Alfred McAlpine Construction Ltd v Panatown Ltd [2001] EWCA Civ 485

Tuesday April 5th, 2005
Neutral Citation Number: [2001] EWCA Civ 485
Case No: B/1996/0867; B/1996/0898

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM HIGH COURT OF JUSTICE
(QUEEN’S BENCH DIVISION)
(OFFICIAL REFEREE’S BUSINESS)
Before His Honour Judge Anthony Thornton QC
and His Honour James Fox-Andrews QC
(sitting as a High Court judge)

Royal Courts of Justice
Strand, London, WC2A 2LL
Thursday 5th April 2001

B e f o r e :

and His Honour James Fox-Andrews QC
(sitting as a High Court judge)
LORD JUSTICE WALLER
LORD JUSTICE MANTELL
and
MR JUSTICE NEWMAN

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Alfred McAlpine Construction Limited
Applicant
- and -

Panatown Limited
Respondent

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(Transcript of the Handed Down Judgment of
Smith Bernal Reporting Limited, 190 Fleet Street
London EC4A 2AG
Tel No: 020 7421 4040, Fax No: 020 7831 8838
Official Shorthand Writers to the Court)

____________________

Mr A Glennie QC; Mr P Sutherland (instructed by Messrs Masons for the Applicant)
Mr D P Friedman QC; Mr J Nicholson QC (instructed by CMS Cameron McKenna for the Respondent)

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HTML VERSION OF JUDGMENT
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Crown Copyright ©

    LORD JUSTICE WALLER:

    Introduction

  1. On 2 November 1989 Panatown Limited (Panatown) entered into a building contract under which Alfred McAlpine Construction Limited (McAlpine) undertook to design and build an office building and multi-storey car park on a site in Cambridge on JCT standard terms. Panatown, although the employers under the construction contract, were not and have never been the owners of the construction site. The “Building Owners” were an associated company, Unex Investment Properties Limited (UIPL). The reason why UIPL did not enter into the building contract directly was for the purpose of avoiding VAT, I should add, perfectly legitimately. Also on 2 November 1989 McAlpine entered into a Duty of Care Deed with UIPL and further Duty of Care Deeds were entered into between UIPL and the architects, UIPL and the Structural Engineers, and UIPL and the M & E Engineer. Those Duty of Care Deeds provided UIPL the building owner with direct remedies against McAlpine, the building contractor and the professionals engaged by the contractor. The obligations and duties owed under the Duty of Care Deed by McAlpine to UIPL may however not be quite as extensive as the obligations owed under the building contract.
  2. The building was completed but Panatown and the Unex group allege that the building is seriously defective. McAlpine assert that if the facts alleged by the Unex group were correct then the Unex companies should have pursued the following remedies: (1) Panatown should have employed others to carry out and complete the design and construction of the works and then recovered the excess costs pursuant to clause 27.4 of the building contract, that remedy not being dependent upon ownership of the site; (2) UIPL could have sued McAlpine for any breaches of the warranties contained in the McAlpine Duty of Care Deed and indeed might have sued the professionals under their Duty of Care Deeds.
  3. Possibly, if fearful that the above might not provide a full remedy, Panatown commenced an arbitration seeking to pursue McAlpine for damages under the building contract and other relief. That arbitration was commenced in 1992. In early 1994 McAlpine raised the issue that Panatown was not entitled to recover damages for breaches of contract because Panatown was not, and never had been, the owner of the site. McAlpine sought to strike out Panatown’s claim but the arbitrator ruled that the question raised by McAlpine should be tried as a preliminary point in the arbitration. That preliminary issue was formulated in the following question:  

    “Do Panatown’s claims for (a) liquidated damages for delay, (b) unliquidated damages for delay and failure to complete and (c) damages for defective and/or incomplete work (or any and if so which of them) fail (insofar as they relate to greater than nominal damages) because Panatown is not the owner of the property?”.

  4. Panatown obviously contended that the answer in each case should be “no” on alternative grounds. First, Panatown contended that the facts of the case brought them within the exception to the general rule that a party to a contract cannot recover substantial damages on behalf of a third-party on the basis of the decision of the House of Lords in St Martins Property Corporation Ltd v Sir Robert McAlpine Ltd [1994] 1 AC 85 and a decision of the Court of Appeal in Darlington Borough Council v Wiltshier Northern Ltd [1995] 1 WLR 68. This I shall call hereafter the St Martins/Darlington point. Second, Panatown alleged that binding contracts had been entered into between UIPL and a further Unex company UCL, and between UCL and Panatown. Panatown alleged that that chain of contracts had been entered into on or about 23 March 1989 in terms set out in minutes purporting to record a consensus reached on that day. Panatown asserted that pursuant to the chain of contracts Panatown was under a liability to UIPL through UCL for the proper performance of the building contract made between McAlpine and Panatown. Panatown thus asserted that they were entitled to be indemnified by McAlpine against the damages or losses that they would have to pay to UCL and on to UIPL. This point I shall call the chain of contracts point.
  5. On the St Martins/Darlington point, McAlpine asserted that the facts did not bring the case within the exception to the general rule and in particular that the entry by McAlpine into the Duty of Care Deed (the DCD) was absolutely decisive in excluding this case from the exception to the general rule. On the chain of contracts point McAlpine asserted there was no binding chain of contracts entered into at all, or none which gave rise to a liability in relation to which Panatown was entitled to be indemnified.
  6. The arbitrator Mr John Sims who sat with a legal assessor Mr Brian Knight QC published an interim award on 12 August 1994 ruling in favour of Panatown on both points.
  7. Under the construction contract Panatown and McAlpine had agreed that any point of law could be appealed to the court. McAlpine accordingly appealed the matter and that led to a series of judgments by His Honour Judge Anthony Thornton QC. By judgment number 1 dated 26 June 1995 Judge Thornton ruled in favour of McAlpine on the St Martins/Darlington point holding Panatown were not within the exception to the general rule; he further ruled in favour of McAlpine on the chain of contracts point. On this latter point he held inter alia (1) that the arbitrator had given the minutes of the meeting dated 23 March 1989 a status in law which they should not have had; (2) that no contract between Panatown and UCL containing an obligation on Panatown equivalent to McAlpine’s obligation to Panatown, came into existence prior to the entry by Panatown into the building contract with McAlpine; (3) that if Panatown were to be entitled to recover from McAlpine on the basis of the chain of contracts it was fatal to their case that such contract did not exist prior to the entry by Panatown into the building contract with McAlpine; but (4) that some contract described by the judge as a procurement contract had been entered into as between Unex companies and Panatown prior to the relevant dates. By implication he clearly decided that the procurement contract did not give rise to such an obligation as between Panatown and the Unex companies so as to entitle Panatown to recover damages against McAlpine under the construction contract.
  8. In judgment number 2 Judge Thornton dealt with the question of remission to the arbitrator. McAlpine were arguing that there was nothing now on the preliminary issue to remit to the arbitrator. They were asserting that the preliminary issue should now be answered in favour of McAlpine and that should be the end of the preliminary issue. Panatown were asserting that the judge’s judgment did not necessarily rule out Panatown’s claim to damages under the construction contract. First, Panatown asserted that since the judge had ruled that certain evidence i.e. the minutes, should not have been relied on to the extent that it was, the matter should be remitted to the arbitrator to re-examine the chain of contracts issue. On that point the judge was against Panatown. Judge Thornton held in judgment 2, which he analysed more clearly in a further judgment, judgment 4, that there were still three bases, as yet unanswered by the arbitrator, by which a claim for substantial damages might be sustained by Panatown. Those were in short what he described as “the bailment analogy”, “reasonableness” and “Ruxley”. What he meant by the bailment analogy needs no further explanation. By reasonableness he simply meant that it was open to Panatown to argue that their claim was maintainable simply on the basis that they had expended substantial sums “reasonably” in the light of the breaches of contract established. By “Ruxley” he was referring to the possibility, in the light of a recent House of Lords decision, that a building employer might recover damages for defective work upon the diminution in value of the contract basis.
  9. Both McAlpine and Panatown wished to challenge Judge Thornton’s rulings in the Court of Appeal. However by section 1 (7) of the Arbitration Act 1979  

    “No appeal shall lie to the Court of Appeal from a decision of the High Court on an appeal under this section unless – (a) the High Court or the Court of Appeal gives leave; and (b) it is certified by the High Court that the question of law to which its decision relates either is one of general public importance or is one which for some other special reason should be considered by the Court of Appeal”.

  10. Accordingly, both McAlpine and Panatown sought leave from Judge Thornton and sought certification of points of law. It was during this process that Judge Thornton recused himself and the matter was reassigned to His Honour James Fox-Andrews QC. By a judgment dated 27 March 1996 His Honour James Fox-Andrews certified and gave leave in relation to a variety of different points. Those points certainly included the St Martins/Darlington point. It certainly included the question whether the matter should be remitted to the arbitrator at all, McAlpine contending that there should be no remission. It certainly seemed to include the question whether the judge should have allowed the chain of contracts issue to be re-opened before the arbitrator and/or whether the judge was right to place any constraints on the remission to the arbitrator, but, having regard to the actual certification, there is an issue on this aspect.
  11. The matter came before the Court of Appeal composed of Evans, Hutchison and Mantell LJJ. That court decided to take the St Martins/Darlington point first. By a judgment of the court, delivered by Evans LJ on 5 February 1998, the Court of Appeal overruled Judge Thornton on that point.
  12. The questions that then arose related to whether leave to appeal to the House of Lords should be granted and how the remaining matters relating to remission should be dealt with, and in particular whether they should be dealt with prior to any appeal to the House of Lords. By a judgment dated 13 March 1998, delivered by Evans LJ, but one with which Hutchison and Mantell LJJ agreed, leave to appeal to the House of Lords on the St Martins/Darlington point was granted. The court further ruled that it was prepared to hear part of the remission arguments that part being described as the “indemnity issue” which I understand to be the “chain of contracts” issue; but it also ruled that that issue could only be heard by the Court of Appeal if the parties were able to reach an agreement along the lines suggested in the judgment. Perhaps unsurprisingly, in the context of this litigation, the parties failed to reach any agreement and thus the St Martins/Darlington issue went to the House of Lords and all remission arguments remained outstanding.
  13. Thus it was that the St Martins/Darlington point came to be considered by the House of Lords and by a judgment delivered on 27 July 2000 the House of Lords ruled by 3 to 2 that McAlpine should succeed on that point. The matter was then remitted to this court to deal with the remaining matters. It is that hearing which came before us and this judgment seeks to deal with those matters. The House of Lords ruling
  14. In the context of the matters with which we have to deal the basis of the House of Lords ruling on the St Martins/Darlington point is important. The case is reported in [2000] 3 WLR at 946 and the headnote reads:-  

    “Allowing the appeal (Lord Goff of Chieveley and Lord Millett dissenting), that, since the duty of care deed provided the owner with a direct remedy against the contractor for the losses resulting from the contractor’s defective performance of the contract with the employer, there were no grounds upon which the employer, having suffered no financial loss, was entitled to anything more than nominal damages.”

  15. In the House of Lords the matter was argued by reference first to what was described as The Albazero exception and to what came to be called the broader ground based on the speech of Lord Griffiths in the St Martins case [1994] 1 AC 85 at 96. Lord Clyde at 957 explained the differing bases saying:- 

    “The approach under The Albazero exception has been one of recognising an entitlement to sue by the innocent party to a contract which has been breached, where the innocent party is treated as suing on behalf of or for the benefit of some other person or persons, not parties to the contract, who have sustained loss as a result of the breach. In such a case the innocent party to the contract is bound to account to the person suffering the loss for the damages which the former has recovered for the benefit of the latter. But the so-called broader ground involves a significantly different approach. What it proposes is that the innocent party to the contract should recover damages for himself as a compensation for what is seen to be his own loss. In this context no question of accounting to anyone else arises.”

  16. Lord Clyde rejected the broader approach. As regards The Albazero exception he would, as I understand his speech, have allowed Panatown to recover damages suffered by UIPL if nothing equivalent to the DCD existed, thus he put the matter at 961 as follows:-  

    “The problem which has arisen in the present case is one which is most likely to arise in the context of the domestic affairs of a family group or the commercial affairs of a group of companies. How the members of such a group choose to arrange their own affairs among themselves should not be a matter of necessary concern to a third party who has undertaken to one of their number to perform services in which they all have some interest. It should not be a ground of escaping liability that the party who instructed the work should not be the one who sustained the loss or all of the loss which in whole or part has fallen on another member or members of the group. But the resolution of the problem in any particular case has to be reached in light of its own circumstances. In the present case the decision that Panatown should be the employer under the building contract although another company in the group owned the land was made in order to minimise charges of VAT. No doubt thought was given as to the mechanics to be adopted for the building project in order to achieve the course most advantageous to the group. Where for its own purposes a group of companies decides which of its members is to be the contracting party in a project which is of concern and interest to the whole group I should be reluctant to refuse an entitlement to sue on the contract on the ground simply that the member who entered the contract was not the party who suffered the loss on a breach of the contract. But whether such entitlement is to be admitted must depend upon the arrangements which the group and its members have decided to make both among themselves and with the other party to the contract. In the present case there was a plain and deliberate course adopted whereby the company with the potential risk of loss was given a distinct entitlement directly to sue the contractor and the professional advisers. In the light of such a clear and deliberate course I do not consider that an exception can be admitted to the general rule that substantial damages can only be claimed by a party who has suffered substantial loss.”

  17. Lord Jauncey held that the existence of the DCD meant that The Albazero exception did not apply (see 993B). In considering the broad approach he said this at 998:-  

    “Since writing this speech, I have had the advantage of reading in draft the speech of my noble and learned friend, Lord Goff of Chieveley. I respectfully agree with his rejection of the proposition that the employer under a building contract is unable to recover substantial damages for breach of the contract if the work in question is to be performed on land or buildings which are not his property. In such a case the employer’s right to substantial damages will, in my view, depend upon whether he has made good or intends to make good the effects of the breach. This appears to be implicit in the speech of Lord Griffiths, at p. 97E, and of Lord Keith of Kinkel, at p. 95F, (in the St Martins case).”

  18. Mr Friedman QC criticises Lord Jauncey for presuming that Panatown had neither spent, nor intended to spend, money in remedying the breach. I am not sure that the criticism is quite fair despite Mr Friedman showing us Panatown’s pleaded claim including a claim for some limited expenditure. Panatown would seem to be somewhat on the horns of a dilemma. They would not wish to expend money which they may be held disentitled to recover under the building contract in case in spending it they weakened the claim UIPL might have under the DCD. This aspect was not fully explored before us but I doubt whether Panatown could say more than that they intended to spend money if held entitled to recover the same. In any event Lord Jauncey continued by saying:-  

    “However, there is a further matter to be considered in this case, namely the D.C.D. in favour of U.I.P.L. This, in my view, is equally relevant to the broader as to the narrow ground.”

    Lord Jauncey’s conclusion was:-

     

    “I therefore consider that Panatown is not entitled to recover under Mr Friedman’s broader ground not only because they have suffered no financial loss but also because U.I.P.L. have a direct right of action against McAlpine under the D.C.D. As I have come to the conclusion that neither the narrow nor the broader ground is applicable to the facts of this case I would allow the appeal.”

  19. Lord Browne-Wilkinson also concluded that The Albazero exception did not apply as a result of the DCD (see 1001C). In relation to the broader ground he said:-  

    “The essential feature of the broader ground is that the contracting party A, although not himself suffering the physical or pecuniary damage sustained by the third party C, has suffered his own damage being the loss of his performance interest, i.e. the failure to provide C with the benefit that B had contracted for C to receive. In my judgment it follows that the critical factor is to determine what interest A had in the provision of the service for the third party C. If, as in the present case, the whole contractual scheme was designed, inter alia, to give U.I.P.L. and its successors a legal remedy against McAlpine for failure to perform the building contract with due care, I cannot see that Panatown has suffered any damage to its performance interests: subject to any defence based on limitation of actions, the physical and pecuniary damage suffered by U.I.P.L. can be redressed by U.I.P.L. exercising its own cause of action against McAlpine. It is not clear to me why this has not occurred in the present case: but, subject to questions of limitation which were not explored, there is no reason even now why U.I.P.L. should not be bringing the proceedings against McAlpine. The fact that the D.C.D. may have been primarily directed to ensuring that U.I.P.L.’s successors in title should enjoy a remedy in tort against McAlpine is nothing to the point: the contractual provisions were directed to ensuring that U.I.P.L. and its successors in title did have the legal right to sue McAlpine direct. So long as U.I.P.L. enjoys this right Panatown has suffered no failure to satisfy its performance interest.”

  20. What I would conclude from the reasoning of the majority is that if the building contract had been entered into by Panatown, albeit the site was owned by UIPL, and if (a) there had been no chain of contracts as between UIPL and Panatown and (b) no DCD, Panatown would have been entitled to recover the damages under the building contract albeit those damages would have been suffered by UIPL. Equally I understand the reasoning of the majority to hold that the existence of the DCD prevented Panatown recovering such damages even if Panatown intended to expend money on rectifying the breaches and that expenditure was reasonable in the sense of being needed to rectify those breaches, unless presumably Panatown were exercising their remedy under Clause 27.4 of the building contract. That much, as I understood him, was accepted in argument before us by Mr Friedman on behalf of Panatown. It is self-evidently true that if there were in existence, prior to the entry into the building contract, a chain of contracts back-to-back imposing obligations on Panatown to UCL and on UCL to UIPL, equivalent to the obligations owed by McAlpine to Panatown under the building contract, then, despite the existence of the DCD, Panatown under the building contract could recover those damages which it was obliged to pay up the chain. Procurement contract issue
  21. Judge Thornton found that Panatown’s contract with UCL and thus UCL’s contract with UIPL was simply a “procurement contract”. Whatever that meant it was a contract that clearly fell short of imposing any obligation on Panatown equivalent to the obligation owed to Panatown by McAlpine under the construction contract. It is convenient to deal as a first question with whether that finding would necessarily mean that Panatown was not entitled to recover from McAlpine money which Panatown has expended, or intends to expend in the future, on remedial works. The basis of the argument that they would be entitled to recover such expenditure is the decision in Banco De Portugal v Waterlow & Sons Ltd [1932] AC 452. Waterlow were a firm of printers employed to print bank notes for the Bank. Believing that one M was an employee of the Bank they delivered to him bank notes of the same type made from the same die. The Bank on discovering that unauthorised notes were in circulation first of all withdrew the whole issue of notes, but undertook within a limited time to exchange all the notes presented to the Bank for other notes. What was contended was that the loss suffered by the Bank was due to their own voluntary action in paying the unauthorised notes and that the Bank’s loss should be limited to the cost of printing and paper in regard to the new issue. The House of Lords held, by a majority, that the proper measure of damages was the exchange value expressed in sterling of the genuine currency given in exchange for the spurious notes together with the cost of printing the genuine notes withdrawn. In the speech of Viscount Sankey LC at 475 he said:- 

    “Once it is found, as it has in my view been rightly found in this case, that the Bank acted reasonably, and it is also found that Messrs Waterlow committed a breach of contract, the resulting consequences from such reasonable action must be damages which the Bank are entitled to receive in respect of breach of contract, because they are damages fairly and reasonably to be considered as arising naturally – i.e., occurring in the usual course of things from such breach of contract – as the probable result of the breach.”

  22. Mr Friedman accepted that in the light of the House of Lords decision in this case, it was no longer open to Panatown to argue that (in the absence of any chain of contracts between the companies in the group), Panatown were entitled to recover costs incurred in rectifying defects on the basis that it was “reasonable” so to incur those costs. He accepted that albeit that might have been open to Panatown if there had been no DCD issued by McAlpine in favour of UIPL, it was not open to Panatown so to claim that DCD having been issued.
  23. The question accordingly comes down to whether the existence of a chain of “procurement contracts” provides for a different basis on which the reasonableness argument might succeed despite the existence of the DCD. In my view it clearly does not. It seems to me that the existence of a “procurement contract” which places no obligation on Panatown to carry out works equivalent to the obligation as between McAlpine and Panatown adds nothing to the situation which the House of Lords was assuming to exist as between companies in a group. The assumption must be that if a company enters into a contract where the building owner is a different member of the same group, that company must be entering into it, at the very least, as part of some arrangement within the group. On that basis it could be argued that at the very least a moral obligation would arise on the company requested to contract for the carrying out of works to rectify defects. But the House of Lords held that the existence of the DCD which gave to UIPL a direct claim against McAlpine prohibited Panatown recovering expenditure which it incurred as a result of such a moral obligation. I see no difference between the moral obligation of Panatown when entering into a contract on request, and the moral obligation which Panatown would have, having entered into the building contract pursuant to an obligation to “procure” that contract. This must be particularly so, where, as here, the obligation to make the contract included the obligation to provide UIPL with the DCD.
  24. Thus, as it seems to me, there would be no purpose in remitting the preliminary issue to the arbitrator for him to consider whether reasonable costs could be recovered on the basis that the finding of the judge was correct that a “procurement contract” existed as between Panatown and other members of the group. The arbitrator, following the House of Lords decision, would be bound to conclude they were irrecoverable as a result of the DCD. Remission issue
  25. This court has obviously to take a fresh look at the question of remission having regard to the history of the case and the House of Lords decision. It is accepted by Mr Friedman, for Panatown, that the basis for remission relied on by Judge Thornton can no longer be sustained in so far as his judgment relied on the bailor/bailee analogy and the Ruxley diminution in value point being available to Panatown. Those aspects are accepted as having been dealt with by the House of Lords decision. Mr Friedman also accepts that the reasonableness aspect contemplated as a basis by Judge Thornton was also to a large extent dealt with by the House of Lords. However, as already indicated, he sought to maintain that basis on the finding of the judge that there was a “procurement contract”. For the reasons already given that basis is unsound. The question then is what basis is there for remission?
  26. Unless Panatown are free to argue that they were under an obligation to UCL and thus to UIPL equivalent to the obligation that McAlpine was under to Panatown under the building contract, remission would serve no purpose. Mr Friedman seeks to suggest that he should be free to argue for such a position before the arbitrator on two bases. First he submits that he should be entitled to reargue the chain of contracts point. Alternatively he submits that if he is to be bound by the finding of the judge that there was a “procurement contract”, he should be free to argue that the “procurement contract” included an implied term imposing obligations on Panatown to UCL, equivalent to the terms imposed by McAlpine on Panatown.
  27. In the context of the submission that Panatown would seek to reargue the chain of contracts point, Panatown seek to rely on certain fresh evidence which they would seek to place before the arbitrator. This fresh evidence was not before the judge and he was not asked to deal with that aspect. The fresh evidence is before us, following a directions hearing in December of last year when the existence of the same was raised by Mr Friedman, and Mr Glennie QC for McAlpine sought the details of the evidence that was to be relied on.
  28. Although the above explains the issues as I would see that they ought now to be, there is a complication.
  29. The complication relates to the jurisdiction of the Court of Appeal. What Mr Glennie submits in short is that the judge found that the contract entered into between Panatown and UCL on 23 March was a contract requiring Panatown to procure a design and build contract with an outside building contractor (see question 8 in the minutes of judgment page 29). The judge further found that Panatown’s obligation to comply with the outside building contract only arose first after the contract with McAlpine had been entered into (see question 9 in the same minutes on the same page). His Honour James Fox-Andrews did not certify either of those questions as involving points of law for consideration by the Court of Appeal and, so the submission goes, those findings of the judge will bind the arbitrator if the matter was ever remitted. The submission continues that clearly those findings were findings of a “procurement contract” without any implied term, and were certainly findings which are totally inconsistent with there being back-to-back contracts. Thus, Mr Glennie submits, since the arbitrator would be bound by those findings there simply is no purpose in remitting the matter to the arbitrator.
  30. The response from Mr Friedman is to explain that he is putting his case in a slightly different way. Mr Friedman submits that Panatown are seeking to challenge the whole way in which the judge approached the award in this case. He submits that once the judge had found that the minutes of 23 March 1989 was not the conclusive document as found by the arbitrator, the judge should not have gone on to make any findings of fact or mixed fact and law but should simply have remitted the matter to the arbitrator. The judge should certainly not have constrained the arbitrator by observations that the judge made in judgment number 2 that the chain of contracts issue should not be before him. In relation to the judge’s approach Mr Friedman maintains that he does have certification on grounds 5 and 6 of the appendix to the minutes of order.
  31. It seems to me that there is some inconsistency about the certification granted in this case. I would be inclined to the view that certification of the way in which the judge approached the matter on grounds 5 and 6 of the appendix does leave it open to this court to consider whether it was inappropriate for the judge to find a “procurement contract”. But there is no need to resolve finally the jurisdiction issue because I, for my part, have formed a clear view on the merits.
  32. As already indicated we are in a quite different position from the judge. But even at that stage, he was of the view that Panatown should not be entitled to take the matter back before the arbitrator simply to be allowed a second bite at the “chain of contracts” cherry. Panatown challenge that exercise of the judge’s discretion. In my view that approach of the judge is clearly right. Furthermore, it seems to me that that view must prevail even more clearly now. Mr Friedman suggested that the question of whether fresh evidence should be called should be left to the arbitrator. He furthermore still maintained that simply because the court has ruled that the evidence of the minutes should not have been given the force that the arbitrator gave it, the court should allow the matter to go back to the arbitrator. But the position, as it seems to me, is as follows. First it is quite true that Judge Thornton’s first judgment did deal with the status of the minutes but Panatown were never maintaining that there was any agreement as at 23 March 1989 other than on the terms set out in those minutes. The arbitrator concluded that if those minutes represented the terms then they were too uncertain to establish a contract equivalent to the building contract ultimately entered into. The arbitrator clearly further found that it was only once that building contract had been entered into that anything approaching the back-to-back contracts could be established. The arbitrator sought to suggest that in some way that would backdate the coming in to being of the agreement. That as a matter of law was wrong as found by the judge and I do not understand there to be any challenge to that finding.
  33. The judge was also of the view that if the terms of such agreement as Panatown could establish were as set out in the minutes, they were too uncertain to be enforceable. One only needs to look at certain terms of the minutes to see that he and the arbitrator were right. The terms included the following:-  

    “It was agreed that various Group companies should enter into building and other Agreements between themselves in relation to the development at Hills Road and, in consequence of such Agreements, make cash payments between themselves prior to 31st March 1989. The principal benefit of such actions was to be the advantage gained by the Group through paying construction costs with VAT added at Nil% rather than the 15% which would be applicable to similar payments made after 31st March 1989.. . . .

    It was agreed that the following commitments should be, and thereby were, entered into by the various companies as follows:-

    In the first Agreement (Agreement A) Unex Investment Properties Limited is the Employer and Unex Construction Limited is the Contractor and in the second Agreement (Agreement B) Unex Construction Limited is the Employer and Panatown Limited is the Contractor.

    Both Agreements contain:-

     

    (a) the conditions of a normal Design and Build Contract in the form of a standard J.C.T. contract with amendments and, if necessary, side letters of agreement. . .

    (h) such further terms as shall be mutually agreed between the members of the Unex Group

    In Agreement A the consideration for the works is £7,500,000 payable forthwith plus 2(% of such sum payable fourteen days after Practical Completion has been achieved and in Agreement B the consideration for the works is £7,500,000 payable forthwith.

    Upon the placing of a Contract by Panatown with an outside building company at a future date for the construction of a development on the Pordage site (“the Future Contract”) the terms of Agreement A and Agreement B will be amended:-

     

    (a) All terms in Agreement A and Agreement B other than those relating to the Contract consideration will be amended to reflect as accurately as possible the relevant terms of such Future Contract.”

  34. Mr Friedman has reminded us of the well known passages in Hillas & Co Ltd v Arcos Ltd (1932) 147 LT 503 one of which is quoted in the following paragraph of Chitty on Contracts 28th ed. 2-129:- 

    “The courts do not expect commercial documents to be drafted with strict legal precision. The cases provide many examples of judicial awareness of the danger that too strict an application of the requirement of certainty could result in the striking down of agreements intended by businessmen to have binding force. The courts are reluctant to reach such a conclusion, particularly where the parties have acted on the agreement. As Lord Wright in Hillas & Co Ltd v Arcos Ltd: “Businessmen often record the most important agreements in crude and summary fashion; modes of expression sufficient and clear to them in the course of their business may appear to those unfamiliar with the business far from complete or precise. It is accordingly the duty of the court to construe such documents fairly and broadly, without being too astute or subtle in finding defects; but, on the contrary, the court should seek to apply the old maxim of English law, verba ita sunt intelligenda ut res magis valeat quam pereat. That maxim, however, does not mean that the court is to make a contract for the parties, or to go outside the words they have used, except in so far as they are appropriate implications of law.””

  35. Mr Friedman submits the court should strive so far as possible to hold that where companies are seeking to create legally binding obligations, they have succeeded. The difficulty is that for Panatown to succeed they must demonstrate that detailed building contracts were entered into between UIPL and UCL imposing obligations equivalent to those placed on McAlpine. The minutes demonstrate that matters remained to be finally negotiated until after that contract was entered into. It is not open to an arbitrator or a court to make a contract for the parties. Thus without fresh evidence Panatown have no prospect of succeeding in establishing back-to-back contracts made prior to the construction contract being entered into.
  36. Should Panatown have the opportunity of calling fresh evidence? Mr Friedman once again suggested that this should be a matter for the arbitrator. I do not agree for this reason. It seems to me that the preliminary point was identified before the arbitrator. It was taken seriously with cases being pleaded on either side. There was ample opportunity for Panatown to set out such agreement or agreements that they relied on knowing that there was a serious challenge to the making of any agreement on 23 March 1989. It would be simply unfair in the context and history of these proceedings to allow the matter to go back to the arbitrator to establish some different back-to-back contract. So far as the witnesses were concerned, Panatown had every opportunity to call such witnesses as it wanted and thus this is not a case where the evidence was not available when the matter came before the arbitrator and it is not a case where the existence of evidence has only just come to light. That might of course produce an entirely different situation.
  37. McAlpine also suggest that even if Panatown were entitled to have the matter remitted to the arbitrator, and even if the arbitrator was entitled to reconsider the question whether back-to-back contracts existed as from a date prior to 2 November 1989, there would still be no purpose in remission because McAlpine would be entitled to insist on Panatown taking a limitation defence as against UCL. McAlpine relied on a dictum of Scrutton LJ in Barclays Bank v Thom [1923] 1 KB 221 at 224 in which he approved the principle of a third party being allowed to raise a defence of the defendant which the defendant would not raise on his own behalf. The question whether McAlpine could have insisted on Panatown taking a limitation defence in the context of this case, where UIPL and UCL had previously issued proceedings but then discontinued them, does not seem to me straightforward, but it is unnecessary to resolve that issue. Conclusion
  38. Panatown may feel sore that they have not been held entitled, as they would see it, to enforce the building contract into which they entered and may feel sore that McAlpine have taken the point that they have, and only succeeded on it 3-2 in the House of Lords. But the reality is, as the House of Lords pointed out, that the group made their contractual bed, including the DCD issued in favour of UIPL. The time has come when Panatown should take that route to recovery. LORD JUSTICE MANTELL:
  39. I agree. MR JUSTICE NEWMAN:
  40. I also agree. ORDER: Appeal dismissed, cross appeal allowed. Order as minuted by counsel. Leave to appeal to the House of Lords refused. (Order does not form part of approved Judgment) 

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