Case notes

What lies beneath

ICE contract forms recognise the difficulties inherent in working below ground with clause 12. This allows a contractor to be paid additional money if adverse conditions or artificial obstructions are found that could not have been reasonably foreseen.

Hydro Soil Services was strengthening the quay wall of Berth 205 at Southampton docks on an ICE 6th contract. This would allow the completed berth to be dredged a further 4m deeper. The quay was made of sheet steel piles and topped by a coping beam. Behind the wall was a concrete slab relieving platform at about 6m deep and supported on piles. Its purpose was to support cranes and other equipment at the dock edge without putting undue pressure on the steel piled quay wall.

When Hydro Soil Services came to carry out the work, it found that the steel wall was overstressed and required additional work. Similarly, although drawings provided at tender stage showed the coping as being laid on 50mm of blinding, in fact it sat on 1m deep mass concrete making it harder for HSS to install new columns as part of the work.

When HSS claimed under clause 12, the court pointed out that the contract was also subject to clause 11, which required the contractor to include all information available in preparing its tender.

ABP had archive material which showed the existing work was not as HSS had supposed and ABP would have supplied that information if requested.

HSS had not looked at sufficient information at tender stage as it should have done. The physical conditions were deemed reasonably foreseeable and the claim failed.

Moral: Consider all the information in your tender.

Balmoral’s tank battle

One of the first arguments a dispute creates is about the precise terms of the contract. Often these are not clear as no one got around to finalising the documents. In this case, agreement of invoices was important in deciding the terms of the contract.

Balmoral manufactured static green oil tanks by the rotary moulding process. A key constituent was a polythene chemical called borecene. Between

1997 and 2002 several Borealis Group companies had supplied borecene to Balmoral. When Balmoral found that an unusual number of finished tanks were defective and failing, it blamed Borealis and claimed around £50m in compensation. One of the main points of the case was whether the purchase of borecene had been made under Balmoral’s terms and conditions or those of the various Borealis companies as these had changed over the years.

This was important because Borealis UK’s terms excluded a warranty of satisfactory quality and fitness for purpose. Similarly, the general Borealis Group terms only allowed a warranty of fitness if Borealis had approved such purpose in writing. But both the Borealis Group terms limited its liability to the replacement of defective borecene or repayment of the purchase price.

From December 1995, Balmoral’s purchase orders included its terms and conditions requiring that the borecene was of satisfactory quality and fit for purpose and most of Balmoral’s 400 or so purchases were made on those terms.

However, on January 18, 1995, Borealis had made it plain that it was only quoting its prices on its own terms. In addition, Borealis had put its terms

on the back of its invoices and Balmoral had checked and approved the invoices. Similarly, Balmoral had raised no queries even when changes to Borealis’s conditions had been notified. As a result, the court held that Borealis’s conditions applied, not Balmoral’s.

Moral: In agreeing invoices you can agree more than their value.

Taxing times for limited company

In 1988 Neil Martin became a sole trader sub-contractor trading as Martin Construction and Landscapes. By 1999 his business had grown and he employed 30 people. During that period he operated with a sub contractor’s tax certificate and was paid the gross value of his work.

The Inland Revenue toughened up the Construction Tax Registration Scheme starting on August 1, 1999. Out went the 714 Certificates and in came new CIS Certificates with more rigorous checks. The new application forms differed between those for a sole trader and those for a company. The Inland Revenue sent application forms and guidance notes to all known contractors and sub contractors in November 1998.

Martin’s application pack was sent on November 30, 1998 and although it went to his old address at his father’s house, he received the pack a few days later. Like many subbies Martin ignored the pack at the time. The Inland Revenue promised to process applications within one month unless they were complex cases. Martin completed his sole traders’ application forms on May 14, 1999 and took them to his local tax office on June 9, 1999.

Although he had been a sole trader he wanted to change his status to a limited company and he completed the form as Neil Martin Limited. The tax officer pointed out that he had completed the wrong forms for a company, but incorrectly told him his accounts as a sole trader were of no use to prove the new company’s suitability for a CIS application.

After several meetings including the corrected forms not being signed and mail still wrongly going to his father’s address, Neil Martin Ltd did not get its CIS Certificate until September 20, 1999, well after the August 1 deadline. This caused it severe cashflow problems and restricted its ability to trade.

Martin blamed the Revenue for the delays and claimed £474,242 compensation. The Revenue accepted it had been slow but only offered £3,000 under its COP1 voluntary compensation scheme. The court held that the Revenue, unlike a commercial organisation, did not owe Martin a duty of care and had no legal liability to his company.

Moral: Don’t dally with the taxman.