England and Wales High Court (Technology and Construction Court) Decisions

In The High Court of Justice Official Referees' Business

Before: His Honour Judge Thornton Q.C.

Between

Norwest Holst Construction Limited Applicant

and

Co-Operative Wholesale Society Limited Respondent

Case numbers: 1997 ORB 466-468 (inc)

Date of Hearing: 23rd December 1997

Date of Judgment: 17th February 1998

1. These applications were appeals from two awards of an arbitrator brought with the consent of both parties.

2. This judgment is concerned with 9 discrete appeals arising out of a building contract. The subject matter of each is set out in the appropriate section of the judgment.

3. The applications were dismissed with costs to be taxed and paid by the applicant.

4. The text of the judgment approved by His Honour Judge Thornton Q.C. is as follows:

INDEX - JUDGMENT NO. 2

SECTION TOPIC PARAGRAPH PAGES

PART A. INTRODUCTION

1 Introduction 229 - 256 3 - 13

PART B. REMEASUREMENT TOPICS

2 Electrical Remeasurement 257 - 310 13 - 34

PART C. DELAY AND LIQUIDATED DAMAGES

3 Delay Caused By CWS' Subcontractors 311 - 333 34 - 44

PART D. LOSS AND EXPENSE

4 Head Office Overheads 334 - 367 44 - 60

5 Plant Hire Charges 368 - 380 60 - 64

PART E. RETENTION AND DISCOUNT

6 Retention 381 - 396 64 - 69

7 Discount 397 - 415 69 - 76

PART F. CWS' CROSS-APPEALS

8 Loss And Expense 416 - 421 76 - 77

9 3-Weeks 422 - 429 77 - 80

10 Interest 430 - 440 80 - 82

PART G. CONCLUSION

11 Conclusion 441 83

SCHEDULE 4

JUDGMENT NO. 2

1.1 The Appeals

239. Following the handing down of Judgment no. 1 in this complex series of applications seeking judicial intervention in respect of the final award of the arbitrator in the arbitration between Co-Operative Wholesale Society Limited ("CWS"), the claimant in the arbitration and the respondent to this series of appeals, and Norwest Holst Construction Limited ("NHC"), the respondent in the arbitration and the appellant to this series of appeals, I heard the appeals brought by both NHC and CWS on 22nd December 1997. NHC did not pursue three of its grounds of appeal. CWS did not pursue one of its grounds of appeal. After the original originating motion setting out CWS' grounds of appeal had been issued, the arbitrator published a further award, as to interest, dated 27th October 1997. This award has led to a further ground of appeal by CWS, set out in a second notice of motion issued on 12th November 1997. This ground of appeal was not considered at all in Judgment no. 1. All eight grounds of appeal were argued at the hearing and are the subject of this judgment. Since this judgment and judgment no. 1 are so closely connected with each other, the two are to be read together and the paragraphs of this are numbered consecutively to those of the earlier judgment.

1.2 The Wording of the Questions of Law

240. In schedule 2 to Judgment no. 1, I set out a proposed formulation of the questions of law that arose in these appeals. This was a draft since the parties had neither undertaken this exercise themselves nor had they seen my formulation before receiving the judgment. My formulation was, with one minor proposed amendment, accepted by CWS but NHC has now put forward a proposed list of the questions of law it alleges arise from the grounds of appeal which are substantially differently worded from my wording. CWS contended at the hearing that, so far as some of the proposed questions of law formulated by NHC were concerned, they covered questions that went beyond the scope of the grounds of appeal. Although I initially expressed concern to Mr. Bruce Mauleverer Q.C., counsel for NHC, that there had been such a substantial redrafting of the questions of law, I subsequently realised that I had not accurately expressed some of the questions that were being argued by NHC and that it was preferable for a party to identify itself the questions of law it contended it was seeking to argue which were contended to arise out of the award. The parties have consented to any question of law arising out of the award being argued on appeal under section 1(3)(a) of the Arbitration Act 1979 and, in the first instance, it is for them to seek to define those questions. I have therefore accepted NHC's proposed draft of each question as my starting point but I have modified the wording whenever I have reached the conclusion, in the light of the arguments addressed at the hearing, that my wording more accurately reflects the question being argued. For several of the questions that were argued, it has been necessary for me to determine whether the nature of the question is such as to enable it to be argued as a question of law under section 1(3)(a) or whether, instead, I have no jurisdiction to consider the question since it raises a question of fact. I deal with the relevant arguments for and against my having jurisdiction and with the relevant authorities concerned with the law-fact dichotomy at the appropriate parts of this judgment where jurisdictional issues arise.

1.3 Is the Question "Was There Any Evidence to Support a Finding of Fact?" a Question of Law?

1.3.1 The Question Explained

241. There has always been difficulty in identifying what is and what is not a question of law. The problem of identification arises in an acute form when a party wishes to challenge findings of fact, whether they be primary findings or inferences from primary findings, or else wishes to challenge a finding of mixed law and fact and needs to undermine the factual content of such a finding if the overall challenge is to get off the ground. In some of the questions of law raised in this appeal, both parties seek to challenge findings of fact on at least one of these grounds.

242. Under the law and practice governing arbitral challenge prior to the introduction of the Arbitration Act 1979, when challenges had to be brought as part of the case stated procedure, a question of law included a question as to whether there was any evidence to support a particular finding of fact. Since an arbitrator could only state a case on a question of law, it might have been regarded as settled that the same question could be answered by the court under the procedure which replaced the stated case, namely an appeal on a question of law. However, doubt has been thrown on that by the judgments of the members of the Court of Appeal in The "Baleares". In that case, claimants in an arbitration claimed damages arising out of the late delivery of The "Baleares" which was being chartered on a voyage charter to carry propane which the charterers had contracted to buy at a certain price so long as they presented a vessel for loading by the due date. The charterers cancelled due to the owner's default and were awarded damages which were calculated on the basis of the additional price per tonne they had to pay their suppliers. The arbitrators' finding was to the effect that the market had risen by this sum from the price contracted for. The rise was caused by there being a restricted market for propane which had responded to the late delivery by rising rapidly. This rise was the loss that had occurred. The appeal was presented on the basis that on that finding, no loss had been established since, if the purchase price had risen, so must have the selling price and the charterers' loss in purchasing the cargo would have been off-set by their gain on reselling it. This argument was rejected by the Court of Appeal who reinstated the award, following a successful appeal to the judge from that award.

243. As Steyn L.J. saw the owners' case on appeal, the owners had raised the question of whether or not there was any evidence to support the finding of fact that there had been a loss. This argument was put forward with "little enthusiasm" but was never "formally abandoned". In those circumstances, Steyn L.J. considered whether it was still possible for an appellant to contend that an argument that there was no evidence to support a finding of fact was a question of law that can be raised on an appeal under section 1 of the Arbitration Act 1979 and concluded that it was not possible. However, Neill L.J., in a judgment with which Ralph Gibson L.J. agreed, concluded that the owners accepted the finding of fact that the charterers had suffered a loss and did not reach any conclusion as to whether or not a question of law included a question of whether there was any evidence to support a finding of fact. Neill L.J. concluded his judgment by making it clear that although he was impressed with the argument that it was inconsistent with the thrust and purpose of the 1979 Act to review an arbitrator's findings of fact where the object was to establish that there was no evidence to support the finding, he was not able, without further argument, to reach a final conclusion on the point. Thus, both because the argument that there was no evidence to support the relevant finding of fact was not in issue on the hearing of the appeal and because the majority of the court declined to reach a conclusion on the question, I accept NHC's contention that Steyn L.J.'s views on the jurisdictional question of the ambit of a question of law under section 1 of the 1979 Act were obiter. These views do, however, have considerable weight given both their provenance and their content.

244. Since I must decide whether or not the relevant questions are questions of law, I must reach a conclusion as to whether or not Steyn L.J.'s views represent the law and should be applied to the grounds of appeal that I am concerned with. Before doing so, I should first explore in more detail what is involved in a contention that there was no evidence to support a finding of fact. On careful analysis, such a contention can arise in several different ways. The different ways such a contention can arise are helpfully analysed in Mustill & Boyd's Commercial Arbitration, an extract from which is worth setting out verbatim:

245. The authors, then analyse each category and conclude that category (a) is a pure question of law, since the construction of any document having legal effect is always regarded as a question of law, and categories (b) and (c) are pure questions of fact. As to category (d), which is usually referred to as giving rise to a mixed question of law and fact, the passage concludes:

246. The authors conclude that example 1 gives rise to a question of law on the grounds that if a conclusion other than X has been reached, that answer must have flowed from a misunderstanding of the legal principle involved. This is also the case for example 3. As to example 2, any contention that the arbitrator had reached the wrong answer would fail since the court would not intervene, even if it would have reached a different answer, on the grounds that the answer given was not outside the range of reasonable answers open to the arbitrator. The question as to whether or not decision Y was correct is a question of law since the facts, as found, are being applied to the relevant legal principle, a process which is regarded, in most cases, as a question of law.

247. The conclusion to be drawn from this analysis is that there are four situations covered by the question as to whether a challenge to an arbitrator's findings of fact can raise a question of law. These are:

5. Although it is not clear from Steyn L.J.'s analysis, his view that findings of fact are no longer susceptible to review as questions of law would appear to cover all four of these situations. This is because he made them in the context not only of an argument that there was no evidence to support the finding that loss had been caused but also in relation to an argument that, on the basis of the findings of fact, no loss had been established.

248. The law on this topic is conveniently summarised in a passage in the speech of Lord Diplock in The Nema in which he discussed the meaning of the phrase "question of law". His analysis of this expression relies on the earlier decision of the House of Lords in Edwards v. Bairstow and the oft-quoted passage on this topic from the speech of Lord Radcliffe. Lord Diplock stated:

249. This passage shows that Lord Diplock was accepting that it was still the law under section 1 of the Arbitration Act that an erroneous application of findings of fact to the relevant legal principle was an error of law if no reasonable arbitrator could have applied the facts in the way they had been applied. Although this principle is nowadays always regarded as having been established by Edwards v. Bairstow, that case was concerned with the statutory procedure for review established for a statutory tribunal, the General Commissioners of Income Tax. However, the same result had been arrived at for arbitrations by the decision of the House of Lords in Tsakiroglou & Co. v. Noble Thorl GnbH, where the mixed question involved determining whether a c.i.f. contract had been frustrated. It was also arrived at by the Court of Appeal in relation to the then statutory prohibition on appeals on points of fact from official referees in Peak Construction (Liverpool) Ltd. v. Mckinney Foundations Ltd where the Court applied Edwards v. Bairstow to the relevant provision of the Rules of the Supreme Court. In that case, the Court of Appeal allowed an appeal from an official referee's conclusion that there had been no unreasonable conduct by an employer under a building contract and, in consequence, the contractor had not been caused delay by that unreasonable conduct. The Court of Appeal concluded that, in the light of the official referee's primary findings of fact, no reasonable official referee could have reached the conclusion that the employer had been reasonable.

250. It follows that the fourth of the situations summarised above is one which allows for an appeal on a question of law in an appropriate case. The reason why the first three situations might also allow for an appeal under section 1 of the 1979 Act is because Viscount Simmonds appeared to envisage this possibility in Edwards v. Bairstow when he stated:

6. These views were obiter in Edwards v. Bairstow which was a case involving a mixed question of law and fact. However, the Court of Appeal, in Tersons v. Stevenage Development Corporation, proceeded on the basis that a question of whether or not a finding of fact was supported by any evidence was a question of law. However, the Court also held that the arbitrator was not obliged to append the relevant evidence to the stated case so that the occasions, under the case stated procedure, when such an argument could be raised would be very rare, since the material which such an argument would require would not usually be available unless all the evidence was appended to the stated case.

251. There are, therefore, two questions to answer. The first is whether it was ever the law that a pure finding of fact could be challenged, by way of a question or point of law, on the grounds that there was no evidence to support it. The second is whether any possibility of such a challenge under the previous practice governing judicial review of arbitrator's awards has survived the enactment of the Arbitration Act 1979. The change in the law, if it has occurred, to shut out any possibility of an allegation that there was no evidence to support a finding of fact could only have occurred if the phrase "question of law" appearing in section 1 of the Arbitration Act 1979 has a more restrictive meaning than that phrase, or the equivalent phrases, had when used as part of the practice governing the case stated procedure, the statutory case stated procedures in relation to the General Commissioners of Income Tax in 1956 or appeals from official referees. In view of the reliance by Lord Diplock, in The Nema, on the speech of Lord Radcliffe in Edwards v. Bairstow as establishing the ambit of the phrase "question of law", it is clear that that phrase has the same meaning as the phrase "point of law", the phrase considered in Edwards v. Bairstow.

252. The suggested change in the ambit of the phrase "a question of law" arises from this passage in Steyn L.J.'s judgment in The "Baleares":

7. Steyn L.J. stated that he agreed with the views of Mustill & Boyd to the same effect set out in the first edition of their book and reiterated in the second edition. These passages point out that Edwards v. Bairstow was concerned with a mixed question of law and fact, that the tribunal's findings of primary fact were set out in the stated case and were relied on by the House of Lords and that the approach of the House of Lords was to treat, as the 'evidence' to be considered when seeing whether the conclusion of the tribunal was supportable, the text of the case stated by, or award of, the tribunal. Moreover, there appeared to be no reported case in which the court had intervened on this ground, its jurisprudential basis was never explored in the authorities where its existence was postulated and Terson's case, "the nearest approach [of a court treating a pure finding of fact as giving rise to a question of law]", was a case involving a mixed question of law and fact.

253. In view of the doubtfulness of the existence of an ability to attack primary findings of fact under the case stated procedure, the absence of any reported case where such an attack has succeeded, the use of the phrase "question of law" in section 1 of the Arbitration Act 1979 and the legislative purpose of that Act as explained by Lord Diplock in The Nema and Steyn L.J. in The "Baleares", I conclude that it is not possible to attack the primary findings of an arbitrator, whether they be pure findings of fact or inferences drawn from such findings, on the basis that there was no evidence to support them. It is, I think, significant, that the Arbitration Act uses the expression "question of law" in section 1 whereas the Arbitration Act 1950 did not when defining the case stated jurisdiction. Where the jurisdiction, as under the old law, was determined by the common law and by the use of a test based on the presumed intention of the parties, the boundaries of what could be included in a stated case were relatively flexible. Where, however, the statutory formula is, in terms, confined to a "question of law", it is necessary to take the meaning of that phrase from the Act and to determine its meaning from the legislative purpose and intention of the Act.

254. This leaves two further matters to be considered. The first is that any question of admissibility of evidence is a question of law. It is also a question of law whether the arbitrator, either generally or in the circumstances of a particular piece of evidence in a particular arbitration, was bound by any evidential rule which would be applicable to that situation in a court hearing. Thus, if an appropriate question of law arises and is answered to the effect that the arbitrator reached particular findings of fact in reliance on materials that he should have excluded from his consideration or by shutting out materials he should have considered, the court could intervene. Usually, it would answer the question of law that arises, assuming the threshold requirements of section 1 of the 1979 Act have been complied with. On some occasions, the erroneous reliance on extraneous evidence might amount to procedural irregularity. In such cases, which are unlikely to occur very often, the court would ordinarily remit the award for further consideration in the light of its views as to the admissibility or otherwise of the material in question.

255. The second matter concerns the situation where the arbitrator "invents" evidence and then makes findings of fact based on that non-existent evidence. NHC suggests that this might have occurred in this award. In such a situation, the appropriate relief to seek is for a remission or setting aside for procedural irregularity or misconduct. It is not correct to seek, additionally, to raise a question of law. The alleged mistake of the tribunal is not as to the legal reasoning used to formulate the findings in the award but to adopt a manifestly erroneous procedure in arriving at the primary findings of fact contained in the award.

256. It follows that my conclusions are:

2.1 The Questions of Law Proposed by NHC

257. The questions of law that NHC contends arise out of these grounds of appeal are as follows:

258. Question 1 falls into two parts. This emerged from NHC's submissions at the hearing. These two parts are as follows:

8. It is also clear from NHC's submissions and from the reference, in the grounds of appeal, to paragraph 16.02(b) of the award that NHC's appeal is concerned not only with that part of the mechanical installation work which was described by Mr. Pickavance as "uninstructed" but also to that part of the electrical installation work which constituted a variation and which the arbitrator described as being "not 'authorised variations'".

259. In the light of the arguments presented by NHC in support of its contention that the relevant work should not have been remeasured and paid for, I will reformulate NHC's question 1 by adding a further question, which I will number question 1. This question is worded as follows:

9. NHC's proposed questions 1 and 2 become questions 2 and 3 respectively. Question 2 is concerned with whether the type of work encompassed by the phrases "uninstructed work etc." and "not authorised variations" fell within the original scope of work or, alternatively, could properly be considered to have been "instructed" or "directed". The need to use both words arises because clauses 4 and 17 of the Conditions use the word "direction" whereas the interim award refers to "instructed work". The arbitrator cannot be criticised for his different terminology since it arose out of the terms of the relevant questions he was asked to answer in the interim award which were drafted for him by NHC.

260. NHC's proposed question 2 becomes question 3. This question was objected to by CWS as being a question not covered by the notice of appeal and, being a new ground of appeal, should not now be allowed to be argued.

2.2 Question 1

2.2.1 Introduction

261. This question is one of law since it involves both the construction and the ascertainment of the meaning of words in the award, which is a process involving the answering of a question of law. Questions of the interpretation of words found in documents having legal effect are always considered to be questions of law. However, CWS has a threshold objection to this question being considered rather than being answered "yes" without further argument. This is that since I have already answered this question "yes" in both the misconduct and further reasons applications, the question and my previous answer to it have created an issue estoppel in this subsequent appeal, brought as part of the same proceedings between the same parties. The proceedings are the same since they are concerned to achieve judicial intervention in relation to paragraph 15.10 of the award and both proceedings need an initial determination of this question.

262. I will first deal with CWS' objection to my answering this question at all. It can be seen that I dealt with the question of what the arbitrator was referring to by the phrase "uninstructed work etc." as part of both the remission application and that for further reasons.

2.2.2 Procedural Irregularity

263. In paragraphs 80 and 81 I found that:

10. This finding was one made in determining, as a ground for seeking a remission for procedural irregularity, that certain work was valued which should not have been. The particular part of the award relied on was:

11. This ground had been drafted in these terms by me as part of the process of distilling the grounds, evidence and arguments put forward by NHC as part of its application for remission of the award concerned with the remeasurement of the works on the more generally expressed ground that:

2.2.3. Application for further reasons

264. In paragraph 96 I made this finding:

12. This finding was made in dismissing an application for these further reasons:

2.2.4 Conclusion

265. It is clear that it was an integral part of my findings made in dismissing both applications that the phrase "uninstructed work" was being used as a convenient shorthand reference to work which had been identified by Mr. Pickavance in his reports and had then been described by him as uninstructed. The arbitrator was making a finding, as I found, that that parcel of work was wrongly described as "uninstructed" and, in consequence, should be included in the remeasurement exercise being undertaken pursuant to clause 17.1 of the Sub-Contract Conditions because it was work which was properly within the ambit of that exercise.

266. An issue estoppel arises whenever a material issue has been determined conclusively between two parties as an essential part of the determination of a cause of action. A "cause of action" includes an application for relief from the court provided for by statute. Two such statutory causes of action were involved in my findings that I have already set out. These were, firstly, for an order for remission on the grounds of procedural mishap. This, in less technical language, was an application for an order whose effect would have been to open up and have reconsidered by the arbitrator his award after the award had become binding and final. The second cause of action was an application for an order that the arbitrator should provide further reasons for his award in circumstances where such an order can only be given when "a question of law" arises out of the award in issue. I found that these causes of action did not arise because, in the light of my finding as to the meaning of the words in question, there was no procedural irregularity, or basis for remission, and no question of law arose. In the context of NHC's grounds for remission and of appeal, it is clear that I was concerned with, and determining, the threshold question of the meaning of the award for both the mechanical and the electrical work.

267. NHC's answer to this argument was that the appeals with which I am now concerned were not before me on the earlier occasion and that, therefore, I cannot then have been taken to have decided any aspect of these appeals. However, "a material issue" is often a composite expression for a determination involving several interlocking questions. This is the case with the questions allegedly arising out of the remeasurement exercise. The first of these related questions is the meaning of the critical words found in the award, with which I am now concerned. This threshold question also arose, in a different but related context, in the determination previously of the two causes of action then in issue. Thus, although I was not concerned with the appeal on that occasion, I was concerned with an issue which also arises on this appeal. It follows that NHC's argument does not answer the contention that I am estopped from considering afresh the meaning of the relevant phrase in the arbitrator's award.

268. It must follow that an issue estoppel has already been created by my findings in relation to both causes of action. There can be little that is more conclusive than a finding that the basis for statutory relief has not been made out so that the court has no jurisdiction to consider whether or not to exercise its statutory discretion to intervene in the arbitral process. I am not entitled, therefore, to consider again the meaning of the phrase taken from the award as a prelude to a consideration of an application for judicial intervention in relation to that part of the award. It is worth recording that NHC did not put forward any new argument, other than that I was wrong in my earlier finding, relying instead on a recapitulation, through different counsel, of the argument addressed previously. The argument was put forward with both charm and deference by Mr. Mauleverer Q.C. but, for the reasons I have already given, I will not consider the argument further.

2.3 Question 2

2.3.1 The contents of question 2 analysed

269. Question 2 was also argued by CWS to have been answered by Judgment no. 1. Whether or not this was the case can only be determined by a careful consideration of the content of the question now sought to be argued by NHC. According to NHC, the arbitrator ruled in his interim award that any work shown to have been carried out on the "as fitted" drawings but not shown on the tender drawings, which included the schematic drawings which were submitted with the tender documents, was additional work which should only be remeasured and paid for if it had been the subject of an direction issued by NHC under clause 4 of the Conditions.

13. The arbitrator in his award valued mechanical work of this kind, which Mr. Pickavance had described as "uninstructed", and electrical work of this kind, which Mr. Pickavance had described as being "not authorised". The work described as "uninstructed" and "not authorised" by Mr. Pickavance was not shown on the tender documents and had not been the subject of a direction. The arbitrator wrongly valued the part of this work as a variation to the Works because he did not take "too rigid a stance where variations were not automatically approved by Ove Arup". He was wrong to adopt this approach to what constituted authorisation of additional work. It follows that this work should not have been remeasured as Sub-Contract work nor as directed variations to the Sub-Contract.

270. This series of contentions by NHC requires a number of questions to be answered. These are:

271. These questions are the questions which are encompassed by NHC's proposed question 2, are not all questions of law and are only capable of being seen to arise out of the award if further material is consulted in addition to the award itself. This material consists of a summary of Mr. Pickavance's evidence contained in CWS' closing submissions. This summary was contained in the material put before me during the earlier argument seeking a remission and further reasons and was referred to by me in Judgment no. 1. This material enabled me to identify the type of work which was referred to by Mr. Pickavance as "uninstructed work etc." and "not authorised" work and to understand NHC's argument that this work should not have been valued at all. Unless I was able to take into account this additional material, the questions I have identified as being encompassed by question 2 do not arise at all since, without it, I would be left with the bare finding in the award that the relevant work should be remeasured and valued, an apparent finding of fact which would be unchallengeable.

2.3.2 Issue estoppel

272. Whether or not I am able to formulate the questions at all depends on whether or not I am able to refer to the extraneous material I have referred to. If I am able to refer to this material and, in consequence, am able to formulate the questions arising out of question 2, I must then decide whether or not the questions are questions of law at all. However, so far as CWS's issue estoppel argument is concerned, it is clear that I have not yet answered the questions I have now formulated as arising out of question 2. The question I was previously concerned with, and arguably answered, was, in effect, whether it was a correct reading of the award to conclude that the arbitrator found that the relevant work was varied work which was uninstructed but should nonetheless be remeasured. I am now concerned with questions arising out of a different reading of the award, namely that the award determined that the work was instructed or directed.

2.3.3 The need for extrinsic evidence

273. In formulating the precise questions that arise, I must take into account that I declined to order the arbitrator to furnish further reasons in relation to this ground of appeal. It is unfortunate that NHC sought further reasons:

14. I declined to order further reasons on the ground that paragraph 15.10 made no such finding. I concluded that the finding, albeit implicit in this paragraph, was to the effect that the work was instructed. What NHC now contend is that there was no evidence to support such a finding and that, even if the work was instructed, it fell outside the terms of the Sub-Contract and should not have been remeasured, given the terms of the interim award which defined the basis upon which the remeasurement was to be carried out.

274. These considerations involve me in having to decide a preliminary procedural question, namely what material, other than the award, may I consider in order to identify both the questions of law that arise out of the award and the arbitrator's answers to them. This procedural question was discussed by me in judgment no. 1, but in connection with the question of what material I might consider in connection with an application for an order that the arbitrator should provide additional reasons for his award. I am now concerned with the related but different question of what material I am able to consider in connection with the appeal itself. Admittedly, the same or a similar answer to this question is to be anticipated whether the question arises in connection with an application for further reasons, leave to appeal (where leave is required) or the hearing of the appeal. I must therefore consider in more detail what material, if any, I am able to look at in addition to the award itself. The nature of the material in question and the reasons for, and the context of, its introduction are clearly highly relevant.

2.3.4 Extraneous evidence - the procedural question identified

275. Section 1(2) of the Arbitration Act 1979 provides for an appeal "on any question of law arising out of an award" and section 1(5) allows reasons or further reasons to be ordered if it appears that the award "does not sufficiently set out the reasons for the award" so as to "enable the court to consider any question of law arising out of the award". These reasons should be provided "in sufficient detail" for that purpose. It is clear, therefore, that if the award does not itself allow the question of law which a party wishes to argue on appeal to be identified, the question does not arise out of the award. This would suggest that only the award and its accompanying reasons may be consulted by the court.

276. This was certainly the approach of Coleman J. in Foleys Limited v. City & East London Family & Community Services. In the course of refusing an application for leave to appeal questions of law allegedly arising out of an award in a construction arbitration, the judge, who was at the time the judge in charge of the Commercial list, stated:

277. The first reaction that I had to this passage when it was shown to me was that, in my experience, counsel in that case was in error in informing the judge that there was a practice amongst official referees to examine material other than the award when considering applications for leave to appeal. However, given that many construction arbitrations are conducted under standard arbitration clauses in which, like this arbitration, the parties have given their consent for appeals on questions of law arising out of the award to be brought without the need for leave, the potential need to consider extraneous materials also arises for official referees at the hearing of the appeal itself, where the strictures of Coleman J. are equally applicable and where the practice of official referees is as restrictive. It may be that counsel had in mind a passage in a judgment I delivered, which was referred to me in argument, which, on a cursory reading, might suggest that official referees do adopt a more relaxed approach to the admission of extraneous materials. The passage is from How Engineering Services Ltd. v. Lindner Ceilings Floors Partitions PLC and Another. In the course of my judgment, I stated:

15. However, this particular appeal was one arising in the course of the reference and not one arising out of the award. In other words, it was a comparatively rare appeal brought under section 2(1) of the Arbitration Act 1979. The appeal was brought to determine a preliminary procedural point or question, namely as to what has to be pleaded to put forward a "rolled up" loss and expense claim. The parties were at odds as to the applicability of the well-known Wharf case to the myriad of pleadings and other materials that had been put before the arbitrator who was as keen to obtain a ruling from the court as to their admissibility and relevance as the parties were. It was therefore necessary, in considering the question of law that I was concerned with, namely whether the arbitrator's direction that the loss and expense claim should be set out in Points of Claim, had been complied with, to examine the extraneous material I have referred to. The arbitrator had made extensive procedural directions to which I was also referred but I declined to examine other material, particularly inter-party correspondence because:

278. It follows that How's case was both exceptional and irrelevant as a guide to what material, if any, other than the reasons, may be looked at by official referees or any other category of judge in determining a section 1(2) appeal, whether brought with leave or by the parties' consent.

279. I should, however, refer to a gloss or exception to the absolute exclusionary rule which is referred to by Professor Thomas in The Law And Practice Relating To Appeals From Arbitration Awards. He states:

16. In a footnote, Professor Thomas refers by way of example for this proposition, rather than as an authority for it, The "General Valdes".. This case decided that an award, issued under the 1950 Act, which was accompanied by reasons which were neither stated to be part of the award nor were physically incorporated into it were, nonetheless, to be taken to form part of it because it was to be inferred that they were intended by the arbitrator to be considered when his award was the subject of any consideration.

280. I conclude that there is a limited exception to the exclusionary rule identified by Coleman J. in Foley's case. If material is expressly or impliedly incorporated into, or referred to in, the award, such additional material may be consulted as part of the judicial processes associated with appeals on questions of law arising out of the award.

2.3.5 The material sought to be referred to

281. The material which NHC wishes to introduce is a passage in CWS' closing submissions already referred to. This passage summarises the evidence of Mr. Pickavance referred to by the arbitrator in paragraphs 15.10. This evidence identifies certain mechanical work, namely that that he refers to as "uninstructed". It also summarises Mr. Pickavance's evidence about certain electrical work referred to by the arbitrator in paragraphs 16.02(a) and 16.02(b) where the arbitrator states:

17. The relevant passage reads as follows:

282. These passages identify both the relevant evidence of Mr. Pickavance and the argument accepted by the arbitrator in the passages of his award I have set out for rejecting the opinion of Mr. Pickavance that the relevant work should not be remeasured under clause 17.1. The material is a convenient summary of the material impliedly incorporated into the award. It therefore comes within the limited exception to the rule that only the award and its accompanying reasons may be consulted when considering an appeal arising out of the award. I am therefore prepared to admit this limited additional material. I am not prepared to consider any other material to see what was the basis for the finding that certain work was to be regarded as directed although not automatically approved by Ove Arup and to identify the relevant work any more precisely than is done in the passage of CWS' closing submissions that I have already set out. Any such additional material cannot be said to have been incorporated into the award. I have already refused to order further reasons for the findings that Mr. Pickavance has failed, in his remeasurements, to include variations which should have been included since these findings were findings of fact.

2.3.6 What was the nature of the work that is the subject of the appeal?

283. The work can be summarised as follows, using the material I have set out as the basis for this summary:

2.3.7 What is the meaning to Answers 10(a) and 10(d) given by the Arbitrator in the Interim Award?

2.3.7.1 The answers

284. The relevant answers, quoted verbatim from the Interim Award, are as follows:

2.3.7.2 The meaning of the answers

285. Question 10(a), which was drafted by NHC and slightly modified by the arbitrator, is not well drafted. It appears to assume that any work shown on the as fitted drawings which is not actually depicted on the schematic drawings is varied work, it assumes that the Tender Sum is added to whereas the Tender Sum is replaced by the sum or sums resulting from the remeasurement exercise and it refers to the "Ascertained Final Subcontract Tender Sum" which does not appear as an entity in the Sub-Contract Conditions and which would appear to be an amalgam of the "Tender Sum" and the "Ascertained Final Sub-Contract Sum", which are two different and mutually exclusive entities that do appear there. A final difficulty is that the question refers to "deemed changes" without explaining what these are and without taking into account that the Sub-Contract Conditions refer to variations but not to changes.

286. The answer to question 10(a) sidesteps these difficulties. When read in conjunction with the reasons, it is clear that the arbitrator has found that merely because that work in not shown on the schematic drawings but is shown on the as-fitted drawings, it does not follow that such work is a variation or change to the scope of the original Sub-Contract Works. The work actually carried out is to be remeasured unless it is work which is not provided for, or envisaged by, the schematic drawings when read in conjunction with the specification and other Contract Documents. It is only if the work that was executed is not to be found provided for in any Contract Document, or in all of them when read together, that the work is a variation to the original scope of the Works. This is not how NHC understand the answer since its argument that work has been measured even though it is not shown on the schematic drawings and was not directed is based upon the assumption that unless the work is actually depicted on the schematic drawings, it is not capable of being within the scope of the unvaried Sub-Contract Works. This is clear from this extract from NHC's written submissions which include this passage:

287. I have highlighted the difference in approach by emphasising the words "Contract Documents (ie the Contract drawings, the Contract Specification and other Contract documents ...)" in the extract from the arbitrator's reasons I have set out in this judgment. These words should be contrasted with the more limited reference in the submissions to "a comparison between the tender drawings ... and the as-fitted drawings".

288. Thus, NHC's submissions in relation to this question of law make the same assumption as was made by the draughtsman of the wording of question 10(a), namely that only the work involved in installing the precise pipe runs depicted on the schematics, and none of the further work shown only on the as-fitted drawings, can qualify as original Sub-Contract work that fell within the scope of the original Works. However the arbitrator's answer makes it clear that that is too narrow a definition of Sub-Contract Works. These are to be deduced from all the Sub-Contract Documents and it follows that work might well be within that scope even if it fell outside the relevant straight-line run shown only on the schematics.

2.3.8 Was the relevant work to be remeasured because it formed part of the subcontract works?

289. NHC's argument is that the relevant work should not be remeasured. According to NHC, CWS were responsible for co-ordinating the mechanical and electrical work, it had to interpret and price the work depicted on the schematics and it should take the risk of costing the schematics accurately. However, the contract is a remeasurement contract in which "all work executed by the Sub-Contractor in accordance with the Sub-Contract Documents ... shall be valued". Thus, it is only if the co-ordination, interpretation and pricing undertaken by CWS yielded work not required by, or envisaged by, any and all of the Contract Documents that it was varied work which, subject to any direction by NHC, was not to be remeasured. In so far as the arbitrator has determined that any particular run is within the scope of the Works although not clearly depicted on the schematics, he has made a finding of fact, or, at best, a finding of primary fact applied to his interpretation of the scope of that part of the Works. These findings are not capable of being the subject of an appeal, both because they are findings of fact and because no particular application of these findings to particular sections of the Contract requirements, as shown in the Contract Documents, is challenged by NHC whose challenge is on the wider, and erroneous, basis that such work cannot, in principle, be remeasured because it is not depicted at all on the schematics.

2.3.9 Was there any evidence that the relevant work was directed?

290. This question must be considered in the light of the arbitrator's method in remeasuring the work. He did not himself identify which part of the remeasured work was originally required and which was a variation which had been properly directed by NHC. This was because his method of remeasurement, which he found was the only feasible way of proceeding given the difficulties that he encountered, was to start by taking the remeasurement of one or other of the parties' experts and then adapting it. However, the arbitrator clearly found that some of the work being remeasured was a variation. By necessary implication, he found that such work had been directed by NHC, either itself or by virtue of that work being the subject of a written instruction of the Architect under the Main Contract which affected the Sub-Contract Works and which had been issued by NHC to CWS. The many ways in which each discrete variation might arise and become work which was subject to a "direction" under clause 4.3 are such that it would not be possible or allowable for NHC to challenge each decision of the arbitrator relating to his overall determination that all such work should be remeasured.

291. What CWS' proposed appeal amounts to is that the global method of remeasurement adopted by the arbitrator meant that he had no admissible evidence which allowed him to find that this work had been the subject of relevant directions. Indeed, the arbitrator made a finding that the work had not been automatically approved by Ove Arup, the consultant who would have been expected to authorise it if it was genuinely varied work.

292. However, the absence of "automatic approval" is not determinative of there being a lack of the requisite direction under clause 4.3. The requirement is for an instruction in writing from the Architect. Such an instruction can be issued in many forms, including the issue of a drawing, site instruction, site meeting minute or written indication of approval of co-ordination work by CWS. Furthermore, any direction which was initially not in writing can be confirmed in writing after the work has been executed at any time prior to the Final Payment of CWS. The work might have been confirmed in many ways. It has to be remembered that NHC adopted CWS's claim for Final Payment and forwarded it to the employer and adopted it as part of its own claim in the Main Contract arbitration. Such could well have constituted written confirmation or a waiver of such a requirement.

293. It follows that there was available to the arbitrator abundant evidence which would have enabled a reasonable finding in each case that the variation was the subject of a direction and should be remeasured although not part of the original scope of the Sub-Contract Works.

2.3.10 Were the directions such as to enable the relevant work to be valued under clause 17.1?

294. Work should be remeasured if:

18. The conclusion that the arbitrator must have made, namely that work, directed in any of the many ways referred to in paragraph 292 above, fell within the definition of a direction requiring a variation is impeccable and is certainly not of a type which is capable of being characterised as perverse, irrational or not capable of flowing from the legal analysis relied upon. The conclusion follows inevitably from the arbitrator's findings set out in paragraph 289 above.

2.4 Question 3

2.4.1 Is question 3 part of the grounds of appeal?

295. The question is not encompassed by the existing grounds of appeal. These are concerned with Answers 10(a) and 10(d) of the Interim Award, which do not involve Prime Cost or P.C. Sum work and its valuation. I have already ruled that a party cannot keep open unparticularised grounds of appeal by use of a rubric such as that used by NHC, so that this question was not included, or capable of being included, within the grounds of appeal originally drafted on its behalf.

2.4.2 Should NHC be allowed to amend its grounds of appeal?

296. No formal application was made by NHC, it appeared to be content to rely its general intimation that it might:

19. This reliance was put forward notwithstanding my refusal to order further reasons. I have already pointed out that it is not appropriate for an appellant to reformulate its grounds of appeal after preliminary procedural skirmishing. I will treat the argument as to the substance of the proposed question as being the argument on the application for leave to amend the grounds of appeal and I will only consider whether or not to allow NHC leave to amend these if the appeal on this question, if it is allowed to proceed, would be bound to succeed.

2.4.3 NHC's arguments

297. The argument arises because the arbitrator had to make adjustments to certain P.C. Sums contained in schedules SR1-3. He did so by replacing the P.C. Sums with sums using rates which:

20. NHC argued that where CWS subsequently obtained keener rates at a later date, the agreed price should be replaced in computing the Ascertained Final Sub-Contract Sum, by the lower, actual rates thus obtained. The arbitrator rejected this argument as follows:

298. NHC's argument was that the arbitrator had failed to give effect to the natural and generally accepted commercial meaning of "Prime Cost", being one that is well established in engineering measure and value contracts. This is to the effect that only the actual cost to the subcontractor or contractor is chargeable to the contractor or employer as the case may be. Reliance was placed on this passage from Keating on Building Contracts:

2.4.4 The relevant contract provisions

299. CWS contends that the arbitrator was correct to use the rates which were tendered by the relevant third parties rather than the rates actually contracted for by CWS because it contends that the effect of the Sub-Contract provisions is such that the tendered rates are, in this case, the appropriate basis for determining the Ascertained Final Sub-Contract Sum.

300. I was not provided with any Sub-Contract Documents which identified the relevant P.C. Sums nor with the documents which recorded the agreements reached between NHC and CWS as to the expenditure of these Sums. The Conditions do not refer expressly to P.C. Sums and do not make any express provision for their expenditure. I was informed by NHC that there were two relevant P.C. Sums, referrable to work forming part of CWS' mechanical installation work carried out by ICC and Western Avory. The award merely refers to these P.C. Sums as follows:

301. I was provided with Schedules SR1-3. These contained a summary of the Sub-Contract rates. The pages from the Main Contract Bills of Quantities, which contained the detail of the items which were summarised in Schedules SR1-3, were not provided. However the tender version of these pages, pages 10/25 & 26, was provided. These pages had the same contents, except for the actual rates, as their Sub-Contract counterparts. These documents contained no P.C. Sums. They merely set out 15 items of work, against each of which was placed a lump sum rate. As an example, Item 1 read:

21. In the tender, the rate was £225,242.35. This was reduced, in SR2, to £208,883.00. The breakdown of these lump sum rates does not appear to have been included in the Sub-Contract Documents nor to have been provided to NHC. Schedule SR2, and the accompanying page 10/26, also contained 6 "Undefined Provisional Sums".

302. I infer that this appeal is either concerned with two of the undefined provisional sums or with 2 parts of the 15 lump sum items. If the latter, there must be another document, which I have not seen, which breaks down the work content and the lump sum rate for each item and which identifies some parts of that breakdown as being subject to various "P.C. Sums".

303. Whichever of these two possibilities is the correct one, the work could not have been carried out without a direction from NHC. This is because:

304. The Award included findings that CWS actually submitted the relevant quotations to NHC, that NHC accepted them and that these quotations were agreed by NHC and CWS. In other words, the arbitrator has found as a fact that the parties agreed rates for this "P.C. Sum" work. Given the fact that the relevant work required a direction from NHC, these findings are clearly sustainable. This is so whether the work was originally provisional sum or P.C. Sum work. If the Sub-Contract did contain the phrase "P.C.Sum" in connection with specific elements of the work, it is reasonably to be implied that this work would be subject to an adjustment of the P.C Sum rate included in the Sub-Contract Documents. That adjustment could be made as part of the required direction to be made by NHC which itself could be given following an agreement between the parties as to the rates at which the work would be undertaken. If, on the other hand, the work was provisional sum work, clause 17.1 clearly envisages that the necessary direction required for its expenditure might include a direction as to the relevant rates to be applied to the valuation of the work. An agreement as to the appropriate rates for this work is, therefore, something which is to be expected and a finding that such an agreement occurred is clearly both reasonable and sustainable.

305. Clause 17.1 reads:

22. Thus, CWS contends that there was an agreement "otherwise agreed" by virtue of the agreement found to have been made whereby NHC accepted the proffered tender sums when directing the expenditure of the P.C. or provisional sums. NHC contends that the words "P.C.Sum" always carry with them the meaning of the actual cost, this meaning overrides any ostensible agreement reached during the work. NHC also points to the provisions of clause 17.3.3 which appear to provide expressly for the valuation of Prime Cost work and which, therefore, should override any apparently differing agreement as to the appropriated rates.

306. However, NHC has failed to show that the words "P.C. Sum" actually appeared in the Sub-Contract. Moreover, even if these words did appear in the Sub-Contract Documents, the presumed meaning of these words contended for by NHC is, as the extract from Keating shows, displaced where there is a contractual definition at variance with this meaning. Indeed, Keating does not provide full support for NHC's contention since the passage relied on by NHC, quoted in paragraph 298 above, refers to the ordinary meaning of "prime cost" as being the "submitted estimate of net cost".

307. The Conditions, in clause 17.3, provide the means whereby the parties can reach agreement as to the relevant rates that should apply for work described as P.C. Sum work in the schedule of rates or similar Sub-Contract Documents. The effect of this clause is that if the parties reach agreement at any time as to how particular work is to be valued, that agreement is paramount and must displace any presumed or customary meaning of the phrase "P.C. Sum".

308. Clause 17.3.3, which NHC relies on as displacing this agreement, is not, on analysis, in point. This clause provides:

23. Thus, the clause is concerned with the valuation of work which cannot be valued by measurement at all, which is not the case with the work said to be the subject of a P.C. Sum. In the case provided for in clause 17.3.3.1, the prime cost (not P.C. or Prime Cost) of the work is to be taken, namely the daywork cost using the defined daywork rates. This clause is not concerned in any way with P.C. Sum work but with the prime cost or daywork cost of work which cannot be measured at all.

309. It follows that the parties reached an agreement that the relevant work would be valued by using the tendered rates. The arbitrator was correct to use the agreed and not the actual rates for the relevant work in his computation of the Ascertained Final Sub-Contract Sum.

2.4.4 Conclusion

310. No error of law is shown to have occurred in the method of valuation adopted by the arbitrator for the so-called P.C. Sum work. Thus, I am not prepared to give leave to amend the grounds of appeal and NHC's application to add Question 3 to the questions I am to consider in this appeal is dismissed.

3.1 The Questions of Law Proposed by NHC

24. These questions of law are concerned with delay caused by two sub-subcontractors, 3M and Abel Alarms who provided and installed, respectively, the Book Detection System and the Security System for the Learning Resource Centre.

25. The questions of law proposed by NHC are as follows:

3.2 Question 1

3.2.1 The Content of the Question 1

312. NHC's formulation of this question in leading form presupposes that the arbitrator's finding was to the effect that the relevant sub-contractors were "theoretically" domestic sub-subcontractors of CWS but should,in effect, be considered as Nominated Sub-contractors of NHC. This is not an accurate paraphrase of the relevant finding which was:

26. This question, therefore, falls into two parts:

3.2.2 What did the Arbitrator find in paragraph 4.07 of the Award?

313. The overall finding which is the subject of the question of law can be seen to be a composite finding which, when broken down, can be expressed as follows:

314. The first finding is a mixed finding of fact and law, the second is a finding of law and the third is one which applies the second finding to the first.

3.2.3 Is Finding 1 Correct in Law?

315. The relevant finding was:

316. I was provided with the relevant extracts from the Main Contract and Sub-Contract Documents that were relevant to the Security and Book Detection Systems. From these Documents and the findings I have set out, the following conclusions emerge:

317. It follows that the choice of the manufacturer, supplier and installer the relevant parts of the installation was not expressly defined in the Sub-Contract Documents. The identity of any supplier or installer required to enable CWS to complete its work was left to CWS save that the resulting system had to comply with the specification and other Sub-Contract Documents and that any sub-subcontractor had to be approved by NHC under the Sub-Contract and by the Architect under the Main Contract before that sub-subcontract could be entered into. CWS had a responsibility to prepare installation drawings showing its proposals for the execution of the Works, co-ordination drawings showing the co-ordination and inter-relationship of the engineering services and their integration into the architectural elements and manufacturers' and equipment drawings showing the principle dimensions, fixings, connections and all relevant details of any item of plant or equipment produced by a manufacturer or equipment supplier. These drawings had to be provided to the Architect.

318. The Works involved the construction of a Learning Resources Centre. This was to form part of the complex of University buildings already in existence and was to link with them. The detailed requirements for the Works were set out in an extensive Electrical Engineering Services Technical Specification which came in two parts: a General Section A and a Particular Section B. These requirements were supplemented by the many Contract Drawings, most of which were schematic and which, in consequence, only provided an outline of the required detail. They were also supplemented by the considerable detail found in the Bills of Quantities and in the Codes of Practice, British Standards and similar documents referred to in the Contract Documents. The detail of the defined work was, therefore, to be gleaned from the detailed Specification, the large number of Contract Drawings and the considerable detail found in the preambles to the individual Bills of Quantities, including Bill 10 concerned with the electrical installation. CWS had to co-ordinate this work and its detail with the existing services and had to integrate it with those services.

319. The arbitrator, in his findings, does not set out the reasoning that led him to find that the Employer effectively selected 3M and Abel Alarms, other than in his finding that these suppliers had supplied the equivalent equipment where ever such equipment was found in the other buildings associated with the Learning Resources Centre. By necessary implication from that finding, a Library Detection System and a Security System could only be co-ordinated with these existing services if the same systems were used in the Learning Resources Centre as had been used earlier. It follows that these sub-subcontractors were needed to enable the defined Works to be completed. To that extent, these sub-subcontractors were selected by the Employer since the Works defined by the Employer could only be completed by using them.

320. On the basis of these findings, made in the light of the arbitrator's consideration of all the technical detail found in the Sub-Contract Documents, CWS had no option but to seek permission for 3M and Abel Alarms to be the sub-subcontractors for these parts of the Works and had to use them if the finished Works were to fulfil the Sub-Contract requirement that, when completed, they co-ordinated with the existing services in the Employer's associated buildings. If follows that it makes no difference to the argument that these sub-subcontractors were to be treated as having been selected by the Employer that Abel Alarms were put forward by CWS in its tender as a potential sub-subcontractor, whereas Abel Alarms only emerged as a sub-subcontractor at a later stage.

3.2.4 Is Finding 2 Correct in Law?

321. It is first necessary to set out the detailed relevant provisions of the Sub-Contract Conditions. The provisions dealing with extensions of time were amended by the parties. The relevant provision, as amended, read as follows:

322. The phrase "Relevant Events" is defined in the Main Contract Conditions in clause 25.4 as follows:

323. "Nominated Sub-Contractors" are defined in clause 35.1.4 of the Main Contract Conditions as follows:

324. In interpreting or interpolating these provisions of the Sub-Contract, I have in mind the principles to the interpretation of commercial contracts set out in the speech of Lord Hoffmann in Investors Compensation Scheme Limited v. West Bromwich Building Society and Others. These principles were taken from, and built upon, two earlier decisions of the House of Lords. The relevant principles for the process of construction involved in this case are these:

325. It was suggested by Mr. Black Q.C. that the words "Nominated Sub-Contractor" in clause 25.4.7 of the Main Contract, when applied to the Sub-Contract by virtue of clause 11.10 of those Conditions, could be read so as to include sub-subcontractors who were to be treated as if they were nominated. This would be to give those words a very stained interpretation where they appear in clause 25.4.7, as incorporated into the Sub-Contract Conditions, and to give them a meaning that they do not bear in the same clause when construed in its usual place as part of the Main Contract Conditions. This is because, in the Main Contract Conditions, clause 25.4.7 uses this phrase in the same way as that phrase is used throughout clause 35 of those Conditions. Clause 35 provides a contractual code for the engagement of Nominated Sub-Contractors and it is one of great detail and complexity. It defines all aspects of the relationship between the Main Contractor and a Nominated Sub-Contractor and all the relevant obligations of the Main Contractor in relation to work reserved for Nominated Sub-Contractors. There is no scope for interpreting the words "Nominated Sub-Contractor" in clause 35, and hence clause 25.4.7, in a way that includes "Nominated Sub-subcontractors".

326. Clause 11.10 of the Sub-Contract Conditions cannot have the effect of redefining the words "Nominated Sub-Contractor" in clause 25.4.7 as part of the process of incorporating clause 25.4 into the Sub-Contract Conditions. The only difference in the wording of clause 25.4 of the Main Contract Conditions and the provisions of clause 11.10 of the Sub-Contract Conditions, which it replaces, is in clauses 25.4.6 and 25.4.10 which replace the corresponding words in clauses 11.10.6 and 11.10.10. The words of clause 11.10.6 have had the words "or the Sub-Contractor through the Contractor" omitted from it. The relevant provision, with the omitted words highlighted, defines a Relevant Event as:

27. A similar amendment is made to clause 11.10.10 concerned with shortages of labour and materials.

327. These minor changes were made so as to give effect to the provisions of clause 11.10, a clause which was specially drafted for this Sub-Contract. This clause makes it clear that CWS would only be entitled to an extension of time if NHC would be similarly entitled to one under the Main Contract, which would not be the case in those instances covered by the omitted words I have highlighted. There is, therefore, no warrant for the argument that clause 11.10 has had the effect of altering the meaning of the words "Nominated Sub-Contractor" in clause 25.4.7 of the Main Contract Conditions as incorporated into the Sub-Contract Conditions.

328. However, it does not follow that the arbitrator's finding on this topic cannot stand. This is because the effect of his finding is that the relevant Bill item refers, in part, to work which is to be carried out by a specialist chosen by the Employer. In authorising CWS as the relevant Domestic Sub-Contractor, the Architect, on behalf of the Employer, was not waiving or varying the effective requirement that 3M and Abel Alarms had to be employed to instal the two relevant parts of the Works. This part of the Works undoubtedly falls within the definition of work defined as falling within the province of Nominated Sub-Contractor work in clause 35.1 which has already been set out in paragraph 323 above and which, when the irrelevant words are omitted, reads as follows:

329. The effect of the arbitrator's findings is that the Contract Bills should be read as if the description of the work carried out by 3M and Abel Alarms included a requirement that those sub-contractors were named in them as the person who had to carry out the relevant work each was to be concerned with. Thus, the two work items in Bill 10 concerned with the security system and the book detection system had to be carried out by particular, named specialist sub-contractors. The selection of these specialist sub-contractors had, in effect, been reserved by the University, as Employer, to itself. It was clear that the specialist would be a sub-contractor since Bill 1, concerned with the Preliminaries and General Conditions, stated that the mechanical and electrical services installations were:

330. The Bills of Quantities were required to be prepared in accordance with the 7th Edition of the Standard Method of Measurement as a result of clause 2.2.2.1 of the Contract Conditions which provides that:

28. The Standard Method provides that where work, or particular work items, are to be carried out by a particular specialist sub-contractor, that specialist should be named in the relevant work items in the Bills of Quantities. Thus, since the relevant work was to be carried out by particular sub-contractors, the description of those work items was clearly erroneous. The Bills of Quantities, as worded, required all the electrical work, including these work items, to be carried out by the same specialist firm, who was to be a domestic sub-contractor with, where necessary, the assistance of specialist sub-subcontractors selected by the sub-contractor and approved, after selection, by the Architect. The relevant domestic sub-contractor, for the electrical services, was named in the Main Contract, when concluded, as being CWS.

331. The relevant Bill items in Bill 10 require, therefore, to be corrected. The existing wording reads:

29. These should have been worded:

332. There is a clause in the Main Contract Conditions which deals with the situation where the Bill items are erroneously worded. This is clause 2.2.2.2 which provides:

30. This provision, therefore, requires the Contract to be read as if the relevant Bill items were worded in the way set out in paragraph 331 above. Thus, 3M and Abel Alarms, having been named in the Contract Bills because the Employer, through the Architect, has reserved the final selection and approval of these specialists, "shall be a Nominated Sub-Contractor for all the purposes of this Contract". This provision in clause 35.1.4 creates a definition of the words "Nominated Sub-Contractor". If, as in this case, the companies fulfil the requirements of the definition, they are "Nominated Sub-Contactors" even if they are technically sub-subcontractors, since the wording of clause 35.1.4 is not descriptive but definitional.

332. The words "Nominated Sub-Contractor" mean the same thing in both the Main Contract and the Sub-Contract since Article 1.2 of the Sub-Contract Conditions provides that the Sub-Contractor:

31. Thus, the provisions of the two contracts are to be read together, unless there is a conflict between the two when the provisions of the Sub-Contract shall prevail. There is no conflict between the two contracts so far as the use of the expression "Nominated Sub-Contractor" is concerned. Thus, as a result of the arbitrator's findings, CWS has been caused delay by Nominated Sub-Contractors, since the Sub-Contract, read alongside the Main Contract as corrected, provides that both 3M and Abel Alarms were Nominated Sub-Contractors. The findings of the arbitrator that an extension of time of two weeks should be granted to CWS under clause 25.3.7 of the Main Contract, as incorporated into the Sub-Contract, and that a corresponding extension of time should have been granted under the same clause to NHC under the Main Contract are both correct in law and, in so far as they contain findings of fact, are findings the arbitrator cannot be faulted for arriving at. It follows that both parts of Question 1 and Question 2 should all be answered "yes".

333. NHC puts forward two arguments, neither of which is correct in the light of the analysis set out above. The first erroneous argument is that clause 24.4.7 of the Main Contract does not apply to sub-subcontractors. However, the clause applies to anybody who fulfils the definition of "Nominated Sub-Contractor" whether or not that person is, in fact, a sub-subcontractor. It will be rare for this to occur. It only occurred in this case because of the error in description that occurred in Bill 10 and the consequent operation of the contactual correction mechanism provided for in clause 2.2.2.2 of the Main Contract. The second erroneous argument is that the arbitrator was not entitled to deprive NHC of two weeks of its site running costs for this two week period related to delay caused by 3M and Abel Alarms. However, since CWS was, on analysis, entitled to an extension of time of two weeks for this delay, it was not in breach of contract in the delay in completion resulting from that two-week delay and, in consequence, NHC has no entitlement to damages resulting from the corresponding delay it suffered in completing the Main Contract.

4.1 The Question of Law Proposed by NHC

334. The question of law proposed by NHC was as follows:

4.2 CWS's Objection to the Proposed Formulation of the Question of Law

335. CWS object to CWS's proposed formulation of this question of law since it constitutes an amended question of law to that arising out of the pleaded grounds of appeal. These were held by me, in Judgment no 1, to give rise to this question of law:

32. NHC has now put forward a question of law which is not wholly within the parameters of the grounds of appeal. This is because the proposed question of law draws a distinction between two types of overhead, namely additional overheads and unabsorbed overheads, a distinction not referred to in the grounds of appeal. These referred to alleged errors of the arbitrator in: (1) finding that CWS had suffered loss; (2) assessing that loss of overheads by use of a formula; and (3) failing to consider whether the figure he awarded should be reduced because of a recovery for overheads elsewhere in the award.

336. What NHC has done, on analysis, is to confine the question of law to the second of the three grounds I have summarised but expanded that ground to encompass two different types of overhead recovery allegedly provided for in the award. Since the question of law does not extend the grounds of appeal in any significant way and does not cause CWS any difficulty in dealing with it, despite its late formulation in these terms, I will allow NHC to amend its grounds of appeal so as to provide for the question of law in the terms formulated by NHC.

4.2 The Contents of the Question of Law

337. The proposed question of law is phrased in leading form. It presupposes that the arbitrator made no finding that CWS' loss was a reduction of turnover directly attributable to the delay found to have occurred. On that basis, what is asked is whether, nonetheless the arbitrator was entitled to award two types of overhead, namely additional overheads and unabsorbed overheads and, even if these were in principle recoverable, was it permissible to quantify them as a composite using a formula method of quantification.

338. It follows that the question splits up into four parts:

33. CWS alleges that the last three parts of the question raise questions of fact which are not matters which I have the jurisdiction to deal with.

4.3 What Findings of Fact did the Arbitrator make?

339. It is necessary to set out the relevant findings in full. They read as follows:

340. The arbitrator then sets out CWS's claim, calculated using the formula taken from Emden which is in the form:

37. The award continues:

341. The arbitrator then took the formula set out above and multiplied the formula by 1/5.

342. The reasoning is not crystal-clear but, taken in context, it is clear that the arbitrator is making the following findings:

343. NHC contends that there was no finding that part of the loss was a "loss of contribution to Overhead recovery" resulting from the loss of the productive time that senior management could and would have spent on other contracts but for the time spent on this contract in the delay period. As NHC reads the award, this finding was not made because, as NHC sees it, the arbitrator rejected CWS's submission that it should be awarded a sum for this loss, calculated by reference to the full Emden formula. Furthermore, according to NHC, paragraph 7.05 is not concerned with unabsorbed overheads, the phrase used by NHC in its submissions to refer to a "loss of contribution to Overhead recovery", since the arbitrator stated in that paragraph that the additional time of senior management spent on administrative tasks on this contract "might have been spent (probably productively) on other contracts". This was not a finding that CWS had suffered this loss. On the contrary, it was tantamount to a finding that there was insufficient evidence that such a loss had been suffered.

344. I do not accept NHC's contentions as to the contents of the findings made by the arbitrator. These contentions overlook the following features of the passage of the award which I have already set out:

4.4 The Finding that Additional Overheads had been Incurred

345. NHC's argument is that the arbitrator could only make a finding that additional overheads had been incurred by virtue of the period of delayed working if the actual costs incurred were identified and made the subject of a finding. It was not sufficient to make these findings:

39. These are findings of primary fact interlaced with findings of fact inferred from the primary facts. They cannot be questioned in this appeal.

4.5 Was the Arbitrator Entitled to use a Formula to Ascertain Direct Loss and/or Expense?

4.5.1 Unabsorbed Overheads

346. I should first set out the clause of the Sub-Contract under which the relevant part of the award was made. It reads as follows:

347. NHC's argument was that the necessary foundation for assessing loss and expense using a formula geared to CWS' overhead recovery from its overall turnover was not to be found in the arbitrator's findings of fact. Several formulae are now available for calculating loss represented by a loss of a contractor's contribution to overheads. The principal formulae are Hudson, Emden and Eichleay. The basis upon which such a formula is adopted is explained in Hudson as follows:

348. The underlying assumptions which must be proved in evidence before one of the formulae may be used for quantifying such loss, which is sometimes called "unabsorbed overheads", were set out by Judge LLoyd Q.C. in McAlpine v. Property and Land Contractors as follows:

349. The necessary ingredients for establishing an entitlement to a formula-type recovery are also set out in Keating on Building Contracts as follows:

350. Thus, an Emden-style formula is sustainable and may be used as the basis of ascertaining a contractor's entitlement to payment for loss and/or expense in the following circumstances:

351. These requirements were present in relation to the loss found to have occurred, which finding is contained in the findings which I have summarised in paragraph 342 above. This can be seen from a comparison of that loss and the factors I have summarised in the paragraph 350. I will briefly undertake this comparison.

352. The arbitrator has found in unequivocal terms that:

40. In paragraph 7.05, the arbitrator included this finding:

41. These findings of fact are not challengeable in this appeal.

353. I have already found that the arbitrator had himself made a finding that the loss of productive management time caused, or created, a significant likelihood, that overhead recovery on other contracts was diminished. If such a reduction in recovery was caused by the delay on this contract, this requirement is established. If the arbitrator's finding was merely to the effect that the possibility of such a loss was substantially increased, that would still be sufficient to carry a reduced award of damages. The reduction would be such as to reflect the degree of likelihood that that the delay caused the loss.

354. The ability to recover reduced damages where there was a likelihood but not a certainty of loss having been caused arises from the case of Allied Maples Group Ltd. v. Simmons & Simmons. The decision is helpfully summarised in Chitty on Contracts as follows:

355. In this claim by CWS, it is not a situation where CWS need merely establish how it would have acted but for the delay. CWS must, instead, establish a number of inter-related facts:

356. Since CWS must, as part of the train of events it must establish, prove that third parties would have acted in a different way had it devoted more of its management time to these other contracts, the Allied Marples criteria for the recovery of reduced damages, proved on the basis of a "substantial chance", have been established.

357. Since no variations are associated with the period of 9 weeks' delay, this bar on recovery does not arise.

358. The overheads would have been incurred in any event, but there would have been additional turnover to help meet them but for the delay.

359. There was no constraint on overhead recovery on these other contracts. The arbitrator accepted that CWS was trading reasonably profitably during a period of intense competition in the construction industry, that CWS had a significantly greater turnover in the relevant period than it had budgeted for and that its overhead recovery from this turnover was a significant under-recovery compared to its projected recovery. The only doubt in the arbitrator's mind was as to how much of that under-recovery was caused by the delay. As he saw the situation, at least some of the under-recovery might have been caused by such factors as CWS tendering for the other work at too low a price and pricing its overheads on this contract too keenly.

360. It follows that a formula-based recovery was, in principle, available for the part of the loss which represented unabsorbed overheads.

4.5.2 Additional Overheads

361. NHC's complaint about the part of the award concerned with the additional overheads found to have arisen, namely the cost of management time and the head office costs that were expended in the period of delay, was that these could not be quantified by means of a formula at all. NHC placed reliance on passages in Judge LLoyd Q.C.'s judgment in the McAlpine case. These passages included this one:

362. However, NHC's submissions confuse proof of loss and the quantification of that loss once its existence has been established. Judge LLoyd's judgment is not concerned with the latter. It is concerned with showing that it is not axiomatic that because delay occurred, loss of additional overheads must also have occurred. In this award, the arbitrator has made unimpeachable findings of fact that the heads of loss were incurred. It was then open for him to quantify those losses in general terms without CWS having to prove the precise number of hours worked by management or the precise number of units of electricity used up. This is clear from this passage from Hudson:

4.5.3 The Formula Adopted

363. The arbitrator has assessed CWS's loss as being one-fifth of that allowable under the Emden formula. This loss assessment is a composite assessment for both of the types of loss that he has found occurred. NHC argues that it is not open to the arbitrator to assess CWS's loss in this way. There are three stands to this objection.

364. This objection is to the effect that the arbitrator was not entitled to award a reduced formula since there was no evidence of loss in this reduced amount. However, as I have already pointed out, if the arbitrator found that there was a substantial chance of CWS having been caused loss by from being unable to benefit from the actions of third parties, the damages should be reduced proportionately to the size of the chance of such a loss being sustained. Since the arbitrator did make such a finding, it was open to him to take the Emden formula and discount it substantially.

365. This objection is derived from the judgment of Judge LLoyd in the McAlpine case where, in relation to an assessment of direct loss and/or expense represented by additional overheads, Judge LLoyd stated:

365. This approach to the expression does not rule out the use of a formula to ascertain the loss and expense arising from the expenditure of additional overheads in this case for these reasons:

367. The decision to use one appropriate formula for both heads of loss, its make-up and the ascertainment of the appropriate sum are questions of fact for the arbitrator. The combination of two or more heads of loss in a single calculation, where the breaches causing all losses are the same, is a well-recognised technique in the assessment of building contract damages. For example, in Crosby v. Portland Urban District Council, an award of damages of one lump sum partly for extended overheads and partly for loss of productivity was upheld. The arbitrator had found that it was impracticable, if not impossible, to assess each in isolation. Donaldson J. held that where separate heads of loss had been caused by matters for which the employer (or, as here, the Contractor) was responsible, if there had been no duplication of recovery when the loss had been assessed globally, there was no basis for attacking the award. It follows that the approach of the arbitrator is one which cannot be faulted since he has found that these individual components of the claim cannot be separated.

5.1 The Question of Law Proposed by NHC

368. The question of law proposed by NHC was as follows:

369. Yet again, the question is in leading form and makes a supposition which is not correct, or, at the least, may not be correct. This is to the effect that the method of ascertainment was on some basis other than: "the amounts actually incurred by CWS." If the question is taken to ask what basis of remuneration was adopted by the arbitrator and, if this was one based on something other that the amounts actually incurred by CWS, was it a permissible basis, the question is unobjectionable.

5.2 CWS's Objections to the Proposed Formulation of the Question of Law.

370. CWS contends that the proposed question is much more wide-ranging in its ambit than the original grounds of appeal. According to CWS, these only referred to the paragraph in the award which was concerned with Delaying Event no. 9, which was concerned with delay of 2 weeks. NHC contends that although this delaying event was the only one expressly referred to, the grounds of appeal were intended to refer to all delaying events for which additional plant hire costs, assessed on the same basis as those for Delaying Event no. 2, were awarded. In my view, the grounds of appeal are intended to be comprehensive in their ambit, it would have been unduly repetitious for NHC to set out each Delaying Event separately, given that precisely the same question arises in relation to each where plant hire charges were awarded and the grounds of appeal should be taken to refer to each of them.

5.3 NHC's Contentions

371. CWS, in the Points of Claim, claimed loss and expense under clause 13.1 of the Sub-Contract Conditions for the cost of plant used on site during the relevant periods of delay. The arbitrator accepted this approach in his award. For each relevant period he first found what plant was in use on the site. He then ascertained which plant was hired and the relevant hire charges. For the remaining plant, owned by CWS, he took the charges put forward by Mr. Evans, CWS's expert. These figures were "market rates, less 10% for inflation, less 20% discount". These various individual rates where then totalled up into a weekly rate used for that particular period of delay.

372. This approach was argued to be wrong in law since it did not amount to the assessment of loss. Loss, in relation to plant used on site during a period of delay for which a Contractor has to reimburse the sub-contractor was considered in another part of the McAlpine case by Judge LLoyd, albeit in the context of a claim against an Employer by the Main Contractor under clause 26 of the JCT Main Contract Conditions. Judge LLoyd held as follows:

373. Adopting the same reasoning, NHC argued that it was not appropriate to take notional hire rates for the plant owned by CWS, as the arbitrator did in adopting the figures put forward by CWS's expert which he had admitted, in cross-examination, had been prepared without having taken this decision of Judge LLoyd's into account.

374. CWS contends that the findings being questioned are findings of fact. Moreover, the arbitrator did not award hire rates but merely took those as his starting point and discounted these for inflation and for what was described as "20% discount". This was to assess actual cost to CWS and was a finding that amounted to a reasonable valuation of CWS's actual costs.

5.4 The Question of Law Answered.

375. I accept that the process of ascertaining loss, when it involves the application of primary facts to a defined method of ascertaining loss, is a mixed question of law and fact. The only part of that process which gives rise to a question of law, however, is whether the method chosen is capable of defining the loss that has been caused to CWS.

376. The arbitrator accepted CWS's figures. In paragraph 8.04 of the award he states that:

377. Both parties accept that the arbitrator's task was to arrive at a figure which represented CWS' loss. NHC's argument, based on the reasoning of Judge LLoyd in the McAlpine case, was to the effect that the only loss, and the only way of assessing that loss, for CWS' own plant, was to ascertain the capital costs, if any, and the depreciation costs for that plant in the period of delay. That argument overlooks a number of features of this case which have a bearing on the ascertainment exercise the arbitrator had to undertake. These were:

378. It follows that the finding by the arbitrator was not one which can be shown to be one based upon a method of ascertainment which was clearly wrong and unsustainable. NHC has, moreover, a further difficulty. The finding that the loss was best represented by the use of heavily discounted current market hire rates was a finding of primary fact which is not open to challenge. This is particularly so given that the challenge could only be mounted at all if NHC was able to make reference to the contents of Mr. Evans' report submitted in evidence, to passages in his cross-examination and to extracts from the pleadings, none of which were brought within the confines of the reasons of the arbitrator. This material I looked at but it is "forbidden fruit" so far as an appeal is concerned and I disregard it.

5.6 Conclusion

379. CWS is correct in submitting that NHC's complaint is essentially one of valuation, there is nothing in the award to show that the arbitrator misapplied the wrong principles and his award amounted to a finding he was entitled to make that the sum awarded was a reasonable valuation of CWS's actual costs in the absence of better evidence.

380. The findings were, therefore, ones that the parties should themselves have reached agreement to under clause 13.1 and insofar as a question of law has been raised at all by NHC, the answer to it is that the arbitrator was entitled to undertake the ascertainment he did.

6.1 The Question of Law Proposed by NHC

381. The question of law proposed by NHC was as follows:

382. This is another question in leading form. It presupposes that the award, as to retention, was one that involved a resolution of a question which was not in dispute until after the date of the arbitrator's appointment. The question that is being posed by NHC is better regarded as one which, firstly, asks what was the dispute which was referred to the arbitrator, secondly, asks whether that question involved the arbitrator in determining whether retention should be provided for in the award and, thirdly, if so, asks whether there was an error of law in the award since the arbitrator did not provide for retention.

6.2 NHC's Contentions

383. NHC contends that the arbitrator was appointed on 13th July 1995 by the President of the RICS and that appointment was accepted by each party soon afterwards. The appointment was made following, and by reference to, CWS's notification to NHC of the terms of the dispute that had arisen between the parties in a letter from its' solicitors dated 8th June 1995. The relevant dispute was notified in paragraph (i) of the list of disputes between the parties which read:

42. This dispute did not include a dispute as to NHC's entitlement to deduct the second moiety of retention money, this had been deduct from all interim payments, this moiety being 1 1/2% of the various sums agreed to be paid as interim payments. Therefore, NHC were entitled to withhold 1 1/2% of the sum awarded to CWS as the sum "due on the Final Account". The retention was not being claimed in the arbitration, there was no dispute as to NHC's entitlement to withhold this sum and it only became due once a Certificate of Making Good Defects was issued under the Main Contract, an event which occurred in August 1996, long after the arbitrator had been appointed.

384. The award did not deduct anything for retention. Thus, it contained an error of law, namely that it awarded a sum not claimed and which only became due for payment after the appointment of the arbitrator. In so far as there was a dispute as to CWS' entitlement to payment of this sum, that only arose after the appointment of the arbitrator. Any award containing sums which only arose for payment and which gave rise to a claim and a cause of action arising after the arbitrator's appointment could not be included in the reference nor made the subject of an award in that arbitration. 6.3 The Question of Law Raised by NHC

385. The question of law raised by NHC is not clearly expressed. As expressed, the answer is evident since the question asks whether the arbitrator has jurisdiction to make an award in respect of a matter which was not in dispute at the date of his appointment. The answer is clearly no. The part of the award which is now disputed is the part which is alleged by NHC to "award the retention of £20,463.22 to CWS". However, the only passage in the award which deals with retention is this one:

43. The sum of £20,463.22 was not the second moiety of retention that would have been retained if that part of the retention was capable of being withheld from the Ascertained Final Sub-Contract Sum determined by the arbitrator since that would have been 1 1/2% of £1,637,540.40 or £24,563.11. The sum referred to by NHC is that that had been withheld prior to the arbitration, namely 1 1/2% of the sums previously paid.

386. The question that NHC is raising is, on analysis, whether clauses 21.5 or 21.2.3 are applicable to the Ascertained Final Sub-Contract Sum determined by the arbitrator.

6.3.1 Clause 21.5

387. Clause 21.5 reads as follows:

44. Clause 21.3.1 reads as follows:

6.3.2 Clause 21.2.3

45. Clause 21.2.3 reads as follows:

6.4 Application of the Law

388. The first matter to consider is what the terms of reference of the arbitrator were. NHC seeks to ascertain these from the notice to arbitrate served by CWS before the arbitrator was appointed even though this was not referred to in the award. Clearly, any consideration of whether the award contains findings which fall outside the ambit of this notice was not one arising out of the award but out of a document that is not part of the award. In the setting aside application no complaint was made that the award falls outside the terms of the reference contained in the pre-appointment letter. Any such complaint should have been a matter for that application, not one raised on this appeal.

389. It is clear, from the award, that the arbitrator was determining the Ascertained Final Sub-Contract Sum. This is the same thing as the "Final Account" which CWS inaccurately referred to in the reference to arbitration. This is clear from the terms of the award. The first part of the award, which was incorporated into the Final Award, was an award in relation to preliminary objections to the continuation of the reference taken by NHC. One of the directions given by the arbitrator was to the effect that there was no need for a reference to the court to determine various questions of law that NHC was, at that stage, contending arose. The particular question now relevant was this:

390. The significance of this question was that CWS and NHC had operated the Sub-Contract during the course of the Works as if it was a lump sum contract rather than a remeasurement contract. The Sub-Contract Conditions contain alternative provisions for both situations and the parties have to adopt one or other of these alternative provisions when filling in the blanks in the Articles and Conditions before entering into the Sub-Contract. The parties clearly opted for a remeasurement exercise but, as the arbitrator subsequently recorded, then proceeded to operate the contract on the alternative basis. The award explains what happened as follows:

391. It was no doubt this drawing of CWS's attention to the remeasurement provisions of the Sub-Contract by NHC which led the arbitrator, at the meeting he held on 13th March 1996 to reach this determination of the application for a reference to the court of the issue of whether or not the Sub-Contract was subject to remeasurement:

392. Following this ruling, CWS served amended points of claim which set out its claim, namely a claim based on what it was contending was the Ascertained Final Sub-Contract Sum. The arbitration then proceeded on the basis that this Sum was in issue and that the arbitrator had to determine it. The Conditions define the Ascertained Final Sub-Contract Sum as the aggregate of the remeasurement exercise and the loss and/or expense payable to the Sub-Contractor and this is the Sum which the arbitrator determined in the award as follows:

393. The significance of this is two-fold:

394. Thus, the only basis on which retention could be withheld is that £20,463.22 had been retained from interim payments and was still not payable at the date of the award despite the determination of the Ascertained Final Sub-Contract Sum. This conclusion arises because clause 21.9. provides that the Final Payment shall be due not later than 7 days after the date of issue of the Final Certificate issued by the Architect under clause 30.8 of the Main Contract and shall be paid within 14 days of the date it becomes due. Since the Main Contract was finally brought to an end by the compromise of the Main Contract arbitration in December 1996, the date of issue of the Final Certificate must obviously be taken to be the date of that compromise. The Final Payment is required to be:

395. It follows that the arbitrator was correct to ignore the retention previously withheld. In any case, even if clause 21.2.3 is a pay-when-paid clause, which it is not, the previously retained sums were no longer capable of being retained by NHC since the equivalent retention which the Employer had retained under the Main Contract had been paid to NHC in August 1996, prior to the issue of the Final Award on 13th June 1997.

396. NHC contends that the date by reference to which the Final Award should be determined is the date of either the notice to arbitrate or the date of the arbitrator's appointment. However, the issue for the arbitrator was, as I have tried to show, what was the Ascertained Contract Sum and the concomitant question, what was the Final Payment? These questions are not dependant on fixing the reference-point for their determination at some date earlier than the Final Award since the answers are the same whenever the questions are posed. In answering these questions, the arbitrator is seeking to ascertain the final and complete value of the Works and the consequent final payment due to CWS. Thus, what sum could legitimately have been retained by NHC at some earlier stage in the contract had no relevance to the arbitrator's task. The arbitrator correctly ignored retention in determining his answers to these questions in the Final Award.

7.1 The Questions of Law Proposed by NHC

397. The questions of law proposed by NHC were as follows:

7.2 NHC's Questions Analysed

398. The arbitrator disallowed any discount entitlement to NHC. The "First Discount" is the traditional discount normally available to a Contractor if payment of any instalment of the Ascertained Contract Sum, or any interim payment, is paid promptly. The arbitrator disallowed any discount because:

399. Four questions arise:

46. Both parties accept that there is a provision for the deduction of 2 1/2% discount. The question is whether it was qualified by an obligation to pay promptly and, if so, what the nature of that qualification was.

7.3 Prompt Payment

7.3.1 The Sub-Contract Provisions Concerning Discount

400. The provisions concerned with discount are somewhat discordant. The starting point is Article 2.2 which provides that the Tender Sum is £1,447,316.03 and continues:

47. Part 7 of the Appendix reads as follows:

48. Clause 21, so far as material, reads as follows:

49. Clause 21.2 provides that the first payment shall be due not later than one month after the date of commencement of the Sub-Contract Works on-site and that interim payments shall be due at intervals not exceeding one month calculated from the date when the first payment was due.

401. There is also a provision for discount in relation to the Final Payment as follows:

402. Finally, it is necessary to have regard to clause 21.2.3 which reads:

7.3.2 NHC's Submissions

403. NHC submits that the effect of deleting the word "cash" from the Articles and part 7 of the Appendix is to remove any link between prompt payment and the right to discount. This argument is made for three reasons:

404. The difficulty with NHC's argument is that, if it is correct, there is no provision which entitles NHC to deduct the discount from any payment. As can be seen from the extracts from clause 21 set out above, discount may be deducted, but only if the relevant payment has been made in accordance with, respectively, clauses 21.2.1 or 21.9.2. NHC points to two different provisions which are alleged to fill this gap and provide for the taking of discount. These are:

50. According to this argument of NHC, the discount of 2 1/2% is required to be taken into account because Article 2.2 provides that the Tender Sum there defined "takes into account" the discount specified in part 7 of the Appendix.

51. There are two difficulties with this argument. Firstly, clause 21.8.2 is concerned with sums to be aggregated to provide for the Ascertained Final Sub-Contract Sum. On NHC's construction of clause 21.8.2.5, a discount can be taken into account in the aggregation exercise by deducting it from the Sum produced by the other aggregations provided for in clause 21.8.2. That does not make sense since, if this argument is correct, an "aggregation" would include a "deduction". Secondly, the "takes into account" formula is part of the unamended Article 2.2, therefore it applies to cash discounts in the normal, unamended case. If so, clause 21.8.2.5 applies in all cases, thus discount will always be deducted automatically and clause 21.2.1 will never have any practical effect.

52. However, part 7 of the Appendix is expressly linked to clause 21.3.2 which links discount with payment in accordance with the provisions of clause 21.2, namely with prompt, monthly payment.

405. It follows that there is no express provision for the deduction of discount, if NHC's argument is correct. There is another difficulty in NHC's argument. It is based on the suggestion that, by virtue of clause 21.2.3, the Sub-Contract is a pay when paid contract. However, that is not the effect of clause 21.2.3. That provision has to be read alongside clauses 21.1, 21.2.1 and 21.2.2, all of which remain in the Sub-Contract despite the addition of the one-off clause 21.2.3. As a result, the overall payment obligation of NHC may be summarised as follows:

406. A further difficulty for NHC is that its argument is partly premised on the assumption that there could be no purpose for the deletion of the word "cash" unless it was to remove the condition precedent of timeous payment from the entitlement to take discount. However, a purpose could well be to entitle discount to be taken into account when a payment is made by means of a set-off. Thus, if NHC does not make a payment because it has a set-off, it can still take advantage of the discount in any accounting exercise.

407. The plain fact is that there is a conflict between Article 2.2 and part 7 of the Appendix on the one hand and clause 21.3 on the other, given the absence of the word "cash" in the former provisions and its presence in the latter provision. When the parties amended the former provisions, they appear to have overlooked the need to make a similar amendment to the latter provision. Fortunately, the Conditions allows for such difficulties. Clause 2.2 provides as follows:

53. This provision provides a self-correcting mechanism in the case of a conflict. Where, as here, such a conflict occurs, the parties have provided that the wording of the Appendix should prevail with the result that clause 21.3 should be read as if the word "cash" had been deleted from it. If that is done, discount is deductible, but only if NHC has made payment, or taken an appropriate allowance, in accordance with clauses 21.2.1 or 21.9.2.

7.4 Was There Provision for a "Claw-Back"?

408. NHC maintains that even if discount may only be taken when payment is made promptly, discount on all sums previously paid may be taken on the prompt payment of a subsequent instalment. This argument overlooks the express terms of the Conditions. Clause 21.2 requires each interim payment to be deducted separately from the sums previously certified. The arbitrator was only concerned with clause 21.9.1.1 since he was concerned to compute the Final Payment. This was the Ascertained Final Sub-Contract Sum less only:

54. This is the same formula as appears in clause 21.3.3 for interim payments. The formula means that sums previously paid, to include any discount taken, must be deducted from the gross valuation arrived at. If discount has not been taken from a particular payment, it cannot subsequently be taken as part of a later prompt payment of a subsequent instalment of the value of the Works.

7.5 Was There Any Evidence of Late Payments During the Works?

409. Although NHC maintain there was no evidence of late payments during the Works, that is not the relevant question to ask in relation to the Final Award. The arbitrator, in computing the Final Payment, made this finding:

55. This sum represents the sums already paid. The only discount with which the arbitrator could be concerned is discount on the Final Payment, being the net sum left to be paid having taken into account the gross payments made previously. This is because discount on the Final Payment is regulated by clause 21.9.1.1, this is the only discount provision with which the arbitrator was concerned and it is concerned with discount on such part of the Ascertained Final Sub-Contract Sum which had not previously been paid. If there was an error whereby discount had not been taken when it should have been on any of these earlier payments, that could only have been corrected by a cross-claim made by NHC for that discount.

410. The finding that the Final Payment should be based on a gross valuation less £1,343,751.46 is a finding of fact and if there is any error in taking the sum to be deducted as £1,343,751.46, that is a factual error.

411. The resulting Final Payment of £277,930.22 did not rank for a discount withholding. There was a good reason for that, although not one given by the arbitrator. Clause 21.9.1.1 only allows discount to be taken from the Final Payment if this was paid as provided in clause 21.9.2. This clause requires payment to be made within 7 days of the later of the following events:

412. Thus, discount was not available from the Final Payment. As to the earlier payments, the arbitrator has found that the appropriate payments to deduct from the gross value under clause 29.9.1.2 was a sum which did not include discount. This is a finding of fact which was agreed to, according to the award, by NHC and cannot, in any case, be challenged since it is a finding of primary fact. This finding was then applied correctly to clause 21.3.3.

7.6 The Second Discount

413. NHC mounted an elaborate argument which sought to show that the wording of Article 2.2, read in conjunction with Schedules SR1-3, required a second discount of 2 1/2% to be deducted from the Ascertained Final Sub-Contract Sum. The basis of this argument that both the Tender Sum, as defined in Article 2.2, and the total of the schedule of rates set out in Schedules SR1-3 refer to a sum which has had discount removed from it. The wording of the two provisions are as follows:

414. On the natural and commercial meaning of these provisions, all that has been done is to calculate what discount would be available on the Tender Sum, the calculation being made on the assumption that its constituent parts are paid in accordance with clause 21.3.2, the clause specifically referred to in part 7 of the Appendix. This creates no assumption that the discount will be available to the Contractor, let alone an entitlement to take a second discount. This is clear once it is realised that the printed Articles of Agreement provide for the Tender Sum, where the contract is subject to remeasurement, or the Sub-Contract Sum, where it is subject to additions and omissions to the Contract Sum defined at the outset, both to be inserted as a figure which "takes into account discount". Thus, if there is available a Second Discount, it is always available and is not available only because of the special circumstances created by the Schedules of Rates. However, there is no term in the Conditions which refers to this Second Discount, the words of the Articles do not lend themselves to an interpretation that it exists and the words of the Schedules of Rates are sufficiently similar to the words of the Articles to show that it was intended that the Schedule of Rates would compute the Tender Sum on the same basis as the Tender Sum is computed in the Articles.

415. Thus, the so-called "Second Discount" is no more, on analysis, than the "First Discount" worked out in advance on the Tender Sum. As the work proceeds, the Tender Sum, including the discount built into it, is replaced by the various instalment payments followed, at the end of the contract, by the Ascertained Final Sub-Contract Sum with or without discount built into them, depending on whether the relevant payments were paid timeously. Thus, the question posed by NHC does not arise since there is no provision for a Second Discount at all.

8.1 The Question of Law

416. This question of law arises out of the arbitrator's award that CWS should be awarded a two-week extension of time for delays caused by 3M and Abel Alarms but should not recover any loss and expense for that period. The question of law raised by CWS is:

417. The arbitrator concluded that he would not award loss and/or expense in this period, in doing so he used his "discretion, judiciously".

418. CWS's submission is that since the arbitrator found that 3M should be treated as if it was a Nominated Sub-Contractor, clause 11.10 should be taken to apply to these sub-subcontractors. In consequence, CWS should have been awarded loss and/or expense in this period.

8.2 The Question of Law Analysed

419. This question does not, on analysis, arise. I have already found that the effect of the arbitrator's findings is that the

56. Bills of Quantities in the Main Contract should be read as if the words "to be installed by 3M" and "to be installed by Abel Alarms" were added into the relevant item in Bill 10. This would have the effect that these companies are "Nominated Sub-Contractors" whenever these words appear in the Sub-Contract, even though they were, in fact, sub-subcontractors. On that basis, loss and/or expense is only recoverable if such loss is recoverable under clause 26.1 of the Conditions. However, loss and/or expense is only recoverable where:

420. The relevant provision of the Main Contract is clause 26.1. This clause contains a long list of events but delay caused by a Nominated Sub-Contractor is not one of them. Thus, such delay does not give rise to a claim under clause 13.1 by the Sub-Contractor. The only basis of recovery by CWS for loss caused by a Nominated Sub-Contractor is under this provision of clause 13.1:

421. It follows that delays caused by these "Nominated Sub-Contractors" are not delays which fall within clause 13 at all, since they do not fall within either of the limbs of recovery, namely "other sub-contractors of NHC" or "Relevant Events". Thus, the arbitrator's award is consistent with the provisions of the Sub-Contract.

422. This ground of appeal is related to the finding that CWS should pay NHC's loss and expense for 3 of the weeks of delay in completing the Main Contract. This appeal arises because CWS contends that there was no necessary finding of a causal link between CWS's 3 weeks delay for which it was responsible and the delay in completing the Main Contract works which occurred much later.

423. The relevant findings of the arbitrator are set out in paragraph 13.02.

424. The paragraph then concludes with a separate finding as follows:

425. CWS's grounds of appeal are summarised in this way in Mr. Black Q.C.'s written submissions:

426. I am not concerned with the correctness or otherwise of the findings of fact out of which these findings arise. What is clear, however, is that the arbitrator has found that loss was caused to NHC by the 3-week delay of CWS, albeit that loss was not loss arising from site costs in January and February 1994. The loss was caused at a different period, arising out of CWS's delay in February and March 1993, when time-slice Events 17 and 28 were occurring. This is a finding of primary fact which, even if erroneous, and I have no basis for thinking that it was, cannot be the subject of challenge on appeal.

10.1 The Proposed Grounds of Appeal

427. CWS two grounds of appeal arise out of the arbitrator's special award as to interest dated 27th October 1997. The award as to interest can be summarised as follows:

428. The arbitrator gave full reasons for reaching these decisions. They may be summarised as follows:

429. CWS's grounds of appeal, which were not finally formulated into questions of law, were as follows:

10.2 Question 1 - Remeasurement

430. CWS contends that the relevant provisions are those relating to interim payments and that the various component parts of the sum awarded for remeasurement of the Works were payable monthly without any demand from CWS being required. Therefore, interest should have been awarded on the basis that the sums were due no later than the date of Practical Completion.

431. This submission overlooks two important matters:

432. These factors, taken together, amount to a finding that the parties made an agreement, or acted on the basis of an agreed course of operation, which was to value the works for each interim payment as if the Tender Sum was the Contract Sum and to add to it and subtract from it. The parties only agreed to return to a remeasurement contract once CWS had submitted a revised Points of Claim in May 1996.

433. It follows that the first valuation on a remeasurement basis was for the computation of the Ascertained Final Sub-Contract Sum, which is separately provided for in clause 21.8 of the Conditions and which occurs after practical completion. The Final Payment, which results from this computation, is only first due for payment when all necessary documents for the purpose of computing the Ascertained Final Sub-Contract Sum have been sent by CWS to NHC. Since the amended Points of Claim was the first document produced by CWS which showed the computation of the remeasurement exercise and since CWS had not previously referred to its entitlement to a remeasurement, the first date upon which a Final Payment became due was when the amended Points of Claim were served.

434. It follows that the arbitrator was correct in taking the starting date for the payment of interest as a reasonable time, namely 28 days, after the service of the amended Points of Claim.

10.3 Question 2 - Remeasurement

435. This question does not arise since it is based upon a supposition that the date or dates upon which the amount awarded for the remeasurement exercise should have been paid when the interim payments were made. I have already shown that this was not the case. Therefore, an attack on the award for interest on the remeasurement exercise as being "Wednesbury" unreasonable is misconceived and fails.

10.4 Questions 1 and 2 - Loss and Expense

436. The same questions are raised for loss and expense. Here, the answer is different since loss and expense was not subject to the agreement, or agreed convention, that interim payments would not be calculated on a remeasurement basis. However, the arbitrator has made express findings that:

437. Furthermore, loss and expense is only due for payment, pursuant to the provisions of clause 13.1, once the amount to be paid has been agreed between NHC and CWS. Therefore, in the light of the findings of the arbitrator to the effect that the loss and expense incurred by CWS could not first have been agreed until 18 months after Practical Completion, save for a small amount of £20,000 which could and should have been agreed by the date of Practical Completion, the arbitrator's findings as to interest payable on the loss and expense claim are unimpeachable.

10.5 Question 4 - NHC's Counterclaim

438. This question is based on the supposition that the arbitrator made findings in the Award to the effect that NHC suffered no loss and that there was little evidence to support the counterclaim. Thus, no interest should have been awarded to NHC.

439. The error in this submission is that it presupposes that no counterclaim should have been awarded to NHC, which is the basis of CWS's appeal against the Award. If, as the arbitrator held, and I upheld, NHC proved loss and, hence, an entitlement to an award on the counterclaim, that loss must have been incurred no later than Practical Completion and, in fact, much earlier, given the arbitrator's findings which I have already dealt with. Thus, an award of interest, based on the same reasoning as I have dealt with in paragraph 433 above, is both sustainable and within the arbitrator's discretion to make.

10.6 Conclusion

440. All grounds of appeal concerned with the awards as to interest fail and are dismissed.

11 Conclusion

441. The overall conclusions are that all questions of law are answered adversely to the party raising the relevant question and that, in consequence, the appeals brought by NHC and the appeals and cross-appeals brought by CWS all fail and are dismissed. The questions of law that I have dealt with in this judgment are set out in schedule 4 to this judgment.

H.H. Judge Anthony Thornton Q.C.

17th February 1998

THE QUESTIONS OF LAW ANSWERED IN JUDGMENT NO. 2 AND THE ANSWERS GIVEN.

1. Question:

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15. Question:

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No.