FES Ltd v HFD Construction Group Ltd

[2024] ScotCS CSOH_20

The parties entered into a contract for fit-out works based on the Standard Building Contract with Quantities for use in Scotland (SBC/Q/Scot) (2016 edition), as amended. A dispute subsequently arose as to FES's entitlement to an extension of time and an associated claim for loss and expense under contract. One of the issues identified by the adjudicator was the question: is the giving of a notice in terms of clause 4.21 a condition precedent for recovering loss and expense? The adjudicator said that it was, and decided that FES had not given the required notice and so had no entitlement to direct loss and expense in terms of clause 4.20 of the contract.

FES sought a declaration from the court that the notice provisions in clause 4.21 were not conditions precedent to any entitlement of the pursuer to reimbursement for direct loss and expense. Clause 4.21.1 stated that:

“The Contractor shall notify the Architect/Contract Administrator as soon as the likely effect of a Relevant Matter on regular progress or the likely nature and extent of any loss and/or expense arising from a deferment of possession becomes (or should have become) reasonably apparent to him.”

The judge noted that when it came to drafting: "[...] that the poorer the quality of the drafting, the less willing the court should be to be driven by semantic niceties to attribute to parties an improbable and unbusinesslike intention [...]" (Mitsui Construction Co Ltd v AG of Hong Kong [1986] 33 BLR 14, per Lord Bridge). It was the opposite here. The clause was one which had been negotiated and drafted by skilled professionals. It came “directly and unaltered” from the Standard Building Contract. It is the same wording as used in clause 4.20.1 of the JCT Standard Form of Building Contract 2016 Edition. 

Lord Richardson commented that: “On its face, the language used in clause 4.20.1 is clear and straight-forward. It indicates that that the contractor's entitlement to reimbursement is ‘subject to ... compliance with clause 4.21’.” It is difficult to construe this language other than that it creates a condition precedent. To construe the clause as FES argued would involve having to delete or ignore this critical phrase.

FES had said that as clause 4.20.1 does not spell out the consequences of non-compliance with the provisions of clause 4.21, the parties cannot have intended that the clause create a condition precedent. Lord Richardson held that this argument failed to take account of the fact that, as a result of the way in which clause is structured, a contractor's entitlement was dependent on compliance:

“Accordingly, far from not spelling out the consequences of non-compliance, the wording of the clause makes it clear that, without such compliance, the contractor is not entitled to reimbursement.”

Clause 4.21.1 imposed an objective starting point for notification by the contractor being the point at which the likely effect of the Relevant Matter or the likely nature and extent of any loss and expense became or should have become reasonably apparent to him. Clause 4.21, as a whole, set out a practical and workable set of steps for notification and provision of information by the contractor with the obligations on the contractor to provide information being qualified by what is reasonably necessary or what may be reasonably required. Further, the wording tied entitlement to relief with compliance with the procedure for a claim.

The judge concluded that the obligation to comply with clause 4.21 was not:

“an unduly onerous one. Benefits, in the form of timely and well administered contract administration, can reasonably have been anticipated as accruing to both parties from that compliance. The difficulty for the pursuer is that, on the basis upon which I am to proceed, those obligations were not complied with by it. As a result, if compliance is a condition precedent, the pursuer has lost its entitlement.”

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