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You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> Autolink Concessionaires (M6) Plc v Amey Construction Ltd & Ors [2009] ScotCS CSIH_14 (24 February 2009) URL: http://www.bailii.org/scot/cases/ScotCS/2009/2009CSIH14.html Cite as: [2009] CSIH 14, 124 Con LR 116, [2009] BLR 411, [2009] ScotCS CSIH_14, 2009 GWD 9-146

EXTRA DIVISION, INNER HOUSE, COURT OF SESSION

Lord Kingarth

Lord Eassie

Lord Menzies

[2009] CSIH 14 CA23/2006

OPINION OF THE COURT

delivered by LORD KINGARTH

in causa

AUTOLINK CONCESSIONAIRES (M6) PLC

Pursuers and Respondents;

against

(FIRST) AMEY CONSTRUCTION LIMITED AND OTHERS

Defenders and Reclaimers:

_______

Act: Dean of Faculty, Mure; Fyfe Ireland LLP

Alt: Currie, Q.C., Lake, Q.C.; Pinsent Masons

24 February 2009

[1] In this action the pursuers and respondents ("the respondents") seek inter alia declarator that the defenders and reclaimers ("the reclaimers") are liable in terms of clause 51 of the contract between the parties dated 30 April 1997, described as the Construction Contract M6 DBFO Project (the "Construction Contract"), to remedy certain alleged defects said to exist between road base courses in the New Scottish Motorway (as defined in the said Contract), being an extension of the M6 Motorway. By interlocutor dated 5 June 2007 the Lord Ordinary, following debate, inter alia refused the reclaimers' motion to dismiss the action as irrelevant. Against that interlocutor the reclaimers have reclaimed.

Relevant Contractual Provisions

[2] It is convenient to begin by setting out, so far as relevant and referred to in the course of the reclaiming motion, the contractual background to the parties' dispute.

The DBFO Agreement

[3] By agreement dated 24 April 1997, described as the M6 DBFO Agreement (the "DBFO Agreement"), the respondents contracted with the Secretary of State for Scotland to carry out certain operations. These operations include not only the construction of new sections of the M6 Motorway both in England and in Scotland, but also, for a period of 30 years from the operations' commencement date, the maintenance of the new and existing sections of the motorway. By clause 10(a) of the DBFO Agreement the operations which the respondents undertook to carry out include the design, construction and completion of the New Scottish Motorway being a ...

"special road to be constructed in Scotland ... in accordance with the New Works Requirements between Paddy's Rickle Bridge and Cleuchbrae, together with the junctions and slip roads relating thereto, ..."

(Part 1 of Schedule 1 of the DBFO Agreement). The New Works Requirements are set out in Schedule 2, being a detailed specification in respect of the operations to be undertaken, the nature of which will be considered more fully later in this opinion.

The Construction Contract

[4] Significantly for the purposes of the present action, on 30 April 1997 the reclaimers, trading together in a joint venture, undertook in the Construction Contract to carry out part of the operations which the respondents had agreed to perform in the DBFO Agreement.

(i) Certain general provisions

[5] In the preamble, it is stated, inter alia:

"(E) The Employer has reached agreement with the Contractor whereunder the Contractor undertakes and each member of the Contractor jointly and severally undertakes that it will design, construct, test, complete and maintain the Works in accordance with this Contract to enable the Employer to discharge its obligations to the Secretary of State for Scotland in respect of the Works in accordance with the terms of the M6 DBFO Agreement and the Employer undertakes to exercise any right or power granted to it under the M6 DBFO Agreement, on request by the Contractor, which may be necessary to enable the Contractor to discharge its obligations to the Employer in accordance with the terms of this Contract."

In the definition clause (1.1) the "Works" are defined as including "the New Works". The "New Works" are defined as having the meaning given in clause 10(a) of the DBFO Agreement and include the design, construction and completion of the New Scottish Motorway. The Works also include "Maintenance" under clause 51, more particularly referred to later, and certain planned maintenance work along the line of the "New Works". It is enough for present purposes to note that this planned maintenance work was to be carried out in accordance with, so far as relevant, the specification set out in detail in Schedule 4 of the DBFO Agreement, referred to as the "O&M Requirements".

[6] Clause 6 provides (so far as relevant):

"6.1 Responsibility

6.1.1 The Contractor shall be responsible for the design, construction, completion, commissioning and testing of the Works, which shall be carried out in strict accordance with the New Works Requirements, the Certification Procedure, the Review Procedure and all other requirements of this Contract.

6.1.2 In performing its obligations under Clause 6.1.1 the Contractor shall design the Works (including the specification of materials and Plant where required) with reasonable skill and care and in accordance with practice conventionally accepted as appropriate at the time of the execution of the Works having regard to the size, scope and complexity of the Works."

By virtue of the definition clause, and Schedule 2, the New Works Requirements are, so far as relevant and applicable, the same as those in Schedule 2 of the DBFO Agreement.

[7] In clause 9 the reclaimers, as contractors, gave certain warranties. These, so far as relevant, are:

"9.1 Warranties

The Contractor without prejudice to any other warranties and undertakings expressed elsewhere in this Contract or to any warranties and undertakings implied by law hereby warrants and undertakes that:

9.1.1 it has fully considered and understood and will comply with and meet the New Works Requirements and (to the extent applicable to the obligations of the Contractor under this Contract) the O&M Requirements; ...

9.1.3 the Works when constructed and the Maintenance when completed will comply in all respects with the New Works Requirements; ...

9.1.9 It will carry out, and shall procure that each Sub-Contractor and any other sub-contractor of any tier will carry out, the Works so that upon acknowledgement of the Final Completion Certificate for a Phase by the Secretary of State under clause 14.3(b)(ii) of the M6 DBFO Agreement the Works in respect of that Phase will be fit for the specific purposes set out in the M6 DBFO Agreement including, for the avoidance of doubt, the New Works Requirements; ...

9.1.10 the Works will comprise or use only materials or Plant which are of sound and merchantable quality and have been manufactured or prepared in accordance with the New Works Requirements to the extent applicable to the obligations of the Contractor under this Contract and with the quality assurance procedures established pursuant to Clause 28 and all workmanship shall be in accordance with sound construction practice at the time of construction. ..."

[8] Clause 12 provides:

"The Contractor shall be deemed to have satisfied itself before entering into this Contract as to the correctness and sufficiency of the Contract Sum to cover all its obligations under and in relation to this Contract and all matters and things necessary for the proper completion of the Works including, without limitation, the carrying out of the design, construction, commissioning and testing of the Works."

The effect of clause 57 and clause 60 is that the contract sum is to be paid in monthly instalments over a period of some 32 months ending effectively on the date of the anticipated completion of the works.

[9] Clause 21 provides for the care of the works and force majeure as follows:

"21.1 Care

Subject to Clause 21.4, the Contractor shall be responsible for and shall take the full risk in the care of the Works and materials and Plant for incorporation therein from the date of execution of this Contract or, if earlier, the date when it commences manufacture of materials or Plant until the date of issue of the Permit to Use when such risk and responsibility in the relevant part of the Works shall pass to the Employer or Local Person or the Secretary of State provided that the Contractor shall take full responsibility for the care of and risk in:

21.1.1 any Maintenance and materials and Plant for incorporation therein during the Maintenance Period; and

21.1.2 any Works to be carried out in respect of a Phase remaining to be completed between the issue of the respective Permit to Use for that Phase and the acknowledgement by the Secretary of State pursuant to clause 14.3 of the M6 DBFO Agreement and by the Employer pursuant to Clause 50.3.2 of the corresponding Final Completion Certificate and any materials and Plant for incorporation therein until such Final Completion Certificate is issued.

21.2 Responsibility to rectify Loss or Damage

If any loss or damage happens to the Works, or any part thereof, or materials or Plant for incorporation therein, during the period for which the Contractor is responsible for the care thereof in accordance with Clause 21.1, from any cause whatsoever, (subject to Clause 21.4) the Contractor shall, at its own cost, rectify such loss or damage so that the Works conform in every respect with the provisions of this Contract to the satisfaction of the Employer's Agent."

Clause 50.1 provides in effect that the employer is to issue a Permit to Use when there had been substantial, albeit not final, completion of any phase of the New Works.

[10] Clause 32.4 provides:

"32.4 Operations Change in Law

The occurrence of an Operations Change in Law after 19 November 1996, or the upgrading or amendment of any non-statutory standards which the Contractor is required to comply with in accordance with this Contract, of which the Employer could not have reasonably been expected to be aware prior to that date shall be deemed to be equivalent to the making of a Secretary of State's Variation to the New Works Requirements prior to Substantial Completion of any Phase of the New Works or the O&M Requirements, as appropriate, requiring the Contractor to implement such Operations Change in Law, or to comply with such upgraded or amended standards as the case may be and Clause 53.3 shall apply thereto."

Clause 53 provides for possible variations by the Secretary of State to inter alia the New Works Requirements, with consequential addition to, or reduction from, the contract sum.

[11] Clause 50.5 provides as follows:

"50.5 Continuing Liability

Subject to the requirements of this Clause 50 and Clause 51 the Contractor's liability under this Contract for any failure to comply with this Contract which becomes apparent after the end of the Maintenance Period or for any defect in the Works which becomes apparent after the end of the Maintenance Period shall be in damages. Such liability shall be limited to ...:"

(ii) The critical provision

[12] Clause 51, of central importance to the dispute between the parties, provides as follows:

"51. MAINTENANCE PERIOD

51.1 Rectification of Defects

The Contractor shall complete the work, if any, outstanding on the date in the Permit to Use as soon as practicable after such date and remedy to the Employer's reasonable satisfaction, and within such reasonable time as the Employer may specify having regard to the nature of the Defect, all Defects (whenever arising or manifesting themselves) in the New Works insofar as notified to the Contractor by the Employer within 60 months of Final Completion of all Phases of the Scottish Works and of the English Works part of the New Works (each of which 60 month periods are referred to in this Contract as the 'Maintenance Period' ...

51.2 Cost of Remedying Defects

51.2.1 All work referred to in Clause 51.1 shall be executed by the Contractor at its own cost unless the necessity thereof is a direct result of a wilful act or breach of this Contract by the Employer.

51.2.2 If in the opinion of the Employer's Agent such necessity is a direct result of a wilful act or breach of this Contract by the Employer, it shall determine an addition to the Contract Sum in accordance with Clause 54 and notify the Contractor accordingly."

In the definition clause "Defect" is defined as meaning:

"... any defect howsoever arising including without limitation:

(a) any defect that is the result of defective design or defective materials or defective workmanship;

(b) any failure of the New works to meet, or to continue to meet (except to the extent permitted in the O&M Requirements), the New Works Requirements; or

The ROM Contract

[13] On the same date (30 April 1997) the parties entered into what is described as the Routine Operation and Maintenance Contract ("the ROM Contract"). The effect of this contract is that the reclaimers undertook to do certain routine operation and maintenance works for a period of 5 years (which was renewable) in relation not merely to the newly constructed sections of motorway and ancillary roads, but also in relation to existing sections of the motorway. The "Works" to be carried out under the ROM Contract are defined as meaning:

"... the Planned Maintenance Works, the Minor Call-Off Maintenance Works carried out under a Works Order and Defects Repairs and, where the context requires, any works carried out as a Variation".

"Planned Maintenance Works" are defined as meaning "the Routine Operations and Maintenance Works to be carried out by the Contractor under this Contract the scope of which is set out in Schedule 4". "Routine Operations and Maintenance" is defined as meaning work which is "short term or cyclic in nature and necessary to keep the Project Road in good and safe working order, including without limitation minor repairs, minor refurbishments and any minor improvements to all elements of the Project Road ..." Schedule 4 in effect incorporates (with some exceptions), where relevant and applicable, the O&M Requirements set out in Schedule 4 of the DBFO Agreement. Paragraph 1.12 of the latter Schedule provides for the remedying of all Defects (defined in the same way as in the Construction Contract) occurring or manifesting themselves during the relevant 30 year period, and that notwithstanding inter alia that any "Defect existed, or could have been established as existing, prior to the Operations Commencement Date ..." "Minor Call-off Maintenance Works" are defined as works of routine operation and maintenance, other than Planned Maintenance Works, to be carried out as specified in a Works Order.

[14] "Defects Repairs" means all work or repairs to be carried out under clause 51. That clause provides as follows:

"51. DEFECTS CORRECTION

51.1 Duration of Defects Correction Period

In this Contract, "Defects Correction Period" shall mean a period of 12 months from the issue of the Certificate of Completion and shall apply solely in respect of Works carried out under a Works Order.

51.2 Remedying Defects

The Contractor shall execute to the reasonable satisfaction of the Employer's Agent all such work of amendment, reconstruction, and remedying of defects, shrinkages or other faults as the Employer's Agent may instruct and at such times as the Employer's Agent may instruct the Contractor to execute either during the Defects Correction Period or within 14 days after its expiration, as a result of an inspection made by or on behalf of the Employer's Agent prior to its expiration and shall agree a programme for the Defects Repairs with the Employer's Agent.

51.3 Cost of Remedying Defects

All work referred to in Clause 51.2 shall be executed by the Contractor at its own cost if the necessity thereof is in the opinion of the Employer's Agent due to:

51.3.1 the use of materials, Plant or workmanship not in accordance with this Contract or the specific requirements of any Works Order or

51.3.2 any fault in design where such design has been exclusively prepared by the Contractor or where the design was not so prepared where the Contractor could reasonably have been expected to detect that fault; or

51.3.3 the neglect or failure on the part of the Contractor to comply with any obligation, expressed or implied, on the Contractor's part under this Contract; or

51.3.4 any breach of the Contractor's warranties.

...

51.5 Contractor to Search

If any defect, shrinkage or other fault in the Works appears at any time during the Defects Correction Period, the Employer's Agent may instruct the Contractor to search for the cause thereof. The cost of the work carried out in searching as aforesaid shall be borne by the Contractor ..."

The Major Maintenance Call-off Contract

[15] On 29 April 1997 the parties also entered into a Major Maintenance Call Off Contract. It relates to existing and new motorways including the New Scottish Motorway. Under it, the respondents stipulate for the carrying out, on their behalf, of "Major Maintenance" which is defined in clause 1.1.4 as meaning:

"all works of repair and maintenance and any improvements required in respect of the Project Facilities other than defects repairs under the Construction Contract or routine operation and maintenance to be performed under the Routine Operations and Maintenance Contract".

In terms of this contract, the respondents are obliged to pay for the carrying out of any Major Maintenance.

The Pleadings

[16] In Condescendence 3 the respondents aver that the reclaimers began operations on site in about July 1997. The construction of the New Scottish Motorway was split into two phases, and Final Completion of both phases took place on 25 October 1999.

[17] In Condescendence 4, it is averred:

"COND. 4. Since the Final Completion of the Phases of the New Scottish Motorway, the pursuers have identified major and important Defects within the pavement of the road, namely the absence of a, et separatim the inadequacy of the, bond between the upper and lower roadbase courses. The performance, structural integrity and longevity of the pavement depends upon the stiffness of the roadbase within it. The stiffness of a roadbase is proportional to the thickness of the roadbase. The roadbase having been laid in two layers, its performance and longevity depend upon there being maintained an intimate and long-lasting bond between the upper and lower roadbase layers. In the absence of any such, et separatim such adequate, bond, the performance, structural integrity and longevity of the pavement are severely compromised. The pavement of the New Scottish Motorway comprises four principal elements. The foundation is a sub-base comprising crushed rock, namely Type 1 granular sub-base material. The next layer is the lower roadbase course, comprising heavy duty macadam with bitumen. There is then the upper roadbase course, also comprising heavy duty macadam with bitumen. Finally there is the uppermost course, namely surfacing comprising stone mastic asphalt. The pavement design for different parts of the New Scottish Motorway set out specific grades and thicknesses for the various courses. Between 2002 and 2006, 320 core samples were taken from the pavement at many different locations within the New Scottish Motorway. Some 94% of these cores exhibited an absence of bond between the upper and lower roadbase courses. In a report dated 11^th October 2005 prepared for the fourth defender by Ian Baker following inspections of and repairs to the pavement, the author observed (at page 6):-

'[In] areas where there are obvious signs of distress, there was no significant bond between the surface course and the upper road base or between the two road base layers and that moisture was present at the interface between the asphalt layers. [....]

Investigations carried out earlier in the life of the pavement also indicated the lack of significant bond between the road base layers but had showed the surface course and upper road base to be bonded. [....].

In the absence of a satisfactory bond between the main structural layers the deflection under load of the pavement as a whole and the upper road base and surface course in particular and the stress experienced, would be greater than anticipated.'

This absence of bond increased surface deflexion, as demonstrated by Falling Weight Deflectometer tests carried out on the pavement. Moreover, it also multiplies by a factor of three or four the stresses experienced within the pavement. As a consequence of the increased deflexion and stresses, pavement failure is accelerated, greatly reducing the residual life of the pavement. The importance of such a bond between roadbase courses has been recognised in the road-building industry for many years, since long before 1997. Full bond between roadbase courses is implicitly assumed in specifying design and construction requirements for such pavements, and is expected to be a characteristic of completed pavements. The Design prepared for the New Scottish Motorway implicitly assumed full bond between roadbase courses. The absence, et separatim the inadequacy, of such a bond in the pavement of the New Scottish Motorway is a Defect in terms of Clauses 1.1 and 51.1 of the Contract. Reference is made to the Report by Professor John Knapton dated 15^th February 2006, a copy of which is produced herewith."

[18] In Article 6 of Condescendence it is further averred:

"The Defects have to date caused visible problems in several areas of the New Scottish Motorway, necessitating repair works, and will continue to do so until such time as the Defects themselves are remedied in terms of Clause 51.1. The Defects have caused a very significant reduction in the residual life of the pavement."

[19] The first and second conclusions of the Summons are in the following terms:

"1. For declarator that the defenders are liable in terms of Clause 51 of the contract between the parties dated 30^th April 1997 ("Construction Contract M6DBFO Project") to remedy the lack of et separatim inadequacy of, bond between the upper and lower roadbase courses in the New Scottish Motorway (as defined in the said Contract).

2. For an order ordaining the defenders to remedy the lack of, et separatim inadequacy of, bond between the upper and lower roadbase courses in the New Scottish Motorway (as defined in the said Contract) at their own cost and to the pursuers' reasonable satisfaction, and that within the period of two years from the date of decree to follow hereon, or within such other reasonable period as to the Court shall seem fit."

The Parties' Submissions

[20] The essence of the submissions on behalf of the reclaimers was that, on a proper construction of Clause 51 of the Construction Contract, their obligation thereunder to repair only arose in respect of any failure of the New Works to meet, or to continue to meet, the New Works Requirements - and in particular the standards provided for therein. This was the commercially sensible construction. Since it was not averred by the respondents that the absence, or inadequacy, of the bond between the upper and lower road base courses amounted to such a failure, the respondents' pleadings were irrelevant, and the action should be dismissed. In relation to the principles to be applied in construing the contract, reference was made to Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749, Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 and BCCI v Ali [2002] 1 AC 251. As a matter of language, ("defect" being defined in the Oxford English Dictionary, 2^nd edition, as inter alia "a shortcoming or failing; a fault, blemish, flaw, imperfection (in a person or thing)"), any defect required to be measured by reference to a standard. The defects to be remedied in terms of Clause 51 were those in the New Works - that is, having regard to Clause 10(a) of the DBFO Agreement, works "described and specified in the New Works Requirement". It was reasonable to read such defects as meaning any failure to meet the New Works Requirements. The provision for the execution of repairs at the reclaimers' own cost (save in the limited circumstances described in Clause 51.2.2) made commercial sense if the reclaimers' construction was preferred, but not obviously so otherwise. There was nothing in the definition of defects inconsistent with this approach. What mattered was what was meant by "any defect" in that definition, the words "howsoever arising" simply indicating that the defects could arise from any cause. This was not inconsistent with the reclaimers' position. If there was a failure to meet the standards of the New Works Requirement it was not necessary to establish the cause. Nor were sub-paragraphs (a) and (c) of the definition inconsistent with the reclaimers' position; indeed, sub-clause (c) could be said to give content to the earlier words "including without limitation". Consideration of the whole contractual context was important for a proper understanding of Clause 51. The core provision so far as the reclaimers' responsibility was concerned was Clause 6.1.1. The works were to be carried out in strict compliance with the New Works Requirements which provided detailed specification of the standards to be met, including in respect of the road pavement. It would be anomalous if the reclaimers could be required to do work, effectively at their own cost, save in limited circumstances, without reference to any standard (which appeared to be the respondents' position), and without, in particular, reference to the specific standards provided for the in the New Works Requirements. In light of the warranty given in Clause 9.1.3 it was not commercially sensible to require the reclaimers to carry out remedial works under Clause 51 if the finished works complied in all respects with the New Works Requirements. Moreover, the contractors would need to know the standard to be met before they could be satisfied, under Clause 12, of the sufficiency of the contract sum to cover all their obligations. Given the provisions as to payment of the contract sum, it was inconsistent with any sensible commercial expectation that the reclaimers should be required to execute works at their own cost if some standard different from the New Works Requirements was not met. Similarly, the provisions for payment in respect of instructed variations to the New Works Requirements underlined the significance of the standards in those Requirements and was not obviously consistent with any suggestion that the reclaimers could be expected to return to do work without reference to the New Works Requirements. Clause 21 imposed the widest possible obligation on the reclaimers until the issue of a Permit to Use - viz in respect of loss or damage "from any cause whatsoever", but not afterwards, whereas after the maintenance period provision was made for recovery in relation to any failure by the reclaimers to fulfil their obligations under the contract. The reclaimers' construction of Clause 51 in respect of the intervening maintenance period was entirely consistent with these provisions. Some, albeit limited, assistance could be gained from consideration of the ROM Contract and the Major Maintenance Call Off Contract. In particular, certain provisions of the ROM Contract (intended to cover works of a routine or cyclical nature) (in particular paragraph 1.12 of Schedule 4 of the DBFO Agreement, as incorporated) could be taken to suggest that Clause 51 of the Construction Contract was intended to cover works of a similar nature, whereas it could reasonably be supposed that major works of repair or improvement fell to be dealt with under the Major Maintenance Call Off Contract.

[21] In summary the respondents' submission was that the construction of Clause 51 which the reclaimers now advanced was too narrow, having regard to the language of that clause read in the context of the contract as a whole. The reclaimers' position before the Lord Ordinary (consistent with their position on Record - in particular in Article 6) had been entirely different, namely that they were not required to undertake remedial work unless it was claimed that they were in breach of contract. This, as the Lord Ordinary had found, was not tenable, inter alia having regard to the very different language (appropriate for a similar kind of provision) adopted by the parties in Clause 51 of the ROM Contract entered into on the same day. In construing the provisions of any contract the language used was of paramount importance. Reference was made to City Wall Properties (Scotland) Ltd v Pearl Assurance Plc 2004 SC 214. Defects liability clauses were essentially clauses in which the parties chose, in whatever way was thought appropriate, to allocate risk. This could be done in many different ways. In some cases, the making good or repair obligation could be limited expressly to cases of breach of contract on the part of the contractor. In other cases, the contractor could be required to make good or repair irrespective of the cause of the defect, but with full compensation where he was not in breach of contract. At the other extreme, the repair obligation could be made absolute in the sense that the contractor could be obliged to make good, without additional cost to the owner, whether or not he was at fault. Reference was made to Hudson on Building and Engineering Contracts (11^th edition, paragraph 5-039). There were many possibilities between these extremes, and on a proper construction Clause 51 was an example of one. It was important to understand that the New Works Requirements, like any specification, although detailed, did not provide expressly for every standard reasonably expected to be met in the finished works. Even in relation to the road pavement certain matters were left unspecified. If an employer engaged a contractor to construct a wall, the specification might merely describe the height of the wall and the bricks to be used. If such a wall was built without mortar between the bricks it would be surprising if it could not be said to be defective. As a matter of language, "all Defects" in Clause 51 was wide enough to cover any shortcoming, failing, fault, blemish, flaw or imperfection etc in the finished motorway, appearing within 5 years, measured by the essential purpose and function of the roadway, or at least any shortcoming in that quality which could be said to have been reasonably expected under the contract, even if not expressly provided for in the specification. The language of the definition was in the widest possible terms, namely "any defect howsoever arising". A failure of the New Works to meet, or to continue to meet, the New Works Requirements was but an example, and was expressly said to be included "without limitation". Given the terms of Clause 6.1.1., the reclaimers' contention was in effect the same as that which had failed before the Lord Ordinary, namely that Clause 51 encompassed only defects caused by breach of contract on the part of the reclaimers. The construction for which the reclaimers contended would invariably involve the need immediately to identify the cause of any problem notwithstanding that, as is acknowledged in Hudson,

"The word defect in this particular context may in practice often mean the symptom rather than the cause, which may often be difficult to establish ... until work has been demolished, removed or uncovered or a special investigation is carried".

In contrast to Clause 51.5 of the ROM Contract there was no provision for special investigation in Clause 51 of the Construction Contract. The reclaimers' interpretation, on the face of it, did not allow for content to be given to the provisions of Clause 51.2 relating to defects arising as a direct result of the wilful act or breach of contract by the employer. There was nothing in any of the other clauses of the Construction Contract upon which the reclaimers sought to rely which suggested that the respondents' construction of Clause 51 was not commercially sensible. Nor was there anything in the ROM Contract or the Major Maintenance Call Off Contract which afforded the reclaimers any real assistance. On the contrary, Clause 51 of the ROM Contract was entirely unhelpful to their position. Further, certain references to Defects in the O&M Requirements in Schedule 4 of the DBFO Contract (incorporated so far as relevant and applicable into the Construction Contract and ROM Contract) were apparently inconsistent with the reclaimers' position. Reference was made inter alia to paragraph 1.12 and to pages 2-64, 2-87 (and following) and 2-113 (and following) of that Schedule. Having regard to the respondents' averments in Condescendence 4, and in particular their offer to prove that full bond between road base courses was implicitly assumed in specifying design and construction requirements for such pavements, that such bond was expected to be a characteristic of completed pavements, and that the design prepared for the New Scottish Motorway implicitly assumed full bond between the road base courses, it could not be said that even if they proved all of their averments they were bound to fail. Reference was made to Jamieson v Jamieson 1952 SC (HL) 44. On the contrary, their averments at Condescendence 4 were plainly sufficiently relevant to entitle them to a proof before answer.

Discussion

[22] This reclaiming motion gives rise to a short but important question of construction which focuses on the proper meaning of the word "Defects" in Clause 51 of the Construction Contract. It is important, before looking at the language of the clause, to make some general observations.

[23] First, there is no dispute between the parties as to the relevant principles of construction to be applied. In construing the language of any contractual provision the search is for the intention of the parties objectively ascertained, and that search requires due consideration of context, not only the whole terms of the contract but also the underlying factual matrix, so far as relevant. Care has to be taken to avoid an overly technical, linguistic approach. In a commercial contract which may be open to more than one interpretation the commercially sensible construction is more likely to give effect to the parties' intention. But while all that is true, and important, there can be no doubt that, as has been said, the search begins and often ends with the language of the clause itself. As Lord Hoffman said in BCCI v Ali at page 269 "But the primary source for understanding what the parties meant is their language interpreted in accordance with conventional usage ...".

[24] Secondly, the general purpose of defects liability clauses such as Clause 51 was not disputed before us. Such clauses may be said, generally, to be provisions which enable an employer to require the contractor to put things right with the finished structure where problems in it (using a neutral term) emerge a short time after practical completion, even when the contractor has left the site, and which enable the parties to allocate the costs of doing any such work as may be required. It is clear that some such clauses may confine the employer's entitlement to require the execution of remedial work to situations where the contractor could be said to have been at fault. In others, such work may be required, at no cost to the employer, even where the contractor is not at fault at all. And there may be many situations provided for in between these extremes. It all depends on the particular terms chosen.

[25] Thirdly, we think it right to emphasise at the outset that the argument of the reclaimers before the Lord Ordinary, which he rejected, (and the only argument which features in the pleadings) was that, on a proper construction, Clause 51 of the Construction Contract enabled the respondents to require remedial work only where it could be said that the reclaimers were in breach of contract. This contention was plainly rejected by the Lord Ordinary, not least by contrasting that provision with the obviously different language, chosen by the same parties on the same day, in Clause 51 of the ROM Contract (which provided expressly that the reclaimers would not be required to execute remedial work at their own cost unless they were at fault). Before us, counsel for the reclaimers did not seek to repeat that argument. Instead, for the first time, they sought to argue that Defects meant any failure to meet the standards described in the New Works Requirements. Their right to advance this argument was not disputed, but, in our view, counsel for the respondents were correct to invite the court to analyse with care whether, in its effect, the argument now advanced was any different, (a consideration to which we refer later).

[26] Fourthly, and perhaps most important of all, proper consideration of the argument skilfully presented on behalf of the reclaimers can only proceed upon a clear understanding of the nature of the provisions of the New Works Requirements, with which requirements inter alia the New Scottish Motorway required to comply (as part of the respondents' obligations to the Secretary of State under the DFBO Contract, Clause 10(a), and also as part of the reclaimers' obligation under the Construction Contract, Clause 6.1.1). In our view, it is clear from even a cursory assessment of the New Works Requirements (appearing at large in Schedule 2 of the DFBO Contract) that they can be said to be (perhaps like any specification) a detailed, but certainly not comprehensive, description of the standards to be met. For example, paragraph 1.1(a) of Part 2, Section 1 provides that "all New Works materials, workmanship and Design shall comply with the Design Manual for Roads and Bridges (DMRB) and with the Manual of Contract Documents for Highway Works (MCHW)". By way of further example Part 2, Section 3, paragraph 2.18, provides specification in certain respects of the culverts to be constructed, in particular in relation to their design loading, their location and length and the minimum verge width under the structure. In paragraph 1.6 of the same Part, there are certain express specifications for the "road pavement" including for example a provision that an anti-skid surface should be provided at Beattock Junction, northbound of the slip road. However, it is equally clear that not every matter which could be said to have been reasonably expected in the final construction is provided for. There is no express provision that there should, for example, be no cracking in the culverts or any other structural inadequacy. Nor is it expressly provided that there should be no potholes in the road pavement. Indeed, as to the road pavement, it is expressly provided in paragraph 1.6(a)(ii) that:

"(ii) The Company may adopt alternative pavement Design standards to those contained in DMRBV: Volume 7: Section 2: 'Pavement Design and Construction' and alternative material specifications to those contained in the Specification for Highway Works: Series 900 Road Pavements: Bituminous Bound Materials and Series 1000 Road Pavements: Concrete and Cement Bound Materials. Notwithstanding the foregoing, pavement Designs incorporating jointed reinforced concrete shall not be permitted and the requirements of Specification Clauses 921, 1026, 1029 and 1031 shall be complied with."

[27] Lastly, that strict compliance with the New Works Requirements is not the limit of the obligations incumbent on the reclaimers can be seen from Clause 6.1.1 of the Construction Contract, which refers inter alia, in addition, to "all other requirements of this Contract". The warranty in Clause 9.1.9 is to the effect that the works would be "fit for the specific purposes set out in the M6 DBFO Agreement including, for the avoidance doubt, the New Works Requirements". The warranty in Clause 9.1.10 extends to the use of materials or plant which are of sound and merchantable quality and to workmanship in accordance with sound construction practice at the time of construction.

[28] Looking now to the language of Clause 51.1 (as read with the definition of Defects), the clear indications are, we consider, that the intention is not merely to include defects however caused (as, now at least, is accepted on all sides); it also may be said to point away from confining the meaning of Defects to defects of any particular type - "any defect" is to be covered. Further, and we think of particular importance, the language would suggest that while it is understood that failures to comply with the New Works Requirements can be described as defects, this is but one example, the definition referring to any defects "including without limitation" inter alia such failures.

[29] If that is so, what other broader meaning can there be, as a matter of language? In the course of the argument a number of different suggestions were made at different times but the Dean of Faculty, expressing as we understood it the final considered position of the respondents, suggested (i) that the language was wide enough to cover, following the dictionary definition, any shortcoming, failings, faults, blemishes, flaws or imperfections etc emerging in the finished structure (measured by the essential purposes of that structure or any particular parts of it), or (ii) at least, in so far as may be said to be different, any shortcomings etc in the quality which could be said to have been reasonably expected of the finished construction or any part of it under the contract, even if not expressly provided for in the specification, namely the New Works Requirements. In our view there is force in this contention, not least having regard to what the New Works Requirements do and do not specify. Although it is, strictly speaking, unnecessary for us to decide between the two formulations advanced, we are inclined to prefer the latter. Otherwise, on the face of it, under the first the employer could seek to claim as a "Defect" any failure to meet a standard which could not be said to have been reasonably expected under the contract (and thus, in effect to use the defects liability clause as a means of requiring improvements).

[30] If "Defects" falls to be construed in this way then, in our view, it plainly would not be possible to say at this stage that the respondents' averments are irrelevant. The respondents offer to prove not merely that the performance, structural integrity and the longevity of the pavement was severely compromised in the absence, et separatim having regard to the inadequacy, of the bond between the upper and lower road base courses, but also that full bond between road base courses was implicitly assumed in specifying design and construction requirements for such pavements, was expected to be a characteristic of completed pavements and that the design prepared for the New Scottish Motorway implicitly assumed full bond between road base courses. Indeed, as appears to us, the reclaimers in their pleadings do not dispute that absence of slippage between road base courses was to be achieved in some way (albeit, as we understand their averments, by full transfer of shear strain across the interfaces between layers), their position being that there is no evidence that the New Scottish Motorway is in fact exhibiting slippage between the pavement layers.

[31] Against that background, we ask ourselves whether there is anything in the other clauses of the Construction Contract which would suggest that this would not be a commercially sensible, or would be too literal, a construction of Clause 51.1. We have come to the view that there is not.

[32] Clause 51.2 is not, on the face of it, helpful to the reclaimers' position. It was accepted in argument that, on their construction, it was difficult to think of circumstances in which the contractor could not be said to be in breach of contract if defects emerged within the relevant period (in particular perhaps having regard to the warranty under Clause 9.1.3.). Nevertheless, the reasonable implication of Clause 51.2.2 is that the parties envisaged that defects could be caused by the wilful act or breach of contract of the employer. Counsel for the reclaimers were, it seemed to us, unable to give any convincing examples of circumstances in which, on their construction, those provisions would apply. Further, given the reclaimers' apparent acceptance that it was difficult to think of circumstances in which any defect (as construed by them) could not also be said to represent a breach of contract by them, there is some force in the respondents' contention that, although the reclaimers sought to disavow the argument which did not find favour with the Lord Ordinary, the argument now advanced would result in the clause having the same effect - namely that, notwithstanding the apparent intention to make the reclaimers contractually liable to do remedial works at their own cost, unless the need for the works was caused by the wilful act or breach of contract of the respondents, the reclaimers would be liable only when they were themselves in breach of contract (an apparent inversion of that intention). In making these comments, we are not to be taken, however, as agreeing that the reclaimers' construction would necessarily, in every case, require ascertainment of the cause of any defect before they could be said to be under any obligation to effect repair. Counsel for the reclaimers were careful, as we understood them, to present their argument in relation to failures to meet standards of quality laid down by the New Works Requirements. In any event, it is plain that failures to meet, and to continue to meet, the New Works Requirements are included in the definition of defects.

[33] In our view, there is also nothing in Clause 6.1.1 or in the warranties given which suggests that the wider meaning which we prefer for "any defects" could not be said to be commercially sensible, in particular in the context of a clause allocating risk in relation to problems occurring within the maintenance period. Indeed, it is clear that the obligations undertaken by the reclaimers under Clause 6.1.1 are wider than compliance with the New Works Requirements, and clear also from the provisions of Clauses 9.1.9 and 9.1.10 that the standards reasonably to be expected under the contract are wider. Nor are we persuaded that there is anything in Clause 12 which materially assists the reclaimers. There was bound to be uncertainty in advance, on any view, as to when or how defects might emerge. Nor do we consider that the provisions for payment for the contract work prior to completion or for variation (Clauses 57, 60, 32.4 and 53) materially assist the reclaimers' in relation to the very different subject matter of Clause 51. Equally, in our view, Clause 21 deals with the separate matter of the allocation of risk in respect of loss and damage essentially caused by external events or agencies (it does not relate to defects "arising"). And Clause 50.5 deals with the different matter of how, and with what restrictions, breaches of contract can be enforced after the relevant 5 year period.

[34] The reclaimers themselves, in the event, did not, it appeared, seek much assistance from the other contracts, and, in so far as we understand the arguments advanced, we do not find them persuasive. (Nor, as it happens, are we persuaded that much assistance can be gained by the respondents from consideration of references to defects in the different context of Schedule 4 of the DFBO Agreement - notwithstanding its incorporation, so far as relevant, for the purposes of planned maintenance under the Construction Contract).

[35] In these circumstances, we shall refuse the reclaiming motion, adhere to the interlocutor of the Lord Ordinary and remit to him to proceed as accords.

Scottish Court of Session Decisions

Lord Kingarth

Lord Eassie

Lord Menzies

[2009] CSIH 14 CA23/2006

Act: Dean of Faculty, Mure; Fyfe Ireland LLP