Scottish Court of Session Decisions

John Mowlem & Company Plc v. Akeler [2002] ScotCS 150 (28th May, 2002)

EXTRA DIVISION, INNER HOUSE, COURT OF SESSION
Lord President Lord Kirkwood Lady Cosgrove	XA63/01 OPINION OF THE COURT delivered by LORD KIRKWOOD in STATED CASE in ARBITRATION between JOHN MOWLEM & COMPANY PLC Appellant and Claimant; and AKELER (SCOTLAND) LIMITED Respondents: _______

 

 

Act: Currie, Q.C.; Masons, Solicitors, (Appellant and Claimant in the Arbitration)

Alt: Moynihan, Q.C.; Simpson & Marwick, W.S., (Respondents)

28 May 2002.

1. This is a stated case in an arbitration which arises out of a building contract for the design and construction of a commercial development at Hamilton International Technology Park, Blantyre in which John Mowlem & Co. plc (hereinafter referred to as "the claimant") was the contractor and Akeler (Scotland) Limited (hereinafter referred to as "the respondent") was the employer. The contract provided for the design and construction of two detached industrial units, described as Unit A and Unit C, with ancillary parking and facilities and associated infrastructure works (called the Phase A Works), and the internal fitting out of each of the units, comprising design and construction of defined components together with creation of office space, further parking and ancillary fittings (called the Phase B Works). The dispute between the claimant and the respondent arose in relation to the contractual provisions for the aggregate gross internal area of the two units.
2. The building contract comprised an Agreement, Conditions, Preliminaries and Preambles and the Contract Particulars, comprising drawings and specifications. Clause 5.1 of the Agreement provided that it was agreed that if there was

"any conflict or ambiguity between this Agreement (including the Conditions but excepting the Contract Particulars) on the one part and the Contract Particulars on the other part then the provisions of this Agreement as hereinbefore referred to in this Clause 5 and the annexed Conditions shall prevail."

3. Condition 2(2) of the Contract is in the following terms:

"(2) The Contractor warrants to the Employer that the Gross Internal Area of the Units and the constituent parts thereof when constructed will not be less than the areas shown in the Schedule of Areas attached to the annexed Preliminaries and the Units shall have available for use the number of car parking spaces set out in such Schedule of Areas. The Gross Internal Area will be measured in accordance with the Code of Measuring Practice of the Royal Institution of Chartered Surveyors and the Incorporated Society of Valuers and Auctioneers dated November 1993 (Fourth Edition). Such measurement shall be effected in accordance with sub-condition (3) but the Employer's Representative shall carry out such preliminary measurements from time to time as may be reasonably requested by the Contractor (such preliminary measurements to be without prejudice to the final measurement to be effected pursuant to sub-condition (3))."

Condition 2(3)(a) provides inter alia as follows:

"(3)(a) The Contractor shall as soon as possible give written notice to the Employer and the Employer's Representative that the Phase A Works have reached such a state of readiness as to enable the Gross Internal Area of the Units and their constituent parts to be measured...".

4. The Schedule of Areas is in the following terms:

SCHEDULE OF AREAS

		PHASE A		PHASE B
	Unit	Gross Internal Floor Area	Number of car parking spaces	Number of car parking spaces
	A	34,100 sq ft	8	62
	C	27,9000 sq ft	8	52

5. Condition 12 made provision for damages for undersized units and, in particular, Condition 12(2) provides as follows:

"(2) If the Contractor fails to ensure that:-

each of the Units provides in aggregate the following Gross Internal Areas and the following number of car parking spaces:-

Unit A 34,100 sq ft and 8 car parking spaces in the Phase A

Works and 62 car parking spaces in the Phase B Works

Unit C 27,900 sq ft and 8 car parking spaces in the Phase A

Works and 52 car parking spaces in the Phase B Works

then the Contractor will pay or allow to the Employer liquidated and ascertained damages at the rate specified in Appendix 1 hereto for each square foot by which the amount built is below the Gross Internal Area so specified such payment to be made within five(5) working days of demand after the measurement has been agreed or determined pursuant to Condition 2(3) and the Employer may deduct such sum from any monies due or to become due to the Contractor under these conditions or the Employer may recover the same from the Contractor as a debt."

6. In terms of the contract the claimant was obliged to carry out the Phase A Works, but the respondent had a discretion as to whether or not to instruct the claimant to carry out the Phase B Works. In terms of Condition 30(1) the respondent was entitled to give notice to the claimant to commence any part or all of the Phase B Works. Condition 30(4) provided inter alia that if the claimant carried out any of the Phase B Works, the warranty contained in Condition 12(2) should not apply to those works.
7. The arbiter heard evidence in the course of a proof before answer in 1999. The relevant factual situation was not in dispute and is set out in the arbiter's findings-in-fact. The gross internal areas at ground floor level of the units are as follows: Unit A - 30,772 square feet and Unit C - 25,243 square feet, making a total of 56,015 square feet. The drawings of Unit A and of Unit C indicate lines that are noted as "line of mezzanine floor above". The areas represented on the drawings enclosed by the "line of mezzanine floor above" and the adjacent external walls, without any deduction for stairwells, are as follows: Unit A - 3,862 square feet and Unit C - 3,410 square feet, making a total of 7,272 square feet. If these areas were added to the ground floor areas, the total internal areas of the two units would be 63,287 square feet. If the contract required that Unit A provides a gross internal area of 34,100 square feet at ground floor level, then the unit as constructed did not provide that area and, indeed, a building constructed in accordance with the relevant drawing (C4) would not produce that area. Similarly, if the contract required that Unit C provides a gross internal area of 27,900 at ground floor level, the unit as constructed did not provide that area and a building constructed in accordance with the relevant drawing (C5) would not produce that area. Accordingly it was not in dispute that the two units, which had been constructed in accordance with the relevant drawings, did not together provide a gross internal area of 62,000 square feet at ground floor level. In these circumstances the essential question, as the arbiter observes, is whether the contract provided for the areas represented on the drawings as "mezzanine" to be part of the gross internal area of the units.
8. On behalf of the claimant it was contended that the claimant's obligations were to design and construct Units A and C so that (a) if and when both the Phase A Works and the Phase B Works were completed in accordance with the building contract the units would have an aggregate gross internal floor area of 62,000 square feet, (b) a part only of the gross internal floor area of each unit would be accommodated within that unit at ground floor level, with the balance of the gross internal floor area being accommodated at first floor level if and when the respondent issued instructions to proceed with the Phase B Works, and (c) a part only of the gross internal floor area would be accommodated within the Phase A Works, with the balance of that area being accommodated within the Phase B Works if and when the respondent issued instructions to proceed with the Phase B Works. On the other hand, the respondent contended that the claimant's obligations under the contract were to design and construct Units A and C so that on completion of the Phase A Works, Units A and C would have an aggregate gross internal floor area of 62,000 square feet, all at ground floor level. Accordingly, the issue between the parties was whether the two "mezzanine" areas proposed in Phase B could properly be regarded as part of the required gross internal floor area of 62,000 square feet. In that connection it was common ground that the proposed "mezzanine floor" in each unit had not been constructed as part of the Phase A Works, and that the drawings relating to the Phase B Works made no provision for the construction of stairs from the ground floor to the proposed mezzanine floor in each unit. It was also agreed that the respondent had not instructed the claimant to proceed with the Phase B Works.
9. The claimant sought decree in terms of craves 1, 2 and 3 of the amended closed record. In particular, the claimant sought declarator that the warranty in Condition 2(2) had been complied with "in respect that the stipulated gross internal areas are met by aggregating the areas at ground and mezzanine levels", and decree arbitral for payment of the sum of £394,456.20. The arbiter set out his proposed findings, the respective submissions of the parties and his decision, and it is not necessary for us to rehearse what the arbiter has said. His conclusion was that the claimant did not warrant the areas shown on the drawings, but rather warranted the areas shown in the Schedule of Areas and that, in constructing the Phase A Works in accordance with the drawings, the claimant had provided units which were undersized in terms of the contract. He therefore sustained the respondent's second plea-in-law and granted decree of absolvitor.
10. Counsel for the claimant submitted that the arbiter had not given proper content to the words used in Condition 2(2). Counsel conceded that if there was a conflict between the terms of the warranty on the one hand, and the drawings (C4 and C5) which form part of the Contract Particulars on the other, then the terms of the warranty would prevail, and the claimant could not succeed. However, his submission was that the warranty and the drawings could be construed as being consistent with each other. While it was accepted that the gross internal areas on the ground floors of the two units would not satisfy the terms of the warranty, it was proposed, if the Phase B Works were constructed, to have a mezzanine floor in each unit. The measurement had to take place, in terms of Condition 2(3)(a), once the Phase A Works had been carried out and in that measurement account had to be taken of the area of the proposed mezzanine floor, even though it had not been constructed at the time of the measurement and might never be constructed. If the areas of the proposed mezzanine floors were taken into account, as the claimant says they should, then the terms of the warranty were satisfied. Counsel stated that the dispute between the parties related to the proper interpretation of the terms of the contract, and submitted that the contract had to be looked at as a whole, and a construction which gave a meaning to every word and clause of the contract was to be preferred (Gloag on Contract, page 399; and Lewison, The Interpretation of Contracts, 2nd edition, pages 161-2). The arbiter had not paid proper regard to the principle that effect should, if possible, be given to every provision in the contract. It was only permissible to have resort to the terms of Clause 5.1 if it was not possible to give effect to all the contractual provisions. The fact that drawings had been prepared did not affect the interpretation to be placed on the terms of the contract. So far as Condition 2(2) was concerned, content had to be given to the words "and the constituent parts thereof" and "when constructed". In particular, the words "when constructed" were perfectly consistent with the interpretation that the 62,000 square feet had to be provided in the Phase A and Phase B Works, even though the measurement was to take place after the Phase A Works had been completed. The measurement had to take account of the prospective works to be carried out as part of Phase B. The reference to "constituent parts" included the mezzanine floor proposed as part of the Phase B Works. It was clear that the reference in Condition 2(2) was to the prospective capacity of the buildings, not just the completed Phase A Works. Further, in relation to Condition 2(2) it was important to identify the reason for the reference to the Schedule of Areas. While counsel conceded that the terms of the Schedule of Areas were not helpful to his argument, he submitted that they did not have the effect of stipulating that the whole of the 62,000 square feet had to be achieved in the course of the Phase A Works, but simply set out the required areas. The respondent's interpretation was reasonable and Clause 5.1 did not come into play.
11. Counsel for the claimant also founded on the use of the words "in aggregate" in Condition 12(2). The respondent's construction of the contract did not give any content to those words. It was necessary to look for more than had been measured at ground floor level. Condition 12(2) should be read as providing (a) that 62,000 square feet had to be achieved in the course of the works, including Phase A and Phase B, and (b) that 8 car parking spaces were to be provided in the Phase A Works and 62 car parking spaces in the Phase B Works. There was no justification for saying that only the areas comprised in the works that had been carried out could be taken into account. While, at the time of the measurement, the mezzanine floor had not been constructed, there was a framework which would allow it to be built later. Counsel submitted that the construction of the contract advanced by the claimant resulted in complete consistency between all the parts of the contract, although he frankly admitted that the words "amount built" in Condition 12(2) did not sit easily with his construction. On the other hand, the respondent's construction gave no content to the words "and the constituent parts", "when constructed" and "in aggregate" and involved discarding the contract drawings. Counsel then proceeded to criticise the approach taken by the arbiter and submitted that he had not given any content to the phrases on which counsel had sought to found. The arbiter had not appreciated that the warranty related to the gross internal areas of the units as a whole, and was not restricted to the Phase A Works. There was a clearly defined proposal to construct a mezzanine floor in each unit. While it was accepted that the warranty applied only to the Phase A Works, and not to the Phase B Works, that did not have any great significance. If the claimant had carried out the Phase B Works and been in breach of contract, there could be liability in damages at common law. In the circumstances all the questions in the stated case should be answered in the affirmative.
12. Counsel for the respondent began by pointing out that the so-called "mezzanine floor" was described in the contract simply as "first floor slab" and the Phase B Works did not contain any provision for stairs leading to it. The contract was careful to distinguish between Phase A and Phase B, Phase B being the fitting out of the shell of the building. This was a commercial enterprise and the respondent could rent or sell either the shell or the fitted building. All the Phase B Works were contingent and the respondent could instruct that some or all of these works be carried out by the claimant, or decide not to instruct any further work after the Phase A Works had been completed. This was a design and build contract, and the claimant had assumed contractual liability for the design, including the drawings. In the event of a conflict between the conditions and the drawings, the conditions prevailed in terms of Clause 5.1. It was of particular significance that the Condition 2(2) warranty did not apply to the Phase B Works, even if the claimant was instructed to carry them out. An area proposed for possible expansion would not be included in the gross internal area stipulated in the contract, nor would any area not yet constructed but available for construction in the future. In the circumstances the arbiter had reached the correct conclusion. The claimant's interpretation involved reading the warranty in Condition 2(2) as applying to the Phase B Works, which is clearly not the case. The Phase B Works had never been instructed by the respondent but the claimant's interpretation involved the assumption that those works would be carried out. The Schedule of Areas made it perfectly clear that the 62,000 square feet fell into Phase A. The object of providing for the measurement on completion of the Phase A Works was to ensure that the two units, as built, satisfied the requirements as to internal floor area, and involved measuring the areas within the perimeter walls. It was not possible to take into account a mezzanine floor that might never be built. The reference in Condition 12(2) to "amount built" showed that what was being referred to was what had actually been constructed. The claimant's construction sought to re-configure the Schedule of Areas and did violence to section 30(4) by seeking to apply the Condition 2(2) warranty to the Phase B Works. It treated the words "amount built" in Condition 12(2) as including what might, or might not, be built and brought into use in the future. The suggestion that, if the claimant was instructed to complete the Phase B Works and was in breach of contract in doing so, the respondent would have a remedy of damages at common law simply illustrated the weakness in the claimant's interpretation. In the circumstances it was submitted that all the questions in the stated case should be answered in the negative.
13. The dispute between the parties relates to the proper construction to be placed on the terms of the contract in relation to the provision of the gross internal floor area of the two units. Having considered the relevant contractual provisions and the submissions of the parties we are of the opinion that the construction put forward by the respondent is the correct one.
14. Condition 2(2) states that the contractor warrants that the gross internal area of the units and the constituent parts thereof when constructed will "not be less than the areas shown in the Schedule of Areas attached to the annexed Preliminaries...". The Schedule of Areas therein referred to shows quite clearly, in our opinion, that the whole gross internal floor area of 62,000 square feet is to be provided in the Phase A Works. This is consistent with Condition 12(2) which provides for the payment of liquidated and ascertained damages if the contractor fails to ensure (1) that Unit A provides "34,100 sq. ft. and 8 car parking spaces in the Phase A Works and 62 car parking spaces in the Phase B Works" and (2) that Unit C provides "27,900 sq. ft. and 8 car parking spaces in the Phase A Works and 52 car parking spaces in the Phase B Works". Further support for the respondent's contention that the whole 62,000 square feet of gross internal floor area is to be provided in Phase A is to be found in the terms of Condition 2(3)(a) which provides inter alia that the gross internal floor area is to be measured when the Phase A Works have reached such a state of readiness as to enable this to be done. The mezzanine floor was not, of course, included in the Phase A Works. While the first floor slab formed part of the Phase B Works it was clear from the terms of the contract that it might never be built, as the respondent had a discretion whether or not to instruct the claimant to carry out the Phase B works. It was always open to the respondent to decide to sell or rent the shell of the building after the Phase A Works had been completed and it is agreed that the respondent has not, in fact, instructed the Phase B Works to be carried out. It is also, in our opinion, of significance that, by virtue of Condition 30(4), the Condition 2(2) warranty relating to the gross internal area does not apply to the Phase B Works. If the whole 62,000 square feet of internal floor area was to be provided in the Phase A Works then there would, of course, be no need for a warranty regarding undersizing in relation to the Phase B Works. Further, Condition 12(2) provides for the payment of damages for each square foot by which "the amount built" is below the specified gross internal area following the measurement referred to in Condition 2(3)(a), a measurement which was to take place when the Phase A Works were close to completion. While the claimants sought to found on the use of the words "and the constituent parts thereof when constructed" in Condition 2(2) and the words "in aggregate" in Condition 12(2), we have not been persuaded that they detract from the interpretation of the contractual provision advanced by the respondent. We appreciate that if the respondent's interpretation is correct, there is a conflict between the Conditions on the one hand and the drawings on the other, in respect that Units A and C constructed in accordance with drawings C4 and C5 would not provide a total of 62,000 square feet at ground floor level, but Clause 5.1 provides that, in the event of a conflict between the Conditions and the drawings, the Conditions will prevail.
15. On the whole matter we have reached the conclusion that, on a proper construction of the contract, the whole 62,000 square feet of gross internal floor area was to be provided at ground floor level in the two units in the Phase A Works and that, in assessing the gross internal floor area, no account was to be taken of any floor area at mezzanine level. We shall therefore answer all the questions in the negative.