances,

(ii) The nature of the claim,

(iii) The difficulty or ease with which proper evidence of value might be obtained,

and

(iv) The value of the item involved. (See Sookoo)

4. Even prima facie evidence may, in some instances suffice if not rebutted or

challenged, and common sense must be applied in deciding whether such

evidence can reasonably be expected to be available to the claimant. – (Uris

Grant, Guinness v Lallbeharry)

The nature of the claim/ value

102. In this case the quality of the evidence must be considered in the light of the nature of

the claim. The claim is for loss of profit of 10% of the contract price. That is in excess of 2

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million dollars. The evidence in support is set out in the witness statement of Mr. Ali is

singularly lacking in specifics.

The difficulty or ease with which proper evidence of value might be obtained

103. The company has records. It has a duty to support such a substantial claim by reference to

material that demonstrates inter alia,

a. that it is likely to have made a profit in the first place

b. that its tender actually did have a margin of profit built into it.

The various possibilities were that

(i) It did have a profit margin built into each item of 20 % as claimed,

(ii) That it had a profit margin that averaged out to be 20% on each item,

(iii) That it had a profit margin of some other amount,

(iv) That it had tendered at a loss as its costs were above the price tendered for some or all items.

104. After the close of evidence the claimant has provided no sufficient material to determine

which if any of these scenarios applies.

105. The unsupported assertion that there was a 20 per cent markup, that, when discounted for

unforeseen events for example bad weather, price increases both in material and labour and

productivity problems could not fall below 10 %, is extremely unconvincing.

106. Evidence from the records or quantity surveying personnel of this company that it had

properly costed the items in its tender, that it had a track record of performing construction

contracts and achieving at least this level of profit, that delays had been adequately considered

and costed, and the actual impact of such delays on the anticipated profit level projected, or in

fact any substantive material supportive of its claim, would have been more convincing than

what was in fact produced.

107. The failure to present such material led to the inference that there was no such material,

or that such material as existed did not support the claimant’s claimed loss of profit. Mr Ali's

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evidence on the aspect of proof of claim for loss of profit under cross examination was simply

not convincing as it, like his witness statement, was lacking in specificity.

108. His refusal to accept that when the uncertainties (to which he adverted in his witness

statement), were taken into account, the level of profit might have been less than 10%, while

maintaining that it could have been more, emphasized the self serving nature of his evidence on

this aspect. It also demonstrated why it could not be relied upon as establishing the alleged or

any percentage profit.

109. Evidence of the level of profit in other similar contracts by this contactor could have been

produced to establish that it was capable of and had generated profits on construction contracts

previously. The rough and ready, back of a napkin approach to the claim for special damages for

loss of profit is not adequate in this case, or compatible with a claim for in excess of two million

dollars.

110. The facts, records, and accounts that would be supportive of such a claim would be

expected to be within the custody and control of the claimant, a commercial enterprise, whose

records would be critical to its operations in determining for example whether it is profitable, the

amount of tax it needs to pay, and the accuracy of its pricing. These were not disclosed or

produced.

111. The Claimant’s witness provided no satisfactory method and analysis for coming to the

conclusion that its loss of profit was 10% of the contract price. He was not in a position to give

this evidence without the records of the company, which he did not produce. No expert Quantity

Surveyor was produced to assist the Court in determining the specific profit level built into the

pricing of this contract.

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112. I am constrained to find that the evidence of Mr. Zaid Ali is unreliable in relation to the

profit percentage figures that he purports to give at paragraph 8 of his witness statement.

113. In the circumstances of this case I find that this claim for loss of profit has not been

proved.

Loss of profit arising from non availability for rental of equipment.

114. At paragraph 7 of Zaid Ali’s Witness Statement the Claimant for the first time made a

claim for $462,000.00 for loss of profit arising from non availability for rental of equipment.

115. This is a claim that was only made via that Witness Statement. It was never pleaded by

the Claimant in its Statement of Claim and was never part of the Claimant’s case on the

pleadings. It is a head of loss that needed to be strictly pleaded to avoid taking the defendant by

surprise.

116. In the case of Charmaine Bernard (Legal Representative of the Estate of Regan

Nicky Bernard) v Ramesh Seebalack [2010] UKPC 15 at paragraph 16 Sir John Dyson SCJ

stated as follows (citing Perestrello):

But a detailed witness statement or a list of documents cannot be used as a substitute for a short

statement of all the facts relied on by the claimant. The statement must be as short as the nature

of the claim reasonably allows. Where general damages are claimed, the statement of case

should identify all the heads of loss that are being claimed. Under the pre-CPR regime in

England and Wales, RSC Ord 18 r 7 required that every pleading contained a summary of the

material facts and by r 12(1) that “every pleading must contain the necessary particulars of any

claim”. In Perestrello v United Paint Co Ltd [1969] 3 All ER 479, Lord Donovan, giving the

judgment of the Court of Appeal, said at p 485I:

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“Accordingly, if a plaintiff has suffered damage of a kind which is not the necessary and

immediate consequence of the wrongful act, he must warn the defendant in the pleadings

that the compensation claimed will extend to this damage, thus showing the defendant the

case he has to meet .The same principle gives rise to a plaintiff’s undoubted obligation

to plead and particularise any item of damage which represents out-of-pocket expenses

or loss of earnings, incurred prior to the trial, and which is capable of substantially

exact calculation. Such damage is commonly referred to as special damage or special

damages but is no more than an example of damage which is ‘special’ in the sense that

fairness to the defendant requires that it be pleaded….

The claim which the present plaintiffs now seek to prove is one for unliquidated damages,

and no question of special damage in the sense of a calculated loss prior to trial arises.

However, if the claim is one which cannot with justice be sprung on the defendants at

the trial it requires to be pleaded so that the nature of that claim is disclosed

…a mere statement that the plaintiffs claim ‘damages’ is not sufficient to let in evidence

of a particular kind of loss which is not a necessary consequence of the wrongful act and

of which the defendants are entitled to fair warning.”

117. This claim is therefore not available to the claimant at this stage.

118. In any event there is insufficient evidence of probative value relating to this claim. Mere

say so for a claim of this magnitude would not suffice. There is no evidence that the claimant

even possessed the items of equipment on which this claim was based.

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Third Issue

119. Has the Claimant mitigated its loss and is therefore not entitled to damages for loss

of profits.

Law

120. According to Hudson on Building Contracts (supra) at paragraph 8 - 173 at page 1071:-

“Very importantly, the duty to mitigate damage may mean that, in times when profitable

work is plentiful in the market, the contractor will have to give credit for his ability to

earn profits elsewhere on work which he has now become free to accept as a result of the

termination. In recessionary times, however, this defence will clearly be more difficult

for the owner to establish, as also if, even in profitable times, the contractor’s resources

were not fully committed in the project, so that he was in any case free to take on any

additional work on offer...”

121. I accept that the Claimant has not produced sufficient evidence of its accounts and his

documents to show whether it has mitigated its loss or not. The Claimant has not disclosed any

financial information about itself. It has brought no evidence of their books or accounts for the

years 2002, 2003 and 2004 to show the type of work that they were engaged in. The Court

therefore lacks vital information/evidence which should have been led by the Claimant.

113. The evidence of Mr. Zaid Ali is that the Claimant did have work in 2002 and 2003. If that

is so and if they did have work and were able to take on other projects they would have mitigated

their loss.

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114. Having made these observations I consider it unnecessary to further address this issue as

the outcome of this decision does not depend on it.

Conclusion

115. a. A contract was concluded by the letter, (wrongly dated February 28th

2001), and

issued on February 28th

2002, accepting the claimant’s tender. No further contract document was

required to constitute a binding contract.

b. The circumstances in which the defendant elected not to proceed with the contract do not

amount to events of frustration and the defendant cannot claim to be absolved from its

obligations and liability under the contract.

c. The claimant is under an obligation to prove its damages and loss.

(i) It has not been disputed that the claimant was called upon to provide a performance bond after

acceptance of its tender and that it indicated to the defendant that it had complied by letter of

March 21st 2002. It claimed that it incurred a cost of $81,548.67 to do so, which evidence I

accept, as it was not disputed.

(ii) Given, however, that the major part of its claim is for in excess of $2 million representing

loss of profits of 10% of the contract value, I find that it has failed to supply sufficient evidence

of appropriate probative value in respect of that aspect of its claim.

116. In the circumstances I find that, in default of such evidence, the claimant has established,

a claim to nominal damages with respect to this aspect of its claim, and an award of nominal

damages is therefore made, in addition to the cost to it of establishing the performance bond.

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117. The claim for loss of profit arising from inability to use its equipment was not pleaded,

and I find that it has not been proved.

Disposition and Orders

118. The defendant is to pay to the claimant:-

i. The sum of $81,548.67, (the cost of the performance bond)

ii. Interest thereon at the rate of 6% per annum from March 21st 2002.

iii. Nominal damages in the sum of $20,000.00 in respect of loss of profit

iv. Interest thereon at the rate of 12 % per annum from the date of service of the writ

v. Costs on the basis prescribed by the Civil Proceedings Rules for a claim in the total

amount as calculated above.

Dated this 6th

day of August 2012

………………………………..

Judge

Peter A. Rajkumar