A & A Mechanical Contractors and Company Ltd (Appellant) v Petroleum Company of Trinidad and Tobago (Respondent) (Trinidad and Tobago)

A contractual variation clause requiring agreement on the value of extras, alterations, additions or omissions creates an ongoing obligation in respect of each variation. Where notice or prior approval has been waived, the parties must agree both whether work constitutes a variation and its reasonable value, while negotiating in good faith. If agreement fails, the court may determine those matters, but that power does not displace the anterior contractual process. Correspondence objectively forming part of that process is open and admissible, even if headed without prejudice. It remains distinct from separate settlement negotiations. Individual agreements may be enforced without a global settlement. A judge must also consider the statutory discretion to award interest.

The appellant, a construction contractor, claimed payment for variations under its contract with the respondent, a state-owned oil company. The High Court admitted a June 2008 letter recording agreed and proposed variation values and awarded TT$9,972,262.74. On 12 December 2019, the Court of Appeal held by majority that the letter was part of without prejudice negotiations and was inadmissible, set aside the principal award and remitted the claims. It unanimously remitted the award for further claimed variations. The appeal concerned the letter’s admissibility, the treatment of variations 27A, 27B1, 27B2, 28 and 29, and the failure to consider interest under section 25 of the Supreme Court of Judicature Act.

Lord Stephens delivered the judgment of the Board, with Lord Lloyd-Jones, Lord Briggs, Lord Leggatt and Lord Burrows agreeing.

1. First issue: admissibility and agreed variations. Clause 7, read with clause 4, imposed a continuing obligation to agree each variation and its reasonable value. The obligation included agreeing whether work was a variation where the respondent had waived prior written approval. Both parties were also under an implied obligation to negotiate in good faith. If agreement failed, the court could determine whether a variation occurred and its reasonable value, but that judicial power did not replace the anterior contractual process (paras 13–20).
2. The contractual process was an open process distinct from negotiations intended to settle contemplated litigation. Correspondence objectively forming part of the clause 7 process was admissible, even where it was headed without prejudice. Separate contractual and settlement negotiations could proceed in parallel (paras 66–70). The June 2008 letter therefore recorded concluded agreements on individual variations. The agreed value was TT$5,180,175.31, but the pleaded claim excluded variation 10c, so TT$4,890,175.31 was awarded. The unagreed claims for variations 17, 20, 21 and 25 were remitted for rehearing.
3. Alternatively, if the letter had been privileged, it could be admitted to establish whether individual agreements had been concluded. The Board also held that the respondent had unequivocally waived privilege by its pleading and by relying on the letter in cross-examination (paras 71–73).
4. Second issue. The judge wrongly proceeded on the basis that there was no respondent’s evidence concerning variations 27A, 27B1, 27B2, 28 and 29. The Board dismissed the appeal on this issue and remitted those claims for rehearing, without analysing the merits of the evidence (paras 79–80).
5. Third issue. The judge erred by failing to consider the discretion under section 25 of the Supreme Court of Judicature Act to award interest. That question was remitted in respect of the TT$4,890,175.31 award and any further sums awarded on rehearing (para 81). Evidence of the clause 7 meetings and related correspondence was admissible for all remitted variations (para 85).

• Privy Council: In [2022] UKPC 39, the Board allowed the appeal on admissibility and interest, dismissed it on the second issue, made an award of TT$4,890,175.31 and ordered the specified claims and interest questions to be reheard.
• Court of Appeal of the Republic of Trinidad and Tobago: On 12 December 2019, by majority on admissibility and unanimously on the further variations, the court set aside the High Court’s awards and remitted the claims.
• High Court: Boodoosingh J’s judgment dated 28 April 2014 admitted the June 2008 letter and awarded TT$9,972,262.74, but made no order on interest.