STRACHAN & HENSHAW LIMITED -V- STEIN INDUSTRIE (UK) LIMITED and GEC ALSTHOM LIMITED
by Greg Lowson and Nick Roberts of Solicitors Pinsent Curtis


An instruction to move site cabins is not a variation under the MF/1 conditions even though it increases the contractor’s costs. Furthermore, clause 44.4 in MF/1 is effective to exclude liability for pre-contract misrepresentation and any breach of contract unless it is expressly provided for in the MF/1 conditions. These were the findings of the Court of Appeal restoring the Arbitrator’s decision and overturning the judgment of the Official Referee in the first appeal in the case of Strachan & Henshaw Limited -v- Stein Industrie (UK) Limited and GEC Alsthom Limited.

The Facts
Stein Industrie (UK) Limited (Stein) acting as agent for GEC Alsthom Limited (GECA), employed Strachan & Henshaw Limited (S&H) to erect two steam generators at Little Barford Power Station. The contract incorporated the I Mech. E model form of conditions (MF/1). S & H claimed that they had a contractual right to put cabins on the site next to their works. They also said pre-contract representations were made to this effect. In the event, having put the cabins on site, S & H were told to remove them. Their workforce had to continue clocking on and taking breaks in cabins in the contractors’ compound half a mile away. S&H claimed approximately £1.6 million as the alleged additional cost resulting from their workforce having to walk back and forth between the cabins and the works in paid time.

The Issues
In order to succeed, S&H had to establish that the instruction to remove the cabins was a variation under clause 27 of MF/1, or an actionable breach of contract, or that they had been induced to enter into the contract in reliance on the alleged misrepresentation. The arbitrator held that the instruction to remove the cabins was not a variation. He also considered that clause 44.4 in the MF/1 conditions excluded the walking time claim whether it was based on breach of contract or misrepresentation. S&H appealed to the High Court where the Official Referee reversed the arbitrator’s findings on these key points. Stein and GECA appealed further, and the Court of Appeal gave judgment on 9 December 1997 overturning the decision of the lower court.

Variation
The Court of Appeal found that the instruction to move the cabins was not a variation - i.e. an alteration in the "work to be done" by S&H under the contract. S&H sought to establish that the instruction gave rise to a change in the way the work was to be done, and that this should rank as a variation. The Court of Appeal rejected this contention and accepted the opposing argument that there is only a variation if the work to be done under the construction contract, as defined, is changed. These words mean what they say and should not be distorted so as to encompass the arrangements made by the contractor to bring its workforce to the workplace.

Clause 44.4 - Exclusive Remedies
Clause 44.4 in MF/1 reads as follows:-
"The Purchaser and the Contractor intend that their respective rights, obligations and liabilities as provided for in the Conditions shall be exhaustive of the rights, obligations and liabilities of each of them to the other arising out of, under or in connection with the Contract or the Works, whether such rights, obligations and liabilities arise in respect or in consequence of a breach of contract or of statutory duty or a tortious or negligent act or omission which gives rise to a remedy at common law. Accordingly, except as expressly provided for in the Conditions, neither party shall be obligated or liable to the other in respect of any damages or losses suffered by the other which arise out of, under or in connection with the Contract or the Works whether by reason or in consequence of any breach of contract or of statutory duty or tortious or negligent act or omission".

The difficulty faced by S&H was that the contractual document they relied on to establish their alleged right to put cabins on the site was not incorporated in the condtions. Consequently, clause 44.4, which restricts rights and obligations to those expressed in the conditions, left them without a remedy for the alleged breach. They sought to get over this hurdle by arguing that clause 44 means only that remedies expressed in the conditions are exhaustive of the matters to which they relate, not that a party would be left without a remedy for matters referred to elsewhere in the contract.

This reasoning was rejected by the Court of Appeal which held that clause 44.4 should be given its natural breadth and meaning. The Court of Appeal referred to the commercial sense, in complex contracts, of the parties providing expressly for claims they intended to allow and simply excluding all other possible claims. If the parties wish to limit their potential liability in this manner, there is no reason why the law should prevent them.

S&H’s alternative argument was based on innocent misrepresentation and therefore it was also necessary to consider whether or not clause 44.4 excluded such a claim. The Court of Appeal accepted that a claim for misrepresentation is not a claim for "breach of contract or of statutory duty", and would not arise necessarily as a result of "a tortious or negligent act or omission". However the Court of Appeal held that these words in clause 44.4 were examples of excluded claims rather than an exhaustive list. It considered S&H’s claim, whether for breach of contract or for damages under the Misrepresentation Act 1967, was unquestionably a claim "arising ... in connection with the contract", and was therefore excluded by clause 44.4. The Court of Appeal also mentioned in passing that the pre-contract assurance regarding the cabins was not a representation upon which a damages claim under the Misrepresentation Act 1967 could be based.

Conclusions
Care needs to be taken when deciding exactly what constitutes a variation of the works. It would not be safe to assume that any alteration to site arrangements necessarily ranks as a variation under MF/1. The judgment tends to support the mainstream view as to the meaning and effect of clause 44.4 in MF/1. Rights and remedies are indeed limited to those stated in the conditions. Caution should therefore be exercised in drafting the contract and assembling the contract documents to ensure that the rights and remedies which the parties wish to include are enforceable.

The successful appellants, Stein and GECA, were represented by Pinsent Curtis, Solicitors, who instructed Trett to advise on quantum issues.