Scottish Court of Session Decisions

In April 1876 John Henry Driver, residing at Springfield House, Dollar, invited John Robertson, joiner in Dollar, to furnish specifications for certain alterations on Springfield House. Robertson furnished specifications, and offered to do the work for a certain sum. This offer was accepted. In August 1876 Robertson furnished specifications for oriel windows which it was proposed to add to the house. A written contract was entered into whereby he undertook to do this work also for a sum of £314. This latter contract contained this provision—“The roof of oriel windows to be made ready for the slates within

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two days after the time specified for the completion of the mason work, and the portions of rooms requiring to be plastered to be made ready for the first coat of plaster within two days thereafter, and the internal finishings proceeded with as soon as possible.” It also contained general conditions, of which article 2 was as follows:—“Should the contractor refuse or delay so to carry on his work, as that it may be fully and properly completed in every respect, viz. mason, joiner, slater, plumber, glazier, and all other work, on or before seven weeks from the date of contractor's receiving the acceptance of offer, it shall be in the power of the proprietor, after giving two days' notice in writing to the contractor of his intention so to do, to employ other tradesman to carry on and complete the work on the contractor's expense.” Article 6 was as follows—“The contractor to receive one-third of the contract price as soon as the mason has the stone work of the oriel windows completed, the other third to be paid after the glazier, slater, and plumber work is completed, the remaining third to be paid on the completion of the work, but said price shall be subject to deduction of £2 for each day, or part of a day, after date as before specified, for the completion of the work, during which the work may remain unfinished, or in manner incomplete, of which the proprietor, or architect, or inspector foresaid, shall be sole judge.” In February 1879 certain questions having arisen as to Robertson's accounts, and certain disputes as to principles on which they were made up, he raised an action concluding for various sums, amounting in all to £366, 15s. 1d., being the amount alleged to be due under deduction of certain payments to account on both contracts and for certain extras furnished by him. The Lord Ordinary ( Young) remitted the case to a reporter, who in his report brought out a balance due to the pursuer of £324, 5s. 6d., subject to certain deductions. He explained in his report that the question would remain for decision whether the defender was entitled to set off against a sum due to the pursuer a sum of £124 sterling, being penalty for sixty-two days at £2 per day, under article 6 of the oriel-window contract, which he claimed right to deduct on the ground of the pursuer's delay in completing the works within the stipulated period.

On 24th Dec. 1880 the Lord Ordinary ( Lee) found the defenders entitled to a deduction for twenty-four days at £2 per day, amounting to £48.

His Lordship appended this note to his interlocutor:—“… Now, as the period of seven weeks from the contractor's receiving the acceptance expired on 16th October, it is plain that if the contract contains an obligation to complete the work by that date, to which the stipulation in article 6 of the conditions is referable, a question arises concerning the import and effect in the circumstances of the alleged penalty and deduction from price. The Lord Ordinary has imagined from the record that the pursuer's reply to the defender's counter-claim was that stated in the 4th plea-in-law, viz., ‘That the defender being responsible for any delay which occurred, is not entitled to recover the penalties referred to.’ But it appeared at the proof and debate that the pursuer now maintains that the contract imposed no obligation upon him to complete the whole work within any specified time.” …

His Lordship then went on to explain the grounds in fact on which he found that a deduction was to be allowed for the period of twenty-four days, and then went on to say—“The question then is, What is the effect under the contract of the stipulated penalty or reduction of £2 per day? Although it has been called a penalty on the record, the Lord Ordinary holds that in determining the effect of the stipulation, and whether it is incumbent upon the employer to prove damage by the delay, or whether it rests with the contractor to show grounds of abatement, the thing to be considered is the real nature and substance of the stipulation. It may be either (1) a penalty properly so called, viz., a sum imposed in pœnam; or (2) an adjusted and agreed-on rate of damages proportionate to the breach of contract; or (3) a rate of damages agreed upon, but exorbitant and unconscionable. The cases of Craig v. M'Beath, 1 Macph. 1020; Johnstone v. Robertson, 23 D. 646; Forrest & Barr v. Henderson, 8 Macph. 187, illustrate the distinction between these several cases. The result of them appears to be that if the sum be truly penal it will not be enforced beyond the damage actually suffered. Even where the sum bears to be agreed upon as liquidated damages, the Court may modify it if exorbitant and unconscionable. But where intended as liquidated damages, and there appears to be nothing exorbitant in the stipulation but a reasonable and fair proportion between the consequences of a breach of contract and the penalty, a Court of Justice will not interfere ( 1 Bell's Com. 5th ed. 655; and Johnstone v. Robertson). If it be maintained in any case that the stipulated sum is excessive and exorbitant, it rests with the party alleging this to set forth and establish grounds for modification, otherwise the party claiming the penalty is entitled to assume that the damage has been justly assessed by the contract at the amount of the penalty ( Craig v. M'Beath).

“In the present case the party claiming the penalty does not allege actual damage except in so far as the want of the front part of his house implies damage. His claim is founded entirely on the contract. On the other hand, the party resisting the deduction so claimed sets forth no grounds for abatement or modification, but pleads non-liability, in respect that any delay which occurred was caused by circumstances for which the claimant was alone responsible.

The Lord Ordinary is of opinion that according to the true meaning of the contract the sum stipulated as a deduction from the price in the event of a breach of the obligation as to time is of the nature of pactional damage and not of penalty. He cannot distinguish the stipulation in substance from that in Johnstone v. Robertson. He holds that there is nothing manifestly disproportionate and exorbitant in the rate agreed upon by the parties. His view is that the parties, knowing the kind of house and having before them the extent of inconvenience that must be caused to the employer by delay, assessed the damage at a rate which they mutually agreed upon as proportionate to the breach of contract. The stipulation of the second article of the conditions does not seem to be at all inconsistent with this view. It is intended to provide against unreasonable delay or refusal to do the work. Article 6 assumes that the work is proceeded with and done, but that the contractor fails to implement his obligation to do it in the time stipulated.

In this view the only question comes to be, Whether the pursuer has established as a matter of fact that any delay which occurred was caused by circumstances for which the defender is responsible? The alleged delay in sending the plan the Lord Ordinary has already dealt with. He holds that in the circumstances it goes to the date of receiving the acceptance, and cannot exclude the defender from enforcing the contract. The case of M'Elroy v. Thairsis Co., 17th Nov. 1877, 5 R. 161 (H. of L. 171), was different, and the judgment in that case has no application to this cause of delay; for in that case the Court proceeded upon fault during the time allowed for executing the contract. Here the delay was in concluding the contract, and thus fixing the time for its commencement.”

The pursuer reclaimed.