Scottish Court of Session Decisions

You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> Brican Fabrications v. Merchant City Developments [2003] ScotCS 201 (17 July 2003)
URL: http://www.bailii.org/scot/cases/ScotCS/2003/201.html
Cite as: [2003] ScotCS 201

[New search] [Help]

Brican Fabrications v. Merchant City Developments [2003] ScotCS 201 (17 July 2003)

EXTRA DIVISION, INNER HOUSE, COURT OF SESSION

Lord Marnoch

Lord Hamilton

Lord Caplan

XA131/02

OPINION OF LORD MARNOCH

APPEAL

From the Sheriffdom of Glasgow and Strathkelvin at Glasgow

BRICAN FABRICATIONS LIMITED

Pursuers and Appellants;

against

MERCHANT CITY DEVELOPMENTS LIMITED

Defenders and Respondents:

_______

Act: Mackenzie, Solicitor Advocate; Masons (Pursuers and Appellants)

Alt: Edward, Solicitor Advocate; Maclay Murray & Spens (Defenders and Respondents)

17 July 2003

[1] This is an appeal against an interlocutor of the sheriff principal by which, inter alia, he recalled a decree for payment in favour of the pursuers and present appellants and granted absolvitor to the defenders and present respondents.

[2] As the pursuers' plea-in-law makes clear, the action between the parties is based on contract and, in order to make sense of what transpired before us, it is necessary, in the first instance, to set out in full the findings-in-fact made by the sheriff. These are as follows: -

"1. The Pursuers are steel fabrication and welding contractors.

2. In about April 1988 the Defenders were engaged in a project to

refurbish and develop the former Candleriggs Market Building for leisure use. Prior to that time they had endeavoured to manage the project on their own account but had experienced difficulties in doing so. In April 1998 they contracted with Circle Construction Limited ("Circle") whereby Circle would be employed by the Defenders as main contractors in the execution of the said project. No. 6/3 of Process is the Trade Contract between the Defenders and Circle, signed in May 1998 though dated 30^th April 1998 ("the main Contract").

3. In terms of the main contract, Gilchrist Briggs Construction Managers

were appointed project managers of the said project.

4. In terms of the main contract Circle were responsible for the

procurement and appointment of all sub-contractors required for completion of the project.

5. An essential component of the project was the supply and erection of

steel fabrication works.

6. In view of the history of the project prior to the signature of the main

contract the programming of the project was critical. The sub-contract for the said steel fabrication works should have been awarded within two or three months of formation of the main contract, that is to say by June or July 1998.

7. Circle were unable during that period to find a sub-contractor willing

and able to enter into a sub-contract for the completion of the steel fabrication works. They were not candid with the Defenders concerning their difficulties, and led the Defenders to understand that a sub-contractor was soon to be appointed for said works.

8. In around August 1998 Mr Matthew Ferrie, then contracts manager for

Circle, made a telephone call to Mr Crawford, contracts director of the Pursuers, to ask whether the Pursuers would be interested in executing the said steel fabrication works as sub-contractors to Circle.

9. Mr Crawford knew Mr Ferrie from the latter's previous employment.

The Pursuers had no previous dealings with Circle and in particular were not aware of Circle's financial status. Mr Crawford was reluctant to enter into a sub-contract with them because of these factors. He made enquiries through a supply company with whom the Pursuers had a trading relationship, and received information that Circle "were only good for £20,000", that being a sum significantly less than the anticipated sub-contract value. The Pursuers received some drawings from Circle but were disinclined to enter into a sub-contract and made no approach to them.

10. About six weeks after Circle's initial approach, the Pursuers received a

further approach from them by telephone. The Pursuers' response was non-committal, since Mr Crawford did not wish to embarrass Mr Ferrie by an outright refusal of the sub-contract. The Pursuers did not intend, however, to enter into a sub-contract with Circle.

11. The reason for the pursuers' unwillingness was that they were not

satisfied of Circle's financial status and in particular they were concerned that Circle might fail to pay them sums due under a sub-contract, and might go into liquidation.

12. At about the beginning of October 1998 Mr K T Maguire, a director of

the Defenders, became dissatisfied with, and sceptical of, assurances made by Circle to the effect that negotiations with a steel fabrication sub-contractor were almost finalised and that the sub-contract was about to be awarded. He made further direct enquiries of Circle and ascertained that the Pursuers had been approached. He then telephoned Mr Crawford of the Pursuers, informed Mr Crawford that Circle had assured him that the Pursuers were in the process of concluding a sub-contract, and asked Mr Crawford if that information was correct. Messrs Crawford and Maguire were not previously known to each other, nor were their respective companies.

13. Mr Crawford told Mr Maguire that the information was not correct,

that the Pursuers did not intend to enter into such a sub-contract, and that the reason was the Pursuers' fears that in the light of Circle's financial status the Pursuers might not receive payment under a sub-contract.

14. Mr Maguire invited Mr Crawford to attend a meeting at the Defenders'

offices on 6^th October 1998. Mr Crawford attended that meeting with Mr I Mulholland, the Pursuers' managing director. Mr Maguire and Mr D McHugh, development surveyor, were present on behalf of the Defenders. No representative of Circle was invited to the meeting.

15. According to the usage of the construction industry, a meeting between

a prospective sub-contractor and the employer, outwith the presence of the main contractor, is very unusual.

16. At the time of said meeting, any further delay in the execution of steel

fabrication works would have had serious consequences for the timeous completion of the project as a whole, and was likely to have caused the Defenders loss in that they would not have been able to give possession of various subjects to tenants at the anticipated dates, and they were therefore exposed to the risk of delay in the receipt of rental income. Further, the Defenders were aware that the failure of Circle to secure a steel fabrication sub-contractor placed the completion of the project in jeopardy. There was no immediate prospect of the appointment of another sub-contractor as an alternative to the Pursuers.

17. At that meeting, Mr Maguire for the Defenders made a verbal offer

that the Defenders would pay directly to the Pursuers their entitlement to monies under a sub-contract with Circle, if the Pursuers were prepared to enter into such a contract and if Circle were prepared to agree to the arrangement.

18. The Pursuers would not have been prepared to enter into a sub-contract

with Circle in the absence of such an agreement, and the Defenders' Mr Maguire knew that.

19. No. 5/1 of Process is a copy of a letter dated 15^th October 1998 signed

by Mr Maguire for the Defenders and sent to the Pursuers, marked for the attention of Mr Crawford.

20. No. 5/3 of Process is a copy fax sent by Circle to Mr Crawford of the

Pursuers dated 6^th November 1998.

21. No. 6/2 of Process is a copy letter sent by Mr McBride of Circle to

Mr Maguire of the Defenders dated 18^th November 1998. Its contents were not communicated to the Pursuers.

22. No. 5/4 of Process is a copy fax sent by Mr Mulholland of the Pursuers

to Mr Maguire of the Defenders dated 11^th December 1998.

23. No. 5/5 of Process is a written Sub-Contract Agreement between the

Pursuers and Circle, executed in or around December 1998 but dated 29^th October 1998. Said Sub-Contract Agreement governed most, but not all, of the contract terms between the Pursuers and Circle.

24. The Sub-Contract between the Pursuers and Circle was procured by

there being agreed (at the instigation of the Defenders) an agreement whereby the Defenders undertook to make payment to the Pursuers of all sums falling due to the Pursuers for work performed by them under the said Sub-Contract.

25. The said arrangement was a tripartite contract between the Pursuers,

the Defenders and Circle constituted by the said verbal offer by Mr Maguire at the meeting of 6^th October 1998, and the exchange of letters and faxes evidenced by Nos. 5/1. 5/3. 6/2 and 5/4 of Process.

26. It was a term of the tripartite contract that Circle would quantify and

value the works executed by the Pursuers and inform the Defenders of the sums to be paid to the Pursuers in respect thereof. It was further agreed that the Pursuers would render a VAT Invoice directly to the Defenders in respect of said sums, and that the Defenders would deduct said sums from the payment to be made to Circle in terms of Circle's Interim Certificates.

27. The said Sub-Contract Agreement was in standard form, which

included per incuriam Clause 6 (headed "Payment"). It was not intended by any of the parties that the provisions of said Clause 6 should prevail over the provisions of the said tripartite agreement where those provisions were inconsistent with each other, nor was it intended by any of the parties that any of the terms of the tripartite agreement should be voided by the purported inclusion of Clause 6 in the standard form contract.

28. The basis of valuation of the works executed by the Pursuers was a

revised Bill of Quantities agreed between them and Circle. The Defenders were not a party to the agreement incorporated within the said revised Bill of Quantities. The Defenders and Circle had a separate agreement for the valuation of structural steelwork, which was at prices lower than those charged by the Pursuers. The Pursuers were not a party to the latter agreement.

29. On or around 7 October 1998 the Pursuers commenced work under the

Sub-Contract. In accordance with the said tripartite agreement the Defenders periodically valued work performed by the Pursuers and requested that the Defenders pay said sums directly to the Pursuers, which the Defenders did on receipt of VAT invoices from the Pursuers. Applications for payment were made, and paid, as follows: 23^rd December 1998 (£12,724.02); 25^th January 1999 (£22,593.28); 3^rd March 1999 (£2,086.01); 30^th March 1999 (£8,513.68); 30 April 1999 (£1,491.56); 3^rd June 1999 (£18,234.59).

30. In or about late June 1999 the Defenders received arrestments in

respect of sums due to be paid by them to Circle. On 30^th June 1999 the Defenders paid to the Pursuers a further sum of £12,208.97, and on 4^th August 1999 a further sum of £1,643.38 in respect of the sub-contract between the Pursuers and the Defenders. Thereafter no sums have been paid by the Defenders to the Pursuers.

31. A Provisional Liquidator was appointed to Circle in August 1999 and

the company was wound up on 31^st August 1999.

32. Enclosed with a letter dated 20^th July 1999 the Pursuers sent to the

Defenders a draft final account in respect of outstanding payments due under their sub-contract with Circle. No. 5/7 of Process is a copy of the said letter and final account.

33. In terms of said final account the total value of the Pursuers' work was

£120,146.09. Said figure includes £533.12 for the projected installation of a fan housing which was not completed. The said final account, less the said projected figure, is a reasonable estimate of the value of the work done by the Pursuers under the sub-contract, and amounts to £119,612.97. The Pursuers agreed to a deduction of 2.5 per cent of said value (£2990.32) giving a total of £116,622.65. The Defenders have paid to the Pursuers the sum of £79,504.49. The balance owing is accordingly £37,118.16 to which has to be added Value Added Tax in the sum of £6,495.68 giving a total of £43,613.84."

[3] In light of the foregoing findings-in-fact the sheriff found in law that

"in terms of the said tripartite contract between the pursuers, the defenders and Circle Construction Limited the defenders (were) bound to make payment to the pursuers of the sum of £43,613.84".

[4] In his Note accompanying the above findings the sheriff summarised the issue before him in the following terms: -

"The main issue in the case was whether (as the Pursuers contended) there was a contract between three parties whereby the Defenders undertook, as a distinct obligation, to make payment to the Pursuers for all of the work performed by them under their sub-contract with the Defenders; or whether (as the Defenders contended) the agreement on payment was that the Defenders would simply deduct from the sums due to Circle that portion which Circle owed to the Pursuers for the work done, and pay it direct to the Pursuers (but only as the paying agent for Circle)."

[5] In regard to that matter, after reviewing the evidence, the sheriff expressed himself as satisfied that

"The Pursuers were not going to enter into any sub-contract unless the obligation to make payment was squarely on the shoulders of the Defenders; and the Defenders had little option but to accommodate this exceptional request in order that the project as a whole could continue. I do not consider that, following the meeting and the brief exchanges of documents as above, any of the three parties was in doubt as to the nature of their agreement."

[6] As mentioned above, the matter then came before the sheriff principal the "nub" of whose reasoning appears from paras [20] to [22] inclusive of the Note which accompanied his interlocutor of 4 June 2002. These paragraphs are in the following terms: -

"[20] I have no doubt that the intention of the pursuers at the time of the meeting on 6 October 1998 was not merely to secure prompt payment of any sums which might become due to them were they to carry out the Candleriggs Market steel work, but to protect themselves against any default by Circle. I am prepared to accept that they considered that the agreement which had been reached was, as Mr Crawford put it, that they would "work direct" for the defenders who would "pay them accordingly". The testimony of the defenders' witnesses that the pursuers were looking for an arrangement to secure only prompt payment strikes me as at best disingenuous and I am not surprised that on the issue of credibility the sheriff preferred the evidence of the pursuers' witnesses. With little enthusiasm I have, however, come to the clear conclusion that the existence of the various documents has the result in law that the pursuers did not achieve what they hoped for. The central issue did not, in my opinion, turn on credibility.

[21] The starting point must be the contractual documents, that is to say the main contract between the defenders and Circle (no. 6.3 of process) and the sub-contract between the pursuers and Circle (no. 5/5 of process). These exist as the visible record of the contractual arrangements and the measure of the parties' rights under them. This is a matter of practical importance as much as a concept of the law of evidence. It is to these documents that any interested third party, for example the receiver or liquidator of any of the companies involved, would have recourse to determine the nature of rights created. Force is added to that view by the dictum of Lord President Dunedin in Muirhead & Turnbull v Dickson. I can accept that it is possible to read alongside the rights and obligations which the contracts create an arrangement which varies the manner in which these rights are to be exercised - in other words a collateral agreement. I cannot, however, accept that one can acknowledge an informal variation which is wholly inconsistent with rights which the contracts demonstrate."

[7] Regrettable though it may be, it seems to me that in this case the proceedings in both courts below have been bedevilled by a failure to analyse and identify clearly the nature and terms of the contract founded on by the pursuers. The primary, but not sole, responsibility for this must presumably rest with those representing the pursuers but, whether or not that be so, the task of this court has been rendered that much more difficult by the failure to which I have referred. So far as the sheriff's findings and reasoning are concerned, it is of course possible for there to be a "tripartite contract" but that is by no means common place and, where it exists, it is very different from an "arrangement" which the sheriff seems at some points to have regarded as synonymous. In any event, when reference is made to the letters and faxes referred to in the sheriff's numbered finding 25, it becomes immediately apparent that none are habile to form part of any contract since, without exception, they bear to be confirmatory of things already said or done. In particular, No. 5/1 of process can only be read, in my view, as evidencing a completed bilateral verbal contract between the pursuers and defenders, albeit one that was subject to the suspensive condition that Circle would subsequently, and in accordance with what had been agreed, waive its strict rights under the Main and Sub Building Contracts. The remaining documents referred to in finding 25 can likewise be read as evidencing later purification of that condition. We were assured that all these documents were spoken to in evidence as having the meaning appearing on the face of them. The overall result may not seem very different from what might loosely be described as a tripartite contract or arrangement but the accurate legal analysis is, I believe, that which I have just identified. By the end of the debate before us the representatives for both parties were indeed in agreement that that analysis was correct and that the court was thus concerned with a wholly verbal bilateral contract (albeit subject to a suspensive condition) which was complete by the end of the meeting held on 6 October 1998. What, of course, remained in dispute was the content of that agreement and, more particularly, whether at this late stage the pursuers and appellants could properly vouchsafe their claim on the basis of that analysis.

[8] From what I have just said it will be apparent that Mr Edward, solicitor advocate for the respondents, felt unable to support the sheriff principal's reasoning as set out above. Once it was conceded - and, in my opinion, properly conceded - that the court was dealing with a bilateral verbal contract between the pursuers and defenders it became manifest that the terms of that contract could in no way be varied by the terms of either the Main Building Contract entered into between Circle and the defenders or the Sub-Contract entered into between Circle and the pursuers. The other problem for Mr Edward was that, once it was conceded that the contract in question was a wholly verbal contract arrived at on 6 October 1998, there was no escape from the sheriff's findings in fact as to what had actually been agreed at that meeting.

[9] In the result, and as already indicated, the only real and substantial question before us came to be whether at this late stage in the case Mr McKenzie, solicitor advocate for the pursuers and appellants, could properly succeed on the analysis of his case as set out above. As it happens, that analysis accurately reflects the state of the pursuers' written pleadings and, while it departs in some respects from the written grounds of appeal, no complaint was made on that account by Mr Edward. What, however, Mr McKenzie did not do was to invite us to look for ourselves at the evidence and take matters from there. I, for my part, do not necessarily fault that decision - there could be many reasons lying behind it - but the corollary is that Mr McKenzie perilled everything on the submission which he did make, namely that the analysis in question was, at least in all its factual aspects, to be found implicit in the findings already made by the sheriff construed, it may be, by the reasoning contained in his Note. Mr McKenzie did helpfully prepare for us a proposed new finding in fact in an attempt to clarify the position but he was at pains to submit that this was strictly unnecessary. As to that, despite the attraction of clarification, I am of the view that, in the absence of our being referred to the evidence, it is not appropriate to interfere in any way with the sheriff's findings.

[10] Mr Edward, for his part, steadfastly disputed that what he described as the "new analysis" of the pursuers' case was already implicit in the sheriff's findings and Note and maintained that, while he, Mr Edward, could no longer contend for the defenders' version of the contract, Mr McKenzie, having eschewed any attempt to enter on the evidence, was likewise disabled from inviting this court now to find for the pursuers on a basis different from that considered by the sheriff at first instance. So far as the reasoning in the sheriff's Note was concerned, Mr Edward maintained that the existence of a "distinct obligation" on the part of his clients to make payment to the pursuers for all work performed by them under the sub-contract still left open the possibility of a co-existing right on the part of Circle to demand payment for the same work. If that was so, the sheriff had not properly applied his mind to whether Circle had subsequently waived their right to demand such payment.

[11] Although the position in this appeal is far from satisfactory, I have reached the opinion that the pursuers and appellants are entitled to succeed. It is in the highest degree improbable that the sheriff would have contemplated the defenders paying twice over in respect of the steel work done under the sub-contract and I am accordingly in little doubt that the Sheriff's findings and Note should be read as indicating his clear awareness of the need for Circle subsequently to have accepted that, in respect of the steel work, the pursuers would be paid in place of themselves. As it seems to me, this was the situation which the sheriff contrasted with the description of the defenders as being merely a "paying agent". For the rest, although the sheriff speaks of a tripartite "arrangement" or a "tripartite contract" I think it clear enough that what, in substance, he had in mind was the need for Circle to, as it were, "agree" or assent to the terms of the suspensive condition in the contract already entered into between the pursuers and defenders. Such a situation might well be described as a tripartite "arrangement" although not, in my opinion, as a "tripartite contract".

[12] In the result, I am satisfied that, albeit through little fault of his own, the sheriff principal did misdirect himself regarding the true legal nature of this transaction and that accordingly his judgement cannot stand. I am further satisfied that, despite its questionable terminology, the sheriff's findings and reasoning did reach the correct result. For these reasons I move your Lordship's to allow the appeal, recall the interlocutor of the sheriff principal dated 4 June 2002 and restore the sheriff's interlocutor of 21 March 2001.

[13] For the sake of completeness I should record that Mr Edward at one point sought to support a separate ground of judgement by the sheriff principal which is encapsulated in the following passages taken from paras [24] and [25] of his Note:-

"[24] ... By virtue of findings in fact (32) and (33) the sheriff appears to have accepted as the amount owed by the defenders to the pursuers a figure brought out from what is described as a draft final account. The pursuers did not rely on the certification procedure as provided by the sub-contract nor did they make any reference to the Bill of Quantities which provided the basis for the certification procedure. ... The additional difficulty is that the sheriff dealt with the case on the basis that whilst the provisions for certification were required in the course of the sub-contract the situation altered on termination of that contract by liquidation of the contractor. He said (Note p12) that 'it seemed to me that there could reasonably be implied a contract term to the effect that payment would be due on a reasonable estimate of the work done for the sub-contract under deduction of sums already paid'. No argument relating to an implied contractual term appears to have been advanced before the sheriff and no such case is advanced in terms of the pleadings. It was submitted that such a term cannot be implied in the face of an express term to the contrary, and that the end of a contract does not in itself entitle a contractor to seek to recover on a quantum merit basis. ...

[25] It is difficult to see any satisfactory answer to these arguments, and in particular I do not consider that it is sufficient, as was suggested in argument on behalf of the pursuers, to simply take the view that the measurement procedure was merely an administrative process to determine the value of works done by the pursuers. At its simplest level I do not consider that the pursuers were entitled to maintain that the sum set out in a "draft final account" was due without evidence of measurement in accordance with the relevant Bill of Quantities. For these reasons I consider it appropriate to delete finding in fact (33)."

[14] When asked, however, what would happen in the course of any liquidation of a Main Contractor in a Building Contract Mr Edward replied that a Sub-Contractor would then claim in the liquidation according to its or their own valuation of the work done according to the Bill of Quantities. That is in accord with my own understanding and, what is more, it was common ground that such a claim would not , in terms, be covered by any provision of the normal or standard Building Sub-Contract. In short, as Mr Edward was constrained to accept, such a claim would as a matter of course be advanced under an implied contractual term; and, if that was so, he, Mr Edward, could think of no reason why a similar term should not be implied in the instant contract between the pursuers and the defenders. I agree that there is no such reason and in that situation I am able to agree with the sheriff that such a term should be implied. Despite the absence of specific pleading, Mr Edward did not in the end submit that we should do other than adopt the sheriff's approach.

Brican Fabrications v. Merchant City Developments [2003] ScotCS 201 (17 July 2003)

EXTRA DIVISION, INNER HOUSE, COURT OF SESSION

Lord Marnoch

Lord Hamilton

Lord Caplan