Energy Works (Hull) Limited v MW High Tech Projects UK Limited & Anor

A contractor that has settled an employer’s claim may pursue a contribution from a subcontractor without proving its own actual liability, provided it would have been liable if the factual basis of the employer’s claim were established. The subcontractor’s breach, causation and loss must still be proved. A post-trial settlement does not ordinarily require the contribution claim to be reopened and reformulated.

Abatement is measured by the diminution in value of the defective work. Remedial costs may be used to assess that diminution, but they are not automatically the measure. Contractual variation and additional-payment provisions must be applied according to their terms, including any notice condition precedent.

The judgment determined outstanding issues between the main contractor, MW High Tech Projects UK Limited, and its gasifier subcontractor, Outotec (USA) Inc., following the court’s principal judgment in the employer’s claims. The employer, Energy Works (Hull) Limited, had settled its claims against the main contractor and its parent after trial.

The court considered the effect of that settlement on contribution claims and abatement, several alleged defects in the plant, Outotec’s claims for contractual variations, the quantification of abatement, exchange rates, and enhanced contractual interest. The central issues were whether the settlement altered the pleaded basis of the contribution claims, how abatement should be measured, and whether Outotec had established entitlement to payment for the claimed variations.

1. Contribution following settlement. Section 1(4) of the Civil Liability (Contribution) Act 1978 removed the need for M+W to prove that it remained liable to EWH, provided that it would have been liable if the factual basis of EWH’s claim were established. M+W nevertheless had to prove Outotec’s breach, causation and the resulting loss. The principles identified in Biggin v Permanite and Siemens Building Technologies FE Ltd v Supershield Ltd were relevant, but the case had been pleaded and tried on the basis of proving liability rather than the reasonableness of the later settlement. It was therefore inappropriate to reopen the case after trial.
2. Defects and contribution. Liability was established in relation to several defects, including defective ladders, motors, furnace inspection equipment and other plant components. The contribution claim succeeded only for the ladder defects, in the sum of £20,000. Other claims failed principally because of want of notification, inadequate proof of quantum, or failure to establish the relevant breach.
3. Variations. A variation required an order by the Contract Manager. Work undertaken in anticipation of a possible variation was governed by the separate contractual machinery and required prompt notice of an intention to claim additional payment. Outotec’s variation claims failed because the work was either within its existing contractual obligations, lacked an authorised instruction, or was not notified in accordance with the contractual condition precedent.
4. Abatement. Following Multiplex Constructions (UK) Ltd v Cleveland Bridge UK Ltd, the measure was the diminution in value of the subcontract plant. Remedial costs could be used as a factor, including in isolation where appropriate, but M+W bore the burden of proving the diminution. The defence therefore failed generally for want of evidence, but succeeded for specified noise defects where the bespoke plant could not operate within contractual and permit limits without remedial work. Abatement was assessed at £377,492.16, converted to $488,746.65 at the applicable date.
5. Interest. Clause 41.8 was construed as applying to specified unpaid instalment liabilities, including certified and notified sums, sums payable following failure to notify, pay-less notice sums, and additional sums payable under an adjudication decision. The judge expressed the tentative view that variations did not attract enhanced contractual interest, and rejected an attempt to obtain the same rate under section 35A of the Senior Courts Act 1981.