My colleague Jesse Way has written separately about the termination issues that arose in the case of PBS Energo AS v Bester Generacion UK Ltd & Anr;1 the case also considered the meaning of "unforeseeable ground conditions" and the judgment includes a useful summary of the position making reference to previous caselaw such as the Obrascon decision.
In short, the overall dispute concerned a biomass energy plant in North Wales that was never built. The contract was an amended version of the FIDIC Silver Book 1999 for EPC or turnkey projects and one of the many disagreements related to who was responsible for the risk of the asbestos which was found under the surface and which had to be removed to get planning permission finalised.
Sub-clause 4.10 of the contract provided that:
"4.10 Site data
Subject to Clauses 4.18 (Protection of the Environment) and 4.25 (Lease), the Parties acknowledge and agree that the Employer has made available to the Contractor for his information, prior to the date of execution of this Contract, all relevant data in the Employer's possession on subsurface and hydrological conditions at the Site, including environmental aspects. The Employer shall similarly make available to the Contractor all such data which come into the Employer's possession after the date of execution of this Contract. The Contractor shall be responsible for interpreting all such data. The Employer shall have no responsibility for the accuracy, sufficiency or completeness of such data.
The condition of the Site (including Sub-Surface Conditions) shall be the sole responsibility of the Contractor and the Contractor is deemed to have obtained for itself all necessary information as to risks, contingencies and all other circumstances which may affect the Works, the remedying of Defects and the selection of technology and (save where otherwise set out in this Contract) the Contractor accepts entire responsibility for investigating and ascertaining the conditions of the Site including, without limitation, ground, load-bearing and other structural parts, suitability of the utilities and incoming services, hydrological climatic, access, environmental, weather and other general conditions and the form and nature of the Site including both natural and man-made conditions."
Whilst sub-clause 4.12 provided that:
"Except for Unforeseeable Difficulties and except as otherwise stated in the Contract:
(a) the Contractor shall be deemed to have obtained all necessary information as to risks, contingencies and other circumstances which may influence or affect the Works;
(b) by signing the Contract, the Contractor accepts total responsibility for having foreseen all difficulties and costs of successfully completing the Works; and
(c) and subject to Clause 13 (Variations and Adjustments), the Contract Price shall not be adjusted to take account of any unforeseen difficulties or costs."
There was a disagreement between the parties about how the contract operated to transfer the risks associated with obtaining planning permission, but this article concentrates on the risk of the ground conditions and the discovery of asbestos, strictly, the second discovery of asbestos. The first discovery of asbestos by PBS was not due to any error or incompleteness in the reports and had not in fact caused critical delay.
As Mrs Justice Cockerill noted, the difficulty for PBS was that it had quite a lot of information prior to the contract as to the presence of asbestos. For example, it knew that there was asbestos disclosed by testing in just a few limited areas; and it knew from the trial pit results that this asbestos included bits which were deeper than 0.1 metres. PBS would need to say that the extent of the deeper asbestos was unforeseeable, even though the presence of some deeper asbestos was known about.
Helpfully, the Judge referred to previous decisions, in particular the decision of Mr Justice Coulson in Van Oord UK Ltd v Allseas UK Ltd2 and the Court of Appeal decision in Obrascon Huarte Laine SA v Her Majesty's Attorney General for Gibraltar3 where Mr Justice Akenhead had refused a claim based on allegedly unforeseen ground conditions, saying that:
"I am wholly satisfied that an experienced contractor at tender stage would not simply limit itself to an analysis of the geotechnical information contained in the pre-contract site investigation report and sampling exercise. In so doing not only do I accept the approach adumbrated by Mr Hall [the defendant's geotechnical expert] in evidence but also I adopt what seems to me to be simple common sense by any contractor in this field."
The Court of Appeal agreed:
"Every experienced contractor knows that ground investigations can only be 100% accurate in the precise locations in which they are carried out. It is for an experienced contractor to fill in the gaps and take an informed decision as to what the likely conditions would be overall."
This was exactly what had happened here. A contractor cannot rely on an argument claiming that the ground investigations were 100% accurate. In Obrascon there was fuller documentation than here indicating that contaminants had been identified which raised "a large flag" to an incoming contractor. However, Mrs Justice Cockerill said that in Van Oord, Mr Justice Coulson made a more general point that what matters is the information itself. Is the information such as to put a contractor on inquiry: "such that he can then only complain if what emerges is unforeseeable - in the light of what he does have".
Therefore it was not enough for PBS to point to the discovery of asbestos in more granular detail than previous reports had suggested. It had to show that the asbestos discovered was unforeseeable. This was something it could not do, even though a Geotechnics Report which referred to the discovery of asbestos was only disclosed after the contract was concluded. That report did not "come out of the blue". Pre-contract, PBS were informed about trial pit results. The Judge noted that the trial pit results were important, even though they represented a detailed investigation of ground conditions at various places across the site. This led to a clear analogy to Obrascon: "this was not a case of asbestos being a possibility - it was clear that asbestos contamination was a reality, and potentially at some depth in some places, though the extent of the problem was not clearly delineated."
Since ground conditions were at PBS's risk, it was for PBS to satisfy itself as to the state of play as regards asbestos. If there were public documents available these should have been taken account of. PBS had a good picture of the situation as regards the presence of asbestos on the site.
PBS further either chose not to, or were unable to, call evidence which, in the words of the Judge, "grappled with the detail of what was found". For example, there was no evidence as to what would, in accordance with "Good Industry Practice", have been foreseeable from the baseline of knowledge which PBS had. The asbestos discovered was not a new discovery, or different from what had been indicated by the previous findings, but simply a more detailed manifestation of what was shown by the earlier materials. It followed, therefore, that PBS had either actual or constructive knowledge of the asbestos prior to the Contract. It was not unforeseeable.
Under sub-cause 1.1.77 of the 2017 FIDIC Silver Book, unforeseeable is defined as meaning:
"not reasonably foreseeable by an experienced contractor by the Base Date".
There are a number of references to the "experienced" contractor in the 2017 Form, but there is no contractual definition of this phrase. It is therefore a question of fact. What would or should an experienced contractor have done in the particular circumstances. When it comes to tender documentation, the experienced contractor cannot simply rely on the information provided by others. In the Obrascon case, the English Court of Appeal, when considering the 1999 Yellow Book, noted that when assessing tender data:
"an experienced contractor would make its own assessment of all available data . Clauses 1.1 and 4.12 of the FIDIC conditions require the contractor at tender stage to make its own independent assessment of the available information. The contractor must draw upon its own expertise and its experience of previous civil engineering projects. The contractor must make a reasonable assessment of the physical conditions which it may encounter. The contractor cannot simply accept someone else's interpretation of the data and say that is all that was foreseeable."
Words any contractor in any jurisdiction should take on board.
International Quarterly is produced quartely by Fenwick Elliott LLP, the leading specialist construction law firm in the UK, working with clients in the building, engineering and energy sectors throughout the world.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.