Agua Utilities Limited (“the Owner”)

Scenario:

Agua Utilities Limited (“the Owner”) is and was at all material times a regulated utilities company providing water and wastewater services to the North West of England via its. water and waste networks As part of the Owner’s five year asset management programme an environmental engineering business case had been made for the construction of a new stormwater outfall pipe off the coast of Blackpool.

The original Design Basis for the 3-kilometre 1.5 metre diameter outfall pipe (“the Works”) was prepared by the sister company of the Owner, Agua Design Limited, by their specialist in house engineering team. This design basis addressed issues such as pipeline material selection and the design of: the anchoring of the pipe to the seabed and the hydrologic & hydraulic functionality of the pipe.

The design and construction of the pipe was awarded to a joint venture framework contractor Tuberia Larga Limited (“the Framework Contractor”) which was an
incorporated joint venture consisting of Tiger Civil Engineering Limited and Unicaja (Private Equity) Limited.

The Framework Contractor awarded the contract for the design and construction of the Works to a specialist contractor Subsea Limited (“the Contractor”).

In order to procure the design and construction of the Works, the following agreements were entered into by the parties:

a) A Framework Contract dated 24 December 2010 executed as a deed by the Owner and the Framework Contractor (“the Framework Contract”).

b) A construction contract dated 31 March 2011 executed as a simple contract by the Framework Contract and the Contractor (“the Construction Contract”) in the sum of
£75 million for the design and construction of the Works; and

c) A deed of warranty dated 31 March 2011 executed as a deed by the Owner, the Framework Contractor and the Contractor (“the Deed of Warranty”).

Relevant provisions from each of these agreements are set out below.

The Framework Contract

The Framework Contract included the following relevant provisions:

Under clause 1 the Framework Contractor agreed to commence and thereafter procure the Works.

Clause 2 provided that:

“The Framework Contractor shall ensure that the Works shall be carried out in a good and workmanlike manner in accordance with best engineering practice with suitable materials and with all reasonable skill and care”.

Under clause 3 the Framework Contractor agreed to enter into the Construction Contract with the Contractor on a design and build basis before the Works commenced and to appoint an Employer’s Agent to check the design and administer the Construction Contract.

Under clause 4 the Framework Contractor agreed to enforce the defects liability provisions in the Construction Contract.

Under clause 5 the Framework Contractor agreed to procure various duty of care deeds (and therefore executed as deeds) in the form annexed to the Framework Contract from: the Contractor, the Employer’s Agent and every sub-contractor.

The Construction Contract

The Construction Contract was under the Joint Contracts Tribunal Design and Build Contract 2016 Edition (“JCT DB 2016”) and certain other relevant insertions and / or amendments as agreed between the parties as set out below.

(1) Contract Particulars Part 2 Third Party Rights and Collateral Warranties: “Not Applicable” The Employer and the Contractor agree that the Contracts (Rights of Third Parties) Act 1999 shall not apply to this Agreement. Therefore any person who is not a party to this Agreement cannot enforce any term of it in their own right…”

(2) Delete: Clause 1.6 and replace with:

“Nothing in this contract confers or is intended to confer any right to enforce any of its terms on any party who is not a party to the contract.”

(3) Delete: Clauses 7.1 to 7.4 inclusive.

(4) Delete: Clauses 7A to 7E inclusive.

Save in respect of the above amendments please refer to the JCT DB 2016 for its full terms and their true meaning and effect.”
Note: Although not possible (given the chronology) that a JCT DB 2016 could have been adopted, in order to make the assignment reflect the latest version of the standard form of contract please take the above statement as factually correct.

The Deed of Warranty

Under the terms of the Deed of Warranty, the Contractor warranted to the Owner as follows:

“The Contractor warrants to the Owner that:

1.1 The Contractor has carried out its obligations under the Construction Contract in accordance with the terms thereof.

1.2 The Contractor has exercised and will continue to exercise all reasonable skill, care and diligence to be expected of a competent design and build contractor experienced in carrying out work for a project of similar scope and complexity to the Works in:

1.2.1 the design of the Works

1.2.2 the selection of materials and goods for the Works (including all materials and goods which have been or will be selected by the Contractor’s servants, agents, consultants, sub-contractors or suppliers).”

Chronology

Performance of the Works

Between approximately June 2011 and June 2013 in performance of its obligations under the Framework Contract, the Framework Contractor procured the design and construction of the Works and in performance of its obligations under the Construction Contract and the Deed of Warranty, the Contractor carried out and completed the design and construction of the Works.

The Works were deemed practically complete on 20 July 2013 by the Framework Contractor on the advice of Los Ingenieros SRL, the Framework Contractor’s Employer’s Agent under the Construction Contract (“the Employer’s Agent”).

Due to an urgent need to comply with EU bathing water directives, the Asset Manager for the Owner took over the Works but pointed out the absence of a complete set of As- Built Records and/or Quality Plans at practical completion.

Defective Works

In September 2013 a local fishing boat notified the coastguard that it had snagged its nets on an underwater obstruction about 6 metres below the surface of the water. Following an inspection by the coastguard using divers it was evident that the pipe had become detached from the seabed. In addition, the Owner’s plant manager at the nearby pumping station had noticed a substantial increase on the loads being placed on the pumping equipment.

The Owner’s Commercial Director instructed a technical Expert Witness (“the Expert Witness”) in outfall pipe design and construction who prepared a report which identified that the pipe had become detached from the sea bed in a number of places along its length. As the detached pipe constituted a shipping hazard the Expert Witness recommended that the pipe be re-fixed to the seabed and a layer of rock ballast was placed over the pipe along its length to secure it to the seabed at a cost of £1.5 million.

The Expert Report noted the following:

a) The pipe was made of HDPE plastic instead of steel in the original Design Basis.

b) The number of concrete collars placed along the length of the HDPE pipe did not appear to be sufficient.
In the opinion of the Expert Witness the necessary remedial work to adequately fix the pipe to the seabed on a permanent basis could be in the region of £15 million.
A meeting was held on 4 June 2019, on a without prejudice basis, between the Owner, the Expert Witness, the Employer’s Agent and the Contractor to discuss liability. At the meeting, the Contractor tables a draft expert opinion from another technical Expert Witness indicating that errors in the hydrologic & hydraulic functionality of the pipe included in the original Design Basis were a contributory factor in the pipe becoming detached from the seabed.

The Framework Contractor refused to attend the meeting saying that it is in the process of dissolving the joint venture as its funders have decided to move out of the civil engineering sector and that, in any event, this is a matter for the Contractor to sort out.

The Owner wrote to the Employer’s Agent in July 2016 pointing out that in the Owner’s opinion practical completion should never have been granted in respect of the Works and requesting the Employer’s Agent to confirm that it had put the Employer’s Agent’s professional indemnity insurers on notice of a potential claim. The Employer’s Agent’s response to the above letter from the Owner was that in the Employer’s Agent’s opinion this was a matter for the Contractor to sort out and that if and when the Employer’s Agent thought it appropriate it would advise its insurers accordingly.

The Owner’s Commercial Director took early retirement on 2 July 2019.

Tasks Descriptions
Please Note:

A. It is possible that you may believe as a result of your own personal expertise and knowledge that the events, as described above, would not have occurred as represented and / or the contractual matrix is inappropriate. However, such issues are not relevant to the task in hand, which is to interpret the legal implications of the facts as set out in the brief. You are being asked to adopt the role of a legal advisor (based on limited information) and not that of a technical expert.

B. It may be that the same issues arise in more than one of the task elements. If so, you need only deal definitively with the issue (e.g. by giving full case law/statutory references and argument etc.) the first time that it occurs. If it arises again, you can then deal very briefly with it.

C. There are some references to the JCT DB 2016 form of contract. The full conditions are available on Blackboard.

D. The applicable law in relation to all of the agreements is that of England & Wales.

E. You should assume you are considering the matter as at 16 August 2019.