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OUTER HOUSE, COURT OF SESSION
[2007] CSOH 52
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CA5/05
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OPINION OF LORD CLARKE
in the cause
GLASGOW AIRPORT
LIMITED
Pursuers;
against
MESSRS KIRKMAN
& BRADFORD
Defenders:
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Pursuers: Murphy, Q.C., Gardiner; Brodies
Defenders: McNeill, Q.C., Fairley; Dundas & Wilson
8 March 2007
Introduction
[1] In
this commercial action the pursuers seek to recover from the defenders
г2,000,000 with interest as damages for breach of a warranty which the
defenders provided them with in relation to their design of part of the cargo
centre at Glasgow Airport. The premises
in question were constructed for occupation under a lease by a company known as
UPS Supply Chain Solutions Inc ("the tenants").
The pursuers, together with another company, BAA Lynton PLC, were the
employer in relation to the construction of the premises, as the landlords
thereof.
[2] It
is averred, in the present action, that the pursuers undertook to the tenants,
in terms of Clause 2.2 of an Agreement for lease (No. 6/1 of process) of the
premises "to procure that the Landlord's Works will be carried out in a good
and workmanlike manner in accordance with good building practice using good
quality materials of their several kinds".
It is, furthermore, averred that the tenants, after taking occupation of
the premises, experienced serious problems with the floor slab in the
premises. In the present proceedings,
the pursuers blame the defenders for the problem as arising from breach of
their duties as consultant engineers.
The defenders' contract for their work, in relation to the premises, was
with another company, Kensteel Structures Limited, who were the main contractors
for the construction of the premises. It
was, in that context, that the warranty, upon which the pursuers sue in the
present action, was granted by the defenders to the pursuers. It is 6/2 of process. The pre-amble of the warranty is in the following
terms:
"WHEREAS
A. The Employer has entered into an agreement
with Kensteel Structures Limited ('the Building Contractor') under which the
Building Contractor is to design and construct the Phase 2 Building A Shell and
Fit Out Works at the Air Cargo Centre, Douglas Terrace, Abbotsinch Road,
Glasgow Airport ('the Works').
B. By an appointment ('the Appointment') dated
10th day of November 1997 the Contractor has appointed the
Sub-Consultant to carry out and complete the Services as described in the Appointment".
The "Sub-Consultant" is, in terms
of the warranty, the defenders. The
warranty then provides:
"NOW IT IS
HEREBY AGREED
1. The Sub-Consultant warrants that it has
exercised and will continue to exercise reasonable skill, care and diligence in
the performance of the Services under the Appointment. In the event of any breach of this
warranty:
(a) The
Sub-Consultant's liability for costs under this Agreement shall be limited to that
proportion of such costs which it would be just
and equitable to require the Sub-Consultant to pay having regard to the
extent of the Sub-Consultant's responsibility for the same and on the basis
that the Contractor and its sub-consultants and sub-contractors shall be deemed
to have provided contractual undertakings on terms no less onerous than this
Clause 1 to the Employer in respect of the performance of their obligations in
connection with the Works (other than those obligations which relate to the
Services) and shall be deemed to have paid to the Employer such proportion
which it would be just and equitable for them to pay having regard to the
extent of their responsibility".
[3] The
pursuers have been met with claims from their tenant in respect of the defects
in the premises including claims in respect of loss and disruption of business
and loss of profit. An action has been
raised by the tenants against the pursuers in respect of these matters. In the present proceedings the pursuers seek
to recover, under the warranty, sums which they say are due to them because of
the defenders' breach of that warranty.
The sum sued for includes sums claimed from them by the tenants in
respect of the disruption to their business and loss of profits.
[4] Sometime
after the action had been raised the defenders were given leave to amend their
defences. The Minute of Amendment is
No.26 of process. A debate was then
sought with regard to the parties' respective contentions in respect of the
wording of the warranty. I allowed a
debate.
The Defenders' Submissions
[5] At
the commencement of the hearing senior counsel for the defenders,
Mr McNeill, Q.C., sought leave to amend further the defenders' defences by
deleting the last sentence of Answer 10.
This was not opposed and I allowed the amendment to be made. The averments, thereafter, upon which the
defenders based their attack on the relevancy of the pursuers' claim are as
follows:
"Further, any
liability of the defender to the pursuer is limited to costs and does not
extend to any damages payable by the pursuers to UPS Supply Chains Solutions
Inc. Reference is made to the terms of
Clause 1(a) of the collateral warranty.
Properly construed the "costs" recoverable by the pursuers under the
collateral warranty are limited to costs of repair or renewal and/or
reinstatement of any part or parts of the Works".
[6] Senior
counsel for the defenders categorised Clause 1(a) of the warranty as "a net
contribution clause". In determining its
meaning and effect there was no need, he submitted, to look beyond the words
so, for example, there was no need to have regard to the principal building
contract between the employer and the main contractor or any other contractual
document. Clause 1(a), it was submitted,
performed two functions, namely, not only did it put a ceiling or limit on the
quantum of liability of the defenders, but it also defined the extent of that
liability in law. The parties to the
warranty had, it was submitted, chosen to regulate the issue as to liability
between them by means of a formal warranty rather than leave matters to the
"uncertainties of the law of delict". It
was the use of the word "costs" which made it clear that the provisions did not
only set the limit of quantum, but also defined the liability which might arise
as between the parties to the warranty.
The word "costs" is not a term of art.
In normal language, it meant the price at which something might be
obtained. Reference was made to the
Oxford English Dictionary and the first definition therein which is namely
"that which must be given or surrendered in order to acquire, produce,
accomplish, or maintain something; the
price paid for a thing". It did not mean
the same as damages. The pursuers
themselves, in their own pleadings, recognised a distinction between the two
terms. In Article 10 of Condescendence
the pursuers aver as follows:
"Accordingly the
pursuer is entitled to reparation in respect of its obligations to pay damages
(including damages for the loss of profit which would have been made from the
ordinary commercial use of the property) and costs to UPS Supply Services Inc".
Reference was made to the case of Bank of Scotland v Dunedin Property Investment Co Ltd 1998 S.C.657, particularly at
pages 660-661 and page 665 per Lord President Rodger where a
broad interpretation of the word "costs" was approved of in the context of that
case. In the present case, the meaning,
it was said, was a narrower one. There
was no context demanding a broader approach as had been the case in Bank of Scotland. Senior counsel for the defenders, after some
discussion, accepted that, even if his argument was correct, he could not seek
dismissal. While the pursuers' pleadings
regarding quantum, as they stand, were somewhat lacking in specification, he
understood the position to be that a substantial part of the claim was in
respect of remedial works which he accepted would be covered by the word
"costs".
[7] Senior
counsel, in closing his submissions, sought to meet, head on, an argument set
out in para.5 of the pursuers' further Note of Arguments (No.32 of process)
which is to the following effect:
"Even if the
defenders' construction of the word 'costs' is held to be correct the effect of
the net contribution clause is to limit the sum recoverable in respect of
reinstatement costs and not to limit recovery of other losses".
Such a result, senior counsel for
the defenders, submitted would be bizarre because it would normally be
anticipated that wording of this kind would deal with the whole potential
liability of parties granting the warranty.
One would not expect parties to provide for allocation of certain
liabilities under the net contribution clause, but to choose to have other
aspects of liability dealt with elsewhere.
Such an unsatisfactory approach to matters was avoided if the defenders'
argument regarding the construction of the clause was accepted to be
correct. The point, in the present case,
was that while one might have expected to find a provision in the warranty expressly
addressing liabilities arising therefrom, separate from the provisions regarding
net contribution, there was no such separate provision and it was for those
reasons that Clause 1(a) fell to be regarded as dealing both with the
extent of potential liability and the capping of quantum of any such liability.
The Pursuers' reply
[8] In
reply senior counsel for the pursuers, Mr Murphy, Q.C., invited the Court
to delete the particular averments in Answer 10 upon which senior counsel for
the defenders founded. Senior counsel
for the pursuers submitted that the word "costs" in accordance with its
ordinary natural sense, was apt to include financial detriment to the pursuers
due to the defenders' breach of warranty.
It was a word wide enough to cover reinstatement and repair costs plus
any other costs "laid at the door" of the pursuers due to the defenders' breach
of warranty. There were two provisos to
what had just been submitted. The first
was that the "costs" had to have been reasonably foreseeable as a consequence
of the defenders' breach of contract.
The second proviso was that Clause 1(a) sought to put a cap on the
extent of any such liability. It was
important, in this context, to focus on the question of costs as they arrived
at the door of the pursuers, rather than costs to the tenants, the context
being that the pursuers had procured the design and construction of a building.
[9] Senior
counsel referred to other definitions of "costs" to be found in the Oxford
English Dictionary and expressions in which the word appeared. For example reference was made to the phrase
"at anyone's cost" as meaning "at his expense;
hence, to his loss or detriment" and "to anyone's cost" as meaning
"resulting to his expense; hence, to his
loss or detriment". The word "costs"
could embrace words like "detriment" and "expense" arising from breach of
warranty.
[10] It was accepted that the pursuers' pleadings, in
Article 10 of Condescendence, as they presently stood, were not happily
worded in that they seemed to accept a distinction being drawn between damages,
on the one hand, and costs on the other.
Senior counsel for the pursuers, accordingly, sought leave to
amend. The amendment proposed was to
exclude from Article 10 of Condescendence the words from "damages" to the word
"and" at lines 8 to 10 and to substitute therefor "costs, including without
prejudice to the foregoing generality, damages for loss of profit arising out
of non-use of the property". There was
no opposition to the motion to amend from the defenders and I granted it.
[11] Senior counsel for the pursuers went on to submit that the
defenders' approach involved the Court requiring to rewrite the parties'
contract for them by placing a qualification on the extent of the warranty when
no such qualification appeared. That was
an illegitimate approach to the construction of commercial contracts (compare City Wall Properties (Scotland) Ltd v Pearl Assurance PLC 2004 S.C.214).
The function of the first part of Clause 1 was to define a broad
warranty. The remainder of the Clause
was designed to allow the Court to adjust sums to be paid in circumstances of
shared responsibility where otherwise a joint and several obligation might have
been founded upon. The wording used was
not designed to restrict, or limit, liability, otherwise owed by the warrantor
to the person to whom the warranty was granted.
If that had been the parties' intention then one would have expected to
see clear wording to that effect. Reference,
in that connection, was made to the case of Ailsa
Craig Fishing Co Ltd v Malvern
Fishing Co Ltd 1982 S.C.(H.L.) 14 per Lord Fraser of Tullybelton at
pages 60-61.
[12] In Clause 1(a) the only limitation that was created by its
wording, properly construed, was in relation to recovery of loss. It was not the function of a net contribution
clause to restrict or exclude liability in relation to categories of damage.
[13] Senior counsel for the pursuers drew the Court's attention to
the provisions of Clause 6 of the warranty which provide, inter alia, as follows:
"The
Sub-Consultant shall take out and maintain professional indemnity insurance in
an amount of two million pounds (г2,000,000) for any occurrence or series of
occurrences except for pollution and contamination which will be for any one
claim and in total during each twelve month period arising out of any one event
for a period of 12 years from the date of Practical Completion of the Works
under the Building Contract, provided always that at the date of this Agreement
and thereafter such insurance is available at commercially reasonable rates.....".
The reference there to "occurrence
or series of occurrences" demonstrated, it was submitted, that the parties were
providing for insurance cover in respect of events rather than in relation to
any particular categories of loss. That
was entirely consistent with the construction of Clause 1, advanced on behalf
of the pursuers.
[14] Lastly, senior counsel made reference to paragraph 5 of the
pursuers' further Note of Argument referred to above.
Defenders' Reply
[15] In reply senior counsel for the defenders contended that the defenders'
approach did not involve the rewording or rewriting of the pursuers'
agreement. It was simply a matter of
properly construing the word "costs" and holding that that word provided the
defined extent of the benefit conferred by the warranty. Reference was made to National Children's Home v Stirrat
Park Hogg 2001 S.C.324.
Decision
[16] I am of the opinion that the pursuers' arguments, in this
matter, are to be preferred. While it can
be said, (as I think, as was accepted by counsel for the pursuers), that the
provisions of Clause 1 are inelegant, their purpose seems clear. The warranty was intended to place the
pursuers in the shoes of the building contractor in relation to contractual
claims which the contractor might have had against the defenders rather than,
as counsel for the defenders put it, leaving matters "to the uncertainty of the
law of delict". That is what the first sentence of Clause 1 provides
for. The provisions of sub-paragraph (a)
are, in my judgement, designed simply to provide for the allocation as between
the defenders, and other parties, of sums due to be paid as a consequence of
their respective liabilities to the pursuers.
I do not read them as having another and quite distinct purpose, namely,
to restrict or limit the liability created by the first sentence of Clause 1,
the effect of which was to place the pursuers (the employer) in the shoes of
the building contractor. The word
"costs" is not, perhaps, the most appropriate word to be employed in such a
provision but, on the other hand, I am of the opinion that, in its context, it
does not fall to be read in the way contended for by the defenders or as having
the consequent effect argued for on their behalf. The remedies for breach of warranty, at
common law, insofar as they might include money damages or payment of other
sums recoverable, from the defenders and other parties might, in my judgement,
appropriately be regarded as "costs" which the defenders are liable for under
the warranty. In this respect, it
appears to me, it is important to have regard to the words "The Sub-Consultant's
liability for costs" and the words "having regard to the extent of the
Sub-Consultant's responsibility for the same".
Looking at matters that way, and focusing on the wording I have just referred
to, I see no reason to read "costs" as applying only to the kinds of costs
potentially or actually incurred by the employer or his tenant arising from
reinstatement or repair of the subjects and admittedly, potentially, recoverable
from the Sub-Consultant under the warranty.
Such an approach finds, in my opinion, no support in any other wording
in the warranty and I agree with senior counsel for the pursuers that the
provisions of Clause 6 appear to argue against the approach adopted by the
defenders. There seems to me there was
also some force in the point made on behalf of the pursuers that if the
defenders' construction of the word, as advanced, was correct, then the result
may simply be that the net contribution provision would only have the effect of
allocating liability in respect of reinstatement and repair costs, leaving
other types of liability on the part of the defenders and other parties to be
dealt with on a joint and several basis.
It does not seem to me that that is a result which the parties to these
contractual arrangements intended to achieve.
[17] For all the foregoing reasons I reject the submissions made on
behalf of the defenders as to how the warranty falls to be construed. I shall therefore exclude the averments in
Answer 10 referred to above from probation. As to the rest the case shall be put out By
Order so that further procedure can be discussed.
