Scottish Court of Session Decisions

OUTER HOUSE, COURT OF SESSION [2009] CSOH 71
CA36/07	OPINION OF LORD HODGE in the cause ROBERTSON CONSTRUCTION CENTRAL LIMITED Pursuers; against GLASGOW METRO LLP Defenders: ­­­­­­­­­­­­­­­­­________________

Pursuers: S. Smith; MacRoberts, Solicitors

Defenders: Borland; Anderson Strathern LLP

19 May 2009

[1] The pursuers are a construction company and the defenders are a limited liability partnership which owned a development site at West Graham Street and Rose Street in Glasgow. The defenders entered into a building contract with the pursuers for the design and construction of an eleven storey development comprising forty six residential flats and a ground floor commercial unit on the site. The development was to be known as the Glasgow Metro.

[2] The parties encountered difficulties in the implementation of the contract. The difficulties gave rise to competing financial claims. The parties thereafter entered into a compromise agreement to dispose of those claims but further difficulties led to that compromise agreement being rescinded. As a result the pursuers have raised this action and there is a cross action by the defenders. Both actions came before me in a debate. The principal issue between the parties in both actions was whether any part of the compromise agreement survived its rescission.

The initial contract and the compromise agreement

[3] In about June 2004 the parties entered into a design and build contract which comprised the Scottish Building Contract with Contractor's Design May 1999 Edition (January 2002 Revision) with a schedule of the parties' amendments ("the Building Contract"). Disputes arose when the contract works were not completed on time. The pursuers claimed sums in respect of the valuation of measured works and payment for loss and expense under clause 26 of the Building Contract. The defenders disputed those claims. The defenders claimed liquidated damages for delay. The pursuers contested that claim. On 22 June 2006 the parties entered into a compromise agreement in a Minute of Agreement ("the Minute").

[4] In the Minute parties agreed that the date of practical completion of the works was 22 June 2006 (see the definition in clause 1.1) but attached to the Minute an agreed schedule of works which the pursuers were to carry out. In clause 6.2 of the Minute the pursuers undertook to make good the defects and items of incomplete work detailed in the schedule to the satisfaction of the defenders within fourteen days from the defined date of practical completion. In terms of clause 3 of the Minute, the parties agreed that the pursuers were entitled to be paid £5,750,000 exclusive of VAT ("the Final Account Sum"), provided no additional works were instructed by the defenders. In clause 5 of the Minute the defenders cancelled any existing notice of non-completion, and waived any right (a) to issue such notices in future and (b) to deduct or seek liquidated and ascertained damages.

[5] As the defenders had already paid the pursuer £5,134,826 exclusive of VAT, the Minute provided that the balance of the Final Account Sum, namely £615,174, would be paid in three tranches as follows:

A. the "Agreed Payment", namely £381,174 exclusive of VAT, which, subject to the pursuers making good all defects and items of incomplete work listed in the schedule of works to the satisfaction of the defenders, would be paid within 14 days of the date of practical completion;

B. the "Deferred Payment", namely £150,000, which would be paid within 14 days of the "Deferred Payment Payment Date" (see paragraph [6] below); and

C. the "Retention", namely £84,000, which the defenders could retain for twelve months after the date of practical completion, but the retention was to be reduced thereafter to £8,000, which the defenders could keep until the earlier of the date of the issue of the notice of completion of making good defects or twenty four months after the date of practical completion.

[6] The "Deferred Payment Payment Date" was defined as:

"the earlier of (i) the completion of the sale of the final flatted dwellinghouse comprised within the Works or (ii) the issue of the Notice of Completion of Making Good Defects pursuant to clause 16 of the Building Contract".

[7] That the Minute was designed to specify the limit of the pursuers' entitlement to payment is confirmed in clause 3, which was headed "Cap on Contractor's Entitlement" and which provided as follows:

"3.1 Provided the Employer does not instruct the Contractor to carry out any additional work, the Contractor agrees that their total entitlement to payment under the Building Contract in respect of the Works is in the amount of the Final Account Sum and the Contractor shall not be entitled to payment under the Building Contract to any sums in excess of the Final Account Sum. If the Employer does instruct the Contractor to carry out any additional work this will be paid for separately by the Employer to the Contractor, and, for the avoidance of doubt, is not included in the Final Account Sum.

3.2 For the avoidance of doubt, save for any entitlements which may arise consequential to the instruction of additional works after the date of this Agreement and the Contractor's entitlement to payment of the Agreed Payment, Retention and the Deferred Payment, the Contractor shall have no further entitlement pursuant to Clause 30 of the Building Contract or otherwise for payment in respect of the Works."

[8] The Minute, as mentioned above, narrated the defenders' waiver of their claims in clause 5 in the following terms:

"The Employer hereby cancels any Notice of Non-Completion which has previously been issued to the Contractor. Further, the Employer waives its entitlement to issue any further Notice of Non-Completion. The Employer waives any right to deduct or seek payment of liquidated and ascertained damages from the Contractor."

The Minute also provided for the contingency of the pursuers' failure timeously to perform their new obligations in the compromise which it entailed. Clause 2.1 provided:

"... If the Contractor fails to make good all of the defects and items of incomplete work detailed in the Schedule as required by Clause 6.2 of this Agreement within 14 days of the Date of Practical Completion the Employer shall make payment of the Agreed Payment to the Contractor on the date the Contractor does comply with Clause 6.2 of this Agreement. For the avoidance of doubt, the Agreed Payment is not to be subject to any right of withholding or set off by the Employer for any reason."

In addition clause 7, which was entitled "Employer's Rights", provided:

"Except in so far as this agreement limits or excludes the Employer's entitlement (i) to issue a Notice of Non-Completion and (ii) to deduct or seek payment of liquidated and ascertained damages from the Contractor and/or (iii) to challenge the Contractor's entitlement to be paid the sums agreed hereunder, this agreement is without prejudice to the whole rights and remedies of the Employer under the Building Contract. In particular, and without prejudice to the foregoing generality, the Employer shall be entitled to enforce its whole rights and remedies in respect of any works comprised in the Works not in accordance with the whole requirements of the Building Contract."

[9] The parties' hopes that this compromise would resolve their difficulties were not realised. On 3 November 2006 the defenders purported to terminate the Minute on the basis that the pursuers had broken that contract by failing to complete the outstanding works timeously. The pursuers did not accept that the defenders' termination was valid but contended that the defenders by so acting had repudiated the compromise agreement. The pursuers continued to work on the site after November 2006 but purported to terminate the Minute on 7 April 2007 in the adjustments to their pleadings in this action; they contended that they were accepting the defenders' repudiation.

The pursuer's claims

[10] In this action the pursuers advance three discrete claims. First, in articles 3 and 4 of condescendence they seek damages for breach of the compromise agreement contained in the Minute. Secondly, they make a claim for unjustified enrichment on hypothesis that the defenders had validly terminated the compromise agreement on 3 November 2006 (article 5 of condescendence). Finally, in article 6 of condescendence they pursue a fall back claim under the Building Contract.

[11] Mr Borland for the defenders invited me to delete certain averments in article 3 of condescendence. The pursuers initially averred that there was an implied term in the Minute that the defenders would not hinder the pursuers in carrying out the scheduled works; but Mr Smith moved to amend his pleadings by deleting those averments on the second day of the debate. In the absence of the assertion of an implied term, the other averments in article 3 of condescendence which the defenders challenged, namely that the pursuers had been hindered (i) by the defenders' having allowed purchasers to occupy certain flats while the pursuers were carrying out the scheduled works and (ii) by having to deal with water ingress in two flats, became merely the factual background to the alleged delays and the defenders' purported termination of the Minute. They were not in my opinion irrelevant in that context as they might have a bearing on the reasonableness of any ultimatum which the defenders gave before they purported to terminate the Minute.

[12] Article 4 of condescendence supports the pursuers' claim of damages for breach of contract. The pursuers aver that the defenders' purported termination of the Minute constituted a repudiation of the compromise agreement and that they had accepted that repudiation. The pursuers aver that, in calculating the position which the parties would have been in but for the defenders' breach of contract, it is necessary to take into account the accrued rights under the Minute which remain enforceable after its termination. They aver that those are (i) the defined date of practical completion of the works, (ii) the calculation of the Final Account Sum, (iii) the cap on the pursuers' entitlement to payment (clause 3) and (iv) the defenders' surrender of the right to issue further notices of non-completion and to claim liquidated and ascertained damages (clause 5).

[13] Mr Borland submitted that the averments relating to accrued rights under the Minute were irrelevant because the pursuers' right to payment of the balance of the Final Account Sum was conditional upon their performance of their obligations under the Minute, as the provisions for payment in tranches (paragraphs [5] and [6] above) showed, and the pursuers on their own averments had not so performed by 3 November 2006. The pursuers did not aver that the works, which they claimed they had completed, were to the defenders' satisfaction. They could hardly do so standing the claims which the defenders made in their cross action. But that was a precondition for the payment of the Agreed Sum, which was the first of the three tranches. Nor did they aver that the Deferred Payment Payment Date had been reached. Without an unconditional right to payment of any of the three tranches which made up the balance of the Final Account Sum, the pursuers' averments in support of their claim for damages for breach of contract were irrelevant. He referred to Lloyds Bank plc v Bamberger 1993 SC 570, Lord Justice Clerk Ross at p.573.

[14] The pursuers' claim in article 5 of condescendence is a claim for unjustified enrichment which they make if, contrary to their primary position, the defenders had validly terminated the Minute on 3 November 2006. The pursuers aver that the accrued rights to which I have referred survived the termination and remain enforceable. The pursuers aver that they have completed the Building Contract works, including the scheduled works, and that the defenders have benefited thereby. Accordingly they seek the balance of the Final Account Sum as recompense for their work which they carried out without intention of donation.

[15] Mr Borland submitted that the case of unjustified enrichment was irrelevant. The pursuers predicated their case on the existence of accrued rights and the continued application of clause 3 of the Minute (paragraph [7] above). But, because clause 3.2, through the use of the words "or otherwise", disentitled the pursuers to any payment other than the three tranches on any basis, any enrichment of the defenders for the partly completed work, which the pursuers had carried out in terms of the Minute, was not unjustified. The defenders were entitled under the Minute to retain their enrichment. Thus there was no room for a remedy on the basis of unjustified enrichment. He referred to Dollar Land (Cumbernauld) Ltd v CIN Properties Ltd 1998 SC (HL) 90, Lord Hope at p.94B-F and Lord Jauncey at p.93G.

[16] Counsel for the defenders also challenged certain averments in article 6 of condescendence in which the pursuers advance a fall back case based on the provisions of the original Building Contract. The pursuers plead this esto case on the hypotheses (a) that the defenders had validly terminated the Minute and (b) that the accrued rights were no longer enforceable. The pursuers refer to their revised extension of time claim dated September 2008. Mr Borland submitted that delays 20 to 69 in that claim were irrelevant as they were based in each case on an alleged failure of the defenders timeously to return a Drawing Acknowledgement Form ("DAF") in accordance with the amended clause 5.3 of the Building Contract. He submitted that failures to return DAFs timeously were not relevant events in terms of clause 25.4.6 of the Building Contract which could form the basis of an extension of time claim. Clause 25.4.6 referred to the contractor not having received "in due time necessary instructions ... which the Employer is obliged to provide or give". But clause 5.3.4 allowed the contractor to proceed in the absence of a returned DAF; and the pursuers, who were obliged to use best endeavours to prevent delay under clause 25.3.4, had not explained why, when there was a delayed approval, they did not proceed in the absence of the DAFs. Further, clause 5.3.4 provided that, when the employer returned an amended DAF late causing the contractor to resubmit the drawing or document, the remedy for the contractor was a loss and expense claim under clause 26 of the Building Contract and not an extension of time claim under clause 25. He referred to Percy Bilton Ltd v Greater London Council [1982] 1 WLR 794 and London Borough of Merton v Stanley Hugh Leach Ltd [1985] 32 BLR 51.

Discussion

[17] I am satisfied that the pursuers have pleaded a relevant case for damages in articles 3 and 4 of condescendence. The claim is not for implement of the defenders' obligations under the Minute. The pursuers seek damages for breach of contract, alleging (a) that the defenders were not entitled to terminate the compromise agreement and (b) that the scheduled works have been completed. If, contrary to the pursuers' assertion, the scheduled works were not completed or were defective, that would affect the quantification of the pursuers' claim, but it would not make the averments in support of a claim for damages irrelevant. Having regard to my conclusions on the question whether the relevant provisions of the Minute survived its rescission (see paragraphs [22] to [34] below), I am persuaded that the pursuers are entitled to pursue a claim for damages based on the continued application of the cap on their entitlement (clause 3 of the Minute) and the defenders' surrender of the specified claims under the Building Contract (clause 5 of the Minute).

[18] The pursuers' claim for unjustified enrichment, as Mr Smith explained, is not a claim that the pursuers have met the criteria in the Minute which entitle them to payment of each of the tranches but is a claim for the value of the work which they have carried out. In article 5 of condescendence the pursuers claim an entitlement to recompense. In the past, the obligation was in such circumstances categorised as an obligation to recompense but since the generalisation of the obligation to reverse unjustified enrichment in Shilliday v Smith 1998 SC 725 and Dollar Land (Cumbernauld) Ltd v CIN Properties 1998 SC (HL) 90 it is no longer appropriate to speak of recompense as a ground of action. Nor is it necessary, as in the past, to aver what were the five elements or prerequisites for recompense. But, as Lord Hope and Lord Jauncey pointed out in Dollar Land in the passages to which Mr Borland referred, enrichment is justified if it is obtained and retained in the exercise of a contractual right against the party who asserts unjustified enrichment.

[19] The relevancy of the pursuers' claim based on unjustified enrichment therefore turns on proper construction of clause 3.1 and 3.2 of the Minute, which I have quoted in paragraph [7] above. The defenders found on the words in clause 3.2, "the contractor shall have no further entitlement pursuant to Clause 30 of the Building Contract or otherwise for payment in respect of the Works" (my emphasis). Mr Borland argued that as clause 30 of the Building Contract was the exclusive mechanism by which sums were due to the contractor under the Building Contract, parties must have intended the words "or otherwise" to cover an entitlement to payment outside that contract. Mr Smith submitted that it could not reasonably have been the intention of the parties that the pursuers would have no right to any payment for their works, if the defenders rescinded the compromise agreement when the pursuers had done much of the work required under it. He submitted that on a proper construction of clause 3 in the context of the Minute as a whole, including the recitals which I quote in paragraph [25] below, what the parties agreed to was a financial cap on the pursuers' entitlement and not an exclusion of the remedy of unjustified enrichment.

[20] I agree with Mr Smith's construction of the provision. I construe clause 3 as imposing, as it says, a cap on the pursuers' entitlement. Clause 3.1 speaks of their "total entitlement"; and clause 3.2 excludes any further entitlement. The clause gave the defenders the certainty that, unless they were to instruct additional work, the maximum that they would have to pay to the pursuers was the balance of the Final Account Sum. This is a rational contractual purpose.

[21] The defenders' construction is not irrational as they might indeed have wanted to tie the pursuers down so that they would be paid for the works only if they performed their obligations under the Minute to the letter. But that construction would lead to anomalous results in the context of a valid termination of the compromise agreement because of a breach of contract by the pursuers. The defenders would have a claim for damages in that event and would seek to be placed in the position which they would have been in had the pursuers performed their obligations. In making such a claim, the defenders would have to give credit for the work which the pursuers had carried out. But if the defenders' claim in damages were to be smaller than what was otherwise due to the pursuers for their work, the pursuers would be excluded from claiming the balance and the defenders would be enriched thereby. I am not satisfied that the parties intended to create the possibility of that enrichment and the words which they have used do not point clearly in that direction.

[22] The principal issue between the parties, as I have said, is whether the restrictions on the claims of each party in the compromise agreement survived its termination or were removed by the termination, thereby allowing parties to revive their claims under the Building Contract. The pursuers' fall back claim in article 6 of condescendence and some of the remedies which the defenders seek in their cross action are based on the premise that the compromise agreement has no continuing effect.

[23] In submitting that the compromise survived the termination and that parties could not go back to their claims under the Building Contract, Mr Smith characterised the fixing of the date of practical completion and the related restrictions on the parties in clauses 3 and 5 of the Minute as accrued rights. Mr Borland submitted that the Minute was an unum quid and stood or fell as a whole; in other words, both parties had to perform the obligations which they had undertaken in terms of the Minute or, on termination of the Minute for breach of contract, either party could revive the pre-existing disputes under the Building Contract. In addition to Lloyds Bank v Bamberger, I was referred to Gloag on Contract (2^nd ed) pp.407 and 592, Bank of East Asia Ltd v Scottish Enterprise 1997 SLT 1213 (HL), Macari v Celtic Football and Athletic Co Ltd 1999 SC 628, Turnbull v McLean (1874) 1 R 730, McCall's Entertainments (Ayr) Ltd v South Ayrshire Council (No 1) 1998 SLT 1403 and United Dominions Corporation (Jamaica) Ltd v Shoucair [1969] 1 AC 340.

[24] The parties' debate concentrated on the concept of accrued rights and also the scope of the doctrine of mutuality. While there is value in approaching a contract in that way, and I consider the arguments advanced below, it is also necessary to stand back and address the fundamental question of construction which is: what did the parties intend to achieve by the compromise agreement?

[25] I have set out the relevant provisions of the Minute, and in particular clauses 3, 5 and 7, in paragraphs [7] and [8] above. The recitals at the beginning of the Minute are also relevant. They are:

"BACKGROUND

A. In terms of the Building Contract the Contractor undertook to design, carry out and complete the Works upon the whole terms and conditions detailed in the Building Contract.

B. The Contractor has during the course of the Works made application for payment of sums in respect of the valuation of measured works and for payment of loss and expense under clause 26 of the Building Contract, liability for which sums has not been accepted by the Employer. In addition, the completion of the Works has been delayed for reasons which are not agreed between the Employer and the Contractor.

C. The Employer and the Contractor are desirous that the Contractor's whole entitlements to payment following Practical Completion under the Building Contract be defined."

[26] What appears in the Minute is an intention to waive the pursuers' claims for payment for measured sums and for loss and expense and also the defenders' claims for liquidated and ascertained damages. This was achieved by (a) defining the date of practical completion, (b) fixing the pursuers' financial entitlements under the Building Contract and (c) the defenders' surrender of certain of their claims. Thereafter the pursuers had to complete and the defenders pay for the scheduled works.

[27] In Lloyds Bank v Bamberger the Lord Justice Clerk (Lord Ross) in a passage at p.573, to which judges have referred with approval in later cases, helpfully encapsulated in seven principles pre-existing case law on the consequences of the rescission of a contract. In the present context the following points are relevant. First, a material breach of contract entitles the innocent party to rescind the contract, with the result that both parties are absolved from future performance of their primary obligations. Secondly, the contract does not come to an end but parties may use it to support claims for damages and also to enforce provisions which they intended would survive rescission. Such provisions may include ancillary clauses such as arbitration clauses, and clauses conferring jurisdiction or specifying the proper law of the contract. Other provisions which parties not infrequently intend to be effective after rescission include exclusion clauses, and clauses limiting liability or regulating claims for damages, such as liquidated damages clauses. Thirdly, rescission does not absolve parties from performing the primary obligations which are already due for performance at the date of rescission. These are often called accrued rights. Thus a party can enforce payment of debts or arrears of money unconditionally due under the contract at the time of rescission. Fourthly, it is necessary in all cases to consider the terms of the contract to ascertain the intention of the parties when determining whether a particular clause has effect after rescission.

[28] Rights conferred on one party by a contract correlate to the other party's obligations. Thus, for example, the surrender by the pursuers of the right to claim more than the balance of the Final Account Sum confers on the defenders the right to plead that contractual bar against them. So also may the pursuers assert as a right against the defenders the bar created by their surrender of rights in clause 5 of the Minute. The question in this case is whether the parties' surrender of rights in the Minute and the correlative rights conferred thereby survived the rescission.

[29] Gloag on Contract at p.572 referred to "the principle that where in a contract obligations are imposed upon, and undertaken by, each party, these obligations are construed as interdependent and conditional on each other". Similarly, at p.407, he spoke of a general but not universal principle in the construction of mutual contracts that "as the obligations on the one side are the counterparts of the obligations on the other, the undertakings by each party are really conditional; each binds himself to do his part provided that the other does his". But recent case law has determined that the passages in Institutional writing and in the cases on which he relied for those statements were too broadly stated: see the decisions of the House of Lords and the First Division respectively in Bank of East Asia Ltd v Scottish Enterprise and Macari v Celtic Football and Athletic Co Ltd.

[30] In many straightforward contracts, such as the commonplace purchase of goods, there will be an interdependency between the obligations of the seller, such as to supply goods of the required quality, and the obligation of the buyer to pay the price of the goods so as to make the latter's obligation to pay conditional upon the former's performance. Similarly, as in McCall's Entertainments (Ayr) Ltd v South Ayrshire Council (No 1), where the tenant's performance of its obligation to keep the premises in a good state of repair and occupy them could have an effect on the landlord's obligation to sell the premises to the tenant at a valuation which reflected their condition, it may be clear that there is an interdependency between contractual obligations in a more complex contract. There are many contracts in which all the obligations undertaken by one party are the counterpart of all of the other party's obligations, as commercial people often intend their contract to be a package. See Macari, Lord Marnoch at p.655 and McBryde, The Law of Contract in Scotland (3^rd ed) para 20.54. But the court must consider the nature of the obligations in the particular contract in order to determine whether and to what extent a specific obligation of one party was the direct counterpart of the obligations of the other party. Thus, for example, where both sides are to perform a contract in stages, "the counter obligation and consideration for payment of stage one is the completion of the work for that stage conform to contract": Bank of East Asia Ltd v Scottish Enterprise, Lord Jauncey at p.1217I.

[31] This approach is not confined to contracts which are performed in stages or leases of heritable subjects, under which rent is due for particular periods. It applies more generally. The Lord President (Lord Rodger) in Macari, which concerned a contract of employment, emphasised the need to look for reciprocity between obligations when deciding whether A's right to demand performance of an obligation by B was conditional upon A's performance of another obligation. He referred (at p.641) to a dictum of Lord MacLaren in Siveright v Lightbourne (1890) 17 R 917 at p.920, namely:

"The question whether the obligations are conditional with respect to one another, so that non-performance by the one party entitles the other party to withhold performance of his obligation, is always a question of intention to be determined by the terms of the contract itself, and the surrounding circumstances, which often point to implied terms."

He also referred to the approach of Corbett J. in ESE Financial Services (Pty) Ltd v Cramer 1973 SA 808 (C) at p.809D-E in which he stated:

"For reciprocity to exist there must be such a relationship between the obligation by one party and that due by the other party as to indicate that one was undertaken in exchange for the performance of the other and, in cases where the obligations are not consecutive, vice versa ..."

[32] On this approach the question becomes: what was the counterpart obligation on the pursuers for the defenders' surrender of their rights to claim liquidated and ascertained damages in clause 5 of the Minute? The effect of the defenders' submission on this approach is that the counterpart of their surrender was the performance of all the obligations which the pursuers undertook in the Minute. In other words, those obligations and the defenders' waiver or surrender were reciprocal stipulations. I do not accept that submission for the following reasons.

[33] The background to the Minute is set out in the recitals which I have quoted in paragraph [25] above. Neither party suggested that there were other relevant facts in the circumstances in which the parties entered into the Minute which would affect the construction of its terms. The background to the Minute therefore was the disputes about (a) who was responsible for the delays which had occurred in the implementation of the Building Contract (which might entitle the defenders to claim liquidated and ascertained damages) and (b) whether the pursuers were entitled to further payments for measured works and for loss and expense claims. The compromise which the parties effected by agreeing the Minute involved (i) the defenders waiving all right to claim liquidated and ascertained damages under clause 24 of the Building Contract and (ii) the pursuers agreeing to a cap on their financial entitlement. Thereafter, either party was able to pursue claims for damages at common law if the other breached its obligations under the Minute. And, as clause 7 of the Minute expressly stated, the defenders were able to enforce the terms of the Building Contract, except to the extent that they had surrendered their rights in clause 5 of the Minute.

[34] There is nothing in the wording of the Minute which made the defenders' waiver of past claims for delay, their agreement of the date of practical completion and their surrender of the right to claim liquidated and ascertained damages conditional upon the pursuers' timeous performance of their obligation under the Minute to complete the scheduled works. Similarly, there is nothing in the Minute which suggests that, if the defenders failed timeously to pay the pursuers one of the tranches referred to in paragraph [5] above, the pursuers would be released from the cap on their entitlement under clause 3 of the Minute. Had the parties wished to make their mutual surrenders of claims depend upon future performance, they could readily have said so but they did not. This is significant as the parties envisaged the possibility that the pursuers might not perform their obligations under the Building Contract as varied by the Minute: see paragraph [8] above. The parties by agreeing to clauses 3 and 5 of the Minute resolved the difficult problems which had arisen under the Building Contract and created, in clause 3, a new and limited entitlement to payment for the pursuers and, in clause 7, a restricted entitlement of the defenders to enforce the Building Contract. It is consistent with that approach that the limitation of the pursuers' right to payment and the restrictions on the defenders' remedies under the Building Contract survived the rescission of the Minute.

[35] It follows from this conclusion that the pursuers' claim under article 6 of condescendence does not arise as their pre-existing claims under the Building Contract are excluded by their acceptance of a cap on their financial entitlement. But for sake of completeness I state briefly my views on the defenders' challenge to this claim. I do not consider that clause 5.3.4 excludes a claim by the pursuers for an extension of time under clause 25 of the Building Contract. While the pursuers were empowered to proceed if the defenders failed timeously to return a DAF, they were not required to do so in all circumstances. One can readily see why in many cases they would be reluctant to do so as a late amendment of a DAF by the defenders would cause wasted expense. I recognise that there is no mention of clause 25 in the parties' amended clause 5.3.4; but I see no commercial rationale in the parties' allowing a loss and expense claim but ignoring the time consequences of the employer's delay. I can readily envisage circumstances where a late amendment of a DAF would cause a contractor loss and expense by having to replace work already carried out and at the same time delay his completion of the works. It appears that the reference to clause 26 in clause 5.3.4 simply confirms that the employer's return of an amended DAF falls within the instructions, decisions or information to which clause 26.2.7 refers. That is what one would expect without such confirmation. I therefore do not construe the reference in clause 5.3.4 to the clause 26 claim as impliedly excluding a claim under clause 25.

Conclusion

[36] The defenders' challenge to the relevancy of the pursuers' averments fails. Parties agreed that I should put the case out By Order to determine further procedure. I will do so.

OUTER HOUSE, COURT OF SESSION [2009] CSOH 71A
CA127/07	OPINION OF LORD HODGE in the cause GLASGOW METRO LLP Pursuers; against ROBERTSON CONSTRUCTION CENTRAL LIMITED Defenders: ­­­­­­­­­­­­­­­­­________________

Pursuers: Borland; Anderson Strathern LLP

Defenders: S. Smith; MacRoberts, Solicitors

19 May 2009

[1] The pursuers are a limited liability partnership which owned a development site at West Graham Street and Rose Street in Glasgow and the defenders are a construction company. The pursuers entered into a building contract with the defenders for the design and construction of an eleven storey development comprising forty six residential flats and a ground floor commercial unit on the site. The development was to be known as the Glasgow Metro.

[2] The parties encountered difficulties in the implementation of the contract. The difficulties gave rise to competing financial claims. The parties thereafter entered into a compromise agreement in a Minute dated 26 June 2006 ("the Minute") to dispose of those claims but further difficulties led to that compromise agreement being rescinded. As a result the defenders raised an action against the pursuers and the pursuers have raised this action. Both actions came before me in a debate. The principal issue between the parties in both actions was whether any part of the compromise agreement survived its rescission.

[3] I have addressed that issue in the action (CA36/07) at the instance of the defenders. I concluded that the compromise agreement contained in the Minute, including the agreement of the date of practical completion and the pursuers' surrender of the right to claim liquidated and ascertained damages, survived the rescission of the Minute with the result that the parties's claims under the Building Contract, which they had surrendered in the Minute, did not revive. I refer to my opinion in that action in which I set out my reasoning which applies equally to this action.

[4] The defenders in this action also challenged the specification of the pursuers' pleadings in articles 10, 11 and 12 of condescendence, in which they allege that the defenders' work has been defective and that the pursuers have incurred expense in remedying those defects. Those averments support the sixth, seventh and eighth conclusions of the summons, and if relevantly pleaded, will remain open to the pursuers, if, as I have held in the other action, the Minute prevents the pursuers from reopening the date of practical completion and claiming liquidated and ascertained damages.

[5] The defenders expressed concerns that the pursuers were claiming damages in relation to alleged defects which either (a) had not been included in the scheduled works attached to the Minute or identified in a subsequent report by Faithful & Gould, or (b) had been identified in the schedule but removed from subsequent lists, or (c) had been accepted by the pursuers or their advisers as acceptable work, or (d) had been the responsibility of other contractors or their customers, or (e) had been the subject of duplicated claims. They also raised concerns about the cause of certain of the alleged defects.

[6] It is not necessary to list the details of Mr Smith's submission in relation to the problems caused by what he considered to be the inadequate specification of those claims. This is because during the debate the parties agreed that they would attempt to address the defenders' concerns about specification before the court allowed a proof or a proof before answer in this action and the other action. In particular, it was agreed that the defenders would prepare a list of points on which they wished vouching in relation to the subjects covered by articles 10 and 11 of condescendence. In relation to article 12 of condescendence, it was agreed that the defenders would prepare a list of points on which they sought clarification. The pursuers would respond to those lists and thereafter their experts would meet in an attempt to narrow the areas in dispute. If that did not prove satisfactory, the defenders could thereafter seek an order for further specification.

[7] I will therefore put the case out By Order to be heard together with case CA36/07 in order to determine further procedure in both actions.