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Cite as: [2001] ScotCS 46

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OUTER HOUSE, COURT OF SESSION

OPINION OF LORD HAMILTON

in the cause

CAMERON (SCOTLAND) LIMITED

Pursuers;

against

MELVILLE DUNDAS LIMITED

Defenders:

________________

Pursuers: McLean; DLA

Defenders: Borland; Masons

28 February 2001

[1] In November 1997 the defenders contracted (as main contractors) with Glasgow 1999 Festival Company Limited to carry out construction works at a development in Mitchell Street, Glasgow popularly known as "The Lighthouse". For the purposes of the issue presently before me it is agreed that Clause 41 (an arbitration clause) of the Conditions of the Standard Form of Building Contract Local Authorities Edition with Quantities (1980 Edition) (as amended and modified by various provisions including the Scottish Supplement) was incorporated into that contract.

[2] The defenders engaged the pursuers as sub-contractors to carry out stonework and stone repairs, forming part of the main contract works. The pursuers carried out certain works in furtherance of that sub-contract. Practical completion was eventually achieved in July 1999. The parties are in dispute in respect of certain claims made by the pursuers under or by reason of the sub-contract. The pursuers have raised the present action in which they claim that a sum in excess of £400,000 remains due to them by the defenders. The defenders have lodged defences which include a plea that the action be sisted for the purposes of arbitration, maintaining that Clause 41 (as adapted to the sub-contract) is incorporated into the sub-contract. The issue before me is whether such a clause was so incorporated. It is not disputed that, if it was, the action should be sisted for arbitration.

[3] Although resolution of this issue turns largely on consideration of documents and of the applicable law, the defenders also rely on certain post-contractual conduct on the part of the pursuers. Parties agreed that in respect of three matters touching on such conduct (and one very limited matter occurring at an earlier stage) oral testimony should be adduced. I heard a short proof, to the effect of which I shall return, dealing with those matters. Parties' contentions, however, turned largely on agreed documents and on legal argument.

[4] It is plain that, as not uncommonly occurs, no very close attention was given, at the time when these parties were negotiating the sub-contract, to the implications for their contractual relationship of the manner in which the terms of the main contract were formulated. References were undoubtedly made in the documentation to the conditions, including Clause 41, which formed part of that main contract. But no specific exercise of adapting the terms of those conditions (including that clause) to the sub-contract situation was at that time undertaken. Accordingly, a difficult problem is now presented as to the true legal effect of the parties' communings.

[5] I was favoured with a careful and thorough analysis of the documentation and of the applicable law by Mr Borland for the defenders and by Mr McLean for the pursuers. Mr Borland relied principally on certain propositions which he drew from my decision in Babcock Rosyth Defence Ltd v Grootcon (UK) Ltd 1998 S.L.T. 1143. Mr McLean also cited Brightside Kilpatrick Engineering Services v Mitchell Construction (1973) Ltd [1975] 2 Ll.L.R. 493, Parklea Ltd v W & J R Watson Ltd 1988 S.L.T. 605, Aughton Ltd v M F Kent Services Ltd [1991] 31 Con.L.R. 60, Comorex Ltd v Costelloe Tunnelling (London) Ltd 1995 S.L.T. 1217 and Miller Construction Ltd v Trent Concrete Cladding Ltd, Lord Penrose, 4 August 1995, unreported. He also referred to Goodwins, Jardine & Co Ltd v Charles Brand & Son (1905) 7 F. 995. Mr Borland's primary submission was that, as a result of the parties' communings leading to the conclusion of the sub-contact (which was ultimately concluded by the commencement of work, there being no communing expressly concluding the bargain), there had been incorporated into that contract, among other conditions, Clause 41 (adapted to meet the circumstances of the sub-contract). Mr McLean's primary submission was that, while references to the main contract conditions had been made in the parties' communings, those references had no greater legal effect than what Lord Jauncey described in Parklea Ltd v W & J R Watson Ltd at p. 608 A-B when he said:

"... I consider that the parties have not incorporated the main contract provisions in toto into the sub-contract and that the purpose[s] of [certain words relied on by the defenders] was to make plain that the sub-contract must be capable of performance within but not necessarily upon the terms and conditions of the main contract."

[6] The communings between the parties may be summarised as follows. On 8 December 1997 the defenders sent to the pursuers a "Standard Enquiry Sheet" in which they sought a price for the stonework element in the Lighthouse development. That document included the statement -

"All work executed under sub-contract will be subject to the Terms and Conditions of the Main Contract, Specifications and Drawings which Sub-contractors are requested to examine. The submission of an offer will be taken as evidence that the said General Conditions of Contract, Specifications and the Drawings have been inspected and agreed."

It was then stated that the documents referred to might be inspected at a specified office of the defenders. The Standard Enquiry Sheet also contains the statement -

"Sub-contractors submitting offers on their own Form of Tender containing Conditions at variance with the foregoing will nevertheless be held bound by the General Conditions of Contract as mentioned above."

By fax and by letter both of 5 January 1998 the pursuers responded providing a quotation in the form of a priced bill of the stonework element. The letter also set out certain numbered items which the pursuers asked the defenders to take into account when considering the offer. Further discussions led to revised prices being marked up on a fax transmitted on 12 January. On 22 January a document entitled "Sub-Contract: Pre Award Agreement" was completed and signed by both parties. This contained several entries to which I shall return. Certain revisals, immaterial for present purposes, were made to that document on 27 March. On 31 March the defenders wrote to the pursuers stating:

"We hereby accept your offer of 12 January 1998 for Stonework at the above project less 3.5% Main Contractors Discount, all in accordance with the same Specification, Terms and Conditions of Contract ruling between ourselves and our Employer. These conditions will take precedence over any you may have submitted with your offer. Accordingly, we enclose our official Order No.53559."

This letter then stated the estimated commencement and completion dates for the sub-contract works and continued:

"We also enclose to complete Contract Records:

(a) BOQ Prelims A/1-A/15

(b) Specification F20, F21, F30

(d) Drawings - As listed within Bill of Quantities and Specification

(e) Pre Award Agreement dated 22 January 1998 revised 27 March 1998."

Arrangements for payment were stated which included the statement "Payment will be made to you at monthly intervals within 35 days of Architect's Certificate." On the same day (31 March) the defenders' Purchase Order was issued. On 14 April the pursuers by fax requested that the defenders append to their Order certain of the numbered items contained in the pursuers' letter of 5 January. Also on 14 April the pursuers wrote to the defenders stating:

"We would acknowledge receipt of your letter... dated 31 March 1998 accepting our offer of 12 January 1998 for stonework to the above project, as amended and agreed at the pre award meetings of 22 January and 27 March 1998 and additionally Items 1, 2, 4, 5, 6 & 7 of our original letter of offer dated 5 January 1998."

Sometime thereafter, without any express response to the communings of 14 April, work was begun by the pursuers on the sub-contract works.

[7] The "Pre Award Agreement" referred to above was a pro forma under the defenders' name with provision for details to be inserted against various headings. Under the heading "Sub-Contractor Particulars" were inserted the name and other details of the pursuers. Under the heading "1.0 Main Contractor Details" were inserted, among other particulars, -

"1.1 Contract JCT 80 LA EDITION WITH QUANTITIES CONTRACTORS DESIGNED PORTION

...

1.4 Liquidate and Ascertained Damages £12,500/WK

...

1.7 Main Contract Conditions PRELIMINARIES PAGES A/1-A/15."

Under the heading "2.0 Sub-contract price details" were inserted, together with other financial details, the following -

"2.5 The Sub-Contractor accepts that he fully understands the concept of work and has quoted in accordance with drawings, specification and Contract Conditions. No claim will be allowed through lack of knowledge of these documents.

2.6 Any terms and conditions included in the Sub-Contractor's quotation are deleted in favour of the Main Contract Conditions and this agreement.

2.7 Documents to be incorporated and form part of the agreement:

2.7.1 Prelim pages A/1-A/15."

Various other aspects, including payment arrangements, were set out in subsequent sections.

[8] The main contract Preliminaries pages A/1-A/15 referred to in the "Pre Award Agreement" included particulars of the Employer, the Architect and the Quantity Surveyor under that contract, the Standard Conditions applying to it and a schedule of clause headings and details of amendments and modifications to those Conditions. Among the clauses there referred to was Clause 41 in respect of which it was indicated that the version of that clause set forth in the Scottish Supplement applied. Also among those pages was an "Abstract of Conditions" relative to the main contract. That set out particulars applicable in respect of specific Conditions, including the dates of possession and of completion, the rate of liquidate and ascertained damages, the period of interim certificates and matters relative to Clause 41, namely, (1) that the person to appoint as arbiter, failing agreement in that regard between the parties, was the Chairman or Vice-Chairman of the Scottish Building Contract Committee and (2) that Clauses 41.2.1. and 41.2.2 were to apply.

[9] As stated earlier, Mr Borland relied principally on certain propositions drawn from Babcock Rosyth Defence Ltd v Grootcon (UK) Ltd. The first occurs in a passage at p. 1149 C-F. In it I expressed the view -

"When parties make reference to a set of conditions designed primarily for use in another contract but do not expressly adapt those conditions to meet the circumstances of their own relationship, it is often difficult to determine with confidence the contractual effect. Where, on the one hand, the circumstances demonstrate a plain common intention to incorporate terms, albeit expressed in language designed primarily for another purpose, the court will, where it is possible to do so without substantially rewriting the parties' bargain, give effect to the parties' plain common intention by incorporating terms subject to appropriate linguistic adaptation; that adaptation is made on the basis of an implication that the parties must necessarily have intended it... Where, on the other hand, the common intention is not plain or there are major difficulties about linguistic adaptation, the result will be otherwise. The court cannot carry out a wholesale rewriting of the parties' contract simply because there is a vague and undeveloped indication that they had an external set of conditions in mind... Even in cases where incorporation subject to linguistic adaptation is possible and appropriate, there may yet remain a question as to the extent to which conditions are so incorporated. Much will depend on the terms of the contractual communings in any particular case."

It was the second sentence in that passage on which Mr Borland first relied. He also relied on a later passage at p. 1150L-1151A where the particular matter of incorporation of an arbitration clause is discussed. It is in the following terms:

"In my view the proper approach under Scots law is, while not requiring an express reference to an arbitration clause as a prerequisite to its incorporation, to hold it to have been incorporated only where it is in all the circumstances clear that the parties intended to embrace that clause within the scope of the clauses to be incorporated. Any difficulty or impracticability in adapting such a clause to the circumstances of the subcontract is also, in my view, a relevant consideration."

[10] Mr Borland submitted that the key issue was identifying the plain common intention of the parties. It was plain in all the circumstances, he argued, that the parties intended to apply the main contract conditions to the sub-contract and to embrace the arbitration clause among the clauses to be incorporated. Clause 41, albeit not capable of being applied literally and in all respects to the sub-contract situation, could be adapted to the circumstances of it.

[11] The critical issue between the parties at this stage is whether Clause 41 (as adapted) has effectually been incorporated as a term of the sub-contract. That clause was not specifically discussed in the communings between the parties, although it is one of a number of clauses mentioned within pages A/1 to A/15 of the Bills of Quantities referred to in those communings. Mr Borland's submission rested on the proposition that there was a general incorporation of the mentioned clauses (subject to appropriate adaptation), within which generality the arbitration clause was embraced. I am unable to accept that proposition. As Mr McLean pointed out, there are a number of clauses referred to in the Preliminaries, the incorporation of which would be contradictory of or inconsistent with the arrangements between the pursuers and the defenders. For example, a principal difference between the main contract and the sub-contract is that the former provided for functions to be discharged by third parties (such as the Architect and the Quantity Surveyor), while the latter makes no such provision. Those third party functions in the main contract included those of valuation and certification of amounts due under it; payment to the main contractor of amounts specified on Interim Certificates was due within 14 days of the issue of each such Certificate (Clause 30.1). By contrast, the Architect and the Quantity Surveyor had no functions under the sub-contract, the sub-contractor being entitled to payment from the main contractor (automatically) within 35 days of the issue to the main contractor of a relative Architect's Certificate under the main contract (letter of 31 March 1998, reiterating an entry to the same effect in the Pre Contract Award). Other clauses referred to in the Preliminaries and/or the Abstract of Conditions, such as insurance of existing structures (Clause 22C) and Liquidate and Ascertained Damages (Clause 24.2) cannot, even by adaptation, be accommodated to the sub-contract situation. Further clauses (such as Clauses 5.8, 7, 8.4.2 and 22D.1) are, on any attempt at adaptation, unintelligible. The difficulties of effecting incorporation in such circumstances were highlighted by Lord Penrose in Miller Construction Ltd v Trent Concrete Cladding Ltd, especially at pps. 30-1. An exercise of general incorporation, even with an attempt at adaptation, will in the present circumstances simply not work.

[12] It does not follow that the conditions applicable to the main contract have no significance for the sub-contract. The parties plainly intended that the sub-contract should be on terms that its due performance would not give rise to conflict with the performance of the main contract. Any special conditions submitted by the sub-contractor (it appears that none were) were to yield precedence to the terms and conditions ruling between the Employer and the main contractor (letter of 31 March 1998). That would be consistent with an analysis by which the sub-contract was to "be capable of performance within but not necessarily upon the terms of the main contract" (Parklea Ltd v W & J R Watson Ltd, per Lord Jauncey at p. 608B). It may also be that by implication certain of the positive requirements of the main contract (such as any as to the quality of work or of materials) became terms of the sub-contract. But, as issues may subsequently arise on this latter aspect, I reserve my opinion on it.

[13] An analysis of capability of performance within rather than necessarily upon the terms of the main contract is, on a fair reading, consistent, in my view, with the terms of the Enquiry Sheet of 8 December 1997 and the opening paragraph of the letter of 31 March 1998. It may be more difficult to reconcile such an analysis with certain parts of the Pre Contract Award (in particular, para.2.7 as read with para.2.7.1) but any difficulty there must, in my view, yield to the practical effect of the communings taken as a whole. Moreover, the status of the Pre Contract Award is not clear. Although signed on behalf of both parties, its function appears not to have been to conclude a binding agreement between them but rather to reach a preliminary consensus - perhaps for the purpose of securing the Architect's consent for the engagement of the pursuers as domestic sub-contractors (see main contract conditions, Clause 19.2.2). When the defenders came by their letter of 31 March to accept the pursuers' offer for Stonework it was "all in accordance with" the Specification, Terms and Conditions of the main contract, emphasis being placed on the precedence of those conditions over any submitted by the pursuers. The Preliminaries A/1-A/15 were simply enclosed with other documents "to complete Contract Records". This falls short, in my view, of a general incorporation of the whole provisions of these Preliminaries.

[14] The difficulties of incorporation of the arbitration clause by general incorporation of the main contract conditions are compounded by the difficulties of any attempt to apply Clause 41 sensibly to the sub-contract situation. That clause, in the form contained in the Scottish Supplement, is, in so far as material for present purposes, in the following terms:

"In the event of any dispute or difference between the Employer and the Contractor arising during the progress of the Works or after completion or abandonment thereof in regard to any matter or thing whatsoever arising out of this Contract or in connection therewith including:

any matter or thing left by this Contract to the discretion of the Architect/the Contract Administrator, or

the withholding by the Architect/the Contract Administrator of any certificate to which the Contractor may claim to be entitled, or

the adjustment of the Contract Sum under Clause 30.6.2; or

the rights and liabilities of the parties under clauses 27, 28, 32 or 33, or

unreasonable withholding of consent or agreement by the Employer or the Architect/the Contract Administrator on his behalf or by the Contractor (but excluding any such dispute or difference arising under clause 31 to the extent provided in clause 31.9 and under clause 3 of the VAT Agreement), then the said dispute or difference shall be and is hereby referred to the arbitration of such person as the parties may agree to appoint as Arbiter or failing agreement within 14 days after either party has given to the other written notice to concur in the appointment of an Arbiter as may be appointed by the person named in Appendix III whom failing by the Chairman or Vice-Chairman of the Scottish Building Contract Committee. Arbitration proceedings shall be deemed to have been instituted on the date on which the said written notice has been given.

41.1 No arbitration shall commence without the written consent of the parties until after determination or alleged determination of the Contractor's employment or until after Practical Completion or alleged Practical Completion or abandonment of the Works unless it relates to

41.1.1 the nominations of an Architect/the Contract Administrator or Quantity Surveyor to a vacant appointment

41.1.2. whether or not the issue of an instruction is empowered by these Conditions

41.1.3 whether or not a certificate has been improperly withheld or is not in accordance with these Conditions

41.1.4 Clause 4.1 in regard to a reasonable objection by the Contractor, clauses 8.4, 8.5.18.1 or 23.3.2 (so far as these relate to the Contractor's withholding of consent) and clause 2.7, 25 and clause 2.8

41.1.5 whether a determination under clause 22C.4.3.1 will be just and equitable.

41.2.1 Provided that if the dispute or difference to be referred to arbitration under this Contract raises predominantly issues which are substantially the same as or are connected with issues raised in a related dispute between:

the Employer and any Nominated Sub-Contractor under Agreement NSC/W/Scot as applicable, or

the Contractor and any Nominated Sub-Contractor under Sub-Contract NSC/A/Scot, or

the Contractor and/or the Employer and any Nominated Supplier whose contract of sale with the Contractor provides for the matters referred to in clause 36.4.8.2,

and if the related dispute has already been referred for determination to an Arbiter who has already been appointed, the Employer and the Contractor hereby agree

that the dispute or difference under this Contract shall be referred to the Arbiter appointed to determine the related dispute;

that such Arbiter shall have the same powers and discretions as are enjoyed by the Court of Session in respect of the joining of one or more defenders or joining co-defenders or third parties and he and the parties shall be entitled to apply the same procedures with appropriate modifications as are available under rules of court for such purposes and he may make all directions and awards including part, interim and final awards as he considers appropriate for these purposes.

(Clause 41.2.2 makes further provision concerning a 'related dispute').

...

41.3 Subject to the provisions of clauses 4.2, 30.9, 38.4.3, 39.5.3 and 40.5 the Arbiter shall have power to

41.3.1 direct such measures and/or valuations as may in his opinion be desirable in order to determine the rights of the parties

41.3.2 ascertain and award any sum which ought to have been referred to or included in any certificate

41.3.3 open up, review and revise any certificate, opinion, decision, requirement or notice (except where clause 8.4 is relevant, a decision of the Architect/the Contract Administrator to issue instructions pursuant to clause 8.4.1)

41.3.4 determine all matters in dispute which shall be submitted to him in the same manner as if no such certificate, opinion, decision, requirement or notice had been given

41.3.5 award compensation or damages and expenses to or against any of the parties to the arbitration

... ."

Other provisions in the clause (which are not set out here) could be adapted to the sub-contractor situation without undue violence to the language used.

[15] However, the parts quoted include provisions which are wholly inept to the sub-contract situation. The opening provisions contemplate a contractual relationship under which a range of matters falls to be decided in the first instance by a third party ("the Architect/the Contract Administrator"); no such matters are vested in any third party under the sub-contract. It further contemplates adjustment of the "Contract Sum" by an elaborate clause which has no place in the sub-contract. Clause 27 (determination by the Employer) and Clause 28 (determination by the Contractor) also contemplate action by "the Architect/the Contract Administrator". Clauses 32 and 33 are numbers "not used" in the relative Standard Form. While the particular matters listed in this part of Clause 41 are not exhaustive of the range of possible disputes or differences, their inapplicability to the relationship between the main contractor and the sub-contractor raises at least an initial doubt whether, whatever the position with other clauses, there was in relation to the arbitration clause a plain common intention that it (even with adaptation) be a term of the sub-contract.

[16] As one gives consideration to the following provisions of the clause, that doubt becomes overwhelming. Mr Borland accepted that the opening part of Clause 41.1 could not readily be translated to the sub-contract situation. Clauses 41.1.1 and 41.1.2 clearly have no place in the sub-contract and, if Clause 41.1.3 can be adapted, it is in substance a very different provision from that in the main contract. To adapt Clause 41.1.4 in relation to Clause 4.1, it would be necessary in the latter clause to read main contractor for "the Architect/the Contract Administrator" as well as for "the Employer". Other clauses referred to in Clause 41.1.4 are in the main unintelligible when sought to be applied to the sub-contract. Clause 41.1.5 cannot apply since the insurance provisions under Clause 22C.4.3.1 have no place in the sub-contract. The provisions in Clause 41.2.1 relative to related disputes are not readily applicable to the relationship between a main contractor and a domestic sub-contractor. The powers conferred on the Arbiter under Clause 41.3 (other than those in Clause 41.3.5 and possibly those in Clause 41.3.1) cannot satisfactorily be applied to the sub-contract.

[17] In Babcock Rosyth Defence Co Ltd v Grootcon (UK) Ltd, having reviewed the existing authorities, I endeavoured at pps. 1150L-1151A to formulate the proper approach relative to incorporation of an arbitration clause. In that case I concluded that there was no such incorporation. Having, with the assistance of counsel, revisited those authorities (so far as appears, there is no more recent guidance in this difficult field), I see no reason to depart from the formulation expressed there - other than to emphasise that, as appears from the discussion which precedes that passage, the special position of an arbitration clause (involving as it does an ouster of a party's right to vindicate his claim by litigation) may in many circumstances render it the more difficult to demonstrate that it is clear that the parties intended to embrace such a clause.

[18] In the whole circumstances here I am not satisfied that a common intention to that effect has been demonstrated. Although Clause 41 appears among the clauses referred to in the Preliminaries A/1-A/15 it does so only as part of a general narration of clauses some of which, as have been seen, cannot have a place in the sub-contract. Moreover, the difficulties of adapting Clause 41 to the sub-contract situation (involving as it would wholesale surgery and rewriting) strongly negative effectual incorporation. The fact that a surgically altered or dismembered arbitration clause could work in the sub-contract situation does not import that it was intended that such a clause be incorporated.

[19] Mr Borland also relied on certain post-contractual actings on the part of the pursuers. He disavowed any intention to argue that post-contractual actings were admissible for the purpose of interpreting the parties' bargain. He was content for present purposes to accept the observations of Lord Reid and others in James Miller & Partners Ltd v Whitworth Street Estates (Manchester) Ltd [1970] A.C. 583 and in Schuler AG v Wickman Machine Tool Sales Ltd [1974] AC 235 (to the effect that post-contractual actings are not admissible for the purpose of construing a written contract) as currently authoritative notwithstanding observations in certain earlier Scottish cases (such as Baird's Trustees v Baird & Co (1877) 4 R. 1005 and Boyle & Co v Morton & Sons (1903) 5 F. 416) which might arguably be to a different effect. Nor did he maintain that the pursuers were by their post-contractual actings personally barred or on any like legal basis disentitled to maintain their present contentions as to the meaning and effect of the parties' bargain. He did, however, rely on the proposition that reference to post-contractual actings was permissible for the purpose of showing whether a particular term or terms was or were part of a contract. The principal but not the only authority relied on by him was Port Sudan Cotton Co v Govindaswamy Chettiar & Sons [1977] 2 Ll.L.R. 5. Before discussing such authorities it is appropriate to consider the relative factual position as disclosed in the evidence.

[20] On 23 July 1998, while the sub-contract was being performed, Mr Graeme Frame, a senior quantity surveyor employed by the pursuers, wrote on their behalf to the defenders confirming certain matters which had arisen at a meeting the previous day. These matters included the consequences of certain requirements which the Architect had made in relation to stone indenting and the renewal of structurally unsound lintels. A passage towards the end of that letter is in the following terms:

"In accordance with the contract conditions, being the Standard Form of Building Contract Local Authorities Edition with Quantities (1980 Edition) and the amendments detailed under Clause A20 of the Preliminaries section of the Bill of Quantities we would formally advise under Clause 25 of same that it has become reasonably apparent that the progress of the works is being delayed.

In our opinion the reason for the delay in our works is due to compliance with Architect's instruction issued under Clause 13.2, which we feel to be a relevant event under Clause 25.4.5.1.

The Architect's Instructions relative to our Extensions of Time are:

(a) Additional stone indenting all as per our previously provided schedules and the marked up drawings which are being issued by the project Architect.

(b) Renewal of structurally failed lintels to the Mitchell Street and Lane Elevations all as per the marked up drawings issued...".

[21] There was no evidence as to what, if anything, transpired on the defenders' receipt of that letter.

[22] At a later stage an issue arose as to the appropriate valuation basis on which the pursuers should be paid for certain elements of the sub-contract works. The pursuers instructed Ms Janey Milligan, a Chartered Quantity Surveyor with various surveying and legal qualifications, to report to them on her view as to the appropriate valuation basis. She prepared a report on this matter dated "January 2000", though it appears to have become available to the pursuers only some time into the month of February of that year. A meeting had been arranged for 17 February between representatives of the defenders and representatives of CBA Surveyors, the Quantity Surveyor under the main contract. Mr Turner, a director of the pursuers, on that day sent Ms Milligan's report by fax to Mr Clark, the Chief Surveyor of the defenders, care of the offices of CBA Surveyors. He did so with a view to the Quantity Surveyor being persuaded that the basis of valuation supported by Ms Milligan was correct. If the Quantity Surveyor were so persuaded it was likely that a larger sum would be paid, in respect of the elements in question, by the Employer to the defenders as main contractor, that larger sum (or part of it) then being passed on to the pursuers as sub-contractor.

[23] In her report Ms Milligan narrates the documentation with which she had been supplied by the pursuers (which apparently included the Preliminaries A/1-A/15 and the Pre Award Agreement) and expressed her understanding of the sub-contract position as follows:

"It is understood that Melville Dundas entered into a contract with the Employer on the basis of the Standard Form of Building Contract Local Authorities Edition with quantities (1980 Edition) with amendments and modifications all as listed at page A/6 of the Bill of Quantities Preliminaries A/1-A/15 as listed above. The terms and conditions listed in A/1-A/15 were incorporated into the sub-contract agreement made between Melville Dundas and Cameron (Scotland) Ltd. These terms and conditions state that the works measured in the Bill of Quantities are measured in accordance with The Standard Method of Measurement of Building Works: Seventh Edition."

On that understanding of the sub-contract position (and under reference to particular clauses in the Standard Form) Ms Milligan concluded that the elements of work in question should be valued on a particular basis.

[24] After the conclusion of the sub-contract works the pursuers and the defenders were in dispute in relation to the amount due to the pursuers thereunder. The pursuers instructed The Vinden Partnership (claim consultants with an address in England). The Vinden Partnership prepared a document in three substantial volumes setting out and quantifying the pursuers' claims under the sub-contract. The claim document was expressly stated therein to have been "prepared for Arbitration". The framer of the document proceeded on the basis that the Standard Form Conditions (including Clause 41) applied mutatis mutandis to the sub-contract. This document was in due course presented by the pursuers to the defenders in furtherance of their claim.

[25] No resolution satisfactory to the pursuers having been achieved, they raised the present action. The sum sued for in it is substantially the same as the balance claimed in the claim document. The pursuers lodged that document in process. They used diligence on the dependence of the action. At a hearing before Lord Macfadyen on the defenders' motion to recall that diligence, the pursuers' counsel, in response to a contention that the amounts of the claim were unspecifically averred, referred to the claim document as providing the appropriate specification. Mr Borland did not, however, maintain that, by making use of that document at that hearing or otherwise, the pursuers were personally barred or otherwise disentitled on equitable or other grounds from maintaining that as a matter of law Clause 41 formed no part of the bargain between the parties.

[26] In my opinion it is clear on the evidence that at various stages the view was held by the pursuers and their advisers that at least some of the main contract conditions (subject to some form of adaptation) formed part of the legal framework of the sub-contract. Although Mr Frame sought in evidence to explain the reference in the letter of 23 July 1998 to the main contract conditions and, in particular, to Clauses 25 and 13 as made merely in the context of informing the defenders that the pursuers were experiencing delays, I found that explanation quite unconvincing. The letter cannot, in my view, be read otherwise than as a written notice given on the basis that Clause 25 was part of the sub-contract terms and in the belief that, to protect their position in the circumstances of the delays which had occurred, it was necessary for the pursuers to give such a notice. The sending of that notice is, in my view, consistent only with a belief held or assumption made by the pursuers at that time that at least Clauses 25 and 13 had been incorporated into the sub-contract. The later events tend to confirm that the same or a similar approach continued to be adopted for some time. Ms Milligan, having been provided by the pursuers with relative documentation, formed and expressed her conclusions on the basis that the main contract conditions were incorporated into the sub-contract. Her conclusions expressed on that basis were communicated to the defenders. Although there may have been little time for the pursuers to digest Ms Milligan's report before it was passed on, there is nothing to suggest that at any stage they demurred from her analysis. Indeed, up to at least the hearing for recall of the diligence on the dependence the pursuers and their legal advisers were proceeding on the basis that the pursuers' claims were to be identified and calculated under reference to terms which included the main contract conditions. These were set out in the Vinden document which the pursuers had instructed and which they used for the purposes of this action. If the pursuers had truly believed that the main contract conditions, including the arbitration clause in them, were inapplicable to their relationship with the defenders it is hardly conceivable that they would have gone to the trouble (and no doubt expense) of instructing the Vinden document or, in any event, would not on first sight of it have recognised that it proceeded upon what they believed to be a false premise.

[27] Accordingly, I am satisfied that from at least some time in the course of the sub-contract works until some time after this action was commenced the pursuers believed that the main contract conditions, at least to some extent, applied to their relationship with the defenders. Whether they initially appreciated the potential implications of that for the forum of dispute resolution is another matter.

[28] However, the question remains of the significance, if any, of the existence of such a belief. In Port Sudan Cotton Co v Govindaswamy Chettiar & Sons a question arose as to the terms of a bargain for the sale of cotton. In the Court of Appeal it was held (unanimously) that the bargain was concluded by various communings culminating in the posting of a document on 2 July 1973. However, Lord Denning M.R. went on to make certain observations as to the effect of conduct of the parties subsequent to that date. In doing so he acknowledged that it had been said in the House of Lords (in James Miller & Partners Ltd v Whitworth Street Estates Ltd and Schuler AG v Wickman Machine Tool Sales Ltd) that it was illegitimate to use as an aid to the construction of a contract anything which the parties said or did after it was made but went on (at p. 11) to state:

"I am sorry about this, because I believe it is contrary to the rule in every other civilised system of law, including the other countries of the Common Market. It is a pity that, when contracts cross the frontiers so much nowadays, we should have different rules of interpretation."

He then indicated that, while that rule fell to be applied, he saw no reason to extend it any further. He continued:

"Take the question we have here. It is whether there was a contract concluded at all; or, if there was, what were the terms of it. If a party says in a letter afterwards: 'I know we agreed upon terms and this is one of them': that is clearly an admission by him which can be put in evidence: just as much as when he admits it on oath in the witness box."

After a reference to a decision in the Court of Exchequer he continued:

"Following that case, its seems to me that if a party, by words or conduct, admits at a later date that a contract was concluded between him and the other; or admits that it contains such and such a term; then that admission is receivable in evidence and [may] be given such weight as the court thinks proper. Likewise the subsequent conduct of the parties is admissible to show that the contract was made and what were its terms."

He then referred to Ferguson v Dawson [1976] 1 WLR 1213, particularly per Browne L.J.

[29] Neither Browne L.J., who was also the second member of the court in Port Sudan, nor Sir John Pennycuick, the third member of that court, expressed any views in that case on the matter of post-contractual conduct. Lord Denning's observations on that topic were clearly obiter, he having taken the view that the contemporaneous contractual communings were themselves to the effect contended for by the Indian buyers. So far as counsel in the present case were able to discover, Lord Denning's observations have not been the subject of subsequent judicial comment, though in Chitty on Contracts (28^th Edition) at para.12-124 the proposition that subsequent actings are admissible "to show whether there was a contract and what the terms of that contract were" is supported by a footnote including a reference to Port Sudan. In Treitel - The Law of Contract (10^th Edition) at p. 180 the proposition that evidence of post-contractual conduct "may be admissible to show what the terms of the original contract were" is footnoted by references to Ferguson v Dawson and to one other case (Mears v Safecar Security Ltd [1983] 2 Q.B. 54).

[30] In the present case, although the sub-contract was not constituted by any formal written document, the parties' communings were expressed in written form. No question arises of any term of the bargain having been agreed solely or partially in oral form. Nor has either party suggested that the content of the written communings requires to be explained or elaborated by oral testimony. Where there is a dispute as to the existence in the parties' bargain of some term or terms maintained to have been agreed orally, it may well be legitimate to have regard to evidence of subsequent conduct, by way of admission or otherwise, in seeking to determine what was in fact agreed. Subsequent conduct may also of course bear on establishing additions or variations to a contract. Those, as I understand it, were the matters which Browne L.J. was addressing in Ferguson v Dawson (at p.1229). A partially expressed contract was the matter addressed in Mears v Safecar Security Ltd, per Stephenson L.J. at pps. 77-8. Where, however, the parties' whole contract is admittedly in written form, whether formal or informal, and it is not suggested that any factual matrix requires to be established, no question arises of the existence or otherwise of any term agreed orally or to be inferred from other circumstances. The only question in a situation such as the present is the meaning and effect of the parties' written communings. Standing the rule enunciated in James Miller & Partners Ltd v Whitworth Street Estates Ltd and elsewhere, subsequent conduct cannot assist in resolving the only live issue between the parties. Insofar as Lord Denning's obiter observations in Port Sudan are to a different effect, I must respectfully disagree with them. I note that Browne L.J., while not expressly disagreeing with this aspect of Lord Denning's judgment, did not suggest that the circumstances in Port Sudan were apt for application of the views earlier expressed by him in Ferguson v Dawson.

[31] In the present case all that emerges from the post-contractual conduct of the pursuers is that they entertained and acted on the belief that the main contract terms (or at least some of them) were incorporated into the sub-contract. That belief was essentially one as to the legal effect of the parties' communings at the time the bargain was made. That belief was, as I have construed those communings, erroneous. It is not suggested that, such a belief having been expressed by the pursuers, the defenders acted on it so as in any way to change their position; nor is there any suggestion that the sub-contract was varied. In such circumstances the defenders' subsequent conduct is, in my view, irrelevant to the issue of the nature and effect of the parties' bargain and the pursuers are not precluded from now contending that they are not contractually bound to go to arbitration for resolution of their disputed claims (Schuler AG v Wickman Machine Tool Sales Ltd, especially per Lord Morris of Borth-y-Gest at p. 260).

[32] In the whole circumstances I shall sustain the pursuers' third plea-in-law, repel the defenders' first plea-in-law and put the case out By Order for discussion of further procedure.