Scottish Court of Session Decisions

On February 10, 1913, John Smellie, pursuer, brought an action against the Caledonian Railway Company, defenders, concluding for £49,523, 9s. 2d. with interest thereon at 5 per cent. per annum from 11th December 1907 until payment thereof, the amount alleged to be due to him for the construction of a railway over and above the contract price.

The pursuer pleaded—“(1) The contract between the pursuer and the Railway Company being inapplicable as a basis of payment for the work executed by the pursuer in respect that the work so executed proved to be entirely different from what was contracted for and in the contemplation of the parties in extent, character, and duration, and the conditions and circumstances and the mode and seasons of working, all as condescended on, and the prices charged in the accounts now founded on being fair and reasonable remuneration for the work executed, the pursuer is entitled to decree as concluded for.”

The defenders pleaded—“(2) The pursuer's averments are irrelevant and insufficient to support the conclusions of the summons, and the action should therefore be dismissed. (3) In respect that the subject-matter of the present action falls to be determined by arbitration in terms of the contract between the parties, the action should be dismissed, or, in any event, should be sisted pending such arbitration. (4) The pursuer is, in the circumstances condescended on, barred by his actings from maintaining any claim otherwise than before the arbiter under the contract.”

The arbitration clause of the said contract was as follows:—“ Arbiter.—201. Should any dispute arise as to the true intent and meaning of this specification, and the relative plans, sections, drawings, schedule, and supplementary specification, and the contract to follow hereon, or as to the extent of the works to be formed thereunder, or as to the works having been duly and properly completed, or as to the expense of any additional work, or deduction from that specified, or any alteration which may be more or less expensive than the work specified, or as to the measurements of the works as executed, or as to any extension of time for the completion of the works beyond the date or dates mentioned in the supplementary specification, or as to the liquidated and ascertained compensation payable by the contractor, or in the event of delay in completing the works, or as to any claim of damages or otherwise, at the instance of the contractor against the company, or claim of damages or otherwise, or sett-off, by the company against the contractor, or as to any notices or plans requiring to be served or delivered by the company in compliance with the said Acts, or as to any other matter, claim, demand, or obligation whatever arising out of or in connection with the contract, whether during the execution of the work or after the completion thereof, or as to any other matter specially referred to the arbiter in this or in the supplementary specification (except such matters as are hereinbefore provided to be settled by the engineer solely), the same shall, subject to the special provisions as to arbitration contained in the foresaid sections of the Special Acts, be referred to Sir John Wolfe Barry, K.C.B., civil engineer, Westminster, whom failing to William Robert Galbraith, civil engineer, Westminster, notwithstanding that they are or may be holders of shares in the stock of the company, or hold or may have been or may be appointed to any situation or employment under the company; and the decision, interim or final, of the said arbiter shall be finally binding and conclusive upon both parties; and the arbiter is hereby authorised and empowered to decern for such sum or sums, interim or final, as he may find to be due by the contractor to the company or by the company to the contractor, and also to decide all questions of expenses, interim or final, and to decern therefor.”

The facts are narrated and the pursuer's averments summarised by the Lord Ordinary ( Dewar), who on 27th June 1914 pronounced an interlocutor sustaining the second plea-in-law for the defenders and dismissing the action.

Opinion.—“The pursuer in this action is a contractor who entered into a contract to construct a railway for the defenders at certain specified scheduled rates. He completed the railway in 1906 and was paid the contract price. He now sues for a large additional sum by way of quantum meruit, alleging that the contract is inapplicable as the basis of payment, on the ground that the circumstances in which he carried on and completed the contract were entirely different from those under which he entered upon it. The question for decision is whether the averments he sets forth on record are relevant and sufficient to support the conclusions of the summons.

The railway which the pursuer undertook to construct is known as the Paisley and Barrhead District Railway, about 4 miles 15 chains in length. The contract sets forth that whereas the defenders had prepared plans or drawings and sections and a general specification of works with relative appendix, supplementary specification of works and relative ‘schedule, and the pursuer had made a tender to construct and maintain the whole works required under the contract, referred to in the said specification, in accordance with the said drawings and specifications, at the prices set opposite each description of work contained in the schedule relative thereto, the estimate prices amounting in all to £114,000,’ and the defenders had accepted said tender, therefore the pursuer agreed that he would supply

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all material and labour required for, and should complete on or before 31st March 1901, or on or before such other date as the arbiter might fix,’ the whole of the foresaid works conform to said plans, drawings, and sections, specifications, and schedule of works, and that at the prices set opposite each description of work in the schedule of works relative to the said specification, the total estimated amount of said price being £114,000.’ And the defenders agreed to pay the pursuer for the whole of the works executed by him according to the actual quantities of each item in accordance with the said plans or drawings and sections, specification, and schedule of works, or additional plans or orders, at the prices opposite each description of work in the schedule of works, the price ‘to be paid by monthly instalments as the work advances and as shall be certified by the engineer.’ The contract was not signed till 26th October 1900, but the work had commenced in May 1899, and it was completed in the autumn of 1906. The pursuer did not intimate to the defenders during the progress of the work that he regarded the contract inapplicable as a basis of payment. He accepted payment from month to month as certified by the engineer, and these payments amounted in all to £167,000, 6s. 8d. The pursuer now pleads that the work he actually executed was so entirely different from that which the contract contemplated that it cannot be taken as a basis of payment. He says that a fair quantum meruit value for the work done is £217,131, 18s. 11d., and he accordingly sues for the difference between that sum and the sum of £167,000, 6s. 8d. which he has already been paid, viz., £49,523, 9s. 2d.

The case he presents on record is this—He says that the work he executed was rendered entirely different from that which the contract contemplated by the fault and neglect of the defenders and their engineers. He avers that they continually disregarded their obligations under the contract, and throughout the whole progress of the work, by persistent neglect and delay to give access to land, to furnish plans and drawings, and to give instructions, they completely disorganised the original scheme of work, and rendered different, and much more costly, methods of carrying it out necessary.

The chief fault of breach of contract upon which the pursuer founds is the defenders' alleged failure to give land which they had undertaken to provide to enable him to lay down a temporary railway—which is referred to on record as an ‘overland route’—to afford communication between certain cuttings and embankments. This overland route, he says, was so essential to the scheme of operations that he refused to tender for the work until he had arranged with the defenders' engineer, the late Mr Charles Forman, that it would be provided. The most important portions of the work were the Springhill Cutting, large embankments between Springhill Cutting and Carlibar Cutting, and a large viaduct at Barrhead between Kelburn Street and Cross Arthurlie Street, with bridges over these streets; and the pursuer states that Mr Forman had promised that in the event of a contract being entered into the defenders would provide land alongside the viaduct from Kelburn Street to Cross Arthurlie Street, on which to lay down a temporary through service railway outwith the site of the viaduct, so as to form the overland route’ affording independent communication between the cuttings and embankments. After an interview with Mr Forman and inspection of the ground the pursuer sent in his tender on 22nd March 1899. Before accepting said tender the defenders asked what security he was prepared to give; and on the 29th March 1899 the pursuer replied stating the proposed security, and adding—‘In making this proposal I count upon being put in immediate possession of sufficient land to enable me to connect temporarily by railway between Kelburn Street and Cross Arthurlie Street, so as to get access between the cuttings and embankments.’ The pursuer avers, and the defenders deny, that the land here referred to was land for the ‘overland route.’ By letter dated 29th March 1899 the defenders accepted the tender ‘subject to the conditions mentioned in your letter of this date.’ And they asked the pursuer to let them know when he would require the land referred to, and he replied on 31st March that he would require the land at once. These letters are referred to in the contract, and it is stated that the tender was accepted subject to the conditions contained in them.

It is averred that the defenders' failure to provide land for this ‘overland route’ materially affected the entire contract, and a very large portion of the record consists of averments showing in detail how the difficulty and cost of construction was increased, and the character and extent of the work rendered entirely different from that which parties had contemplated when they entered into the contract. In addition to this the pursuer complains that the defenders' engineers failed to furnish plans and to give necessary instructions, and he avers that their constant neglect and delay and general unmethodical and unbusinesslike habits interrupted and disorganised operations and ‘transformed an ordinary piece of work into one fraught with great trouble and expense,’ and many illustrations are given on record how these faults, neglects, and failures rendered the work ‘entirely different’ These and similar averments, illustrative of the manner in which the work was changed and the cost increased through the fault of the defenders, are set forth in about eighty pages of the record, and finally the case is summarised in condescendence 43 thus:—‘In consequence of the Railway Company's failure in regard to the overland route, and owing to the other failures and neglect of the Railway Company and their engineers …. the pursuer's arrangements for the execution of the works were completely disorganised, and his scheme of operations rendered impossible of performance, and different methods of carrying out the works,

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which were attended with great difficulty, risk, and delay, were rendered necessary, resulting in an excessive prolongation of the period of completion of the works, and involving large additional cost in their execution. The whole conditions under which the pursuer carried out the works were entirely different and so materially changed from what was contemplated by the parties and provided for when the contract was entered into as to render the terms of the contract inapplicable to the works as executed, and the pursuer is entitled to be remunerated for the work executed by him quantum meruit.’

The defenders deny the pursuer's averments and maintain, in addition to a plea of no title to sue, that in any event they are irrelevant.…

On the question of relevancy the defenders do not dispute that where without default of either party the work done by a contractor is of so entirely different a nature from that which was originally contemplated, the written contract may become inapplicable as a basis of charge. But they maintain that it is clear from the pursuer's own averments that this is not a case of that kind. They say that the contract provided adequately for the execution of the work and for every contingency which arose in connection therewith. They explain, and it is admitted, that until the present action was raised the pursuer never suggested that the contract was not binding upon him. He accepted payment at contract rates, and in terms of the contract, from beginning to end. He rendered accounts for the work executed, and these accounts were adjusted by him on the footing that the contract prices were the basis of payment. No question was raised regarding the applicability of the contract at all until fourteen years after it had been entered into and eight years after the work was completed and paid for. They further argued that even if it were true that the work was rendered entirely different through their fault, as is alleged, that would not afford a good reason for disregarding the contract, because the terms of the arbitration clause show that such a contingency was contemplated by parties, and means were provided for dealing with it. If it be true, as is now alleged, that they failed to fulfil their obligations under the contract, the arbiter has power to deal with that and to assess damages therefor either during the execution of the work or after the completion thereof. The pursuer, they say, could have appealed to the arbiter regarding every fault or failure of which he now complains. He may, indeed, have the right to appeal still and to obtain damages for every breach of contract which he can prove. The case of Bush v. Whitehaven Trustees, on which the pursuer relied, arose in totally different circumstances, and the principle upon which that case is founded has no application here.

I am of opinion that this argument is well founded.

I doubt whether it is open to a contractor who has carried out contract work without protest, and who has accepted without comment payment at contract rates, and who has said nothing during the whole progress of the work, to suggest that the contract is not binding upon him—to plead, long after the work has been completed and paid for, that contract prices are not applicable as a basis of charge, and that he is entitled to be paid as if no contract had been entered into. When a contractor has executed work which he undertook to execute under a written contract of a specified price, there is a very strong presumption that the contract price is the basis of payment. To overcome this presumption he must prove that the work was not in fact executed under the contract but under a new agreement, either express or implied, to pay a different price. Now the pursuer does not allege that there was any express new agreement, and I think his averments negative the view that such an agreement can be implied. He does not say that he believed the original contract was at an end, and that he went on with the work on the understanding that he was to be paid on the basis of quantum meruit. On the contrary, he admits that it never occurred to him during the progress of the work, nor till years after it was completed, that he was acting under a new implied agreement. Both he and the defenders acted throughout on the assumption that the original contract was binding upon them. Mr Macmillan explained that the pursuer so acted because he had been under a misapprehension as to his rights until they were explained to him by his solicitors long after the work was finished. It may be unfortunate that he did not consult his solicitors at an earlier date, but the defenders ought not to be prejudiced on that account, and I think they would be prejudiced if the pursuer's plea were now entertained. If he had ascertained what he now believes to be his rights, and had intimated to the defenders that he considered the contract to be inapplicable as a basis of charge, and would only continue the work on the understanding that he would be paid quantum meruit, the defenders would have had an opportunity of considering whether they would stop the work or permit him to go on. If they had allowed him to proceed, the question whether they had not in the circumstances come under an implied contract to pay him on the basis of quantum meruit might have arisen. But 1 do not see how it can arise when the whole work was executed on the understanding that the original contract was to be the basis of payment.

It was said that it was the cumulative effects of many neglects and breaches of contract on the defender's part which rendered the work ‘entirely different,’ and that it was therefore impossible for the pursuer to know at what precise period the contract became inapplicable as a basis of charge. But he does not explain why he did not appeal to the arbiter, who had power to deal with everything of which he now complains. The arbitration clause provides

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that if any dispute should arise as to the meaning of the contract, or as to the extent of the works to be formed thereunder, or as to the expense of additional work, or any alterations which may be more or less expensive than the work specified; or as to any claim of damages or otherwise at the instance of the contractor against the Company; or as to any notices or plans requiring to be served or delivered by the Company in compliance with the Acts; ‘or as to any other matter, claim, demand, or obligation whatever arising out of or in connection with the contract, whether during the execution of the work or after the completion thereof …’ the same shall be referred to arbiters named who have power to award damages. Of course if the contract is at an end, the arbitration clause disappears with it, but the defenders say that the terms of the arbitration clause show that the contract is not at an end, because it is clear that parties contemplated the possibility of all the faults and failures occurring on which the pursuer founds, and provided the means of dealing with them. I think they are right. For example, the pursuer avers that the land referred to in his letter of 29th March 1899 is land required for the ‘overland route’ The defenders deny this, and maintain that it refers to land required for the permanent railway. That is a dispute as to the true meaning and intent of the contract, which parties agreed should be referred to the arbiter if it arose. It did arise at the very beginning of the work, according to the pursuer's averments, before there was any question of the contract being inapplicable. If he had appealed to the arbiter on this and the other faults and failures he founds on, he would have obtained complete redress from the arbiter. That is the way the parties agreed such matters should be dealt with. They were to be adjusted by the arbiter so that the work might not become materially different in respect of them. And in so far as they increased the difficulty and cost, the arbiter had power to award damages. The arbitration clause—which is exceptionally wide—was obviously framed with a view to preventing either party suing the other in Court for a breach of contractual obligations. But that is what the pursuer is really doing in this action. He asks me to decide that the contract is no longer binding upon him, but I cannot determine that question without first considering whether there has been breach of contract, and that appears to me to be a question for the arbiter, who alone has power to deal with it either ‘during the execution of the work or after the completion thereof.’

If I am right in thinking that the contract provided a method of dealing with breaches of contract, and the difficulty and cost arising therefrom, there does not appear to be any particular advantage to the pursuer in disregarding the contract. He can claim, through the arbiter, all he asks from the Court. If the work had been rendered ‘entirely different’ through unforeseen circumstances, without default of either party, and there was no machinery provided in the contract for dealing with the new situation, and the only means of doing justice between parties was to disregard the contract and award the contractor a fair value for the work actually done, the case would have been different. That, I think, was the ground of judgment in the case of Bush v. Whitehaven Trustees, upon which the pursuer founds. It is not officially reported, and the precise circumstances in which the claim arose are unfortunately not set forth in Hudson on Building Contracts. But the facts so far as recorded appear to be as follows:—Bush contracted to construct a water-main for a slump sum. His tender was sent in in June, and he was ‘given to understand’ that he could begin the work at once; but part of the land was not available until October, and consequently the work was thrown into the winter, when operations were more difficult and costly, and this caused great additional expense to the contractor, for which he sued. The case was tried by jury, and one of the questions which both parties asked the judge to put to the jury was—‘Were the conditions of the contract so completely changed in consequence of the defenders' inability to hand over the sites of the work as required as to make the special provision of the contract inapplicable?’ The answer was ‘Yes,’ and the jury awarded £600 damages. The defendants appealed, but the Court, while apparently not approving altogether of the jury's findings, refused to interfere. Lord Coleridge said that the findings of the jury enable them to decide the case on the principle ‘… that where a contract is made with reference to certain anticipated circumstances, and when without default of either party it becomes wholly inapplicable to or impossible of application to any such circumstances, it ceases to have any application; it cannot be applied to other circumstances which could not have been in contemplation of the parties when the contract was made.’

There is, no doubt, some resemblance between the two cases. In both the conditions were changed through failure on the part of the employers to give access to the land. But in Bush's case there does not appear to have been a breach of any contractual obligation. The changed conditions emerged from circumstances which neither party had foreseen, and without default of either party, and there was no provision in the contract for such an unexpected condition of matters. The work was not in fact done under the original contract, but under an implied new agreement. That is not the pursuer's case at all. He cannot say that the defenders' failure to provide land for the ‘overland route’ was unforeseen. He anticipated that contingency, and provided himself with a remedy against it in his contract. Bush had no such remedy, and that is why he appealed to the Court. His case, as I understand it, was—that he contracted to execute the work during summer for a specified slump sum; that he was obliged to do it in the winter months, when it cost much more; neither

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party had anticipated that this would happen, and there was therefore nothing in the contract about it. The Court held in these circumstances that the contract did not apply. But if his case had been that the defendants undertook by the contract to give possession of the land in time to enable him to complete the work during summer, and that he had anticipated that they might fail in this contractual obligation, and had stipulated and agreed that in such an event the matter should be referred to an arbiter with power to award damages, I think the decision would have been different. It would certainly have been different if he had delayed for fourteen years to bring his action. Bush's case was, I think, a very exceptional one, and assuming it to be a binding authority, it can only be applied when the circumstances are similar. In the recent case of Boyd & Forrest v. The Glasgow and South-Western Railway Company, where it was also argued that the contract was no longer binding in respect that the work executed proved to be entirely different from that contemplated by the contract, Lord Dundas said—‘… The plea as stated and argued is a bold and rather startling one, and I cannot say that I think the facts proved warrant us in sustaining it. I am not aware of any authority directly in point. The English case of Bush (which is only reported in Hudson on Building Contracts) appears to have beeh a very special one. The learned Judges were hampered by the finding of the jury, which, while I gather that it did not commend itself to them, they did not see their way to set aside or ignore. Neither Smail v. Potts nor Quin v. Gardner amounts to a decision on the point. I do not say that a case might not arise so strong upon its facts as to justify (or compel) the success of a plea such as we are now considering, but that case is not, in my judgment, here presented.’ That, I think, suggests that averments made in support of a plea of this kind ought to be critically examined. Before the pursuer can succeed he must, I think, prove that the contract became inapplicable owing to emerging circumstances which were not in the contemplation of parties; that the work executed had no relation to the contract, and was not in fact done under it, but under a new agreement, express or implied, to pay him on the basis of quantum meruit. I am of opinion that the averments he has made on record are not relevant or sufficient for that purpose.

I was referred to the case of Mackay & Sons v. The Lord Advocate (as representing the War Department). But the circumstances there were entirely different; indeed the facts averred and proved do not appear to me to have any resemblance to the averments made in this case.

On the whole matter I am of opinion that the second plea-in-law for the defenders ought to be sustained, and the action dismissed, with expenses.”

The pursuer reclaimed, and argued—The contract did not regulate the relation of parties, and the pursuer was entitled to be paid a quantum meruit, for (1) the work done was not the work which was the subject of the contract; (2) the pursuer stipulated for certain facilities as a condition-precedent to entering into the bargain, and as these were never given him there was no consensus in idem. The work was different from what was contracted for; the plans, sections, and drawings embodied in the contract had all been departed from; the variations from them ranged from 25 per cent. to 300 per cent., whereas the contract only allowed 5 per cent. variation. The work took seven years to complete, whereas the contract stipulated for completion in two years. The price was to be £114,000, whereas the defenders admitted liability for £167,000. No doubt it was impossible to say that at any one place the elasticity of the contract had been exceeded, but the accumulated result of the individual variations was to make the work as completed and the carrying out thereof something different from what was contemplated in the contract. The result was that the contract was discharged. It was an express condition-precedent to consent that the overland route should have been provided and an implied condition that facilities should have been given at the bridges. Neither the overland route nor the other facilities were given, and as a result there was no consensus. The absence of these facilities had dislocated the whole scheme of work, but the work was now completed, and the defenders had the benefit of it and must pay for it not under the contract but by way of quantum meruit. The Lord Ordinary was wrong in holding that the arbitration clause provided a remedy for the circumstances which had come into existence here. The arbitration clause could only apply as between the parties if the contract was binding upon them, but the pursuer averred that the contract either never existed, or at least that it was discharged, and consequently with that discharge the arbitration clause ceased to apply— North-Western Rubber Company, Limited v. Hüttenbach & Company, [1908], 2 K.B. 907, per Fletcher Moulton, L.J., at pp. 919 and 921. The signing of the contract months after the work had begun, and after there had been failure to provide the overland route, was simply to preserve formal evidence of what the contemplated bargain was and could not be pleaded in bar of the pursuer. Municipal Council of Johannesburg v. D. Stewart & Company, Limited, 1909 S.C. 860. per Lord President Dunedin at p. 877, 46 S.L.R. 657, 1909 S.C. (H.L.) 53, per Loreburn, L.C., at p. 54, per Lord Shaw at p. 56, 47 S.L.R. 20, showed that if the averments were as they were here the contract no longer applied, and that it was irrelevant to consider the scope and operation of the arbitration clause, for in the circumstances it did not apply. The course followed in S. M'Kay & Son v. The Lord Advocate (War Department), 1914, 1 S.L.T.34, ought to be taken here; indeed this case was stronger than M'Kay's case, for in it there was no fault, but here fault was alleged. Bush v. Whitehaven Trustees, 1888,

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(reported in Hudson on Building Contracts (4th ed.), vol. ii, p. 122), was an authority for the proposition that the conditions of the contract might be so radically changed from what the parties contemplated that the contract no longer applied. Jackson v. Union Marine Insurance Company, Limited, (1873), L.R., 8 C.P. 572, (1874), L.R., 10 C.P. 125, showed that where a condition suspensive of consent, as was the case here as regards the overland route, was not satisfied, the contract did not apply unless the condition was waived, and there was nothing to indicate waiver here— Pepper v. Burnand, [1791] Peake, Nisi Prius Reports, p. 103; Thorne v. Mayor and Commonalty of London, (1876) L.R., 1 A.C. 120, per Cairns, L. C., at p. 127. Boyd & Forrest v. The Glasgow and South-Western Railway Company, 1914 SC 472, per the Lord Justice-Clerk at p. 491, and Lord Dundas at p. 500, 51 S.L.R. 281, 1915 SC (HL) 20, 52 S.L.R. 205, was not in point, for here the dislocation was due to the active interference of the defenders, not to the nature of the strata and material encountered. Quin v. Gardner, 1888, 15 R. 776, 25 S.L.R. 577, was consistent with the pursuer's contention. Smail v. Potts, 1847, 9 D. 1043, decided that where a term had been introduced into a contract by one of the parties to a contract which altered the nature of the contract the other party was released.

Counsel for the defenders was not called on.

At advising—