Scottish Court of Session Decisions

[1] We are asked to answer certain questions in a case stated in an arbitration between the claimants, Loudonhill Contracts Ltd., and the respondents, John Mowlem Construction Ltd. The respondents were the main contractors for the construction of the A71 Stonehouse Bypass and they employed the claimants under a subcontract to carry out the earthworks. The main contract was governed by the I.C.E. General Conditions of Contract (June 1973) with various amendments and the subcontract, which was entered into about the beginning of July 1993, was governed by the I.C.E. Form of Subcontract designed for use in conjunction with that main contract. In terms of Clause 3(1) of the subcontract the claimants were deemed to have full knowledge of the provisions of the main contract, with the exception of the main contractor's prices.

[2] A number of clauses in the main contract are relevant for present purposes. Clause 48 provides for the main contractor to give notice to the engineer when he considers that the whole of the works have been substantially completed and to accompany the notice with an undertaking to finish any outstanding work during the period of maintenance. If he is satisfied that the work has been substantially completed, the engineer is to issue a Certificate of Completion which has the effect of starting the period of maintenance under Clause 49. In this case the period of maintenance was 52 weeks. After that, provided that all outstanding work has been done and all defects and faults have been put right, the engineer is to issue a Maintenance Certificate under Clause 61.

[3] Various disputes arose between the parties and on 22 April 1994 the respondents sent a letter to the claimants terminating their employment in terms of Clause 17(1) of the subcontract. On record in the arbitration the claimants aver that, while denying that they were in default, they had no choice other than to accept the respondents' "repudiation" and await payment for sums due up until that date. The respondents continued to act under the main contract, however, and the Maintenance Certificate in terms of Clause 61 was issued on 28 February 1996 but was said to be effective from 15 February 1996. According to the respondents, it was not until February 1997 that the claimants submitted the claims which form the subject of the arbitration. We need not consider the detail of these claims, except to note that the first relates to the respondents' right to deduct certain contra charges; the second relates to the respondents' valuation of the subcontract works and to the sum due for them in terms of the contract, while the third is an alternative claim for payment on a quantum meruit basis or for damages for the respondents' alleged breach of contract. The only point which we are required to decide arises out of the respondents' first plea-in-law to the effect that the claimants are barred by Clause 15(6) of the subcontract from proceeding with their claims.

[4] Although the parties are in dispute as to how their contractual relationship came to an end, they both proceed on the basis that events came to a head when the respondents wrote to the claimants on 22 April 1994. The claimants contend that the respondents repudiated the contract and that they themselves in effect accepted that repudiation, whereas the respondents say that they terminated the claimants' employment under Clause 17 - an event which meant that the relevant rights of the parties were to be treated on the basis that the claimants had repudiated the subcontract and the respondents had elected to accept the repudiation. Whichever might be the correct approach, the result would be the same. Neither party would have had any right to insist on any further performance by the other, but the contract would have continued to govern the parties' rights and obligations in relation to matters arising up until termination. In particular Clause 15(6) would apply, where appropriate.

[5] Clause 15 is headed "Payment". Under Clause 15(1), when requested by the contractor to do so, the subcontractor is to submit a written statement of all work properly done and of all materials delivered to the site for incorporation in the subcontract works. Clause 15(2) imposes on the contractor an obligation to make prompt applications for payment under the main contract and, where the subcontractor has complied with Clause 15(1), the contractor is to include claims for work done by the contractor and for materials delivered to the site. The contractor is also to use his best endeavours to obtain prompt payment of all sums due in respect of the subcontract works. By Clause 15(3), within seven days of receiving a relevant sum from the employer, the contractor must pay the subcontractor the sum due, subject to deduction of retention monies. Clause 15(5) provides for the final payment to the subcontractor within three months of the subcontractor having finally performed his obligations in relation to maintenance and defects under Clause 14 or within fourteen days after the contractor has received full payment for the subcontract works, whichever is the sooner. Clause 15(6) then provides:

The respondents contend that, since the claims in the arbitration were not made before the Maintenance Certificate was issued with effect from 15 February 1996, Clause 15(6) means that the respondents are not liable to the claimants after that date or, in any event, after 28 February when the certificate was actually issued. For their part the claimants assert that Clause 15(6) has no application to the type of claims put forward in the arbitration. The arbiter upheld the claimants' contention and the respondents sought a stated case. In that case the arbiter records the rival submissions and his thinking on them, at no little length. Counsel did not find it helpful to go into the arbiter's reasoning in any detail and neither do we. He stated three questions:

Counsel were agreed that it was unnecessary for us to answer the second question. Mr. Howie, for the claimants, also agreed that Question 3 should be answered in the negative since, as he pointed out, Clause 15(6) would apply, for instance, where the subcontractor went into liquidation and the main contractor terminated its employment, as opposed to terminating the contract, under Clause 17(1)(d). In the result, therefore, we are concerned only with the first question.

[6] We should mention that, in reaching his view as to the applicability of Clause 15(6) in the present situation, the arbiter was apparently influenced by the fact that, where Clause 16 operates, by virtue of sub-clause (2), Clause 15(6) - in common with the other clauses of the subcontract - ceases to have effect. But, as the arbiter himself recognises, Clause 16 is dealing with the very different situation where the main contract is terminated, whether in consequence of the subcontractor's breach of the subcontract (Clause 16(3)) or not. In a case of that kind, by definition the main contractor will never finish the works and no Maintenance Certificate will ever be issued. In that situation it makes perfect sense for the subcontract to exclude the operation of Clause 15(6), which is predicated on the existence of a Maintenance Certificate, and to substitute a different mechanism (Clause 16(2) and (3)). The fact that Clause 15(6) does not, and indeed cannot, apply in such cases tells us nothing, however, about its applicability in a case like the present where the main contract works were duly taken forward and a Maintenance Certificate was issued.

[7] The limited form of Question 1 reflects the limited scope of the argument advanced on behalf of the claimants before us. The language of Clause 15(6) is wide and, we must assume, deliberately so. The contractor is not to be liable "for any matter or thing arising out of or in connection with" with the subcontract or the execution of the subcontract works. The use of the word "any" coupled with the phrase "in connection with" is designed to give the sub-clause a broad application. Indeed Mr. Howie accepted that, were it not for its position at the end of Clause 15, there would be nothing to suggest that the scope of the provision was limited in such a way as to make it inapplicable to the claims in the arbitration. He argued, however, that the sub-clause should not be read in isolation, but in its context in Clause 15. So read, he said, it applied only to claims made by a subcontractor for payment under Clause 15 and therefore not to the kinds of claim put forward here.

[8] In considering the rival contentions we should notice that the claimants would have had no practical difficulty in understanding how Clause 15(6) was intended to operate. In terms of Clause 3(1) they were taken to know that the maintenance period under Clause 49(1) of the main contract was 52 weeks and that they therefore had a year from the substantial completion of the main contract works to submit any claims. The claimants could, of course, have made their claims at any time, but armed with that information about the terms of the main contract, they would have had no difficulty in calculating the earliest possible date for Clause 15(6) to come into effect. In practice, of course, in any given case the issuing of the certificate of completion might be delayed, or else the issuing of the maintenance certificate itself might be delayed, but in neither event would this prejudice the subcontractor since it would simply have the effect of extending the time before Clause 15(6) came into effect. Moreover, Mr. Howie did not suggest that there was any special reason arising from the circumstances of this case why the claimants would have had difficulty in formulating their claims within the period in question.

[9] We have already alluded to the wide terms in which Clause 15(6) is cast - terms which would, if considered in isolation, be apt to cover the claims in this arbitration. The only question is whether the immediate context of the provision has the effect of narrowing its scope so that it covers only claims under that clause. Mr. Howie suggested that, if the provision had been intended to apply not merely to claims under Clause 15 but more generally to all claims, then it would, more naturally, have been found as a separate clause. We see some force in the view that a separate clause might have been appropriate. But, inevitably, his argument amounts to saying that exactly the same provision would have been of general application if it had been formulated as a separate clause, but is of only limited application because it occurs as a sub-clause in Clause 15. While less generous words might indeed be cut down by their position within Clause 15, we are unable to hold that the context has the effect of limiting Clause 15(6), worded as it is, to claims under Clause 15(1). Had the draftsman of the contract form intended to limit the sub-clause in this way, we should have expected it to refer back specifically to Clause 15(1).

[10] On behalf of the respondents Mr. Glennie, Q.C., put the same point slightly differently. The words of the clause were wide and, for present purposes, unambiguous in themselves. The claimants sought to introduce an ambiguity by drawing attention to the particular context in which the provision was to be found. Having used the context to introduce the ambiguity, the claimants then sought to use the context again in order to resolve that ambiguity by requiring that the general words should be read in a restricted sense. As we have explained, we accept Mr. Glennie's starting point, that the words are wide and, for present purposes, unambiguous. They should be given their plain meaning and the provision should be applied accordingly.

[11] The construction favoured by the respondents also appears to us to accord with the intention behind Clause 15(6), to ensure that all relevant claims are submitted in writing to the contractor before the expiry of the period of maintenance and before the contractor submits the final account. In this way the contractor should be able to recover all the necessary sums from the employer. Mr. Howie pointed out that Clause 10(3) could protect the contractor by allowing him to deduct from the monies otherwise due to the subcontractor any sum which he had been prevented from recovering from the employer due to the subcontractor's failure to give the necessary return, account or notice. But, simultaneously, he frankly acknowledged that the protection would not always operate, since the clause had been held not to apply, for instance, to claims arising out of variations and instructions. That being so, we are not satisfied that the existence of Clause 10(3) argues against the construction of Clause 15(6) which we prefer.

[12] Somewhat surprisingly perhaps, counsel could refer us to only one case where this aspect of Clause 15(6) had been considered before: Blissgrange Ltd. v. John G. McGregor (Contractors) Ltd., 1987 G.W.D. 19-707. The Maintenance Certificate had been issued on 9 November 1982 and was stated to be effective from 27 September 1982. The contractors argued that two of the subcontractors' claims were barred by Clause 15(6) because they had not been advanced in writing to the contractors before the Maintenance Certificate had been issued. In an opinion delivered by Lord Justice Clerk Ross the court rejected the contractors' contention, partly at least because they had a plea-in-law relating to prescription but no plea relating to Clause 15(6). Moreover, they had made no averments to the effect that the subcontractors had not made a written claim by 9 November 1982.

[13] Their Lordships also observed:

It might be thought that the court were here suggesting that Clause 15(6) could not apply to a claim for damages. For the reasons which we have given, we would not share such a view. But we consider that, as the other grounds for the court's decision indicate, they were concerned with the particular features of the pleadings in that case where the exact relationship between the claim for loss and damage and the sub-contract seems to have been in some doubt. Since the court were not satisfied that clause 15(6) necessarily applied, they should not, in our view, be taken to have held that it could never apply to a claim for breach of contract. In the circumstances we agree with counsel for both parties that no guidance is to be derived from Blissgrange.

[14] For these reasons we answer Question 1 in the stated case in the negative and remit to the arbiter to proceed as accords.