Scottish Court of Session Decisions

On 11 February 1993 the pursuer and the defenders entered into a contract under which the latter undertook to construct for the former an office block and associated works at Barlow Park Development, Dundee. The contract took the form of a Scottish Building Contract With Contractor's Design (January 1993 Revision) incorporating the Conditions of the Standard Form of Building Contract With Contractor's Design 1981 Edition subject to certain amendments. The Date of Possession was 22 February 1993. The defenders carried out construction works and, on practical completion being achieved on 18 April 1994, the pursuer took possession of the developed subjects. The Defects Liability Period, being of twelve months, expired on 18 April 1995.

The pursuer avers that subsequent to taking possession of the developed subjects he became concerned that the external building envelope was defective. He instructed a firm of architects (hereinafter referred to as "HRP") to investigate and report on those concerns. HRP had not previously been involved professionally with the development. Having carried out certain investigations in March 1995, HRP prepared a report entitled "Design & Build Contract for the Construction of Barlow House - Investigation and Report into Suspected Defects". It was dated April 1995. It identified a number of aspects in which, in the authors' view, the development did not conform to the Building Regulations or otherwise required the carrying out of remedial works. This report was brought to the attention of the defenders who, without conceding contractual liability to do so, thereafter carried out and eventually completed at their own cost the remedial works called for.

In this action the pursuer seeks from the defenders as damages for breach of contract costs incurred by him to HRP amounting in total to £22,567.26. He also claims as such damages costs of £2,878.75 incurred to a firm of solicitors "to advise on the contractual aspects of the aforesaid defects and to meet and correspond with HRP and the defenders in relation to the remedying thereof". The pursuer further claims as such damages £52,982.00 in respect of "management costs".

Condition 16.2 of the applicable Conditions of Contract provides:-

Mr Cowie for the defenders submitted that, the defects which were claimed to constitute the failure of the defenders to comply with their obligations under the contract being defects which had appeared within the Defects Liability Period, the employer was entitled and obliged to prepare a Schedule of Defects and to deliver it to the contractor who was then bound to make good such defects at no cost to the employer. If the employer chose not himself to prepare the Schedule but to engage others to investigate matters and to prepare it for him, he was not entitled to recover from the contractor the costs so incurred. Nor was he entitled to recover management costs or legal expenses incurred by him relative to such investigation and preparation. That was so, Mr Cowie argued, even in circumstances where the defects identified in the Schedule were ultimately established to be due to failure by the contractor to comply with his contractual obligations. Nor did it matter that under this form of contract there was no contract architect who under other forms might carry out such investigation and preparation; in such circumstances such costs would likewise fall to be met by the employer. Under Condition 16.2 the Schedule was to be delivered to the contractor "as an instruction of the Employer". The issue of instructions by the employer was a procedure envisaged throughout the contract. Reference was made in particular to Conditions 4 and 8.4. If the employer chose to engage and pay for another person to prepare such instructions for issue by him, he was not entitled to recover such cost from the contractor. The contract envisaged that in ordinary course defects, shrinkages or other faults might appear within the Defects Liability Period. If such did appear, they were to be dealt with under the contract mechanism. It was acknowledged that in some circumstances losses sustained by an employer might be recoverable by him at common law as consequential damage (P & M Kaye Limited v Hosier & Dickinson Limited [1972] 1 W.L.R.146, per Lord Diplock at p.166). But what was sued for in the present case was not consequential damage as envisaged by Lord Diplock. The sums claimed did not flow from any breach but arose in the course of operation of the contractual provision. Reference was also made to Hudson on Building Contracts (11th Edition) at p.716. Although costs flowing from disruption caused to the pursuer in his occupation of the subjects by the carrying out of remedial works might in principle be recoverable as common law damages, the pursuer had given no adequate specification of any such claim.

Mr Cowie further submitted that if, contrary to his primary submission, costs incurred by the pursuer were relevantly pled, the claim for "management costs" was wholly lacking in necessary specification and should be excluded from probation. The pursuer's loss in respect of such costs as pled was computed by reference to a schedule (No.6/1 of process). In that schedule there had been set forth a claim based on hours said to have been spent by the pursuer and by a Mr Greig between May 1994 and December 1997 on various aspects of the investigation and remedying of the defects. No basis, it was argued, had been laid for the cost of time expended by Mr Greig being a proper charge by the pursuer; a Note lodged by the pursuer had merely stated that Mr Greig was employed by a separate legal entity, Cox-Johnston (Management Services) Limited. No adequate basis had been specified for the claim of £50 per hour in respect of Mr Greig's time. The same schedule had claimed £200 per hour for time expended by the pursuer himself but that figure was in no way identified as a loss actually incurred (as distinct from a charge made); nor was the hourly rate in any way supported. Another schedule (No.23 of process) had subsequently been lodged by the pursuer. It gave a different computation of hours in respect of activities by the pursuer and Mr Greig relative to the investigation and remedying of the defects. It also introduced, under the heading "Disruption", a number of days in which the pursuer or "all staff" had required to move to allow inspection or works to be carried out. No proper basis had been laid for this as a disruption cost and no financial computation had even been attempted. In these circumstances the claim for "management costs" fell, in any event, to be excluded from probation.

Mr Howlin for the pursuer submitted (1) that the contractual mechanism under Condition 16.2 for the making good of defects did not exclude the pursuer's common law right to damages for breach of contract, (2) that the costs of preparing the Schedule of Defects were a valid common law damages claim and (3) that the costs charged for management time were both recoverable and sufficiently pled. There was nothing in Condition 16.2 to suggest that what the employer was to do was to be done by him personally; it would commonly be done by someone on his behalf, particularly if the employer was a body corporate or a public authority. The costs incurred in so doing, where the defects were identified in the report and correctly so identified as due to the failure of the contractor to comply with his contractual obligations, were properly characterised as consequential damage and recoverable as common law damages. It was plain that the defects here referred to in HRP's report (such as draughts and leaks) were caused by failure on the part of the contractor to fulfil either his design or his construction obligations. There was nothing expressly or by necessary implication in Condition 16 to exclude a claim for the costs of preparation of such a Schedule. The investigation of suspected defects and the preparation and delivery of the Schedule were necessary steps taken by the employer to mitigate the extent of his loss consequential on the contractor's breach of contract. Reference was made to Hudson on Building Contracts (11th Edition) at pp.716-8 and to P & M Kaye Limited v Hosier & Dickinson Ltd at pp.164-6. The whole costs incurred to HRP were recoverable as consequential damage, as were at least some of the costs incurred to the solicitors. Management time was also in principle recoverable.

As to the specification of the management costs claimed, Mr Howlin submitted that it was clear that this embraced a claim for disruption. Criticisms of the absence of vouching of the elements of the claim or of inconsistency in its formulation were essentially matters to be explored at proof. The pursuer had provided an explanation of the basis on which he had made a claim in respect of time expended by Mr Greig; the latter was employed by a service company which was wholly owned by the pursuer and into which the pursuer at regular intervals injected funds to meet its outlays, including the salaries of staff of which Mr Greig was one. The management costs claimed had been sufficiently specified to allow proof of them.

At debate it was not disputed that notification to the defenders of HRP's report was to be treated as delivery by the pursuer to the defenders of the Schedule of Defects called for under Condition 16.2. In my view the costs of and incidental to the preparation and delivery of such a Schedule are not recoverable as damages against the contractor. That is so, at least in ordinary circumstances, even where the employer offers to prove that the defects so specified were due to failure by the contractor to comply with his obligations under the contract.

There was no dispute between counsel that losses resulting from defects attributable to breach of contract by the contractor but not patent until after practical completion were, in so far as properly characterised as consequential damage, recoverable at common law and that Condition 16.2 did not exclude any such claims. Both referred to and relied on passages in the speech of Lord Diplock in P & M Kaye Limited v Hosier & Dickinson Limited in which his Lordship, addressing an argument which the majority of their Lordships declined to entertain, explained aspects of the structure of the 1963 private edition of the R.I.B.A. standard form. Condition 15(2) of that form makes similar though not identical provision to Condition 16.2 of the conditions applicable to the present contract. The issue between counsel was whether the costs here claimed were properly consequential damage as contemplated by Lord Diplock. His Lordship gave two examples of such recoverable damage - (1) where the employer has, subsequent to taking possession of the works, been deprived of the profitable use of them and (2) where, again subsequent to his taking possession, the defects have resulted in damage to the employer's plant or goods in the works (p.166A). No doubt, his Lordship did not intend those examples to be exhaustive. However, I am not persuaded that the costs here claimed are properly costs which are recoverable as common law damages.

The present contract confers powers or imposes duties on the employer to issue instructions to the contractor. These include the issue of instructions generally (Condition 4), the issue during the progress of the works of instructions in circumstances in which work, materials or goods are not in accordance with the contract (Condition 8.4) and the preparation and delivery, after practical completion but not later than 14 days after expiration of the Defects Liability Period, of a Schedule of Defects, such action being contractually characterised as an instruction (Condition 16.4). The costs of exercising such powers or performing such duties, including costs incurred in investigation and preparation therefor, are, in my view, costs which prima facie are to the account of the employer. No authority was cited to me to support the proposition that the costs of the identification and notification of defects as part of the ordinary operation of a contractual procedure were a head of loss ordinarily recoverable as damages at common law. On principle it seems unlikely that they are so recoverable. In general, the costs of investigating and instructing a claim, including the costs of taking legal and technical advice prior to doing so, are not recoverable as common law damages albeit the claim is proved or offered to be proved to be well founded (Shanks v Gray 1977 S.L.T.(N) 26).

I do not exclude the possibility that there may be exceptional circumstances in which some or all of such costs might be recoverable. However, there was no suggestion that the costs incurred here were incurred otherwise than in the ordinary operation of Condition 16.2. In these circumstances such costs - both the costs of technical and legal advice and any management costs incurred by the employer himself - are not, in my view, recoverable from the contractor. It was not suggested that any further costs, such as any in supervision of the remedial works or otherwise, should be treated differently from those of investigation and notification.

In these circumstances the pursuer's claim for costs incurred to HRP is not a relevant head of claim. Likewise, the claim for extra-judicial costs incurred by the pursuer to his solicitors is irrelevant, as is the claim for management costs in so far as related to the investigation and identification of the defects and to related matters. While a claim for financial loss caused by disruption to the pursuer's business, either directly by defective work or by the process of remedying defects, would in principle be relevant, there is, for the reasons given below, no intelligible and specific claim in that respect presented by the pursuer on averment or in other papers placed before the Court.

The present action was raised as an ordinary action but on 21 July 1998 was, on the unopposed motion of the pursuer, appointed to the Commercial Roll. By interlocutor of that date the Court inter alia appointed the pursuer within three weeks of that date "to lodge in process documentation in support of the heads of damages claimed". The summons (as adjusted) includes averments in the following terms:-

The figure of £52,982 is that brought out in a document (No.6/1 of process) lodged by the pursuer. That document is entitled "Barlow House Assessment of Management Costs to Date". It sets out in tabular form various periods of time between 1 May 1994 and 1 December 1997 during which two persons, apparently the pursuer and a Mr Greig, expended time on various matters. Those matters, though very broadly and vaguely specified, appear from the document to relate to the encountering of problems following the taking of possession, to the instruction of HRP and to subsequent discussion with the contractors, HRP and the solicitors. They manifestly do not relate to any claim for disruption by reason of the pursuer being deprived for any period or periods of the profitable use of the developed works. After sundry procedure, including an interlocutor of 23 November 1998, which appointed the pursuer "to give further and adequate specification (by adjustment of the summons or by production of additional documentation) of his claim for management costs and that not later than 7 December 1998", a further schedule (No.23 of process), tendered after expiry of the period specified in the interlocutor of 23 November, was on 8 January 1999 allowed to be received late. That schedule, again in tabular form, was entitled "Schedule for the Pursuer of Wasted Management Time/Disruption". It was in the main directed to giving further detail of the matters on which the pursuer and Mr Greig had expended time. It is plain from that part of that document that the activities referred to were of a kind (identifying problems, communicating with the contractor, HRP etc) which are, for the reasons given earlier in this Opinion, not a recoverable head of damages. The total hours expended on those activities were now stated to have been 465 as against 508 in document No.6/1. On the last sheet of No.23 of process, under the heading "Disruption", a total of 26 days was brought out in a table in respect of numbers of days claimed in respect of disruption, principally to "all staff"; the particulars given included "moved from office to allow inspections" to "moved from office to allow removal and replacement of windows". The table also included a figure of several days for the pursuer himself under the explanation "moved from Barlow House to home to conduct business". No financial information of any kind was given in this document in respect of "disruption". By interlocutor dated 22 February 1999 the pursuer was appointed to lodge in process by 15 March 1999 "(1) a Note specifying the basis upon which he claims payment in respect of time wasted or disruption experienced by any person other than himself and (2) all correspondence, notes of meetings and other documents upon which he intends to rely in support of his claim for management costs (including time wasted or disruption experienced by him personally and the hourly or other rates claimed in respect of any person)". A Note (No.32 of process) was ultimately tendered and received - more than five weeks after expiry of the time limit. Although it dealt generally with the basis on which claims were made by the pursuer in respect of persons other than himself, it gave no financial information of the amount or basis of the claim relative to disruption to himself or to other staff. At a By Order hearing on 23 April 1999 counsel then appearing for the pursuer stated that the pursuer had no correspondence or other documents of any kind to lodge in support of the management costs claim. Mr Howlin was not in a position at the debate to illuminate the pursuer's position.

In these circumstances the pursuer, although given ample opportunity over many months to do so, had even by the time of the debate provided no financial basis for any recoverable loss by reason of disruption as a result of being deprived of the profitable use of the premises or otherwise during the carrying out of remedial works. While in accordance with the law and practice in commercial actions it is acceptable, subject to the direction of the Court, to give particulars of claims otherwise than by formal pleading, material adequate for the purpose must be provided - both as a matter of fair notice to the other party and so that the Court may determine whether the claim, as a matter of law, justifies inquiry. Prompt attention to such fundamental matters is also essential. In these respects the pursuer has, as regards any claim for disruption, lamentably failed.

So far as other aspects of "management costs" are concerned, these have, for reasons earlier given, been held by me to be irrelevant. It is accordingly unnecessary to say anything further about them except to make the general comment that they too remain generally confused and inadequately specified and that no basis is laid for any measurable loss having been sustained by anyone as a result, for example, of the diversion of the individuals concerned from other profitable activity. In these circumstances I find it unnecessary to express any view on whether the pursuer might on a properly formulated and relevant basis have recovered costs incurred by him through the medium of a corporate body. No argument was presented that the pursuer was, in any event, entitled to nominal damages for breach of contract.

In the whole circumstances I shall sustain the defenders' first plea-in-law and dismiss the principal action. A counterclaim lodged by the defenders concludes for payment of retention monies under the contract. Answers to that counterclaim were lodged by the pursuer but the only substantive response in them was that the pursuer was entitled to retain those monies against the sum sued for in the principal action; although the answers contain certain formal denials, counsel for the pursuer confirmed at a hearing on 31 July 1998 that the pursuer's only answer to the counterclaim was that of retention. As the principal action is to be dismissed, the pursuer has accordingly no relevant defence to the counterclaim. I shall therefore sustain both the defenders' plea-in-law in the counterclaim and grant to them decree as counterclaimed for.