The Inner House (appeal division) of the Scottish Court of Session held in FES Limited v HFD Construction Group Ltd that a contractor was not entitled to claim for loss and expense as it had not followed the notice provisions under a construction contract.
The Inner House (appeal division) of the Scottish Court of Session determined in FES Limited v HFD Construction Group Ltd that notice provisions under a construction contract were conditions precedent to a contractor's entitlement to reimbursement for loss and expense.
Background
In 2020, FES Limited (FES) and HFD Construction Group Ltd (HFD) contracted to fit out an office building on Bothwell Street in Glasgow.
The parties' contract was an amended version of the Scottish Building Contract Committee (SBCC) Standard Building Contract with Quantities for use in Scotland, 2016 Edition (SBC/Q/Scot 2016), based on Joint Contract Tribunal (JCT) conditions.
Clause 4.20.1 of the conditions provided:
"If in the execution of this Contract the Contractor incurs or is likely to incur any direct loss and/or expense as a result of any deferment of giving possession of the site... or because regular progress of the Works... has been or is likely to be materially affected by any Relevant Matter, he shall, subject to ... compliance with the provisions of clause 4.21 be entitled to reimbursement of that loss and/or expense."
Clause 4.21 set out requirements for the contractor to notify the architect/contract administrator of the likely nature and extent of any loss and/or expense, and to provide an initial assessment of that loss and any accompanying information.
The project faced several delays, including those resulting from site closure due to the COVID-19 pandemic. In 2022, FES raised an adjudication alleging entitlement to an extension of time and a claim for loss and expense.
The adjudicator decided that the notice requirement under clause 4.21.1 was a condition precedent to any claim for loss and expense under clause 4.20.1. FES was not entitled to claim for loss and expense as it had not given the required notice.
FES raised an action in the Court of Session challenging this decision. Following a debate, the commercial judge dismissed the action, agreeing with the adjudicator that the notice provisions were conditions precedent.
On appeal to the Inner House of the Court of Session, FES argued that:
- the judge failed to place sufficient weight on the whole terms of the contract and its commercial context;
- there was no clear and explicit language indicating that the notice provisions created a condition precedent;
- the contract was based on JCT and JCT guidance did not suggest clause 4.21 to be a condition precedent; and
- it would not make commercial or practical sense if a breach of the notice provision resulted in noentitlement to recover loss or expense, as that would be oppressive and unreasonable.
Decision
The Court refused the appeal and adhered to the decision of the commercial judge. It held that on an objective interpretation of the contract, any claim for loss or expense was conditional on compliance with the notice and other requirements under Clause 4.21.
Clause 4.20.1 stated that claims for loss and expense were "subject to ... compliance with the provisions of clause 4.21". FES' interpretation of this clause would require those words to be ignored.
The court held that because there was no ambiguity in the wording of the relevant clauses, there was no need to consider external factors such as commercial common sense. Regardless, this would not have assisted FES, as the need to be duly notified and advised of the potential liability was a commercially reasonable condition to fulfil before a claim could be determined.
Key takeaways
Important lessons from this decision are:
- Firstly, notification requirements under construction contracts are likely to be a condition precedent to a contractor's right to claim, if that is what the wording indicates. The inclusion of "condition precedent" is not necessary for that outcome.
- Secondly, where the wording of a contractual condition is unambiguous, the court will not consider extraneous factors such as commercial common sense.
This article was co-written by Trainee Valentin Pyataev.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
