Mascareignes Sterling Co Ltd v Chang Cheng Esquares Co Ltd

[2016] UKPC 21

This was an appeal from the Supreme Court of Mauritius. MSC was the employer and CCE the contractor on a project for the design and construction of a 13-storey office building. The contract was the JCT Standard Form of Contract 1980 edn with Contractor’s Designed Portion Supplement, as amended. Work commenced on 2 May 1994 and practical completion was achieved on 31 March 1996. Following completion, MSC refused to pay the sum which was stated to be due in the final valuation. A dispute arose which went through arbitration, the Mauritius courts and finally ended up before the Privy Council (PC) in London.

One of the key issues was the nature of the contract itself. The arbitrator decided that the contract was a measure and value contract but as a fallback, if the parties’ contract was initially a lump sum contract, it was varied by the parties so that payment became due on the basis of measurement and valuation. Before the PC, CCE conceded that the contract had been a lump sum contract but submitted that the parties had altered it by their conduct into a measure and value contract. This meant that the arbitrator, in the words of Lord Hodge, had “erred” in so far as he relied on the subsequent actions of the parties to construe the contract as being a measure and value contract. However, this left the second point, namely that the parties had agreed to depart from the original contract and that variation was evidenced by their behaviour in carrying out the contract.

The arbitrator had said that MSC was aware during the contract that interim valuations had been issued based on measure and value. Further the arbitrator accepted CCE’s evidence that MSC had radically redesigned the building compared with that which it had proposed when the parties entered into the contract. The changes included the alteration of the height of each basement, a change to the grade of concrete, an increase in the number of lift shafts from two to three and changes in their size, thickness and height, and changes to the floor area and height of the building.

The evidence of the QS was that (a) the parties had agreed priced bills of quantities, (b) rates had been agreed for works not defined in the bills of quantities, (c) when preparing interim valuations, his staff measured the works carried out by CCE, and (d) when preparing the final account he was required to measure items of work because of the extent of the changes to the scope of the works.

What the QS did in preparing the interim valuations resulted in part from the absence of an architect to operate the process of interim certification under the contract and in part from the changes that MSC was making at the time to both the design of the building and the allocation of work. Lord Hodge commented that there was, in the view of the Board: “more scope for flexibility in valuing additional or substituted work in a lump sum contract than the parties have submitted. Work which is not expressly or impliedly included in the work for which the contracted lump sum is payable is extra work.”

Lord Hodge also noted that under clause 13.5 of the JCT standard form contract which applied here (but also under clause 5.6 of the JCT 2011) additional or substituted work carried out within a lump sum contract may be measured and valued by use of the rates and prices set out in the contract bills if three conditions are met:

“First, the work must be of a similar character to the work set out in the bills; secondly, the work must be executed in similar conditions to those of the work in the bills; and, thirdly, the work must not significantly change the quantity of the work set out in the bills. If either or both of the second and third conditions are not fulfilled, the valuation can be based on the rates and prices on the bills but a fair allowance must be made for differences in conditions or quantity.”

In other words, here the use of measurement and value to ascertain the value of additional or substituted work was not inconsistent with a lump sum contract. So the QS here treated the contract as a lump sum contract by preserving the preliminaries unchanged, but the sums attributed to each of the other components of the contract were significantly altered. Most of the significant works were measured and valued although some items (site works, professional fees and attendance and profit) were valued at figures which the parties had agreed as appropriate in view of the changes to the building and the allocation of work.

So whilst it was not correct to say, as the arbitrator did, that the contract was varied to become a measure and value contract, the bulk of the components of the contract were properly valued by measurement and value in the final account statement as a consequence of the changes which MSC made to the building and the allocation of work since the signing of the written contract. Hence there was no error in law in the arbitrator accepting the QS’s approach to the valuation of CCE’s work, which involved extensive use of measurement and value.

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